<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended January 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
(NO FEE REQUIRED)
For the transition period from _________ to __________
METALLURG HOLDINGS, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 23-2967577
(State of organization) (I.R.S. Employer Identification No.)
800 THE SAFEGUARD BUILDING (610) 293-0838
435 DEVON PARK DRIVE (Registrant's telephone number,
WAYNE, PENNSYLVANIA 19087 including area code)
(Address of principal executive offices)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
There are no common equity securities of the registrant outstanding.
At April 28, 1999, the outstanding capital of Metallurg Holdings, Inc. was
comprised of 5,202.335 shares of Series A Voting Convertible Preferred Stock,
$.01 par value and 4,524 shares of Series B Non-Voting Convertible Preferred
Stock, $.01 par value.
DOCUMENTS INCORPORATED BY REFERENCE
NONE.
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PART I
ITEMS 1 AND 2. BUSINESS AND PROPERTIES.
OVERVIEW
Metallurg Holdings, Inc. ("Metallurg Holdings" or the "Company"), a Delaware
corporation formed on June 10, 1998, is wholly owned by a group of investors led
by and including Safeguard International Fund, L.P. ("Safeguard International"),
an international private equity fund that invests primarily in equity securities
of companies in process industries. On July 13, 1998, Metallurg Acquisition
Corp., a wholly owned subsidiary of Metallurg Holdings, merged with and into
Metallurg, Inc., with Metallurg, Inc. being the surviving company and Metallurg
Holdings becoming the sole parent of Metallurg, Inc. (the "Merger"). Metallurg
Holdings' purchase of Metallurg, Inc. was recorded under the purchase method of
accounting in accordance with APB Opinion No. 16, "Business Combinations". The
total value of the transaction, including existing indebtedness and
environmental, pension and other assumed liabilities, net of cash acquired, was
approximately $300 million. The excess of the purchase price over the estimated
fair value of the net assets acquired was approximately $102 million and is
being amortized over a period of 20 years. In order to finance the Merger, (i)
Safeguard International and certain of its limited partners contributed
approximately $97.0 million of capital to Metallurg Holdings and (ii) Metallurg
Holdings received approximately $62.9 million net proceeds upon the issuance of
$121.0 million aggregate principal amount at maturity of 12-3/4% Senior Discount
Notes due 2008 (the "Senior Discount Notes").
At the time of the Merger, Metallurg Holdings received approximately $62.9
million net proceeds upon consummation of the offering of $121.0 million
aggregate principal amount at maturity of the Senior Discount Notes due 2008 in
a Rule 144A private placement to qualified institutional investors (the
"Offering"). In October 1998, Metallurg Holdings completed the exchange of its
Senior Discount Notes for an identical face amount of similar Senior Discount
Notes registered under the Securities Act of 1933, as amended. The Senior
Discount Notes will accrete at a rate of 12-3/4%, compounded semi-annually, to
July 15, 2003. Cash interest will not accrue or be payable prior to such date.
Commencing July 15, 2003, the Senior Discount Notes will accrue cash interest at
a 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. The Senior Discount Notes are
redeemable at the option of Metallurg Holdings, in whole or in part, at any time
on or after July 15, 2003. Prior to July 15, 2001, a maximum of 34% of the
Senior Discount Notes may be redeemed with net proceeds of one or more public
equity offerings of Metallurg Holdings. The Senior Discount Notes are senior,
secured obligations of Metallurg Holdings and rank pari passu in right of
payment with all existing and future unsubordinated indebtedness and senior in
right of payment to all subordinated indebtedness of Metallurg Holdings.
However, the Senior Discount Notes are effectively subordinated to all existing
and future liabilities of Metallurg, Inc. and its subsidiaries. The Senior
Discount Notes are secured by an assignment and pledge to a trustee of (a) all
of the outstanding equity interests held by Metallurg Holdings in Metallurg,
Inc. and (b) all promissory notes issued from time to time to Metallurg Holdings
by Metallurg, Inc. The Indenture pursuant to which the Senior Discount Notes
were issued contains limitations on, among other things, the ability of
Metallurg Holdings to incur indebtedness and enter into certain mergers,
consolidations or asset sales.
As Metallurg Holdings is a holding company and does not have any material
operations or assets other than the ownership of Metallurg, Inc., the following
discussion of the Company's business and properties relates to Metallurg, Inc.
and its consolidated subsidiaries (collectively "Metallurg"), unless otherwise
indicated.
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, based on
Metallurg's internal data and its knowledge of the markets for its products.
Metallurg sells more than 500 different products to over 3,000 customers
worldwide. In addition to selling products manufactured by Metallurg, Metallurg
also distributes products manufactured by third parties ("Merchanted Products")
through its global sales force. For the year ending January 31, 1999, Metallurg
had $607.2 million in revenue, $361.1 million of which were from products it
manufactured and $246.1 million of which were from Merchanted Products.
Metallurg sells products principally to customers in the iron and steel
industry, the aluminum industry and the superalloy and titanium industries.
Approximately 51% of Metallurg's sales in the year ended January 31, 1999 were
made to the iron and steel industry, 18% to the aluminum industry, 10% to the
superalloy and titanium alloy industries, 3% to the chemicals industry and the
remaining 18% were made to other industries, none of which was individually
significant to Metallurg. Based on customer location, for the year ended January
31, 1999, approximately 41% of Metallurg's sales were made in North America, 46%
in Europe, 4% in Asia, 2% in South America and 7% throughout the rest of the
world. See the consolidated financial statements of Metallurg, and related notes
thereto, included elsewhere in this report.
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The Metallurg group was founded in 1911 with the construction of a vanadium
alloy and chemical producing plant in Nuremberg, Germany. Metallurg began mining
chrome ore in Turkey in 1916, and constructed a ferrochrome manufacturing plant
in Weisweiler, Germany in 1917. In subsequent years, Metallurg's customer base
grew throughout Europe and, in 1938, Metallurg added its first subsidiary in the
United Kingdom and a sales and distribution subsidiary in Switzerland. During
the 1950's, Metallurg began operations in the United States and during the
1980's, production operations in Brazil were added. Metallurg, Inc. was
established as a New York holding company in 1947 and reincorporated as a
Delaware corporation in 1997.
PRODUCTS AND MARKETS
Metallurg operates in one significant industry segment, the manufacture and sale
of ferrous and non-ferrous metals and alloys. 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. In addition to selling products manufactured by Metallurg,
Metallurg distributes complementary products manufactured by third parties.
The table below sets forth, for the periods indicated, information concerning
revenue from Metallurg's five reportable segments as described below (in
millions):
<TABLE>
<CAPTION>
Three
Year Quarters Quarter Year
Ended Ended Ended Ended
January 31, January 31, March 31, December 31,
1999 1998 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Segments:
Shieldalloy ..... $ 186.1 $ 147.3 $ 51.8 $ 197.0
LSM ............. 119.2 93.1 32.6 125.6
GfE ............. 109.8 65.3 21.2 79.0
EWW ............. 17.1 14.8 5.4 28.8
Other ........... 175.0 156.5 44.6 219.6
------- ------- ------- -------
Total revenue $ 607.2 $ 477.0 $ 155.6 $ 650.0
======= ======= ======= =======
</TABLE>
SEGMENTS
Shieldalloy Metallurgical Corporation ("Shieldalloy"): This unit is comprised of
two production facilities in the U.S. The New Jersey plant manufactures and
sells aluminum alloy grain refiners and alloying tablets for the aluminum
industry, metal powders for the welding industry and specialty ferroalloys for
the superalloy and steel industries. The Ohio plant manufactures and sells
ferrovanadium and vanadium-based chemicals used mostly in the steel and
petrochemical industries. In addition to its manufacturing operations,
Shieldalloy imports and distributes complementary products manufactured by
affiliates and third parties.
London & Scandinavian Metallurgical Co., Ltd. ("LSM"): This unit is comprised
mainly of three production facilities in the UK which manufacture and sell
aluminum alloy grain refiners and alloying tablets for the aluminum industry,
chromium metal and specialty ferroalloys for the steel and superalloy industries
and aluminum powder for various metal powder consuming industries.
Gesellschaft fur Elektrometallurgie mbH ("GfE"): This unit is comprised of two
production facilities and a sales office in Germany. The Nuremburg plant
manufactures and sells a wide variety of specialty products, including vanadium
based chemicals and sophisticated metals, alloys and powders used in the
titanium, superalloy, electronics, steel, biomedical and optics industries. The
Morsdorf plant produces medical prostheses, implants and surgical instruments
for orthopedic applications.
Elektrowerk Weisweiler GmbH ("EWW"): This unit, also located in Germany,
produces various grades of low carbon ferrochrome used in the superalloy,
welding and steel industries.
Other: Includes corporate related items, fresh-start adjustments and results of
subsidiaries not meeting the quantitative thresholds prescribed by applicable
accounting rules. Metallurg does not allocate general corporate overhead
expenses to operating segments.
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The following table sets forth, for the periods presented, the most significant
product groups based on Metallurg's revenue:
TOP TEN PRODUCT GROUPS BY REVENUE
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
Year Three Quarters Quarter Year
Ended Ended Ended Ended
January 31, January 31, March 31, December 31,
1999 1998 1997 1996
-------------------- --------------------- --------------------- ---------------------
Revenue % Revenue % Revenue % Revenue %
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Name of Product Group
Vanadium products ... $111.6 18.4 $ 67.0 14.0 $ 23.7 15.2 $ 76.0 11.7
Chrome products ..... 99.7 16.4 86.0 18.0 31.5 20.2 111.0 17.1
Aluminum products ... 89.3 14.7 71.8 15.1 22.8 14.7 88.6 13.6
Columbium products .. 49.9 8.2 35.4 7.4 12.6 8.1 43.8 6.7
Silicon products .... 26.1 4.3 35.2 7.4 11.5 7.4 60.3 9.3
Metal powders ....... 20.6 3.4 21.8 4.6 6.3 4.1 31.3 4.8
Titanium products ... 18.8 3.1 16.2 3.4 3.9 2.5 14.5 2.2
Boron products ...... 11.0 1.8 10.3 2.1 4.9 3.2 15.0 2.3
Nickel products ..... 10.6 1.7 12.4 2.6 3.5 2.2 14.8 2.3
Tantalum products ... 10.1 1.7 7.0 1.5 1.7 1.1 10.6 1.6
------ ------ ------ ------ ------ ------ ------ ------
Total product group . 447.7 73.7 363.1 76.1 122.4 78.7 465.9 71.6
Other ............... 159.5 26.3 113.9 23.9 33.2 21.3 184.1 28.4
------ ------ ------ ------ ------ ------ ------ ------
Total revenue ....... $607.2 100.0 $477.0 100.0 $155.6 100.0 $650.0 100.0
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
Approximately 51% of Metallurg's sales in the year ended January 31, 1999 were
made to the iron and steel industry, 18% to the aluminum industry, 10% to the
superalloy and titanium alloy industries, 3% to the chemicals industry and the
remaining 18% were made to other industries, none of which was individually
significant to Metallurg.
Iron and Steel Industry; Specialty Ferroalloys. Metallurg manufactures and sells
specialty ferroalloys for use in the iron and steel industry. Metallurg's
principal specialty ferroalloy products are ferrovanadium and standard grades of
low carbon ferrochrome. Metallurg also manufactures and sells ferrotitanium,
ferrocolumbium and ferroboron, and markets ferrosilicon. These products are used
by iron and steel producers to increase temperature and corrosion resistance and
improve mechanical properties and strength-to-weight ratios in the end-use
products. Ferroalloys are found in many end-use products in a wide variety of
industries such as the aerospace, automotive, energy and construction
industries. Metallurg's iron and steel industry customers include some of the
world's largest producers, such as Algoma Steel Inc., British Steel plc, Nucor
Corporation, Sandvik AB, Thyssen AG and US Steel Group.
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. The
iron and steel industry began to emerge in 1993 from the deepest recession in
decades and for the following four years enjoyed strong growth. In 1998,
however, the effects of financial crises in Japan, Asia, Latin America and
Russia sharply reduced consumption of steel in those regions, as well as
effecting consumption in Europe, where durable goods are produced for these
markets. U.S. steel manufacturers significantly cut back production in the
second half of 1998 in response to high levels of imports, especially from Asia
and Japan. As a result of these negative industry factors, demand and prices for
several of Metallurg's products decreased in the second half of 1998. See "Item
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations".
Aluminum Industry; Aluminum Master Alloys and Compacted Products. Metallurg
manufactures a series of grain refining and other alloys for sale to the primary
aluminum industry. Metallurg's principal products in this category include
titanium boron tertiary alloys, strontium master alloys and chrome, iron and
manganese briquettes and tablets. Metallurg also manufactures binary master
alloys containing boron, zirconium or titanium. Titanium binary master alloys
and titanium boron tertiary alloys are widely utilized for grain refining when
casting aluminum alloy rolling ingots, billets and continuously cast sheet. This
grain refinement improves the castability and mechanical properties of the
aluminum. Compacted products in the form of briquettes containing chromium,
iron, manganese or other metals maximize the efficiency of recovery and enhance
rapid solubility when added to the aluminum melt in order to provide ductility
for can sheet or strength for aerospace applications. Master alloys containing
boron improve the conductivity of aluminum alloys for electric cable, while
master alloys containing strontium modify silicon-containing foundry alloys for
improved mechanical properties, as in automotive wheels. Metallurg sells
aluminum master alloys and compacted products worldwide to major aluminum
producers including Alcan Aluminum Limited, Alcoa, Aluminum Pechiney, Reynolds
Metals Co., Norsk Hydro and Sumitomo Metal Industries Ltd.
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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 as
well as competition between aluminum and other packaging materials, such as
plastics and glass. Global demand for aluminum is heavily concentrated in the
economically advanced regions of North America, Europe and Japan. Although the
price of primary aluminum can vary widely as traded on the terminal markets,
this in itself does not greatly affect Metallurg because its products are used
in the transformation of primary aluminum into downstream alloyed 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.
Superalloy and Titanium Alloy Industries; Specialty Metals and Alloys. Metallurg
manufactures and sells specialty metals and alloys used by producers of
superalloys and titanium alloys to enhance the performance of finished metal
products. Metallurg's principal products in this category include chromium
metal, special grades of low carbon ferrochrome, vanadium aluminum, high purity
ferrocolumbium and nickel columbium. Use of these specialty metals and alloys
results in elevated temperature strength and oxidation resistance. End-uses for
specialty materials containing Metallurg's products include high performance
castings and forgings for aircraft engines and frames, gas turbines and boiler
tubes. The aerospace and defense industries are the largest consumers of these
specialty materials but many new applications for them have been and continue to
be developed for use in the power generation, oil and gas, chemical, consumer
goods and biomedical industries. Metallurg's customers for specialty metals and
alloys include Allegheny Teledyne, Inc., Carpenter Technology Corp., INCO
Alloys, Kanthal AB, RMI Titanium Company, Special Metals Corporation and
Titanium Metals Corp.
The aerospace industry is the largest user of superalloys and titanium alloys. A
significant reduction in the manufacture of military and civilian aircraft
between 1989 and 1992 resulted in a 30% decrease in global demand for these
materials and a resulting adverse impact on Metallurg. Since then, civilian
airliner production has increased annually, although not as much as forecast by
one major manufacturer and the economic turmoil abroad caused postponements and
cancellations of orders for airliners as trans-Pacific and Asian air passenger
volumes fell sharply. In an effort to reduce dependence on the aerospace
industry, the superalloy and titanium alloy producers have actively sought to
broaden the use of their products in power generation, oil and gas, chemical,
consumer goods and biomedical industries.
Other Industries and Products. In addition to the product lines described above,
Metallurg manufactures and distributes a number of products used outside of the
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, medical prostheses,
implants, and surgical tools used in orthopedic applications, polishing powders
used by the glass polishing industry and metal powders used in the manufacture
of rocket fuel, automotive paints, chemical and metallurgical products. These
products generally are higher-margin, technically sophisticated products.
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, as well as cycles in the markets for
Metallurg's products, 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
strong economic activity in certain of Metallurg's markets in recent years,
there can be no assurance that this will continue for any extended period of
time.
Foreign Operations and Currency Fluctuations. Metallurg has substantial
operations outside the United States. At January 31, 1999, Metallurg's
operations located outside the United States represented approximately 62%
(based on book values) of Metallurg's assets. Approximately 80% of Metallurg's
employees were outside the United States. Based on customer location, for the
year ended January 31, 1999, approximately 41% of Metallurg's sales were made in
North America, 46% in Europe, 4% in Asia, 2% in South America and 7% throughout
the rest of the world. Foreign operations are subject to certain 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 its U.S. 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 reduce certain of the risks
of currency rate fluctuations, there can be no assurances regarding the
effectiveness or adequacy of those transactions.
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Export Sales. Export sales from Metallurg's domestic operations totaled $10.9
million, $9.1 million, $1.9 million and $13.8 million for the year ended
January 31, 1999, the three quarters ended January 31, 1998, the quarter ended
March 31, 1997 and the year ended December 31, 1996, respectively.
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, which 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.
CUSTOMERS
For the year ended January 31, 1999, approximately 51% of Metallurg's sales were
made to the iron and steel industry, 18% to the aluminum industry, 10% to the
superalloy and titanium alloy industries, 3% to the chemicals industry and the
remaining 18% 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 the year ended January 31, 1999.
MERCHANTED PRODUCTS
The merchanting of products manufactured by third parties is a natural
complement to Metallurg's manufacturing operations. Merchanted Products leverage
Metallurg's global sales staff by providing a broader product offering to its
existing customers without incurring significant additional overhead.
Merchanting activities provide Metallurg with access to raw materials and to
products for resale. Metallurg's merchanting revenues are from three sources:
"back-to-back" purchases and sales which eliminate price risk to Metallurg,
purchases of stocks for Metallurg's own risk and account for subsequent resale
to customers and agency sales for the account of another party where Metallurg
receives a commission and does not take title to the inventory. For the year
ended January 31, 1999, Metallurg earned commission income of $0.8 million for
acting as agent with regard to third party sales of $37.6 million. Such sales
are not included in the sales figures contained herein.
FACILITIES AND OPERATIONS
Production Facilities. Metallurg is organized geographically, having established
a worldwide sales network built around its 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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The following table sets forth for each Metallurg producing subsidiary the
location of its facilities and the key products manufactured by such subsidiary:
<TABLE>
<CAPTION>
Manufacturing Subsidiary Location Key Products
------------------------ -------- ------------
<S> <C> <C>
Shieldalloy Newfield, New Jersey Aluminum Briquettes and Tablets
(Plant) Aluminum Master Alloys
Ferrotitanium
Metal Powders
Cambridge, Ohio Ferrovanadium
(Plant) Grainal
Vanadium Chemicals
LSM Rotherham, UK Aluminum Alloying Tablets
(Plant) Aluminum Master Alloys
Chromium Metal
Ferroboron
Ferrotitanium
Glass Polishing Powders
Metal Powders
Nickel Boron
Nickel Cobalt Magnet Alloys
GfE Nuremberg, Germany Battery Alloys
(Plant) Chromium Metal
Coating Materials
Columbium Alloys
Magnet Alloys
Special Master Alloys
Vanadium Aluminum
Vanadium Chemicals
Morsdorf, Germany (Plant) Orthopedic Prostheses and Implants
EWW Eschweiler-Weisweiler, Low Carbon Ferrochrome
Germany
(Plant)
The Aluminium Powder Company Holyhead, UK (Plant) Atomized Aluminum Powder
Limited Minworth, UK (Plant) Granulated Aluminum
Companhia Industrial Fluminense Sao Joao del Rei, Brazil Aluminum Master Alloys
(Plant) Columbium Oxide
Tantalum Oxide
Turk Maadin Sirketi A.S. Kavak, Tavas and Gocek, Chrome Ore
Turkey
(Mines)
</TABLE>
Sales Offices. Metallurg has sales personnel both at its production
facilities and at its 15 separate representative offices in the following
countries: Brazil, Canada, China, Germany, Italy, Japan, Mexico, Poland, Russia,
South Africa, Sweden, Switzerland, United Kingdom and the United States.
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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 which command higher premiums because of their relative
technical sophistication; consequently, there is no single raw material which
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.
For the production of chromium metal, Metallurg's UK-based subsidiary purchases
chromium oxide from the world's major producer, Elementis, plc., and supplements
this supply with additional quantities from Russia and Kazakhstan. This product
also requires large quantities of aluminum powder substantially sourced from an
affiliate of Metallurg.
Metallurg's five aluminum processing plants in the U.S., UK and Brazil buy
approximately 30,000 tons of virgin aluminum from producers worldwide while
important alloying chemicals are sourced from several 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 U.S., 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 "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.
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
chemicals 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.
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COMPETITION
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 and China of metals and
alloys produced in excess of local demand can severely hurt the price of
ferroalloys in Europe and the United States, which in turn exerts a negative
impact on the price of Metallurg's products. See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations". New
entrants may also 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. Although Metallurg faces competition in
each of its markets, Metallurg does not believe that any single competitor
competes with it in all of its products or markets.
Iron and Steel Industry. In North America, products manufactured by Strategic
Minerals Corp. (Stratcor), Masterloy Products Ltd. (Aimcor), Treibacher
Industrie AG and Glencore AG compete with Metallurg's ferrovanadium products,
while several U.S., UK and Russian companies compete worldwide 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. 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 limited competition in special
grades of low carbon ferrochrome from South Africa and the CIS. 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 by 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. Relationships are maintained with customers' technical facilities
and materials departments of universities which supplement Metallurg's R&D
efforts. Recent projects in LSM include a new carbon-based grain refiner for the
aluminum industry developed jointly with Shieldalloy, superfine aluminum powders
for automotive paints and metal catalysts for the chemical industry. In Germany,
R&D is focused on advanced metallic phases for structural and functional
applications as well as sputtering targets of a variety of advanced materials,
biomedical coatings and various alloys for high-performance batteries.
EMPLOYEES
As of January 31, 1999, Metallurg employed approximately 1,478 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. Metallurg's bargaining agreement with the United
Automobile, Aerospace and Agricultural Implement Workers of America (UAW, Local
2327), which covers approximately 70 employees at the Newfield, New Jersey
plant, is scheduled to be renegotiated in May 1999. 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
satisfactory. Metallurg has not been affected by strikes in the last ten years
and there has not been a strike at any of Metallurg's United States facilities
for over twenty years.
9
<PAGE> 10
MERGER
On July 13, 1998, Metallurg, Inc. was acquired by a group of investors led by
and including Safeguard International. The acquisition was accomplished by
Metallurg Acquisition Corp., a Delaware corporation and a wholly owned
subsidiary of Metallurg Holdings, merging with and into Metallurg, Inc., with
Metallurg, Inc., being the surviving company and Metallurg Holdings becoming the
sole parent of Metallurg, Inc. Metallurg Holdings was formed on June 10, 1998
and is owned by Safeguard International (an international private equity fund
that invests primarily in equity securities of companies in process industries),
certain limited partners of Safeguard International, certain individuals and a
private equity fund that is associated with Safeguard International. At the time
of the Merger, each outstanding share of Metallurg, Inc. common stock was
converted into the right to receive $30 in cash. In connection with the Merger,
Metallurg, Inc. received the consents of 100% of the registered holders of its
11% Senior Notes due 2007 to a one-time waiver of the change of control
provisions of the Senior Note Indenture to make such provisions inapplicable to
the Merger and to amend the definition of "Permitted Holders" under the Senior
Note Indenture to reflect the post-Merger ownership of Metallurg. No other
modifications to terms of outstanding debt were affected in this regard. As of
July 13, 1998, in connection with the Merger, all of the then outstanding shares
of common stock of Metallurg, Inc. were cancelled and 100 shares of common
stock, $0.01 par value, were issued to Metallurg Holdings. On November 20, 1998,
Metallurg, Inc. consummated a 50,000 for 1 stock split and, as a result,
Metallurg, Inc. has 5,000,000 shares of common stock, $0.01 par value,
outstanding, all of which are owned by Metallurg Holdings and are pledged as
security to the holders of Metallurg Holdings' Senior Discount Notes.
BANKRUPTCY
Metallurg, Inc, and Shieldalloy sought Chapter 11 of the United States
Bankruptcy Code 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 which
negatively impacted on Metallurg'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.
In April 1997, Metallurg, Inc. and Shieldalloy consummated their Joint Plan of
Reorganization dated December 18, 1996, pursuant to Chapter 11 (the "Plan").
Metallurg has sought to stabilize and strengthen its business since the
bankruptcy filing. While in Chapter 11 proceedings, Metallurg substantially
reduced its debt, restructured significant obligations, restructured its
operations and made certain management changes, reduced expenses and entered
into settlement agreements with various environmental regulatory authorities. As
a result of the consummation of the offering of Metallurg's 11% Senior Notes due
2007 in November 1997 (the "Senior Notes 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.
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 the Department of
Commerce will determine whether to terminate or extend them. In addition, all
anti-dumping duty rates are subject to annual review by the Department of
Commerce. Metallurg had revenues of approximately $50 million from sales of
ferrovanadium produced by it and sold in the United States for the year ended
January 31, 1999. If the incremental duties are not maintained at their current
levels, Metallurg may be materially adversely affected. Normal duties on
ferrovanadium imports are 4.2%.
Since 1993, the Council of the European Community has imposed duties on
imports of low carbon ferrochrome from Russia, Kazakhstan and Ukraine as high as
0.31 ECU per kilogram of material. The anti-dumping duties on imports of low
carbon ferrochrome from Ukraine lapsed in October 1998, since it is no longer
produced in Ukraine. The anti-dumping duties on imports from Russia and
Kazakhstan have been extended pending a review by the Council of the European
Community of such anti-dumping measures. A decision is expected sometime
between mid-1999 and mid-2000. Metallurg had revenues of approximately $46
million from sales of ferrochrome produced in Europe for the year ended January
31, 1999. While EWW is seeking to extend these duties by applying to the
relevant authorities, there is no assurance that they will be further extended.
The expiration of these duties may have a material adverse effect on Metallurg.
10
<PAGE> 11
ENVIRONMENTAL MATTERS
The operations of Metallurg's alloy manufacturing business are subject to
extensive regulation concerning, among other things, emissions to air,
discharges and releases to land and water, the generation, handling, storage,
transportation, treatment and disposal of wastes and other materials, including
materials containing low levels of naturally occurring 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 requirements will not result in 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. Management believes that
Metallurg is faced with a number of environmental issues which have largely
resulted from changing environmental regulations and increased 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
January 31, 1999, had an estimated cost of completion of $40.4 million. Of this
amount, Shieldalloy expects to expend approximately $3.6 million in 1999, $5.7
million in 2000 and $7.4 million in 2001. 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) and has recorded them as such:
<TABLE>
<CAPTION>
January 31,
1999
-------
<S> <C>
Domestic:
Shieldalloy - New Jersey ...... $28,876
Shieldalloy - Ohio ............ 11,557
-------
40,433
Foreign ......................... 4,832
-------
Total environmental liabilities 45,265
Less: trust funds ............... 3,064
-------
Net environmental liabilities . $42,201
=======
</TABLE>
As part of the Reorganization Plan, Metallurg, Inc. and Shieldalloy entered into
an Environmental Settlement Agreement with the U.S. 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 the 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 $28.9 million. Metallurg, Inc. and
Shieldalloy have agreed to provide, create or make available financial assurance
for these projects through a combination of letters of credit and cash reserves.
At January 31, 1999, 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 totaled $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 thirteen years.
11
<PAGE> 12
Metallurg, Inc., 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, Inc., 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 $8.1 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
additional associated costs of $2.2 million which, in addition to the amounts
described above, it expects to substantially disburse over the next five years.
As a result of historic manufacturing activities, slag piles which 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. 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 a previously issued draft environmental
impact statement and feasibility study which were circulated to the public. The
estimated costs for off-site disposal approached $100.0 million; however, in the
two documents referred to above, 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,
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.
Shieldalloy, Metallurg, Inc. and others are defendants in an action brought by
local residents alleging personal injury and property damage from groundwater
contamination and other exposure to hazardous materials allegedly originating
from Shieldalloy's Newfield, New Jersey plant. Shieldalloy and Metallurg, Inc.,
intend to vigorously defend this action and the costs of such defense are being
borne by their insurance carriers. Metallurg does not believe that the outcome
of this litigation 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 $4.4 million at January 31, 1999 to
cover the costs of closing an off-site dump and for certain environmental
conditions at a site in Nuremberg owned by a subsidiary. Additionally, in
Brazil, $0.4 million has been accrued at January 31, 1999 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"). 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
reclassification in February 1999 of spent catalyst, one of Metallurg's raw
materials, as a hazardous waste under RCRA. Metallurg has submitted a RCRA
application to the EPA for storage and processing of hazardous wastes, to
reclaim vanadium from the hazardous wastes, on-site at its Cambridge facility.
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.
12
<PAGE> 13
ITEM 3. LEGAL PROCEEDINGS.
Metallurg, Inc. and certain of its subsidiaries are parties to a variety of
legal proceedings relating to their operations. The ultimate legal and financial
liability of Metallurg in respect of all legal proceedings in which it is
involved cannot be estimated with any certainty. However, based upon examination
of such matters and consultation with counsel, management does not expect that
the ultimate outcome of these contingencies, net of liabilities already accrued
in Metallurg's Consolidated Balance Sheet, will have a material adverse effect
on Metallurg's consolidated financial position, although the resolution in any
reporting period of one or more of these matters could have a significant impact
on Metallurg's results of operations and/or cash flows for that period. For
discussion of environmental matters, see "Items 1 and 2. Business and Properties
- - Environmental Matters."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of security holders during the fourth
quarter of the fiscal year ended January 31, 1999.
13
<PAGE> 14
PART II
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Metallurg Holdings was formed on June 10, 1998 with 1,000 shares of common
stock, par value $.01, authorized. On June 29, 1998, the Company issued 350 such
shares. At the time of the Merger, this common stock was cancelled and the total
number of shares of all classes of stock which Metallurg Holdings was authorized
to issue was increased to 50,000 shares, of which 30,000 shares were designated
Common Stock, $.01 par value ("Common Stock"), 10,000 shares were designated
Series A Voting Convertible Preferred Stock, $.01 par value ("Series A Preferred
Stock") and 10,000 shares were designated Series B Non-Voting Convertible
Preferred Stock, $.01 par value ("Series B Preferred Stock").
In connection with the Merger, 5,202.335 shares of Series A Preferred Stock and
4,500 shares of Series B Preferred Stock were issued. In December 1998, an
additional 24 shares of Series B Preferred Stock were issued. At January 31,
1999, no Common Stock was issued and outstanding; however, 5,202.335 shares of
Series A Preferred Stock and 4,524 shares of Series B Preferred Stock were
issued and outstanding.
On July 13, 1998, Metallurg, Inc. was acquired by a group of investors led by
and including Safeguard International. The acquisition was accomplished by
Metallurg Acquisition Corp., a Delaware corporation and a wholly owned
subsidiary of Metallurg Holdings, merging with and into Metallurg, Inc., with
Metallurg, Inc. being the surviving company and Metallurg Holdings becoming the
sole parent of Metallurg, Inc. Metallurg Holdings was formed on June 10, 1998
and is owned by Safeguard International (an international private equity fund
that invests primarily in equity securities of companies in process industries),
certain limited partners of Safeguard International, certain individuals and a
private equity fund which is associated with Safeguard International. At the
time of the Merger, each outstanding share of Metallurg, Inc. common stock was
converted into the right to receive $30 in cash. In connection with the Merger,
Metallurg, Inc. received the consents of 100% of the registered holders of its
11% Senior Notes due 2007 to a one-time waiver of the change of control
provisions of the Senior Note Indenture to make such provisions inapplicable to
the Merger and to amend the definition of "Permitted Holders" under the Senior
Note Indenture to reflect the post-Merger ownership of Metallurg, Inc. No other
modifications to terms of outstanding debt were affected in this regard. As of
July 13, 1998, in connection with the Merger, all of the then outstanding shares
of common stock of Metallurg, Inc. were cancelled and 100 shares of common
stock, $0.01 par value, were issued to Metallurg Holdings. On November 20, 1998,
Metallurg, Inc. consummated a 50,000 for 1 stock split and, as a result,
Metallurg, Inc. has 5,000,000 shares of common stock, $0.01 par value,
outstanding, all of which are owned by Metallurg Holdings and all of which are
pledged as security to the holders of Metallurg Holdings' Senior Discount Notes.
There is no public trading market for the Company's equity securities
On July 13, 1998, Metallurg Holdings sold $121,000,000 of its 123/4% Senior
Discount Notes due 2008. The offering was made pursuant to Rule 144A of the
Securities Act of 1933, as amended, through BancBoston Securities, Inc. The 144A
notes were subsequently exchanged for similar notes registered under the
Securities Act of 1933, as amended.
On November 20, 1998, the Board of Directors of Metallurg, Inc. adopted the
Metallurg, Inc. 1998 Equity Compensation Plan (the "ECP"), to provide (i)
designated employees of Metallurg, (ii) certain Key Advisors, as defined in the
plan, and advisors who perform services for Metallurg and (iii) non-employee
members of the Board of Directors of Metallurg, Inc. (the "Board") with the
opportunity to receive grants of incentive stock options, nonqualified stock
options, stock appreciation rights, restricted stock and performance units.
Under the ECP, 500,000 shares of common stock were made available for stock
awards and stock options. Metallurg believes that the ECP will encourage the
participants to contribute materially to the growth of Metallurg, thereby
benefiting Metallurg's shareholders, and will align the economic interests of
the participants with those of the shareholders. Pursuant to the ECP,
Metallurg's Board awarded to eligible executives and non-employee Board members
options to purchase up to 450,000 and 12,500 shares of common stock at an
exercise price of $30.00 per share, effective as of November 20, 1998 and
January 4, 1999, respectively. Such options have a term of ten years and vest
20% on the date of grant and will vest 20% on each of the first four
anniversaries of the date of grant.
Prior to the Merger, 15,000,000 shares of common stock of Metallurg, Inc. were
authorized; subsequent to November 1998, 10,000,000 shares of common stock of
Metallurg, Inc. were authorized. On April 14, 1997, Metallurg, Inc. issued
4,706,406 shares of new common stock to prepetition unsecured claimholders and
$39,461,000 of senior-secured notes pursuant to the Reorganization Plan. These
12% senior-secured notes were retired with the proceeds of the Senior Notes
Offering described below.
On April 14, 1997, Metallurg, Inc. adopted the Metallurg, Inc. Management Stock
Award and Stock Option Plan (the "SASOP"), which was to be administered by the
Compensation Committee of the Board for a term of 10 years. Under terms of the
SASOP, the Board was to grant stock awards and stock options (including
incentive stock options, nonqualified stock options or a combination of both) to
officers and key employees of Metallurg. 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") which had a fair value at the date of grant
of $10 per share. Twenty percent of each Initial Stock Award was transferable on
the date of grant and Metallurg, Inc. recognized compensation expense of
$500,000 at March 31, 1997. An additional 40% was to become transferable on each
of the first and second anniversary of the date of grant and compensation
expense was to be charged to earnings ratably over this restriction period.
14
<PAGE> 15
Additionally, the Board granted to eligible employees options to purchase
167,000 shares of common stock at an exercise price of $11.38 (fair market value
on the date of grant), effective as of September 1, 1997 and 20,000 shares of
common stock at $8.43 (fair market value on the date of grant), effective as of
April 1, 1998. Such options vested 33 1/3% on the date of grant and another 33
1/3% were to vest on each of the first and second anniversary of the date of
grant. At the time of the Merger, the Initial Stock Awards then outstanding
became fully vested and Metallurg, Inc. recorded additional compensation expense
of approximately $355,000. In addition, outstanding stock options became fully
vested and holders were therefore entitled to receive $30 per share as part of
the purchase of Metallurg, Inc. Metallurg, Inc. recorded compensation expense of
$3,541,000, which represents the excess of the $30 per share purchase price over
the exercise price noted above. Metallurg Inc. was reimbursed for such stock
option cancellation costs by a capital contribution from Safeguard International
at the time of the Merger.
On November 20, 1997, Metallurg, Inc. paid a special dividend of $3.90 per share
to the holders of Metallurg, Inc.'s common stock and a dividend equivalent to
the holders of stock options then outstanding. Also on November 20, 1997,
Metallurg, Inc. sold $100,000,000 of 11% Senior Notes due 2007. The offering was
made pursuant to Rule 144A under the Securities Act of 1933, as amended, through
Salomon Brothers, Inc. and BancBoston Securities, Inc. as initial purchasers.
The Rule 144A notes were subsequently exchanged for similar notes registered
under the Securities Act of 1933, as amended. The net proceeds of the Senior
Notes Offering were approximately $96,000,000. Metallurg used the proceeds to
(i) retire Metallurg's 12% senior-secured notes due 2007 ($42,953,000, including
interest and prepayment penalty), (ii) repay the outstanding balance of the
German Subfacility (but not reduce the commitment thereunder) ($11,666,000),
(iii) retire the LSM Term Loan Facility ($8,529,000, including prepayment
penalty) and (iv) pay a cash dividend and dividend equivalent to the holders of
Metallurg, Inc.'s common stock and stock options ($19,891,000). The remaining
net proceeds of the 11% Senior Notes due 2007 were for general corporate
purposes. "German Subfacility" and "LSM Term Loan Facility" are defined in "Item
8. Financial Statements and Supplementary Data."
Other than as set forth above in this section, the Company issued no securities
during 1998.
Metallurg Holdings does not presently intend to pay any dividends, although it
may choose to do so in the future. Metallurg Holdings is restricted from paying
dividends to its shareholders as a result of the Indenture relating to the
offering of its Senior Discount Notes, which, in general, prohibits Metallurg
Holdings from making dividends in an amount greater than 50% of its net income,
as defined in the Indenture.
Metallurg, Inc. is restricted from paying dividends to its shareholders as a
result of the Indenture related to the Senior Notes Offering, which also, in
general, prohibits Metallurg, Inc. from making dividends in an amount greater
than 50% of its net income, as defined in the Indenture. In addition, Metallurg,
Inc.'s revolving credit facility with BankBoston prohibits the payment of
dividends.
Metallurg Holdings is a holding company with limited operations of its own.
Substantially all of Metallurg Holdings' operating income is generated by its
subsidiaries. As a result, Metallurg Holdings' will rely upon distributions or
advances from its subsidiaries to provide the funds necessary to meet its debt
service obligations. In some cases, however, Metallurg Holding's subsidiaries
are restricted in their ability to pay dividends. Prior to 1998, Metallurg's
German subsidiaries, EWW, in which Metallurg, Inc. owns a 98.0% interest, and
GfE, in which Metallurg, Inc. owns a 99.2% interest, were prohibited from paying
dividends under German law because their stated capital as reported in the
commercial register was higher than their actual capital as reported under
German accounting principles. In 1998, Metallurg made certain filings to reduce
the stated capital of its German operating subsidiaries which eliminated such
statutory restrictions on the payment of dividends. Metallurg's Turkish
subsidiary is limited in its ability to pay dividends from retained earnings, as
a result of historical currency devaluation. 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
DM 15 million (approximately $9 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. LSM is party to a working capital
facility which limits its ability to pay dividends 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.
ITEM 6. SELECTED FINANCIAL DATA
The following table presents selected historical financial data (dollars in
thousands) of Metallurg Holdings for the period June 10, 1998 (inception) to
January 31, 1999. Metallurg Holdings' results of operations and financial
position reflect the acquisition of Metallurg on July 13, 1998. The acquisition
was accounted for as a purchase and accordingly, Metallurg Holdings'
consolidated financial statements are not directly comparable to prior period
financial data presented herein. Also presented are selected historical
financial data of Metallurg for each of the years in the three-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 year ended January 31, 1999. Information as of
December 31, 1994 and 1995 and for the year ended December 31, 1994 is derived
from the consolidated financial statements of Metallurg, which have been audited
by Deloitte & Touche LLP, independent public accountants. The information as of
March 31, 1997 and January 31, 1998 and for the year 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
15
<PAGE> 16
financial statements of Metallurg included elsewhere herein, which have been
audited by Deloitte & Touche LLP, independent public accountants. The
information as of January 31, 1999 and for the year ended January 31, 1999 is
derived from the consolidated financial statements of Metallurg Holdings and
Metallurg, included elsewhere herein, which have been audited by
PricewaterhouseCoopers LLP, independent accountants. The selected financial data
for Metallurg as of March 31, 1996 and for the three months ended March 31,
1996, and for the nine months ended December 31, 1996 are unaudited and reflect
all adjustments (consisting only of normal recurring adjustments) which are, in
the opinion of management, necessary for a fair presentation of the results of
operations for such periods. Financial information contained herein for periods
after March 31, 1997 reflects the effects of the Reorganization Plan, including
the implementation of fresh-start reporting, as of March 31, 1997. Accordingly,
Metallurg's consolidated financial statements for periods and dates prior to
March 31, 1997 are not directly comparable to subsequent consolidated financial
statements. 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 "Item 7". Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the consolidated financial statements
of Metallurg, and related notes thereto, included in "Item 8. Financial
Statements and Supplementary Data."
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Metallurg
-------------------------------------------------------------------------------------------
Pre-Confirmation
-------------------------------------------------------------------------------------------
Three Nine
Months Months Quarters
Ended Ended Ended
Years Ended December 31, March 31, December 31, March 31
------------------------------------
1994 1995 1996 1996 1996 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Sales ............................ $ 553,479 $ 688,002 $ 648,816 $ 165,294 $ 483,522 $ 155,427
Commission income ................ 838 1,362 1,186 329 857 160
--------- --------- --------- --------- --------- ---------
Total revenue .................. 554,317 689,364 650,002 165,623 484,379 155,587
Cost of sales .................... 496,218 603,535 566,538 144,474 422,064 134,060
--------- --------- --------- --------- --------- ---------
Gross margin ................... 58,099 85,829 83,464 21,149 62,315 21,527
Selling, general and
administrative expenses ........ 50,652 52,842 57,103 13,922 43,181 15,046
Environmental expenses (a) ....... 2,082 5,624 37,582 606 36,976 --
Merger-related costs ............. -- -- -- -- -- --
Restructuring charges ............ 2,653 11,658 -- -- -- --
--------- --------- --------- --------- --------- ---------
Operating income (loss) .......... 2,712 15,705 (11,221) 6,621 (17,842) 6,481
Other:
Other income (expense), net ...... 7,477 7 (6,759) 1,656 (8,415) 3,179
Interest income (expense), net ... (2,555) (1,949) 1,473 (452) 1,925 (245)
Reorganization expense ........... (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 ........................... 516 9,836 (20,042) 7,215 (27,257) 11,859
Income tax provision (benefit) ... 2,507 8,171 8,453 2,649 5,804 (3,063)
--------- --------- --------- --------- --------- ---------
Income (loss) before
extraordinary item ........... (1,991) 1,665 (28,495) 4,566 (33,061) 14,922
Extraordinary item, net of
tax (b) ......................... -- -- -- -- -- 43,032
--------- --------- --------- --------- --------- ---------
Net income (loss) ................ $ (1,991) $ 1,665 $ (28,495) $ 4,566 $ (33,061) $ 57,954
========= ========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Metallurg
Holdings
----------------------------- ---------------
Post-Confirmation
----------------------------- ---------------
Three For the Period
Quarter Year June 10, 1998
Ended Ended (inception) to
January 31, January 31, January 31,
1998 1999 1999
---- ---- ----
<S> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Sales ............................ $ 476,426 $ 606,334 $ 254,161
Commission income ................ 541 835 397
--------- --------- ---------
Total revenue .................. 476,967 607,169 254,558
Cost of sales .................... 410,033 525,861 231,675
--------- --------- ---------
Gross margin ................... 66,934 81,308 22,883
Selling, general and
administrative expenses ..... 43,563 58,638 30,384
Environmental expenses (a) ....... -- -- --
Merger-related costs ............. -- 7,888 4,347
Restructuring charges ............ -- -- --
--------- --------- ---------
Operating income (loss) .......... 23,371 14,782 (11,848)
Other:
Other income (expense), net .... 1,805 1,808 1,082
Interest income (expense),
net ......................... (5,653) (9,870) (10,322)
Reorganization expense ......... -- -- --
Fresh-start revaluation ........ -- -- --
--------- --------- ---------
Income (loss) before income tax
provision and extraordinary
item............................ 19,523 6,720 (21,088)
Income tax provision (benefit) ... 12,459 4,788 (5,623)
--------- --------- ---------
Income (loss) before
extraordinary item ........... 7,064 1,932 (15,465)
Extraordinary item, net of
tax (b) ......................... (792) -- --
--------- --------- ---------
Net income (loss) ................ $ 6,272 $ 1,932 $ (15,465)
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Pre-Confirmation Post-Confirmation
-------------------------------------- ------------------------------
December 31, March March January January January
-------------------------- 31, 31, 31, 31, 31,
1994 1995 1996 1996 1997 1998 1999 1999
---- ---- ---- ---- ---- ---- ---- ----
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total assets ..................... $326,981 $342,610 $331,626 $348,420 $305,704 $319,786 $311,117 $414,356
Working capital .................. 152,627 166,823 173,734 167,037 143,316 167,757 166,229 167,497
Property, plant and equipment, net 65,921 53,516 47,885 51,664 38,907 41,502 49,018 49,018
Total debt ....................... 37,719 37,625 19,869 32,005 66,488 107,149 114,130 183,830
Pension liabilities .............. 43,921 47,409 43,926 46,524 41,090 38,351 41,062 41,062
Environmental liabilities ........ 17,762 12,780 44,011 2,516 48,135 45,080 42,201 42,201
Liabilities subject to compromise 162,042 169,519 179,897 183,291 -- -- -- --
</TABLE>
(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 January 31, 1999 had an
estimated cost of completion of $40.4 million, including approximately
$16.7 million to be incurred by Shieldalloy through the end of 2001. See
"Items 1 and 2. Business and Properties-Environmental Regulation."
(b) Reflects (in 1997) discharge of indebtedness income, net of tax effects,
relating to the consummation of the Reorganization Plan and (in 1998) the
early extinguishment of debt.
16
<PAGE> 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion should be read in conjunction with the consolidated
financial statements and the related notes thereto of Metallurg Holdings and
Metallurg included elsewhere in this report.
FORWARD-LOOKING STATEMENTS
Certain matters discussed under the captions "Business and Properties" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and elsewhere in this Annual Report on Form 10-K may constitute
forward-looking statements for purposes of Section 21E of the Securities
Exchange Act of 1934, as amended, and as such may involve known and unknown
risks, uncertainties and other factors which may cause the actual results,
performance and achievements of Metallurg to be materially different from future
results, performance or achievements expressed or implied by such
forward-looking statements. Factors which may cause Metallurg's results to be
materially different include the 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.
OVERVIEW
The industries which Metallurg supplies are cyclical. See "Items 1 and 2.
Business and Properties - Products and Markets - Dependence on Cyclical
Markets." Throughout 1997 and into 1998, market conditions for most of
Metallurg's products were favorable. However, sales prices and demand for
several of Metallurg's major products declined during the second half of 1998.
Metallurg believes that the price declines were the result of the economic
turmoil seen in Asia, Latin America and Russia in 1997 and 1998. This led to
lower steel production almost everywhere except in the U.S. during the first
half of 1998. In the second half of 1998, Japan, Russia, Brazil and certain
other Asian countries exported large volumes of steel to the U.S. causing
domestic production to be drastically curtailed in the latter months of 1998. In
addition, civilian airliner production did not reach the levels forecast by a
major producer, and the economic turmoil abroad caused postponements and
cancellation of orders for airliners as trans-Pacific and Asian air passenger
volumes fell sharply. These factors contributed to lower sales of products to
the superalloy and titanium alloy industries.
As a result of the negative developments in the steel industry, the market price
of ferrovanadium, a significant product for Metallurg, declined from
approximately $13 per pound in the middle of 1998 to approximately $6 per pound
at the end of January 1999. The developments in the aerospace industry led to a
reduction in superalloy and titanium alloy demand which impacted negatively on
price and particularly on volumes of Metallurg's chromium and vanadium aluminum
products. During the two quarters ended January 31, 1999, Metallurg recognized
lower of cost or market inventory provisions of approximately $7.9 million
relating to ferrovanadium and several chrome products. The market price of
ferrovanadium has declined to approximately $5.25 per pound at mid-April 1999
and management anticipates additional inventory writedowns during the first
quarter, the amount of which is indeterminable at this time because it is
dependent on future market conditions.
Metallurg has substantial operations outside the United States. At January 31,
1999, Metallurg's operations located outside the United States represented
approximately 62% of Metallurg's assets based on book values. Approximately 80%
of Metallurg's employees were outside the United States. Approximately 41% of
Metallurg's sales (based on customer location) for the year ended January 31,
1999 were made in North America, 46% in Europe, 4% in Asia, 2% in South America
and 7% throughout the rest of the world. See "Items 1 and 2. Business and
Properties -- Products and Markets - Foreign Operations and Currency
Fluctuations."
Metallurg Holdings was formed on June 10, 1998 and is owned by Safeguard
International (an international private equity fund that invests primarily in
equity securities of companies in process industries), certain limited partners
of Safeguard International, certain individuals and a private equity fund which
is associated with Safeguard International.
On July 13, 1998, Metallurg, Inc. was acquired by a group of investors led by
Safeguard International. The acquisition was accomplished by Metallurg
Acquisition Corp., a Delaware subsidiary and a wholly owned subsidiary of
Metallurg Holdings, merging with and into Metallurg, Inc. with Metallurg, Inc.
being the surviving company and Metallurg Holdings becoming the sole parent of
Metallurg, Inc.
17
<PAGE> 18
At the time of the Merger, each outstanding share of Metallurg, Inc. common
stock was converted into the right to receive $30 in cash. In connection with
the Merger, Metallurg, Inc. received the consents of 100% of the registered
holders of its 11% Senior Notes due 2007 to a one-time waiver of the change of
control provisions of the Senior Note Indenture to make such provisions
inapplicable to the Merger and to amend the definition of "Permitted Holders"
under the Senior Note Indenture to reflect the post-merger ownership of
Metallurg, Inc. No other modifications to terms of outstanding debt were
affected in this regard. As of July 13, 1998, in connection with the Merger, all
of the then outstanding shares of common stock of Metallurg, Inc. were cancelled
and 100 shares of common stock, $0.01 par value, were issued to Metallurg
Holdings. On November 20, 1998, Metallurg, Inc. consummated a 50,000 for 1 stock
split and, as a result, Metallurg, Inc. has 5,000,000 shares of common stock,
$0.01 par value, outstanding, all of which are owned by Metallurg Holdings and
pledged as security to the holders of Metallurg Holdings' Senior Discount Notes.
In April 1997, Metallurg, Inc. and Shieldalloy consummated the Reorganization
Plan. Metallurg, Inc. settled its prepetition liabilities by distributing cash
and issuing shares of its common stock, $.01 par value, and its 12%
senior-secured notes. As a result of the Plan, Metallurg, Inc. and Shieldalloy
reduced their indebtedness and shareholder obligations (including undrawn
letters of credit) from approximately $151.0 million to approximately $39.5
million. In addition, as part of the Reorganization Plan, LSM incurred an
additional $8.1 million of indebtedness to fund a portion of the Reorganization
Plan. As part of the Reorganization Plan, Shieldalloy entered into various
settlements with the relevant environmental authorities with regard to its
obligations to remediate certain conditions at its New Jersey and Ohio
facilities.
As a result of Metallurg, Inc.'s change in its fiscal year from a calendar year
to January 31, effective as of April 1, 1997, the consolidated operating results
of Metallurg for the year ending January 31, 1999 include the results of
Metallurg, Inc. (a holding company), for the year ended January 31, 1999 and the
results of its operating subsidiaries (whose fiscal years remain the calendar
year) for the year ended December 31, 1998. The consolidated balance sheet data
of Metallurg at January 31, 1999 reflect the financial position of Metallurg,
Inc. at January 31, 1999 and of the operating subsidiaries at December 31, 1998.
The consolidated operating results of Metallurg for the four quarters ended
January 31, 1998 include the results of Metallurg, Inc. for the thirteen months
ended January 31, 1998 and the results of its operating subsidiaries for the
year ended December 31, 1997. The consolidated balance sheet data of Metallurg
at January 31, 1998 reflect the financial position of Metallurg, Inc. at January
31, 1998 and of the operating subsidiaries at December 31, 1997.
METALLURG HOLDINGS' RESULTS OF OPERATIONS - FOR THE PERIOD JUNE 10, 1998
(INCEPTION) TO JANUARY 31, 1999
The net loss of $15.5 million includes the consolidation of Metallurg for the
period subsequent to the acquisition (a loss of $7.9 million, which excludes
certain Merger-related costs of $3.5 million, relating to the cancellation of
compensatory stock options, which are accounted for as purchase price by
Metallurg Holdings), $4.5 million of interest expense on its Senior Discount
Notes, $2.9 million of amortization of acquisition, goodwill and deferred
issuance costs and $0.2 million of general overhead costs.
As Metallurg Holdings is a holding company and does not have any material
operations or assets other than the ownership of Metallurg, the following
discussion of the Company's business and properties relates to Metallurg, unless
otherwise indicated.
METALLURG'S RESULTS OF OPERATIONS -
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 after that date are those of a new reporting entity and are not
directly comparable to the pre-confirmation periods. The amounts presented below
for Metallurg for the four quarters ended January 31, 1998 represent the
mathematical addition of the historical amounts for the predecessor company and
the reorganized company only for purposes of the discussion below. Significant
differences between periods due to fresh-start reporting adjustments are
explained below, when necessary.
18
<PAGE> 19
(In thousands)
<TABLE>
<CAPTION>
Year Four Quarters Year
Ended Ended Ended
January 31, January 31, December 31,
1999 1998 1996
--------- --------- ---------
<S> <C> <C> <C>
Total revenue ................................. $ 607,169 $ 632,554 $ 650,002
--------- --------- ---------
Operating costs and expenses: ................. 525,861 544,093 566,538
Cost of sales
Selling, general and administrative expenses 58,638 58,609 57,103
Merger-related costs ........................ 7,888 -- --
Environmental expenses ...................... -- -- 37,582
--------- --------- ---------
Total operating costs and expenses .......... 592,387 602,702 661,223
--------- --------- ---------
Operating income ............................ 14,782 29,852 (11,221)
Other income (expense), net.................... 1,808 4,984 (6,759)
Interest income (expense), net ............. (9,870) (5,898) 1,473
Reorganization expense, net ................ -- (2,663) (3,535)
Fresh-start revaluation ..................... -- 5,107 --
--------- --------- ---------
Income before tax (provision) benefit and 6,720 31,382 (20,042)
extraordinary item........................
Income tax provision .......................... (4,788) (9,396) (8,453)
--------- --------- ---------
Income before extraordinary item .............. 1,932 21,986 (28,495)
Extraordinary item, net of tax ................ -- 42,240 --
--------- --------- ---------
Net income .................................... $ 1,932 $ 64,226 $ (28,495)
========= ========= =========
</TABLE>
RESULTS OF OPERATIONS - YEAR ENDED JANUARY 31, 1999 COMPARED TO THE FOUR
QUARTERS ENDED JANUARY 31, 1998
Total revenues decreased by 4.0%, from $632.6 million in the four quarters ended
January 31, 1998 to $607.2 million in the year ended January 31, 1999. Although
volume and selling prices of ferrovanadium increased significantly in the first
half of 1998, market prices then declined by over 30% in the fourth quarter of
1998, reducing the overall growth in revenues from ferrovanadium sales during
the year. Revenues from sales of chromium metal increased in the year ended
January 31, 1999, due primarily to increased volume. These increases were more
than offset, however, by a reduction in sales of low carbon ferrochrome,
ferroboron, aluminum master alloys and compacted products, due primarily to
lower volumes. Revenues from sales of products not produced by Metallurg,
primarily cobalt, silicon and manganese products, also declined during this
period, due primarily to lower volumes.
Gross margins decreased from $88.5 million in the four quarters ended January
31, 1998 to $81.3 million in the year ended January 31, 1999, a decrease of
8.1%, due principally to the decreases in low carbon ferrochrome margins
resulting from lower selling prices and less favorable product mix. In aluminum
master alloys and compacted products, a decrease in volume was more than offset
by improvements in product mix and cost reductions. Gross margins also reflect
lower of cost or market inventory provisions of approximately $7.9 million
relating to ferrovanadium and several chrome products, which Metallurg
recognized during the last two quarters ended January 31, 1999. The values of
Metallurg's assets were reduced pursuant to fresh-start reporting, reducing
depreciation expense by $1.4 million and $1.1 million in the year ended January
31, 1999 and the four quarters ended January 31, 1998, respectively, and
increasing gross margins by equal amounts.
Selling, general and administrative expenses (SG&A) were comparable in the two
periods. For the four quarters ended January 31, 1998, SG&A represented 9.3% of
Metallurg's sales compared to 9.7% for the year ended January 31, 1999.
Operating income decreased from $29.9 million in the four quarters ended January
31, 1998 to $14.8 million in the year ended January 31, 1999, a decrease of
50.5%. The decrease in operating income reflected the decrease in gross margin,
discussed above, as well as Merger-related costs of $7.9 million incurred in the
year ended January 31, 1999. These costs included: (a) $3.5 million for
payments to cancel compensatory stock options; (b) $0.6 million in consent fees
incurred in order to obtain a one-time waiver of the change of control
provisions of the Indenture with regard to Metallurg's Senior Notes and to amend
the Indenture to reflect the post-Merger ownership of Metallurg, Inc.; (c) $2.8
million for payments made pursuant to existing employment agreements with
Metallurg management; and (d) approximately $1.0 million of other Merger-related
costs.
19
<PAGE> 20
Interest income (expense), net is as follows (in thousands):
<TABLE>
<CAPTION>
Year Four Quarters
Ended Ended
January 31, January 31,
1999 1998
---- ----
<S> <C> <C>
Interest income .......... $ 2,963 $ 4,078
Interest expense ......... (12,833) (9,976)
-------- -------
Interest expense, net $ (9,870) $(5,898)
======== =======
</TABLE>
Interest expense increased significantly in the year ended January 31, 1999, as
Metallurg accrued approximately $11 million of interest expense on its $100
million aggregate principal amount of 11% Senior Notes due 2007, which were
issued in November 1997. Metallurg used a portion of the proceeds from the 11%
Senior Notes to retire $39.5 million of the then outstanding 12% Senior-Secured
Notes of Metallurg, Inc. due 2007. In the four quarters ended January 31, 1998,
Metallurg accrued approximately $4.6 million of interest expense on these 12%
Senior-Secured Notes and approximately $2.0 million of interest expense on the
11% Senior Notes. Metallurg 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.
Income tax provision, net of tax benefits, is as follows (in thousands):
<TABLE>
<CAPTION>
Year Year
Ended Ended
January 31, January 31,
1999 1998
------- -------
<S> <C> <C>
Total current ................ $(5,489) $(7,825)
Total deferred ............... 701 (1,571)
------- -------
Income tax provision, net $(4,788) $(9,396)
======= =======
</TABLE>
The differences between the statutory Federal income tax rate and Metallurg's
effective rate result primarily because of: (i) the U.S. taxability of foreign
dividends; (ii) the excess of the statutory Federal income tax rate over foreign
tax rates; (iii) certain deductible temporary differences which, in other
circumstances would have generated a deferred tax benefit, have been fully
provided for in a valuation allowance; (iv) the deferred tax effects of certain
tax assets, primarily foreign net operating losses, for which the benefit had
been previously recognized approximating $0.1 million in the year ended January
31, 1999; and (v) the deferred tax effects of certain deferred tax assets for
which a corresponding credit has been recorded to "Additional paid-in capital"
approximating $0.7 million the year ended January 31, 1999. The deferred tax
expenses referred to in items (iv) and (v) above will not result in cash
payments in future periods.
Net income decreased from $64.2 million for the four quarters ended January 31,
1998 to $1.9 million for the year ended January 31, 1999. Included in prior year
net income is an extraordinary item of $42.2 million, representing primarily the
cancellation of debt resulting from the consummation of Metallurg's
Reorganization Plan, and a $5.1 million credit, representing the effects of
revaluing Metallurg's assets and liabilities under fresh-start reporting. In
addition, other income included gains on the sales of Metallurg's New York
office building and of certain plant assets of one of Metallurg's German
subsidiaries totaling $4.4 million. The decrease in the current year results
from reduced gross margins, Merger-related costs and increased interest
expenses, is noted above.
RESULTS OF OPERATIONS -- FOUR QUARTERS ENDED JANUARY 31, 1998 COMPARED TO THE
YEAR ENDED DECEMBER 31, 1996
Total revenue for Metallurg decreased from $650.0 million in the year ended
December 31, 1996 to $632.6 million in the four quarters ended January 31, 1998,
a decrease of 2.7%. Sales attributable to Frankel Metal Company ("FMC"),
Metallurg's former titanium scrap processing subsidiary, accounted for a
decrease of $10.3 million. Reduced volumes and selling prices for manganese and
ferrosilicon products in the U.S., resulting from strong competition and lack of
supply at competitive prices, respectively, accounted for a decrease in sales.
In addition, sales of low carbon ferrochrome declined 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. 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.
20
<PAGE> 21
Gross margins increased from $83.5 million in the year ended December 31, 1996
to $88.5 million in the four quarters ended January 31, 1998, an increase of
6.0%. Increases in volumes and selling prices of ferrovanadium and
ferrotitanium, as discussed above, accounted for much of the increase. Although
Metallurg's United Kingdom aluminum powder producing division recorded decreased
sales in the four quarters ended January 31, 1998 compared to the year ended
December 31, 1996, margins relating to such division increased 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 four quarters ended
January 31, 1998 by $1.1 million and increasing gross margin by an equal amount.
Gross margins related to ferrosilicon products, however, declined as a result of
reduced volumes and selling prices, as discussed above. In aluminum master
alloys and compacted products, increased volumes 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. Gross margins related
to FMC accounted for a further decrease in gross margins of $1.6 million during
this period.
SG&A increased from $57.1 million in the year ended December 31, 1996 to $58.6
million in the four quarters ended January 31, 1998, an increase of 2.6%. For
the year ended December 31, 1996, SG&A represented 8.8% of Metallurg's sales
compared to 9.3% for the four quarters ended January 31, 1998. SG&A increased
principally as a result of increased bonus accruals and awards under the Stock
Award and Stock Option Plan of Metallurg incurred in connection with the
consummation of the Reorganization Plan, additional costs related to the audit
of the March 31, 1997 financial statements and the inclusion of an extra month
of the holding company's operations.
Operating loss was $11.2 million in the year ended December 31, 1996, compared
to operating income of $29.9 million in the four 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 year ended December 31, 1996 included $1.5 million of
environmental expenses related to the operation of the water remediation
facility at Shieldalloy's Newfield NJ site. As a result of Metallurg's adoption
of SOP 96-1, "Environmental Remediation Liabilities", operating income in the
four 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 $29.9 million in the four
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>
Four Quarters Year
Ended Ended
January 31, December 31,
1998 1996
---- ----
<S> <C> <C>
Interest income .............. $ 4,078 $ 4,516
Interest expense ............. (9,976) (3,043)
------- -------
Interest (expense) income, net $(5,898) $ 1,473
======= =======
</TABLE>
Interest expense increased in the four quarters ended January 31, 1998, as
Metallurg recognized interest expense of $4.6 million on its 12% senior-secured
notes through November 1997 and accrued interest expense of $2.0 million on its
11% Senior Notes which were issued in November 1997. As a result of the change
in the fiscal year, the four quarters ended January 31, 1998 contain an
additional month of interest expense of approximately $0.9 million. Metallurg
did not accrue interest on debt incurred prior to entering Chapter 11
proceedings and therefore, approximately $2.1 million and $8.6 million of
contractual interest on these unsecured obligations, which were reported as part
of liabilities subject to compromise, were not reflected in the four quarters
ended January 31, 1998 and the year ended December 31, 1996, respectively.
21
<PAGE> 22
Income tax provision, net of tax benefits is as follows (in thousands):
<TABLE>
<CAPTION>
Four Quarters Year
Ended Ended
January 31, December 31,
1998 1996
---- ----
<S> <C> <C>
Total current ............ $(7,825) $(8,504)
Total deferred ........... (1,571) 51
------- -------
Income tax provision, net $(9,396) $(8,453)
======= =======
</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 which, 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 four 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 four 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 $64.2 million for the four quarters ended January 31, 1998
compared to a loss of $28.5 million for the year ended December 31, 1996 due
primarily to an extraordinary item of $42.2 million, representing the
cancellation of debt resulting from the consummation of Metallurg's
Reorganization Plan, and a $5.1 million credit, representing the effects of
revaluing Metallurg's assets and liabilities under fresh-start reporting. Net
income for the four 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 year ended December 31,
1996 totaled $3.5 million compared to $2.7 million in the four quarters ended
January 31, 1998. In the four quarters ended January 31, 1998, other income
included gains on the sales of Metallurg's New York office building and of
certain plant assets of one of Metallurg's German subsidiaries. In the year
ended December 31, 1996, other income included an additional gain on the sale of
land in Turkey.
RESULTS OF OPERATIONS - 1996 COMPARED TO 1995
Total revenues for Metallurg 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 of 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, primarily at
Shieldalloy. In 1995, operating income included a charge of
22
<PAGE> 23
$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 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 multi-employer
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 U.S. 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. The Company's sources of liquidity include cash and cash equivalents,
cash from operations and amounts available under credit facilities. In July
1998, Metallurg Holdings issued the Senior Discount Notes which yielded gross
proceeds of $65.2 million, which proceeds were used, in part, to consummate the
acquisition of Metallurg, Inc. In November 1997, Metallurg, Inc. issued $100
million principal amount of 11% Senior Notes due 2007, the proceeds of which
were used to retire Metallurg, Inc.'s then existing 12% senior-secured notes
(approximately $39.5 million), repay certain debt of the UK and German
subsidiaries (approximately $20.0 million) and to pay a cash dividend
(approximately $20.0 million). The balance of the net proceeds were for general
corporate purposes. The Company believes that these sources are sufficient to
fund the current and anticipated future requirements of working capital, capital
expenditures, pension benefits, potential acquisitions and environmental
expenditures through at least January 31, 2000.
At January 31, 1999, the Company had $38.4 million of cash and cash equivalents
and working capital of $167.5 million. Metallurg had $37.3 million in cash and
cash equivalents and working capital of $166.2 million, as compared to $43.0
million and $167.8 million, respectively, at January 31, 1998. For the year
ended January 31, 1999, Metallurg generated $3.6 million in cash from operations
and received proceeds of approximately $1.1 million on the sale of its
Luxembourg affiliate. Capital expenditures approximated $15.7 million and in
February 1998, Metallurg purchased an additional 5% interest in a Russian
magnesium metal producer for approximately $2.0 million.
Credit Facilities and Other Financing Arrangements. Metallurg Holdings is a
holding company, and its ability to meet its payment obligations on the Senior
Discount Notes is dependent upon the receipt of dividends and other
distributions from its direct and indirect subsidiaries. Metallurg Holdings does
not have, and may not in the future have, any material assets other than the
common stock of Metallurg, Inc. Metallurg, Inc. and its subsidiaries are
parties to various credit agreements, including the Senior Note Indenture and
the Revolving Credit Facility (as defined below), which impose substantial
restrictions on Metallurg, Inc.'s ability to pay dividends to Metallurg
Holdings.
Metallurg, Inc. has a credit facility with certain financial institutions led by
BankBoston, N.A. as agent (the "Revolving Credit Facility") which provides
Metallurg, Inc., Shieldalloy and certain of their subsidiaries with up to $50.0
million of financing resources at a rate per annum equal to (i) the Alternate
Base Rate plus 1.0% per annum, (the Alternate Base Rate is the greater of the
Base Rate or the Federal Funds Effective Rate plus 0.5%), or (ii) the reserve
adjusted Eurodollar rate plus 2.5% for interest periods of one, two or three
months. The Revolving Credit Facility permits borrowings of up to $50.0 million
for working capital requirements and general corporate purposes, up to $30.0
million of which may be used for letters of credit in the United States.
Pursuant to the Revolving Credit Facility, BankBoston, N.A. through its
Frankfurt office, is providing up to DM 20.5 million (approximately $12.3
million) of financing to GfE and its subsidiaries (the "German Subfacility"),
which is guaranteed by Metallurg, Inc. and the other U.S. borrowers. Outstanding
obligations under the Revolving Credit Facility are
23
<PAGE> 24
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 U.S. borrowing base. At January 31, 1999, there
were no outstanding loans; however, there were $23.8 million of letters of
credit outstanding in the U.S. under the Revolving Credit Facility and
immaterial amounts outstanding under the German Subfacility. Substantially all
of the assets of the U.S. 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. 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. The revolving credit agreement, which expires on
April 14, 2000, also requires Metallurg, Inc. and certain subsidiaries to comply
with various covenants, including the maintenance of minimum levels of quarterly
earnings before interest, taxes, depreciation and amortization, as defined in
the Indenture ("Adjusted EBITDA"). These companies were required to maintain
quarterly Adjusted EBITDA of $1.0 million. For the quarter ended December 31,
1998, Adjusted EBITDA of such companies was a loss of $7.3 million; accordingly,
BankBoston waived that requirement of the agreement as of, and for the quarter
ended, December 31, 1998 and amended the agreement to eliminate the Adjusted
EBITDA quantitative covenants so long as certain other defined cash positions
are maintained as prescribed in the agreement.
In August 1998, GfE entered into a term loan with IKB Deutsche Industriebank in
the amount of DM 10.0 million (approximately $6.0 million). The loan, which
matures in 2008, bears interest at a rate of 4.5% and is secured by certain
property of GfE. The GfE group also has unsecured term loans approximating DM
3.0 million (approximately $1.8 million) maturing through 2004 and bearing
interest at a weighted average rate of 6%.
LSM has several credit facilities which provide LSM and its subsidiaries with up
to pound sterling 7.0 million (approximately $11.6 million) of borrowings, up to
pound sterling 3.3 million (approximately $5.5 million) of foreign exchange
exposure and up to pound sterling 2.3 million (approximately $3.8 million) for
other ancillary banking arrangements including bank guarantees (the "LSM Credit
Facility"). Borrowings under the LSM Credit Facility are payable on demand. The
facility expires in October 1999 and outstanding loans under the LSM Credit
Facility bear interest at the lender's base rate plus 1.0%. At January 31, 1999,
there were no outstanding borrowings under the LSM Credit Facility. In 1998, LSM
increased a facility for borrowings and foreign exchange exposure to pound
sterling 4.0 million (approximately $6.6 million). This facility, which expires
in December 1999, is unsecured and borrowings bear interest at a rate of 1% over
the bank's base rate. At January 31, 1999, there were no borrowings under these
facilities.
On April 11, 1997, LSM entered into a term loan facility with NM Rothschild &
Sons Limited in the amount of pound sterling 5.0 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 15.2 million (approximately $9.1 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 January 31, 1999, there was DM 3.6 million (approximately
$2.1 million) outstanding under this facility.
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 local credit facilities
contain restrictions which vary from company to company. At January 31, 1999,
there were $1.0 million of outstanding loans under these local credit
facilities.
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.
EWW has a contingent obligation to a German state pension authority which as of
January 31, 1999, was DM 1.7 million (approximately $1.0 million). Metallurg
expects that EWW will pay approximately DM 0.8 million (approximately $0.5
million) to the pension authority in 1999 in respect of this obligation.
Capital Expenditures. Metallurg invested $15.7 million in capital projects
during the year ended January 31, 1999. Metallurg's capital expenditures include
projects related to improving Metallurg's operations, productivity improvements,
replacement projects and ongoing environmental requirements (which are in
addition to expenditures discussed in "Environmental Remediation Costs").
Capital expenditures are budgeted to increase significantly over prior year
levels to approximately $23.2 million in the year ended January 31, 2000,
including $13.8 million of capital investments which Metallurg believes will
result in decreased costs of production, improved efficiency and expanded
production capacities. The remaining capital expenditures planned 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
the year ended January 31, 2000,
24
<PAGE> 25
Metallurg has not committed to complete these projects during that period as
such commitments 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.
Market Risk. Metallurg uses financial instruments to manage the impact of
foreign exchange rate changes on earnings and cash flows. Accordingly, Metallurg
enters into forward exchange contracts to protect the value of existing foreign
currency assets and liabilities and to hedge future foreign currency product
costs. Gains and losses on these contracts are offset by the gains and losses on
the underlying transactions.
Metallurg uses sensitivity analysis to assess the market risk associated with
its foreign currency transactions. Market risk here is defined as the potential
change in fair value resulting from an adverse movement in foreign currency
exchange rates. A 10% depreciation movement in foreign currency rates could
result in a net loss of $3.2 million on Metallurg's foreign currency exchange
contracts and a 10% appreciation movement in foreign currency rates could result
in a net gain of $2.8 million on Metallurg's contracts. In either scenario, the
gain or loss on the forward contract is offset by the gain or loss on the
underlying transaction and therefore, has no impact on future earnings and cash
flows. Metallurg does not enter into financial instruments for trading or
speculative purposes.
Year 2000 Readiness. Metallurg has completed an internal review of its
subsidiaries' information technology systems in connection with its assessment
of Year 2000 readiness and is in the process of replacing or modifying some of
the management and accounting systems at its subsidiaries to upgrade them
generally and to make them Year 2000 ready. Metallurg expects to spend between
$1.0 million and $2.0 million on these systems changes. Metallurg expects that
the information technology systems for all of its subsidiaries will be Year 2000
ready by August 31, 1999, and a substantial percentage has been completed to
date. Those systems that are not being replaced are being, or have been,
modified by Metallurg personnel to assure that they are Year 2000 ready.
Accordingly, no additional cost has been recognized for such internal upgrades.
Metallurg is currently assessing whether any of its non-information technology
will need to be modified to become Year 2000 ready.
Metallurg has not received written assurances from its significant suppliers and
customers to determine the state of their readiness with regard to Year 2000.
Metallurg believes that they will be prepared for Year 2000 based on its normal
interactions with its customers and suppliers and because of the wide attention
that the issue has received. Metallurg has not yet seen the need for contingency
plans for the Year 2000 issue, but this need will continue to be monitored as it
obtains more information about the state of readiness of its suppliers and
customers.
Metallurg presently believes that the Year 2000 issue will not pose significant
operational problems for its business systems as it believes that all needed
modifications and conversions will be timely made. If any of Metallurg's
suppliers or customers do not, or if Metallurg itself does not, successfully
deal with the Year 2000 issue, Metallurg could experience delays in receiving or
shipping products and in receiving payments. The severity of these possible
problems would depend on the nature of the problem and how quickly it could be
corrected or an alternative implemented, which is unknown at this time.
The anticipated costs for Metallurg to become Year 2000 ready and the
anticipated timing to complete the Year 2000 modifications are based on
management's best estimates, which were derived utilizing numerous assumptions
of future events, including timely performance by third parties who will provide
Metallurg with the software for its new systems. However, there can be no
guarantee that these estimates will be achieved and actual results could differ
materially from those anticipated. Specific factors that might cause such
material differences include, but are not limited to, the ability to locate and
correct all relevant computer codes, the ability to successfully integrate new
business systems with existing operations and similar uncertainties. Some risks
of the Year 2000 issue are beyond the control of Metallurg and its suppliers and
customers. In particular, Metallurg cannot predict the effect that the Year 2000
issue will have on the general economy.
Environmental Remediation Costs. In 1996, Metallurg elected early adoption of
the American Institute of Certified Public Accountants Statement of Position
("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
25
<PAGE> 26
remediation obligations are generally not discounted to their present value.
During the year ended January 31, 1999, Metallurg expended $3.0 million for
environmental remediation.
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 January 31, 1999, had an estimated cost of completion
of $40.4 million. Of this amount, approximately $3.6 million is expected to be
expended in 1999, $5.7 million in 2000 and $7.4 million in 2001. In addition,
Metallurg estimates it will make expenditures of $4.8 million with respect to
environmental remediation at its foreign facilities. Of this amount,
approximately $2.0 million is expected to be expended in 1999, $0.9 million in
2000 and $0.8 million in 2001. 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.
Effects of Recently Issued Accounting Standards. In June 1998, the FASB issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities".
SFAS No. 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. SFAS No. 133 is effective
for all fiscal quarters of fiscal years beginning after June 15, 1999. Metallurg
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. See "Results of
Operations."
26
<PAGE> 27
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The following audited consolidated financial statements of Metallurg Holdings,
Inc. and Metallurg, Inc. are presented herein, pursuant to the requirements of
Item 8, on the pages indicated below:
METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES -
<TABLE>
<CAPTION>
Audited Financial Statements: PAGE
<S> <C>
Report of Independent Accountants - PricewaterhouseCoopers LLP
for the Period June 10, 1998 (inception) to January 31, 1999 .................................... 28
Statement of Consolidated Operations for the Period June 10, 1998 (inception) to January 31, 1999 .. 29
Consolidated Balance Sheet at January 31, 1999 ..................................................... 30
Statement of Consolidated Cash Flows for the Period June 10, 1998 (inception) to January 31, 1999 .. 31
Notes to Consolidated Financial Statements for the Period June 10, 1998 (inception) to
January 31, 1999 ................................................................................ 32
Selected Quarterly Financial Data (unaudited) for the Period June 10, 1998 (inception)
to January 31, 1999 ............................................................................. 55
AUDITED FINANCIAL STATEMENT SCHEDULE:
Report of Independent Accountants - PricewaterhouseCoopers LLP ..................................... 56
Schedule VIII - Valuation and Qualifying Accounts and Reserves ..................................... 57
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES -
AUDITED FINANCIAL STATEMENTS:
Report of Independent Accountants - Pricewaterhouse Coopers LLP
for the Year Ended January 31, 1999 ............................................................. 58
Independent Auditors' Report - Deloitte and Touche LLP
for the Three Quarters Ended January 31, 1998, the Quarter Ended March 31, 1997
and the Year Ended December 31, 1996 ............................................................ 59
Statements of Consolidated Operations for the Year Ended January 31, 1999,
the Three Quarters Ended January 31, 1998, the Quarter Ended March 31, 1997
and the Year Ended December 31, 1996 ............................................................ 60
Consolidated Balance Sheets at January 31, 1999, January 31, 1998 and March 31, 1997 ............... 61
Statements of Consolidated Cash Flows for the Year Ended January 31, 1999, the
Three Quarters Ended January 31, 1998, the Quarter Ended March 31, 1997 and
the Year Ended December 31, 1996 ................................................................ 62
Notes to Consolidated Financial Statements for the Year Ended January 31, 1999,
the Three Quarters Ended January 31, 1998, the Quarter Ended March 31, 1997
and the Year Ended December 31, 1996 ............................................................ 63
Selected Quarterly Financial Data (unaudited) for the Years Ended January 31, 1999
and January 31, 1998 ............................................................................ 102
AUDITED FINANCIAL STATEMENT SCHEDULE:
Report of Independent Accountants - PricewaterhouseCoopers LLP for the Year Ended January 31, 1999.. 103
Schedule VIII - Valuation and Qualifying Accounts and Reserves ..................................... 104
</TABLE>
27
<PAGE> 28
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Metallurg Holdings, Inc.
In our opinion, the accompanying consolidated balance sheet as of January 31,
1999 and the related statements of consolidated operations and of consolidated
cash flows of Metallurg Holdings, Inc. and its subsidiaries (the "Company")
present fairly, in all material respects, the financial position of the Company
at January 31, 1999, and the results of its operations and its cash flows for
the period June 10, 1998 (inception) to January 31, 1999, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
April 23, 1999
28
<PAGE> 29
METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF CONSOLIDATED OPERATIONS
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period
June 10, 1998
(inception) to
Notes January 31, 1999
----- ----------------
<S> <C> <C>
Sales ....................................... 1 $ 254,161
Commission income ........................... 1 397
---------
Total revenue ............................. 254,558
Cost of sales ............................... 1 231,675
---------
Gross margin .............................. 22,883
Selling, general, and administrative expenses 30,384
Merger-related costs ........................ 2 4,347
---------
Operating loss ............................ (11,848)
Other:
Other income, net ......................... 13 1,082
Interest expense, net ..................... 9 (10,322)
---------
Loss before income tax benefit .............. (21,088)
Income tax benefit .......................... 1,11 5,623
---------
Net loss .................................... (15,465)
Other comprehensive income (loss):
Foreign currency translation adjustment .. 1,12 72
Minimum pension liability adjustment ..... 8 (57)
---------
Comprehensive loss ........................ $ (15,450)
=========
</TABLE>
See notes to consolidated financial statements.
29
<PAGE> 30
METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
January 31,
Notes 1999
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents ............................................... 1 $ 38,395
Trade receivables, less allowance for doubtful accounts ($1,770) ...... 1 63,745
Inventories ............................................................. 1,5 120,658
Prepaid expenses and other current assets ............................... 16,395
Assets held for sale .................................................... 1 711
---------
Total current assets .................................................. 239,904
Investments in affiliates .................................................. 1 5,396
Goodwill ................................................................... 1,6 98,794
Property, plant and equipment, net ......................................... 1,7 49,018
Other assets ............................................................... 21,244
---------
Total ................................................................. $ 414,356
=========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term debt ......................................................... 9 $ 3,871
Current portion of long-term debt ....................................... 9 1,074
Trade payables .......................................................... 37,460
Accrued expenses ........................................................ 19,309
Current portion of environmental liabilities ............................ 1,14 6,738
Taxes payable ........................................................... 11 3,955
---------
Total current liabilities ............................................. 72,407
---------
Long-term Liabilities:
Long-term debt .......................................................... 9 178,885
Accrued pension liabilities ............................................. 1,8 41,062
Environmental liabilities, net .......................................... 1,14 35,463
Other liabilities ....................................................... 5,556
---------
Total long-term liabilities ........................................... 260,966
---------
Total liabilities ..................................................... 333,373
---------
Commitments and Contingencies .............................................. 15
Shareholders' Equity:
Common stock - par value $.01 per share, authorized 30,000 shares, no shares
issued and outstanding .................................................. 12 --
Series A Voting Convertible Preferred Stock - par value $.01 per share,
authorized 10,000 shares, issued and outstanding 5,202.335 shares ....... 12 --
Series B Non-Voting Preferred Stock - par value $.01 per share,
authorized 10,000 shares, issued and outstanding 4,524 shares ........... 12 --
Additional paid-in capital ................................................. 12 96,433
Accumulated other comprehensive income ..................................... 12 15
Retained earnings .......................................................... 12 (15,465)
---------
Total shareholders' equity ............................................ 80,983
---------
Total ................................................................. $ 414,356
=========
</TABLE>
See notes to consolidated financial statements.
30
<PAGE> 31
METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
For the Period
June 10, 1998
(inception) to
January 31, 1999
----------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss .................................................... $ (15,465)
Adjustments to reconcile net loss to net cash
used in operating activities:
Executive stock awards .................................... 354
Depreciation and amortization ............................. 7,035
Gain on sales of assets ................................... 268
Interest accretion on Discount Notes ...................... 4,523
Deferred income taxes ..................................... (3,021)
Provision for doubtful accounts ........................... (536)
Environmental payments .................................... (2,023)
Other, net ................................................ (789)
---------
Total ................................................... (9,654)
Changes in operating assets and liabilities:
Decrease in trade receivables .............................. 35,544
Decrease in inventories .................................... 4,799
Increase in other current assets ........................... (3,010)
Decrease in trade payables and accrued expenses ............ (33,167)
Other assets and liabilities, net .......................... 338
---------
Net cash used in operating activities ................... (5,150)
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment .................. (8,687)
Proceeds from asset sales ................................... 133
Cash paid for Metallurg, net of cash acquired ............... (112,345)
Other, net .................................................. (1,647)
---------
Net cash used in investing activities ................... (122,546)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contribution from Safeguard International ........... 97,023
Proceeds from long-term debt ................................ 69,493
Short-term borrowings, net .................................. 2,483
Repayment of long-term debt ................................. (1,541)
Other ....................................................... (1,770)
---------
Net cash provided by financing activities ............... 165,688
---------
Effects of exchange rate changes on cash and cash equivalents 403
---------
Net increase in cash and cash equivalents ................... 38,395
Cash and cash equivalents-beginning of period ............... --
---------
Cash and cash equivalents-end of period ..................... $ 38,395
=========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for income taxes .................................. $ 7,939
=========
Cash paid for interest ...................................... $ 12,372
=========
</TABLE>
See notes to consolidated financial statements.
31
<PAGE> 32
METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Metallurg Holdings, a Delaware corporation, was formed on June 10, 1998 and is
owned by Safeguard International, an international private equity fund that
invests primarily in equity securities of companies in process industries. On
July 13, 1998, Metallurg Acquisition Corp., a wholly owned subsidiary of
Metallurg Holdings, merged with and into Metallurg, Inc., with Metallurg, Inc.
being the surviving company and Metallurg Holdings becoming the sole parent of
Metallurg.
Metallurg manufactures and sells high quality metal alloys and specialty metals
used by manufacturers of steel, aluminum, superalloys and chemicals and other
metal consuming industries. Metallurg sells more than 500 different products to
over 3,000 customers worldwide (primarily in North America and Europe).
Metallurg, Inc. and one of its subsidiaries, Shieldalloy Metallurgical
Corporation ("Shieldalloy"), emerged from bankruptcy on April 14, 1997.
Basis of Presentation and Consolidation - Metallurg Holdings and Metallurg, Inc.
both report on a fiscal year ending January 31. The operating subsidiaries of
Metallurg, Inc. report on a calendar year ending December 31. Accordingly, the
consolidated financial statements of Metallurg Holdings include the accounts of
Metallurg Holdings for the period June 10, 1998 (inception) to January 31, 1999,
of Metallurg, Inc. for the period July 13, 1998 to January 31, 1999
(post-Merger) and of Metallurg, Inc.'s operating subsidiaries for the period
July 13, 1998 to December 31, 1998 (post-Merger). All material intercompany
transactions and balances have been eliminated in consolidation. The accounts of
foreign subsidiaries have been translated into U.S. dollars in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 52.
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 the 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 presents all highly liquid instruments,
maturing within 30 days or less when purchased, as 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, as discussed below. Metallurg's Brazilian
operating subsidiary adopted a plan to restructure mining and certain other
operations in 1995. The remaining carrying amount of assets no longer needed in
these operations, and which are being held for sale in 1999, totaled $711,000.
Goodwill - Goodwill, which represents the excess of acquisition cost over the
estimated fair value of net assets acquired in business combinations, is being
amortized on a straight-line basis over 20 years. The Company assesses whether
its long-lived assets are impaired, based on an evaluation of undiscounted
projected cash flows, whenever significant events or changes occur that might
impair recovery of recorded costs through the remaining amortization period. In
the event an impairment of long-lived assets is present, the recoverability of
goodwill will be assessed.
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. Investments in which the
Company has less than a 20% interest are carried at cost. The Company's
investments in affiliates consist primarily of a $3.2 million or 10% interest in
Solikamsk Magnesium Works, a Russian magnesium metal producer.
Property and Depreciation - Major renewals and improvements are capitalized,
while maintenance and repairs are expensed when incurred. Depreciation is
computed using the straight-line or 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.
32
<PAGE> 33
METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Revenue Recognition - Sales represent amounts invoiced to customers by Metallurg
and such revenue is recognized when the product is shipped and title to the
product passes to the customer. In certain instances, Metallurg arranges sales
for which the supplier invoices the customer directly. In such cases, Metallurg
receives commission income, which is recognized when the supplier passes title
to the customer.
Environmental Remediation Costs - In accordance with 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. Cost of future expenditures for
environmental remediation obligations are generally not discounted to their
present value.
Valuation of Long-Lived Assets - In accordance with SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets to be Disposed Of", the Company
periodically evaluates the carrying value of long-lived assets to be held and
used, including goodwill and other intangible assets, when events and
circumstances warrant such a review. The carrying value of a long-lived asset is
considered impaired when the anticipated undiscounted cash flow from such asset
is separately identifiable and is less than its carrying value. In that event, a
loss is recognized based on the amount by which the carrying value exceeds the
fair market value of the long-lived asset. Fair market value is determined
primarily using the anticipated cash flows discounted at a rate commensurate
with the risk involved. Losses on long-lived assets to be disposed of are
determined in a similar manner, except that fair market values are reduced for
the cost to dispose.
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 $40,000,000 at January 31, 1999. 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 remittance and inclusion in U.S. taxable income.
Accordingly, the Company does not provide for U.S. income taxes on foreign
currency translation adjustments related to these foreign subsidiaries.
Retirement Plans - Pension costs of Metallurg and its domestic consolidated
subsidiaries are funded or accrued currently. Metallurg'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 - Metallurg 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 Metallurg'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 - Metallurg recognized foreign exchange
transaction losses of approximately $192,000 for the period June 10, 1998
(inception) to January 31, 1999. Translation gains and losses resulting from
reporting foreign subsidiaries in U.S. dollars are recorded directly to
shareholders' equity.
Financial Instruments - Metallurg 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. Metallurg 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 Metallurg also has other financial relationships. Metallurg is
exposed to credit risk generally limited to unrealized gains in such contracts
in the event of nonperformance by counterparties of those financial instruments,
but it does not expect any counterparties to fail to meet their obligations
given their high credit ratings.
33
<PAGE> 34
METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Recently Issued Accounting Pronouncements - In June 1998, the FASB issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS
No. 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. SFAS No. 133 is effective
for all fiscal quarters of fiscal years beginning after June 15, 1999. The
Company is currently evaluating the impact SFAS No. 133 will have on its
financial statements.
2. ACQUISITION TRANSACTIONS
On July 13, 1998, Metallurg was acquired by a group of investors led by
Safeguard International. The acquisition was accomplished by Metallurg
Acquisition Corp., a wholly owned subsidiary of Metallurg Holdings, a Delaware
corporation, merging with and into Metallurg, with Metallurg being the surviving
company and Metallurg Holdings becoming the sole parent of Metallurg. Metallurg
Holdings was formed on June 10, 1998 and is owned by Safeguard International (an
international private equity fund that invests primarily in equity securities of
companies in process industries), certain limited partners of Safeguard
International, certain individuals and a private equity fund.
At the time of the Merger, each outstanding share of Metallurg, Inc. common
stock, par value $.01 per share, was converted into the right to receive $30 in
cash, representing an aggregate cash price of approximately $152,200,000
(including payments for cancellation of compensatory options). Metallurg
Holding's purchase of Metallurg was recorded under the purchase method of
accounting in accordance with APB Opinion No. 16, "Business Combinations". The
total value of the transaction, including existing indebtedness and
environmental, pension and other liabilities, net of cash, was approximately
$300,000,000. The excess of the purchase price over the estimated fair value of
the net assets acquired was approximately $101,500,000 and is being amortized
over a period of 20 years. The purchase price allocation is subject to
finalization in 1999.
In order to finance the Merger, (i) Safeguard International and certain of its
limited partners contributed approximately $97,000,000 of capital to Metallurg
Holdings (the "Equity Contribution"); and (ii) Metallurg Holdings received
approximately $62,900,000 net proceeds upon consummation of the offering (the
"Offering") of $121,000,000 aggregate principal amount at maturity of 12-3/4%
Senior Discount Notes due 2008 (the "Discount Notes"). 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 governing Metallurg's 11% Senior Notes
due 2007 (the "Senior Notes").
In connection with the Merger, Metallurg received the consents (the "Consents
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 and to amend the definition
of "Permitted Holders".
Merger-related costs of $7,888,000 were incurred, and recorded as expense by
Metallurg, in the year ended January 31, 1999 and included (a) $3,541,000 for
payments to cancel compensatory stock options; (b) $625,000 in consent fees
incurred in order to obtain the one-time waiver of the change of control
provisions of the Senior Note Indenture; (c) $2,822,000 for payments made
pursuant to existing employment agreements with Metallurg management and (d)
$900,000 of other merger-related costs. Metallurg was reimbursed for the
compensatory stock option cancellation costs of $3,541,000 by a capital
contribution from Safeguard International at the time of the Merger, which
amount is included in Metallurg Holdings' acquisition cost. Accordingly,
Metallurg Holdings recognized the balance of such costs, totaling $4,347,000, in
the post-Merger period ended January 31, 1999.
34
<PAGE> 35
METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
PRO FORMA RESULTS (UNAUDITED)
The pro forma information presented herein is based upon the historical
financial statements of Metallurg Holdings and Metallurg included elsewhere
herein. The pro forma information illustrate the estimated effects of (i) the
adoption of fresh-start reporting following the consummation of the
Reorganization Plan of Metallurg in March 1997 (ii) the issuance of Senior Notes
of Metallurg due 2007 and the application of the proceeds thereto, (iii) the
issuance of the 12-3/4% Senior Discount Notes of Metallurg Holdings due 2008 and
(iv) the Merger and the transactions related thereto (collectively, the "Pro
Forma Transactions"), as if each of the listed transactions had occurred as of
January 1, 1997.
<TABLE>
<CAPTION>
Year Three Quarters Quarter
Ended Ended Ended
January 31, January 31, March 31,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Revenues ....................... $607,169 $476,967 $155,587
Operating income ............... 17,668 18,932 6,016
Net income (loss) .............. (5,299) (7,130) 2,674
</TABLE>
4. SEGMENTS AND RELATED INFORMATION
The Company adopted SFAS No. 131, "Disclosures About Segments of an Enterprise
and Related Information" in the period ended January 31, 1999 which changes the
way the Company reports information about its reportable segments. The
accounting policies of the reportable segments are the same as those described
in Note 1 of the Notes to Consolidated Financial Statements.
The financial data of Metallurg Holdings include the accounts of Metallurg
Holdings for the period June 10, 1998 (inception) to January 31, 1999, of
Metallurg, Inc. for the period July 13, 1998 to January 31, 1999 (post-Merger)
and of Metallurg, Inc.'s operating subsidiaries for the period July 13, 1998 to
December 31, 1998 (post-Merger). The results of Metallurg Holdings, Inc., the
parent holding company, consist primarily of interest expense on the Discount
Notes, amortization of acquisition goodwill and deferred debt issuance costs and
general overhead expenses. Such costs are reported in the segment "Other" below.
Metallurg operates in one significant industry segment, the manufacture and sale
of ferrous and non-ferrous metals and alloys. Metallurg is organized
geographically, having established a worldwide sales network built around its
core production facilities in the United States, the United Kingdom and Germany.
In addition to selling products manufactured by Metallurg, Metallurg distributes
complementary products manufactured by third parties.
Reportable Segments
Shieldalloy: This unit is comprised of two production facilities in the U.S. The
New Jersey plant manufactures and sells aluminum alloy grain refiners and
alloying tablets for the aluminum industry, metal powders for the welding
industry and specialty ferroalloys for the superalloy and steel industries. The
Ohio plant manufactures and sells ferrovanadium and vanadium based chemicals
used mostly in the steel and petrochemical industries. In addition to its
manufacturing operations, Shieldalloy imports and distributes complementary
products manufactured by affiliates and third parties.
LSM: This unit is comprised mainly of three production facilities in the UK
which manufacture and sell aluminum alloy grain refiners and alloying tablets
for the aluminum industry, chromium metal and specialty ferroalloys for the
steel and superalloy industries and aluminum powder for various metal powder
consuming industries.
GfE: This unit is comprised of two production facilities and a sales office in
Germany. The Nuremburg plant manufactures and sells a wide variety of specialty
products, including vanadium based chemicals and sophisticated metals, alloys
and powders used in the titanium, superalloy, electronics, steel, biomedical and
optics industries. The Morsdorf plant produces medical prostheses, implants and
surgical instruments for orthopedic applications.
35
<PAGE> 36
METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
EWW: This production unit, also located in Germany, produces various grades of
low carbon ferrochrome used in the superalloy, welding and steel industries.
Summarized financial information concerning the Company's reportable segments is
shown in the following table (in thousands). See "Notes to Consolidated
Financial Statements - 1. Summary of Significant Accounting Policies - Basis of
Presentation and Consolidation." Each segment records direct expenses related to
its employees and operations. The "Other" column includes corporate related
items, fresh-start adjustments and results of subsidiaries not meeting the
quantitative thresholds as prescribed by applicable accounting rules. The
Company does not allocate general corporate overhead expenses to operating
segments.
<TABLE>
<CAPTION>
Intersegment Consolidated
Shieldalloy LSM GfE EWW Other Eliminations Totals
----------- --- --- --- ----- ------------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE PERIOD JUNE 10,
1998 (INCEPTION) TO
JANUARY 31, 1999
Revenues from external
customers .......... $ 70,454 $53,717 $ 46,181 $ 6,666 $ 77,540 -- $ 254,558
Intergroup revenue ... 2,303 20,311 12,006 12,091 25,087 $ (71,798) --
Interest income ...... 790 114 122 42 1,953 (1,511) 1,510
Interest expense ..... 93 36 748 74 12,392 (1,511) 11,832
Depreciation and
amortization ....... 737 1,234 1,155 501 3,408 -- 7,035
Income tax provision
(benefit) .......... (2,690) 614 (1,107) (2,014) (426) -- (5,623)
Net income (loss) .... (1,498) 2,501 1,294 (593) (17,169) -- (15,465)
Assets ............... 88,601 75,221 43,927 36,148 395,927 (225,468) 414,356
Capital expenditures . 1,441 2,238 2,637 712 1,659 -- 8,687
</TABLE>
<PAGE> 37
METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Metallurg sells its products in over fifty countries. The following full year
revenue by country, based on the location of the user, (in thousands) is of the
Company and the portion of such revenue arising prior to the Merger date is
deducted therefrom.
<TABLE>
<S> <C>
For the period
June 10, 1998
(inception)
to January
31, 1999
=========
United States ............................................ $ 206,958
Germany .................................................. 83,911
United Kingdom ........................................... 53,974
Canada ................................................... 37,695
Sweden ................................................... 28,557
South Africa ............................................. 28,520
Italy .................................................... 18,029
Other .................................................... 148,690
Commission income ........................................ 835
---------
Metallurg revenue for the year
ended January 31, 1999 ................................ 607,169
Elimination of revenue prior to the
Merger date ........................................... (352,611)
---------
Metallurg Holdings revenue for
the period June 10, 1998
(inception) to January 31, 1999 ....................... $ 254,558
=========
</TABLE>
The following table presents property, plant and equipment by country based on
the location of the assets.
<TABLE>
<CAPTION>
January 31,
1999
-------
<S> <C>
United Kingdom ......................................... $18,260
Germany ................................................ 14,783
United States .......................................... 8,563
Brazil ................................................. 4,406
Other .................................................. 3,006
-------
Total ............................................... $49,018
=======
</TABLE>
5. INVENTORIES
Inventories, net of reserves, consist of the following (in thousands):
<TABLE>
<CAPTION>
January 31,
1999
--------
<S> <C>
Raw materials ......................................... $ 29,096
Work in process ....................................... 3,249
Finished goods ........................................ 83,116
Other ................................................. 5,197
--------
Total ............................................ $120,658
========
</TABLE>
37
<PAGE> 38
METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
6. GOODWILL
Goodwill represents the excess of the purchase price and related costs over the
estimated fair value of the net assets of Metallurg, Inc. acquired by Metallurg
Holdings on July 13, 1998. See Notes "1. Summary of Significant Accounting
Policies -- Goodwill" and "2. Acquisition Transactions". Goodwill is being
amortized on a straight-line basis over 20 years. For the period June 10, 1998
(inception) to January 31, 1999, amortization expense was $2,750,000.
7. PROPERTY, PLANT AND EQUIPMENT
The major classes of property, plant and equipment are as follows (in
thousands):
<TABLE>
<CAPTION>
January 31, Estimated
1999 Lives
------- -------
(in years)
<S> <C> <C>
Land ............................................. $ 2,937
Buildings and leasehold improvements ............. 14,872 10-32
Machinery ........................................ 33,440 3-17
Office furniture and equipment ................... 4,177 3-17
Transportation equipment ......................... 1,981 3-5
Construction in progress ......................... 3,529
-------
Total ......................................... 60,936
Less: accumulated depreciation ................... 11,918
-------
Property, plant and equipment, net ............... $49,018
=======
</TABLE>
Depreciation expense related to property, plant and equipment charged to
operations for the period June 10, 1998 (inception) to January 31, 1999 was
approximately $3,700,000.
8. RETIREMENT PLANS
Metallurg Holdings does not have any benefit plans. The following data
represents Metallurg's defined benefit plans for the year ended January 31,
1999.
Metallurg adopted SFAS No. 132, "Employers' Disclosure about Pensions and other
Postretirement Benefits" in the year ended January 31, 1999. 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".
38
<PAGE> 39
METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Defined Benefit Plans
The following table summarizes the changes in benefit obligation and changes in
plan assets of Metallurg for the year ended January 31, 1999 (in thousands):
<TABLE>
<CAPTION>
January 31,
1999
---------
<S> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year ...................... $ 106,285
Service cost ................................................. 1,970
Interest cost ................................................ 7,104
Actuarial gain ............................................... 11,339
Employee contributions ....................................... 336
Benefits paid ................................................ (4,684)
Foreign currency translation adjustment ...................... 3,081
---------
Benefit obligation at end of year ............................ 125,431
---------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year ................ 77,216
Actual return on plan assets .................................. 14,308
Employer/employee contributions ............................... 1,590
Plan administrative expenses .................................. (56)
Benefits paid ................................................. (2,397)
Foreign currency translation adjustment ...................... 328
---------
Fair value of plan assets at end of year ...................... 90,989
---------
Funded status ................................................. (34,442)
Unrecognized net actuarial loss (gain) ........................ 2,773
---------
Accrued benefit cost, net ..................................... $ (31,669)
=========
Amounts recognized in the statement of
financial position consist of:
Accrued pension liabilities ................................ $ (31,669)
Adjustment required to recognize minimum liability.......... (57)
---------
Net amount recognized in balance sheet ........................ $ (31,726)
=========
</TABLE>
<TABLE>
<CAPTION>
For the Year
Ended
January 31,
1999
---------
<S> <C>
WEIGHTED-AVERAGE ASSUMPTIONS
Discount rate ................................................. 5.5% - 6.5%
Rate of compensation increase ................................. 3.0% - 4.5%
Expected return on plan assets ................................ 8.0% - 9.0%
</TABLE>
39
<PAGE> 40
METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The following table summarizes the components of net periodic benefit cost (in
thousands):
<TABLE>
<CAPTION>
For the Year
Ended
January 31,
1999
--------
<S> <C>
COMPONENTS OF NET PERIODIC BENEFIT COST
Service cost ................................................ $ 1,970
Interest cost ............................................... 7,104
Expected return on plan assets .............................. (11,164)
Net amortization and deferral ............................... 4,613
--------
Metallurg pension cost for the year ended
January 31, 1999 ......................................... 2,523
Elimination of pension cost prior to the
Merger date .............................................. (1,251)
--------
Metallurg Holdings pension cost for the
period June 10, 1998 (inception) to
January 31, 1999 ......................................... $ 1,272
========
</TABLE>
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. The funded status of these
plans are as follows (in thousands):
<TABLE>
<CAPTION>
January 31,
1999
--------
<S> <C>
Benefit obligation .......................................... $(19,297)
Plan assets ................................................. 20,055
--------
Net ...................................................... 758
Unrecognized actuarial gain ................................. (2,681)
Adjustment to recognize minimum liability ................... (57)
--------
Accrued pension liability ................................. $ (1,980)
========
</TABLE>
Metallurg's United Kingdom subsidiary maintains a defined benefit pension plan
covering all eligible employees. Substantially all plan assets are invested in
listed stocks and bonds. The funded status of this plan is as follows (in
thousands):
<TABLE>
<CAPTION>
January 31,
1999
--------
<S> <C>
Benefit obligation ...................................... $(67,558)
Plan assets ............................................. 70,934
--------
Net .................................................. 3,376
Unrecognized actuarial loss ............................. 5,454
--------
Prepaid pension cost .................................. $ 8,830
========
</TABLE>
40
<PAGE> 41
METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Metallurg's German subsidiaries maintain unfunded defined benefit pension plans
covering substantially all eligible employees. The plans had been amended in
1992 in a manner that terminated any credit for future service. These plans were
amended in 1998 and accordingly, (i) credit for future service was reinstated,
retroactive to January 1, 1993, for certain employees and (ii) benefits were
adjusted for cost of living increases not recognized subsequent to 1992. Accrued
pension liabilities were $38,576,000 at January 31, 1999.
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 approximately
$104,000 in the period June 10, 1998 (inception) to January 31, 1999.
Balance sheet accruals for pension plans of Metallurg's other foreign
subsidiaries approximate or exceed the related actuarially computed value of
accumulated benefit obligations. Accrued pension liabilities for these plans
were $506,000 at January 31, 1999. Pension expense relating to Metallurg's other
foreign subsidiaries' pension plans was $115,000 for the period June 10, 1998
(inception) to January 31, 1999.
9. BORROWINGS
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
January 31,
1999
--------
<S> <C>
Metallurg Holdings -
12 3/4% senior discount notes .................................... $ 69,700
--------
Metallurg -
Parent company and domestic subsidiaries:
11% senior notes ........................................ 100,000
--------
Subtotal ............................................. 100,000
--------
Foreign subsidiaries:
Germany ................................................. 10,151
Other ................................................... 108
--------
Subtotal ............................................. 10,259
--------
Less: amounts due within one year ......................... 1,074
--------
Net .................................................... 109,185
--------
Total long-term debt ................................... $178,885
========
</TABLE>
Metallurg Holdings
At the time of the Merger, Metallurg Holdings received approximately $62,900,000
net proceeds upon consummation of the offering of $121,000,000 aggregate
principal amount at maturity of Senior Discount Notes due 2008 in a Rule 144A
private placement to qualified institutional investors (the "Offering"). In
October 1998, Metallurg Holdings completed the exchange of its 12 3/4% Series A
Senior Discount Notes due 2008 for an identical face amount of Senior Discount
Notes. The Discount Notes will accrete at a rate of 12 3/4%, compounded
semi-annually, to July 15, 2003. Cash interest will not accrue or be payable
prior to such date. Commencing July 15, 2003, the Senior Discount Notes will
accrue cash interest at a 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. The
Discount Notes are redeemable at the option of Metallurg Holdings, in whole or
in part, at any time on or after July 15, 2003. Prior to July 15, 2001, a
maximum of 34% of the Senior Discount Notes may be redeemed with net proceeds of
one or more public equity offerings of Metallurg Holdings. The Senior Discount
Notes are senior, secured obligations of Metallurg Holdings and rank pari passu
in right of payment with all existing and future unsubordinated indebtedness and
senior in right of payment to all subordinated indebtedness of Metallurg
Holdings. However, the Senior Discount Notes are effectively subordinated to all
existing and future liabilities of Metallurg, Inc. and its subsidiaries.
41
<PAGE> 42
METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The Senior Discount Notes are secured by an assignment and pledge to a trustee
of (a) all of the outstanding equity interests held by Metallurg Holdings in
Metallurg, Inc. and (b) all promissory notes issued from time to time to
Metallurg Holdings by Metallurg, Inc. The Indenture contains limitations on,
among other things, the ability of Metallurg Holdings to incur indebtedness and
enter into certain mergers, consolidations or assets sales. In the period June
10, 1998 (inception) to January 31, 1999, Metallurg Holdings recognized
approximately $4,523,000 of interest expense related to the Senior Discount
Notes. Other interest expense, including that of Metallurg, totaled $7,309,000
during this period.
Metallurg Holdings is a holding company, and its ability to meet its payment
obligations on the Senior Discount Notes is dependent upon the receipt of
dividends and other distributions from its direct and indirect subsidiaries.
Metallurg Holdings does not have, and may not in the future have, any material
assets other than the common stock of Metallurg. Metallurg, Inc. and its
subsidiaries are parties to various credit agreements, including the Senior Note
Indenture and the Revolving Credit Facility, which impose substantial
restrictions on Metallurg, Inc.'s ability to pay dividends to Metallurg
Holdings.
Metallurg, Inc. and Domestic Subsidiaries
In November 1997, Metallurg, Inc. sold the $100,000,000 Senior Notes which
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 Metallurg.
The Senior Notes are fully and unconditionally guaranteed by the U.S.
subsidiaries of Metallurg on a senior unsecured basis. The Indenture contains
limitations on, among other things, the ability of Metallurg to incur
indebtedness and enter into certain mergers, consolidations or asset sales. In
addition, Metallurg is prohibited from making dividends in an amount greater
than 50% of its net income under terms of the Indenture.
Pursuant to the Plan, Metallurg, Inc. and Shieldalloy (the "Borrowers") entered
into an agreement with certain financial institutions led by BankBoston, N.A.,
as agent, for a 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.
Metallurg, Inc. 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 that is based on eligible accounts
receivable, inventory and certain fixed assets. At January 31, 1999, there were
no borrowings under this facility; however, outstanding letters of credit
approximated $23,789,000. Substantially all assets of the Borrowers are pledged
as collateral under this agreement. The revolving credit agreement, which
expires on April 14, 2000, prohibits Metallurg, Inc. from making dividends and
requires the Borrowers and certain subsidiaries to comply with various
covenants, including the maintenance of minimum levels of quarterly earnings
before interest, taxes, depreciation and amortization, as defined in the
Indenture ("Adjusted EBITDA"). These companies were required to maintain
quarterly Adjusted EBITDA of $1,000,000. For the quarter ended December 31,
1998, Adjusted EBITDA of such companies was a loss of $7,300,000; accordingly,
BankBoston waived that requirement of the agreement as of, and for the quarter
ended, December 31, 1998 and amended the agreement to eliminate the Adjusted
EBITDA quantitative covenants so long as certain other defined cash positions
are maintained as prescribed in the agreement.
Metallurg's Foreign Subsidiaries
Pursuant to the Revolving Credit Facility, BankBoston, N.A., through its
Frankfurt office, is providing to GfE and its subsidiaries, up to DM 20,500,000
(approximately $12,300,000) of financing. The German Subfacility is guaranteed
by Metallurg, Inc. and the other U.S. borrowers and outstanding obligations are
limited to a borrowing base which is 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 to subsidiaries and
borrowings. All accounts receivable, inventory, the stock of GfE's subsidiaries
and certain other assets are pledged to secure the German Subfacility.
42
<PAGE> 43
METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
At January 31, 1999, borrowings under the German Subfacility were immaterial.
Short-term unsecured borrowings of the GfE group with local banks totaled DM
1,200,000 (approximately $700,000) at January 31, 1999. In August 1998, GfE
entered into a term loan with IKB Deutsche Industrie Bank in the amount of DM
10,000,000 (approximately $6,000,000). The loan, which matures in 2008, bears
interest at a rate of 4.5% and is secured by certain property of GfE. The GfE
group also has term loans approximating DM 3,027,000 (approximately $1,800,000)
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 up to pound sterling 7,000,000 (approximately
$11,600,000) of borrowings, up to pound sterling 3,300,000 (approximately
$5,500,000) of foreign exchange exposure and up to pound sterling 2,300,000
(approximately $3,800,000) for other ancillary banking arrangements, including
bank guarantees. The facility expires in October 1999 and bears interest at the
lender's base rate plus 1.0%. The facility is unsecured and contains
restrictions on dividends. In 1998, LSM increased a facility for borrowings and
foreign exchange exposure to pound sterling 4,000,000 (approximately
$6,600,000). This facility, which expires in December 1999, is unsecured and
borrowings bear interest at a rate of 1% over the bank's base rate. At January
31, 1999, there were no borrowings under these facilities.
EWW, a German subsidiary, has committed lines of credit with several banks in
the aggregate amount of DM 15,200,000 (approximately $9,100,000). 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, 1999, there were DM 3,600,000 (approximately $2,100,000)
of borrowings under these agreements. EWW also has a term loan of DM 2,400,000
(approximately $1,400,000) maturing in 2001. The term loan is secured by a
mortgage on certain real property and bears interest at 4.5%.
In 1998, EWW borrowed DM 1,500,000 (approximately $900,000) to fund capital
additions. The loan, which matures in 2008, bears interest at 4.25%.
Metallurg's other foreign subsidiaries maintain short-term secured and unsecured
borrowing arrangements, generally in local currencies, with various banks.
Borrowings under these arrangements aggregated $1,021,000 at January 31, 1999 at
a weighted average interest rate of 10.9%.
Interest expense totaled $11,832,000 for the year period June 10 (inception) to
January 31, 1999.
The scheduled maturities of long-term debt during the next five years are
$1,074,000 in 1999, $989,000 in 2000, $963,000 in 2001, $413,000 in 2002,
$285,000 in 2003 and $227,535,000 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.
Fair values for investments in affiliates are not readily available.
The aggregate fair value of short-term bank debt approximates its carrying
amount because of recent and frequent repricing based on market conditions.
Based on quoted market prices, the fair value of Metallurg Holdings' Senior
Discount Notes, issued in July 1998, approximates $40,000,000. Based on quoted
market prices, the fair value of Metallurg, Inc.'s $100,000,000 Senior Notes,
issued in November 1997, approximates $89,000,000 at January 31, 1999. The
carrying amount of other long-term debt approximates fair value.
Metallurg 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.
43
<PAGE> 44
METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The aggregate notional amounts of the contracts outstanding as of January 31,
1999 were approximately $29,800,000 and were predominately denominated in the
following currencies: Deutsche Marks, Pounds Sterling and U.S. Dollars. The
notional values provide an indication of the extent of Metallurg'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, 1999 were approximately $117,000.
11. INCOME TAXES
For financial reporting purposes, income (loss) before income tax provision
includes the following components (in thousands):
<TABLE>
<CAPTION>
For the Period
June 10, 1998
(inception) to
January 31,
1999
--------
<S> <C>
United States ........................................ $(24,343)
Foreign .............................................. 3,255
--------
Total ............................................ $(21,088)
========
</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 Period
June 10, 1998
(inception) to
January 31,
1999
-----------------
Tax
Provision
(Benefit) Percent
------- ----
<S> <C> <C>
Income tax provision at statutory
rate .................................................. $(7,170) 34.0%
State and local income taxes, net
of federal income tax effect .......................... (202) 1.0
Effect of increase of foreign valuation allowance and
differences between U.S. and foreign rates ............ (2,510) 11.9
Foreign dividends ........................................ 2,233 (10.6)
Changes in domestic valuation allowance .................. 1,916 (9.1)
Other .................................................... 110 (0.5)
------- ----
Total .................................................... $(5,623) 26.7%
======= ====
</TABLE>
44
<PAGE> 45
METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The income tax provision (benefit) represents the following (in thousands):
<TABLE>
<CAPTION>
For the Period
June 10, 1998
(inception) to
January 31,
1999
-------
<S> <C>
Current:
U.S. Federal ................................................ $(3,657)
Foreign ..................................................... 1,568
State and local ............................................. (513)
-------
Total current ............................................. (2,602)
-------
Deferred:
U.S Federal and State ....................................... (50)
Foreign ..................................................... (2,971)
-------
Total deferred ........................................... (3,021)
-------
Total income tax provision (benefit) ..................... $(5,623)
=======
</TABLE>
U.S. Federal income tax refunds receivable of $4,180,000 at January 31, 1999
relate primarily to the Federal tax deposits in excess of estimated liabilities
and carryback claims related to 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 purposes. Significant components of the
Company's deferred tax assets and liabilities are as follows (in thousands):
<TABLE>
<CAPTION>
January 31,
1999
--------
<S> <C>
Deferred Tax Assets:
NOL and other credit carryforwards .............................. $ 41,083
Retirement benefits ............................................. 17,366
Environmental liabilities ....................................... 13,760
Goodwill ........................................................ 7,233
Allowance for doubtful accounts ................................. 3,974
Fixed assets .................................................... 307
Other ........................................................... 777
--------
Total deferred assets .................................. 84,500
Deferred tax asset valuation allowance .......................... (75,000)
--------
9,500
--------
Deferred Tax Liabilities:
Pension credits ................................................. (2,595)
Tax write-offs and reserves ..................................... (2,268)
Fixed assets .................................................... (1,710)
Inventories ..................................................... (827)
Earnings of foreign subsidiaries expected to be remitted ........ --
Other ........................................................... (400)
--------
Total deferred tax liabilities ......................... (7,800)
--------
Net deferred tax asset (liability) ..................... $ 1,700
========
</TABLE>
45
<PAGE> 46
METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
At January 31, 1999, the Company has net operating loss carryforwards relating
to domestic operations of approximately $4,953,000 (subject to certain
limitations relative to utilization) which expire through 2010 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 $76,973,000, a
substantial portion of which relates to German operations which do not expire
under current regulations and certain Brazilian operations which partially
expire through 2004. 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, 1999.
However, during the period ended March 31, 1997, the Company determined that a
German subsidiary has 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 year ended January 31, 1999, none of the deferred
tax benefit, which amounts to approximately $3,000,000, will result in cash
payments in future periods. Included within the deferred tax benefit are the
deferred tax effects of certain deferred tax assets for which a corresponding
debit has been recorded to "Additional paid-in capital" approximating $1,300,000
and the deferred tax effects of certain deferred tax assets, primarily foreign
net operating losses, for which a benefit has previously been recognized in the
amount of $572,000.
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.
46
<PAGE> 47
METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
12. SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Accumulated Total
Additional Other Retained Shareholders'
Capital Stock Paid-In Comprehensive Earnings Equity
Shares Amount Capital Income (Deficit) (Deficit)
--------- -------- -------- -------- -------- --------
(in thousands, except share and per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock
at inception ................................. 350 --
Cancellation of old common stock and issuance of
new Preferred Stock at time of the Merger .... 9,352.335 -- $ 97,023 $ 97,023
Issuance of Preferred Stock in December, 1998 .. 24 240 240
Net income ..................................... -- $(15,465) (15,465)
Change in translation adjustment ............... -- -- -- $ 72 -- 72
Minimum pension liability....................... -- -- -- (57) -- (57)
Deferred tax effects of fresh-
start adjustments of Metallurg ................. -- -- (830) -- -- (830)
--------- -------- -------- -------- -------- --------
Balance at January 31, 1999 ................... 9,726.335 -- $ 96,433 $ 15 $(15,465) $ 80,983
========= ======== ======== ======== ======== ========
</TABLE>
Metallurg Holdings was formed on June 10, 1998 with 1,000 shares of common
stock, par value $.01, authorized. On June 29, 1998, Metallurg Holdings issued
350 such shares. At the time of the Merger, this common stock was cancelled and
the total number of shares of all classes of stock which Metallurg Holdings was
authorized to issue was changed to 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 Preferred Stock, $.01 par value
("Series B Preferred Stock").
In connection with the Merger, 5,202.335 shares of Series A Preferred Stock and
4,500 shares of Series B Preferred Stock were issued. In December 1998, an
additional 24 shares of Series B Preferred Stock were issued to investors. At
January 31, 1999, no Common Stock was issued and outstanding; however 5,202.335
shares of Series A Preferred Stock and 4,524 shares of Series B Preferred Stock
were issued and outstanding.
Total comprehensive loss was $15,450,000 for the period June 10, 1998
(inception) to January 31, 1999.
Stock Compensation Plans
On November 20, 1998, the Board of Directors adopted the Metallurg, Inc. 1998
Equity Compensation Plan (the "ECP"). Pursuant to Metallurg's ECP, the
Compensation Committee of Metallurg's Board awarded to eligible executives and
non-employee Board members options to purchase up to 450,000 and 12,500 shares
of common stock at an exercise price of $30.00 per share, effective as of
November 20, 1998 and January 4, 1999, respectively. Such options have a term of
ten years and vest 20% on the date of grant and will vest 20% on each of the
first four anniversaries of the date of grant.
47
<PAGE> 48
METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Metallurg has elected the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation". Had Metallurg used the fair value
method at the date of grant of the stock options, additional compensation
expense of $2,235,000 would have been recorded, resulting in a pro forma net
loss of $17,700,000.
The weighted average fair value of Metallurg options granted was $4.83 per share
at January 31, 1999. 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 .......................................... 0%
Expected dividend yield ...................................... Not applicable
Expended life ................................................ 4 years
Risk-free interest rate ...................................... 4.49%
</TABLE>
On April 14, 1997, Metallurg had adopted the Metallurg, Inc. Management Stock
Award and Stock Option Plan (the "SASOP"). Certain eligible employees were
granted options to purchase 167,000 shares of common stock at $11.38 (fair
market value on the date of grant), effective as of September 1, 1997 and 20,000
shares of common stock at $8.43 (fair market value on the date of grant),
effective as of April 1, 1998. Such options vested 33 1/3% on the date of grant
and 33 1/3% were to vest on the first and second anniversary of the date of
grant. At the time of the Merger, outstanding stock options became fully vested
and holders were therefore entitled to receive $30 per share as part of the
purchase of Metallurg. Metallurg recorded compensation expense of $3,541,000,
which represented the excess of the $30 per share purchase price over the
exercise prices noted above. Metallurg was reimbursed for such stock option
cancellation costs by a capital contribution from Safeguard International at the
time of the Merger.
48
<PAGE> 49
METALLURG HOLDINGS, 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 Period
June 10, 1998
(inception) to
January 31,
1999
-------
<S> <C>
Net loss on asset sales .................................... $ (269)
Gain on settlement of German lawsuit ....................... 1,351
-------
Total ................................................... $ 1,082
=======
</TABLE>
In August 1998, one of the Company's German subsidiaries was successful in
recovering approximately $1,351,000 of additional proceeds from a
government-owned insurance agency representing final settlement for claims under
the company's political risk insurance policy related to an investment in the
former Zaire.
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.
Total environmental liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
January 31,
1999
-------
<S> <C>
Domestic:
Shieldalloy - New Jersey ................................. $28,876
Shieldalloy - Ohio ....................................... 11,557
-------
40,433
Foreign .................................................... 4,832
-------
Total environmental liabilities .......................... 45,265
Less: trust funds .......................................... 3,064
-------
Net environmental liabilities ............................ 42,201
Less: current portion ...................................... 6,738
-------
Environmental liabilities ................................ $35,463
=======
</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 clean up, as
well as miscellaneous operation and maintenance activities and onsite controls.
Metallurg accrued its best estimate of the associated costs with respect to
remedial activities at the site which it expects to disburse over the next
thirteen years. During 1995, $8,000,000 in a prepetition letter of credit was
drawn upon and deposited in a trust fund.
49
<PAGE> 50
METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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,
Metallurg was permitted to withdraw cash from the environmental trust and
substitute letters of credit in an equivalent dollar amount. At January 31,
1999, 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 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 obligation
of the decommissioning plan and financial assurance for implementation of that
plan 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, 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 five 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.
Metallurg's German subsidiaries have accrued environmental liabilities in the
amount of $4,443,000 at January 31, 1999, 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 $389,000 have been accrued at January 31,
1999, to cover reclamation costs of the closed mine sites.
50
<PAGE> 51
METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
15. CONTINGENT LIABILITIES
In addition to environmental matters, which are discussed in Note 14,
Metallurg 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
Metallurg's consolidated financial position, results of operations or liquidity.
There can be no assurance that existing or future litigation will not result in
an adverse judgment against Metallurg which could have a material adverse effect
on Metallurg's future results of operations or cash flows.
16. LEASES
Metallurg leases office space, facilities and equipment. The leases generally
provide that Metallurg pays the tax, insurance and maintenance expenses related
to the leased assets. At January 31, 1999, 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>
2000 .............................................................. $1,530
2001 .............................................................. 1,365
2002 .............................................................. 1,167
2003 .............................................................. 844
2004 .............................................................. 418
Thereafter ........................................................ 3,607
------
Total ............................................................. $8,931
======
</TABLE>
Rent expense under operating leases for the period June 10, 1998 (inception) to
January 31, 1999 was approximately $885,000.
51
<PAGE> 52
METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
17. 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 Metallurg, Inc., will fully
and unconditionally guarantee on a joint and several basis Metallurg, Inc.'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:
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JANUARY 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
Combined Combined
Metallurg, Guarantor Non-Guarantor
Inc. Subsidiaries Subsidiaries Eliminations Consolidated
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Total revenue .............................. $ 47,264 $ 191,401 $ 460,468 $ (91,964) $ 607,169
--------- --------- --------- --------- ---------
Operating costs and expenses:
Cost of sales ........................... 43,826 170,762 403,864 (92,591) 525,861
Selling, general and administrative expenses 7,894 9,987 40,757 -- 58,638
Merger-related costs ....................... 7,888 -- -- -- 7,888
--------- --------- --------- --------- ---------
Total operating costs and expenses ......... 59,608 180,749 444,621 (92,591) 592,387
--------- --------- --------- --------- ---------
Operating income (loss) .................... (12,344) 10,652 15,847 627 14,782
Other:
Other income (expense), net ................ 878 (258) 1,188 -- 1,808
Interest income (expense), net ............. (9,767) 1,293 (1,396) -- (9,870)
Equity in earnings of subsidiaries ......... 19,755 11,189 -- (30,944) --
--------- --------- --------- --------- ---------
Income before income tax provision ......... (1,478) 22,876 15,639 (30,317) 6,720
Income tax (benefit) provision ............. (3,410) 3,736 4,462 -- 4,788
--------- --------- --------- --------- ---------
Net income ................................. $ 1,932 $ 19,140 $ 11,177 $ (30,317) $ 1,932
========= ========= ========= ========= =========
</TABLE>
52
<PAGE> 53
METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
17. SUPPLEMENTAL GUARANTOR INFORMATION - (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET AT JANUARY 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
Combined Combined
Guarantor Non-Guarantor
Metallurg, Inc. Subsidiaries Subsidiaries Eliminations Consolidated
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ......... $ 25,613 $ 1,095 $ 16,663 $ (6,078) $ 37,293
Accounts and notes receivables, net 24,180 28,178 51,373 (40,051) 63,680
Inventories ....................... 9,459 38,405 75,912 (3,118) 120,658
Assets held for sale .............. -- -- 711 -- 711
Other assets ...................... 10,807 105 8,125 (2,989) 16,048
--------- --------- --------- --------- ---------
Total current assets ........... 70,059 67,783 152,784 (52,236) 238,390
Investments - intergroup ............ 102,102 53,965 -- (156,067) --
Investments - other ................. 304 -- 5,092 -- 5,396
Property, plant and equipment, net .. 1,016 7,547 40,455 -- 49,018
Other assets ........................ 5,052 17,179 13,298 (17,216) 18,313
--------- --------- --------- --------- ---------
Total .......................... $ 178,533 $ 146,474 $ 211,629 $(225,519) $ 311,117
========= ========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term debt and current portion
of long-term debt ............... $ 11,023 $ (6,078) $ 4,945
Accounts and notes payables ....... $ 8,952 $ 15,078 63,481 (50,051) 37,460
Accrued expenses .................. 3,100 8,426 14,275 -- 25,801
Other current liabilities ......... -- 3,111 3,833 (2,989) 3,955
--------- --------- --------- --------- ---------
Total current liabilities .... 12,052 26,615 92,612 (59,118) 72,161
--------- --------- --------- --------- ---------
Long-term Liabilities:
Long-term debt ................... 100,000 -- 9,185 -- 109,185
Accrued pension liabilities ...... 220 1,760 39,082 -- 41,062
Environmental liabilities, net ... -- 32,669 2,794 -- 35,463
Other liabilities ................ 18,571 -- 4,201 (17,216) 5,556
--------- --------- --------- --------- ---------
Total long-term liabilities .. 118,791 34,429 55,262 (17,216) 191,266
--------- --------- --------- --------- ---------
Total liabilities ............ 130,843 61,044 147,874 (76,334) 263,427
--------- --------- --------- --------- ---------
Shareholders' Equity:
Common stock ..................... 50 1,227 49,691 (50,918) 50
Additional paid-in capital ....... 45,257 90,867 1,014 (91,881) 45,257
Cumulative foreign currency
translation adjustment ......... (388) (928) 21,345 (20,417) (388)
Retained earnings (deficit) ...... 2,771 (5,736) (8,295) 14,031 2,771
--------- --------- --------- --------- ---------
Shareholders' equity ........... 47,690 85,430 63,755 (149,185) 47,690
--------- --------- --------- --------- ---------
Total .................... $ 178,533 $ 146,474 $ 211,629 $(225,519) $ 311,117
========= ========= ========= ========= =========
</TABLE>
53
<PAGE> 54
METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
17. SUPPLEMENTAL GUARANTOR INFORMATION - (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR YEAR ENDED JANUARY 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
Combined
Combined Non-
Metallurg, Guarantor Guarantor
Inc. Subsidiaries Subsidiaries Eliminations Consolidated
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities ........... $(27,297) $ 13,707 $ 17,207 $ 3,617
-------- -------- -------- -------- --------
Cash Flows from Investing Activities:
Additions to property plant and equipment ...... (133) (2,310) (13,239) (15,682)
Proceeds from asset sales ...................... 1,135 170 114 1,419
Other, net ................................... (231) -- (3,670) (3,901)
-------- -------- -------- -------- --------
Net cash (used in) provided by
investing activities ........................... 771 (2,140) (16,795) (18,164)
-------- -------- -------- -------- --------
Cash Flows From Financing Activities:
Capital contribution from Safeguard International 3,541 -- -- 3,541
Intergroup borrowings (repayments) ............. 23,822 (11,196) (12,626) --
Proceeds from long-term debt, net .............. -- -- 4,509 4,509
Net short-term debt borrowings ................. -- -- 6,710 $ (6,078) 632
Intergroup dividends received (paid) ........... 8,893 -- (8,893) -- --
-------- -------- -------- -------- --------
Net cash provided by (used in)
financing activities ........................... 36,256 (11,196) (10,300) (6,078) 8,682
-------- -------- -------- -------- --------
Effects of exchange rate changes on
cash and cash equivalents ...................... -- -- 155 -- 155
-------- -------- -------- -------- --------
Net increase (decrease) in cash and
cash equivalents ............................... 9,730 371 (9,733) (6,078) (5,710)
Cash and cash equivalents-beginning of period .. 15,883 724 26,396 -- 43,003
-------- -------- -------- -------- --------
Cash and cash equivalents -
end of period .................................. $ 25,613 $ 1,095 $ 16,663 $ (6,078) $ 37,293
======== ======== ======== ======== ========
</TABLE>
54
<PAGE> 55
METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SELECTED QUARTERLY FINANCIAL DATA
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Year
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
PERIOD ENDED JUNE 10, 1998
(INCEPTION) TO JANUARY 31, 1999
Sales ........................... - $ 2,274 $ 125,504 126,383 $ 254,161
Gross profit .................... - 100 15,946 6,837 22,883
Net loss ........................ - (1,820) (3,774) (9,871) (15,465)
</TABLE>
The management company of Safeguard International was paid a one-time
financial advisory fee in 1998 of $2.5 million for services performed, and
reimbursed for various expenses incurred, in connection with the acquisition of
Metallurg, Inc. See Note "2. Acquisition Transactions." Dr. Schimmelbusch and
Messrs. Spector and Holly each received $400,000 of the proceeds from the
financial advisory fee in their capacities as members of the management company.
Dr. Schimmelbusch and Messrs. Plum, Holly and Spector, all of whom are directors
of Holdings, and Mr. Fastuca, an executive officer of Holdings, are directors
and/ or officers of various companies that are associated, directly or
indirectly, with Safeguard Scientifics, Inc., which has an ownership interest in
Safeguard International Fund. Pursuant to these positions, they receive
compensation from such entities.
55
<PAGE> 56
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of Metallurg Holdings, Inc.
Our audit of the consolidated financial statements referred to in our report
dated April 23, 1999 appearing in this Annual Report on Form 10-K also included
an audit of Financial Statement Schedule VIII of this Form 10-K. In our opinion,
this Financial Statement Schedule VIII presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements.
PricewaterhouseCoopers LLP
New York, New York
April 29, 1999
56
<PAGE> 57
METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN THOUSANDS)
<TABLE>
<CAPTION>
Balance at Charged to Charged to Balance at
Beginning Costs and Other Accounts Deductions End
of Period Expenses --Describe-- --Describe-- of Period
--------- -------- ------------ ------------ ---------
<S> <C> <C> <C> <C> <C>
DESCRIPTION
FOR THE PERIOD JUNE 10, 1998
(INCEPTION) TO JANUARY 31, 1999
Accounts receivable allowance
for doubtful accounts ......... $-0- $33 $2,306(a) $(569)(b) $1,770
</TABLE>
NOTES:
(a) Allowance account value at the time of the Merger.
(b) Uncollectible accounts written off, less recoveries.
57
<PAGE> 58
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Metallurg, Inc.
In our opinion, the accompanying consolidated balance sheet as of January 31,
1999 and the related statements of consolidated operations and of consolidated
cash flows present fairly, in all material respects, the financial position of
Metallurg, Inc. and its subsidiaries (the "Company") at January 31, 1999, and
the results of its operations and its cash flows for the year then ended, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above. The consolidated balance sheet of the Company as of January 31, 1998 and
March 31, 1997 and the related statements of consolidated operations and
consolidated cash flows for the three quarters ended January 31, 1998
(Reorganized Company), the quarter ended March 31, 1997 and the year ended
December 31, 1996 (Predecessor Company) were audited by other independent
accountants whose report dated April 1, 1998 expressed an unqualified opinion on
those statements.
PricewaterhouseCoopers LLP
New York, New York
March 31, 1999
58
<PAGE> 59
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 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 the year ended December 31, 1996 (Predecessor Company operations). Our
audits also included the financial statement schedule, Schedule VIII - Valuation
and Qualifying Accounts and Reserves for the three quarters ended January 31,
1998 and the quarter ended March 31, 1997 (Reorganized Company) and the year
ended December 31, 1996 (Predecessor Company), appearing on page 104. 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 3 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 the prior periods as
described in Notes 1 and 3.
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
results of their consolidated operations and their consolidated cash flows for
the quarter ended March 31, 1997 and for the year 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
59
<PAGE> 60
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Reorganized Company Predecessor Company
-------------------------- --------------------------
Year Three Quarters Quarter Year
Ended Ended Ended Ended
January 31, January 31, March 31, December 31,
Notes 1999 1998 1997 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Sales ....................................... 1 $ 606,334 $ 476,426 $ 155,427 $ 648,816
Commission income ........................... 1 835 541 160 1,186
--------- --------- --------- ---------
Total revenue ............................. 607,169 476,967 155,587 650,002
Cost of sales ............................... 1 525,861 410,033 134,060 566,538
--------- --------- --------- ---------
Gross margin .............................. 81,308 66,934 21,527 83,464
Selling, general, and
administrative expenses ................... 58,638 43,563 15,046 57,103
Environmental expenses ...................... 1 -- -- -- 37,582
Merger-related costs ........................ 2 7,888 -- -- --
--------- --------- --------- ---------
Operating income (loss) ................... 14,782 23,371 6,481 (11,221)
Other:
Other income (expense), net ................. 13 1,808 1,805 3,179 (6,759)
Interest income (expense), net .............. 3,9 (9,870) (5,653) (245) 1,473
Reorganization expense ...................... 3 -- -- (2,663) (3,535)
Fresh-start revaluation ..................... 3 -- -- 5,107 --
--------- --------- --------- ---------
Income (loss) before income tax provision and
extraordinary item ....................... 6,720 19,523 11,859 (20,042)
Income tax provision (benefit) .............. 1,11 4,788 12,459 (3,063) 8,453
--------- --------- --------- ---------
Income (loss) before extraordinary
item ..................................... 1,932 7,064 14,922 (28,495)
Extraordinary item, net of tax .............. 1,3 -- (792) 43,032 --
--------- --------- --------- ---------
Net income (loss) ........................... 1,932 6,272 57,954 (28,495)
Other comprehensive income:
Foreign currency translation adjustment .. 1,12 (1,004) 673 (1,224) 4,268
Minimum pension liability adjustment ..... (57) -- -- --
--------- --------- --------- ---------
Comprehensive income (loss) ............... $ 871 $ 6,945 $ 56,730 $ (24,227)
========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
60
<PAGE> 61
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
January 31, January 31, March 31,
Notes 1999 1998 1997
--------- --------- --------- ---------
ASSETS (Note 3)
<S> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents .............................. 1 $ 37,293 $ 43,003 $ 30,340
Trade receivables, less allowance for doubtful
accounts (1999: $1,770; 1998: $1,700; 1997 $-0-) .. 1 63,680 83,931 94,150
Inventories ............................................ 1,6 120,658 117,589 109,258
Prepaid expenses and other current assets .............. 16,048 14,239 16,312
Assets held for sale ................................... 1 711 -- 1,180
--------- --------- ---------
Total current assets ................................. 238,390 258,762 251,240
Investments in affiliates ................................. 1,5 5,396 1,610 1,461
Property, plant and equipment, net ........................ 1,7 49,018 41,502 38,907
Other assets .............................................. 18,313 17,912 14,096
--------- --------- ---------
Total ................................................ $ 311,117 $ 319,786 $ 305,704
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term debt ........................................ 9 $ 3,871 $ 2,836 $ 13,500
Current portion of long-term debt ...................... 9 1,074 1,180 1,277
Trade payables ......................................... 37,460 51,308 55,947
Accrued expenses ....................................... 19,063 24,022 25,351
Current portion of environmental liabilities ........... 1,14 6,738 6,553 5,270
Taxes payable .......................................... 11 3,955 5,106 6,579
--------- --------- ---------
Total current liabilities ............................ 72,161 91,005 107,924
--------- --------- ---------
Long-term Liabilities:
Long-term debt ......................................... 9 109,185 103,133 51,711
Accrued pension liabilities ............................ 1,8 41,062 38,351 41,090
Environmental liabilities, net ......................... 1,14 35,463 38,527 42,865
Other liabilities ...................................... 5,556 6,999 12,114
--------- --------- ---------
Total long-term liabilities ............................... 191,266 187,010 147,780
--------- --------- ---------
Total liabilities ......................................... 263,427 278,015 255,704
--------- --------- ---------
Commitments and Contingencies ............................. 15
Shareholders' Equity:
Common stock - 1999: par value $.01 per share, authorized
10,000,000 shares, issued and outstanding 5,000,000 shares;
1998 and 1997: par value $.01 per share, authorized
15,000,000 shares, issued and outstanding 4,956,406 shares 12 50 50 50
Additional paid-in capital ................................ 12 45,257 40,209 49,950
Accumulated other comprehensive income .................... 12 (388) 673 --
Retained earnings ......................................... 2,771 839 --
--------- --------- ---------
Total shareholders' equity ........................... 47,690 41,771 50,000
--------- --------- ---------
Total .............................................. $ 311,117 $ 319,786 $ 305,704
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
61
<PAGE> 62
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Reorganized Company Predecessor Company
-------------------------- --------------------------
Year Three Quarters Quarter Year
Ended Ended Ended Ended
January 31, January 31, March 31, December 31,
1999 1998 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ........................................... $ 1,932 $ 6,272 $ 57,954 $ (28,495)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Executive stock awards .................................... 750 1,250 500 --
Extraordinary item, net of taxes .......................... -- -- (43,032) --
Fresh-start revaluation ................................... -- -- (5,107) --
Depreciation and amortization ............................. 8,580 5,320 2,143 10,688
Gain on sales of assets ................................... (324) (1,848) (3,266) (3,597)
Reorganization expense, net of payments ................... -- (4,298) 1,538 894
Deferred income taxes ..................................... (701) 5,338 (3,767) (51)
Provision for doubtful accounts ........................... 109 1,100 162 696
Environmental payments, net of provision in 1996 .......... (3,029) (2,468) (256) 32,473
Provision for allowed claims ............................. -- -- -- 10,547
Other, net ................................................ 1,856 3,659 3,057 5,961
--------- --------- --------- ---------
Total ..................................................... 9,173 14,325 9,926 29,116
Changes in operating assets and liabilities:
Decrease (increase) in trade receivables .................... 22,230 8,791 (20,272) 9,916
(Increase) decrease in inventories .......................... (975) (14,853) (6,120) 14,308
(Increase) decrease in other current assets ................. (1,424) 1,961 (355) (1,210)
(Decrease) increase in trade payables and accrued expenses .. (17,253) (5,650) 18,895 1,412
Decrease in prepetition liabilities ......................... -- -- (39) (189)
Receipt from environmental trust, net ....................... -- -- 5,928 --
Other assets and liabilities, net ........................... (8,134) (4,920) (1,547) (5,688)
--------- --------- --------- ---------
Net cash provided by (used in) operating activities 3,617 (346) 6,416 47,665
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment .................. (15,682) (9,447) (2,774) (9,531)
Proceeds from asset sales ................................... 1,419 3,747 4,966 5,806
Other, net .................................................. (3,901) 14 (25) (1,294)
--------- --------- --------- ---------
Net cash (used in) provided by investing activities (18,164) (5,686) 2,167 (5,019)
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING AND REORGANIZATION ACTIVITIES:
Capital contribution from Safeguard International ........... 3,541 -- -- --
Cash distribution pursuant to Plan of Reorganization ........ -- -- (59,366) --
Drawdown of prepetition letters of credit ................... -- -- 9,700 --
Proceeds from long-term debt ................................ 6,598 100,000 8,100 --
Fees paid to issue long-term debt ........................... -- (4,000) -- --
Net borrowing (repayment) of short-term debt ................ 632 (9,313) 1,062 (14,709)
Repayment of long-term debt ................................. (2,089) (48,309) (487) (1,408)
Payment of dividends ........................................ -- (19,330) -- --
--------- --------- --------- ---------
Net cash provided by (used in) financing
and reorganization activities ........................... 8,682 19,048 (40,991) (16,117)
--------- --------- --------- ---------
Effects of exchange rate changes on cash and cash equivalents 155 (353) (526) (83)
--------- --------- --------- ---------
Net (decrease) increase in cash and cash equivalents ........ (5,710) 12,663 (32,934) 26,446
Cash and cash equivalents-beginning of period ............... 43,003 30,340 63,274 36,828
--------- --------- --------- ---------
Cash and cash equivalents-end of period ..................... $ 37,293 $ 43,003 $ 30,340 $ 63,274
========= ========= ========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for income taxes .................................. $ 7,939 $ 6,859 $ 1,524 $ 5,817
========= ========= ========= =========
Cash paid for interest ...................................... $ 12,372 $ 6,715 $ 619 $ 3,021
========= ========= ========= =========
Cash paid for reorganization expense ........................ $ 186 $ 5,423 $ 1,125 $ 2,641
========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
62
<PAGE> 63
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Metallurg, Inc. and its majority-owned subsidiaries (collectively, "Metallurg")
manufacture and sell high quality metal alloys and specialty metals used by
manufacturers of steel, aluminum, superalloys and chemicals and other metal
consuming industries. Metallurg sells more than 500 different products to over
3,000 customers worldwide (primarily in North America and Europe).
Basis of Presentation and Consolidation - The consolidated financial statements
include the accounts of Metallurg, Inc. and its majority-owned subsidiaries. All
material intercompany transactions and balances have been eliminated in
consolidation. The accounts of foreign subsidiaries have been translated into
U.S. dollars in accordance with Statement of Financial Accounting Standards
("SFAS") No. 52.
On July 13, 1998, Metallurg was acquired by a group of institutional
co-investors led by Safeguard International Fund, L.P. ("Safeguard
International"). Metallurg is now a wholly owned subsidiary of Metallurg
Holdings Inc., ("Metallurg Holdings") a Delaware corporation formed on June 10,
1998 by Safeguard International to effect the acquisition. The financial
statements do not reflect the pushdown of purchase accounting adjustments
recorded by Metallurg Holdings.
On February 26, 1997, the Fourth Amended and Restated Joint Plan of
Reorganization (the "Plan") of Metallurg, Inc. and one of its subsidiaries,
Shieldalloy Metallurgical Corporation ("Shieldalloy") (collectively, 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, Metallurg 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' Statement of Position
("SOP") No. 90-7, "Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code", Metallurg was required to report its financial results for the
period ended 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 Metallurg after consummation of
the Plan are not directly comparable to Metallurg's financial statements of
prior periods.
Effective April 1, 1997, the reporting period of Metallurg, Inc. was changed
from a calendar year ending December 31 to a fiscal year ending January 31 and
began reporting the results of its operating subsidiaries, which retained a
calendar year-end, on a one-month lag. As a result of this change, the three
quarters ended January 31, 1998 include the results of Metallurg, Inc. for the
ten months ended January 31, 1998 and the results of its operating subsidiaries
for the nine months ended December 31, 1997.
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 - Metallurg presents all highly liquid instruments,
maturing within 30 days or less when purchased, as cash equivalents.
63
<PAGE> 64
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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, as discussed below. Metallurg's Brazilian
operating subsidiary adopted a plan to restructure mining and certain other
operations in 1995. The remaining carrying amount of assets no longer needed in
these operations, and which are being held for sale in 1999, totaled $711,000.
At March 31, 1997, an office building owned by Metallurg's United Kingdom
subsidiary, valued at approximately $1,180,000 was held for sale.
Investments in Affiliates - Investments in affiliates in which Metallurg has a
20% to 50% ownership interest and exercises significant management influence are
accounted for in accordance with the equity method. Investments in which the
Company has less than a 20% interest are carried at cost.
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 or 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.
Revenue Recognition - Sales represent amounts invoiced to customers by Metallurg
and such revenue is recognized when the product is shipped and title to the
product passes to the customer. In certain instances, Metallurg arranges sales
for which the supplier invoices the customer directly ("agency sales"). In such
cases, Metallurg receives commission income, which is recognized when the
supplier passes title to the customer.
Environmental Remediation Costs - In accordance with 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. Cost of future expenditures for
environmental remediation obligations are generally not discounted to their
present value.
Valuation of Long-Lived Assets - In 1995, Metallurg adopted SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of". In accordance with this standard, Metallurg periodically
evaluates the carrying value of long-lived assets to be held and used, including
goodwill and other intangible assets, when events and circumstances warrant such
a review. The carrying value of a long-lived asset is considered impaired when
the anticipated undiscounted cash flow from such asset is separately
identifiable and is less than its carrying value. In that event, a loss is
recognized based on the amount by which the carrying value exceeds the fair
market value of the long-lived asset. Fair market value is determined primarily
using the anticipated cash flows discounted at a rate commensurate with the risk
involved. Losses on long-lived assets to be disposed of are determined in a
similar manner, except that fair market values are reduced for the cost to
dispose.
Income Taxes - Metallurg uses the liability method whereby deferred income taxes
are provided for the temporary differences between the financial reporting basis
and the tax basis of Metallurg's assets and liabilities. Metallurg does not
provide for U.S. Federal income taxes on the accumulated earnings considered
permanently reinvested in certain of its foreign subsidiaries which approximated
$40,000,000, $37,000,000 and $38,000,000 at January 31, 1999, January 31, 1998
and March 31, 1997, 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 remittance and inclusion in
U.S. taxable income. Accordingly, Metallurg does not provide for U.S. income
taxes on foreign currency translation adjustments related to these foreign
subsidiaries.
64
<PAGE> 65
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Retirement Plans - Pension costs of Metallurg and its domestic consolidated
subsidiaries are funded or accrued currently. Metallurg'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 - Metallurg 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 Metallurg'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 transaction gains of
$618,000, $987,000, $712,000 and $1,853,000 were recorded for the year ended
January 31, 1999, the three quarters ended January 31, 1998, the quarter ended
March 31, 1997 and the year ended December 31, 1996, respectively. Translation
gains and losses resulting from reporting foreign subsidiaries in U.S. dollars
are recorded directly to shareholders' equity.
Financial Instruments - Metallurg 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. Metallurg 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 Metallurg also has other financial relationships. Metallurg is
exposed to credit risk generally limited to unrealized gains in such contracts
in the event of nonperformance by counterparties of those financial instruments,
but it does not expect any counterparties to fail to meet their obligations
given their high credit ratings.
Extraordinary Item - In November 1997, Metallurg recognized an extraordinary
charge of $792,000, net of tax of $473,600, as a result of the early retirement
of Metallurg'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, Metallurg recognized an extraordinary gain
of $43,032,000 net of tax of nil, relating to the discharge of indebtedness at
the consummation of the Plan of Metallurg, Inc. and Shieldalloy.
Recently Issued Accounting Pronouncements - In June 1998, the FASB issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS
No. 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. SFAS No. 133 is effective
for all fiscal quarters of fiscal years beginning after June 15, 1999. Metallurg
is currently evaluating the impact SFAS No. 133 will have on its financial
statements.
Reclassification - Certain prior year amounts were reclassified to conform to
1999 presentations.
65
<PAGE> 66
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
2. MERGER
On July 13, 1998, Metallurg was acquired by a group of investors led by
Safeguard International. The acquisition was accomplished by Metallurg
Acquisition Corp., a wholly owned subsidiary of Metallurg Holdings, a Delaware
corporation, merging with and into Metallurg, with Metallurg being the surviving
company and Metallurg Holdings becoming the sole parent of Metallurg. Metallurg
Holdings was formed on June 10, 1998 and is owned by Safeguard International (an
international private equity fund that invests primarily in equity securities of
companies in process industries), certain limited partners of Safeguard
International, certain individuals and a private equity fund.
In connection with the Merger, Metallurg received the consents of 100% of the
registered holders of its $100,000,000 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 and to amend the definition of "Permitted
Holders" under the Senior Note Indenture to reflect the post-merger ownership of
Metallurg. No other modifications to terms of outstanding debt were affected in
this regard. At the time of the Merger, each outstanding share of Metallurg
common stock was converted into the right to receive $30 in cash. As of July 13,
1998, in connection with the Merger, all of the then outstanding shares of
common stock of Metallurg were cancelled and 100 shares of common stock, $0.01
par value, were issued to Metallurg Holdings.
Merger-related costs of $7,888,000 were incurred, and recorded as expense by
Metallurg, in the year ended January 31, 1999 and included (a) $3,541,000 for
payments to cancel compensatory stock options; (b) $625,000 in consent fees
incurred in order to obtain the one-time waiver of the change of control
provisions of the Senior Note Indenture; (c) $2,822,000 for payments made
pursuant to existing employment agreements with Metallurg management and (d)
$900,000 of other merger-related costs.
3. PLAN OF REORGANIZATION AND FRESH-START REPORTING
Costs of administration of the Chapter 11 proceedings approximating $2,663,000
and $3,535,000 were recorded by the Debtors during the quarter ended March 31,
1997 and the year ended December 31, 1996, 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.
66
<PAGE> 67
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (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 Year
Ended Ended
March 31, December 31,
1997 1996
-------- ---------
<S> <C> <C>
Total revenue ................................ $ 56,858 $ 224,572
-------- ---------
Operating costs and expenses:
Cost of sales .............................. 51,630 208,733
Selling, general and administrative expenses 4,942 14,440
Environmental expenses ..................... -- 35,176
-------- ---------
Total operating costs and expenses ....... 56,572 258,349
-------- ---------
Operating income (loss) ...................... 286 (33,777)
Other:
Other income (expense), net ................ (7,269) (21,778)
Interest (expense) income, net ............. (239) 2,775
Reorganization expense ..................... (2,663) (3,535)
Fresh-start revaluation .................... 1,050 --
Equity in earnings of subsidiaries ......... 19,367 28,012
-------- ---------
Income (loss) before income tax provision and
extraordinary item ....................... 10,532 (28,303)
Income tax (benefit) provision ............... (211) 192
-------- ---------
Income (loss) before extraordinary item ...... 10,743 (28,495)
Extraordinary item, net of tax ............... 47,211 --
-------- ---------
Net income (loss) ............................ $ 57,954 $ (28,495)
======== =========
</TABLE>
67
<PAGE> 68
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
METALLURG, INC. AND SHIELDALLOY METALLURGICAL CORP.
CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
March 31,
1997
---------
<S> <C>
ASSETS
Current Assets:
Cash and cash equivalents ........ $ 9,991
Accounts and notes receivable, net 40,796
Inventories ...................... 36,200
Other assets ..................... 4,643
---------
Total current assets .......... 91,630
Property, plant and equipment, net .. 9,375
Investments - intergroup ............ 64,773
Investments - other ................. 244
Other assets ........................ (4,177)
---------
Total ......................... $ 161,845
=========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Trade payables ................... $ 15,326
Accrued expenses ................. 16,006
Other current liabilities ........ 565
---------
Total current liabilities ..... 31,897
---------
Long-term Liabilities:
Long-term debt .................. 39,461
Accrued pension liabilities ..... 2,143
Environmental liabilities, net .. 36,949
Other liabilities ............... 1,395
---------
Total long-term liabilities ... 79,948
---------
Total liabilities .......... 111,845
---------
Shareholders' Equity:
Common stock outstanding ......... 50
Additional paid-in capital ....... 49,950
Retained earnings ................ --
---------
Total shareholders' equity .... 50,000
---------
Total ...................... $ 161,845
=========
</TABLE>
68
<PAGE> 69
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
METALLURG, INC. AND SHIELDALLOY METALLURGICAL CORP.
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Quarter For the Year
Ended Ended
March 31, December 31,
1997 1996
-------- --------
<S> <C> <C>
Net Cash Flows from Operating Activities .................. $ 5,891 $ 11,723
-------- --------
Cash Flows from Investing Activities:
Additions to property, plant and equipment .............. (1,022) (679)
Proceeds from asset sales ............................... 4,215 493
Other, net .............................................. -- (6,192)
-------- --------
Net cash provided by (used in) investing activities 3,193 (6,378)
-------- --------
Cash Flows from Financing and Reorganization Activities:
Cash distribution pursuant to Plan of Reorganization .... (59,366) --
Drawdown of prepetition letters of credit ............... 9,700 --
Intergroup (repayments) borrowings ...................... (579) 5,835
Dividends received ...................................... 9,423 5,091
-------- --------
Net cash (used in) provided by financing and
reorganization activities ......................... (40,822) 10,926
-------- --------
Net (decrease) increase in cash and cash equivalents ...... (31,738) 16,271
Cash and cash equivalents - beginning of period ........... 41,729 25,458
-------- --------
Cash and cash equivalents - end of period ................. $ 9,991 $ 41,729
======== ========
</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.
Metallurg 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 Metallurg 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, Metallurg's property, plant and equipment and other noncurrent
assets were reduced by approximately $5,520,000. In addition, Metallurg'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 Metallurg's results of operations for the
quarter ended March 31, 1997.
The total reorganization value assigned to Metallurg's assets was estimated by
calculating projected cash flows before debt service requirements for a
three-year period, plus an estimated terminal value of Metallurg 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.
69
<PAGE> 70
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The effect of the Plan and the implementation of fresh-start reporting on
Metallurg's consolidated balance sheet as of March 31, 1997 were as follows
(in thousands):
<TABLE>
<CAPTION>
Prior to Effects Adoption of Opening
Joint Plan of Fresh-Start Balance
Effectiveness Joint Plan (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>
Notes:
(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.
70
<PAGE> 71
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
4. SEGMENTS AND RELATED INFORMATION
Metallurg adopted SFAS No. 131, "Disclosures About Segments of an Enterprise and
Related Information" in the year ended January 31, 1999 which changes the way
Metallurg reports information about its reportable segments. The accounting
policies of the reportable segments are the same as those described in Note 1
of the Notes to Consolidated Financial Statements. Information for prior periods
presented have been restated in order to conform to the current year
presentation.
Metallurg operates in one significant industry segment, the manufacture and sale
of ferrous and non-ferrous metals and alloys. 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. In addition to selling products manufactured by Metallurg,
Metallurg distributes complementary products manufactured by third parties.
Reportable Segments
Shieldalloy: This unit is comprised of two production facilities in the U.S.
The New Jersey plant manufactures and sells aluminum alloy grain refiners and
alloying tablets for the aluminum industry, metal powders for the welding
industry and specialty ferroalloys for the superalloy and steel industries. The
Ohio plant manufactures and sells ferrovanadium and vanadium based chemicals
used mostly in the steel and petrochemical industries. In addition to its
manufacturing operations, Shieldalloy imports and distributes complementary
products manufactured by affiliates and third parties.
LSM: This unit is comprised mainly of three production facilities in the UK
which manufacture and sell aluminum alloy grain refiners and alloying tablets
for the aluminum industry, chromium metal and specialty ferroalloys for the
steel and superalloy industries and aluminum powder for various metal powder
consuming industries.
GfE: This unit is comprised of two production facilities and a sales office in
Germany. The Nuremburg plant manufactures and sells a wide variety of specialty
products, including vanadium based chemicals and sophisticated metals, alloys
and powders used in the titanium, superalloy, electronics, steel, biomedical and
optics industries. The Morsdorf plant produces medical prostheses, implants and
surgical instruments for orthopedic applications.
EWW: This production unit, also located in Germany, produces various grades of
low carbon ferrochrome used in the superalloy, welding and steel industries.
71
<PAGE> 72
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Summarized financial information concerning the Metallurg's reportable segments
is shown in the following table (in thousands). Each segment records direct
expenses related to its employees and operations. The "Other" column includes
corporate related items, fresh-start adjustments and results of subsidiaries not
meeting the quantitative thresholds as prescribed by applicable accounting
rules. Metallurg does not allocate general corporate overhead expenses to
operating segments.
<TABLE>
<CAPTION>
Intersegment Consolidated
Shieldalloy LSM GfE EWW Other Eliminations Totals
----------- --- --- --- ----- ------------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR
ENDED JANUARY 31, 1999
Revenues from external
customers ............ $186,062 $ 119,158 $109,817 $ 17,140 $ 174,992 $ 607,169
Intergroup revenue ..... 5,214 52,039 20,382 30,645 55,293 $(163,573) --
Interest income ........ 1,507 286 242 105 4,630 (3,807) 2,963
Interest expense ....... 208 614 1,331 120 14,367 (3,807) 12,833
Depreciation and
amortization.. ....... 1,669 2,515 2,433 1,044 919 -- 8,580
Income tax provision
(benefit)............. 3,529 1,835 174 (857) 107 -- 4,788
Net income ............. 7,617 5,301 2,985 429 4,739 (19,139) 1,932
Assets ................. 88,601 75,221 43,927 36,148 245,063 (177,843) 311,117
Capital expenditures ... 2,310 4,594 4,560 1,527 2,691 -- 15,682
FOR THE THREE QUARTERS
ENDED JANUARY 31, 1998
Revenues from external
customers ............ $147,332 $ 93,100 $ 65,327 $ 14,841 $ 156,367 $ 476,967
Intergroup revenue ..... 3,178 40,016 8,686 27,117 57,491 $(136,488) --
Interest income ........ 841 187 46 40 3,412 (1,909) 2,617
Interest expense ....... 230 829 1,020 71 8,029 (1,909) 8,270
Depreciation and
amortization.......... 1,553 1,626 1,039 935 167 -- 5,320
Income tax provision ... 2,757 1,630 2,097 2,613 3,362 -- 12,459
Extraordinary items .... -- (82) -- -- (710) -- (792)
Net income ............. 5,575 5,695 1,380 747 1,953 (9,078) 6,272
Assets ................. 91,969 83,711 40,889 37,239 245,230 (179,252) 319,786
Capital expenditures ... 1,086 4,795 1,363 792 1,411 -- 9,447
</TABLE>
72
<PAGE> 73
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
<TABLE>
<CAPTION>
Intersegment Consolidated
Shieldalloy LSM GfE EWW Other Eliminations Totals
----------- --- --- --- ----- ------------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE QUARTER
ENDED MARCH 31, 1997
Revenues from external
customers ............... $ 51,757 $ 32,621 $ 21,192 $ 5,380 $ 44,637 $ 155,587
Intergroup revenue ......... 704 12,236 2,445 9,217 18,338 $ (42,940) --
Interest income ............ 808 61 7 24 1,692 (1,131) 1,461
Interest expense ........... 252 8 408 48 2,121 (1,131) 1,706
Depreciation and
amortization.............. 560 470 409 329 375 -- 2,143
Income tax provision
(benefit)................. 30 2,998 (428) (6,176) 513 -- (3,063)
Extraordinary items ........ (16,903) (1,985) (1,573) (420) 63,913 -- 43,032
Net income (loss) .......... (19,700) 1,826 (1,547) 8,999 68,716 (340) 57,954
Assets ..................... 85,161 84,885 41,422 40,209 200,408 (146,381) 305,704
Capital expenditures ....... 311 1,294 130 94 945 -- 2,774
Significant non-cash item:
Fresh start revaluation .... (4,719) 5,739 (1,040) 1,216 3,911 5,107
FOR THE YEAR
ENDED DECEMBER 31, 1996
Revenues from external
customers ............... $ 197,057 $125,583 $ 78,988 $ 28,805 $ 219,569 $ 650,002
Intergroup revenue ......... 2,714 41,390 13,112 42,392 49,520 $(149,128) --
Interest income ............ 2,160 209 37 113 5,488 (3,491) 4,516
Interest expense ........... 639 105 2,755 678 2,357 (3,491) 3,043
Depreciation and
amortization.............. 3,016 2,391 2,661 2,526 94 -- 10,688
Income tax provision ....... 119 1,752 915 -- 5,667 -- 8,453
Net income (loss) .......... (40,822) 3,558 8,917 10,574 (26,701) 15,979 (28,495)
Assets ..................... 105,260 78,729 64,225 52,154 201,760 (170,502) 331,626
Capital expenditures ....... 589 4,593 2,772 754 823 -- 9,531
Significant non-cash items:
Environmental provision .... 33,600 -- -- -- -- -- 33,600
Provision for allowed claims 8,983 -- -- -- 1,564 -- 10,547
</TABLE>
The following table presents revenue by region based on the location of the user
of the product.
<TABLE>
<CAPTION>
For the
For the Year Three Quarters For the Quarter For the Year
Ended Ended Ended Ended
January 31, January 31, March 31, December 31,
1999 1998 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
North America ..... $249,151 $181,042 $ 59,062 $259,526
Europe ............ 281,206 223,920 73,051 291,967
Asia .............. 26,057 23,821 7,771 32,441
South America ..... 9,602 9,529 3,109 12,976
Other ............. 40,318 38,114 12,434 51,906
Commission income . 835 541 160 1,186
-------- -------- -------- --------
Total revenues $607,169 $476,967 $155,587 $650,002
======== ======== ======== ========
</TABLE>
73
<PAGE> 74
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Metallurg sells its products in over fifty countries. Information regarding
sales by country is not readily available for prior periods. In the year ended
January 31, 1999, however, sales by country include:
<TABLE>
<S> <C>
United States ... $206,958
Germany ......... 83,911
United Kingdom .. 53,974
Canada .......... 37,695
Sweden .......... 28,557
South Africa .... 28,520
Italy ........... 18,029
Other ........... 148,690
Commission income 835
--------
Total revenues $607,169
========
</TABLE>
The following table presents property, plant and equipment by country based on
the location of the assets.
<TABLE>
<CAPTION>
January 31, January 31, March 31,
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
United Kingdom $18,260 $16,265 $12,867
Germany ...... 14,783 10,892 11,390
United States 8,563 7,825 7,789
Brazil ....... 4,406 2,970 3,225
Other ........ 3,006 3,550 3,636
------- ------- -------
Total ........ $49,018 $41,502 $38,907
======= ======= =======
</TABLE>
5. INVESTMENT IN AFFILIATES
In February 1998 and in August 1996, Metallurg purchased 5% interests,
respectively, in Solikamsk Magnesium Works, a Russian magnesium metal producer,
for approximately $2,000,000 and $1,000,000, respectively. Also during March
1998, Metallurg 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.
In March 1997, Metallurg sold its 50% interest in AMPAL for proceeds
approximating book value of $1,200,000.
In December 1996, SMC sold its wholly owned subsidiary, Frankel Metal Company, a
processor of titanium scrap, to FMC's management and recorded a net loss on the
sale of $460,000.
74
<PAGE> 75
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
6. INVENTORIES
Inventories, net of reserves, consist of the following (in thousands):
<TABLE>
<CAPTION>
January 31, January 31, March 31,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Raw materials . $ 29,096 $ 32,938 $ 21,769
Work in process 3,249 1,981 2,330
Finished goods 83,116 77,473 80,500
Other ......... 5,197 5,197 4,659
-------- -------- --------
Total .... $120,658 $117,589 $109,258
======== ======== ========
</TABLE>
7. PROPERTY, PLANT AND EQUIPMENT
The major classes of property, plant and equipment are as follows (in
thousands):
<TABLE>
<CAPTION>
January 31, January 31, March 31, Estimated
1999 1998 1997 Lives
---- ---- ---- -----
(in years)
<S> <C> <C> <C> <C>
Land ............................... $ 2,937 $ 2,899 $ 3,019
Buildings and leasehold improvements 14,872 13,766 13,205 10-32
Machinery .......................... 33,440 22,388 17,729 3-17
Office furniture and equipment ..... 4,177 2,797 2,046 3-17
Transportation equipment ........... 1,981 1,844 1,588 3-5
Construction in progress ........... 3,529 3,106 1,320
------- ------- -------
Total ............................. 60,936 46,800 38,907
Less: accumulated depreciation ..... 11,918 5,298 --
------- ------- -------
Property, plant and equipment, net . $49,018 $41,502 $38,907
======= ======= =======
</TABLE>
Depreciation expense related to property, plant and equipment charged to
operations for the year ended January 31, 1999, the three quarters ended January
31, 1998, the quarter ended March 31, 1997 and the year ended December 31, 1996
was $7,959,000, $5,320,000, $2,126,000 and $10,621,000, respectively.
75
<PAGE> 76
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
8. RETIREMENT PLANS
Metallurg adopted SFAS No. 132, "Employers' Disclosure about Pensions and other
Postretirement Benefits" in the year ended January 31, 1999. 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".
Defined Benefit Plans
The following table summarizes the changes in benefit obligation and changes in
plan assets for the periods presented (in thousands):
<TABLE>
<CAPTION>
January 31, January 31, March 31,
1999 1998 1997
--------- --------- --------
<S> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year ............ $ 106,285 $ 99,039 $ 96,900
Service cost ....................................... 1,970 1,152 357
Interest cost ...................................... 7,104 5,096 1,710
Actuarial gain ..................................... 11,339 6,609 6,303
Employee contributions ............................. 336 326 --
Benefits paid ...................................... (4,684) (3,660) (1,139)
Foreign currency translation adjustment ............ 3,081 (2,277) (5,092)
--------- --------- --------
Benefit obligation at end of year .................. 125,431 106,285 99,039
--------- --------- --------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year ..... 77,216 66,023 62,763
Actual return on plan assets ....................... 14,308 11,176 5,684
Employer/employee contributions .................... 1,590 1,620 --
Plan administrative expenses ....................... (56) (47) (5)
Benefits paid ...................................... (2,397) (1,966) (332)
Foreign currency translation adjustment ............ 328 410 (2,087)
--------- --------- --------
Fair value of plan assets at end of year ........... 90,989 77,216 66,023
--------- --------- --------
Funded status ...................................... (34,442) (29,069) (33,016)
Unrecognized net actuarial loss (gain) ............. 2,773 (659) --
--------- --------- --------
Accrued benefit cost, net .......................... $ (31,669) $ (29,728) $(33,016)
========= ========= ========
Amounts recognized in the statement of financial
position consist of:
Accrued pension liabilities ...................... $ (31,669) $ (29,728) $(33,016)
Adjustment required to recognize minimum liability (57) -- --
--------- --------- --------
Net amount recognized in balance sheet ............. $ (31,726) $ (29,728) $(33,016)
========= ========= ========
</TABLE>
76
<PAGE> 77
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
<TABLE>
<CAPTION>
For the Year For the Three For the Quarter For the Year
Ended Quarters Ended Ended Ended
January 31, January 31, March 31, December 31,
1999 1998 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
WEIGHTED-AVERAGE ASSUMPTIONS
Discount rate ................................. 5.5% - 6.5% 6.0% - 7.5% 6.0% - 8.5% 6.0% - 8.5%
Rate of compensation increase ................. 3.0% - 4.5% 3.0% - 6.0% 3.0% - 6.5% 3.0% - 6.5%
Expected return on plan assets ................ 8.0% - 9.0% 7.5% - 9.0% 7.5% - 9.0% 7.5% - 9.0%
</TABLE>
The following table summarizes the components of net periodic benefit cost (in
thousands):
<TABLE>
<S> <C> <C> <C> <C>
COMPONENTS OF NET PERIODIC BENEFIT COST
Service cost .................................. $ 1,970 $ 1,152 $ 357 $ 1,447
Interest cost ................................. 7,104 5,096 1,710 6,499
Expected return on plan assets ................ (11,164) (10,803) (1,978) (5,660)
Net amortization and deferral ................. 4,613 6,807 1,204 1,075
-------- -------- -------- --------
Net periodic benefit cost ..................... $ 2,523 $ 2,252 $ 1,293 $ 3,361
======== ======== ======== ========
</TABLE>
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. The funded status of these
plans are as follows (in thousands):
<TABLE>
<CAPTION>
January 31, January 31, March 31,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Benefit obligation ............................ $(19,297) $(17,071) $(16,489)
Plan assets ................................... 20,055 17,543 14,346
-------- -------- --------
Net ........................................ 758 472 (2,143)
Unrecognized actuarial gain ................... (2,681) (2,555) --
Adjustment to recognize minimum liability (57) -- --
-------- -------- --------
Accrued pension liability .................. $ (1,980) $ (2,083) $ (2,143)
======== ======== ========
</TABLE>
Metallurg's United Kingdom subsidiary maintains a defined benefit pension plan
covering all eligible employees. Substantially all plan assets are invested in
listed stocks and bonds. The funded status of this plan is as follows (in
thousands):
<TABLE>
<CAPTION>
January 31, January 31, March 31,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Benefit obligation ............................ $(67,558) $(53,331) $(44,022)
Plan assets ................................... 70,934 59,673 51,677
-------- -------- -------
Net ........................................ 3,376 6,342 7,655
Unrecognized actuarial loss 5,454 1,896 --
-------- -------- --------
Prepaid pension cost ....................... $ 8,830 $ 8,238 $ 7,655
======== ======== ========
</TABLE>
77
<PAGE> 78
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Metallurg's German subsidiaries maintain unfunded defined benefit pension plans
covering substantially all eligible employees. The plans had been amended in
1992 in a manner that terminated any credit for future service. These plans were
amended in 1998 and accordingly, (i) credit for future service was reinstated,
retroactive to January 1, 1993, for certain employees and (ii) benefits were
adjusted for cost of living increases not recognized subsequent to 1992. Accrued
pension liabilities were $38,576,000, $35,883,000 and $38,528,000 at January 31,
1999, January 31, 1998 and March 31, 1997, respectively.
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 $207,000, $165,000,
$62,000 and $229,000 in the year ended January 31, 1999, the three quarters
ended January 31,1998, the quarter ended March 31, 1997 and the year ended
December 31, 1996, respectively.
Balance sheet accruals for pension plans of Metallurg's other foreign
subsidiaries approximate or exceed the related actuarially computed value of
accumulated benefit obligations. Accrued pension liabilities for these plans
were $506,000, $385,000 and $419,000 at January 31, 1999, January 31, 1998 and
March 31, 1997, respectively. Pension expense relating to Metallurg's other
foreign subsidiaries' pension plans was $213,000, $353,000, $96,000 and $228,000
for the year ended January 31, 1999, the three quarters ended January 31, 1998,
the quarter ended March 31, 1997 and the year ended December 31, 1996.
Metallurg maintained certain non-qualified retirement benefit arrangements for
certain individuals. Pension expense relating to certain of those arrangements
was $300,000 in the year ended December 31, 1996. No expense was recorded for
these arrangements subsequent to 1996.
78
<PAGE> 79
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
BORROWINGS
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
January 31, January 31, March 31,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Parent company and domestic subsidiaries:
11% senior notes ...................... $100,000 $100,000
12% senior-secured notes .............. -- -- $39,461
-------- -------- -------
Subtotal ........................... 100,000 100,000 39,461
-------- -------- -------
Foreign subsidiaries:
Germany ............................... 10,151 4,123 5,133
United Kingdom ........................ -- -- 8,100
Other ................................. 108 190 294
-------- -------- -------
Subtotal ........................... 10,259 4,313 13,527
-------- -------- -------
Less: amounts due within one year ....... 1,074 1,180 1,277
-------- -------- -------
Total long-term debt .............. $109,185 $103,133 $51,711
======== ======== =======
</TABLE>
Metallurg, Inc. and Domestic Subsidiaries
In November 1997, Metallurg, Inc. sold the $100,000,000 Senior Notes which
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 Metallurg, Inc., 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 Metallurg.
The Senior Notes are fully and unconditionally guaranteed by the U.S.
subsidiaries of Metallurg, Inc. on a senior unsecured basis. The Indenture
contains limitations on, among other things, the ability of Metallurg to incur
indebtedness and enter into certain mergers, consolidations or asset sales. In
addition, Metallurg, Inc. is prohibited from making dividends in an amount
greater than 50% of its net income under terms of the Indenture.
Pursuant to the Plan, Metallurg, Inc. and Shieldalloy (the "Borrowers") entered
into an agreement with certain financial institutions led by BankBoston, N.A.,
as agent, 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.
Metallurg, Inc. 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 that is based on eligible accounts
receivable, inventory and certain fixed assets. At January 31, 1999, there were
no borrowings under this facility; however, outstanding letters of credit
approximated $23,789,000. Substantially all assets of the Borrowers are pledged
as collateral under this agreement. The revolving credit agreement, which
expires on April 14, 2000, prohibits Metallurg, Inc. from making dividends and
requires the Borrowers and certain subsidiaries to comply with various
covenants, including the maintenance of minimum levels of quarterly earnings
before interest, taxes, depreciation and amortization, as defined in the
Indenture ("Adjusted EBITDA"). These companies were required to maintain
quarterly Adjusted EBITDA of $1,000,000. For the quarter ended December 31,
1998, Adjusted EBITDA of such companies was a loss of $7,300,000; accordingly,
BankBoston waived that requirement of the agreement as of, and for the quarter,
ended December 31, 1998 and amended the agreement to eliminate the Adjusted
EBITDA quantitative covenants so long as certain other defined cash positions
are maintained as prescribed in the agreement.
79
<PAGE> 80
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
At September 2, 1993 (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 and $8,600,000 in excess of interest expense
reflected in the Statements of Consolidated Operations for the quarter ended
March 31, 1997 and the year ended December 31, 1996, respectively.
Foreign Subsidiaries
Pursuant to the Revolving Credit Facility, BankBoston, N.A., through its
Frankfurt office, is providing to GfE and its subsidiaries, up to DM 20,500,000
(approximately $12,300,000) of financing (the "German Subfacility"). The German
Subfacility is guaranteed by Metallurg, Inc. and the other U.S. borrowers and
outstanding obligations are limited to a borrowing base which is 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. At January 31, 1999, borrowings under the German Subfacility were
immaterial. Short-term unsecured borrowings of the GfE group with local banks
totaled DM 1,200,000 (approximately $700,000) at January 31, 1999. In August
1998, GfE entered into a term loan with IKB Deutsche Industrie Bank in the
amount of DM 10,000,000 (approximately $6,000,000). The loan, which matures in
2008, bears interest at a rate of 4.5% and is secured by certain property of
GfE. The GfE group also has term loans approximating DM 3,027,000 (approximately
$1,800,000) 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 up to pound sterling 7,000,000 (approximately
$11,600,000) of borrowings, up to pound sterling 3,300,000 (approximately
$5,500,000) of foreign exchange exposure and up to pound sterling 2,300,000
(approximately $3,800,000) for other ancillary banking arrangements, including
bank guarantees. The facility expires in October 1999 and bears interest at the
lender's base rate plus 1.0%. The facility is unsecured and contains
restrictions on dividends. In 1998, LSM increased a facility for borrowings and
foreign exchange exposure to pound sterling 4,000,000 (approximately
$6,600,000). This facility, which expires in December 1999, is unsecured and
borrowings bear interest at a rate of 1% over the bank's base rate. At January
31, 1999, there were no borrowings under these facilities.
EWW, a German subsidiary, has committed lines of credit with several banks in
the aggregate amount of DM 15,200,000 (approximately $9,100,000). 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, 1999, there were DM 3,600,000 (approximately $2,100,000)
of borrowings under these agreements. EWW also has a term loan of DM 2,400,000
(approximately $1,400,000) maturing in 2001. The term loan is secured by a
mortgage on certain real property and bears interest at 4.5%.
80
<PAGE> 81
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
In 1998, EWW borrowed DM 1,500,000 (approximately $900,000) to fund capital
additions. The loan, which matures in 2008, bears interest at 4.25%.
Metallurg, Inc.'s other foreign subsidiaries maintain short-term secured and
unsecured borrowing arrangements, generally in local currencies, with various
banks. Borrowings under these arrangements aggregated $1,021,000 at January 31,
1999 at a weighted average interest rate of 10.9%.
Interest expense totaled $12,833,000, $8,270,000, $1,706,000 and $3,043,000 for
the year ended January 31, 1999, the three quarters ended January 31, 1998, the
quarter ended March 31, 1997 and the year ended December 31, 1996.
The scheduled maturities of long-term debt during the next five years are
$1,074,000 in 1999, $989,000 in 2000, $963,000 in 2001, $413,000 in 2002,
$285,000 in 2003 and $106,535,000 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.
Fair values for investments in affiliates are not readily available.
The aggregate fair value of short-term bank debt approximates its carrying
amount because of recent and frequent repricing based on market conditions.
Based on quoted market prices, the fair value of Metallurg, Inc.'s $100,000,000
Senior Notes, issued in November 1997, approximates $89,000,000 and $103,700,000
at January 31, 1999 and 1998, respectively. The carrying amount of other
long-term debt approximates fair value.
Metallurg 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 amounts of the contracts outstanding as of January
31, 1999, January 31, 1998 and March 31, 1997 were approximately $29,800,000,
$44,200,000 and $42,000,000, respectively. These contracts are predominately
denominated in the currencies: Deutsche Marks, Pounds Sterling and U.S. Dollars.
The notional values provide an indication of the extent of Metallurg'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, 1999, January 31, 1998 and
March 31, 1997 were approximately $117,000, $231,000 and $1,493,000,
respectively.
81
<PAGE> 82
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 Year For the Three For the Quarter For the Year
Ended Quarters Ended Ended Ended
January 31, January 31, March 31, December 31,
1999 1998 1997 1996
-------- ------- ------- --------
<S> <C> <C> <C> <C>
United States $ (9,546) $ 3,871 $ 1,472 $(45,882)
Foreign ..... 16,266 15,652 10,387 25,840
-------- ------- ------- --------
Total ... $ 6,720 $19,523 $11,859 $(20,042)
======== ======= ======= ========
</TABLE>
The reconciliation of income tax from continuing operations computed at the U.S.
Federal statutory tax rate to Metallurg's effective tax rate is as follows (in
thousands):
<TABLE>
<CAPTION>
For the Three
For the Year Quarters For the Quarter For the Year
Ended Ended Ended Ended
January 31, 1999 January 31, 1998 March 31, 1997 December 31, 1996
----------------------------------------------------------------------------------------------
Tax Tax Tax Tax
Provision Provision Provision Provision
(Benefit) Percent (Benefit) Percent (Benefit) Percent (Benefit) Percent
--------- ------- --------- ------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income tax provision at
statutory rate ............... $ 2,285 34.0% $ 6,833 35.0% $ 4,032 34.0% $ (6,814) 34.0%
State and local income taxes, net
of Federal income tax effect.. 346 5.1 163 0.8 86 0.7 280 (1.4)
Effect of net increase of
foreign valuation allowance
and differences between U.S.
and foreign rates ............. (1,085) (16.2) 5,190 26.6 (6,886) (58.1) (757) 3.8
Foreign dividends, less benefit
of foreign tax credit ......... 3,254 48.4 185 0.9 -- -- -- --
Changes in domestic
valuation allowance .......... 290 4.3 -- -- (500) (4.2) 15,600 (77.8)
Other ........................... (302) (4.4) 88 0.5 205 1.7 144 (0.7)
------- ---- -------- ---- -------- ---- -------- ----
Total ........................... $ 4,788 71.2% $ 12,459 63.8% $ (3,063) (25.9%) $ 8,453 (42.1%)
======= ==== ======== ==== ======== ==== ======== ====
</TABLE>
82
<PAGE> 83
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The income tax provision (benefit) represents the following (in thousands):
<TABLE>
<CAPTION>
For the Year For the Three For the Quarter For the Year
Ended Quarters Ended Ended Ended
January 31, January 31, March 31, December 31,
1999 1998 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Current:
U.S. Federal .......................... $ (340) $ 600
Foreign ............................... 5,512 6,270 $ 573 $ 8,080
State and local ....................... 317 251 131 424
------- ------- ------- -------
Total current ....................... 5,489 7,121 704 8,504
------- ------- ------- -------
Deferred:
U.S Federal and state ................. 366 940 160 --
Foreign ............................... (1,067) 4,398 (3,927) (51)
------- ------- ------- -------
Total deferred ..................... (701) 5,338 (3,767) (51)
------- ------- ------- -------
Total income tax provision (benefit) $ 4,788 $12,459 $(3,063) $ 8,453
======= ======= ======= =======
</TABLE>
U.S. Federal income tax refunds receivable of $4,180,000, $2,070,000 and
$1,043,000 at January 31, 1999, January 31, 1998, and March 31, 1997,
respectively, relate primarily to the Federal tax deposits in excess of
estimated liabilities and carryback claims related to environmental expenses and
net operating losses, and are reflected in prepaid expenses in the accompanying
Consolidated Balance Sheets.
83
<PAGE> 84
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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 purposes. Significant components of
Metallurg's deferred tax assets and liabilities are as follows (in thousands):
<TABLE>
<CAPTION>
January 31, January 31, March 31,
1999 1998 1997
<S> <C> <C> <C>
Deferred Tax Assets:
NOL and other credit carryforwards ..................... $ 40,957 $ 37,295 $ 39,160
Retirement benefits .................................... 17,366 17,193 18,359
Environmental liabilities .............................. 13,760 16,090 16,976
Goodwill ............................................... 7,233 6,574 7,188
Allowance for doubtful accounts ........................ 2,302 3,646 2,762
Fixed assets ........................................... 307 309 1,848
Other .................................................. 775 1,393 3,907
-------- -------- --------
Total deferred assets ................................ 82,700 82,500 90,200
Deferred tax asset valuation allowance ................... (73,200) (72,300) (76,400)
-------- -------- --------
9,500 10,200 13,800
-------- -------- --------
Deferred Tax Liabilities:
Pension credits ........................................ (2,595) (2,549) (2,968)
Tax write-offs and reserves ............................ (2,268) (1,790) (3,339)
Fixed assets ........................................... (1,710) (2,827) (2,088)
Inventories ............................................ (827) (1,461) (712)
Earnings of foreign subsidiaries expected to be remitted -- -- (558)
Other .................................................. (400) (1,673) (1,835)
-------- -------- --------
Total deferred tax liabilities ....................... (7,800) (10,300) (11,500)
-------- -------- --------
Net deferred tax asset (liability) ................. $ 1,700 $ (100) $ 2,300
======== ======== ========
</TABLE>
At January 31, 1999, Metallurg has net operating loss carryforwards relating to
domestic operations of approximately $4,637,000 (subject to certain limitations
relative to utilization) which expire through 2010 and Alternative Minimum Tax
Credit carryforwards of approximately $700,000 which can be carried forward
indefinitely. Metallurg, Inc.'s consolidated foreign subsidiaries have income
tax loss carryforwards aggregating approximately $76,973,000, a substantial
portion of which relates to German operations which do not expire under current
regulations and certain Brazilian operations which partially expire through
2004. 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, 1999. However, during
the period ended March 31, 1997, Metallurg determined that a German subsidiary
has 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.
Included within the deferred tax benefit are the deferred tax effects of certain
deferred tax assets for which a corresponding credit has been recorded to
"Additional paid-in capital" approximating $700,000 and the deferred tax effects
of certain deferred tax assets, primarily foreign net operating losses, for
which a benefit has previously been recognized in the amount of $130,000.
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.
84
<PAGE> 85
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
12. SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Accumulated Total
Additional Other Retained Shareholders'
Common Stock Paid-In Comprehensive Earnings Equity
Shares Amount Capital Income (Deficit) (Deficit)
---------- ---------- ---------- ---------- ---------- ----------
(in thousands, except share and per share amounts)
<S> <C> <C> <C> <C> <C> <C>
PREDECESSOR COMPANY:
Balance at December 31, 1995 ............ 2,005 $ 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 ............ 2,005 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 ................ 4,954,401 30 $ 49,950 (14,531) 46,034 81,483
---------- ---------- ---------- ---------- ---------- ----------
REORGANIZED COMPANY:
Balance at March 31, 1997 ............... 4,956,406 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 ($3.90 per share) ........ -- -- (13,897) -- (5,433) (19,330)
---------- ---------- ---------- ---------- ---------- ----------
Balance at January 31, 1998 ............. 4,956,406 50 40,209 673 839 41,771
Net income .............................. -- -- -- -- 1,932 1,932
Change in translation adjustment ........ -- -- -- (1,004) -- (1,004)
Minimum pension liability
adjustment ........................... -- -- -- (57) -- (57)
Amortization of stock awards ............ -- -- 750 -- -- 750
Deferred tax effects of fresh-start
adjustments .......................... -- -- 757 -- -- 757
Capital contribution from
Safeguard International .............. -- -- 3,541 -- -- 3,541
Merger adjustments ...................... (4,956,306) (50) 50 -- -- --
Stock split ............................. 4,999,900 50 (50) -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Balance at January 31, 1999 ............. 5,000,000 $ 50 $ 45,257 $ (388) $ 2,771 $ 47,690
========== ========== ========== ========== ========== ==========
</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.
Effective April 14, 1997, the Certificate of Incorporation of Metallurg, Inc.
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 Metallurg, Inc. was subsequently
canceled. In addition, in accordance with the Plan, 4,706,406 shares were issued
to prepetition unsecured claimholders. Metallurg, Inc. 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.
85
<PAGE> 86
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
At the time of the Merger, each outstanding share of Metallurg, Inc. common
stock was converted into the right to receive $30 in cash. As of July 13, 1998,
in connection with the Merger, all of the then outstanding shares of common
stock of Metallurg, Inc. were canceled and 100 shares of common stock, $0.01
par value, were issued to Metallurg Holdings. In November 1998, the Certificate
of Incorporation of Metallurg, Inc. was amended to provide for 10,000,000
authorized shares of common stock and Metallurg, Inc. consummated a 50,000 for
1 stock split and, as a result, Metallurg, Inc. has 5,000,000 shares of common
stock, $0.01 par value, outstanding, all of which are owned by Metallurg
Holdings.
Total comprehensive income (loss) totaled $871,000, $6,945,000, $56,730,000 and
$(24,227,000) for the year ended January 31, 1999, the three quarters ended
January 31, 1998, the quarter ended March 31, 1997 and the year ended December
31, 1996.
Stock Compensation Plans
On November 20, 1998, the Board of Directors adopted the Metallurg, Inc. 1998
Equity Compensation Plan (the "ECP"), to provide (i) designated employees of
Metallurg, Inc. and its subsidiaries, (ii) certain advisors who perform services
for Metallurg, Inc. or its subsidiaries and (iii) non-employee members of the
Board of Directors of Metallurg, Inc. (the "Board") with the opportunity to
receive grants of incentive stock options, nonqualified stock options, stock
appreciation rights, restricted stock and performance units. Under the ECP,
500,000 shares of common stock were made available for stock awards and stock
options. Metallurg believes that the ECP will encourage the participants to
contribute materially to the growth of Metallurg, thereby benefiting
Metallurg's shareholders, and will align the economic interests of the
participants with those of the shareholders. Pursuant to the Company's ECP, the
Compensation Committee of Metallurg's Board awarded to eligible executives and
non-employee Board members options to purchase up to 450,000 and 12,500 shares
of common stock at an exercise price of $30.00 per share, effective as of
November 20, 1998 and January 4, 1999, respectively. Such options have a term of
ten years and vest 20% on the date of grant and will vest 20% on each of the
first four anniversaries of the date of grant.
On April 14, 1997, Metallurg, Inc. had adopted the Metallurg, Inc. Management
Stock Award and Stock Option Plan (the "SASOP"), which was 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 was to grant stock awards and stock
options (including incentive stock options, nonqualified stock options or a
combination of both) to officers and key employees of Metallurg. 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
was to 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 value on the date of
grant), effective as of September 1, 1997, and 20,000 shares of common stock at
$8.43 (fair market value on the date of grant), effective as of April 1, 1998.
Such options vested 33 1/3% on the date of grant and 33 1/3% were to vest on the
first and second anniversary of the date of grant. At the time of the Merger,
the Initial Stock Awards then outstanding became fully vested and Metallurg
recorded additional compensation expense of approximately $355,000. In addition,
outstanding stock options became fully vested and holders were therefore
entitled to receive $30 per share as part of the purchase of Metallurg.
Metallurg recorded compensation expense of $3,541,000, which represents the
excess of the $30 per share purchase price over the exercise prices noted above.
Metallurg was reimbursed for such stock option cancellation costs by a capital
contribution from Safeguard International at the time of the Merger.
Metallurg accounted for the SASOP using the intrinsic value method in accordance
with APB No. 25. Accordingly, compensation expense related to the Initial Stock
Awards of $750,000, $1,250,000 and $500,000 was recognized in the year ended
January 31, 1999, 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. Metallurg has elected the disclosure-only
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation".
86
<PAGE> 87
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Had Metallurg 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):
<TABLE>
<CAPTION>
Year Three Quarters
Ended Ended
January 31, 1999 January 31, 1998
-------- -------
<S> <C> <C>
Pro forma net income:
Earnings before extraordinary item ........... $ (303) $ 6,818
Extraordinary item, net of tax ............... -- (792)
------- -------
Net income (loss) ............................ $ (303) $ 6,026
======= =======
</TABLE>
The weighted average fair value of options granted were $4.83 and $1.47 per
share at January 31, 1999 and 1998, respectively. 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> <C>
Expected volatility ............................ 0% 13%
Expected dividend yield ........................ Not Applicable Not Applicable
Expected life .................................. 4 years 2 years
Risk-free interest rate ........................ 4.49% 5.25%
</TABLE>
87
<PAGE> 88
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 For the
For the Three Quarters Quarter For the
Year Ended Ended Ended Year Ended
January 31, January 31, March 31, December 31,
1999 1998 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net gain on asset sales ............ $ 324 $ 1,888 $ 3,266 $ 3,597
Gain on settlement of German lawsuit 1,351 -- -- --
Additional institutional claims .... -- -- -- (1,706)
District 65 pension plan claims .... -- -- -- (5,050)
Prepetition environmental claims ... -- -- -- (3,791)
Other, net ......................... 133 (83) (87) 191
------- ------- ------- -------
Total ........................... $ 1,808 $ 1,805 $ 3,179 $(6,759)
======= ======= ======= =======
</TABLE>
In the year ended January 31, 1999, one of Metallurg, Inc.'s German subsidiaries
was successful in recovering approximately $1,351,000 of additional proceeds
from a government-owned insurance agency representing final settlement for
claims under the company's political risk insurance policy related to an
investment in the former Zaire.
In the three quarters ended January 31, 1998, one of Metallurg, Inc.'s German
subsidiaries sold certain plant assets no longer in productive use and recorded
a gain of approximately $1,700,000.
During 1997, Metallurg, Inc, sold one of its commercial real estate properties
located in New York City in contemplation of the Plan. A gain of $2,747,000 is
reflected in other income in the quarter ended March 31, 1997.
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. Turk Maadin
Sirketi A.S., a Turkish chrome ore mining operation, entered into an agreement
in 1995 to sell a parcel of land no longer in productive use in an installment
sale arrangement. As a result, a gain on this transaction of $3,787,000 has been
reflected in other income in 1996.
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. Metallurg has also provided for certain estimated costs
associated with its sites in Germany and Brazil.
88
<PAGE> 89
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Total environmental liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
January 31 January 31 March 31,
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Domestic:
Shieldalloy - New Jersey ........... $28,876 $30,925 $32,584
Shieldalloy - Ohio ................. 11,557 11,797 12,264
------- ------- -------
40,433 42,722 44,848
Foreign .............................. 4,832 5,201 6,086
------- ------- -------
Total environmental liabilities .... 45,265 47,923 50,934
Less: trust funds .................... 3,064 2,843 2,799
------- ------- -------
Net environmental liabilities ...... 42,201 45,080 48,135
Less: current portion ................ 6,738 6,553 5,270
------- ------- -------
Environmental liabilities .......... $35,463 $38,527 $42,865
======= ======= =======
</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 clean up, as
well as miscellaneous operation and maintenance activities and onsite controls.
Metallurg accrued its best estimate of the associated costs with respect to
remedial activities at the site which it expects to disburse over the next
thirteen 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, Metallurg was permitted to withdraw cash from the
environmental trust and substitute letters of credit in an equivalent dollar
amount. At January 31, 1999, 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. Metallurg obligation of
the decommissioning plan and financial assurance for implementation of that plan
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, 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, Metallurg has accrued
its best estimate of associated costs which it expects to substantially disburse
over the next five years.
89
<PAGE> 90
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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.
Metallurg, Inc.'s German subsidiaries have accrued environmental liabilities in
the amounts of $4,443,000, $4,827,000, and $5,611,000 at January 31, 1999,
January 31, 1998 and March 31, 1997, 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 $389,000, $374,000 and $475,000 have been
accrued at January 31, 1999, January 31, 1998 and March 31, 1997, respectively,
to cover reclamation costs of the closed mine sites.
15. CONTINGENT LIABILITIES
In addition to environmental matters, which are discussed in Note 14, Metallurg
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
Metallurg's consolidated financial position, results of operations or liquidity.
There can be no assurance, however, that existing or future litigation will not
result in an adverse judgment against Metallurg which could have a material
adverse effect on Metallurg's future results of operations or cash flows.
16. LEASES
Metallurg leases office space, facilities and equipment. The leases generally
provide that Metallurg pays the tax, insurance and maintenance expenses related
to the leased assets. At January 31, 1999, 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>
2000 ................................................................ $1,530
2001 ................................................................ 1,365
2002 ................................................................ 1,167
2003 ................................................................ 844
2004 ................................................................ 418
Thereafter .......................................................... 3,607
------
Total ............................................................... $8,931
======
</TABLE>
Rent expense under operating leases for the year ended January 31, 1999, the
three quarters ended January 31, 1998, the quarter ended March 31, 1997 and the
year ended December 31, 1996 was $1,756,000, $938,000, $511,000 and $868,000,
respectively.
90
<PAGE> 91
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
17. 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 Metallurg, Inc., will fully
and unconditionally guarantee on a joint and several basis Metallurg, Inc.'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:
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JANUARY 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
Combined
Combined Non-
Metallurg, Guarantor Guarantor
Inc. Subsidiaries Subsidiaries Eliminations Consolidated
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Total revenue ........................ $ 47,264 $ 191,401 $ 460,468 $ (91,964) $ 607,169
--------- --------- --------- --------- ---------
Operating costs and expenses:
Cost of sales ..................... 43,826 170,762 403,864 (92,591) 525,861
Selling, general and administrative
expenses ........................ 7,894 9,987 40,757 -- 58,638
Merger-related costs .............. 7,888 -- -- -- 7,888
--------- --------- --------- --------- ---------
Total operating costs and expenses ... 59,608 180,749 444,621 (92,591) 592,387
--------- --------- --------- --------- ---------
Operating income (loss) .............. (12,344) 10,652 15,847 627 14,782
Other:
Other income (expense), net ....... 878 (258) 1,188 -- 1,808
Interest income (expense), net .... (9,767) 1,293 (1,396) -- (9,870)
Equity in earnings of subsidiaries 19,755 11,189 -- (30,944) --
--------- --------- --------- --------- ---------
Income before income tax provision ... (1,478) 22,876 15,639 (30,317) 6,720
Income tax (benefit) provision ....... (3,410) 3,736 4,462 -- 4,788
--------- --------- --------- --------- ---------
Net income ........................... $ 1,932 $ 19,140 $ 11,177 $ (30,317) $ 1,932
========= ========= ========= ========= =========
</TABLE>
91
<PAGE> 92
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET AT JANUARY 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
Combined Combined
Guarantor Non-Guarantor
Metallurg, Inc. Subsidiaries Subsidiaries Eliminations Consolidated
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ......... $ 25,613 $ 1,095 $ 16,663 $ (6,078) $ 37,293
Accounts and notes receivable, net 24,180 28,178 51,373 (40,051) 63,680
Inventories ....................... 9,459 38,405 75,912 (3,118) 120,658
Assets held for sale .............. -- -- 711 -- 711
Other assets ...................... 10,807 105 8,125 (2,989) 16,048
--------- --------- --------- --------- ---------
Total current assets ........... 70,059 67,783 152,784 (52,236) 238,390
Investments - intergroup ............ 102,102 53,965 -- (156,067) --
Investments - other ................. 304 -- 5,092 -- 5,396
Property, plant and equipment, net .. 1,016 7,547 40,455 -- 49,018
Other assets ........................ 5,052 17,179 13,298 (17,216) 18,313
--------- --------- --------- --------- ---------
Total .......................... $ 178,533 $ 146,474 $ 211,629 $(225,519) $ 311,117
========= ========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term debt and current portion
of long-term debt ............... $ 11,023 $ (6,078) $ 4,945
Trade payables .................... $ 8,952 $ 15,078 63,481 (50,051) 37,460
Accrued expenses .................. 3,100 8,426 14,275 -- 25,801
Other current liabilities ......... -- 3,111 3,833 (2,989) 3,955
--------- --------- --------- --------- ---------
Total current liabilities .... 12,052 26,615 92,612 (59,118) 72,161
--------- --------- --------- --------- ---------
Long-term Liabilities:
Long-term debt ................... 100,000 -- 9,185 -- 109,185
Accrued pension liabilities ...... 220 1,760 39,082 -- 41,062
Environmental liabilities, net ... -- 32,669 2,794 -- 35,463
Other liabilities ................ 18,571 -- 4,201 (17,216) 5,556
--------- --------- --------- --------- ---------
Total long-term liabilities .. 118,791 34,429 55,262 (17,216) 191,266
--------- --------- --------- --------- ---------
Total liabilities ............ 130,843 61,044 147,874 (76,334) 263,427
--------- --------- --------- --------- ---------
Shareholders' Equity:
Common stock ..................... 50 1,227 49,691 (50,918) 50
Additional paid-in capital ....... 45,257 90,867 1,014 (91,881) 45,257
Cumulative foreign currency
translation adjustment ......... (388) (928) 21,345 (20,417) (388)
Retained earnings (deficit) ...... 2,771 (5,736) (8,295) 14,031 2,771
--------- --------- --------- --------- ---------
Shareholders' equity ........... 47,690 85,430 63,755 (149,185) 47,690
--------- --------- --------- --------- ---------
Total .................... $ 178,533 $ 146,474 $ 211,629 $(225,519) $ 311,117
========= ========= ========= ========= =========
</TABLE>
92
<PAGE> 93
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR YEAR ENDED JANUARY 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
Combined Combined
Metallurg, Guarantor Non-Guarantor
Inc. Subsidiaries Subsidiaries Eliminations Consolidated
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities ..... $(27,297) $ 13,707 $ 17,207 $ 3,617
-------- -------- -------- --------
Cash Flows from Investing Activities:
Additions to property plant and equipment (133) (2,310) (13,239) (15,682)
Proceeds from asset sales ............... 1,135 170 114 1,419
Other, net .............................. (231) -- (3,670) (3,901)
-------- -------- -------- --------
Net cash (used in) provided by
investing activities .................... 771 (2,140) (16,795) (18,164)
-------- -------- -------- --------
Cash Flows From Financing Activities:
Capital contribution from Safeguard
International ........................ 3,541 -- -- 3,541
Intergroup borrowings (repayments) ...... 23,822 (11,196) (12,626) --
Proceeds from long-term debt, net ....... -- -- 4,509 4,509
Net short-term debt borrowings .......... -- -- 6,710 $ (6,078) 632
Intergroup dividends received (paid) .... 8,893 -- (8,893) -- --
-------- -------- -------- -------- --------
Net cash provided by (used in)
financing activities .................... 36,256 (11,196) (10,300) (6,078) 8,682
-------- -------- -------- -------- --------
Effects of exchange rate changes on
cash and cash equivalents ............... -- -- 155 -- 155
-------- -------- -------- -------- --------
Net increase (decrease) in cash and
cash equivalents ........................ 9,730 371 (9,733) (6,078) (5,710)
Cash and cash equivalents - beginning
of period ............................... 15,883 724 26,396 -- 43,003
-------- -------- -------- -------- --------
Cash and cash equivalents -
end of period ........................... $ 25,613 $ 1,095 $ 16,663 $ (6,078) $ 37,293
======== ======== ======== ======== ========
</TABLE>
93
<PAGE> 94
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (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>
94
<PAGE> 95
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET AT JANUARY 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
Combined Combined
Guarantor Non-Guarantor
Metallurg, 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
--------- --------- --------- --------- ---------
Shareholders' equity ........... 41,771 73,737 62,138 (135,875) 41,771
--------- --------- --------- --------- ---------
Total .................... $ 166,640 $ 141,917 $ 224,502 $(213,273) $ 319,786
========= ========= ========= ========= =========
</TABLE>
95
<PAGE> 96
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE THREE QUARTERS ENDED JANUARY 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
Combined Combined
Guarantor Non-Guarantor
Metallurg, 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,l26) (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 cash 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>
96
<PAGE> 97
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE QUARTER ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
Combined Combined
Guarantor Non-Guarantor
Metallurg, 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 losses 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>
97
<PAGE> 98
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (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) --
Retained 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>
98
<PAGE> 99
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE QUARTER ENDED MARCH 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
Combined Combined
Guarantor Non-Guarantor
Metallurg, 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 assets 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 re-
organization 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 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>
99
<PAGE> 100
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (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>
100
<PAGE> 101
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
Combined Combined
Guarantor Non-Guarantor
Metallurg, 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 assets 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>
101
<PAGE> 102
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SELECTED QUARTERLY FINANCIAL DATA
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
YEAR ENDED JANUARY 31, 1999
Sales .......................... $167,675 $169,754 $142,522 $126,383 $606,334
Gross profit ................... 28,822 27,342 18,307 6,837 81,308
Net income (loss)(a) ........... 6,790 1,498 38 (6,394) 1,932
</TABLE>
<TABLE>
<CAPTION>
Predecessor
Company Reorganized Company
------- -----------------------------------
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
YEAR ENDED JANUARY 31, 1998
Sales .......................... $155,427 $166,718 $148,169 $161,539 $631,853
Gross profit ................... 21,527 24,744 21,049 21,141 88,461
Profit before extraordinary item 14,922(b) 3,651 1,714 1,699 21,986
Net income ..................... 57,954(c) 3,651 1,714 907(d) 64,226
</TABLE>
(a) Includes Merger-related costs of $4,416, $2,607 and $865 in the 2nd, 3rd
and 4th quarters, respectively.
(b) Includes a $5,107 fresh-start revaluation.
(c) Includes an extraordinary gain of $43,032, net of tax, reflecting the
discharge of indebtedness income relating to the consummation of the
Reorganization Plan.
(d) Includes an extraordinary loss of $792, net of tax, reflecting the early
extinguishment of debt.
102
<PAGE> 103
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of Metallurg, Inc.
Our audit of the consolidated financial statements referred to in our report
dated March 31, 1999 appearing in this Annual Report on Form 10-K also included
an audit of Financial Statement Schedule VIII of this Form 10-K. In our opinion,
this Financial Statement Schedule VIII presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements. The consolidated financial statements
and financial statement schedule VIII for periods prior to the period ended
January 31, 1999 were audited by other independent accountants whose report
dated April 1, 1998 expressed an unqualified opinion on those statements and
related financial statement schedule.
PricewaterhouseCoopers LLP
New York, New York
April 29, 1999
103
<PAGE> 104
METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
IN THOUSANDS:
<TABLE>
<CAPTION>
Balance at Charged to Balance at
Beginning Costs and Charged to Deductions End
of Period Expenses Other Accounts --Describe-- of Period
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
DESCRIPTION
YEAR ENDED DECEMBER 31, 1996:
Accounts receivables 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) $ -0-
THREE QUARTERS ENDED
JANUARY 31, 1998:
Accounts receivable allowance
for doubtful accounts ........................... $ -0- $ 1,700 -- -- $ 1,700
YEAR ENDED JANUARY 31, 1999
Accounts receivable allowance
for doubtful accounts ........................... $ 1,700 $ 70 -- -- $ 1,770
NOTES:
(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>
104
<PAGE> 105
PART III
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
The change in the Company's independent certifying accountants has been
previously reported in Metallurg Holdings' Current Report on Form 8-K, filed on
November 25, 1998.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table sets forth certain information with respect to the
directors and executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Heinz C. Schimmelbusch 54 Director, President and Chief Executive Officer
Arthur R. Spector 58 Director and Executive Vice President
Michael R. Holly 53 Director and Executive Vice President
Samuel A. Plum 54 Director
Douglas A. Fastuca 34 Chief Financial Officer and Treasurer
</TABLE>
Each director of the Company holds office until the next annual meeting
of stockholders of the Company or until his or her successor has been elected
and qualified. Officers of the Company are selected by the Board of Directors
and serve at the discretion of the Board of Directors.
Heinz C. Schimmelbusch. Dr. Schimmelbusch became Chief Executive
Officer, President and a Director of Metallurg Holdings in July 1998, as well as
Chairman of the Board and a Director of Metallurg, Inc. He is a Managing
Director of the general partner and of the management company of Safeguard
International Fund, L.P. He is also Chairman of Allied Resource Corporation, a
company he founded in 1994 to invest in mining, advanced materials and
recycling. Until 1994, Dr. 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 specialty chemicals; and of
Norddeutsche Affinerie AG, Europe's largest copper producer. Dr. Schimmelbusch
has 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 on the
Advisory Boards of Dresdner Bank AG and the European Bank of Reconstruction and
Development. Dr. Schimmelbusch has been the founder and Chairman of a number of
public companies in the process industries, including: Inmet Corporation,
Toronto, (formerly Metall Mining Corporation); Methanex Corporation, Vancouver;
and B.U.S. Umweltservice AG, Frankfurt. Dr. Schimmelbusch is a director of
Safeguard Scientifics, Inc., a diversified information technology company, a
position he has held since 1989, and of Systems & Computer Technology
Corporation, a systems integration services and software company.
Arthur R. Spector. Mr. Spector was elected to serve as a Director of
Metallurg Holdings and Metallurg, Inc. in July 1998. He has been an Executive
Vice President of Metallurg Holdings since July 1998. He is a Managing
<PAGE> 106
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. He has also been an officer of Abraham Lincoln Federal
Savings Bank and State National Bank of Maryland. Mr. Spector serves as Chairman
of Neoware Systems, Inc., a manufacturer of network 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. Mr.
Spector holds a B.S. degree in electronics from the Wharton School of the
University of Pennsylvania and a J.D. from the University of Pennsylvania Law
School.
Michael R. Holly. Mr. Holly became a Director of Metallurg Holdings in
July 1998. He is also a Managing Director of the general partner and of the
management company of Safeguard International. Mr. Holly 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
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.
Samuel A. Plum Mr. Plum was appointed a director of Metallurg Holdings
in October 1998 and was appointed a director of Metallurg, Inc. in November
1998. He has been a Managing General Partner of the general partner of SCP
Private Equity Partners, L.P. since its commencement in August 1996 and was a
Managing Director of Safeguard Scientifics, Inc. from 1993 to 1996. From
February 1989 to January 1993, Mr. Plum served as president of Charterhouse,
Inc. and Charterhouse North American Securities, Inc., the U.S. investment
banking and broker-dealer divisions of Charterhouse PLC, a merchant bank located
in the United Kingdom. From 1973 to 1989, Mr. Plum served in various capacities,
including Managing Director and partner, at the investment banking divisions of
PaineWebber Inc. and Blyth Eastman Dillon & Co., Inc., respectively. Mr. Plum is
Chairman of Vortex Sound Communications, Inc. and also serves as a director of
Index Stock Photography, Inc., PacWest Telecomm, Inc. and the Philadelphia
Zoological Society. Past directorships include Tishman Holding Corporation, Icon
CMT Corp., Quaker Fabrics Corporation and the National Audobon Society, the
latter two as Chairman. Mr. Plum holds a B.A. degree in History from Harvard
University and an M.B.A. degree from the Harvard Graduate School of Business
Administration.
Douglas A. Fastuca. Mr. Fastuca has been Chief Financial Officer and
Treasurer of Metallurg Holdings since 1998. He also serves as Vice President of
Corporate Development of Metallurg, Inc. and 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. Mr. Fastuca
has a B.A. degree from Bucknell University and an M.B.A. from the Harvard
Graduate School of Business Administration.
<PAGE> 107
ITEM 11. EXECUTIVE COMPENSATION.
None of the executive officers or directors of the Company received
compensation from the Company during the year-ended January 31, 1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth, as of April 15, 1999, information with
respect to each person (including any "group" as that term is used in Section
13(d)(3) of the Exchange Act of 1934, as amended) who is known to the Company to
be the beneficial owner of more than 5% of any class of the Company's voting
securities).
<TABLE>
<CAPTION>
AMOUNT AND
NAME AND ADDRESS OF NATURE OF PERCENT OF
TITLE OF CLASS BENEFICIAL HOLDER BENEFICIAL OWNERSHIP CLASS
-------------- ----------------- -------------------- -----
<S> <C> <C> <C>
Series A Voting Preferred Safeguard International Fund, L.P. 4,000 76.89%
Convertible Preferred 800 The Safeguard Building
Stock 435 Devon Park Drive
Wayne, Pennsylvania 19087
Series A Voting Preferred SCP Private Equity 1,202.335 23.11%
Convertible Preferred Partners, L.P.
Stock Building 300
435 Devon Park Drive
Wayne, Pennsylvania 19087
Series B Non - Voting Safeguard International Fund, L.P. 2,500 55.26%
Convertible Preferred 800 The Safeguard Building
Stock 435 Devon Park Drive
Wayne, Pennsylvania 19087
Series B Non - Voting State of Michigan Retirement Systems- 2,000 44.21%
Convertible Preferred Safeguard Limited Partnership
Stock c/o Safeguard International Fund, L.P.
800 The Safeguard Building
435 Devon Park Drive
Wayne, Pennsylvania 19087
</TABLE>
None of the directors, officers or management of the Company own any equity
securities of the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The management company of Safeguard International was paid a one-time
financial advisory fee in 1998 of $2.5 million for services performed, and
reimbursed for various expenses incurred, in connection with the acquisition of
Metallurg, Inc. Dr. Schimmelbusch and Messrs. Spector and Holly each received
$400,000 of the proceeds from the financial advisory fee in their capacities as
members of
<PAGE> 108
the management company. Dr. Schimmelbusch and Messrs. Plum, Holly and Spector,
all of whom are directors of Holdings, and Mr. Fastuca, an executive officer of
Holdings, are directors and/or officers of various companies that are
associated, directly or indirectly, with Safeguard Scientifics, Inc., which has
an ownership interest in Safeguard International Fund. Pursuant to these
positions, they receive compensation from such entities.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Documents filed as a part of this report:
(1) A list of the financial statements filed as part of
this report appears on page 27.
(2) The financial statement schedules required to be
filed as part of this report appear on pages 57 and
104.
(3) The following exhibits are filed as part of this
report:
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------
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
S42.1 to the Form S-4 Registration Statement filed by
Metallurg Holdings, Inc. with the Securities and Exchange
Commission on July 29, 1998 (File No. 333-6077)).
3.1 Certificate of Incorporation of Metallurg Holdings, Inc.
(incorporated herein by reference to Exhibit S43.1 to the Form
S-4 Registration Statement filed by Metallurg Holdings, Inc.
with the Securities and Exchange Commission on July 29, 1998
(File No. 333-60077)).
3.2 By-laws of Metallurg Holdings, Inc. (incorporated herein by
reference to Exhibit S43.2 to the Form S-4 Registration
Statement filed by Metallurg Holdings, Inc. with the
Securities and Exchange Commission on July 29, 1998 (File No.
333-60077)).
4.1 Amended and Restated Stockholders Agreement, dated as of
October 13, 1998, by and among the Company, Safeguard
International Fund, L.P., State of Michigan Retirement
Systems-Safeguard Limited Partnership and SCP Private Equity
Partners, L.P.
4.2 Amended and Restated Registration Rights Agreement, dated as
of October 13, 1998, by and among the Company, Safeguard
International Fund, L.P., State of Michigan Retirement
Systems-Safeguard Limited Partnership and SCP Private Equity
Partners, L.P.
4.3 Joinder Agreement, dated as of December 7, 1998, by and among
the Company, Joseph H. Marren, Scott M. Honour, Mark W.
Lanigan, Robert McEvoy, Scott Morrison and the Company,
Safeguard International Fund, L.P., State of Michigan
Retirement Systems-Safeguard Limited Partnership and SCP
Private Equity Partners,
<PAGE> 109
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------
L.P.
4.4 Indenture, dated as of July 13, 1998, by and between Metallurg
Holdings, Inc. and United States Trust Company of New York
(incorporated herein by reference to Exhibit S44.1 to the Form
S-4 Registration Statement filed by Metallurg Holdings, Inc.
with the Securities and Exchange Commission on July 29, 1998
(File No. 333-60077)).
4.5 Form of 12-3/4% Series A Senior Discount Notes due 2008, dated
as of July 13, 1998 (incorporated by reference to Exhibit 4.4)
4.6 Form of 12-3/4% Series B Senior Discount Notes due 2008, dated
as of July 13, 1998 (incorporated by reference to Exhibit 4.4)
4.7 Registration Agreement, dated as of July 13, 1998, by and
between Metallurg Holdings, Inc. and BancBoston Securities
Inc. (incorporated herein by reference to Exhibit S44.4 to the
Form S-4 Registration Statement filed by Metallurg Holdings,
Inc. with the Securities and Exchange Commission on July 29,
1998 (File No. 333-60077)).
4.8 Indenture, dated as of November 25, 1997, by and among
Metallurg, Inc., Shieldalloy Metallurgical Corporation,
Metallurg Holdings Corporation, Metallurg Services, Inc., MIR
(China), Inc. 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)).
4.9 Form of 11% Series A Senior Notes due 2007, dated as of
November 25, 1997 (incorporated herein by reference to Exhibit
S44.2 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)).
4.10 Form of 11% Series B Senior Notes due 2007, dated as of
November 25, 1997 (incorporated herein by reference to Exhibit
S44.3 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)).
4.11 Registration Agreement, dated as of November 20, 1997, by and
among Metallurg, Inc., Shieldalloy Metallurgical Corporation,
Metallurg Holdings Corporation, Metallurg Services, Inc., MIR
(China), Inc., Salomon Brothers Inc and BancBoston Securities
Inc. (incorporated herein by reference to Exhibit S44.4 to the
Form S-4 Registration Statement filed by Metallurg, Inc. with
the Securities and Exchange Commission on December 30, 1997
and Amendments No. 1 through 4 thereto, filed through March
13, 1998 (File No. 333-42141)).
10.1 Pledge Agreement, dated as of July 13, 1998, by and between
Metallurg Holdings, Inc. and United States Trust Company of
New York (incorporated herein by reference to Exhibit S410.1
to the Form S-4 Registration Statement filed by Metallurg
Holdings, Inc. with the Securities and Exchange Commission on
July 27, 1998 (File No. 333-
<PAGE> 110
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------
60077)).
10.2 Loan Agreement dated April 14, 1997 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 (incorporated herein by reference to
Exhibit S410.1 to the Form S-4 Registration filed by
Metallurg, Inc. with the Securities and Exchange Commission on
December 30, 1997 (File No. 333-42141)) and as amended by the
Fourth Amendment thereto (incorporated herein by reference to
Exhibit S410.3 to the Form S-4 Registration Statement filed by
Metallurg Holdings, Inc. with the Securities and Exchange
Commission on October 14, 1998 (File No. 333-60077)).
10.3 Fifth and Sixth Amendments to the Loan Agreement dated April
14, 1997, 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.
10.4 German Loan Agreement, dated October 20, 1997, by and among
GfE Gesellschaft fur Elektrometallurgie mbH, GfE Umwelttechnik
GmbH, GfE Giesserei-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 First and Second Amendments to German Loan Agreement, dated
October 20, 1997, by and among GfE Gesellschaft fur
Elektrometallurgie mbH, GfE Umwelttechnik GmbH, GfE
Giesserei-und Stahlwerksbedarf GmbH, GfE Metalle und
Metarielien GmbH and Keramed Medizintechnik GmbH and
BankBoston, N.A. acting through its Frankfurt, Germany branch.
10.6 Joint Disclosure Statement for the Fourth Amendment and
Restated Joint Plan of Reorganization dated December 18, 1996
(incorporated 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.1 to the Form T-3 filed by the Company with the Securities
and Exchange Commission on March 21, 1997 (File No.
022-22265)).
10.8 Settlement Agreement dated December 27, 1996 between Metallurg
Inc., Shieldalloy Metallurgical Corporation, the Environmetal
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
<PAGE> 111
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------
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, Shieldalloy Metallurgical
Corporation 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 1997 Stock Award and Sock Option Plan (incorporated herein by
reference to Exhibit S410.8 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 1998 Equity Compensation Plan of Metallurg, Inc.
10.12 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)).
10.13 Employment Agreements dated April 14, 1997 with Michael A.
Banks and J. Richard Budd III (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)).
10.14 Employment Agreements dated October 30, 1998; November 19,
1998; November 19, 1998; November 20, 1998; and January 4,
1999; by and between Metallurg, Inc. and each of Alan D.
Ewart, Eric E. Jackson, Robin A. Brumwell, Barry C. Nuss and
Ellen T. Harmon, respectively.
10.15 Consulting Agreement, dated as of October 30, 1998, and
Agreement, dated August 9, 1998, each by and between
Metallurg, Inc. and Michael A. Standen.
10.16 Notes dated April 15, 1997, April 15, 1998, and July 13, 1998,
by and between Metallurg, Inc., as Lender, and each of Robin
A. Brumwell, Barry C. Nuss, J. Richard Budd III and Michael A.
Banks, respectively, as Borrowers; Note dated April 15, 1997,
by and between Metallurg, Inc., as Lender, and Michael A.
Standen, as Borrower.
10.17 Intercompany Tax Allocation Agreement, dated July 13, 1998, by
and among Metallurg Holdings, Inc., Metallurg, Inc. and
various subsidiaries thereof.
16.1 Letter from Arthur Andersen LLP to the Securities and Exchange
Commission re agreement with Metallurg Holdings, Inc. comments
concerning change in certifying accountant (incorporated by
reference to Exhibit 16 to the Current Report on Form 8-K
filed with the Securities and Exchange Commission by Metallurg
Holdings, Inc. on November 25, 1998 (File No.333-60077)).
21.1 Subsidiaries of Metallurg Holdings, Inc.
<PAGE> 112
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------
27.1 Financial Data Schedule
(b) Metallurg Holdings, Inc. filed a Current Report on Form 8-K on
November 25, 1998 reporting a change in certifying accountant.
(c) The exhibits listed under Item 14(a)(3) are filed herewith or
incorporated herein by reference.
(d) The Consolidated Financial Statements and the financial
statement schedules listed under Item 14(a)(2) are filed
herewith.
<PAGE> 113
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the undersigned registrant has duly caused this report to
be signed on its behalf by the undersigned, thereto duly authorized as of the
28th day of April, 1999.
METALLURG HOLDINGS, INC.
By: /s/ Douglas A. Fastuca
Douglas A. Fastuca
Chief Financial Officer and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ Heinz C. Schimmelbusch President and Chief Executive April 28, 1999
Heinz C. Schimmelbusch Officer and Director
/s/ Douglas A. Fastuca Chief Financial Officer April 28, 1999
Douglas A. Fastuca and Treasurer
/s/ Michael R. Holly Director April 28, 1999
Michael R. Holly
/s/ Samuel A. Plum Director April 28, 1999
Samuel A. Plum
/s/ Arthur R. Spector Director April 28, 1999
Arthur R. Spector
</TABLE>
<PAGE> 1
================================================================================
Exhibit 4.1
METALLURG HOLDINGS, INC.
AMENDED AND RESTATED
STOCKHOLDERS' AGREEMENT
INITIALLY DATED JULY 13, 1998, AMENDED
AND RESTATED ON OCTOBER 13, 1998.
================================================================================
<PAGE> 2
AMENDED AND RESTATED
STOCKHOLDERS' AGREEMENT initially
dated July 13, 1998, amended and
restated on October 13, 1998, among
(i) METALLURG HOLDINGS, INC., a
Delaware corporation (the
"Corporation"), and (ii) the
stockholders of the Corporation
listed on Annex I (the
"Stockholders").
Each Stockholder owns the number of shares of capital stock of
the Corporation set forth opposite the name of such Stockholder on Annex I. The
parties wish to provide for the terms with respect to certain matters regarding
the relationship between the Corporation and its stockholders and among such
stockholders. Accordingly, the parties agree as follows:
ARTICLE I
DEFINITIONS
The following terms shall have the following meanings:
"AFFILIATE" of any Stockholder means any person or entity
controlling, controlled by, or under common control with such Stockholder.
"BELL ATLANTIC" means Mellon Bank, N.A., as Trustee for the
Bell Atlantic Master Trust, as directed by Bell Atlantic Corporation.
"BOARD" means the Board of Directors of the Corporation.
"COMMON STOCK" means the Common Stock, $.01 par value, of the
Corporation.
"EQUITY SECURITIES" means all shares of capital stock of the
Corporation, all securities convertible into or exchangeable for shares of
capital stock of the Corporation, and all options, warrants, and other rights to
purchase or otherwise acquire from the Corporation shares of such capital stock,
or securities convertible into or exchangeable for shares of such capital stock.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
"INITIAL PUBLIC OFFERING" means the consummation of the first
public offering of Common Stock pursuant to a registration statement filed under
the Securities Act.
"PREFERRED STOCK" means the Series A Preferred Stock and the
Series B Preferred Stock.
"PRO RATA AMOUNT" of any Stockholder means the quotient
obtained by dividing (i) the number of Shares held by such Stockholder by (ii)
the aggregate number of Shares then held by all Stockholders, assuming in each
case the conversion of all shares of Preferred Stock.
<PAGE> 3
"SAFEGUARD-MICHIGAN" means State of Michigan Retirement
Systems-Safeguard Limited Partnership, a Delaware limited partnership.
"SCP" means SCP Private Equity Partners, L.P., a Delaware
limited partnership.
"SECURITIES ACT" means the Securities Act of 1933.
"SERIES A PREFERRED STOCK" means the Series A Voting
Convertible Preferred Stock, $.01 par value, of the Corporation.
"SERIES B PREFERRED STOCK" means the Series B Non-Voting
Convertible Preferred Stock, $.01 par value, of the Corporation.
"SHARES" means the shares of Common Stock and Preferred Stock
held by the Stockholders on the date hereof, any shares of Common Stock issued
upon conversion of such shares of Preferred Stock, and any shares of capital
stock issued on any of the foregoing as a stock dividend or upon any stock split
or other subdivision of shares of capital stock.
"SIF" means Safeguard International Fund, L.P., a Delaware
limited partnership.
"TERMINATION DATE" means the date of consummation of an
Initial Public Offering.
"TRANSFER" means to sell, transfer, assign, pledge, encumber,
or otherwise dispose of, either voluntarily or involuntarily and with or without
consideration.
ARTICLE II
TRANSFER OF SHARES
2.1 LIMITATIONS ON TRANSFERS.
(a) Each Stockholder shall not, without the prior consent of the Board
(which consent shall not be unreasonably withheld), Transfer all or any part of
its Shares except in a Permitted Transfer as set forth in paragraph (b) below.
Any such consent by the Board shall not constitute a waiver of the provisions
set forth in Section 2.3, and the Board shall not have any power to grant any
such waiver.
(b) "Permitted Transfer" means any Transfer by (i) any Stockholder of
Shares to any Affiliate of such Stockholder at a consideration not in excess of
the initial acquisition cost of such Shares to such Stockholder, (ii) any
Stockholder which is a partnership of Shares to the partners of such
partnership, (iii) SIF of 2,500 shares of Series B Preferred Stock to Bell
Atlantic, (iv) upon such Transfer, Bell Atlantic to one or more successor
trustees, plans or nominees for, or successors by reorganization of, a qualified
pension plan or trust, and (v) any Other Stockholder (as defined in Section 2.3)
pursuant to any exercise of its rights under Section 2.3.
- 2 -
<PAGE> 4
(c) Each Transfer of Shares permitted by this Section shall not become
effective unless and until the transferee executes and delivers to the
Corporation a counterpart to this Agreement, agreeing to be treated in the same
manner as the transferring Stockholder and to be bound by the terms and
conditions of this Agreement. Upon such Transfer and such execution and
delivery, the transferee shall be bound by, and entitled to the benefits of,
this Agreement with respect to the transferred Shares in the same manner as the
transferring Stockholder. Any Transfer of Shares by any Stockholder not in
accordance with this Section shall be void.
2.2 SIF/SAFEGUARD-MICHIGAN.
Any Transfer of Shares by SIF or Safeguard-Michigan, other than
pursuant to a Permitted Transfer, shall be made at the same time, at the same
price, and upon the same terms in amounts proportionate to their Pro Rata
Amounts.
2.3 CO-SALE.
If at any time SIF and Safeguard-Michigan propose to Transfer Shares,
other than pursuant to a Permitted Transfer, they shall, at least 30 days before
such Transfer, deliver a notice (the "Sale Notice") to the other Stockholders
(the "Other Stockholders") disclosing in reasonable detail the terms and
conditions of the proposed Transfer. Within 30 days after delivery of the Sale
Notice, each Other Stockholder may elect to participate in the proposed Transfer
by delivering to SIF and Safeguard-Michigan a notice specifying the Shares with
respect to which such Other Stockholder exercises its right under this Section.
Such Other Stockholder shall be entitled to Transfer, at the price and on the
terms applicable to the Transfer by SIF and Safeguard-Michigan, up to a number
of Shares equal to its Pro Rata Amount of the aggregate number of Shares being
purchased by the purchaser in such Transfer, assuming in each case the
conversion of all shares of Preferred Stock into Common Stock. No Transfer
pursuant to this Section shall be consummated before the waiting period under
the HSR Act has expired with respect to the conversion of Series B Preferred
Stock into Common Stock, if any, related to such Transfer.
2.4 DRAG-ALONG.
If at any time the Board approves a sale, merger or consolidation of
the Corporation (an "Approved Sale Proposal") to or with any party that is not
an Affiliate of any Stockholder, all Stockholders shall, upon notice by the
Corporation, be obligated to participate at the same price and on the same terms
(assuming the conversions of all shares of Preferred Stock into Common Stock) in
the transaction (a "Required Sale") contemplated by the Approved Sale Proposal
with respect to all Shares then held by them, vote their Shares in favor of such
Approved Sale Proposal at any meeting of stockholders called to vote on or
approve such Approved Sale Proposal, and otherwise take all necessary action to
cause the Corporation and the Stockholders to consummate such Required Sale;
provided, however, that no Stockholder shall be required to make any
representations or warranties (other than representations and warranties
regarding such Stockholder and its ownership of Shares) in connection with such
Required Sale. If the Required Sale is not consummated within 120 days after
such notice, such notice shall expire and the Stockholders shall cease to have
any obligations to participate in such Required Sale until a new notice has been
delivered in accordance with this Section.
- 3 -
<PAGE> 5
2.5 PREEMPTIVE RIGHT.
(a) "New Securities" means all Equity Securities other than:
(i) shares of any class of capital stock issued on a pro rata
basis to all holders of such class as a stock dividend or upon
any stock split or other subdivision of shares of capital
stock;
(ii) shares of Common Stock issued upon conversion of shares
of Preferred Stock;
(iii) Equity Securities issued to directors, officers,
employees or consultants of the Corporation or any of its
subsidiaries pursuant to any stock option or similar equity
incentive plan approved by the Board;
(iv) Equity Securities issued as consideration in any
acquisition of any entity or business that is not, or not sold
by, an Affiliate of any Stockholder; and
(v) Equity Securities issued in connection with debt
financings to lenders or placement agents that are not
Affiliates of any Stockholder.
(b) If the Corporation proposes to offer New Securities to any person
or entity at any time, the Corporation shall, before such offer, deliver to the
Stockholders an offer (the "Offer") to issue the New Securities to them upon the
terms set forth in this Section. The Offer shall state that the Corporation
proposes to issue New Securities and specify their number and terms (including
purchase price) (the "Offered Securities"). The Offer shall remain open and
irrevocable for a period of 30 days (the "Preemptive Period") from the date of
its delivery.
(c) Each Stockholder may accept the Offer by delivering to the
Corporation a notice (the "Purchase Notice") within the Preemptive Period. The
Purchase Notice shall state the number (the "Purchase Number") of Offered
Securities such Stockholder desires to purchase. If the sum of all Purchase
Numbers exceeds the number of Offered Securities, the Offered Securities shall
be allocated among the Stockholders that delivered a Purchase Notice pro rata in
accordance with their Pro Rata Amounts; provided, however, that each Stockholder
shall not be required to purchase more than its Purchase Number of Offered
Securities.
(d) The issuance of Offered Securities to the Stockholders who
delivered a Purchase Notice shall be made on a business day, as designated by
the Corporation, not less than 10 and not more than 30 days after expiration of
the Preemptive Period on those terms and conditions of the Offer not
inconsistent with this Section.
(e) If the number of Offered Securities exceeds the sum of all Purchase
Numbers, the Corporation may issue such excess or any portion thereof on the
terms and conditions of the Offer to any person or entity within 90 days after
expiration of the Preemptive Period. If such issuance is not made within such
90-day period, the restrictions provided for in this Section shall again become
effective.
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<PAGE> 6
2.6 RESTRICTED SECURITIES.
(a) Each certificate for Shares shall (unless otherwise permitted by
the provisions of paragraphs (b) and (c) below) be stamped or otherwise
imprinted with a legend in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR THE SECURITIES LAWS OF ANY STATE. THESE SECURITIES MAY NOT BE
SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM. IN ADDITION, THE TRANSFER OF
THESE SECURITIES IS SUBJECT TO THE CONDITIONS SPECIFIED IN SECTION 2.6
OF THE AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT DATED OCTOBER 13,
1998, BETWEEN METALLURG HOLDINGS, INC. AND THE STOCKHOLDERS IDENTIFIED
THEREIN. NO TRANSFER OF THESE SECURITIES SHALL BE VALID OR EFFECTIVE
UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED."
(b) Each Stockholder shall, prior to any Transfer of any Shares and
subject to the other provisions of this Agreement, give written notice to the
Corporation of such proposed Transfer. Each such notice shall describe the
manner and circumstances of the proposed Transfer. Upon request by the
Corporation, such Stockholder shall deliver a written opinion, addressed to the
Corporation, of counsel for such Stockholder, stating that in the opinion of
such counsel (which opinion and counsel shall be reasonably satisfactory to the
Corporation) such proposed Transfer does not involve a transaction requiring
registration or qualification of such Shares under the Securities Act or the
securities or "blue sky" laws of any state of the United States. Such
Stockholder shall thereupon be entitled to Transfer Shares in accordance with
the terms of the notice delivered to the Corporation, if the Corporation does
not reasonably object to such Transfer on the ground that it would constitute a
violation of applicable securities laws and request such opinion within five
days after delivery of such notice, or, if it requests such opinion, does not
reasonably object to such Transfer on the ground that it would constitute a
violation of applicable securities laws within five days after delivery of such
opinion. Each certificate or other instrument evidencing the securities issued
upon the Transfer of any Shares (and each certificate or other instrument
evidencing any untransferred balance of such Shares) shall bear the legend set
forth in paragraph (a) above unless (i) in such opinion of counsel registration
of any future Transfer is not required by the applicable provisions of the
Securities Act or (ii) the Corporation shall have waived the requirement of such
legends.
(c) Notwithstanding the foregoing provisions of this Section, the
restrictions imposed by this Section upon the transferability of any Shares
shall cease and terminate when (i) any such Shares are sold or otherwise
disposed of pursuant to an effective registration statement under the Securities
Act or as otherwise contemplated by paragraph (b) above in a manner that does
not require that the Shares so transferred continue to bear the legend set forth
in paragraph
- 5 -
<PAGE> 7
(a) above or (ii) the holder of such Shares has met the requirements for
Transfer of such Shares under Rule 144(k) promulgated under the Securities Act.
Whenever the restrictions imposed by this Section shall terminate, the holder of
any Shares as to which such restrictions have terminated shall be entitled to
receive from the Corporation, without expense, a new certificate not bearing the
restrictive legend set forth in paragraph (a) above and not containing any other
reference to the restrictions imposed by this Section.
ARTICLE III
BOARD REPRESENTATION
3.1 BOARD REPRESENTATION.
(a)(i) SIF and Safeguard-Michigan shall jointly be entitled (A) to
nominate three individuals for election to the Board to serve as directors until
their successors are elected and qualified, (B) to nominate each such successor,
and (C) to propose the removal from the Board of any director nominated under
the foregoing clause (A) or (B).
(ii) Upon the Transfer by SIF to Bell Atlantic in accordance with
Section 2.1(b), Bell Atlantic shall be entitled (A) to nominate one individual
for election to the Board to serve as a director until his or her successor is
elected and qualified, (B) to nominate each such successor, and (C) to propose
the removal from the Board of any director nominated under the foregoing clause
(A) or (B).
(iii) SCP shall be entitled (A) to nominate one individual for election
to the Board to serve as a director until his or her successor is elected and
qualified, (B) to nominate each such successor, and (C) to propose the removal
from the Board of any director nominated under the foregoing clause (A) or (B).
(b) Each nomination or any proposal to remove from the Board any
director pursuant to paragraph (a) above shall be made by delivering to the
Corporation a notice signed by the party or parties entitled to such nomination
or proposal. As promptly as practicable after delivery of such notice, the
Corporation shall take or cause to be taken such corporate actions as may be
reasonably required to cause the election or removal proposed in such notice.
Such corporate actions may include calling a meeting or soliciting a written
consent of the Board, or calling a meeting or soliciting a written consent of
the stockholders of the Corporation.
3.2 VOTING AGREEMENT.
Each Stockholder shall vote all shares of Series A Preferred Stock held
by such Stockholder for the election to the Board of all individuals nominated
in accordance with Section 3.1 and for the removal from the Board of all
directors proposed to be removed in accordance with Section 3.1. Each
Stockholder shall use all reasonable efforts to cause each director originally
nominated by such Stockholder to vote for the election to the Board of all
individuals nominated in accordance with Section 3.1.
- 6 -
<PAGE> 8
ARTICLE IV
COVENANTS
4.1 ACCESS TO RECORDS.
The Corporation shall afford to each Stockholder and its authorized
representatives, upon reasonable prior notice and during ordinary business
hours:
(i) free and full access, for any reasonable purpose relating
to the investment in the Corporation, to all books, records
and properties of the Corporation; and
(ii) the opportunity to interview the directors, officers, and
key employees of the Corporation regarding the affairs of the
Corporation.
4.2 REPORTS.
(a) Within three business days after becoming available, the
Corporation shall deliver to each Stockholder:
(i) copies of all registration statements and regular and
periodic reports filed by the Corporation or any of its
subsidiaries with the Securities and Exchange Commission; and
(ii) copies of all financial statements, reports, press
releases, and similar documents (A) sent by the Corporation or
any of its subsidiaries to the holders of any bonds or similar
debt instruments issued by such entity pursuant to an
indenture or (B) released by the Corporation or any of its
subsidiaries to the investing public.
(b) At any time at which the Corporation is not subject to the
reporting requirements of the Securities Exchange Act of 1934, the Corporation
shall deliver to each Stockholder:
(i) within 45 days after the end of each fiscal quarter of the
Corporation, the unaudited consolidated balance sheet and
statements of income and cash flows of the Corporation and its
subsidiaries as of the end of and for such quarter; and
(ii) within 90 days after the end of each fiscal year of the
Corporation, the audited consolidated balance sheet and
statements of income and cash flows of the Corporation and its
subsidiaries as of the end of and for such year.
All financial statements to be delivered under this paragraph (b) shall
have been prepared in accordance with generally accepted accounting principles
consistently applied.
- 7 -
<PAGE> 9
4.3 CONFIDENTIALITY.
Each Stockholder shall not disclose any confidential or proprietary
information relating to the Corporation to any person or entity, other than its
directors, officers, partners, auditors, and professional advisors to the extent
they have been advised of the confidential nature of such information. Nothing
contained herein shall prevent any Stockholder from disclosing any such
information:
(i) which becomes generally available to the public through no
fault of such Stockholder;
(ii) which was known to such Stockholder prior to its
disclosure by the Corporation, as can be established by
written evidence;
(iii) which has been available on a non-confidential basis
from a third party that was entitled to disclose such
information;
(iv) which is required by any applicable law, rule or
regulation to be disclosed by such Stockholder, provided that
such Stockholder shall provide the Corporation with written
notice that it is legally required to make such disclosure and
shall cooperate, at the Corporation's expense, in efforts by
the Corporation to intercede in such legal proceedings for the
purpose of protecting the confidential nature of the
information being disclosed; or
(v) in connection with the exercise of any rights or remedies
by such Stockholder against the Corporation.
4.4 HSR.
The Corporation shall, or shall cause any of its subsidiaries to,
reimburse each Stockholder for the filing fee required to be paid by such
Stockholder to the Federal Trade Commission in connection with the first
notification filed by such Stockholder under the HSR Act relating to any
conversion of shares of Series B Preferred Stock held by such Stockholder into
shares of Common Stock. The Corporation shall use its best efforts to cooperate
in providing all necessary information to each Stockholder in connection with
the filing of any such notification and any other requested or required
notification by any governmental agency asserting jurisdiction over such
Stockholder.
4.5 ERISA OPERATING COMPANY.
So long as Bell Atlantic or any successor that is subject to the
Employee Retirement Security Act of 1974, as amended, holds any Equity
Securities, the Corporation shall take all actions necessary to allow it to
continue to constitute an Operating Company, or otherwise not to cause any of
the underlying assets of the Corporation or any of its subsidiaries to be deemed
"plan assets" with respect to Bell Atlantic or such successor. "Operating
Company" means an "operating company "within the meaning of Department of Labor
Regulation Section2510.3-101(c) or successor rule or regulation, as from time to
time amended and in effect.
- 8 -
<PAGE> 10
4.6 AFFILIATE TRANSACTIONS.
The Corporation shall not directly or indirectly enter into any
transaction with any Stockholder or any Affiliate of any Stockholder (a
"Restricted Party"), other than (i) any transaction entered into in the ordinary
course of business and on terms and conditions at least as favorable to the
Corporation as the terms and conditions which would apply in a similar
transaction with a party that is not a Restricted Party, (ii) transactions
between the Corporation and its subsidiaries, and (iii) transactions
contemplated by this Agreement.
4.7 FEES AND EXPENSES.
The Corporation shall, or shall cause any of its subsidiaries to,
reimburse each Stockholder for all reasonable fees and expenses of counsel to
such Stockholder incurred in connection with the acquisition of Shares by such
Stockholder, the execution and delivery of this Agreement and any other
agreements entered into in connection with such acquisition, and the execution
and delivery of any future amendments to this Agreement or such other
agreements.
ARTICLE V
MISCELLANEOUS
5.1 LEGEND ON STOCK CERTIFICATES.
In addition to the legend required under Section 2.6, each certificate
representing Shares shall bear a legend substantially in the following form:
"THE SALE, TRANSFER, ASSIGNMENT, PLEDGE, OR ENCUMBRANCE OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE AND THE RIGHTS OF THE HOLDER
OF SUCH SECURITIES IN RESPECT OF THE ELECTION OF DIRECTORS ARE SUBJECT
TO THE AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT DATED OCTOBER 13,
1998, AMONG METALLURG HOLDINGS, INC. AND CERTAIN HOLDERS OF ITS
OUTSTANDING CAPITAL STOCK. COPIES OF SUCH AGREEMENT MAY BE OBTAINED AT
NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS
CERTIFICATE TO THE SECRETARY OF METALLURG HOLDINGS, INC."
5.2 SEVERABILITY.
If any provision of this Agreement shall be determined to be illegal
and unenforceable by any court of law, the remaining provisions shall be
severable and enforceable in accordance with their terms.
- 9 -
<PAGE> 11
5.3 ASSIGNMENTS; SUCCESSORS AND ASSIGNS.
The rights of each party under this Agreement may not be assigned,
except in connection with any permitted Transfer of Shares by any Stockholder.
This Agreement shall bind and inure to the benefit of the parties and their
respective successors and permitted assigns.
5.4 AMENDMENTS.
The terms and provisions of this Agreement may only be modified or
amended by an instrument signed by the Corporation and all Stockholders.
5.5 NOTICES.
All notices, claims, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
personally delivered or if sent by nationally-recognized overnight courier, by
telecopy, or by registered or certified mail, return receipt requested and
postage prepaid, addressed as follows:
if to the Corporation, to:
Metallurg Holdings, Inc.
c/o Safeguard International
800 The Safeguard Building
435 Devon Park Drive
Wayne, Pennsylvania 19087-1945
Telecopy: (610) 293-0854
Telephone: (610) 293-0838
Attention: Diana Wechsler Kerekes
if to any Stockholder, to its address set forth on Annex I;
or to such other address as the party to whom notice is to be given may have
furnished to the other parties in writing in accordance herewith. Any such
notice or communication shall be deemed to have been received (a) in the case of
personal delivery, on the date of such delivery, (b) in the case of
nationally-recognized overnight courier, on the next business day after the date
when sent, (c) in the case of telecopy transmission, when received, and (d) in
the case of mailing, on the third business day following that on which the piece
of mail containing such communication is posted.
5.6 TERMINATION.
This Agreement shall, except for Section 2.6, terminate on the
Termination Date.
5.7 HEADINGS.
The headings of the sections of this Agreement have been inserted for
convenience of reference only and shall not be deemed to be a part of this
Agreement.
- 10 -
<PAGE> 12
5.8 ENTIRE AGREEMENT.
This Agreement contains the entire agreement among the parties with
respect to the subject matter hereof and supersedes all prior agreements and
understandings with respect to such subject matter.
5.9 COUNTERPARTS.
This Agreement may be executed in any number of counterparts, and each
such counterpart hereof shall be deemed to be an original instrument, but all
such counterparts together shall constitute but one agreement.
5.10 GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware, without giving effect to any law or rule that
would cause the laws of any jurisdiction other than the State of Delaware to be
applied.
* * * *
- 11 -
<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have executed this
Amended and Restated Stockholders' Agreement on the date first above written.
CORPORATION:
METALLURG HOLDINGS, INC.
By: /S/ Michael R. Holly
________________________________________
Name: Michael R. Holly
Title: Vice President
STOCKHOLDERS:
SAFEGUARD INTERNATIONAL FUND, L.P.
By: SIF Management, L.P., its general partner
By: Safeguard International Partners, L.L.C.,
its general partner
By: /S/ Michael R. Holly
_________________________________________
Name: Michael R. Holly
Title: Managing Director
STATE OF MICHIGAN RETIREMENT SYSTEMS -
SAFEGUARD LIMITED PARTNERSHIP
By: SFINT, Inc., its general partner
By: /S/ Michael R. Holly
_________________________________________
Name: Michael R. Holly
Title:President
SCP PRIVATE EQUITY PARTNERS, L.P.
By: SCP Private Equity Management, L.P.,
its general partner
By: /S/ Samuel A. Plum
_________________________________________
Name: Samuel A. Plum
Title: General Partner
- 12 -
<PAGE> 14
Annex I
<TABLE>
<CAPTION>
Investors
---------
(1) (2)
Number of shares of Number of shares of
Name/Address Series A Series B
- ------------ Preferred Stock Preferred Stock
------------------- -------------------
<S> <C> <C>
Safeguard International Fund, L.P.
800 The Safeguard Building 4,000 2,500
435 Devon Park Drive
Wayne, PA 19087-1945
Attention: General Partner
State of Michigan Retirement System -- 2,000
- - Safeguard Limited Partnership
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087-1945
Attention: General Partner
SCP Private Equity Partners, L.P.
800 The Safeguard Building 1,202.335 --
435 Devon Park Drive
Wayne, PA 19087-1945
Attention: General Partner
--------- -----
TOTAL 5,202.335 4,500
</TABLE>
- 13 -
<PAGE> 1
================================================================================
Exhibit 4.2
AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
INITIALLY DATED JULY 13, 1998, AMENDED AND RESTATED ON OCTOBER 13, 1998
AMONG
METALLURG HOLDINGS, INC.
AND
ITS STOCKHOLDERS LISTED HEREIN
================================================================================
<PAGE> 2
AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
initially dated July 13, 1998,
amended and restated on October 13,
1998, among METALLURG HOLDINGS,
INC., a Delaware corporation (the
"Corporation"), and the
stockholders of the Corporation
listed on Schedule I (the
"Stockholders").
Each Stockholder owns shares of preferred stock of the
Corporation which are convertible into shares of common stock of the
Corporation. The parties deem it to be in their best interests to set forth the
rights of the Stockholders in connection with public offerings and sales of
common stock of the Corporation.
NOW, THEREFORE, in consideration of the premises and mutual
covenants and obligations hereinafter set forth, the parties hereby agree as
follows:
Section 1. Definitions. As used in this Agreement, the following terms
shall have the following meanings:
"Board of Directors" means the board of directors of the
Corporation.
"Commission" means the Securities and Exchange Commission or
any other Federal agency at the time administering the Securities Act.
"Common Stock" means the Common Stock, $.01 par value, of the
Corporation.
"Exchange Act" means the Securities Exchange Act of 1934 or
any successor Federal statute, and the rules and regulations of the Commission
promulgated thereunder, all as the same shall be in effect from time to time.
"Initial Public Offering" means the first public offering of
Common Stock pursuant to a registration statement filed under the Securities
Act.
"Other Shares" means at any time those shares of Common Stock
which do not constitute Primary Shares or Registrable Shares.
"Primary Shares" means at any time the authorized but unissued
shares of Common Stock and shares of Common Stock held by the Corporation in its
treasury.
"Registrable Shares" means at any time, with respect to any
Stockholder, the shares of Common Stock held by such Stockholder, other than
shares that have previously been sold to the public pursuant to a registration
statement under the Securities Act or Rule 144.
"Registration Date" means the date upon which the registration
statement relating to the Initial Public Offering shall have been declared
effective.
<PAGE> 3
"Rule 144" means Rule 144 promulgated under the Securities Act
or any successor rule thereto.
"Securities Act" means the Securities Act of 1933 or any
successor Federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect from time to time.
Section 2. Piggyback Registration.
(a) If the Corporation, at any time after the Registration
Date, proposes for any reason to register Primary Shares or Other Shares under
the Securities Act (other than on Form S-4 or Form S-8 promulgated under the
Securities Act or any successor forms thereto), it shall give written notice to
the Stockholders of its intention to register such Primary Shares or Other
Shares at least 20 days before the initial filing of such registration statement
and, upon the written request, delivered to the Corporation within 15 days after
delivery of any such notice by the Corporation, of any Stockholder to include in
such registration Registrable Shares (which request shall specify the number of
Registrable Shares proposed to be included in such registration), the
Corporation shall use its best efforts to cause all such Registrable Shares to
be included in such registration on the same terms and conditions as the
securities otherwise being sold in such registration; provided, however, that if
any managing underwriter for such public offering advises the Corporation that
the inclusion of all Registrable Shares requested to be included in such
registration would interfere with the successful marketing (including pricing)
of the Primary Shares or Other Shares proposed to be registered by the
Corporation, then the number of Primary Shares, Registrable Shares and Other
Shares proposed to be included in such registration shall be included in the
following order:
(i) first, the Primary Shares;
(ii) second, the Registrable Shares requested to be included
in such registration, pro rata among the holders thereof based upon the number
of Registrable Shares owned by each such holder at the time of such
registration; and
(ii) third, the Other Shares.
(b) Each Stockholder that requested the registration of
Registrable Shares in an underwritten public offering pursuant to this Agreement
shall execute (i) subject to Section 7, an underwriting agreement containing
customary representations and warranties and opinion requirements of such
Stockholder, and (ii) customary ancillary documents, including a power of
attorney and a custody agreement.
(c) If at any time after giving written notice of its
intention to register any Primary Shares or Other Shares and prior to the
effective date of such registration, the Company shall determine for any reason
not to register or to delay registration of such securities, the Company may, at
its election, give written notice of such determination to the Stockholders and,
thereupon, (i) in the case of a determination not to register, the Company shall
be relieved of its obligation to register any Registrable Shares until the
provisions of this Section 2 apply to any subsequent registration and (ii) in
the case of a determination to delay such registration, the
2
<PAGE> 4
Company shall be permitted to delay registration of any Registrable Shares
requested to be included in such registration for the same period as the delay
in registering such other securities.
(d) If any Stockholder is permitted to sell Registrable Shares
in the Initial Public Offering, the Corporation shall offer to all Stockholders
the right to participate in the Initial Public Offering upon the terms set forth
in this Section.
Section 3. Holdback Agreement. If the Corporation at any time shall
register shares of Common Stock under the Securities Act (including any
registration pursuant to Section 2 hereof, other than on Form S-4 or Form S-8
promulgated under the Securities Act or any successor forms thereto) for sale to
the public, the Stockholders shall not sell publicly, make any short sale of,
grant any option for the purchase of, or otherwise dispose publicly of, any
Registrable Shares (other than those shares of Common Stock included in such
registration pursuant to Section 2 hereof) without the prior written consent of
the Corporation, for a period designated by the Corporation in writing to the
Stockholders, which period shall begin not more than 30 days prior to the
effectiveness of the registration statement pursuant to which such public
offering shall be made and shall not last more than 180 days after the
Registration Date and not more than 90 days after the effective date of any
other registration statement; provided, however, that the Corporation may not
invoke the foregoing obligation for more than 180 days during any twelve-month
period. The Corporation may legend and impose stop transfer instructions on any
certificate evidencing Registrable Shares relating to the restrictions set forth
in this Section.
Section 4. Preparation and Filing. If and whenever the Corporation is
under an obligation pursuant to the provisions of this Agreement to use its best
efforts to effect the registration of any Registrable Shares, the Corporation
shall, as expeditiously as practicable:
(a) use its best efforts to cause a registration statement
that registers such Registrable Shares to become and remain effective in
accordance with the Securities Act for a period of 90 days or until all of such
Registrable Shares have been disposed of (if earlier);
(b) furnish, at least five business days before filing a
registration statement that registers such Registrable Shares in accordance with
the Securities Act, a prospectus relating thereto or any amendments or
supplements relating to such a registration statement or prospectus, to one
counsel selected by the holders of a majority of such Registrable Shares (the
"Selling Stockholders' Counsel"), together with copies of all such documents
proposed to be filed (it being understood that such five-business-day period
need not apply to successive drafts of the same document proposed to be filed so
long as such successive drafts are supplied to the Selling Stockholders' Counsel
in advance of the proposed filing by a period of time that is customary and
reasonable under the circumstances);
(c) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
at least a period of 90 days or until all of such Registrable Shares have been
sold or disposed of (if earlier) pursuant to such registration statement and to
comply with the provisions of the Securities Act with respect to such sale or
other disposition;
3
<PAGE> 5
(d) notify in writing the Selling Stockholders' Counsel
promptly (i) of the receipt by the Corporation of any notification with respect
to any comments by the Commission with respect to such registration statement or
prospectus or any amendment or supplement thereto or any request by the
Commission for the amending or supplementing thereof or for additional
information with respect thereto, (ii) of the receipt by the Corporation of any
notification with respect to the issuance by the Commission of any stop order
suspending the effectiveness of such registration statement or prospectus or any
amendment or supplement thereto or the initiation or threatening of any
proceeding for that purpose and (iii) of the receipt by the Corporation of any
notification with respect to the suspension of the qualification of such
Registrable Shares for sale in any jurisdiction or the initiation or threatening
of any proceeding for such purposes;
(e) use its best efforts to register or qualify such
Registrable Shares under such other securities or blue sky laws of such
jurisdictions as the Stockholders reasonably request and do any and all other
acts and things which may be reasonably necessary or advisable to enable the
Stockholders to consummate the disposition in such jurisdictions of the
Registrable Shares owned by the Stockholders; provided, however, that the
Corporation will not be required to qualify generally to do business, subject
itself to general taxation or consent to general service of process in any
jurisdiction where it would not otherwise be required to do so but for this
paragraph (e) or to provide any material undertaking or make any changes in its
By-laws or Certificate of Incorporation which the Board of Directors determines
to be contrary to the best interests of the Corporation or to modify any of its
contractual relationships then existing;
(f) furnish to each seller of such Registrable Shares such
number of copies of the registration statement, the prospectus updated therein,
a summary prospectus, if any, or other prospectus, including a preliminary
prospectus, in conformity with the requirements of the Securities Act, and such
other documents as such seller of Registrable Shares may reasonably request in
order to facilitate the public sale or other disposition of such Registrable
Shares;
(g) without limiting subsection (e) above, use its best
efforts to cause such Registrable Shares to be registered with or approved by
such other governmental agencies or authorities as may be necessary by virtue of
the business and operations of the Corporation to enable the seller or sellers
thereof to consummate the disposition of such Registrable Shares;
(h) notify on a timely basis each seller of such Registrable
Shares at any time when a prospectus relating to such Registrable Shares is
required to be delivered under the Securities Act within the appropriate period
mentioned in subparagraph (a) of this Section 4, of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then existing
and, at the request of any seller, prepare and furnish to such seller a
reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the offerees
of such shares, such prospectus shall not include 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 in light of the
circumstances then existing;
4
<PAGE> 6
(i) subject to the execution of confidentiality agreements in
form and substance satisfactory to the Corporation, make available upon
reasonable notice and during normal business hours for inspection by any seller
of such Registrable Shares, any underwriter participating in any disposition
pursuant to such registration statement and any attorney, accountant or other
agent retained by any such seller or underwriter (collectively, the
"Inspectors"), all pertinent financial and other records, pertinent corporate
documents and properties of the Corporation (collectively, the "Records"), as
shall be reasonably necessary to enable them to exercise their due diligence
responsibility, and cause the Corporation's officers, directors and employees to
supply all information (together with the Records, the "Information") reasonably
requested by any such Inspector in connection with such registration statement.
Any of the Information which the Corporation determines in good faith to be
confidential, and of which determination the Inspectors are so notified, shall
not be disclosed by the Inspectors unless (i) the disclosure of such Information
is necessary to avoid or correct a misstatement or omission in the registration
statement, (ii) the release of such Information is ordered pursuant to a
subpoena or other order from a court of competent jurisdiction or (iii) such
Information has been made generally available to the public; the sellers of such
Registrable Shares agree that they will, upon learning that disclosure of such
Information is sought in a court of competent jurisdiction, give notice to the
Corporation and allow the Corporation, at the Corporation's expense, to
undertake appropriate action to prevent disclosure of the Information deemed
confidential;
(j) use its best efforts to obtain from its independent
certified public accountants "cold comfort" letters in customary form and at
customary times and covering matters of the type customarily covered by cold
comfort letters;
(k) use its best efforts to obtain from its counsel an opinion
or opinions in customary form;
(l) provide a transfer agent and registrar (which may be the
same entity and which may be the Corporation) for such Registrable Shares;
(m) issue to any underwriter or other purchaser to which any
seller of Registrable Shares may sell shares in such offering certificates
evidencing such Registrable Shares;
(n) list such Registrable Shares on any national securities
exchange on which any shares of the Common Stock are listed or, if the Common
Stock is not listed on a national securities exchange, use its best efforts to
qualify such Registrable Shares for inclusion on the automated quotation system
of the National Association of Securities Dealers, Inc. (the "NASD"), or such
other national securities exchange as the holders of a majority of such
Registrable Shares shall reasonably request;
(o) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission and make available to its
securityholders, as soon as reasonably practicable, earnings statements (which
need not be audited) covering a period of 12 months beginning within three
months after the effective date of the registration statement, which earnings
statements shall satisfy the provisions of Section 11(a) of the Securities Act;
and
5
<PAGE> 7
(p) subject to all the other provisions of this Agreement, use
its best efforts to take all other steps necessary to effect the registration of
such Registrable Shares contemplated hereby.
Each holder of the Registrable Shares, upon receipt of any
notice from the Corporation of any event of the kind described in Section 4(h)
hereof, shall forthwith discontinue disposition of the Registrable Shares
pursuant to the registration statement covering such Registrable Shares until
such holder's receipt of the copies of the supplemented or amended prospectus
contemplated by Section 4(h) hereof, and, if so directed by the Corporation,
such holder shall deliver to the Corporation all copies, other than permanent
file copies then in such holder's possession, of the prospectus covering such
Registrable Shares at the time of receipt of such notice.
Section 5. Expenses. All expenses (other than underwriting discounts
and commissions relating to the Registrable Shares, as provided in the last
sentence of this Section 5) incurred by the Corporation in complying with
Section 4, including, without limitation, all registration and filing fees
(including all expenses incident to filing with the NASD), fees and expenses of
complying with securities and blue sky laws, printing expenses, fees and
expenses of the Corporation's counsel and accountants, and fees and expenses of
the Selling Stockholders' Counsel, shall be paid by the Corporation; provided,
however, that all underwriting discounts and selling commissions applicable to
the Registrable Shares shall be borne by the holders selling such Registrable
Shares, in proportion to the number of Registrable Shares sold by each such
holder.
Section 6. Indemnification.
(a) In connection with any registration of any Registrable
Shares under the Securities Act pursuant to this Agreement, the Corporation
shall indemnify and hold harmless the holders of Registrable Shares, each
underwriter, broker or any other person acting on behalf of the holders of
Registrable Shares and each other person, if any, who controls any of the
foregoing persons within the meaning of the Securities Act against any losses,
claims, damages or liabilities, joint or several (or actions in respect
thereof), to which any of the foregoing persons may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or allegedly untrue statement of a material fact contained in
the registration statement under which such Registrable Shares were registered
under the Securities Act, any preliminary prospectus or final prospectus
contained therein or otherwise filed with the Commission, any amendment or
supplement thereto or any document incident to registration or qualification of
any Registrable Shares, 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 or, with respect to
any prospectus, necessary to make the statements therein in light of the
circumstances under which they were made not misleading, or any violation by the
Corporation of the Securities Act or state securities or blue sky laws
applicable to the Corporation and relating to action or inaction required of the
Corporation in connection with such registration or qualification under such
state securities or blue sky laws; and shall pay to the holders of Registrable
Shares, such underwriter, such broker or such other person acting on behalf of
the holders of Registrable Shares and each such controlling person any legal or
other
6
<PAGE> 8
expenses reasonably incurred by any of them in connection with investigating or
defending any such loss, claim, damage, liability or action, as such expenses
are incurred; provided, however, that the Corporation shall not be liable in any
such case to the extent that any such loss, claim, damage, liability or action
(including any legal or other expenses incurred) arises out of or is based upon
an untrue statement or allegedly untrue statement or omission or alleged
omission made in said registration statement, preliminary prospectus, final
prospectus, amendment, supplement or document incident to registration or
qualification of any Registrable Shares in reliance upon and in conformity with
written information furnished to the Corporation through an instrument duly
executed by the holders of Registrable Shares or their counsel or underwriter
specifically for use in the preparation thereof; provided further, however, that
the foregoing indemnity agreement is subject to the condition that, insofar as
it relates to any untrue statement, allegedly untrue statement, omission or
alleged omission made in any preliminary prospectus but eliminated or remedied
in the final prospectus (filed pursuant to Rule 424 of the Securities Act), such
indemnity agreement shall not inure to the benefit of any Stockholder,
underwriter, broker or other person acting on behalf of holders of the
Registrable Shares from whom the person asserting any loss, claim, damage,
liability or expense purchased the Registrable Shares which are the subject
thereof, if a copy of such final prospectus had been made available to such
Stockholder, underwriter, broker or other person acting on behalf of holders of
the Registrable Shares and such final prospectus was not delivered to such
person with or prior to the written confirmation of the sale of such Registrable
Shares to such person.
(b) In connection with any registration of Registrable Shares
under the Securities Act pursuant to this Agreement, each holder of Registrable
Shares shall severally and not jointly indemnify and hold harmless the
Corporation, each director of the Corporation, each officer of the Corporation
who shall sign such registration statement, each underwriter, broker or other
person acting on behalf of the holders of Registrable Shares and each person who
controls any of the foregoing persons within the meaning of the Securities Act
against any losses, claims, damages or liabilities, joint or several (or actions
in respect thereof), to which any of the foregoing persons may become subject
under the Securities Act or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
any statement contained in or omission from such registration statement, any
preliminary prospectus or final prospectus contained therein or otherwise filed
with the Commission, any amendment or supplement thereto or any document
incident to registration or qualification of any Registrable Shares, if such
statement or omission was made in reliance upon and in conformity with written
information furnished by such holder to the Corporation or such underwriter
specifically for use in connection with the preparation of such registration
statement, preliminary prospectus, final prospectus, amendment, supplement or
document; provided, however, that the maximum amount of liability in respect of
such indemnification shall be limited, in the case of each seller of Registrable
Shares, to an amount equal to the net proceeds actually received by such Seller
from the sale of Registrable Shares effected pursuant to such registration.
(c) Promptly after receipt by an indemnified party of notice
of the commencement of any action involving a claim referred to in the preceding
paragraphs of this Section 6, such indemnified party will, if a claim in respect
thereof is made against an indemnifying party, give written notice to the latter
of the commencement of such action. The
7
<PAGE> 9
failure of any indemnified party to notify an indemnifying party of any such
action shall not (unless such failure shall have a material adverse effect on
the indemnifying party) relieve the indemnifying party from any liability in
respect of such action that it may have to such indemnified party on account of
this Section 6. In case any such action is brought against an indemnified party,
the indemnifying party will be entitled to participate in and to assume the
defense thereof, jointly with any other indemnifying party similarly notified to
the extent that it may wish, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be responsible for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof; provided, however, that if any indemnified party shall have reasonably
concluded that there may be one or more legal or equitable defenses available to
such indemnified party which are additional to or conflict with those available
to the indemnifying party, or that such claim or litigation involves or could
have an effect upon matters beyond the scope of the indemnity agreement provided
in this Section 6, the indemnifying party shall not have the right to assume the
defense of such action on behalf of such indemnified party (but shall have the
right to participate therein with counsel of its choice) and such indemnifying
party shall reimburse such indemnified party and any person controlling such
indemnified party for that portion of the fees and expenses of any counsel
retained by the indemnified party which is reasonably related to the matters
covered by the indemnity agreement provided in this Section 6. If the
indemnifying party is not entitled to, or elects not to, assume the defense of a
claim, it will not be obligated to pay the fees and expenses of more than one
counsel with respect to such claim.
(d) If the indemnification provided for in this Section 6 is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, claim, damage, liability or action referred to
herein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amounts paid or payable by such
indemnified party as a result of such loss, claim, damage, liability or action
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions which resulted in such loss, claim,
damage, liability or action as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the indemnifying party or by the indemnified party and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The parties agree that it would not be just
and equitable if contribution pursuant hereto were determined by pro rata
allocation or by any other method or allocation which does not take account of
the equitable considerations referred to herein. No person guilty of fraudulent
misrepresentation shall be entitled to contribution from any person.
Notwithstanding the other provisions of this Section 6(d), no holder of
Registrable Shares shall be required to contribute any amounts in excess of the
aggregate amount at which such holder's Registrable Shares were sold to the
public.
Section 7. Underwriting Agreement. Notwithstanding the provisions of
Sections 2, 3, 4, 5 and 6, to the extent that the Stockholders shall enter into
an underwriting or similar
8
<PAGE> 10
agreement, which agreement contains provisions covering one or more issues
addressed in such Sections, the provisions contained in such agreement
addressing such issue or issues shall control. No holder of Registrable
Securities included in any underwritten registration shall be required to make
any representations or warranties to the Corporation or the underwriters (other
than representations and warranties regarding such holder and such holder's
intended method of distribution) or to undertake any indemnification obligations
to the Corporation or the underwriters with respect thereto, except to the
extent provided in Section 6 hereof.
Section 8. Information by Holder. Each holder of Registrable Shares
shall furnish to the Corporation such written information regarding such holder
and the distribution proposed by the Stockholders as the Corporation may
reasonably request in writing and as shall be reasonably required in connection
with any registration, qualification or compliance referred to in this
Agreement.
Section 9. Information by Corporation. So long as the Corporation shall
not have filed a registration statement pursuant to Section 12 of the Exchange
Act or a registration statement pursuant to the requirements of the Securities
Act, the Corporation shall, at any time and from time to time, upon the request
of any Stockholder, furnish in writing to the Stockholders a statement as of a
date not earlier than 12 months prior to the date of such request of the nature
of the business of the Corporation and the products and services it offers and
copies of the Corporation's most recent balance sheet and profit and loss and
retained earnings statements, together with similar financial statements for
such part of the two preceding fiscal years as the Corporation shall have been
in operation, all such financial statements to be audited to the extent audited
statements are reasonably available, provided that in any event the most recent
financial statements so furnished shall include a balance sheet as of a date
less than 16 months prior to the date of such request, statements of profit and
loss and retained earnings for the 12 months preceding the date of such balance
sheet, and, if such balance sheet is not as of a date less than six months prior
to the date of such request, additional statements of profit and loss and
retained earnings for the period from the date of such balance sheet to a date
less than six months prior to the date of such request.
Section 10. Exchange Act Compliance. From the Registration Date or such
earlier date as a registration statement filed by the Corporation pursuant to
the Exchange Act relating to any class of the Corporation's securities shall
have become effective, the Corporation shall comply with all of the reporting
requirements of the Exchange Act applicable to it (whether or not it shall be
required to do so, but specifically excluding Section 14 of the Exchange Act if
not then applicable to the Corporation) and shall comply with all other public
information reporting requirements of the Commission which are conditions to the
availability of Rule 144 for the sale of the Common Stock. The Corporation shall
cooperate with each Stockholder in supplying such information as may be
necessary for such Stockholder to complete and file any information reporting
forms presently or hereafter required by the Commission as a condition to the
availability of Rule 144.
Section 11. No Conflict of Rights. The Corporation shall not, after the
date hereof, grant any registration rights which conflict with, are senior to,
or impair the registration rights granted hereby.
9
<PAGE> 11
Section 12. Termination. This Agreement shall terminate and be of no
further force or effect when there shall no longer be any Registrable Shares
outstanding.
Section 13. Successors and Assigns. This Agreement shall bind and inure
to the benefit of the Corporation and the Stockholders and, subject to Section
14, the respective successors and assigns of the Corporation and the
Stockholders.
Section 14. Assignment. Each Stockholder may assign its rights
hereunder to any purchaser or transferee of Registrable Shares; provided,
however, that such purchaser or transferee shall, as a condition to the
effectiveness of such assignment, be required to execute a counterpart to this
Agreement agreeing to be treated as a Stockholder, whereupon such purchaser or
transferee shall have the benefits of, and shall be subject to the restrictions
contained in, this Agreement as if such purchaser or transferee was originally
included in the definition of a Stockholder herein and had originally been a
party hereto.
Section 15. Entire Agreement. This Agreement contains the entire
agreement among the parties with respect to the subject matter hereof and
supersedes all prior and contemporaneous arrangements or understandings with
respect hereto.
Section 16. Notices. All notices, requests, consents and other
communications hereunder to any party shall be deemed to be sufficient if
contained in a written instrument delivered in person or sent by telecopy,
nationally-recognized overnight courier or first class registered or certified
mail, return receipt requested, postage prepaid, addressed to such party at the
address set forth below or such other address as may hereafter be designated in
writing by such party to the other parties:
(i) if to the Corporation, to:
Metallurg Holdings, Inc.
c/o Safeguard International
800 The Safeguard Building
435 Devon Park Drive
Wayne, Pennsylvania 19087-1945
Telephone: (610) 293-0838
Telecopy: (610) 293-0854
Attention: Diana Wechsler Kerekes
(ii) if to any Stockholder, to its address set forth on
Schedule I or in the books of the Corporation.
All such notices, requests, consents and other communications
shall be deemed to have been delivered (a) in the case of personal delivery or
delivery by telecopy, on the date of such delivery, (b) in the case of dispatch
by nationally-recognized overnight courier, on the next business day following
such dispatch and (c) in the case of mailing, on the third business day after
the posting thereof.
10
<PAGE> 12
Section 17. Modifications; Amendments; Waivers. The terms and
provisions of this Agreement may not be modified or amended, nor may any
provision be waived, except pursuant to a writing signed by the Corporation and
all holders of the Registrable Shares then outstanding.
Section 18. Counterparts; Facsimile Signatures. This Agreement may be
executed in any number of counterparts, and each such counterpart hereof shall
be deemed to be an original instrument, but all such counterparts together shall
constitute but one agreement.
Section 19. Headings. The headings of the various sections of this
Agreement have been inserted for convenience of reference only and shall not be
deemed to be a part of this Agreement.
Section 20. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed wholly therein.
11
<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have executed this
Amended and Restated Registration Rights Agreement on the date first written
above.
CORPORATION:
METALLURG HOLDINGS, INC.
By: /S/ Michael R. Holly
________________________________________
Name: Michael R. Holly
Title: Vice President
STOCKHOLDERS:
SAFEGUARD INTERNATIONAL FUND, L.P.
By: SIF Management, L.P., its general partner
By: Safeguard International Partners, L.L.C.,
its general partner
By: /S/ Michael R. Holly
________________________________________
Name: Michael R. Holly
Title: Managing Director
STATE OF MICHIGAN RETIREMENT SYSTEMS -
SAFEGUARD LIMITED PARTNERSHIP
By: SFINT, Inc., its general partner
By: /S/ Michael R. Holly
________________________________________
Name: Michael R. Holly
Title: President
SCP PRIVATE EQUITY PARTNERS, L.P.
By: SCP Private Equity Management, L.P.
its general partner
By: /S/ Samuel A. Plum
________________________________________
Name: Samuel A. Plum
Title: General Partner
<PAGE> 14
Schedule I
Stockholders
Name/Address
Safeguard International Fund, L.P.
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087-1945
Attention: General Partner
State of Michigan Retirement System
- - Safeguard Limited Partnership
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087-1945
Attention: General Partner
SCP Private Equity Partners, L.P.
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087-1945
Attention: General Partner
13
<PAGE> 1
Exhibit 4.3
JOINDER AGREEMENT dated and effective as
of December 7, 1998, among METALLURG
HOLDINGS, INC., a Delaware corporation (the
"Company"), Joseph H. Marren, Scott M.
Honour, Mark W. Lanigan, Robert McEvoy and
Scott Morrison, (collectively, the
"Investors"), and SAFEGUARD INTERNATIONAL
FUND, L.P., STATE OF MICHIGAN RETIREMENT
SYSTEM - SAFEGUARD LIMITED PARTNERSHIP and
SCP PRIVATE EQUITY PARTNERS, L.P.
(collectively, the "Existing Stockholders").
Reference is made to the Amended and Restated Stockholders'
Agreement (the "Stockholders' Agreement") dated as of October 13, 1998 among the
Company and the stockholders listed therein, in the form of Exhibit I hereto,
and the Amended and Restated Registration Rights Agreement (the "Registration
Rights Agreement") dated as of October 13, 1998 among the Company and the
stockholders listed therein, in the form of Exhibit II hereto.
The Company and the Existing Stockholders wish to add the
Investors to the Stockholders' Agreement and the Registration Rights Agreement
as Stockholders (as such term is defined therein).
Accordingly, the parties do hereby agree as follows:
1. The Company and the Existing Stockholders hereby add the
Investors as Stockholders to the Stockholders' Agreement and the Registration
Rights Agreement.
2. The Investors hereby agree to adopt, and hereby agree to be
bound by, all the terms and provisions of the Stockholders' Agreement and the
Registration Rights Agreement.
3. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
4. This Agreement contains the entire understanding among the
parties and supersedes any prior understandings and agreements among them
concerning the subject matter hereof, and there are no restrictions, agreements,
arrangement or undertakings, oral or written, among the parties relating to the
subject matter of this Agreement which are not fully expressed herein.
<PAGE> 2
IN WITNESS WHEREOF, the parties hereto have hereunto set their
hands as of the date first written above.
COMPANY:
METALLURG HOLDINGS, INC.
By /S/ Michael R. Holly
--------------------------------
Name: Michael R. Holly
Title: Executive Vice President
INVESTORS:
/s/ Joseph H. Marren
------------------------------------
Joseph H. Marren
/s/ Scott M. Honour
------------------------------------
Scott M. Honour
/s/ Mark W. Lanigan
------------------------------------
Mark W. Lanigan
/s/ Robert McEvoy
------------------------------------
Robert McEvoy
/s/ Scott Morrison
------------------------------------
Scott Morrison
Agreed and Accepted:
STOCKHOLDERS:
SAFEGUARD INTERNATIONAL FUND, L.P.
By: SIF Management, L.P., its general partner
By: Safeguard International Partners, L.L.C.,
its general partner
By: /S/ Michael R. Holly
--------------------------------
Name: Michael R. Holly
Title: Managing Director
<PAGE> 3
STATE OF MICHIGAN RETIREMENT SYSTEMS -
SAFEGUARD LIMITED PARTNERSHIP
By: SFINT, Inc., its general partner
By: /S/ Michael R. Holly
--------------------------------
Name: Michael R. Holly
Title: President
SCP PRIVATE EQUITY PARTNERS, L.P.
By: SCP Private Equity Management, L.P.,
its general partner
By: /S/ Samuel A. Plum
--------------------------------
Name: Samuel A. Plum
Title: General Partner
<PAGE> 1
Exhibit 10.3
FIFTH AMENDMENT
FIFTH AMENDMENT dated as of November 16, 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 ss.1
of this Amendment shall have the respective meanings in this Amendment assigned
to such terms in ss.1.
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 consent to certain amendments to the German Loan Agreement, in each case
in order to permit MI to enter into a set-off system for the calculation of
interest with respect to bank accounts of MI and GfE maintained with Bank
Mendes; and
WHEREAS, the Agent and the Banks are willing to so amend the terms of the
Loan Agreement in such respects as hereinafter more fully set forth and to
consent to such amendments to the German Loan Agreement, in each case, 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:
ss.1. Amendment of ss.1 of the Loan Agreement. Section 1 of the Loan
Agreement is hereby amended by inserting the following new definitions in proper
alphabetical order:
<PAGE> 2
-2-
"Bank Mendes: Bank Mendes Gans N.V., a company limited by shares
incorporated under the laws of The Netherlands."
"Bank Mendes Accounts: The bank accounts maintained by MI and GfE
with Bank Mendes and subject to the Interest Set-Off Agreement. "
"Fifth Amendment: The Fifth Amendment hereto dated as of November
__, 1998, among the Borrowers, the Guarantors, the Agent and the Banks."
"Fifth Amendment Effective Date: The date on which the conditions to
the effectiveness of the Fifth Amendment (such conditions being set forth
in Section 5 thereof) shall have been satisfied."
"GfE: GfE-Gesellschaft fur Elektrometallurgie MBH, a company
incorporated under the laws of Germany and a German Borrower."
"Interest Set-Off Agreement. The Interest Set-Off
Agreement-Guarantee dated as of September 30, 1998 between MI, GfE and
Bank Mendes, in the form delivered to the Agent on or prior to the Fifth
Amendment Effective Date."
ss.2. Amendment of ss.9 of the Loan Agreement. Section 9 of the Loan
Agreement is hereby amended as follows:
(a) by amending Section 9.2(b) of the Loan Agreement by deleting the word
"and" at the end of clause (x) thereof and inserting before the semi-colon at
the end of clause (xi) thereof the following new clause (xii):
"(xii) Indebtedness of MI in respect of its guaranty of the
obligations of GfE under the Interest Set-Off Agreement not to exceed the
amount permitted under ss.9.2(d)(xiii) at any time."
(b) by amending Section 9.2(c) of the Loan Agreement by deleting the word
"and" at the end of clause (ix) thereof and inserting before the semi-colon at
the end of clause (x) thereof the following new clause (xi):
"(xi) Liens on any and all present and future claims of MI on Bank
Mendes arising from or in connection with the Bank Mendes Account securing
the Indebtedness permitted by ss.9.2(b)(xii)."
(c) by amending Section 9.2(d)(vii) of the Loan Agreement by replacing
such clause with the following clause (vii):
"(vii) in the Operating Accounts, the Lock Box Accounts, operating
bank accounts of the Guarantors and, subject to ss.9.2(d)(xiii) hereof,
the Bank Mendes Accounts,"
<PAGE> 3
-3-
(d) by further amending Section 9.2(d) of the Loan Agreement by deleting
the word "and" at the end of clause (xi) thereof and inserting before the
semi-colon at the end of clause (xii) thereof the following new clause (xiii):
"(xiii) in GfE consisting of deposits in the Bank Mendes Accounts or
MI's guaranty of the obligations of GfE under the Interest Set-Off
Agreement, provided, however, that (A) the aggregate amount of such
investments, together with any investments in the German Borrowers made
pursuant to ss.9.2(d)(vi)(C) and (D)(ii) hereof, shall not exceed
$16,500,000 at any time and (B) MI shall use its best efforts not to cause
or permit the credit balance in its Bank Mendes Account(s), determined not
less frequently than once per week, to exceed the debit balance in GfE's
Bank Mendes Account(s), determined at such time."
ss.3. Limited Consents.
Consent to Amendment of German Loan Agreement. The German Borrowers and
the German Lender have agreed to amend the German Loan Agreement. Pursuant to
Section 15 of the Loan Agreement, such amendment under the German Loan Agreement
and other German Loan Documents requires the written consent of the Majority
Banks. Accordingly, each of the undersigned Banks hereby consents to the Second
Amendment to the German Loan Agreement in substantially the form attached hereto
as Exhibit A.
Consent to Other Intercompany Interest Set-off Arrangements. The Borrowers
have advised the Agent and the Banks that they may, in the future, wish to enter
into interest set-off arrangements on behalf of one or more of their
Subsidiaries similar to the arrangement with Bank Mendes contemplated under this
Amendment (the "Intercompany Interest Set-off Arrangements"). Notwithstanding
that certain provisions of the Intercompany Interest Set-off Arrangements would
not be permitted under the Loan Agreement, the Borrowers have requested that the
Banks consent to such Intercompany Interest Set-off Arrangements as set forth
herein. The Banks hereby consent to such Intercompany Interest Set-off
Arrangements provided that (a) prior to the Borrowers entering into any such
Intercompany Interest Set-off Arrangement, the Agent shall have been provided
copies of all documentation relating thereto and shall have given its written
consent to such arrangements (including its consent to the institution at which
such Intercompany Interest Set-off Arrangement is to be maintained), (b) the sum
of (i) the aggregate amount of investments made in connection with all such
Intercompany Set-off Arrangements with respect to any Subsidiary, plus (ii) all
other investments in such Subsidiary made pursuant to Section 9.2(d)(vi) plus
(iii) all other investments in any other Subsidiary treated under the same
investment limitation in Section 9.2(d)(vi), shall not exceed the investment
limitation relating to such Subsidiary and such other Subsidiaries set forth in
Section 9.2(d)(vi), (c) immediately prior to and after, and after giving effect
to the institution of such Intercompany Setoff Arrangement, no Default or Event
of Default shall have occurred and be continuing, and (d) the Borrowers shall
use their best efforts not to cause or permit the credit balance in its bank
account(s) maintained in connection with any such Intercompany Interest Set-off
Arrangement, determined not less frequently than once per week, to exceed the
debit balance in the Subsidiary's bank account(s) maintained in connection with
such Intercompany Interest Set-off Arrangement, determined at such time.
<PAGE> 4
-4-
Limitations. The foregoing consents are limited strictly to their 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 Document and shall not impair
any rights consequent thereon. None of the Agent or the Banks shall have any
obligation to issue any further 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.
ss.4. 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.
ss.5. Conditions to Effectiveness. The effectiveness of this Amendment,
including the amendments and limited consent contained herein, shall be subject
to the satisfaction of the following conditions precedent:
(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 Agent shall have received a fully executed copy of the Interest
Set-Off Agreement; and
(c) MI shall have delivered to Bank Mendes a letter, in form and substance
satisfactory to the Agent, instructing Bank Mendes, in the event it enforces its
rights under the Interest Set-Off Agreement, to pay to the Agent any surplus
amounts in the Bank Mendes Accounts.
ss.6. 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
<PAGE> 5
-5-
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.
ss.7. 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.
ss.8. 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.
ss.9. 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).
<PAGE> 6
-6-
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, Treasurer
<PAGE> 7
-7-
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: V.P.
By: /s/ Theresa Wirte
----------------------------------------
Name: Theresa Wirte
Title: V.P.
<PAGE> 8
SIXTH AMENDMENT
SIXTH AMENDMENT dated as of March 31, 1999 (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
ss.1.1 of this Amendment shall have the respective meanings in this Amendment
assigned to such terms in ss.1.1.
WHEREAS, the Borrowers and the Guarantors have requested that the Agent
and the Banks amend the terms of the Loan Agreement in order to provide for
certain changes to the financial covenants set forth therein, as provided in
this Amendment;
NOW, THEREFORE, in consideration of the mutual agreements contained in the
Loan Agreement and in this Amendment and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
ss.1. Amendments to the Loan Agreement. Subject to the satisfaction of the
conditions set forth in ss.4 below, the Loan Agreement is hereby amended as
follows:
<PAGE> 9
-2-
ss.1.1 Amendments to Definitions. Section 1 of the Loan Agreement is
hereby amended by inserting the following new definitions in the appropriate
places in the alphabetical order:
"Average Liquidity Level. With respect to the Borrowers and the
Guarantors and any particular fiscal period, the average daily Liquidity
Level for such fiscal period determined by reference to the Liquidity
Level on each Business Day during such fiscal period."
"Borrowing Base Availability. On any Business Day of determination,
the excess of (a) the sum of (i) the aggregate amount of Total
Outstandings (excluding German Outstandings) at the close of business on
such day plus (ii) the sum of the German Facility Reserves, if any, of
each of the German Borrowers at the close of business on such day, over
(b) the Borrowing Base, determined by reference to the most recent
Borrowing Base Report and appraisal of Eligible Fixed Assets delivered to
the Banks and the Agent."
"Cash Equivalents. Investments of the types referred to in
ss.9.2(d)(ii)."
"Daily Cash Balance. With respect to the Borrowers and the
Guarantors on any Business Day of determination, the aggregate amount of
all cash and Cash Equivalents on the books of account of the Borrowers and
the Guarantors maintained in accordance with past practices consistently
applied, determined at the close of business on such day."
"Liquidity Level. An amount determined for each Business Day equal
to the sum of the Borrowing Base Availability on such day plus the Daily
Cash Balance on such day."
ss.1.2 Amendment to Conditions Precedent. Section 8 of the Loan Agreement
is hereby amended by inserting therein the following new ss.8(b)(v) immediately
after ss.8(b)(iv) thereof:
"(v) If requested by the Agent, the Agent and each of the Banks
shall have received a Borrowing Base Report dated as of the last day of
the calendar week then most recently ended, together with such supporting
details of receivable aging as of the last day of such week and inventory
designations as of the end of the applicable calendar month (in accordance
with the requirements of ss.9.1(a)(v)) as the Agent or any Bank may
reasonably request."
ss.1.3 Amendment to Affirmative Covenants. Section 9.1 of the Loan
Agreement is hereby amended by deleting the words "within eight (8) Business
Days after" appearing in the fifteenth line of ss.9.1(a)(v) and by substituting
therefor
<PAGE> 10
-3-
the words "no later than Wednesday of the calendar week immediately following
and as of".
ss.1.4 Amendment to Financial Covenants. Section 9.3 of the Loan Agreement
is hereby amended as follows:
(a) By inserting, at the end of Section 9.3(a), the following proviso:
"; provided that the Borrowers shall not be required to comply with
the requirements of the foregoing covenant with respect to any
period of four consecutive fiscal quarters of the Subsidiaries of MI
if the Borrowers shall have demonstrated that they are in compliance
with the requirements of ss.9.3(d) below with respect to the fiscal
quarter ending on the last day of such period."
(b) By inserting, at the end of Section 9.3(b), the following proviso:
"; provided that the Borrowers shall not be required to comply with
the requirements of the foregoing covenant with respect to any
fiscal quarter of the Subsidiaries of MI if the Borrowers shall have
demonstrated that they are in compliance with the requirements of
ss.9.3(d) below with respect to such fiscal quarter."
(c) By inserting, immediately after ss.9.3(c), the following new
ss.9.3(d):
"(d) permit the Average Liquidity Level for any fiscal quarter of
the Subsidiaries of MI to be less than the minimum level set forth
opposite each such fiscal quarter ending date in the table below:
<TABLE>
<CAPTION>
--------------------------------------------------------------------
Minimum Average
Fiscal Quarter Ending Liquidity Level
--------------------------------------------------------------------
<S> <C>
3/31/1999 $15,000,000
--------------------------------------------------------------------
6/30/1999 $15,000,000
--------------------------------------------------------------------
9/30/1999 $10,000,000
--------------------------------------------------------------------
12/31/1999 $10,000,000
--------------------------------------------------------------------
3/31/2000 $10,000,000
--------------------------------------------------------------------
</TABLE>
provided that the Borrowers shall not be required to comply with the
requirements of the foregoing covenant with respect to any fiscal
quarter of the Subsidiaries of MI if the Borrowers shall have
demonstrated that they are in compliance with the requirements of
ss.ss.9.3(a) and 9.3(b) above with respect to such fiscal quarter or
the period of four fiscal quarters ending on such date, as the case
may be."
<PAGE> 11
-4-
ss.2. Guarantors' Consent. Each of the Guarantors hereby consents to the
amendments to the Loan Agreement set forth in this Amendment, and each confirms
its obligation to the Agent and the Banks under ss.6.4 of the Loan Agreement and
agrees that its guaranty of the Obligations thereunder shall extend to and
include the Loan Agreement as amended by this Amendment.
ss.3. 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.
ss.4. Conditions to Effectiveness. The effectiveness of this Amendment
shall be subject to the satisfaction of the following conditions precedent:
(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 Borrowers shall have paid an amendment fee in the amount of
$50,000.00 to the Agent for the accounts of the Banks in accordance
with their respective Commitment Percentages; and
(c) after giving effect to this Amendment, no Default or Event of
Default shall have occurred and be continuing.
ss.5. 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
<PAGE> 12
-5-
or any related agreement or instrument to the Loan Agreement shall hereafter
refer to the Loan Agreement as amended hereby.
ss.6. 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.
ss.7. 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.
ss.8. 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).
[Remainder of page intentionally left blank]
<PAGE> 13
-6-
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: Vice President, Finance
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, Treasurer
<PAGE> 14
-7-
BANKBOSTON, N.A. (formerly known
as The First National Bank of Boston),
individually and as Agent
By: /s/ Marwan Isbaih
----------------------------------------
Name: Marwan Isbaih
Title: V.P.
BANK OF SCOTLAND
By: /s/ Janet Taffe
----------------------------------------
Name: Janet Taffe
Title: Asst. Vice President
NATIONAL BANK OF CANADA
By: /s/ Gaetan R. Frosina
----------------------------------------
Name: Gaetan R. Frosina
Title: VP and Manager
By: /s/ Michael F. McIntyre
----------------------------------------
Name: Michael F. McIntyre
Title: Assistant Vice President
<PAGE> 1
Exhibit 10.5
FIRST AMENDMENT
to
LOAN AGREEMENT
This FIRST AMENDMENT (this "Amendment"), dated as of 15 August 1998 by and
among (a) GfE Gesellschaft fur Elektrometallurgie mit beschrankter Haftung, a
German corporation having its principal place of business at Hofener Stra(beta)e
45, 90431 Nurnberg ("GfE Holding Company"), GfE Umwelttechnik GmbH, a German
corporation having its principal place of business at Hofener Stra(beta)e 45,
90431 Nurnberg ("GfE UT") GfE Gie(beta)erei- und Stahlwerksbedarf GmbH, a German
corporation having its principal place of business at KreuzStra(beta)e 34, 40210
Dusseldorf ("GfE G&S"), GfE Metalle und Materialien GmbH, a German corporation
having its principal place of business at Hofener Stra(beta)e 45, 90431 Nurnberg
("GfE M&M"), KERAMED Medizintechnik GmbH, a German corporation having its
principal place of business at An den Trillers Buschen 2, 07646
Morsdorf/Thuringen ("KERAMED"), and collectively with GfE Holding Company, GfE
UT, GfE G&S and GfE M&M, the ("Borrowers"), and (b) BankBoston, N.A., London
Branch (the "Bank") is an amendment of the Loan Agreement dated 22 July 1998 by
and among the Borrowers and the Bank (as so amended, the "Loan Agreement").
WHEREAS, the Borrowers have requested, and the Bank has agreed, subject to
the terms and conditions set forth herein, to make certain amendments to the
Loan Agreement as specifically set forth in this Amendment;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
ss.1. Defined Terms. Capitalised terms used herein without definition and
defined in the Loan Agreement shall have the same meanings herein as in the Loan
Agreement.
ss.2. Amendment to Loan Agreement. The parties hereby agree to amend
ss.9.2(a) of the Loan Agreement, to be effective on the Effective Date (as
defined in ss.6 hereof), by deleting ss.9.2(a)(ix) in its entirety and
substituting therefor the following:
"(ix) long-term Indebtedness to IKB Deutsche Industriebank
which does not exceed DM 10,000,000 in cumulative aggregate amount
and refinancings thereof which do not exceed the amount refinanced
provided that such Indebtedness is secured only by the fixed assets
of the Borrowers,".
ss.3. Waivers, Ratifications, Etc.
(a) Nothing contained in this Amendment shall constitute a waiver of,
impair or otherwise affect any Obligations, any other obligation of the
Borrowers or any rights of the Bank consequent thereon.
(b) Except as expressly amended hereby, the Loan Agreement and all
documents, instruments and agreements related thereto, including, but not
limited to the Loan Documents, are hereby ratified and confirmed in all respects
and shall continue in full force and effect.
(c) GfE Holding Company, as Guarantor under and as defined in the Holding
Guarantee, hereby (a) consents for all purposes to the amendment of the Loan
Agreement as provided herein, (b) consents to the waiver provided by the Bank
contained herein, (c) confirms that all obligations of the Guarantor under the
Holding Guarantee includes all of the indebtedness, obligations and liabilities
under
<PAGE> 2
the Loan Agreement, as the same may be further amended, varied, substituted,
supplemented, restated or novated and in effect from time to time, and (d)
acknowledges that all references to the "Loan Agreement" in the Holding
Guarantee shall refer to the Loan Agreement as amended by this Amendment.
ss.4. Representations and Warranties. Each of the Borrowers hereby
represents and warrants (as a Zusicherung im Wege eines Garantieversprechens) to
the Bank as follows:
(a) The execution and delivery by such Borrower of this Amendment, and the
performance by such Borrower of its obligations and agreements under the Loan
Agreement as amended and confirmed hereby, are within the corporate authority of
such Borrower, have been authorised by all necessary corporate proceedings on
behalf of each of them, and do not contravene any provision of law or the
charter, other incorporation papers, by-laws or any stock provision or any
amendment thereof to which any of them are a party or of any indenture,
agreement, instrument or undertaking binding upon any or all of them.
(b) This Amendment and the Loan Agreement as amended hereby constitute
legal, valid and binding obligations of the relevant parties thereto,
enforceable in accordance with their respective terms, except as limited by
bankruptcy, insolvency, reorganisation, moratorium or similar laws relating to
or affecting generally the enforcement of creditors' rights.
(c) No approval or consent of, or filing with, any governmental agency or
authority is required to make valid and legally binding the execution, delivery
or performance by any of them of this Amendment, or the performance by the
Borrowers of the Loan Agreement as amended hereby.
(d) The representations and warranties contained in ss.7 of the Loan
Agreement were correct at and as of the date made and are correct as of the date
hereof except to the extent of changes resulting from transactions contemplated
or permitted by this Amendment or the Loan Agreement and changes occurring in
the ordinary course of business that singly or in the aggregate are not
materially adverse and except to the extent that such representations and
warranties relate expressly to an earlier date; provided that all references
therein to the Loan Agreement shall refer to such Loan Agreement as amended
hereby.
(e) As of the date hereof, after giving effect to the provisions hereof,
there exists no Event of Default.
ss.5. Conditions to Effectiveness. The effectiveness of this Amendment
shall be subject to the following conditions precedent:
(a) Corporate Action. All corporate action necessary for the valid
execution, delivery and performance by each of the Borrowers of this Amendment
shall have been duly and effectively taken, and evidence thereof satisfactory to
the Bank shall have been provided to the Bank.
(b) Delivery. The Borrowers and the Bank shall have executed and delivered
this Amendment and all other documents (in form and substance satisfactory to
the Bank in its sole discretion) contemplated thereby and incident thereto.
(c) Proceedings and Documents. All proceedings in connection with the
transactions contemplated by this Amendment and all documents incident thereto
shall be reasonably satisfactory in substance and form to the Bank, and the Bank
shall have received all information and such counterpart originals or certified
or other copies of such documents as the Bank may reasonably request.
2
<PAGE> 3
ss.6. Effective Date. The provisions of this Amendment shall become
effective as of the date (the "Effective Date") which is the later of the date
hereof and the date when the last of the conditions set out in ss.5 has been
satisfied.
ss.7. Miscellaneous Provisions.
(a) Except as otherwise expressly provided by this Amendment, all of the
terms, conditions and provisions of the Loan Agreement shall remain the same. It
is declared and agreed by each of the parties hereto that the Loan Agreement, as
amended hereby, shall continue in full force and effect, and that this Amendment
and the Loan Agreement shall be read and construed as one instrument, and that
all references in the Loan Agreement or any of the other Loan Documents to the
Loan Agreement shall refer to the Loan Agreement as amended by this Amendment.
(b) This Amendment is a contract under the laws of the Federal Republic of
Germany and shall be construed in accordance therewith and governed thereby.
(c) This Amendment may be executed in any number of counterparts, but all
such counterparts shall together constitute but one instrument. In making proof
of this Amendment it shall not be necessary to produce or account for more than
one counterpart signed by each party hereto by and against which enforcement
hereof is sought.
3
<PAGE> 4
AS WITNESS the hands of the authorized signatories of the parties hereto the day
and year first above written.
SIGNED by for and on behalf of )
GfE Gesellschaft fur Elektrometallurgie ) /s/ Authorized Signatory
mit beschrankter Haftung in the presence of:- )
Witness Signature:
Name:
Address:
Occupation:
SIGNED by for and on behalf of )
GfE Umwelttechnik GmbH ) /s/ Authorized Signatory
in the presence of:- )
Witness Signature:
Name:
Address:
Occupation:
SIGNED by for and on behalf of )
GfE Gie(beta)erei- und Stahlwerksbedarf GmbH ) /s/ Authorized Signatory
in the presence of:- )
Witness Signature:
Name:
Address:
Occupation:
All above signatures of the Managing Directors are
witnessed by:
/s/ Susanne Kramm
__________________________________________________
Susanne Kramm, Sudetenstr. 2c, D-90614 Neuhof
Secretary
4
<PAGE> 5
SIGNED by for and on behalf of )
GfE Metalle und Materialien GmbH ) /s/ Authorized Signatory
in the presence of:- )
Witness Signature:
Name:
Address:
Occupation:
SIGNED by for and on behalf of )
KERAMED Medizintechnik GmbH ) /s/ Authorized Signatory
in the presence of:- )
Witness Signature:
Name:
Address:
Occupation:
SIGNED by for and on behalf of )
BankBoston, N.A., London Branch ) /s/ Authorized Signatory
in the presence of:- )
Witness Signature:
Name:
Address:
Occupation:
All above signatures of the Managing Directors are
witnessed by:
/s/ Susanne Kramm
__________________________________________________
Susanne Kramm, Sudetenstr. 2c, D-90614 Neuhof
Secretary
5
<PAGE> 6
SECOND AMENDMENT
to
LOAN AGREEMENT
This SECOND AMENDMENT (this "Amendment"), dated as of 16th November 1998
by and among (a) GfE Gesellschaft fur Elektrometallurgie mit beschrankter
Haftung, a German corporation having its principal place of business at Hofener
Stra(beta)e 45, 90431 Nurnberg ("GfE Holding Company"), GfE Umwelttechnik GmbH,
a German corporation having its principal place of business at Hofener
Stra(beta)e 45, 90431 Nurnberg, ("GfE UT"), GfE Gie(beta)erei- und
Stahlwerksbedarf GmbH, a German corporation having its principal place of
business at KreuzStra(beta)e 45, 40210 Dusseldorf ("GfE G&S"), GfE Metalle und
Materialien GmbH, a German corporation having its principal place of business at
Hofener Stra(beta)e 45, 90431 Nurnberg ("GfE M&M"), KERAMED Medizintechnik GmbH,
a German corporation having its principal place of business at An den Trillers
Buschen 2, 07646 Morsdorf/Thuringen ("KERAMED", and collectively with GfE
Holding Company, GfE UT, GfE G&S and GfE M&M, the "Borrowers"), and (b)
BankBoston, N.A., London Branch (the "Bank") is an amendment of the Loan
Agreement dated 22 July 1998 by among the Borrowers and the Bank (as so amended,
the "Loan Agreement").
WHEREAS, the Borrowers have requested, and the Bank has agreed, subject to
the terms and conditions set forth herein, to make certain amendments to the
Loan Agreement as specifically set forth in this Amendment;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
ss.1. Defined Terms. Capitalized terms used herein without definition and
defined in the Loan Agreement shall have the same meanings herein as in the Loan
Agreement.
ss.2. Amendments to Loan Agreement. The parties hereby agree to amend the
Loan Agreement, to be effective on the Effective Date (as defined in ss.6
hereof), as follows:
(a) ss.7(o) of the Loan Agreement is hereby deleted in its entirety and
replaced with the following:
"(o) Schedule 7(o) sets forth the account numbers and location of
all bank accounts of such Borrower and each of its Subsidiaries
(excluding the bank account maintained by GfE Holding Company with
Bank Mendes and subject to the ISO Agreement (as such terms are
defined in ss.9.2(a)(xii)))."
(b) ss.9.2(a) of the Loan Agreement is hereby amended as follows:
(i) by deleting the word "and" from the end of ss.9.2(a)(x);
(ii) by inserting at the end of ss.9.2(a)(xi) the word "and"; and
(iii) by inserting at the end of ss.9.2(a) the following:
"(xii) unsecured Indebtedness owed (A) by any Borrower to
Metallurg, Inc., and (B) by GfE Holding Company to Bank Mendes Gans
N.V. ("Bank Mendes") in respect of its borrowings under that certain
Interest Set-Off Agreement with Bank Mendes dated 30
<PAGE> 7
September 1998 in the form delivered to the Bank prior to the
Effective Date (the "ISO Agreement") provided that all such
Indebtedness permitted under this ss.9.2(a)(xii) does not exceed at
any time the Deutschemark Equivalent of $16,500,000 in cumulative
aggregate amount;"
ss.3. Waivers, Ratifications, Etc.
(a) Nothing contained in this Amendment shall constitute a waiver of,
impair or otherwise affect any Obligations, any other obligation of the
Borrowers or any rights of the Bank consequent thereon.
(b) Except as expressly amended hereby, the Loan Agreement and all
documents, instruments and agreements related thereto, including, but not
limited to the Loan Documents, are hereby ratified and confirmed in all respects
and shall continue in full force and effect.
(c) GfE Holding Company, as Guarantor under and as defined in the Holding
Guarantee, hereby (i) consents for all purposes to the amendment of the Loan
Agreement as provided herein, (ii) consents to the waiver provided by the Bank
contained herein, (iii) confirms that all obligations of the Guarantor under the
Holding Guarantee includes all of the indebtedness, obligations and liabilities
under the Loan Agreement, as the same may be further amended, varied,
substituted, supplemented, restated or novated and in effect from time to time,
and (iv) acknowledges that all references to the "Loan Agreement" in the Holding
Guarantee shall refer to the Loan Agreement as amended by this Amendment.
ss.4. Representations and Warranties. Each of the Borrowers hereby
represents and warrants (as a Zusicherung im Wege eines Garantieversprechens) to
the Bank as follows:
(a) The execution and delivery by such Borrower of this Amendment, and the
performance by such Borrower of its obligations and agreements under the Loan
Agreement as amended and confirmed hereby, are within the corporate authority of
such Borrower, have been authorised by all necessary corporate proceedings on
behalf of each of them, and do not contravene any provision of law or the
charter, other incorporation papers, by-laws or any stock provision or any
amendment thereof to which any of them are a party or of any indenture,
agreement, instrument or undertaking binding upon any or all of them.
(b) This Amendment and the Loan Agreement as amended hereby constitute
legal, valid and binding obligations of the relevant parties thereto,
enforceable in accordance with their respective terms, except as limited by
bankruptcy, insolvency, reorganisation, moratorium or similar laws relating to
or affecting generally the enforcement of creditors' rights.
(c) No approval or consent of, or filing with, any governmental agency or
authority is required to make valid and legally binding the execution, delivery
or performance by any of them of this Amendment, or the performance by the
Borrowers of the Loan Agreement as amended hereby.
(d) The representations and warranties contained in ss.7 of the Loan
Agreement were correct at and as of the date made and are correct as of the date
hereof except to the extent of changes resulting from transactions contemplated
or permitted by this Amendment or the Loan Agreement and changes occurring in
the ordinary course of business that singly or in the aggregate are not
materially adverse and except to the extent that such representations and
warranties relate expressly to an earlier date; provided that all references
therein to the Loan Agreement shall refer to such Loan Agreement as amended
hereby.
(e) As of the date hereof, after giving effect to the provisions hereof,
there exists no Event of Default.
2
<PAGE> 8
ss.5. Conditions to Effectiveness. The effectiveness of this Amendment
shall be subject to the following conditions precedent:
(a) Corporate Action. All corporate action necessary for the valid
execution, delivery and performance by each of the Borrowers of this Amendment
shall have been duly and effectively taken, and evidence thereof satisfactory to
the Bank shall have been provided to the Bank.
(b) Delivery. The Borrowers and the Bank shall have executed and delivered
this Amendment and all other documents (in form and substance satisfactory to
the Bank in its sole discretion) contemplated thereby and incident thereto.
(c) ISO Agreement. The Bank shall have received a fully executed copy of
the ISO Agreement.
(d) Bank Mendes Letter. GfE Holding Company shall have delivered to Bank
Mendes a letter, in form and substance satisfactory to the Bank, instructing
Bank Mendes, in the event it enforces its rights under the ISO Agreement, to pay
to the Bank any surplus amounts in the account that GfE Holding Company has with
Bank Mendes.
(e) Proceedings and Documents. All proceedings in connection with the
transactions contemplated by this Amendment and all documents incident thereto
shall be reasonably satisfactory in substance and form to the Bank, and the Bank
shall have received all information and such counterpart originals or certified
or other copies of such documents as the Bank may reasonably request.
ss.6. Effective Date. The provisions of this Amendment shall become
effective as of the date (the "Effective Date") which is the later of the date
hereof and the date when the last of the conditions set out in ss.5 has been
satisfied.
ss.7. Miscellaneous Provisions.
(a) Except as otherwise expressly provided by this Amendment, all of the
terms, conditions and provisions of the Loan Agreement shall remain the same. It
is declared and agreed by each of the parties hereto that the Loan Agreement, as
amended hereby, shall continue in full force and effect, and that this Amendment
and the Loan Agreement shall be read and construed as one instrument, and that
all references in the Loan Agreement or any of the other Loan Documents to the
Loan Agreement shall refer to the Loan Agreement as amended by this Amendment.
(b) This Amendment is a contract under the laws of the Federal Republic of
Germany and shall be construed in accordance therewith and governed thereby.
(c) This Amendment may be executed in any number of counterparts, but all
such counterparts shall together constitute but one instrument. In making proof
of this Amendment it shall not be necessary to produce or account for more than
one counterpart signed by each party hereto by and against which enforcement
hereof is sought.
3
<PAGE> 9
AS WITNESS the hands of the authorised signatories of the parties hereto the day
and year first above written.
SIGNED by for and on behalf of )
GfE Gesellschaft fur Elektrometallurgie ) /s/ Authorized Signatory
mit beschrankter Haftung in the presence of:- )
Witness Signature:
Name:
Address:
Occupation:
SIGNED by for and on behalf of )
GfE Umwelttechnik GmbH ) /s/ Authorized Signatory
in the presence of:- )
Witness Signature:
Name:
Address:
Occupation:
SIGNED by for and on behalf of )
GfE Gie(beta)erei- und Stahlwerksbedarf GmbH ) /s/ Authorized Signatory
in the presence of:- )
Witness Signature:
Name:
Address:
Occupation:
All above signatures of the Managing Directors of
the borrowers are witnessed by:
/s/ Susanne Kramm
__________________________________________________
Susanne Kramm, Sudetenstr. 2c, D-90614 Neuhof
Secretary
4
<PAGE> 10
SIGNED by for and on behalf of )
GfE Metalle und Materialien GmbH )
in the presence of:- )/s/ Authorized Signatory
Witness Signature:
Name:
Address:
Occupation:
SIGNED by for and on behalf of )
KERAMED Medizintechnik GmbH )
in the presence of:- )/s/ Authorized Signatory
Witness Signature:
Name:
Address:
Occupation:
SIGNED by for and on behalf of )
BankBoston, N.A., London Branch )
in the presence of:- )/s/ Authorized Signatory
Witness Signature:
Name:
Address:
Occupation:
All above signatures of the Managing Directors of
the borrowers are witnessed by:
/s/ Susanne Kramm
__________________________________________________
Susanne Kramm, Sudetennstr. 2c, D-90614 Neuhof
Secretary
5
<PAGE> 11
Exhibit A
SECOND AMENDMENT
to
LOAN AGREEMENT
This SECOND AMENDMENT (this "Amendment"), dated as of November 1998 by and
among (a) GfE Gesellschaft fur Elektrometallurgie mit beschrankter Haftung, a
German corporation having its principal place of business at Hofener Straae 45,
90431 N?rnberg ("GfE Holding Company"), GfE Umwelttechnik GmbH, a German
corporation having its principal place of business at Hofener Stra(beta)e 45,
90431 Nurnberg ("GfE UT"), GfE Gieaerei- und Stahlwerksbedarf GmbH, a German
corporation having its principal place of business at KreuzStraae 34, 40210
D?sseldorf ("GfE G&S"), GfE Metalle und Matrialien GmbH, a German corporation
having its principal place of business at Hofener Stra(beta)e 45, 90431 Nurnberg
("GfE M&M"), KERAMED Medizintechnik GmbH, a German corporation having its
principal place of business at An den Trillers Buschen 2, 07646
Morsdorf/Thuringen ("KERAMED," and collectively with GfE Holding Company, GfE
UT, GfE G&S and GfE M&M, the "Borrowers"), and (b) BankBoston, N.A., London
Branch (the "Bank") is an amendment of the Loan Agreement dated 22 July 1998 by
and among the Borrowers and the Bank (as so amended, the "Loan Agreement").
WHEREAS, the Borrowers have requested, and the Bank has agreed, subject to
the terms and conditions set forth herein, to make certain amendments to the
Loan Agreement as specifically set forth in this Amendment;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
ss. 1. Defined Terms. Capitalised terms used herein without definition and
defined in the Loan Agreement shall have the same meanings herein as in the Loan
Agreement.
ss. 2. Amendments to Loan Agreement. The parties hereby agree to amend the
Loan Agreement, to be effective on the Effective Date (as defined in ss.6
hereof), as follows:
(a) ss.7(o) of the Loan Agreement is hereby deleted in its entirety and
replaced with the following:
"(o) Schedule 7(o) sets forth the account numbers and location
of all bank accounts of such Borrower and each of its Subsidiaries
(excluding the bank account maintained by GfE Holding Company with
Bank Mendes and subject to the ISO Agreement (as such terms are
defined in ss.9.2(a)(xii)))."
(b) ss.9.2(a) of the Loan Agreement is hereby amended as follows:
(i) by deleting the word "and" from the end of ss.9.2(a)(x);
(ii) by inserting at the end of ss.9.2(a)(xi) the word "and"; and
<PAGE> 12
-2-
(iii) by inserting at the end of ss.9.2(a) the following:
"(xii) unsecured Indebtedness owed (A) by any Borrower to
Metallurg, Inc., and (B) by GfE Holding Company to Bank Mendes Gans
N.V. ("Bank Mendes") in respect of its borrowings under that certain
Interest Set-Off Agreement with Bank Mendes dated 30 September 1998
in the form delivered to the Bank prior to the Effective Date (the
"ISO Agreement") provided that all such Indebtedness permitted under
this ss.9.2(a)(xii) does not exceed at any time the Deutschemark
Equivalent of $16,500,000 in cumulative aggregate amount;"
ss. 3. Waivers, Ratifications, Etc.
(a) Nothing contained in this Amendment shall constitute a waiver of,
impair or otherwise affect any Obligations, any other obligation of the
Borrowers or any rights of the Bank consequent thereon.
(b) Except as expressly amended hereby, the Loan Agreement and all
documents, instruments and agreements related thereto, including, but not
limited to the Loan Documents, are hereby ratified and confirmed in all respects
and shall continue in full force and effect.
(c) GfE Holding Company, as Guarantor under and as defined in the Holding
guarantee, hereby (i) consents for all purposes to the amendment of the Loan
Agreement as provided herein, (ii) consents to the waiver provided by the Bank
contained herein, (iii) confirms that all obligations of the Guarantor under the
Holding Guarantee includes all of the indebtedness, obligations and liabilities
under the Loan agreement, as the same may be further amended, varied,
substituted, supplemented, restated or novated and in effect from time to time,
and (iv) acknowledges that all references to the "Loan Agreement" in the Holding
Guarantee shall refer to the Loan Agreement as amended by this Amendment.
ss. 4. Representations and Warranties. Each of the Borrowers hereby
represents and warrants (as a Zusicherung im Wege eines Garantieversprechens) to
the Bank as follows:
(a) The execution and delivery by such Borrower of this Amendment, and the
performance by such Borrower of its obligations and agreements under the Loan
Agreement as amended and confirmed hereby, are within the corporate authority of
such Borrower, have been authorised by all necessary corporate proceedings on
behalf of each of them, and do not contravene any provision of law or the
charter, other incorporation papers, by-laws or any stock provision or any
amendment thereof to which any of them are a party or of any indenture,
agreement, instrument or undertaking binding upon any or all of them
(b) This Amendment and the Loan Agreement as amended hereby constitute
legal, valid and binding obligations of the relevant parties thereto,
enforceable in accordance with their respective terms, except as limited by
bankruptcy, insolvency, reorganisation, moratorium or similar laws relating to
or affecting generally the enforcement of creditors' rights.
(c) No approval or consent of, or filing with, any governmental agency or
authority is required to make valid and legally binding the execution, delivery
or performance by any of them of this Amendment, or the performance by the
Borrowers of the Loan Agreement as amended hereby.
(d) The representations and warranties contained in ss.7 of the Loan
Agreement were correct at and as of the date made and are correct as of the date
hereof except to the extent of changes resulting from transactions contemplated
or permitted by this Amendment or the Loan Agreement and changes
<PAGE> 13
-3-
occurring in the ordinary course of business that singly or in the aggregate are
not materially adverse and except to the extent that such representations and
warranties relate expressly to an earlier date; provided that all references
therein to the Loan Agreement shall refer to such Loan Agreement as amended
hereby.
(e) As of the date hereof, after giving effect to the provisions hereof,
there exists no Event of Default.
ss. 5. Conditions to Effectiveness. The effectiveness of this Amendment
shall be subject to the following conditions precedent:
(a) Corporate Action. All corporate action necessary for the valid
execution, delivery and performance by each of the Borrowers of this Amendment
shall have been duly and effectively taken, and evidence thereof satisfactory to
the Bank shall have been provided to the Bank.
(b) Delivery. The Borrowers and the Bank shall have executed and delivered
this Amendment and all other documents (in form and substance satisfactory to
the Bank in its sole discretion) contemplated thereby and incident thereto.
(c) ISO Agreement. The Bank shall have received a fully executed copy of
the ISO Agreement.
(d) Bank Mendes Letter. GfE Holding Company shall have delivered to Bank
Mendes a letter, in form and substance satisfactory to the Bank, instructing
Bank Mendes, in the event it enforces its rights under the ISO Agreement, to pay
to the Bank any surplus amounts in the account that GfE Holding Company has with
Bank Mendes.
(e) Proceedings and Documents. All proceedings in connection with the
transactions contemplated by this Amendment and all documents incident thereto
shall be reasonably satisfactory in substance and form to the Bank, and the Bank
shall have received all information and such counterpart originals or certified
or other copies of such documents as the Bank may reasonably request.
ss. 6. Effective Date. The provisions of this Amendment shall become
effective as of the date (the "Effective Date") which is the later of the date
hereof and the date when the last of the conditions set out in ss.5 has been
satisfied.
ss. 7. Miscellaneous Provisions.
(a) Except as otherwise expressly provided by this Amendment, all of the
terms, conditions and provisions of the Loan Agreement shall remain the same. It
is declared and agreed by each of the parties hereto that the Loan Agreement, as
amended hereby, shall continue in full force and effect, and that this Amendment
and the Loan Agreement shall be read and construed as one instrument, and that
all references in the Loan Agreement or any of the other Loan Documents to the
Loan Agreement shall refer to the Loan Agreement as amended by this Amendment.
(b) This Amendment is a contract under the laws of the Federal Republic of
Germany and shall be construed in accordance therewith and governed thereby.
(c) This Amendment may be executed in any number of counterparts, but all
such counterparts shall together constitute but one instrument. In making proof
of this Amendment it shall not be necessary to produce or account for more than
one counterpart signed by each party hereto by and against which enforcement
hereof is sought.
<PAGE> 14
-4-
AS WITNESS the hands of the authorised signatories of the parties hereto
the day and year first above written.
SIGNED by for and on behalf of )
GfE Gesellschaft fur Elektrometallurgie ) /s/ Authorized Signatory
mit beschrankter Haftung in the presence of:- )
Witness Signature:
Name:
Address:
Occupation:
SIGNED by for and on behalf of )
GfE Umwelttechnik GmbH ) /s/ Authorized Signatory
in the presence of:- )
Witness Signature:
Name:
Address:
Occupation:
SIGNED by for and on behalf of )
GfE Gie(beta)erei- und Stahlwerksbedarf GmbH ) /s/ Authorized Signatory
in the presence of:- )
Witness Signature:
Name:
Address:
Occupation:
<PAGE> 15
-5-
SIGNED by for and on behalf of )
GfE Metalle und Materialien GmbH ) /s/ Authorized Signatory
in the presence of:- )
Witness Signature:
Name:
Address:
Occupation:
SIGNED by for and on behalf of )
KERAMED Medizintechnik GmbH ) /s/ Authorized Signatory
in the presence of:- )
Witness Signature:
Name:
Address:
Occupation:
SIGNED by for and on behalf of )
BankBoston, N.A., London Branch ) /s/ Authorized Signatory
in the presence of:- )
Witness Signature:
Name:
Address:
Occupation:
<PAGE> 1
Exhibit 10.11
METALLURG [LOGO]
1998
EQUITY COMPENSATION PLAN
<PAGE> 2
METALLURG, INC.
EQUITY COMPENSATION PLAN
The purpose of the Metallurg, Inc. 1998 Equity Compensation Plan (the
"Plan") is to provide (i) designated employees of Metallurg, Inc. (the
"Company") and its subsidiaries, (ii) certain Key Advisors and advisors who
perform services for the Company or its subsidiaries and (iii) non-employee
members of the Board of Directors of the Company (the "Board") with the
opportunity to receive grants of incentive stock options, nonqualified stock
options, stock appreciation rights, restricted stock and performance units. The
Company believes that the Plan will encourage the participants to contribute
materially to the growth of the Company, thereby benefiting the Company's
shareholders, and will align the economic interests of the participants with
those of the shareholders.
1. Administration
(a) Committee. The Plan shall be administered and interpreted by a
committee appointed by the Board (the "Committee"). Prior to the effective date
of an initial public offering of the Company's stock as described in Section 20
(a "Public Offering"), the Board may exercise any power or authority of the
Committee under the Plan and, in such case, references to the Committee
hereunder, as they relate to Plan administration, shall be deemed to include the
Board as a whole. After a Public Offering, the Committee shall consist of two or
more persons appointed by the Board, all of whom may be "outside directors" as
defined under section 162(m) of the Internal Revenue Code of 1986, as amended
(the "Code") and related Treasury regulations and may be "non-employee
directors" as defined under Rule l6b-3 under the Securities Exchange Act of
1934, as amended (the "Exchange Act").
(b) Committee Authority. The Committee shall have the sole authority
to (i) determine the individuals to whom grants shall be made under the Plan,
(ii) determine the type, size and terms of the grants to be made to each such
individual, (iii) determine the time when the grants will be made and the
duration of any applicable exercise or restriction period, including the
criteria for exercisability and the acceleration of exercisability and (iv) deal
with any other matters arising under the Plan.
(c) Committee Determinations. The Committee shall have full power
and authority to administer and interpret the Plan, to make factual
determinations and to adopt or amend such rules, regulations, agreements and
instruments for implementing the Plan and for the conduct of its business as it
deems necessary or advisable, in its sole discretion. The Committee's
interpretations of the Plan and all determinations made by the Committee
pursuant to the powers vested in it hereunder shall be conclusive and binding on
all persons having any interest in the Plan or in any awards granted hereunder.
All powers of the Committee shall be executed in its sole discretion, in the
best interest of the Company, not as a fiduciary, and in keeping with the
objectives of the Plan and need not be uniform as to similarly situated
individuals.
2
<PAGE> 3
2. Grants
Awards under the Plan may consist of grants of incentive stock options as
described in Section 5 ("Incentive Stock Options"), nonqualified stock options
as described in Section 5 ("Nonqualified Stock Options"; it being understood
that Incentive Stock Options and Nonqualified Stock Options are collectively
referred to as "Options"), restricted stock as described in Section 6
(Restricted Stock"), stock appreciation rights as described in Section 7
("SARs"), and performance units as described in Section 8 ("Performance Units")
(hereinafter collectively referred to as "Grants"). All Grants shall be subject
to the terms and conditions set forth herein and to such other terms and
conditions consistent with this Plan as the Committee deems appropriate and as
are specified in writing by the Committee to the individual in a grant
instrument (the "Grant Instrument") or an amendment to the Grant Instrument. The
Committee shall approve the form and provisions of each Grant Instrument. Grants
under a particular Section of the Plan need not be uniform as among the
grantees.
3. Shares Subject to the Plan
(a) Shares Authorized. As of the effective date of the Plan, the
number of authorized and outstanding shares of the common stock of the Company
("Company Stock") was 5,000,000 shares. Subject to the adjustment specified
below, the aggregate number of shares of Company Stock that may be issued or
transferred under the Plan is 500,000 shares. After a Public Offering, the
maximum aggregate number of shares of Company Stock that shall be subject to
Grants made under the Plan to any individual during any calendar year shall be
100,000 shares. The shares may be authorized but unissued shares of Company
Stock or reacquired shares of Company Stock, including shares purchased by the
Company on the open market for purposes of the Plan. If and to the extent
Options or SARs granted under the Plan terminate, expire, or are canceled,
forfeited, exchanged or surrendered without having been exercised, or if any
shares of Restricted Stock or Performance Units are forfeited, the shares
subject to such Grants shall again be available for purposes of the Plan.
(b) Adjustments. If there is any change in the number or kind of
shares of Company Stock outstanding (i) by reason of a stock dividend, spinoff,
recapitalization, stock split or combination or exchange of shares, (ii) by
reason of a merger, reorganization or consolidation in which the Company is the
surviving corporation, (iii) by reason of a reclassification or change in par
value, or (iv) by reason of any other extraordinary or unusual event affecting
the outstanding Company Stock as a class without the Company's receipt of
consideration, or if the value of outstanding shares of Company Stock is
substantially reduced as a result of a spinoff or the Company's payment of an
extraordinary dividend or distribution, the maximum number of shares of Company
Stock available for Grants, the maximum number of shares of Company Stock that
any individual participating in the Plan may be granted in any year, the number
of shares covered by outstanding Grants, the kind of shares issued under the
Plan, and the price per share or the applicable market value of such Grants
shall be appropriately adjusted by the Committee to reflect any increase or
decrease in the number of, or change in the kind or value of, issued shares of
Company Stock to preclude, to the extent practicable, the enlargement or
dilution of rights and benefits under such Grants; provided, however, that any
3
<PAGE> 4
fractional shares resulting from such adjustment shall be eliminated. Any
adjustments determined by the Committee shall be final, binding and conclusive.
4. Eligibility for Participation
(a) Eligible Persons. All employees of the Company and its
subsidiaries ("Employees"), including Employees who are officers or members of
the Board, and members of the Board who are not Employees ("Non-Employee
Directors") shall be eligible to participate in the Plan. Key Advisors and
advisors who perform services to the Company or any of its subsidiaries ("Key
Advisors") shall be eligible to participate in the Plan if the Key Advisors
render bona fide services and such services are not in connection with the offer
or sale of securities in a capital-raising transaction.
(b) Selection of Grantees. The Committee shall select the Employees,
Non-Employee Directors and Key Advisors to receive Grants and shall determine
the number of shares of Company Stock subject to a particular Grant in such
manner as the Committee determines. Employees, Key Advisors and Non-Employee
Directors who receive Grants under this Plan shall hereinafter be referred to as
"Grantees".
5. Granting of Options
(a) Number of Shares. The Committee shall determine the number of
shares of Company Stock that will be subject to each Grant of Options to
Employees, Non-Employee Directors and Key Advisors.
(b) Type of Option and Price.
(i) The Committee may grant Incentive Stock Options that are
intended to qualify as "incentive stock options" within the meaning of section
422 of the Code or Nonqualified Stock Options that are not intended so to
qualify or any combination of Incentive Stock Options and Nonqualified Stock
Options, all in accordance with the terms and conditions set forth herein.
Incentive Stock Options may be granted only to Employees. Nonqualified Stock
Options may be granted to Employees, Non-Employee Directors and Key Advisors.
(ii) The purchase price (the "Exercise Price") of Company
Stock subject to an Option shall be determined by the Committee and may be equal
to, greater than, or less than the Fair Market Value (as defined below) of a
share of Company Stock on the date the Option is granted, provided, however,
that (x) the Exercise Price of an Incentive Stock Option shall be equal to, or
greater than, the Fair Market Value of a share of Company Stock on the date the
Incentive Stock Option is granted and (y) an Incentive Stock Option may not be
granted to an Employee who, at the time of grant, owns stock possessing more
than 10 percent of the total combined voting power of all classes of stock of
the Company or any parent or subsidiary of the Company, unless the Exercise
Price per share is not less than 110% of the Fair Market Value of Company Stock
on the date of grant.
(iii) If the Company Stock is publicly traded, then the Fair
Market Value per share shall be determined as follows: (x) if the principal
trading market for the Company Stock is a national securities exchange or the
Nasdaq National Market, the last reported sale price thereof on the relevant
date or (if there were no trades on that date) the latest preceding date upon
which a sale was reported, or (y) if the Company Stock is not principally traded
on such exchange or
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<PAGE> 5
market, the mean between the last reported "bid" and "asked" prices of Company
Stock on the relevant date, as reported on Nasdaq or, if not so reported, as
reported by the National Daily Quotation Bureau, Inc. or as reported in a
customary financial reporting service, as applicable and as the Committee
determines. If the Company Stock is not publicly traded or, if publicly traded,
is not subject to reported transactions or "bid" or "asked" quotations as set
forth above, the Fair Market Value per share shall be as determined by the
Committee.
(c) Option Term. The Committee shall determine the term of each
Option. The term of any Option shall not exceed ten years from the date of
grant. However, an Incentive Stock Option that is granted to an Employee who, at
the time of grant, owns stock possessing more than 10 percent of the total
combined voting power of all classes of stock of the Company, or any parent or
subsidiary of the Company, may not have a term that exceeds five years from the
date of grant.
(d) Exercisability of Options. Options shall become exercisable in
accordance with such terms and conditions, consistent with the Plan, as may be
determined by the Committee and specified in the Grant Instrument or an
amendment to the Grant Instrument. The Committee may accelerate the
exercisability of any or all outstanding Options at any time for any reason.
(e) Termination of Employment, Disability or Death.
(i) Except as provided below, an Option may only be exercised
while the Grantee is employed by the Company as an Employee, Key Advisor or
member of the Board. In the event that a Grantee ceases to be employed by the
Company for any reason other than a "disability", death or "termination for
cause", any Option which is otherwise exercisable by the Grantee shall terminate
unless exercised within 90 days after the date on which the Grantee ceases to be
employed by the Company (or within such other period of time as may be specified
by the Committee), but in any event no later than the date of expiration of the
Option term. Any of the Grantee's Options that are not otherwise exercisable as
of the date on which the Grantee ceases to be employed by the Company shall
terminate as of such date.
(ii) In the event the Grantee ceases to be employed by the
Company on account of a "termination for cause" by the Company, any Option held
by the Grantee shall terminate as of the date the Grantee ceases to be employed
by the Company.
(iii) In the event the Grantee ceases to be employed by the
Company because the Grantee is "disabled", any Option which is otherwise
exercisable by the Grantee shall terminate unless exercised within one year
after the date on which the Grantee ceases to be
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<PAGE> 6
employed by the Company (or within such other period of time as may be specified
by the Committee), but in any event no later than the date of expiration of the
Option term. Any of the Grantee's Options which are not otherwise exercisable as
of the date on which the Grantee ceases to be employed by the Company shall
terminate as of such date.
(iv) If the Grantee dies while employed by the Company or
within 90 days after the date on which the Grantee ceases to be employed on
account of a termination of employment specified in Section 5(e)(i) above (or
within such other period of time as may be specified by the Committee), any
Option that is otherwise exercisable by the Grantee shall terminate unless
exercised within one year after the date on which the Grantee ceases to be
employed by the Company (or within such other period of time as may be specified
by the Committee), but in any event no later than the date of expiration of the
Option term. Any of the Grantee's Options that are not otherwise exercisable as
of the date on which the Grantee ceases to be employed by the Company shall
terminate as of such date.
(v) For purposes of Sections 5(e), 6, 7, 8 and 12:
(A) "Company," when used in the phrase "employed by the Company,"
shall mean the Company and its parent and subsidiary corporations.
(B) "Employed by the Company" shall mean employment or service as an
Employee, Key Advisor or member of the Board (so that, for purposes of
exercising Options and SARs and satisfying conditions with respect to
Restricted Stock and Performance Units, a Grantee shall not be considered
to have terminated employment or service until the Grantee ceases to be an
Employee, Key Advisor and member of the Board), unless the Committee
determines otherwise.
(C) "Disability" shall mean a Grantee's becoming disabled within the
meaning of section 22(e)(3) of the Code.
(D) "Termination for cause" shall mean, except to the extent
specified otherwise by the Committee, a finding by the Committee that the
Grantee has (1) breached his or her employment, service, non-competition,
non-solicitation or other similar contract with the Company, or (2) has
been engaged in disloyalty to the Company, including, without limitation,
fraud, embezzlement, theft, commission of a felony or dishonesty in the
course of his or her employment or service which, if the Grantee had
entered into an employment agreement or similar contract with the Company
would constitute "cause" under such employment agreement or similar
contract, or (3) has disclosed trade secrets or confidential information
of the Company to persons not entitled to receive such information. In the
event a Grantee's employment is terminated for cause, in addition to the
immediate termination of all Grants, the Grantee shall automatically
forfeit all shares underlying any exercised portion of an Option, upon
refund by the Company of the Exercise Price paid by the Grantee for such
shares.
(f) Exercise of Options. A Grantee may exercise an Option that has
become exercisable, in whole or in part, by delivering a notice of exercise to
the Company with payment
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<PAGE> 7
of the Exercise Price. The Grantee shall pay the Exercise Price for an Option as
specified by the Committee (x) in cash, (y) with the approval of the Committee,
by delivering shares of Company Stock owned by the Grantee for the period
necessary to avoid a charge to the Company's earnings for financial reporting
purposes (including Company Stock acquired in connection with the exercise of an
Option, subject to such restrictions as the Committee deems appropriate) and
having a Fair Market Value on the date of exercise equal to the Exercise Price
or (z) by such other method as the Committee may approve, including after a
Public Offering payment through a broker in accordance with procedures permitted
by Regulation T of the Federal Reserve Board. Shares of Company Stock used to
exercise an Option shall have been held by the Grantee for the requisite period
of time to avoid adverse accounting consequences to the Company with respect to
the Option. The Grantee shall pay the Exercise Price and the amount of any
withholding tax due (pursuant to Section 9) at the time of exercise.
(g) Limits on Incentive Stock Options. Each Incentive Stock Option
shall provide that, if the aggregate Fair Market Value of the stock on the date
of the grant with respect to which Incentive Stock Options are exercisable for
the first time by a Grantee during any calendar year, under the Plan or any
other stock option plan of the Company or a parent or subsidiary, exceeds
$100,000, then the option, as to the excess, shall be treated as a Nonqualified
Stock Option. An Incentive Stock Option shall not be granted to any person who
is not an Employee of the Company or a parent or subsidiary (within the meaning
of section 424(f) of the Code).
6. Restricted Stock Grants
The Committee may issue or transfer shares of Company Stock to an Employee
or Key Advisor under a Grant of Restricted Stock, upon such terms as the
Committee deems appropriate. The following provisions are applicable to
Restricted Stock:
(a) General Requirements. Shares of Company Stock issued or
transferred pursuant to Restricted Stock Grants may be issued or transferred for
consideration or for no consideration, as determined by the Committee. The
Committee may establish conditions under which restrictions on shares of
Restricted Stock shall lapse over a period of time or according to such other
criteria as the Committee deems appropriate. The period of time during which the
Restricted Stock will remain subject to restrictions will be designated in the
Grant Instrument as the "Restriction Period."
(b) Number of Shares. The Committee shall determine the number of
shares of Company Stock to be issued or transferred pursuant to a Restricted
Stock Grant and the restrictions applicable to such shares.
(c) Requirement of Employment. If the Grantee ceases to be employed
by the Company (as defined in Section 5(e)) during a period designated in the
Grant Instrument as the Restriction Period, or if other specified conditions are
not met, the Restricted Stock Grant shall terminate as to all shares covered by
the Grant as to which the restrictions have not lapsed, and those shares of
Company Stock must be immediately returned to the Company. The Committee may,
however, provide for complete or partial exceptions to this requirement as it
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<PAGE> 8
deems appropriate.
(d) Restrictions on Transfer and Legend on Stock Certificate. During
the Restriction Period, a Grantee may not sell, assign, transfer, pledge or
otherwise dispose of the shares of Restricted Stock except to a Successor
Grantee under Section 10(a). Each certificate for a share of Restricted Stock
shall contain a legend giving appropriate notice of the restrictions in the
Grant. The Grantee shall be entitled to have the legend removed from the stock
certificate covering the shares subject to restrictions when all restrictions on
such shares have lapsed. The Committee may determine that the Company will not
issue certificates for shares of Restricted Stock until all restrictions on such
shares have lapsed, or that the Company will retain possession of certificates
for shares of Restricted Stock until all restrictions on such shares have
lapsed.
(e) Right to Vote and to Receive Dividends. Unless the Committee
determines otherwise, during the Restriction Period, the Grantee shall have the
right to vote shares of Restricted Stock and to receive any dividends or other
distributions paid on such shares, subject to any restrictions deemed
appropriate by the Committee.
(f) Lapse of Restrictions. All restrictions imposed on Restricted
Stock shall lapse upon the expiration of the applicable Restriction Period and
the satisfaction of all conditions imposed by the Committee. The Committee may
determine, as to any or all Restricted Stock Grants, that the restrictions shall
lapse without regard to any Restriction Period.
7. Stock Appreciation Rights
(a) General Requirements. The Committee may grant stock appreciation
rights ("SARs") to an Employee or Key Advisor separately or in tandem with any
Option (for all or a portion of the applicable Option). Tandem SARs may be
granted either at the time the Option is granted or at any time thereafter while
the Option remains outstanding; provided, however, that, in the case of an
Incentive Stock Option, SARs may be granted only at the time of the Grant of the
Incentive Stock Option. The Committee shall establish the base amount of the SAR
at the time the SAR is granted. Unless the Committee determines otherwise, the
base amount of each SAR shall be equal to the per share Exercise Pi-ice of the
related Option or, if there is no related Option, the Fair Market Value of a
share of Company Stock as of the date of Grant of the SAR.
(b) Tandem SARs. In the case of tandem SARs, the number of SARs
granted to a Grantee that shall be exercisable during a specified period shall
not exceed the number of shares of Company Stock that the Grantee may purchase
upon the exercise of the related Option during such period. Upon the exercise of
an Option, the SARs relating to the Company Stock covered by such Option shall
terminate. Upon the exercise of SARs, the related Option shall terminate to the
extent of an equal number of shares of Company Stock.
(c) Exercisability. An SAR shall be exercisable during the period
specified by the Committee in the Grant Instrument and shall be subject to such
vesting and other restrictions as may be specified in the Grant Instrument. The
Committee may accelerate the exercisability of any or all outstanding SARs at
any time for any reason. SARs may only
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<PAGE> 9
be exercised while the Grantee is employed by the Company or during the
applicable period after termination of employment as described in Section 5(e).
A tandem SAR shall be exercisable only during the period when the Option to
which it is related is also exercisable. No SAR may be exercised for cash by an
officer or director of the Company or any of its subsidiaries who is subject to
Section 16 of the Exchange Act, except in accordance with Rule 16b - 3 under the
Exchange Act.
(d) Value of SARs. When a Grantee exercises SARs, the Grantee shall
receive in settlement of such SARs an amount equal to the value of the stock
appreciation for the number of SARs exercised, payable in cash, Company Stock or
a combination thereof. The stock appreciation for an SAR is the amount by which
the Fair Market Value of the underlying Company Stock on the date of exercise of
the SAR exceeds the base amount of the SAR as described in Subsection (a).
(e) Form of Payment. The Committee shall determine whether the
appreciation in an SAR shall be paid in the form of cash, shares of Company
Stock, or a combination of the two, in such proportion as the Committee deems
appropriate. For purposes of calculating the number of shares of Company Stock
to be received, shares of Company Stock shall be valued at their Fair Market
Value on the date of exercise of the SAR. If shares of Company Stock are to be
received upon exercise of an SAR, cash shall be delivered in lieu of any
fractional share.
8. Performance Units
(a) General Requirements. The Committee may grant performance units
("Performance Units") to an Employee or Key Advisor. Each Performance Unit shall
represent the right of the Grantee to receive an amount based on the value of
the Performance Unit, if performance goals established by the Committee are met.
A Performance Unit shall be based on the Fair Market Value of a share of Company
Stock or on such other measurement base as the Committee deems appropriate. The
Committee shall determine the number of Performance Units to be granted and the
requirements applicable to such Units.
(b) Performance Period and Performance Goals. When Performance Units
are granted, the Committee shall establish the performance period during which
performance shall be measured (the "Performance Period"), performance goals
applicable to the Units ("Performance Goals") and such other conditions of the
Grant as the Committee deems appropriate. Performance Goals may relate to the
financial performance of the Company or its operating units, the performance of
Company Stock, individual performance, or such other criteria as the Committee
deems appropriate.
(c) Payment with respect to Performance Units. At the end of each
Performance Period, the Committee shall determine to what extent the Performance
Goals and other conditions of the Performance Units are met and the amount, if
any, to be paid with respect to the Performance Units. Payments with respect to
Performance Units shall be made in cash, in Company Stock, or in a combination
of the two, as determined by the Committee.
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<PAGE> 10
(d) Requirement of Employment. If the Grantee ceases to be employed
by the Company (as defined in Section 5(e)) during a Performance Period, or if
other conditions established by the Committee are not met, the Grantee's
Performance Units shall be forfeited. The Committee may, however, provide for
complete or partial exceptions to this requirement as it deems appropriate.
9. Withholding of Taxes
(a) Required Withholding. All Grants under the Plan shall be subject
to applicable federal (including FICA), state and local tax withholding
requirements. The Company shall have the right to deduct from all Grants paid in
cash, or from other wages paid to the Grantee, any federal, state or local taxes
required by law to be withheld with respect to such Grants. In the case of
Options and other Grants paid in Company Stock, the Company may require the
Grantee or other person receiving such shares to pay to the Company the amount
of any such taxes that the Company is required to withhold with respect to such
Grants, or the Company may deduct from other wages paid by the Company the
amount of any withholding taxes due with respect to such Grants.
(b) Election to Withhold Shares. If the Committee so permits, a
Grantee may elect to satisfy the Company's income tax withholding obligation
with respect to an Option, SAR, Restricted Stock or Performance Units paid in
Company Stock by having shares withheld up to an amount that does not exceed the
Grantee's maximum marginal tax rate for federal (including FICA), state and
local tax liabilities. The election must be in a form and manner prescribed by
the Committee and shall be subject to the prior approval of the Committee.
10. Transferability of Grants
(a) Nontransferability of Grants. Except as provided below, only the
Grantee may exercise rights under a Grant during the Grantee's lifetime. A
Grantee may not transfer those rights except by will or by the laws of descent
and distribution or, with respect to Grants other than Incentive Stock Options,
if permitted in any specific case by the Committee, pursuant to a domestic
relations order (as defined under the Code or Title I of the Employee Retirement
Income Security Act of 1974, as amended, or the regulations thereunder). When a
Grantee dies, the personal representative or other person entitled to succeed to
the rights of the Grantee ("Successor Grantee") may exercise such rights. A
Successor Grantee must furnish proof satisfactory to the Company of his or her
right to receive the Grant under the Grantee's will or under the applicable laws
of descent and distribution.
(b) Transfer of Nonqualified Stock Options. Notwithstanding the
foregoing, the Committee may provide, in a Grant Instrument, that a Grantee may
transfer Nonqualified Stock Options to family members or other persons or
entities according to such terms as the Committee may determine; provided that
the Grantee receives no consideration for the transfer of an Option and the
transferred Option shall continue to be subject to the same terms and conditions
as were applicable to the Option immediately before the transfer.
11. Right of First Refusal
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Prior to a Public Offering, if at any time an individual desires to sell,
encumber, or otherwise dispose of shares of Company Stock distributed to him
under this Plan, the individual shall first offer the shares to the Company by
giving the Company written notice disclosing: (a) the name of the proposed
transferee of the Company Stock; (b) the certificate number and number of shares
of Company Stock proposed to be transferred or encumbered; (c) the proposed
price; (d) all other terms of the proposed transfer; and (e) a written copy of
the proposed offer. Within 30 days after receipt of such notice, the Company
shall have the option to purchase all or part of such Company Stock at the same
price and on the same terms as contained in such notice.
In the event the Company (or a shareholder, as described below) does not
exercise the option to purchase Company Stock, as provided above, the individual
shall have the right to sell, encumber or otherwise dispose of his shares of
Company Stock on the terms of the transfer set forth in the written notice to
the Company, provided such transfer is effected within 30 days after the
expiration of the option period. If the transfer is not effected within such
period, the Company must again be given an option to purchase, as provided
above.
The Board, in its sole discretion, may waive the Company's right of first
refusal pursuant to this Section 11 and the Company's repurchase right pursuant
to Section 12 below. If the Company's right of first refusal or repurchase right
is so waived, the Board may, in its sole discretion, pass through such right to
the remaining shareholders of the Company in the same proportion that each
shareholder's stock ownership bears to the stock ownership of all the
shareholders of the Company, as determined by the Board. To the extent that a
shareholder has been given such right and does not purchase his or her
allotment, the other shareholders shall have the right to purchase such
allotment on the same basis.
On and after a Public Offering, the Company shall have no further right to
purchase shares of Company Stock under this Section 11 and Section 12 below, and
its limitations shall be null and void.
Notwithstanding the foregoing, the Committee may require that a Grantee
execute a shareholder's agreement, with such terms as the Committee deems
appropriate, with respect to any Company Stock distributed pursuant to this
Plan. Such agreement may provide that the provisions of this Section 11 and
Section 12 below shall not apply to such Company Stock.
12. Purchase by the Company
Prior to a Public Offering, if a Grantee ceases to be employed by the
Company, whether terminated for cause or voluntarily, the Company shall have the
right to purchase all or part of any Company Stock distributed to him under this
Plan at the exercise price paid by the Grantee (unless otherwise determined by
the Board or the Committee), and in all other cases at its then current Fair
Market Value (as defined in Section 5(b)); provided, however, that such
repurchase shall be made in accordance with applicable accounting rules to avoid
adverse accounting treatment.
13. Reorganization of the Company.
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(a) Reorganization. As used herein, a "Reorganization" shall be
deemed to have occurred if the shareholders of the Company approve (or, if
shareholder approval is not required, the Board approves) an agreement providing
for (i) the merger or consolidation of the Company with another corporation
where the shareholders of the Company, immediately prior to the merger or
consolidation, will not beneficially own, immediately after the merger or
consolidation, shares entitling such shareholders to more than 50% of all votes
to which all shareholders of the surviving corporation would be entitled in the
election of directors (without consideration of the rights of any class of stock
to elect directors by a separate class vote), (ii) the sale or other disposition
of all or substantially all of the assets of the Company, or (iii) a liquidation
or dissolution of the Company.
(b) Assumption of Grants. Upon a Reorganization where the Company is
not the surviving corporation (or survives only as a subsidiary of another
corporation), unless the Committee determines otherwise, all outstanding Options
and SARs that are not exercised shall be assumed by, or replaced with comparable
options or rights by, the surviving corporation.
(c) Other Alternatives. Notwithstanding the foregoing, in the event
of a Reorganization, the Committee may take one or both of the following
actions: the Committee may (i) require that Grantees surrender their outstanding
Options and SARs in exchange for a payment by the Company, in cash or Company
Stock as determined by the Committee, in an amount equal to the amount by which
the then Fair Market Value of the shares of Company Stock subject to the
Grantee's unexercised Options and SARs exceeds the Exercise Pi-ice of the
Options or the base amount of the SARs, as applicable, or (ii) after giving
Grantees an opportunity to exercise their outstanding Options and SARs,
terminate any or all unexercised Options and SARs at such time as the Committee
deems appropriate. Such surrender or termination shall take place as of the date
of the Reorganization or such other date as the Committee may specify.
(d) Committee. The Committee making the determinations under this
Section 13 following a Reorganization must be comprised of the same members as
those on the Committee immediately before the Reorganization. If the Committee
members do not meet this requirement, the automatic provisions of Subsection (b)
of Section 13 shall apply in the case of such a Reorganization, and the
Committee shall not have discretion to vary them.
(e) Limitations. Notwithstanding anything in the Plan to the
contrary, in the event of a Reorganization, the Committee shall not have the
right to take any actions described in the Plan (including without limitation
actions described in Subsection (b) above) that would make the Reorganization
ineligible for pooling of interests accounting treatment or that would make the
Reorganization ineligible for desired tax treatment if, in the absence of such
right, the Reorganization would qualify for such treatment and the Company
intends to use such treatment with respect to the Reorganization.
14. Requirements for Issuance or Transfer of Shares
(a) Shareholder's Agreement. The Committee may require that a
Grantee
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execute a shareholder's agreement, with such terms as the Committee deems
appropriate, with respect to any Company Stock distributed pursuant to this
Plan.
(b) Limitations on Issuance or Transfer of Shares. No Company Stock
shall be issued or transferred in connection with any Grant hereunder unless and
until all legal requirements applicable to the issuance or transfer of such
Company Stock have been complied with to the satisfaction of the Committee. The
Committee shall have the right to condition any Grant made to any Grantee
hereunder on such Grantee's undertaking in writing to comply with such
restrictions on his or her subsequent disposition of such shares of Company
Stock as the Committee shall deem necessary or advisable as a result of any
applicable law, regulation or official interpretation thereof, and certificates
representing such shares may be legended to reflect any such restrictions.
Certificates representing shares of Company Stock issued or transferred under
the Plan will be subject to such stop-transfer orders and other restrictions as
may be required by applicable laws, regulations and interpretations, including
any requirement that a legend be placed thereon.
15. Amendment and Termination of the Plan
(a) Amendment. The Board may amend or terminate the Plan at any
time; provided, however, that the Board shall not amend the Plan without
shareholder approval if such approval is required by Section 162(m) of the Code.
(b) Termination of Plan. The Plan shall terminate on the day
immediately preceding the tenth anniversary of its effective date, unless the
Plan is terminated earlier by the Board or is extended by the Board with the
approval of the shareholders.
(c) Termination and Amendment of Outstanding Grants. A termination
or amendment of the Plan that occurs after a Grant is made shall not materially
impair the rights of a Grantee unless the Grantee consents. The termination of
the Plan shall not impair the power and authority of the Committee with respect
to an outstanding Grant. Whether or not the Plan has terminated, an outstanding
Grant may be terminated or amended in accordance with the Plan or, may be
amended by agreement of the Company and the Grantee consistent with the Plan.
(d) Governing Document. The Plan shall be the controlling document.
No other statements, representations, explanatory materials or examples, oral or
written, may amend the Plan in any manner. The Plan shall be binding upon and
enforceable against the Company and its successors and assigns.
16. Funding of the Plan
This Plan shall be unfunded. The Company shall not be required to
establish any special or separate fund or to make any other segregation of
assets to assure the payment of any Grants under this Plan. In no event shall
interest be paid or accrued on any Grant, including unpaid installments of
Grants.
17. Rights of Participants
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Nothing in this Plan shall entitle any Employee, Key Advisor or other
person to any claim or right to be granted a Grant under this Plan. Neither this
Plan nor any action taken hereunder shall be construed as giving any individual
any rights to be retained by or in the employ of the Company or any other
employment rights.
18. No Fractional Shares
No fractional shares of Company Stock shall be issued or delivered
pursuant to the Plan or any Grant. The Committee shall determine whether cash,
other awards or other property shall be issued or paid in lieu of such
fractional shares or whether such fractional shares or any rights thereto shall
be forfeited or otherwise eliminated.
19. Headings
Section headings are for reference only. In the event of a conflict
between a title and the content of a Section, the content of the Section shall
control.
20. Effective Date of the Plan
(a) Effective Date. Subject to the approval of the Company's
shareholders, the Plan shall be effective on November 20, 1998.
(b) Public Offering. The provisions of the Plan that refer to a
Public Offering, or that refer to, or are applicable to persons subject to,
section 16 of the Exchange Act or section 162(m) of the Code, shall be
effective, if at all, upon the initial registration of the Company Stock under
section 12(g) of the Exchange Act, and shall remain effective thereafter for so
long as such stock is so registered.
21. Miscellaneous
(a) Grants in Connection with Corporate Transactions and Otherwise.
Nothing contained in this Plan shall be construed to (i) limit the right of the
Committee to make Grants under this Plan in connection with the acquisition, by
purchase, lease, merger, consolidation or otherwise, of the business or assets
of any corporation, firm or association, including Grants to employees thereof
who become Employees of the Company, or for other proper corporate purposes, or
(ii) limit the right of the Company to grant stock options or make other awards
outside of this Plan. Without limiting the foregoing, the Committee may make a
Grant to an employee of another corporation who becomes an Employee by reason of
a corporate merger, consolidation, acquisition of stock or property,
reorganization or liquidation involving the Company or any of its subsidiaries
in substitution for a stock option or restricted stock grant made by such
corporation. The terms and conditions of the substitute grants may vary from the
terms and conditions required by the Plan and from those of the substituted
stock incentives. The Committee shall prescribe the provisions of the substitute
grants.
(b) Compliance with Law. The Plan, the exercise of Options and SARs
and
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the obligations of the Company to issue or transfer shares of Company Stock
under Grants shall be subject to all applicable laws and to approvals by any
governmental or regulatory agency as may be required. With respect to persons
subject to section 16 of the Exchange Act, it is the intent of the Company that
the Plan and all transactions under the Plan comply with all applicable
provisions of Rule 16b-3 or its successors under the Exchange Act. The Committee
may revoke any Grant if it is contrary to law or modify a Grant to bring it into
compliance with any valid and mandatory government regulation. The Committee may
also adopt rules regarding the withholding of taxes on payments to Grantees. The
Committee may, in its sole discretion, agree to limit its authority under this
Section.
(c) Governing Law. The validity, construction, interpretation and
effect of the Plan and Grant Instruments issued under the Plan shall exclusively
be governed by and determined in accordance with the law of the State of New
York.
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Exhibit 10.14
EMPLOYMENT AGREEMENT
AGREEMENT, made and entered into as of the 30th day of October, 1998, by
and between Metallurg, Inc., a Delaware corporation (together with its
successors and assigns permitted under this Agreement, the "Company"), and Alan
D. Ewart (the "Executive").
W I T N E S S E T H :
WHEREAS, the Executive is a Joint Managing Director of London &
Scandinavian Metallurgical Co. Limited ("LSM"), a wholly owned subsidiary of the
Company incorporated under the laws of England; and
WHEREAS, the Company and the Executive entered into an employment
agreement, dated December 21, 1983 which is currently in effect (the "Existing
Employment Agreement"); and
WHEREAS, as of the Effective Date (as defined below), the Executive was
appointed a Chief Executive Officer of the Company; and
WHEREAS, the Company desires to enter into a new employment agreement (the
"Agreement") embodying the terms of such employment; and
WHEREAS, the Executive desires to enter into the Agreement and to accept
such employment, subject to the terms and provisions of the Agreement; and
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the receipt of
which is mutually acknowledged, the Company and the Executive (individually a
"Party" and together the "Parties") agree as follows:
1. Definitions.
(a) "Base Salary" shall mean the Executive's base salary in
accordance with Section 4 below.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Business Day" shall mean any day other than a Saturday, Sunday
or any other day on which commercial banks in New York, New York are required or
authorized to be closed.
(d) "Cause" shall mean:
(1) the Executive is convicted of (or pleads nolo contendere
to) a felony or crime of moral turpitude, dishonesty,
breach of trust or unethical business conduct involving
the Company;
(2) the Executive engages in willful misconduct, willful or
gross neglect, fraud, insubordination, misappropriation
or embezzlement to the material and demonstrable
detriment of the Company; or
(3) the Executive breaches in any material respect the terms
and provisions of this Agreement and fails to cure such
breach within 20 days following written notice from the
Company specifying such breach.
(e) "Change in Control" shall mean the first to occur of the
following events:
<PAGE> 2
(1) any "person" (as such term is used in Sections 3(a)(9)
and 13(d) of the Exchange Act) or group of persons
becomes a "beneficial owner" (as such term is used in
Rule 13d-3 under the Exchange Act) of more than 50
percent of the Voting Stock of the Company;
(2) the majority of the Board consists of individuals other
than Incumbent Directors;
(3) the Company adopts any plan of liquidation providing for
the distribution of all or substantially all of its
assets;
(4) the sale or other disposition of all or substantially
all of the assets or business of the Company and its
Subsidiaries taken as a whole; or
(5) the merger, consolidation or combination of the Company
with or into another company (the "Other Company");
provided, however, that immediately after the merger,
consolidation or combination, the shareholders of the
Company immediately prior to the merger, consolidation
or combination hold, directly or indirectly, 50 percent
or less of the Voting Stock of the surviving company
(there being excluded from the number of shares held by
such shareholders, but not from the Voting Stock of the
surviving company, any shares received by any
"affiliate" (as such term is defined in Rule 12b-2 under
the Exchange Act) of the Other Company in exchange for
stock of the Other Company).
(f) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time, including applicable regulations thereunder.
(g) "Competitive Activity" shall mean any activity engaged in by the
Executive, whether as an employee, principal, sole proprietor, consultant,
agent, officer, director, partner or shareholder (except as a less than
one-percent shareholder of a publicly traded company or a less than five-percent
shareholder of a privately held company), which directly competes with the
Company or any Subsidiary. For this purpose, an activity which directly competes
with the Company or any Subsidiary shall mean a business that was being
conducted by the Company or any Subsidiary during the Term of Employment.
Notwithstanding anything to the contrary in this Section 1(g), an activity shall
not be deemed to be a Competitive Activity (x) solely as a result of the
Executive's being employed by or otherwise associated with a business of which a
unit is in competition with the Company or any Subsidiary but as to which unit
the Executive does not have direct or indirect responsibilities for the products
or product lines involved or (y) if the activity contributes less than 5 percent
of the revenues for the fiscal year in question of the business by which the
Executive is employed or with which he is otherwise associated.
(h) "Disability" shall mean a disability as determined under the
Company's long-term disability plans, programs and/or arrangements in effect on
the date such disability first occurs.
(i) "Effective Date" shall mean August 10, 1998.
(j) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended from time to time, including applicable regulations thereunder.
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<PAGE> 3
(k) "Good Reason" shall mean the occurrence of any of the following
events:
(1) the material change of the Executive's authority, duties
and responsibilities, or the assignment to the Executive
of duties materially different from the Executive's
position or positions with the Company;
(2) a reduction in Annual Salary of the Executive;
(3) the failure by the Company to obtain an agreement in
form and substance reasonably satisfactory to the
Executive from any successor to the business of the
Company to assume and agree to perform this Agreement;
or
(4) the Company breaches in any material respect the terms
and provisions of this Agreement and fails to cure such
breach within 20 days following written notice from the
Executive specifying such breach.
(l) "Incumbent Directors" shall mean the members of the Board as of
the Effective Date; provided, however, that any person becoming a director
subsequent to such date whose election or nomination for election was supported
by a majority of the directors who then comprised the Incumbent Directors shall
be considered to be an Incumbent Director.
(m) "Subsidiary" of the Company shall mean any corporation of which
the Company owns, directly or indirectly, more than 50 percent of the Voting
Stock or any other business entity in which the Company directly or indirectly
has an ownership interest of more than 50 percent.
(n) "Term of Employment" shall mean the period specified in Section
2 below.
(o) "Voting Stock" shall mean capital stock of any class or classes
having general voting power under ordinary circumstances, in the absence of
contingencies, to elect the directors of a corporation.
2. Term of Employment.
The Company hereby employs the Executive, and the Executive hereby
accepts such employment, for the period commencing on the Effective Date and
ending on the second anniversary of the Effective Date (the "Term of
Employment"), subject to earlier termination of the Term of Employment in
accordance with the terms of the Agreement. The Term of Employment shall be
automatically renewed for a one-year period on the second anniversary of the
Effective Date and on each anniversary of the Effective Date thereafter, unless
either Party has notified the other Party in writing in accordance with Section
26 below at least 90 days prior to the expiration of the then Term of Employment
that he or it does not want the Term of Employment to so renew.
3. Position, Duties and Responsibilities.
The Executive, in his capacity as Chief Executive Officer, shall
faithfully perform for the Company the duties of said office and shall perform
such other duties of an executive, managerial or administrative nature as shall
be specified and designated from time to time by the Board consistent with such
office. The Executive shall devote substantially all of his business time and
effort to the performance of his duties hereunder. The Executive, in carrying
out his duties under this Agreement,
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shall report to the Board. Notwithstanding anything in this Section 3 to the
contrary, nothing shall preclude the Executive from:
(1) serving on the boards of directors of a reasonable
number of other corporations or the boards of a
reasonable number of trade associations and/or
charitable organizations;
(2) engaging in charitable activities and community affairs;
and
(3) managing his personal investments and affairs;
provided, however, that such activities do not materially interfere with the
proper performance of his duties and responsibilities hereunder.
4. Base Salary and Consulting Fee.
(a) From the Effective Date until the date on which the Executive
commences carrying out his duties as Chief Executive Officer from the Company's
headquarters, the Executive shall be paid an annual Base Salary, payable in
accordance with the regular payroll practices of the Company, of $320,000. From
the date on which the Executive has relocated to the United States and during
the remainder of the Term of Employment, the Executive's annual Base Salary
shall be increased to $450,000. The Base Salary may be increased (but not
decreased) at any time and from time to time by action of the Board or by any
committee thereof or any individual having authority to take such action in
accordance with the Company's regular practices. Once increased, any reference
to Base Salary herein shall be a reference to such increased amount.
(b) During the Term of Employment, the Executive shall be paid an
annual Consulting Fee, payable in accordance with the regular payroll practices
of the Company, of $20,000. The Consulting Fee may be increased (but not
decreased) at any time and from time to time by action of the Board or by any
committee thereof or any individual having authority to take such action in
accordance with the Company's regular practices. Once increased, any reference
to Consulting Fee herein shall be a reference to such increased amount.
5. Bonus.
During the Term of Employment, in addition to the Base Salary, for
each fiscal year of the Company ending during the Term of Employment, the
Executive shall have the opportunity to receive an annual bonus (an "Annual
Bonus") in an amount of between 30 and 50 percent of Base Salary as of the last
day of the fiscal year of the Company, as determined by the Board. Payment of
Annual Bonus shall be made at the same time that other senior-level executives
receive their annual incentive compensation awards.
6. Long-Term Incentive Compensation Programs.
The Executive shall be eligible to participate in the Company's
stock option plans applicable to senior-level executives, the terms, conditions
and eligibility of such plans to be determined by the Board.
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<PAGE> 5
7. Employee Benefit Programs.
(a) During the Term of Employment, the Executive, to the extent he
is eligible, shall be entitled to participate in those employee pension and
welfare benefit plans, programs and/or arrangements applicable to the Executive
and made available to the Company's senior-level executives or to its employees
generally, as such plans, programs and/or arrangements may be in effect from
time to time, including, without limitation, pension, profit-sharing, savings,
medical, dental, hospitalization, short-term disability, long-term disability,
life insurance, accidental death and dismemberment protection, travel accident
insurance, and other employee pension and welfare benefit plans, programs and/or
arrangements that may be sponsored by the Company from time to time.
(b) During the Term of Employment, the Company shall provide the
Executive with term life insurance with a death benefit of at least two times
Base Salary. The Company shall pay all premiums with respect to such life
insurance. Such life insurance may be provided either through the Company's
group life insurance programs, by an individual policy, or by a combination of
both group and individual policies.
8. Reimbursement of Business Expenses.
The Executive is authorized to incur ordinary and reasonable
business expenses in carrying out his duties and responsibilities under the
Agreement, and the Company shall reimburse him for all such ordinary and
reasonable business expenses incurred in connection with carrying out the
business of the Company, subject to documentation in accordance with the
Company's policy. All Agreements relating to the Executive's obligation to repay
relocation expenses of the Executive previously paid by the Company shall remain
unaffected by the terms hereof.
9. Relocation Expenses.
The Company shall reimburse Executive, upon Executive's submission
of proof of such expenses, for the following costs of relocating from England to
the New York area: direct costs associated with (i) the sale of Executive's
current residence, including any brokers fees related thereto (excluding any
loss that may have been incurred in connection therewith), (ii) the purchase or
rental of a new residence in the New York area, including any brokers fees
related thereto (excluding the actual price of the residence), (iii) the
provision of temporary housing, for up to three months, and (iv) the actual
moving from England to the New York area.
10. Perquisites.
(a) During the Term of Employment, the Executive shall be entitled
to participate in the Company's executive fringe benefits applicable to the
Company's senior-level executive in accordance with the terms and conditions of
such arrangements as are in effect from time to time.
(b) Notwithstanding anything herein to the contrary, the Company
shall pay for the membership fees (including any bond requirement) and dues at
two clubs which the Executive determines are appropriate.
(c) During the Term of Employment, the Company shall provide a car
owned by the Company, appropriate to the position of the Executive in the
Company, to the Executive or, at the option of the Executive, the Company shall
pay for the hire by the Executive of a car for personal or business use at such
times as the Executive deems appropriate.
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<PAGE> 6
11. Vacation.
The Executive shall be entitled to paid vacation in accordance with
the Company's vacation policy; provided, however, that the Executive shall be
entitled to not less than five weeks of vacation each year.
12. Termination of Employment.
(a) Termination of Employment Due to Death. In the event of the
Executive's death during the Term of Employment, the Term of Employment shall
end as of the date of the Executive's death and his estate and/or beneficiaries,
as the case may be, shall be entitled to the following:
(1) Base Salary earned but not paid prior to the date of
his death;
(2) Annual Bonus with respect to any year prior to the year
of his death which has been earned but not paid;
(3) any amounts earned, accrued or owing to the Executive
but not yet paid under Section 6, 7, 8, 9, 10 or 11
above; and
(4) other or additional benefits in accordance with
applicable plans, programs and/or arrangements of the
Company.
(b) Termination of Employment Due to Disability. If the Executive's
employment is terminated due to Disability during the Term of Employment, either
by the Company or by the Executive, the Term of Employment shall end as of the
date of the Executive's termination of employment and the Executive shall be
entitled to the following (but in no event shall the Executive be entitled to
less than the benefits due him under any disability program of the Company for
which he becomes eligible):
(1) Base Salary earned but not paid prior to the date of the
termination of the Executive's employment;
(2) Annual Bonus with respect to any year prior to the year
of the termination of the Executive's employment which
has been earned but not paid;
(3) an amount equal to the sum of 50 percent of Base Salary,
at the annual rate in effect on the date of the
termination of the Executive's employment, payable in
monthly installments for a period ending on the first
day of the month following the month in which the
Executive attains age 65 or recovers from his
Disability, whichever occurs earlier, less the amount of
any disability benefits provided to the Executive under
the Company's disability program;
(4) any amounts earned, accrued or owing to the Executive
but not yet paid under Section 6, 7, 8, 9, 10 or 11
above;
(5) continued participation, as if the Executive were still
an employee, in the Company's medical, dental,
hospitalization and life insurance plans, programs
and/or arrangements and in those other employee plans,
programs and/or arrangements in which he was
participating on the date
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<PAGE> 7
of the termination of his employment until he attains
age 65 or recovers from his Disability, whichever occurs
earlier; and
provided, however, that:
(X) if the Executive is precluded from continuing
his participation in any employee benefit plan,
program or arrangement as provided in this
Section 12(b)(5), he shall be provided with the
after-tax economic equivalent of the benefits
provided under the plan, program or arrangement
in which he is unable to participate for the
period specified in this Section 12(b)(5); and
(Y) the economic equivalent of any benefit foregone
shall be deemed to be the lowest cost that would
be incurred by the Executive in obtaining such
benefit himself on an individual basis; and
(6) other or additional benefits in accordance with
applicable plans, programs and/or arrangements of the
Company.
If the Executive is precluded from continuing his participation in
any employee benefit plan, program or arrangement as provided in Section
12(b)(6) above, he shall be provided the after-tax economic equivalent of the
benefits provided under the plan, program or arrangement in which he is unable
to participate. The economic equivalent of any benefit foregone shall be deemed
to be the lowest cost that would be incurred by the Executive in obtaining such
benefit himself on an individual basis.
In no event shall a termination of the Executive's employment for
Disability occur unless the Party terminating his employment gives written
notice to the other Party in accordance with Section 26 below.
(c) Termination of Employment by the Company for Cause. A
termination of the Executive's employment by the Company for Cause shall not
take effect unless the provisions of this Section 12(c) are complied with and
the Board issues a written determination that the Executive's employment should
be terminated for Cause (a "Determination").
(1) In accordance with Section 26 below, the Chairman of the
Board shall give the Executive a written notice stating
his intention to terminate the Executive's employment
for Cause (the "Cause Notice"). The Cause Notice shall:
(A) state in detail the particular act or acts or
failure or failures to act that constitute the
grounds on which the proposed termination of
employment for Cause is based; and
(B) be given within four months of the Chairman of the
Board learning of such act or acts or failure or
failures to act.
(2) The Chairman of the Board may temporarily relieve the
Executive of his duties and responsibilities described
in Section 3 above during the period commencing on the
date the Cause Notice is issued by the Chairman of the
Board and ending on the date the Determination is issued
by the Board (the "Determination Period").
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<PAGE> 8
(3) The Executive shall have 20 days after the date the
Cause Notice is actually received by him in which to
cure his conduct on which the termination of employment
for Cause is based, to the extent such cure is possible.
If the Executive fails to cure such conduct, he shall
then be entitled to a hearing before the Board. Such
hearing shall be held during the 20-day period following
the date the Executive receives the Cause Notice;
provided, however, that the Executive requests such
hearing during the 10-day period following the date the
Executive receives the Cause Notice. Within five days
following the completion of such hearing, the Board
shall issue a Determination stating whether, in its
judgment, grounds for Cause as detailed in the Cause
Notice exist. If the Determination states that such
grounds exist, the Executive's employment shall be
immediately terminated for Cause and the Term of
Employment shall end as of the date of the termination
of the Executive's employment.
(4) If the Company terminates the Executive's employment for
Cause, the Executive shall be entitled to the following:
(A) Base Salary earned but not paid prior to the date
of the termination of his employment;
(B) any amounts earned, accrued or owing to the
Executive but not yet paid under Section 6, 7, 8,
9, 10 or 11 above; and
(C) other or additional benefits in accordance with
applicable plans, programs and/or arrangements of
the Company.
(5) Notwithstanding anything herein to the contrary, if,
following a termination of the Executive's employment by
the Company for Cause based upon the conviction of the
Executive for a felony, such conviction is overturned in
a final determination on appeal, the Executive shall be
entitled to the payments and the economic equivalent of
the benefits the Executive would have received if his
employment had been terminated by the Company without
Cause.
(d) Termination of Employment by the Company Without Cause. If the
Executive's employment is terminated by the Company without Cause, other than
due to death or Disability, the Executive shall be entitled to the following:
(1) Base Salary earned but not paid prior to the date of
the termination of his employment;
(2) Annual Bonus with respect to any year prior to the year
of the termination of the Executive's employment which
has been earned but not paid;
(3) an amount equal to the aggregate Base Salary (based on
the Base Salary in effect on the date of the termination
of the Executive's employment) (the "Salary Continuation
Benefits") with respect to a period equal to
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<PAGE> 9
eighteen months, payable in equal monthly installments
during such period;
(4) continued accrual of credited service through the end of
the Term of Employment for the purpose of any Company
pension plan, program or arrangement;
(5) the right to purchase, at fair market value, the
Executive's automobile (if any) provided to him by the
Company under the Company's automobile perquisite
program for senior-level executives;
(6) any amounts earned, accrued or owing to the Executive
but not yet paid under Section 6, 7, 8, 9, 10 or 11
above;
(7) continued participation, as if he were still an
employee, in the Company's medical, dental,
hospitalization and life insurance plans, programs
and/or arrangements and in other employee benefit plans,
programs and/or arrangements in which he was
participating on the date of the termination of his
employment until the earlier of:
(A) the end of the period used to determine the
Salary Continuation Benefits; or
(B) the date, or dates, he receives equivalent
coverage and benefits under the plans, programs
and/or arrangements of a subsequent employer (such
coverage and benefits to be determined on a
coverage-by-coverage or benefit-by-benefit basis);
provided, however, that:
(X) if the Executive is precluded from continuing
his participation in any employee benefit plan,
program or arrangement as provided in Section
12(d)(7)(A) above, he shall be provided with
the after-tax economic equivalent of the
benefits provided under the plan, program or
arrangement in which he is unable to
participate for the period specified in this
Section 12(d)(7);
(Y) the economic equivalent of any benefit foregone
shall be deemed to be the lowest cost that would
be incurred by the Executive in obtaining such
benefit himself on an individual basis; and
(8) other or additional benefits in accordance with
applicable plans, programs and/or arrangements of the
Company.
(e) Termination of Employment by the Executive for Good Reason. The
Executive may terminate his employment for Good Reason, but only if:
(1) the Executive notifies the Board during the 60-day
period following the date of the first occurrence of an
event which constitutes Good Reason (the "Good Reason
Event Date") of his intention to terminate his
employment for Good Reason;
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(2) the Executive terminates his employment for Good Reason
during the 120-day period following the Good Reason
Event Date;
(3) the termination of employment for Good Reason does not
occur during a Determination Period described in Section
12(c)(2) above; and
(4) the Good Reason first occurs before or after a
Determination Period, or, if the Good Reason first
occurs during a Determination Period, such event
constituting Good Reason continues to occur after the
Determination Period.
Upon a termination by the Executive of his employment for Good Reason, the
Executive shall be entitled to the same payments and benefits as provided in
Section 12(d) above; provided, however, that if the Executive terminates his
employment for Good Reason based on a reduction in Base Salary under Section
1(k)(2) above, then the Base Salary to be used in determining the Salary
Continuation Benefits in accordance with Section 12(d)(2) above shall be the
Base Salary in effect immediately prior to such reduction.
(f) Termination of Employment Following a Change in Control. If,
following a Change in Control, (i) the Executive's employment is terminated by
the Company without Cause, (ii) the Executive terminates his employment for Good
Reason, or (iii) upon prior written notice to the Company, the Executive
terminates his employment for any reason during the 60-day period following the
date of the Change in Control, the Executive shall be entitled to the same
payments and benefits as provided in Section 12(d) above, except that the Salary
Continuation Benefits under Section 12(d)(3) above shall be determined with
respect to a period equal to 18 months. A failure by the Executive to exercise
his rights with respect to a Change in Control shall not be deemed a waiver of
any rights under this Agreement.
(g) Termination of Employment by the Executive Without Good Reason.
If the Executive terminates his employment without Good Reason, other than a
termination of employment (i) due to death or retirement or Disability or (ii)
by the Executive during the 60-day period following the date of the Change in
Control, the Executive shall have the same entitlements as provided in Section
12(c)(4) above. A termination of the Executive's employment under this Section
12(g) shall be effective upon 30 days prior written notice to the Company and
shall not be deemed a breach of this Agreement.
(h) Non Renewal of Agreement by Company. If the Company notifies the
Executive, pursuant to Section 2 above, that it does not want the Term of
Employment to renew, the Executive shall have the same entitlements as provided
in Section 12(d) above as if the Executive had been terminated as of the last
day of the then Term of Employment.
(i) Termination of Employment by Executive due to Relocation of
Principal Offices. In the event that the Company's principal offices are moved
outside of the States of New York, New Jersey, Connecticut, Pennsylvania,
Delaware, Maryland or the District of Columbia and such relocation is contrary
to Executive's recommendation to the Board regarding such relocation, the
Executive may terminate his employment with the Company. If the Executive
terminates his employment pursuant to this Section 12(i), he shall be entitled
an amount equal to his aggregate Base Salary (based on the Base Salary in effect
on the date of the termination of the Executive's employment) with respect to a
period equal to eighteen months, payable in equal monthly installments during
such period.
(j) No Mitigation; No Offset. If the Executive's employment
terminates under this Section 12, the Executive shall be under no obligation to
seek other employment and there shall be no offset against amounts due the
Executive under this Agreement on account of any remuneration
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<PAGE> 11
attributable to any subsequent employment that he may obtain except as
specifically provided in this Section 12.
(k) Nature of Payments. Any amounts due under this Section 12 are in
the nature of severance payments considered to be reasonable by the Company and
are not in the nature of a penalty.
13. Confidentiality: Assignment of Rights.
(a) During the Term of Employment and thereafter, the Executive
shall not disclose to anyone or make use of any trade secret or proprietary or
confidential information of the Company, including such trade secret or
proprietary or confidential information of any customer or other entity to which
the Company owes an obligation not to disclose such information, which he
acquires during the Term of Employment, including but not limited to records
kept in the ordinary course of business, except (i) as such disclosure or use
may be required or appropriate in connection with his work as an employee of the
Company, (ii) when required to do so by a court of law, by any governmental
agency having supervisory authority over the business of the Company or by any
administrative or legislative body (including a committee thereof) with apparent
jurisdiction to order him to divulge, disclose or make accessible such
information, or (iii) as to such confidential information that becomes generally
known to the public or trade without violation of this Section 13(a).
(b) The Executive hereby sells, assigns and transfers to the Company
all of his right, title and interest in and to all inventions, discoveries,
improvements and copyrightable subject matter (the "rights") which during the
Term of Employment are made or conceived by him, alone or with others, and which
are within or arise out of any general field of the Company's business or arise
out of any work he performs or information he receives regarding the business of
the Company while employed by the Company. The Executive shall fully disclose to
the Company as promptly as available all information known or possessed by him
concerning the rights referred to in the preceding sentence, and upon request by
the Company and without any further remuneration in any form to him by the
Company, but at the expense of the Company, execute all applications for patents
and for copyright registration, assignments thereof and other instruments and do
all things which the Company may deem necessary to vest and maintain in it the
entire right, title and interest in and to all such rights.
14. Noncompetition.
(a) The Executive covenants and agrees that during the Term of
Employment and following the termination of the Executive's employment with the
Company, for a period of eighteen months, he shall not at any time, without the
prior written consent of the Company, directly or indirectly, engage in a
Competitive Activity.
(b) The Parties acknowledge that in the event of a breach or
threatened breach of Section 14(a) above, the Company shall not have an adequate
remedy at law. Accordingly, in the event of any breach or threatened breach of
Section 14(a) above, the Company shall be entitled to such equitable and
injunctive relief as may be available to restrain the Executive and any
business, firm, partnership, individual, corporation or entity participating in
the breach or threatened breach from the violation of the provisions of Section
14(a) above. Nothing in this Agreement shall be construed as prohibiting the
Company from pursuing any other remedies available at law or in equity for
breach or threatened breach of Section 14(a) above, including the recovery of
damages.
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15. Indemnification.
(a) The Company agrees that if the Executive is made a party, or is
threatened to be made a party, to any action, suit or proceeding, whether civil,
criminal, administrative or investigative (a "Proceeding"), by reason of the
fact that he is or was a director, officer or employee of the Company or is or
was serving at the request of the Company as a director, officer, member,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, including service with respect to employee benefit plans,
whether or not the basis of such Proceeding is the Executive's alleged action in
an official capacity while serving as a director, officer, member, employee or
agent, the Executive shall be indemnified and held harmless by the Company to
the fullest extent legally permitted or authorized by the Company's certificate
of incorporation or bylaws or resolutions of the Company's Board of Directors
or, if greater, by the laws of the State of Delaware, against all cost, expense,
liability and loss (including, without limitation, attorney's fees, judgments,
fines, ERISA excise taxes or penalties and amounts paid or to be paid in
settlement) reasonably incurred or suffered by the Executive in connection
therewith, and such indemnification shall continue as to the Executive even if
he has ceased to be a director, member, employee or agent of the Company or
other entity and shall inure to the benefit of the Executive's heirs, executors
and administrators. The Company shall advance to the Executive all reasonable
costs and expenses incurred by him in connection with a Proceeding within 20
days after receipt by the Company of a written request for such advance. Such
request shall include an undertaking by the Executive to repay the amount of
such advance if it shall ultimately be determined that he is not entitled to be
indemnified against such costs and expenses.
(b) Neither the failure of the Company (including the Board,
independent legal counsel or stockholders) to have made a determination prior to
the commencement of any Proceeding concerning payment of amounts claimed by the
Executive under Section 15(a) above that indemnification of the Executive is
proper because he has met the applicable standard of conduct, nor a
determination by the Company (including the Board, independent legal counsel or
stockholders) that the Executive has not met such applicable standard of
conduct, shall create a presumption that the Executive has not met the
applicable standard of conduct.
(c) The Company agrees to continue and maintain a directors and
officers' liability insurance policy covering the Executive to the extent the
Company provides such coverage for its other executive officers.
16. Effect of Agreement on Other Benefits.
Except as specifically provided in this Agreement, the existence of
this Agreement shall not prohibit or restrict the Executive's entitlement to
full participation in the Company's employee benefit plans, programs and
arrangements applicable to the Company's senior-level executives.
17. Assignability; Binding Nature.
This Agreement shall be binding upon and inure to the benefit of the
Parties and their respective successors, heirs (in the case of the Executive)
and assigns. No rights or obligations of the Company under this Agreement may be
assigned or transferred by the Company except that such rights or obligations
may be assigned or transferred pursuant to a merger or consolidation in which
the Company is not the continuing entity, or the sale or liquidation of all or
substantially all of the assets of the Company; provided, however, that the
assignee or transferee is the successor to all or substantially all of the
assets of the Company and such assignee or transferee assumes the liabilities,
obligations and duties of the Company, as contained in this Agreement, either
contractually or as a matter of law. The Company further agrees that, in the
event of a sale of assets or liquidation as described in the preceding sentence,
it
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shall take whatever action it legally can in order to cause such assignee or
transferee to expressly assume the liabilities, obligations and duties of the
Company hereunder or under any other plan or benefit program referred to herein.
No rights or obligations of the Executive under this Agreement may be assigned
or transferred by the Executive other than his rights to compensation and
benefits, which may be transferred only by will or operation of law, except as
provided in Section 23 below.
18. Representation.
The Company represents and warrants that it is fully authorized and
empowered to enter into this Agreement and that the performance of its
obligations under this Agreement will not violate any agreement between it and
any other person, firm or organization. The Executive represents that he knows
of no agreement between him and any other person, firm or organization that
would be violated by the performance of his obligations under this Agreement.
19. Entire Agreement.
This Agreement contains the entire understanding and agreement
between the Parties concerning the subject matter hereof and supersedes all
prior agreements, understandings, discussions, negotiations and undertakings,
whether written or oral, between the Parties, including, without limitation, the
Existing Employment Agreement, with respect thereto.
20. Amendment or Waiver.
No provision in this Agreement may be amended unless such amendment
is agreed to in writing and signed by the Executive and an authorized officer of
the Company. No waiver by either Party of any breach by the other Party of any
condition or provision contained in this Agreement to be performed by such other
Party shall be deemed a waiver of a similar or dissimilar condition or provision
at the same or any prior or subsequent time. Any waiver must be in writing and
signed by the Executive or an authorized officer of the Company, as the case may
be.
21. Severability.
In the event that any provision or portion of this Agreement shall
be determined to be invalid or unenforceable for any reason, in whole or in
part, the remaining provisions of this Agreement shall be unaffected thereby and
shall remain in full force and effect and such provision or portion of this
Agreement shall remain in effect to the fullest extent permitted by law.
22. Survivorship.
The respective rights and obligations of the Parties hereunder shall
survive any termination of the Executive's employment to the extent necessary to
the intended preservation of such rights and obligations.
23. Beneficiaries/References.
The Executive shall be entitled, to the extent permitted under any
applicable law, to select and change a beneficiary or beneficiaries to receive
any compensation or benefit payable hereunder following the Executive's death by
giving the Company written notice thereof. In the event of the Executive's death
or a judicial determination of his incompetence, reference in this Agreement to
the Executive shall be deemed, where appropriate, to refer to his beneficiary,
estate or other legal representative.
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24. Governing Law/Submission to Jurisdiction.
This Agreement shall be governed by and construed and interpreted in
accordance with the laws of New York without reference to principles of conflict
of laws. Each of the Company and the Executive hereby irrevocably and
unconditionally: (i) submits for itself or himself, as applicable, and its or
his property in any legal action or proceeding relating to this Agreement, or
for recognition and enforcement of any judgment in respect thereof, to the
non-exclusive general jurisdiction of the courts of the State of New York, the
courts of the United States of America for the Southern District of New York,
and appellate courts from any thereof; (ii) consents that any such action or
proceeding may be brought in such courts, and waives any objection that it or he
may now or hereafter have to the venue of any such action or proceeding in any
such court or that such action or proceeding was brought in an inconvenient
forum and agrees not to plead or claim the same; (iii) agrees that service of
process in any such action or proceeding may be effected by mailing a copy
thereof by registered or certified mail (or any substantially similar form of
mail), postage prepaid, to its or his address set forth in or designated
pursuant to Section 26 hereof; and (iv) agrees that nothing herein shall affect
the right to effect service of process in any other manner permitted by law or
shall limit the right to sue in any other jurisdiction.
25. Resolution of Disputes.
Any disputes arising under or in connection with the Agreement,
other than disputes arising in connection with Sections 13 and 14 hereof, may,
at the election of the Executive or the Company, be resolved by binding
arbitration, to be held in New York City in accordance with the rules and
procedures of the American Arbitration Association. If arbitration is elected,
the Executive and the Company shall mutually select the arbitrator. If the
Executive and the Company cannot agree on the selection of an arbitrator, each
Party shall select an arbitrator and the two arbitrators shall select a third
arbitrator, and the three arbitrators shall form an arbitration panel which
shall resolve the dispute by majority vote. Judgment upon the award rendered by
the arbitrator(s) may be entered in any court having jurisdiction thereof. Costs
of the arbitration or litigation, including, without limitation, reasonable
attorneys' fees of both Parties, shall be borne by the Company; provided,
however, that if a dispute is resolved in favor of the Company, the Executive
shall bear his own costs of the arbitration or litigation and shall reimburse
the Company for the Executive's cost of the arbitration or litigation previously
paid by the Company. Pending the resolution of any arbitration or court
proceeding, the Company shall continue payment of all amounts due the Executive
under this Agreement and all benefits to which the Executive is entitled at the
time the dispute arises.
26. Notices.
Any notice given to a Party shall be in writing and shall be deemed
to have been given when delivered personally or sent by certified or registered
mail, postage prepaid, return receipt requested, duly addressed to the Party
concerned at the address indicated below or to such changed address as such
Party may subsequently give such notice of:
If to the Company: Metallurg, Inc.
6 East 43rd Street, 12th floor
New York, New York 10017
Attention: General Counsel
With a copy to: Rogers & Wells LLP
200 Park Avenue
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New York, New York 10166
Attention: Samuel M. Feder
If to the Executive: Alan D. Ewart
c/o Metallurg, Inc.
6 East 43rd Street, 12th Floor
New York, New York 10017
27. Headings.
The headings of the sections contained in this Agreement are for
convenience only and shall not be deemed to control or affect the meaning or
construction of any provision of this Agreement.
28. Counterparts.
This Agreement may be executed in two or more counterparts.
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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first written above.
METALLURG, INC.
By: /s/ Heinz C. Schimmelbusch
----------------------------------------
Name: Heinz C. Schimmelbusch
Title: Chairman
/s/ Alan D. Ewart
--------------------------------------------
Alan D. Ewart
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<PAGE> 17
EMPLOYMENT AGREEMENT
AGREEMENT, made and entered into as of the 19th day of November, 1998, by
and between Metallurg, Inc., a Delaware corporation (together with its
successors and assigns permitted under this Agreement, the "Company"), and Eric
E. Jackson (the "Executive").
W I T N E S S E T H :
WHEREAS, prior to the Effective Date (as defined below), the Executive was
the President of Shieldalloy Metallurgical Corporation, a wholly-owned
subsidiary of the Company; and
WHEREAS, the Company and the Executive entered into an employment
agreement, dated December 31, 1997 which is currently in effect (the "Existing
Employment Agreement"); and
WHEREAS, as of the Effective Date, the Executive was appointed a Senior
Vice President and the Chief Operating Officer of the Company; and
WHEREAS, the Company desires to enter into a new employment agreement (the
"Agreement") embodying the terms of such employment; and
WHEREAS, the Executive desires to enter into the Agreement and to accept
such employment, subject to the terms and provisions of the Agreement; and
WHEREAS, the Company and the Executive desire to cancel the Existing
Employment Agreement as of the Effective Date;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the receipt of
which is mutually acknowledged, the Company and the Executive (individually a
"Party" and together the "Parties") agree as follows:
1. Definitions.
(a) "Base Salary" shall mean the Executive's base salary in
accordance with Section 4 below.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Business Day" shall mean any day other than a Saturday, Sunday
or any other day on which commercial banks in New York, New York are required or
authorized to be closed.
(d) "Cause" shall mean:
(1) the Executive is convicted of (or pleads nolo contendere
to) a felony or a crime of moral turpitude, dishonesty,
breach of trust or unethical business conduct involving
the Company;
(2) the Executive engages in willful misconduct, willful or
gross neglect, fraud, insubordination, misappropriation
or embezzlement to the material and demonstrable
detriment of the Company; or
(3) the Executive breaches in any material respect the terms
and provisions of this Agreement and fails to cure such
breach within 20 days following written notice from the
Company specifying such breach.
<PAGE> 18
(e) "CEO" shall mean the chief executive officer of the Company.
(f) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time, including applicable regulations thereunder.
(g) "Competitive Activity" shall mean any activity engaged in by the
Executive, whether as an employee, principal, sole proprietor, consultant,
agent, officer, director, partner or shareholder (except as a less than
one-percent shareholder of a publicly traded company or a less than five-percent
shareholder of a privately held company), which directly competes with the
Company or any Subsidiary. For this purpose, an activity which directly competes
with the Company or any Subsidiary shall mean a business that was being
conducted by the Company or any Subsidiary during the Term of Employment.
Notwithstanding anything to the contrary in this Section 1(g), an activity shall
not be deemed to be a Competitive Activity (x) solely as a result of the
Executive's being employed by or otherwise associated with a business of which a
unit is in competition with the Company or any Subsidiary but as to which unit
the Executive does not have direct or indirect responsibilities for the products
or product lines involved or (y) if the activity contributes less than 5 percent
of the revenues for the fiscal year in question of the business by which the
Executive is employed or with which he is otherwise associated.
(h) "Disability" shall mean a disability as determined under the
Company's long-term disability plans, programs and/or arrangements in effect on
the date such disability first occurs.
(i) "Effective Date" shall mean August 10, 1998.
(j) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended from time to time, including applicable regulations thereunder.
(k) "Good Reason" shall mean the occurrence of any of the following
events:
(1) the material change of the Executive's authority, duties
and responsibilities, or the assignment to the Executive
of duties materially different from the Executive's
position or positions with the Company;
(2) a reduction in Base Salary of the Executive;
(3) the failure by the Company to obtain an agreement in
form and substance reasonably satisfactory to the
Executive from any successor to the business of the
Company to assume and agree to perform this Agreement;
or
(4) the Company breaches in any material respect the terms
and provisions of this Agreement and fails to cure such
breach within 20 days following written notice from the
Executive specifying such breach.
(l) "Subsidiary" of the Company shall mean any corporation of which
the Company owns, directly or indirectly, more than 50 percent of the Voting
Stock or any other business entity in which the Company directly or indirectly
has an ownership interest of more than 50 percent.
(m) "Term of Employment" shall mean the period specified in Section
2 below.
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(n) "Voting Stock" shall mean capital stock of any class or classes
having general voting power under ordinary circumstances, in the absence of
contingencies, to elect the directors of a corporation.
2. Term of Employment.
The Company hereby employs the Executive, and the Executive hereby
accepts such employment, for the period commencing on the Effective Date and
ending on the second anniversary of the Effective Date (the "Term of
Employment"), subject to earlier termination of the Term of Employment in
accordance with the terms of the Agreement. The Term of Employment shall be
automatically renewed for a one-year period on the second anniversary of the
Effective Date and on each anniversary of the Effective Date thereafter, unless
either Party has notified the other Party in writing in accordance with Section
26 below at least 90 days prior to the expiration of the then Term of Employment
that he or it does not want the Term of Employment to so renew.
3. Position, Duties and Responsibilities.
The Executive, in his capacity as a Senior Vice President and Chief
Operating Officer, shall faithfully perform for the Company the duties of said
office and shall perform such other duties of an executive, managerial or
administrative nature as shall be specified and designated from time to time by
the CEO consistent with such office. The Executive shall devote substantially
all of his business time and effort to the performance of his duties hereunder.
The Executive, in carrying out his duties under this Agreement, shall report to
the CEO. Notwithstanding anything in this Section 3 to the contrary, nothing
shall preclude the Executive from:
(1) serving on the boards of directors of a reasonable
number of other corporations or the boards of a
reasonable number of trade associations and/or
charitable organizations;
(2) engaging in charitable activities and community affairs;
and
(3) managing his personal investments and affairs;
provided, however, that such activities do not materially interfere with the
proper performance of his duties and responsibilities hereunder.
4. Base Salary.
During the Term of Employment, the Executive shall be paid an annual
Base Salary, payable in accordance with the regular payroll practices of the
Company, of $280,000. The Base Salary may be increased (but not decreased) at
any time and from time to time by action of the Board or by any committee
thereof or any individual having authority to take such action in accordance
with the Company's regular practices. Once increased, any reference to Base
Salary herein shall be a reference to such increased amount.
5. Bonus.
During the Term of Employment, in addition to the Base Salary, for
each fiscal year of the Company ending during the Term of Employment, the
Executive shall have the opportunity to receive an annual bonus (an "Annual
Bonus") in an amount of between 30 and 50 percent of Base Salary, as determined
by the CEO, in consultation with the Chairman of the Board. Payment of Annual
Bonus shall
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be made at the same time that other senior-level executives receive their annual
incentive compensation awards.
6. Long-Term Incentive Compensation Programs.
The Executive shall be eligible to participate in the Company's
stock option plans applicable to senior-level executives, the terms, conditions
and eligibility of such plans to be determined by the Board.
7. Employee Benefit Programs.
(a) During the Term of Employment, the Executive, to the extent he
is eligible, shall be entitled to participate in those employee pension and
welfare benefit plans, programs and/or arrangements applicable to the Executive
and made available to the Company's senior-level executives or to its employees
generally, as such plans, programs and/or arrangements may be in effect from
time to time, including, without limitation, pension, profit-sharing, savings,
medical, dental, hospitalization, short-term disability, long-term disability,
life insurance, accidental death and dismemberment protection, travel accident
insurance, and other employee pension and welfare benefit plans, programs and/or
arrangements that may be sponsored by the Company from time to time.
(b) During the Term of Employment, the Company shall provide the
Executive with term life insurance with a death benefit of at least two times
Base Salary. The Company shall pay all premiums with respect to such life
insurance. Such life insurance may be provided either through the Company's
group life insurance programs, by an individual policy, or by a combination of
both group and individual policies.
8. Reimbursement of Business Expenses.
The Executive is authorized to incur ordinary and reasonable
business expenses in carrying out his duties and responsibilities under the
Agreement, and the Company shall reimburse him for all such ordinary and
reasonable business expenses incurred in connection with carrying out the
business of the Company, subject to documentation in accordance with the
Company's policy. All Agreements relating to the Executive's obligation to repay
relocation expenses of the Executive previously paid by the Company shall remain
unaffected by the terms hereof.
9. Relocation Expenses.
The Company shall reimburse Executive, upon Executive's submission
of proof of such expenses, for the following costs of relocating from
Moorestown, New Jersey to the New York metropolitan area: direct costs
associated with (i) the sale of Executive's current residence (excluding any
loss that may have been incurred in connection therewith), (ii) the purchase of
a new residence in the New York metropolitan area (excluding the actual price of
the residence), (iii) the provision of temporary housing, for up to three
months, and (iv) the actual moving from Moorestown, New Jersey to the New York
metropolitan area.
10. Perquisites.
(a) During the Term of Employment, the Executive shall be entitled
to participate in the Company's executive fringe benefits applicable to the
Company's senior-level executive in accordance with the terms and conditions of
such arrangements as are in effect from time to time.
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(b) Notwithstanding anything herein to the contrary, the Company
shall pay for the membership fees (including any bond requirement) and dues at
one club which the Executive determines is appropriate.
(c) During the Term of Employment, the Company shall provide a car
to the Executive.
11. Vacation.
The Executive shall be entitled to paid vacation in accordance with
the Company's vacation policy; provided, however, that the Executive shall be
entitled to not less than four weeks of vacation each year.
12. Termination of Employment.
(a) Termination of Employment Due to Death. In the event of the
Executive's death during the Term of Employment, the Term of Employment shall
end as of the date of the Executive's death and his estate and/or beneficiaries,
as the case may be, shall be entitled to the following:
(1) Base Salary earned but not paid prior to the date of
his death;
(2) Annual Bonus with respect to any year prior to the year
of his death which has been earned but not paid;
(3) any amounts earned, accrued or owing to the Executive
but not yet paid under Section 6, 7, 8, 9, 10 or 11
above; and
(4) other or additional benefits in accordance with
applicable plans, programs and/or arrangements of the
Company.
(b) Termination of Employment Due to Disability. If the Executive's
employment is terminated due to Disability during the Term of Employment, either
by the Company or by the Executive, the Term of Employment shall end as of the
date of the Executive's termination of employment and the Executive shall be
entitled to the following (but in no event shall the Executive be entitled to
less than the benefits due him under any disability program of the Company for
which he becomes eligible):
(1) Base Salary earned but not paid prior to the date of the
termination of the Executive's employment;
(2) Annual Bonus with respect to any year prior to the year
of the termination of the Executive's employment which
has been earned but not paid;
(3) an amount equal to the sum of 50 percent of Base Salary,
at the annual rate in effect on the date of the
termination of the Executive's employment, payable in
monthly installments for a period ending on the first
day of the month following the month in which the
Executive attains age 65 or recovers from his
Disability, whichever occurs earlier, less the amount of
any disability benefits provided to the Executive under
the Company's disability program;
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(4) any amounts earned, accrued or owing to the Executive
but not yet paid under Section 6, 7, 8, 9, 10 or 11
above;
(5) continued participation, as if the Executive were still
an employee, in the Company's medical, dental,
hospitalization and life insurance plans, programs
and/or arrangements and in those other employee plans,
programs and/or arrangements in which he was
participating on the date of the termination of his
employment until he attains age 65 or recovers from his
Disability, whichever occurs earlier; `
provided, however, that:
(X) if the Executive is precluded from continuing
his participation in any employee benefit plan,
program or arrangement as provided in this
Section 12(b)(5), he shall be provided with the
after-tax economic equivalent of the benefits
provided under the plan, program or arrangement
in which he is unable to participate for the
period specified in this Section 12(b)(5); and
(Y) the economic equivalent of any benefit foregone
shall be deemed to be the lowest cost that would
be incurred by the Executive in obtaining such
benefit himself on an individual basis; and
(6) other or additional benefits in accordance with
applicable plans, programs and/or arrangements of the
Company.
In no event shall a termination of the Executive's employment for
Disability occur unless the Party terminating his employment gives written
notice to the other Party in accordance with Section 26 below.
(c) Termination of Employment by the Company for Cause. A
termination of the Executive's employment by the Company for Cause shall not
take effect unless the provisions of this Section 12(c) are complied with and
the Board issues a written determination that the Executive's employment should
be terminated for Cause (a "Determination").
(1) In accordance with Section 26 below, the CEO shall give
the Executive a written notice stating his intention to
terminate the Executive's employment for Cause (the
"Cause Notice"). The Cause Notice shall:
(A) state in detail the particular act or acts or
failure or failures to act that constitute the
grounds on which the proposed termination of
employment for Cause is based; and
(B) be given within four months of the CEO learning of
such act or acts or failure or failures to act.
(2) The CEO may temporarily relieve the Executive of his
duties and responsibilities described in Section 3 above
during the period commencing on the date the Cause
Notice is issued by the CEO and ending on the date the
Determination is issued by the Board (the "Determination
Period").
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(3) The Executive shall have 20 days after the date the
Cause Notice is actually received by him in which to
cure his conduct on which the termination of employment
for Cause is based, to the extent such cure is possible.
If the Executive fails to cure such conduct, he shall
then be entitled to a hearing before the Board. Such
hearing shall be held during the 20-day period following
the date the Executive receives the Cause Notice;
provided, however, that the Executive requests such
hearing during the 10-day period following the date the
Executive receives the Cause Notice. Within five days
following the completion of such hearing, the Board
shall issue a Determination stating whether, in its
judgment, grounds for Cause as detailed in the Cause
Notice exist. If the Determination states that such
grounds exist, the Executive's employment shall be
immediately terminated for Cause and the Term of
Employment shall end as of the date of the termination
of the Executive's employment.
(4) If the Company terminates the Executive's employment for
Cause, the Executive shall be entitled to the following:
(A) Base Salary earned but not paid prior to the
date of the termination of his employment;
(B) any amounts earned, accrued or owing to the
Executive but not yet paid under Section 6, 7, 8,
9, 10 or 11 above; and
(C) other or additional benefits in accordance with
applicable plans, programs and/or arrangements of
the Company.
(5) Notwithstanding anything herein to the contrary, if,
following a termination of the Executive's employment by
the Company for Cause based upon the conviction of the
Executive for a felony, such conviction is overturned in
a final determination on appeal, the Executive shall be
entitled to the payments and the economic equivalent of
the benefits the Executive would have received if his
employment had been terminated by the Company without
Cause.
(d) Termination of Employment by the Company Without Cause. If the
Executive's employment is terminated by the Company without Cause, other than
due to death or Disability, the Executive shall be entitled to the following:
(1) Base Salary earned but not paid prior to the date of
the termination of his employment;
(2) Annual Bonus with respect to any year prior to the year
of the termination of the Executive's employment which
has been earned but not paid;
(3) an amount equal to the aggregate Base Salary (based on
the Base Salary in effect on the date of the termination
of the Executive's employment) (the "Salary Continuation
Benefits") with respect to a period equal to
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eighteen months, payable in equal monthly installments
over such period;
(4) continued accrual of credited service through the end of
the Term of Employment for the purpose of any Company
pension plan, program or arrangement;
(5) the right to purchase, at fair market value, the
Executive's automobile (if any) provided to him by the
Company under the Company's automobile perquisite
program for senior-level executives;
(6) any amounts earned, accrued or owing to the Executive
but not yet paid under Section 6, 7, 8, 9, 10 or 11
above;
(7) continued participation, as if he were still an
employee, in the Company's medical, dental,
hospitalization and life insurance plans, programs
and/or arrangements and in other employee benefit plans,
programs and/or arrangements in which he was
participating on the date of the termination of his
employment until the earlier of:
(A) the end of the period used to determine the
Salary Continuation Benefits; or
(B) the date, or dates, he receives equivalent
coverage and benefits under the plans, programs
and/or arrangements of a subsequent employer (such
coverage and benefits to be determined on a
coverage-by-coverage or benefit-by-benefit basis);
provided, however, that:
(X) if the Executive is precluded from continuing
his participation in any employee benefit plan,
program or arrangement as provided in Section
12(d)(7) above, he shall be provided with the
after-tax economic equivalent of the benefits
provided under the plan, program or arrangement
in which he is unable to participate for the
period specified in this Section 12(d)(7); and
(Y) the economic equivalent of any benefit foregone
shall be deemed to be the lowest cost that would
be incurred by the Executive in obtaining such
benefit himself on an individual basis; and
(8) other or additional benefits in accordance with
applicable plans, programs and/or arrangements of the
Company.
(e) Termination of Employment by the Executive for Good Reason. The
Executive may terminate his employment for Good Reason, but only if:
(1) the Executive notifies the Board during the 60-day
period following the date of the first occurrence of an
event which constitutes Good Reason (the "Good Reason
Event Date") of his intention to terminate his
employment for Good Reason;
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(2) the Executive terminates his employment for Good Reason
during the 120-day period following the Good Reason
Event Date;
(3) the termination of employment for Good Reason does not
occur during a Determination Period described in Section
12(c)(2) above; and
(4) the Good Reason first occurs before or after a
Determination Period, or, if the Good Reason first
occurs during a Determination Period, such event
constituting Good Reason continues to occur after the
Determination Period.
Upon a termination by the Executive of his employment for Good Reason, the
Executive shall be entitled to the same payments and benefits as provided in
Section 12(d) above; provided, however, that if the Executive terminates his
employment for Good Reason based on a reduction in Base Salary under Section
1(k)(2) above, then the Base Salary to be used in determining the Salary
Continuation Benefits in accordance with Section 12(d)(3) above shall be the
Base Salary in effect immediately prior to such reduction.
(f) Termination of Employment by the Executive Without Good Reason.
If the Executive terminates his employment without Good Reason, other than a
termination of employment due to death or retirement or Disability, the
Executive shall have the same entitlements as provided in Section 12(c)(4)
above. A termination of the Executive's employment under this Section 12(f)
shall be effective upon 30 days prior written notice to the Company and shall
not be deemed a breach of this Agreement.
(g) Non Renewal of Agreement by Company. If the Company notifies the
Executive, pursuant to Section 2 above, that it does not want the Term of
Employment to renew, the Executive shall have the same entitlements as provided
in Section 12(d) above as if the Executive had been terminated without cause as
of the last day of the then Term of Employment.
(h) Termination of Employment by Executive due to Relocation of Work
Location. In the event that the Executive's principal work location is moved
outside of the States of New York, New Jersey, Connecticut, Pennsylvania,
Delaware, Maryland or the District of Columbia, the Executive may terminate his
employment with the Company. If the Executive terminates his employment pursuant
to this Section 12(h), he shall have the same entitlements as provided in
Section 12(d) above; provided, that all such benefits, including, without
limitation, the Salary Continuation Benefits, shall be provided for a period
equal to the corresponding severance period listed on Schedule A, payable in
equal monthly installments during such period.
(i) No Mitigation; No Offset. If the Executive's employment
terminates under this Section 12, the Executive shall be under no obligation to
seek other employment and there shall be no offset against amounts due the
Executive under this Agreement on account of any remuneration attributable to
any subsequent employment that he may obtain except as specifically provided in
this Section 12.
(j) Nature of Payments. Any amounts due under this Section 12 are in
the nature of severance payments considered to be reasonable by the Company and
are not in the nature of a penalty.
13. Confidentiality: Assignment of Rights.
(a) During the Term of Employment and thereafter, the Executive
shall not disclose to anyone or make use of any trade secret or proprietary or
confidential information of the Company,
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including such trade secret or proprietary or confidential information of any
customer or other entity to which the Company owes an obligation not to disclose
such information, which he acquires during the Term of Employment, including but
not limited to records kept in the ordinary course of business, except (i) as
such disclosure or use may be required or appropriate in connection with his
work as an employee of the Company, (ii) when required to do so by a court of
law, by any governmental agency having supervisory authority over the business
of the Company or by any administrative or legislative body (including a
committee thereof) with apparent jurisdiction to order him to divulge, disclose
or make accessible such information, or (iii) as to such confidential
information that becomes generally known to the public or trade without
violation of this Section 13(a).
(b) The Executive hereby sells, assigns and transfers to the Company
all of his right, title and interest in and to all inventions, discoveries,
improvements and copyrightable subject matter (the "rights") which during the
Term of Employment are made or conceived by him, alone or with others, and which
are within or arise out of any general field of the Company's business or arise
out of any work he performs or information he receives regarding the business of
the Company while employed by the Company. The Executive shall fully disclose to
the Company as promptly as available all information known or possessed by him
concerning the rights referred to in the preceding sentence, and upon request by
the Company and without any further remuneration in any form to him by the
Company, but at the expense of the Company, execute all applications for patents
and for copyright registration, assignments thereof and other instruments and do
all things which the Company may deem necessary to vest and maintain in it the
entire right, title and interest in and to all such rights.
14. Noncompetition.
(a) The Executive covenants and agrees that during the Term of
Employment and following the termination of the Executive's employment with the
Company, for a period of eighteen months or, in the case of a termination
pursuant to Section 12(h), a period equal to the shorter of (i) twice the
corresponding severance period listed on Schedule A and (ii) eighteen months, he
shall not at any time, without the prior written consent of the Company,
directly or indirectly, engage in a Competitive Activity.
(b) The Parties acknowledge that in the event of a breach or
threatened breach of Section 14(a) above, the Company shall not have an adequate
remedy at law. Accordingly, in the event of any breach or threatened breach of
Section 14(a) above, the Company shall be entitled to such equitable and
injunctive relief as may be available to restrain the Executive and any
business, firm, partnership, individual, corporation or entity participating in
the breach or threatened breach from the violation of the provisions of Section
14(a) above. Nothing in this Agreement shall be construed as prohibiting the
Company from pursuing any other remedies available at law or in equity for
breach or threatened breach of Section 14(a) above, including the recovery of
damages.
15. Indemnification.
(a) The Company agrees that if the Executive is made a party, or is
threatened to be made a party, to any action, suit or proceeding, whether civil,
criminal, administrative or investigative (a "Proceeding"), by reason of the
fact that he is or was a director, officer or employee of the Company or is or
was serving at the request of the Company as a director, officer, member,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, including service with respect to employee benefit plans,
whether or not the basis of such Proceeding is the Executive's alleged action in
an official capacity while serving as a director, officer, member, employee or
agent, the Executive shall be indemnified and held harmless by the Company to
the fullest extent legally permitted or authorized by the Company's certificate
of incorporation or bylaws or resolutions of the Company's Board of Directors
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<PAGE> 27
or, if greater, by the laws of the State of Delaware, against all cost, expense,
liability and loss (including, without limitation, attorney's fees, judgments,
fines, ERISA excise taxes or penalties and amounts paid or to be paid in
settlement) reasonably incurred or suffered by the Executive in connection
therewith, and such indemnification shall continue as to the Executive even if
he has ceased to be a director, member, employee or agent of the Company or
other entity and shall inure to the benefit of the Executive's heirs, executors
and administrators. The Company shall advance to the Executive all reasonable
costs and expenses incurred by him in connection with a Proceeding within 20
days after receipt by the Company of a written request for such advance. Such
request shall include an undertaking by the Executive to repay the amount of
such advance if it shall ultimately be determined that he is not entitled to be
indemnified against such costs and expenses.
(b) Neither the failure of the Company (including the Board,
independent legal counsel or stockholders) to have made a determination prior to
the commencement of any Proceeding concerning payment of amounts claimed by the
Executive under Section 15(a) above that indemnification of the Executive is
proper because he has met the applicable standard of conduct, nor a
determination by the Company (including the Board, independent legal counsel or
stockholders) that the Executive has not met such applicable standard of
conduct, shall create a presumption that the Executive has not met the
applicable standard of conduct.
(c) The Company agrees to continue and maintain a directors and
officers' liability insurance policy covering the Executive to the extent the
Company provides such coverage for its other executive officers.
16. Effect of Agreement on Other Benefits.
Except as specifically provided in this Agreement, the existence of
this Agreement shall not prohibit or restrict the Executive's entitlement to
full participation in the Company's employee benefit plans, programs and
arrangements applicable to the Company's senior-level executives.
17. Assignability; Binding Nature.
This Agreement shall be binding upon and inure to the benefit of the
Parties and their respective successors, heirs (in the case of the Executive)
and assigns. No rights or obligations of the Company under this Agreement may be
assigned or transferred by the Company except that such rights or obligations
may be assigned or transferred pursuant to a merger or consolidation in which
the Company is not the continuing entity, or the sale or liquidation of all or
substantially all of the assets of the Company; provided, however, that the
assignee or transferee is the successor to all or substantially all of the
assets of the Company and such assignee or transferee assumes the liabilities,
obligations and duties of the Company, as contained in this Agreement, either
contractually or as a matter of law. The Company further agrees that, in the
event of a sale of assets or liquidation as described in the preceding sentence,
it shall take whatever action it legally can in order to cause such assignee or
transferee to expressly assume the liabilities, obligations and duties of the
Company hereunder or under any other plan or benefit program referred to herein.
No rights or obligations of the Executive under this Agreement may be assigned
or transferred by the Executive other than his rights to compensation and
benefits, which may be transferred only by will or operation of law, except as
provided in Section 23 below.
18. Representation.
The Company represents and warrants that it is fully authorized and
empowered to enter into this Agreement and that the performance of its
obligations under this Agreement will not violate any agreement between it and
any other person, firm or organization. The Executive represents that he knows
11
<PAGE> 28
of no agreement between him and any other person, firm or organization that
would be violated by the performance of his obligations under this Agreement.
19. Entire Agreement.
This Agreement contains the entire understanding and agreement
between the Parties concerning the subject matter hereof and supersedes all
prior agreements, understandings, discussions, negotiations and undertakings,
whether written or oral, between the Parties, including, without limitation, the
Existing Employment Agreement, with respect thereto.
20. Amendment or Waiver.
No provision in this Agreement may be amended unless such amendment
is agreed to in writing and signed by the Executive and an authorized officer of
the Company. No waiver by either Party of any breach by the other Party of any
condition or provision contained in this Agreement to be performed by such other
Party shall be deemed a waiver of a similar or dissimilar condition or provision
at the same or any prior or subsequent time. Any waiver must be in writing and
signed by the Executive or an authorized officer of the Company, as the case may
be.
21. Severability.
In the event that any provision or portion of this Agreement shall
be determined to be invalid or unenforceable for any reason, in whole or in
part, the remaining provisions of this Agreement shall be unaffected thereby and
shall remain in full force and effect and such provision or portion of this
Agreement shall remain in effect to the fullest extent permitted by law.
22. Survivorship.
The respective rights and obligations of the Parties hereunder shall
survive any termination of the Executive's employment to the extent necessary to
the intended preservation of such rights and obligations.
23. Beneficiaries/References.
The Executive shall be entitled, to the extent permitted under any
applicable law, to select and change a beneficiary or beneficiaries to receive
any compensation or benefit payable hereunder following the Executive's death by
giving the Company written notice thereof. In the event of the Executive's death
or a judicial determination of his incompetence, reference in this Agreement to
the Executive shall be deemed, where appropriate, to refer to his beneficiary,
estate or other legal representative.
24. Governing Law/Submission to Jurisdiction.
This Agreement shall be governed by and construed and interpreted in
accordance with the laws of New York without reference to principles of conflict
of laws. Each of the Company and the Executive hereby irrevocably and
unconditionally: (i) submits for itself or himself, as applicable, and its or
his property in any legal action or proceeding relating to this Agreement, or
for recognition and enforcement of any judgment in respect thereof, to the
non-exclusive general jurisdiction of the courts of the State of New York, the
courts of the United States of America for the Southern District of New York,
and appellate courts from any thereof; (ii) consents that any such action or
proceeding may be brought in such courts, and waives any objection that it or he
may now or hereafter have to the venue of any such
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<PAGE> 29
action or proceeding in any such court or that such action or proceeding was
brought in an inconvenient forum and agrees not to plead or claim the same;
(iii) agrees that service of process in any such action or proceeding may be
effected by mailing a copy thereof by registered or certified mail (or any
substantially similar form of mail), postage prepaid, to its or his address set
forth in or designated pursuant to Section 26 hereof; and (iv) agrees that
nothing herein shall affect the right to effect service of process in any other
manner permitted by law or shall limit the right to sue in any other
jurisdiction.
25. Resolution of Disputes.
Any disputes arising under or in connection with the Agreement,
other than disputes arising in connection with Sections 13 and 14 hereof, may,
at the election of the Executive or the Company, be resolved by binding
arbitration, to be held in New York City in accordance with the rules and
procedures of the American Arbitration Association. If arbitration is elected,
the Executive and the Company shall mutually select the arbitrator. If the
Executive and the Company cannot agree on the selection of an arbitrator, each
Party shall select an arbitrator and the two arbitrators shall select a third
arbitrator, and the three arbitrators shall form an arbitration panel which
shall resolve the dispute by majority vote. Judgment upon the award rendered by
the arbitrator(s) may be entered in any court having jurisdiction thereof. Costs
of the arbitration or litigation, including, without limitation, reasonable
attorneys' fees of both Parties, shall be borne by the Company; provided,
however, that, if a dispute is resolved in favor of the Company, the Executive
shall bear his own costs of the arbitration or litigation and shall reimburse
the Company for the Executive's costs of the arbitration or litigation
previously paid by the Company. Pending the resolution of any arbitration or
court proceeding, the Company shall continue payment of all amounts due the
Executive under this Agreement and all benefits to which the Executive is
entitled at the time the dispute arises.
26. Notices.
Any notice given to a Party shall be in writing and shall be deemed
to have been given when delivered personally or sent by certified or registered
mail, postage prepaid, return receipt requested, duly addressed to the Party
concerned at the address indicated below or to such changed address as such
Party may subsequently give such notice of:
If to the Company: Metallurg, Inc.
6 East 43rd Street, 12th floor
New York, New York 10017
Attention: General Counsel
With a copy to: Rogers & Wells LLP
200 Park Avenue
New York, New York 10166
Attention: Samuel M. Feder
If to the Executive: Eric E. Jackson
c/o Metallurg, Inc.
6 East 43rd Street, 12th floor
New York, New York 10017
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<PAGE> 30
27. Headings.
The headings of the sections contained in this Agreement are for
convenience only and shall not be deemed to control or affect the meaning or
construction of any provision of this Agreement.
28. Counterparts.
This Agreement may be executed in two or more counterparts.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first written above.
METALLURG, INC.
By: /s/ Alan D. Ewart
----------------------------------------
Name: Alan D. Ewart
Title: President and CEO
/s/ Eric E. Jackson
----------------------------------------
Eric E. Jackson
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<PAGE> 31
SCHEDULE A
<TABLE>
<CAPTION>
Years of Service Severance Period
---------------- ----------------
<S> <C>
Up To 15 6 months
More Than 15 9 months
More Than 20 12 months
</TABLE>
15
<PAGE> 32
EMPLOYMENT AGREEMENT
AGREEMENT, made and entered into as of the 19th day of November, 1998, by
and between Metallurg, Inc., a Delaware corporation (together with its
successors and assigns permitted under this Agreement, the "Company"), and Robin
Brumwell (the "Executive").
W I T N E S S E T H :
WHEREAS, the Executive is the President of Metallurg International
Resources ("MIR"), a division of the Company; and
WHEREAS, the Company and the Executive entered into an employment
agreement, dated April 14, 1997 which is currently in effect (the "Existing
Employment Agreement"); and
WHEREAS, as of the Effective Date (as defined below), the Executive, in
addition to his existing position, was appointed as a Senior Vice President of
the Company; and
WHEREAS, the Company desires to enter into a new employment agreement (the
"Agreement") embodying the terms of such employment; and
WHEREAS, the Executive desires to enter into the Agreement and to accept
such employment, subject to the terms and provisions of the Agreement; and
WHEREAS, the Company and the Executive desire to cancel the Existing
Employment Agreement as of the Effective Date;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the receipt of
which is mutually acknowledged, the Company and the Executive (individually a
"Party" and together the "Parties") agree as follows:
1. Definitions.
(a) "Base Salary" shall mean the Executive's base salary in
accordance with Section 4 below.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Business Day" shall mean any day other than a Saturday, Sunday
or any other day on which commercial banks in New York, New York are required or
authorized to be closed.
(d) "Cause" shall mean:
(1) the Executive is convicted of (or pleads nolo contendere
to) a felony or a crime of moral turpitude, dishonesty,
breach of trust or unethical business conduct involving
the Company;
(2) the Executive engages in willful misconduct, willful or
gross neglect, fraud, insubordination, misappropriation
or embezzlement to the material and demonstrable
detriment of the Company; or
(3) the Executive breaches in any material respect the terms
and provisions of this Agreement and fails to cure such
breach within 20 days following written notice from the
Company specifying such breach.
<PAGE> 33
(e) "CEO" shall mean the chief executive officer of the Company.
(f) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time, including applicable regulations thereunder.
(g) "Competitive Activity" shall mean any activity engaged in by the
Executive, whether as an employee, principal, sole proprietor, consultant,
agent, officer, director, partner or shareholder (except as a less than
one-percent shareholder of a publicly traded company or a less than five-percent
shareholder of a privately held company), which directly competes with the
Company or any Subsidiary. For this purpose, an activity which directly competes
with the Company or any Subsidiary shall mean a business that was being
conducted by the Company or any Subsidiary during the Term of Employment.
Notwithstanding anything to the contrary in this Section 1(g), an activity shall
not be deemed to be a Competitive Activity (x) solely as a result of the
Executive's being employed by or otherwise associated with a business of which a
unit is in competition with the Company or any Subsidiary but as to which unit
the Executive does not have direct or indirect responsibilities for the products
or product lines involved or (y) if the activity contributes less than 5 percent
of the revenues for the fiscal year in question of the business by which the
Executive is employed or with which he is otherwise associated.
(h) "Disability" shall mean a disability as determined under the
Company's long-term disability plans, programs and/or arrangements in effect on
the date such disability first occurs.
(i) "Effective Date" shall mean August 10, 1998.
(j) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended from time to time, including applicable regulations thereunder.
(k) "Good Reason" shall mean the occurrence of any of the following
events:
(1) the material change of the Executive's authority, duties
and responsibilities, or the assignment to the Executive
of duties materially different from the Executive's
position or positions with the Company;
(2) a reduction in Base Salary of the Executive;
(3) the failure by the Company to obtain an agreement in
form and substance reasonably satisfactory to the
Executive from any successor to the business of the
Company to assume and agree to perform this Agreement;
or
(4) the Company breaches in any material respect the terms
and provisions of this Agreement and fails to cure such
breach within 20 days following written notice from the
Executive specifying such breach.
(l) "Subsidiary" of the Company shall mean any corporation of which
the Company owns, directly or indirectly, more than 50 percent of the Voting
Stock or any other business entity in which the Company directly or indirectly
has an ownership interest of more than 50 percent.
(m) "Tax Loans" shall mean all of the outstanding loans made by the
Company to the Executive pursuant to Section 6(c) of the Existing Employment
Agreement in respect of federal, state or local tax due to a portion of the
17,500 shares of common stock of the Company awarded to the Executive
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<PAGE> 34
under the Company's 1997 Stock Award and Stock Option Plan (the "1997 Stock
Award") becoming transferable or the Executive making an election under Code
Section 83(b) with respect to the 1997 Stock Award.
(n) "Term of Employment" shall mean the period specified in Section
2 below.
(o) "Voting Stock" shall mean capital stock of any class or classes
having general voting power under ordinary circumstances, in the absence of
contingencies, to elect the directors of a corporation.
2. Term of Employment.
The Company hereby employs the Executive, and the Executive hereby
accepts such employment, for the period commencing on the Effective Date and
ending on the second anniversary of the Effective Date (the "Term of
Employment"), subject to earlier termination of the Term of Employment in
accordance with the terms of the Agreement. The Term of Employment shall be
automatically renewed for a one-year period on the second anniversary of the
Effective Date and on each anniversary of the Effective Date thereafter, unless
either Party has notified the other Party in writing in accordance with Section
26 below at least 90 days prior to the expiration of the then Term of Employment
that he or it does not want the Term of Employment to so renew.
3. Position, Duties and Responsibilities.
The Executive, in his capacity as President of MIR and a Senior
Vice-President of the Company shall faithfully perform for the Company the
duties of said office and shall perform such other duties of an executive,
managerial or administrative nature as shall be specified and designated from
time to time by the CEO consistent with such office. The Executive shall devote
substantially all of his business time and effort to the performance of his
duties hereunder. The Executive, in carrying out his duties under this
Agreement, shall report to the CEO. Notwithstanding anything in this Section 3
to the contrary, nothing shall preclude the Executive from:
(1) serving on the boards of directors of a reasonable
number of other corporations or the boards of a
reasonable number of trade associations and/or
charitable organizations;
(2) engaging in charitable activities and community affairs;
and
(3) managing his personal investments and affairs;
provided, however, that such activities do not materially interfere with the
proper performance of his duties and responsibilities hereunder.
4. Base Salary.
During the Term of Employment, the Executive shall be paid an annual
Base Salary, payable in accordance with the regular payroll practices of the
Company, of $260,000. The Base Salary may be increased (but not decreased) at
any time and from time to time by action of the Board or by any committee
thereof or any individual having authority to take such action in accordance
with the Company's regular practices. Once increased, any reference to Base
Salary herein shall be a reference to such increased amount.
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<PAGE> 35
5. Bonus.
(a) During the Term of Employment, in addition to the Base Salary,
for each fiscal year of the Company ending during the Term of Employment, the
Executive shall have the opportunity to receive an annual bonus (an "Annual
Bonus") in an amount of between 30 and 50 percent of Base Salary, as determined
by the CEO, in consultation with the Chairman of the Board. Payment of Annual
Bonus shall be made at the same time that other senior-level executives receive
their annual incentive compensation awards.
(b) Within 10 days of the date of the execution of this Agreement,
the Executive will receive a one-time payment in the amount of $150,000 in
consideration for the termination of the Executive's right to receive a change
of control payment pursuant to Section 11(f) of the Existing Employment
Agreement.
6. Long-Term Incentive Compensation Programs.
The Executive shall be eligible to participate in the Company's
stock option plans applicable to senior-level executives, the terms, conditions
and eligibility of such plans to be determined by the Board.
7. Repayment of Tax Loans.
The Executive shall pay to the Company in a lump sum the principal
and all accrued interest with respect to each outstanding Tax Loan on the day
which precedes the third anniversary of the date of such Tax Loan, or, at the
Executives's election, on any date which precedes the third anniversary of the
date of such Tax Loan.
8. Employee Benefit Programs.
(a) During the Term of Employment, the Executive, to the extent he
is eligible, shall be entitled to participate in those employee pension and
welfare benefit plans, programs and/or arrangements applicable to the Executive
and made available to the Company's senior-level executives or to its employees
generally, as such plans, programs and/or arrangements may be in effect from
time to time, including, without limitation, pension, profit-sharing, savings,
medical, dental, hospitalization, short-term disability, long-term disability,
life insurance, accidental death and dismemberment protection, travel accident
insurance, and other employee pension and welfare benefit plans, programs and/or
arrangements that may be sponsored by the Company from time to time.
(b) During the Term of Employment, the Company shall provide the
Executive with term life insurance with a death benefit of at least two times
Base Salary. The Company shall pay all premiums with respect to such life
insurance. Such life insurance may be provided either through the Company's
group life insurance programs, by an individual policy, or by a combination of
both group and individual policies.
9. Reimbursement of Business Expenses.
The Executive is authorized to incur ordinary and reasonable
business expenses in carrying out his duties and responsibilities under the
Agreement, and the Company shall reimburse him for all such ordinary and
reasonable business expenses incurred in connection with carrying out the
business of the Company, subject to documentation in accordance with the
Company's policy.
4
<PAGE> 36
10. Perquisites.
(a) During the Term of Employment, the Executive shall be entitled
to participate in the Company's executive fringe benefits applicable to the
Company's senior-level executive in accordance with the terms and conditions of
such arrangements as are in effect from time to time.
(b) Notwithstanding anything herein to the contrary, the Company
shall pay for the membership fees (including any bond requirement) and dues at
one club which the Executive determines is appropriate.
(c) During the Term of Employment, the Company shall provide a car
to the Executive.
11. Vacation.
The Executive shall be entitled to paid vacation in accordance with
the Company's vacation policy; provided, however, that the Executive shall be
entitled to not less than four weeks of vacation each year.
12. Termination of Employment.
(a) Termination of Employment Due to Death. In the event of the
Executive's death during the Term of Employment, the Term of Employment shall
end as of the date of the Executive's death and his estate and/or beneficiaries,
as the case may be, shall be entitled to the following:
(1) Base Salary earned but not paid prior to the date of
his death;
(2) Annual Bonus with respect to any year prior to the year
of his death which has been earned but not paid;
(3) any amounts earned, accrued or owing to the Executive
but not yet paid under Section 6, 8, 9 or 10 above; and
(4) other or additional benefits in accordance with
applicable plans, programs and/or arrangements of the
Company.
(b) Termination of Employment Due to Disability. If the Executive's
employment is terminated due to Disability during the Term of Employment, either
by the Company or by the Executive, the Term of Employment shall end as of the
date of the Executive's termination of employment and the Executive shall be
entitled to the following (but in no event shall the Executive be entitled to
less than the benefits due him under any disability program of the Company for
which he becomes eligible):
(1) Base Salary earned but not paid prior to the date of the
termination of the Executive's employment;
(2) Annual Bonus with respect to any year prior to the year
of the termination of the Executive's employment which
has been earned but not paid;
(3) an amount equal to the sum of 50 percent of Base Salary,
at the annual rate in effect on the date of the
termination of the Executive's
5
<PAGE> 37
employment, payable in monthly installments for a period
ending on the first day of the month following the month
in which the Executive attains age 65 or recovers from
his Disability, whichever occurs earlier, less the
amount of any disability benefits provided to the
Executive under the Company's disability program;
(4) any amounts earned, accrued or owing to the Executive
but not yet paid under Section 6, 8, 9 or 10 above;
(5) continued participation, as if the Executive were still
an employee, in the Company's medical, dental,
hospitalization and life insurance plans, programs
and/or arrangements and in those other employee plans,
programs and/or arrangements in which he was
participating on the date of the termination of his
employment until he attains age 65 or recovers from his
Disability, whichever occurs earlier;
provided, however, that:
(X) if the Executive is precluded from continuing
his participation in any employee benefit plan,
program or arrangement as provided in this
Section 12(b)(5), he shall be provided with the
after-tax economic equivalent of the benefits
provided under the plan, program or arrangement
in which he is unable to participate for the
period specified in this Section 12(b)(5); and
(Y) the economic equivalent of any benefit foregone
shall be deemed to be the lowest cost that would
be incurred by the Executive in obtaining such
benefit himself on an individual basis; and
(6) other or additional benefits in accordance with
applicable plans, programs and/or arrangements of the
Company.
In no event shall a termination of the Executive's employment for
Disability occur unless the Party terminating his employment gives written
notice to the other Party in accordance with Section 26 below.
(c) Termination of Employment by the Company for Cause. A
termination of the Executive's employment by the Company for Cause shall not
take effect unless the provisions of this Section 12(c) are complied with and
the Board issues a written determination that the Executive's employment should
be terminated for Cause (a "Determination").
(1) In accordance with Section 26 below, the CEO shall give
the Executive a written notice stating his intention to
terminate the Executive's employment for Cause (the
"Cause Notice"). The Cause Notice shall:
(A) state in detail the particular act or acts or
failure or failures to act that constitute the
grounds on which the proposed termination of
employment for Cause is based; and
(B) be given within four months of the CEO learning of
such act or acts or failure or failures to act.
6
<PAGE> 38
(2) The CEO may temporarily relieve the Executive of his
duties and responsibilities described in Section 3 above
during the period commencing on the date the Cause
Notice is issued by the CEO and ending on the date the
Determination is issued by the Board (the "Determination
Period").
(3) The Executive shall have 20 days after the date the
Cause Notice is actually received by him in which to
cure his conduct on which the termination of employment
for Cause is based, to the extent such cure is possible.
If the Executive fails to cure such conduct, he shall
then be entitled to a hearing before the Board. Such
hearing shall be held during the 20-day period following
the date the Executive receives the Cause Notice;
provided, however, that the Executive requests such
hearing during the 10-day period following the date the
Executive receives the Cause Notice. Within five days
following the completion of such hearing, the Board
shall issue a Determination stating whether, in its
judgment, grounds for Cause as detailed in the Cause
Notice exist. If the Determination states that such
grounds exist, the Executive's employment shall be
immediately terminated for Cause and the Term of
Employment shall end as of the date of the termination
of the Executive's employment.
(4) If the Company terminates the Executive's employment for
Cause, the Executive shall be entitled to the following:
(A) Base Salary earned but not paid prior to the date
of the termination of his employment;
(B) any amounts earned, accrued or owing to the
Executive but not yet paid under Section 6, 8, 9
or 10 above; and
(C) other or additional benefits in accordance with
applicable plans, programs and/or arrangements of
the Company.
(5) Notwithstanding anything herein to the contrary, if,
following a termination of the Executive's employment by
the Company for Cause based upon the conviction of the
Executive for a felony, such conviction is overturned in
a final determination on appeal, the Executive shall be
entitled to the payments and the economic equivalent of
the benefits the Executive would have received if his
employment had been terminated by the Company without
Cause.
(d) Termination of Employment by the Company Without Cause. If the
Executive's employment is terminated by the Company without Cause, other than
due to death or Disability, the Executive shall be entitled to the following:
(1) Base Salary earned but not paid prior to the date of
the termination of his employment;
7
<PAGE> 39
(2) Annual Bonus with respect to any year prior to the year
of the termination of the Executive's employment which
has been earned but not paid;
(3) an amount equal to the aggregate Base Salary (based on
the Base Salary in effect on the date of the termination
of the Executive's employment) (the "Salary Continuation
Benefits") with respect to a period equal to eighteen
months, payable in equal monthly installments over such
period;
(4) continued accrual of credited service through the end of
the Term of Employment for the purpose of any Company
pension plan, program or arrangement;
(5) the right to purchase, at fair market value, the
Executive's automobile (if any) provided to him by the
Company under the Company's automobile perquisite
program for senior-level executives;
(6) any amounts earned, accrued or owing to the Executive
but not yet paid under Section 6, 8, 9 or 10 above;
(7) continued participation, as if he were still an
employee, in the Company's medical, dental,
hospitalization and life insurance plans, programs
and/or arrangements and in other employee benefit plans,
programs and/or arrangements in which he was
participating on the date of the termination of his
employment until the earlier of:
(A) the end of the period used to determine the
Salary Continuation Benefits; or
(B) the date, or dates, he receives equivalent
coverage and benefits under the plans, programs
and/or arrangements of a subsequent employer (such
coverage and benefits to be determined on a
coverage-by-coverage or benefit-by-benefit basis);
provided, however, that:
(X) if the Executive is precluded from continuing
his participation in any employee benefit plan,
program or arrangement as provided in Section
12(d)(7) above, he shall be provided with the
after-tax economic equivalent of the benefits
provided under the plan, program or arrangement
in which he is unable to participate for the
period specified in this Section 12(d)(7); and
(Y) the economic equivalent of any benefit foregone
shall be deemed to be the lowest cost that would
be incurred by the Executive in obtaining such
benefit himself on an individual basis; and
(8) other or additional benefits in accordance with
applicable plans, programs and/or arrangements of the
Company.
8
<PAGE> 40
(e) Termination of Employment by the Executive for Good Reason. The
Executive may terminate his employment for Good Reason, but only if:
(1) the Executive notifies the Board during the 60-day
period following the date of the first occurrence of an
event which constitutes Good Reason (the "Good Reason
Event Date") of his intention to terminate his
employment for Good Reason;
(2) the Executive terminates his employment for Good Reason
during the 120-day period following the Good Reason
Event Date;
(3) the termination of employment for Good Reason does not
occur during a Determination Period described in Section
12(c)(2) above; and
(4) the Good Reason first occurs before or after a
Determination Period, or, if the Good Reason first
occurs during a Determination Period, such event
constituting Good Reason continues to occur after the
Determination Period.
Upon a termination by the Executive of his employment for Good Reason, the
Executive shall be entitled to the same payments and benefits as provided in
Section 12(d) above; provided, however, that if the Executive terminates his
employment for Good Reason based on a reduction in Base Salary under Section
1(k)(2) above, then the Base Salary to be used in determining the Salary
Continuation Benefits in accordance with Section 12(d)(3) above shall be the
Base Salary in effect immediately prior to such reduction.
(f) Termination of Employment by the Executive Without Good Reason.
If the Executive terminates his employment without Good Reason, other than a
termination of employment due to death or retirement or Disability, the
Executive shall have the same entitlements as provided in Section 12(c)(4)
above. A termination of the Executive's employment under this Section 12(f)
shall be effective upon 30 days prior written notice to the Company and shall
not be deemed a breach of this Agreement.
(g) Non Renewal of Agreement by Company. If the Company notifies the
Executive, pursuant to Section 2 above, that it does not want the Term of
Employment to renew, the Executive shall have the same entitlements as provided
in Section 12(d) above as if the Executive had been terminated without cause as
of the last day of the then Term of Employment.
(h) Termination of Employment by Executive due to Relocation of Work
Location. In the event that the Executive's principal work location is moved
outside of the States of New York, New Jersey, Connecticut, Pennsylvania,
Delaware, Maryland or the District of Columbia, the Executive may terminate his
employment with the Company. If the Executive terminates his employment pursuant
to this Section 12(h), he shall have the same entitlements as provided in
Section 12(d) above; provided, that all such benefits, including, without
limitation, the Salary Continuation Benefits, shall be provided for a period
equal to the corresponding severance period listed on Schedule A, payable in
equal monthly installments during such period.
(i) No Mitigation; No Offset. If the Executive's employment
terminates under this Section 12, the Executive shall be under no obligation to
seek other employment and there shall be no offset against amounts due the
Executive under this Agreement on account of any remuneration attributable to
any subsequent employment that he may obtain except as specifically provided in
this Section 12.
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<PAGE> 41
(j) Nature of Payments. Any amounts due under this Section 12 are in
the nature of severance payments considered to be reasonable by the Company and
are not in the nature of a penalty.
13. Confidentiality: Assignment of Rights.
(a) During the Term of Employment and thereafter, the Executive
shall not disclose to anyone or make use of any trade secret or proprietary or
confidential information of the Company, including such trade secret or
proprietary or confidential information of any customer or other entity to which
the Company owes an obligation not to disclose such information, which he
acquires during the Term of Employment, including but not limited to records
kept in the ordinary course of business, except (i) as such disclosure or use
may be required or appropriate in connection with his work as an employee of the
Company, (ii) when required to do so by a court of law, by any governmental
agency having supervisory authority over the business of the Company or by any
administrative or legislative body (including a committee thereof) with apparent
jurisdiction to order him to divulge, disclose or make accessible such
information, or (iii) as to such confidential information that becomes generally
known to the public or trade without violation of this Section 13(a).
(b) The Executive hereby sells, assigns and transfers to the Company
all of his right, title and interest in and to all inventions, discoveries,
improvements and copyrightable subject matter (the "rights") which during the
Term of Employment are made or conceived by him, alone or with others, and which
are within or arise out of any general field of the Company's business or arise
out of any work he performs or information he receives regarding the business of
the Company while employed by the Company. The Executive shall fully disclose to
the Company as promptly as available all information known or possessed by him
concerning the rights referred to in the preceding sentence, and upon request by
the Company and without any further remuneration in any form to him by the
Company, but at the expense of the Company, execute all applications for patents
and for copyright registration, assignments thereof and other instruments and do
all things which the Company may deem necessary to vest and maintain in it the
entire right, title and interest in and to all such rights.
14. Noncompetition.
(a) The Executive covenants and agrees that during the Term of
Employment and, following the termination of the Executive's employment with the
Company, for a period of eighteen months or, in the case of a termination
pursuant to Section 12(h), a period equal to the shorter of (i) twice the
corresponding severance period listed on Schedule A and (ii) eighteen months, he
shall not at any time, without the prior written consent of the Company,
directly or indirectly, engage in a Competitive Activity.
(b) The Parties acknowledge that in the event of a breach or
threatened breach of Section 14(a) above, the Company shall not have an adequate
remedy at law. Accordingly, in the event of any breach or threatened breach of
Section 14(a) above, the Company shall be entitled to such equitable and
injunctive relief as may be available to restrain the Executive and any
business, firm, partnership, individual, corporation or entity participating in
the breach or threatened breach from the violation of the provisions of Section
14(a) above. Nothing in this Agreement shall be construed as prohibiting the
Company from pursuing any other remedies available at law or in equity for
breach or threatened breach of Section 14(a) above, including the recovery of
damages.
15. Indemnification.
(a) The Company agrees that if the Executive is made a party, or is
threatened to be made a party, to any action, suit or proceeding, whether civil,
criminal, administrative or investigative (a
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<PAGE> 42
"Proceeding"), by reason of the fact that he is or was a director, officer or
employee of the Company or is or was serving at the request of the Company as a
director, officer, member, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans, whether or not the basis of such Proceeding
is the Executive's alleged action in an official capacity while serving as a
director, officer, member, employee or agent, the Executive shall be indemnified
and held harmless by the Company to the fullest extent legally permitted or
authorized by the Company's certificate of incorporation or bylaws or
resolutions of the Company's Board of Directors or, if greater, by the laws of
the State of Delaware, against all cost, expense, liability and loss (including,
without limitation, attorney's fees, judgments, fines, ERISA excise taxes or
penalties and amounts paid or to be paid in settlement) reasonably incurred or
suffered by the Executive in connection therewith, and such indemnification
shall continue as to the Executive even if he has ceased to be a director,
member, employee or agent of the Company or other entity and shall inure to the
benefit of the Executive's heirs, executors and administrators. The Company
shall advance to the Executive all reasonable costs and expenses incurred by him
in connection with a Proceeding within 20 days after receipt by the Company of a
written request for such advance. Such request shall include an undertaking by
the Executive to repay the amount of such advance if it shall ultimately be
determined that he is not entitled to be indemnified against such costs and
expenses.
(b) Neither the failure of the Company (including the Board,
independent legal counsel or stockholders) to have made a determination prior to
the commencement of any Proceeding concerning payment of amounts claimed by the
Executive under Section 15(a) above that indemnification of the Executive is
proper because he has met the applicable standard of conduct, nor a
determination by the Company (including the Board, independent legal counsel or
stockholders) that the Executive has not met such applicable standard of
conduct, shall create a presumption that the Executive has not met the
applicable standard of conduct.
(c) The Company agrees to continue and maintain a directors and
officers' liability insurance policy covering the Executive to the extent the
Company provides such coverage for its other executive officers.
16. Effect of Agreement on Other Benefits.
Except as specifically provided in this Agreement, the existence of
this Agreement shall not prohibit or restrict the Executive's entitlement to
full participation in the Company's employee benefit plans, programs and
arrangements applicable to the Company's senior-level executives.
17. Assignability; Binding Nature.
This Agreement shall be binding upon and inure to the benefit of the
Parties and their respective successors, heirs (in the case of the Executive)
and assigns. No rights or obligations of the Company under this Agreement may be
assigned or transferred by the Company except that such rights or obligations
may be assigned or transferred pursuant to a merger or consolidation in which
the Company is not the continuing entity, or the sale or liquidation of all or
substantially all of the assets of the Company; provided, however, that the
assignee or transferee is the successor to all or substantially all of the
assets of the Company and such assignee or transferee assumes the liabilities,
obligations and duties of the Company, as contained in this Agreement, either
contractually or as a matter of law. The Company further agrees that, in the
event of a sale of assets or liquidation as described in the preceding sentence,
it shall take whatever action it legally can in order to cause such assignee or
transferee to expressly assume the liabilities, obligations and duties of the
Company hereunder or under any other plan or benefit program referred to herein.
No rights or obligations of the Executive under this Agreement may be
11
<PAGE> 43
assigned or transferred by the Executive other than his rights to compensation
and benefits, which may be transferred only by will or operation of law, except
as provided in Section 23 below.
18. Representation.
The Company represents and warrants that it is fully authorized and
empowered to enter into this Agreement and that the performance of its
obligations under this Agreement will not violate any agreement between it and
any other person, firm or organization. The Executive represents that he knows
of no agreement between him and any other person, firm or organization that
would be violated by the performance of his obligations under this Agreement.
19. Entire Agreement.
This Agreement contains the entire understanding and agreement
between the Parties concerning the subject matter hereof and supersedes all
prior agreements, understandings, discussions, negotiations and undertakings,
whether written or oral, between the Parties, including, without limitation, the
Existing Employment Agreement, with respect thereto.
20. Amendment or Waiver.
No provision in this Agreement may be amended unless such amendment
is agreed to in writing and signed by the Executive and an authorized officer of
the Company. No waiver by either Party of any breach by the other Party of any
condition or provision contained in this Agreement to be performed by such other
Party shall be deemed a waiver of a similar or dissimilar condition or provision
at the same or any prior or subsequent time. Any waiver must be in writing and
signed by the Executive or an authorized officer of the Company, as the case may
be.
21. Severability.
In the event that any provision or portion of this Agreement shall
be determined to be invalid or unenforceable for any reason, in whole or in
part, the remaining provisions of this Agreement shall be unaffected thereby and
shall remain in full force and effect and such provision or portion of this
Agreement shall remain in effect to the fullest extent permitted by law.
22. Survivorship.
The respective rights and obligations of the Parties hereunder shall
survive any termination of the Executive's employment to the extent necessary to
the intended preservation of such rights and obligations.
23. Beneficiaries/References.
The Executive shall be entitled, to the extent permitted under any
applicable law, to select and change a beneficiary or beneficiaries to receive
any compensation or benefit payable hereunder following the Executive's death by
giving the Company written notice thereof. In the event of the Executive's death
or a judicial determination of his incompetence, reference in this Agreement to
the Executive shall be deemed, where appropriate, to refer to his beneficiary,
estate or other legal representative.
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<PAGE> 44
24. Governing Law/Submission to Jurisdiction.
This Agreement shall be governed by and construed and interpreted in
accordance with the laws of New York without reference to principles of conflict
of laws. Each of the Company and the Executive hereby irrevocably and
unconditionally: (i) submits for itself or himself, as applicable, and its or
his property in any legal action or proceeding relating to this Agreement, or
for recognition and enforcement of any judgment in respect thereof, to the
non-exclusive general jurisdiction of the courts of the State of New York, the
courts of the United States of America for the Southern District of New York,
and appellate courts from any thereof; (ii) consents that any such action or
proceeding may be brought in such courts, and waives any objection that it or he
may now or hereafter have to the venue of any such action or proceeding in any
such court or that such action or proceeding was brought in an inconvenient
forum and agrees not to plead or claim the same; (iii) agrees that service of
process in any such action or proceeding may be effected by mailing a copy
thereof by registered or certified mail (or any substantially similar form of
mail), postage prepaid, at its or his address set forth in or designated
pursuant to Section 26 hereof; and (iv) agrees that nothing herein shall affect
the right to effect service of process in any other manner permitted by law or
shall limit the right to sue in any other jurisdiction.
25. Resolution of Disputes.
Any disputes arising under or in connection with the Agreement,
other than disputes arising in connection with Sections 14 or 15 hereof, may, at
the election of the Executive or the Company, be resolved by binding
arbitration, to be held in New York City in accordance with the rules and
procedures of the American Arbitration Association. If arbitration is elected,
the Executive and the Company shall mutually select the arbitrator. If the
Executive and the Company cannot agree on the selection of an arbitrator, each
Party shall select an arbitrator and the two arbitrators shall select a third
arbitrator, and the three arbitrators shall form an arbitration panel which
shall resolve the dispute by majority vote. Judgment upon the award rendered by
the arbitrator(s) may be entered in any court having jurisdiction thereof. Costs
of the arbitration or litigation, including, without limitation, reasonable
attorneys' fees of both Parties, shall be borne by the Company; provided,
however, that, if a dispute is resolved in favor of the Company, the Executive
shall bear his own costs of the arbitration or litigation and shall reimburse
the Company for the Executive's costs of the arbitration or litigation
previously paid by the Company. Pending the resolution of any arbitration or
court proceeding, the Company shall continue payment of all amounts due the
Executive under this Agreement and all benefits to which the Executive is
entitled at the time the dispute arises.
26. Notices.
Any notice given to a Party shall be in writing and shall be deemed
to have been given when delivered personally or sent by certified or registered
mail, postage prepaid, return receipt requested, duly addressed to the Party
concerned at the address indicated below or to such changed address as such
Party may subsequently give such notice of:
If to the Company: Metallurg, Inc.
6 East 43rd Street, 12th floor
New York, New York 10017
Attention: General Counsel
With a copy to: Rogers & Wells LLP
200 Park Avenue
New York, New York 10166
Attention: Samuel M. Feder
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<PAGE> 45
If to the Executive: Robin Brumwell
c/o Metallurg, Inc.
6 East 43rd Street, 12th floor
New York, New York 10017
27. Headings.
The headings of the sections contained in this Agreement are for
convenience only and shall not be deemed to control or affect the meaning or
construction of any provision of this Agreement.
28. Counterparts.
This Agreement may be executed in two or more counterparts.
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<PAGE> 46
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first written above.
METALLURG, INC.
By: /s/ Alan D. Ewart
--------------------------------------
Name: Alan D. Ewart
Title: President and CEO
/s/ Robin Brumwell
--------------------------------------
Robin Brumwell
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<PAGE> 47
SCHEDULE A
<TABLE>
<CAPTION>
Years of Service Severance Period
---------------- ----------------
<S> <C>
Up To 15 6 months
More Than 15 9 months
More Than 20 12 months
</TABLE>
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<PAGE> 48
EMPLOYMENT AGREEMENT
AGREEMENT, made and entered into as of the 20th day of November, 1998, by
and between Metallurg, Inc., a Delaware corporation (together with its
successors and assigns permitted under this Agreement, the "Company"), and Barry
C. Nuss (the "Executive").
W I T N E S S E T H :
WHEREAS, the Executive is the Vice President, Finance and Chief
Financial Officer of the Company; and
WHEREAS, the Company and the Executive entered into an employment
agreement, dated April 14, 1997 which is currently in effect (the "Existing
Employment Agreement"); and
WHEREAS, the Company desires to continue the employment of the Executive
and to enter into a new employment agreement (the "Agreement") embodying the
terms of such employment; and
WHEREAS, the Executive desires to enter into the Agreement and to accept
such employment, subject to the terms and provisions of the Agreement; and
WHEREAS, the Company and the Executive desire to cancel the Existing
Employment Agreement as of the Effective Date (as defined below);
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the receipt of
which is mutually acknowledged, the Company and the Executive (individually a
"Party" and together the "Parties") agree as follows:
1. Definitions.
(a) "Base Salary" shall mean the Executive's base salary in
accordance with Section 4 below.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Business Day" shall mean any day other than a Saturday, Sunday
or any other day on which commercial banks in New York, New York are required or
authorized to be closed.
(d) "Cause" shall mean:
(1) the Executive is convicted of (or pleads nolo contendere
to) a felony or a crime of moral turpitude, dishonesty,
breach of trust or unethical business conduct involving
the Company;
(2) the Executive engages in willful misconduct, willful or
gross neglect, fraud, insubordination, misappropriation
or embezzlement to the material and demonstrable
detriment of the Company; or
(3) the Executive breaches in any material respect the terms
and provisions of this Agreement and fails to cure such
breach within 20 days following written notice from the
Company specifying such breach.
(e) "CEO" shall mean the chief executive officer of the Company.
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<PAGE> 49
(f) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time, including applicable regulations thereunder.
(g) "Competitive Activity" shall mean any activity engaged in by the
Executive, whether as an employee, principal, sole proprietor, consultant,
agent, officer, director, partner or shareholder (except as a less than
one-percent shareholder of a publicly traded company or a less than five-percent
shareholder of a privately held company), which directly competes with the
Company or any Subsidiary. For this purpose, an activity which directly competes
with the Company or any Subsidiary shall mean a business that was being
conducted by the Company or any Subsidiary during the Term of Employment.
Notwithstanding anything to the contrary in this Section 1(g), an activity shall
not be deemed to be a Competitive Activity (x) solely as a result of the
Executive's being employed by or otherwise associated with a business of which a
unit is in competition with the Company or any Subsidiary but as to which unit
the Executive does not have direct or indirect responsibilities for the products
or product lines involved or (y) if the activity contributes less than 5 percent
of the revenues for the fiscal year in question of the business by which the
Executive is employed or with which he is otherwise associated.
(h) "Disability" shall mean a disability as determined under the
Company's long-term disability plans, programs and/or arrangements in effect on
the date such disability first occurs.
(i) "Effective Date" shall mean August 10, 1998.
(j) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended from time to time, including applicable regulations thereunder.
(k) "Good Reason" shall mean the occurrence of any of the following
events:
(1) the material change of the Executive's authority, duties
and responsibilities, or the assignment to the Executive
of duties materially different from the Executive's
position or positions with the Company;
(2) a reduction in Base Salary of the Executive;
(3) the failure by the Company to obtain an agreement in
form and substance reasonably satisfactory to the
Executive from any successor to the business of the
Company to assume and agree to perform this Agreement;
or
(4) the Company breaches in any material respect the terms
and provisions of this Agreement and fails to cure such
breach within 20 days following written notice from the
Executive specifying such breach.
(l) "Subsidiary" of the Company shall mean any corporation of which
the Company owns, directly or indirectly, more than 50 percent of the Voting
Stock or any other business entity in which the Company directly or indirectly
has an ownership interest of more than 50 percent.
(m) "Tax Loans" shall mean all of the outstanding loans made by the
Company to the Executive pursuant to Section 6(c) of the Existing Employment
Agreement in respect of federal, state or local tax due to a portion of the
32,500 shares of common stock of the Company awarded to the Executive under the
Company's 1997 Stock Award and Stock Option Plan (the "1997 Stock Award")
becoming
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<PAGE> 50
transferable or the Executive making an election under Code Section 83(b) with
respect to the 1997 Stock Award.
(n) "Term of Employment" shall mean the period specified in Section
2 below.
(o) "Voting Stock" shall mean capital stock of any class or classes
having general voting power under ordinary circumstances, in the absence of
contingencies, to elect the directors of a corporation.
2. Term of Employment.
The Company hereby employs the Executive, and the Executive hereby
accepts such employment, for the period commencing on the Effective Date and
ending on the second anniversary of the Effective Date (the "Term of
Employment"), subject to earlier termination of the Term of Employment in
accordance with the terms of the Agreement. The Term of Employment shall be
automatically renewed for a one-year period on the second anniversary of the
Effective Date and on each anniversary of the Effective Date thereafter, unless
either Party has notified the other Party in writing in accordance with Section
26 below at least 90 days prior to the expiration of the then Term of Employment
that he or it does not want the Term of Employment to so renew.
3. Position, Duties and Responsibilities.
The Executive, in his capacity as Vice President, Finance and Chief
Financial Officer, shall faithfully perform for the Company the duties of said
office and shall perform such other duties of an executive, managerial or
administrative nature as shall be specified and designated from time to time by
the CEO consistent with such office. The Executive shall devote substantially
all of his business time and effort to the performance of his duties hereunder.
The Executive, in carrying out his duties under this Agreement, shall report to
the CEO. Notwithstanding anything in this Section 3 to the contrary, nothing
shall preclude the Executive from:
(1) serving on the boards of directors of a reasonable
number of other corporations or the boards of a
reasonable number of trade associations and/or
charitable organizations;
(2) engaging in charitable activities and community affairs;
and
(3) managing his personal investments and affairs;
provided, however, that such activities do not materially interfere with the
proper performance of his duties and responsibilities hereunder.
4. Base Salary.
During the Term of Employment, the Executive shall be paid an annual
Base Salary, payable in accordance with the regular payroll practices of the
Company, of $240,000. The Base Salary may be increased (but not decreased) at
any time and from time to time by action of the Board or by any committee
thereof or any individual having authority to take such action in accordance
with the Company's regular practices. Once increased, any reference to Base
Salary herein shall be a reference to such increased amount.
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<PAGE> 51
5. Bonus.
(a) During the Term of Employment, in addition to the Base Salary,
for each fiscal year of the Company ending during the Term of Employment, the
Executive shall have the opportunity to receive an annual bonus (an "Annual
Bonus") in an amount of between 30 and 50 percent of Base Salary, as determined
by the CEO, in consultation with the Chairman of the Board. Payment of Annual
Bonus shall be made at the same time that other senior-level executives receive
their annual incentive compensation awards.
(b) Within 10 days of the date of the execution of this Agreement,
the Executive will receive a one-time payment in the amount of $150,000 in
consideration for the termination of the Executive's right to receive a change
of control payment pursuant to Section 11(f) of the Existing Employment
Agreement.
6. Long-Term Incentive Compensation Programs.
The Executive shall be eligible to participate in the Company's
stock option plans applicable to senior-level executives, the terms, conditions
and eligibility of such plans to be determined by the Board.
7. Repayment of Tax Loans.
The Executive shall pay to the Company in a lump sum the principal
and all accrued interest with respect to each outstanding Tax Loan on the day
which precedes the third anniversary of the date of such Tax Loan, or, at the
Executives's election, on any date which precedes the third anniversary of the
date of such Tax Loan.
8. Employee Benefit Programs.
(a) During the Term of Employment, the Executive, to the extent he
is eligible, shall be entitled to participate in those employee pension and
welfare benefit plans, programs and/or arrangements applicable to the Executive
and made available to the Company's senior-level executives or to its employees
generally, as such plans, programs and/or arrangements may be in effect from
time to time, including, without limitation, pension, profit-sharing, savings,
medical, dental, hospitalization, short-term disability, long-term disability,
life insurance, accidental death and dismemberment protection, travel accident
insurance, and other employee pension and welfare benefit plans, programs and/or
arrangements that may be sponsored by the Company from time to time.
(b) During the Term of Employment, the Company shall provide the
Executive with term life insurance with a death benefit of at least two times
Base Salary. The Company shall pay all premiums with respect to such life
insurance. Such life insurance may be provided either through the Company's
group life insurance programs, by an individual policy, or by a combination of
both group and individual policies.
9. Reimbursement of Business Expenses.
The Executive is authorized to incur ordinary and reasonable
business expenses in carrying out his duties and responsibilities under the
Agreement, and the Company shall reimburse him for all such ordinary and
reasonable business expenses incurred in connection with carrying out the
business of the Company, subject to documentation in accordance with the
Company's policy.
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10. Perquisites.
(a) During the Term of Employment, the Executive shall be entitled
to participate in the Company's executive fringe benefits applicable to the
Company's senior-level executive in accordance with the terms and conditions of
such arrangements as are in effect from time to time.
(b) During the Term of Employment, the Company shall provide a car
to the Executive.
11. Vacation.
The Executive shall be entitled to paid vacation in accordance with
the Company's vacation policy; provided, however, that the Executive shall be
entitled to not less than four weeks of vacation each year.
12. Termination of Employment.
(a) Termination of Employment Due to Death. In the event of the
Executive's death during the Term of Employment, the Term of Employment shall
end as of the date of the Executive's death and his estate and/or beneficiaries,
as the case may be, shall be entitled to the following:
(1) Base Salary earned but not paid prior to the date of
his death;
(2) Annual Bonus with respect to any year prior to the year
of his death which has been earned but not paid;
(3) any amounts earned, accrued or owing to the Executive
but not yet paid under Section 6, 8, 9, 10 or 11 above;
and
(4) other or additional benefits in accordance with
applicable plans, programs and/or arrangements of the
Company.
(b) Termination of Employment Due to Disability. If the Executive's
employment is terminated due to Disability during the Term of Employment, either
by the Company or by the Executive, the Term of Employment shall end as of the
date of the Executive's termination of employment and the Executive shall be
entitled to the following (but in no event shall the Executive be entitled to
less than the benefits due him under any disability program of the Company for
which he becomes eligible):
(1) Base Salary earned but not paid prior to the date of the
termination of the Executive's employment;
(2) Annual Bonus with respect to any year prior to the year
of the termination of the Executive's employment which
has been earned but not paid;
(3) an amount equal to the sum of 50 percent of Base Salary,
at the annual rate in effect on the date of the
termination of the Executive's employment, payable in
monthly installments for a period ending on the first
day of the month following the month in which the
Executive attains age 65 or recovers from his
Disability, whichever occurs earlier, less the
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<PAGE> 53
amount of any disability benefits provided to the
Executive under the Company's disability program;
(4) any amounts earned, accrued or owing to the Executive
but not yet paid under Section 6, 8, 9, 10 or 11 above;
and
(5) continued participation, as if the Executive were still
an employee, in the Company's medical, dental,
hospitalization and life insurance plans, programs
and/or arrangements and in those other employee plans,
programs and/or arrangements in which he was
participating on the date of the termination of his
employment until he attains age 65 or recovers from his
Disability, whichever occurs earlier; and
provided, however, that:
(X) if the Executive is precluded from continuing
his participation in any employee benefit plan,
program or arrangement as provided in this
Section 12(b)(5), he shall be provided with the
after-tax economic equivalent of the benefits
provided under the plan, program or arrangement
in which he is unable to participate for the
period specified in this Section 12(b)(5); and
(Y) the economic equivalent of any benefit foregone
shall be deemed to be the lowest cost that would
be incurred by the Executive in obtaining such
benefit himself on an individual basis; and
(6) other or additional benefits in accordance with
applicable plans, programs and/or arrangements of the
Company.
In no event shall a termination of the Executive's employment for
Disability occur unless the Party terminating his employment gives written
notice to the other Party in accordance with Section 26 below.
(c) Termination of Employment by the Company for Cause. A
termination of the Executive's employment by the Company for Cause shall not
take effect unless the provisions of this Section 12(c) are complied with and
the Board issues a written determination that the Executive's employment should
be terminated for Cause (a "Determination").
(1) In accordance with Section 26 below, the CEO shall give
the Executive a written notice stating his intention to
terminate the Executive's employment for Cause (the
"Cause Notice"). The Cause Notice shall:
(A) state in detail the particular act or acts or
failure or failures to act that constitute the
grounds on which the proposed termination of
employment for Cause is based; and
(B) be given within four months of the CEO learning of
such act or acts or failure or failures to act.
(2) The CEO may temporarily relieve the Executive of his
duties and responsibilities described in Section 3 above
during the period
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commencing on the date the Cause Notice is issued by the
CEO and ending on the date the Determination is issued
by the Board (the "Determination Period").
(3) The Executive shall have 20 days after the date the
Cause Notice is actually received by him in which to
cure his conduct on which the termination of employment
for Cause is based, to the extent such cure is possible.
If the Executive fails to cure such conduct, he shall
then be entitled to a hearing before the Board. Such
hearing shall be held during the 20-day period following
the date the Executive receives the Cause Notice;
provided, however, that the Executive requests such
hearing during the 10-day period following the date the
Executive receives the Cause Notice. Within five days
following the completion of such hearing, the Board
shall issue a Determination stating whether, in its
judgment, grounds for Cause as detailed in the Cause
Notice exist. If the Determination states that such
grounds exist, the Executive's employment shall be
immediately terminated for Cause and the Term of
Employment shall end as of the date of the termination
of the Executive's employment.
(4) If the Company terminates the Executive's employment for
Cause, the Executive shall be entitled to the following:
(A) Base Salary earned but not paid prior to the date
of the termination of his employment;
(B) any amounts earned, accrued or owing to the
Executive but not yet paid under Section 6, 8, 9,
10 or 11 above; and
(C) other or additional benefits in accordance with
applicable plans, programs and/or arrangements of
the Company.
(5) Notwithstanding anything herein to the contrary, if,
following a termination of the Executive's employment by
the Company for Cause based upon the conviction of the
Executive for a felony, such conviction is overturned in
a final determination on appeal, the Executive shall be
entitled to the payments and the economic equivalent of
the benefits the Executive would have received if his
employment had been terminated by the Company without
Cause.
(d) Termination of Employment by the Company Without Cause. If the
Executive's employment is terminated by the Company without Cause, other than
due to death or Disability, the Executive shall be entitled to the following:
(1) Base Salary earned but not paid prior to the date of
the termination of his employment;
(2) Annual Bonus with respect to any year prior to the year
of the termination of the Executive's employment which
has been earned but not paid;
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<PAGE> 55
(3) an amount equal to the aggregate Base Salary (based on
the Base Salary in effect on the date of the termination
of the Executive's employment) (the "Salary Continuation
Benefits") with respect to a period equal to eighteen
months, payable in equal monthly installments over such
period;
(4) continued accrual of credited service through the end of
the Term of Employment for the purpose of any Company
pension plan, program or arrangement;
(5) the right to purchase, at fair market value, the
Executive's automobile (if any) provided to him by the
Company under the Company's automobile perquisite
program for senior-level executives;
(6) any amounts earned, accrued or owing to the Executive
but not yet paid under Section 6, 8, 9, 10 or 11 above;
(7) continued participation, as if he were still an
employee, in the Company's medical, dental,
hospitalization and life insurance plans, programs
and/or arrangements and in other employee benefit plans,
programs and/or arrangements in which he was
participating on the date of the termination of his
employment until the earlier of:
(A) the end of the period used to determine the
Salary Continuation Benefits; or
(B) the date, or dates, he receives equivalent
coverage and benefits under the plans, programs
and/or arrangements of a subsequent employer (such
coverage and benefits to be determined on a
coverage-by-coverage or benefit-by-benefit basis);
provided, however, that:
(X) if the Executive is precluded from continuing
his participation in any employee benefit plan,
program or arrangement as provided in Section
12(d)(7) above, he shall be provided with the
after-tax economic equivalent of the benefits
provided under the plan, program or arrangement
in which he is unable to participate for the
period specified in this Section 12(d)(7); and
(Y) the economic equivalent of any benefit foregone
shall be deemed to be the lowest cost that would
be incurred by the Executive in obtaining such
benefit himself on an individual basis; and
(8) other or additional benefits in accordance with
applicable plans, programs and/or arrangements of the
Company.
(e) Termination of Employment by the Executive for Good Reason. The
Executive may terminate his employment for Good Reason, but only if:
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<PAGE> 56
(1) the Executive notifies the Board during the 60-day
period following the date of the first occurrence of an
event which constitutes Good Reason (the "Good Reason
Event Date") of his intention to terminate his
employment for Good Reason;
(2) the Executive terminates his employment for Good Reason
during the 120-day period following the Good Reason
Event Date;
(3) the termination of employment for Good Reason does not
occur during a Determination Period described in Section
12(c)(2) above; and
(4) the Good Reason first occurs before or after a
Determination Period, or, if the Good Reason first
occurs during a Determination Period, such event
constituting Good Reason continues to occur after the
Determination Period.
Upon a termination by the Executive of his employment for Good Reason, the
Executive shall be entitled to the same payments and benefits as provided in
Section 12(d) above; provided, however, that if the Executive terminates his
employment for Good Reason based on a reduction in Base Salary under Section
1(k)(2) above, then the Base Salary to be used in determining the Salary
Continuation Benefits in accordance with Section 12(d)(3) above shall be the
Base Salary in effect immediately prior to such reduction.
(f) Termination of Employment by the Executive Without Good Reason.
If the Executive terminates his employment without Good Reason, other than a
termination of employment due to death or retirement or Disability, the
Executive shall have the same entitlements as provided in Section 12(c)(4)
above. A termination of the Executive's employment under this Section 12(f)
shall be effective upon 30 days prior written notice to the Company and shall
not be deemed a breach of this Agreement.
(g) Non Renewal of Agreement by Company. If the Company notifies the
Executive, pursuant to Section 2 above, that it does not want the Term of
Employment to renew, the Executive shall have the same entitlements as provided
in Section 12(d) above as if the Executive had been terminated without cause as
of the last day of the then Term of Employment.
(h) Termination of Employment by Executive due to Relocation of Work
Location. In the event that the Executive's principal work location is moved
outside of the States of New York, New Jersey, Connecticut, Pennsylvania,
Delaware, Maryland or the District of Columbia, the Executive may terminate his
employment with the Company. If the Executive terminates his employment pursuant
to this Section 12(h), he shall have the same entitlements as provided in
Section 12(d) above; provided, that all such benefits, including without
limitation, the Salary Continuation Benefits, shall be provided for a period
equal to the corresponding severance period listed on Schedule A, payable in
equal monthly installments during such period.
(i) No Mitigation; No Offset. If the Executive's employment
terminates under this Section 12, the Executive shall be under no obligation to
seek other employment and there shall be no offset against amounts due the
Executive under this Agreement on account of any remuneration attributable to
any subsequent employment that he may obtain except as specifically provided in
this Section 12.
(j) Nature of Payments. Any amounts due under this Section 12 are in
the nature of severance payments considered to be reasonable by the Company and
are not in the nature of a penalty.
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<PAGE> 57
13. Confidentiality: Assignment of Rights.
(a) During the Term of Employment and thereafter, the Executive
shall not disclose to anyone or make use of any trade secret or proprietary or
confidential information of the Company, including such trade secret or
proprietary or confidential information of any customer or other entity to which
the Company owes an obligation not to disclose such information, which he
acquires during the Term of Employment, including but not limited to records
kept in the ordinary course of business, except (i) as such disclosure or use
may be required or appropriate in connection with his work as an employee of the
Company, (ii) when required to do so by a court of law, by any governmental
agency having supervisory authority over the business of the Company or by any
administrative or legislative body (including a committee thereof) with apparent
jurisdiction to order him to divulge, disclose or make accessible such
information, or (iii) as to such confidential information that becomes generally
known to the public or trade without violation of this Section 13(a).
(b) The Executive hereby sells, assigns and transfers to the Company
all of his right, title and interest in and to all inventions, discoveries,
improvements and copyrightable subject matter (the "rights") which during the
Term of Employment are made or conceived by him, alone or with others, and which
are within or arise out of any general field of the Company's business or arise
out of any work he performs or information he receives regarding the business of
the Company while employed by the Company. The Executive shall fully disclose to
the Company as promptly as available all information known or possessed by him
concerning the rights referred to in the preceding sentence, and upon request by
the Company and without any further remuneration in any form to him by the
Company, but at the expense of the Company, execute all applications for patents
and for copyright registration, assignments thereof and other instruments and do
all things which the Company may deem necessary to vest and maintain in it the
entire right, title and interest in and to all such rights.
14. Noncompetition.
(a) The Executive covenants and agrees that during the Term of
Employment and following the termination of the Executive's employment with the
Company, for a period of eighteen months or, in the case of a termination
pursuant to Section 12(h), a period equal to the shorter of (i) twice the
corresponding severance period listed on Schedule A and (ii) eighteen months, he
shall not at any time, without the prior written consent of the Company,
directly or indirectly, engage in a Competitive Activity.
(b) The Parties acknowledge that in the event of a breach or
threatened breach of Section 14(a) above, the Company shall not have an adequate
remedy at law. Accordingly, in the event of any breach or threatened breach of
Section 14(a) above, the Company shall be entitled to such equitable and
injunctive relief as may be available to restrain the Executive and any
business, firm, partnership, individual, corporation or entity participating in
the breach or threatened breach from the violation of the provisions of Section
14(a) above. Nothing in this Agreement shall be construed as prohibiting the
Company from pursuing any other remedies available at law or in equity for
breach or threatened breach of Section 14(a) above, including the recovery of
damages.
15. Indemnification.
(a) The Company agrees that if the Executive is made a party, or is
threatened to be made a party, to any action, suit or proceeding, whether civil,
criminal, administrative or investigative (a "Proceeding"), by reason of the
fact that he is or was a director, officer or employee of the Company or is or
was serving at the request of the Company as a director, officer, member,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, including service with respect to
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<PAGE> 58
employee benefit plans, whether or not the basis of such Proceeding is the
Executive's alleged action in an official capacity while serving as a director,
officer, member, employee or agent, the Executive shall be indemnified and held
harmless by the Company to the fullest extent legally permitted or authorized by
the Company's certificate of incorporation or bylaws or resolutions of the
Company's Board of Directors or, if greater, by the laws of the State of
Delaware, against all cost, expense, liability and loss (including, without
limitation, attorney's fees, judgments, fines, ERISA excise taxes or penalties
and amounts paid or to be paid in settlement) reasonably incurred or suffered by
the Executive in connection therewith, and such indemnification shall continue
as to the Executive even if he has ceased to be a director, member, employee or
agent of the Company or other entity and shall inure to the benefit of the
Executive's heirs, executors and administrators. The Company shall advance to
the Executive all reasonable costs and expenses incurred by him in connection
with a Proceeding within 20 days after receipt by the Company of a written
request for such advance. Such request shall include an undertaking by the
Executive to repay the amount of such advance if it shall ultimately be
determined that he is not entitled to be indemnified against such costs and
expenses.
(b) Neither the failure of the Company (including the Board,
independent legal counsel or stockholders) to have made a determination prior to
the commencement of any Proceeding concerning payment of amounts claimed by the
Executive under Section 15(a) above that indemnification of the Executive is
proper because he has met the applicable standard of conduct, nor a
determination by the Company (including the Board, independent legal counsel or
stockholders) that the Executive has not met such applicable standard of
conduct, shall create a presumption that the Executive has not met the
applicable standard of conduct.
(c) The Company agrees to continue and maintain a directors and
officers' liability insurance policy covering the Executive to the extent the
Company provides such coverage for its other executive officers.
16. Effect of Agreement on Other Benefits.
Except as specifically provided in this Agreement, the existence of
this Agreement shall not prohibit or restrict the Executive's entitlement to
full participation in the Company's employee benefit plans, programs and
arrangements applicable to the Company's senior-level executives.
17. Assignability; Binding Nature.
This Agreement shall be binding upon and inure to the benefit of the
Parties and their respective successors, heirs (in the case of the Executive)
and assigns. No rights or obligations of the Company under this Agreement may be
assigned or transferred by the Company except that such rights or obligations
may be assigned or transferred pursuant to a merger or consolidation in which
the Company is not the continuing entity, or the sale or liquidation of all or
substantially all of the assets of the Company; provided, however, that the
assignee or transferee is the successor to all or substantially all of the
assets of the Company and such assignee or transferee assumes the liabilities,
obligations and duties of the Company, as contained in this Agreement, either
contractually or as a matter of law. The Company further agrees that, in the
event of a sale of assets or liquidation as described in the preceding sentence,
it shall take whatever action it legally can in order to cause such assignee or
transferee to expressly assume the liabilities, obligations and duties of the
Company hereunder or under any other plan or benefit program referred to herein.
No rights or obligations of the Executive under this Agreement may be assigned
or transferred by the Executive other than his rights to compensation and
benefits, which may be transferred only by will or operation of law, except as
provided in Section 23 below.
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<PAGE> 59
18. Representation.
The Company represents and warrants that it is fully authorized and
empowered to enter into this Agreement and that the performance of its
obligations under this Agreement will not violate any agreement between it and
any other person, firm or organization. The Executive represents that he knows
of no agreement between him and any other person, firm or organization that
would be violated by the performance of his obligations under this Agreement.
19. Entire Agreement.
This Agreement contains the entire understanding and agreement
between the Parties concerning the subject matter hereof and supersedes all
prior agreements, understandings, discussions, negotiations and undertakings,
whether written or oral, between the Parties, including, without limitation, the
Existing Employment Agreement, with respect thereto.
20. Amendment or Waiver.
No provision in this Agreement may be amended unless such amendment
is agreed to in writing and signed by the Executive and an authorized officer of
the Company. No waiver by either Party of any breach by the other Party of any
condition or provision contained in this Agreement to be performed by such other
Party shall be deemed a waiver of a similar or dissimilar condition or provision
at the same or any prior or subsequent time. Any waiver must be in writing and
signed by the Executive or an authorized officer of the Company, as the case may
be.
21. Severability.
In the event that any provision or portion of this Agreement shall
be determined to be invalid or unenforceable for any reason, in whole or in
part, the remaining provisions of this Agreement shall be unaffected thereby and
shall remain in full force and effect and such provision or portion of this
Agreement shall remain in effect to the fullest extent permitted by law.
22. Survivorship.
The respective rights and obligations of the Parties hereunder shall
survive any termination of the Executive's employment to the extent necessary to
the intended preservation of such rights and obligations.
23. Beneficiaries/References.
The Executive shall be entitled, to the extent permitted under any
applicable law, to select and change a beneficiary or beneficiaries to receive
any compensation or benefit payable hereunder following the Executive's death by
giving the Company written notice thereof. In the event of the Executive's death
or a judicial determination of his incompetence, reference in this Agreement to
the Executive shall be deemed, where appropriate, to refer to his beneficiary,
estate or other legal representative.
24. Governing Law/Submission to Jurisdiction.
This Agreement shall be governed by and construed and interpreted in
accordance with the laws of New York without reference to principles of conflict
of laws. Each of the Company and the Executive hereby irrevocably and
unconditionally: (i) submits for itself or himself, as applicable, and its
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<PAGE> 60
or his property in any legal action or proceeding relating to this Agreement, or
for recognition and enforcement of any judgment in respect thereof, to the
non-exclusive general jurisdiction of the courts of the State of New York, the
courts of the United States of America for the Southern District of New York,
and appellate courts from any thereof; (ii) consents that any such action or
proceeding may be brought in such courts, and waives any objection that it or he
may now or hereafter have to the venue of any such action or proceeding in any
such court or that such action or proceeding was brought in an inconvenient
forum and agrees not to plead or claim the same; (iii) agrees that service of
process in any such action or proceeding may be effected by mailing a copy
thereof by registered or certified mail (or any substantially similar form of
mail), postage prepaid, to its or his address set forth in or designated
pursuant to Section 26 hereof; and (iv) agrees that nothing herein shall affect
the right to effect service of process in any other manner permitted by law or
shall limit the right to sue in any other jurisdiction.
25. Resolution of Disputes.
Any disputes arising under or in connection with the Agreement,
other than disputes arising in connection with Sections 13 and 14 hereof, may,
at the election of the Executive or the Company, be resolved by binding
arbitration, to be held in New York City in accordance with the rules and
procedures of the American Arbitration Association. If arbitration is elected,
the Executive and the Company shall mutually select the arbitrator. If the
Executive and the Company cannot agree on the selection of an arbitrator, each
Party shall select an arbitrator and the two arbitrators shall select a third
arbitrator, and the three arbitrators shall form an arbitration panel which
shall resolve the dispute by majority vote. Judgment upon the award rendered by
the arbitrator(s) may be entered in any court having jurisdiction thereof. Costs
of the arbitration or litigation, including, without limitation, reasonable
attorneys' fees of both Parties, shall be borne by the Company; provided,
however, that, if a dispute is resolved in favor of the Company, the Executive
shall bear his own costs of the arbitration or litigation and shall reimburse
the Company for the Executive's costs of the arbitration or litigation
previously paid by the Company. Pending the resolution of any arbitration or
court proceeding, the Company shall continue payment of all amounts due the
Executive under this Agreement and all benefits to which the Executive is
entitled at the time the dispute arises.
26. Notices.
Any notice given to a Party shall be in writing and shall be deemed
to have been given when delivered personally or sent by certified or registered
mail, postage prepaid, return receipt requested, duly addressed to the Party
concerned at the address indicated below or to such changed address as such
Party may subsequently give such notice of:
If to the Company: Metallurg, Inc.
6 East 43rd Street, 12th floor
New York, New York 10017
Attention: General Counsel
With a copy to: Rogers & Wells LLP
200 Park Avenue
New York, New York 10166
Attention: Samuel M. Feder
If to the Executive: Barry C. Nuss
c/o Metallurg, Inc.
6 East 43rd Street, 12th floor
New York, New York 10017
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<PAGE> 61
27. Headings.
The headings of the sections contained in this Agreement are for
convenience only and shall not be deemed to control or affect the meaning or
construction of any provision of this Agreement.
28. Counterparts.
This Agreement may be executed in two or more counterparts.
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<PAGE> 62
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first written above.
METALLURG, INC.
By: /s/ Alan D. Ewart
------------------------------------
Name: Alan D. Ewart
Title: President and CEO
/s/ Barry C. Nuss
------------------------------------
Barry C. Nuss
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<PAGE> 63
SCHEDULE A
<TABLE>
<CAPTION>
Years of Service Severance Period
---------------- ----------------
<S> <C>
Up To 15 6 months
More Than 15 9 months
More Than 20 12 months
</TABLE>
16
<PAGE> 64
EMPLOYMENT AGREEMENT
AGREEMENT, made and entered into as of the 4th day of January, 1999, by
and between Metallurg, Inc., a Delaware corporation (together with its
successors and assigns permitted under this Agreement, the "Company"), and Ellen
T. Harmon (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company desires to enter into a employment agreement (the
"Agreement") embodying the terms of such employment; and
WHEREAS, the Executive desires to enter into the Agreement and to accept
such employment, subject to the terms and provisions of the Agreement; and
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the receipt of
which is mutually acknowledged, the Company and the Executive (individually a
"Party" and together the "Parties") agree as follows:
1. Definitions.
(a) "Base Salary" shall mean the Executive's base salary in accordance
with Section 4 below.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Business Day" shall mean any day other than a Saturday, Sunday or any
other day on which commercial banks in New York, New York are required or
authorized to be closed.
(d) "Cause" shall mean:
(1) the Executive is convicted of (or pleads nolo contendere to) a
felony or a crime of moral turpitude, dishonesty, breach of trust or
unethical business conduct involving the Company;
(2) the Executive engages in willful misconduct, willful or gross
neglect, fraud, insubordination , misappropriation or embezzlement to the
material and demonstrable detriment of the Company; or
(3) the Executive breaches in any material respect the terms and
provisions of this Agreement and fails to cure such breach within 20 days
following written notice from the Company specifying such breach.
(e) "CEO" shall mean the chief executive officer of the Company.
(f) "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, including applicable regulations thereunder.
(g) "Competitive Activity" shall mean any activity engaged in by the
Executive, whether as an employee, principal, sole proprietor, consultant,
agent, officer, director, partner or shareholder (except as a less than
one-percent shareholder of a publicly traded company or a less than five-percent
shareholder of a privately held company), which directly competes with the
Company or any Subsidiary. For this purpose, an activity which directly competes
with the Company or any Subsidiary shall mean a
<PAGE> 65
business that was being conducted by the Company or any Subsidiary during the
Term of Employment. Notwithstanding anything to the contrary in this Section
1(g), an activity shall not be deemed to be a Competitive Activity (x) solely as
a result of the Executive's being employed by or otherwise associated with a
business of which a unit is in competition with the Company or any Subsidiary
but as to which unit the Executive does not have direct or indirect
responsibilities for the products or product lines involved or (y) if the
activity contributes less than 5 percent of the revenues for the fiscal year in
question of the business by which the Executive is employed or with which she is
otherwise associated.
(h) "Disability" shall mean a disability as determined under the Company's
long-term disability plans, programs and/or arrangements in effect on the date
such disability first occurs.
(i) "Effective Date" shall mean January 4, 1999.
(j) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time, including applicable regulations thereunder.
(k) "Good Reason" shall mean the occurrence of any of the following
events:
(1) the material change of the Executive's authority, duties and
responsibilities, or the assignment to the Executive of duties materially
different from the Executive's position or positions with the Company;
(2) a reduction in Base Salary of the Executive;
(3) the failure by the Company to obtain an agreement in form and
substance reasonably satisfactory to the Executive from any successor to
the business of the Company to assume and agree to perform this Agreement;
or
(4) the Company breaches in any material respect the terms and
provisions of this Agreement and fails to cure such breach within 20 days
following written notice from the Executive specifying such breach.
(l) "Subsidiary" of the Company shall mean any corporation of which the
Company owns, directly or indirectly, more than 50 percent of the Voting Stock
or any other business entity in which the Company directly or indirectly has an
ownership interest of more than 50 percent.
(m) "Term of Employment" shall mean the period specified in Section 2
below.
(n) "Voting Stock" shall mean capital stock of any class or classes having
general voting power under ordinary circumstances, in the absence of
contingencies, to elect the directors of a corporation.
2. Term of Employment.
The Company hereby employs the Executive, and the Executive hereby accepts
such employment, for the period commencing on the Effective Date and ending on
the first anniversary of the Effective Date (the "Term of Employment"), subject
to earlier termination of the Term of Employment in accordance with the terms of
the Agreement. The Term of Employment shall be automatically renewed for a
two-year period on the first anniversary of the Effective Date and thereafter,
the Term of Employment shall be automatically renewed for a one-year period on
each anniversary of the Effective Date thereafter, unless, in each case, either
Party has notified the other Party in writing in accordance with
2
<PAGE> 66
Section 26 below at least 90 days prior to the expiration of the then Term of
Employment that she or it does not want the Term of Employment to so renew.
3. Position, Duties and Responsibilities.
The Executive, in her capacity as Vice President, General Counsel and
Secretary of the Company shall faithfully perform for the Company the duties of
said office and shall perform such other duties of an executive, managerial or
administrative nature as shall be specified and designated from time to time by
the CEO consistent with such office. The Executive shall devote substantially
all of her business time and effort to the performance of her duties hereunder.
The Executive, in carrying out her duties under this Agreement, shall report to
the CEO. Notwithstanding anything in this Section 3 to the contrary, nothing
shall preclude the Executive from:
(1) serving on the boards of directors of a reasonable number of
other corporations or the boards of a reasonable number of trade
associations and/or charitable organizations;
(2) engaging in charitable activities and community affairs; and
(3) managing her personal investments and affairs;
provided, however, that such activities do not materially interfere with the
proper performance of her duties and responsibilities hereunder.
4. Base Salary.
During the Term of Employment, the Executive shall be paid an annual Base
Salary, payable in accordance with the regular payroll practices of the Company,
of $230,000. The Base Salary may be increased (but not decreased) at any time
and from time to time by action of the Board or by any committee thereof or any
individual having authority to take such action in accordance with the Company's
regular practices. Once increased, any reference to Base Salary herein shall be
a reference to such increased amount.
5. Bonus.
(a) During the Term of Employment, in addition to the Base Salary, for
each fiscal year of the Company ending during the Term of Employment, the
Executive shall have the opportunity to receive an annual bonus (an "Annual
Bonus") in an amount of between 30 and 50 percent of Base Salary, as determined
by the CEO, in consultation with the Chairman of the Board. Payment of Annual
Bonus shall be made at the same time that other senior-level executives receive
their annual incentive compensation awards.
(b) In addition, Executive shall be paid a signing bonus payable at the
end of March 1999, equal in amount, if any, to the difference between $144,000
(representing a bonus of 75% of the Executive's 1998 base salary at Sequa
Corporation, her previous employer, to which she would have been entitled had
she not resigned therefrom) and the amount actually paid by Sequa Corporation
for such bonus; provided, however, that the Company shall in no event pay a
bonus pursuant to this subparagraph (b) in excess of $70,000.
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<PAGE> 67
6. Long-Term Incentive Compensation Programs.
The Executive shall be eligible to participate in the Company's stock
option plans applicable to senior-level executives, the terms, conditions and
eligibility of such plans to be determined by the Board.
7. [Intentionally omitted]
8. Employee Benefit Programs.
(a) During the Term of Employment, the Executive, to the extent she is
eligible, shall be entitled to participate in those employee pension and welfare
benefit plans, programs and/or arrangements applicable to the Executive and made
available to the Company's senior-level executives or to its employees
generally, as such plans, programs and/or arrangements may be in effect from
time to time, including, without limitation, pension, profit-sharing, savings,
medical, dental, hospitalization, short-term disability, long-term disability,
life insurance, accidental death and dismemberment protection, travel accident
insurance, and other employee pension and welfare benefit plans, programs and/or
arrangements that may be sponsored by the Company from time to time.
(b) During the Term of Employment, the Company shall provide the Executive
with term life insurance with a death benefit of at least two times Base Salary.
The Company shall pay all premiums with respect to such life insurance. Such
life insurance may be provided either through the Company's group life insurance
programs, by an individual policy, or by a combination of both group and
individual policies.
9. Reimbursement of Business Expenses.
The Executive is authorized to incur ordinary and reasonable business
expenses in carrying out her duties and responsibilities under the Agreement,
and the Company shall reimburse her for all such ordinary and reasonable
business expenses incurred in connection with carrying out the business of the
Company, subject to documentation in accordance with the Company's policy.
10. Perquisites.
(a) During the Term of Employment, the Executive shall be entitled to
participate in the Company's executive fringe benefits applicable to the
Company's senior-level executives in accordance with the terms and conditions of
such arrangements as are in effect from time to time.
(b) During the Term of Employment, the Company shall provide a car to the
Executive.
11. Vacation.
The Executive shall be entitled to paid vacation in accordance with the
Company's vacation policy; provided, however, that the Executive shall be
entitled to not less than four weeks of vacation each year.
12. Termination of Employment.
(a) Termination of Employment Due to Death. In the event of the
Executive's death during the Term of Employment, the Term of Employment shall
end as of the date of the Executive's death and her estate and/or beneficiaries,
as the case may be, shall be entitled to the following:
4
<PAGE> 68
(1) Base Salary earned but not paid prior to the date of her death;
(2) Annual Bonus with respect to any year prior to the year of her
death which has been earned but not paid;
(3) any amounts earned, accrued or owing to the Executive but not
yet paid under Section 6, 8, 9, 10 or 11 above; and
(4) other or additional benefits in accordance with applicable
plans, programs and/or arrangements of the Company.
(b) Termination of Employment Due to Disability. If the Executive's
employment is terminated due to Disability during the Term of Employment, either
by the Company or by the Executive, the Term of Employment shall end as of the
date of the Executive's termination of employment and the Executive shall be
entitled to the following (but in no event shall the Executive be entitled to
less than the benefits due her under any disability program of the Company for
which she becomes eligible):
(1) Base Salary earned but not paid prior to the date of the
termination of the Executive's employment;
(2) Annual Bonus with respect to any year prior to the year of the
termination of the Executive's employment which has been earned but not
paid;
(3) an amount equal to the sum of 50 percent of Base Salary, at the
annual rate in effect on the date of the termination of the Executive's
employment, payable in monthly installments for a period ending on the
first day of the month following the month in which the Executive attains
age 65 or recovers from her Disability, whichever occurs earlier, less the
amount of any disability benefits provided to the Executive under the
Company's disability program;
(4) any amounts earned, accrued or owing to the Executive but not
yet paid under Section 6, 8, 9, 10 or 11 above;
(5) continued participation, as if the Executive were still an
employee, in the Company's medical, dental, hospitalization and life
insurance plans, programs and/or arrangements and in those other employee
plans, programs and/or arrangements in which she was participating on the
date of the termination of her employment until she attains age 65 or
recovers from her Disability, whichever occurs earlier;
provided, however, that:
(X) if the Executive is precluded from continuing her
participation in any employee benefit plan, program
or arrangement as provided in this Section 12(b)(5),
she shall be provided with the after-tax economic
equivalent of the benefits provided under the plan,
program or arrangement in which she is unable to
participate for the period specified in this Section
12(b)(5); and
(Y) the economic equivalent of any benefit foregone shall be
deemed to be the lowest cost that would be incurred by
the Executive in obtaining such benefit herself on an
individual basis; and
5
<PAGE> 69
(6) other or additional benefits in accordance with applicable
plans, programs and/or arrangements of the Company.
In no event shall a termination of the Executive's employment for
Disability occur unless the Party terminating her employment gives written
notice to the other Party in accordance with Section 26 below.
(c) Termination of Employment by the Company for Cause. A termination of
the Executive's employment by the Company for Cause shall not take effect unless
the provisions of this Section 12(c) are complied with and the Board issues a
written determination that the Executive's employment should be terminated for
Cause (a "Determination").
(1) In accordance with Section 26 below, the CEO shall give the
Executive a written notice stating his intention to terminate the
Executive's employment for Cause (the "Cause Notice"). The Cause Notice
shall:
(A) state in detail the particular act or acts or failure or
failures to act that constitute the grounds on which the proposed
termination of employment for Cause is based; and
(B) be given within four months of the CEO learning of such
act or acts or failure or failures to act.
(2) The CEO may temporarily relieve the Executive of her duties and
responsibilities described in Section 3 above during the period commencing
on the date the Cause Notice is issued by the CEO and ending on the date
the Determination is issued by the Board (the "Determination Period").
(3) The Executive shall have 20 days after the date the Cause Notice
is actually received by her in which to cure her conduct on which the
termination of employment for Cause is based, to the extent such cure is
possible. If the Executive fails to cure such conduct, she shall then be
entitled to a hearing before the Board. Such hearing shall be held during
the 20-day period following the date the Executive receives the Cause
Notice; provided, however, that the Executive requests such hearing during
the 10-day period following the date the Executive receives the Cause
Notice. Within five days following the completion of such hearing, the
Board shall issue a Determination stating whether, in its judgment,
grounds for Cause as detailed in the Cause Notice exist. If the
Determination states that such grounds exist, the Executive's employment
shall be immediately terminated for Cause and the Term of Employment shall
end as of the date of the termination of the Executive's employment.
(4) If the Company terminates the Executive's employment for Cause,
the Executive shall be entitled to the following:
(A) Base Salary earned but not paid prior to the date of the
termination of her employment;
(B) any amounts earned, accrued or owing to the Executive but
not yet paid under Section 6, 8, 9, 10 or 11 above; and
(C) other or additional benefits in accordance with applicable
plans, programs and/or arrangements of the Company.
6
<PAGE> 70
(5) Notwithstanding anything herein to the contrary, if, following a
termination of the Executive's employment by the Company for Cause based
upon the conviction of the Executive for a felony, such conviction is
overturned in a final determination on appeal, the Executive shall be
entitled to the payments and the economic equivalent of the benefits the
Executive would have received if her employment had been terminated by the
Company without Cause.
(d) Termination of Employment by the Company Without Cause. If the
Executive's employment is terminated by the Company without Cause, other than
due to death or Disability, the Executive shall be entitled to the following:
(1) Base Salary earned but not paid prior to the date of the
termination of her employment;
(2) Annual Bonus with respect to any year prior to the year of the
termination of the Executive's employment which has been earned but not
paid;
(3) an amount equal to the aggregate Base Salary (based on the Base
Salary in effect on the date of the termination of the Executive's
employment) (the "Salary Continuation Benefits") with respect to a period
equal to twelve months, if such termination occurs prior to the first
anniversary of the initial Effective Date or eighteen months, thereafter,
in each case payable in equal monthly installments over such period;
(4) continued accrual of credited service through the end of the
Term of Employment for the purpose of any Company pension plan, program or
arrangement;
(5) the right to purchase, at fair market value, the Executive's
automobile (if any) provided to him by the Company under the Company's
automobile perquisite program for senior-level executives;
(6) any amounts earned, accrued or owing to the Executive but not
yet paid under Section 6, 8, 9, 10 or 11 above;
(7) continued participation, as if she were still an employee, in
the Company's medical, dental, hospitalization and life insurance plans,
programs and/or arrangements and in other employee benefit plans, programs
and/or arrangements in which she was participating on the date of the
termination of her employment until the earlier of:
(A) the end of the period used to determine the Salary
Continuation Benefits; or
(B) the date, or dates, she receives equivalent coverage and
benefits under the plans, programs and/or arrangements of a
subsequent employer (such coverage and benefits to be determined on
a coverage-by-coverage or benefit-by-benefit basis);
provided, however, that:
(X) if the Executive is precluded from continuing her
participation in any employee benefit plan,
program or arrangement as provided in Section
12(d)(7) above, she shall be provided with the
after-tax economic equivalent of the benefits
provided under the plan,
7
<PAGE> 71
program or arrangement in which she is unable to
participate for the period specified in this
Section 12(d)(7); and
(Y) the economic equivalent of any benefit foregone
shall be deemed to be the lowest cost that would
be incurred by the Executive in obtaining such
benefit herself on an individual basis; and
(8) other or additional benefits in accordance with applicable
plans, programs and/or arrangements of the Company.
(e) Termination of Employment by the Executive for Good Reason. The
Executive may terminate her employment for Good Reason, but only if:
(1) the Executive notifies the Board during the 60-day period
following the date of the first occurrence of an event which constitutes
Good Reason (the "Good Reason Event Date") of her intention to terminate
her employment for Good Reason;
(2) the Executive terminates her employment for Good Reason during
the 120-day period following the Good Reason Event Date;
(3) the termination of employment for Good Reason does not occur
during a Determination Period described in Section 12(c)(2) above; and
(4) the Good Reason first occurs before or after a Determination
Period, or, if the Good Reason first occurs during a Determination Period,
such event constituting Good Reason continues to occur after the
Determination Period.
Upon a termination by the Executive of her employment for Good Reason, the
Executive shall be entitled to the same payments and benefits as provided in
Section 12(d) above; provided, however, that if the Executive terminates her
employment for Good Reason based on a reduction in Base Salary under Section
l(k)(2) above, then the Base Salary to be used in determining the Salary
Continuation Benefits in accordance with Section 12(d)(3) above shall be the
Base Salary in effect immediately prior to such reduction.
(f) Termination of Employment by the Executive Without Good Reason. If the
Executive terminates her employment without Good Reason, other than a
termination of employment due to death or retirement or Disability, the
Executive shall have the same entitlements as provided in Section 12(c)(4)
above. A termination of the Executive's employment under this Section 12(f)
shall be effective upon 30 days prior written notice to the Company and shall
not be deemed a breach of this Agreement.
(g) Non Renewal of Agreement by Company. If the Company notifies the
Executive, pursuant to Section 2 above, that it does not want the Term of
Employment to renew, the Executive shall have the same entitlements as provided
in Section 12(d) above as if the Executive had been terminated without cause as
of the last day of the then Term of Employment.
(h) Termination of Employment by Executive due to Relocation of Work
Location. In the event that the Executive's principal work location is moved
outside of the States of New York, New Jersey, Connecticut, Pennsylvania,
Delaware, Maryland or the District of Columbia, the Executive may terminate her
employment with the Company. If the Executive terminates her employment pursuant
to this Section 12(h), she shall have the same entitlements as provided in
Section 12(d) above; provided, that all such benefits, including, without
limitation, the Salary Continuation Benefits, shall be provided for a
8
<PAGE> 72
period equal to the corresponding severance period listed on Schedule A, payable
in equal monthly installments during such period.
(i) No Mitigation; No Offset. If the Executive's employment terminates
under this Section 12, the Executive shall be under no obligation to seek other
employment and there shall be no offset against amounts due the Executive under
this Agreement on account of any remuneration attributable to any subsequent
employment that she may obtain except as specifically provided in this Section
12.
(j) Nature of Payments. Any amounts due under this Section 12 are in the
nature of severance payments considered to be reasonable by the Company and are
not in the nature of a penalty.
13. Confidentiality; Assignment of Rights.
(a) During the Term of Employment and thereafter, the Executive shall not
disclose to anyone or make use of any trade secret or proprietary or
confidential information of the Company, including such trade secret or
proprietary or confidential information of any customer or other entity to which
the Company owes an obligation not to disclose such information, which she
acquires during the Term of Employment, including but not limited to records
kept in the ordinary course of business, except (i) as such disclosure or use
may be required or appropriate in connection with her work as an employee of the
Company, (ii) when required to do so by a court of law, by any governmental
agency having supervisory authority over the business of the Company or by any
administrative or legislative body (including a committee thereof) with apparent
jurisdiction to order her to divulge, disclose or make accessible such
information, or (iii) as to such confidential information that becomes generally
known to the public or trade without violation of this Section 13(a).
(b) The Executive hereby sells, assigns and transfers to the Company all
of her right, title and interest in and to all inventions, discoveries,
improvements and copyrightable subject matter (the "rights") which during the
Term of Employment are made or conceived by her, alone or with others, and which
are within or arise out of any general field of the Company's business or arise
out of any work she performs or information she receives regarding the business
of the Company while employed by the Company. The Executive shall fully disclose
to the Company as promptly as available all information known or possessed by
her concerning the rights referred to in the preceding sentence, and upon
request by the Company and without any further remuneration in any form to her
by the Company, but at the expense of the Company, execute all applications for
patents and for copyright registration, assignments thereof and other
instruments and do all things which the Company may deem necessary to vest and
maintain in it the entire right, title and interest in and to all such rights.
14. Noncompetition.
(a) The Executive covenants and agrees that during the Term of Employment
and, following the termination of the Executive's employment with the Company,
for a period of eighteen months or, in the case of a termination pursuant to
Section 12(h), a period equal to the shorter of (i) twice the corresponding
severance period listed on Schedule A and (ii) eighteen months, she shall not at
any time, without the prior written consent of the Company, directly or
indirectly, engage in a Competitive Activity.
(b) The Parties acknowledge that in the event of a breach or threatened
breach of Section 14(a) above, the Company shall not have an adequate remedy at
law. Accordingly, in the event of any breach or threatened breach of Section
14(a) above, the Company shall be entitled to such equitable and injunctive
relief as may be available to restrain the Executive and any business, firm,
partnership, individual, corporation or entity participating in the breach or
threatened breach from the violation of the provisions of Section 14(a) above.
Nothing in this Agreement shall be construed as prohibiting the
9
<PAGE> 73
Company from pursuing any other remedies available at law or in equity for
breach or threatened breach of Section 14(a) above, including the recovery of
damages.
15. Indemnification.
(a) The Company agrees that if the Executive is made a party, or is
threatened to be made a party, to any action, suit or proceeding, whether civil,
criminal, administrative or investigative (a "Proceeding"), by reason of the
fact that she is or was a director, officer or employee of the Company or is or
was serving at the request of the Company as a director, officer, member,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, including service with respect to employee benefit plans,
whether or not the basis of such Proceeding is the Executive's alleged action in
an official capacity while serving as a director, officer, member, employee or
agent, the Executive shall be indemnified and held harmless by the Company to
the fullest extent legally permitted or authorized by the Company's certificate
of incorporation or bylaws or resolutions of the Company's Board of Directors
or, if greater, by the laws of the State of Delaware, against all cost, expense,
liability and loss (including, without limitation, attorney's fees, judgments,
fines, ERISA excise taxes or penalties and amounts paid or to be paid in
settlement) reasonably incurred or suffered by the Executive in connection
therewith, and such indemnification shall continue as to the Executive even if
she has ceased to be a director, member, employee or agent of the Company or
other entity and shall inure to the benefit of the Executive's heirs, executors
and administrators. The Company shall advance to the Executive all reasonable
costs and expenses incurred by her in connection with a Proceeding within 20
days after receipt by the Company of a written request for such advance. Such
request shall include an undertaking by the Executive to repay the amount of
such advance if it shall ultimately be determined that she is not entitled to be
indemnified against such costs and expenses.
(b) Neither the failure of the Company (including the Board, independent
legal counsel or stockholders) to have made a determination prior to the
commencement of any Proceeding concerning payment of amounts claimed by the
Executive under Section 15(a) above that indemnification of the Executive is
proper because she has met the applicable standard of conduct, nor a
determination by the Company (including the Board, independent legal counsel or
stockholders) that the Executive has not met such applicable standard of
conduct, shall create a presumption that the Executive has not met the
applicable standard of conduct.
(c) The Company agrees to continue and maintain a directors and officers'
liability insurance policy covering the Executive to the extent the Company
provides such coverage for its other executive officers.
16. Effect of Agreement on Other Benefits.
Except as specifically provided in this Agreement, the existence of this
Agreement shall not prohibit or restrict the Executive's entitlement to full
participation in the Company's employee benefit plans, programs and arrangements
applicable to the Company's senior-level executives.
17. Assignability; Binding Nature.
This Agreement shall be binding upon and inure to the benefit of the
Parties and their respective successors, heirs (in the case of the Executive)
and assigns. No rights or obligations of the Company under this Agreement may be
assigned or transferred by the Company except that such rights or obligations
may be assigned or transferred pursuant to a merger or consolidation in which
the Company is not the continuing entity, or the sale or liquidation of all or
substantially all of the assets of the Company; provided, however, that the
assignee or transferee is the successor to all or substantially all of the
assets of
10
<PAGE> 74
the Company and such assignee or transferee assumes the liabilities, obligations
and duties of the Company, as contained in this Agreement, either contractually
or as a matter of law. The Company further agrees that, in the event of a sale
of assets or liquidation as described in the preceding sentence, it shall take
whatever action it legally can in order to cause such assignee or transferee to
expressly assume the liabilities, obligations and duties of the Company
hereunder or under any other plan or benefit program referred to herein. No
rights or obligations of the Executive under this Agreement may be assigned or
transferred by the Executive other than her rights to compensation and benefits,
which may be transferred only by will or operation of law, except as provided in
Section 23 below.
18. Representation.
The Company represents and warrants that it is fully authorized and
empowered to enter into this Agreement and that the performance of its
obligations under this Agreement will not violate any agreement between it and
any other person, firm or organization. The Executive represents that she knows
of no agreement between her and any other person, firm or organization that
would be violated by the performance of her obligations under this Agreement.
19. Entire Agreement.
This Agreement contains the entire understanding and agreement between the
Parties concerning the subject matter hereof and supersedes all prior
agreements, understandings, discussions, negotiations and undertakings, whether
written or oral, between the Parties, including, without limitation, a certain
offer letter, dated November 16, 1998, by and between the Parties, with respect
thereto.
20. Amendment or Waiver.
No provision in this Agreement may be amended unless such amendment is
agreed to in writing and signed by the Executive and an authorized officer of
the Company. No waiver by either Party of any breach by the other Party of any
condition or provision contained in this Agreement to be performed by such other
Party shall be deemed a waiver of a similar or dissimilar condition or provision
at the same or any prior or subsequent time. Any waiver must be in writing and
signed by the Executive or an authorized officer of the Company, as the case may
be.
21. Severability.
In the event that any provision or portion of this Agreement shall be
determined to be invalid or unenforceable for any reason, in whole or in part,
the remaining provisions of this Agreement shall be unaffected thereby and shall
remain in full force and effect and such provision or portion of this Agreement
shall remain in effect to the fullest extent permitted by law.
22. Survivorship.
The respective rights and obligations of the Parties hereunder shall
survive any termination of the Executive's employment to the extent necessary to
the intended preservation of such rights and obligations.
23. Beneficiaries/References.
The Executive shall be entitled, to the extent permitted under any
applicable law, to select and change a beneficiary or beneficiaries to receive
any compensation or benefit payable hereunder following the Executive's death by
giving the Company written notice thereof. In the event of the Executive's death
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<PAGE> 75
or a judicial determination of her incompetence, reference in this Agreement to
the Executive shall be deemed, where appropriate, to refer to her beneficiary,
estate or other legal representative.
24. Governing Law/Submission to Jurisdiction.
This Agreement shall be governed by and construed and interpreted in
accordance with the laws of New York without reference to principles of conflict
of laws. Each of the Company and the Executive hereby irrevocably and
unconditionally: (i) submits for itself or herself, as applicable, and its or
her property in any legal action or proceeding relating to this Agreement, or
for recognition and enforcement of any judgment in respect thereof, to the
non-exclusive general jurisdiction of the courts of the State of New York, the
courts of the United States of America for the Southern District of New York,
and appellate courts from any thereof; (ii) consents that any such action or
proceeding may be brought in such courts, and waives any objection that it or
she may now or hereafter have to the venue of any such action or proceeding in
any such court or that such action or proceeding was brought in an inconvenient
forum and agrees not to plead or claim the same; (iii) agrees that service of
process in any such action or proceeding may be effected by mailing a copy
thereof by registered or certified mail (or any substantially similar form of
mail), postage prepaid, at its or her address set forth in or designated
pursuant to Section 26 hereof; and (iv) agrees that nothing herein shall affect
the right to effect service of process in any other manner permitted by law or
shall limit the right to sue in any other jurisdiction.
25. Resolution of Disputes.
Any disputes arising under or in connection with the Agreement, other than
disputes arising in connection with Sections 14 or 15 hereof, may, at the
election of the Executive or the Company, be resolved by binding arbitration, to
be held in New York City in accordance with the rules and procedures of the
American Arbitration Association. If arbitration is elected, the Executive and
the Company shall mutually select the arbitrator. If the Executive and the
Company cannot agree on the selection of an arbitrator, each Party shall select
an arbitrator and the two arbitrators shall select a third arbitrator, and the
three arbitrators shall form an arbitration panel which shall resolve the
dispute by majority vote. Judgment upon the award rendered by the arbitrator(s)
may be entered in any court having jurisdiction thereof. Costs of the
arbitration or litigation, including, without limitation, reasonable attorneys'
fees of both Parties, shall be borne by the Company; provided, however, that, if
a dispute is resolved in favor of the Company, the Executive shall bear her own
costs of the arbitration or litigation and shall reimburse the Company for the
Executive's costs of the arbitration or litigation previously paid by the
Company. Pending the resolution of any arbitration or court proceeding, the
Company shall continue payment of all amounts due the Executive under this
Agreement and all benefits to which the Executive is entitled at the time the
dispute arises.
26. Notices.
Any notice given to a Party shall be in writing and shall be deemed to
have been given when delivered personally or sent by certified or registered
mail, postage prepaid, return receipt requested, duly addressed to the Party
concerned at the address indicated below or to such changed address as such
Party may subsequently give such notice of:
If to the Company: Metallurg, Inc.
6 East 43rd Street, 12th floor
New York, New York 10017
Attention: President and Chief Executive Officer
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With a copy to: Rogers & Wells LLP
200 Park Avenue
New York, New York 10166
Attention: Samuel M. Feder
If to the Executive: Ellen T. Harmon
c/o Metallurg, Inc.
6 East 43rd Street, 12th Floor
New York, New York 10017
27. Headings.
The headings of the sections contained in this Agreement are for
convenience only and shall not be deemed to control or affect the meaning or
construction of any provision of this Agreement.
28. Counterparts.
This Agreement may be executed in two or more counterparts.
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<PAGE> 77
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first written above.
METALLURG, INC.
By: /s/ Alan D. Ewart
----------------------------------
Name: Alan D. Ewart
Title: President
AGREED AND ACCEPTED
/s/ Ellen T. Harmon
- -------------------------------
Ellen T. Harmon
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SCHEDULE A
<TABLE>
<CAPTION>
Years of Service Severance Period
---------------- ----------------
<S> <C>
Up To 15 6 months
More Than 15 9 months
More Than 20 12 months
</TABLE>
15
<PAGE> 1
Exhibit 10.15
August 9, 1998
VIA FAX AND FEDEX
Mr. Michael Alan Standen
290 Stuyvesant Avenue
Rye, New York 10580
Dear Mr. Standen:
You and Metallurg, Inc., its parents, affiliates, successors and assigns
("Company") agree to the following terms in connection with your resignation
from employment with the Company following a change in control and the Company's
proposal to you for a consulting arrangement:
1. Your employment as President and CEO of Metallurg, Inc. will terminate
effective August 10, 1998 ("Date of Termination"). You will be entitled to
receive all payments and benefits in paragraphs 11(d) and 11(f) of your April
14, 1997 Employment Agreement ("Employment Agreement") which paragraph along
with the applicable definitions are incorporated into this Letter. The lump sum
payment in paragraph 11(d)(3), as modified by paragraph 11(f), namely,
$1,236,240, will be paid within fifteen (15) calendar days of the date of this
Letter, to be transmitted in immediately available U.S. dollars in a manner
agreed upon by the parties. The other payments and benefits in paragraph 11(d)
of the Employment Agreement will be paid in immediately available funds in the
manner specified in the Employment Agreement.
2. The Company intends to retain you as a consultant until June 30, 1999
with an option to renew such arrangement by mutual written agreement for
additional specified periods as appropriate. You will receive $50,000 per
calendar quarter for your services as a consultant or a pro-rated portion
thereof if you work less than the calendar quarter.
3. As a consultant, you will dedicate your best efforts and skills to
assist in the ownership transition including helping to establish and implement
the new executive team, working with key employees in the Company's
subsidiaries, contacting and solidifying relationships with key suppliers and
customers and similar responsibilities assigned to you by the new President, CEO
or Board of Directors. Your services will be rendered on an as-needed basis with
the expectation that you will consult two or three days a week and with the
understanding that this commitment may be more or less depending on the
circumstances and needs of the Company.
4. You will also be appointed as Vice Chairman of the Company's Board of
Directors, with your compensation to be determined by the Board of Director's
compensation committee, to serve until the next meeting of stockholders or until
your successor is chosen and has qualified. You will continue as Chairman of the
Elektrowerk Weisweiler GmbH and Gesellschaft fur Elektrometallurgie GmbH Boards
at your current compensation level, to serve until the next meeting of
stockholders and until your successor is chosen and has qualified.
5. Except as set forth in paragraph 4 above, effective August 10, 1998,
you will resign from all other board or committee positions you hold with the
Company.
<PAGE> 2
6. You will continue to be obligated to repay your management loan(s) in
accordance with those prior agreements which are incorporated herein.
7. Paragraphs 12 and 13 of the April 14, 1997 Employment Agreement
relating to Confidentiality, Assignment of Rights and Noncompetition are
incorporated into this Letter Agreement as if set forth in full, except that the
restrictions stated therein will apply during any consulting period and the
six-month post-employment noncompetition period specified in paragraph 13(a)
will begin upon termination of the consulting period.
8. Paragraphs 2, 3 and 4 of this Letter set forth the proposed basic terms
for your new relationship with the Company which will be set forth in documents
and agreements to be drafted and which are to contain terms and provisions
mutually acceptable to you and the Company. Paragraphs 1, 6 and 7 acknowledge
and affirm the existing duties and obligations of you and the Company under the
Employment Agreement. This Letter does not create any rights, except the express
acknowledgements of rights and obligations under the Employment Agreement stated
in paragraphs 1, 6 and 7. Except as specified herein, all of the terms and
provisions of the Employment Agreement remain in full force and effect.
2
<PAGE> 3
We look forward to continuing our relationship with you and truly
appreciate your assistance in the transition. Please indicate your acceptance of
this Letter by signing below and returning a copy to me by August 9, 1998. Upon
receipt of your signature, we shall immediately instruct the Company's counsel
to prepare the documents and agreements specified in paragraphs 2, 3 and 4. We
understand that you will work promptly and diligently to finalize them and
execute them.
Yours truly,
Metallurg, Inc.
By: /s/ Eric Schondorf
-------------------------------------
Eric Schondorf
Title: Vice President and General Counsel
AGREED TO AND ACCEPTED BY:
/s/ Michael Alan Standen
- -----------------------------------
Michael Alan Standen
PARENT COMPANY UNDERTAKING:
Metallurg Holdings, Inc., the owner of all of the outstanding capital stock of
Metallurg, Inc., hereby agrees to cause Metallurg, Inc. to approve this Letter
at its next Board of Directors meeting and to cause this Letter to be duly
executed by an authorized officer of Metallurg, Inc.
Metallurg Holdings, Inc.
By: /s/ Heinz Schimmelbusch
-------------------------------
Heinz Schimmelbusch, President
cc: John Hortsman, Esq. (via fax)
3
<PAGE> 4
CONSULTING AGREEMENT
CONSULTING AGREEMENT dated as of October 30th, 1998, by and between
Metallurg, Inc., a Delaware corporation (the "Company"), and Michael Alan
Standen (the "Consultant").
W I T N E S S E T H:
WHEREAS, prior to August 10, 1998 (the "Effective Date") Consultant
was the President and Chief Executive Officer of the Company;
WHEREAS, the Company and Consultant entered into an employment
agreement, dated April 14, 1997 (the "Employment Agreement");
WHEREAS, on July 13, 1998, Metallurg Holdings, Inc. purchased all of
the issued and outstanding shares of the Company;
WHEREAS, as of the Effective Date, the Consultant resigned as
President and Chief Executive Officer of the Company pursuant to the Employment
Agreement;
WHEREAS, the Company desires to engage the services of Consultant in
a consulting capacity and Consultant is willing to be engaged by the Company in
a consulting capacity as an independent contractor upon the terms and conditions
set forth herein;
NOW, THEREFORE, in consideration of the premises and mutual
covenants contained herein and for other good and valuable consideration, the
receipt of which is mutually acknowledged, the Company and Consultant
(individually a "Party" and together the "Parties") agree as follows:
1. Engagement. The Company hereby engages Consultant and Consultant
hereby accepts such engagement on the terms and conditions set forth herein to
serve the Company in a consulting capacity.
2. Term. The period of service of Consultant to the Company will be
for a term commencing on the Effective Date and terminating on June 30, 1999
(the "Consulting Period"). The Consulting Period may be renewed for additional
periods mutually agreed upon by the Parties by a written agreement signed by
both Parties.
3. Duties.
(a) During his engagement hereunder, Consultant shall provide
such consulting services as the Company requires of him from time to time to
assist the Company through the transition relating to the change in ownership of
the Company, and Consultant shall use his best efforts and skill to perform
these services on the terms and conditions set forth herein. The duties of
Consultant shall include, but not be limited to, helping to establish and
implement the Company's new executive team; working with key employees in the
Company's subsidiaries; contacting and solidifying relationships with key
suppliers and customers and similar responsibilities assigned to Consultant by
the President, Chief Executive Officer or the board of directors of the Company
(the "Board"). The Parties hereby
1
<PAGE> 5
acknowledge that Consultant's services will generally by required two days per
week, however, Consultant may be obliged to provide consulting services for more
or fewer days per week as requested by the Company.
(b) Consultant was elected Vice Chairman of the Board at the
last meeting of the Board. It is the intention of the parties that Consultant
will hold such position until the next meeting of the Company's stockholders or
until his successor is chosen and qualified, Consultant will be appointed and
will serve as Vice Chairman of the Board.
(c) Consultant will continue to hold the position of Chairman
of the board of directors of Elektrowerk Weisweiler GmbH, a subsidiary of the
Company ("EWW") until the next meeting of EWW's stockholders and until his
successor is chosen and qualified.
(d) Consultant will continue to hold the position of Chairman
of the board of directors of Gesellschaft fur Elektrometallurgie mbH, a
subsidiary of the Company ("GfE") until the next meeting of GfE's stockholders
and until his successor is chosen and qualified.
(e) It is hereby acknowledged and agreed that as of the
Effective Date, Consultant resigned from all board or committee positions, other
than as described in clauses (b) through (d) above, which he formerly held with
the Company and its subsidiaries.
4. Compensation.
(a) As total and exclusive compensation for consulting
services rendered pursuant to this Agreement, the Company agrees to pay
Consultant $50,000 per calendar quarter payable in arrears on the last day of
each calendar quarter. If Consultant provides consulting services for a period
which is less than a calendar quarter, Consultant shall be paid a proportionate
share of $50,000, based on the number of days in such period compared to the
total number of days in the calendar quarter containing such period.
(b) As total and exclusive compensation for Consultant's
position as Vice Chairman of the Board, the Company will pay Consultant such
compensation as is determined by the Board or the Board's compensation
committee.
(c) As total and exclusive compensation for Consultant's
position on the board of directors of each of EWW and GfE, Consultant shall be
paid the amount currently received by Consultant in respect of such positions,
as amended from time to time by the board of directors of EWW and GfE,
respectively.
5. Expenses. All reasonable and customary expenses incurred by
Consultant in the performance of the services required by this Agreement,
including, but not limited to, all related out-of-pocket expenses, shall be
reimbursed by the Company upon appropriate documentation by Consultant in
accordance with the Company's policy for the reimbursement of expenses, as it
exists from time to time.
6. Confidentiality. During the Consulting Period and thereafter,
Consultant shall not disclose to anyone or make use of any trade secret or
proprietary or confidential information of the Company, including any trade
secret or proprietary or confidential information of any customer or other
entity to which the Company owes an obligation not to disclose such information,
which he acquires during the Consulting Period, including but not limited to
records kept in the ordinary course of business, except (i) as such disclosure
or use may be required or appropriate in connection with his work as a
consultant to the Company, (ii) when required to do so by a court of law, by any
governmental agency
2
<PAGE> 6
having supervisory authority over the business of the Company or by any
administrative or legislative body (including a committee thereof) with apparent
jurisdiction to order him to divulge, disclose or make accessible such
information, or (iii) as to such confidential information that becomes generally
known to the public or trade without violation of this Section 6.
7. Noncompetition.
(a) Consultant covenants and agrees that during the Consulting
Period and during the six-month period following the end of the Consulting
Period, he shall not at any time, without the prior written consent of the
Company, directly or indirectly, engage in a Competitive Activity. As used
herein, Competitive Activity means any activity engaged in by Consultant,
whether as an employee, principal, sole proprietor, consultant, agent, officer,
director, partner or shareholder (except as a less than one-percent shareholder
of a publicly traded company or a less than five-percent shareholder of a
privately held company), which directly competes with the Company or any
subsidiary. For this purpose, an activity which directly competes with the
Company or any subsidiary shall mean a business that was being conducted by the
Company or any subsidiary during the Consulting Period. Notwithstanding anything
to the contrary in this Section 7(a), an activity shall not be deemed to be a
Competitive Activity (x) solely as a result of Consultant's being employed by or
otherwise associated with a business of which a unit is in competition with the
Company or any subsidiary but as to which unit Consultant does not have direct
or indirect responsibilities for the products or product lines involved or (y)
if the activity contributes less than 5 percent of the revenues for the fiscal
year in question of the business by which Consultant is employed or with which
he is otherwise associated.
(b) The Parties acknowledge that in the event of a breach or
threatened breach of Section 7(a) above, the Company shall not have an adequate
remedy at law. Accordingly, in the event of any breach or threatened breach of
Section 7(a) above, the Company shall be entitled to such equitable and
injunctive relief as may be available to restrain Consultant and any business,
firm, partnership, individual, corporation or entity participating in the breach
or threatened breach from the violation of the provisions of Section 7(a) above.
Nothing in this Agreement shall be construed as prohibiting the Company from
pursuing any other remedies available at law or in equity for breach or
threatened breach of Section 7(a) above, including the recovery of damages.
8. Limitations on Authority. Consultant shall have no authority to
bind the Company by or to any obligation, agreement, promise or representation
without first obtaining the Company's prior written approval.
9. Arbitration. Any disputes arising under or in connection with the
Agreement, other than disputes arising in connection with Sections 6 or 7
hereof, may, at the election of Consultant or the Company, be resolved by
binding arbitration, to be held in New York City in accordance with the rules
and procedures of the American Arbitration Association. If arbitration is
elected, Consultant and the Company shall mutually select the arbitrator. If
Consultant and the Company cannot agree on the selection of an arbitrator, each
Party shall select an arbitrator and the two arbitrators shall select a third
arbitrator, and the three arbitrators shall form an arbitration panel which
shall resolve the dispute by majority vote. Judgment upon the award rendered by
the arbitrator(s) may be entered in any court having jurisdiction thereof. Costs
of the arbitration or litigation, including, without limitation, reasonable
attorneys' fees of both Parties, shall be borne by the Company. Pending the
resolution of any arbitration or court proceeding, the Company shall continue
payment of all amounts due Consultant under this Agreement and all benefits to
which Consultant is entitled at the time the dispute arises.
10. Entire Agreement. This instrument contains the entire agreement
of the Parties with respect to the subject matter hereof. Any other oral or
written agreements entered into with respect
3
<PAGE> 7
hereto are hereby revoked and superseded by this Agreement. No modifications
shall be made hereto except by agreement in writing signed by both Parties.
11. Paragraph Headings. The paragraph headings of this Agreement are
for convenience of reference only and shall not limit or define the text
thereof.
12. Severability. In the event that any provision or portion of this
Agreement shall be determined to be invalid or unenforceable for any reason, in
whole or in part, the remaining provisions of this Agreement shall be unaffected
thereby and shall remain in full force and effect and such provision or portion
of this Agreement shall remain in effect to the fullest extent permitted by law.
13. Notices. All notices and other communications which are required
or permitted hereunder shall be in writing and shall be sufficient if mailed by
registered or certified mail, postage prepaid to the following addresses:
If to Consultant:
Michael A. Standen
290 Stuyvesant Avenue
Rye, New York 10580
If to the Company:
Metallurg, Inc.
6 East 43rd Street, 12th floor
New York, New York 10017
Attention: General Counsel
with a copy to:
Rogers & Wells LLP
200 Park Avenue
New York, New York 10166
Attention: Samuel M. Feder, Esq.
or such other address as any Party hereto shall have specified by notice in
writing to the other Party hereto. All such notices and communications shall be
deemed to have been received on the date of delivery thereof or the third
business day after the mailing thereof, whichever is earlier.
14. Amendments and Waivers. This Agreement may not be modified or
amended except by an instrument or instruments in writing signed by the Party
against whom enforcement or any such modification or amendment is sought. Either
Party hereto may, by an instrument in writing, waive compliance by the other
Party with any term or provision of this Agreement on the part of such other
Party hereto to be performed or complied with. The waiver by any Party hereto of
a breach of any term or provision of this Agreement shall not be construed as a
waiver of any subsequent or other breach, whether or not similar to the breach
waived.
15. Counterparts. This Agreement may be executed in one or more
counterparts and all such counterparts so executed shall constitute an original
agreement binding on all the Parties but together shall constitute but one
instrument.
4
<PAGE> 8
16. Successors. This Agreement shall inure to the benefit of, and
shall be binding upon, the Parties hereto and their respective successors,
assigns, heirs and legal representatives. Insofar as Consultant is concerned,
this Agreement, being personal, cannot be assigned. This Agreement shall not be
assignable by the Company unless there shall occur (i) a sale of all or
substantially all of the assets of the Company, (ii) a dissolution or
liquidation of the Company or (iii) a merger of the Company into another entity
in which the Company is not the surviving corporation.
17. Governing Law. This Agreement shall be construed and governed in
accordance with the laws of the State of New York, without giving effect to the
conflicts of laws principles thereof.
5
<PAGE> 9
IN WITNESS WHEREOF, Consultant and the Company have executed this
Agreement on the date first above set forth.
METALLURG, INC.
By: /s/ Alan D. Ewart
----------------------------------
Name: Alan D. Ewart
Title: President
CONSULTANT
By: /s/ Michael A. Standen
----------------------------------
Michael A. Standen
6
<PAGE> 1
Exhibit 10.16
NOTE
US $16,012.50 April 15, 1997
Subject to the terms and conditions of this Note (this "Note"), Robin A.
Brumwell ("Borrower"), for value received, the receipt and sufficiency of which
is hereby acknowledged, hereby promises to pay to the order of Metallurg, Inc.,
a Delaware corporation, or its successors or assigns ("MI"), in lawful money of
the United States of America in immediately available funds, the principal sum
of Sixteen Thousand Twelve Dollars and Fifty Cents ($16,012.50) payable together
with accrued interest thereon on the business day prior to the third anniversary
of the date hereof (the "Maturity Date").
1. Interest. From the date hereof through the Maturity Date and until the
Note is paid in full, this Note shall accrue interest on the unpaid principal
amount of this Note at a rate equal to 5.91% per annum compounded annually. All
interest shall be calculated on the basis of a three hundred sixty five or six
(365/6) day year and the actual number of days elapsed (including the first day
but excluding the last day) in the period for which interest is payable and
shall be payable in cash.
2. Events of Default. This Note and all accrued and unpaid interest hereon
shall become immediately due and payable if any one or more of the following
events, hereinafter called "Events of Default," shall occur and be continuing:
(a) there is a default in the payment of the principal of, or interest on,
this Note when the same becomes due and payable, at maturity or otherwise;
(b) Borrower shall (i) apply for or consent to the appointment of, or the
taking of possession by, a receiver, custodian, trustee or liquidator of itself
or of all or a substantial part of its assets, (ii) make a general assignment
for the benefit of creditors, (iv) file a voluntary petition in bankruptcy or
(v) be adjudicated a bankrupt or insolvent, or (y) an order for relief under any
relevant bankruptcy code shall have been entered in respect of Borrower; or
(c) without the application, approval or consent of Borrower, a case or
proceeding shall be instituted, in any court of competent jurisdiction, seeking
in respect of Borrower reorganization, dissolution, winding up or liquidation, a
composition or arrangement with creditors, the appointment of a trustee,
receiver, custodian, liquidator or the like of Borrower or of all or a
substantial part of the assets of Borrower, the issuance or levying of any writ,
judgment, warrant of attachment, execution or similar process against all or a
substantial part of the assets or business of Borrower; and, the same shall
continue undismissed, or unstayed and in effect, for any period of sixty (60)
consecutive days.
If there shall occur and be continuing an Event of Default, MI may, by
notice to Borrower, declare the principal under this Note and all interest
thereon payable, whereupon all principal under this Note and all such interest
shall become and be forthwith due and payable, without presentment, demand,
protest or further notice of any kind, all of which are hereby expressly waived
by Borrower; provided, however, that upon the occurrence of the Event of Default
specified in subparagraph (b) or (c) above, the principal under this Note and
all such interest shall automatically become and be due and payable, without
presentment, demand, protest or any notice of any kind, all of which are hereby
expressly waived by Borrower. In addition to the remedies set forth above, MI
may exercise any remedies provided by applicable law.
3. Prepayment. Borrower may prepay, without premium or penalty, all or any
portion of the outstanding principal amount of this Note together with accrued
and unpaid interest to such date of prepayment on such amount so prepaid.
4. Waiver. No failure or delay on the part of MI or any holder in
exercising any right, power or privilege hereunder and no course of dealing
between Borrower, MI or any holder shall operate as a
<PAGE> 2
waiver thereof nor shall any single or partial exercise of any right, power or
privilege hereunder preclude any other exercise thereof or the exercise of any
other right, power, or privilege. The rights and remedies herein expressly
provided are cumulative and not exclusive of any rights or remedies which a
holder would otherwise have.
5. Amendment. This Note may not be amended except by an agreement in
writing signed by Borrower and MI or the holder hereof.
6. Notices. All notices and other communications under this Agreement
shall be in writing and shall be deemed given when delivered personally or
mailed by certified mail, return receipt requested, to the parties (and shall
also be transmitted by facsimile to the Persons receiving copies thereof) at the
following addresses (or to such other address as a party may have specified by
notice given to the other party pursuant to this provision):
If to MI, to:
Metallurg, Inc.
6 East 43rd Street
New York, New York 10017
U.S.A.
Attention: Barry C. Nuss
If to Borrower, to:
Robin A. Brumwell
19 Spriteview Avenue
Westport, CT 06880
7. Submission to Jurisdiction. Borrower hereby irrevocably submits to the
jurisdiction of any New York State or federal court sitting in New York City,
and the undersigned hereby irrevocably agrees that any action may be heard and
determined in such New York State court or in such federal court. Borrower
hereby irrevocably waives, to the fullest extent he may effectively do so, the
defense of an inconvenient forum to the maintenance of any action in any
jurisdiction. Borrower hereby irrevocably agrees that the summons and complaint
or any other process in any action in any jurisdiction may be served by mailing
in accordance with the provision set forth in Section 6. Borrower may also be
served in any other manner permitted by law, in which event Borrower's time to
respond shall be the time provided by law.
8. Governing Law. This Note shall be governed by and construed and
enforced in accordance with the laws of the State of New York applicable to
agreements made and to be wholly performed in such State and without giving
effect to the conflict of laws principles thereof.
2
<PAGE> 3
IN WITNESS WHEREOF, Borrower has caused this Promissory Note to be duly
executed as of the date first above written.
By: /s/ Robin A. Brumwell
---------------------------------
Robin A. Brumwell
3
<PAGE> 4
NOTE
US $29,737.50 April 15, 1997
Subject to the terms and conditions of this Note (this "Note"), Barry C.
Nuss ("Borrower"), for value received, the receipt and sufficiency of which is
hereby acknowledged, hereby promises to pay to the order of Metallurg, Inc., a
Delaware corporation, or its successors or assigns ("MI"), in lawful money of
the United States of America in immediately available funds, the principal sum
of Twenty Nine Thousand Seven Hundred Thirty Seven Dollars and Fifty Cents
($29,737.50) payable together with accrued interest thereon on the business day
prior to the third anniversary of the date hereof (the "Maturity Date").
1. Interest. From the date hereof through the Maturity Date and until the
Note is paid in full, this Note shall accrue interest on the unpaid principal
amount of this Note at a rate equal to 5.91% per annum compounded annually. All
interest shall be calculated on the basis of a three hundred sixty five or six
(365/6) day year and the actual number of days elapsed (including the first day
but excluding the last day) in the period for which interest is payable and
shall be payable in cash.
2. Events of Default. This Note and all accrued and unpaid interest hereon
shall become immediately due and payable if any one or more of the following
events, hereinafter called "Events of Default," shall occur and be continuing:
(a) there is a default in the payment of the principal of, or interest on,
this Note when the same becomes due and payable, at maturity or otherwise;
(b) Borrower shall (i) apply for or consent to the appointment of, or the
taking of possession by, a receiver, custodian, trustee or liquidator of itself
or of all or a substantial part of its assets, (ii) make a general assignment
for the benefit of creditors, (iv) file a voluntary petition in bankruptcy or
(v) be adjudicated a bankrupt or insolvent, or (y) an order for relief under any
relevant bankruptcy code shall have been entered in respect of Borrower; or
(c) without the application, approval or consent of Borrower, a case or
proceeding shall be instituted, in any court of competent jurisdiction, seeking
in respect of Borrower reorganization, dissolution, winding up or liquidation, a
composition or arrangement with creditors, the appointment of a trustee,
receiver, custodian, liquidator or the like of Borrower or of all or a
substantial part of the assets of Borrower, the issuance or levying of any writ,
judgment, warrant of attachment, execution or similar process against all or a
substantial part of the assets or business of Borrower; and, the same shall
continue undismissed, or unstayed and in effect, for any period of sixty (60)
consecutive days.
If there shall occur and be continuing an Event of Default, MI may, by
notice to Borrower, declare the principal under this Note and all interest
thereon payable, whereupon all principal under this Note and all such interest
shall become and be forthwith due and payable, without presentment, demand,
protest or further notice of any kind, all of which are hereby expressly waived
by Borrower; provided, however, that upon the occurrence of the Event of Default
specified in subparagraph (b) or (c) above, the principal under this Note and
all such interest shall automatically become and be due and payable, without
presentment, demand, protest or any notice of any kind, all of which are hereby
expressly waived by Borrower. In addition to the remedies set forth above, MI
may exercise any remedies provided by applicable law.
3. Prepayment. Borrower may prepay, without premium or penalty, all or any
portion of the outstanding principal amount of this Note together with accrued
and unpaid interest to such date of prepayment on such amount so prepaid.
4. Waiver. No failure or delay on the part of MI or any holder in
exercising any right, power or privilege hereunder and no course of dealing
between Borrower, MI or any holder shall operate as a
<PAGE> 5
waiver thereof nor shall any single or partial exercise of any right, power or
privilege hereunder preclude any other exercise thereof or the exercise of any
other right, power, or privilege. The rights and remedies herein expressly
provided are cumulative and not exclusive of any rights or remedies which a
holder would otherwise have.
5. Amendment. This Note may not be amended except by an agreement in
writing signed by Borrower and MI or the holder hereof.
6. Notices. All notices and other communications under this Agreement
shall be in writing and shall be deemed given when delivered personally or
mailed by certified mail, return receipt requested, to the parties (and shall
also be transmitted by facsimile to the Persons receiving copies thereof) at the
following addresses (or to such other address as a party may have specified by
notice given to the other party pursuant to this provision):
If to MI, to:
Metallurg, Inc.
6 East 43rd Street
New York, New York 10017
U.S.A.
Attention: Barry C. Nuss
If to Borrower, to:
Barry C. Nuss
9 Norman Place
Tenafly, New Jersey 07670
7. Submission to Jurisdiction. Borrower hereby irrevocably submits to the
jurisdiction of any New York State or federal court sitting in New York City,
and the undersigned hereby irrevocably agrees that any action may be heard and
determined in such New York State court or in such federal court. Borrower
hereby irrevocably waives, to the fullest extent he may effectively do so, the
defense of an inconvenient forum to the maintenance of any action in any
jurisdiction. Borrower hereby irrevocably agrees that the summons and complaint
or any other process in any action in any jurisdiction may be served by mailing
in accordance with the provision set forth in Section 6. Borrower may also be
served in any other manner permitted by law, in which event Borrower's time to
respond shall be the time provided by law.
8. Governing Law. This Note shall be governed by and construed and
enforced in accordance with the laws of the State of New York applicable to
agreements made and to be wholly performed in such State and without giving
effect to the conflict of laws principles thereof.
2
<PAGE> 6
IN WITNESS WHEREOF, Borrower has caused this Promissory Note to be duly
executed as of the date first above written.
By: /s/ Barry C. Nuss
-------------------------------
Barry C. Nuss
3
<PAGE> 7
NOTE
US $22,875.00 April 15, 1997
Subject to the terms and conditions of this Note (this "Note"), J. Richard
Budd ("Borrower"), for value received, the receipt and sufficiency of which is
hereby acknowledged, hereby promises to pay to the order of Metallurg, Inc., a
Delaware corporation, or its successors or assigns ("MI"), in lawful money of
the United States of America in immediately available funds, the principal sum
of Twenty Two Thousand Eight Hundred Seventy Five Dollars ($22,875.00) payable
together with accrued interest thereon on the business day prior to the third
anniversary of the date hereof (the "Maturity Date").
1. Interest. From the date hereof through the Maturity Date and until the
Note is paid in full, this Note shall accrue interest on the unpaid principal
amount of this Note at a rate equal to 5.91% per annum compounded annually. All
interest shall be calculated on the basis of a three hundred sixty five or six
(365/6) day year and the actual number of days elapsed (including the first day
but excluding the last day) in the period for which interest is payable and
shall be payable in cash.
2. Events of Default. This Note and all accrued and unpaid interest hereon
shall become immediately due and payable if any one or more of the following
events, hereinafter called "Events of Default," shall occur and be continuing:
(a) there is a default in the payment of the principal of, or interest on,
this Note when the same becomes due and payable, at maturity or otherwise;
(b) Borrower shall (i) apply for or consent to the appointment of, or the
taking of possession by, a receiver, custodian, trustee or liquidator of itself
or of all or a substantial part of its assets, (ii) make a general assignment
for the benefit of creditors, (iv) file a voluntary petition in bankruptcy or
(v) be adjudicated a bankrupt or insolvent, or (y) an order for relief under any
relevant bankruptcy code shall have been entered in respect of Borrower; or
(c) without the application, approval or consent of Borrower, a case or
proceeding shall be instituted, in any court of competent jurisdiction, seeking
in respect of Borrower reorganization, dissolution, winding up or liquidation, a
composition or arrangement with creditors, the appointment of a trustee,
receiver, custodian, liquidator or the like of Borrower or of all or a
substantial part of the assets of Borrower, the issuance or levying of any writ,
judgment, warrant of attachment, execution or similar process against all or a
substantial part of the assets or business of Borrower; and, the same shall
continue undismissed, or unstayed and in effect, for any period of sixty (60)
consecutive days.
If there shall occur and be continuing an Event of Default, MI may, by
notice to Borrower, declare the principal under this Note and all interest
thereon payable, whereupon all principal under this Note and all such interest
shall become and be forthwith due and payable, without presentment, demand,
protest or further notice of any kind, all of which are hereby expressly waived
by Borrower; provided, however, that upon the occurrence of the Event of Default
specified in subparagraph (b) or (c) above, the principal under this Note and
all such interest shall automatically become and be due and payable, without
presentment, demand, protest or any notice of any kind, all of which are hereby
expressly waived by Borrower. In addition to the remedies set forth above, MI
may exercise any remedies provided by applicable law.
3. Prepayment. Borrower may prepay, without premium or penalty, all or any
portion of the outstanding principal amount of this Note together with accrued
and unpaid interest to such date of prepayment on such amount so prepaid.
4. Waiver. No failure or delay on the part of MI or any holder in
exercising any right, power or privilege hereunder and no course of dealing
between Borrower, MI or any holder shall operate as a
<PAGE> 8
waiver thereof nor shall any single or partial exercise of any right, power or
privilege hereunder preclude any other exercise thereof or the exercise of any
other right, power, or privilege. The rights and remedies herein expressly
provided are cumulative and not exclusive of any rights or remedies which a
holder would otherwise have.
5. Amendment. This Note may not be amended except by an agreement in
writing signed by Borrower and MI or the holder hereof.
6. Notices. All notices and other communications under this Agreement
shall be in writing and shall be deemed given when delivered personally or
mailed by certified mail, return receipt requested, to the parties (and shall
also be transmitted by facsimile to the Persons receiving copies thereof) at the
following addresses (or to such other address as a party may have specified by
notice given to the other party pursuant to this provision):
If to MI, to:
Metallurg, Inc.
6 East 43rd Street
New York, New York 10017
U.S.A.
Attention: Barry C. Nuss
If to Borrower, to:
J. Richard Budd
332 National Court
North Hills, NY 11576
7. Submission to Jurisdiction. Borrower hereby irrevocably submits to the
jurisdiction of any New York State or federal court sitting in New York City,
and the undersigned hereby irrevocably agrees that any action may be heard and
determined in such New York State court or in such federal court. Borrower
hereby irrevocably waives, to the fullest extent he may effectively do so, the
defense of an inconvenient forum to the maintenance of any action in any
jurisdiction. Borrower hereby irrevocably agrees that the summons and complaint
or any other process in any action in any jurisdiction may be served by mailing
in accordance with the provision set forth in Section 6. Borrower may also be
served in any other manner permitted by law, in which event Borrower's time to
respond shall be the time provided by law.
8. Governing Law. This Note shall be governed by and construed and
enforced in accordance with the laws of the State of New York applicable to
agreements made and to be wholly performed in such State and without giving
effect to the conflict of laws principles thereof.
2
<PAGE> 9
IN WITNESS WHEREOF, Borrower has caused this Promissory Note to be duly
executed as of the date first above written.
By: /s/ J. Richard Budd
--------------------------
J. Richard Budd
3
<PAGE> 10
NOTE
US $25,162.50 April 15, 1997
Subject to the terms and conditions of this Note (this "Note"), Michael A.
Banks ("Borrower"), for value received, the receipt and sufficiency of which is
hereby acknowledged, hereby promises to pay to the order of Metallurg, Inc., a
Delaware corporation, or its successors or assigns ("MI"), in lawful money of
the United States of America in immediately available funds, the principal sum
of Twenty Five Thousand One Hundred Sixty Two Dollars and Fifty Cents
($25,162.50) payable together with accrued interest thereon on the business day
prior to the third anniversary of the date hereof (the "Maturity Date").
1. Interest. From the date hereof through the Maturity Date and until the
Note is paid in full, this Note shall accrue interest on the unpaid principal
amount of this Note at a rate equal to 5.91% per annum compounded annually. All
interest shall be calculated on the basis of a three hundred sixty five or six
(365/6) day year and the actual number of days elapsed (including the first day
but excluding the last day) in the period for which interest is payable and
shall be payable in cash.
2. Events of Default. This Note and all accrued and unpaid interest hereon
shall become immediately due and payable if any one or more of the following
events, hereinafter called "Events of Default," shall occur and be continuing:
(a) there is a default in the payment of the principal of, or interest on,
this Note when the same becomes due and payable, at maturity or otherwise;
(b) Borrower shall (i) apply for or consent to the appointment of, or the
taking of possession by, a receiver, custodian, trustee or liquidator of itself
or of all or a substantial part of its assets, (ii) make a general assignment
for the benefit of creditors, (iv) file a voluntary petition in bankruptcy or
(v) be adjudicated a bankrupt or insolvent, or (y) an order for relief under any
relevant bankruptcy code shall have been entered in respect of Borrower; or
(c) without the application, approval or consent of Borrower, a case or
proceeding shall be instituted, in any court of competent jurisdiction, seeking
in respect of Borrower reorganization, dissolution, winding up or liquidation, a
composition or arrangement with creditors, the appointment of a trustee,
receiver, custodian, liquidator or the like of Borrower or of all or a
substantial part of the assets of Borrower, the issuance or levying of any writ,
judgment, warrant of attachment, execution or similar process against all or a
substantial part of the assets or business of Borrower; and, the same shall
continue undismissed, or unstayed and in effect, for any period of sixty (60)
consecutive days.
If there shall occur and be continuing an Event of Default, MI may, by
notice to Borrower, declare the principal under this Note and all interest
thereon payable, whereupon all principal under this Note and all such interest
shall become and be forthwith due and payable, without presentment, demand,
protest or further notice of any kind, all of which are hereby expressly waived
by Borrower; provided, however, that upon the occurrence of the Event of Default
specified in subparagraph (b) or (c) above, the principal under this Note and
all such interest shall automatically become and be due and payable, without
presentment, demand, protest or any notice of any kind, all of which are hereby
expressly waived by Borrower. In addition to the remedies set forth above, MI
may exercise any remedies provided by applicable law.
3. Prepayment. Borrower may prepay, without premium or penalty, all or any
portion of the outstanding principal amount of this Note together with accrued
and unpaid interest to such date of prepayment on such amount so prepaid.
4. Waiver. No failure or delay on the part of MI or any holder in
exercising any right, power or privilege hereunder and no course of dealing
between Borrower, MI or any holder shall operate as a
<PAGE> 11
waiver thereof nor shall any single or partial exercise of any right, power or
privilege hereunder preclude any other exercise thereof or the exercise of any
other right, power, or privilege. The rights and remedies herein expressly
provided are cumulative and not exclusive of any rights or remedies which a
holder would otherwise have.
5. Amendment. This Note may not be amended except by an agreement in
writing signed by Borrower and MI or the holder hereof. 6. Notice. All notices
and other communications under this Agreement shall
be in writing and shall be deemed given when delivered personally or
mailed by certified mail, return receipt requested, to the parties (and shall
also be transmitted by facsimile to the Persons receiving copies thereof) at the
following addresses (or to such other address as a party may have specified by
notice given to the other party pursuant to this provision):
If to MI, to:
Metallurg, Inc.
6 East 43rd Street
New York, New York 10017
U.S.A.
Attention: Barry C. Nuss
If to Borrower, to:
Michael A. Banks
232 Bryam Lake Road
Mount Kisco, NY 10549
7. Submission to Jurisdiction. Borrower hereby irrevocably submits to the
jurisdiction of any New York State or federal court sitting in New York City,
and the undersigned hereby irrevocably agrees that any action may be heard and
determined in such New York State court or in such federal court. Borrower
hereby irrevocably waives, to the fullest extent he may effectively do so, the
defense of an inconvenient forum to the maintenance of any action in any
jurisdiction. Borrower hereby irrevocably agrees that the summons and complaint
or any other process in any action in any jurisdiction may be served by mailing
in accordance with the provision set forth in Section 6. Borrower may also be
served in any other manner permitted by law, in which event Borrower's time to
respond shall be the time provided by law.
8. Governing Law. This Note shall be governed by and construed and
enforced in accordance with the laws of the State of New York applicable to
agreements made and to be wholly performed in such State and without giving
effect to the conflict of laws principles thereof.
2
<PAGE> 12
IN WITNESS WHEREOF, Borrower has caused this Promissory Note to be duly
executed as of the date first above written.
By: /s/ Michael A. Banks
-------------------------
Michael A. Banks
3
<PAGE> 13
NOTE
US $26,997.08 April 15, 1998
Subject to the terms and conditions of this Note (this "Note"), Robin A.
Brumwell ("Borrower"), for value received, the receipt and sufficiency of which
is hereby acknowledged, hereby promises to pay to the order of Metallurg, Inc.,
a Delaware corporation, or its successors or assigns ("MI"), in lawful money of
the United States of America in immediately available funds, the principal sum
of Twenty Six Thousand Nine Hundred Ninety Seven Dollars and eight cents
($26,997.08) payable together with accrued interest thereon on April 14, 2001
(the "Maturity Date").
1. Interest. From the date hereof through the Maturity Date and until the
Note is paid in full, this Note shall accrue interest on the unpaid principal
amount of this Note at a rate equal to 5.7% per annum compounded annually. All
interest shall be calculated on the basis of a three hundred sixty five or six
(365/6) day year and the actual number of days elapsed (including the first day
but excluding the last day) in the period for which interest is payable and
shall be payable in cash.
2. Events of Default. This Note and all accrued and unpaid interest hereon
shall become immediately due and payable if any one or more of the following
events, hereinafter called "Events of Default," shall occur and be continuing:
(a) there is a default in the payment of the principal of, or interest on,
this Note when the same becomes due and payable, at maturity or otherwise;
(b) Borrower shall (i) apply for or consent to the appointment of, or the
taking of possession by, a receiver, custodian, trustee or liquidator of itself
or of all or a substantial part of its assets, (ii) make a general assignment
for the benefit of creditors, (iv) file a voluntary petition in bankruptcy or
(v) be adjudicated a bankrupt or insolvent, or (y) an order for relief under any
relevant bankruptcy code shall have been entered in respect of Borrower; or
(c) without the application, approval or consent of Borrower, a case or
proceeding shall be instituted, in any court of competent jurisdiction, seeking
in respect of Borrower reorganization, dissolution, winding up or liquidation, a
composition or arrangement with creditors, the appointment of a trustee,
receiver, custodian, liquidator or the like of Borrower or of all or a
substantial part of the assets of Borrower, the issuance or levying of any writ,
judgment, warrant of attachment, execution or similar process against all or a
substantial part of the assets or business of Borrower; and, the same shall
continue undismissed, or unstayed and in effect, for any period of sixty (60)
consecutive days.
If there shall occur and be continuing an Event of Default, MI may, by
notice to Borrower, declare the principal under this Note and all interest
thereon payable, whereupon all principal under this Note and all such interest
shall become and be forthwith due and payable, without presentment, demand,
protest or further notice of any kind, all of which are hereby expressly waived
by Borrower; provided, however, that upon the occurrence of the Event of Default
specified in subparagraph (b) or (c) above, the principal under this Note and
all such interest shall automatically become and be due and payable, without
presentment, demand, protest or any notice of any kind, all of which are hereby
expressly waived by Borrower. In addition to the remedies set forth above, MI
may exercise any remedies provided by applicable law.
3. Prepayment. Borrower may prepay, without premium or penalty, all or any
portion of the outstanding principal amount of this Note together with accrued
and unpaid interest to such date of prepayment on such amount so prepaid.
<PAGE> 14
4. Waiver. No failure or delay on the part of MI or any holder in
exercising any right, power or privilege hereunder and no course of dealing
between Borrower, MI or any holder shall operate as a waiver thereof nor shall
any single or partial exercise of any right, power or privilege hereunder
preclude any other exercise thereof or the exercise of any other right, power,
or privilege. The rights and remedies herein expressly provided are cumulative
and not exclusive of any rights or remedies which a holder would otherwise have.
5. Amendment. This Note may not be amended except by an agreement in
writing signed by Borrower and MI or the holder hereof.
6. Notices. All notices and other communications under this Agreement
shall be in writing and shall be deemed given when delivered personally or
mailed by certified mail, return receipt requested, to the parties (and shall
also be transmitted by facsimile to the Persons receiving copies thereof) at the
following addresses (or to such other address as a party may have specified by
notice given to the other party pursuant to this provision):
If to MI, to:
Metallurg, Inc.
6 East 43rd Street
New York, New York 10017
U.S.A.
Attention: Barry C. Nuss
If to Borrower, to:
Robin A. Brumwell
19 Spriteview Avenue
Westport, CT 06880
7. Submission to Jurisdiction. Borrower hereby irrevocably submits to the
jurisdiction of any New York State or federal court sitting in New York City,
and the undersigned hereby irrevocably agrees that any action may be heard and
determined in such New York State court or in such federal court. Borrower
hereby irrevocably waives, to the fullest extent he may effectively do so, the
defense of an inconvenient forum to the maintenance of any action in any
jurisdiction. Borrower hereby irrevocably agrees that the summons and complaint
or any other process in any action in any jurisdiction may be served by mailing
in accordance with the provision set forth in Section 6. Borrower may also be
served in any other manner permitted by law, in which event Borrower's time to
respond shall be the time provided by law.
8. Governing Law. This Note shall be governed by and construed and
enforced in accordance with the laws of the State of New York applicable to
agreements made and to be wholly performed in such State and without giving
effect to the conflict of laws principles thereof.
2
<PAGE> 15
IN WITNESS WHEREOF, Borrower has caused this Promissory Note to be duly
executed as of the date first above written.
/s/ Robin A. Brumwell
---------------------------
Robin A. Brumwell
3
<PAGE> 16
NOTE
US $50,137.43 April 15, 1998
Subject to the terms and conditions of this Note (this "Note"), Barry C.
Nuss ("Borrower"), for value received, the receipt and sufficiency of which is
hereby acknowledged, hereby promises to pay to the order of Metallurg, Inc., a
Delaware corporation, or its successors or assigns ("MI"), in lawful money of
the United States of America in immediately available funds, the principal sum
of Fifty Thousand One Hundred Thirty Seven Dollars and forty three cents
($50,137.43) payable together with accrued interest thereon on April 14, 2001
(the "Maturity Date").
1. Interest. From the date hereof through the Maturity Date and until the
Note is paid in full, this Note shall accrue interest on the unpaid principal
amount of this Note at a rate equal to 5.7% per annum compounded annually. All
interest shall be calculated on the basis of a three hundred sixty five or six
(365/6) day year and the actual number of days elapsed (including the first day
but excluding the last day) in the period for which interest is payable and
shall be payable in cash.
2. Events of Default. This Note and all accrued and unpaid interest hereon
shall become immediately due and payable if any one or more of the following
events, hereinafter called "Events of Default," shall occur and be continuing:
(a) there is a default in the payment of the principal of, or interest on,
this Note when the same becomes due and payable, at maturity or otherwise;
(b) Borrower shall (i) apply for or consent to the appointment of, or the
taking of possession by, a receiver, custodian, trustee or liquidator of itself
or of all or a substantial part of its assets, (ii) make a general assignment
for the benefit of creditors, (iv) file a voluntary petition in bankruptcy or
(v) be adjudicated a bankrupt or insolvent, or (y) an order for relief under any
relevant bankruptcy code shall have been entered in respect of Borrower; or
(c) without the application, approval or consent of Borrower, a case or
proceeding shall be instituted, in any court of competent jurisdiction, seeking
in respect of Borrower reorganization, dissolution, winding up or liquidation, a
composition or arrangement with creditors, the appointment of a trustee,
receiver, custodian, liquidator or the like of Borrower or of all or a
substantial part of the assets of Borrower, the issuance or levying of any writ,
judgment, warrant of attachment, execution or similar process against all or a
substantial part of the assets or business of Borrower; and, the same shall
continue undismissed, or unstayed and in effect, for any period of sixty (60)
consecutive days.
If there shall occur and be continuing an Event of Default, MI may, by
notice to Borrower, declare the principal under this Note and all interest
thereon payable, whereupon all principal under this Note and all such interest
shall become and be forthwith due and payable, without presentment, demand,
protest or further notice of any kind, all of which are hereby expressly waived
by Borrower; provided, however, that upon the occurrence of the Event of Default
specified in subparagraph (b) or (c) above, the principal under this Note and
all such interest shall automatically become and be due and payable, without
presentment, demand, protest or any notice of any kind, all of which are hereby
expressly waived by Borrower. In addition to the remedies set forth above, MI
may exercise any remedies provided by applicable law.
3. Prepayment. Borrower may prepay, without premium or penalty, all or any
portion of the outstanding principal amount of this Note together with accrued
and unpaid interest to such date of prepayment on such amount so prepaid.
<PAGE> 17
4. Waiver. No failure or delay on the part of MI or any holder in
exercising any right, power or privilege hereunder and no course of dealing
between Borrower, MI or any holder shall operate as a waiver thereof nor shall
any single or partial exercise of any right, power or privilege hereunder
preclude any other exercise thereof or the exercise of any other right, power,
or privilege. The rights and remedies herein expressly provided are cumulative
and not exclusive of any rights or remedies which a holder would otherwise have.
5. Amendment. This Note may not be amended except by an agreement in
writing signed by Borrower and MI or the holder hereof.
6. Notices. All notices and other communications under this Agreement
shall be in writing and shall be deemed given when delivered personally or
mailed by certified mail, return receipt requested, to the parties (and shall
also be transmitted by facsimile to the Persons receiving copies thereof) at the
following addresses (or to such other address as a party may have specified by
notice given to the other party pursuant to this provision):
If to MI, to:
Metallurg, Inc.
6 East 43rd Street
New York, New York 10017
U.S.A.
Attention: Barry C. Nuss
If to Borrower, to:
Barry C. Nuss
9 Norman Place
Tenafly, New Jersey 07670
7. Submission to Jurisdiction. Borrower hereby irrevocably submits to the
jurisdiction of any New York State or federal court sitting in New York City,
and the undersigned hereby irrevocably agrees that any action may be heard and
determined in such New York State court or in such federal court. Borrower
hereby irrevocably waives, to the fullest extent he may effectively do so, the
defense of an inconvenient forum to the maintenance of any action in any
jurisdiction. Borrower hereby irrevocably agrees that the summons and complaint
or any other process in any action in any jurisdiction may be served by mailing
in accordance with the provision set forth in Section 6. Borrower may also be
served in any other manner permitted by law, in which event Borrower's time to
respond shall be the time provided by law.
8. Governing Law. This Note shall be governed by and construed and
enforced in accordance with the laws of the State of New York applicable to
agreements made and to be wholly performed in such State and without giving
effect to the conflict of laws principles thereof.
2
<PAGE> 18
IN WITNESS WHEREOF, Borrower has caused this Promissory Note to be duly
executed as of the date first above written.
/s/ Barry C. Nuss
-----------------------------
Barry C. Nuss
3
<PAGE> 19
NOTE
US $38,567.25 April 15, 1998
Subject to the terms and conditions of this Note (this "Note"), J. Richard
Budd ("Borrower"), for value received, the receipt and sufficiency of which is
hereby acknowledged, hereby promises to pay to the order of Metallurg, Inc., a
Delaware corporation, or its successors or assigns ("MI"), in lawful money of
the United States of America in immediately available funds, the principal sum
of Thirty Eight Thousand Five Hundred Sixty Seven Dollars and twenty five cents
($38,567.25) payable together with accrued interest thereon on April 14, 2001
(the "Maturity Date").
1. Interest. From the date hereof through the Maturity Date and until the
Note is paid in full, this Note shall accrue interest on the unpaid principal
amount of this Note at a rate equal to 5.7% per annum compounded annually. All
interest shall be calculated on the basis of a three hundred sixty five or six
(365/6) day year and the actual number of days elapsed (including the first day
but excluding the last day) in the period for which interest is payable and
shall be payable in cash.
2. Events of Default. This Note and all accrued and unpaid interest hereon
shall become immediately due and payable if any one or more of the following
events, hereinafter called "Events of Default," shall occur and be continuing:
(a) there is a default in the payment of the principal of, or interest on,
this Note when the same becomes due and payable, at maturity or otherwise;
(b) Borrower shall (i) apply for or consent to the appointment of, or the
taking of possession by, a receiver, custodian, trustee or liquidator of itself
or of all or a substantial part of its assets, (ii) make a general assignment
for the benefit of creditors, (iv) file a voluntary petition in bankruptcy or
(v) be adjudicated a bankrupt or insolvent, or (y) an order for relief under any
relevant bankruptcy code shall have been entered in respect of Borrower; or
(c) without the application, approval or consent of Borrower, a case or
proceeding shall be instituted, in any court of competent jurisdiction, seeking
in respect of Borrower reorganization, dissolution, winding up or liquidation, a
composition or arrangement with creditors, the appointment of a trustee,
receiver, custodian, liquidator or the like of Borrower or of all or a
substantial part of the assets of Borrower, the issuance or levying of any writ,
judgment, warrant of attachment, execution or similar process against all or a
substantial part of the assets or business of Borrower; and, the same shall
continue undismissed, or unstayed and in effect, for any period of sixty (60)
consecutive days.
If there shall occur and be continuing an Event of Default, MI may, by
notice to Borrower, declare the principal under this Note and all interest
thereon payable, whereupon all principal under this Note and all such interest
shall become and be forthwith due and payable, without presentment, demand,
protest or further notice of any kind, all of which are hereby expressly waived
by Borrower; provided, however, that upon the occurrence of the Event of Default
specified in subparagraph (b) or (c) above, the principal under this Note and
all such interest shall automatically become and be due and payable, without
presentment, demand, protest or any notice of any kind, all of which are hereby
expressly waived by Borrower. In addition to the remedies set forth above, MI
may exercise any remedies provided by applicable law.
3. Prepayment. Borrower may prepay, without premium or penalty, all or any
portion of the outstanding principal amount of this Note together with accrued
and unpaid interest to such date of prepayment on such amount so prepaid.
<PAGE> 20
4. Waiver. No failure or delay on the part of MI or any holder in
exercising any right, power or privilege hereunder and no course of dealing
between Borrower, MI or any holder shall operate as a waiver thereof nor shall
any single or partial exercise of any right, power or privilege hereunder
preclude any other exercise thereof or the exercise of any other right, power,
or privilege. The rights and remedies herein expressly provided are cumulative
and not exclusive of any rights or remedies which a holder would otherwise have.
5. Amendment. This Note may not be amended except by an agreement in
writing signed by Borrower and MI or the holder hereof.
6. Notices. All notices and other communications under this Agreement
shall be in writing and shall be deemed given when delivered personally or
mailed by certified mail, return receipt requested, to the parties (and shall
also be transmitted by facsimile to the Persons receiving copies thereof) at the
following addresses (or to such other address as a party may have specified by
notice given to the other party pursuant to this provision):
If to MI, to:
Metallurg, Inc.
6 East 43rd Street
New York, New York 10017
U.S.A.
Attention: Barry C. Nuss
If to Borrower, to:
J. Richard Budd
58 Piping Rock Road
Locust Valley, NY 11560
7. Submission to Jurisdiction. Borrower hereby irrevocably submits to the
jurisdiction of any New York State or federal court sitting in New York City,
and the undersigned hereby irrevocably agrees that any action may be heard and
determined in such New York State court or in such federal court. Borrower
hereby irrevocably waives, to the fullest extent he may effectively do so, the
defense of an inconvenient forum to the maintenance of any action in any
jurisdiction. Borrower hereby irrevocably agrees that the summons and complaint
or any other process in any action in any jurisdiction may be served by mailing
in accordance with the provision set forth in Section 6. Borrower may also be
served in any other manner permitted by law, in which event Borrower's time to
respond shall be the time provided by law.
8. Governing Law. This Note shall be governed by and construed and
enforced in accordance with the laws of the State of New York applicable to
agreements made and to be wholly performed in such State and without giving
effect to the conflict of laws principles thereof.
2
<PAGE> 21
IN WITNESS WHEREOF, Borrower has caused this Promissory Note to be duly
executed as of the date first above written.
/s/ J. Richard Budd
-------------------------
J. Richard Budd
3
<PAGE> 22
NOTE
US $42,423.98 April 15, 1998
Subject to the terms and conditions of this Note (this "Note"), Michael A.
Banks ("Borrower"), for value received, the receipt and sufficiency of which is
hereby acknowledged, hereby promises to pay to the order of Metallurg, Inc., a
Delaware corporation, or its successors or assigns ("MI"), in lawful money of
the United States of America in immediately available funds, the principal sum
of Forty Two Thousand Four Hundred Twenty Three Dollars and ninety eight cents
($42,423.98) payable together with accrued interest thereon on April 14, 2001
(the "Maturity Date").
1. Interest. From the date hereof through the Maturity Date and until the
Note is paid in full, this Note shall accrue interest on the unpaid principal
amount of this Note at a rate equal to 5.7% per annum compounded annually. All
interest shall be calculated on the basis of a three hundred sixty five or six
(365/6) day year and the actual number of days elapsed (including the first day
but excluding the last day) in the period for which interest is payable and
shall be payable in cash.
2. Events of Default. This Note and all accrued and unpaid interest hereon
shall become immediately due and payable if any one or more of the following
events, hereinafter called "Events of Default," shall occur and be continuing:
(a) there is a default in the payment of the principal of, or interest on,
this Note when the same becomes due and payable, at maturity or otherwise;
(b) Borrower shall (i) apply for or consent to the appointment of, or the
taking of possession by, a receiver, custodian, trustee or liquidator of itself
or of all or a substantial part of its assets, (ii) make a general assignment
for the benefit of creditors, (iv) file a voluntary petition in bankruptcy or
(v) be adjudicated a bankrupt or insolvent, or (y) an order for relief under any
relevant bankruptcy code shall have been entered in respect of Borrower; or
(c) without the application, approval or consent of Borrower, a case or
proceeding shall be instituted, in any court of competent jurisdiction, seeking
in respect of Borrower reorganization, dissolution, winding up or liquidation, a
composition or arrangement with creditors, the appointment of a trustee,
receiver, custodian, liquidator or the like of Borrower or of all or a
substantial part of the assets of Borrower, the issuance or levying of any writ,
judgment, warrant of attachment, execution or similar process against all or a
substantial part of the assets or business of Borrower; and, the same shall
continue undismissed, or unstayed and in effect, for any period of sixty (60)
consecutive days.
If there shall occur and be continuing an Event of Default, MI may, by
notice to Borrower, declare the principal under this Note and all interest
thereon payable, whereupon all principal under this Note and all such interest
shall become and be forthwith due and payable, without presentment, demand,
protest or further notice of any kind, all of which are hereby expressly waived
by Borrower; provided, however, that upon the occurrence of the Event of Default
specified in subparagraph (b) or (c) above, the principal under this Note and
all such interest shall automatically become and be due and payable, without
presentment, demand, protest or any notice of any kind, all of which are hereby
expressly waived by Borrower. In addition to the remedies set forth above, MI
may exercise any remedies provided by applicable law.
3. Prepayment. Borrower may prepay, without premium or penalty, all or any
portion of the outstanding principal amount of this Note together with accrued
and unpaid interest to such date of prepayment on such amount so prepaid.
<PAGE> 23
4. Waiver. No failure or delay on the part of MI or any holder in
exercising any right, power or privilege hereunder and no course of dealing
between Borrower, MI or any holder shall operate as a waiver thereof nor shall
any single or partial exercise of any right, power or privilege hereunder
preclude any other exercise thereof or the exercise of any other right, power,
or privilege. The rights and remedies herein expressly provided are cumulative
and not exclusive of any rights or remedies which a holder would otherwise have.
5. Amendment. This Note may not be amended except by an agreement in
writing signed by Borrower and MI or the holder hereof.
6. Notices. All notices and other communications under this Agreement
shall be in writing and shall be deemed given when delivered personally or
mailed by certified mail, return receipt requested, to the parties (and shall
also be transmitted by facsimile to the Persons receiving copies thereof) at the
following addresses (or to such other address as a party may have specified by
notice given to the other party pursuant to this provision):
If to MI, to:
Metallurg, Inc.
6 East 43rd Street
New York, New York 10017
U.S.A.
Attention: Barry C. Nuss
If to Borrower, to:
Michael A. Banks
232 Byram Lake Road
Mount Kisco, NY 10549
7. Submission to Jurisdiction. Borrower hereby irrevocably submits to the
jurisdiction of any New York State or federal court sitting in New York City,
and the undersigned hereby irrevocably agrees that any action may be heard and
determined in such New York State court or in such federal court. Borrower
hereby irrevocably waives, to the fullest extent he may effectively do so, the
defense of an inconvenient forum to the maintenance of any action in any
jurisdiction. Borrower hereby irrevocably agrees that the summons and complaint
or any other process in any action in any jurisdiction may be served by mailing
in accordance with the provision set forth in Section 6. Borrower may also be
served in any other manner permitted by law, in which event Borrower's time to
respond shall be the time provided by law.
8. Governing Law. This Note shall be governed by and construed and
enforced in accordance with the laws of the State of New York applicable to
agreements made and to be wholly performed in such State and without giving
effect to the conflict of laws principles thereof.
2
<PAGE> 24
IN WITNESS WHEREOF, Borrower has caused this Promissory Note to be duly
executed as of the date first above written.
/s/ Michael A. Banks
----------------------------
Michael A. Banks
3
<PAGE> 25
NOTE
US $96,075.00 July 13, 1998
Subject to the terms and conditions of this Note (this "Note"), Robin A.
Brumwell ("Borrower"), for value received, the receipt and sufficiency of which
is hereby acknowledged, hereby promises to pay to the order of Metallurg, Inc.,
a Delaware corporation, or its successors or assigns ("MI") in lawful money of
the United States of America in immediately available funds, the principal sum
of Ninety Six Thousand Seventy Five dollars ($96,075.00) payable together with
accrued interest thereon on July 12, 2001 (the "Maturity Date").
1. Interest. From the date hereof through the Maturity Date and until the
Note is paid in full, this Note shall accrue interest on the unpaid principal
amount of this Note at a rate equal to 5.68% per annum compounded annually. All
interest shall be calculated on the basis of a three hundred sixty five or six
(365/6) day year and the actual number of days elapsed (including the first day
but excluding the last day) in the period for which interest is payable and
shall be payable in cash.
2. Events of Default. This Note and all accrued and unpaid interest hereon
shall become immediately due and payable if any one or more of the following
events, hereinafter called "Events of Default", shall occur and be continuing:
(a) there is a default in the payment of the principal of, or
interest on, this Note when the same becomes due and payable, at maturity or
otherwise;
(b) Borrower shall (i) apply for or consent to the appointment of,
or the taking of possession by, a receiver, custodian, trustee or liquidator of
itself or of all or a substantial part of its assets, (ii) make a general
assignment for the benefit of creditors, (iv) file a voluntary petition in
bankruptcy or (v) be adjudicated a bankrupt or insolvent, or (y) an order for
relief under any relevant bankruptcy code shall have been entered in respect of
Borrower; or
(c) without the application, approval or consent of Borrower, a case
or proceeding shall be instituted, in any court of competent jurisdiction,
seeking in respect of Borrower reorganization, dissolution, winding up or
liquidation, a composition or arrangement with creditors, the appointment of a
trustee, receiver, custodian, liquidator or the like of Borrower or of all or a
substantial part of the assets of Borrower, the issuance or levying of any writ,
judgment, warrant of attachment, execution or similar process against all or a
substantial part of the assets or business of Borrower; and, the same shall
continue undismissed, or unstayed and in effect, for any period of sixty (60)
consecutive days.
If there shall occur and be continuing an Event of Default, MI may, by
notice to Borrower, declare the principal under this Note and all interest
thereon payable, whereupon all principal under this Note and all such interest
shall become and be forthwith due and payable, without presentment, demand,
protest or further notice of any kind, all of which are hereby expressly waived
by Borrower; provided, however, that upon the occurrence of the Event of Default
specified in subparagraph (b) or (c) above, the principal under this Note and
all such interest shall automatically become and be due and payable, without
presentment, demand, protest or any notice of any kind, all of which are hereby
expressly waived by Borrower. In addition to the remedies set forth above, MI
may exercise any remedies provided by applicable law.
<PAGE> 26
3. Prepayment. Borrower may prepay, without premium or penalty, all or any
portion of the outstanding principal amount of this Note together with accrued
and unpaid interest to such date of prepayment on such amount so prepaid.
4. Waiver. No failure or delay on the part of MI or any holder in
exercising any right, power or privilege hereunder and no course of dealing
between Borrower, MI or any holder shall operate as a waiver thereof nor shall
any single or partial exercise of any right, power or privilege hereunder
preclude any other exercise thereof or the exercise of any other right, power,
or privilege. The rights and remedies herein expressly provided are cumulative
and not exclusive of any rights or remedies which a holder would otherwise have.
5. Amendment. This Note may not be amended except by an agreement in
writing signed by Borrower and MI or the holder hereof.
6. Notice. All notices and other communications under this Agreement shall
be in writing and shall be deemed given when delivered personally or mailed by
certified mail, return receipt requested, to the parties (and shall also be
transmitted by facsimile to the Persons receiving copies thereof) at the
following addresses (or to such other address as a party may have specified by
notice given to the other party pursuant to this provision):
If to MI, to:
Metallurg, Inc.
6 East 43rd Street
New York, New York 10017
U.S.A.
Attention: Barry C. Nuss
If to Borrower, to:
Robin A. Brumwell
19 Spriteview Avenue
Westport, CT 06880
7. Submission to Jurisdiction. Borrower hereby irrevocably submits to the
jurisdiction of any New York State or federal court sitting in New York City,
and the undersigned hereby irrevocably agrees that any action may be heard and
determined in such New York State court or in such federal court. Borrower
hereby irrevocably waives, to the fullest extent he may effectively do so, the
defense of an inconvenient forum to the maintenance of any action in any
jurisdiction. Borrower hereby irrevocably agrees that the summons and complaint
or any other process in any action in any jurisdiction may be served by mailing
in accordance with the provision set forth in Section 6. Borrower may also be
served in any other manner permitted by law, in which event Borrower's time to
respond shall be the time provided by law.
8. Governing Law. This Note shall be governed by and construed and
enforced in accordance with the laws of the State of New York applicable to
agreements made and to be wholly performed in such State and without giving
effect to the conflict of laws principles thereof.
2
<PAGE> 27
IN WITNESS WHEREOF, Borrower has caused this Promissory Note to be duly
executed as of the date first above written.
By: /s/ Robin A. Brumwell
-----------------------------------
Robin A. Brumwell
3
<PAGE> 28
NOTE
US $178,425.00 July 13, 1998
Subject to the terms and conditions of this Note (this "Note"), Barry C.
Nuss ("Borrower"), for value received, the receipt and sufficiency of which is
hereby acknowledged, hereby promises to pay to the order of Metallurg, Inc., a
Delaware corporation, or its successors or assigns ("MI") in lawful money of the
United States of America in immediately available funds, the principal sum of
One Hundred Seventy Eight Thousand Four Hundred Twenty Five dollars
($178,425.00) payable together with accrued interest thereon on July 12, 2001
(the "Maturity Date").
1. Interest. From the date hereof through the Maturity Date and until the
Note is paid in full, this Note shall accrue interest on the unpaid principal
amount of this Note at a rate equal to 5.68% per annum compounded annually. All
interest shall be calculated on the basis of a three hundred sixty five or six
(365/6) day year and the actual number of days elapsed (including the first day
but excluding the last day) in the period for which interest is payable and
shall be payable in cash.
2. Events of Default. This Note and all accrued and unpaid interest hereon
shall become immediately due and payable if any one or more of the following
events, hereinafter called "Events of Default", shall occur and be continuing:
(a) there is a default in the payment of the principal of, or
interest on, this Note when the same becomes due and payable, at maturity or
otherwise;
(b) Borrower shall (i) apply for or consent to the appointment of,
or the taking of possession by, a receiver, custodian, trustee or liquidator of
itself or of all or a substantial part of its assets, (ii) make a general
assignment for the benefit of creditors, (iv) file a voluntary petition in
bankruptcy or (v) be adjudicated a bankrupt or insolvent, or (y) an order for
relief under any relevant bankruptcy code shall have been entered in respect of
Borrower; or
(c) without the application, approval or consent of Borrower, a case
or proceeding shall be instituted, in any court of competent jurisdiction,
seeking in respect of Borrower reorganization, dissolution, winding up or
liquidation, a composition or arrangement with creditors, the appointment of a
trustee, receiver, custodian, liquidator or the like of Borrower or of all or a
substantial part of the assets of Borrower, the issuance or levying of any writ,
judgment, warrant of attachment, execution or similar process against all or a
substantial part of the assets or business of Borrower; and, the same shall
continue undismissed, or unstayed and in effect, for any period of sixty (60)
consecutive days.
If there shall occur and be continuing an Event of Default, MI may, by
notice to Borrower, declare the principal under this Note and all interest
thereon payable, whereupon all principal under this Note and all such interest
shall become and be forthwith due and payable, without presentment, demand,
protest or further notice of any kind, all of which are hereby expressly waived
by Borrower; provided, however, that upon the occurrence of the Event of Default
specified in subparagraph (b) or (c) above, the principal under this Note and
all such interest shall automatically become and be due and payable, without
presentment, demand, protest or any notice of any kind, all of which are hereby
expressly waived by Borrower. In addition to the remedies set forth above, MI
may exercise any remedies provided by applicable law.
<PAGE> 29
3. Prepayment. Borrower may prepay, without premium or penalty, all or any
portion of the outstanding principal amount of this Note together with accrued
and unpaid interest to such date of prepayment on such amount so prepaid.
4. Waiver. No failure or delay on the part of MI or any holder in
exercising any right, power or privilege hereunder and no course of dealing
between Borrower, MI or any holder shall operate as a waiver thereof nor shall
any single or partial exercise of any right, power or privilege hereunder
preclude any other exercise thereof or the exercise of any other right, power,
or privilege. The rights and remedies herein expressly provided are cumulative
and not exclusive of any rights or remedies which a holder would otherwise have.
5. Amendment. This Note may not be amended except by an agreement in
writing signed by Borrower and MI or the holder hereof.
6. Notice. All notices and other communications under this Agreement shall
be in writing and shall be deemed given when delivered personally or mailed by
certified mail, return receipt requested, to the parties (and shall also be
transmitted by facsimile to the Persons receiving copies thereof) at the
following addresses (or to such other address as a party may have specified by
notice given to the other party pursuant to this provision):
If to MI, to:
Metallurg, Inc.
6 East 43rd Street
New York, New York 10017
U.S.A.
Attention: Barry C. Nuss
If to Borrower, to:
Barry C. Nuss
9 Norman Place
Tenafly, New Jersey 07670
7. Submission to Jurisdiction. Borrower hereby irrevocably submits to the
jurisdiction of any New York State or federal court sitting in New York City,
and the undersigned hereby irrevocably agrees that any action may be heard and
determined in such New York State court or in such federal court. Borrower
hereby irrevocably waives, to the fullest extent he may effectively do so, the
defense of an inconvenient forum to the maintenance of any action in any
jurisdiction. Borrower hereby irrevocably agrees that the summons and complaint
or any other process in any action in any jurisdiction may be served by mailing
in accordance with the provision set forth in Section 6. Borrower may also be
served in any other manner permitted by law, in which event Borrower's time to
respond shall be the time provided by law.
8. Governing Law. This Note shall be governed by and construed and
enforced in accordance with the laws of the State of New York applicable to
agreements made and to be wholly performed in such State and without giving
effect to the conflict of laws principles thereof.
2
<PAGE> 30
IN WITNESS WHEREOF, Borrower has caused this Promissory Note to be duly
executed as of the date first above written.
By: /s/ Barry C. Nuss
---------------------------
Barry C. Nuss
3
<PAGE> 31
NOTE
US $137,250.00 July 13, 1998
Subject to the terms and conditions of this Note (this "Note"), J. Richard
Budd ("Borrower"), for value received, the receipt and sufficiency of which is
hereby acknowledged, hereby promises to pay to the order of Metallurg, Inc., a
Delaware corporation, or its successors or assigns ("MI"), in lawful money of
the United States of America in immediately available funds, the principal sum
of One Hundred Thirty Seven Thousand Two Hundred Fifty dollars ($137,250.00)
payable together with accrued interest thereon on July 12, 2001 (the "Maturity
Date").
1. Interest. From the date hereof through the Maturity Date and until the
Note is paid in full, this Note shall accrue interest on the unpaid principal
amount of this Note at a rate equal to 5.68% per annum compounded annually. All
interest shall be calculated on the basis of a three hundred sixty five or six
(365/6) day year and the actual number of days elapsed (including the first day
but excluding the last day) in the period for which interest is payable and
shall be payable in cash.
2. Events of Default. This Note and all accrued and unpaid interest hereon
shall become immediately due and payable if any one or more of the following
events, hereinafter called "Events of Default", shall occur and be continuing:
(a) there is a default in the payment of the principal of, or
interest on, this Note when the same becomes due and payable, at maturity or
otherwise;
(b) Borrower shall (i) apply for or consent to the appointment of,
or the taking of possession by, a receiver, custodian, trustee or liquidator of
itself or of all or a substantial part of its assets, (ii) make a general
assignment for the benefit of creditors, (iv) file a voluntary petition in
bankruptcy or (v) be adjudicated a bankrupt or insolvent, or (y) an order for
relief under any relevant bankruptcy code shall have been entered in respect of
Borrower; or
(c) without the application, approval or consent of Borrower, a case
or proceeding shall be instituted, in any court of competent jurisdiction,
seeking in respect of Borrower reorganization, dissolution, winding up or
liquidation, a composition or arrangement with creditors, the appointment of a
trustee, receiver, custodian, liquidator or the like of Borrower or of all or a
substantial part of the assets of Borrower, the issuance or levying of any writ,
judgment, warrant of attachment, execution or similar process against all or a
substantial part of the assets or business of Borrower; and, the same shall
continue undismissed, or unstayed and in effect, for any period of sixty (60)
consecutive days.
If there shall occur and be continuing an Event of Default, MI may, by
notice to Borrower, declare the principal under this Note and all interest
thereon payable, whereupon all principal under this Note and all such interest
shall become and be forthwith due and payable, without presentment, demand,
protest or further notice of any kind, all of which are hereby expressly waived
by Borrower; provided, however, that upon the occurrence of the Event of Default
specified in subparagraph (b) or (c) above, the principal under this Note and
all such interest shall automatically become and be due and payable, without
presentment, demand, protest or any notice of any kind, all of which are hereby
expressly waived by Borrower. In addition to the remedies set forth above, MI
may exercise any remedies provided by applicable law.
<PAGE> 32
3. Prepayment. Borrower may prepay, without premium or penalty, all or any
portion of the outstanding principal amount of this Note together with accrued
and unpaid interest to such date of prepayment on such amount so prepaid.
4. Waiver. No failure or delay on the part of MI or any holder in
exercising any right, power or privilege hereunder and no course of dealing
between Borrower, MI or any holder shall operate as a waiver thereof nor shall
any single or partial exercise of any right, power or privilege hereunder
preclude any other exercise thereof or the exercise of any other right, power,
or privilege. The rights and remedies herein expressly provided are cumulative
and not exclusive of any rights or remedies which a holder would otherwise have.
5. Amendment. This Note may not be amended except by an agreement in
writing signed by Borrower and MI or the holder hereof.
6. Notice. All notices and other communications under this Agreement shall
be in writing and shall be deemed given when delivered personally or mailed by
certified mail, return receipt requested, to the parties (and shall also be
transmitted by facsimile to the Persons receiving copies thereof) at the
following addresses (or to such other address as a party may have specified by
notice given to the other party pursuant to this provision):
If to MI, to:
Metallurg, Inc.
6 East 43rd Street
New York, New York 10017
U.S.A.
Attention: Barry C. Nuss
If to Borrower, to:
J. Richard Budd
58 Piping Rock Road
Locust Valley, NY 11560
7. Submission to Jurisdiction. Borrower hereby irrevocably submits to the
jurisdiction of any New York State or federal court sitting in New York City,
and the undersigned hereby irrevocably agrees that any action may be heard and
determined in such New York State court or in such federal court. Borrower
hereby irrevocably waives, to the fullest extent he may effectively do so, the
defense of an inconvenient forum to the maintenance of any action in any
jurisdiction. Borrower hereby irrevocably agrees that the summons and complaint
or any other process in any action in any jurisdiction may be served by mailing
in accordance with the provision set forth in Section 6. Borrower may also be
served in any other manner permitted by law, in which event Borrower's time to
respond shall be the time provided by law.
8. Governing Law. This Note shall be governed by and construed and
enforced in accordance with the laws of the State of New York applicable to
agreements made and to be wholly performed in such State and without giving
effect to the conflict of laws principles thereof.
2
<PAGE> 33
IN WITNESS WHEREOF, Borrower has caused this Promissory Note to be duly
executed as of the date first above written.
By: /s/ J. Richard Budd
---------------------------
J. Richard Budd
3
<PAGE> 34
NOTE
US $150,975.00 July 13, 1998
Subject to the terms and conditions of this Note (this "Note"), Michael A.
Banks ("Borrower"), for value received, the receipt and sufficiency of which is
hereby acknowledged, hereby promises to pay to the order of Metallurg, Inc., a
Delaware corporation, or its successors or assigns ("MI") in lawful money of the
United States of America in immediately available funds, the principal sum of
One Hundred Fifty Thousand Nine Hundred Seventy Five dollars ($150,975.00)
payable together with accrued interest thereon on July 12, 2001 (the "Maturity
Date").
1. Interest. From the date hereof through the Maturity Date and until the
Note is paid in full, this Note shall accrue interest on the unpaid principal
amount of this Note at a rate equal to 5.68% per annum compounded annually. All
interest shall be calculated on the basis of a three hundred sixty five or six
(365/6) day year and the actual number of days elapsed (including the first day
but excluding the last day) in the period for which interest is payable and
shall be payable in cash.
2. Events of Default. This Note and all accrued and unpaid interest hereon
shall become immediately due and payable if any one or more of the following
events, hereinafter called "Events of Default", shall occur and be continuing:
(a) there is a default in the payment of the principal of, or
interest on, this Note when the same becomes due and payable, at maturity or
otherwise;
(b) Borrower shall (i) apply for or consent to the appointment of,
or the taking of possession by, a receiver, custodian, trustee or liquidator of
itself or of all or a substantial part of its assets, (ii) make a general
assignment for the benefit of creditors, (iv) file a voluntary petition in
bankruptcy or (v) be adjudicated a bankrupt or insolvent, or (y) an order for
relief under any relevant bankruptcy code shall have been entered in respect of
Borrower; or
(c) without the application, approval or consent of Borrower, a case
or proceeding shall be instituted, in any court of competent jurisdiction,
seeking in respect of Borrower reorganization, dissolution, winding up or
liquidation, a composition or arrangement with creditors, the appointment of a
trustee, receiver, custodian, liquidator or the like of Borrower or of all or a
substantial part of the assets of Borrower, the issuance or levying of any writ,
judgment, warrant of attachment, execution or similar process against all or a
substantial part of the assets or business of Borrower; and, the same shall
continue undismissed, or unstayed and in effect, for any period of sixty (60)
consecutive days.
If there shall occur and be continuing an Event of Default, MI may, by
notice to Borrower, declare the principal under this Note and all interest
thereon payable, whereupon all principal under this Note and all such interest
shall become and be forthwith due and payable, without presentment, demand,
protest or further notice of any kind, all of which are hereby expressly waived
by Borrower; provided, however, that upon the occurrence of the Event of Default
specified in subparagraph (b) or (c) above, the principal under this Note and
all such interest shall automatically become and be due and payable, without
presentment, demand, protest or any notice of any kind, all of which are hereby
expressly waived by Borrower. In addition to the remedies set forth above, MI
may exercise any remedies provided by applicable law.
<PAGE> 35
3. Prepayment. Borrower may prepay, without premium or penalty, all or any
portion of the outstanding principal amount of this Note together with accrued
and unpaid interest to such date of prepayment on such amount so prepaid.
4. Waiver. No failure or delay on the part of MI or any holder in
exercising any right, power or privilege hereunder and no course of dealing
between Borrower, MI or any holder shall operate as a waiver thereof nor shall
any single or partial exercise of any right, power or privilege hereunder
preclude any other exercise thereof or the exercise of any other right, power,
or privilege. The rights and remedies herein expressly provided are cumulative
and not exclusive of any rights or remedies which a holder would otherwise have.
5. Amendment. This Note may not be amended except by an agreement in
writing signed by Borrower and MI or the holder hereof.
6. Notice. All notices and other communications under this Agreement shall
be in writing and shall be deemed given when delivered personally or mailed by
certified mail, return receipt requested, to the parties (and shall also be
transmitted by facsimile to the Persons receiving copies thereof) at the
following addresses (or to such other address as a party may have specified by
notice given to the other party pursuant to this provision):
If to MI, to:
Metallurg, Inc.
6 East 43rd Street
New York, New York 10017
U.S.A.
Attention: Barry C. Nuss
If to Borrower, to:
Michael A. Banks
232 Bryam Lake Road
Mount Kisco, NY 10549
7. Submission to Jurisdiction. Borrower hereby irrevocably submits to the
jurisdiction of any New York State or federal court sitting in New York City,
and the undersigned hereby irrevocably agrees that any action may be heard and
determined in such New York State court or in such federal court. Borrower
hereby irrevocably waives, to the fullest extent he may effectively do so, the
defense of an inconvenient forum to the maintenance of any action in any
jurisdiction. Borrower hereby irrevocably agrees that the summons and complaint
or any other process in any action in any jurisdiction may be served by mailing
in accordance with the provision set forth in Section 6. Borrower may also be
served in any other manner permitted by law, in which event Borrower's time to
respond shall be the time provided by law.
8. Governing Law. This Note shall be governed by and construed and
enforced in accordance with the laws of the State of New York applicable to
agreements made and to be wholly performed in such State and without giving
effect to the conflict of laws principles thereof.
2
<PAGE> 36
IN WITNESS WHEREOF, Borrower has caused this Promissory Note to be duly
executed as of the date first above written.
By: /s/ Michael A. Banks
--------------------------------
Michael A. Banks
3
<PAGE> 37
NOTE
US $320,250.00 April 15, 1997
Subject to the terms and conditions of this Note (this "Note"), Michael A.
Standen ("Borrower"), for value received, the receipt and sufficiency of which
is hereby acknowledged, hereby promises to pay to the order of Metallurg, Inc.,
a Delaware corporation, or its successors or assigns ("MI"), in lawful money of
the United States of America in immediately available funds, the principal sum
of Three Hundred Twenty Thousand Two Hundred Fifty Dollars ($320,250.00) payable
with accrued interest thereon on the business day prior to the third anniversary
of the date hereof (the "Maturity Date").
1. Interest. From the date hereof through the Maturity Date and until the
Note is paid in full, this Note shall accrue interest on the unpaid principal
amount of this Note at a rate equal to 5.91% per annum compounded annually. All
interest shall be calculated on the basis of a three hundred sixty five or six
(365/6) day year and the actual number of days elapsed (including the first day
but excluding the last day) in the period for which interest is payable and
shall be payable in cash.
2. Events of Default. This Note and all accrued and unpaid interest hereon
shall become immediately due and payable if any one or more of the following
events, hereinafter called "Events of Default," shall occur and be continuing:
(a) there is a default in the payment of the principal of, or interest on,
this Note when the same becomes due and payable, at maturity or otherwise;
(b) Borrower shall (i) apply for or consent to the appointment of, or the
taking of possession by, a receiver, custodian, trustee or liquidator of itself
or of all or a substantial part of its assets, (ii) make a general assignment
for the benefit of creditors, (iv) file a voluntary petition in bankruptcy or
(v) be adjudicated a bankrupt or insolvent, or (y) an order for relief under any
relevant bankruptcy code shall have been entered in respect of Borrower; or
(c) without the application, approval or consent of Borrower, a case or
proceeding shall be instituted, in any court of competent jurisdiction, seeking
in respect of Borrower reorganization, dissolution, winding up or liquidation, a
composition or arrangement with creditors, the appointment of a trustee,
receiver, custodian, liquidator or the like of Borrower or of all or a
substantial part of the assets of Borrower, the issuance or levying of any writ,
judgment, warrant of attachment, execution or similar process against all or a
substantial part of the assets or business of Borrower; and, the same shall
continue undismissed, or unstayed and in effect, for any period of sixty (60)
consecutive days.
If there shall occur and be continuing an Event of Default, MI may, by
notice to Borrower, declare the principal under this Note and all interest
thereon payable, whereupon all principal under this Note and all such interest
shall become and be forthwith due and payable, without presentment, demand,
protest or further notice of any kind, all of which are hereby expressly waived
by Borrower; provided, however, that upon the occurrence of the Event of Default
specified in subparagraph (b) or (c) above, the principal under this Note and
all such interest shall automatically become and be due and payable, without
presentment, demand, protest or any notice of any kind, all of which are hereby
expressly waived by Borrower. In addition to the remedies set forth above, MI
may exercise any remedies provided by applicable law.
3. Prepayment. Borrower may prepay, without premium or penalty, all or any
portion of the outstanding principal amount of this Note together with accrued
and unpaid interest to such date of prepayment on such amount so prepaid.
4. Waiver. No failure or delay on the part of MI or any holder in
exercising any right, power or privilege hereunder and no course of dealing
between Borrower, MI or any holder shall operate as a
<PAGE> 38
waiver thereof nor shall any single or partial exercise of any right, power or
privilege hereunder preclude any other exercise thereof or the exercise of any
other right, power, or privilege. The rights and remedies herein expressly
provided are cumulative and not exclusive of any rights or remedies which a
holder would otherwise have.
5. Amendment. This Note may not be amended except by an agreement in
writing signed by Borrower and MI or the holder hereof.
6. Notice. All notices and other communications under this Agreement shall
be in writing and shall be deemed given when delivered personally or mailed by
certified mail, return receipt requested, to the parties (and shall also be
transmitted by facsimile to the Persons receiving copies thereof) at the
following addresses (or to such other address as a party may have specified by
notice given to the other party pursuant to this provision):
If to MI, to:
Metallurg, Inc.
6 East 43rd Street
New York, New York 10017
U.S.A.
Attention: Barry C. Nuss
If to Borrower, to:
Michael A. Standen
81 Oakland Beach Avenue
Rye, New York 10580-2613
7. Submission to Jurisdiction. Borrower hereby irrevocably submits to the
jurisdiction of any New York State or federal court sitting in New York City,
and the undersigned hereby irrevocably agrees that any action may be heard and
determined in such New York State court or in such federal court. Borrower
hereby irrevocably waives, to the fullest extent he may effectively do so, the
defense of an inconvenient forum to the maintenance of any action in any
jurisdiction. Borrower hereby irrevocably agrees that the summons and complaint
or any other process in any action in any jurisdiction may be served by mailing
in accordance with the provision set forth in Section 6. Borrower may also be
served in any other manner permitted by law, in which event Borrower's time to
respond shall be the time provided by law.
8. Governing Law. This Note shall be governed by and construed and
enforced in accordance with the laws of the State of New York applicable to
agreements made and to be wholly performed in such State and without giving
effect to the conflict of laws principles thereof.
2
<PAGE> 39
IN WITNESS WHEREOF, Borrower has caused this Promissory Note to be duly
executed as of the date first above written.
By: /s/ Michael A. Standen
----------------------------
Michael A. Standen
3
<PAGE> 1
Exhibit 10.17
Metallurg Holdings, Inc.
Intercompany Tax Allocation Agreement
The purpose of this agreement (the "Agreement") is to determine the
amount of federal and (where applicable) state, local and foreign income tax
allocated to members of the affiliated Group (as described below) and the amount
each member will pay to or receive from Metallurg Holdings, Inc., a Delaware
corporation ("Parent"). This Agreement is between Parent and the undersigned
subsidiary corporations (hereinafter collectively referred to as the
"Subsidiaries" or each individually as a "Subsidiary"). Parent and the
Subsidiaries are sometimes hereinafter collectively referred to as the "Group".
1. The members of the Group are affiliated corporations and will
elect to file a consolidated federal income tax return under the provisions of
Section 1 501, et seq., of the Internal Revenue Code of 1 986, as amended, (the
"Code") for the tax year ending December 31, 1 998 and for each subsequent tax
year for which this Agreement is in effect. Parent will compute and timely pay
the consolidated federal income tax liability for the Group in accordance with
the Code and the regulations promulgated thereunder and will prepare, or cause
to be prepared, and will timely file the consolidated federal income tax return
for the Group. Parent and the Subsidiaries shall each review the consolidated
federal income tax return and make any necessary adjustments no later than
fifteen (15) days before the filing of the return, and Parent will provide a
draft of each such return to each Subsidiary sufficiently before that deadline
to permit the Subsidiary to make its review.
2. Each Subsidiary shall compute and pay in cash to Parent (in the
manner provided for in paragraph 8 of this Agreement) an amount equal to the
federal income tax liability
<PAGE> 2
that would have been payable for such year determined as if each Subsidiary had
filed a separate federal income tax return for the taxable year ended December
31, 1998, and all taxable years thereafter, including any accrued interest
thereon ("Separate Return Tax Liability").
3. If a Subsidiary, other than a Metallurg Subsidiary (defined
below), would not have a Separate Return Tax Liability but instead would have a
claim for refund of federal income taxes, Parent will pay in cash to such
Subsidiary (in the manner provided for in paragraph 8 of this Agreement) an
amount equal to the refund such Subsidiary would have been entitled to obtain
from the Internal Revenue Service, determined as if such Subsidiary had filed a
separate federal income tax return for the taxable year ended December 31, 1998
and all taxable years thereafter, including any accrued interest thereon
("Separate Return Tax Refund").
4. Parent shall pay in cash to Metallurg, Inc. ("Metallurg") (in the
manner provided for in paragraph 8 of this Agreement) an amount (not less than
zero) equal to (i) the sum of (a) the Separate Return Tax Liability of Metallurg
paid to Parent and (b) the Separate Return Tax Liability of each Subsidiary
owned, directly or indirectly, by Metallurg (each a "Metallurg Subsidiary" and
collectively, the Metallurg Subsidiaries") paid to Parent, minus (ii) the amount
of federal income tax that Metallurg and the Metallurg Subsidiaries
(collectively, the "Metallurg SubGroup") would have been required to pay (the
"Metallurg Consolidated Amount") if (a) Metallurg was never owned by Parent, (b)
Metallurg continued to be the common parent of the Metallurg Sub-Group, and (c)
the Metallurg Sub-Group filed a consolidated federal income tax return (the
"Metallurg Sub-Group Excess Payment"). An additional payment (the "Metallurg
Sub-Group Refund Payment") shall be made by Parent to Metallurg (in the manner
provided for in paragraph 8 of this Agreement) equal to the amount of any refund
of federal income tax that the Metallurg Sub-Group would have been entitled to
receive if the Metallurg SubGroup filed a
2
<PAGE> 3
separate consolidated federal income tax return, provided, however, that the
Metallurg Sub-Group Refund Payment shall be reduced by the amount of any such
refund paid by the Internal Revenue Service directly to any member of the
Metallurg Sub-Group.
5. If, on a separate return basis, a Metallurg Subsidiary would have
had a claim for refund of federal or state income taxes resulting from a
carryback of any net operating loss, capital loss, tax credit or similar tax
benefit (each a "Separate Company Tax Benefit Item") or would have been entitled
to reduce its federal or state income tax liability as a result of a
carryforward of a Separate Company Tax Benefit then, Metallurg will pay in cash
to such Metallurg Subsidiary (in the manner provided for in paragraph 8 of this
Agreement) an amount equal to such refund or reduction in tax ("Metallurg
Subsidiary Separate Return Tax Refund").
6. If requested by Parent, each Subsidiary shall make payments in
cash of estimated tax to Parent three (3) business days before the normal
quarterly due dates for the payment of the applicable tax. The amounts of any
estimated payments shall be determined under the rules in the relevant taxing
jurisdiction to which such Subsidiary would be subject if it filed a separate
return consistent with paragraph 2 of this Agreement. Payments of estimated tax
made under this paragraph shall reduce and offset any payments required to be
made to Parent under paragraph 8 of this Agreement.
7. Except as otherwise provided in the following sentence, the
calculation of the Separate Return Tax Liability for each Subsidiary shall be
made pursuant to the Code and its regulations as well as applicable cases,
rulings, etc. ("Applicable Law"). The calculation of the Separate Return Tax
Liability for each Subsidiary shall be made without taking into account any
carryforward or carryback of a Separate Company Tax Benefit Item available to
such Subsidiary; provided that Separate Company Tax Benefit Items shall be taken
into account to the fullest extent
3
<PAGE> 4
permitted by Applicable Law in computing the Metallurg Consolidated Amount and
any Metallurg Sub-Group Refund Payment under paragraph 4 of this Agreement.
8. Each Subsidiary shall pay in cash its Separate Return Tax
Liability to Parent by no later than the applicable due date or dates that the
consolidated federal income tax liability is due. Parent shall make the payment
in cash to (i) a Subsidiary of a Separate Return Tax Refund and (ii) Metallurg
of a Metallurg Sub-Group Excess Payment and a Metallurg Sub-Group Refund Payment
by no later than 45 days after the filing of the consolidated federal income tax
return. Metallurg shall make the payment in cash to a Metallurg Subsidiary of a
Metallurg Subsidiary Separate Return Tax Refund by no later than 10 days after
the receipt of a Metallurg Sub-Group Excess Payment from Parent.
9. Notwithstanding the provisions of paragraphs 6 and 8 of this
Agreement, all payments due hereunder from any Metallurg Subsidiary shall be
made by Metallurg on behalf of the applicable Metallurg Subsidiary. Payments of
estimated tax on behalf of the members of the Metallurg Sub-Group under
paragraph 6 of this Agreement shall be based solely on the Metallurg
Consolidated Amount and not based on the separate return liabilities of the
members of the Metallurg Sub-Group, and such payments shall be taken into
account in the same manner as payments of Separate Return Tax Liabilities in
computing any Metallurg Sub-Group Excess Payment under paragraph 4 of this
Agreement.
10. If all or a portion of the Group is required or has elected to
file a consolidated, unitary or combined state income tax return (each such
Group will hereafter be referred to as a "State Group"), the parent of the
particular State Group will compute, timely report and timely pay the State
Group's state income tax liability in accordance with the applicable state laws
and regulations and will timely file the State Group's required annual return.
No later than
4
<PAGE> 5
fifteen (15) days prior to the filing of the State Group's annual return, the
parent of the State Group will calculate and assess each member's share of the
State Group's state income tax liability based on each member's tax liability
computed on a separate basis under the tax laws of the applicable jurisdiction.
Not more than ten (10) days after such assessment, each member will pay to the
parent of the particular State Group its agreed share of the state income tax
liability in cash. With respect to any refunds, use of any Separate Company Tax
Benefit Item and the treatment of excess payments to the parent of a sub-group,
the provisions of this Agreement, to the extent relevant, shall similarly apply
to any state, local or foreign consolidated, combined or unitary group and its
members.
11. If after the filing of a return it is determined that any
liability computed hereunder, or the aggregate amount paid by any party to this
Agreement, is incorrect, whether by reason of an Internal Revenue Service or
state audit, underpayment by any party hereto, discovery of error, the learning
of new information, or otherwise, payment shall be made to other members of the
Group as appropriate so that the net amount paid by all such parties to this
Agreement equals the amount that should have been paid by each such party to
this Agreement if the correct amount of such tax had been paid as provided by
this Agreement when originally due. In addition, any additional expenses
incurred (including, for example, interest, penalties and attorney's fees) shall
be allocable to and payable by the member of the Group that is liable for the
underlying relevant tax liability (or that is responsible for any underpayment
of any amount required to be paid to a tax authority) pursuant to the terms of
this Agreement. In the event that tax liabilities are allocable under this
paragraph to more than one party to this Agreement, expenses related to such tax
liabilities shall be allocated to each such party pro rata in proportion to the
amount of such tax liabilities attributable to each such party in relation to
the aggregate amount of such tax liabilities.
5
<PAGE> 6
12. Parent agrees to indemnify any member of the Group (and the
parent of a State Group agrees to indemnify any member of its State Group) for
any and all claims, demands and expenses, including interest, penalties and
reasonable attorney's fees, in the event that the Internal Revenue Service (or
State taxing authority, if relevant) levies upon the assets of any such member
for unpaid taxes that Parent (or the parent of a State Group, as applicable) is
required to pay under this Agreement.
13. All payments required to be made pursuant to the terms of this
Agreement, including subsequent changes in the amount of a Subsidiary's Separate
Return Tax Liability or Separate Return Tax Refund, or the Metallurg Sub-Group
Excess Payment or Metallurg Sub-Group Refund Payment, shall be considered an
intercompany payable or receivable, as the case may be, until such payment is
made in cash, and shall not be considered a dividend or surplus contribution.
Such intercompany receivables if not timely paid shall bear interest from the
due date at the base rate as announced from time to time by BankBoston, N.A. at
its home office in Boston, Massachusetts.
14. Parent shall inform each Subsidiary of any audit or other
administrative or judicial proceeding that may affect the Subsidiary's Separate
Return Tax Liability, Separate Return Tax Refund or, in the case of Metallurg,
the Metallurg Sub-Group Excess Payment or any Metallurg Sub-Group Refund
Payment. No such proceeding shall be settled in a manner adverse to a Subsidiary
without the consent of the Subsidiary, such consent not to be unreasonably
withheld.
15. This Agreement shall be applicable only with respect to periods
for which the parties are members of the same affiliated Group filing a
consolidated federal income tax (or
6
<PAGE> 7
other relevant) return. No payment hereunder shall be made by or on behalf of a
Subsidiary with respect to periods for which such Subsidiary files a separate
return or is a member of another affiliated Group filing a consolidated federal
income tax (or other relevant) return.
16. This Agreement shall take effect as of July 1 3, 1 998, and
shall continue until terminated by the mutual written agreement of all of the
parties. In the event any party ceases to be affiliated with the Group or any
State Group, as may be relevant, this Agreement automatically terminates only
with respect to that member and only with respect to such Group or State Group
as may be relevant. Notwithstanding the termination of this Agreement, in whole
or as to any member, its provisions will remain in effect, with respect to any
full or partial tax period, for which the income of the terminating party must
be included in the consolidated federal income tax (or other relevant State
Group) return.
17. This Agreement may, from time to time, be amended, modified, and
supplemented in such manner as may be mutually agreed upon by the parties,
subject to the approval of any regulatory authorities as required by law. Any
amendment, modification or supplement to this Agreement shall be in writing and
shall be executed by a duly appointed representative of each of the parties.
18. Every article, term condition and provision of this Agreement is
declared to be independent of and severable from all other articles, terms,
conditions and provisions of the Agreement. Invalidation, whether judicial or
otherwise, of any article, term, condition or provision contained in this
Agreement shall in no way affect any other provision of this Agreement, all of
which shall remain in full force and effect.
19. The books, accounts, tax returns and records of Parent and each
Subsidiary shall be maintained so as to clearly and adequately disclose the
precise nature and details of the
7
<PAGE> 8
obligations and liabilities under this Agreement. All materials relating to the
tax returns, including but not limited to the returns, supporting schedules,
work papers, and correspondence, shall be available for inspection at any time
during normal business hours by Parent or any Subsidiary. Each party to this
Agreement shall maintain, at its principal or home office, records of all tax
allocations, and any subsequent Internal Revenue Service or state review or
adjustment. The provisions of this paragraph shall survive termination of this
Agreement.
20. This Agreement is not assignable by any party without the prior
written consent of the other parties.
8
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by duly authorized officers to be effective July 1 3, 1998.
Metallurg Holdings, Inc., Tantalum Corporation,
a Delaware corporation a New Jersey corporation
By: /s/ Douglas A. Fastuca By: /s/ Michael A. Banks
------------------------------------ -----------------------------
Name: Douglas A. Fastuca Name: Michael A. Banks
Chief Financial Officer Vice President
Metallurg, Inc., MIR (China), Inc.,
a Delaware corporation a Delaware corporation
By: /s/ Barry C. Nuss By: /s/ Barry C. Nuss
------------------------------------ -----------------------------
Name: Barry C Nuss Name: Barry C. Nuss
Vice President, Finance Vice President
Shieldalloy Metallurgical Corporation,
a Delaware corporation
By: /s/ Barry C. Nuss
------------------------------------
Name: Barry C. Nuss
Secretary
Metallurg Services, Inc.,
a New York corporation
By: /s/ Barry C. Nuss
------------------------------------
Name: Barry C. Nuss
Controller
Metallurg Holdings Corporation,
a New Jersey corporation
By: /s/ Barry C. Nuss
------------------------------------
Name: Barry C. Nuss
Vice President, Treasurer
9
<PAGE> 1
EXHIBIT 21.1
LISTING OF SUBSIDIARIES
<TABLE>
<CAPTION>
Subsidiary of Metallurg Holdings, Inc. Country or State of Incorporation
- -------------------------------------- ---------------------------------
<S> <C>
Metallurg, Inc. Delaware
</TABLE>
<TABLE>
<CAPTION>
Subsidiaries of Metallurg, Inc. Country, State or Province of Incorporation
- ------------------------------- -------------------------------------------
<S> <C>
Shieldalloy Metallurgical Corporation Delaware
Elektrowerk Weisweiler GmbH Germany
Metallurg (Canada) Limited Quebec
MIR (China), Inc. Delaware
Metallurg International Resources, Inc. New York
Shawdon Enterprises Ltd. Cyprus
Metallurg Holdings Corporation New Jersey
Metallurg Services, Inc. New York
</TABLE>
<TABLE>
<CAPTION>
Subsidiaries of Metallurg Holdings Corporation Country or State of Incorporation
- ---------------------------------------------- ---------------------------------
<S> <C>
London & Scandinavian Metallurgical Co Limited England
S.A. Vickers Limited (dormant) England
H.M.I. Limited (dormant) England
Metal Alloys (South Wales) Limited (dormant) England
The Aluminum Powder Company Limited England
Alpoco Developments Limited (dormant) England
Metalloys Limited (dormant) England
M & A Powders Limited (dormant) England
Metallurg South Africa (Pty.) Limited South Africa
W.T. Mines Limited (dormant) South Africa
Stand 359 Wadeville Extension 4 (Pty.) Limited South Africa
Turk Maadin Sirketi Turkey
Gesellschaft fur Elektometallurgic mbH Germany
Societe Miniere du Kivu (dormant) Congo
GfE Umwelttechnik GmbH Germany
Keramed Medizintechnik Gmbh Germany
GfE Metalle und Materialien GmbH Germany
GfE Giesserei- und Stahlwerksbedarf Germany
RZM-Recyclingzentrum Mittelfranken GmbH Germany
Companhia Industrial Fluminense Brazil
Ferrolegeringar Aktiengesellschaft Zurich, Switzerland
Metalchimica S. r. l. Italy
FAG Poland Sp. z. o. o. Poland
</TABLE>
1
<PAGE> 2
<TABLE>
<S> <C>
Akitebolaget Ferrolegeringar Sweden
Metallurg International Resources GmbH Germany
Metallurg International Resources Russia Limited Russia
Metallurg (Far East) Limited Japan
Montanistica S.A. Zug, Switzerland
Metallurg Mexico S.A. de C.V. Mexico
Atlantic Alloys and Chemicals Limited (dormant) Jersey, CI
Caribbean Metals & Alloys Limited (dormant) Grand Cayman
Metallurgische Gesellschaft AG (dormant) Zurich, Switzerland
Brandau y Cia S.A. (dormant) Spain
Aleaciones Metalurgicas Venezolanas C.A. (dormant) Venezuela
Montan Aktiengesellschaft (dormant) Liechtenstein
</TABLE>
Notes
- -----
Dormant subsidiaries have no operations.
As of April 1, 1999
2
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> JAN-31-1999
<CASH> 38395
<SECURITIES> 0
<RECEIVABLES> 65515
<ALLOWANCES> 1770
<INVENTORY> 120658
<CURRENT-ASSETS> 239904
<PP&E> 60936
<DEPRECIATION> 11918
<TOTAL-ASSETS> 414356
<CURRENT-LIABILITIES> 72407
<BONDS> 178885
0
0
<COMMON> 0
<OTHER-SE> 80983
<TOTAL-LIABILITY-AND-EQUITY> 414356
<SALES> 254161
<TOTAL-REVENUES> 254558
<CGS> 231675
<TOTAL-COSTS> 266406
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11832
<INCOME-PRETAX> (21088)
<INCOME-TAX> (5623)
<INCOME-CONTINUING> (15465)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15465)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
