-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PbexeJBVm+ll5NsWh8piIc2H7NjXC+RsumnxfaxUlNIWM5AXtAUYFqGMAFuSGM58 7oz7I/HRljMkZCp1O22bQQ== 0000950123-99-004008.txt : 19990503 0000950123-99-004008.hdr.sgml : 19990503 ACCESSION NUMBER: 0000950123-99-004008 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19990131 FILED AS OF DATE: 19990430 FILER: COMPANY DATA: COMPANY CONFORMED NAME: METALLURG INC CENTRAL INDEX KEY: 0001030992 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS FABRICATED METAL PRODUCTS [3490] IRS NUMBER: 131661467 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 333-42141 FILM NUMBER: 99607737 BUSINESS ADDRESS: STREET 1: 6 EAST 43RD ST CITY: NEW YORK STATE: NY ZIP: 10017 BUSINESS PHONE: 2128350200 MAIL ADDRESS: STREET 1: 6 EAST 43RD STREET CITY: NEW YORK STATE: NY ZIP: 10017 10-K405 1 METALLURG, INC. 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, INC. (Exact name of Registrant as specified in its charter) DELAWARE 13-1661467 (State of organization) (I.R.S. Employer Identification No.) 6 EAST 43RD STREET (212) 835-0200 NEW YORK, NEW YORK 10017 (Registrant's telephone number, (Address of principal executive offices) including area code) 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] Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes [X] No [ ] There are no equity securities of the Company held by non-affiliates Shares Outstanding at April 15, 1999: 5,000,000 Shares of Common Stock, par value $.01 per share. DOCUMENTS INCORPORATED BY REFERENCE None 2 PART I ITEMS 1 AND 2. BUSINESS AND PROPERTIES. OVERVIEW Metallurg, Inc. ("Metallurg" or the "Company") 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 the Company's internal data and its knowledge of the markets for its products. The Company sells more than 500 different products to over 3,000 customers worldwide. In addition to selling products manufactured by the Company, Metallurg also distributes products manufactured by third parties ("Merchanted Products") through its global sales force. For the year ended January 31, 1999, the Company had $607.2 million in revenues, $361.1 million of which were from products manufactured by the Company and $246.1 million of which were from Merchanted Products. The Company sells products principally to customers in the iron and steel industry, the aluminum industry and the superalloy and titanium industries. Approximately 51% of the Company'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 the Company. Based on customer location, for the year ended January 31, 1999, approximately 41% of the Company'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 the Company, and related notes thereto, included elsewhere in this report. The Metallurg group was founded in 1911 with the construction of a vanadium alloy and chemical producing plant in Nuremberg, Germany. The Company began mining chrome ore in Turkey in 1916, and constructed a ferrochrome manufacturing plant in Weisweiler, Germany in 1917. In subsequent years, the Company's customer base grew throughout Europe and, in 1938, the Company added its first subsidiary in the United Kingdom and a sales and distribution subsidiary in Switzerland. During the 1950's, the Company began operations in the United States and during the 1980's, production operations in Brazil were added. Metallurg was established as a New York holding company in 1947 and reincorporated as a Delaware corporation in 1997. PRODUCTS AND MARKETS The Company operates in one significant industry segment, the manufacture and sale of ferrous and non-ferrous metals and alloys. The Company is organized geographically, having established a worldwide sales network built around the Company's core production facilities in the United States, the United Kingdom and Germany. In addition to selling products manufactured by the Company, the Company distributes complementary products manufactured by third parties. The table below sets forth, for the periods indicated, information concerning revenue from the Company's five reportable segments, as described below (in millions):
THREE YEAR QUARTERS QUARTER YEAR ENDED ENDED ENDED ENDED JANUARY 31, JANUARY 31, MARCH 31, DECEMBER 31, 1999 1998 1997 1996 ----------------------------------------------------- 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 ======== ======== ======== ========
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 2 3 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 U.K. 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 and results of subsidiaries not meeting the quantitative thresholds prescribed by applicable accounting rules. The Company does not allocate general corporate overhead expenses to operating segments. The following table sets forth, for the periods presented, the most significant product groups based on the Company's revenue: TOP TEN PRODUCT GROUPS BY REVENUE (DOLLARS IN MILLIONS)
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 % ---------------- -------------- ---------------- --------------- 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 ====== ===== ====== ===== ====== ===== ====== =====
Approximately 51% of the Company'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 the Company. Iron and Steel Industry; Specialty Ferroalloys. The Company 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. The Company 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. The Company'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. 3 4 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 the Company'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. The Company 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. The Company 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. The Company sells aluminum master alloys and compacted products worldwide to major aluminum producers including Alcan Aluminum Limited, Alcoa Aluminum Co. of America, Aluminum Pechiney, Reynolds Metals Co., Norsk Hydro and Sumitomo Metal Industries Ltd. 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 the Company 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. The Company manufactures and sells specialty metals and alloys used by producers of superalloys and titanium alloys to enhance the performance of finished metal products. 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 the Company'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. The Company'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 the Company. 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 cancellation of orders for airlines 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. 4 5 Dependence on Cyclical Markets. The performance of the Company's businesses is directly related to the production levels of the Company'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, the Company's financial performance could fluctuate with the general economic cycle, as well as cycles in the markets for the Company's products, which could have a material adverse effect on the Company's business, financial condition and results of operations. In addition, many of the Company'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 the Company'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. The Company has substantial operations outside the United States. At January 31, 1999, the Company's operations located outside the United States represented approximately 62% (based on book values) of the Company's assets. Approximately 80% of the Company's employees were outside the United States. Based on customer location, for the year ended January 31, 1999, approximately 41% of the Company'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 the Company, including taxes on distributions or deemed distributions to the Company or any U.S. subsidiary, currency exchange rate fluctuations, limitations on repatriation of funds, maintenance of minimum capital requirements, and import and export controls. In general, the Company'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 the Company 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. Export Sales. Export sales from the Company'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 The Company'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 the Company'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 the Company'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 the Company'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 the Company. No single customer accounted for more than 5% of the Company's sales in the year ended January 31, 1999. MERCHANTED PRODUCTS The merchanting of products manufactured by third parties is a natural complement to the Company's manufacturing operations. Merchanted Products leverage the Company's global sales staff by providing a broader product offering to its existing customers without incurring significant additional overhead. Merchanting activities provide the Company with access to raw materials and to products for resale. The Company's merchanting revenues are from three sources: "back-to-back" purchases and sales which eliminate price risk to the Company, purchases of stocks for the Company's own risk and account for subsequent resale to 5 6 customers and agency sales for the account of another party where the Company receives a commission and does not take title to the inventory. For the year ended January 31, 1999, the Company 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 the Company's core production facilities in the United States, the United Kingdom and Germany. These production units have laboratories providing analytical, research and development support to in-house operations, as well as analytical services to customers and third parties. The Company owns all of the facilities listed. 6 7 The following table sets forth for each Metallurg producing subsidiary the location of its facilities and the key products manufactured by such subsidiary:
MANUFACTURING SUBSIDIARY LOCATION KEY PRODUCTS ------------------------ -------- ------------ 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 Coating Materials Ferroboron Ferrotitanium Glass Polishing Powders Metal Powders Nickel Boron Nickel Cobalt Magnet Alloys GfE Nuremberg, Germany Battery Alloys (Plant) Chromium Metal 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)
Sales Offices. The Company 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. 7 8 RAW MATERIALS Metallurg produces a wide variety of products, which are sold into a number of different metals industries. The Company 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 the Company's entire production. The Company'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, the Company'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 the Company. The Company'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 the Company's production of ferrovanadium, vanadium chemicals and vanadium aluminum. For ferrovanadium production, the Company 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. The Company 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 the Company'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 the Company's Brazilian subsidiary which processes a variety of tantalum- and niobium-containing minerals, ores and residues through its chemical plant. The Company 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 the Company 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 the Company is unable to recover its increased costs, operating results would be adversely affected. 8 9 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 some of the Company'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 the Company. An increase in the use of substitutes for metal alloys also could have a material adverse effect on the financial condition and operations of the Company. Although the Company faces competition in each of its markets, the Company does not believe that any single competitor competes with Metallurg in all of its products or markets. Iron and Steel Industry. In North America, products manufactured by Strategic Minerals Corp. (Stratcor), Masterloy Products Ltd. (Aimcor), Treibacher Industrie AG and Glencore AG compete with the Company's ferrovanadium products, while several U.S., UK and Russian companies compete worldwide with the Company'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 the Company 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 the Company 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. The Company 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 the Company in chromium metal. RESEARCH AND DEVELOPMENT Research and development ("R&D") is carried out by the Company 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 the Company'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, the Company employed approximately 1,478 people worldwide. Labor unions represent approximately 50% of the Company's employees. Employees are represented by unions at seven locations in the United States, the United Kingdom, Germany and Brazil. The Company'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 the Company's union employees at its foreign subsidiaries are renewable on an annual basis. The Company's relationships with its unions are managed at the local level and are considered by management to be satisfactory. The Company has not been affected by strikes in the last ten years and there has not been a strike at any of the Company's United States facilities for over twenty years. 9 10 MERGER 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 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 (the "Merger"). 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 common stock was converted into the right to receive $30 in cash. In connection with the Merger, Metallurg received the consents 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" 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 were cancelled and 100 shares of common stock, $0.01 par value, were issued to Metallurg Holdings. On November 20, 1998, Metallurg consummated a 50,000 for 1 stock split and, as a result, Metallurg 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' 12-3/4% Series B Senior Discount Notes due 2008. BANKRUPTCY Metallurg and Shieldalloy sought Chapter 11 of the United States Bankruptcy Code protection in September 1993 following the Company'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 the Company's businesses and caused the Company 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 and Shieldalloy consummated their Joint Plan of Reorganization dated December 18, 1996, pursuant to Chapter 11 (the "Reorganization Plan"). The Company has sought to stabilize and strengthen its business since the bankruptcy filing. While in Chapter 11 proceedings, the Company 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 the Company's 11% Senior Notes due 2007 in November 1997 (the "Senior Notes Offering") and the other financial arrangements made by the Company, the Company 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, the Company 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, the Company 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- 10 11 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 the Company. ENVIRONMENTAL MATTERS The operations of the Company'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 the Company's business operations, financial condition or cash flow. Management believes that the Company 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, the Company 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. The Company 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. The Company believes that total environmental remediation and monitoring liabilities consist of the following (in thousands) and has recorded them as such:
January 31, 1999 ---- 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 =======
As part of the Reorganization Plan, the Company 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 11 12 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. The Company 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. The Company, 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 the Company, 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. The Company 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. The Company's obligation for decommissioning costs for these sites is partially assured by cash funds held in trust. As a condition precedent to consummation of the 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. The Company is a defendant 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 the Company's Newfield, New Jersey plant. The Company intends to vigorously defend this action and the costs of such defense are being borne by the Company's insurance carriers. The Company does not believe that the outcome of this litigation will have a material adverse effect on the Company's operations or financial position. The Company has also provided for certain estimated costs associated with its sites in Germany and Brazil. The Company'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, the Company'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, the Company is currently considering various options in connection with its production of ferrovanadium, which may be affected by increasingly 12 13 stringent sulfur dioxide emission limitations under the CAAA, and by the EPA's reclassification in February 1999 of spent catalyst, one of the Company's raw materials, as a hazardous waste under RCRA. The Company 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 the Company 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 the Company to process the most cost-effective raw product mix. ITEM 3. LEGAL PROCEEDINGS. The Company and certain of its subsidiaries are parties to a variety of legal proceedings relating to their operations. The ultimate legal and financial liability of the Company 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 the Company's Consolidated Balance Sheet, will have a material adverse effect on the Company's consolidated financial position, although the resolution in any reporting period of one or more of these matters could have a significant impact on the Company'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 14 PART II ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. 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 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 common stock was converted into the right to receive $30 in cash. In connection with the Merger, Metallurg received the consents 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" 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 were cancelled and 100 shares of common stock, $0.01 par value, were issued to Metallurg Holdings. On November 20, 1998, Metallurg consummated a 50,000 for 1 stock split and, as a result, Metallurg 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' 12-3/4% Series B Senior Discount Notes due 2008. There is no public trading market for the Company's equity securities. 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 and its subsidiaries, (ii) certain Key Advisors, as defined in the plan, 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. Under the ECP, 500,000 shares of common stock were made available for stock awards and stock options. The Company believes that the ECP 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. Pursuant to the Company's 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 were authorized; subsequent to November 1998, 10,000,000 shares of common stock were authorized. On April 14, 1997, the Company 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, the Company 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 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 the Company. Under the SASOP, 500,000 shares of common stock were made available for stock awards and stock options. Pursuant to the Plan, the Board granted to eligible executives 250,000 shares of common stock (the "Initial Stock Awards") 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 the Company 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. 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 the Company 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. The Company recorded compensation expense of $3,541,000 which represents the excess of the $30 per share purchase price over the exercise price noted above. The Company 14 15 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, the Company paid a special dividend of $3.90 per share to the holders of the Company's common stock and a dividend equivalent to the holders of stock options then outstanding. Also on November 20, 1997, the Company sold $100,000,000 of 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. The Company used the proceeds to (i) retire the Company's 12% senior-secured notes due 2007 ($42,953,000), (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) and (iv) pay a cash dividend and dividend equivalent to the holders of the Company's common stock and stock options ($19,891,000). The remaining net proceeds of the 11% Series A 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. The Company does not presently intend to pay any dividends, although it may choose to do so in the future. The Company is restricted from paying dividends to its shareholders as a result of the Indenture related to the Senior Notes Offering, which, in general, prohibits the Company from making dividends in an amount greater than 50% of its net income, as defined in the Indenture. In addition, the Company's revolving credit facility with BankBoston prohibits the payment of dividends. Metallurg is a holding company with limited operations of its own. Substantially all of the Company's operating income is generated by its subsidiaries. As a result, the Company will rely upon distributions or advances from its subsidiaries to provide the funds necessary to meet its debt service obligations. In some cases, however, the Company's subsidiaries are restricted in their ability to pay dividends. Prior to 1998, the Company's German subsidiaries, EWW, in which the Company owns a 98.0% interest, and GfE, in which the Company 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, the Company made certain filings to reduce the stated capital of its German operating subsidiaries which eliminated such statutory restrictions on the payment of dividends. The Company'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 the Company'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, the Company's Swiss merchanting subsidiary may only pay dividends to the Company 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 the Company 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 the Company, 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 financial statements of the Company 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 the Company included elsewhere herein, which have been audited by PricewaterhouseCoopers LLP, independent accountants. The selected financial data for the Company 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, the Company's consolidated financial statements for periods and dates prior to March 31, 1997 are not directly comparable to subsequent consolidated financial 15 16 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 the Company, and related notes thereto, included in "Item 8. Financial Statements and Supplementary Data." SELECTED FINANCIAL DATA (CONTINUED)
Pre-Confirmation Post-Confirmation -------------------------------------------------------------- ------------------------- Three Nine Three Months Months Quarter Quarters Year Years Ended December 31, Ended Ended Ended Ended Ended ------------------------ March 31, December 31, March 31 January 31, January 31, 1994 1995 1996 1996 1996 1997 1998 1999 ---- ---- ---- ---- ---- ---- ---- ---- STATEMENT OF OPERATIONS DATA: Sales ............................. $ 553,479 $ 688,002 $ 648,816 165,294 $ 483,522 $ 155,427 $ 476,426 $ 606,334 Commission income ................. 838 1,362 1,186 329 857 160 541 835 --------- --------- --------- ------- --------- --------- --------- --------- Total revenue ................... 554,317 689,364 650,002 165,623 484,379 155,587 476,967 607,169 Cost of sales ..................... 496,218 603,535 566,538 144,474 422,064 134,060 410,033 525,861 --------- --------- --------- ------- --------- --------- --------- --------- Gross margin .................... 58,099 85,829 83,464 21,149 62,315 21,527 66,934 81,308 Selling, general and administrative expenses ...... 50,652 52,842 57,103 13,922 43,181 15,046 43,563 58,638 Environmental expenses (a) ........ 2,082 5,624 37,582 606 36,976 -- -- -- Merger-related costs .............. -- -- -- -- -- -- -- 7,888 Restructuring charges ............. 2,653 11,658 -- -- -- -- -- -- --------- --------- --------- ------- --------- --------- --------- --------- Operating income (loss) ........... 2,712 15,705 (11,221) 6,621 (17,842) 6,481 23,371 14,782 Other: Other income (expense), net ...... 7,477 7 (6,759) 1,656 (8,415) 3,179 1,805 1,808 Interest income (expense), net ... (2,555) (1,949) 1,473 (452) 1,925 (245) (5,653) (9,870) Reorganization expense ........... (7,118) (3,927) (3,535) (610) (2,925) (2,663) -- -- Fresh-start revaluation .......... -- -- -- -- -- 5,107 -- -- --------- --------- --------- ------- --------- --------- --------- --------- Income (loss) before income tax .. 516 9,836 (20,042) 7,215 (27,257) 11,859 19,523 6,720 provision and extraordinary item Income tax provision (benefit) .... 2,507 8,171 8,453 2,649 5,804 (3,063) 12,459 4,788 --------- --------- --------- ------- --------- --------- --------- --------- Income (loss) before extraordinary item ............ (1,991) 1,665 (28,495) 4,566 (33,061) 14,922 7,064 1,932 Extraordinary item, net of tax (b) -- -- -- -- -- 43,032 (792) -- --------- --------- --------- ------- --------- --------- --------- --------- Net income (loss) $ (1,991) $ 1,665 $ (28,495) $ 4,566 $ (33,061) $ 57,954 $ 6,272 $ 1,932 ========= ========= ========= ======= ========== ======== ========= =========
Pre-Confirmation Post-Confirmation ------------------------------------------- ----------------------------------- December 31, ----------------------------- March 31, March 31, January 31, January 31, 1994 1995 1996 1996 1997 1998 1999 ---- ---- ---- ---- ---- ---- ---- BALANCE SHEET DATA: Total assets ..................... $326,981 $342,610 $331,626 $348,420 $305,704 $319,786 $311,117 Working capital .................. 152,627 166,823 173,734 167,037 143,316 167,757 166,229 Property, plant and equipment, net 65,921 53,516 47,885 51,664 38,907 41,502 49,018 Total debt ....................... 37,719 37,625 19,869 32,005 66,488 107,149 114,130 Pension liabilities .............. 43,921 47,409 43,926 46,524 41,090 38,351 41,062 Environmental liabilities ........ 17,762 12,780 44,011 2,516 48,135 45,080 42,201 Liabilities subject to compromise 162,042 169,519 179,897 183,291 -- -- --
(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 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 Company's consolidated financial statements and the related notes thereto 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 the Company to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Factors which may cause the Company's results to be materially different include the cyclical nature of the Company's business, the Company's dependence on foreign customers (particularly customers in Europe), the economic strength of the Company'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 the Company's estimates of the costs of environmental remediation and the extension or expiration of existing anti-dumping duties. OVERVIEW The industries which the Company 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 the Company's products were favorable. However, sales prices and demand for several of the Company's major products declined during the second half of 1998. The Company 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 some 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 the Company, 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 the Company's chromium and vanadium aluminum products. During the two quarters ended January 31, 1999, the Company 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. The Company has substantial operations outside the United States. At January 31, 1999, the Company's operations located outside the United States represented approximately 62% of the Company's assets based on book values. Approximately 80% of the Company's employees were outside the United States. Approximately 41% of the Company'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." On July 13, 1998, Metallurg, Inc. was acquired by a group of investors led by Safeguard International Fund, L.P.. 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 common stock was converted into the right to receive $30 in cash. In connection with the Merger, Metallurg received the consents 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" 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 were cancelled and 100 shares of common stock, $0.01 par value, were issued to Metallurg Holdings. On November 20, 1998, Metallurg consummated a 50,000 for 1 stock split and, as a result, Metallurg has 5,000,000 17 18 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' 12-3/4% Series B Senior Discount Notes due 2008. In April 1997, Metallurg and Shieldalloy consummated the Reorganization Plan. The Company 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 Reorganization Plan, Metallurg 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's change in its fiscal year from a calendar year to January 31, effective as of April 1, 1997, the consolidated operating results of the Company for the year ending January 31, 1999 include the results of Metallurg, Inc., the parent 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 the Company 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 the Company 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 the Company at January 31, 1998 reflect the financial position of Metallurg, Inc. at January 31, 1998 and of the operating subsidiaries at December 31, 1997. Effective March 31, 1997, the Company 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 the Company 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. (in thousands)
Year Four Quarters Year Ended Ended Ended January 31, January 31, December 31, 1999 1998 1996 ---- ---- ---- Total revenue ................................. $ 607,169 $ 632,554 $ 650,002 --------- --------- --------- Operating costs and expenses: Cost of sales ............................... 525,861 544,093 566,538 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 extraordinary item ....................... 6,720 31,382 (20,042) 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) ========= ========= =========
18 19 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 the Company, 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 the Company recognized during the last two quarters ended January 31, 1999. The values of the Company'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 the Company'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 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 the Company'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. Interest income (expense), net is as follows (in thousands):
Year Four Quarters Ended Ended January 31, January 31, 1999 1998 ---- ---- Interest income $ 2,963 $ 4,078 Interest expense (12,833) (9,976) ------- ------ Interest expense, net $ (9,870) $(5,898) ======== =======
Interest expense increased significantly in the year ended January 31, 1999, as the Company 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. The Company 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, the Company 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. The Company did not accrue interest on debt incurred prior to entering Chapter 11 proceedings. As a result, approximately $2.1 million of contractual interest on these unsecured obligations, which were reported as part of liabilities subject to compromise, was not reflected in the quarter ended March 31, 1997. 19 20 Income tax provision, net of tax benefits, is as follows (in thousands):
Year Year Ended Ended January 31, January 31, 1999 1998 ---- ---- Total current $(5,489) $(7,825) Total deferred 701 (1,571) ------- ------- Income tax provision, net $(4,788) $(9,396) ======= =======
The differences between the statutory Federal income tax rate and the Company'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 the Company's Reorganization Plan, and a $5.1 million credit, representing the effects of revaluing the Company's assets and liabilities under fresh-start reporting. In addition, other income included gains on the sales of the Company's New York office building and of certain plant assets of one of the Company'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 revenues for Metallurg and its subsidiaries 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"), the Company'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 20 21 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. 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 the Company'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 the Company'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 the Company'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 the Company'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 the Company's Newfield NJ site. As a result of the Company'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):
FOUR QUARTERS YEAR ENDED ENDED JANUARY 31, DECEMBER 31, 1998 1996 ---- ---- Interest income .................. $ 4,078 $ 4,516 Interest expense ................. (9,976) (3,043) ------- ------- Interest (expense) income, net ... $(5,898) $ 1,473 ======= =======
Interest expense increased in the four quarters ended January 31, 1998, as the Company 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. The Company 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 22 Income tax provision, net of tax benefits is as follows (in thousands):
FOUR QUARTERS YEAR ENDED ENDED JANUARY 31, DECEMBER 31, 1998 1996 ---- ---- Total current .................. $ (7,825) $ (8,504) Total deferred ................. (1,571) 51 ------ --------- Income tax provision , net ..... $(9,396) $ (8,453) ======= ========
The differences between the statutory Federal income tax rate and the Company'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 the Company's Reorganization Plan, and a $5.1 million credit, representing the effects of revaluing the Company's assets and liabilities under fresh-start reporting. 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 the Company's New York office building and of certain plant assets of one of the Company'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 and its subsidiaries decreased by 5.7%, from $689.4 million in 1995 to $650.0 million in 1996, due to a significant decrease in prices of certain products, particularly ferrovanadium and ferrotitanium, and a decrease in the availability to the Company 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 currencie's also negatively impacted LSM. Gross margins of aluminum products at the Company'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 the Company's sales in 1996, compared to 7.7% in 1995. 22 23 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 $11.7 million for a restructuring of the Company's principal German subsidiary into separate business units and a restructuring of the Company's mining operations in Brazil. In connection with the restructuring of the Company'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 multiemployer pension plan, the settlement of certain environmental claims and additional claims by institutional debtholders. This was partially offset by the gain on the sale in 1996 of a parcel of land owned by the Company's Turkish subsidiary. For the years ended December 31, 1996 and 1995, the Company 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. The Company 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 the Company'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 November 1997, the Company issued $100 million principal amount of 11% Senior Notes due 2007, the proceeds of which were used to retire the Company'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 $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, the Company 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, the Company purchased an additional 5% interest in a Russian magnesium metal producer for approximately $2.0 million. Credit Facilities and Other Financing Arrangements. The Company has a credit facility with certain financial institutions led by BankBoston, N.A. as agent (the "Revolving Credit Facility") which provides Metallurg, Shieldalloy and certain of their subsidiaries with up to $50.0 million of financing 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 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 23 24 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 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; at the Company's request, 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 the German subsidiary. 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. The Company'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). The Company 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. The Company invested $15.7 million in capital projects during the year ended January 31, 1999. The Company's capital expenditures include projects related to improving the Company'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 the Company 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 the Company has budgeted these items in the year ended January 31, 2000, the Company has not committed to complete these projects during that period as such commitments are contingent on senior management 24 25 approval and other conditions. The Company believes that these projects will be funded through internally generated cash, borrowings under the Revolving Credit Facility and local credit lines. Market Risk. The Company uses financial instruments to manage the impact of foreign exchange rate changes on earnings and cash flows. Accordingly, the Company 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. The Company 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 the Company'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 the Company'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. The Company 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. The Company 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 Company 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 . The Company 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, the Company 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. 25 26 Environmental Remediation Costs. In 1996, the Company 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 remediation obligations are generally not discounted to their present value. During the year ended January 31, 1999, the Company 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, the Company 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. The Company believes that while its remediation obligations and other environmental costs, in the aggregate, will reduce its liquidity, the Company believes its cash balances, cash from operations and cash available under its credit facilities is 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. The Company is currently evaluating the impact SFAS No. 133 will have on its financial statements. EFFECTS OF INFLATION Inflation has not had a significant effect on the Company's operations. However, there can be no assurance that inflation will not have a material effect on the Company's operations in the future. The Company is subject to price fluctuations in its raw materials and products. These fluctuations have affected and will continue to affect the Company's results of operations. See "Results of Operations." 26 27 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The following audited consolidated financial statements of Metallurg, Inc. and Consolidated Subsidiaries are presented herein pursuant to the requirements of Item 8 on the pages indicated below:
AUDITED FINANCIAL STATEMENTS: PAGE Report of Independent Accountants -- PricewaterhouseCoopers LLP for the Year Ended January 31,1999.......................................................................... 28 Independent Auditors' Report -- Deloitte & Touche LLP for the Three Quarters Ended January 31,1998, the Quarter End March 31,1997 and the Year Ended December 31,1996............................................................................... 29 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............................................................... 30 Consolidated Balance Sheets at January 31, 1999, January 31, 1998 and March 31, 1997 ................ 31 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 ......................................................... 32 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 ......................................................... 33-71 Selected Quarterly Financial Data (unaudited) for the Years Ended January 31, 1999 and January 31, 1998 ......................................................................... 72 AUDITED FINANCIAL STATEMENT SCHEDULE: Report of Independent Accountants--PricewaterhouseCoopers LLP for the Year Ended January 31, 1999 .......................................................... 73 Schedule VIII - Valuation and Qualifying Accounts and Reserves ..................................... 74
27 28 [PWC OFFICE LETTERHEAD] 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 28 29 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 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 74, for the three quarters ended January 31, 1998, the quarter ended March 31, 1997 and the year ended December 31, 1996. These consolidated financial statements and financial 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 the principles used and significant estimates made by management, as well as evaluating the overall financial statements presentation. We believe our audits provide a reasonable basis for our opinion. As discussed in Notes 1 and 2 to the consolidated financial statements, on April 14, 1997, the U.S. Bankruptcy Court for the Southern District of New York entered an order confirming the Company's plan of reorganization which became effective after the close of business on that day. Accordingly, the accompanying consolidated balance sheets as of January 31, 1998 and March 31, 1997 and the statements of consolidated operations and of consolidated cash flows for the three quarters ended January 31,1998 have been prepared in conformity with the American Institute of Certified Public Accountants Statement of Position No.90-7, "Financial Reporting for Entities in Reorganization Under the Bankruptcy Code," for the Company as a new entity with assets, liabilities, and a capital structure having carrying values not comparable with prior periods as described in Notes 1 and 2. In our opinion, the Reorganized Company's balance sheets present fairly, in all material respects, the financial position of Metallurg, Inc. and consolidated subsidiaries at January 31, 1998 and March 31, 1997 and the results of their consolidated operations and their consolidated cash flows for the three quarters ended January 31, 1998, and the Predecessor Company consolidated financial statements, referred to above, present fairly, in all material respects, the 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 29 30 METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES STATEMENTS OF CONSOLIDATED OPERATIONS (IN THOUSANDS)
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 ----- ---- ---- ---- ---- 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) ========= ========= ======== =========
See notes to consolidated financial statements. 30 31 METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
January 31, January 31, March 31, Notes 1999 1998 1997 ----- ---- ---- ---- ASSETS (Note 3) 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 ======== ======== ========
See notes to consolidated financial statements. 31 32 METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES STATEMENTS OF CONSOLIDATED CASH FLOWS (IN THOUSANDS)
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 ---- ---- ---- ---- 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 .............................. (326) (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 ........................................... 1,858 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 .................. -- -- (59,366) -- Reorganization 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 ========= ========= ========= =========
See notes to consolidated financial statements. 32 33 METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Metallurg, Inc. ("Metallurg") and its majority-owned subsidiaries (collectively, the "Company") manufacture and sell high quality metal alloys and specialty metals used by manufacturers of steel, aluminum, superalloys and chemicals and other metal consuming industries. The Company sells more than 500 different products to over 3,000 customers worldwide (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 and one of its subsidiaries, Shieldalloy Metallurgical Corporation ("SMC") (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, the Company has reflected the effects of the Plan consummation as of March 31, 1997. As a result of the consummation of the Plan and the adoption of fresh-start reporting under the American Institute of Certified Public Accountants' Statement of Position ("SOP") No. 90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code", the Company was required to report its financial results for the period 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 the Company after consummation of the Plan are not directly comparable to the Company'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 - The Company presents all highly liquid instruments, maturing within 30 days or less when purchased, as cash equivalents. 33 34 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. The Company'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 the Company's United Kingdom subsidiary, valued at approximately $1,180,000 was held for sale. 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. 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 the Company and such revenue is recognized when the product is shipped and title to the product passes to the customer. In certain instances, the Company arranges sales for which the supplier invoices the customer directly ("agency sales"). In such cases, the Company receives commission income, which is recognized when the supplier passes title to the customer. 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, the Company 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, 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, $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, the Company does not provide for U.S. income taxes on foreign currency translation adjustments related to these foreign subsidiaries. 34 35 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. The Company's foreign subsidiaries maintain separate pension plans for their employees. Such foreign plans are either funded currently or accruals are recorded in the respective balance sheets to reflect pension plan liabilities. Stock-Based Compensation - The Company accounts for stock-based compensation using the intrinsic value method, in accordance with Accounting Principles Board Opinion No. 25. Accordingly, compensation cost for stock options is measured as the excess, if any, of the market price of the Company's common stock at the date of grant over the amount an employee must pay to acquire the stock. Disclosures required with respect to alternative fair value measurement and recognition methods prescribed by SFAS No. 123, "Accounting for Stock-Based Compensation" are presented in Note 12. Foreign Exchange Gains and Losses - Foreign exchange 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 - The Company enters into foreign exchange contracts in the regular course of business to manage exposure against fluctuations on sales and raw material purchase transactions denominated in currencies other than the functional currencies of its businesses. Unrealized gains and losses are deferred and recognized in income or as adjustments of carrying amounts when the hedged transactions are included in income. Gains and losses on unhedged foreign currency transactions are included in income. The Company does not hold or issue financial instruments for trading purposes. The counterparties to these contractual arrangements are a diverse group of major financial institutions with which the Company also has other financial relationships. The Company is exposed to credit risk generally limited to unrealized gains in such contracts in the event of nonperformance by counterparties 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, the Company recognized an extraordinary charge of $792,000, net of tax of $473,600, as a result of the early retirement of the Company's 12% senior-secured notes due 2007 and the United Kingdom subsidiary's term loan due 2000. The notes were redeemed at 103% and 101% of principal amount, respectively, with accrued interest to the date of redemption. In the quarter ended March 31, 1997, the Company recognized an extraordinary gain of $43,032,000, net of tax of nil, relating to the discharge of indebtedness at the consummation of the Plan of Metallurg and SMC. 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. Reclassification - Certain prior year amounts were reclassified to conform to 1999 presentations. 35 36 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 (the "Merger"). 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 (the "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. 36 37 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
For the Quarter For the Year Ended Ended March 31, December 31, 1997 1996 ---- ---- 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) ========= =========
37 38 METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) METALLURG, INC. AND SHIELDALLOY METALLURGICAL CORP. CONDENSED BALANCE SHEET
March 31, 1997 ---- 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 =========
38 39 METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) METALLURG, INC. AND SHIELDALLOY METALLURGICAL CORP. CONDENSED STATEMENTS OF CASH FLOWS
For the Quarter For the Year Ended Ended March 31, December 31, 1997 1996 ---- ---- 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 ======== ========
On the Effective Date, claims related to prepetition liabilities and administrative expenses were discharged through distributions of $59,366,000 in cash, the issuance of $39,461,000 of senior-secured notes and 4,706,406 shares of new common stock. The value of the cash and securities distributed was less than the recorded liabilities and the resultant net gain of $47,211,000 was recorded as an extraordinary item, net of tax effects of nil due to statutory exemption and utilization of net operating loss carryforwards. Such net operating loss carryforwards had previously been offset in full by a valuation allowance. The Company was required to adopt fresh-start reporting because the holders of the existing voting shares immediately prior to filing and confirmation of the Plan received less than 50% of the voting shares of the emerging entity and its reorganization value was less than the total of its post-petition liabilities and allowed claims. SOP 90-7 required the Company to revalue its assets and liabilities to their estimated fair value and to recognize as a reduction of long-term assets the excess of the fair value of its identifiable assets over the total reorganization value of its assets as of the Effective Date. Accordingly, the Company's property, plant and equipment and other noncurrent assets were reduced by approximately $5,520,000. In addition, the Company's accumulated equity of approximately $4,733,000 and cumulative foreign currency translation adjustment of approximately $14,587,000 were eliminated. As a result of the adjustments made to reflect fresh-start reporting, a pre-tax revaluation credit of $5,107,000 is included in the Company's results of operations for the quarter ended March 31, 1997. The total reorganization value assigned to the Company's assets was estimated by calculating projected cash flows before debt service requirements for a three-year period, plus an estimated terminal value of the Company calculated using an estimate of normalized operating performance and discount rates ranging from 13.5% to 16.5%. This amount was increased by (i) the estimated net realizable value of assets to be sold and (ii) estimated cash in excess of normal operating requirements. 39 40 METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) The effect of the Plan and the implementation of fresh-start reporting on the Company's consolidated balance sheet as of March 31, 1997 were as follows (in thousands):
Prior to Effects Adoption of Opening Joint Plan of Fresh-Start Balance Effectiveness Joint Plan (a) Reporting Sheet ------------- -------------- --------- ----- 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 ========= ========= ========= ==========
_________________ 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. 40 41 METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 4. SEGMENTS AND RELATED INFORMATION The Company adopted SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information" in the year 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. Information for prior periods presented have been restated in order to conform to the current year presentation. The Company operates in one significant industry segment, the manufacture and sale of ferrous and non-ferrous metals and alloys. The Company is organized geographically, having established a worldwide sales network built around the Company's core production facilities in the United States, the United Kingdom and Germany. In addition to selling products manufactured by the Company, the Company 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. 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 protheses, implants and surgical instruments for orthopedic applications. Elektrowerk Weisweiler GmbH ("EWW"): This production unit, also located in Germany, produces various grades of low carbon ferrochrome used in the superalloy, welding and steel industries. 41 42 METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) Summarized financial information concerning the Company'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. The Company does not allocate general corporate overhead expenses to operating segments.
Intersegment Consolidated Shieldalloy LSM GfE EWW Other Eliminations Totals ----------- --- --- --- ----- ------------ ------ 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 amortization 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
42 43 METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Intersegment Consolidated Shieldalloy LSM GfE EWW Other Eliminations Totals ----------- --- --- --- ----- ------------ ------ 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
The following table presents revenue by region based on the location of the user of the product.
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 ---- ---- ---- ---- 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 ======== ======== ======== ========
43 44 METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) The Company 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: 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 ========
The following table presents property, plant and equipment by country based on the location of the assets.
January 31, January 31, March 31, 1999 1998 1997 ---- ---- ---- 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 ======= ======= =======
5. INVESTMENT IN AFFILIATES In February 1998 and in August 1996, the Company 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, the Company sold its minority investment in Compagnie des Mines et Metaux S.A., a Luxembourg affiliate, for proceeds of approximately $1,100,000, resulting in a gain of approximately $900,000. 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. 44 45 METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) 6. INVENTORIES Inventories, net of reserves, consist of the following (in thousands):
January 31, January 31, March 31, 1999 1998 1997 ---- ---- ---- 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 ======== ======== ========
7. PROPERTY, PLANT AND EQUIPMENT The major classes of property, plant and equipment are as follows (in thousands):
January 31, January 31, March 31, Estimated 1999 1998 1997 Lives ---- ---- ---- ----- (in years) 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 ======= ======= =======
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. 45 46 METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 8. RETIREMENT PLANS The Company 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):
January 31, January 31, March 31, 1999 1998 1997 ---- ---- ---- 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) ========= ========= =========
46 47 METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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 ---- ---- ---- ---- 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%
The following table summarizes the components of net periodic benefit cost (in thousands):
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 ======== ======== ======== ========
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):
January 31, January 31, March 31, 1999 1998 1997 ---- ---- ---- 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) ======== ======== ========
The Company'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):
January 31, January 31, March 31, 1999 1998 1997 ---- ---- ---- 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 ======== ======== ========
47 48 METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) The Company'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 the Company'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 the Company'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. The Company 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. 48 49 METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 9. BORROWINGS Long-term debt consists of the following (in thousands):
January 31, January 31, March 31, 1999 1998 1997 ---- ---- ---- 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 ======== ======== ========
Parent Company and Domestic Subsidiaries In November 1997, Metallurg 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 the Company. 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 the Company to incur indebtedness and enter into certain mergers, consolidations or asset sales. In addition, the Company 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 and SMC (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. The Company is required to pay a fee of 0.375% per annum on the unused portion of the commitment. The total amount the Borrowers may borrow at any time is limited to a borrowing base calculation 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 the Company 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. 49 50 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 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. 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%. 50 51 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%. The Company's other foreign subsidiaries maintain short-term secured and unsecured borrowing arrangements, generally in local currencies, with various banks. Borrowings under these arrangements aggregated $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 the Company'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. The Company enters into foreign exchange contracts in the regular course of business to manage exposure against fluctuations on sales and raw material purchase transactions denominated in currencies other than the functional currencies of its businesses. The contracts generally mature within 12 months and are principally unsecured foreign exchange contracts with carefully selected banks. The aggregate notional 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. The contracts are predominately denominated in the following currencies: Deutsche Marks, Pounds Sterling and U.S. Dollars. The notional values provide an indication of the extent of the Company's involvement in such instruments but do not represent its exposure to market risk, which is essentially limited to risk related to currency rate movements. Unrealized gains on these contracts at January 31, 1999, January 31, 1998 and March 31, 1997 were approximately $117,000, $231,000 and $1,493,000, respectively. 51 52 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):
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 ---- ---- ---- ---- 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) ======== ======== ======== ========
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):
For the Year For the Three Quarters For the Quarter Ended Ended Ended January 31, 1999 January 31, 1998 March 31, 1997 Tax Tax Tax Provision Provision Provision (Benefit) Percent (Benefit) Percent (Benefit) Percent --------- ------- --------- ------- --------- ------- Income tax provision at statutory rate ................. $ 2,285 34.0% $ 6,833 35.0% $ 4,032 34.0% State and local income taxes, net of federal income tax effect 346 5.1 163 0.8 86 0.7 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) 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) Other ............................ (302) (4.4) 88 0.5 205 1.7 -------- ---- -------- ---- -------- ----- Total ............................ $ 4,788 71.2% $ 12,459 63.8% $ (3,063) (25.9%) ======== ==== ======== ==== ======== =====
For the Year Ended December 31, 1996 Tax Provision (Benefit) Percent --------- ------- Income tax provision at statutory rate ................. $ (6,814) 34.0% State and local income taxes, net of federal income tax effect 280 (1.4) Effect of net increase of foreign valuation allowance and differences between U.S. and foreign rates .............. (757) 3.8 Foreign dividends, less benefit of foreign tax credit .......... -- -- Changes in domestic valuation allowance ............ 15,600 (77.8) Other ............................ 144 (0.7) -------- ----- Total ............................ $ 8,453 (42.1%) ======== =====
52 53 METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) The income tax provision (benefit) represents the following (in thousands):
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 ---- ---- ---- ---- 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 ======= ======= ======= =======
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. 53 54 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 the Company's deferred tax assets and liabilities are as follows (in thousands):
January 31, January 31, March 31, 1999 1998 1997 ---- ---- ---- 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 ======== ======== ========
At January 31, 1999, the Company 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. 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. 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. 54 55 METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 12. SHAREHOLDERS' EQUITY (DEFICIT)
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) 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 .... -- -- -- (57) -- (57) adjustment 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 ========== ======= ======== ======== ======== ========
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 the Company was amended, whereby the authorized number of shares of common stock was increased to 15,000,000 shares with a par value of $.01 per share, and each original outstanding share of common stock of the Company was subsequently canceled. In addition, in accordance with the Plan, 4,706,406 shares were issued to prepetition unsecured claimholders. The Company was subsequently merged into a new corporation, organized under the laws of the State of Delaware, and all common shares then outstanding were exchanged on a one-for-one basis for shares in the new corporation. 55 56 METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 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. In November 1998, the Certificate of Incorporation of the Company was amended to provide for 10,000,000 authorized shares of common stock and Metallurg consummated a 50,000 for 1 stock split and, as a result, Metallurg 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, respectively. 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 and its subsidiaries, (ii) certain 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. Under the ECP, 500,000 shares of common stock were made available for stock awards and stock options. The Company believes that the ECP 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. 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, the Company 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 the Company. Under the SASOP, 500,000 shares of common stock were made available for stock awards and stock options. Pursuant to the Plan, the Board granted to eligible executives 250,000 shares of common stock (the "Initial Stock Awards"). Twenty percent of each Initial Stock Award was transferable on the date of grant and 40 percent 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 the Company 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. The Company recorded compensation expense of $3,541,000, which represents the excess of the $30 per share purchase price over the exercise prices noted above. The Company was reimbursed for such stock option cancellation costs by a capital contribution from Safeguard International at the time of the Merger. The Company 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. The Company has elected the disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based Compensation". 56 5 57 METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) Had the Company used the fair value method at the date of grant of the stock options, additional compensation expense would have been recorded, resulting in the following pro forma amounts (in thousands):
Year Three Quarters Ended Ended January 31, 1999 January 31, 1998 ---------------- ---------------- Pro forma net income: Earnings before extraordinary item $ (303) $ 6,818 Extraordinary item, net of tax ... -- (792) ------- ------- Net income (loss) ................ $ (303) $ 6,026 ======= =======
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:
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%
57 58 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):
Three Quarters Quarter Year Ended Ended Ended Year Ended January 31, January 31, March 31, December 31, 1999 1998 1997 1996 ---- ---- ---- ---- 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) ======= ======= ======= =======
In the year ended January 31, 1999, 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. In the three quarters ended January 31, 1998, one of the Company's German subsidiaries sold certain plant assets no longer in productive use and recorded a gain of approximately $1,700,000. During 1997, Metallurg 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 SMC 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 SMC 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. 58 59 METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) Total environmental liabilities consist of the following (in thousands):
January 31 January 31 March 31, 1999 1998 1997 ---- ---- ---- Domestic: SMC - New Jersey .............. $28,876 $30,925 $32,584 SMC - 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 ======= ======= =======
SMC entered into Administrative Consent Orders ("ACO's") with the State of New Jersey, dated October 5, 1988 and September 5, 1984, under which SMC, 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 SMC 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. The Company accrued its best estimate of the associated costs with respect to remedial activities at the site which it expects to disburse over the next 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, the Company 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, SMC is required to decommission the slag piles. SMC 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, SMC purchased the Cambridge manufacturing facility from Foote Mineral Company. Cyprus Foote Mineral Company ("Cyprus Foote") is the successor in interest to Foote. During 1995, SMC, Cyprus Foote and the State of Ohio entered into a Consent Order for Permanent Injunction (the "Consent Order") under which SMC 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, SMC 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, SMC and Cyprus Foote are jointly and severally liable to the State of Ohio in respect of these obligations. However, SMC 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. 59 60 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 SMC has purchased an annuity contract which will provide for future payments into the trust fund to cover certain of the estimated operation and maintenance costs over the next 100 years. The Company's German subsidiaries have accrued environmental liabilities in the amounts of $4,443,000, $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, the Company continues defending various claims and legal actions arising in the normal course of business. Management believes, based on the advice of counsel, that the outcome of such litigation will not have a material adverse effect on the Company's consolidated financial position, results of operations or liquidity. There can be no assurance, however, that existing or future litigation will not result in an adverse judgment against the Company which could have a material adverse effect on the Company's future results of operations or cash flows. 16. LEASES The Company leases office space, facilities and equipment. The leases generally provide that the Company 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):
January 31, ----------- 2000 .......................... $1,530 2001 .......................... 1,365 2002 .......................... 1,167 2003 .......................... 844 2004 .......................... 418 Thereafter .................... 3,607 ------ Total ........................ $8,931 ======
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. 60 61 METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 17. SUPPLEMENTAL GUARANTOR INFORMATION Under the terms of the Senior Notes, SMC, Metallurg Holdings Corporation, Metallurg Services, Inc. and MIR (China), Inc. (collectively, the "Guarantors"), wholly-owned domestic subsidiaries of the Company, will fully and unconditionally guarantee on a joint and several basis the Company's obligations to pay principal, premium and interest in respect of the Senior Notes due 2007. Management has determined that separate, full financial statements of the Guarantors would not be material to potential investors and, accordingly, such financial statements are not provided. Supplemental financial information of the Guarantors is presented below: CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE YEAR ENDED JANUARY 31, 1999 (IN THOUSANDS)
Combined Combined Metallurg, Guarantor Non-Guarantor Inc. Subsidiaries Subsidiaries Eliminations Consolidated ---- ------------ ------------ ------------ ------------ 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 ========= ========= ========= ========= =========
61 62 METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) CONDENSED CONSOLIDATING BALANCE SHEET AT JANUARY 31, 1999 (IN THOUSANDS)
Combined Combined Metallurg, Guarantor Non-Guarantor Inc. Subsidiaries Subsidiaries Eliminations Consolidated ---- ------------ ------------ ------------ ------------ 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 ========= ========= ========= ========= =========
62 63 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)
Combined Combined Metallurg, Guarantor Non-Guarantor Inc. Subsidiaries Subsidiaries Eliminations Consolidated ---- ------------ ------------ ------------ ------------ 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 ======== ======== ======== ======== ========
63 64 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)
Combined Combined Metallurg, Guarantor Non-Guarantor Inc. Subsidiaries Subsidiaries Eliminations Consolidated ---- ------------ ------------ ------------ ------------ 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 ======= ======== ======== ======== ========
64 65 METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) CONDENSED CONSOLIDATING BALANCE SHEET AT JANUARY 31, 1998 (IN THOUSANDS)
Combined Combined Metallurg, Guarantor Non-Guarantor Inc. Subsidiaries Subsidiaries Eliminations Consolidated ---- ------------ ------------ ------------ ------------ 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 ========= ========= ========= ========= =========
65 66 METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE THREE QUARTER ENDED JANUARY 31, 1998 (IN THOUSANDS)
Combined Combined Guarantor Non-Guarantor Metallurg, Inc. Subsidiaries Subsidiaries Consolidated --------------- ------------ ------------ ------------ 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 ========= ========= ========= =========
66 67 METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE QUARTER ENDED MARCH 31, 1997
Combined Combined Metallurg, Guarantor Non-Guarantor Inc. Subsidiaries Subsidiaries Eliminations Consolidated ---- ------------ ------------ ------------ ------------ Total revenue ..................... $ 10,578 $ 52,475 $ 117,652 $ (25,118) $ 155,587 --------- --------- --------- --------- --------- Operating costs and expenses Cost of sales ..................... 10,219 47,590 100,709 (24,458) 134,060 Selling, general and administrative expenses ........................ 2,662 2,118 10,266 -- 15,046 --------- --------- --------- --------- --------- Total operating costs and expenses 12,881 49,708 110,975 (24,458) 149,106 --------- --------- --------- --------- --------- Operating (loss) income ........... (2,303) 2,767 6,677 (660) 6,481 Other: Other (expense) income, net ....... (7,041) 9,903 317 -- 3,179 Interest (expense) income, net .... (795) 554 (4) -- (245) Reorganization expense ............ (1,698) (965) -- -- (2,663) Fresh-start revaluation ........... 11,652 (6,305) (240) -- 5,107 Equity in earnings of subsidiaries (6,216) -- -- 6,216 -- --------- --------- --------- --------- --------- Income before income tax provision and extraordinary item ............ (6,401) 5,954 6,750 5,556 11,859 Income tax provision (benefit) .... (241) 30 (2,852) -- (3,063) --------- --------- --------- --------- --------- Income (loss) before extraordinary item ............................ (6,160) 5,924 9,602 5,556 $ 14,922 Extraordinary item, net of tax .... 64,114 (17,036) (4,046) -- 43,032 --------- --------- --------- --------- --------- Net income ........................ $ 57,954 $ (11,112) $ 5,556 $ 5,556 $ 57,954 ========= ========= ========= ========= =========
67 68 METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) CONDENSED CONSOLIDATING BALANCE SHEET AT MARCH 31, 1997 (IN THOUSANDS)
Combined Combined Metallurg, Guarantor Non-Guarantor Inc. Subsidiaries Subsidiaries Eliminations Consolidated ---- ------------ ------------ ------------ ------------ 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 ========= ========= ========= ========= =========
68 69 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)
Combined Combined Guarantor Non-Guarantor Metallurg, Inc. Subsidiaries Subsidiaries Consolidated --------------- ------------ ------------ ------------ 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 ======== ======== ======== ========
69 70 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)
Combined Combined Metallurg, Guarantor Non-Guarantor Inc. Subsidiaries Subsidiaries Eliminations Consolidated ---- ------------ ------------ ------------ ------------ 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) ========= ========= ========= ========= =========
70 71 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)
Combined Combined Guarantor Non-Guarantor Metallurg, Inc. Subsidiaries Subsidiaries Consolidated --------------- ------------ ------------ ------------ Cash Flows from Operating Activities ... $ 1,922 $ 9,748 $ 35,995 $ 47,665 -------- -------- -------- -------- Cash Flows from Investing Activities: Additions to property, plant and ...... (90) (599) (8,842) (9,531) equipment 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 ======== ======== ======== ========
71 72 METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) (IN THOUSANDS)
1st 2nd 3rd 4th Quarter Quarter Quarter Quarter Year ------- ------- ------- ------- ---- 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
Predecessor Reorganized Company Company ------- --------------------------------------------------------- 1st 2nd 3rd 4th Quarter Quarter Quarter Quarter Year ------- ------- ------- ------- ---- 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
(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. 72 73 [PWC OFFICE LETTERHEAD] 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 March 31, 1999 74 METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES IN THOUSANDS:
Balance at Charged to Balance at Beginning Costs and Charged to Deductions End of Period Expenses Other Accounts --Describe-- of Period --------- -------- ------------ ------------ --------- 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) =======
74 75 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 the Company's report on Form 8-K, filed on November 20, 1998. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY. The following table sets forth certain information with respect to the individuals who are the directors and executive officers of the Company:
NAME AGE POSITION ---- --- -------- Heinz C. Schimmelbusch ............ 54 Chairman and Director Alan D. Ewart ..................... 51 President and Chief Executive Officer Michael A. Standen ................ 62 Vice Chairman and Director Eric E. Jackson ................... 47 Senior Vice President and Chief Operating Officer Robin A. Brumwell ................. 54 Senior Vice President Barry C. Nuss ..................... 46 Vice President-Finance and Chief Financial Officer Ellen T. Harmon ................... 44 Vice President, General Counsel and Secretary Douglas A. Fastuca ................ 34 Vice President, Corporate Development Nils A. Kindwall .................. 75 Director Jack L. Messman ................... 59 Director Samuel A. Plum .................... 54 Director Arthur R. Spector ................. 58 Director
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, or, in the case of officers other than the President and Chief Executive Officer, at the discretion of the President and Chief Executive Officer. Heinz C. Schimmelbusch -- Dr. Schimmelbusch became Chairman of the Board and a Director of Metallurg, Inc. in July 1998, as well as President, Chief Executive Officer and a Director of Metallurg's parent company, Metallurg Holdings, 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 multibillion 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. Michael A. Standen -- Mr. Standen has worked at Metallurg for his entire professional career. He was appointed President and Chief Executive Officer in 1983 and was Chairman from 1992 through July 1998. Mr. Standen joined LSM in 1961 and held positions in sales and purchasing management before he was appointed Joint Managing Director of LSM in 1977. He became sole Managing Director of LSM in 1980. He was elected to the Board of Directors of the Company in 1977. Mr. Standen was appointed Vice Chairman of Metallurg in August 1998 and is retained as an advisor to the Company. He also serves on the Boards of Metallurg's German subsidiaries. Mr. Standen has a B.A. degree in languages from Oxford University. 75 76 Alan D. Ewart -- Mr. Ewart was appointed President and Chief Executive Officer of Metallurg in August 1998. Prior thereto, he was Joint Managing Director of LSM. Mr. Ewart joined LSM in 1969 and held several positions in sales and purchasing management before he was appointed Joint Managing Director in 1984. He was elected to the Board of Directors of the Company in 1987 and served in that capacity until July 1998. Prior to joining LSM, Mr. Ewart worked in the British Civil Service as a Patent Examiner. Mr. Ewart has a BSc degree in metallurgy from the University of Wales. Eric E. Jackson -- Mr. Jackson was appointed Senior Vice President and Chief Operating Officer of Metallurg in August 1998. He also serves as an officer and director of certain subsidiaries of Metallurg. Mr. Jackson was Senior Vice President and then President of Shieldalloy from September 1996 and retains the position of President currently. From 1993 to 1995, he was Assistant Director at Phibro, a division of Salomon, Inc., where he directed trading and distribution operations. Prior thereto, he was a Vice President at Louis Dreyfus Corporation from 1989 to 1993, where he managed trading and soft physical commodities operations. From 1979 to 1989, Mr. Jackson served in various capacities at Cargill Incorporated in Canada and the United States. Mr. Jackson received a B.S. degree and an M.B.A. from the University of Saskatchewan. Robin A. Brumwell -- Mr. Brumwell was appointed Senior Vice President of Metallurg in August 1998. He has served as President of Metallurg International Resources, which distributes products manufactured by third parties, since 1992. Mr. Brumwell also is an officer and director of various subsidiaries of Metallurg. He served in a number of capacities at Cabot Corporation from 1976 through 1991, including Vice President of the Stellite Division, Group Vice President for certain chemical companies and President of Cabot Safety, Inc. (manufacturer of industrial safety products). Mr. Brumwell became a British chartered accountant in 1966 and received a masters degree in science/business administration from the Cranfield Institute of Technology and an M.B.A. from the Harvard Graduate School of Business Administration. Barry C. Nuss -- Mr. Nuss joined Metallurg as financial controller in 1983, was appointed Vice President-Finance of Shieldalloy in 1988, and assumed his current position as Vice President-Finance and Chief Financial Officer of Metallurg in 1994. He serves as an officer and director of various subsidiaries of Metallurg. He was previously employed as an auditor at Deloitte Haskins & Sells (now known as Deloitte & Touche LLP) from 1976 to 1981 and as a Financial Analyst at Cabot Mineral Resources from 1981 to 1983. Mr. Nuss is a Certified Public Accountant and has a B.S. degree in accounting from Fairleigh Dickinson University. Ellen T. Harmon -- Ms. Harmon was appointed Vice President, General Counsel and Secretary of Metallurg in January 1999. She also serves as an officer and director of certain subsidiaries of Metallurg. Ms. Harmon was a corporate associate at the law firm of Kronish, Lieb, Weiner & Hellman in New York from 1979 to 1984, when she joined Savin Corporation, an equipment distribution company, as Associate General Counsel and Assistant Secretary until 1988. She served at Sequa Corporation, a diversified, publicly-held industrial company with interests primarily in aerospace, machinery and metal coatings, from 1988 through 1998, where she held the positions of Senior Associate General Counsel and Secretary. Ms. Harmon has a J.D. from Brooklyn Law School and a B.A. degree from Sarah Lawrence College. Douglas A. Fastuca -- Mr. Fastuca was appointed Vice President, Corporate Development of Metallurg in August 1998. He is Chief Financial Officer and Treasurer of Metallurg Holdings, Inc. and 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. Nils A. Kindwall -- Mr. Kindwall was elected a Director of Metallurg in August 1998. He is the retired Vice Chairman of Freeport McMoRan, Inc. At Freeport, he was one of the founders of Freeport Indonesia, a producer of copper and gold. He has been involved in the financing of varied projects within the mining industry. He is also a former member of Chemical Bank's Advisory Board, a former Director of Inmet Mining Corporation and John Wiley & Sons (publishers). He is currently a Director of Allied Resource Corporation. Mr. Kindwall received his B.A. from Princeton University and an M.B.A. from the Columbia University Graduate School of Business. Jack L. Messman -- Mr. Messman was elected a Director of Metallurg in November 1998. He has been Chairman of the Board and Chief Executive Officer of Union Pacific Resources Group Inc. (UPRG) since 1996. Prior to becoming Chairman and CEO of UPRG, Mr. Messman was President of UPRG. Prior to joining UPRG in 1991, Mr. Messman had been Chairman and CEO of U.S. Pollution Control, Inc., Union Pacific's environmental services company, since 1988. Prior thereto, he was managing director of Mason Best Company of Houston, an investment banking firm, from 1986 to 1988, and simultaneously served as 76 77 Chairman and CEO of Somerset House Corporation, a publishing company owned by Mason Best. He was Executive Vice President-Chief Financial Officer and a member of the Board of Directors of Warner Amex Cable Communications, Inc. from 1983 to 1986. From 1981 to 1983, he was Executive Vice President and a Director of Safeguard Scientifics, Inc. and also served as President and CEO of Novell, Inc., a company controlled by Safeguard, from 1982-1983. He was President and CEO of Norcross, Inc., a consumer products company, from 1979 to 1983. Prior thereto, he was a partner in a Philadelphia investment banking firm. Mr. Messman is a graduate of the University of Delaware, with a B.S. degree in chemical engineering, and received his M.B.A. from the Harvard Graduate School of Business Administration. He was also a Director of Union Pacific Corporation (former parent of UPRG) and MTV Networks, Inc. Mr. Messman currently serves on the Board of Directors of Safeguard Scientifics, Inc., Novell, Inc., USData, Cambridge Technology Partners, Inc. and Tandy Corporation. Samuel A. Plum -- Mr. Plum was elected to serve as a Director of Metallurg in November 1998 and as a Director of Metallurg Holdings, Inc. in October 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, he 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 Holdings Corporation, Icon CMT Corp., Quaker Fabrics Corporation and the National Audubon 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. Arthur R. Spector -- Mr. Spector was elected to serve as a Director of Metallurg in July 1998 and as a Director of Metallurg Holdings, Inc., of which he is Executive Vice President. He is a Managing Director of the general partner and of the management company of Safeguard International. From January 1997 to March 1998, Mr. Spector served as 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, 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. The Board of Directors has compensation and audit committees, which include Messrs. Schimmelbusch and Kindwall, and Messrs. Spector and Plum, respectively. ITEM 11. EXECUTIVE COMPENSATION The following table sets forth the compensation earned by the Company's two Chief Executive Officers during 1998, the four other most highly compensated executive officers and one former executive officer who would have been among the four but for the fact that he resigned his employment prior to the end of the year (collectively, the "Named Officers") during the calendar years 1996, 1997, and 1998, for services rendered in all capacities to the Company during each of those periods. The compensation information is presented on a calendar year basis. Notwithstanding the foregoing, information is only provided with respect to those years in which an individual served as an executive officer of the Company. 77 78 SUMMARY COMPENSATION TABLE
LONG-TERM ANNUAL COMPENSATION COMPENSATION -------------------- ----------------------------------------------- SECURITIES RESTRICTED UNDERLYING STOCK OPTIONS/ ALL OTHER SALARY BONUS AWARD(S) SARS COMPENSATION NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) (#) ($) - --------------------------- ---- --- --- --- --- --- Michael A. Standen ...................... 1998 483,231(b) 198,000 1,400,000(d) 15,000 1,236,240(f) Chairman, President and 1997 645,986(b) 380,000(c) 700,000(d) 50,000(e) -- Chief Executive Officer (a) 1996 617,364(b) 195,000 -- -- -- Alan D. Ewart ........................... 1998 262,476(g) 135,000 1,200,000(d) 75,000 -- President and Chief Executive Officer (a) Eric E. Jackson ......................... 1998 243,500 100,000 -- 35,000 -- Senior Vice President and Chief Operating Officer (a) Barry C. Nuss ........................... 1998 224,378 70,000 650,000(d) 25,000 150,000(f) Vice President-Finance and 1997 210,000 135,000(c) 325,000(d) 17,500(e) -- Chief Financial Officer 1996 202,000 62,500 -- -- -- Robin A. Brumwell ....................... 1998 238,444 15,000 525,000(d) 30,000 150,000(f) Senior Vice President (a) Michael A. Banks ........................ 1998 214,200 53,000 550,000(d) -- 369,033(f) Vice President, Administration (a) 1997 210,000 135,000(c) 275,000(d) 12,500(e) -- 1996 202,000 55,000 -- -- -- J. Richard Budd III ..................... 1998 263,500 -- 500,000(d) -- 474,300(f) Senior Vice President (a) 1997 310,000 159,000(c) 250,000(d) 17,500(e) -- 1996 300,000 77,500 -- -- --
- ------------ (a) On August 10, 1998, Mr. Standen resigned as Chairman, President and Chief Executive Officer of Metallurg and was elected Vice Chairman thereof; and Messrs. Ewart, Jackson and Brumwell became executive officers of Metallurg upon their elections as President and Chief Executive Officer, Senior Vice President and Chief Operating Officer, and Senior Vice President, respectively. On January 5, 1999, Mr. Banks resigned his employment with the Company, as did Mr. Budd on October 31, 1998. (b) Includes approximately $30,680, $47,486 and $70,000 paid for directors' fees for the Company and certain of its subsidiaries, in 1998, 1997 and 1996, respectively. Amount shown for 1998 also includes $77,717 in consulting fees for the latter part of the year. (c) These amounts represent bonuses paid in connection with the consummation of the Reorganization Plan and bonuses payable in respect of fiscal 1997 under the Management Incentive Compensation Plan applicable to 1997. (d) The number of the aggregate restricted stock holdings at December 31, 1997 was 250,000 shares and the value of such holdings at December 31, 1997 was $2.1 million (based on a book value of $8.43 per share). The value shown in the table for 1997 represents the book value of $10.00 per share on the grant date of April 14, 1997. In connection with the Company's Senior Notes Offering in November of 1997, a dividend of $3.90 per share was paid on the Company's common stock (including these stock awards), which had the effect of reducing the book value of the Company stock. The vesting schedule for all of the stock awards shown above was originally as follows: 20% on April 14, 1997, 40% on April 13, 1998 and the remaining 40% on April 13, 1999. Dividends were to be paid on restricted stock. Upon consummation of the Merger on July 13, 1998, the restricted stock vested in its entirety and was cancelled in exchange for the following Merger consideration: Mr. Standen, $2,100,000 with respect to 70,000 shares; Mr. Ewart, $1,200,000 with respect to 40,000 shares; Mr. Nuss, $975,000 with respect to 32,500 shares; Mr. Banks, $825,000 with respect to 27,500 shares; Mr. Budd, $750,000 with respect to 25,000 shares; and Mr. Brumwell, $525,000 with respect to 17,500 shares. The amounts shown in the table for 1998 represent the actual cash consideration paid to each Named Officer in 1998 by Safeguard International in consideration of the cancellation of such stock awards ($30.00 per share), less the value shown in the table for 1997 with respect to the same awards. (e) In connection with the Senior Notes Offering of November 1997, a dividend equivalent of $3.90 per share was paid on outstanding stock options. In 1998, in connection with the acquisition of the Company, these stock options were cancelled (see "Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End Option/SAR Values", below). 78 79 (f) These amounts consist of payments made: in connection with the change of control of the Company (as provided by the terms of previous employment agreements) to Mr. Standen, Mr. Banks (which was actually paid in early 1999, immediately following his resignation), and Mr. Budd; and in consideration of waiving their right to such payment (as per the terms of their previous employment agreements) and in consideration for entering into new employment agreements effective August 1998, to Messrs. Nuss and Brumwell. (g) Includes $20,000 in consulting fees earned by Mr. Ewart pursuant to his Employment Agreement with the Company. 79 80 OPTION GRANTS IN THE LAST FISCAL YEAR The following table provides information on grants of options made during fiscal 1998 to the Named Officers. These options vest 20% on the date of grant and 20% on each of the first four anniversaries of the date of grant.
Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation for Individual Grants Option Term ------------------------------------------------------------- ---------------------- Percent of Number of Total Securities Options/SARs Exercise Underlying Granted to or Option/SARs Employees in Base Price Expiration 5% 10% Granted (#) Fiscal Year(a) ($/Sh) Date ($) ($) ----------- -------------- ------ ---- --- --- NAMED OFFICER Michael A. Standen .. 15,000 (b) 3.24% 30.00 11/20/08 283,002 717,184 Alan D. Ewart ....... 75,000 16.21% 30.00 11/20/08 1,415,012 3,585,920 J. Richard Budd III . -- -- -- -- -- -- Eric E. Jackson ..... 35,000 7.56% 30.00 11/20/08 660,338 1,673,429 Michael A. Banks .... -- -- -- -- -- -- Barry C. Nuss ....... 25,000 5.40% 30.00 11/20/08 471,670 1,195,306 Robin A. Brumwell ... 30,000 6.48% 30.00 11/20/08 566,004 1,434,367
- -------------- (a) An aggregate of 462,500 shares was granted to directors and employees pursuant to the 1998 Equity Compensation Plan (described below). (b) Mr.Standen's stock option grant in 1998 was made in his capacity as a director of Metallurg. Each director received a grant of options to purchase 15,000 shares, except the Chairman, Dr. Schimmelbusch, who was granted options to purchase 25,000 shares. The following table provides information on the valuation of stock options held by the Named Officers. All options that had been granted to the Named Officers in 1997 were vested and cancelled in 1998 in consideration for payments in the Merger equal to the difference between the option exercise price of $11.38 per share and the Merger consideration price of $30.00 per share ($18.62 per share) pursuant to the terms of the options and the terms of the Merger. Such cancellations are treated in this table as exercises of the options. Values of unexercised outstanding options granted in 1998 are not provided since the Company's equity securities are not traded. AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES
Number of Securities Underlying Unexercised Options/SARs at Shares Acquired on Fiscal Year-End (#) NAMED OFFICER Exercise Value Realized Exercisable/Unexercisable - ------------- -------- -------------- ------------------------- Michael A. Standen........................... 50,000 $931,000 3,000/12,000 Alan D. Ewart................................ 25,000 465,500 15,000/60,000 Eric E. Jackson.............................. 25,000 465,500 7,000/28,000 Barry C. Nuss................................ 17,500 325,850 5,000/20,000 Robin A. Brumwell............................ 5,000 93,100 6,000/24,000 Michael A. Banks............................. 12,500 232,750 - J. Richard Budd III.......................... 17,500 325,850 -
80 81 1997 STOCK AWARD AND STOCK OPTION PLAN The Board of Directors of the Company terminated the Metallurg Management Stock Award and Stock Option Plan ("SASOP") in 1998 in connection with the Merger and the cancellation of all outstanding stock and stock options. Pursuant to the terms of the SASOP and/or the individual employment agreements with the Named Officers, the Company made loans in order to pay any federal, state or local taxes with respect to any stock award granted under the SASOP. In April 1997, each of Messrs. Standen, Budd, Banks, Nuss, and Brumwell were given loans of $320,250, $22,875, $25,162, $29,737 and $16,012, respectively, with respect to their stock awards. Such loans bear interest at a rate of 5.91% and are payable on April 14, 2000. In April 1998, each of Messrs. Budd, Banks, Nuss and Brumwell were given loans of $38,567, $42,424, $50,137 and $26,997, respectively, with respect to their stock awards. Such loans bear interest at a rate of 5.7% and are payable on April 14, 2001. In July 1998, each of Messrs. Budd, Banks, Nuss and Brumwell were given loans of $137,250, $150,975, $178,425 and $96,075, respectively, with respect to their stock awards. Such loans bear interest at a rate of 5.68% and are payable on July 12, 2001. Messrs. Nuss and Banks repaid all of their respective loans (together with all accrued interest) in December 1998. Although interest is not required to be paid prior to repayment of the loan, Mr. Standen paid interest of $13,533 in 1997 and $18,926 in 1998; and Mr. Banks paid interest of $1,063 in 1997. The compensation received by the Named Officers in exchange for cancellation of their outstanding stock awards and stock options is shown in the Summary Compensation Table, above. 1998 EQUITY COMPENSATION PLAN 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 and its subsidiaries, (ii) certain 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 ECP will encourage the participants to contribute materially to the growth of the Company and will align the economic interests of the participants with those of the shareholders. The following is a summary of the ECP. The summary does not purport to be complete and is qualified in its entirety by reference to the ECP. Eligibility and Administration. 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"), are eligible to participate in the ECP. Key advisors and advisors who perform services for the Company or any of its subsidiaries ("Key Advisors") are eligible to participate in the ECP 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. The ECP is 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 the ECP (a "Public Offering"), the Board may exercise any power or authority of the Committee under the ECP 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 16b-3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Types of Awards. Awards under the ECP may consist of grants of incentive stock options ("Incentive Stock Options"), nonqualified stock options ("Nonqualified Stock Options"; it being understood that Incentive Stock Options and Nonqualified Stock Options are collectively referred to as "Options"), restricted stock (Restricted Stock"), stock appreciation rights ("SARs"), and performance units ("Performance Units") (hereinafter collectively referred to as "Grants"). Shares Subject to the ECP. As of November 20, 1998, the number of authorized and outstanding shares of the common stock of the Company ("Company Stock") was 5,000,000 shares (the number of authorized shares was changed on November 30, 1998 to 10,000,000 shares). Subject to the adjustment specified below, the aggregate number of shares of Company Stock that may be issued or transferred under the ECP 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 ECP 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 81 82 shares purchased by the Company on the open market for purposes of the ECP. If and to the extent Options or SARs granted under the ECP 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 ECP. Generally, if there is any change in the number of outstanding shares Common Stock due to stock dividends, stock splits, reorganization, etc., the number of shares underlying stock awards and the number of shares subject to any stock option and the exercise prices of stock options will be adjusted to reflect such change. Type of Option and Price. 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. 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. 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 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 Full Market Value per share shall be as determined by the Committee. 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 not have a term that exceeds five years from the date of grant. Termination of Employment, Disability or Death. 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. In the event the Grantee ceases to be employed by the Company on account of a "termination for cause", any Option held by the Grantee shall terminate as of the date the Grantee ceases to be employed by the Company. 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 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. 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 (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 82 83 exercisable as of the date on which the Grantee ceases to be employed by the Company shall terminate as of such date. 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 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 at the time of exercise. Right of First Refusal. 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 ECP, the individual shall first offer the shares to the Company by giving the Company 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 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. 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 ECP 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; provided, however, that such repurchase shall be made in accordance with applicable accounting rules to avoid adverse accounting treatment. Awards Made During 1998-1999. Pursuant to the Company's ECP, Metallurg's Board of Directors awarded options to purchase up to 462,500 shares of Common Stock at an exercise price of $30.00 per share, effective as of November 20, 1998 and January 4, 1999. Each member of the Board of Directors received options to purchase 15,000 shares, except that Dr. Schimmelbusch received options to purchase 25,000 shares. Messrs. Ewart, Jackson, Brumwell and Nuss received stock options in the amounts of 75,000, 35,000, 30,000 and 25,000, respectively. The Options have a term of 10 years and vest as follows: 20% on the date of the grant and 20% on the each of the first four anniversaries of the date of grant. PROFIT SHARING PLAN The Company has a profit sharing plan for the salaried employees of Metallurg and Shieldalloy (the "Profit Sharing Plan") pursuant to which it may deposit an amount equal to a percentage of the employee's annual salary in a segregated account. Such profit sharing percentage is determined by the management of the Company based on the prior year's results. The employee vests in his or her participation in the Profit Sharing Plan over a five-year period. In 1998, the Company made a 3% contribution pursuant to the Profit Sharing Plan for approximately $200,000 in the aggregate. PENSION PLAN The Pension Plan of Metallurg, Inc., effective as of January 1, 1989, as amended (the "Pension Plan"), covers substantially all of Metallurg's and Shieldalloy's U.S. salaried employees. The Pension Plan is maintained as a tax-qualified defined benefit plan, which covers most officers and salaried employees on a noncontributory basis. Such employees generally become eligible to receive a vested retirement benefit under such plan after completion of five years of service. Benefits under the Pension Plan are generally based upon the number of years of service credit, up to 30 years, the final average compensation (base salary only) of each individual employee, and a percentage of such employee's eligible earnings. Final average compensation is calculated using 83 84 the highest 60 consecutive calendar months of compensation during the last 120 months prior to the date of calculation. Normal retirement is age 65. The following table shows the estimated annual retirement benefits payable at age 65 under the Pension Plan to participating employees, including the Named Officers, in the remuneration and years of service classifications indicated. The Company does not currently have a supplemental executive retirement plan.
PENSION PLAN TABLE (YEARS OF SERVICE) Remuneration 10 15 20 25 30 - ------------ -- -- -- -- -- $100,000 17,095 25,643 34,190 42,738 51,286 $125,000 21,845 32,768 43,690 54,613 65,536 $150,000 26,595 39,893 53,190 66,488 79,786 $175,000 31,345 47,018 62,690 78,363 94,036 $200,000 36,095 54,143 72,190 90,238 108,286
The respective years of service credited to pension purposes as of December 31, 1998 and the estimated years of service at age 65 for each of the Named Officers are as follows:
COMPLETED COMPLETED YEARS OF SERVICE AT YEARS OF SERVICE AT NAMED OFFICER DECEMBER 31, 1998 NORMAL RETIREMENT ------------- ----------------- ----------------- Michael A. Standen ................... 30 30 Alan D. Ewart ........................ 29 30 Eric E. Jackson ...................... 2 20 Barry C. Nuss ........................ 14 30 Robin A. Brumwell .................... 6 17 J. Richard Budd III .................. 3 21 Michael A. Banks ..................... 13 18
In addition, Mr. Standen is entitled to an annual estimated benefit of approximately $97,000 per year under LSM's pension plan, based on his 22 years of credited service with LSM. In 1996, Mr. Standen accrued $327,550 under a senior executive retirement plan, which was cancelled as of June 30, 1996. This amount was paid to Mr. Standen upon the consummation of the Reorganization Plan. Mr. Standen became a consultant to the Company, effective August 1998. Mr. Ewart is also entitled to an annual estimated benefit of approximately $127,000 under LSM's pension plan at age 65 pursuant to 29 years of credited service with LSM. Messrs. Budd and Banks resigned their employment with the Company effective October 31, 1998 and January 5, 1999, respectively. COMPENSATION OF DIRECTORS Directors of Metallurg receive an annual retainer of $10,000 and a fee of $1,000 for each Board meeting attended. The Board meets each quarter and may act by unanimous written consent or call special meetings between regularly scheduled meetings, as necessary. The Chairman of the Compensation Committee, Mr. Kindwall, and the Chairman of the Audit Committee, Mr. Spector, will each receive an additional $1,000 for each committee meeting attended. Additional compensation may be paid to Directors in connection with special assignments, as determined by the Compensation Committee. In November 1998, each Director was awarded 15,000 stock options, except for the Chairman of the Board, Dr. Schimmelbusch who was awarded 25,000 stock options. The options have ten year terms, vest 20% on date of grant and 20% on each of the first four anniversaries of the date of grant, and have an exercise price of $30.00 per share. 84 85 EXECUTIVE EMPLOYMENT AGREEMENTS Effective August 10, 1998, Metallurg entered into employment agreements with the following Named Officers: Alan D. Ewart, Eric E. Jackson, Barry C. Nuss and Robin A. Brumwell (individually, an "Executive," and collectively, the "Executives"). Each agreement is for an initial term of two years; the term of employment automatically renews for a one-year period on each expiration date unless the Executive or Metallurg notifies the other in writing at least ninety days prior to the next scheduled expiration date that the term will not be extended. Each Executive has agreed not to compete against Metallurg during the employment term and for a period of twelve to eighteen months thereafter, depending on certain circumstances. Each Executive receives an annual base salary equal to his or her annual base salary in effect on the date of the agreement, which may be increased by the Board or by the President and Chief Executive Officer in consultation with the Chairman (except with respect to himself). Each Executive is entitled to participate in the employee benefit plans generally made available to Metallurg's senior-level executives. The agreements contain customary provisions concerning termination of employment by the Company with and without cause, by the Executive with and without "good reason" (as defined therein), upon a change in control and as a result of death or disability. Depending upon the basis for termination, severance may be paid for a period up to eighteen months after termination or not at all. Bonuses may be paid, at the discretion of the Chief Executive Officer in consultation with the Chairman (or the Board, in the case of Mr. Ewart), in an amount between 30% and 50% of base salary, but no formal bonus plan has been adopted. Pursuant to the executive employment agreements, the base salaries set forth therein are: $450,000 for Mr. Ewart (plus a $20,000 annual consulting fee); $280,000 for Mr. Jackson, $260,000 for Mr. Brumwell and $240,000 for Mr. Nuss. MANAGEMENT INCENTIVE COMPENSATION PLAN The Metallurg Management Incentive Compensation Plan that had previously been in existence is no longer effective. Bonuses paid to Named Officers (as shown in the Summary Compensation Table) in respect of 1998 were discretionary. 85 86 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. All of the issued and outstanding voting securities of the Company are owned by Metallurg Holdings, Inc., whose voting securities are owned by Safeguard International Fund, L.P., certain limited partners of Safeguard International, certain individuals and a private equity fund. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The Company entered into a consulting agreement with Michael A. Standen, one of its Directors, effective August 1998. Pursuant to this agreement, Mr. Standen provides consulting services through June 30, 1999 (renewable upon mutual agreement) at a rate of $50,000 per calendar quarter. Mr. Standen has agreed not to compete against the Company for a period of six months following termination of the consulting period. Pursuant to the terms of previous and current employment agreements between the Company and certain Named Officers, those officers have received loans from the Company with regard to stock awards and were paid amounts in connection with the change in control of Metallurg in 1998. All of such loans and payments are set forth in the Summary Compensation Table, above, and in the section entitled "1997 Stock Award and Stock Option Plan," above. The management company of Safeguard International Fund was paid a one-time financial advisory fee by Metallurg Holdings, Inc. in 1998 of $2.5 million for services performed, and reimbursed for various expenses incurred, in connection with the acquisition of the Company. Messrs. Schimmelbusch, Plum, Messman, Spector and Kindwall, all of whom are Directors of the Company, and Mr. Fastuca, an executive officer of the Company, 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. 86 87 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. Documents filed as 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 schedule required to be filed as part of this report appears on page 74. (3) The following exhibits are filed as part of this report:
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------ ---------------------- 3.1 Certificate of Incorporation of the Company (incorporated herein by reference to Exhibit T3A.3 to the Form T-3 filed by the Company with the Securities and Exchange Commission on March 21, 1997 (File No. 022-22265)). 3.2 Certificate of Amendment to Certificate of Incorporation of the Company, filed in the State of Delaware on November 30, 1998. 3.3 By-laws of the Company (incorporated herein by reference to Exhibit T3B.2 to the Form T-3 filed by the Company with the Securities and Exchange Commission on March 21, 1997 (File No. 022-22265)). 4.1 Indenture, dated as of November 25, 1997, by and among the Company, the Guarantors and IBJ Schroder Bank & Trust Company (the "Trustee") (incorporated herein by reference to Exhibit S44.1 to the Form S-4 Registration Statement filed by the Company with the Securities and Exchange Commission on December 30, 1997 (File No. 333-42141)). 4.2 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 the Company with the Securities and Exchange Commission on December 30, 1997 (File No. 333-42141)). 4.3 Form of 11% Series B Senior Notes due 2007 (incorporated herein by reference to Exhibit S44.3 to the Form S-4 Registration Statement filed by the Company with the Securities and Exchange Commission on December 30, 1997 (File No. 333-42141)). 4.4 Registration Agreement, dated as of November 20, 1997, by and among the Company, the Guarantors and the Initial Purchasers (incorporated herein by reference to Exhibit S44.4 to the form S-4 Registration Statement filed by the Company 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)).
87 88
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------ ---------------------- 10.1 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 Statement filed by the Company 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 10.3 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)). 10.2 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. 10.3 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 Materialien 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 the Company with the Securities and Exchange Commission on December 30, 1997 (File No. 333-42141)). 10.4 First and Second Amendments to German Loan Agreement, dated October 20, 1997, by and among GfE Gesellschaft fur Elektrometallurgie GmbH, GfE Umwelttechnik GmbH, GfE Giesserei-und Stahlwerksbedarf GmbH, GfE Metalle und Materialien Gmbh and Keramed Medizintechnik GmbH and BankBoston, N.A. acting through its Frankfurt, Germany branch. 10.5 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)). 10.6 Supplement to Joint Disclosure Statement for the Fourth Amended and Restated Joint Plan of Reorganization dated December 18, 1996 (incorporated herein by reference to Exhibit T3E.3 to the Form T-3 filed by the Company with the Securities and Exchange Commission on March 21, 1997 (File No. 022-22265)). 10.7 Settlement Agreement dated December 27, 1996 between MI, SMC, the Environmental Protection Agency, the Department of the Interior, the Nuclear Regulatory Commission and the New Jersey Department of Environmental Protection (incorporated herein by reference to Exhibit S410.5 to the Form S-4 Registration Statement filed by the Company with the Securities and Exchange Commission on December 30, 1997 (File No. 333-42141)). 10.8 Permanent Injunction Consent Order dated December 23, 1996 between the State of Ohio, SMC and Cyprus Foote Mineral Company (incorporated herein by reference to Exhibit S410.6 to the Form S-4 Registration Statement filed by the Company with the Securities Exchange Commission on December 30, 1997 (File No. 333-42141)).
87 89
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------ ---------------------- 10.9 Merger Agreement, dated June 15, 1998, among Metallurg, Inc., Metallurg Holdings, Inc. and Metallurg Acquisition Corp. (incorporated herein by reference to Exhibit 2 to Current Report on From 8-K filed by the Company with the Securities and Exchange Commission on June 16, 1998 (File No. 333-42141)). 10.10 1997 Stock Award and Stock Option Plan (incorporated herein by reference to Exhibit S410.8 to the Form S-4 Registration Statement filed by the Company with the Securities and Exchange Commission on December 30, 1997 (File No. 333-42141)). 10.11 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 the Company 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 the Company 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 the Company 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 the Company and Michael A. Standen. 10.16 Notes dated April 15, 1997, April 15, 1998, and July 13, 1998, by and between the Company, 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 the Company, 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 Deloitte & Touche LLP to the Securities and Exchange Commission re agreement with Company's comments concerning change in certifying accountant (incorporated herein by reference to Exhibit 16 to the Company's Current Report on Form 8-K/A filed with the Securities and Exchange Commission on December 3, 1998 (File No. 333-42141)). 21.1 Subsidiaries of Metallurg, Inc.
89 90
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------ ---------------------- 27.1 Financial Data Schedule. (b) The Company filed a Current Report on Form 8-K and amendments thereto on Form 8-K/A on November 20, 1998, November 25, 1998 and December 3, 1998, reporting a change in certifying accountant and the appointment of three directors to the Company's Board of Directors. (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.
90 91 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 30th day of April, 1999. METALLURG, INC. By: /s/ Barry C. Nuss ----------------- Barry C. Nuss Vice President-Finance and Chief Financial Officer 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.
Signature Title(s) Date --------- -------- ---- /s/ HEINZ C. SCHIMMELBUSCH Chairman and Director April 30, 1999 - ---------------------------------- Heinz C. Schimmelbusch /s/ MICHAEL A. STANDEN Vice Chairman and Director April 30, 1999 - ---------------------------------- Michael A. Standen /s/ ALAN D. EWART President and Chief Executive April 30, 1999 - ---------------------------------- Officer Alan D. Ewart /s/ BARRY C. NUSS Vice President-Finance and April 30, 1999 - ---------------------------------- Chief Financial Officer Barry C. Nuss /s/ NILS A. KINDWALL Director April 30, 1999 - ---------------------------------- Nils A. Kindwall /s/ JACK L. MESSMAN Director April 30, 1999 - ---------------------------------- Jack L. Messman /s/ SAMUEL A. PLUM Director April 30, 1999 - ---------------------------------- Samuel A. Plum /s/ ARTHUR R. SPECTOR Director April 30, 1999 - ---------------------------------- Arthur R. Spector
91 EX-3.2 2 CERTIFICATE OF AMENDMENT 1 Exhibit 3.2 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF METALLURG, INC. It is hereby certified that: 1. The name of the corporation (hereinafter the "corporation") is Metallurg, Inc. 2. The certificate of incorporation is hereby amended by striking out Paragraph Fourth thereof and substituting in lieu of said Paragraph the following new Paragraph: "FOURTH: The total number of shares of capital stock which the Corporation shall have authority to issue is 10,000,000, all of which shares shall be Common Stock having a par value of $0.01. Pursuant to the requirements of Section 1123(a)(6) of Title 11 of the United States Code, the Corporation shall not issue any shares of non-voting stock, subject, however, to further amendment of this certificate as and to the event permitted by applicable law." 3. The amendment of the certificate of incorporation herein certified has been duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware and written consent has been given in accordance with Sections 141 and 228 of the General Corporation Law of the State of Delaware. Signed on the 20th day of November, 1998. By: /s/ Eric Schondorf ---------------------------------- Name: Eric Schondorf Title: Vice President and Secretary EX-10.2 3 FIFTH AND SIXTH AMENDMENTS TO LOAN AGREEMENT 1 EXHIBIT 10.2 2 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: 3 -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," 4 -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. 5 -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 6 -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). 7 -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 8 -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. 9 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: 10 -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 11 -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:
-------------------------------------------------------------------- Minimum Average Fiscal Quarter Ending Liquidity Level -------------------------------------------------------------------- 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 --------------------------------------------------------------------
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." 12 -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 13 -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] 14 -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 15 -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 EX-10.4 4 FIRST AND SECOND AMENDMENTS TO GERMAN LOAN AGRMT 1 EXHIBIT 10.4 2 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 3 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 4 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 5 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 6 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 7 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 8 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 9 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 10 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 11 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 of the borrowers are witnessed by: /s/ Susanne Kramm __________________________________________________ Susanne Kramm, Sudetennstr. 2c, D-90614 Neuhof Secretary 5 12 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 13 -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 14 -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. 15 -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: 16 -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: EX-10.11 5 1998 EQUITY COMPENSATION PLAN 1 Exhibit 10.11 METALLURG [LOGO] 1998 EQUITY COMPENSATION PLAN 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 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 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 4 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 5 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 6 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 7 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 8 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. 9 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 10 11 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. 11 12 (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 12 13 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 13 14 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 14 15 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. 15 EX-10.14 6 EMPLOYMENT AGREEMENTS 1 EXHIBIT 10.14 2 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: 3 (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. 2 4 (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, 3 5 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. 4 6 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. 5 7 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 6 8 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"). 7 9 (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 8 10 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; 9 11 (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 10 12 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. 11 13 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 12 14 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. 13 15 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 14 16 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. 15 17 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 16 18 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. 19 (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. 2 20 (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 3 21 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. 4 22 (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; 5 23 (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"). 6 24 (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 7 25 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; 8 26 (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, 9 27 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 10 28 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 29 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 12 30 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 13 31 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 14 32 SCHEDULE A
Years of Service Severance Period ---------------- ---------------- Up To 15 6 months More Than 15 9 months More Than 20 12 months
15 33 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. 34 (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 2 35 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. 3 36 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 37 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 38 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 39 (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 40 (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 41 (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. 9 42 (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 10 43 "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 44 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. 12 45 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 13 46 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. 14 47 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 15 48 SCHEDULE A
Years of Service Severance Period ---------------- ---------------- Up To 15 6 months More Than 15 9 months More Than 20 12 months
16 49 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. 1 50 (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 2 51 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. 3 52 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 53 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 5 54 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 6 55 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; 7 56 (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: 8 57 (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. 9 58 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 10 59 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. 11 60 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 12 61 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 13 62 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. 14 63 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 15 64 SCHEDULE A
Years of Service Severance Period ---------------- ---------------- Up To 15 6 months More Than 15 9 months More Than 20 12 months
16 65 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 66 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 67 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. 3 68 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 69 (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 70 (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 71 (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 72 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 73 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 74 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 75 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 11 76 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 12 77 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. 13 78 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 14 79 SCHEDULE A
Years of Service Severance Period ---------------- ---------------- Up To 15 6 months More Than 15 9 months More Than 20 12 months
15 EX-10.15 7 CONSULTING AGREEMENT 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. 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 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 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 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 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 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 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 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 EX-10.16 8 NOTES 1 EXHIBIT 10.16 2 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 3 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 4 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 5 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 6 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 7 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 8 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 9 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 10 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 11 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 12 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 13 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 14 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. 15 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 16 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 17 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. 18 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 19 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 20 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. 21 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 22 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 23 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. 24 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 25 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 26 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. 27 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 28 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 29 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. 30 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 31 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 32 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. 33 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 34 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 35 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. 36 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 37 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 38 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 39 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 40 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 EX-10.17 9 INTERCOMPANY TAX ALLOCATION AGREEMENT 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 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 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 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 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 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 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 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 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 EX-21.1 10 SUBSIDIARIES 1 EXHIBIT 21.1 LISTING OF SUBSIDIARIES Subsidiaries of Country, State or Province Metallurg, Inc. of Incorporation - --------------- ---------------- 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 Subsidiaries of Country or State Metallurg Holdings Corporation of Incorporation - ------------------------------ ---------------- 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 Elektometallurgie 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 5 2 Aktiebolaget 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 Notes Dormant subsidiaries have no operations. As of April 1, 1999 6 EX-27.1 11 FINANCIAL DATA SCHEDULE
5 AS OF APRIL 1, 1997, THE COMPANY CHANGED ITS FISCAL YEAR TO JANUARY 31. 1,000 12-MOS JAN-31-1999 FEB-01-1998 JAN-31-1999 37293 0 65450 1770 120658 238390 60936 11918 311117 72161 109185 0 0 50 47640 311117 606334 607169 525861 592387 0 0 12833 6720 4788 1932 0 0 0 1932 0 0
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