10-K405 1 FORM 10-K405 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 _____________ FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [Fee Required] FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________ to ________ COMMISSION FILE NUMBER 0-1339 OREGON METALLURGICAL CORPORATION ------------------------------------------------------ (Exact name of registrant as specified in its charter) Oregon 93-0448167 ------------------------------- ----------------------------------- (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 530 34th Ave. S.W., Albany, OR 97321 ------------------------------ ----------------------------------- (Address of principal executive (Zip Code) offices) Registrant's Telephone number, including area code: (503) 926-4281 ------------------------ Securities registered pursuant to Section 12 (b) of the Act: Name of each exchange Title of each class which is registered ------------------- --------------------- None None ------------------------------- ----------------------------------- Securities registered pursuant to Section 12(g) of the Act: Common Stock, $1.00 Par Value --------------------------------------------------- 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 the 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 the 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. [ ] Based on the closing sales price of the Common Stock on March 16, 1995 as reported on the NASDAQ National Market System, the aggregate market value of the voting stock held by nonaffiliates of the registrant was $73,545,327. The number of shares outstanding of the registrant's common stock, $1.00 par value was 10,895,604 at March 16, 1995. DOCUMENTS INCORPORATED BY REFERENCE Oregon Metallurgical Corporation Annual Report to Shareholders for 1994 is incorporated by reference in Parts II and IV of Form 10-K as stated herein. The Oregon Metallurgical Corporation Proxy Statement for the Annual Meeting of Shareholders to be held April 27, 1995, is incorporated by reference in Part III of Form 10-K as stated herein. PART I ITEM 1. BUSINESS THE COMPANY Oregon Metallurgical Corporation ("OREMET" or the "COMPANY") was incorporated in Oregon in 1955 and began operations in 1956. OREMET is a major producer and distributor of titanium sponge, ingot, mill products and castings for aerospace, industrial and commercial applications. The Company built its business in the 1950's and 1960's by capitalizing on the demand for titanium from the United States Air Force and other military programs and from the emerging commercial aerospace industry. During this period, the Company funded its growth internally and through investments by corporate partners. In 1968, one partner, Armco Inc. ("Armco"), a major steel manufacturer, made a substantial investment in the Company and by the end of 1982 owned approximately 80% of the Company's common stock. In 1985, Armco sold its interest in the Company to Owens-Corning Fiberglas Corporation ("Owens- Corning"). In December 1987, the Company repurchased its common stock from Owens-Corning and immediately sold shares of its common stock to the newly created Oregon Metallurgical Corporation Employee Stock Ownership Plan (the "ESOP"). Initially, the ESOP owned approximately 67% of the Company's outstanding common stock while at December 31, 1994, the ESOP's ownership interest is approximately 41%. On September 20, 1994, the Company completed the acquisition of the net assets and subsidiaries of the Titanium Industries Distribution Group from Kamyr, Inc. The acquired business is being operated under the name of Titanium Industries, Inc. ("TI"), an 80% owned subsidiary of OREMET. TI operates full- line titanium metal service centers in the U.S., U.K. and Canada and it produces small diameter titanium bar, weld wire and fine wire. The acquisition was accounted for as a purchase, with the results of TI included in the Company's financial statements from the acquisition date. INDUSTRY OVERVIEW Titanium was first commercially produced in the 1950's. Titanium's superior strength-to-weight ratio, stability at high temperatures and corrosion resistance made it well suited for the aerospace and jet engine market. Historically, approximately 75-80% of the U.S. titanium consumption has been for aerospace applications both in the commercial and the military sectors. The aerospace industry has historically been characterized by severe cyclicality, which has had a significant impact on the sales and profitability of titanium producers, including OREMET. The last peak in the titanium industry cycle occurred in the 1988-1990 period when domestic industry shipments exceeded 50 million pounds in each year . In 1991, U.S. titanium industry shipments declined by approximately 35% to 34 million pounds. This decline was primarily due to lower demand resulting from a slump in the commercial aerospace industry and the curtailment or 1 cancellation of military programs resulting from the end of the Cold War. Data reported by the U.S. Bureau of Mines indicates that industry shipments increased by approximately 1 million pounds per year in 1992 and 1993, while they dropped to approximately 35 million pounds for 1994. The aerospace industry is expected to continue to be the primary source of demand for titanium products. However, many opportunities exist in the non- aerospace markets where the characteristics of titanium metal provide advantages over competing materials, such as aluminum, nickel and stainless steels. Titanium's resistance to the effects of atmospheric conditions and a variety of chemicals and acids make it an attractive metal for marine and other industrial applications where corrosion is of critical concern. As a result, titanium is used increasingly in pollution control equipment, offshore oil installations, mining operations and waste storage facilities. Its favorable strength-to- weight ratio and bio-compatibility make it an increasingly popular metal for biomedical products, such as medical implants, and consumer products, such as golf clubs, eyeglass frames and bicycles. PRODUCTS AND OPERATIONS Titanium products is the Company's single business segment. A full range of titanium products are produced for applications in both the aerospace and non-aerospace markets. The principal product forms are titanium sponge; titanium ingots; titanium mill products; and castings. Titanium sponge is the commercially pure, elemental form of titanium metal. Titanium sponge is produced by OREMET at its facility in Albany, Oregon by reducing titanium tetrachloride using magnesium as the reduction agent. OREMET began producing titanium sponge for internal use in 1970 and began selling it in 1987. The Company sells sponge principally to the domestic non-integrated titanium producers, who use the sponge to produce ingot and mill products. During 1994, the sponge plant operated at approximately 75% of its practical annual capacity of 12 million pounds. Titanium ingots are cylinders with a weight of up to 20 thousand pounds and a diameter of up to 36 inches. Titanium ingots are made by OREMET at its facility in Albany, Oregon by melting sponge or titanium recycle, or a combination of the two, with certain other elements to form titanium alloys. Ingot is converted in a forge, either by OREMET or by its customers, into semi- finished shapes and then into finished mill products. The Company produces ingot in response to specific customer orders and in a variety of sizes and grades to meet the customer's specifications. During 1994, the ingot plant operated at approximately 60% of its rated annual capacity of 16 million pounds. Titanium mill products result from the forging, rolling, drawing and/or extruding of titanium ingots or slabs. OREMET produces titanium billet, bar, rod, wire, plate and sheet. The Company is dependent on the services of outside processors to perform certain important processing functions. For some of its products, OREMET is dependent on the services provided by Titanium Hearth Technologies ("THT"), an outside processor which is 50% owned by one of the Company's principal competitors. THT owns and operates a cold hearth melting furnace which the Company utilizes for 2 melting titanium slab that is further processed into titanium plate and sheet for non-aerospace applications. General Electric Company, a major jet engine manufacturer, has also specified that the THT furnace be used for melting one of the products it purchases. Other than for those provided by THT, the services performed by the outside processors are typically available from multiple sources. OREMET believes that the loss of the services provided by the existing outside processors would result in production delays and have an adverse effect on operations. OREMET sells its mill products to manufacturers of aircraft, jet engines, vessels and piping for chemical plants, prosthetic and orthopedic implants, golf clubs and other consumer goods. OREMET produces mill products at its plant in Albany, Oregon and at a plant in Frackville, Pennsylvania. OREMET produces titanium and zirconium castings for customers outside of the aerospace industry. Castings are made by melting metal which is then poured under vacuum into graphite molds. Castings generally weigh from 1 to 1 thousand pounds. OREMET's castings are made at its Albany, Oregon plant to customer specifications and are used in marine and other industrial applications where corrosion is of critical concern. RAW MATERIALS The primary raw materials used by the Company are titanium tetrachloride, magnesium, titanium recycle and certain combinations of primary metals that form master alloys. Titanium tetrachloride and magnesium are the principal materials used in the production of titanium sponge. The principal materials used in the production of titanium ingot are sponge, titanium recycle, other metallic elements and master alloys. OREMET purchases its titanium tetrachloride requirements from SCM Chemicals Inc. ("SCM") under a long term contract that expires in 2001. While the Company believes it could obtain commercial quantities of sufficiently pure titanium tetrachloride from other sources, any extended disruption in the supply from SCM would have a material adverse effect on OREMET's ability to produce titanium sponge. Magnesium is generally available from a number of suppliers. Titanium recycle is typically available from many sources. The availability of attractively priced titanium recycle varies due to the fluctuations in the size of the titanium market from year to year and due to demands from other industries, such as steel, where it is consumed in the process. Certain of the primary metal compounds used to form master alloys are produced by a limited number of suppliers. During January 1995, in response to rapidly increasing costs, the Company and other primary titanium producers imposed surcharges on their product prices for master alloys. When available at attractive prices, the Company has purchased titanium sponge and recycle from the Former Soviet Union ("FSU"). Continued availability of these materials at attractive prices can not be assured due to the uncertainties concerning the manufacturing capabilities of the FSU titanium producers and the potential for political and economic instability within the FSU. 3 MARKETING AND DISTRIBUTION OREMET markets its products primarily to non-integrated titanium producers and manufacturers of titanium metal end products. The Company also sells its mill products to regional value-added distributors who convert the mill products to smaller lengths or sizes for resale to machine shops and other mill product producers. The majority of sales are made through the Company's internal sales organization. OREMET also uses independent sales representatives for the sale of products outside of North America. Shipments to customers may be made directly from one of the Company's mills in Albany, Oregon or Frackville, Pennsylvania; from an outside processor; or from one of the Company's service centers in the U.S., Canada, the U.K., or France. The service centers maintain one of the world's largest inventories of titanium mill products available for rapid delivery to points around the globe. A complete line of first stage processing equipment is available and outside machining can be arranged by the service centers to meet the needs of their customers. The Company estimates that its sales to the aerospace industry totaled approximately 60%, 70% and 80% of its net sales in 1994, 1993 and 1992, respectively. OREMET believes that its sales to the non-aerospace industry, as a percent of total sales, will continue to increase in 1995. Industrial and commercial applications for titanium are continuing to grow and the Company's presence in these markets is further enhanced by the acquisition of TI in 1994. For nearly 25 years, TI has been in the forefront of supplying and developing titanium applications for industrial and commercial customers. The Company has a contract to supply titanium sponge and certain other titanium products to RMI Titanium Company ("RMI") through 2003. Sales to RMI accounted for approximately 13%, 30% and 25% of OREMET's net sales in 1994, 1993 and 1992, respectively. No other customer accounted for more than 10% of OREMET's net sales in any of these three years. EXPORTS Export sales, primarily to Europe and Asia, totaled approximately 12%, 9% and 7% of OREMET's net sales in 1994, 1993 and 1992, respectively. In May 1994, OREMET signed a three year contract with, and in the second half of 1994 began supplying product to, Aerospatiale Avions, France for engine pylons on Airbus aircraft. In addition, the Company has a contract to supply titanium armor to the French navy in 1995. To assist in the implementation of these contracts and to establish a basis for a sustained presence in this sector of Europe, the Company formed a subsidiary, OREMET France S.a.r.l., during 1994 to operate a service center in France. The acquisition of TI provided the Company with a service center located in the U.K. with an established operation. The Company intends to utilize these facilities to meet its customers' needs in Europe. 4 BACKLOG The Company's twelve month sales order backlog totaled approximately $44 million at December 31, 1994 and $18 million at December 31, 1993. Approximately $8 million of the backlog at December 31,1994 is applicable to TI which was acquired in September 1994. COMPETITION Although OREMET's sales are predominately to the domestic market, the titanium industry is competitive on a worldwide basis. In each of the Company's major product lines, OREMET believes it competes primarily on the basis of price, quality, delivery time and customer service. OREMET's principal competitors are other integrated and non-integrated producers of titanium located primarily in the U.S., Europe, Japan, China and the FSU. An integrated producer makes titanium sponge in addition to ingot and mill products. The Company estimates that its share of U.S. sponge capacity is approximately 35% and that its share of world capacity is about 6%. While approximately 20% of the world's sponge production capacity is located within the U.S., approximately 50% is located within the FSU. The Company also competes with non-integrated producers who produce titanium products from sponge, recycle, ingot, slab and mill products purchased from OREMET and from others. After the end of the Cold War, sponge produced in the FSU became available and has been imported into the U.S. at low prices in ever increasing quantities. Industry sources estimate that approximately 11 million pounds of sponge were imported into the U.S. from the FSU during 1994. This is about 350% higher than the amount imported during 1993 and it is about 50% of the estimated 1994 production of the U.S. producers. The titanium producers in the FSU are currently working with several U.S. companies to have their "new production" material qualified for use in critical aerospace applications. Current pricing for FSU sponge, before consideration of import tariffs and dumping duties, is less than the variable cost of manufacture for U.S. producers. While the FSU producers have not been significant participants in the U.S. market for mill products, it is believed that they have the largest titanium mill products production capacity in the world. Their entry into the U.S. market could materially effect the operations of the Company. In September 1993, an Executive Proclamation was issued by President Clinton which had the effect of reducing or eliminating tariffs on certain titanium products produced in the FSU. OREMET and others in the metals industry are working together to bring the problems caused by the FSU producers selling at prices which do not reflect the true economic cost of production to the attention of the appropriate government agencies and elected officials. EMPLOYEE RELATIONS As of December 31, 1994, the Company employed 482 employees, of which 45 were employed outside of the U.S. All of the hourly production and maintenance workers (approximately 5 285) at the Albany, Oregon and Frackville, Pennsylvania manufacturing facilities are represented by labor unions. In August 1994, the Company and the union representing the Albany, Oregon employees agreed upon a new labor contract which will continue through July 2000. This contract can be re-opened after three years to address economic issues. The contract covering the Frackville, Pennsylvania employees was negotiated in September 1994, and will continue for three years. OREMET considers its relations with its employees to be good. RESEARCH, TECHNICAL AND DEVELOPMENT The Company has a modest research and development staff which maintains contact with university and government research facilities and with major end- users of its products to assess new applications for titanium and the need for new or alternative alloys and titanium compositions. The Company develops titanium alloy systems, processes and procedures for the manufacture of experimental metal and new products. The Company also maintains a staff of employees dedicated to process engineering. This process engineering group continually evaluates and identifies potential improvements in the manufacturing process. The amount of money spent on research, technical and development activities totaled approximately $1.4 million in 1994 and approximately $0.8 million in both 1993 and 1992. OREMET's quality control group tests products for compliance with customer specifications, including detailed metallurgical and chemical analyses, sonic tests and mechanical capability and property tests. The results of these tests are then certified for conformance to specifications and then recorded for future traceability. PATENTS AND TRADEMARKS The Company possesses a substantial body of trade secrets and know-how. While no individual trade secret, patent or item of know-how is thought to be material to the operations of the Company, in total this body of knowledge is important to OREMET's business. ENVIRONMENTAL The Company is subject to federal, state and local statues and regulations concerning environmental matters and land use. These laws are frequently modified to be more restrictive and it is impossible to predict accurately the future effect changes in these laws may have on the Company. Like all titanium producers, the Company generates certain waste materials and emissions, including substances for which disposal or emission requires compliance with environmental laws. The Company conducts its operations at industrial sites where hazardous substances have been managed for many years in connection with its operations, including periods before the increased management of these substances was required by law. Consequently, the Company is subject to various environmental laws that impose compliance obligations and may create liability for historical releases of hazardous substances. 6 The Company has entered into a consent order with the Oregon Department of Environmental Quality pursuant to which the Company is conducting an investigation of hazardous substances in portions of the soil and groundwater at its plant site in Albany, Oregon. The Company anticipates that the investigation will result in a determination that at least some remedial action is necessary. While the Company has reserved $1 million, the total cost of any remedial action depends on the eventual requirements of the relevant authorities. A neighboring property owner also is investigation groundwater contamination at their property that may have migrated to OREMET's property and for which OREMET may have legal claims to recover a portion of its investigation and remedial costs. In the past, the Company utilized off-site disposal of various wastes generated from operations. Although the Company believes that disposal was conducted in compliance with laws in effect at the time, a facility to which the Company sent its wastes has been determined to be environmentally unsound under current law. Pursuant to a final agreement with the Oregon Department of Environmental Quality, the Company will relocate these waste materials to an approved facility. The Company has reserved $.4 million for these relocation costs. In February 1995, the Oregon Department of Environmental Quality modified OREMET's waste water discharge permit. The modified permit accelerates the implementation of more stringent water quality standards than those contained in OREMET's original permit. OREMET is reviewing its waste water management practices and has developed a number of feasible alternatives which can be implemented to maintain the Company's compliance with the terms of the modified permit and proposed implementation schedule. In 1991 and in 1993, the Pennsylvania Department of Environmental Regulation and the Environmental Protection Agency (EPA) performed site inspections, including soil and water sampling, at TI's site in Frackville, Pennsylvania, in connection with a regional groundwater investigation of the Frackville, Pennsylvania area. While the EPA's investigation is ongoing, management is not aware of any pending or required actions which may arise from this investigation. In conjunction with the purchase of TI, Kamyr agreed to undertake specified clean-up activities on the Frackville location. In addition, Kamyr agreed to a specific indemnification of the Company in the event damages arise which result from conditions which were not in compliance with environmental laws and regulations as they existed at the time of the sale of TI. The Company made provisions for environmental expenses of $0.2, $1.0 and $0.2 million in 1994, 1993 and 1992, respectively. These amounts are in addition to recurring environmental costs which are expensed as incurred and are included in cost of sales. Although the Company has established certain reserves for environmental issues as described above, there can be no assurance regarding the costs that eventually may be required to be expended or that additional environmental claims may not be asserted. Accordingly, the costs may exceed the amounts so reserved. 7 ITEM 2. PROPERTIES The Company's principal executive office is located in Albany, Oregon. Manufacturing facilities in Albany, Oregon and Frackville, Pennsylvania are owned and are described in the Products and Operations portion of Item 1, Section I. Other than the facility in Birmingham, U.K., the service centers and sales offices which the Company utilizes are leased. ITEM 3. LEGAL PROCEEDINGS From time to time, the Company is involved in legal proceedings which arise in the normal course of business. OREMET is not currently involved as a defendant in any pending legal proceedings where the outcome would have a material adverse effect on the business or results of operations of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the security holders during the fourth quarter of 1994. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS (a) MARKET INFORMATION: Registrant's common stock is traded over the counter, and its NASDAQ symbol is OREM. Registrant's stock commenced trading in the National Market System (NMS) on March 5, 1985. Information concerning the market price of Registrant's common stock is incorporated by reference to the Quarterly Stock Data Section on page 31 of the 1994 Annual Report to Shareholders. (b) HOLDERS: At March 10, 1995, there were 2,323 holders of Registrant's common stock based on the holders of record as certified by the transfer agent. The Company believes that there are an additional 4 to 5 thousand shareholders who maintain their ownership in "street name". (c) DIVIDENDS: There were no dividends declared in either 1994 or 1993. Under the terms of the Company's bank credit facility, annual cash dividends are limited to the lesser of 50% of net income, or $1.8 million per year. ITEM 6. SELECTED FINANCIAL DATA The information required by this item is contained in the Five Year Summary of Selected 8 Financial Data Section on page 15 of the 1994 Annual Report to Shareholders and is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required by this item is contained in the Management's Discussion and Analysis Section on pages 27 through 30 of the 1994 Annual Report to Shareholders and is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this item is contained on pages 16 through 26 in the 1994 Annual Report to Shareholders and is incorporated by reference herein as listed in Item 14 hereof. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this item is contained in the Proxy Statement of Registrant for the Annual Shareholders Meeting to be held April 27, 1995, in the sections titled "Election of Directors", "Transactions With Management And Others", and "Executive Officers". The Proxy Statement will be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this Report, and the sections specified in the preceding sentence are incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information required by this item is contained in the Proxy Statement of Registrant for the Annual Shareholders Meeting to be held April 27, 1995, in the section titled "Executive Compensation". The Proxy Statement will be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this Report, and the section specified in the preceding sentence is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is contained in the Proxy Statement of Registrant for the Annual Shareholders Meeting to be held April 28, 1995 in the sections titled "Security 9 Ownership of Certain Beneficial Owners" and "Security Ownership of Management". The Proxy Statement will be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this Report, and the sections specified in the preceding sentence are incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is contained in the Proxy Statement of Registrant for the Annual Shareholders Meeting to be held April 27, 1995, in the section titled "Transactions with Management". The Proxy Statement will be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this Report, and the section specified in the preceding sentence is incorporated herein by reference. 10 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS ON FORM 8-K (a) The following documents are filed as a part of this Report: 1. FINANCIAL STATEMENTS: The following Financial Statements of Oregon Metallurgical Corporation and Report of Independent Accountants are incorporated by reference from pages 16 through 26 of the Registrant's 1994 Annual Report to Shareholders: Consolidated Statements of Operations - For The Years Ended December 31, 1994, 1993 and 1992. Consolidated Balance Sheets - December 31, 1994 and 1993. Consolidated Statements of Shareholders' Equity - For The Years Ended December 31, 1994, 1993 and 1992. Consolidated Statements of Cash Flows - For The Years Ended December 31, 1994, 1993 and 1992. Notes to Consolidated Financial Statements, Report of Independent Accountants. 2. FINANCIAL STATEMENT SCHEDULES: The following financial statement schedule of Oregon Metallurgical Corporation for the years ended December 31, 1994, 1993 and 1992 is filed as part of this Report and should be read in conjunction with the Consolidated Financial Statements of Oregon Metallurgical Corporation:
Page II Valuation and Qualifying Accounts. . . . . . . . . . . . . . . S-1
Schedules not listed above have been omitted because they are not applicable or are not required or the information required to be set forth therein is included in the Consolidated Financial Statements or Notes thereto. 3. EXHIBITS The Exhibit Index on pages 12 and 13 of this Annual Report on Form 10-K lists the exhibits that are filed as part of this Report. (b) Reports on Form 8-K: With regard to the Company's acquisition of Titanium Industries, Inc., the Company filed the following current Reports on Form 8-K during the quarter ended December 31, 1994:
Date Date Form of Report Filed with SEC ---- ---------- -------------- 8-K September 20, 1994 October 5, 1994 8-K/A September 20, 1994 November 2, 1994 8-K/A-2 September 20, 1994 December 2, 1994
11 With the exception of the information incorporated by reference to the Annual Report to Shareholders in Items 5, 6, 7 and 8 of Part II, and Item 14 of Part IV of this Form 10-K, the Company's 1994 Annual Report to Shareholders is not to be deemed filed as a part of this Report. EXHIBIT INDEX
PAGE NUMBERS EXHIBIT MANUALLY NO. SIGNED COPY DESCRIPTION 2.1 N/A Stock and Asset Purchase Agreement between Kamyr, Inc. and New TI, Inc. (Filed as exhibit (2)-1 to Form 8-K dated September 20, 1994). 3.1 N/A Restated Articles of Incorporation. (Filed as exhibit (3) to Form 10-K for the year ended December 31, 1993). 3.2 15 Restated Bylaws. ----- 4.1 N/A Specimen Common Stock Certificate. (Previously filed). 4.2 N/A Warrant Agreement (Nontransferable Warrant) between James S. Paddock and the Company, dated September 19, 1994. (Filed as exhibit (4)-1 to Form 8-K/A-2 dated September 20, 1994). 10.1 N/A Employee Stock Ownership Plan of the Company. (Filed as exhibit 4.3 to Form S-8 Registration Statement 33-18650).* 10.2 N/A Employee Stock Ownership Trust Agreement of the Company. (Filed as exhibit 4.4 to Form S-8 Registration Statement 33-18650). * 10.3 30 Employment Agreement dated June 28, 1993 between the ----- Company and Carlos Aguirre. * 10.4 37 Employment Agreement dated October 11, 1993 between ----- the Company and Dennis P. Kelly. * 10.5 43 Employment Agreement dated October 8, 1993 between the ----- Company and Steven H. Reichman. * 10.6 49 Employment Agreement dated February 20, 1995 between the ----- Company and John P. Byrne. * 10.7 55 Loan and Security Agreement dated as of September 19, ------ 1994 among the Company, New TI, Inc. and Bank of America Illinois. 10.8 N/A Sales Agreement between RMI Titanium Company and the Company (Filed as exhibit (10) to Form 10-Q for the period ended September 30, 1994).
12 10.9 N/A Corporate Organization and Shareholders Agreement Among James S. Paddock, the Company and New TI, Inc., dated September 19, 1994. (Filed as exhibit (10)-1 to the Form 8-K/A-2 dated September 20, 1994). * 10.10 N/A OREMET Employment Agreement between James S. Paddock and the Company, dated September 19, 1994. (Filed as exhibit (10)-2 to the Form 8-K/A-2 dated September 20, 1994). * 10.11 N/A Employment Agreement between James S. Paddock and New TI, Inc., dated September 19, 1994. (Filed as exhibit (10)-3 to the Form 8-K/A-2 dated September 20, 1994). * 10.12 N/A Noncompetition and Confidentiality Agreement between James S. Paddock and the Company, dated September 19, 1994. (Filed as exhibit (10)-4 to the Form 8-K/A-2 dated September 20, 1994). * 10.13 N/A Noncompetition and Confidentiality Agreement between James S. Paddock and New TI, Inc., dated September 19, 1994. (Filed as exhibit (10)-5 to the Form 8-K/A-2 dated September 20, 1994). * 10.14 158 Titanium Tetrachloride Agreement between SCM Chemicals, ----- Inc. and the Company, dated August 11, 1990. 10.15 179 Subordinated promissory note between New TI, Inc. and the ----- former Titanium Industries, Inc., dated September 19, 1994. 11.1 192 Statement re: Computation of Per Share Earnings. ----- 13.1 193 1994 Annual Report to Shareholders. Except for the ----- portions expressly incorporated by reference, this Report is not deemed to be filed as part of this Annual Report on Form 10-K. 21.1 227 Subsidiaries of the Company. ----- 23.1 228 Consent of Independent Accountants. ----- ------------------------------- * Management contract or compensatory plan.
13 SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, this Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. OREGON METALLURGICAL CORPORATION Date: March 17, 1995 /s/ Carlos E. Aguirre -------------------------------------------- Carlos E. Aguirre, President, Chief Executive Officer and Director 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 and in the capacities and on the dates indicated. PRINCIPAL FINANCIAL OFFICER AND PRINCIPAL ACCOUNTING OFFICER Date: March 20, 1995 /s/ Dennis P. Kelly -------------------------------------------- Dennis P. Kelly, Vice President, Finance BOARD OF DIRECTORS Date: March 17, 1995 /s/ Carlos E. Aguirre -------------------------------------------- Carlos E. Aguirre, President, Chief Executive Officer, and Director Date: March 20, 1995 /s/ Howard T. Cusic -------------------------------------------- Howard T. Cusic, Chairman, Board of Directors Date: March 17, 1995 /s/ Gilbert E. Bezar -------------------------------------------- Gilbert E. Bezar, Director Date: March 17, 1995 /s/ Robert P. Booth -------------------------------------------- Robert P. Booth, Director Date: March 21, 1995 /s/ Roger V. Carter -------------------------------------------- Roger V. Carter, Director Date: March 20, 1995 /s/ Nicholas P. Collins -------------------------------------------- Nicholas P. Collins, Director Date: March 17, 1995 /s/ David H. Leonard -------------------------------------------- David H. Leonard, Director Date: March 17, 1995 /s/ James S. Paddock -------------------------------------------- James S. Paddock, Director Date: March 21, 1995 /s/ James R. Pate -------------------------------------------- James R. Pate, Director 14 EX-3.2 2 EXHIBIT 3.2 BYLAWS of OREGON METALLURGICAL CORPORATION Adopted by the Board of Directors with Amendments through December 8, 1994 ARTICLE I. The name of this corporation is OREGON METALLURGICAL CORPORATION. ARTICLE II. STOCKHOLDERS' MEETINGS All meetings of stockholders shall be held either at the principal office of the corporation in Albany, Oregon, or at such other place in the State of Oregon as the Directors may determine. ARTICLE III. ANNUAL MEETINGS The Annual Meeting of the stockholders of the corporation shall be held at 10:00am (Oregon time) on the fourth Thursday in April in each year if not a legal holiday, and if a legal holiday, then at the same time on the next succeeding Saturday not a legal holiday. In the event that such annual meeting is omitted by oversight or otherwise on the date herein provided for, the Directors shall cause a meeting in lieu thereof to be held as soon thereof as conveniently may be, and any business transacted or elections held at such meeting shall be as valid as if transacted or held at the Annual Meeting. Such subsequent meeting shall be called in the same manner as provided for the annual stockholders' meeting. 15 ARTICLE IV. SPECIAL MEETINGS Except as otherwise provided by law, special meetings of the stockholders of this corporation shall be held whenever called by the President or Vice President or by the Secretary or by a majority of the Board of Directors or whenever one or more stockholders who are entitled to vote and who held at least forty percent (40%) of the capital stock issued and outstanding shall make written application therefor to the Secretary or an Assistant Secretary stating the time, place and purpose of the meeting called for. ARTICLE V. NOTICE OF STOCKHOLDERS' MEETING Notice of all stockholders' meetings stating the time and the place, and the objects for which such meetings are called, shall be given by the President or a Vice President or the Secretary or an Assistant Secretary or by any one or more stockholders entitled to call a special meeting of the stockholders by mail not less than ten (10), nor more than fifty (50), days prior to the date of the meeting, to each stockholder of record at his address as it appears on the stock transfer books of the corporation. The person giving such notice shall make an affidavit in relation thereto. Any meeting of which all stockholders shall at any time waive or have waived notice in writing shall be a legal meeting for the transaction of business, notwithstanding that notice has not been given as hereinbefore provided. ARTICLE VI. WAIVER OF NOTICE Whenever any notice whatever is required to be given by these Bylaws, or the Articles of Incorporation of this corporation, or any of the corporation laws of the State of Oregon, a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent thereto. 16 ARTICLE VII. QUORUM OF STOCKHOLDERS Except as hereinafter provided and as otherwise provided by law, at any meeting of the stockholders, a majority in interest of all the capital stock issued and outstanding, represented by stockholders of record in person or by proxy, shall constitute a quorum; but a less interest may adjourn any meeting, and the meeting may be held as adjourned without further notice; provided, however, that directors shall not be elected at meetings so adjourned. When a quorum is present at any meeting, action on a matter, other than the election of Directors, shall be approved if the votes cast in favor of the action exceed the votes cast opposing the action, unless the Articles of Incorporation or the provision of the Oregon Business Corporation Act require a greater number of affirmative votes, in which case such express provision shall govern. ARTICLE VIII. PROXY AND VOTING Stockholders of record may vote at any meeting either in person or by proxy in writing, which shall be filed with the Secretary of the meeting before being voted. Such proxies shall entitle the holders thereof to vote at any adjournment of such meeting, but shall not be valid after the final adjournment thereof. No proxy shall be valid after the expiration of eleven (11) months from the date of its execution unless the stockholder executing it shall have specified therein the length of time it is to continue in force, which shall be for some limited period. Each stockholder shall be entitled to one (1) vote for each share of stock held by him except as otherwise provided in the Articles of Incorporation. ARTICLE IX. BOARD OF DIRECTORS A Board of Directors shall be chosen by ballot at the Annual Meeting of the stockholders or at any meeting held in place thereof as provided by law. The number of Directors of this corporation shall be nine (9). 17 Every election of Directors by the stockholders shall be conducted by two inspectors, neither of whom shall be a candidate for the office of Director, appointed by the presiding officer of the meeting. The appointment of such inspectors may be waived by the unanimous consent of all stockholders present or represented by proxy at the meeting. Each Director shall serve until the next Annual Meeting of the stockholders and until his successor is duly elected and qualified. Directors need not be stockholders in the corporation. Directors shall be not less than twenty-one (21) years of age and at least one of them shall be a citizen of the United States and a resident of the State of Oregon. As long as at least 51 percent (51%) of the issued and outstanding shares of the corporation's common stock are held by the corporation's Employee Stock Ownership Plan, the nominees to the Board of Directors selected by the management of the corporation to stand for election by the stockholders of the corporation shall include the President of the corporation; three independent persons (who are to be selected by the Board of Directors) having no affiliation with the United Steelworkers of America, Local 7150 (the "Union Employees") or the employees of the corporation who are not affiliated with the United Steelworkers of America, Local 7150 (the "Salaried Employees"); two persons who are to be selected by the Union Employees; two persons who are to be selected by the Salaried Employees; and one person to be selected at the discretion of the Board of Directors. Such proportional representation shall be maintained in the event that the numbers of Directors are increased or decreased. In order to serve on the Board of Directors effective after December 31, 1996 ("Effective Date"), a Director must be: (a) Under age 72, and (b) Have less than twelve (12) years of cumulative service as a Director. This amendment shall not apply to the President. A Director who has a 72nd birthday during a term of office, or attains twelve (12) years of service as a Director during a term of office, shall hold office until the next annual Shareholders' meeting. ARTICLE X. POWERS OF DIRECTORS 18 The Board of Directors shall have the entire management of the business of the corporation. In the management and control of the property, business and affairs of the corporation, the Board of Directors is hereby vested with all the powers possessed by the corporation itself, so far as this delegation of authority is not inconsistent with the laws of the State of Oregon, with the certificate of incorporation of the corporation, or with these Bylaws. The Board of Directors may appoint an Executive Committee and delegate to it all powers of the Board. The Board of Directors shall have power to determine what constitutes net earnings, profits and surplus, respectively, what amount shall be reserved for working capital and for any other purpose, and what amount shall be declared as dividends, and such determination by the Board of Directors shall be final and conclusive. ARTICLE XI. MEETINGS Regular meetings of the Board of Directors shall be held at such places in the State of Oregon, and at such times as the Board by vote may determine, and if so determined no notice thereof need be given. Special meetings of the Board of Directors may be held at any time or place whenever called by the Chairman of the Board, the President, a Vice President, the Treasurer, the Secretary, an Assistant Secretary or two Directors, notice thereof being given to each Director by the Secretary or an Assistant Secretary or an officer calling the meeting, or at any time without formal notice provided all the Directors are present or those not present shall at any time waive or have waived notice thereof. Notice of special meetings, stating the time and place thereof, shall be given by mailing the same to each Director at his residence or business address at least two (2) days before the meeting, or by delivering the same to him personally or telegraphing the same to him at his residence or business address not later than the day before the day on which the meting is to be held, unless, in case of emergency, the Chairman of the Board of Directors or the President shall prescribe a shorter notice to be given personally or by telegraphing each Director at his residence or business address. Such special meeting shall be held at such time and place as the notice thereof or waiver shall specify. The officers of the corporation shall be elected by the Board of Directors after its election by the stockholders, and a meeting may be held without notice for this purpose immediately after the annual meeting of the stockholders and at the same place. 19 ARTICLE XII. QUORUM OF DIRECTORS A majority of the members of the Board of Directors as constituted for the time being shall constitute a quorum for the transaction of business, but a lesser number (not less than two) may adjourn any meeting. The Secretary shall forthwith give notice to all Directors of the time and place of the adjourned meeting. When a quorum is present at any meeting, a majority of the members present thereat shall decide any question brought before such meeting except as otherwise provided by law or by these Bylaws. ARTICLE XIII. OFFICERS The officers of this corporation shall be a President, a Vice President, a Secretary and a Treasurer. The Board of Directors, in its discretion, may elect a Chairman of the Board of Directors who, when present, shall preside at all meetings of the Board of Directors, and who shall have such other powers as the Board shall prescribe. ARTICLE XIV. ELIGIBILITY OF OFFICERS The President and Chairman of the Board of Directors need not be stockholders, but shall be Directors of the corporation. The President, Vice President, Secretary, Treasurer and such other officers as may be elected or appointed need not be stockholders or Directors of the corporation. Any person may hold more than one office provided the duties thereof can be consistently performed by the same person, provided, however, that no one person shall, at the same time, hold the offices of President and Secretary. 20 ARTICLE XV. ADDITIONAL OFFICERS AND AGENTS The Board of Directors, at its discretion, may appoint additional Vice Presidents, a General Manager, one or more Assistant Treasurers, and one or more Assistant Secretaries, and such other officers or agents as it may deem advisable, and prescribe the duties thereof. ARTICLE XVI. PRESIDENT The President shall be the Chief Executive Officer of the corporation and, when present, shall preside at all meetings of the stockholders and, unless a Chairman of the Board of Directors has been elected and is present, shall preside at meetings of the Board of Directors. The President or a Vice President, unless some other person is specifically authorized by vote of the Board of Directors, shall sign all certificates of stock, bonds, deeds, mortgages, extension agreements, modification of mortgage agreements, leases and contracts of the corporation. He shall perform all the duties commonly incident to his office and shall perform such other duties as the Board of Directors shall designate. ARTICLE XVII. VICE PRESIDENT Except as specially limited by vote of the Board of Directors, any Vice President shall perform the duties and have the powers of the President during the absence or disability of the President and shall have the power to sign all certificates of stock, bonds, deeds and contracts of the corporation. He shall perform such other duties and have such other powers as the Board of Directors shall designate. 21 ARTICLE XVIII. SECRETARY The Secretary shall keep accurate minutes of all meetings of the stockholders and the Board of Directors, and shall perform all the duties commonly incident to his office, and shall perform such other duties and have such other powers as the Board of Directors shall designate. The Secretary shall have power, together with the President or Vice President, to sign certificates of stock of the corporation. In his absence at any meeting an Assistant Secretary or a Secretary pro tempore shall perform his duties thereat. In the event two or more stockholders enter into a voting trust agreement, a copy of such voting trust shall be filed with the Secretary. The existence of any such voting trust agreement shall be endorsed upon each stock certificate that is subject to the provisions thereof. ARTICLE XIX. TREASURER The Treasurer, subject to the order of the Board of Directors, shall have the care and custody of the money funds, valuable papers, and documents of the corporation (other than his own bond, if any, which shall be in the custody of the President), and shall have and exercise, under the supervision of the Board of Directors, all the powers and duties commonly incident to his office, and shall give bond in such form and with such bank or banks, trust company or trust companies, or with such firm or firms, doing a banking business, as the Directors shall designate. He may endorse for deposit or collection all checks and notes payable to the corporation or to its order, and may accept drafts on behalf of the corporation. He shall keep accurate books of account of the corporation's transactions which shall be the property of the corporation, and, together with all its property in his possession, shall be subject at all times to the inspection and control of the Board of Directors. All checks, drafts, notes or other obligations for the payment of money shall be signed by such officer or officers or agent or agents as the Board of Directors shall by general or special resolution direct. The Board of Directors may also in its discretion require, by general or special resolutions, that checks, drafts, notes and other obligations for the payment of money shall be countersigned or registered as a condition to their validity by such officer or officers or agent or agents as shall be directed in such resolution. 22 ARTICLE XX. RESIGNATIONS AND REMOVALS Any Director or officer of the corporation may resign at any time by giving written notice to the corporation, to the Board of Directors, or to the Chairman of the Board, or to the President, or to the Secretary of the corporation. Any such resignation shall take effect at the time specified therein, or, if the time be not specified therein, upon its acceptance by the Board of Directors. The Board of Directors, by vote of not less than a majority of the entire Board, may remove from office any officer or agent elected or appointed by it. ARTICLE XXI. VACANCIES If the office of the director or officer or agent becomes vacant by reason of death, resignation, removal, disqualification, or otherwise, the Directors may by vote of a majority of a quorum choose a successor or successors who shall hold office for the unexpired term. If there is less than a quorum of the Directors but at least two Directors at the time in office, the Directors may by a majority vote choose a successor or successors who shall hold office for the unexpired term. Vacancies in the Board of Directors may be filled for the unexpired term by the stockholders at a meeting called for that purpose, unless such vacancy shall have been filled by the Directors. ARTICLE XXII. CERTIFICATES OF STOCK Every stockholder shall be entitled to a certificate or certificates of the capital stock of the corporation in such form as may be prescribed by the Board of Directors, duly numbered and sealed with the corporate seal of the corporation and setting forth the number and kind of shares. Such certificates shall be signed by the President or by a Vice President and by the Secretary or an Assistant Secretary. Any stock subscription which is not paid within twenty (20) days after written demand for payment may be 23 declared forfeited by the Board of Directors. ARTICLE XXIII. TRANSFER OF STOCK Shares of stock may be transferred by delivery of the certificate accompanies either by an assignment in writing on the back of the certificate or by a written power of attorney to sell, assign, and transfer the same on the books of the corporation, signed by the person appearing by the certificate to be the owner of the shares represented thereby, together with all necessary federal and state transfer tax stamps affixed, and shall be transferable on the books of the corporation upon surrender thereof so assigned or endorsed. The person registered on the books of the corporation as the owner of any shares of stock shall be entitled to all the rights of ownership with respect to such shares. It shall be the duty of every stockholder to notify the corporation of his post office address. ARTICLE XXIV. TRANSFER BOOKS The transfer books of the stock of the corporation may be closed for such period, not exceeding fifty (50) days, in anticipation of stockholders' meetings as the Board of Directors may determine. In lieu of closing the transfer books, the Board of Directors may fix a day not more than fifty (50) days prior to the day of holding any meeting of stockholders as the day as of which stockholders entitled to notice of and to vote at such meeting shall be determined; and only stockholders of record on such day shall be entitled to notice or of to vote at such meeting. ARTICLE XXV. LOSS OF CERTIFICATES In case of the loss, mutilation, or destruction of a certificate of stock, a duplicate certificate may be issued upon the owner of record filing with the Secretary an affidavit satisfactorily proving the loss, mutilation or destruction of the certificate and a bond with 24 sufficient surety, to be approved by the Board of Directors, to protect and indemnify the corporation from any liability or expense which it may incur by reason of the original certificate remaining outstanding. ARTICLE XXVI. SEAL The seal of this corporation shall consist of a flat-faced circular die with the following words and figures cut or engraved thereon: "OREGON METALLURGICAL CORPORATION, ALBANY, OREGON, Corporate Seal". ARTICLE XXVII. AMENDMENTS The Bylaws of the corporation, regardless of whether made by the stockholders or by the Board of Directors, may be amended, added to, or repealed by vote of the holders of not less than seventy-five percent (75%) of the issued and outstanding capital stock of this corporation, at any meeting of the stockholders, provided notice of the proposed change is given in the notice of meeting, or notice thereof is waived in writing, or the Bylaws may be amended by a majority of the entire Board of Directors at any meeting of the Board. ARTICLE XXVIII. INDEMNIFICATION Section 1. DIRECTORS AND OFFICERS. The corporation shall indemnify its directors and officers to the fullest extent not prohibited by law. Section 2. EMPLOYEES AND OTHER AGENTS. The corporation shall have the power to indemnify its employees and other agents 25 to the fullest extent not prohibited by law. Section 3. NO PRESUMPTION OF BAD FAITH. The termination of any proceeding by judgment, order, settlement, conviction or upon a plea of NOLO CONTENDERE or its equivalent shall not, of itself, create a presumption that the person did not act in good faith and in a manner which the person reasonably believed to be in or not opposed to the best interests of this corporation, and, with respect to any criminal proceeding, that the person had reasonable cause to believe that the conduct was unlawful. Section 4. ADVANCES OF EXPENSES. The expenses incurred by a director or officer in any proceeding shall be paid by the corporation in advance at the written request of the director or officer, if the director or officer: (a) Furnishes the corporation a written affirmation of such person's good faith and belief that such person is entitled to be indemnified by the corporation; and (b) Furnishes the corporation a written undertaking to repay such advance to the extent that it is ultimately determined by a court that such person is not entitled to be indemnified by the corporation. Such advances shall be made without regard to the person's ability to repay such expenses and without regard to the person's ultimate entitlement to indemnification under this Bylaw or otherwise. Section 5. ENFORCEMENT. Without the necessity of entering into an express contract, all rights to indemnification and advances under this Bylaw shall be deemed to be contractual rights and be effective to the same extent and as if provided for in a contract between the corporation and the director or officer who serves in such capacity at any time while this bylaw and other applicable law, if any, are in effect. Any right to indemnification or advances granted by this Bylaw to a director or officer shall be enforceable by or on behalf of the person holding such right in any court of competent jurisdiction if (a) the claim for indemnification or advances is denied, in whole or in part, or (b) no disposition of such claim is made with forty-five (45) days of request therefor. The claimant in such enforcement action, if successful in whole or in part, shall also be entitled to be paid the expense of prosecuting the claim. It shall be a defense to any such action (other than an 26 action brought to enforce a claim for expenses incurred in connection with any proceeding in advance of its final disposition when the required affirmation and undertaking have been tendered to be the corporation) that the claimant has not met the standards of conduct which make it permissible under the law for the corporation to indemnify the claimant, but the burden of proving such defense shall be on the corporation. Neither the failure of the corporation (including its Board of Directors, independent legal counsel or its shareholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because the claimant has met the applicable standard of conduct, nor an actual determination by the corporation (including its Board of Directors, independent legal counsel or its shareholders) that the claimant has not met such applicable standard or conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct. Section 6. NONEXCLUSIVITY OF RIGHTS. The rights conferred on any person by this Bylaw shall not be exclusive of any other right which such person may have or hereafter acquire under any statute, provision or articles of incorporation, bylaws, agreement, vote of shareholders or disinterested directors or otherwise, both as to action in the person's official capacity and as to action in another capacity while holding office. Section 7. SURVIVAL OF RIGHTS. The rights conferred on any person by this Bylaw shall continue as to a person who has ceased to be a director, officer, employee or other agent and shall inure to the benefit of the heirs, executors and administrators of such a person. Section 8. INSURANCE. To the fullest extent not prohibited by law, the corporation, upon approval by the Board of Directors, may purchase insurance on behalf of any person required or permitted to be indemnified pursuant to this Bylaw. Section 9. AMENDMENTS. This Amended Bylaw shall be effective November 16, 1987. Any repeal of this Bylaw shall only be prospective and no repeal or modification herein shall adversely affect the rights under this Bylaw in effect at the time of the alleged occurrence of any 27 action or omission to act that is the cause of any proceeding against any agent of the corporation. Section 10. SAVINGS CLAUSE. If this Bylaw or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, the corporation shall indemnify each director, officer or other agent to the fullest extent permitted by any applicable portion of this Bylaw that shall not have been invalidated, or by any other applicable law. Section 11. CERTAIN DEFINITIONS. For the purposes of this Bylaw, the following definitions shall apply: (a) The term "proceeding" shall be broadly construed and shall include, with out limitation, the investigation, preparation, prosecution, defense, settlement and appeal of any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative. (b) The term "expenses" shall be broadly construed and shall include, without limitation, expense of investigations, judicial or administrative proceedings or appeals, attorneys' fees and disbursements and any expenses of establishing a right to indemnification under Section 5 of this Bylaw, but shall not include amounts paid in settlement, judgments or fines. (c) The term "corporation" shall include, in addition to the resulting or surviving corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Bylaw with respect to the resulting or surviving corporation as the person would have with respect to such constituent corporation if its separate existence had continued. (d) References to a "director," "officer," "employee," or "agent" of the corporation shall include, without limitation, situations where such person is serving at 28 the request of the corporation as a director, officer, trustee or agent of another corporation, partnership, joint venture, trust or other enterprise. (e) References to "other enterprises" shall include employee benefit plans. References to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan. References to "serving at the request of the corporation" shall include any service as a director, officer, employee or agent of the corporation which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries. A person who acted in good faith and in a manner the person reasonably believed to be in the interest of the participants and benefits of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the corporation" as referred to in this Bylaw. ARTICLE XXIX. CONTROLLER By resolution adopted by the Board of Directors on 10/21/93, this Article XXIX was amended to provide that the office of Controller is abolished and the functions of the office become part of the functions of the office of Vice President Finance and Chief Financial Officer. ARTICLE XXX. The provisions of Chapter 820, Oregon Laws 1987 (the "Control Share Acquisition Statute"), shall not apply to sales or acquisition of the share of the corporation. No amendment or repeal of this Article XXX nor the adoption of any provision of these Bylaws inconsistent with this Article XXX, shall adversely affect any transaction that is based upon this Article XXX and pertains to any acquisition of shares that occurred prior to the time of such amendment repeal, adoption or change. No change in the law shall adversely affect or disqualify any transaction provided for in this Article XXX unless the change in the law specifically requires such effect. If the Control Share Acquisition Statute is amended after this Article XXX becomes effective to adversely affect or disqualify acquisitions of shares of the corporation, then the applicability of Chapter 820 to acquisition of shares of the corporation shall be eliminated or limited to the fullest extent not prohibited by the Control Share Acquisition Statute as so amended. 29 EX-10.3 3 EXHIBIT 10.3 EMPLOYMENT AGREEMENT DATE: June _____, 1993 PARTIES: OREGON METALLURGICAL CORPORATION, (the "Company") an Oregon corporation 530 West 34th Avenue P. O. Box 580 Albany, OR 97321 CARLOS E. AGUIRRE ("Employee") 304 Benning Lane Downingtown, PA 19335 AGREEMENT: The parties agree as follows: SECTION 1. EMPLOYMENT 1.1 FIXED TERM. The Company agrees to employ Employee as its President and Chief Executive Officer for a term commencing on June 28, 1993, and terminating on June 30, 1996, or until termination in accordance with Section 5. If not terminated in accordance with Section 5, upon expiration of the initial term of this Agreement this Agreement shall automatically renew for successive one (1) year terms thereafter. 1.2 DUTIES. Employee accepts employment with the Company on the terms and conditions set forth in this Agreement, and agrees to devote his full time and attention (reasonable periods of illness excepted) to the performance of his duties under this Agreement. In general, such duties shall consist of those duties generally performed by the President and Chief Executive Officer of a corporation engaged in the business of metals manufacturing. Employee shall perform such specific duties and shall exercise such specific authority as may be assigned to Employee from time to time by the board of directors of the Company. In performing such duties, Employee shall be subject to the direction and control of the board of directors of the Company. Employee further agrees that in all aspects of such employment, Employee shall comply with the policies, standards, and regulations of the Company established from time to time, and shall perform his duties faithfully, intelligently, to the best of his ability, and in the best interest of the Company. Employee shall serve as a director of the Company without additional compensation. The devotion of reasonable periods of time by Employee for personal purposes, outside business activities, or charitable activities shall not be deemed a breach of this Agreement, provided that such purposes or activities do not materially interfere with the services required to be rendered to or on behalf of the Company. 30 SECTION 2. COVENANT NOT TO COMPETE; CONFIDENTIALITY 2.1 NONCOMPETITION. During the term of this Agreement and for a period of two (2) years after the termination of employment with the Company for any reason, Employee shall not, within the United States of America, Japan, United Kingdom, France, Germany, Israel, Sweden or Italy, directly or indirectly, (1) own (as a proprietor, partner, stockholder, or otherwise) an interest in, or (2) participate (as an officer, director, or in any other capacity) in the management, operation, or control of, or (3) perform services as or act in the capacity of an employee, independent contractor, consultant, or agent of any enterprise engaged, directly or indirectly, in the business of buying, selling, producing, or processing titanium or titanium products or in competition with any other business conducted by the Company except with the prior written consent of the Company. 2.2 CONFIDENTIALITY. Employee agrees that contemporaneously with the execution of this Agreement Employee shall execute Company's standard form Confidentiality Agreement. 2.3 RETURN OF DOCUMENTS. Employee acknowledges and agrees that all originals and copies of records, reports, documents, lists, plans, drawings, memoranda, notes, and other documentation related to the business of the Company or containing any Confidential Information shall be the sole and exclusive property of the Company, and shall be returned to the Company upon the termination of employment with the Company or upon the written request of the Company. 2.4 INJUNCTION. Employee agrees that it would be difficult to measure damage to the Company from any breach by Employee of Section 2.1, 2.2, or 2.3 and that monetary damages would be an inadequate remedy for any such breach. Accordingly, Employee agrees that if Employee shall breach or take steps preliminary to breaching Section 2.1, 2.2, or 2.3, the Company shall be entitled, in addition to all other remedies it may have at law or in equity, to an injunction or other appropriate orders to restrain any such breach, without showing or proving any actual damage sustained by the Company. 2.5 NO RELEASE. Employee agrees that the termination of employment with the Company or the expiration of the term of this Agreement shall not release Employee from any obligations under Section 2.1, 2.2, 2.3, or 2.4. SECTION 3. COMPENSATION 3.1 BASE COMPENSATION. In consideration of all services to be rendered by Employee to the Company, the Company shall pay to Employee base compensation of One Hundred Ninety-Five Thousand Dollars ($195,000.00) per year, through 1994 with annual reviews, payable in equal monthly installments on the last day of each month. Employee shall not be entitled to cost of living adjustments either under this Agreement or under Company's 31 ESOP Plan. 3.2 BONUS. Company presently has in place an Employee Stock Ownership Plan (ESOP) and Employee will be a participant in said Plan. Under the ESOP, there are two (2) bonus programs, one payable in cash and the other in stock. However, under the 1993 operating plan, Company does not anticipate that any sums will be paid under the ESOP bonus programs. Therefore, for 1993 and 1994, Company agrees to pay to Employee a bonus of Forty Thousand Dollars ($40,000.00) at the end of each year, with said bonus to be reduced by any sums (cash or stock) received by Employee under the two ESOP bonus programs. After 1994 under the present provisions of the Plan, no ESOP bonus programs will exist. Employee agrees to develop by working with the members of the board of directors compensation committee, equitable and achievable individual performance bonus and long-term incentive programs to become effective in 1995. These programs will be designed to reward both personal and company performance and will include all executive officers of the Company. 3.3 LONG-TERM INCENTIVE PROGRAM (ESOP SHARE ALLOCATION). Pursuant to the terms of the ESOP documents, based on 1992 contributions, Employee will receive approximately FOURTEEN THOUSAND TWO HUNDRED FORTY-SEVEN (14,247) OREMET shares (or excess benefit plan shares) for 1993. All ESOP shares are tax deferred. To the extent that Employee's compensation for 1993 or 1994 exceeds federal ERISA limits (under Internal Revenue Code Section 415), Employee will receive "excess benefit shares" which will be redeemable in cash at some future date in accordance with the ESOP Plan, with the amount of cash to be determined based on the fair market value of the shares at the time of redemption. However, other statutory or ESOP limitations may serve to limit contributions to the ESOP, or to other qualified plans sponsored by the Company. 3.4 OTHER BENEFITS. Base compensation and bonus compensation paid to Employee shall be in addition to any contribution made by the Company for the benefit of Employee to any qualified retirement plan maintained by the Company for the exclusive benefit of its salaried employees. The Company shall provide to Employee and Employee's family the same benefits that the Company provides to other salaried employees and their families, subject to Employee's satisfaction of the respective eligibility conditions for such benefits. Employee may select an American automobile, in keeping with the Company's tradition, for lease by the Company for Employee's use. Insurance, maintenance and operating costs of the automobile will be paid for by the Company pursuant to current IRS regulations. Employee shall obtain an annual physical examination and Company shall pay for said examination. 32 3.5 SIGN-ON BONUS. As an inducement to joining Company, Employee will receive a sign-on bonus in the amount of Sixty-Five Thousand Dollars ($65,000.00). In the event it is determined at the time of the annual ESOP stock allocation that the sign-on bonus is not compensation covered by the ESOP, Company agrees to issue Employee, from authorized unissued stock of Company, a number of shares equivalent to the number of shares Employee would have been allocated if the sign-on bonus had been included in covered plan compensation. SECTION 4. EXPENSES 4.1 RELOCATION EXPENSES. Employee shall be responsible for any and all relocation expenses of Employee, including but not limited to country club initiation fees. 4.2 REIMBURSEMENT. Employee shall be entitled to reimbursement from the Company for reasonable expenses necessarily incurred by Employee in the performance of Employee's duties under this Agreement, upon presentation of vouchers indicating in detail the amount and business purpose of each such expense and upon compliance with the Company's reimbursement policies established from time to time. SECTION 5. TERMINATION 5.1 TERMINATION BY PRIOR NOTICE. The employment of Employee by the Company may be terminated by either the Company or Employee upon the giving of Three Hundred Sixty-Five (365) days' prior written notice to the other party during the initial term of this Agreement. After the initial term of this Agreement and during any subsequent renewal term this Agreement may be terminated at any time upon the giving of six (6) months written notice by either party. This Agreement may be terminated at any time upon the mutual written agreement of the Company and Employee. 5.2 IMMEDIATE TERMINATION. The employment of Employee by the Company may be terminated immediately in the sole discretion of the board of directors of the Company upon the occurrence of any one of the following events: 5.2.1 Employee willfully and continuously fails or refuses to comply with the policies, standards, and regulations of the Company established from time to time; 5.2.2 Employee engages in fraud, dishonesty, or any other act of misconduct in the performance of Employee's duties on behalf of the Company; 5.2.3 Employee fails to perform any provision of this Agreement to be performed by Employee; or 5.2.4 Employee is deceased or suffers a permanent disability. For purposes of this Agreement, "permanent disability" shall be defined as Employee's inability, due to illness, 33 accident, or other cause, to perform the majority of Employee's usual duties for a period of three (3) consecutive calendar months or for a period of 120 days (whether or not consecutive) during any 365 day period. 5.3 PRORATION OF BASE COMPENSATION. Upon the termination of employment, the base compensation payable to Employee pursuant to Section 3.1 shall be prorated to the date of such termination, calculated on a calendar year basis. 5.4 INVOLUNTARY TERMINATION DURING FIRST 18 MONTHS. In the event that Employee is involuntarily terminated by Company's board of directors during the first eighteen (18) months of this Agreement for reasons other than those specified in Section 5.2 of this Agreement, then and in that event Employee will receive severance pay equal to twelve (12) months' current base salary. SECTION 6. VACATION; ILLNESS 6.1 VACATION. Employee shall be subject to Company's vacation policy for salaried employees with Employee being credited for fifteen (15) years of service prior to July 1, 1993. 6.2 ILLNESS. Subject to Section 5, Employee shall receive full compensation for any period of illness or incapacity during the term of this Agreement. SECTION 7. CHANGE OF CONTROL AND SEVERANCE PAY In the event there is a change in the ownership of a majority of the outstanding capital stock of the Company, other than in accordance with the existing ESOP Plan, and within one (1) year thereafter there is an involuntary termination of the employment of Employee, Employee shall be paid two (2) years salary as severance pay and Employee shall continue to be eligible for all pension benefits otherwise available to him from Company at the end of the severance pay period. For purposes of this Section 7, the term "involuntary termination" shall include but shall not be limited to a reduction in compensation or a reduction of responsibility. SECTION 8. MISCELLANEOUS PROVISIONS 8.1 BINDING EFFECT. This Agreement shall be binding on and inure to the benefit of the parties and their heirs, personal representatives, successors, and, to the extent permitted by Section 8.2, assigns. 8.2 ASSIGNMENT. Except with the other party's prior written consent, a party may not assign any rights under this Agreement. 34 8.3 AMENDMENTS. This Agreement may be amended only by an instrument in writing executed by all the parties. 8.4 HEADINGS. The headings used in this Agreement are solely for convenience of reference, are not part of this Agreement, and are not to be considered in construing or interpreting this Agreement. 8.5 ENTIRE AGREEMENT. This Agreement (including the exhibits) sets forth the entire understanding of the parties with respect to the subject matter of this Agreement and supersedes any and all prior understandings and agreements, whether written or oral, between the parties with respect to such subject matter. 8.6 COUNTERPARTS. This Agreement may be executed by the parties in separate counterparts, each of which when executed and delivered shall be an original, but all of which together shall constitute one and the same instrument. 8.7 SEVERABILITY. If any provision of this Agreement shall be invalid or unenforceable in any respect for any reason, the validity and enforceability of any such provision in any other respect and of the remaining provisions of this Agreement shall not be in any way impaired. 8.8 WAIVER. A provision of this Agreement may be waived only by a written instrument executed by the party waiving compliance. No waiver of any provision of this Agreement shall constitute a waiver of any other provision, whether or not similar, nor shall any waiver constitute a continuing waiver. Failure to enforce any provision of this Agreement shall not operate as a waiver of such provision or any other provision. 8.9 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the state of Oregon. 8.10 VENUE. This Agreement has been made entirely within the state of Oregon. This Agreement shall be governed by and construed in accordance with the laws of the state of Oregon. If any suit or action is filed by any party to enforce this Agreement or otherwise with respect to the subject matter of this Agreement, venue shall be in the federal or state courts in Linn County, Oregon. 8.11 ARBITRATION. Any controversy or claim arising out of or relating to this Agreement, including, without limitation, the making, performance, or interpretation of this Agreement, shall be settled by arbitration in Albany, Oregon, in accordance with ORS 36.300-36.365, and judgment on the arbitration award may be entered in any court having jurisdiction over the subject matter of the controversy. THE COMPANY: OREGON METALLURGICAL CORPORATION, an Oregon 35 corporation By___________________________ Title:_______________________ EMPLOYEE: --------------------------------- CARLOS E. AGUIRRE 36 EX-10.4 4 EXHIBIT 10.4 EMPLOYMENT AGREEMENT DATE: October _____, 1993 PARTIES: OREGON METALLURGICAL CORPORATION, (the "Company") an Oregon corporation 530 West 34th Avenue P. O. Box 580 Albany, OR 97321 DENNIS P. KELLY ("Employee") 8 Mourning Dove Lane Littleton, CO 80127 AGREEMENT: The parties agree as follows: SECTION 1. EMPLOYMENT 1.1 FIXED TERM. The Company agrees to employ Employee as its Vice President/Finance and Chief Financial Officer for a term commencing on October , 1993, and terminating on October 31, 1995, or until termination in accordance with Section 5. If not terminated in accordance with Section 5, upon expiration of the initial term of this Agreement this Agreement shall automatically renew for successive one (1) year terms thereafter. 1.2 DUTIES. Employee accepts employment with the Company on the terms and conditions set forth in this Agreement, and agrees to devote his full time and attention (reasonable periods of illness excepted) to the performance of his duties under this Agreement. In general, such duties shall consist of those duties generally performed by the Vice President/Finance, Chief Financial Officer, and the Treasurer of a corporation engaged in the business of metals manufacturing. Employee shall perform such specific duties and shall exercise such specific authority as may be assigned to Employee from time to time by the board of directors or the president of the Company. In performing such duties, Employee shall be subject to the direction and control of the president and of the board of directors of the Company. Employee further agrees that in all aspects of such employment, Employee shall comply with the policies, standards, and regulations of the Company established from time to time, and shall perform his duties faithfully, intelligently, to the best of his ability, and in the best interest of the Company. The devotion of reasonable periods of time by Employee for personal purposes, outside business activities, or charitable activities shall not be deemed a breach of this Agreement, provided that such purposes or activities do not materially interfere with the services required to be rendered to or on behalf of the Company. 37 SECTION 2. COVENANT NOT TO COMPETE; CONFIDENTIALITY 2.1 NONCOMPETITION. During the term of this Agreement and for a period of two (2) years after the termination of employment with the Company for any reason, Employee shall not, within the United States of America, Japan, United Kingdom, France, Germany, Israel, Sweden or Italy, directly or indirectly, (1) own (as a proprietor, partner, stockholder, or otherwise) an interest in, or (2) participate (as an officer, director, or in any other capacity) in the management, operation, or control of, or (3) perform services as or act in the capacity of an employee, independent contractor, consultant, or agent of any enterprise engaged, directly or indirectly, in the business of buying, selling, producing, or processing titanium or titanium products or in competition with any other business conducted by the Company except with the prior written consent of the Company. 2.2 CONFIDENTIALITY. Employee agrees that contemporaneously with the execution of this Agreement Employee shall execute Company's standard form Confidentiality Agreement. 2.3 RETURN OF DOCUMENTS. Employee acknowledges and agrees that all originals and copies of records, reports, documents, lists, plans, drawings, memoranda, notes, and other documentation related to the business of the Company or containing any Confidential Information shall be the sole and exclusive property of the Company, and shall be returned to the Company upon the termination of employment with the Company or upon the written request of the Company. 2.4 INJUNCTION. Employee agrees that it would be difficult to measure damage to the Company from any breach by Employee of Section 2.1, 2.2, or 2.3 and that monetary damages would be an inadequate remedy for any such breach. Accordingly, Employee agrees that if Employee shall breach or take steps preliminary to breaching Section 2.1, 2.2, or 2.3, the Company shall be entitled, in addition to all other remedies it may have at law or in equity, to an injunction or other appropriate orders to restrain any such breach, without showing or proving any actual damage sustained by the Company. 2.5 NO RELEASE. Employee agrees that the termination of employment with the Company or the expiration of the term of this Agreement shall not release Employee from any obligations under Section 2.1, 2.2, 2.3, or 2.4. SECTION 3. COMPENSATION 3.1 BASE COMPENSATION. In consideration of all services to be rendered by Employee to the Company, the Company shall pay to Employee base compensation of One Hundred Twenty Thousand Dollars ($120,000.00) per year, through October, 1995 with annual reviews, payable in equal monthly installments on the last day of each month. Employee shall not be entitled to cost of living adjustments either under this Agreement or under Company's ESOP Plan. 38 3.2 BONUS. Company presently has in place an Employee Stock Ownership Plan (ESOP) and Employee will be a participant in said Plan. Under the ESOP, there are two (2) bonus programs, one payable in cash and the other in stock. However, under the 1993 operating plan, Company does not anticipate that any sums will be paid under the ESOP bonus programs. At the end of 1994, Company agrees to pay Employee a bonus of Ten Thousand Dollars ($10,000.00), with said bonus to be reduced by any sums (cash or stock) received by Employee under the two ESOP bonus programs. After 1994 under the present provisions of the Plan, no ESOP bonus programs will exist. Company anticipates developing and incentive bonus program and when such program is placed in effect Employee shall be a participant therein. 3.3 LONG-TERM INCENTIVE PROGRAM (ESOP SHARE ALLOCATION). Pursuant to the terms of the ESOP documents Employee will receive approximately TWELVE THOUSAND (12,000) shares (or excess benefit plan shares) for 1994. All ESOP shares are tax deferred. To the extent that Employee's compensation for 1993 or 1994 exceeds federal ERISA limits (under Internal Revenue Code Section 415) Employee will receive "excess benefit shares" which will be redeemable in cash at some future date in accordance with the ESOP Plan, with the additional amount of cash to be determined based on the fair market value of the shares at the time of redemption. However, other statutory or ESOP limitations may serve to limit contributions to the ESOP, or to other qualified plans sponsored by the Company. 3.4 OTHER BENEFITS. Base compensation and bonus compensation paid to Employee shall be in addition to any contribution made by the Company for the benefit of Employee to any qualified retirement plan maintained by the Company for the exclusive benefit of its salaried employees. The Company shall provide to Employee and Employee's family the same benefits that the Company provides to other salaried employees and their families, subject to Employee's satisfaction of the respective eligibility conditions for such benefits. Employee may select an American automobile, in keeping with the Company's tradition, for lease by the Company for Employee's use. Insurance, maintenance and operating costs of the automobile will be paid for by the Company pursuant to current IRS regulations. Employee shall obtain an annual physical examination and Company shall pay for said examination. 3.5 SIGN-ON BONUS. As an inducement to joining Company, Employee will receive a sign-on bonus in the amount of Fifty Thousand Dollars ($50,000.00). In the event it is determined at the time of the annual ESOP stock allocation that the sign-on bonus is not compensation covered by the ESOP, Company agrees to issue Employee, from authorized unissued stock of Company, a number of shares equivalent to the number of shares Employee would have been allocated if the sign-on bonus had been included in covered plan 39 compensation. SECTION 4. EXPENSES 4.1 RELOCATION EXPENSES. Employee shall be responsible for any and all relocation expenses of Employee, including but not limited to country club initiation fees. 4.2 REIMBURSEMENT. Employee shall be entitled to reimbursement from the Company for reasonable expenses necessarily incurred by Employee in the performance of Employee's duties under this Agreement, upon presentation of vouchers indicating in detail the amount and business purpose of each such expense and upon compliance with the Company's reimbursement policies established from time to time. SECTION 5. TERMINATION 5.1 TERMINATION BY PRIOR NOTICE. The employment of Employee by the Company may be terminated by either the Company or Employee upon the giving of Three Hundred Sixty-Five (365) days' prior written notice to the other party during the initial term of this Agreement. After the initial term of this Agreement and during any subsequent renewal term this Agreement may be terminated at any time upon the giving of six (6) months written notice by either party. This Agreement may be terminated at any time upon the mutual written agreement of the Company and Employee. 5.2 IMMEDIATE TERMINATION. The employment of Employee by the Company may be terminated immediately in the sole discretion of the president of the Company upon the occurrence of any one of the following events: 5.2.1 Employee willfully and continuously fails or refuses to comply with the policies, standards, and regulations of the Company established from time to time; 5.2.2 Employee engages in fraud, dishonesty, or any other act of misconduct in the performance of Employee's duties on behalf of the Company; 5.2.3 Employee fails to perform any provision of this Agreement to be performed by Employee; or 5.2.4 Employee is deceased or suffers a permanent disability. For purposes of this Agreement, "permanent disability" shall be defined as Employee's inability, due to illness, accident, or other cause, to perform the majority of Employee's usual duties for a period of three (3) consecutive calendar months or for a period of 120 days (whether or not consecutive) during any 365 day period. 5.3 PRORATION OF BASE COMPENSATION. Upon the termination of employment, the base compensation payable to Employee pursuant to Section 3.1 shall be prorated to the 40 date of such termination, calculated on a calendar year basis. 5.4 INVOLUNTARY TERMINATION DURING FIRST 18 MONTHS. In the event that Employee is involuntarily terminated by Company's president or board of directors during the first eighteen (18) months of this Agreement for reasons other than those specified in Section 5.2 of this Agreement, then and in that event Employee will receive severance pay equal to twelve (12) months' current base salary. SECTION 6. VACATION; ILLNESS 6.1 VACATION. Employee shall be subject to Company's vacation policy for salaried employees with Employee being credited for ten (10) years of service prior to October 1, 1993. 6.2 ILLNESS. Subject to Section 5, Employee shall receive full compensation for any period of illness or incapacity during the term of this Agreement. SECTION 7. MISCELLANEOUS PROVISIONS 7.1 BINDING EFFECT. This Agreement shall be binding on and inure to the benefit of the parties and their heirs, personal representatives, successors, and, to the extent permitted by Section 7.2, assigns. 7.2 ASSIGNMENT. Except with the other party's prior written consent, a party may not assign any rights under this Agreement. 7.3 AMENDMENTS. This Agreement may be amended only by an instrument in writing executed by all the parties. 7.4 HEADINGS. The headings used in this Agreement are solely for convenience of reference, are not part of this Agreement, and are not to be considered in construing or interpreting this Agreement. 7.5 ENTIRE AGREEMENT. This Agreement (including the exhibits) sets forth the entire understanding of the parties with respect to the subject matter of this Agreement and supersedes any and all prior understandings and agreements, whether written or oral, between the parties with respect to such subject matter. 7.6 COUNTERPARTS. This Agreement may be executed by the parties in separate counterparts, each of which when executed and delivered shall be an original, but all of which together shall constitute one and the same instrument. 41 7.7 SEVERABILITY. If any provision of this Agreement shall be invalid or unenforceable in any respect for any reason, the validity and enforceability of any such provision in any other respect and of the remaining provisions of this Agreement shall not be in any way impaired. 7.8 WAIVER. A provision of this Agreement may be waived only by a written instrument executed by the party waiving compliance. No waiver of any provision of this Agreement shall constitute a waiver of any other provision, whether or not similar, nor shall any waiver constitute a continuing waiver. Failure to enforce any provision of this Agreement shall not operate as a waiver of such provision or any other provision. 7.9 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the state of Oregon. 7.10 VENUE. This Agreement has been made entirely within the state of Oregon. This Agreement shall be governed by and construed in accordance with the laws of the state of Oregon. If any suit or action is filed by any party to enforce this Agreement or otherwise with respect to the subject matter of this Agreement, venue shall be in the federal or state courts in Linn County, Oregon. 7.11 ARBITRATION. Any controversy or claim arising out of or relating to this Agreement, including, without limitation, the making, performance, or interpretation of this Agreement, shall be settled by arbitration in Albany, Oregon, in accordance with ORS 36.300-36.365, and judgment on the arbitration award may be entered in any court having jurisdiction over the subject matter of the controversy. THE COMPANY: OREGON METALLURGICAL CORPORATION, an Oregon corporation By______________________________ Title:_______________________ EMPLOYEE: ________________________________ DENNIS P. KELLY 42 EX-10.5 5 EXHIBIT 10.5 EMPLOYMENT AGREEMENT DATE: October _____, 1993 PARTIES: OREGON METALLURGICAL CORPORATION, (the "Company") an Oregon corporation 530 West 34th Avenue P. O. Box 580 Albany, OR 97321 STEVEN H. REICHMAN ("Employee") 60 Salisbury Street Worster, MA 01609 AGREEMENT: The parties agree as follows: SECTION 1. EMPLOYMENT 1.1 FIXED TERM. The Company agrees to employ Employee as its Vice President/Technology and Corporate Development for a term commencing on November , 1993, and terminating on November 30, 1995, or until termination in accordance with Section 5. If not terminated in accordance with Section 5, upon expiration of the initial term of this Agreement this Agreement shall automatically renew for successive one (1) year terms thereafter. 1.2 DUTIES. Employee accepts employment with the Company on the terms and conditions set forth in this Agreement, and agrees to devote his full time and attention (reasonable periods of illness excepted) to the performance of his duties under this Agreement. In general, such duties shall consist of those duties generally performed by the Vice President/Technology and Corporate Development of a corporation engaged in the business of metals manufacturing which include, but are not limited to, quality assurance, process and product development, rendering technical assistance to production, sales and customers, the technical marketing of new products, environmental issues, and strategic planning. Employee shall perform such specific duties and shall exercise such specific authority as may be assigned to Employee from time to time by the board of directors or the president of the Company. In performing such duties, Employee shall be subject to the direction and control of the president and of the board of directors of the Company. Employee further agrees that in all aspects of such employment, Employee shall comply with the policies, standards, and regulations of the Company established from time to time, and shall perform his duties faithfully, intelligently, to the best of his ability, and in the best interest of the Company. The devotion of reasonable periods of time by Employee for personal EMPLOYMENT AGREEMENT 43 purposes, outside business activities, or charitable activities shall not be deemed a breach of this Agreement, provided that such purposes or activities do not materially interfere with the services required to be rendered to or on behalf of the Company. SECTION 2. COVENANT NOT TO COMPETE; CONFIDENTIALITY 2.1 NONCOMPETITION. During the term of this Agreement and for a period of two (2) years after the termination of employment with the Company for any reason, Employee shall not, within the United States of America, Japan, United Kingdom, France, Germany, Israel, Sweden or Italy, directly or indirectly, (1) own (as a proprietor, partner, stockholder, or otherwise) an interest in, or (2) participate (as an officer, director, or in any other capacity) in the management, operation, or control of, or (3) perform services as or act in the capacity of an employee, independent contractor, consultant, or agent of any enterprise engaged, directly or indirectly, in the business of buying, selling, producing, or processing titanium or titanium products or in competition with any other business conducted by the Company except with the prior written consent of the Company. 2.2 CONFIDENTIALITY. Employee agrees that contemporaneously with the execution of this Agreement Employee shall execute Company's standard form Confidentiality Agreement. 2.3 RETURN OF DOCUMENTS. Employee acknowledges and agrees that all originals and copies of records, reports, documents, lists, plans, drawings, memoranda, notes, and other documentation related to the business of the Company or containing any Confidential Information shall be the sole and exclusive property of the Company, and shall be returned to the Company upon the termination of employment with the Company or upon the written request of the Company. 2.4 INJUNCTION. Employee agrees that it would be difficult to measure damage to the Company from any breach by Employee of Section 2.1, 2.2, or 2.3 and that monetary damages would be an inadequate remedy for any such breach. Accordingly, Employee agrees that if Employee shall breach or take steps preliminary to breaching Section 2.1, 2.2, or 2.3, the Company shall be entitled, in addition to all other remedies it may have at law or in equity, to an injunction or other appropriate orders to restrain any such breach, without showing or proving any actual damage sustained by the Company. 2.5 NO RELEASE. Employee agrees that the termination of employment with the Company or the expiration of the term of this Agreement shall not release Employee from any obligations under Section 2.1, 2.2, 2.3, or 2.4. SECTION 3. COMPENSATION 3.1 BASE COMPENSATION. In consideration of all services to be rendered by Employee to the Company, the Company shall pay to Employee base compensation of One EMPLOYMENT AGREEMENT 44 Hundred Fifteen Thousand Dollars ($115,000.00) per year, through November, 1995 with annual reviews, payable in equal monthly installments on the last day of each month. Employee shall not be entitled to cost of living adjustments either under this Agreement or under Company's ESOP Plan. 3.2 BONUS. Company presently has in place an Employee Stock Ownership Plan (ESOP) and Employee will be a participant in said Plan. Under the ESOP, there are two (2) bonus programs, one payable in cash and the other in stock. However, under the 1993 operating plan, Company does not anticipate that any sums will be paid under the ESOP bonus programs. At the end of 1994, Company agrees to pay Employee a bonus of Ten Thousand Dollars ($10,000.00), with said bonus to be reduced by any sums (cash or stock) received by Employee under the two ESOP bonus programs. After 1994 under the present provisions of the Plan, no ESOP bonus programs will exist. Company anticipates developing and incentive bonus program and when such program is placed in effect Employee shall be a participant therein. 3.3 LONG-TERM INCENTIVE PROGRAM (ESOP SHARE ALLOCATION). Pursuant to the terms of the ESOP documents Employee will receive approximately ELEVEN THOUSAND (11,000) shares (or excess benefit plan shares) for 1994. All ESOP shares are tax deferred. To the extent that Employee's compensation for 1993 or 1994 exceeds federal ERISA limits (under Internal Revenue Code Section 415) Employee will receive "excess benefit shares" which will be redeemable in cash at some future date in accordance with the ESOP Plan, with the additional amount of cash to be determined based on the fair market value of the shares at the time of redemption. However, other statutory or ESOP limitations may serve to limit contributions to the ESOP, or to other qualified plans sponsored by the Company. 3.4 OTHER BENEFITS. Base compensation and bonus compensation paid to Employee shall be in addition to any contribution made by the Company for the benefit of Employee to any qualified retirement plan maintained by the Company for the exclusive benefit of its salaried employees. The Company shall provide to Employee and Employee's family the same benefits that the Company provides to other salaried employees and their families, subject to Employee's satisfaction of the respective eligibility conditions for such benefits. Employee may select an American automobile, in keeping with the Company's tradition, for lease by the Company for Employee's use. Insurance, maintenance and operating costs of the automobile will be paid for by the Company pursuant to current IRS regulations. Employee shall obtain an annual physical examination and Company shall pay for said examination. 3.5 SIGN-ON BONUS. As an inducement to joining Company, Employee will receive a sign-on bonus in the amount of Thirty-Five Thousand Dollars ($35,000.00). In the event it EMPLOYMENT AGREEMENT 45 is determined at the time of the annual ESOP stock allocation that the sign-on bonus is not compensation covered by the ESOP, Company agrees to issue Employee, from authorized unissued stock of Company, a number of shares equivalent to the number of shares Employee would have been allocated if the sign-on bonus had been included in covered plan compensation. SECTION 4. EXPENSES 4.1 RELOCATION EXPENSES. Employee shall be responsible for any and all relocation expenses of Employee, including but not limited to country club initiation fees. 4.2 REIMBURSEMENT. Employee shall be entitled to reimbursement from the Company for reasonable expenses necessarily incurred by Employee in the performance of Employee's duties under this Agreement, upon presentation of vouchers indicating in detail the amount and business purpose of each such expense and upon compliance with the Company's reimbursement policies established from time to time. SECTION 5. TERMINATION 5.1 TERMINATION BY PRIOR NOTICE. The employment of Employee by the Company may be terminated by either the Company or Employee upon the giving of Three Hundred Sixty-Five (365) days' prior written notice to the other party during the initial term of this Agreement. After the initial term of this Agreement and during any subsequent renewal term this Agreement may be terminated at any time upon the giving of six (6) months written notice by either party. This Agreement may be terminated at any time upon the mutual written agreement of the Company and Employee. 5.2 IMMEDIATE TERMINATION. The employment of Employee by the Company may be terminated immediately in the sole discretion of the president of the Company upon the occurrence of any one of the following events: 5.2.1 Employee willfully and continuously fails or refuses to comply with the policies, standards, and regulations of the Company established from time to time; 5.2.2 Employee engages in fraud, dishonesty, or any other act of misconduct in the performance of Employee's duties on behalf of the Company; 5.2.3 Employee fails to perform any provision of this Agreement to be performed by Employee; or 5.2.4 Employee is deceased or suffers a permanent disability. For purposes of this Agreement, "permanent disability" shall be defined as Employee's inability, due to illness, accident, or other cause, to perform the majority of Employee's usual duties for a period of three (3) consecutive calendar months or for a period of 120 days (whether or not EMPLOYMENT AGREEMENT 46 consecutive) during any 365 day period. 5.3 PRORATION OF BASE COMPENSATION. Upon the termination of employment, the base compensation payable to Employee pursuant to Section 3.1 shall be prorated to the date of such termination, calculated on a calendar year basis. 5.4 INVOLUNTARY TERMINATION DURING FIRST 18 MONTHS. In the event that Employee is involuntarily terminated by Company's president or board of directors during the first eighteen (18) months of this Agreement for reasons other than those specified in Section 5.2 of this Agreement, then and in that event Employee will receive severance pay equal to twelve (12) months' current base salary. SECTION 6. VACATION; ILLNESS 6.1 VACATION. Employee shall be subject to Company's vacation policy for salaried employees with Employee being credited for ten (10) years of service prior to November 1, 1993. 6.2 ILLNESS. Subject to Section 5, Employee shall receive full compensation for any period of illness or incapacity during the term of this Agreement. SECTION 7. MISCELLANEOUS PROVISIONS 7.1 BINDING EFFECT. This Agreement shall be binding on and inure to the benefit of the parties and their heirs, personal representatives, successors, and, to the extent permitted by Section 7.2, assigns. 7.2 ASSIGNMENT. Except with the other party's prior written consent, a party may not assign any rights under this Agreement. 7.3 AMENDMENTS. This Agreement may be amended only by an instrument in writing executed by all the parties. 7.4 HEADINGS. The headings used in this Agreement are solely for convenience of reference, are not part of this Agreement, and are not to be considered in construing or interpreting this Agreement. 7.5 ENTIRE AGREEMENT. This Agreement (including the exhibits) sets forth the entire understanding of the parties with respect to the subject matter of this Agreement and supersedes any and all prior understandings and agreements, whether written or oral, between the parties with respect to such subject matter. 7.6 COUNTERPARTS. This Agreement may be executed by the parties in separate EMPLOYMENT AGREEMENT 47 counterparts, each of which when executed and delivered shall be an original, but all of which together shall constitute one and the same instrument. 7.7 SEVERABILITY. If any provision of this Agreement shall be invalid or unenforceable in any respect for any reason, the validity and enforceability of any such provision in any other respect and of the remaining provisions of this Agreement shall not be in any way impaired. 7.8 WAIVER. A provision of this Agreement may be waived only by a written instrument executed by the party waiving compliance. No waiver of any provision of this Agreement shall constitute a waiver of any other provision, whether or not similar, nor shall any waiver constitute a continuing waiver. Failure to enforce any provision of this Agreement shall not operate as a waiver of such provision or any other provision. 7.9 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the state of Oregon. 7.10 VENUE. This Agreement has been made entirely within the state of Oregon. This Agreement shall be governed by and construed in accordance with the laws of the state of Oregon. If any suit or action is filed by any party to enforce this Agreement or otherwise with respect to the subject matter of this Agreement, venue shall be in the federal or state courts in Linn County, Oregon. 7.11 ARBITRATION. Any controversy or claim arising out of or relating to this Agreement, including, without limitation, the making, performance, or interpretation of this Agreement, shall be settled by arbitration in Albany, Oregon, in accordance with ORS 36.300-36.365, and judgment on the arbitration award may be entered in any court having jurisdiction over the subject matter of the controversy. THE COMPANY: OREGON METALLURGICAL CORPORATION, an Oregon corporation By______________________________ Title:_______________________ EMPLOYEE: ________________________________ Steven H. Reichman EMPLOYMENT AGREEMENT 48 EX-10.6 6 EXHIBIT 10.6 EMPLOYMENT AGREEMENT DATE: February 17, 1995 PARTIES: OREGON METALLURGICAL CORPORATION, (the "Company") an Oregon corporation 530 34th Avenue S.W. P.O. Box 580 Albany, OR 97321 JOHN P. BYRNE ("Employee") 4454 Bramblewood Lane N.W. P.O. Box 627 Albany, OR 97321 AGREEMENT: The parties agree as follows: SECTION 1. EMPLOYMENT 1.1 FIXED TERM. The Company agrees to employ Employee as its Vice President - Manufacturing and Engineering for a term commencing on March 1, 1995, and terminating on March 1, 1997, or until termination in accordance with Section 5. If not terminated in accordance with Section 5, upon expiration of the initial term of this Agreement this Agreement shall automatically renew for successive one (1) year terms thereafter. 1.2 DUTIES. Employee accepts employment with the Company on the terms and conditions set forth in this Agreement, and agrees to devote his full time and attention (reasonable periods of illness excepted) to the performance of his duties under this Agreement. In general, such duties shall consist of those duties generally performed by the Vice President - Manufacturing and Engineering of a corporation engaged in the business of metals manufacturing which include, but are not limited to, the managing, planning, organizing, controlling and coordination of all Manufacturing, Engineering and Maintenance Operations of the Company. Employee shall perform such specific duties and shall exercise such specific authority as may be assigned to Employee from time to time by the board of directors or the president of the Company. In performing such duties, Employee shall comply with the policies, standards, and regulations of the Company established from time to time, and shall perform his duties faithfully, intelligently, to the best of his ability, and in the best interest of the Company. The devotion of reasonable periods of time by Employee for personal purposes, outside business 49 activities, or charitable activities shall not be deemed a breach of this Agreement, provided that such purposes or activities do not materially interfere with the services required to be rendered to or on behalf of the Company. SECTION 2. COVENANT NOT TO COMPETE; CONFIDENTIALITY 2.1 NONCOMPETITION. During the term of this Agreement and for a period of two (2) years after the termination of employment with the Company for any reason, Employee shall not, within the United States of America, Japan, United Kingdom, France, Germany, C.I.S., China, Israel, Sweden or Italy, directly or indirectly, (1) own (as a proprietor, partner, stockholder, or otherwise) an interest in, or (2) participate (as an officer, director, or in any other capacity) in the management, operation, or control of, or (3) perform services as or act in the capacity of any employee, independent contractor, consultant, or agent of any enterprise engaged directly or indirectly, in the business of buying, selling, producing, or processing titanium or titanium mill products or in competition with any other business conducted by the Company in which the employee was directly involved, except with the prior written consent of the Company. 2.2 CONFIDENTIALITY. Employee agrees that contemporaneously with the execution of this Agreement Employee shall execute Company's standard form Confidentiality Agreement. 2.3 RETURN OF DOCUMENTS. Employee acknowledges and agrees that all originals and copies of records, reports, documents, lists, plans, drawings, memoranda, notes, and other documentation related to the business of the Company or containing any Confidential Information shall be the sole and exclusive property of the Company, and shall be returned to the Company upon the termination of employment with the Company or upon the written request of the Company. 2.4 INJUNCTION. Employee agrees that it would be difficult to measure damage to the Company from any breach by Employee os Section 2.1, 2.2, or 2.3 and that monetary damages would be an inadequate remedy for any such breach. Accordingly, Employee agrees that if Employee shall breach or take steps preliminary to breaching Section 2.1, 2.2 or 2.3, the Company shall be entitled, in addition to all other remedies it may have at law or in equity, to an injunction or other appropriate orders to restrain any such breach, without showing or proving any actual damage sustained by the Company. 2.5 NO RELEASE. Employee agrees that the termination of employment with the Company or the expiration of the term of this Agreement shall not release Employee from any obligations under Section 2.1, 2.2, 2.3, or 2.4. 50 SECTION 3. COMPENSATION 3.1 BASE COMPENSATION. In consideration of all services to be rendered by Employee to the Company, the Company shall pay to Employee base compensation of One Hundred Twenty Thousand Dollars ($120,000.00) per year (equivalent to $10,000.00 per month), through March 1997 with annual reviews, payable in equal semi-monthly installments. In addition, the Employee will receive one (1) share of OREMET stock per One Hundred Dollars ($100.00) of W-2 earnings to be paid during the first quarter of each calendar year following hire date. Employee shall not be entitled to cost of living adjustments under this Agreement. 3.2 BONUS. Company is in the process of developing a competitive annual and long-term incentive program and when such program is placed in effect Employee shall be a participant therein. 3.3 OTHER BENEFITS. Base compensation and bonus compensation paid to Employee shall be in addition to any contribution made by the Company for the benefit of Employee to the 401(k) plan and any qualified retirement plan maintained by the Company for the exclusive benefit of its salaried employees. The Company shall provide to Employee and Employee's family the same benefits that the Company provides to other salaried employees and their families, subject to Employee's satisfaction of the respective eligibility conditions for such benefits. Employee may select an American automobile, in keeping with the Company's tradition, for lease by the Company for Employee's use. Insurance, maintenance and operating costs of the automobile will be paid for by the Company pursuant to current IRS regulations. Employee shall obtain an annual physical examination and Company shall pay for said examination. 3.4 SIGN-ON BONUS. As an inducement to joining Company, Employee will receive a sign-on bonus in the amount of Ten Thousand Dollars ($10,000.00). SECTION 4. EXPENSES 4.1 REIMBURSEMENT. Employee shall be entitled to reimbursement from the Company for reasonable expenses necessarily incurred by Employee in the performance of Employee's duties under this Agreement, upon presentation of vouchers indicating in detail the amount and business purpose of each such expense and upon compliance with the Company's reimbursement policies established from time to time. 51 SECTION 5. TERMINATION 5.1 TERMINATION BY PRIOR NOTICE. The employment of Employee by the Company may be terminated by either the Company or Employee upon the giving of Three Hundred Sixty-Five (365) days' prior written notice to the other party during the initial term of this Agreement. After the initial term of this Agreement and during any subsequent renewal term this Agreement may be terminated at any time upon the giving of six (6) months written notice by either party. This Agreement may be terminated at any time upon the mutual written agreement of the Company and Employee. 5.2 IMMEDIATE TERMINATION. The employment of Employee by the Company may be terminated immediately in the sole discretion of the president of the Company upon the occurrence of any one of the following events: 5.2.1 Employee willfully and continuously fails or refuses to comply with the policies, standards, and regulations of the Company established from time to time; 5.2.2 Employee engages in fraud, dishonesty, or any other act of misconduct in the performance of Employee's duties on behalf of the Company; 5.2.3 Employee is deceased or suffers a permanent disability. For purposes of this Agreement, "permanent disability" shall be defined as Employee's inability, due to illness, accident, or other cause, to perform the majority of Employee's usual duties for a period of three (3) consecutive calendar months or for a period of 120 days (whether or not consecutive) during any 365 day period. 5.3 PRORATION OF BASE COMPENSATION. Upon the termination of employment, the base compensation payable to Employee pursuant to Section 3.1 shall be prorated to the date of such termination, calculated on a calendar year basis. 5.4 INVOLUNTARY TERMINATION DURING FIRST 18 MONTHS. In the even that Employee is involuntarily terminated by Company's president or board of directors during the first eighteen (18) months of this Agreement for reasons other than those specified in Section 5.2 of this Agreement, then and in that event Employee will receive severance pay equal to twelve (12) months' current base salary. SECTION 6. VACATION; ILLNESS 6.1 VACATION. Employee shall be subject to Company's vacation policy for salaried employees with Employee being credited for ten (10) years of service prior to March 1, 1995. 52 6.2 ILLNESS. Subject to Section 5, Employee shall receive full compensation for any period of illness or incapacity during the term of this Agreement. SECTION 7. MISCELLANEOUS PROVISIONS 7.1 BINDING EFFECT. This Agreement shall be binding on and inure to the benefit of the parties and their heirs, personal representatives, successors, and, to the extent permitted by Section 7.2, assigns. 7.2 ASSIGNMENT. Except with the other party's prior written consent, a party may not assign any rights under this Agreement. 7.3 AMENDMENTS. This Agreement may be amended only by an instrument in writing executed by all the parties. 7.4 HEADINGS. The headings used in this Agreement are solely for convenience of reference, are not part of this Agreement, and are not to be considered in construing or interpreting this Agreement. 7.5 ENTIRE AGREEMENT. This Agreement (including the exhibits) sets forth the entire understanding of the parties with respect to the subject matter of this Agreement and supersedes any and all prior understandings and agreements, whether written or oral, between the parties with respect to such subject matter. 7.6 COUNTERPARTS. This Agreement may be executed by the parties in separate counterparts, each of which when executed and delivered shall be an original, but all of which together shall constitute one and the same instrument. 7.7 SEVERABILITY. If any provision of this Agreement shall be invalid or unenforceable in any respect for any reason, the validity and enforceability of any such provision in any other respect and of the remaining provisions of this Agreement shall not be in any way impaired. 7.8 WAIVER. A provision of this Agreement may be waived only by a written instrument executed by the party waiving compliance. No waiver of any provision of this Agreement shall constitute a waiver of any other provision, whether or not similar, nor shall any waiver constitute a continuing waiver. Failure to enforce any provision of this Agreement shall not operate as a waiver of such provision or any other provision. 7.9 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the state of Oregon. 53 7.10 VENUE. This Agreement has been made entirely within the state of Oregon. This Agreement shall be governed by and construed in accordance with the laws of the state of Oregon. If any suit or action is filed by any party to enforce this Agreement or otherwise with respect to the subject matter of this Agreement, venue shall be in the federal or state courts in Linn County, Oregon. 7.11 ARBITRATION. Any controversy or claim arising out of or relating to this Agreement, including, without limitation, the making, performance, or interpretation of this Agreement, shall be settled by arbitration in Albany, Oregon, in accordance with ORS 36.300-36.365, and judgment on the arbitration award may be entered in any court having jurisdiction over the subject matter of the controversy. THE COMPANY: OREGON METALLURGICAL CORPORATION, an Oregon corporation By: ------------------------ President and Chief Executive Officer EMPLOYEE: ---------------------------- John P. Byrne 54 EX-10.7 7 EXHIBIT 10.7 _______________________________________________________________________________ LOAN AND SECURITY AGREEMENT DATED AS OF SEPTEMBER 19, 1994 AMONG OREGON METALLURGICAL CORPORATION, NEW TI, INC. AND BANK OF AMERICA ILLINOIS _______________________________________________________________________________ 55 TABLE OF CONTENTS 1. DEFINITIONS AND OTHER TERMS.. . . . . . . . . . . . . . . . . . . . . . 1 1.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 "Account Debtor. . . . . . . . . . . . . . . . . . . . . . . . . . 1 "Account Receivable" . . . . . . . . . . . . . . . . . . . . . . . 1 "Accounts Receivable Availability" . . . . . . . . . . . . . . . . 1 "Acquisition". . . . . . . . . . . . . . . . . . . . . . . . . . . 1 "Acquisition Documents". . . . . . . . . . . . . . . . . . . . . . 2 "Agreement". . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 "Alternate Reference Rate" . . . . . . . . . . . . . . . . . . . . 2 "Application". . . . . . . . . . . . . . . . . . . . . . . . . . . 2 "Assignee Deposit Account" . . . . . . . . . . . . . . . . . . . . 2 "Attorneys' Fees". . . . . . . . . . . . . . . . . . . . . . . . . 2 "Banking Day". . . . . . . . . . . . . . . . . . . . . . . . . . . 3 "Borrower" and "Borrowers" . . . . . . . . . . . . . . . . . . . . 3 "Borrowing Base" . . . . . . . . . . . . . . . . . . . . . . . . . 3 "Borrowing Base Certificate" . . . . . . . . . . . . . . . . . . . 3 "Capital Expenditures" . . . . . . . . . . . . . . . . . . . . . . 3 "Capitalized Lease". . . . . . . . . . . . . . . . . . . . . . . . 4 "Capitalized Lease Liabilities". . . . . . . . . . . . . . . . . . 4 "Closing Date" . . . . . . . . . . . . . . . . . . . . . . . . . . 4 "Code" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 "Collateral" . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 "Compliance Certificate" . . . . . . . . . . . . . . . . . . . . . 4 "Computer Hardware and Software Property". . . . . . . . . . . . . 4 "Contaminants" . . . . . . . . . . . . . . . . . . . . . . . . . . 5 "Contract Right" . . . . . . . . . . . . . . . . . . . . . . . . . 5 "Copyright Property" . . . . . . . . . . . . . . . . . . . . . . . 5 "Credit" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 "Default Rate" . . . . . . . . . . . . . . . . . . . . . . . . . . 6 "Demand Deposit Account" . . . . . . . . . . . . . . . . . . . . . 6 "Dollars". . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 "Eligible Account Receivable". . . . . . . . . . . . . . . . . . . 6 "Eligible Inventory" . . . . . . . . . . . . . . . . . . . . . . . 9 "Environmental Laws" . . . . . . . . . . . . . . . . . . . . . . . 10 "Environmental Lien" . . . . . . . . . . . . . . . . . . . . . . . 10 "Equipment". . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 "ERISA". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 "ERISA Affiliate". . . . . . . . . . . . . . . . . . . . . . . . . 11 "ESOP" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 "Eurocurrency Reserve Percentage". . . . . . . . . . . . . . . . . 11 "Eurodollar Margin". . . . . . . . . . . . . . . . . . . . . . . . 11 "Eurodollar Rate Revolving Loan" . . . . . . . . . . . . . . . . . 11 "Event of Default" . . . . . . . . . . . . . . . . . . . . . . . . 12 "Fabrication Business" . . . . . . . . . . . . . . . . . . . . . . 12 "Federal Funds Rate" . . . . . . . . . . . . . . . . . . . . . . . 12 "Federal Reserve Board". . . . . . . . . . . . . . . . . . . . . . 12 "Fixtures" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 "GAAP" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 "General Intangibles". . . . . . . . . . . . . . . . . . . . . . . 12 "Grid Ratio" . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 "Guarantee Liability". . . . . . . . . . . . . . . . . . . . . . . 13 "Hazardous Materials". . . . . . . . . . . . . . . . . . . . . . . 13 56 "Indebtedness" . . . . . . . . . . . . . . . . . . . . . . . . . . 13 "Intellectual Property". . . . . . . . . . . . . . . . . . . . . . 14 "Interbank Rate" . . . . . . . . . . . . . . . . . . . . . . . . . 14 "Interbank Rate (Reserve Adjusted)". . . . . . . . . . . . . . . . 14 "Interest Period". . . . . . . . . . . . . . . . . . . . . . . . . 14 "Inventory". . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 "Investment" . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 "Kamyr". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 "L/C Draft". . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 "Lender" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 "Letter of Credit" . . . . . . . . . . . . . . . . . . . . . . . . 15 "Letter of Credit Obligations" . . . . . . . . . . . . . . . . . . 15 "Liabilities". . . . . . . . . . . . . . . . . . . . . . . . . . . 15 "Liabilities to Net Worth Ratio" . . . . . . . . . . . . . . . . . 16 "Lien" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 "Loan" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 "Loan Account" . . . . . . . . . . . . . . . . . . . . . . . . . . 16 "Margin Stock" . . . . . . . . . . . . . . . . . . . . . . . . . . 16 "Material Adverse Effect". . . . . . . . . . . . . . . . . . . . . 16 "Monthly Payment Date" . . . . . . . . . . . . . . . . . . . . . . 16 "Multiemployer Plan" . . . . . . . . . . . . . . . . . . . . . . . 16 "Net Worth". . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 "Note" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 "Obligor". . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 "Occupational Safety and Health Law" . . . . . . . . . . . . . . . 17 "Old TI" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 "Over Advances". . . . . . . . . . . . . . . . . . . . . . . . . . 17 "Overdraft Loan" . . . . . . . . . . . . . . . . . . . . . . . . . 17 "Paddock". . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 "Participant". . . . . . . . . . . . . . . . . . . . . . . . . . . 17 "Patent Property". . . . . . . . . . . . . . . . . . . . . . . . . 17 "PBGC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 "Pension Plan" . . . . . . . . . . . . . . . . . . . . . . . . . . 18 "Pro Forma Balance Sheet". . . . . . . . . . . . . . . . . . . . . 18 "Pro Forma Financial Information". . . . . . . . . . . . . . . . . 18 "Projections". . . . . . . . . . . . . . . . . . . . . . . . . . . 18 "Purchase Agreement" . . . . . . . . . . . . . . . . . . . . . . . 18 "Real Property". . . . . . . . . . . . . . . . . . . . . . . . . . 18 "Reference Rate" . . . . . . . . . . . . . . . . . . . . . . . . . 18 "Reference Rate Margin". . . . . . . . . . . . . . . . . . . . . . 19 "Reference Rate Revolving Loan". . . . . . . . . . . . . . . . . . 19 "Related Agreement". . . . . . . . . . . . . . . . . . . . . . . . 19 "Related Party". . . . . . . . . . . . . . . . . . . . . . . . . . 19 "Release". . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 "Reportable Event" . . . . . . . . . . . . . . . . . . . . . . . . 19 "Revolving Credit Amount". . . . . . . . . . . . . . . . . . . . . 19 "Revolving Loan" . . . . . . . . . . . . . . . . . . . . . . . . . 20 "Revolving Loan Availability". . . . . . . . . . . . . . . . . . . 20 "Shareholders Agreement" . . . . . . . . . . . . . . . . . . . . . 20 "Subordinated Indebtedness Documents". . . . . . . . . . . . . . . 20 "Subordinated Indebtedness". . . . . . . . . . . . . . . . . . . . 20 "Subordination Agreement". . . . . . . . . . . . . . . . . . . . . 20 "Subsidiary" . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 "Supplemental Documentation" . . . . . . . . . . . . . . . . . . . 20 "Taxes". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 57 "Termination Date" . . . . . . . . . . . . . . . . . . . . . . . . 20 "Third Party Collateral" . . . . . . . . . . . . . . . . . . . . . 20 "TI" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 "TI Wire". . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 "TIL UK ". . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 "TI Financial Statements". . . . . . . . . . . . . . . . . . . . . 21 "Trade Secret" . . . . . . . . . . . . . . . . . . . . . . . . . . 21 "Trade Secrets Property" . . . . . . . . . . . . . . . . . . . . . 21 "Trademark". . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 "Trademark Property" . . . . . . . . . . . . . . . . . . . . . . . 21 "UCC". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 "Unmatured Event of Default" . . . . . . . . . . . . . . . . . . . 22 1.2 Other Definitional Provisions. . . . . . . . . . . . . . . . . . . 22 1.3 Interpretation of Agreement. . . . . . . . . . . . . . . . . . . . 23 1.4 Lender's Discretion. . . . . . . . . . . . . . . . . . . . . . . . 23 1.5 Compliance with Financial Restrictions.. . . . . . . . . . . . . . 23 2. LOANS; LETTERS OF CREDIT; OTHER MATTERS.. . . . . . . . . . . . . . . . 23 2.1 Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 2.1.1 Revolving Loans. . . . . . . . . . . . . . . . . . . . . 23 2.1.2 Limitation on Reduction of Revolving Credit Amount.. . . 24 2.1.3 Maximum Outstanding Loans. . . . . . . . . . . . . . . . 24 2.2 Letters of Credit. . . . . . . . . . . . . . . . . . . . . . . . . 24 2.3 Loan Account; Demand Deposit Account.. . . . . . . . . . . . . . . 27 2.4 Interest.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 2.5 Borrowing Procedure. . . . . . . . . . . . . . . . . . . . . . . . 28 2.5.1 Requests for Loans.. . . . . . . . . . . . . . . . . . . 28 2.5.2 Additional Restrictions Pertaining to Eurodollar Rate Revolving Loans. . . . . . . . . . . . . . . . . . . . . 28 2.5.3 Continuation and/or Conversion of Loans. . . . . . . . . 28 2.5.4 Information from Borrowers.. . . . . . . . . . . . . . . 29 2.5.5 Identity of Authorized Officers. . . . . . . . . . . . . 29 2.6 Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 2.7 Overdraft Loans. . . . . . . . . . . . . . . . . . . . . . . . . . 30 2.8 Over Advances. . . . . . . . . . . . . . . . . . . . . . . . . . . 30 2.9 All Loans One Obligation.. . . . . . . . . . . . . . . . . . . . . 31 2.10 Making of Payments; Application of Collections; Charging of Accounts.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 2.11 Lender's Election Not to Enforce.. . . . . . . . . . . . . . . . . 33 2.12 Reaffirmation. . . . . . . . . . . . . . . . . . . . . . . . . . . 33 2.13 Setoff.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 2.14 Closing Fee. . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 2.15 Nonuse Fee.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 3. COLLATERAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 3.1 Grant of Security Interest.. . . . . . . . . . . . . . . . . . . . 34 3.2 Accounts Receivable. . . . . . . . . . . . . . . . . . . . . . . . 36 3.3 Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 3.4 Supplemental Documentation.. . . . . . . . . . . . . . . . . . . . 40 4. REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . . . . . . . 40 4.1 Organization.. . . . . . . . . . . . . . . . . . . . . . . . . . . 41 4.2 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . 41 58 4.3 No Conflicts.. . . . . . . . . . . . . . . . . . . . . . . . . . . 42 4.4 Validity and Binding Effect. . . . . . . . . . . . . . . . . . . . 42 4.5 No Default.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 4.6 Financial Statements.. . . . . . . . . . . . . . . . . . . . . . . 43 4.7 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 4.8 Litigation; Contingent Liabilities.. . . . . . . . . . . . . . . . 44 4.9 Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 4.10 Subsidiaries.. . . . . . . . . . . . . . . . . . . . . . . . . . . 45 4.11 Partnerships.. . . . . . . . . . . . . . . . . . . . . . . . . . . 45 4.12 Business Locations.. . . . . . . . . . . . . . . . . . . . . . . . 45 4.13 Real Property. . . . . . . . . . . . . . . . . . . . . . . . . . . 46 4.14 Eligibility of Collateral. . . . . . . . . . . . . . . . . . . . . 46 4.15 Control of Collateral; Lease of Property.. . . . . . . . . . . . . 46 4.16 Intellectual Property; Licenses. . . . . . . . . . . . . . . . . . 46 4.17 Solvency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 4.18 Contracts; Labor Matters.. . . . . . . . . . . . . . . . . . . . . 48 4.19 Pension and Welfare Plans. . . . . . . . . . . . . . . . . . . . . 48 4.20 Regulation U.. . . . . . . . . . . . . . . . . . . . . . . . . . . 49 4.21 Compliance.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 4.22 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 4.23 Investment Company Act Representation. . . . . . . . . . . . . . . 49 4.24 Public Utility Holding Company Act Representation. . . . . . . . . 49 4.25 Environmental and Safety and Health Matters. . . . . . . . . . . . 49 4.26 Related Agreements.. . . . . . . . . . . . . . . . . . . . . . . . 52 5. BORROWER COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . 52 5.1 Financial Statements and Other Reports.. . . . . . . . . . . . . . 52 5.1.1 Financial Reports: . . . . . . . . . . . . . . . . . . . 52 (a) Annual Audit Report. . . . . . . . . . . . . . . . . . . 52 (b) Quarterly Financial Statement. . . . . . . . . . . . . . 52 (c) Monthly Financial Statement. . . . . . . . . . . . . . . 53 (d) Annual Budget and Business Plan. . . . . . . . . . . . . 53 (e) Officer's Certificate. . . . . . . . . . . . . . . . . . 53 (f) Management Letters . . . . . . . . . . . . . . . . . . . 53 5.1.2. Borrowing Base Certificate.. . . . . . . . . . . . . . . . 54 5.1.3 Agings.. . . . . . . . . . . . . . . . . . . . . . . . . 54 5.1.4 Inventory Certification. . . . . . . . . . . . . . . . . 54 5.1.5 Other Reports: . . . . . . . . . . . . . . . . . . . . . 54 (a) SEC and Other Reports. . . . . . . . . . . . . . . . . . 54 (b) Report of Change in Subsidiaries or Partnerships . . . . 54 (c) Intellectual Property. . . . . . . . . . . . . . . . . . 54 (d) Other Reports. . . . . . . . . . . . . . . . . . . . . . 54 5.2 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 (a) Default.. . . . . . . . . . . . . . . . . . . . . . . . . . . 55 (b) Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . 55 (c) Judgments.. . . . . . . . . . . . . . . . . . . . . . . . . . 55 (d) Pension Plans and Welfare Plans.. . . . . . . . . . . . . . . 55 (e) Change in Collateral Locations. . . . . . . . . . . . . . . . 55 (f) Change in Place(s) of Business. . . . . . . . . . . . . . . . 56 (g) Change of Name. . . . . . . . . . . . . . . . . . . . . . . . 56 (h) Environmental and Safety and Health Matters.. . . . . . . . . 56 (i) Material Adverse Change . . . . . . . . . . . . . . . . . . . 56 (j) Default by Others.. . . . . . . . . . . . . . . . . . . . . . 56 59 (k) Moveable Collateral.. . . . . . . . . . . . . . . . . . . . . 56 (l) Change in Management or Line(s) of Business.. . . . . . . . . 57 (m) Changes to Other Agreements.. . . . . . . . . . . . . . . . . 57 (n) Other Notices.. . . . . . . . . . . . . . . . . . . . . . . . 57 5.3 Existence. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 5.4 Nature of Business.. . . . . . . . . . . . . . . . . . . . . . . . 57 5.5 Books, Records and Access. . . . . . . . . . . . . . . . . . . . . 57 5.6 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 5.7 Insurance Survey.. . . . . . . . . . . . . . . . . . . . . . . . . 58 5.8 Repair.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 5.9 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 5.10 Compliance.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 5.11 Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . 59 5.12 Pension Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . 59 5.13 Merger, Purchase and Sale. . . . . . . . . . . . . . . . . . . . . 60 5.14 Restricted Payments. . . . . . . . . . . . . . . . . . . . . . . . 60 5.15 Borrowers' and Subsidiaries' Stock.. . . . . . . . . . . . . . . . 61 5.16 Indebtedness.. . . . . . . . . . . . . . . . . . . . . . . . . . . 61 5.17 Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 5.18 Guaranties.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 5.19 Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 5.20 Subsidiaries.. . . . . . . . . . . . . . . . . . . . . . . . . . . 63 5.21 Leases.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 5.22 Change in Accounts Receivable. . . . . . . . . . . . . . . . . . . 64 5.23 Related Agreements.. . . . . . . . . . . . . . . . . . . . . . . . 64 5.24 Unconditional Purchase Options.. . . . . . . . . . . . . . . . . . 64 5.25 Transactions with Related Parties. . . . . . . . . . . . . . . . . 64 6. DEFAULT.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 6.1 Event of Default.. . . . . . . . . . . . . . . . . . . . . . . . . 64 (a) Non-Payment.. . . . . . . . . . . . . . . . . . . . . . . . . 64 (b) Non-Payment of Other Indebtedness.. . . . . . . . . . . . . . 64 (c) Acceleration of Other Indebtedness. . . . . . . . . . . . . . 65 (d) Other Obligations.. . . . . . . . . . . . . . . . . . . . . . 65 (e) Insolvency. . . . . . . . . . . . . . . . . . . . . . . . . . 65 (f) Pension Plans.. . . . . . . . . . . . . . . . . . . . . . . . 66 (g) Non-Compliance With This Agreement. . . . . . . . . . . . . . 66 (h) Non-Compliance With Related Agreements. . . . . . . . . . . . 66 (i) Warranty. . . . . . . . . . . . . . . . . . . . . . . . . . . 67 (j) Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . 67 (k) Validity. . . . . . . . . . . . . . . . . . . . . . . . . . . 67 (l) Conduct of Business.. . . . . . . . . . . . . . . . . . . . . 67 (m) Ownership.. . . . . . . . . . . . . . . . . . . . . . . . . . 68 (n) Material Adverse Change.. . . . . . . . . . . . . . . . . . . 68 6.2 Effect of Event of Default; Remedies.. . . . . . . . . . . . . . . 68 7. ADDITIONAL PROVISIONS REGARDING COLLATERAL AND LENDER'S RIGHTS. . . . . 69 7.1 Notice of Disposition of Collateral. . . . . . . . . . . . . . . . 69 7.2 Application of Proceeds of Collateral. . . . . . . . . . . . . . . 69 7.3 Care of Collateral.. . . . . . . . . . . . . . . . . . . . . . . . 69 7.4 Performance of Borrowers' Obligations. . . . . . . . . . . . . . . 70 7.5 Lender's Rights. . . . . . . . . . . . . . . . . . . . . . . . . . 70 60 8. CONDITIONS PRECEDENT; DELIVERY OF DOCUMENTS AND OTHER MATTERS.. . . . . 71 8.1 Conditions Precedent to Initial Loans. . . . . . . . . . . . . . . 71 8.1.1 Acquisition. . . . . . . . . . . . . . . . . . . . . . . 71 8.1.2 Audit. . . . . . . . . . . . . . . . . . . . . . . . . . 71 8.1.3 Security Interest. . . . . . . . . . . . . . . . . . . . 72 8.1.4 Solvency.. . . . . . . . . . . . . . . . . . . . . . . . 72 8.1.5 Loan Availability. . . . . . . . . . . . . . . . . . . . 72 8.1.6 Equity Investment in TI. . . . . . . . . . . . . . . . . 72 8.1.7 Blocked Account; Lock Box. . . . . . . . . . . . . . . . 72 8.1.8 Effect of Law. . . . . . . . . . . . . . . . . . . . . . 72 8.1.9 Exhibits; Schedules. . . . . . . . . . . . . . . . . . . 73 8.1.10 Fees.. . . . . . . . . . . . . . . . . . . . . . . . . . 73 8.1.11 Documents. . . . . . . . . . . . . . . . . . . . . . . . 73 (a) Resolutions. . . . . . . . . . . . . . . . . . . . . . . 73 (b) Incumbency Certificate.. . . . . . . . . . . . . . . . . 73 (c) Certificate. . . . . . . . . . . . . . . . . . . . . . . 73 (d) Accountant's Letter. . . . . . . . . . . . . . . . . . . 73 (e) Bylaws . . . . . . . . . . . . . . . . . . . . . . . . . 74 (f) Articles.. . . . . . . . . . . . . . . . . . . . . . . . 74 (g) Registration; Good Standing. . . . . . . . . . . . . . . 74 (h) Legal Opinions.. . . . . . . . . . . . . . . . . . . . . 74 (i) Insurance. . . . . . . . . . . . . . . . . . . . . . . . 74 (j) Disbursement Letter.. . . . . . . . . . . . . . . . . . . 74 (k) Subordination Agreement. . . . . . . . . . . . . . . . . 74 (l) Other Documents. . . . . . . . . . . . . . . . . . . . . 74 8.2 Continuing Conditions Precedent to all Loans and Letters of Credit; Certification. . . . . . . . . . . . . . . . . . . . . . . 74 (a) No Change in Condition. . . . . . . . . . . . . . . . . . . . 75 (b) Default.. . . . . . . . . . . . . . . . . . . . . . . . . . . 75 (c) Insurance.. . . . . . . . . . . . . . . . . . . . . . . . . . 75 (d) Warranties. . . . . . . . . . . . . . . . . . . . . . . . . . 75 (e) No Material Transaction.. . . . . . . . . . . . . . . . . . . 75 (f) Accounting Methods. . . . . . . . . . . . . . . . . . . . . . 75 9. INDEMNITY.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 9.1. Environmental and Safety and Health Indemnity. Each . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 9.2 General Indemnity. . . . . . . . . . . . . . . . . . . . . . . . . 76 9.3 Capital Adequacy.. . . . . . . . . . . . . . . . . . . . . . . . . 77 9.4 Eurodollar Rate Revolving Loans. . . . . . . . . . . . . . . . . . 77 9.4.1 Eurodollar Rate Lending Unlawful.. . . . . . . . . . . . 77 9.4.2 Deposits Unavailable.. . . . . . . . . . . . . . . . . . 78 9.4.3 Increased Eurodollar Rate Revolving Loan Costs, etc. . . 78 9.4.4 Funding Losses.. . . . . . . . . . . . . . . . . . . . . 78 9.4.5 Funding. . . . . . . . . . . . . . . . . . . . . . . . . 79 9.5 Payment of Indemnity Amounts.. . . . . . . . . . . . . . . . . . . 79 10. ADDITIONAL PROVISIONS.. . . . . . . . . . . . . . . . . . . . . . . . . 79 11. GENERAL.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 11.1 Borrower Waiver.. . . . . . . . . . . . . . . . . . . . . . . 79 11.2 Power of Attorney.. . . . . . . . . . . . . . . . . . . . . . 80 11.3 Expenses; Attorneys' Fees.. . . . . . . . . . . . . . . . . . 81 61 11.4 Lender Fees and Charges.. . . . . . . . . . . . . . . . . . . 81 11.5 Lawful Interest.. . . . . . . . . . . . . . . . . . . . . . . 82 11.6 No Waiver by Lender; Amendments.. . . . . . . . . . . . . . . 82 11.7 Termination of Credit.. . . . . . . . . . . . . . . . . . . . 82 11.8 Notices.. . . . . . . . . . . . . . . . . . . . . . . . . . . 83 11.9 Assignments and Participations; Information.. . . . . . . . . 83 11.10 Severability. . . . . . . . . . . . . . . . . . . . . . . . . 83 11.11 Successors. . . . . . . . . . . . . . . . . . . . . . . . . . 83 11.12 Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . 84 11.13 Execution in Counterparts.. . . . . . . . . . . . . . . . . . 84 11.14 Construction. . . . . . . . . . . . . . . . . . . . . . . . . 84 11.15 Consent to Jurisdiction.. . . . . . . . . . . . . . . . . . . 84 11.16 Subsidiary Reference. . . . . . . . . . . . . . . . . . . . . 84 11.17 WAIVER OF JURY TRIAL. . . . . . . . . . . . . . . . . . . . . 85 SUPPLEMENT A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1. LOAN AGREEMENT REFERENCE.. . . . . . . . . . . . . . . . . . . . . 1 2. REVOLVING CREDIT AMOUNTS; BORROWING BASE.. . . . . . . . . . . . . 1 2.1 Revolving Credit Amounts. . . . . . . . . . . . . . . . . . . 1 2.2 Borrowing Bases.. . . . . . . . . . . . . . . . . . . . . . . 1 2.3 Lender's Rights.. . . . . . . . . . . . . . . . . . . . . . . 2 3. INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 3.1 Revolving Loans.. . . . . . . . . . . . . . . . . . . . . . . 2 3.1.1 Interest to Maturity. . . . . . . . . . . . . . . . 2 3.1.2 DEFAULT RATE. . . . . . . . . . . . . . . . . . . . 3 3.2 Overdraft Loans; Over Advances. . . . . . . . . . . . . . . . 3 3.3 Computation.. . . . . . . . . . . . . . . . . . . . . . . . . 3 3.4 Payment.. . . . . . . . . . . . . . . . . . . . . . . . . . . 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 4. ADDITIONAL COVENANTS.. . . . . . . . . . . . . . . . . . . . . . . 3 4.2 Net Worth.. . . . . . . . . . . . . . . . . . . . . . . . . . 4 4.5 Capital Expenditures. . . . . . . . . . . . . . . . . . . . . 4 4.4 Interest Coverage.. . . . . . . . . . . . . . . . . . . . . . 5 62 EXHIBITS Exhibit A - Form of Borrowing Base Certificate Exhibit B - Pro Forma Balance Sheet of TI Exhibit C - Projections Exhibit D - Form of Compliance Certificate Exhibit E - Form of Loss Payable Endorsement 63 SCHEDULES Schedule 4.1 - Jurisdictions of Formation; States in Which Qualified; Trade Names, Etc. Schedule 4.7 - Insurance Schedule 4.8 - Litigation; Contingent Liabilities Schedule 4.9 - Existing Liens Schedule 4.10 - Subsidiaries Schedule 4.11 - Partnerships; Joint Ventures Schedule 4.12 - Places of Business; Locations of Books and Records Schedule 4.13 - Real Property Schedule 4.15 - Leased Property Schedule 4.16 - Intellectual Property Schedule 4.18 - Contracts; Labor Matters Schedule 4.19 - ERISA Matters Schedule 4.25 - Environmental and Safety and Health Matters Schedule 5.16 - Indebtedness Sshedule 5.19 - Investments in Subsidiaries 64 LOAN AND SECURITY AGREEMENT THIS AGREEMENT ("AGREEMENT") is made as of the 19th day of September, 1994 by and among BANK OF AMERICA ILLINOIS, an Illinois banking corporation having its principal office at 231 South LaSalle Street, Chicago, Illinois 60697 ("LENDER"), OREGON METALLURGICAL CORPORATION, an Oregon corporation ("OREMET") and NEW TI, INC., an Oregon corporation ("TI") (OREMET and TI being sometimes hereinafter referred to, individually, as a "BORROWER" and, collectively, as "BORROWERS"). W I T N E S S E T H: WHEREAS, each of the Borrowers may, from time to time, request loans or other financial accommodations from Lender, and the parties wish to provide for the terms and conditions upon which such loans or other financial accommodations shall be made; NOW, THEREFORE, in consideration of any loan or advance or grant of credit (including any loan or advance or grant of credit by renewal or extension) hereafter made to each of the Borrowers by Lender, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. DEFINITIONS AND OTHER TERMS. 1.1 DEFINITIONS. In addition to terms defined elsewhere in this Agreement or any Supplement or Exhibit hereto, when used herein, the following terms shall have the following meanings (such meanings shall be equally applicable to the singular and plural forms of the terms used, as the context requires): "ACCOUNT DEBTOR" means, with respect to each Borrower, any Person who is or who may become obligated to such Borrower under, with respect to, or on account of any Account Receivable, Contract Right, General Intangible or other Collateral, in each case of such Borrower. "ACCOUNT RECEIVABLE" means, with respect to each Borrower, any account of such Borrower and any other right of such Borrower to payment for goods sold or leased or for services rendered, whether or not evidenced by an instrument or chattel paper and whether or not yet earned by performance. "ACCOUNTS RECEIVABLE AVAILABILITY" has, with respect to each Borrower, the meaning ascribed to such term in SUPPLEMENT A. "ACQUISITION" means the acquisition of certain assets of Old TI and Ti-Titanium Limited, a wholly-owned Canadian subsidiary of Old TI ("TI LIMITED"), and the assumption of certain liabilities of Old TI and Ti Limited, in each case by TI pursuant to the Purchase Agreement. 65 "ACQUISITION DOCUMENTS" means, collectively, (i) the Purchase Agreement, (ii) that certain Agreement of even date herewith between Kamyr and OREMET, (iii) that certain Environmental Agreement of even date herewith between Kamyr and TI, (iv) that certain Guarantee of even date herewith, executed by Ahlstrom Kamyr, Inc., a New York corporation, in favor of TI, (v) that certain Preferred Supplier Agreement of even date herewith between TI and Old TI, (vi) the Shareholders Agreement and (vii) all other agreements, documents and instruments executed and/or delivered by either or both of the Borrowers, Kamyr, Old TI or any other Person, in each case pursuant thereto or in connection therewith. "AGREEMENT" means this Loan and Security Agreement, as it may be amended, restated, supplemented or otherwise modified from time to time. "ALTERNATE REFERENCE RATE" means, on any date and with respect to any Reference Rate Revolving Loans, a fluctuating rate of interest per annum (rounded upward to the nearest 0.125% if not already an integral multiple of 0.125%) equal to the higher of (a) the rate of interest most recently announced by Lender as its Reference Rate; and (b) the Federal Funds Rate most recently determined by Lender PLUS 0.50%. The Alternate Reference Rate is not necessarily intended to be the lowest rate of interest determined by Lender in connection with extensions of credit. For purposes of this Agreement (i) any change in the Alternate Reference Rate due to a change in the Reference Rate shall be effective on the date such change in the Reference Rate is announced and (ii) any change in the Alternate Reference Rate due to a change in the Federal Funds Rate shall be effective on the effective date of such change in the Federal Funds Rate. If for any reason Lender shall have determined (which determination shall be conclusive in the absence of manifest error) that it is unable to ascertain the Federal Funds Rate for any reason, including, without limitation, the inability or failure of Lender to obtain sufficient bids or publications in accordance with the terms hereof, the Alternate Reference Rate shall be the Reference Rate until the circumstances giving rise to such inability no longer exist. Lender will give notice promptly to each of the Borrowers of changes in the Alternate Reference Rate. "APPLICATION" means, with respect to each Borrower, an application by such Borrower, in a form and containing terms and provisions acceptable to Lender, for the issuance by Lender of a Letter of Credit for the account of such Borrower. "ASSIGNEE DEPOSIT ACCOUNT" has, with respect to each Borrower, the meaning ascribed to such term in SECTION 3.2(d). "ATTORNEYS' FEES" means the reasonable value of the services (and costs, charges and expenses related thereto) of the attorneys (and all paralegals, secretaries, accountants and other staff employed by such attorneys) employed by Lender (including but not limited to attorneys and paralegals who are employees of 66 Lender) from time to time (i) in connection with the negotiation, preparation, execution, delivery, administration and enforcement of this Agreement, any Related Agreement and all other agreements, documents or instruments provided for herein or therein or delivered or to be delivered hereunder or thereunder or in connection herewith or therewith, (ii) to prepare documentation related to the Loans made and other Liabilities of either or both of the Borrowers incurred hereunder, (iii) to prepare any amendment to or waiver under this Agreement or any Related Agreement and any agreements, documents or instruments related hereto or thereto, (iv) to represent Lender in any litigation, contest, dispute, suit or proceeding or to commence, defend or intervene in any litigation, contest, dispute, suit or proceeding or to file a petition, complaint, answer, motion or other pleading, or to take any other action in or with respect to, any litigation, contest, dispute, suit or proceeding (whether instituted by Lender, either or both of the Borrowers or any other Person and whether in bankruptcy or otherwise) in any way or respect relating to the Collateral or Third Party Collateral, in each case of either of the Borrowers, this Agreement or any Related Agreement, or the affairs of either of the Borrowers or any other Obligor or any Subsidiary of either of the Borrowers, (v) to protect, collect, lease, sell, take possession of, or liquidate any of the Collateral or any Third Party Collateral, in each case of either of the Borrowers, (vi) to attempt to enforce any security interest in any of the Collateral or any Third Party Collateral, in each case of either of the Borrowers, or to give any advice with respect to such enforcement, and (vii) to enforce any of Lender's rights to collect any of the Liabilities of either or both of the Borrowers. "BANKING DAY" means any day other than (a) a Saturday, (b) a Sunday or (c) a legal holiday on which banks are authorized or required to be closed for the conduct of commercial banking business in Chicago, Illinois and, with respect to Eurodollar Rate Revolving Loans, on which dealings in foreign currencies and exchange may be carried on by banks in the interbank eurodollar market. "BORROWER" AND "BORROWERS" have the respective meanings ascribed to such terms in the Preamble. "BORROWING BASE" has, with respect to each Borrower, the meaning ascribed to such term in SUPPLEMENT A. "BORROWING BASE CERTIFICATE" means a document substantially in the form of EXHIBIT A hereto, with appropriate insertions, or such other form as shall be acceptable to Lender, as it may be amended or modified from time to time. "CAPITAL EXPENDITURES" means, for any period for any Person, the sum of (a) the aggregate amount of all expenditures of such Person for fixed or capital assets made during such period which, in accordance with GAAP, would be classified as capital expenditures and (b) the aggregate amount of all Capitalized Lease Liabilities of such Person incurred during such period. 67 "CAPITALIZED LEASE" means any lease which is or should be capitalized on the balance sheet of the lessee in accordance with GAAP and/or pursuant to the Code. "CAPITALIZED LEASE LIABILITIES" means, with respect to any Person, all monetary obligations of such Person under any Capitalized Leases, and, for purposes of this Agreement and each Related Agreement, the amount of such obligations shall be the capitalized amount thereof, determined in accordance with GAAP, and the stated maturity thereof shall be the date of the last payment of rent or any other amount due under such Capitalized Lease prior to the first date upon which such Capitalized Lease may be terminated by the lessee without payment of a penalty. "CLOSING DATE" means the date the initial Loans are made under this Agreement. "CODE" means the Internal Revenue Code of 1986, as amended, and any successor statute of similar import, together with the regulations thereunder, in each case as in effect from time to time. References to sections of the Code shall be construed to also refer to any successor sections. "COLLATERAL" has, with respect to each Borrower, the meaning ascribed to such term in SECTION 3.1. "COMPLIANCE CERTIFICATE" has the meaning ascribed to such term in SECTION 5.1.1(e). "COMPUTER HARDWARE AND SOFTWARE PROPERTY" means, with respect to any Person: (a) all of such Person's: computer and other electronic data processing hardware, integrated computer systems, central processing units, memory units, display terminals, printers, features, computer elements, card readers, tape drives, hard and soft disk drives, cables, electrical supply hardware, generators, power equalizers, accessories and all peripheral devices and other related computer hardware; (b) all of such Person's: software programs (including both source code, object code and all related applications and data files), whether now owned, licensed or leased or hereafter acquired by such Person, designed for use on the computers and electronic data processing hardware described in CLAUSE (a) of this definition; (c) all firmware of such Person associated with the property described in CLAUSES (a) AND (b) of this definition; (d) all documentation (including flow charts, logic diagrams, manuals, guides and specifications) with respect to the hardware, software and firmware described in the preceding CLAUSES (a) THROUGH (c) of this definition; and 68 (e) all rights with respect to all of the foregoing, including without limitation, any and all copyrights, licenses, options, warranties, service contracts, program services, test rights, maintenance rights, support rights, improvement rights, renewal rights and indemnifications and any substitutions, replacements, additions or model conversions of any of the foregoing. "CONTAMINANTS" means any waste, pollutant, hazardous substance, toxic substance, hazardous waste, petroleum or petroleum-derived substance or waste, or any constituent of any such substance or waste. "CONTRACT RIGHT" means, with respect to each Borrower, any right of such Borrower to payment under a contract, which right is not yet earned by performance and not evidenced by an instrument or chattel paper. "COPYRIGHT PROPERTY" means, with respect to any Person: (a) all of such Person's copyrights (including, without limitation, copyrights for semi-conductor chip product mask works), whether registered or unregistered, now or hereafter in force throughout the world, including, without limitation, all of such Person's right, title and interest in and to all copyrights registered in the United States Copyright Office or anywhere else in the world and also including, without limitation, the copyrights referred to in PART A-1 of SCHEDULE 4.16 and all applications for registration thereof, whether pending or in preparation, and all copyrights arising from such applications, (b) all extensions and renewals of any of the above, (c) all copyright licenses and other agreements providing such Person with the right to use any of the types of items referred to in CLAUSES (a) and (b) of this definition, including, without limitation, the copyright licenses referred to in PART A-2 of SCHEDULE 4.16, (d) the right to sue for past, present and future infringements with respect to the Copyright Property described in CLAUSES (a) and (b) of this definition and, to the extent applicable, CLAUSE (c) of this definition, and (e) all proceeds of the foregoing, including, without limitation, licenses, royalties, income, payments, claims by such Person against third parties for past, present or future infringements with respect to the Copyright Property described in CLAUSE (a) of this definition and, to the extent applicable, CLAUSE (b) of this definition, and all rights corresponding thereto throughout the world. "CREDIT" means, with respect to each Borrower, the facility established for such Borrower under this Agreement 69 pursuant to which Lender will make Revolving Loans to such Borrower or issue Letters of Credit for the account of such Borrower. "DEFAULT RATE" means, with respect to a Loan, the rate of interest which is applicable to such Loan after any amount thereof is not paid when due, whether by acceleration or otherwise, as determined pursuant to SUPPLEMENT A. "DEMAND DEPOSIT ACCOUNT" has, with respect to each Borrower, the meaning ascribed to such term in SECTION 2.3. "DOLLARS" and the sign "$" mean lawful money of the United States of America. "ELIGIBLE ACCOUNT RECEIVABLE" means, with respect to each Borrower, an Account Receivable owing to such Borrower which meets the following requirements: (1) it is genuine and in all respects what it purports to be; (2) it arises from either (a) the performance of services by such Borrower, which services have been fully performed and, if applicable, acknowledged and/or accepted by the Account Debtor with respect thereto; or (b) the sale or lease of goods by such Borrower; and if it arises from the sale or lease of goods, (i) such goods comply with such Account Debtor's specifications (if any) and have been shipped to, or delivered to and accepted by, such Account Debtor, and (ii) such Borrower has possession of, or if requested by Lender has delivered to Lender, shipping and delivery receipts evidencing such shipment, delivery and acceptance; (3) it (a) is evidenced by an invoice rendered to the Account Debtor with respect thereto which (i) is dated not earlier than the date of shipment or performance, and (ii) has payment terms not unacceptable to Lender and (b) meets the Eligible Account Receivable requirements, if any, set forth in SUPPLEMENT A; (4) it is not subject to any assignment, claim or Lien, other than (i) a Lien in favor of Lender and (ii) a lien in favor of "Junior Lender" (as defined in the Subordination Agreement), granted pursuant to the Subordinated Indebtedness Documents and securing Subordinated Indebtedness; (5) it is subject to a first and valid fully perfected security interest in favor of Lender; (6) it is a valid, legally enforceable and unconditional obligation of the Account Debtor with respect thereto, and is not subject to setoff, counterclaim, credit or allowance (except any credit or allowance which has been deducted in computing the net amount of the applicable invoice as shown in the original schedule or Borrowing Base Certificate furnished 70 to Lender identifying or including such Account Receivable) or adjustment by the Account Debtor with respect thereto, or to any claim by such Account Debtor denying liability thereunder in whole or in part, and such Account Debtor has not refused to accept any of the goods or services which are the subject of such Account Receivable or offered or attempted to return any of such goods; (7) there are no proceedings or actions which are then threatened or pending against the Account Debtor with respect thereto or to which such Account Debtor is a party which might result in any material adverse change in such Account Debtor's financial condition or in its ability to pay any Account Receivable in full when due; (8) it does not arise out of a contract or order which, by its terms, forbids, restricts or makes void or unenforceable the assignment by such Borrower to Lender of the Account Receivable arising with respect thereto; (9) the Account Debtor with respect thereto is not a Subsidiary of such Borrower, a Related Party or an Obligor, or a director, officer, employee or agent of such Borrower, a Subsidiary of such Borrower, a Related Party or an Obligor; (10) except as otherwise previously approved in writing by Lender, the Account Debtor with respect thereto is a resident or citizen of, and is located within, the United States of America, unless the applicable Account Debtor has supplied such Borrower with an irrevocable letter of credit with respect thereto, issued by a financial institution reasonably satisfactory to Lender, sufficient to cover such Account Receivable and in form and substance satisfactory to Lender, and such Borrower has delivered such letter of credit to Lender pursuant to SECTION 3.2(g); (11) it is not an Account Receivable arising from a "sale on approval," "sale or return" or "consignment," or subject to any other repurchase or return agreement; (12) it is not an Account Receivable with respect to which possession and/or control of the goods sold giving rise thereto is held, maintained or retained by such Borrower or any Subsidiary of such Borrower, any Related Party or any Obligor (or by any agent or custodian of such Borrower, any Subsidiary of such Borrower, any Related Party or any Obligor) for the account of or subject to further and/or future direction from the Account Debtor thereof; (13) it is not an Account Receivable which in any way fails to meet or violates any warranty, representation or covenant contained in this Agreement or any Related Agreement relating directly or indirectly to such Borrower's Accounts Receivable; 71 (14) the Account Debtor thereunder is not located in the States of West Virginia, New Jersey or Minnesota, respectively, provided, however, that such restriction shall not apply if (a) such Borrower has filed and has effective a Notice of Business Activities Report with the appropriate office or agency of the State of West Virginia, New Jersey or Minnesota, as applicable, for the then current year, or (b) such Borrower is exempt from the filing of such Report and has provided Lender with satisfactory evidence thereof; (15) it arises in the ordinary course of such Borrower's business; (16) if the Account Debtor is the United States of America or any department, agency or instrumentality thereof, Borrower has assigned its right to payment of such Account Receivable to Lender pursuant to the Assignment of Claims Act of 1940, as amended; (17) if Lender in its sole and absolute discretion has established a credit limit for an Account Debtor, the aggregate dollar amount of Accounts Receivable due from such Account Debtor, including such Account Receivable, does not exceed such credit limit; and (18) if the Account Receivable is evidenced by chattel paper or an instrument, (a) Lender shall have specifically agreed in writing to include such Account Receivable as an Eligible Account Receivable of such Borrower, (b) only payments then due and payable under such chattel paper or instrument shall be included as an Eligible Account Receivable of such Borrower, and (c) the originals of such chattel paper or instruments have been endorsed and/or assigned and delivered to Lender in a manner satisfactory to Lender; (19) it is due and payable in full within thirty (30) days of the date of the invoice evidencing such Account Receivable and is not unpaid on the date that is seventy-five (75) days after the date of such invoice; and (20) the Account Debtor thereunder is not an Account Debtor with respect to which invoices representing twenty percent (20%) or more of the unpaid net amount of all Accounts Receivable therefrom are unpaid more than seventy-five (75) days after the respective dates of such invoices. An Account Receivable of a Borrower which is at any time an Eligible Account Receivable of such Borrower, but which subsequently fails to meet any of the foregoing requirements, shall forthwith cease to be an Eligible Account Receivable of such Borrower. Further, with respect to any Account Receivable of either of the Borrowers, if Lender at any time or times hereafter determines in its sole and absolute discretion that the prospect of payment or performance by the Account Debtor with respect thereto is or will be impaired for any reason whatsoever, notwithstanding 72 anything to the contrary contained above, such Account Receivable shall forthwith cease to be an Eligible Account Receivable of such Borrower. "ELIGIBLE INVENTORY" means, with respect to each Borrower, Inventory of such Borrower which meets the following requirements: (1) it is owned by such Borrower, and is not subject to any prior assignment, claim or Lien, other than a Lien in favor of Lender; (2) if held for sale or lease or furnishing under contracts of service, it is (except as Lender may otherwise consent in writing) new and unused; (3) it is subject to a first and valid fully perfected security interest in favor of Lender; (4) it is (a) in the possession and control of such Borrower and (b) is not stored on premises leased by such Borrower; if not in such Borrower's possession and control, or if stored on premises leased by such Borrower, Lender shall be in possession of such agreements, instruments and documents as Lender may require, each in form and content acceptable to Lender and duly executed, as appropriate, by the owner of the premises leased by such Borrower or the bailee, warehouseman, processor or other Person in possession or control of such Inventory, as applicable; (5) it is not Inventory which is dedicated to or, identifiable with, or is otherwise specifically to be used in the manufacture of, goods which are to be sold or leased to the United States of America or any department, agency or instrumentality thereof and in respect of which Inventory, such Borrower shall have received any progress or other advance payment which is or may be credited or set off against any Account Receivable of such Borrower generated upon the sale or lease of any such goods; (6) it is not Inventory produced in violation of the Fair Labor Standards Act and subject to the "hot goods" provisions contained in Title 29 U.S.C. Section 215 or any successor statute or section; (7) it is not Inventory bearing a service mark, trademark or name of any Person other than such Borrower, or such other Persons as shall be reasonably acceptable to Lender, or with respect to which the use by such Borrower or the manufacture or sale thereof by such Borrower, or the sale or disposition thereof by Lender, is or would be subject to any licensing, patent, royalty, trademark, trade name or copyright agreement with any Person other than such Borrower; PROVIDED, HOWEVER, that Inventory shall not be deemed ineligible solely by reason of this clause (7), to the extent 73 that the applicable service mark, trademark, name or agreement does not restrict or otherwise interfere in any material respect with the manufacture or sale thereof by such Borrower, or the sale or disposition thereof by Lender; (8) it is not (1) packaging, packing or shipping materials, (2) goods used in connection with maintenance or repair of such Borrower's business, properties or assets or (3) general supplies; (9) Lender has determined in its sole and absolute discretion that it is not unacceptable due to age, type, category, quality and/or quantity; (10) it is not Inventory which in any way fails to meet or violates any warranty, representation or covenant contained in this Agreement or any Related Agreement relating directly or indirectly to such Borrower's Inventory; (11) it is not subject to any claim or Lien, other than (i) a Lien in favor of Lender and (ii) a Lien in favor of "Junior Lender" (as defined in the Subordination Agreement), granted pursuant to the Subordination Indebtedness Documents and securing Subordinated Indebtedness; and (12) it satisfies the Eligible Inventory Requirements, if any, set forth in SUPPLEMENT A. Inventory of a Borrower which is at any time Eligible Inventory of such Borrower but which subsequently fails to meet any of the foregoing requirements shall forthwith cease to be Eligible Inventory of such Borrower. "ENVIRONMENTAL LAWS" means the Resource Conservation and Recovery Act, 42 U.S.C. section 690, ET SEQ., the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, any so-called "Superfund" or "Superlien" law, the Toxic Substances Control Act, and any successor statute of similar import, together with the regulations thereunder, in each case as in effect from time to time, and any other federal, state or local statute, law, ordinance, code, rule, regulation, guideline, order or decree, or other requirement (whether or not having the force of law) regulating, relating to, or imposing liability or standards of conduct (including, but not limited to, permit requirements, and emission or effluent restrictions) concerning any Hazardous Materials or any hazardous, toxic or dangerous waste, substance or constituent, or any pollutant or contaminant or other substance, whether solid, liquid or gas, or otherwise relating to public health and safety and/or protection of the environment, as now or at any time hereafter in effect. References to sections of any such statute shall be construed to also refer to any successor sections. "ENVIRONMENTAL LIEN" means a Lien in favor of any federal, state or local governmental entity or agency for (1) any 74 liability under any Environmental Law or (2) damages arising from or costs incurred by such governmental entity or agency relating to a spillage, disposal, Release or threatened Release into the environment of any Hazardous Material or other hazardous, toxic or dangerous waste, substance or constituent, or any pollutant or contaminant or other substance, whether solid, liquid or gas. "EQUIPMENT" means, with respect to each Borrower, all equipment of such Borrower of every description, including, without limitation, fixtures, furniture, vehicles and trade fixtures, together with any and all accessions, parts and equipment attached thereto or used in connection therewith, and any substitutions therefor and replacements thereof. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and any successor statute of similar import, together with the regulations thereunder, in each case as in effect from time to time. References to sections of ERISA shall be construed to also refer to any successor sections. "ERISA AFFILIATE" means, with respect to each Borrower, any corporation, partnership, or other trade or business (whether or not incorporated) that is, along with such Borrower, a member of a controlled group of corporations or a controlled group of trades or businesses, as described in sections 414(b) and 414(c), respectively, of the Code or section 4001 of ERISA, or a member of the same affiliated service group within the meaning of section 414(m) of the Code. "ESOP" means the Oregon Metallurgical Corporation Employee Stock Ownership Plan established November 16, 1987. "EUROCURRENCY RESERVE PERCENTAGE" means, with respect to each Interest Period for Eurodollar Rate Revolving Loans, a percentage equal to the daily average during such Interest Period of the percentages in effect on each day of such Interest Period, as prescribed by the Federal Reserve Board, for determining reserve requirements applicable to "Eurocurrency liabilities" pursuant to Regulation D or any other then applicable regulation of the Board of Governors which prescribes reserve requirements applicable to "Eurocurrency liabilities," as presently defined in Regulation D. For purposes of this definition, any Eurodollar Rate Revolving Loans hereunder shall be deemed to be "Eurocurrency liabilities" as defined in Regulation D. "EURODOLLAR MARGIN" means three percent (3.0%); PROVIDED, HOWEVER, that at any time that the Grid Ratio for the four (4) fiscal quarters of OREMET ending immediately prior to such time is greater than 2.00 to 1.00, "Eurodollar Margin" means two and one-half percent (2.5%). "EURODOLLAR RATE REVOLVING LOAN" means any Revolving Loan or portion thereof which bears interest at a rate determined with reference to the Interbank Rate (Reserve Adjusted). 75 "EVENT OF DEFAULT" has the meaning ascribed to such term in SECTION 6.1. "FABRICATION BUSINESS" has the meaning assigned to that term in the Purchase Agreement. "FEDERAL FUNDS RATE" means for any day the weighted average of the rates on overnight Federal Funds transactions with members of the Federal Reserve System, arranged by Federal Funds brokers applicable to Federal Funds transactions on such date. The Federal Funds Rate shall be determined by Lender on the basis of reports by Federal Funds brokers to, and published daily by, the Federal Reserve Bank of New York in the Composite Closing Quotations for U.S. Government Securities. If such publication is unavailable or the Federal Funds Rate is not set forth therein, the Federal Funds Rate shall be determined on the basis of any other source reasonably selected by Lender. In the case of a Saturday, Sunday or legal holiday on which banking institutions in Chicago, Illinois are not required to be open, the Federal Funds Rate shall be the rate applicable to Federal Funds Transactions on the immediately preceding day for which the Federal Funds Rate is reported. "FEDERAL RESERVE BOARD" means the Board of Governors of the Federal Reserve System or any successor thereto. "FIXTURES" means, with respect to each Borrower, all fixtures of such Borrower of every description and all substitutions and replacements of any thereof. "GAAP" means generally accepted accounting principles as applied in the preparation of the audited financial statements of OREMET referred to in SECTION 4.6(a). "GENERAL INTANGIBLES" means, with respect to each Borrower, all of such Borrower's intangible personal property, including things in action, causes of action and all other personal property of such Borrower of every kind and nature (other than accounts, inventory, equipment, chattel paper, documents, instruments and money), including, without limitation, corporate or other business records, inventions, designs, patents, patent applications, trademarks, trademark applications, trade names, trade styles, trade secrets, goodwill, copyrights, registrations, licenses, franchises, customer lists, tax refund claims, claims against carriers and shippers, guarantee claims, security interests, security deposits or other security held by or granted to such Borrower to secure any payment from an Account Debtor of such Borrower, and any rights to indemnification. "GRID RATIO" means, with respect to any Person for any fiscal period, the ratio of (i) EARNINGS before interest expense and provision for Taxes to (ii) interest expense, in each case OF SUCH PERSON AND ITS CONSOLIDATED SUBSIDIARIES for such period. 76 "GUARANTEE LIABILITY" of any Person means any agreement, undertaking or arrangement by which such Person guarantees, endorses or otherwise becomes or is contingently liable upon (by direct or indirect agreement, contingent or otherwise, to provide funds for payment, to supply funds to, or otherwise to invest in, a debtor, or otherwise to assure a creditor against loss) the indebtedness, obligation or any other liability of any other Person (other than by endorsements of instruments in the course of collection), or guarantees the payment of dividends or other distributions upon the shares of any other Person. The amount of any Person's obligation in respect of any Guarantee Liability shall (subject to any limitation set forth therein) be deemed to be the outstanding principal amount (or maximum principal amount, if larger) of the debt, obligation or other liability guaranteed thereby. "HAZARDOUS MATERIALS" means (a) any "hazardous substance" as defined in the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, (b) any "hazardous waste" as defined in the Resource Conservation and Recovery Act, as amended, (c) any petroleum product or (d) any pollutant, contaminant or hazardous, dangerous or toxic chemical, material or substance, defined or qualifying as such in (or for the purposes of) any Environmental Law, and shall include, but not be limited to, petroleum, including crude oil or any fraction thereof which is liquid at standard conditions of temperature or pressure (60 degrees fahrenheit and 14.7 pounds per square inch absolute), any radioactive material, including, but not limited to, any source, special nuclear or by-product material as defined at 42 U.S.C. section 2011 ET SEQ., as amended or hereafter amended, polychlorinated biphenyls, and asbestos in friable form or condition. "INDEBTEDNESS" of any Person means, without duplication, (i) any obligation of such Person for borrowed money, including, without limitation, (a) any obligation of such Person evidenced by bonds, debentures, notes or other similar debt instruments, or securities providing for mandatory payments of money, and (b) any such obligation which is non-recourse to the credit of such Person but which is secured by any asset of such Person, (ii) any obligation, contingent or otherwise, of such Person relative to or in connection with the face amount of any letter of credit (including the Letters of Credit), whether or not drawn, and any banker's acceptances, (iii) any obligation of such Person on account of deposits or advances, (iv) whether or not included as a liability in accordance with GAAP, any obligation of such Person to pay the deferred purchase price of property or services, other than trade accounts payable or accruals arising in the ordinary course of business, (v) whether or not included as a liability in accordance with GAAP, any monetary obligation (excluding prepaid interest thereon) of such Person or of another Person secured by a Lien on any property or asset owned or being purchased by such first Person including any such obligation arising under conditional sales or other title retention agreements), whether or not such obligation shall have been assumed by such first Person or 77 is limited in recourse, (vi) any Capitalized Lease Liabilities of such Person, (vii) any other item which, in accordance with GAAP, would be included as a liability on the liability side of the balance sheet of such Person as of the date at which Indebtedness is to be determined and (viii) all Guarantee Liabilities of such Person in respect of any of the foregoing. For all purposes of this Agreement, the Indebtedness of any Person shall include the Indebtedness of any partnership or joint venture in which such Person is a general partner or joint venturer. "INTELLECTUAL PROPERTY" means, with respect to any Person, collectively, such Person's Computer Hardware and Software Property, Copyright Property, Patent Property, Trademark Property and Trade Secrets Property. "INTERBANK RATE" means, with respect to each Interest Period, for a Eurodollar Rate Revolving Loan, the rate per annum at which Dollar deposits in immediately available funds are offered to Lender two Banking Days prior to the beginning of such Interest Period by major banks in the interbank eurodollar market as at or about 10:00 a.m., Chicago time, for delivery on the first day of such Interest Period, for the number of days comprised therein and in an amount equal to the amount of the Eurodollar Rate Revolving Loan to be outstanding during such Interest Period. "INTERBANK RATE (RESERVE ADJUSTED)" means, with respect to any Eurodollar Rate Revolving Loan for any Interest Period, a rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1% determined pursuant to the following formula: Interbank Rate = Interbank Rate -------------- (Reserve Adjusted) 1 - Eurocurrency Reserve Percentage "INTEREST PERIOD" means, relative to any Eurodollar Rate Revolving Loan, the period beginning on (and including) the date on which such Eurodollar Rate Revolving Loan is made or continued as, or converted into, a Eurodollar Rate Revolving Loan pursuant to SECTION 2.5 and shall end on (but exclude) the day which numerically corresponds to such date one, two, three or six months thereafter (or, if such month has no numerically corresponding day, on the last Banking Day of such month), in either case as the applicable Borrower may select; PROVIDED, HOWEVER, that (i) no Interest Period for any Eurodollar Rate Revolving Loan shall in any event extend beyond the Termination Date, (ii) each Interest Period with respect to an Eurodollar Rate Revolving Loan which would otherwise end on a day which is not a Banking Day shall end on the next succeeding Banking Day unless such next succeeding Banking Day is the first Banking Day of a calendar month, in which case it shall end on the next preceding Banking Day. "INVENTORY" means, with respect to each Borrower, any and all of such Borrower's goods, (including, without limitation, goods in transit) wheresoever located which are or may at any time be leased by such Borrower to a lessee, held for sale or lease, furnished under any contract of service, or held as raw materials, 78 work in process, or supplies or materials used or consumed in such Borrower's business, or which are held for use in connection with the manufacture, packing, shipping, advertising, selling or finishing of such goods, and all goods the sale or other disposition of which has given rise to an Account Receivable, Contract Right or General Intangible, in each case of such Borrower, which are returned to and/or repossessed and/or stopped in transit by such Borrower or Lender or any agent or bailee of either of them, and all documents of title or other documents representing the same. "INVESTMENT" of any Person means, without duplication, (a) any investment, made in cash or by delivery of any kind of property or asset, in any other Person, whether by acquisition of shares of stock or similar interest, Indebtedness or other obligation or security, or by loan, advance or capital contribution, or otherwise, (b) any Guarantee Liability of such Person and (c) any ownership or similar interest held by such Person in any other Person. The amount of any Investment shall be the original principal or capital amount thereof less all returns of principal or equity thereon (and without adjustment by reason of the financial condition of such other Person) and shall, if made by the transfer or exchange of property other than cash, be deemed to have been made in an original principal or capital amount equal to the fair market value of such property. "KAMYR" means Kamyr, Inc., a Delaware corporation. "L/C DRAFT" means a draft drawn on Lender pursuant to a Letter of Credit. "LENDER" has the meaning ascribed to such term in the Preamble. "LETTER OF CREDIT" means, with respect to each Borrower, a letter of credit issued by Lender, in its discretion, on the Application of such Borrower. "LETTER OF CREDIT OBLIGATIONS" means, with respect to each Borrower, at any time, but without duplication, an amount equal to the sum of (i) the aggregate outstanding face amount of all Letters of Credit issued for the account of such Borrower PLUS (ii) the aggregate outstanding face amount of all unpaid L/C Drafts drawn pursuant to a Letter of Credit issued for the account of such Borrower. "LIABILITIES" means, with respect to each Borrower, all of the liabilities, obligations and indebtedness of such Borrower to Lender of any kind or nature, however created, arising or evidenced, whether direct or indirect, absolute or contingent, now or hereafter existing or due or to become due, and including but not limited to (i) such Borrower's obligations under any Note, (ii) such Borrower's obligations under this Agreement, (iii) such Borrower's obligations with respect to any Letter of Credit issued for the account of such Borrower or any Application of such 79 Borrower therefor, (iv) interest, charges, expenses, Attorneys' Fees and other sums chargeable to such Borrower by Lender under this Agreement or any Related Agreement, and (v) the obligations of such Borrower under any Related Agreement, including obligations of performance. "Liabilities" shall also include any and all amendments, extensions, renewals, refundings or refinancings of any of the foregoing (at the same or a lesser or greater amount). "LIABILITIES TO NET WORTH RATIO" means, at any time of determination thereof, with respect to any Person, the ratio of (i) the total liabilities of such Person and its consolidated Subsidiaries to (ii) Net Worth of such Person, in each case at such time. "LIEN" means any mortgage, pledge, hypothecation, judgment lien or similar legal process, title retention lien, or other lien, encumbrance or security interest, including, without limitation, the interest of a vendor under any conditional sale or other title retention agreement and the interest of a lessor under any Capitalized Lease. "LOAN" means (i) any Revolving Loan made pursuant to SECTION 2.1 and (ii) any other loan or advance made to either of the Borrowers by Lender under or pursuant to this Agreement. "LOAN ACCOUNT" has, with respect to each Borrower, the meaning ascribed to such term in SECTION 2.3. "MARGIN STOCK" has the meaning ascribed to such term in Regulation U of the Federal Reserve Board or any regulation substituted therefor, as in effect from time to time. "MATERIAL ADVERSE EFFECT" means a material adverse effect upon (a) the business, operations, properties, assets or condition (financial or otherwise) of OREMET and its Subsidiaries taken as a whole, (b) the ability of either of the Borrowers to perform and satisfy in full the Liabilities of such Borrower in accordance with the respective terms thereof or (c) the Collateral or Third Party Collateral of either of the Borrowers. "MONTHLY PAYMENT DATE" means the first day of each calendar month or, if any such day is not a Banking Day, the next succeeding Banking Day. "MULTIEMPLOYER PLAN" means, with respect to each Borrower, a "multiemployer plan" as defined in SECTION 4001(a)(3) of ERISA which is maintained for employees of such Borrower, any Subsidiary of such Borrower, any other Obligor or any ERISA Affiliate of such Borrower. "NET REVOLVING LOAN AVAILABILITY" means, at any time with respect to each Borrower, an amount equal to (i) Revolving Loan Availability MINUS (ii) the aggregate outstanding principal balance of the Loans, in each case of such Borrower at such time. 80 "NET WORTH" means at any time, with respect to any Person, the total of shareholders' equity (including capital stock, additional paid-in capital and retained earnings after deducting treasury stock) of such Person and its CONSOLIDATED Subsidiaries calculated in accordance with GAAP. "NOTE" means any promissory note of either of the Borrowers evidencing any loan or advance (including but not limited to any Revolving Loans) made by Lender to such Borrower pursuant to this Agreement. "OBLIGOR" means each Borrower and each other Person who is or shall become primarily or secondarily liable on any of the Liabilities of either or both of the Borrowers, or who grants to Lender a Lien on any property of such Person as security for any of the Liabilities of either or both of the Borrowers. "OCCUPATIONAL SAFETY AND HEALTH LAW" means the Occupational Safety and Health Act of 1970, as amended, and any other federal, state or local statute, law, ordinance, code, rule, regulation, order or decree regulating, relating to or imposing liability or standards of conduct concerning employee health and/or safety, in each case as in effect from time to time. References to sections of any Occupational Safety and Health Law shall be construed to also refer to any successor sections. "OLD TI" means Titanium Industries, Inc., a New Jersey corporation. "OVER ADVANCES" has the meaning ascribed to such term in SECTION 2.8. "OVERDRAFT LOAN" has the meaning ascribed to such term in SECTION 2.7. "PADDOCK" means James S. Paddock, an individual. "PARTICIPANT" means any Person, now or at any time or times hereafter, participating with Lender in the Loans made to Borrowers pursuant to this Agreement or any Related Agreement. "PATENT PROPERTY" means, with respect to any Person: (a) all of such Person's inventions (whether or not patentable and whether or not reduced to practice) and all of such Person's patents, patent applications (including, without limitation, all patents and patent applications in preparation for filing) and patent disclosures throughout the world, including without limitation, each patent and patent application referred to in PART B-1 of SCHEDULE 4.16; (b) all reissues, divisions, continuations, continuations-in-part, revisions, extensions, renewals and reexaminations of any of the items described in CLAUSE (A) of this definition; 81 "NET WORTH" means at any time, with respect to any Person, the total of shareholders' equity (including capital stock, additional paid-in capital and retained earnings after deducting treasury stock) of such Person and its CONSOLIDATED Subsidiaries calculated in accordance with GAAP. "NOTE" means any promissory note of either of the Borrowers evidencing any loan or advance (including but not limited to any Revolving Loans) made by Lender to such Borrower pursuant to this Agreement. "OBLIGOR" means each Borrower and each other Person who is or shall become primarily or secondarily liable on any of the Liabilities of either or both of the Borrowers, or who grants to Lender a Lien on any property of such Person as security for any of the Liabilities of either or both of the Borrowers. "OCCUPATIONAL SAFETY AND HEALTH LAW" means the Occupational Safety and Health Act of 1970, as amended, and any other federal, state or local statute, law, ordinance, code, rule, regulation, order or decree regulating, relating to or imposing liability or standards of conduct concerning employee health and/or safety, in each case as in effect from time to time. References to sections of any Occupational Safety and Health Law shall be construed to also refer to any successor sections. "OLD TI" means Titanium Industries, Inc., a New Jersey corporation. "OVER ADVANCES" has the meaning ascribed to such term in SECTION 2.8. "OVERDRAFT LOAN" has the meaning ascribed to such term in SECTION 2.7. "PADDOCK" means James S. Paddock, an individual. "PARTICIPANT" means any Person, now or at any time or times hereafter, participating with Lender in the Loans made to Borrowers pursuant to this Agreement or any Related Agreement. "PATENT PROPERTY" means, with respect to any Person: (a) all of such Person's inventions (whether or not patentable and whether or not reduced to practice) and all of such Person's patents, patent applications (including, without limitation, all patents and patent applications in preparation for filing) and patent disclosures throughout the world, including without limitation, each patent and patent application referred to in PART B-1 of SCHEDULE 4.16; (b) all reissues, divisions, continuations, continuations-in-part, revisions, extensions, renewals and reexaminations of any of the items described in CLAUSE (A) of this definition; 82 (c) all patent licenses of such Person (whether as licensee or licensor), including each patent license referred to in PART B-2 of SCHEDULE 4.16; (d) the right to sue third parties for past, present or future infringements of any Patent Property described in CLAUSES (A) OR (B) of this definition and, to the extent applicable, CLAUSE (C) of this definition; and (e) all proceeds of, and rights associated with, the foregoing (including license royalties and proceeds of infringement suits), including any claim by such Person against third parties for past, present or future infringements of any patent or (to the extent applicable or permitted as a matter of law) patent covered by a patent license and all rights corresponding thereto throughout the world. "PBGC" means the Pension Benefit Guaranty Corporation and any entity succeeding to any or all of its functions under ERISA. "PENSION PLAN" means, with respect to each of the Borrowers, a "pension plan," as such term is defined in Section 3(2) of ERISA, which is subject to the provisions of Title IV of ERISA and which is established or maintained by such Borrower, any Subsidiary of such Borrower, any other Obligor or any ERISA Affiliate of such Borrowers, other than a Multiemployer Plan. "PERSON" means any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, institution, entity, or government (whether national, federal, state, county, city, municipal or otherwise, including, without limitation, any instrumentality, division, agency, body or department thereof). "PRO FORMA BALANCE SHEET" has the meaning ascribed to such term in SECTION 4.6(C). "PRO FORMA FINANCIAL INFORMATION" has the meaning assigned to such term in SECTION 4.6(C). "PROJECTIONS" has the meaning ascribed to such term in SECTION 4.6(C). "PURCHASE AGREEMENT" means that certain Stock and Asset Purchase Agreement dated as of September 19, 1994, between Kamyr and TI, as it may be amended, restated, supplemented or otherwise modified from time to time. "REAL PROPERTY" means, with respect to each Borrower, all real property of such Borrower. "REFERENCE RATE" means, at any time, the rate of interest then most recently announced by Lender at Chicago, Illinois as its reference rate. Each change in the interest rate on any Loan which 83 is determined with reference to the Reference Rate shall take effect on the effective date of the change in the Reference Rate. "REFERENCE RATE MARGIN" means one and one-half percent (1.5%); PROVIDED, HOWEVER, that (i) at any time that the Grid Ratio for the two (2) consecutive fiscal quarters of OREMET ending immediately prior to such time is greater than 2.00 to 1.00, "Reference Rate Margin" means one percent (1.0%) and (ii) at any time that the Grid Ratio for the four (4) consecutive fiscal quarters of OREMET ending immediately prior to such time is greater than 2.00 to 1.00, "Reference Rate Margin" means one-half of one percent (0.5%). "REFERENCE RATE REVOLVING LOAN" means any Revolving Loan or portion thereof which bears interest at a rate determined with reference to the Alternate Reference Rate. "RELATED AGREEMENT" means any agreement, instrument or document (including, without limitation, notes, guarantees, mortgages, deeds of trust, chattel mortgages, pledges, powers of attorney, consents, assignments, contracts, notices, security agreements, leases, financing statements, subordination agreements, trust account agreements and all other written matter) heretofore, now, or hereafter executed and/or delivered to Lender with respect to or in connection with or pursuant to this Agreement or any of the Liabilities of either or both of the Borrowers, and executed by or on behalf of either or both of the Borrowers or any other Obligor. "RELATED PARTY" means any Person (other than the ESOP or any Subsidiary of a Borrower) (i) which directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, a Borrower, (ii) which beneficially owns or holds ten percent (10%) or more of the equity interest of a Borrower, or (iii) ten percent (10%) or more of the equity interest of which is beneficially owned or held by a Borrower or a Subsidiary of a Borrower. The term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. "RELEASE" means release, spill, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching or migration into the indoor or outdoor environment or into or out of any property, including the movement of Contaminants through or in the air, soil, surface water, groundwater or property. "REPORTABLE EVENT" has the meaning given to such term in ERISA. "REVOLVING CREDIT AMOUNT" has, with respect to each Borrower, the meaning ascribed to such term in SUPPLEMENT A. 84 "REVOLVING LOAN" has, with respect to each Borrower, the meaning ascribed to such term in SECTION 2.1.1. "REVOLVING LOAN AVAILABILITY" means, with respect to each Borrower, the lesser of (a) the Revolving Credit Amount MINUS the Letter of Credit Obligations and (b) the Borrowing Base MINUS the Letter of Credit Obligations, in each case of such Borrower. "SHAREHOLDERS AGREEMENT" means that certain Corporate Organization and Shareholders Agreement dated as of September 19, 1994, among Paddock, OREMET and TI. "SUBORDINATED INDEBTEDNESS DOCUMENTS" means the "Subordinated Loan Documents" (as defined in the Subordination Agreement). "SUBORDINATED INDEBTEDNESS" has the meaning ascribed to such term in the Subordination Agreement. "SUBORDINATION AGREEMENT" means that certain Subordination Agreement of even date herewith among Lender, TI and Old TI, as it may be amended, restated, supplemented or otherwise modified from time to time. "SUBSIDIARY" means, as to any Person, (i) any corporation of which or in which such Person, such Person and one or more of its Subsidiaries, or one or more Subsidiaries of such Person directly or indirectly own 50% or more of the combined voting power of all classes of stock having general voting power under ordinary circumstances to elect a majority of the board of directors of such corporation (irrespective of whether at the time capital stock of any other class or classes of such corporation shall or might have voting power upon the occurrence of any contingency), (ii) any partnership, joint venture or similar entity of which or in which such Person, such Person and one or more of its Subsidiaries, or one or more Subsidiaries of such Person directly or indirectly own 50% or more of the capital interest or profits interest or (iii) any trust, association or other unincorporated organization of which or in which such Person, and one or more of its Subsidiaries, or one or more Subsidiaries of such Person directly or indirectly own 50% or more of the beneficial interest. "SUPPLEMENTAL DOCUMENTATION" has the meaning ascribed to such term in SECTION 3.5. "TAXES" means, with respect to any Person, taxes, assessments or other governmental charges or levies imposed upon such Person, its income or any of its properties, franchises or assets. "TERMINATION DATE" means September 19, 1997 or such later date to which it may be extended pursuant to SECTION 11.7. "THIRD PARTY COLLATERAL" means, with respect to each Borrower, any property of any Person other than such Borrower which 85 secures payments, performance and/or observance of any Liabilities of such Borrower. "TI" has the meaning ascribed to such term in the Preamble. "TI WIRE" means Titanium Wire Corporation, a Pennsylvania corporation. "TIL UK " means Titanium International Limited, a limited liability company. "TI FINANCIAL STATEMENTS" has the meaning ascribed to such term in SECTION 4.6(b). "TRADE SECRET" has the meaning ascribed to that term in the definition of Trade Secrets Property. "TRADE SECRETS PROPERTY" means, with respect to any Person, all common law and statutory trade secrets of such Person and all other confidential or proprietary or useful information of such Person, including, without limitation, all ideas, formulae, compositions, know-how, manufacturing and production processes and techniques, research and development information, drawings, specifications, designs, plans, proposals, technical data, financial, business and marketing plans and customer and supplier lists and related information obtained by or used in or contemplated at any time for use in the business of such Person (all of the foregoing being collectively called a "TRADE SECRET"), whether or not such Trade Secret has been reduced to a writing or other tangible form, including all documents and things embodying, incorporating or referring in any way to such Trade Secret, all Trade Secret licenses of such Person (whether as licensee or licensor), including each Trade Secret license referred to in SCHEDULE 4.16, and including the right to sue for and to enjoin and to collect damages for the actual or threatened misappropriation of any Trade Secret and for the breach or enforcement of any such Trade Secret license. "TRADEMARK" has the meaning ascribed to that term in the definition of Trademark Property. "TRADEMARK PROPERTY" means, with respect to any Person: (a) all of such Person's: trademarks, trade names, corporate names, company names, business names, fictitious business names, trade styles, service marks, certification marks, collective marks, logos, trade dress other source of business identifiers, prints and labels on which any of the foregoing have appeared or appear, designs and general intangibles of a like nature (all of the foregoing items in this CLAUSE (a) being collectively called a "TRADEMARK"), now existing anywhere in the world or hereafter adopted or acquired, whether currently in use or not, whether or not registered, all registrations and recordings thereof and all 86 applications in connection therewith, whether pending or in preparation for filing, including registrations, recordings and applications in the United States Patent and Trademark Office or in any office or agency of the United States of America or any State thereof or any foreign country, including, without limitation, those referred to in PART C-1 of SCHEDULE 4.16; (b) all reissues, extensions, renewals, translations, adaptations, derivations and combinations of any of the items described in CLAUSE (a) of this definition; (c) all Trademark licenses and other agreements providing such Person with the right to use any of the types of items referred to in CLAUSES (a) and (b) of this definition, including each Trademark license referred to in PART C-2 of SCHEDULE 4.16; (d) all of the goodwill of the business connected with the use of, and symbolized by the items described in, CLAUSES (a) and (b) of this definition; (e) the right to sue third parties for past, present and future infringements of any Trademark Property described in CLAUSES (a) or (b) of this definition and, to the extent applicable in CLAUSE (c) of this definition; and (f) all proceeds of, and rights associated with, the foregoing, including any claim by such Person against third parties for past, present or future infringement or dilution of any Trademark, Trademark registration or (to the extent applicable and if permitted by applicable law) Trademark license, referred to in CLAUSE (c) of this definition, or for any injury to the goodwill associated with the use of any such Trademark or for breach or enforcement of any Trademark license, and all rights corresponding thereto throughout the world. "UCC" means the Uniform Commercial Code as in effect in the State of Illinois, and any successor statute, together with any regulations thereunder, in each case as in effect from time to time. References to sections of the UCC shall be construed to also refer to any successor sections. "UNMATURED EVENT OF DEFAULT" means any event or condition which, with the lapse of time or giving of notice or both, would constitute an Event of Default. 1.2 OTHER DEFINITIONAL PROVISIONS. Unless otherwise defined or the context otherwise requires, all financial and accounting terms used herein or in any certificate or other document made or delivered pursuant hereto shall be defined in accordance with GAAP. Unless otherwise defined therein, all terms defined in this Agreement shall have the defined meanings when used in any Note or in any certificate or other document made or 87 delivered pursuant hereto. Terms used in this Agreement which are defined in any Supplement or Exhibit hereto shall, unless the context otherwise indicates, have the meanings given them in such Supplement or Exhibit. Other terms used in this Agreement shall, unless the context indicates otherwise, have the meanings provided for by the UCC to the extent the same are used or defined therein. 1.3 INTERPRETATION OF AGREEMENT. A SECTION, an EXHIBIT or a SCHEDULE is, unless otherwise stated, a reference to a section hereof, an exhibit hereto or a schedule hereto, as the case may be. Section captions used in this Agreement are for convenience only and shall not affect the construction of this Agreement. The words "hereof," "herein," "hereto" and "hereunder" and words of similar import when used in this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement. Reference to "this Agreement" shall include the provisions of SUPPLEMENT A. 1.4 LENDER'S DISCRETION. Whenever the terms of this Agreement provide that any determination may be made in the sole discretion of Lender, Lender hereby agrees that it shall not make such determination in an arbitrary or capricious manner. 1.5 COMPLIANCE WITH FINANCIAL RESTRICTIONS. Compliance with each of the financial ratios and restrictions contained in SECTION 5 or SUPPLEMENT A shall, except as otherwise provided herein, be determined in accordance with GAAP consistently applied. 2. LOANS; LETTERS OF CREDIT; OTHER MATTERS. 2.1 LOANS 2.1.1 REVOLVING LOANS. (a) Subject to the terms and conditions of this Agreement and the Related Agreements, and in reliance upon the warranties of each of the Borrowers set forth herein and in the Related Agreements, Lender agrees to make such loans or advances (individually each a "REVOLVING LOAN" of such Borrower and collectively the "REVOLVING LOANS" of such Borrower) from time to time before the Termination Date to each Borrower as such Borrower may from time to time request, up to but not in excess of the Revolving Loan Availability of such Borrower. All Revolving Loans shall bear interest at a rate determined by reference to either the Alternate Reference Rate or the Interbank Rate (Reserve Adjusted), pursuant to Section 2.4 and the terms and provisions of SUPPLEMENT A. Revolving Loans of each Borrower may be repaid and, subject to the terms and conditions hereof, reborrowed by such Borrower to but not including the Termination Date unless the Credit of such Borrower is otherwise terminated as provided in this Agreement. 88 (b) In the event the aggregate outstanding principal balance of the Revolving Loans of either of the Borrowers exceeds the Revolving Loan Availability of such Borrower, such Borrower shall, unless Lender shall otherwise consent, without notice or demand of any kind, immediately make such repayments of the Revolving Loans of such Borrower or take such other actions as shall be necessary to eliminate such excess. (c) All Revolving Loans of each of the Borrowers hereunder shall be paid by such Borrower on the Termination Date, unless payable sooner pursuant to the provisions of this Agreement, but may, at such Borrower's election, be repaid in whole or in part at any time prior to such date without premium or penalty. 2.1.2 LIMITATION ON REDUCTION OF REVOLVING CREDIT AMOUNT. Each Borrower may, at any time, on at least thirty (30) days' prior written notice received by Lender, permanently reduce the Revolving Credit Amount of such Borrower by paying to Lender such amount as is necessary to reduce the outstanding principal balance of the Revolving Loans plus Letter of Credit Obligations, in each case of such Borrower, to such reduced Revolving Credit Amount; PROVIDED, HOWEVER, that (i) notwithstanding anything to the contrary contained herein, the Revolving Credit Amount of OREMET may not be reduced to an amount less than $500,000 and (ii) the Revolving Credit Amount of TI may not be reduced to an amount less than $500,000. 2.1.3 MAXIMUM OUTSTANDING LOANS. Notwithstanding any other provision of this Agreement, the aggregate outstanding principal balance of the Loans plus Letter of Credit Obligations shall not exceed at any time (A) in the case of OREMET, $16,000,000, (B) in the case of TI, $8,000,000 and (C) in the case of both Borrowers in the aggregate $20,000,000; PROVIDED, HOWEVER, that the foregoing shall not limit the right of Lender to advance Revolving Loans to either of the Borrowers pursuant to the provisions of SECTIONS 2.2(b), 2.2(c), 2.2(e), 3.2(c), 5.5, 5.6, 7.4, 11.3, 11.4 or any other provision of this Agreement or any Related Agreement that permits Lender to advance Revolving Loans to such Borrower. 2.2 LETTERS OF CREDIT. (a) In addition to Loans made pursuant to SECTION 2.1, Lender will, upon receipt of duly executed Applications of such Borrower and such other documents, instruments and/or agreements as Lender may reasonably require, issue Letters of Credit for the account of either of the Borrowers on such terms as are satisfactory to Lender; PROVIDED, HOWEVER that no Letter of Credit will be issued for the account of either of the Borrowers if, before or after 89 taking such Letter of Credit into account, the Letter of Credit Obligations of such Borrower exceed the lesser of (i) the Revolving Credit Amount MINUS the outstanding principal balance of the Revolving Loans, and (ii) the Borrowing Base MINUS the outstanding principal balance of the Revolving Loans, in each case of such Borrower. (b) Each Borrower agrees to pay Lender, on demand, Lender's standard administrative operating fees and charges in effect from time to time for issuing and administering any Letters of Credit issued for the account of such Borrower. Each Borrower further agrees to pay Lender a commission equal to two and one-half percent (2.5%) per annum (calculated on the basis of a year consisting of 360 days and paid for actual days elapsed) of the daily average of the undrawn amount of each Letter of Credit issued for the account of such Borrower and each L/C Draft drawn under such Letter of Credit. Such commissions shall be paid at such frequency as Lender shall determine. Lender may provide for the payment of any such fees, charges or commission due by advancing the amount thereof to the applicable Borrower as a Revolving Loan. (c) Each of the Borrowers agrees to reimburse Lender, on demand, for each payment made by Lender under or pursuant to any Letter of Credit issued for the account of such Borrower and each L/C Draft drawn under such Letter of Credit. Each of the Borrowers further agrees to pay to Lender, on demand, interest at the Default Rate applicable to Revolving Loans on any amount paid by Lender under or pursuant to any Letter of Credit issued for the account of such Borrower and each L/C Draft drawn under such Letter of Credit, from the date of payment until the date of reimbursement to Lender. Lender may, and upon request of the applicable Borrower when no Event of Default exists (to the extent there is additional availability pursuant to the terms hereof for Revolving Loans to such Borrower) shall, provide for the payment of any reimbursement obligations of such Borrower and any interest accrued thereon by advancing all or part of the amount thereof to such Borrower as a Revolving Loan. (d) Each Borrower's obligation to reimburse Lender for payments and disbursements made by Lender under or in connection with any Letter of Credit shall be absolute and unconditional under any and all circumstances and irrespective of any setoff, counterclaim or defense to payment which such Borrower may have or have had against Lender or any other Person, including, without limitation, any defense based on the failure of the demand for payment under such Letter of Credit to conform to the terms of such Letter of Credit, the legality, validity, regularity or enforceability of such Letter of Credit, or the identity of the transferee of such Letter of Credit or the sufficiency of any transfer if such Letter of Credit is transferable. Each Borrower assumes all risks of the acts or omissions of the user of any Letters of Credit issued for the account of such Borrower and all risks of the misuse of any such Letter of Credit. Neither Lender nor any of its correspondents, shall be responsible: (1) for the form, validity, sufficiency, accuracy, genuineness or legal effect 90 of any document specified in an Application even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent, or forged; (2) for the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign any Letter of Credit or L/C Draft or any of the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason; (3) for failure of any L/C Draft to bear any reference or adequate reference to any Letter of Credit, or failure of anyone to note the amount of any L/C Draft on the reverse of any Letter of Credit or to surrender or to take up any Letter of Credit or to send forward any such document apart from drafts as required by the terms of any Letter of Credit, each of which provisions, if contained in the Letter of Credit itself, it is agreed, may be waived by Lender; (4) for errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex or otherwise, whether or not they be in cipher; (5) for any error, neglect, default, suspension or insolvency of any correspondents of Lender; (6) for errors in translation or for errors in interpretation of technical terms; (7) for any loss or delay, in the transmission or otherwise, of any such document or draft or of proceeds thereof; (8) for the misapplication by the beneficiary of a Letter of Credit or of the proceeds of any drawing under such Letter of Credit; (9) for any consequences arising from causes beyond the control of Lender, including, without limitation, any act or omission, rightful or wrongful, of any present or future de jure or de facto government or governmental authority; or (10) for any other circumstances whatsoever in making or failing to make payment under any Letter of Credit, except only that each of the Borrowers shall have a claim against Lender, and Lender shall be liable to each of the Borrowers, to the extent, but only to the extent, of any direct, as opposed to consequential, damages suffered by such Borrower which such Borrower proves were caused by Lender's willful misconduct or gross negligence. None of the above shall affect, impair or prevent the vesting of any of the rights or powers of Lender. Lender shall have the right to transmit the terms of any Letter of Credit without translating them. (e) Notwithstanding anything to the contrary herein or in any Application, upon the occurrence of an Event of Default, an amount equal to the aggregate amount of the outstanding Letter of Credit Obligations of each of the Borrowers shall, at Lender's option and without demand upon or further notice to such Borrower, be deemed (as between Lender and such Borrower) to have been paid or disbursed by Lender under the Letters of Credit issued by Lender for the account of such Borrower and L/C Drafts drawn thereunder (notwithstanding that such amounts may not in fact have been so paid or disbursed), and Revolving Loans to such Borrower in all or part of the amount of such Letter of Credit Obligations to have been made and accepted, which Loans shall be immediately due and payable. In lieu of the foregoing, at the election of Lender at any time after an Event of Default, each of the Borrowers agrees, upon Lender's demand, to deliver to Lender cash Collateral equal to the aggregate Letter of Credit Obligations of such Borrower. Any such cash Collateral and/or any amounts received by Lender in 91 payment of the Loans made pursuant to this PARAGRAPH (e) shall be held by Lender in the Assignee Deposit Account of the respective Borrower or a separate account appropriately designated as a cash collateral account in relation to this Agreement and the applicable Letters of Credit and shall be retained by Lender as collateral security in respect of, first, such Borrower's Liabilities under or in connection with the Letters of Credit issued by Lender for the account of such Borrower and L/C Drafts drawn thereunder and then, all other Liabilities of such Borrower. Such amounts shall not be used by Lender to pay any amounts drawn or paid under or pursuant to any Letter of Credit or L/C Draft, but may be applied to reimburse Lender for drawings or payments under or pursuant to such Letters of Credit or L/C Drafts which Lender has paid, or if no such reimbursement is required, to payment of such other Liabilities of the applicable Borrower as Lender shall determine. Any amounts remaining in any cash collateral account established pursuant to this PARAGRAPH (e) following payment in full of all Liabilities of such Borrower shall be returned to such Borrower. 2.3 LOAN ACCOUNT; DEMAND DEPOSIT ACCOUNT. Lender shall establish or cause to be established on its books in each Borrower's name one or more accounts (such Borrower's "LOAN ACCOUNT") to evidence Loans made to such Borrower. Lender will credit or cause to be credited to a commercial account maintained by each Borrower (such Borrower's "DEMAND DEPOSIT ACCOUNT") at Lender's 231 South LaSalle Street, Chicago, Illinois office the amount of any sums advanced as Loans to such Borrower hereunder. Any amounts advanced as Loans hereunder which are credited to a Borrower's Demand Deposit Account, together with any other amounts advanced to such Borrower as a Loan pursuant to this Agreement, will be debited to the applicable Loan Account and result in an increase in the principal balance outstanding in such Loan Account in the amount thereof. 2.4 INTEREST. (a) REVOLVING LOANS. The unpaid principal amount of each Reference Rate Revolving Loan and each Eurodollar Rate Revolving Loan hereunder shall bear interest as long as no Event of Default exists at the rate applicable to Reference Rate Revolving Loans or Eurodollar Rate Revolving Loans, as applicable, indicated in SUPPLEMENT A. During the continuance of an Event of Default, the entire unpaid principal amount of the Reference Rate Revolving Loans and Eurodollar Rate Revolving Loans, as applicable, shall bear interest at the Default Rate applicable to such Loans, as indicated in SUPPLEMENT A. (b) INTEREST PAYMENT DATES. Interest accrued on each Loan shall be payable, without duplication: (1) in the case of each Loan, on the Termination Date; (2) in the case of each Eurodollar Rate Revolving Loan, on the last day of each Interest Period with respect thereto; 92 (3) in the case of each Reference Rate Revolving Loan, on each Monthly Payment Date occurring after the Closing Date; (4) in the case of each repayment of the Revolving Loans of either of the Borrowers which is made in connection with a reduction in the Revolving Credit Amount of such Borrower, on the date of any such payment or prepayment, in whole or in part, of principal outstanding on such Revolving Loans; and (5) on that portion of any Loans the maturity of which is accelerated pursuant to SECTION 6.2, immediately upon such acceleration. Interest accrued on Loans or other monetary Liabilities of either of the Borrowers after the date such amount is due and payable (whether at maturity, upon acceleration or otherwise) shall be payable upon demand. 2.5 BORROWING PROCEDURE. 2.5.1 REQUESTS FOR LOANS. All Loans shall be requested by the applicable Borrower in writing or by telephone, with each such request to be received (a) in the case of a Reference Rate Revolving Loan, not later than 11:00 a.m. Chicago time on the Banking Day such Loan is requested to be made and (b) in the case of a Eurodollar Rate Revolving Loan, not later than 11:00 a.m. at least three (3) Banking Days prior to each borrowing of Eurodollar Rate Revolving Loans, except for Overdraft Loans and Revolving Loans made pursuant to the provisions of SECTIONS 2.2(b), 2.2(c), 2.2(e), 3.2(c), 5.5, 5.6, 7.4, 11.3, 11.4 or any other provision of this Agreement or any other Related Agreement that permits Lender to unilaterally advance Revolving Loans to either of the Borrowers. Each request for a Loan shall be irrevocable and shall specify the borrowing date (which shall be a Banking Day), the amount of the Loan, whether such Loan is a Reference Rate Revolving Loan or a Eurodollar Rate Revolving Loan and, if a Eurodollar Rate Revolving Loan, the initial Interest Period therefor. 2.5.2 ADDITIONAL RESTRICTIONS PERTAINING TO EURODOLLAR RATE REVOLVING LOANS. Each borrowing of Eurodollar Rate Revolving Loans with a specified Interest Period must be in a minimum amount of $1,000,000 and an integral multiple of $100,000 in excess thereof. Each of the Borrowers shall be permitted to have no more than two (2) borrowings of Eurodollar Rate Revolving Loans with different Interest Periods outstanding at any one time. Lender shall have no obligation to honor a request for any Eurodollar Rate Revolving Loan which is requested at any time that an Event of Default or an Unmatured Event of Default exists. 2.5.3 CONTINUATION AND/OR CONVERSION OF LOANS. 93 Each Borrower may elect (i) to continue any outstanding Eurodollar Rate Revolving Loan of such Borrower from the current Interest Period of such Loan into a subsequent Interest Period to begin on the last day of such current Interest Period or (ii) convert any outstanding Reference Rate Revolving Loan of such Borrower into a Eurodollar Rate Revolving Loan of such Borrower or, on the last day of the current Interest Period, convert a Eurodollar Rate Revolving Loan of such Borrower into a Reference Rate Revolving Loan of such Borrower, by giving at least three (3) Banking Days' prior written or telephonic notice to Lender specifying the date, amount and the Interest Period, if applicable. Absent notice of continuation or conversion, each Eurodollar Rate Revolving Loan of a Borrower shall automatically convert into a Reference Rate Revolving Loan of such Borrower on the last day of the current Interest Period for such Eurodollar Rate Revolving Loan, unless paid in full on such last day. The aggregate dollar amount of Loans of a Borrower which may be converted into or continued as Eurodollar Rate Revolving Loans (i) shall not exceed in the aggregate an amount equal to eighty percent (80%) of the aggregate then outstanding principal balance of the Revolving Loans of such Borrower and (ii) shall not be less than $1,000,000 and an integral multiple of $100,000 in excess thereof. Lender shall have no obligation to honor (a) a request to convert a Reference Rate Revolving Loan into a Eurodollar Rate Revolving Loan or to continue a Eurodollar Rate Revolving Loan (i) less than thirty (30) days before the Termination Date or (ii) at any time that an Event of Default or an Unmatured Event of Default shall exist. 2.5.4 INFORMATION FROM BORROWERS. In addition to Borrowing Base Certificates required pursuant to SECTION 5.1.2, each Borrower agrees to forthwith provide Lender with such information, at such frequency and in such format, as is reasonably required by Lender in connection with any Loan requested or deemed requested by such Borrower, such information to be current as of the time of such request. 2.5.5 IDENTITY OF AUTHORIZED OFFICERS. Each Borrower shall provide Lender with documentation satisfactory to Lender indicating (a) the names of those Persons authorized by such Borrower to sign Borrowing Base Certificates on behalf of such Borrower and (b) the names of those Persons authorized by such Borrower to make telephonic requests on behalf of such Borrower for Loans or the continuation or conversion thereof and/or to authorize on behalf of such Borrower disbursement of the proceeds of Loans by wire transfer or otherwise, and Lender shall be entitled to rely upon such documentation until notified in writing by such Borrower of any change in the names of the Persons so authorized. Lender shall be entitled to act on the instructions of anyone identifying himself as one of the Persons authorized to request Loans or disbursements of Loan proceeds by telephone and each Borrower shall be bound thereby in the same manner as if the Person 94 were actually so authorized. Each of the Borrowers agrees to indemnify and hold Lender harmless from any and all claims, damages, liabilities, losses, costs and expenses (including Attorneys' Fees) which may arise or be created by the acceptance of instructions for making or disbursing in accordance with this SECTION 2.5.5 the proceeds of Loans of such Borrower by wire transfer or telephone. 2.6 NOTES. Except to the extent a Loan may, in Lender's sole and absolute discretion, be evidenced by a Note, all Loans and payments hereunder shall be recorded on Lender's books, which shall be rebuttably presumptive evidence of the amount of such Loans outstanding at any time hereunder. Lender will account monthly as to all Loans and payments hereunder and, absent demonstrable error, each monthly accounting will be fully binding on each of the Borrowers unless, within thirty (30) days of such Borrower's receipt thereof, such Borrower shall provide Lender with a specific listing of exceptions. Notwithstanding any term or condition of this Agreement to the contrary, however, the failure of Lender to record the date and amount of any Loan of either of the Borrowers hereunder shall not limit or otherwise affect the obligation of such Borrower to repay any such Loan. 2.7 OVERDRAFT LOANS. Lender, in its sole and absolute discretion, and subject to the terms hereof, may make Revolving Loans to either of the Borrowers in an aggregate amount equal to the amount of any overdraft which may from time to time exist with respect to the Demand Deposit Account of such Borrower or any other bank account which such Borrower may now or hereafter have with Lender. The existence of any such overdraft shall be deemed to be a request by such Borrower for such Loan or Loans. Each Borrower acknowledges that Lender is under no duty or obligation to make any Loan to such Borrower to cover any overdraft. Each Borrower further agrees that an overdraft shall constitute a separate Loan under this Agreement (an "OVERDRAFT LOAN"), which shall bear, from the date on which the overdraft occurred until paid, interest in an amount equal to the greater of 130% of the highest rate of interest then charged for Loans (other than Overdraft Loans) made hereunder, and $50.00 per day. If Lender, in its sole and absolute discretion, decides not to make a Loan to cover part or all of any overdraft, Lender may return any check(s) which created such overdraft. 2.8 OVER ADVANCES. Lender, in its sole and absolute discretion, may make Revolving Loans to either of the Borrowers in amounts which cause the outstanding principal balance of the Revolving Loans of such Borrower to exceed the Revolving Loan Availability of such Borrower or otherwise permit the outstanding principal balance of the Revolving Loans of such Borrower to at any time exceed the Revolving Loan Availability of such Borrower and no such event or occurrence shall cause or constitute a waiver by Lender of its right to refuse to make any further Revolving Loans to either of the Borrowers or issue any Letters of Credit for the account of either of the Borrowers at any time that an Over Advance with respect to either of the Borrowers exists or would result 95 therefrom. During any period in which the aggregate outstanding Revolving Loans of either of the Borrowers exceeds the Revolving Loan Availability of such Borrower (such excess Liabilities of such Borrower are herein referred to as "OVER ADVANCES" with respect to such Borrower), the amount of Over Advances shall bear interest at a rate equal to 130% of the highest rate of interest then charged for Loans made hereunder. 2.9 ALL LOANS ONE OBLIGATION. The Revolving Loans of each Borrower under this Agreement shall constitute one Loan, and all Indebtedness and other Liabilities of each Borrower to Lender under this Agreement and any of the Related Agreements shall constitute one general obligation of such Borrower secured by Lender's Lien on all of the Collateral and Third Party Collateral of such Borrower, and by all other Liens heretofore, now, or at any time or times hereafter granted by such Borrower or any other Obligor to Lender. Each Borrower agrees that all of the rights of Lender set forth in this Agreement shall apply to any modification of or supplement to this Agreement, any Supplements or Exhibits hereto, and the Related Agreements, unless otherwise agreed in writing. 2.10 MAKING OF PAYMENTS; APPLICATION OF COLLECTIONS; CHARGING OF ACCOUNTS. (a) All payments hereunder (including payment of reimbursement obligations and payments with respect to any Notes) shall be made without set-off or counterclaim and shall be made to Lender in immediately available funds (except as Lender may otherwise consent) prior to 12:30 p.m., Chicago time, on the date due at its office at 231 South LaSalle Street, Chicago, Illinois 60697, or at such other place as may be designated by Lender to each of the Borrowers in writing. Any payments received after such time shall be deemed received on the next Banking Day. Whenever any payment to be made hereunder or under any Note shall be stated to be due on a date other than a Banking Day, such payment may be made on the next succeeding Banking Day, and such extension of time shall be included in the computation of payment of interest and any fees. (b) Each Borrower authorizes Lender, and Lender will, subject to the provisions of this PARAGRAPH (b), apply the whole or any part of any amounts received for the account of such Borrower by Lender (whether deposited in the Assignee Deposit Account of such Borrower or otherwise received by Lender) from the collection of items of payment and proceeds of any Collateral or Third Party Collateral of such Borrower, against the principal and/or interest of any Loans made to such Borrower hereunder and/or any other Liabilities of such Borrower, whether or not then due, in such order of application as Lender may determine, unless such payments or proceeds are, in Lender's sole and absolute discretion, released to such Borrower; PROVIDED, HOWEVER, that prior to the occurrence of an Event of Default, any such amounts received by Lender shall be applied as follows: FIRST, to payment of amounts then due with respect to fees (including Attorneys' Fees), charges and expenses for which such Borrower is liable pursuant to this Agreement and 96 the Related Agreements; SECOND, to payment of amounts then due with respect to interest on the Revolving Loans made to such Borrower; and THIRD, to repayment of the Revolving Loans made to such Borrower; PROVIDED, FURTHER, that no checks, drafts or other instruments received by Lender shall constitute final payment to Lender unless and until such item of payment has actually been collected. All items or amounts which are delivered to Lender by or on behalf of a Borrower or any Obligor or any Account Debtor on account of partial or full payment or otherwise as proceeds of any of the Collateral or Third Party Collateral of such Borrower (including any items or amounts which may have been deposited to the Assignee Deposit Account of such Borrower) may from time to time in Lender's sole and absolute discretion be released to such Borrower or may be applied by Lender towards payment of the Liabilities of such Borrower, whether or not then due as provided in the preceding sentence. Amounts which are applied to the Revolving Loans of either of the Borrowers shall be applied first to Reference Rate Revolving Loans of such Borrower until no Reference Rate Revolving Loans of such Borrower are outstanding before being applied to repay Eurodollar Rate Revolving Loans of such Borrower. Notwithstanding anything to the contrary herein: (i) solely for purposes of determining the occurrence of an Event of Default, all cash, checks, instruments and other items of payment shall be deemed received upon actual receipt by Lender, unless the same is subsequently dishonored for any reason whatsoever; (ii) solely for purposes of determining whether, under SECTIONS 2.1 and 2.2, there is availability for Loans or Letters of Credit, all cash, checks, instruments and other items of payment shall be applied against the Liabilities of each Borrower as follows: (1) in the case of cash and other immediately available funds, on the Banking Day of receipt thereof by Lender of such cash or other immediately available funds, and (2) in the case of checks, instruments and other items of payment not representing immediately available funds, on the first Banking Day after receipt thereof by Lender; and (iii) solely for purposes of interest calculation hereunder, all cash, checks, instruments and other items of payment shall be deemed to have been applied against the Liabilities as follows: (1) in the case of cash and other immediately available funds, on the Banking Day of receipt thereof by Lender of such cash or other immediately available funds, and 97 (2) in the case of checks, instruments and other items of payment not representing immediately available funds, on the second Banking Day after receipt thereof by Lender. (c) Each Borrower hereby authorizes Lender, and Lender may, in its sole and absolute discretion, charge to such Borrower at any time when due all or any portion of any of the Liabilities of such Borrower (and interest, if any, thereon) including but not limited to any Attorneys' Fees and other costs and expenses of Lender for which such Borrower is liable pursuant to the terms of this Agreement or any Related Agreement, by charging such Borrower's Demand Deposit Account or any other bank account of such Borrower with Lender; PROVIDED, HOWEVER that the provisions of this SECTION 2.10(c) shall not affect such Borrower's obligation to pay when due all amounts payable by such Borrower under this Agreement, any Note or any Related Agreement, whether or not there are sufficient funds therefor in the Demand Deposit Account or any such other bank account, in each case of such Borrower; and, PROVIDED, FURTHER, HOWEVER, that so long as an Event of Default shall not have occurred and be continuing, Lender shall give such Borrower thirty (30) days' prior written notice of any such charge in respect of fees of external counsel (or consultants) to Lender. 2.11 LENDER'S ELECTION NOT TO ENFORCE. Notwithstanding any term or condition of this Agreement to the contrary, Lender, in its sole and absolute discretion, at any time and from time to time, may suspend or refrain from enforcing any or all of the restrictions imposed in this SECTION 2, but no such suspension or failure to enforce shall impair any right or power of Lender under this Agreement, including, without limitation, any right of Lender to refrain from making a Loan or issuing a Letter of Credit if all conditions precedent to Lender's obligation to making such Loan or issuing such Letter of Credit have not been satisfied. 2.12 REAFFIRMATION. Each Loan or Letter of Credit requested by either of the Borrowers pursuant to this Agreement shall constitute an automatic certification by such Borrower to Lender that (i) all of the representations and warranties of such Borrower in this Agreement and each of the Related Agreements are true and correct on the date of such request to the same extent as if made on such date, except for such changes as are specifically permitted hereunder (or under such Related Agreement), and (ii) immediately before and after making the requested Loan or issuing the requested Letter of Credit, no Event of Default, or Unmatured Event of Default, then exists or would result therefrom. 2.13 SETOFF. In addition to and not in limitation of all rights of offset or banker's lien that Lender or any other holder of a Note may have under applicable law, Lender or such other holder of a Note shall, upon the occurrence of any Event of Default, or any Unmatured Event of Default described in SECTION 6.1(e), have the right to appropriate and apply to the payment of the Liabilities of each Borrower any and all balances, credits, 98 deposits, accounts or moneys of such Borrower then or thereafter with Lender or such other holder. 2.14 CLOSING FEE. OREMET agrees to pay to Lender, a non-refundable closing fee of $250,000 contemporaneously with the making of the initial Loans. The amount of such closing fee shall be advanced to OREMET as part of the initial Revolving Loans advanced to OREMET. 2.15 NONUSE FEE. OREMET agrees to pay to Lender a fee equal to one-half of one percent (0.5%) per annum on the daily average amount by which $20,000,000 exceeds the aggregate outstanding principal balance of the Revolving Loans plus the Letter of Credit Obligations, in each case of each of the Borrowers. The fee provided for in this SECTION 2.15 shall be (i) calculated on the basis of a year consisting of 360 days and paid for actual days elapsed and (ii) payable in arrears on each Monthly Payment Date for the period then ended and on the last to occur of the Termination Date and the date all Revolving Loans are repaid in full, for the period then ended for which no fee shall have been paid. 3. COLLATERAL. 3.1 GRANT OF SECURITY INTEREST. As security for the payment of all Loans now or hereafter made by Lender to such Borrower hereunder or under any Note, and as security for the prompt and complete payment or other satisfaction of all other Liabilities of such Borrower (including, without limitation, all reimbursement obligations under any Letters of Credit issued for the account of such Borrower), each of the Borrowers hereby grants to Lender a security interest in and to the following property of such Borrower, whether now owned or existing, or hereafter acquired or coming into existence, wherever now or hereafter located (all such property is hereinafter referred to collectively as the "COLLATERAL" of such Borrower): (a) all Accounts Receivable of such Borrower (whether or not Eligible Accounts Receivable); (b) all Inventory of such Borrower (whether or not Eligible Inventory); (c) all General Intangibles of such Borrower; (d) all Contract Rights and documents of title relating to Accounts Receivable or Inventory, in each case of such Borrower; (e) all chattel paper and instruments of such Borrower, including but not limited to, without duplication, all chattel paper and instruments evidencing, arising out of or relating to any obligation or amount owing or payable to such Borrower for goods sold or leased or services rendered, or otherwise arising out of or relating to any property described in CLAUSES (a) through (d) above; 99 (f) any and all balances, credits, deposits (general or special, time or demand, provisional or final), accounts (including without limitation, the Assignee Deposit Account and the Demand Deposit Account, in each case of such Borrower) or monies of or in the name of such Borrower now or hereafter with Lender and any and all property of every kind or description of or in the name of such Borrower now or hereafter, for any reason or purpose whatsoever, in the possession or control of, or in transit to, or standing to such Borrower's credit on the books of, Lender, any agent or bailee for Lender or any Participant (including but not limited to any account maintained in Lender's name with any other bank or financial institution for the collection of any Accounts Receivable of such Borrower or cash proceeds of other Collateral of such Borrower) and any and all property of every description of or in the name of such Borrower now or hereafter, for any reason or purpose whatsoever, in the possession or control of, or in transit to, or standing to such Borrower's credit on the books of, Lender or any Participant, or any agent of or bailee for Lender or any Participant; (g) all interest of such Borrower in any goods the sale or lease of which shall have given or shall give rise to, and in all guaranties and other property securing the payment of or performance under any Accounts Receivable, Contract Rights, General Intangibles or any chattel paper or instruments referred to in CLAUSE (e) above; (h) any and all other property of such Borrower, of any kind or description of such Borrower, subject to a separate pledge or security interest in favor of Lender or in which Lender now or hereafter has or acquires a security interest securing any Liabilities of either or both of the Borrowers, whether pursuant to a written agreement or instrument other than this Agreement or otherwise; (i) all Intellectual Property of such Borrower; (j) all replacements, substitutions, additions or accessions to or for any of the foregoing; (k) to the extent related to the property described in CLAUSES (a) through (j) above, all books, correspondence, credit files, records, invoices and other papers and documents, including, without limitation, to the extent so related, all tapes, cards, computer runs, computer programs and other papers and documents in the possession or control of such Borrower or any computer bureau from time to time acting for such Borrower, and, to the extent so related, all rights in, to and under all policies of insurance, including claims of rights to payments thereunder and proceeds therefrom, including any credit insurance; and 100 (l) all products, offspring, rents, issues, profits, returns, income and proceeds of and from any and all of the foregoing Collateral of such Borrower (including proceeds which constitute property of the types described in CLAUSES (a) through (k) above, proceeds deposited from time to time in the Assignee Deposit Account, and to the extent not otherwise included, all payments under insurance (whether or not Lender is the loss payee thereof), or any indemnity, warranty or guaranty, payable by reason of loss or damage to or otherwise with respect to any of the foregoing Collateral of such Borrower). 3.2 ACCOUNTS RECEIVABLE. (a) If requested by Lender, each Borrower shall advise Lender promptly of any Inventory of such Borrower returned by or repossessed from any Account Debtor of such Borrower, or otherwise recovered, shall receive such Inventory in trust and, unless instructed to deliver such Inventory to Lender, shall resell it for Lender. If requested by Lender, each Borrower shall notify Lender immediately of all disputes and claims by any Account Debtor of such Borrower and settle or adjust them at no expense to Lender. If Lender directs, no discount or credit allowance shall be granted thereafter by either of the Borrowers to any Account Debtor, other than discounts and credit allowances granted in the ordinary course of such Borrower's business and in accordance with such Borrower's usual and customary business and credit practices in effect on the Closing Date. All Account Debtor payments and all net amounts received by Lender in settlement, adjustment or liquidation of any Account Receivable of either of the Borrowers may be applied by Lender to such Borrower's Liabilities or credited to such Borrower's Demand Deposit Account (subject to collection) with Lender, as Lender may deem appropriate, as more fully described in SECTION 2.10. If requested by Lender, each Borrower will make proper entries in its books and records, disclosing the assignment of its Accounts Receivable to Lender. (b) Each Borrower warrants that: (i) to the best of such Borrower's knowledge all of the Accounts Receivable of such Borrower are and will continue to be bona fide existing obligations created by the sale of goods, the rendering of services, or the furnishing of other good and sufficient consideration to Account Debtors in the regular course of such Borrower's business; (ii) all shipping or delivery receipts and other documents furnished or to be furnished to Lender in connection therewith are and will be genuine; and (iii) to the best of such Borrower's knowledge none of the Accounts Receivable of such Borrower identified or included on any schedule, Borrowing Base Certificate or report as Eligible Accounts Receivable of such Borrower fail at the time so identified or included to satisfy any of the requirements for eligibility set forth in the definition of Eligible Accounts Receivable. (c) Lender is authorized and empowered by each of the Borrowers (which authorization and power, being coupled with an interest, is irrevocable until the last to occur of termination of 101 this Agreement and payment and performance in full of all of the Liabilities of each Borrower under this Agreement) at any time in its sole and absolute discretion: (1) To request, in Lender's name, such Borrower's name or the name of a third party, confirmation from any Account Debtor of such Borrower or party obligated under or with respect to any Collateral of such Borrower of the amount shown by the Accounts Receivable or other Collateral to be payable, or any other matter stated therein; (2) To endorse in such Borrower's name and to collect any chattel paper, checks, notes, drafts, instruments or other items of payment tendered to or received by Lender in payment of any Account Receivable or other obligation owing to such Borrower; (3) To notify, either in Lender's name or such Borrower's name, and/or to require such Borrower to notify, any Account Debtor or other Person obligated under or in respect of any Collateral of such Borrower, of the fact of Lender's Lien thereon and of the collateral assignment thereof to Lender; (4) To direct, either in Lender's name or such Borrower's name, and/or to require such Borrower to direct, any Account Debtor or other Person obligated under or in respect of any Collateral of such Borrower to make payment directly to Lender of any amounts due or to become due thereunder or with respect thereto; and (5) After the occurrence of an Event of Default, to demand, collect, surrender, release or exchange all or any part of any Collateral of such Borrower or any amounts due thereunder or with respect thereto, or compromise or extend or renew for any period (whether or not longer than the initial period) any and all sums which are now or may hereafter become due or owing upon or with respect to any of the Collateral of such Borrower, or enforce, by suit or otherwise, payment or performance of any of the Collateral of such Borrower either in Lender's own name or in the name of such Borrower. Under no circumstances shall Lender be under any duty to act in regard to any of the foregoing matters. The costs relating to any of the foregoing matters, including Attorneys' Fees and out-of-pocket expenses, and the cost of any Assignee Deposit Account or other bank account or accounts which may be required hereunder, shall be borne solely by such Borrower whether the same are incurred by Lender or such Borrower, and Lender may advance same to such Borrower as a Revolving Loan. (d) Unless otherwise consented to by Lender, each Borrower will, forthwith upon receipt by such Borrower of all checks, drafts, cash and other remittances in payment or as proceeds of, or on account of, any of the Accounts Receivable or other Collateral 102 of such Borrower, deposit the same in a special bank account (such Borrower's "ASSIGNEE DEPOSIT ACCOUNT") with Lender or such other bank or financial institution as Lender shall consent, over which Lender alone has power of withdrawal, and will, to the extent required by Lender, designate with each such deposit the particular Account Receivable or other item of Collateral of such Borrower upon which the remittance was made. Each Borrower acknowledges that the maintenance of the Assignee Deposit Account of such Borrower is solely for the convenience of Lender in facilitating its own operations and such Borrower does not and shall not have any right, title or interest in such Assignee Deposit Account or in the amounts at any time appearing to the credit thereof. Said proceeds shall be deposited in precisely the form received except for such Borrower's endorsement where necessary to permit collection of items, which endorsement such Borrower agrees to make. Pending such deposit, each Borrower agrees not to commingle any such checks, drafts, cash and other remittances with any of its funds or property, but will hold them separate and apart therefrom and upon an express trust for Lender until deposit thereof is made in the Assignee Deposit Account of such Borrower. Lender will pay over to each Borrower any excess amounts received by Lender as payment or proceeds of Collateral of such Borrower, whether received by Lender as a deposit in the Assignee Deposit Account of such Borrower or received by Lender as a direct payment on any of the sums due from such Borrower hereunder (i) upon the full and final liquidation of all Liabilities of such Borrower and (ii) at any time that the aggregate outstanding principal balance of the Obligations shall be equal to zero, provided, that at such time an Event of Default or Unmatured Event of Default shall not exist. (e) Each Borrower appoints Lender, or any Person whom Lender may from time to time designate, as such Borrower's attorney and agent-in-fact with power: (i) upon the occurrence and during the continuance of an Event of Default, to notify the post office authorities to change the address for delivery of such Borrower's mail to an address designated by Lender; (ii) upon the occurrence and during the continuance of an Event of Default, to receive, open and dispose of all mail addressed to such Borrower; (iii) to send requests for verification of Accounts Receivable or other Collateral of such Borrower to Account Debtors in accordance with Lender's usual and customary business practices; (iv) to open an escrow account or Assignee Deposit Account under Lender's sole control for the collection of Accounts Receivable or other Collateral of such Borrower, if not required contemporaneously with the execution hereof; and (v) to do all other things which Lender is permitted to do under this Agreement or any Related Agreement or which are necessary to carry out this Agreement and the Related Agreements. Neither Lender nor any of its directors, officers, employees or agents will be liable for any acts of commission or omission nor for any error in judgment or mistake of fact or law, unless the same shall have resulted from gross negligence or willful misconduct. The foregoing appointment and power, being coupled with an interest, is irrevocable until all Liabilities of each Borrower under this Agreement are paid and performed in full and this Agreement is terminated. Each Borrower expressly waives 103 presentment, demand, notice of dishonor and protest of all instruments and any other notice to which it might otherwise be entitled. (f) If any Account Receivable, Contract Right or General Intangible, in each case of either of the Borrowers arises out of a contract with the United States or any department, agency, or instrumentality thereof, such Borrower will, unless Lender shall otherwise agree, immediately notify Lender in writing and execute any instruments and take any steps required by Lender in order that all monies due and to become due under such contract shall be assigned to Lender and notice thereof given to the government under the Federal Assignment of Claims Act of 1940, as amended or other applicable laws or regulations. (g) If any Account Receivable or Contract Right of either of the Borrowers is evidenced by chattel paper or promissory notes, trade acceptances, or other instruments for the payment of money, such Borrower will, unless Lender shall otherwise agree, deliver the originals of same to Lender, appropriately endorsed to Lender's order and, regardless of the form of such endorsement, such Borrower hereby expressly waives presentment, demand, notice of dishonor, protest and notice of protest and all other notices with respect thereto. 3.3 INVENTORY. (a) Unless Lender shall otherwise agree, if either of the Borrowers sells Inventory for cash, all full and partial payments therefor shall be immediately delivered by such Borrower to Lender in their original form for deposit in the Assignee Deposit Account of such Borrower or for other application to reduction of the Liabilities of such Borrower. All such cash shall be held by such Borrower in trust for Lender and shall be remitted to Lender not later than the end of the day following the day on which it is received, or at such other time as Lender may designate. (b) Lender shall not be liable or responsible in any way for the safekeeping of any Inventory of either of the Borrowers delivered to it, to any bailee appointed by or for it, to any warehouseman, or under any other circumstances. Lender shall not be responsible for collection of any proceeds or for losses in collected proceeds held by either of the Borrowers in trust for Lender. Any and all risk of loss for any or all of the foregoing shall be upon such Borrower, except for such loss as shall result from Lender's gross negligence or willful misconduct. (c) If requested by Lender, each Borrower shall, upon acquiring an interest in any Inventory, deliver to Lender schedules of such Inventory, together with supplier's invoices, warranties, production, cost and other records as Lender may reasonably request. If requested by Lender, each Borrower shall deliver to Lender schedules of the sale of any Inventory of such Borrower immediately upon its sale. Any material change in the value or condition of any Inventory of either of the Borrowers, and any 104 material errors discovered in schedules delivered to Lender, shall be reported to Lender by such Borrower immediately. Each Borrower confirms that the warranties and representations of each of the Borrowers in this Agreement shall apply to each schedule. Each Borrower represents and warrants that, as to each schedule of Inventory delivered by such Borrower to Lender: (1) The descriptions, origins, sizes, qualities, quantities, weights, and markings of all goods stated thereon, or on any attachment thereto, are true and correct in all material respects; (2) None of the goods are defective, of second quality or in any other respect unsuitable for use or sale in the ordinary course of such Borrower's business, except where described as such; and (3) All Inventory of such Borrower not included on such schedule has been previously scheduled. (d) If requested by Lender, each Borrower will notify Lender immediately if such Borrower obtains possession (by return, repossession or otherwise) of any Inventory of such Borrower which has been sold, and will inform Lender of the identity of such returned or repossessed Inventory, the applicable Account Debtor and the amount of the applicable Account Receivable. 3.4 SUPPLEMENTAL DOCUMENTATION. At Lender's request, each Borrower shall execute and/or deliver to Lender, at any time or times hereafter, such agreements, documents, financing statements, warehouse receipts, bills of lading, notices of assignment of Accounts Receivable, schedules of Accounts Receivable assigned, and other written matter necessary or reasonably requested by Lender to perfect and maintain perfected Lender's security interest in the Collateral of each Borrower (all the above hereinafter referred to as "SUPPLEMENTAL DOCUMENTATION"), in form and substance acceptable to Lender, and pay all taxes, fees and other costs and expenses associated with any recording or filing of the Supplemental Documentation. Each Borrower hereby irrevocably makes, constitutes and appoints Lender (and all Persons designated by Lender for that purpose) as such Borrower's true and lawful attorney (and agent-in-fact) to sign the name of such Borrower on any of the Supplemental Documentation and to deliver any of the Supplemental Documentation to such Persons as Lender in its sole and absolute discretion, may elect. Each Borrower agrees that a carbon, photographic, photostatic, or other reproduction of this Agreement or of a financing statement is sufficient as a financing statement. 4. REPRESENTATIONS AND WARRANTIES. To induce Lender to make Loans to the Borrowers under this Agreement, each of the Borrowers makes the following representations and warranties, all of which shall be true and correct in all material respects as of the date the initial Loans are made, in each case after giving effect to the Acquisition and 105 to the other transactions contemplated by the Acquisition Documents, and shall survive the execution of this Agreement and the making of the initial Loans: 4.1 ORGANIZATION. Each of the Borrowers and all of its corporate Subsidiaries are corporations duly organized, validly existing and in good standing under the laws of the jurisdictions of their respective incorporation or formation. All of each of the Borrower's other Subsidiaries, if any, are entities duly organized, validly existing and in good standing under the laws of the jurisdictions of their respective organization or formation. Each of the Borrowers and all of its Subsidiaries are in good standing and are duly qualified to do business in each jurisdiction where, because of the nature of their respective activities or properties, such qualification is required, except for any such failures to so qualify which singly or in the aggregate could not reasonably be expected to have a Material Adverse Effect. On the date hereof, each of the Borrowers and each Subsidiary of each of the Borrowers conduct business in their respective names exclusively and have no trade names, styles or doing business forms, except as disclosed on SCHEDULE 4.1. SCHEDULE 4.1 sets forth a complete and accurate list, as of the date of this Agreement, of (a) the state or other jurisdiction of formation of each of the Borrowers and each of its Subsidiaries, (b) each state in which each of the Borrowers and each of its subsidiaries is qualified to do business and (c) all of each of the Borrower's and its Subsidiaries' trade names, trade styles or doing business forms. 4.2 AUTHORIZATION. Each of the Borrowers is duly authorized, has full power and authority, and holds all requisite governmental licenses, permits and other approvals, to execute and deliver this Agreement, any Notes, any Related Agreements or Supplemental Documentation contemplated by this Agreement executed and/or delivered by it, and any Acquisition Documents executed and/or delivered by it, and is and will continue to be duly authorized, have full power and authority and hold all requisite governmental licenses, permits and other approvals to borrow monies hereunder and to perform its obligations under this Agreement, any Notes, any Related Agreements and Supplemental Documentation executed and/or delivered by it, and any Acquisition Documents executed and/or delivered by it. The execution, delivery and performance by each of the Borrowers of this Agreement, any Notes, any Related Agreements or Supplemental Documentation contemplated by this Agreement to be executed and/or delivered by it, the consummation of the Acquisition, and the borrowings hereunder, do not and will not require any consent or approval of any governmental agency or except any that have been obtained and are in full force and effect. Each Subsidiary of each of the Borrowers is duly authorized, has full power and authority and holds all requisite governmental licenses, permits and other approvals to execute and/or deliver any Related Agreements or Supplemental Documentation contemplated by this Agreement to be executed and/or delivered by it, and is and will continue to be duly authorized, have full power and authority and hold all requisite governmental licenses, permits and other approvals to perform its obligations under each such 106 Related Agreement and Supplemental Documentation. The execution, delivery and performance by each Subsidiary of each of the Borrowers of any Related Agreements or Supplemental Documentation contemplated by this Agreement, do not and will not require any consent or approval of any governmental agency or authority except any that have been obtained and are in full force and effect. 4.3 NO CONFLICTS. The execution, delivery and performance by each of the Borrowers of each of the Acquisition Documents, this Agreement, any Notes, and any Related Agreements or Supplemental Documentation executed and/or delivered by it, including the consummation of the Acquisition do not and will not conflict with (i) except for any such conflicts which singly or in the aggregate could not reasonably be expected to have a Material Adverse Effect, any provision of law, (ii) the charter or by-laws of such Borrower, (iii) any material agreement binding upon such Borrower or (iv) any court or administrative order or decree applicable to such Borrower, and do not and will not require, or result in, the creation or imposition of any Lien on any asset of either of the Borrowers or any of its Subsidiaries except as provided herein. The execution, delivery and performance by any of the Subsidiaries of either of the Borrowers of any Related Agreements or Supplemental Documentation executed and/or delivered by it do not and will not conflict with (i) except for any such conflicts which singly or in the aggregate could not reasonably be expected to have a Material Adverse Effect, any provision of law, (ii) the charter or by- laws of such Subsidiary, (iii) any agreement binding upon such Subsidiary or (iv) any court or administrative order or decree applicable to such Subsidiary, and do not and will not require, or result in, the creation or imposition of any Lien on any asset of such Subsidiary except as provided herein. 4.4 VALIDITY AND BINDING EFFECT. This Agreement, any Notes, any Related Agreements or Supplemental Documentation contemplated by this Agreement, when duly executed and delivered by each of the Borrowers, will be legal, valid and binding obligations of such Borrower, enforceable against such Borrower in accordance with their respective terms, except as enforceability may be limited by bankruptcy, insolvency or other similar laws of general application affecting the enforcement of creditors' rights or by general principles of equity limiting the availability of equitable remedies. Any Related Agreements or Supplemental Documentation contemplated by this Agreement, when duly executed and delivered by a Subsidiary of either of the Borrowers will be legal, valid and binding obligations of such Subsidiary enforceable against such Subsidiary in accordance with their respective terms, except as enforceability may be limited by bankruptcy, insolvency or other similar laws of general application affecting the enforcement of creditors' rights or by general principles of equity limiting the availability of equitable remedies. 4.5 NO DEFAULT. Neither of the Borrowers nor any of their respective Subsidiaries is in default under any agreement or instrument to which such Borrower or such Subsidiary is a party or by which any of their respective properties or assets is bound or 107 affected, which default might materially and adversely affect (i) Lender's Lien on or rights with respect to any Collateral or Third Party Collateral of either of the Borrowers or (ii) the financial condition or operations of either of the Borrowers or any Subsidiary of either of the Borrowers. No Event of Default or Unmatured Event of Default has occurred and is continuing. 4.6 FINANCIAL STATEMENTS. (a) OREMET's audited financial statement as at December 31, 1993 and OREMET'S unaudited financial statement as at June 30, 1994, copies of which have been furnished to Lender, have been prepared in conformity with generally accepted accounting principles applied on a basis consistent with that of the preceding fiscal year and period and present fairly the financial condition of OREMET and its Subsidiaries as at such dates and the results of their operations for the periods then ended, subject (in the case of the interim financial statement) to year-end audit adjustments and the absence of footnotes. Since December 31, 1993, there has been no material adverse change in the financial condition of OREMET and its Subsidiaries taken as a whole. (b) Old TI's audited combined financial statement as at December 31, 1993 and Old TI'S unaudited combined financial statement as at June 30, 1994, in the case of such financial statement as at December 31, 1993, certified by a certified public accounting firm reasonably acceptable to Lender, copies of which have been furnished to Lender, have been prepared in conformity with generally accepted accounting principles and present fairly the financial condition of Old TI (excluding the Fabrication Business) and its Subsidiaries and as at such dates and the results of their operations for the periods then ended, subject (in the case of the interim financial statement) to year-end audit adjustments and the absence of footnotes. Since December 31, 1993, there has been no material adverse change in the financial condition of Old TI (excluding the Fabrication Business) and its Subsidiaries taken as a whole. (c) Borrowers have furnished or caused to be furnished to Lender the following (collectively, the "PRO FORMA FINANCIAL INFORMATION"), each as at the Closing Date and after giving effect to the Acquisition and the other transactions contemplated by the Purchase Agreement and the other Acquisition Documents, the incurrence by TI of the Subordinated Indebtedness and consummation of the other transactions required as a condition precedent to the initial Loans under this Agreement: (i) the pro forma balance sheet of TI setting forth the assets and liabilities and each of its Subsidiaries, which is attached hereto as EXHIBIT B (the "PRO FORMA BALANCE SHEET") and (ii) projected pro forma statements of earnings and cash flows and balance sheets and other operating information for each of the Borrowers and also for OREMET and each of its Subsidiaries on a consolidated basis, which are attached hereto as EXHIBIT C (the "PROJECTIONS"). Such Projections shall be for a period of four (4) years and shall consist of projected financial information on an annual basis for each of such years and 108 on a monthly basis for the twelve-month period immediately following the Closing Date. The Pro Forma Financial Information presents fairly, on a pro forma basis, the balance sheet of TI and each of its Subsidiaries and TI's best good faith estimate and projections of TI's and each Subsidiary's financial position and results of operations as of the dates and for the periods indicated. As of the date of this Agreement, neither of the Borrowers knows of any fact that materially affects or is likely to materially affect the reliability, accuracy and completeness of the Pro Forma Financial Information. 4.7 INSURANCE. SCHEDULE 4.7 hereto is a complete and accurate summary of the property and casualty insurance program carried by each of the Borrowers and its Subsidiaries on the date hereof. SCHEDULE 4.7 includes the insurer's(s') name(s), policy number(s), expiration date(s), amount(s) of coverage, type(s) of coverage and applicable exclusions and deductibles. This summary also includes a description of any self-insurance program that is in effect. 4.8 LITIGATION; CONTINGENT LIABILITIES. (a) Except for those referred to in SCHEDULE 4.8, no claims, litigation, arbitration proceedings or governmental proceedings are pending or threatened against or are affecting either of the Borrowers or any of its Subsidiaries, the results of which singly or in the aggregate could reasonably be expected to have a Material Adverse Effect. (b) Other than any liability incident to the claims, litigation or proceedings disclosed in SCHEDULE 4.8 or SCHEDULE 4.19, or provided for or disclosed in the financial statements referred to in SECTION 4.6, neither of the Borrowers nor any Subsidiary of either of the Borrowers has any contingent liabilities which are material to such Borrower or such Subsidiary. 4.9 LIENS. None of the Collateral of either of the Borrowers or other property or assets of either of the Borrowers or any Subsidiary of either of the Borrowers is subject to any Lien (including but not limited to Liens pursuant to Capitalized Leases under which such Borrower or any such Subsidiary is a lessee) except: (a) Liens in favor of Lender; (b) Liens for current Taxes not delinquent or Taxes being contested in good faith and by appropriate proceedings and as to which such reserves or other appropriate provisions as may be required by GAAP are being maintained; (c) carriers', warehousemen's, mechanics', materialmen's and other like statutory Liens arising in the ordinary course of business securing obligations which are not overdue or which are being contested in good faith and by appropriate proceedings and as to which such reserves or other appropriate provisions as may be required by GAAP are being maintained; (d) easements, rights-of-way, restrictions and other similar charges or encumbrances not interfering in any material respect with the ordinary conduct of the business of either of the Borrowers or any Subsidiary of either of the Borrowers; (e) Liens 109 described on SCHEDULE 4.9; (f) in the case of TI, Liens on property of TI in favor of "Junior Lender" (as defined in the Subordination Agreement) granted pursuant to the Subordinated Indebtedness Documents and securing Subordinated Indebtedness; and (g) Liens (other than Liens or any Collateral or Third Party Collateral of any Borrower) in addition to those described in clauses (a) through (f) above, provided that the fair market value of the property subject to such Lien shall not exceed $500,000 in the aggregate for OREMET and its Subsidiaries. 4.10 SUBSIDIARIES. Neither of the Borrowers has any Subsidiaries except as listed on SCHEDULE 4.10. Each of the Borrowers and each Subsidiary of each of the Borrowers own the percentage of their respective Subsidiaries described on SCHEDULE 4.10. 4.11 PARTNERSHIPS. Except as set forth on SCHEDULE 4.11, neither of the Borrowers nor any Subsidiary of either of the Borrowers is a partner or joint venturer in any partnership or joint venture. 4.12 BUSINESS LOCATIONS. (a) On the date hereof, the office where each of the Borrowers keeps books and records concerning its Accounts Receivable and other Collateral, and such Borrower's chief place of business and chief executive office, is located at the respective address of such Borrower set forth on the signature pages of this Agreement. SCHEDULE 4.12 contains a complete and accurate list, as of the date of this Agreement and after giving effect to the Acquisition, of (i) all of each of the Borrower's other places of business, (ii) the office where each Subsidiary of each of the Borrowers keeps its respective books and records concerning its assets, and such Subsidiary's chief place of business and chief executive office and (iii) to the extent not included in CLAUSE (II) of this sentence, each place of business of each of Subsidiary of each of the Borrowers. (b) SCHEDULE 4.12 contains a complete and accurate list, as of the date of this Agreement and after giving effect to the Acquisition, of (i) the locations of all of each of the Borrower's Inventory, Equipment and Fixtures (except any Equipment which such Borrower shall have advised Lender in writing is normally used in more than one state and other locations of Inventory with a market value not exceeding $250,000 in the aggregate for both Borrowers at any one of such locations and $500,000 in the aggregate for both Borrowers for all such locations), (ii) the locations of all Inventory, Equipment and Fixtures of each Subsidiary of each of the Borrowers (except the location of any such Equipment which such Borrower shall have advised Lender in writing is normally used in more than one state ), (iii) if applicable (and to the extent not included in the information provided pursuant to CLAUSE (II) of this PARAGRAPH (B), the locations of all Third Party Collateral of each of the Borrowers (except any thereof which such Borrower shall have advised Lender in writing is normally used in more than one 110 state) and (iv) if any Inventory, Equipment or other Collateral or Third Party Collateral of either of the Borrowers or any Subsidiary of either of the Borrowers, or any other Third Party Collateral of either of the Borrowers, is not in the possession or control such of Borrower, such Subsidiary or the owner of such other Third Party Collateral, as appropriate, the name and mailing address of each bailee, processor, consignee, warehouseman or other Person in possession or control thereof. 4.13 REAL PROPERTY. SCHEDULE 4.13 contains a complete and accurate list, as of the date of this Agreement and after giving effect to the Acquisition, of (a) the address of any real property owned by each of the Borrowers and each Subsidiary of each of the Borrowers or on which any Fixtures of such Borrower or such Subsidiary are located and (b) in the case of Fixtures located on property not owned by such Borrower or such Subsidiary, as the case may be, the name(s) and mailing addresses of the record owners of such property. 4.14 ELIGIBILITY OF COLLATERAL. Each Account Receivable or item of Inventory which either of the Borrowers shall, expressly or by implication (by inclusion on a Borrowing Base Certificate or otherwise), request Lender to classify as an Eligible Account Receivable or as Eligible Inventory, respectively, of such Borrower will, as of the time when such request is made, conform in all respects to the requirements of such classification set forth in the respective definitions of "Eligible Account Receivable" and "Eligible Inventory" set forth herein. 4.15 CONTROL OF COLLATERAL; LEASE OF PROPERTY. Except as set forth on SCHEDULE 4.15, neither of the Borrowers is now conducting, or permitting or suffering to be conducted, any activities pursuant to or in conjunction with which any of the Collateral of either of the Borrowers is now, or will be (while any Liabilities of either of the Borrowers exist or this Agreement is in effect), in the possession or control of, any Subsidiary of either Borrower, Obligor (other than a Borrower) or Related Party. Except as listed on SCHEDULE 4.15 and for any such leases the annual rent payable under which leases by OREMET and its Subsidiaries does not exceed $500,000 in the aggregate, none of the machinery, equipment or real property used by either Borrower or any of its Subsidiary is subject to a lease (excluding only Capitalized Leases included on SCHEDULE 4.15) under which such Borrower or such Subsidiary is the lessee. 4.16 INTELLECTUAL PROPERTY; LICENSES. Each of the Borrowers and each of its Subsidiaries possesses adequate Intellectual Property to continue to conduct its respective business as heretofore conducted by it, and all such Intellectual Property (other than Trade Secrets) existing on the date of this Agreement (together with in the case of patents, Trademarks and copyrights, the date of issuance thereof), are as listed on SCHEDULE 4.16. With respect to the Intellectual Property which is useful to the conduct by each of the Borrowers and its Subsidiaries of their respective businesses or the loss of use of which could materially 111 and adversely affect (i) Lender's Lien on or rights with respect to any material (whether as to type, or as to amount or value in relation to the total amount of Collateral or Third Party Collateral of such type) Collateral or Third Party Collateral of either of the Borrowers or (ii) the business, financial condition, operations, properties or prospects of the Borrowers, any of their respective Subsidiaries, or the Borrowers and their respective Subsidiaries taken as a whole: (a) such Intellectual Property is valid and enforceable, is subsisting, and has not been adjudged invalid or unenforceable, in whole or in part; (b) such Borrower or the applicable Subsidiary has made all necessary filings and recordations required in the exercise of reasonable business judgment, to protect its interest therein, including, without limitation, recordations of all of its interest in its Patent Property and Trademark Property in the United States Patent and Trademark Office and in corresponding offices throughout the world and its claims to its Copyright Property in the United States Copyright Office and in corresponding offices throughout the world; (c) except for non-exclusive licenses granted in the ordinary course of business, such Borrower or one of its Subsidiaries is the exclusive owner of the entire and unencumbered right, title and interest therein and thereto and no claim has been made that the use of any of its Intellectual Property does or may violate the asserted rights of any third party; and (d) such Borrower and each applicable Subsidiary has performed, and such Borrower will continue to perform, and will cause each of its Subsidiaries to continue to perform, all acts, and such Borrower and each applicable Subsidiary has paid and will continue to pay, all required fees and taxes to maintain each and every item of its Intellectual Property in full force and effect throughout the world, as applicable. Each of the Borrowers and each of its Subsidiaries owns directly or is entitled to use, by license or otherwise, all patents, Trademarks, Trade Secrets, copyrights, mask works, licenses, technology, know-how, processes and rights with respect to any of the foregoing used in, necessary for or of importance to the conduct of such Borrower's and its Subsidiaries' respective businesses. 4.17 SOLVENCY. After giving effect to the transactions contemplated hereby, by the Related Agreements and by the Acquisition Documents, including, without limitation, the Acquisition and incurrence by TI of the Subordinated Indebtedness, each of the Borrowers and each of its Subsidiaries (i) has assets (excluding goodwill and other intangible assets not capable of valuation) having a value, both at present fair saleable value and at fair valuation, greater than the amount of its liabilities, (ii) 112 has capital sufficient to carry on its respective business and transactions and all business and transactions in which it is about to engage, (iii) has not engaged in and is not about to engage in a business or transaction for which its remaining assets are unreasonably small in relation to the business or the transaction, (iv) is able to pay its respective debts as they mature and does not intend to incur, or believe that it is incurring, debts beyond its ability to pay as they mature and (v) has no actual intent to hinder, delay or defraud either present or future creditors. 4.18 CONTRACTS; LABOR MATTERS. Except as disclosed on SCHEDULE 4.18: (a) neither of the Borrowers nor any Subsidiary of either of the Borrowers is a party to any contract or agreement, or is subject to any charge, corporate restriction, judgment, decree or order, which materially and adversely affects its business, property, assets, operations or condition, financial or otherwise; (b) no labor contract to which either of the Borrowers or any Subsidiary of either of the Borrowers is a party or is otherwise subject is scheduled to expire prior to the initial Termination Date; (c) neither of the Borrowers nor any Subsidiary of either of the Borrowers has, within the two-year period preceding the date of this Agreement, taken any action which would have constituted or resulted in a "plant closing" or "mass layoff" within the meaning of the Federal Worker Adjustment and Retraining Notification Act of 1988 or any similar applicable federal, state or local law, and neither of the Borrowers has any reasonable expectation that any such action is or will be required at any time prior to the initial Termination Date and (d) on the date of this Agreement (i) neither of the Borrowers nor any Subsidiary of either of the Borrowers is a party to any labor dispute and (ii) there are no strikes or walkouts relating to any labor contracts to which either of the Borrowers or any of its Subsidiaries is a party or is otherwise subject. 4.19 PENSION AND WELFARE PLANS. Each Pension Plan complies in all material respects with all applicable statutes and governmental rules and regulations; no Reportable Event has occurred and is continuing with respect to any Pension Plan; neither of the Borrowers nor any ERISA Affiliate of either of the Borrowers has withdrawn from any Multiemployer Plan in a "complete withdrawal" or a "partial withdrawal" as defined in Sections 4203 or 4205 of ERISA, respectively; no steps have been instituted by either of the Borrowers to terminate any Pension Plan; no condition exists or event or transaction has occurred in connection with any Pension Plan or Multiemployer Plan which could result in the incurrence by either of the Borrowers, any other Obligor or any ERISA Affiliate of either of the Borrowers of any material liability, fine or penalty; and neither of the Borrowers nor any other Obligor nor any ERISA Affiliate of either of the Borrowers is a "contributing sponsor" as defined in Section 4001(a) (13) of ERISA of a "single-employer plan" as defined in Section 4001(a)(15) of ERISA which has two or more contributing sponsors at least two of whom are not under common control. Except as listed in SCHEDULE 4.19, neither of the Borrowers nor any Subsidiary of either of the Borrowers has any contingent liability with respect to any 113 "employee welfare benefit plans," as such term is defined in Section 3(l) of ERISA, which covers retired or terminated employees and their beneficiaries. 4.20 REGULATION U. Neither of the Borrowers nor any Subsidiary of either of the Borrowers is engaged in the business of purchasing or selling Margin Stock or extending credit to others for the purpose of purchasing or carrying Margin Stock, and no part of the proceeds of any borrowing hereunder will be used to purchase or carry any Margin Stock or for any other purpose which would violate any of the margin regulations of the Federal Reserve Board. 4.21 COMPLIANCE. Each of the Borrowers and each Subsidiary is in material compliance with all statutes, judicial or administrative orders, licenses, permits and governmental rules and regulations applicable to it. 4.22 TAXES. Each of the Borrowers and each Subsidiary of each of the Borrowers has filed all tax returns which are required to have been filed and has paid, or made adequate provisions for the payment of, all of its Taxes which are due and payable, except (i) such Taxes, if any, as are being contested in good faith and by appropriate proceedings and as to which such reserves or other appropriate provisions as may be required by GAAP have been maintained and (ii) such Taxes in an aggregate amount not exceeding $25,000. The federal income tax liability of each of the Borrowers and each Subsidiary of each of the Borrowers has been audited by the Internal Revenue Service and has been finally determined and satisfied (or the time for audit has expired) for all tax years up to and including the tax year ended December 31, 1986. Neither of the Borrowers is aware of any proposed assessment against such Borrower or any of its Subsidiaries for additional Taxes (or any basis for any such assessment) which might be material to such Borrower and its Subsidiaries taken as a whole. 4.23 INVESTMENT COMPANY ACT REPRESENTATION. Neither of the Borrowers nor any Subsidiary of either of the Borrowers is an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended. 4.24 PUBLIC UTILITY HOLDING COMPANY ACT REPRESENTATION. Neither of the Borrowers nor any Subsidiary of either of the Borrowers is a "holding company" or a "subsidiary company" of a "holding company" or an "affiliate" of a "holding company" within the meaning of the Public Utility Holding Company Act of 1935, as amended. 4.25 ENVIRONMENTAL AND SAFETY AND HEALTH MATTERS. Except as disclosed on SCHEDULE 4.25, and after giving effect to the Acquisition: (a) Each of the Borrowers and each of its Subsidiaries, and each property (including underlying groundwater), operation and facility that each of the Borrowers or any of 114 its Subsidiaries owns, operates or controls, have been, and continue to be, owned, operated or controlled in material compliance in all respects with (1) all applicable Environmental Laws and (2) all applicable Occupational Safety and Health Laws, and each of the Borrowers and each of its Subsidiaries, as applicable, has been issued and it and its properties, operations and facilities are in compliance in all material respects with all permits, certificates, approvals, licenses and other authorizations relating to environmental matters and necessary or desirable for its businesses; (b) neither of the Borrowers nor any Subsidiary of either of the Borrowers, and no property (including underlying groundwater), operation or facility that each of the Borrowers or any Subsidiary of either of the Borrowers may own, operate or control, is subject to any judicial or administrative proceeding alleging the violation of any Environmental Law or Occupational Safety and Health Law; (c) neither of the Borrowers nor any Subsidiary of either of the Borrowers has received any notice (1) that it may be in violation of any Environmental Law or Occupational Safety and Health Law, or (2) threatening the commencement of any proceeding relating to allegedly unlawful, unsafe or unhealthy conditions or (3) alleging that it is or may be responsible for any response, cleanup, or corrective action, including but not limited to any remedial investigation/feasibility studies, under any Environmental Law or Occupational Safety and Health Law; (d) neither of the Borrowers nor any Subsidiary of either of the Borrowers, and no property (including underlying groundwater), operation or facility that either of the Borrowers or any Subsidiary of either of the Borrowers owns, operates or controls, is the subject of federal or state investigation evaluating whether any investigation, remedial action or other response is needed to respond to (I) a spillage, disposal or Release or threatened Release into the environment of any Hazardous Material or other hazardous, toxic or dangerous waste, substance or constituent, or other substance or (2) any allegedly unsafe or unhealthful condition; (e) neither of the Borrowers nor any Subsidiary of either of the Borrowers has filed any notice under or relating to any Environmental Law or Occupational Safety and Health Law indicating or reporting, with respect to any property (including underlying groundwater), operation and facility that it may own, operate or control (1) any past or present spillage, disposal or Release into the environment of, or treatment, storage or disposal of, any Hazardous Material or other hazardous, toxic or dangerous waste, substance or constituent, or other substance or (2) any potentially unsafe or unhealthful condition, and there exists no basis for any 115 such notice irrespective of whether or not such notice was actually filed; (f) there has been no Release of Hazardous Materials at, on or under any property, operation or facility that either of the Borrowers or any Subsidiary of either of the Borrowers now or previously owned, operated or controlled; (g) no property, operation or facility that either of the Borrowers or any Subsidiary of either of the Borrowers now or previously owned, operated or controlled is listed or proposed for listing (with respect to owned property only) on the National Priorities List maintained pursuant to the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, on the Comprehensive Environmental Response Compensation Liability Information System List or on any similar state list of sites requiring investigation or clean-up; (h) there are no underground storage tanks, active or abandoned, including petroleum storage tanks, on or under any property, operation or facility that either of the Borrowers or any Subsidiary of either of the Borrowers now or previously owned, operated or controlled; (i) neither of the Borrowers nor any Subsidiary of either of the Borrowers has directly transported or directly arranged for the transportation of any Hazardous Material to any location which is listed or proposed for listing on the National Priorities List maintained pursuant to the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, on the Comprehensive Environmental Response Compensation Liability Information System List or on any similar state list of sites, or which is the subject of federal, state or local enforcement actions or other investigations which may lead to a claim against either of the Borrowers or any Subsidiary of either of the Borrowers for any remedial work, damage to natural resources or personal injury, including claims under any Environmental Law; (j) there are no polychlorinated biphenyls or friable asbestos present at any property, operation or facility that either of the Borrowers or any Subsidiary of either of the Borrowers now or previously owned, operated or controlled; (k) no conditions exist at, on or under any property now or previously owned, operated or controlled by either of the Borrowers or any Subsidiary of either of the Borrowers which, with the passage of time, or the giving of notice or both, would give rise to liability under any Environmental Law currently in existence; and (l) neither of the Borrowers nor any Subsidiary of either of the Borrowers has any contingent liability in connection with (1) any actual, threatened, or potential 116 spillage, disposal or Release into the environment of, or otherwise with respect to, any Hazardous Material or other hazardous, toxic or dangerous waste, substance or constituent, or other substance, whether on any premises now or previously owned or occupied by either of the Borrowers or any Subsidiary of either of the Borrowers or on any other premises, or (2) any unsafe or unhealthful condition. 4.26 RELATED AGREEMENTS. All representations and warranties of each of the Borrowers and each Subsidiary of each of the Borrowers contained in any Related Agreements are true and correct in all material respects as if made on the date hereof and each of the Borrowers hereby adopts and affirms all such representations and warranties which such Borrower agrees shall be incorporated by reference herein and made a part hereof. 5. BORROWER COVENANTS. From the date of this Agreement and thereafter until the Credit of each Borrower is terminated and all Liabilities of each of the Borrowers hereunder are indefeasibly paid in full in cash, each of the Borrowers agrees that unless Lender shall otherwise consent in writing, it will: 5.1 FINANCIAL STATEMENTS AND OTHER REPORTS. Furnish, or cause to be furnished, to Lender in form satisfactory to Lender: 5.1.1 FINANCIAL REPORTS: (a) ANNUAL AUDIT REPORT. Within ninety (90) days after each fiscal year of each Borrower, a copy of the annual audit report of such Borrower and its Subsidiaries prepared on a consolidated basis in conformity with GAAP and certified by an independent certified public accountant who shall be satisfactory to Lender, together with a certificate from such accountant (i) acknowledging its understanding that Lender and any Participant is relying on such audit report and (ii) to the effect that, in making the examination necessary for the signing of such annual audit report, such accountant has not become aware of any Event of Default or Unmatured Event of Default that has occurred and is continuing, or, if such accountant has become aware of any such event, describing it; (b) QUARTERLY FINANCIAL STATEMENT. Within forty-five (45) days (or in the case of the last quarter of each such fiscal year, within sixty (60) days) after each quarter of each fiscal year of each Borrower, a copy of the unaudited financial statement of each of the Borrowers and its Subsidiaries prepared in the same manner as the audit report referred to in preceding CLAUSE (a), subject to year-end audit adjustments and the 117 absence of footnotes, signed by such Borrower's chief financial officer and consisting of at least a balance sheet as at the close of such quarter and statements of earnings and source and application of funds for such quarter and for the period from the beginning of such fiscal year to the close of such quarter; (c) MONTHLY FINANCIAL STATEMENT. Within thirty (30) days (or in the case of the month of December, within sixty (60) days) after the end of each month of each fiscal year of each Borrower, a copy of the unaudited financial statement of such Borrower and its Subsidiaries prepared in the same manner as the audit report referred to in preceding CLAUSE (a), subject to year-end audit adjustments and the absence of footnotes, signed by such Borrower's chief financial officer and consisting of at least a balance sheet as at the close of such month and statements of earnings and source and application of funds for such month and for the period from the beginning of such fiscal year to the close of such month; (d) ANNUAL BUDGET AND BUSINESS PLAN. On or before January 31st of each fiscal year of such Borrower, a copy of the business plan, projections and budgets for such Borrower and its Subsidiaries for such fiscal year, and prompt notice of any material changes thereafter made to such business plans, projections or budgets; (e) OFFICER'S CERTIFICATE. Together with the financial statements furnished under the preceding CLAUSES (a), (b) and (c), a certificate of each of the Borrower's chief financial officer in substantially the form of EXHIBIT D hereto (each, a "COMPLIANCE CERTIFICATE") dated the date of such annual audit report or such quarterly or monthly financial statement, as the case may be, containing a statement that no Event of Default or Unmatured Event of Default has occurred and is continuing, or, if there is any such event, describing it and the steps, if any, being taken to cure it, and containing a computation of, and showing compliance with, each of the financial ratios and restrictions contained in this SECTION 5 or in SUPPLEMENT A; and (f) MANAGEMENT LETTERS. Within thirty (30) days after receipt thereof, a copy of any "management letter" or similar report received by either of the Borrowers prepared by its internal or outside accountants. 118 5.1.2. BORROWING BASE CERTIFICATE. At the end of each week and at such other times as Lender may reasonably request, a Borrowing Base Certificate executed and certified as accurate by such Persons as such Borrower designates in writing to Lender pursuant to duly adopted resolutions of such Borrower's Board of Directors authorizing such action, showing a computation of the Borrowing Base of such Borrower as of the date of such Borrowing Base Certificate. 5.1.3 AGINGS. Within fifteen (15) days after the end of each month, an aging of all Accounts Receivable of such Borrower and an aging of all accounts payable of such Borrower as of the end of such month, in form and content reasonably acceptable to Lender. 5.1.4 INVENTORY CERTIFICATION. Within twenty-five (25) days after the end of each month, an Inventory certification report as of the end of the month for all Inventory locations of such Borrower, in form and content reasonably acceptable to Lender. 5.1.5 OTHER REPORTS: (a) SEC AND OTHER REPORTS. Copies of each filing and report made by such Borrower or any of its Subsidiaries with or to any securities exchange or the Securities and Exchange Commission and of each communication from such Borrower or any of its Subsidiaries to shareholders generally, promptly upon the filing or making thereof; (b) REPORT OF CHANGE IN SUBSIDIARIES OR PARTNERSHIPS. Promptly from time to time, a written report of any change in the information set forth in SCHEDULE 4.1, 4.10 or 4.11 concerning either of the Borrowers or any Subsidiary of either of the Borrowers. (c) INTELLECTUAL PROPERTY. Promptly from time to time, a written report of any material change to the list of patents, trademarks, copyrights and other Intellectual Property information set forth in SCHEDULE 4.16; and (d) OTHER REPORTS. Any information required to be provided by such Borrower pursuant to other provisions of this Agreement or any Related Agreement and promptly from time to time such other reports or information reasonably requested by Lender. 5.2 NOTICES. Notify Lender in writing of any of the following immediately upon learning of the occurrence thereof (or, in the case of CLAUSES (e), (f) (other than ITEM (iv) thereof) and (g) of this SECTION 5.2, at least 30 days prior to the occurrence thereof), describing the same and, if applicable, the steps being taken by the Person(s) affected with respect thereto: 119 (a) DEFAULT. The occurrence of (i) an Event of Default or Unmatured Event of Default and (ii) to the extent not included in CLAUSE (i) of this SECTION 5.2(a), the default by such Borrower, any other Obligor, any Subsidiary of such Borrower or any Related Party under any material note, indenture, loan agreement, mortgage, lease, deed or other material similar agreement to which such Borrower, any other Obligor, any Subsidiary of such Borrower or any Related Party, as appropriate, is a party or by which it is bound; (b) LITIGATION. The institution of any litigation, arbitration proceeding or governmental proceeding affecting such Borrower, any other Obligor, any Subsidiary of such Borrower, any Related Party, any Collateral or any Third Party Collateral of such Borrower, whether or not considered to be covered by insurance, if such proceeding, if determined adversely to such Borrower, could reasonably be expected to result in liability to such Borrower in excess of $100,000; (c) JUDGMENTS. The entry of any judgment or decree against such Borrower, any other Obligor, any Subsidiary of such Borrower or any Related Party, if the amount of such judgment exceeds $100,000; (d) PENSION PLANS AND WELFARE PLANS. The occurrence of a Reportable Event with respect to any Pension Plan; the filing of a notice of intent to terminate a Pension Plan by such Borrower, any ERISA Affiliate of such Borrower, or any other Obligor, the institution of proceedings to terminate a Pension Plan by the PBGC or any other Person; the withdrawal in a "complete withdrawal" or a "partial withdrawal" as defined in Sections 4203 and 4205, respectively, by such Borrower, any ERISA Affiliate of such Borrower or any other Obligor from any Multiemployer Plan; or the incurrence of any material increase in the contingent liability of such Borrower, any other Obligor or any Subsidiary of such Borrower with respect to any "employee welfare benefit plan" as defined in Section 3(l) of ERISA which covers retired employees and their beneficiaries; (e) CHANGE IN COLLATERAL LOCATIONS. If any of such Borrower's Inventory or other Collateral or any of such Borrower's Third Party Collateral (in each case with a fair market value of $100,000 or more for any one such other location or in the aggregate for all such other locations) is placed in locations other than those identified in this Agreement or in SCHEDULE 4.12, ; (f) CHANGE IN PLACE(S) OF BUSINESS. Any (i) proposed change is the location of such Borrower's or any of its Subsidiaries' chief executive office or chief place of business, (ii) proposed opening, closing or other change in the list of offices and other places of business of such Borrower and each Subsidiary of such Borrower set forth in SCHEDULE 4.12, (iii) opening, closing or other change in the 120 offices and other places of business of each other Obligor and each Related Party and (iv) promptly upon the effectiveness thereof, change in the information set forth in SCHEDULE 4.12 with respect to the list of jurisdictions in which such Borrower or any of its Subsidiaries is qualified to do business; (g) CHANGE OF NAME. Any change in the name of such Borrower, any other Obligor, any Subsidiary of such Borrower, or any Related Party, and any change in the list of trade names and trade styles set forth in SCHEDULE 4.1; (h) ENVIRONMENTAL AND SAFETY AND HEALTH MATTERS. The occurrence of any event or the acquisition of any information which, if it had occurred or been acquired on or before the date of this Agreement, would have been required to have been disclosed and included on SCHEDULE 4.25, including but not limited to the existence of any Environmental Lien and the receipt of any notice from any entity or federal, state or local government or agency of or with respect to any actual or alleged material violation of, or potential material liability under, any Environmental Law or any Occupational Safety and Health Law; (i) MATERIAL ADVERSE CHANGE. The occurrence of a material adverse change in the business, operations or financial condition of such Borrower, any other Obligor, any Subsidiary of such Borrower or any Related Party; (j) DEFAULT BY OTHERS. Any material default by any Account Debtor or other Person obligated to such Borrower, any other Obligor, or any Subsidiary of such Borrower, under any contract, chattel paper, note or other evidence of amounts payable or due or to become due to such Borrower, such Obligor or Subsidiary of such Borrower if the amount payable under such contract, chattel paper, note or other evidence of amounts payable or due or to become due is material; (k) MOVEABLE COLLATERAL. If any of the Collateral or Third Party Collateral of such Borrower shall consist of goods of a type normally used in more than one state, whether or not actually so used, any use of any such goods in any state other than a state in which such Borrower shall have previously advised Lender such goods will be used. Each of the Borrowers agrees that such goods will not, unless Lender shall otherwise consent in writing, be used outside the continental United States or in Louisiana; (l) CHANGE IN MANAGEMENT OR LINE(S) OF BUSINESS. Any substantial change in the senior management of such Borrower, or any change in the line(s) of business of such Borrower or any Subsidiary of such Borrower; (m) CHANGES TO OTHER AGREEMENTS. Any request to amend or otherwise modify the Purchase Agreement, any of the other 121 Acquisition Documents or any Subordinated Indebtedness Documents; and (n) OTHER NOTICES. Any notices required to be provided pursuant to any Related Agreement or the other provisions of this Agreement, and notice of the occurrence of such other events as Lender may reasonably from time to time specify. 5.3 EXISTENCE. Maintain and preserve, and cause each Subsidiary to maintain and preserve, its respective existence as a corporation or other form of business organization, as the case may be, and, to the extent the failure to maintain or preserve one or more of such things could reasonably be expected singly or in the aggregate to have a Material Adverse Effect, all rights, privileges, licenses, patents, patent rights, copyrights, trademarks, trade names, trade styles, franchises and other authority to the extent material and necessary for the conduct of its respective business in the ordinary course as conducted from time to time. 5.4 NATURE OF BUSINESS. Engage, and cause each Subsidiary to engage, in substantially the same fields of business as it is engaged in on the date hereof and no other. 5.5 BOOKS, RECORDS AND ACCESS. Maintain, and cause each of its Subsidiaries to maintain, complete and accurate books and records (including but not limited to records relating to Accounts Receivable, Inventory, Equipment and other Collateral), in which full and correct entries in conformity with GAAP shall be made of all dealings and transactions in relation to its respective business and activities. Cause its books and records as at the end of any calendar month to be posted and closed not more than twenty-five (25) days after the last business day of such month. Permit, and cause each of its Subsidiaries to permit, access by Lender and its agents or employees to the books and records of such Borrower and such Subsidiary at such Borrower's or such Subsidiary's place or places of business at reasonable intervals to be determined by Lender and without hindrance or delay, and permit and cause each Subsidiary to permit Lender or its agents and employees, during normal business hours, to inspect such Borrower's Inventory and such Subsidiary's inventory, and to inspect, audit, check and make copies and/or extracts from the books, records, computer data and records, computer programs, journals, orders, receipts, correspondence and other data relating to Inventory, Accounts Receivable, Contract Rights, General Intangibles, and any other Collateral or Third Party Collateral of such Borrower, or relating to any other transactions between the parties hereto. Any and all such inspections and/or audits shall be at such Borrower's expense, and Lender may advance same to such Borrower as a Revolving Loan; PROVIDED, HOWEVER, that so long as an Event of Default shall not have occurred and be continuing, Lender shall give such Borrower thirty (30) days' prior written notice of any such advance. 5.6 INSURANCE. Maintain, and cause each of its Subsidiaries to maintain, insurance to such extent and against such 122 hazards and liabilities as is commonly maintained by companies similarly situated or as Lender may reasonably request from time to time. Keep the Collateral of such Borrower properly housed and insured for its full insurable value against loss or damage by fire, theft explosion, sprinklers, collision (in the case of motor vehicles, and such other risks as are customarily insured against by persons engaged in business similar to that of such Borrower, with such companies, in such amounts and under policies in such form as shall be reasonably satisfactory to Lender. Certificates of such policies of insurance have been delivered to Lender prior to the date hereof together with evidence reasonably satisfactory to Lender of payment of all premiums therefor. Each of the Borrowers shall cause each issuer of an insurance policy to such Borrower to provide Lender, prior to the Closing Date, with an endorsement or an independent instrument (i) substantially in the form of EXHIBIT E or such other form and containing such other terms as shall be acceptable to Lender and (ii) showing loss payable to Lender and, if required by Lender, naming Lender as an additional insured. Each of the Borrowers hereby directs all insurers under such policies of insurance to pay all proceeds payable thereunder directly to Lender. Each of the Borrowers appoints Lender and any Person whom Lender may from time to time designate (and all officers, employees or agents designated by Lender or such Person) as such Borrower's true and lawful attorney and agent-in- fact with power to make, settle and adjust claims under such policies of insurance, endorse the name of such Borrower on any check, draft, instrument or other item of payment for the proceeds of such policies of insurance and make all determinations and decisions with respect to such policies of insurance. The foregoing appointment and power, being coupled with an interest, is irrevocable until all Liabilities of such Borrower under this Agreement are paid and performed in full and this Agreement is terminated. In the event either of the Borrowers at any time or times hereafter shall fail to obtain or maintain any of the policies of insurance required herein or to pay any premium in whole or in part relating thereto, then Lender, without waiving or releasing any obligation of or default by such Borrower hereunder, may at any time or times thereafter (but shall be under no obligation to do so) obtain and maintain such policies of insurance and pay such premiums and take any other action with respect thereto which Lender deems advisable. All sums so disbursed by Lender, including reasonable Attorneys' Fees, court costs, expenses and other charges relating thereto, shall be payable on demand by such Borrower to Lender, and Lender may, in its sole and absolute discretion, advance such sums to such Borrower as a Revolving Loan. 5.7 INSURANCE SURVEY. Provide to Lender no later than August 31st in each fiscal year, a certificate signed by its chief financial officer that attests to and summarizes the property and casualty insurance program carried by such Borrower and its Subsidiaries. This summary shall include the insurer's(s') name(s), policy number(s), expiration date(s), amount(s) of coverage, type(s) of coverage and applicable exclusions and deductibles, as well as a description of any self-insurance program that is in effect. Each of the Borrowers shall notify Lender in 123 writing (1) at least 20 days prior to any cancellation or material change of any such insurance by such Borrower or any Subsidiary of such Borrower and (2) within 5 business days after receipt of any notice (whether formal or informal) of any cancellation or material change in any of its insurance by any of its insurers. 5.8 REPAIR. To the extent required in the exercise of reasonable business judgment, maintain, preserve and keep, and cause each of its Subsidiaries to maintain, preserve and keep, its properties in operating condition and repair, ordinary wear and tear excepted, and from time to time make, and cause each of its Subsidiaries to make, all necessary and proper repairs, renewals, replacements, additions, betterments and improvements thereto so that at all times the efficiency thereof shall be fully preserved and maintained. 5.9 TAXES. Pay, and cause each of its Subsidiaries to pay, when due, all of its Taxes, unless and only to the extent that such Borrower or such Subsidiary is contesting such Taxes in good faith and by appropriate proceedings and Borrower or such Subsidiary has set aside on its books such reserves or other appropriate provisions therefor as may be required by GAAP. 5.10 COMPLIANCE. To the extent that any such failures to comply could reasonably be expected singly or in the aggregate to have a Material Adverse Effect, comply, and cause each of its Subsidiaries to comply, with all statutes, judicial or administrative orders, licenses, permits and governmental rules and regulations applicable to it. 5.11 USE OF PROCEEDS. Use the proceeds of the initial Loans to such Borrower to consummate the Acquisition and use the proceeds of all other Revolving Loans to such Borrower to finance the working capital and capital expenditure requirements of such Borrower. Neither of the Borrowers will use or permit any proceeds of any Loans to be used, either directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of "purchasing or carrying" any Margin Stock, and will furnish to Lender upon request, a statement in conformity with the requirements of Federal Reserve Form U-1 referred to in Regulation U of the Federal Reserve Board. 5.12 PENSION PLANS. Not permit, and not permit any of its Subsidiaries to permit, any condition to exist in connection with any Pension Plan which might constitute grounds for the PBGC to institute proceedings to have such Pension Plan terminated or a trustee appointed to administer such Pension Plan, and not engage in, or permit to exist or occur, or permit any of its Subsidiaries to engage in, or permit to exist or occur, any other condition, event or transaction with respect to any Pension Plan which could result in the incurrence by such Borrower or any of its Subsidiaries of any material liability, fine or penalty. 5.13 MERGER, PURCHASE AND SALE. Not, and not permit any Subsidiary to: (a) be a party to any merger, liquidation or 124 consolidation; (b) except in the normal course of its business and for such dispositions of assets with a fair market value not exceeding $500,000 in the aggregate in any fiscal year for OREMET and all of its Subsidiaries, sell, transfer, convey, lease or otherwise dispose of any of its assets; (c) sell or assign, with or without recourse, any Accounts Receivable, Contract Rights, notes receivable or chattel paper, except as provided in this Agreement; or (d) except for such purchases or acquisitions of assets with a fair market value not exceeding $1,000,000 in the aggregate for OREMET and all of its Subsidiaries, purchase or otherwise acquire all or substantially all the assets of any Person. 5.14 RESTRICTED PAYMENTS. (a) Not declare, pay or make any dividend or distribution (in cash, property or obligations) on any shares of any class of capital stock (now or hereafter outstanding) of such Borrower or on any warrants, options or other rights with respect to any shares of any class of capital stock (now or hereafter outstanding) of such Borrower (other than dividends or distributions payable in its common stock or warrants to purchase its common stock or split- ups or reclassifications of its stock into additional or other shares of its common stock) or apply, or permit any of its Subsidiaries to apply, any of its funds, property or assets to the purchase, redemption, sinking fund or other retirement of, or agree or permit any of its Subsidiaries to purchase or redeem, any shares of any class of capital stock (now or hereafter outstanding) of such Borrower, or warrants, options or other rights with respect to any shares of any class of capital stock (now or hereafter outstanding) of such Borrower, except for the following: (1) in the case of OREMET, if, before and after giving effect to each such payment, no Event of Default shall have occurred and be continuing and Net Revolving Loan Availability with respect to OREMET shall be equal to or greater than $4,000,000, OREMET may pay dividends on account of its common stock in an aggregate amount not exceeding in any Fiscal Year of OREMET an amount equal to the lesser of (i) $1,800,000 and (ii) fifty percent (50%) of net income of OREMET for the immediately preceding Fiscal Year; (2) in the case of OREMET, if, before and after giving effect to each such payment, no Event of Default shall have occurred and be continuing and Net Revolving Loan Availability with respect to OREMET shall be equal to or greater than $4,000,000, OREMET may make payments to Paddock in connection with the purchase of common stock of TI pursuant to the Shareholders Agreement; (3) in the case of TI, if, before and after giving effect to each such payment, no Event of Default shall have occurred and be continuing and Net Revolving Loan Availability with respect to TI shall be equal to or greater than $4,000,000, TI may make payments to Paddock in connection with the purchase of common stock of TI pursuant to the Shareholders Agreement 125 in an aggregate amount not exceeding in any Fiscal Year of TI an amount equal to the lesser of (i) $1,000,000 and (ii) twenty-five percent (25%) of net income of TI for the immediately preceding Fiscal Year; and (4) Subsidiaries of a Borrower may pay dividends and make other distributions to such Borrower. (b) Except to the extent permitted in this SECTION 5.14, not, and not permit any of its Subsidiaries to: (1) make any payment or prepayment of principal of, or make any payment of interest on, any subordinated indebtedness (other than the Subordinated Indebtedness) on any day other than the stated, scheduled date for any mandatory payment set forth in any documents and instruments memorializing such subordinated indebtedness, or which would violate the subordination provisions of such subordinated indebtedness; (2) make any payment or prepayment of principal of, or make any payment of interest on, any Subordinated Indebted-ness, except as and to the extent permitted under the Subordination Agreement; or (3) redeem, purchase or defease, any subordinated Indebtedness (including the Subordinated Indebtedness). (c) Not take any action, or permit any of its Subsidiaries to take any action, which will result in a decrease in such Borrower's or any of its Subsidiaries' ownership interest in any of Borrower's Subsidiaries. (d) Not, and not permit any of its Subsidiaries to, make any deposit for any of the foregoing purposes. 5.15 BORROWERS' AND SUBSIDIARIES' STOCK. Not permit any Subsidiary to purchase or otherwise acquire any shares of the stock of such Borrower, and not take any action, or permit any Subsidiary of such Borrower to take any action, which will result in a decrease in such Borrower's or any Subsidiary's ownership interest in any Subsidiary of such Borrower. 5.16 INDEBTEDNESS. Not, and not permit any Subsidiary of such Borrower to, incur or permit to exist any Indebtedness (including but not limited to Indebtedness as lessee under Capitalized Leases), except: (a) Indebtedness under the terms of this Agreement; (b) in the case of TI, the Subordinated Indebtedness and Indebtedness to OREMET to the extent permitted pursuant to SECTION 5.19(f); (c) in the case of TI Wire, Indebtedness to TI to the extent permitted pursuant to SECTION 5.19(g); (d) in the case of TIL UK, Indebtedness to TI to the extent permitted pursuant to SECTION 5.19(h); (e) other Indebtedness outstanding on the date hereof and listed on SCHEDULE 5.16; (d) Indebtedness hereafter incurred in connection with Liens permitted under SECTION 5.17(d); (e) other Indebtedness approved in writing by Lender. 126 5.17 LIENS. Not, and not permit any Subsidiary of such Borrower to, create or permit to exist any Lien with respect to any assets now owned or hereafter acquired, except: (a) Liens for current Taxes not delinquent or Taxes being contested in good faith and by appropriate proceedings and as to which such reserves or other appropriate provisions as may be required by GAAP are being maintained; (b) carriers', warehousemen's, mechanics', materialmen's, repairmen's, and other like statutory Liens arising in the ordinary course of business securing obligations which are not overdue or which are being contested in good faith and by appropriate proceedings and as to which such reserves or other appropriate provisions as may be required by GAAP are being maintained; (c) pledges or deposits in connection with workers' compensation, unemployment insurance and other social security legislation; (d) Liens in connection with the acquisition of property after the date hereof by way of purchase money mortgage, conditional sale or other title retention agreement, Capitalized Lease or other deferred payment contract, and attaching only to the property being acquired, if (i) the Indebtedness secured thereby does not exceed ninety percent (90%) of the fair market value of such property at the time of the acquisition thereof, and (ii) the aggregate outstanding amount of such Indebtedness of such Borrower and its Subsidiaries does not exceed (A) in the case of OREMET and its Subsidiaries (other than TI and its Subsidiaries), $2,500,000 and (B) in the case of TI and its Subsidiaries, $1,000,000; (e) Liens in favor of Lender; (f) in the case of TI, Liens a property of TI in favor of the "Junior Lender" (as defined in the Subordination Agreement) granted pursuant to the Subordinated Indebtedness Documents and securing Subordinated Indebtedness; (g) Liens listed on SCHEDULE 4.9; and (h) Liens consented to in writing by Lender. 5.18 GUARANTIES. Not, and not permit any Subsidiary of such Borrower to, become a guarantor or surety of, or otherwise become or be responsible in any manner (whether by agreement to purchase any obligations, stock, assets, goods or services, or to supply or advance any funds, assets, goods or services, or otherwise) with respect to, any undertaking of any other Person, except for (i) the endorsement, in the ordinary course of collection, of instruments payable to it or its order and (ii) the liability of such Borrower with respect to the Liabilities of the other Borrower. 5.19 INVESTMENTS. Not, and not permit any Subsidiary of such Borrower to, make or permit to exist any Investment in any Person, except for: (a) advances by such Borrower or any of its Subsidiaries to employees of such Person for travel or other ordinary business expenses provided that the aggregate amount of such advances outstanding at any one time shall not exceed $25,000 (or, if advanced in respect of relocation expenses, $75,000) for any single employee and (i) $200,000, in the aggregate, for all employees of OREMET and its Subsidiaries (other than TI and its Subsidiaries) and (ii) $100,000, in the aggregate for all employees of TI and its Subsidiaries; 127 (b) advances to subcontractors and suppliers in maximum aggregate amounts reasonably acceptable to Lender but in any event not exceeding an aggregate outstanding amount of (A) in the case of OREMET and its Subsidiaries (other than TI and its Subsidiaries), $100,000 and (B) in the case of TI and its Subsidiaries, $50,000; (c) extensions of credit in the nature of Accounts Receivable or notes receivable arising from the sale of goods and services in the ordinary course of business; (d) shares of stock, obligations or other securities received in settlement of claims arising in the ordinary course of business; (e) Investments (other than Investments in the nature of loans or advances) in Subsidiaries of such Borrower by such Borrower and other Subsidiaries of such Borrower in an aggregate amount not exceeding the respective amounts set forth on Schedule 5.19; (f) Investments in the nature of loans by OREMET to TI made on or after the Closing Date, in an aggregate outstanding principal amount not exceeding at any time $6,000,000; (g) Investments in the nature of loans by TI to TI Wire made on or after the Closing Date, in an aggregate outstanding principal amount not exceeding at any time $1,400,000; (h) Investments in the nature of loans by TI to TIL UK made on or after the Closing Date, in an aggregate outstanding principal amount not exceeding at any time $4,500,000; (i) an Investment in the nature of a loan to Paddock by OREMET made after the Closing Date, in the aggregate principal amount of $250,000; (j) Investments in a corporation formed for the purpose of providing sonic testing services to OREMET and other Persons, in an aggregate amount not exceeding $200,000; and (k) other Investments consented to by Lender in writing. 5.20 SUBSIDIARIES. Not, and not permit any Subsidiary of such Borrower to, acquire any stock or similar interest in any Person, and not create, establish or acquire any Subsidiaries other than those existing on the date of this Agreement. 5.21 LEASES. Not enter into or permit to exist, or permit any Subsidiary of such Borrower to enter into or permit to exist, any arrangements for the leasing by such Borrower or such Subsidiary, as lessee under a lease which is not a Capitalized Lease, of any real or personal property (or any interest therein) if the aggregate rents paid by such OREMET and its Subsidiaries 128 with respect to such Leases in any fiscal year would exceed $150,000. 5.22 CHANGE IN ACCOUNTS RECEIVABLE. After the occurrence of an Event of Default or Unmatured Event of Default, not permit or agree to any extension, compromise or settlement or make any change or modification of any kind or nature with respect to any Account Receivable of such Borrower, including any of the terms relating thereto. 5.23 RELATED AGREEMENTS. Not enter into, or permit any Subsidiary of such Borrower to enter into, any agreement containing any provision which would be violated or breached by the performance by such Borrower or such Subsidiary of its obligations hereunder or under any Related Agreement or any instrument or document delivered or to be delivered by such Borrower or such Subsidiary in connection herewith. 5.24 UNCONDITIONAL PURCHASE OPTIONS. Not enter into or be a party to, or permit any Subsidiary of such Borrowers to enter into or be a party to any contract for the purchase of materials, supplies or other property or services, if such contract requires that payment be made by it regardless of whether or not delivery is ever made of such materials, supplies or other property or services. 5.25 TRANSACTIONS WITH RELATED PARTIES. Not, and not permit any Subsidiary of such Borrower to, enter into or be a party to any transaction or arrangement, including, without limitation, the purchase, sale, lease or exchange of property or the rendering of any service, with any Related Party, except in the ordinary course of and pursuant to the reasonable requirements of such Borrower's or such Subsidiary's business and upon fair and reasonable terms no less favorable to such Borrower or such Subsidiary than would obtain in a comparable arm's length transaction with a Person not a Related Party. 6. DEFAULT. 6.1 EVENT OF DEFAULT. Each of the following shall constitute an Event of Default under this Agreement: (a) NON-PAYMENT. Default in the payment, when due or declared due, of any of the Liabilities of either of the Borrowers. (b) NON-PAYMENT OF OTHER INDEBTEDNESS. Default in the payment when due, whether by acceleration or otherwise (subject to any applicable grace period), of any Indebtedness of, or guaranteed by, either of the Borrowers, any other Obligor, any Subsidiary of either of the Borrowers or any Related Party in an aggregate outstanding principal amount of $100,000 or more (other than (i) any Indebtedness under this Agreement and any Notes or (ii) any Indebtedness of any 129 Subsidiary of a Borrower to such Borrower or to any other Subsidiary of such Borrower). (c) ACCELERATION OF OTHER INDEBTEDNESS. Any event or condition shall occur which results in the acceleration of the maturity of any Indebtedness of, or guaranteed by, either Borrowers, any other Obligor, any Subsidiary of either of the Borrowers or any Related Party in an aggregate outstanding principal amount of $100,000 or more (other than (i) any Indebtedness of any Subsidiary of a Borrower to such Borrower or to any other Subsidiary of such Borrower and (ii) the Indebtedness under this Agreement and any Notes) or enables the holder or holders of such other Indebtedness or any trustee or agent for such holders (any required notice of default having been given and any applicable grace period having expired) to accelerate the maturity of such other Indebtedness. (d) OTHER OBLIGATIONS. Default in the payment when due, whether by acceleration or otherwise, or in the performance or observance (subject to any applicable grace period or waiver of such default) of (i) any obligation or agreement of either of the Borrowers, any other Obligor, any Subsidiary of either of the Borrowers or any Related Party to or with Lender (other than any obligation or agreement of either of the Borrowers hereunder and under any Notes), or (ii) any material obligation or agreement of either of the Borrowers, any other Obligor, any Subsidiary of either of the Borrowers or any Related Party to or with any other Person (other than (x) any such material obligation or agreement constituting or related to Indebtedness, (y) accounts payable arising in the ordinary course of business, and (z) any material obligation or agreement of any Subsidiary of either of the Borrowers to a Borrower or to any other Subsidiary of either of the Borrowers), except only to the extent that the existence of any such default is being contested by such Borrower, such other Obligor, such Subsidiary or such Related Party, as the case may be, in good faith and by appropriate proceedings and such Borrower, such other Obligor, such Subsidiary or such Related Party, as applicable, shall have set aside on its books such reserves or other appropriate provisions therefor as may be required by GAAP. (e) INSOLVENCY. Either of the Borrowers, any other Obligor, any Subsidiary of either of the Borrowers or any Related Party becomes insolvent, or generally fails to pay, or admits in writing its inability to pay, its debts as they mature, or applies for, consents to, or acquiesces in the appointment of a trustee, receiver or other custodian for such Borrower, such other Obligor, such Subsidiary or such Related Party, or for a substantial part of the property of such Borrower, such other Obligor, such Subsidiary or such Related Party, or makes a general assignment for the benefit of creditors; or, in the absence of such application, consent or acquiescence, a trustee, receiver or other custodian is 130 appointed for either of the Borrowers, any other Obligor, any Subsidiary of either of the Borrowers or any Related Party, or for a substantial part of the property of either of the Borrowers, any other Obligor, any Subsidiary of either of the Borrowers or any Related Party and is not discharged or dismissed within 30 days; or any bankruptcy, reorganization, debt arrangement or other proceeding under any bankruptcy or insolvency law, or any dissolution or liquidation proceeding, is instituted by or against either of the Borrowers, any other Obligor, any Subsidiary of either of the Borrowers or any Related Party; or any warrant of attachment or similar legal process is issued against any substantial part of the property of either of the Borrowers, any other Obligor, any Subsidiary or any Related Party. (f) PENSION PLANS. The institution by either of the Borrowers or any ERISA Affiliate of either of the Borrowers of steps to terminate any Pension Plan if, in order to effectuate such termination, such Borrower or any ERISA Affiliate would be required to make a contribution to such Pension Plan, or would incur a liability or obligation to such Pension Plan, in excess of $100,000; or the institution by the PBGC of steps to terminate any Pension Plan and the continuation of either such condition after notice thereof from Lender. (g) NON-COMPLIANCE WITH THIS AGREEMENT. Default in the performance of any of Borrower's agreements set forth in SECTION 2, 3.2, 3.3, 5.3, 5.5, 5.6, or 5.12 through 5.25 (and not constituting an Event of Default under any of the other subsections of this SECTION 6.1), and continuance of such default after notice thereof to Borrowers from Lender; or default in the performance of any of the agreements of either of the Borrowers set forth in SECTION 5.1.2, 5.1.3 or 5.2 (and not constituting an Event of Default under any of the other subsections of this SECTION 6.1), and continuance of such default for three (3) Banking Days after notice thereof to Borrowers from Lender; or default in the performance of any other agreements of either of the Borrowers herein set forth (and not constituting an Event of Default under any of the other subsections of this SECTION 6.1), and continuance of such default for thirty (30) days after notice thereof to Borrowers from Lender. (h) NON-COMPLIANCE WITH RELATED AGREEMENTS. Default in the performance by either of the Borrowers, any other Obligor or any Subsidiary of either of the Borrowers of any of its agreements set forth in any Related Agreement (and not constituting an Event of Default under any of the other subsections of this SECTION 6.1), and continuance of such default after notice from Lender and the expiration of the grace period (if any) set forth therein. (i) WARRANTY. Any warranty made by either of the Borrowers or any other Obligor herein or in any Related Agreement is untrue or misleading in any material respect when 131 made or deemed made; or any schedule, statement, report, notice, certificate or other writing furnished by either of the Borrowers or any other Obligor to Lender is untrue or misleading in any material respect on the date as of which the facts set forth therein are stated or certified; or any certification made or deemed made by either of the Borrowers or any other Obligor to Lender is untrue or misleading in any material respect on or as of the date made or deemed made. (j) LITIGATION. There shall be entered against any one of a Borrower, any other Obligor, any Subsidiary of a Borrower or any Related Party one or more judgments or decrees in excess of $175,000 in the aggregate at any one time outstanding, and such judgments or decrees remain undischarged, unvacated, unbonded or unstayed for a period of 30 calendar days from the date of entry thereof or in any event later than five (5) days prior to the date of any proposed sale of property thereunder, but excluding those judgments or decrees for and to the extent which such Borrower, such Subsidiary, such Obligor or such Related Party, as applicable, is insured and with respect to which the insurer has assumed responsibility in writing or for and to the extent which such Borrower, such Subsidiary, such Obligor or such Related Party, as applicable, is otherwise indemnified if the terms of such indemnification are satisfactory to Lender. (k) VALIDITY. This Agreement or any other Related Agreement, or any Lien granted hereunder or thereunder, shall (except in accordance with its terms), in whole or in part, terminate, cease to be effective or cease to be the legally valid, binding and enforceable obligation of any Obligor party thereto; either of the Borrowers, any other Obligor or any other Person shall, directly or indirectly, contest in any manner such effectiveness, validity, binding nature or enforceability; or any Lien with respect to any material (as reasonably determined by Lender, and whether as to type, amount or value) Collateral or Third Party Collateral of either of the Borrowers securing any of the Liabilities of either of the Borrowers shall, in whole or in party, cease to be a perfected first Lien, subject only to those exceptions expressly permitted by this Agreement or the applicable other Related Agreement. (l) CONDUCT OF BUSINESS. If either of the Borrowers, any other Obligor, any Subsidiary of either of the Borrowers or any Related Party is enjoined, restrained or in any way prevented by court order, which has not been dissolved or stayed within five (5) business days, from conducting all or any material part of its business affairs. (m) OWNERSHIP. OREMET shall cease for any reason to be the record and beneficial owner, free and clear of all Liens, of at least eighty percent (80%) of the issued and outstanding capital stock of TI, on a fully-diluted basis. 132 (n) MATERIAL ADVERSE CHANGE. Lender shall have determined in good faith that (i) a material adverse change has occurred in the business, operations or financial condition of either of the Borrowers, any other Obligor, any Subsidiary of either of the Borrowers or any Related Party, (ii) Lender's interest in any material Collateral or Third Party Collateral of either of the Borrowers has been adversely affected or impaired, or the value thereof to Lender has been diminished to a material extent or (iii) the prospect of payment or performance of any obligation or agreement of either of the Borrowers or any other Obligor hereunder or under any Related Agreement is materially impaired, and the condition giving rise to such determination does not constitute an Event of Default under any of the other subsections of this SECTION 6.1 and continues to exist after notice of such determination by Lender to Borrowers. (o) ACQUISITION DOCUMENTS AND SUBORDINATED INDEBTEDNESS DOCUMENTS. A default by any Person (other than Lender) shall occur under (i) the Purchase Agreement or any of the other Acquisition Documents or (ii) the Subordination Agreement or any of the other Subordinated Indebtedness Documents. 6.2 EFFECT OF EVENT OF DEFAULT; REMEDIES. (a) In the event that one or more Events of Default described in SECTION 6.1(e) shall occur, then the Credit extended to each of the Borrowers under this Agreement shall terminate and all Liabilities of each of the Borrowers hereunder and under any Notes shall be immediately due and payable without demand, notice or declaration of any kind whatsoever. (b) In the event an Event of Default other than one described in SECTION 6.1(e) shall occur, then upon notice to each of the Borrowers, Lender may declare all Liabilities of such Borrower hereunder and under any Notes immediately due and payable, whereupon the Credit extended to such Borrower under this Agreement shall terminate and all Liabilities of such Borrower hereunder and under any Notes shall be immediately due and payable. Lender shall promptly advise each of the Borrowers of any such declaration, but failure to do so shall not impair the effect of such declaration. (c) In the event of the occurrence of any Event of Default Lender may exercise any one or more or all of the following remedies, all of which are cumulative and non-exclusive: (1) Any remedy contained in this Agreement or in any of the Related Agreements or any Supplemental Documentation; (2) Any rights and remedies available to Lender under the UCC, and any other applicable law; (3) To the extent permitted by applicable law, Lender may, without notice, demand or legal process of any kind, take 133 possession of any or all of the Collateral of each of the Borrowers (in addition to any such Collateral which it may already have in its possession), wherever it may be found, and for that purpose may pursue the same wherever it may be found, and may enter into any premises where any of the Collateral of either of the Borrowers may be or is supposed to be, and search for, take possession of, remove, keep and store any of the Collateral until the same shall be sold or otherwise disposed of, and Lender shall have the right to store the same in any of the premises of either of the Borrowers without cost to Lender; (4) At Lender's request, each of the Borrowers will, at such Borrower's expense, assemble the Collateral of such Borrower and make it available to Lender at a place or places to be designated by Lender which is reasonably convenient to Lender and such Borrower; and (5) Lender at its option, and pursuant to notification given to such Borrower as provided for below, may sell any Collateral of a Borrower actually or constructively in its possession at public or private sale and apply the proceeds thereof as provided in SECTION 7.2. 7. ADDITIONAL PROVISIONS REGARDING COLLATERAL AND LENDER'S RIGHTS. 7.1 NOTICE OF DISPOSITION OF COLLATERAL. Any notification of intended disposition of any of the Collateral of either Borrower required by law shall be deemed reasonably and properly given if given at least five (5) Banking Days before such disposition. 7.2 APPLICATION OF PROCEEDS OF COLLATERAL. Any proceeds of any disposition by Lender of any of the Collateral of a Borrower may be applied by Lender to the payment of expenses in connection with the taking possession of, storing, preparing for sale, and disposition of such Collateral, including Attorneys' Fees and legal expenses, and any balance of such proceeds may be applied by Lender toward the payment of such of the Liabilities of such Borrower, and in such order of application, as Lender may from time to time elect. 7.3 CARE OF COLLATERAL. Lender shall be deemed to have exercised reasonable care in the custody and preservation of any Collateral of either of the Borrowers in its possession if it takes such action for that purpose as such Borrower requests in writing, but failure of Lender to comply with such request shall not, of itself, be deemed a failure to exercise reasonable care, and no failure of Lender to preserve or protect any rights with respect to such Collateral against prior parties, or to do any act with respect to the preservation of such Collateral not so requested by such Borrower, shall be deemed a failure to exercise reasonable care in the custody or preservation of such Collateral. 134 7.4 PERFORMANCE OF BORROWERS' OBLIGATIONS. Lender shall have the right, but shall not be obligated, to discharge any claims against or Liens, and any Taxes at any time levied or placed upon any or all Collateral of either of the Borrowers including, without limitation, those arising under statute or in favor of landlords, taxing authorities, government, public and/or private warehousemen, common and/or private carriers, processors, finishers, draymen, coopers, dryers, mechanics, artisans, laborers, attorneys, courts, or others. Lender may also pay for maintenance and preservation of Collateral of either of the Borrowers. Lender may, but is not obligated to, perform or fulfill any of the responsibilities of either or both of the Borrowers under this Agreement which such Borrower has failed to perform or fulfill. Lender may advance to each of the Borrowers as a Revolving Loan any payment made or expense incurred by Lender under this SECTION 7.4. 7.5 LENDER'S RIGHTS. None of the following shall affect the obligations of either of the Borrowers to Lender under this Agreement or Lender's right with respect to the remaining Collateral or any Third Party Collateral of such Borrower (any or all of which actions may be taken by Lender at any time, whether before or after an Event of Default, at its sole and absolute discretion and without notice to either of the Borrowers): (a) acceptance or retention by Lender of other property or interests in property as security for the Liabilities of such Borrower, or acceptance or retention of any Obligor(s), in addition to such Borrower, with respect to any of the Liabilities of such Borrower; (b) release of its security interest in, or surrender or release of, or the substitution or exchange of or for, all or any part of the Collateral or any Third Party Collateral of such Borrower or any other property securing any of the Liabilities of such Borrower (including but not limited to any property of any Obligor other than such Borrower), or any extension or renewal for one or more periods (whether or not longer than the original period), or release, compromise, alteration or exchange, of any obligations of any guarantor or other Obligor with respect to any such Collateral or any such property; (c) extension or renewal for one or more periods (whether or not longer than the original period), or release, compromise, alteration or exchange of any of the Liabilities of such Borrower, or release or compromise of any obligation of any Obligor with respect to any of the Liabilities of such Borrower; or (d) failure by Lender to resort to other security or pursue any Person liable for any of the Liabilities of such Borrower before resorting to the Collateral of such Borrower. 8. CONDITIONS PRECEDENT; DELIVERY OF DOCUMENTS AND OTHER MATTERS. 135 8.1 CONDITIONS PRECEDENT TO INITIAL LOANS. The obligation of Lender to make the initial Loans or to issue any Letter of Credit hereunder is subject to satisfaction of the following conditions precedent (in addition to those provided in SECTION 8.2): 8.1.1 ACQUISITION. The respective terms of the Purchase Agreement and the other Acquisition Documents shall be reasonably acceptable to Lender. All conditions precedent to consummation of the Acquisition shall have been satisfied and TI shall have acquired good and marketable title to all of the assets to be acquired by TI under the Purchase Agreement and the Purchase Agreement and all other material Acquisition Documents shall be in full force and effect and no term or condition thereof shall have been amended, modified or waived without Lender's consent, and all governmental authorizations, consents, approvals, licenses, permits, exemptions or other actions required in connection with the Acquisition and the other transactions contemplated by this Agreement, shall have been duly received and not been rescinded and each of the Borrowers shall have so certified to Lender and, to the extent requested by Lender, delivered to Lender copies thereof. The closing and consummation of the Acquisition shall have occurred immediately prior to the making of the initial Loans under this Agreement. 8.1.2 AUDIT. Lender shall have completed its due diligence audit of the business, operations and assets of each of the Borrowers and each other Obligor, the results of which shall provide Lender with results and information which, in Lender's sole determination, are satisfactory to permit Lender to enter into the secured financing transaction described in this Agreement and the Related Agreements. Lender's due diligence examination may include but need not be limited to (i) a field examination of each of the Borrower's and each other Obligor's books and records, (ii) a physical audit and inspection of each of the Borrower's and each other Obligor's real and personal property, (iii) an analysis of all of each of the Borrower's and each other Obligor's contingent liabilities, including but not limited to those pertaining to environmental and health and safety matters, employee benefit plans and pending or threatened litigation, (iv) review of such fair market value and liquidation value appraisals of the assets of each of the Borrowers and each other Obligor as Lender shall determine to be necessary, in each case prepared by independent appraisers and using such assumptions and methods of analysis as Lender shall determine to be acceptable, and (v) a review of each of the Borrower's and each other Obligor's current financial condition and any pro forma financial information or cash flow projections required by Lender. 8.1.3 SECURITY INTEREST. The security interest in the Collateral of each of the Borrowers granted under this Agreement and the Related Agreements, and in any Third Party Collateral of each of the Borrowers, and all other Liens 136 granted to Lender to secure the Liabilities of each of the Borrowers, shall be a senior, perfected Lien except as otherwise agreed by Lender, and all financing statements and other documents relating to such Collateral and Third Party Collateral shall have been filed or recorded, as appropriate. 8.1.4 SOLVENCY. After giving effect to the Acquisition and the initial Loans to be made under this Agreement, each of the Borrowers, each of its Subsidiaries and each other Obligor (a) shall have assets (excluding goodwill and other intangible assets not capable of valuation) having a value, both at present fair saleable value and at fair valuation, greater than the amount of its liabilities, (b) shall have capital sufficient to carry on its respective business and transactions and all business and transactions in which it is about to engage, (c) shall not have engaged in or be about to engage in a business or transaction for which its remaining assets are unreasonably small in relation to the business or the transaction, (d) shall believe that it is able to pay its respective debts as they mature and shall not believe that it is incurring, debts beyond its ability to pay as they mature and (e) shall have no actual intent to hinder, delay or defraud either present or future creditors. 8.1.5 LOAN AVAILABILITY. Immediately after the making the initial Loans, each of the Borrowers shall, under the terms and conditions of the Agreement, have availability for at least an additional (a) in the case of OREMET, $2,500,000 of Revolving Loans and (b) in the case of TI, $500,000 of Revolving Loans. 8.1.6 EQUITY INVESTMENT IN TI. Pursuant to the terms of the Shareholders Agreement, TI shall have received, in immediately available funds, an aggregate contribution to its capital from OREMET and Paddock, as consideration for the issuance by TI to OREMET of capital stock of TI, of at least $5,000,000. 8.1.7 BLOCKED ACCOUNT; LOCK BOX. Each of the Borrowers shall have entered into blocked account and/or lock box agreements with Lender for the collection and remittance to Lender of cash proceeds of Collateral of such Borrower. 8.1.8 EFFECT OF LAW. No law or regulation affecting Lender's entering into the secured financing transaction contemplated by this Agreement shall impose upon Lender any material obligation, fee, liability, loss, cost, expense or damage. 8.1.9 EXHIBITS; SCHEDULES. All Exhibits and Schedules to this Agreement shall have been completed and submitted to Lender, shall be in form and substance satisfactory to Lender and shall contain no facts or information which Lender, in its sole judgment, determines to be unacceptable. 137 8.1.10 FEES. If not funded with the proceeds of the initial Loans, Lender shall have received the closing fee referred to in SECTION 2.14 and any other fees due and payable by each of the Borrowers or any other Person on the funding of the initial Loans. 8.1.11 DOCUMENTS. Lender shall have received all of the following, each duly executed where appropriate and dated as of the date of the initial Loan (or such other date as shall be satisfactory to Lender), in form and substance satisfactory to Lender: (a) RESOLUTIONS. A copy, duly certified by the secretary or an assistant secretary of each of the Borrowers of (1) resolutions of the Board of Directors of such Borrower authorizing (A) the borrowings by such Borrower hereunder, (B) the execution, delivery and performance by such Borrower of this Agreement, and each Related Agreement to which such Borrower is a party or by which it is bound, and (C) certain officers or employees of such Borrower to request borrowings by telephone and to execute Borrowing Base Certificates, (2) all documents evidencing any other necessary corporate action with respect to this Agreement and the Related Agreements, and (3) all approvals or consents, if any, with respect to this Agreement and the Related Agreements; (b) INCUMBENCY CERTIFICATE. A certificate of the secretary of each of the Borrowers certifying the names of the officers of Borrower authorized to sign this Agreement and each Related Agreement to which Borrower is a party or by which it is bound, and all other documents and certificates to be delivered by such Borrower hereunder, together with the true signatures of such officers; (c) CERTIFICATE. The certificate of the President or Chairman of the Board of each of the Borrowers certifying to the fulfillment of all conditions precedent to closing and funding the secured financing transaction contemplated by this Agreement and to the truth and accuracy, as of such date, of the representations and warranties of such Borrower contained in this Agreement and each Related Agreement to which such Borrower is a party or by which it is bound; (d) ACCOUNTANT'S LETTER. With respect to the financial statements referred to in SECTION 4.6, a "reliance letter" from the accountants who prepared such statements in form and content acceptable to Lender; (e) BYLAWS. A copy, duly certified by the secretary or an assistant secretary of each of the Borrowers, of such Borrower's Bylaws; 138 (f) ARTICLES. A copy, duly certified by the applicable Secretary of State of each Borrower's Articles of Incorporation; (g) REGISTRATION; GOOD STANDING. A copy, duly certified by the applicable Secretary of State of (i) a certificate of good standing or existence, as the case may be, in each state where each of the Borrowers is qualified to do business or where, because of the nature of its business or properties, qualification to do business is required, (ii) the applications, registrations or other documents required to be filed by each of the Borrowers to qualify to do business in each state referred to in CLAUSE (i), and (iii) in any state in which either Borrower is doing business under an assumed name, a certificate or other document issued by the Secretary of State of each such state evidencing such Borrower's authority to use such name; (h) LEGAL OPINIONS. Legal opinions from counsel for each of the Borrowers in form and substance satisfactory to Lender; (l) INSURANCE. Evidence satisfactory to Lender of the existence of insurance on the Collateral, Third Party Collateral and business of each of the Borrowers in amounts and with insurers acceptable to Lender, together with evidence establishing that Lender is named as a loss payee and/or additional insured, as applicable, on all related insurance policies; (j) DISBURSEMENT LETTER. Written authorization and instructions from each of the Borrowers, in form satisfactory to Lender, for disbursement of the proceeds of the initial Loans; (k) SUBORDINATION AGREEMENT. The duly executed Subordination Agreement; and (l) OTHER DOCUMENTS. Such other documents as Lender shall determine to be necessary or desirable. 8.2 CONTINUING CONDITIONS PRECEDENT TO ALL LOANS AND LETTERS OF CREDIT; CERTIFICATION. The obligation of Lender to make the initial Loans and each subsequent Loan, or to issue any Letter of Credit, is subject to satisfaction of the following conditions precedent in addition to those provided in SECTION 8.1: (a) NO CHANGE IN CONDITION. No change in the condition or operations, financial or otherwise, of either of the Borrowers, any Subsidiary of either of the Borrowers or any other Obligor, shall have occurred which change, in the reasonable credit judgment of Lender, may have a Material Adverse Effect; 139 (b) DEFAULT. Before and after giving effect to such Loan or such Letter of Credit, no Event of Default or Unmatured Event of Default shall have occurred and be continuing; (c) INSURANCE. There shall have been no material change, or notice of prospective material change (whether such notice is formal or informal), in the nature, extent or scope of the insurance policies of either of the Borrowers or any Subsidiary thereof listed on SCHEDULE 4.7, which change would have a material adverse effect on the financial condition of such Borrower or such Subsidiary or would significantly adversely affect such Borrower's ability to perform its obligations under this Agreement, any Note(s), or any Related Agreement to which it is a party or by which it is bound; (d) WARRANTIES. Before and after giving effect to such Loan or Letter of Credit, the warranties in SECTION 4 shall be true and correct in all material respects as though made on the date of such Loan, except for such changes as are specifically permitted hereunder; (e) NO MATERIAL TRANSACTION. Neither of the Borrowers, nor any Subsidiary of either of the Borrowers, any other Obligor or any Related Party shall have entered into any material (as determined by Lender) commitment or transaction, including, without limitation, transactions for borrowings and capital expenditures, which are not in the ordinary course of their respective businesses; and (f) ACCOUNTING METHODS. Borrower shall not have made any material (as determined by Lender) change in its accounting methods or principles except as required by GAAP. Each request for a Loan or a Letter of Credit hereunder made or deemed to have been made by each of the Borrowers shall be deemed to be a certificate of such Borrower as to the matters set out in the foregoing provisions of this SECTION 8.2. 9. INDEMNITY. 9.1. ENVIRONMENTAL AND SAFETY AND HEALTH INDEMNITY. Each Borrower hereby indemnifies, exonerates and holds Lender and each other holder of a Note of such Borrower, and each of its officers, directors, employees and agents (collectively, the "INDEMNIFIED PARTIES") free and harmless from and against any and all actions, causes of action, suits, costs, liabilities, losses, damages, injuries, expenses and claims of any and every kind whatsoever (including, without limitation, court costs and Attorneys' Fees) (a) relating to or arising under any Environmental Law or Occupational Safety and Health Law applicable to such Borrower and related to the business and/or operations of such Borrower; or (b) which otherwise may be paid, incurred or suffered by or asserted against such Indemnified Party for, with respect to, or as a direct or indirect result of the violation by such Borrower or any 140 Subsidiary of such Borrower, or any immediate or remote predecessor of any of them, of any Environmental Law or Occupational Safety and Health Law; or (c) with respect to, or as a direct or indirect result of, (1) the presence of any Hazardous Material on or under, or the escape, seepage, leakage, spillage, disposal, discharge, emission, threat of Release, or Release of any Hazardous Material from, any property allegedly owned, operated or controlled by such Borrower, any Subsidiary of such Borrower (or any immediate or remote predecessors of any of them), or any property at which Hazardous Material allegedly generated by any such Person, or any immediate or remote predecessors of any of them, may have come to be located, or (2) the existence of any unsafe or unhealthful condition on or at any premises operated or controlled by any such Person or any immediate or remote predecessor of any of them. The provisions of and undertakings and indemnification set out in this SECTION 9.1 shall survive termination of this Agreement. 9.2 GENERAL INDEMNITY. In addition to and without limitation of the indemnity set forth in SECTION 9.1 and in addition to the payment of expenses pursuant to SECTION 11.3, whether or not the transactions contemplated hereby shall be consummated, each Borrower agrees to indemnify, pay and hold Lender and any holder of any Notes of such Borrower, and the officers, directors, employees, agents, and affiliates of Lender and such holders (collectively, the "Indemnitees") harmless from and against any and all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, expenses and disbursements of any kind or nature whatsoever relating to such Borrower (including, without limitation, the reasonable fees and disbursements of counsel for any of such Indemnitees in connection with any investigative, administrative or judicial proceeding commenced or threatened, whether or not any of such Indemnitees shall be designated a party thereto) that may be imposed on, incurred by, or asserted against any Indemnitee, in any manner relating to or arising out of this Agreement, any Related Agreement or any other agreements executed and delivered by such Borrower or any other Obligor in connection herewith, the statements contained in any commitment letter delivered by Lender, Lender's agreement to make the Loans or to issue Letters of Credit for the account of such Borrower hereunder, the use or intended use of any Letters of Credit issued for the account of such Borrower, or the use or intended use of the proceeds of any of the Loans hereunder (the "INDEMNIFIED LIABILITIES"); PROVIDED that neither of the Borrowers shall have any obligation to an Indemnitee hereunder with respect to indemnified liabilities arising from the gross negligence or willful misconduct of such Indemnitee. To the extent that the undertaking to indemnify, pay and hold harmless set forth in the preceding sentence may be unenforceable because it violates any law or public policy, each Borrower shall contribute the maximum portion that it is permitted to pay under applicable law to the payment and satisfaction of all indemnified liabilities incurred by the Indemnitees or any of them and payable by such Borrower pursuant to the terms of this SECTION 9.2. The provisions of the undertakings and indemnification set out in this SECTION 9.2 shall 141 survive satisfaction and payment of the Liabilities of each of the Borrowers and termination of this Agreement. 9.3 CAPITAL ADEQUACY. If Lender shall reasonably determine that the application or adoption of any law, rule, regulation, directive, interpretation, treaty or guideline regarding capital adequacy, or any change therein or in the interpretation or administration thereof, whether or not having the force or law (including, without limitation, application of changes to Regulation H and Regulation Y of the Federal Reserve Board issued by the Federal Reserve Board on January 19, 1989 and regulations of the Comptroller of the Currency, Department of the Treasury, 12 CFR Part 3, Appendix A, issued by the Comptroller of the Currency on January 27, 1989) increases the amount of capital required or expected to be maintained by Lender or any Person controlling Lender, and such increase is based upon the existence of Lender's obligations to a Borrower hereunder and other commitments of this type, then from time to time, within 10 days after demand from Lender, such Borrower shall pay to Lender such amount or amounts as will compensate Lender or such controlling Person, as the case may be, for such increased capital requirement. The determination of any amount to be paid by Borrowers under this SECTION 9 shall take into consideration the policies of Lender or any Person controlling Lender with respect to capital adequacy and shall be based upon any reasonable averaging, attribution and allocation methods. A certificate of Lender setting forth the amount or amounts as shall be necessary to compensate Lender as specified in this SECTION 9 shall be delivered to Borrowers and shall be conclusive in the absence of manifest error. 9.4 EURODOLLAR RATE REVOLVING LOANS. 9.4.1 EURODOLLAR RATE LENDING UNLAWFUL. If Lender shall determine (which determination shall, upon notice thereof to Borrowers be conclusive and binding on Borrowers) that the introduction of or any change in or in the interpretation of any law makes it unlawful, or any central bank or other governmental authority asserts that it is unlawful, for Lender to make, continue or maintain any Loan as, or to convert any Loan into, a Eurodollar Rate Revolving Loan, the obligation of Lender to make, continue, maintain or convert any such Loans shall, upon such determination, forthwith be suspended until Lender shall notify Borrowers that the circumstances causing such suspension no longer exist, and all Eurodollar Rate Revolving Loans shall automatically convert into Reference Rate Revolving Loans at the end of the then current Interest Periods with respect thereto or sooner, if required by such law or assertion. 9.4.2 DEPOSITS UNAVAILABLE. If Lender shall have determined (which determination shall, upon notice thereof to Borrowers, be conclusive and binding on Borrowers) that (a) Dollars deposits in the relevant amount and for the relevant Interest Period are not available to Lender in the interbank eurodollar market; or 142 (b) by reason of circumstances affecting the interbank eurodollar market, adequate means do not exist for ascertaining the interest rate applicable hereunder to Eurodollar Rate Revolving Loans, then, upon notice from Lender to Borrowers, the obligations of Lender under SECTION 2 to make or continue any Loans as, or to convert any Loans into, Eurodollar Rate Revolving Loans shall forthwith be suspended until Lender shall notify Borrowers that the circumstances causing such suspension no longer exist. 9.4.3 INCREASED EURODOLLAR RATE REVOLVING LOAN COSTS, ETC. Each of the Borrowers agrees to reimburse Lender for any increase in the cost to Lender of, or any reduction in the amount of any sum receivable by Lender in respect of, making, continuing or maintaining (or of its obligation to make, continue or maintain) any Loans to such Borrower as, or of converting (or of its obligation to convert) any Loans to such Borrower into, Eurodollar Rate Revolving Loans which results from any change since the date of this Agreement in any applicable law, governmental rule, regulation, guideline, order or request (whether or not having the force of law), or in the interpretation or administration thereof (including, by way of example, but not limited to, a change in official reserve requirements). Lender shall promptly notify the respective Borrower in writing of the occurrence of any such event, such notice to state, in reasonable detail, the reasons therefor and the additional amount required fully to compensate Lender for such increased cost or reduced amount. Such additional amounts shall be payable by such Borrower directly to Lender within five (5) days of such Borrower's receipt of such notice, and such notice shall, in the absence of manifest error, be conclusive and binding on such Borrower. 9.4.4 FUNDING LOSSES. In the event Lender shall incur any loss or expense with respect to a Borrower (including any loss or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by Lender to make, continue or maintain any portion of the principal amount of any Loan as, or to convert any portion of the principal amount of any Loan into, a Eurodollar Rate Revolving Loan) as a result of (a) any conversion or repayment or prepayment of the principal amount of any Eurodollar Rate Revolving Loans on a date other than the scheduled last day of the Interest Period applicable thereto, whether pursuant to SECTION 3.1 or otherwise; (b) any failure of such Borrower to borrow, continue or convert a Loan on a date specified therefor in any notice or request; or (c) any failure of such Borrower to make any payment when due of any amount due hereunder in connection with any Loan, 143 then, upon the written notice of Lender to such Borrower, such Borrower shall, within five (5) days of its receipt thereof, pay directly to Lender such amount as will (in the reasonable determination of Lender) reimburse Lender for such loss or expense. Such written notice (which shall include calculations in reasonable detail) shall, in the absence of manifest error, be conclusive and binding on such Borrower. 9.4.5 FUNDING. Lender may, if it so elects, fulfill its obligation to make, continue or convert Eurodollar Rate Revolving Loans hereunder by causing one of its foreign branches or affiliates (or an international banking facility created by such Lender) to make or maintain such Eurodollar Rate Revolving Loan; PROVIDED, HOWEVER, that such Eurodollar Rate Revolving Loan shall nonetheless be deemed to have been made and to be held by Lender, and the obligation of each of the Borrowers to repay such Eurodollar Rate Revolving Loan shall nevertheless be to Lender for the account of such foreign branch, affiliate or international banking facility. In addition, each of the Borrowers hereby consents and agrees that, for purposes of any determination to be made for purposes of SECTIONS 9.4, it shall be conclusively assumed that Lender elected to fund all Eurodollar Rate Revolving Loans by purchasing Dollar deposits in the interbank eurodollar market. 9.5 PAYMENT OF INDEMNITY AMOUNTS. Lender may provide for the payment of any amounts for which a Borrower is liable under this SECTION 9 by charging the Demand Deposit Account of such Borrower, the Assignee Deposit Account of such Borrower, or any other bank account maintained by or for the account of such Borrower with Lender and, to the extent necessary to fund any such account, Lender may advance the amount thereof to such Borrower as a Revolving Loan; PROVIDED, HOWEVER, that so long as an Event of Default shall not have occurred and be continuing, Lender agrees to use its best efforts to provide prior written notice to such Borrower of any such charge; PROVIDED, FURTHER, HOWEVER, that Lender's failure to provide notice of any such charge shall not affect the validity or enforceability thereof. 10. ADDITIONAL PROVISIONS. Additional provisions are set forth in SUPPLEMENT A. 11. GENERAL. 11.1 BORROWER WAIVER. Except as otherwise provided for in this Agreement, each of the Borrowers waives (i) presentment, demand and protest and notice of presentment, protest, default, non-payment, maturity, release, compromise, settlement, one or more extensions or renewals of any or all commercial paper, accounts, contract rights, documents, instruments, chattel paper and guaranties at any time held by Lender on which such Borrower may in any way be liable and hereby ratifies and confirms whatever Lender may do in this regard; (ii) all rights to notice and a hearing prior to Lender's taking possession or control of, or Lender's relevy, attachment or levy on or of, the Collateral of such 144 Borrower or any bond or security which might be required by any court prior to allowing Lender to exercise any of Lender's remedies; and (iii) the benefit of all valuation, appraisement and exemption laws. Each of the Borrowers acknowledges that it has been advised by its counsel with respect to this Agreement and the transactions evidenced by this Agreement. 11.2 POWER OF ATTORNEY. Each of the Borrowers appoints Lender, or any Person whom Lender may from time to time designate, as such Borrower's attorney and agent-in-fact with power (which appointment and powers being coupled with an interest, is irrevocable until all Liabilities of each of the Borrowers under this Agreement are paid and performed in full and this Agreement is terminated), without notice to such Borrower, to: (a) At such time or times hereafter as Lender or said agent, in its sole and absolute discretion, may determine in such Borrower's or Lender's name (i) endorse such Borrower's name on any checks, notes, drafts or any other items of payment relating to and/or proceeds of the Collateral of such Borrower which come into the possession of Lender or under Lender's control and apply such payment or proceeds to the Liabilities of such Borrower; (ii) endorse such Borrower's name on any chattel paper, document, instrument, invoice, freight bill, bill of lading or similar document or agreement in Lender's possession relating to Accounts Receivable, Inventory or any other Collateral, in each case of such Borrower; (iii) use the information recorded on or contained in any data processing equipment and computer hardware and software to which such Borrower has access relating to Accounts Receivable, Inventory and/or other Collateral, in each case of such Borrower; (iv) use such Borrower's stationery and sign the name of such Borrower to verification of Accounts Receivable and notices thereof to Account Debtors; and (v) if not done by such Borrower, do all acts and things determined by Lender to be necessary, to fulfill such Borrower's obligations under this Agreement or any Related Agreement; and (b) At such time or times after the occurrence of an Event of Default, as Lender or said agent, in its sole and absolute discretion, may determine, in such Borrower's or Lender's name: (i) demand payment of the Accounts Receivable of such Borrower; (ii) enforce payment of the Accounts Receivable of such Borrower, by legal proceedings or otherwise; (iii) exercise all of Borrower's rights and remedies with respect to the collection of the Accounts Receivable and other Collateral, in each case of such Borrower; (iv) settle, adjust, compromise, extend or renew the Accounts Receivable of such Borrower; (v) settle, adjust or compromise any legal proceedings brought to collect the Accounts Receivable of such Borrower; (vi) if permitted by applicable law, sell or assign the Accounts Receivable and/or other Collateral of such Borrower upon such terms for such amounts and at such time or times as Lender may deem 145 advisable; (vii) discharge and release the Accounts Receivable and/or other Collateral, in each case of such Borrower; (viii) prepare, file and sign such Borrower's name on any proof of claim in bankruptcy or similar document against any Account Debtor; (ix) prepare, file and sign such Borrower's name on any notice of lien, assignment or satisfaction of lien or similar document in connection with the Accounts Receivable and/or other Collateral, in each case of such Borrower; and (x) do all acts and things necessary, in Lender's sole and absolute discretion, to obtain repayment of the Liabilities of such Borrower and to fulfill such Borrower's other obligations under this Agreement or any Related Agreement. 11.3 EXPENSES; ATTORNEYS' FEES. Each of the Borrowers agrees, whether or not any Loan is made to such Borrower hereunder, to pay upon demand all Attorneys' Fees and all other reasonable expenses incurred by Lender in connection with (i) the preparation, negotiation and execution of this Agreement, any Related Agreement and any document required to be furnished in connection herewith or therewith, (ii) the preparation of any and all amendments to this Agreement or any of the Related Agreements and all other instruments or documents provided for therein or delivered or to be delivered thereunder or in connection therewith, (iii) the collection or enforcement of such Borrower's or any other Obligor's obligations hereunder or under any Related Agreement, and (iv) the collection or enforcement of any of Lender's rights in or to any Collateral or Third Party Collateral of such Borrower. Lender may advance all such amounts to such Borrower as Revolving Loans. Each of the Borrowers also agrees (a) to indemnify and hold Lender harmless from any loss or expense which may arise or be created by the acceptance, in accordance with the terms and provisions of this Agreement, of telephonic or other instructions for making Loans to such Borrower, and (b) to pay, and save Lender harmless from all liability for, any stamp or other taxes which may be payable with respect to the execution or delivery of this Agreement, or any Related Agreement or Supplemental Documentation, or the issuance of any Note by such Borrower or of any other instruments or documents provided for herein or to be delivered hereunder or in connection herewith by such Borrower. The foregoing obligations of each of the Borrowers shall survive any termination of this Agreement. 11.4 LENDER FEES AND CHARGES. Each of the Borrowers agrees to pay Lender on demand the customary fees and charges of Lender for maintenance of accounts with Lender or for providing other services to such Borrower. Lender may, in its sole and absolute discretion, provide for such payment by advancing the amount thereof to such Borrower as Revolving Loans. 11.5 LAWFUL INTEREST. In no contingency or event whatsoever shall the interest rate charged pursuant to the terms of this Agreement exceed the highest rate permissible under any law which a court of competent jurisdiction shall, in a final determination, deem applicable hereto. In the event that such a court determines that Lender has received interest hereunder in 146 excess of the highest applicable rate, Lender shall promptly refund such excess interest to the applicable Borrower. 11.6 NO WAIVER BY LENDER; AMENDMENTS. No failure or delay on the part of Lender in the exercise of any power or right, and no course of dealing between Borrower and Lender shall operate as a waiver of such power or right, nor shall any single or partial exercise of any power or right preclude other or further exercise thereof or the exercise of any other power or right. The remedies provided for herein are cumulative and not exclusive of any remedies which may be available to Lender at law or in equity. No notice to or demand on either of the Borrowers not required hereunder shall in any event entitle either of the Borrowers to any other or further notice or demand in similar or other circumstances or constitute a waiver of the right of Lender to any other or further action in any circumstances without notice or demand. No amendment, modification or waiver of, or consent with respect to, any provision of this Agreement or any Related Agreement shall in any event be effective unless the same shall be in writing and signed and delivered by Lender. Any waiver of any provision of this Agreement, and any consent to any departure by either of the Borrowers from the terms of any provision of this Agreement, shall be effective only in the specific instance and for the specific purpose for which given. 11.7 TERMINATION OF CREDIT. Unless the Credit of either of the Borrowers is otherwise terminated pursuant to the terms of this Agreement, the Termination Date shall be automatically extended for successive one-year periods to the next anniversary of such date unless Lender shall notify such Borrower in writing, at least thirty (30) days prior to a scheduled Termination Date, that Lender elects not to extend the Termination Date. Each Borrower may terminate the Credit of such Borrower at any time upon notice to Lender and payment in full of the outstanding principal balance of the Loans and all other Liabilities of such Borrower under this Agreement and the Related Agreements; PROVIDED, HOWEVER, notwithstanding anything to the contrary contained herein, upon termination of the Credit of either of the Borrowers, pursuant to this SECTION 11.7 or otherwise, the Credit of the other Borrower shall also automatically and permanently terminate and thereupon, the outstanding principal balance of the Loans and all other Liabilities of such other Borrower shall become immediately due and payable hereunder, without any notice by Lender to such other Borrower. All of Lender's rights and remedies, the liens and security interests of Lender in the Collateral of each of the Borrowers and all of each Borrower's respective duties and obligations under this Agreement shall survive termination of the Credit extended to such Borrower hereunder until all of the Liabilities of each of the Borrowers hereunder have been finally paid and performed in full. The termination or cancellation of the Credit of either of the Borrowers shall not affect or impair the liabilities and obligations of such Borrower or any one or more of the Obligors to Lender or Lender's rights with respect to any Loans and advances made and other Liabilities incurred by such Borrower 147 prior to such termination or with respect to the Collateral or any Third Party Collateral of such Borrower. 11.8 NOTICES. Except as otherwise expressly provided herein, any notice hereunder to each of the Borrowers or Lender shall be in writing (including telegraphic, telex, or facsimile communication) and shall be given to such Borrower or Lender at its address, telex number or facsimile number set forth on the signature pages hereof or at such other address, telex number or facsimile number as such Borrower or Lender may, by written notice, designate as its address, telex number or facsimile number for purposes of notices hereunder. All such notices shall be deemed to be given when transmitted by telex and the appropriate answerback is received, transmitted by facsimile, delivered to the telegraph office, delivered by courier, personally delivered or, in the case of notice by mail, three (3) Banking Days following deposit in the United States mails, properly addressed as herein provided, with proper postage prepaid; provided, however, that notice to Lender of the Borrowers' intent to terminate the Credit shall not be effective until actually received by Lender. 11.9 ASSIGNMENTS AND PARTICIPATIONS; INFORMATION. Each of the Borrowers hereby consents to Lender's grant of participations in or sale, assignment, transfer or other disposition, at any time and from time to time hereafter, of this Agreement or any Related Agreement, or of any portion of any thereof, including without limitation Lender's rights, titles, interests, remedies, powers and/or duties. Lender may furnish any information concerning either or both of the Borrowers in the possession of Lender from time to time to assignees of the rights and/or obligations of Lender hereunder and to participants in any Loan (including prospective assignees and participants) and may furnish information in response to credit inquiries consistent with general banking practice. Lender shall promptly notify Borrower of Lender's grant of any participation in or sale, assignment, transfer or other disposition of this Agreement or any Related Agreement, or of any portion of any thereof. Borrower shall use its best efforts to assist Lender in its efforts to sell assignments and participations. 11.10 SEVERABILITY. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction. 11.11 SUCCESSORS. This Agreement shall be binding upon each of the Borrowers and Lender and their respective successors and assigns, and shall inure to the benefit of each of the Borrowers and Lender and the successors and assigns of Lender. Neither Borrower shall assign its rights or duties hereunder without the consent of Lender. 148 11.12 HEADINGS. The various headings of this Agreement and of each Related Agreement are inserted for convenience only and shall not affect the meaning or interpretation of this Agreement or such Related Agreement or any provisions hereof or thereof. 11.13 EXECUTION IN COUNTERPARTS. This Agreement may be executed by the parties hereto in several counterparts, each of which shall be deemed to be an original and all of which shall constitute together but one and the same agreement. 11.14 CONSTRUCTION. Each of the Borrowers acknowledges that this Agreement shall not be binding upon Lender or become effective until and unless accepted by Lender, in writing. If so accepted by Lender, this Agreement and the Related Agreements and Supplemental Documents shall, unless otherwise expressly provided therein, be deemed to have been negotiated and entered into in, and shall be governed and controlled by the internal laws (without regard to conflicts of law principles) of, the State of Illinois as to interpretation, enforcement, validity, construction, effect and in all other respects, including, but not limited to, the legality of the interest rate and other charges, but excluding perfection of security interests and liens which shall be governed and controlled by the laws of the relevant jurisdiction. This Agreement, any Note and the Related Agreements constitute the entire understanding among the parties hereto with respect to the subject matters hereof and thereof and supersede any prior agreements, written or oral, with respect thereto. 11.15 CONSENT TO JURISDICTION. To induce Lender to accept this Agreement, each of the Borrowers irrevocably agrees that, subject to Lender's sole and absolute election, ALL ACTIONS OR PROCEEDINGS IN ANY WAY, MANNER OR RESPECT, ARISING OUT OF OR FROM OR RELATED TO THIS AGREEMENT, THE RELATED AGREEMENTS, OR THE SUPPLEMENTAL DOCUMENTATION OR THE COLLATERAL OF SUCH BORROWER SHALL BE LITIGATED IN COURTS HAVING SITUS WITHIN THE CITY OF CHICAGO, STATE OF ILLINOIS. EACH OF THE BORROWERS HEREBY CONSENTS AND SUBMITS TO THE JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURT LOCATED WITHIN SAID CITY AND STATE AND WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON SUCH BORROWER, AND AGREES THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE BY REGISTERED MAIL DIRECTED TO SUCH BORROWER AT THE ADDRESS STATED ON THE SIGNATURE PAGE HEREOF AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED UPON ACTUAL RECEIPT THEREOF. 11.16 SUBSIDIARY REFERENCE. Any reference herein to a Subsidiary or Subsidiaries of a Borrower, and any financial definition, ratio, restriction or other provision of this Agreement which is stated to be applicable to such Borrower "and its Subsidiaries" or which is to be determined on a "consolidated" or "consolidating" basis, shall apply only to the extent such Borrower has any Subsidiaries and, where applicable, to the extent any such Subsidiaries are consolidated with such Borrower for financial reporting purposes. 149 11.17 WAIVER OF JURY TRIAL. EACH OF THE BORROWERS AND LENDER EACH WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS (i) UNDER THIS AGREEMENT OR ANY RELATED AGREEMENT OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR (ii) ARISING FROM ANY BANKING RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. EACH OF THE BORROWERS AND LENDER ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION (AND EACH OTHER PROVISION OF EACH RELATED AGREEMENT TO WHICH IT IS A PARTY) AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR LENDER ENTERING INTO THIS AGREEMENT AND EACH RELATED AGREEMENT. [SIGNATURE PAGE FOLLOWS] 150 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized as of the date first written above. OREGON METALLURGICAL CORPORATION By: /s/ ------------------------------ Vice President Address: 530 34th Avenue, S.W. Albany, Oregon 97321 Attn: Dennis P. Kelly Telephone: 503/926-4281 Fax: 503/928-8117 NEW TI, INC. By: /s/ ------------------------------ Assistant Treasurer Address: c/o Oregon Metallurgical Corporation 530 34th Avenue, S.W. Albany, Oregon 97321 Attn: Dennis P. Kelly Telephone: 503/926-4281 Fax: 503/928-8117 BANK OF AMERICA ILLINOIS By: /s/ ------------------------------ Vice President Address: 231 South LaSalle Street Chicago, Illinois 60697 Attention: Business Credit Group Telephone: 312/828-4409 Fax: 312/828-7327 151 Page intentionally left blank 152 SUPPLEMENT A TO LOAN AND SECURITY AGREEMENT DATED AS OF SEPTEMBER 19, 1994 AMONG OREGON METALLURGICAL CORPORATION, NEW TI, INC. AND BANK OF AMERICA ILLINOIS 1. LOAN AGREEMENT REFERENCE. This SUPPLEMENT A, as it may be amended, restated, supplemented or otherwise modified from time to time, is a part of the Loan and Security Agreement dated as of September 19, 1994 (together with all amendments, restatements, modifications and supplements thereto, the "LOAN AGREEMENT") among BANK OF AMERICA ILLINOIS, an Illinois banking corporation having its principal office at 231 South LaSalle Street, Chicago, Illinois 60697 ("LENDER"), OREGON METALLURGICAL CORPORATION, an Oregon corporation ("OREMET") and NEW TI, INC., an Oregon corporation ("TI") (OREMET and TI being sometimes hereinafter referred to, individually, as a "BORROWER" and, collectively, as "BORROWERS"). Terms used herein which are defined in the Loan Agreement shall have the meaning ascribed to them therein. 2. REVOLVING CREDIT AMOUNTS; BORROWING BASE. 2.1 REVOLVING CREDIT AMOUNTS. The maximum amount of Revolving Loans which Lender will make available to each Borrower (such amount is herein called, with respect to each Borrower, such Borrower's "REVOLVING CREDIT AMOUNT") is (i) in the case of OREMET, $16,000,000 and (ii) in the case of TI, $8,000,000 (in each case, unless such amount is reduced or increased by Lender in its sole discretion). 2.2 BORROWING BASES. The term "BORROWING BASE", as used herein with respect to each Borrower, shall mean: (i) an amount (with respect to each Borrower, such Borrower's "ACCOUNTS RECEIVABLE AVAILABILITY") of up to 80% of the net amount (after deduction of such reserves and allowances as Lender deems proper and necessary) of such Borrower's Eligible Accounts Receivable, PLUS (ii) an amount of up to the least of: (A) the sum of: (1) 50% of the net value (as determined by Lender and after deduction of such reserves and allowances as Lender deems proper and necessary) of Eligible Inventory of such Borrower consisting of finished goods; (2) in the case of TI only, 50% of the net value (as determined by Lender and after deduction of such reserves and allowances as Lender deems proper and necessary) of Eligible Inventory of such Borrower consisting of raw materials; and 153 (3) 30% of the net value (as determined by Lender and after deduction of such reserves and allowances as Lender deems proper and necessary) of Eligible Inventory of such Borrower consisting of work-in-process, sponge and usable remelt scrap; (B) an amount equal to (1) in the case of OREMET, $10,000,000 and (2) in the case of TI, $2,500,000; or (C) an amount not exceeding at any time (i) in the case of OREMET, one hundred twenty percent (120%) of such Borrower's Accounts Receivable Availability at such time and (ii) in the case of TI, one hundred percent (100%) of such Borrower's Accounts Receivable Availability at such time. 2.3 LENDER'S RIGHTS. Each of the Borrowers agrees that nothing contained in SUPPLEMENT A (i) shall be construed as Lender's agreement to resort or look to a particular type or item of Collateral of such Borrower as security for any specific Loan or advance or in any way limit Lender's right to resort to any or all of the Collateral of such Borrower as security for any of the Liabilities of such Borrower, (ii) shall be deemed to limit or reduce any Lien on any portion of such Collateral or other security for the Liabilities or (iii) shall supersede SECTION 2.9 of the Loan Agreement. 3. INTEREST 3.1 REVOLVING LOANS. 3.1.1 INTEREST TO MATURITY. The unpaid principal balance of the Revolving Loans (other than Overdraft Loans and Over Advances) shall bear interest to maturity at a rate per annum determined by reference to the Alternate Reference Rate or the Interbank Rate (Reserve Adjusted). Subject to the other terms and provisions of SUPPLEMENT A and of the Loan Agreement, (i) the applicable basis for determining the rate of interest applicable to each Revolving Loan shall be selected by the applicable Borrower at the time a notice of borrowing, continuation or conversion, as the case may be, with respect to such Revolving Loan is given by such Borrower pursuant to SECTION 2.5 of the Loan Agreement, and (ii) all Revolving Loans (other than Overdraft Loans and Over Advances shall bear interest as follows: (1) if a Reference Rate Revolving Loan, then at a per annum rate equal to the sum of the Alternate Reference Rate in effect from time to time, PLUS the Reference Rate Margin in effect at such time; or (2) if a Eurodollar Rate Revolving Loan, then at a per annum rate equal to the sum of the Interbank Rate (Reserve Adjusted) for the applicable Interest Period, 154 PLUS the Eurodollar Margin in effect from time to time during such Interest Period; PROVIDED, HOWEVER, that notwithstanding the foregoing or anything to the contrary contained in SUPPLEMENT A or the Loan Agreement, but subject in any event to SECTION 3.1.2 hereof, at any time that (i) the Liabilities to Net Worth Ratio is equal to or greater than 1.00 to 1.00 OR (ii) the Grid Ratio for the fiscal quarter of OREMET ending immediately prior to such time is equal to or less than 2.00 to 1.00, the entire unpaid principal balance of the Revolving Loans of each of the Borrowers (other than Overdraft Loans and Over Advances) shall bear interest at a rate per annum equal to the Alternate Reference Rate from time to time in effect PLUS one-and-one-half percent (1.5%). 3.1.2 DEFAULT RATE. If any amount of the Revolving Loans of either of the Borrowers is not paid when due, whether by acceleration or otherwise, the entire unpaid principal balance of the Revolving Loans of each of the Borrowers (other than Overdraft Loans and Over Advances) shall bear interest until paid at a rate per annum equal to: (A) the greater of (i) three and one-half percent (3.5%) above the Alternate Reference Rate from time to time in effect and (ii) three and one-half percent (3.5%) above the Alternate Reference Rate in effect at the time such amount became due; and (B) in the case of Eurodollar Rate Revolving Loans, the greater of (i) two percent (2%) above the rate applicable to such Loan at the time such amount became due and (ii) three and one-half percent (3.5%) percent in excess of the Alternate Reference Rate from time to time in effect. 3.2 OVERDRAFT LOANS; OVER ADVANCES. Overdraft Loans and Over Advances shall bear interest at the rate(s) determined pursuant to SECTION 2.7 or SECTION 2.8 of the Loan Agreement, as applicable. 3.3 COMPUTATION. Interest shall be calculated on the basis of a year consisting of 360 days and paid for actual days elapsed. Changes in any interest rate provided for herein which are due to changes in the Alternate Reference Rate shall take effect on the date of the change in the Alternate Reference Rate. 3.4 PAYMENT. Until maturity, interest on the Loans shall be payable on each Monthly Payment Date, and at maturity. After maturity, whether by acceleration or otherwise, accrued interest shall be payable on demand. 155 4. ADDITIONAL COVENANTS. From the date of the Loan Agreement and thereafter until all of the Liabilities of each of the Borrowers are indefeasibly paid in full in cash, each of the Borrowers agrees that, unless Lender otherwise consents in writing, it will: 4.1 LIABILITIES TO NET WORTH COVERAGE. (a) Not permit the Liabilities to Net Worth Ratio of OREMET to exceed 1.00 to 1.00; and (b) Not permit the Liabilities to Net Worth Ratio of TI to exceed (i) 4.00 to 1.00, at any time during the period commencing on the Closing Date and ending on December 30, 1995; (ii) 3.50 to 1.00 at any time during the period commencing on December 31, 1995 and ending on December 30, 1996; and (iii) 3.00 to 1.00, at any time thereafter. 4.2 NET WORTH. (a) Not permit the Net Worth of OREMET to be less than (i) $65,000,000, at any time during the period commencing on the Closing Date and ending on December 30, 1995; (ii) $66,000,000, at any time during the period commencing on December 31, 1995 and ending on December 30, 1996; and (iii) $67,500,000, at any time thereafter; and (b) Not permit the Net Worth of TI to be less than (i) $3,700,000, at any time during the period commencing on the Closing Date and ending on December 30, 1995; (ii) $4,600,000, at any time during the period commencing on December 31, 1995 and ending on December 30, 1996; and (iii) $5,600,000, at any time thereafter. 4.3 CAPITAL EXPENDITURES. Not, and not permit any Subsidiary of such Borrower to, purchase or otherwise acquire (including, without limitation, acquisition by way of Capitalized Lease), or commit to purchase or otherwise acquire, any fixed asset if, after giving effect to such purchase or other acquisition, the aggregate cost of all fixed assets purchased or otherwise acquired (i) by OREMET and its Subsidiaries (other than TI and its Subsidiaries) on a consolidated basis (x) during the period commencing on the Closing Date and ending on December 31, 1994, would exceed $750,000 and (y) in any one fiscal year would exceed $4,500,000 or (ii) by TI and its Subsidiaries on a consolidated basis in any one fiscal year would exceed $500,000. 4.4A TI INTEREST COVERAGE. Not permit the Grid Ratio for any fiscal quarter of TI ending after September 30, 1994 and for any fiscal year of TI ending after December 31, 1994 to be less than 2.00 to 1.00. 156 4.4B OREMET INTEREST COVERAGE. (a) Not permit the ratio of (i) earnings before interest expense, provision for Taxes and depreciation to (ii) interest expense, in each case of OREMET and its consolidated Subsidiaries for the fiscal quarter ending as of December 31, 1994, to be less than 2.75 to 1.00. (b) Not permit the Grid Ratio of OREMET to be less than 2.00 to 1.00 for any fiscal quarter or fiscal year, respectively, ending after December 31, 1994. OREGON METALLURGICAL CORPORATION By: /s/ -------------------------------- Vice President NEW TI, INC. By: /s/ -------------------------------- Assistant Treasurer BANK OF AMERICA ILLINOIS By: /s/ -------------------------------- Vice President 157 EX-10.14 8 EXHIBIT 10.14 TITANIUM TETRACHLORIDE AGREEMENT This Agreement, made this 1st day of August, 1990, by and between SCM Chemicals, Inc., a Delaware corporation with principal offices located at 7 St. Paul Street, Suite 1010, Baltimore, Maryland 21202 (hereinafter referred to as "SCM") and Oregon Metallurgical Corporation, an Oregon corporation with its principal offices located at 530 West 34th Avenue, Albany, Oregon 97321 (hereinafter referred to as "Oremet") for the sale and purchase of titanium tetrachloride (hereinafter referred to as "TiCl4"). WITNESSETH WHEREAS, Oremet operates a plant for the production of titanium metal sponge at Albany, Oregon (hereinafter "Oremet's Plant") and Oremet is desirous of securing from SCM TiCl4 as a raw material for the production of titanium metal sponge; and WHEREAS, SCM operates a plant in Ashtabula, Ohio to produce TiCl4 (hereinafter referred to as "SCM's Ashtabula Plant II") for sale to third parties such as Oremet; and WHEREAS, Oremet and SCM entered into an agreement dated April 20, 1988, as amended, for the sale and purchase of TiCL4 which agreement expires on December 31, 1991; and WHEREAS, the parties now desire to enter into a new agreement, effective January 1, 1992, on the terms and conditions as set forth herein. IN CONSIDERATION of and subject to the terms, covenants and undertakings contained herein, the parties mutually agree as follows: ARTICLE 1. DEFINITIONS 1.1 Ton shall mean two thousand (2,000) pounds. 1.2 TiCl4 shall mean the product being sold by SCM to Oremet with specifications described in Article V. 1.3 Contract Year for purposes of this agreement shall be the period January 1 through December 31. 158 ARTICLE II. PRIOR AGREEMENT 2.1 The agreement as amended, dated April 20, 1988, between Oremet and SCM Chemicals shall expire on December 31, 1991. Other than for claims of breach of the warranties expressed in said agreement, or for amounts which may be due and owing to SCM at the expiration of said agreement for TiCl4 sold to Oremet prior to the expiration of the agreement, neither party shall have any further obligations to the other under the terms and conditions of said agreement and each party releases the other from any claims, losses, damages of whatever kind or nature arising under said agreement. ARTICLE III. SCOPE 3.1 SCM agrees to sell and deliver and Oremet agrees to buy and take delivery of TiCl4 for production of titanium sponge within the ranges set forth in Article 7.1 and 7.2 during each Contract Year of this Agreement (hereinafter the "Agreement"). ARTICLE IV. TERM 4.1 This Agreement shall be for an initial term (the "Initial Term") of five (5) years commencing January 1, 1992, up to and including December 31, 1996, subject to prior termination as hereinafter provided and as provided in Articles 4.2, 13 and 14. This Agreement shall automatically renew for one (1) year Renewal Years (hereinafter "Renewal Year") unless either party provides written notice to the other at least two (2) years prior to the commencement of any Renewal Year. 4.2 Oremet may cancel this Agreement effective December 31, 1995, provided Oremet sends a written certification signed by a duly authorized officer of Oremet no later than December 31, 1993, that Oremet intends to build and commence the operation of a TiCl4 facility to supply itself with TiCl4 in quantities that are no less than the quantities supplied by SCM pursuant to this Agreement. 159 ARTICLE V. SPECIFICATIONS 5.1 During each Contract Year, SCM will sell and deliver and Oremet shall purchase and accept TiCl4 produced at SCM's Ashtabula Plant II having the following specifications: 5.1.a. Color: water white to light straw yellow 5.1.b. Chemistry: Chlorine (Elemental) None Titanium Tetrachloride Min. per cent Iron Max. ppm Vanadium Max. ppm Carbon Max. ppm Silicon Max. ppm Chromium Max. ppm Nickel Max. ppm Aluminum Max. ppm Tin, Copper, & Manganese Max. ppm Nitrogen Max. ppm *(as a group ppm maximum any individual element) SCM shall be responsible for establishing and using sampling procedures and methods for chemical analysis to afford reliable assurance of the specifications contained herein. Seller shall certify that delivered TiCl4 is in accordance with all the requirements of this specification. In the event of disagreement as to the conformance of TiCl4 this specification, the parties shall submit the dispute to an independent laboratory for determination and agree to be bound by such determination. The costs of such independent determination shall be equally shared. ARTICLE VI. SCHEDULING/PASSAGE OF TITLE/RISK OF LOSS 6.1 Oremet shall furnish SCM, at least thirty (30) days in advance, estimates of TiCl4 required by its plant for the succeeding calendar month during the term of this Agreement. Oremet requirements shall, to the extent possible, be uniform from month to month during any yealy period of this Contract, and Seller's delivery of 160 TiCl4 shall be made on a like basis; provided that Seller shall not be required to deliver during any calendar month an amount which is percent greater or less than the TiCl4 supplied during the preceding month. SCM shall not be required to deliver an amount of TiCl4 during any calendar quarter which is percent greater or less than the TiCl4 supplied during the prior quarter. 6.2 All TiCl4 sold and purchased hereunder shall be shipped by Seller to Buyer via Buyer's rail tank cars which Buyer covenants shall be maintained in safe working order and comply with all applicable regulations. Risk of loss and title to all TiCl4 shall be with Seller until the point at which rail cars leave the property of Seller whereupon risk of loss and title thereto shall pass to Buyer. ARTICLE VII. QUANTITIES 7.1 During each Contract or Renewal Year, SCM will sell and deliver to Oremet and Oremet will purchase and accept from SCM, a minimum volume of of TiCl4. 7.2 Unless adjusted in accordance with Article 7.4 herein, SCM will sell and deliver to Oremet and Oremet will purchase and accept from SCM up to a maximum volume of . 7.3 During each Contract and Renewal Year, Oremet agrees to purchase and accept from SCM its for TiCl4 up to the maximum quantities specified in Article 7.2 herein, or as adjusted in accordance with Article 7.4. 7.4 If, during the term or any renewal of this Agreement, Oremet desires to increase the maximum quantities set forth in Article 7.2, Oremet shall provide SCM with at least written notice of the new maximum quantity which quantity shall not exceed tons during any Contract or Renewal Year. 161 7.5 The quantities of TiCl4 delivered hereunder in any month by SCM shall be determined from volume measurements obtained by SCM on rail cars shipped to Oremet. ARTICLE VIII. PRICE 8.1 The base price for TiCl4, effective January 1, 1992, shall be the price, per ton, SCM is charging Oremet for TiCl4 sold during the plus . The base price for TiCl4 shall be increased an additional effective January 1, 1994, based on the selling price. 8.2 The price for TiCl4 shall be adjusted quarterly beginning January 1, 1992, to reflect the previous quarter's changes in the: 8.2.1 actual consumption of for the production of TiCl4, a and the weighted average individual costs of consumed a . SCM's only produces as a final product; 8.2.2 weighted cost of for the production of TiCl4 at SCM's Ashtabula Plant II; 8.2.3 the weighted cost of in the manufacture of TiCl4 at SCM's Ashtabula-Plant II; 8.2.4 The cost associated with the during the manufacture of TiCl4 at SCM's Ashtabula Plant II; 8.2.5 the cost of consumed in the manufacture of TiCl4 at SCM's Ashtabula Plant II; and 162 8.2.6 other conversion costs based on changes to the . 8.3 The adjustments to the price of TiCl4 which are described in detail in Articles 8.4 through 8.9 shall apply to every quarter of the Agreement. At the end of each quarter, a calculation will be made to determine the price for TiCl4 for the quarter just ended. This price will be used as the price for the next ensuing quarter. Each of the base weighted average costs described as cost elements "B" or "E" in the price adjustment formulas shown in Articles 8.4 through 8.8, remains in effect for the Contract term. These base weighted average costs shall be the projected weighted average costs for the first quarter of 1992 of the respective cost elements in the price adjustment formulas. All prices referred to herein shall be F.O.B., SCM's Ashtabula Plant II in Ohio. 8.4 COST OF The following formula shall be used to determine the adjustment to the selling price of TiCl4, resulting from changes in the
A C B D / \ / \ ADJUSTMENT IN CENTS/LB. | ACTUAL WEIGHTED ACTUAL WEIGHTED | | BASE WEIGHTED BASE WEIGHTED | SELLING PRICE TICL4 | AVERAGE COST/ x AVERAGE FACTOR | - | AVERAGE COST/ x AVERAGE FACTOR | \ / \ / WHERE: A = TOTAL DOLLAR COST OF DURING PREVIOUS QUARTER ---------------------------------------------------------- TOTAL CONSUMED DURNG PREVIOUS QUARTER B = BASE WEIGHTED AVERAGE COST/TON OF C = / \ | TON TICL4 x TONS OF | | TON TICL4 x TONS OF | x CENTS/LB. | TON TICL4 x TONS OF | | ---------------------------------------------------- | | TOTAL TONS OF ORE CONSUMED DURING PREVIOUS QUARTER | \ / D =
163 8.5 COST OF The following formula shall be used to determine the adjustment to the selling price of TiCl4 resulting from changes in the cost of .
A C B D / \ / \ ADJUSTMENT IN CENTS/LB. | ACTUAL WEIGHTED ACTUAL WEIGHTED | | BASE WEIGHTED BASE WEIGHTED | SELLING PRICE TICL4 | AVERAGE COST/ x AVERAGE FACTOR | - | AVERAGE COST/ x AVERAGE FACTOR | \ / \ / WHERE: A = TOTAL DOLLAR COST OF PURCHASED DURING PREVIOUS QUARTER ------------------------------------------------------------ TOTAL PURCHASED DURNG PREVIOUS QUARTER B = BASE WEIGHTED AVERAGE COST/TON OF C = / \ | TON TICL4 x TONS OF | | TON TICL4 x TONS OF | x CENTS/LB. | TON TICL4 x TONS OF | | ---------------------------------------------------- | | TOTAL TONS OF ORE CONSUMED DURING PREVIOUS QUARTER | \ / D =
8.6 ADJUSTMENT The following formula shall be used to determine the adjustment to the selling price of TiCl4 resulting from changes in the cost of .
A B C / \ ADJUSTMENT IN CENTS/LB. | ACTUAL WEIGHTED BASE WEIGHTED | ADJUSTMENT SELLING PRICE TICL4 = | AVERAGE - AVERAGE | x FACTOR \ / WHERE: A = TOTAL DOLLAR COST OF CONSUMED DURING PREVIOUS QUARTER ------------------------------------------------------------ TOTAL CONSUMED DURNG PREVIOUS QUARTER B = BASE WEIGHTED AVERAGE COST C =
164 8.7 ADJUSTMENT The following formulas shall be used to determine the adjustment to the Selling Price of TiCl4, resulting from changes in the Costs:
SOLIDS A C B D / \ / \ ADJUSTMENT IN CENTS/LB. | ACTUAL WEIGHTED ACTUAL WEIGHTED | | BASE WEIGHTED BASE WEIGHTED | SELLING PRICE TICL4 | AVERAGE COST/ x AVERAGE FACTOR | - | AVERAGE COST/ x AVERAGE FACTOR | \ / \ / WHERE: A = TOTAL DOLLAR COST OF DURING PREVIOUS QUARTER ---------------------------------------------------------- TOTAL DURNG PREVIOUS QUARTER B = BASE WEIGHTED AVERAGE COST C = / \ | TON TICL4 x TONS OF | | TON TICL4 x TONS OF | x CENTS/LB. | TON TICL4 x TONS OF | | ---------------------------------------------------- | | TOTAL TONS OF ORE CONSUMED DURING PREVIOUS QUARTER | \ / D =
A C B D / \ / \ ADJUSTMENT IN CENTS/LB. | ACTUAL WEIGHTED ACTUAL WEIGHTED | | BASE WEIGHTED BASE WEIGHTED | SELLING PRICE TICL4 | AVERAGE x AVERAGE FACTOR | - | AVERAGE x AVERAGE FACTOR | \ / \ / WHERE: A = TOTAL DOLLAR COST OF DURING PREVIOUS QUARTER ---------------------------------------------------------- TOTAL DURNG PREVIOUS QUARTER B = BASE WEIGHTED AVERAGE COST C = / \ | TON TICL4 x TONS OF | | TON TICL4 x TONS OF | x CENTS/LB. | TON TICL4 x TONS OF | | ---------------------------------------------------- | | TOTAL TONS OF ORE USED DURING PREVIOUS QUARTER | \ / D =
Adjustment = the adjustment in cents/lb. Selling Price TiCl4 adjustment in cents/lb. Selling Price TiCl4. 165 8.8 ADJUSTMENT The following formulas shall be used to determine the adjustment to the selling price of TiCl4 resulting from changes in the Costs:
A B C / \ ADJUSTMENT IN CENTS/LB. | ACTUAL WEIGHTED BASE WEIGHTED | ADJUSTMENT SELLING PRICE TICL4 | AVERAGE COST - AVERAGE COST | x FACTOR \ / WHERE: A = TOTAL DOLLAR COST OF DURING PREVIOUS QUARTER --------------------------------------------------------- TOTAL CONSUMED DURNG PREVIOUS QUARTER B = BASE WEIGHTED AVERAGE COST C =
D E F / \ ADJUSTMENT IN CENTS/LB. | ACTUAL WEIGHTED BASE WEIGHTED | ADJUSTMENT SELLING PRICE TICL4 | AVERAGE COST - AVERAGE COST | x FACTOR \ / WHERE: D = TOTAL DOLLAR COST OF DURING PREVIOUS QUARTER --------------------------------------------------------- TOTAL CONSUMED DURNG PREVIOUS QUARTER E = BASE WEIGHTED AVERAGE COST F = COST ADJUSTMENT = THE ADJUSTMENT IN CENTS/LB. SELLING PRICE TICL4 THE ADJUSTMENT IN CENTS/LB. SELLING PRICE TICL4.
8.9 OTHER CONVERSION COST ADJUSTMENTS ADJUSTMENT IN CENTS/LB. CENTS/LB. TICL4 SELLING PRICE TICL4 = x ADJUSTMENT FACTOR WHERE: / \ | FOR PREVIOUS QUARTER | % CHANGE | ------------------------------------- | - 1 x 100 | BASE | \ / BASE QUARTER ENDING
166 8.10 If, at any time during the Initial Term or any Renewal Year of this Agreement, SCM sells TiCl4, produced at SCM's Ashtabula Plant II, in commercial quantities and of comparable quality of TiCl4 SCM's Ashtabula Plant II, . ARTICLE IX. PAYMENT 9.1 The terms of payment for all TiCl4 sold and delivered by SCM to Oremet, shall be from the date of invoice. Invoices, for a month's deliveries, shall be made as soon as practicable after the end of the applicable months in which deliveries have been made to Oremet. ARTICLE X. WARRANTY 10.1 SCM warrants that the TiCl4 sold and delivered hereunder shall conform to the specifications contained in Article V hereof. 10.2 In the event that any shipment of TiCl4 sold and delivered hereunder does not conform to said Specifications, SCM will, at its sole option, and as Oremet's sole remedy replace or give credit for any TiCl4 returned to SCM and found by SCM, not to conform to those Specifications. SCM will or issue a credit Oremet for TiCl4 that does not conform to specifications. 10.3 The warranty and remedy expressed in this Article X is the sole and exclusive warranty made by SCM with respect to the TiCl4 to be sold and delivered hereunder and exclusive remedy available to Oremet, whether based on strict liability, negligence, breach of express or implied warranty or any other theory or cause of 167 action. THIS WARRANTY IS IN LIEU OF ALL OTHER WARRANTIES, EXPRESSED, STATUTORY OR IMPLIED, INCLUDING, WITHOUT LIMITATION, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. SCM makes no other representation or warranty of any kind other than as stated herein and this warranty may not be modified by any agent or other representative of SCM. 10.4 SCM shall not be responsible for any damages whatsoever, whether direct, special, indirect, consequential or incidental, relating directly or indirectly to the use, sale or resale of TiCl4, as well as for failure to perform any obligation undertaken or imposed pursuant to this Agreement. ARTICLE XI. AUDIT 11.1 SCM shall provide, at SCM's expense, and no more than once per Contract or Renewal Year, a statement from its independent certified public accountant (or Oremet's independent certified public accountant at Oremet's expense) certifying that the selling prices of TiCl4 to Oremet by SCM pursuant to Article VIII and any other charges which are imposed pursuant to this Agreement have been accurately made in accordance with the applicable Agreement provision and verified in accordance with generally accepted accounting principles consistently applied. The report of such independent certified public accountant shall be limited solely to whether or not the selling price described in this Agreement is accurate at the time of record inspection and shall not disclose to Oremet any information contained in such records. ARTICLE XII. FORCE MAJEURE 12.1 Neither party shall incur any liability to the other hereunder because of its failure to perform, in whole or in part, its obligations under this Agreement if such failure to perform is caused by strike, lockout, fire, flood, storm, war, civil disturbance, 168 accident, explosion, act of God or the public enemy, federal, state or local law, rule, order or regulation, legal restriction or limitations or compliance therewith, whether valid or invalid, inability to obtain raw materials of customary grade and quality, shortage of fuel, embargo, peril of the seas and harbors or other cause beyond the reasonable control of the party affected, whether or not of the kind hereinabove enumerated; provided, however, that performance hereunder shall be resumed within a reasonable time after such cause has been removed. No party shall be required against its will to adjust or settle any labor dispute. 12.2 In the event that either party is unable to perform, in whole or in part, its obligations under this Agreement, by reason of any cause included in paragraph 12.1, above for a continuous period of more than one (1) year, then either party may elect to terminate this Agreement. The quantity to be delivered hereunder shall be reduced to the extent of the deliveries omitted for such cause or causes, unless both parties agree that the total quantities to be delivered hereunder shall remain unchanged. In the event that neither party so terminates this Agreement, and the parties agree not to reduce the quantities to be delivered hereunder, then the Initial Term of this Agreement, as provided in Article IV, may be extended for a period of time equal to the period of time performance that has been suspended pursuant to paragraph 12.1 above, if the parties so agree by written amendment of this Agreement. 12.3 In the event that SCM's Ashtabula Plant II or Oremet's Plant is destroyed or damaged by reason of any cause included in paragraph 12.1 above, to such an extent that the removal of such cause would be tantamount to rebuilding such Plant, then the party whose Plant has been so damaged or destroyed may elect to terminate this Agreement forthwith in the event it elects not to rebuild its Plant, and the other party may elect to terminate this Agreement forthwith in the event 169 that the party whose Plant has been so damaged or destroyed has not begun to rebuild its said Plant within six (6) months after the event of destruction or damage. 12.4 In the event of a substantial reduction or cessation of production of TiCl4, resulting from an event as described in paragraph 12.1 herein, SCM will make available to Oremet, no less than Oremet's pro rata share of SCM's inventory and reduced production, if any, of TiCl4, the said pro rata share to be based on SCM's total deliveries of TiCl4 to its Ashtabula Plant II TiO2 plant at Ashtabula, Ohio, and to all of SCM's TiCl4 customers including Oremet during the ninety (90) day period ending with the Force Majeure event. ARTICLE XIII. DEFAULT 13.1 A "default" shall mean any failure by either party to make any payment or to perform any obligation pursuant to this Agreement for any reason other than a Force Majeure as defined in Article XII and the party in default has failed to remedy or diligently commenced to remedy such failure to pay or perform within ten (10) days after receiving written notice thereof from the other party. 13.2 In the event of a default arising from a breach of Oremet's duty to pay for TiCl4 delivered, SCM shall have the right to seek damages for loss or damages actually sustained as a direct result of the default. In addition, SCM shall have the right (subject to Oremet's right to cure its default pursuant to this Article) to terminate this Agreement forthwith by providing notice to such effect to Oremet. 13.3 In the event either party becomes bankrupt or insolvent, commits any act of bankruptcy or insolvency, makes any proposal, arrangement or compromise with its creditors or if it is liquidated or if its charter of incorporation is relinquished or canceled, the other party shall have the right to immediately terminate this Agreement without notice or demand. 170 13.4 The rights of termination contained in this Article XIII are in addition to the right to demand damages, specifically as permitted in this Agreement and to any other rights and remedies as are available in this Agreement. ARTICLE XIV. ENVIRONMENTAL IMPACT 14.1 Either party may curtail or suspend the delivery or acceptance of a purchase or sale, of TiCl4 hereunder, without liability to the other during any period where such party's production at its plant is restricted or otherwise affected by any law, rule, regulation, judgment or other, administrative or judicial, interlocutory or final order that imposes upon the plant of the party affected, or any supplies of such plant, new or additional standards, procedures or limitations enforced after the date of this Agreement for the purpose of protecting or improving the environment (said new or additional standards, procedures or limitations hereinafter referred to as "New Environmental Requirements"). The party affected shall give prompt notice of any such New Environmental Requirements and the expected duration of any curtailment or suspension. 14.2 Notwithstanding any other provision contained in this Agreement, if in order to comply with New Environmental Requirements, SCM expends funds for new operating methods, such expenses, including direct expenses and the amortized capital costs incurred, may, at Seller's option, (using generally accepted depreciation methods consistently applied) be prorated against all of the production of TiCl4 produced at Seller's Ashtabula Plant II and Buyer shall, subject to the provisions of 14.3 below, reimburse Seller for the percentage of such expenses that is equal to the percentage of TiCl4 produced by Sellers plant that is subsequently sold and delivered to Buyer. Such reimbursement shall be made quarterly over the balance of the Agreement term. SCM agrees to consult with Oremet on the scope of any project to comply with New Environmental requirements. 171 14.3 If SCM expends funds to comply with as aforesaid, SCM shall notify Oremet in writing of Oremet's estimated share of such expenditures. Oremet shall, within thirty (30) days after such notification, notify SCM in writing that it provided that if Buyer makes no election, If Oremet SCM may at its option terminate this Agreement without liability to either party. ARTICLE XV. CONFIDENTIALITY 15.1 SCM and Oremet consider this Agreement and all of its terms and conditions to be confidential. Each party agrees not to disclose this Agreement or parts hereof to third parties without the prior express written consent of the other. In addition, Oremet understands that SCM will, during the term of this Agreement, provide Oremet with certain information which SCM considers confidential. Such information includes but shall not be limited to specifications, manufacturing processes, as well as other information which SCM will designate as confidential from time to time. Oremet will treat SCM Confidential Information with the same degree of care it treats its own Confidential Information and only those employees with a need to know the information shall be permitted access to SCM's Confidential Information. Oremet shall not disclose SCM Confidential Information to any third party. Upon termination of this Agreement, all Confidential Information will be returned to SCM or be certified by Oremet as having been destroyed. This obligation of confidentiality shall not extend to information which Oremet already knows at the time of disclosure as evidenced by its records or information that is lawfully available to the public through sources other than Oremet. 172 ARTICLE XVI. ASSIGNMENT 16.1 This Agreement may not be assigned by either party without the prior written consent of the other, which consent shall not be unreasonably withheld, provided however, that no such consent shall be necessary when this Agreement is assigned as part of the transfer or substantially all of the SCM's Ashtabula Plant II TiCl4 facilities at Ashtabula, Ohio, or substantially all of Oremet's Plant. ARTICLE XVII. 17.1 Any or increase thereof, upon the production, sale and/or shipment of the TiCl4 sold under this Agreement (other or entering into the costs thereof, whether by after the date of this Agreement, shall be added to the price herein provided, and shall be paid to SCM by Oremet. ARTICLE XVIII. FAIR LABOR STANDARDS ACT 18.1 SCM warrants that all goods and services furnished hereunder have been produced in full compliance with all applicable laws and regulations, including the applicable requirements of Sections 6, 7 and 12 of the Fair Labor Standards Act as amended, and of regulations and orders of the U.S. Department of Labor issued under Section 14 thereof. SCM shall also be in compliance with applicable requirements of Executive Order 11141 and 11246, as well as the Rehabilitation Act of 1973, as amended. ARTICLE XIX. WAIVERS 19.1 No waiver by either party, at any time, expressed or implied, or any breach of any provision of this Agreement, shall be deemed a waiver or a breach of any other provision. Failure of either party to complain of any act or omission on the part of the other party, no matter how long the same may continue, shall not be deemed 173 to be a waiver of any of its rights hereunder. If any action by either party shall require the consent or approval of the other party, the other party's consent to or approval of such action on any one occasion shall not be deemed a consent to or approval of any other action on the same or any subsequent occasion. ARTICLE XX. GOVERNING LAW 20.1 This Agreement shall be governed by and construed under the substantive and procedural laws of the State of Ohio, excluding its choice of laws. ARTICLE XXI. NOTICES 21.1 Any notice to be given to either party under the terms of this Agreement shall be deemed to have been given, if delivered or transmitted by telex or telefax, and subsequently confirmed by prepaid registered or certified mall to the respective addresses given below: Notices to SCM Chemicals, Inc. shall be addressed: SCM Chemicals, Inc. 7 St. Paul Street, Suite 1010 Baltimore, MD 21202 Attention: Vice President - General Manager, Titanium Products Business With a Copy to: Vice President General Counsel (Same address) Notices to Oremet shall be addressed: Oregon Metallurgical Corporation 530 West 34th Avenue Albany, Oregon 97321 Attention: President ARTICLE XXII. SEVERABILITY 22.1 If any provision of this Agreement shall be declared invalid or unenforceable, the remainder of this Agreement shall continue in full force and effect. 174 ARTICLE XXIII. ENTIRE AGREEMENT, AMENDMENT, MODIFICATION 23.1 This Agreement states the entire understanding between the parties hereto with respect to the subject matter hereof, and there are no agreements or understandings, oral or written, experienced or implied, with reference to the subject matter hereof that are not merged herein or superseded hereby. This Agreement replaces and supersedes the agreement between Oremet and SCM Chemicals, Inc. dated April 20, 1988, and as amended June 21, 1988. This Agreement may not be changed, modified or supplemented in any manner, orally or otherwise, except by an instrument in writing signed by a duly authorized representative of each of the parties hereto. The parties recognize that, for administrative purposes, documents such as purchase orders, acknowledgments, invoices and similar documents may be used during the time this Agreement is in force; in no event shall any term or condition contained in any such administrative documents be interpreted as amending or modifying the terms of this Agreement whether such administrative documents are signed or not. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized representatives, as of the day and year first above written. WITNESS: SCM CHEMICALS, INC. /s/ Mary Jo Mulgrew /s/ Donald N. Borst --------------------------------- By: ------------------------------ Title: Chairman, President & Chief Executive Officer --------------------------- WITNESS: OREGON METALLURGICAL CORPORATION /s/ Frederick B. Benton --------------------------------- By: ------------------------------ Title: President --------------------------- 175 AMENDMENT TO TITANIUM TETRACHLORIDE AGREEMENT THIS AMENDMENT to Titanium Tetrachloride Agreement made this 7 day of January, 1993, by and between SCM Chemicals, Inc, a Delaware corporation with principal offices located at 7 St. Paul Street, Suite 1010, Baltimore, Maryland 21202 (hereafter referred to as "SCM") and Oregon Metallurgical Corporation, an Oregon corporation with its principal offices located at 530 West 34th Avenue, Albany, Orgeon 97321 (hereinafter referred to as "Oremet"). WITNESSETH: WHEREAS, by Agreement dated the 1st of August, 1990, SCM and Oremet entered into an agreement for the sale and purchase of titanium tetrachloride ("TiCl4") for Oremet's manufacturing facitilies as more specifcally described in the agreement ("Agreement"), and WHEREAS, the parties desire to amend certain terms and conditions of the Agreement as more particularly described as follows: NOW THEREFORE, in consideration of the promises and mutual covenants and agreements herein contained, Oremet and SCM agree as follows: 1. DEFINITIONS All defined terms, contained in the Agreement, shall have the same meaning in this Amendment to the Titanium Tetrachloride Agreement ("Amendment"). 2. ARTICLE IV. TERM a. Delete Article 4.1, of the Agreement, and substitute the following: "4.1 This Agreement shall be for an initial term ("Initial Term") of ten (10) years commencing January 1, 1992, up to and including December 31, 2001, subject to either party having the right of early termination at the end of any Contract Year by giving at least written notification to the other, provided Oremet will have 176 tons of TiCl4, pursuant to the terms and conditions of this Agreement, by the end of said Contract Year. This Agreement is also subject to prior termination by operation of Articles XIII and XIV." b. Delete Article 4.2, of the Agreement, and substitute the following: "4.2 This Agreement shall automatically renew for one (1) year Renewal Periods (hereinafter "Renewal Period") unless either party provides written notice to the other of termination at least prior to the commencement of any Renewal Period." 3. ARTICLE VII. QUANTITIES a. Delete Article 7.1, of the Agreement, and substitute the following: "7.1 During each Contract or Renewal Year, SCM will sell and deliver to Oremet and Oremet will purchase and accept from SCM a minimum volume of for Contract Years 1, 2 and 3; for Contract Years 4, 5, 6 and 7; and for Contract Years 8, 9 and 10 of TiCl4. b. Delete Article 7.2 of the Agreement, and substitute the following: "7.2 Unless adjusted in accordance with Article 7.4 herein, SCM will sell and deliver to Oremet and Oremet will purchase and accept from SCM up to a volume of . c. Delete Article 7.4, of the Agreement, and substitute the following: "7.4 If, during the term or any renewal of this Agreement, Oremet desires to increase the maximum quantities set forth in Article 7.2, Oremet shall notify SCM and SCM shall have the option to supply part or all of Oremet's requirements above the maximum quantity set forth in Article 7.2 or none of Oremet's requirements above the maximum quantity. If SCM of Oremet's , then Oremet shall be permitted to TiCl4 SCM ." 177 4. All terms and conditions, contained in the Agreement, unless otherwise modified by this Amendment, shall remain in full force and effect. IN WITNESS WHEREOF, the parties have caused this Amendment to be executed and delivered by their duly authorized officials as of the day and year first above written. WITNESS: SCM CHEMICALS, INC. /s/ Mary Jo Mulgrew /s/ Donald V. Borst --------------------------------- By: ------------------------------ Donald V. Borst Title: Chairman, President & C.E.O. --------------------------- WITNESS: OREGON METALLURGICAL CORPORATION /s/ Frederick B. Benton /s/ --------------------------------- By: ------------------------------ Title: President --------------------------- 178 EX-10.15 9 EXHIBIT 10.15 This Note is subject to a Subordination Agreement, dated as of September 19, 1994, among Bank of America Illinois, an Illinois banking corporation, New TI, Inc., an Oregon corporation, and Titanium Industries Inc., a New Jersey corporation. This Note is subordinated in right and time of payment in accordance with the terms of such Subordination Agreement to the prior indefeasible payment in full in cash of all Senior Indebtedness (as defined therein) and each holder of this Note, by its acceptance hereof irrevocably agrees to be bound by the terms and provisions of such Subordination Agreement. SUBORDINATED PROMISSORY NOTE $4,500,000.00 September 19, 1994 FOR VALUE RECEIVED, NEW TI, INC., an Oregon corporation having its principal place of business at c/o Oregon Metallurgical Corporation, 530 34th Avenue, SW, Albany, Oregon 97321 (the "Payor"), promises to pay in lawful money of the United States to the order of Titanium Industries, Inc., a New Jersey corporation, or any successor or assign to whom this Note has been transferred in accordance with paragraph 14 (the "Payee"), the principal sum of FOUR MILLION FIVE HUNDRED THOUSAND DOLLARS ($4,500,000.00), together with interest thereon from the date hereof as provided below. 1. DEFINITIONS. "AFFILIATE" means, with respect to any Person, any other Person directly controlling, controlled by or under common control with, such Person. "COLLATERAL" has the meaning assigned to such term in Section 2 of the Security Agreement (as defined in paragraph 9). "DISTRIBUTION BUSINESS" means the titanium distribution business as conducted at the date of this Note by Titanium Industries, Inc., Ti-Titanium Ltd. and the Included Affiliates, which involves the following activities: (i) the stocking and sale of a wide range of titanium and zirconium mill products (including plate, sheet, bar, billet, pipe, tubing, fittings, fasteners, shapes, wire and TIPE-XL) for delivery to customers on a quick turnaround ("just-in-time") basis, generally in less than mill size lots, (ii) custom cutting and shaping and related first stage processing of such titanium and zirconium mill products to meet customer specifications, in each case resulting in an 179 intermediate (and not a finished) product or component for use by manufacturers rather than end users, and (iii) the provision to customers of related services such as testing, inventory traceability and certification. "ENCUMBRANCES" means liens, security interests, options, rights of first refusal, easements, mortgages, charges, debentures, indentures, rights-of-way, restrictions, encroachments, leases, security agreements or any other encumbrances, restrictions or limitations on use of real or personal property or irregularities in title thereto. "INCLUDED AFFILIATES" means Titanium International Limited, a wholly-owned English subsidiary of Payor, and Titanium Wire Corporation, a wholly-owned Pennsylvania subsidiary of Payor. "INDEBTEDNESS" means all existing or future obligations of Payor for money borrowed and existing and future trade payables of Payor. "INVENTORY" means any "inventory" as such term is defined in section 9-109(4) of the Uniform Commercial Code and, to the extent not included within such definition, all inventory, merchandise, goods and other personal property which are held for sale or lease or are furnished or are to be furnished under a contract of service or which constitute raw materials, work in process or materials used or consumed or to be used or consumed in Payor's business, or the processing, packaging, delivery or shipping of the same, and all finished goods; in each case whether now owned or hereafter acquired by Payor. "JUNIOR INTERCOMPANY LOANS" means intercompany loans representing the total amount by which the sum of intercompany loans from OREMET to Payor plus bank loans to Payor exceeds the sum of 80% of Payor's accounts receivable (net of reserves) and 50% of Payor's inventories (net of reserves) at the time of such borrowing. "OREMET" means Oregon Metallurgical Corporation, an Oregon corporation. "PERSON" means any individual, partnership, joint venture, corporation, limited liability company, trust, unincorporated organization, or any other entity. "SECURITY AGREEMENT" has the meaning set forth in paragraph 9. "SENIOR INDEBTEDNESS" has the meaning set forth in paragraph 7. 180 "SENIOR-LOAN AGREEMENT" means the Loan and Security Agreement dated as of September 19, 1994 among OREMET, Payor and Bank of America Illinois. "SUBORDINATION AGREEMENT" has the meaning set forth in the legend, if any, at the beginning of this Note. 2. PRINCIPAL. The principal of this Note shall be repaid in thirteen quarterly installments as follows:
Payment Date Amount ------------------------------- ----------- March 19, 1997 $300,000.00 June 19, 1997 $350,000.00 September 19, 1997 $350,000.00 December 19, 1997 $350,000.00 March 19, 1998 $350,000.00 June 19, 1998 $350,000.00 September 19, 1998 $350,000.00 December 19, 1998 $350,000.00 March 19, 1999 $350,000.00 June 19, 1999 $350,000.00 September 19, 1999 $350,000.00 December 19, 1999 $350,000.00 March 19, 2000 (the "Maturity") $350,000.00 ------------- TOTAL PRINCIPAL $4,500,000.00
3. INTEREST. The unpaid balance of the principal amount stated above shall bear simple interest at the rate of eight percent (8.0%) per annum from the date of this Note until fully paid. Interest on the unpaid balance of this Note shall be due on March 19, June 19, September 19 and December 19 of each year, commencing on March 19, 1995 and ending on the earlier of Maturity or the date of prepayment in whole of this Note, at which time all accrued but unpaid interest shall be due, payable and collectible. 4. PAYMENT OF PRINCIPAL AND INTEREST. (a) All principal of and interest on this Note shall be payable not later than 12:30 p.m. (New York time) on the day when due by wire transfer of same day funds for Payee's account No. 40553523 (ABA # 021000089) at Citibank (N.Y.) or at such other bank in the United States as may be designated 181 by it from time to time by written notice to Payor, free and clear of and without any deductions for any and all present or future taxes, levies, imposts, deductions, charges or withholdings (except as required by law). (b) Amounts owing hereunder shall be subject to setoff against Agreed Claims or arbitration awards in favor of Payor as and to the extent set forth in Section 8.05 of the Stock and Asset Purchase Agreement dated as of September 19, 1994 between Kamyr, Inc. and Payor and Section 3.2 of the Envirormental Agreement dated as of September 19, 1994, between Kamyr, Inc. and Payor. 5. PREPAYMENT. (a) This Note may be prepaid in whole or in part, without penalty. (b) This Note shall be prepaid in whole in the event that (i) Payor sells all or substantially all of its assets, or (ii) OREMET ceases for any reason to own at least a majority of the outstanding voting stock of Payor. (c) Payor shall prepay this Note in an amount equal to thirty percent (30%) of the net proceeds of (i) the sale by Payor of any capital asset the net proceeds of which exceed individually or in the aggregate one hundred thousand dollars ($100,000.00), and (ii) any financing(s) the net proceeds of which exceed one million dollars ($1,000,000.00) in the aggregate, which financing(s) rank junior in priority of payment to this Note. For purposes hereof, "net proceeds" shall mean the net cash realized by Payor from such sale or financing(s), after the retirement of all debt secured by the asset sold, or the retirement of the debt refinanced by said financing(s), and payment of all expenses related to the transactions. 6. FINANCIAL COVENANTS. From and after the date hereof and until payment in full of all amounts of principal and interest due hereunder: (a) Payor shall not declare or pay any dividends or other distribution to its shareholders unless (i) after giving effect to the dividend or distribution, the shareholders' equity of Payor equals or exceeds ten million dollars ($10,000,000.00), (ii) Payor has fully and finally paid to Payee the first nine installments of principal hereunder pursuant to paragraph 2 or the principal balance of this Note is reduced to an amount no greater than one million two hundred and fifty thousand dollars ($1,250,000.00) and (iii) Payor is not otherwise in default of any obligation hereunder. For purposes hereof, 182 shareholders' equity shall be determined by reference to Payor's balance sheet prepared in accordance with generally accepted accounting principles, consistently applied, as of the end of the month most recently preceding the month during which the dividend or distribution is proposed to be made or paid; PROVIDED, HOWEVER, that any loans to OREMET made in accordance with paragraph (e) below shall for purposes of the determination of Payor's shareholders' equity be treated as a dividend to its shareholders; (b) Payor shall not incur any Indebtedness that ranks senior in priority of payment to, or on a parity with, this Note, unless such funds shall be: (i) used by Payor and the Included Affiliates in the ordinary course of the Distribution Business (it being understood that for the purposes of this paragraph 6(b)(i), (A) the acquisition of all or a substantial part of the assets or outstanding stock of another Person, (B) the acquisition of any line of business from any third party or Affiliate, (C) the acquisition of real property from any third party or Affiliate and (D) any single capital expenditure in an amount greater than $100,000 for a capital asset not ordinarily used in the Distribution Business, shall not be deemed to be "in the ordinary course" of the Distribution Business); and (ii) in an aggregate amount outstanding at any given time, as shown on Payor's monthly consolidated balance sheets (which, except for notes, shall be prepared in accordance with generally accepted accounting principles) representing (A) no more than 80% of the accounts receivable (net of reserves) of Payor and its subsidiaries and (B) no more than 50% of the inventories (net of reserves) of Payor and its subsidiaries at the time of such proposed borrowing; (c) Payor shall at all times maintain shareholders' equity (which shall include Junior Intercompany Loans) of at least three million dollars ($3,000,000); (d) Payor shall not permit to exist at any time Indebtedness (including this Note, but excluding trade payables and related accrued liabilities of Payor incurred in the ordinary course and on a basis consistent with past practice) in an aggregate amount in excess of three times Payor's adjusted shareholders' equity; for purposes of the foregoing ratio, Payor's "adjusted shareholders' equity" shall be equal to the sum of Payor's shareholders' equity plus any Junior Intercompany Loans (only to the extent that 183 Junior Intercompany Loans exceed cumulative losses) plus any cumulative net post-Closing after tax operating losses; (e) Payor shall not lend or otherwise provide any funds, or extend any financing, financial support or guarantees to, or on behalf of, or make any investment in, third parties or Affiliates (other than Included Affiliates), except that Payor shall be permitted to (i) make payments for taxes and other trade payables arising in the ordinary course of business, (ii) provide the guaranty from New TI to Bank of America Illinois, dated as of September 19, 1994 and (iii) lend funds to OREMET at such times as, and to the extent that, Payor would otherwise be permitted to declare a dividend or other distribution in accordance with paragraph (a) above; (f) Payor shall not enter into any agreement with any Person (including Affiliates) except on an arm's length basis and on terms no less favorable to Payor than could be obtained from unrelated third parties; (g) Payor shall not incur any material off-balance sheet liabilities outside the ordinary course of Payor's titanium distribution business (including but not limited to material liabilities incurred with respect to futures contracts, forward contracts and derivatives); (h) Payor shall not merge, consolidate, combine or amalgamate with or into, or convey, transfer or lease all or a substantial portion of its properties and assets to, any Person; or (i) Payor shall not create or suffer to exist any Encumbrance upon or with respect to any of Payor's present or future assets, revenue or other property, whether tangible or intangible, real or personal, including, without limitation, any right to receive income, except: (A) any Encumbrance constituting a purchase money security interest in any equipment or fixed assets that Payor incurred or assumed in the ordinary course and that only secures the purchase price of such equipment or fixed asset; (B) in order to secure Indebtedness permitted under paragraph 6(b) that ranks senior to the Note in priority of payment (including without limitation all Senior Indebtedness to which this Note is subordinated pursuant to the Subordination Agreement) and then only to the extent that Payee shall receive a second priority security interest on any asset subject to such Encumbrance; or 184 (C) in order to secure Indebtedness permitted under paragraph 6(b) that ranks on a parity with the Note in priority of payment, and then only to the extent that the payment of principal and interest on the Note is equally and ratably secured by any asset subject to such Encumbrance; PROVIDED, HOWEVER, that in the case of (i)(B) or (i)(C) above, the amount secured by any such Encumbrance on assets shall be limited to the amount of any advances to Payor or the Included Affiliates, and such Encumbrance shall not secure any amounts advanced to or for the benefit of any other Affiliates of Payor or any other Person. 7. SUBORDINATION. The rights of Payee to receipt of payment of any principal hereof or interest hereon is subject and subordinate to the prior payment of the principal of and interest on all indebtedness permitted to be incurred pursuant to paragraph 6(b) that by its terms ranks senior to the Note, including without limitation all Senior Indebtedness to which this Note is subordinated pursuant to the Subordination Agreement (collectively, "Senior Indebtedness"); provided, however, that, subject in any event, in the case of "Senior Indebtedness" as defined in the Subordination Agreement referred to hereinabove, to all of the terms and provisions thereof, so long as no Event of Default has occurred or is continuing, Payee shall be entitled to receive payments in respect of, and in accordance with the terms of, this Note but only after Payor has made payments in respect of any Senior Indebtedness then due and payable in accordance with its terms. 8. OTHER COVENANTS. From and after the date hereof and until payment in full of all amounts of principal and interest due hereunder, Payor agrees that: (a) Payor shall deliver to Payee: (i) As soon as practicable and in any event within 30 days (or, in the case of December, 60 days) after the end of each month, a statement of income and retained earnings and sources and applications of funds of Payor for such month and (in the case of all months except for the first month in each fiscal year) for the period since the beginning of the current fiscal year, and the related balance sheet as at the end of such period, setting forth in each case in comparative form the figures for the corresponding accounting periods in the preceding fiscal year, all in reasonable detail, with a certificate of a financial officer of Payor to the effect that, subject to audit, said financial statements were prepared in accordance with generally 185 accepted accounting principles applied on a basis consistent with that used in the preparation of Payor's annual audited financial statements (subject to year-end audit adjustments and the absence of footnotes) and include all adjustments which in such officer's opinion are necessary to present fairly the statements on a going concern basis, which contemplates realization of the assets and liquidation of the liabilities in the normal course of business; (ii) As soon as practicable and in any event within 45 days (or, in the case of the last quarter of a fiscal year, 60 days) after the end of each quarter, a statement of income and retained earnings and sources and applications of funds of Payor for such period and for the period since the beginning of the current fiscal year, and the related balance sheet as at the end of such period, setting forth in each case in comparative form the figures for the corresponding accounting periods in the preceding fiscal year, all in reasonable detail, with a certificate of a financial officer of Payor to the effect that, subject to audit, said financial statements were prepared in accordance with generally accepted accounting principles applied on a basis consistent with that used in the preparation of Payor's annual audited financial statements (subject to year-end audit adjustments and the absence of footnotes) and include all adjustments which in such officer's opinion are necessary to present fairly the statements on a going concern basis, which contemplates realization of the assets and liquidation of the liabilities in the normal course of business; (iii) As soon as available and in any event within 90 days after the end of each fiscal year, a copy of Payor's statements of income, retained earnings and changes in financial position of Payor for such year, and the related balance sheet as at the end of such year, setting forth in each case in comparative form the corresponding figures for the preceding fiscal year, all in reasonable detail and accompanied by (A) an audit report as to such financial statements of independent certified public accountants of recognized national standing, together with a statement by said accountants that in the course of their regular examination of Payor for purposes of their opinion they obtained no knowledge, except as specifically stated, of the occurrence of any Event of Default (as defined below); and (B) a certificate of a financial officer of Payor to the effect that said financial statements fairly present the financial position and results of operations of Payor as at the end of such year and for 186 the year involved, in accordance with generally accepted accounting principles consistently applied. (iv) Each set of financial statements furnished pursuant to paragraphs (i), (ii) and (iii) above shall be accompanied by a statement of the chief financial officer of Payor (A) to the effect that such officer has no knowledge, except as specifically stated, of the occurrence at any time during the period to which such financial statements relate of any Event of Default or any event which with the lapse of time or the giving of notice or both would constitute an Event of Default and if any such event has occurred whether it is continuing and what steps, if any are being taken to cure it, and (B) setting forth a computation of each of the financial ratios and restrictions in paragraph 6 as at the end of the period to which such financial statements relate. (v) At such times as Payee may reasonably request, a receivable aging report and inventory report in form and substance reasonably acceptable to Payee. (vi) From time to time and with reasonable promptness, such further information regarding the business, affairs and financial position of Payor as Payee may reasonably request. (b) At such times as Payee may reasonably request during normal business hours, Payor shall give Payee access to any of its offices to permit Payee to examine, copy and make excerpts from, any and all books, records and documents in the possession of Payor and Payor agrees to render to Payee such clerical and other assistance as may reasonably be requested with regard thereto. Payor shall also permit Payee to discuss the affairs, finances and accounts of Payor with the principal officers of Payor, at such reasonable times as Payee may reasonably request. (c) Except for claims or proceedings that do not seek or involve more than $100,000, and would not, if adversely determined, have a material adverse effect on the business, operation or financial condition of Payor, Payor shall promptly notify Payee in writing of all litigation or judgments or any injunction or similar equitable relief affecting property or assets of Payor. (d) Payor shall promptly notify Payee in writing upon obtaining knowledge that any Event of Default or any event that with notice or lapse of time or both, would constitute an Event of Default shall have occurred. 187 (e) Payor shall comply with all laws, acts, rules, regulations, orders, decrees and directions of any governmental authority, applicable to its business, including the Collateral or any part thereof; PROVIDED, HOWEVER, that Payor may contest any law, act, rule, regulation, order, decree or direction in good faith and by proper proceedings which shall not, in the sole opinion of Payee, adversely affect Payee's rights hereunder or adversely affect its security interest in the Collateral. (f) Except as expressly permitted by this Note, Payor will preserve and maintain its corporate existence and all of its material operating licenses, rights, privileges and franchises necessary or desirable in the normal conduct of its business or for the operation of its business. (g) Payor shall pay and discharge promptly when due all material taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits, or upon any property belonging to it (including the Collateral), and any deficiency in respect of any of the foregoing, and all material claims of any kind (including, without limitation, claims for labor, materials and supplies) which, if unpaid, might become a lien or charge upon the property of Payor or might result in the sale, forfeiture or loss of, the Collateral or any interest therein, provided that Payor shall not be required to pay any such tax, assessment, charge, levy or claim the payment of which is being contested in good faith and by proper proceedings and which is adequately reserved against. (h) Payor shall maintain insurance with responsible companies, in such amounts and against at least such risks as are usually carried by owners of similar businesses and properties in the same general areas in which Payor operates, including (i) insuring its Inventory against loss by fire, explosion and theft and (ii) insuring Payor against liability for personal injury and property damage relating to such Inventory; such policies shall name Payee as an additional insured with a lender loss payable clause in favor of Payee. Payor shall deliver to Payee, as often as Payee may reasonably request, a report of a reputable insurance broker reasonably satisfactory to Payee with respect to the insurance on its Inventory. All insurance with respect to the Inventory shall provide that no cancellation, reduction in amount or change in coverage thereof shall be effective until at least ten (10) days after receipt by Payee of written notice thereof. (i) Payor shall not enter into or permit any amendment, restatement or modification of, or supplement to the Senior Loan Agreement or any of the other documents 188 executed and/or delivered pursuant thereto or in connection therewith, if such amendment, restatement, modification or supplement, including any refinancing, (A) would violate the provisions of Sections 6(e) and 6(i) hereof, (B) increase the outstanding principal amount of Senior Indebtedness (including, for purposes of calculating such outstanding principal amount, the maximum commitment thereunder for any revolving credit, letter of credit or similar facility) to an amount in excess of the maximum amount of total indebtedness (without giving effect to intercompany loans) permitted pursuant to Section 6(b)(ii) hereof or (C) contain financial and/or other covenants which, taken as a whole, would be substantially more burdensome to Payor than those contained in the Senior Loan Agreement (except that with respect to the Senior Loan Agreement, this provision (c) applies only to extensions of the term of such agreement beyond the original termination date of September 19, 1997). 9. COLLATERAL. This Note is secured pursuant to, and is entitled to the benefits of, a Security Agreement, dated as of September 19, 1994, between Payor and Payee, as the same may be amended or otherwise modified from time to time (the "SECURITY AGREEMENT"). 10. DEFAULT. If any of the following events (each an "Event of Default") shall occur: (a) Payor shall fail to pay any amount of principal of, or interest on, this Note when the same shall become due and payable (including any amount due pursuant to paragraph 5(b) hereof) and such failure shall continue for two Business Days after notice from Payee; or (b) Payor shall default in the due performance or observance by it of any other term, covenant or agreement on its part contained in this Note and shall fail to cure such default after 15 days written notice thereof by Payee; or (c) any Senior Indebtedness or any Indebtedness that ranks equal in priority of payment to the Note shall be accelerated, or Payor shall fail to pay any such Senior Indebtedness or Indebtedness at maturity; or (d) Payor shall default in any material respect in the due performance or observance by it of any term, covenant or agreement on its part contained in the Security Agreement; or (e) an involuntary case under the appropriate bankruptcy Title of the United States Code, as now or hereafter in effect, or any successor thereto (the "Bankruptcy Code"), is commenced against Payor or OREMET, 189 and the petition is not controverted within 30 days, or is not dismissed within 60 days, after commencement of the case or an order for relief is granted in any such case; or a custodian (as defined in the Bankruptcy Code) is appointed for, or takes charge of, all or substantially all of the property of Payor or OREMET, or there is commenced against Payor or OREMET any such proceeding which remains undismissed for a period of 60 days, or Payor or OREMET is adjudicated insolvent or bankrupt; or any order of relief or other order approving any such case or proceeding is entered; or (f) Payor or OREMET shall institute proceedings to be adjudicated a voluntary bankrupt, or shall consent to the filing of a bankruptcy proceeding against it, or shall file a petition or answer or consent seeking an arrangement or a reorganization or liquidation under the Bankruptcy Code or any other similar applicable federal or state law, or shall consent to the filing of any such petition, or shall consent to the appointment of a receiver or liquidator or trustee or assignee in bankruptcy or insolvency of it or of its property, or shall make an assignment for the benefit of creditors, or shall admit in writing its inability to pay its debts generally as they become due, or action shall be taken by Payor or OREMET in furtherance of any of the aforesaid purposes; then, and in any such event, Payee may, by notice to Payor, declare the entire unpaid principal outstanding under this Note and all interest accrued and unpaid thereon to be forthwith due and payable, whereupon this Note, and all such accrued interest, shall become forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are expressly waived by Payor pursuant to paragraph 12 hereof; PROVIDED, HOWEVER, that upon the occurrence of any of the Events of Default specified in paragraphs (e) and (f), the entire unpaid principal outstanding under this Note and all interest accrued and unpaid thereon shall automatically become due and payable without declaration, demand or any other action by Payee. Failure or delay of Payee to exercise this option shall not constitute a waiver of the right to exercise the option in the event of a subsequent Event of Default or in the event of continuance of any existing Event of Default after demand for the performance of the terms of this Note. 11. ENFORCEMENT COSTS. Payor shall pay upon demand any and all expenses, including reasonable attorneys' fees, incurred or paid by Payee in connection with the enforcement of this Note, the collection of any sums due hereunder, any actions for declaratory relief in any way related to this Note, or the protection or preservation of any rights of Payee hereunder. 190 12. WAIVER. Payor and its successors and assigns hereby waive presentment for payment, notice of dishonor, protest, notice of protest, and diligence in collection, and consent that the time of payment on any part of this Note may be extended by Payee without otherwise modifying, altering, releasing, affecting, or limiting Payor's liability. In the event that Payee demands or accepts partial payments, such demand or acceptance shall not be deemed to constitute a waiver of the right to demand the entire unpaid balance of this Note at any time in accordance with the terms hereof. Any delay by Payee in exercising any of its rights hereunder shall not operate as a waiver of such rights. 13. AMENDMENT. The terms of this Note cannot be changed except by a writing executed by Payee. 14. ASSIGNMENT. Payee may sell, distribute, transfer, pledge, hypothecate, assign or otherwise dispose of this Note to any Affiliate without the prior written consent of Payor; PROVIDED, HOWEVER, that Payee may not otherwise sell, distribute, transfer, pledge, hypothecate, assign or dispose of this Note without the prior written consent of Payor. Payor may not transfer its obligations under this Note, by assignment or otherwise, without the prior written consent of Payee. 15. GOVERNING LAW. THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. IN WITNESS WHEREOF, Payor has caused this Note to be executed and delivered by its duly authorized officer as of the day and year first above written. NEW TI, INC. By: -------------------------------- Title: ------------------------- 191 EX-11.1 10 EXHIBIT 11.1 OREGON METALLURGICAL CORPORATION SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (In thousands)
ADDITIONS BALANCE AT CHARGED TO BALANCE BEGINNING COSTS AND AT END DESCRIPTION OF YEAR EXPENSES DEDUCTIONS OF YEAR ------------------------------------------------------------------- Allowance for doubtful accounts: Year ended December 31, 1994 $117 $962 $(55)(a) $1,024 ---- ---- ----- ------ Year ended December 31, 1993 $110 $ 39 $(32)(a) $ 117 ---- ---- ----- ------ Year ended December 31, 1992 $-0- $120 $(10)(a) $ 110 ---- ---- ----- ------ (a) Amounts written off, less recoveries.
192 EX-13.1 11 EXHIBIT 13.1 OREGON METALLURGICAL CORPORATION [PHOTO] 1994 ANNUAL REPORT CORPORATE PROFILE Oregon Metallurgical Corporation (the Company or OREMET) began operations in 1956. OREMET produces titanium sponge, engineered products, ingot, mill products and castings. Titanium Industries, Inc., an 80% owned subsidiary acquired during 1994, operates full-line titanium metal service centers in the U.S., U.K. and Canada and produces small diameter bar, weld wire and fine wire. The Company is a leader in developing manufacturing technology and processes for the production of titanium, and is active in promoting the use of titanium in increasingly diverse aerospace, industrial, medical and consumer applications. The Company intends to maintain its reputation as a high quality producer of titanium through continued use of advanced process technologies in the production of its titanium products and by providing superior customer service. A key element of the Company's strategic plan is its employee ownership program. The Company believes that its employees' ownership position enhances both our employees commitment to quality and dedication to the success of the Company. ABOUT OUR COVER: PHOTO OF AN ORIGINAL SILK SCREEN PAINTING DEPICTING A TITANIUM SPLATTER. ARTIST UNKNOWN. [PHOTO] TITANIUM "SPLATTER", OR OVERRUN, TAKES PLACE IN THE CASTINGS PROCESS. MOLTEN TITANIUM IS ACTUALLY SILVER IN COLOR; HOWEVER, WHEN SPILLED OR SPLATTERED, THE REACTION OF ATMOSPHERIC OXYGEN AND NITROGEN CAUSES THE MATERIAL TO TAKE ON BRILLIANT HUES, AS DEPICTED IN THIS PAINTING. CONTENTS Financial Summary 1 Message to Shareholders 2-3 A Year of Transition and a Year of Progress 4-12 Financial Data 13-19 Consolidated Notes to Financial Data 20-26 Report of Independent Public Accountants 26 Management Discussion and Analysis 27-30 Quarterly Stock Data 31 Board of Directors, Corporate Officers, Locations 32
FINANCIAL SUMMARY
(IN THOUSANDS EXCEPT PER SHARE DATA) For the Years Ended December 31, 1994 1993 1992 ---------------------------------------------------------- Net sales $71,166 $55,351 $56,785 Restructuring and environmental charges 240 2,997 200 Net loss (2,023) (4,098)1) (4,122)2) Net cash provided by (used in) operating activities (4,459) 841 7,454 Cash and cash equivalents, and short-term investments 1,636 7,718 8,977 Shareholders' equity 67,282 67,065 68,402 Long-term debt and note payable to bank 17,177 4,750 8,100 Per Share: Net loss (0.18) (0.38)1) (0.38)2) Shareholders' equity $6.18 $6.16 $6.32 1) THE NET LOSS INCLUDES A PROVISION FOR RESTRUCTURING OF $1,409, NET OF TAX BENEFIT, OR $0.13 PER SHARE AND A PROVISION FOR ESTIMATED ENVIRONMENTAL EXPENSES OF $674, NET OF TAX BENEFIT, OR $0.06 PER SHARE. (SEE NOTES TO FINANCIAL STATEMENTS 12 AND 14) 2) THE NET LOSS EXCLUDES THE CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES FOR INCOME TAXES AND POSTRETIREMENT BENEFITS OTHER THAN PENSIONS. (SEE NOTES TO FINANCIAL STATEMENTS 6 AND 11)
[GRAPH] WORKING CAPITAL (IN MILLIONS) [GRAPH] SALES (IN MILLIONS) [GRAPH] GROSS PROFIT (LOSS) (IN MILLIONS) [GRAPH] NET INCOME (LOSS) (IN MILLIONS) [GRAPH] SHAREHOLDERS' EQUITY (IN MILLIONS) MESSAGE TO SHAREHOLDERS TO OUR SHAREHOLDERS: [PHOTO] We look back at 1994 as a year of transition and a year of progress. When 1993 ended, we were contending with business conditions which had combined to cause one of the more difficult periods in the Company's history. Many of the factors which were present in 1993 carried forward into 1994 and will continue to challenge us in 1995. The industry continues to struggle with the effects of excess capacity. Additionally, the availability of low priced titanium products from the former Soviet Union (FSU) continues to have a dampening effect on prices. To meet these challenges, our Company has implemented strategies to expand our share of the aerospace market and increase our level of participation in the industrial markets. We believe that the already varied industrial applications for the use of titanium will continue to grow. To increase our activity level in these markets and to lessen our dependence on the historically cyclical aerospace industry, we acquired Titanium Industries, Inc. (TI) in September of 1994. Approximately seventy-five percent (75%) of TI's shipments are to the industrial markets. The acquisition of TI, coupled with our other diversification efforts, will position us to participate in the growth of the industrial markets in 1995. These moves should enable the Company to benefit both from the growth of the various industries it supplies as well as lessen the effect on our operations from a downturn in any one industry. Our efforts to expand our presence in the international markets have met with considerable success. Notable accomplishments are the contracts to supply engineered titanium products to Aerospatiale Avions, France for engine pylons on Airbus[REGISTERED TRADEMARK] aircraft and titanium armor to the French Navy. To assist in the implementation of these contracts and to establish a basis for a sustained presence in this sector of Europe, we formed OREMET France to operate a service center in France. The acquisition of TI provided us with a service center located in the United Kingdom with an established customer base and a fine reputation for reliability and customer service. We believe that we are well positioned to expand our presence within the European community. For the year, the Company incurred a net loss of $2,023,000, or $0.18 per share, on net sales of $71,166,000. For 1993, the Company reported a net loss of $4,098,000, or $0.38 per share, on sales of $55,351,000. The net loss for 1993 included additional provisions for restructuring and environmental expenses of $2,083,000, or $0.19 per share. While results for the two years are comparable, once adjustments are made for the non-recurring restructuring and environmental costs, the snapshot of the full year results masks the progress which was made. In 1993, sales declined in each quarter, and we reported a loss for the second half of the year which more than erased the profits recorded in the first half. In 1994, sales increased in each quarter and our losses grew smaller until the fourth quarter when we reported net income for the quarter of $63,000, or $.01 per share. In August of 1994, we signed a new labor contract with the United Steelworkers of America which extends through July 2000. The contract provides for flexibility in work rules and job assignments, and it links future increases in wages to the profitability of the Company. The employees represented by the Union are also substantial shareholders of the Company through the Employee Stock Ownership Plan (ESOP). The successful conclusion of these negotiations represented a major step forward towards our goal of creating an environment of trust and respect. During 1994, Mr. James S. Paddock, a Vice President of OREMET and the President and CEO of Titanium Industries, Inc., was installed as the newest member of the Company's Board of Directors. We believe that 2 Jim's experience in the service and distribution segments of the metals industry will make him an invaluable member of our Board. On March 1, 1995, Mr. Stephen C. Stocks moved from the position, Vice President Manufacturing and Engineering, to Vice President, Special Projects. Steve intends to retire during 1996, and this move will allow for both a transition period with his successor and the opportunity to use Steve's talents on other projects. Effective March 1, 1995, John P. (Jack) Byrne was appointed Vice President of Manufacturing and Engineering. Mr. Byrne has established a reputation as an effective and innovative leader, with over 19 years of increasing responsibilities at ESCO Corporation and IMI Titanium, Inc. Please join us in welcoming both Jim and Jack to the Company. We would like to take this opportunity to extend our special thanks to Orval N. Thompson, who retired as a Member of the Board of Directors during 1994. Mr. Thompson began his association with the Company in 1956 and has been a tireless contributor throughout his tenure. Orval will continue with his duties as Secretary and outside counsel to the Company where he can continue to provide the Board with his sage advice and counsel. While many of the concerns which overhang the industry remain unresolved, the strategic moves we have made, coupled with the increased levels of orders and sales, leads me to believe that the outlook for 1995 will be brighter. /s/ Carlos E. Aguirre --------------------- CARLOS E. AGUIRRE PRESIDENT AND CEO [MAP] 3 A YEAR OF TRANSITION AND A YEAR OF PROGRESS THE CHALLENGES AHEAD 1994 WAS A YEAR OF TRANSITION AND A YEAR OF PROGRESS. WHILE MANY OF THE CHALLENGES WE FACED AT THE START OF 1994 WILL CONTINUE, THE SUCCESSES WE ACHIEVED WILL PROVIDE A FIRM FOUNDATION FROM WHICH TO MOVE FORWARD. [PHOTO] L TO R (SEATED) - JAMES P. DOYLE, GENERAL MANAGER, SALES; DAVID G. FLOYD, VICE PRESIDENT, COMMERCIAL; JAMES F. MEYERINK, DIRECTOR, MARKET DEVELOPMENT; (STANDING) JON D. LUNDBERG, DIRECTOR, SPECIAL PROJECTS, GARY A. WEBER, DIRECTOR, FINANCIAL REPORTING & TREASURY SERVICES The greatest challenge facing the titanium industry continues to be the need to rationalize the excess production capacity which exists worldwide. The aftermath of the Cold War, the collapse of the military and commercial aerospace markets in 1991 and the emergence of the titanium producers in the Former Soviet Union (FSU) created a substantial imbalance between the supply of and demand for titanium products. The titanium producers in the FSU are currently working with several US companies to have their "new production" material qualified for use in critical aerospace applications. Current pricing for FSU sponge, before consideration of import tariffs and dumping duties, is less than the variable cost of manufacture for the US producers. We are working with others in the metals industry to bring these problems to the attention of our representatives in Washington, and create a level playing field. We need to find solutions which recognize the FSU's need to convert the scrap and "old production" sponge, which exists today into cash to meet their needs for investments in infrastructure and social programs. The solutions also need to recognize that "new production" material must be priced to recover all environmental, social and economic costs. Failure to achieve these objectives could result in the closure of the US titanium sponge industry, and the loss of emerging markets for the titanium industry. In order to remain competitive, we will continue to utilize the lowest total cost materials available. We will continue to evaluate technology and capital investments which would improve our ability to efficiently convert these materials into high quality products. To provide a return for our shareholders, we must be profitable and we must grow. During 1994, we became a qualified supplier for several new and difficult to produce alloys, and developed production capabilities for engineered components. These are higher value added products than those OREMET has historically produced. We also increased our technical staff to better provide us with the ability to identify and implement cost savings programs. We will continue to place a high priority on these activities during 1995. The development of many new markets is dependent on our being able to deliver a product that provides a technical advantage at a price which is competitive with existing alternative materials. We will also evaluate strategic alliances and acquisition opportunities. Where possible, we want to team with others to take advantage of complementary capacity, unique equipment or technical capabilities. Acquisition candidates will be considered if they are in businesses which are profitable or provide a substantial turn-around potential. We will look for opprtunities which provide significant cost advantages, substantial technical benefits, new product lines or a growth position in an important marrket. The acquisition of Titanium Industries, Inc. (TI) was completed at the end of the third quarter of 1994. This 80% owned subsidiary will be managed as a separate business. We were successful in retaining the skilled management team which developed TI into the world's largest non-aerospace titanium distribution business. We will be implementing programs, where the combination of OREMET's technical and production capabilities joined with TI's customer base and distribution expertise, will provide enhanced value to our customers and increased profitability to our shareholders. 4 [PHOTO] PLANER MILL IN MILL PRODUCTS AREA. L TO R: STEVEN H. REICHMAN, VICE PRESIDENT, TECHNOLOGY; CAROLYN S. KIRK, DIRECTOR, RAW MATERIAL AND SUPPLIES; STEPHEN C. STOCKS, VICE PRESIDENT, SPECIAL PROJECTS MARKET OUTLOOK With the continued weak demand in both the commercial and military aerospace sectors, OREMET increased its effort to broaden its market bases both domestically and internationally. The Company has regained market share in ingot sales. This was accomplished by diversifying our alloy mix, tightening our quality standards and developing new non-aerospace applications. We will continue our efforts to further diversify in this area and develop new markets which have potential for future growth. Our sales of mill products continue to increase as we have enlarged our range of product areas. We have broadened our line of rotating quality billet by expanding our size and alloy ranges. Flat rolled product sales have grown considerably as a consequence of our supplying near net-shape configurations. Other billet sales have increased as a result of our development efforts in non- aerospace markets such as armor, ground transportation and recreational. Industrial product sales have improved and will continue to do so due to our acquisition of Titanium Industries, Inc., as well as our enhanced product processing and increased casting sales activity. The market demand for commercially pure products is expanding, and the general turn around of the economy has increased casting opportunities. The demand for zirconium casting has improved due to new chemical plant construction in South America and the Far East. [PHOTO] AIRBUS A340 OREMET's efforts to increase international sales continue to be successful. This year we signed a long term contract with Aerospatiale Avions, France to provide titanium mill products for various Airbus[REGISTERED TRADEMARK] programs. We are also involved in development programs in Europe to provide major quantities of non-aerospace materials. Sales to the Far East continue to grow, especially in light of new demand for titanium recreational products. We intend to expand European sales through OREMET France which was established this year. Titanium sponge sales continue to decrease as the flow of material from the FSU enters the world markets at low pricing levels. Development programs are under way to supply our sponge to new niche markets which are requiring a higher purity product. Our long term contract to provide R.M.I. Titanium Company with titanium sponge will continue to help production levels. 5 A YEAR OF TRANSITION AND A YEAR OF PROGRESS [PHOTO] L TO R. JAMES S. PADDOCK, VICE PRESIDENT, OREMET AND PRESIDENT AND CEO, TITANIUM INDUSTRIES, INC.; CARLOS E. AGUIRRE, PRESIDENT & CEO, OREGON METALLURGICAL CORPORATION; DENNIS P. KELLY, VICE PRESIDENT-FINANCE, CFO A significant achievement for OREMET in 1994 was the acquisition of Titanium Industries, Inc. Included in TI are the wholly-owned subsidiaries Titanium Wire Corporation and Titanium International, LTD in Great Britain, also a world leader in the distribution and processing of zirconium. The landmark move will lessen OREMET's dependence on the aerospace industry and will provide enhanced access to the industrial marketplace's growing domestic and international demand for titanium products. James S. Paddock, President, Chief Executive Officer and Chief Operating Officer of TI will continue in this capacity. He has also been named an officer and director of Oregon Metallurgical Corporation. In January of 1995, TI's distribution subsidiary in the United Kingdom received notice that it would no longer be the distributor for aerospace products for another titanium producer. Arrangements to obtain replacement products from OREMET and others will be a priority project during 1995. This operation in the UK, together with the OREMET France warehouse facility outside of Paris, provide a base for servicing our European customers. Titanium consumption in Europe and Asia continues to grow. We are committed to these markets and are considering locations in Asia for a new distribution facility in 1995. 6 [PHOTO] TITANIUM INDUSTRIES, INC. CORPORATE OFFICES AND TITANIUM SCULPTURE, FAIRFIELD, NJ. TITANIUM INDUSTRIES, INC. Titanium Industries, Inc. is a multi-national distribution and manufacturing company with operations in the U.S., Canada and the U.K. It is a distributor and first-stage processor of titanium and zirconium mill products at eight Service Centers and Sales Offices, and it is also a mill producer of small diameter titanium bar, weld wire, and fine wire. For nearly 25 years, TI has been in the forefront of supplying and developing titanium applications to solve the changing needs of industries such as chemical processing, oil and gas, hydrometallurgy, power generation, pulp and paper, medical implant, automotive, consumer goods, aircraft and aerospace. TI's Service Centers maintain one of the world's largest inventories of titanium mill products available for rapid delivery to points around the globe. To serve the industrial, consumer, medical and aircraft markets, Titanium Industries stocks a full range of product specifications in sheet, plate, bar, billet, pipe, fittings, tube and wire. A complete line of first-stage processing equipment including saw cutting, torch cutting, shearing and machining is available to meet customer requirements. Testing, certification and traceability assure consistent quality. [PHOTO] TITANIUM PLATE BEING CUT AT A SERVICE CENTER. 7 A YEAR OF TRANSITION AND A YEAR OF PROGRESS [PHOTO] TENSILE BAR LATHE IN THE MACHINE SHOP; L TO R EDMOND R. TROUT, MACHINIST; STEVEN H. REICHMAN, VICE PRESIDENT, TECHNOLOGY, GREG BUCHANAN, METALLURGICAL LAB COORDINATOR. ED HAS BEEN EMPLOYED AT OREMET SINCE 1969 AND WAS RECENTLY HONORED FOR HAVING WORKED FOR MORE THAN 18 YEARS WITHOUT MISSING A SINGLE DAY DUE TO ILLNESS OR INJURY. HUMAN RESOURCES During 1994, the Company established a wholly-owned subsidiary in France, acquired a majority interest in Titanium Industries, Inc. and opened a combined sales and technical support office near Pittsburgh, PA. At December 31, 1994, the Company employed approximately 600 people worldwide. The Employee Stock Ownership Plan (ESOP), which currently owns approximately 41% of the outstanding shares of the Company, is governed by an elected body of both union and salaried employees. The ESOP committee provides a forum for employees to provide input to senior management and the Board of Directors. In August 1994, OREMET and the United Steelworkers of America, Local 7150, entered into a new labor contract. This contract extends through July 2000. OREMET and the Union are committed to a partnership, characterized by cooperation, communication, fairness and honesty in all dealings. As co-workers and owners, we have agreed to work together to achieve growth and profitability for the Company and to provide a rewarding and meaningful work environment for our employees. [PHOTO] L TO R: CARLOS E. AGUIRRE, PRESIDENT AND CHIEF EXECUTIVE OFFICER OF OREGON METALLURGICAL CORPORATION; ALTON L. DORGAN, SENIOR PRESS OPERATOR AND PRESIDENT OF THE STEEL WORKERS UNION LOCAL 7150; CARLA J. BINEK, DIRECTOR, HUMAN RESOURCES. 8 [PHOTO] L TO R: GREG C. HOFFMAN, ENVIRONMENTAL ENGINEER; DAVID R. HIATT, DIRECTOR, QUALITY AND ENVIRONMENTAL SERVICES; BEVERLY J. CURTIS, ENVIRONMENTAL ENGINEER. TECHNOLOGY The technological environment for the Company in 1994 was one of significant change and transition. Both internal and external requirements for improved performance were extensive. The need to perform better, faster, at lower cost, and in compliance with more stringent and sophisticated technical requirements was the norm. The accomplishments included development of new, more complex titanium products. We were chosen by both General Electric Company and Boeing Company to be their partner in successfully qualifying new material for commercial use. Our advancements in process technology resulted in the commercial development of titanium aluminide, a new alloy for use in both commercial and aerospace applications. OREMET is the premier producer of this alloy for both casting and forging applications. For the first time in the Company's history, we produced large quantities of precision machined parts, ready for final machining for Airbus[REGISTERED TRADEMARK] aircraft. New programs such as these were accomplished concurrently with the significantly higher production levels of traditional OREMET products. During the year, we laid the foundation for establishing a systematic program of process improvement aimed specifically at our manufacturing operations. The Company's key production personnel were trained in Kaizan (continuous improvement) and other sophisticated problem solving techniques, which will be the basis for meeting the challenges which we now face. In the areas of product development and process improvement, we made great strides in 1994. Cost reduction and new products will continue to be the focus for 1995. The integration of new forms and sources of materials coupled with the implementation of new technologies affecting manufacturing productivity will be a continuing priority project. ENVIRONMENTAL The Oregon Department of Environmental Quality has notified us that our waste water discharge permit will need to be modified. There are several alternatives which we can implement that will allow us to continue with little change to our existing operations. One possibility which we are investigating and which would provide an intriguing solution, entails planting poplar trees on our plant site. Our waste water would be used to irrigate the trees which, after several years, would be harvested on a sustained yield basis for use in the forest products industry. Maintaining compliance with environmental laws and regulations is a responsibility that the Company diligently pursues. 9 [PHOTO] RICHARD CHILDS HANDLING SPONGE REMOVAL FROM RETORT. Titanium sponge is the commercially pure, elemental form of titanium metal, and is produced by reducing titanium tetrachloride using magnesium as the reduction agent. OREMET began selling titanium sponge in 1987 to both integrated and non-integrated domestic producers of titanium, to optimize capacity utilization and to improve profitability. Sponge is removed from the retort's walls, then sheared and crushed into uniform gravel-size granules. It is then acid leached to increase the purity, dried, analyzed and graded. The 99% pure sponge is ready for further processing into titanium ingots, while lower grade material is compacted into briquettes for use as steel and aluminum additions. To make ingots, sponge is combined with processed titanium chips and alloys, each measured by a computerized weighing system to meet customer specifications. [PHOTO] GARRY GARRETT MANEUVERING COPPER CRUCIBLE USED IN PRODUCTION OF TITANIUM INGOTS. 10 [PHOTO] MIDWEST GRINDER CONDITIONING BILLET AT MILL PRODUCTS. With the completion of the mill products plant in 1981, Oregon Metallurgical Corporation met its long-term goal: It became a fully integrated manufacturing facility, capable of producing titanium castings, ingots and mill products. OREMET's mill products division is one of the most advanced titanium forging facilities in the industry. OREMET converts ingot into smaller, more workable pieces, known as mill products in the form of billet, bar or plate, which are further processed by OREMET's customers into finished products. Traditionally, these products have been sold to manufacturers of commercial and military aircraft and engine components, as well as aerospace manufacturers. Some of the Company's mill products customers finish OREMET's products for such diverse applications as automobile engine valves, prosthetic and orthopedic implants and consumer products such as golf clubs, bicycles, cameras and mountain climbing equipment. OREMET's vertically integrated production facilities can maintain complete control through all stages of production - a capability that is essential to meet stringent u.S. and international standards for quality. [PHOTO] TITANIUM ALLOY PLATE AT OREMET MILL PRODUCTS WAREHOUSE. 11 A YEAR OF TRANSITION AND A YEAR OF PROGRESS [PHOTO] CLEANING A CAST PART BEFORE FINAL INSPECTION. [PHOTO] 100 LB. 22" DIAMETER TITANIUM GEAR CASTING. TITANIUM CASTINGS In 1957, OREMET completed the world's first titanium casting foundry and was soon turning out quality titanium components in commercial quantities. Today OREMET operates one of the world's largest, most experienced titanium production facilities. Titanium castings are made by melting billet and titanium recycle, and pouring the liquid under vacuum into graphite molds. OREMET's castings are made to customer specifications and are used in marine and other industrial applications where corrosion is of critical concern. Applications for castings include pollution control, pump and valve sets, valve parts for submarines, off- shore oil field instrument housings, mining, and nuclear waste storage. The use of titanium and zirconium castings produced by OREMET in corrosive applications, pollution control equipment, marine, petrochemical and other industries has increased significantly in recent years. And there is no doubt that the list of applications will continue to expand as new uses are found for this amazingly versatile material. [PHOTO] TITANIUM CASTINGS USED IN THE CHEMICAL PROCESS INDUSTRY. 12 CONTENTS MANAGEMENT'S STATEMENT ON FINANCIAL REPORTING 14 FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA 15 FINANCIAL STATEMENTS 16-26 AUDITOR'S REPORT 26 MANAGEMENT'S DISCUSSION AND ANALYSIS 27-30 MANAGEMENT'S STATEMENT ON FINANCIAL REPORTING The management of Oregon Metallurgical Corporation is responsible for the preparation as well as the integrity of the financial statements and related financial data contained in this Annual Report. The financial statements have been prepared in accordance with generally accepted accounting principles and necessarily include amounts which represent the best estimates and judgments of management with appropriate consideration to materiality. The Company maintains internal accounting policies, procedures and controls designed to provide reasonable assurance at reasonable cost that assets are safeguarded and that transactions are properly recorded and executed in accordance with management's authorization. Management believes the Company's accounting controls provide reasonable assurance that errors or irregularities which may occur are detected within a timely period by employees in the normal course of performing their assigned functions. Our independent accountants, whose report on their examination of the financial statements appears on page 26, also review our systems of internal accounting control in accordance with generally accepted auditing standards for the purpose of expressing their opinion on the financial statements. The Board of Directors pursues its oversight role for these financial statements through its Audit Committee, which is comprised exclusively of outside directors. The Audit Committee meets with management and the independent accountants. The independent accountants have access to the Audit Committee and, without management present, the opportunity to discuss the quality of financial reporting. /s/ Carlos E. Aguirre ------------------------------------- Carlos E. Aguirre President and Chief Executive Officer /s/ Dennis P. Kelly ------------------------------------- Dennis P. Kelly Vice President - Finance Treasurer and Chief Financial Officer 14 FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA
(IN THOUSANDS EXCEPT PER SHARE DATA) FOR THE YEARS ENDED DECEMBER 31, 1994 1993 1992 1991 1990 ------------------------------------------------------------------------------------------------------------------ OPERATING RESULTS: Net sales $71,166 $55,351 $56,785 $54,241 $92,767 Cost of sales 64,527 52,636 57,352 57,432 77,737 Gross profit (loss) 6,639 2,715 (567) (3,191) 15,030 Restructuring and environmental charges 240 2,997 200 - - Net income (loss) (2,023) (4,098)2) (4,122)3) (4,685) 8,570 Net cash provided by (used in) operating activities (4,459) 841 7,454 961 17,677 Earnings (loss) per share (0.18) (0.38)2) (0.38)3) (0.44) 0.82 Weighted average number of shares and share equivalents outstanding 11,001 10,839 10,754 10,603 10,453 FINANCIAL POSITION: Cash and cash equivalents, and short-term investments 1,636 7,718 8,977 3,560 13,375 Working capital 49,082(1) 36,467 37,296 39,291 49,456 Current ratio 3.1(1) 4.5 5.7 6.1 4.3 Net property, plant and equipment 37,520 36,204 39,811 39,069 35,210 Total assets 111,952(1) 83,326 85,701 86,520 100,007 Long-term debt and note payable to bank 17,177 4,750 8,100 8,250 11,025 Shareholders' equity 67,282 67,065 68,402 68,436 72,215 Shareholders' equity per share 6.18 6.16 6.32 6.42 6.90 Cash dividends per share - - - 0.31 0.43 SUPPLEMENTARY DATA: Net income (loss) as a percent of net sales (2.8)% (7.4)% (7.3)% (8.6)% 9.2% Number of employees 482 310 359 354 427 Number of shareholders 2,484 2,636 2,869 2,812 2,764 1) THE INCREASE IN WORKING CAPITAL AND TOTAL ASSETS AND THE DECREASE IN THE CURRENT RATIO, AS THESE ITEMS COMPARE TO PRIOR YEARS, IS PRIMARILY THE RESULT OF THE COMPANY'S ACQUISITION OF TI ON SEPTEMBER 20, 1994. 2) THE NET LOSS INCLUDES A PROVISION FOR RESTRUCTURING OF $1,409 NET OF TAX BENEFIT, OR $0.13 PER SHARE AND A PROVISION FOR ESTIMATED ENVIRONMENTAL EXPENSES OF $674 NET OF TAX BENEFIT, OR $0.06 PER SHARE. (SEE NOTES TO FINANCIAL STATEMENTS 12 AND 14) 3) THE NET LOSS EXCLUDES THE CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES FOR INCOME TAXES AND POST RETIREMENT BENEFITS OTHER THAN PENSIONS. (SEE NOTES TO FINANCIAL STATEMENTS 6 AND 11)
15 CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA) FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
1994 1993 1992 ------------------------------------------------------------------------------ Net sales $71,166 $55,351 $56,785 Cost of sales 64,527 52,636 57,352 ------- ------- ------- 6,639 2,715 (567) Restructuring cost - 2,027 - Provision for estimated environmental matters 240 970 200 Research, technical and product development expenses 1,376 773 750 Selling, general and administrative expenses 7,517 5,124 4,417 ------- ------ ------ LOSS FROM OPERATIONS (2,494) (6,179) (6,934) Interest income 391 816 847 Interest expense (606) (532) (689) Minority interest in subsidiary (29) - - ------- ------- ------- LOSS BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES (2,738) (5,895) (5,776) Income tax benefit (715) (1,797) (1,654) ------- ------- ------- LOSS BEFORE CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES (2,023) (4,098) (4,122) Cumulative effect of changes in accounting principles for: Income taxes - - 602 Postretirement benefits other than pensions, net of $459 of income tax benefit - - (671) -------- -------- -------- NET LOSS $(2,023) $(4,098) $(4,191) -------- -------- -------- -------- -------- -------- Loss per share before cumulative effect of accounting changes $(0.18) $(0.38) $(0.38) Accounting changes - - (0.01) ------- ------- ------- NET LOSS PER SHARE $(0.18) $(0.38) $(0.39) ------- ------- ------- ------- ------- ------- Weighted average shares and share equivalents outstanding 11,001 10,839 10,754 ------- ------- ------- ------- ------- -------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 16 CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS) DECEMBER 31, 1994 AND 1993 1994 1993 --------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents $1,636 $ 37 Short-term investments - 7,681 Accounts receivable, less allowance for doubtful accounts of $1,024 and $117 20,444 10,680 Inventories 49,023 25,852 Income taxes receivable 321 1,565 Prepayments 1,031 602 Deferred income taxes 517 498 ------- ------- Total current assets 72,972 46,915 Property, plant and equipment, net 37,520 36,204 Other assets, net 1,480 207 -------- ------- Total Assets $111,972 $83,326 -------- ------- -------- ------- LIABILITIES Current liabilities: Accounts payable $16,860 $ 3,761 Accrued payroll and employee benefits 2,944 1,367 Other accrued expenses 4,073 1,970 Current portion of long-term debt 13 3,350 ------- ------- Total current liabilities 23,890 10,448 Note payable to bank 12,496 - Long-term debt, less current portion 4,668 1,400 Deferred income taxes 1,098 2,513 Deferred compensation payable 881 564 Accrued postretirement benefit 1,457 1,336 Minority interest 200 - ------- ------- Total Liabilities 44,690 16,261 ------- ------- Commitments and contingencies (Notes 10 and 12) SHAREHOLDERS' EQUITY Common stock, $1.00 par value: shares authorized, 25,000; shares issued, 1994 - 10,893; 1993 - 10,888 10,893 10,888 Additional paid-in capital 37,445 37,420 Retained earnings 18,960 20,983 Cumulative foreign currency translation adjustment (16) - Note receivable - ESOP - (2,226) -------- ------- 67,282 67,065 -------- ------- $111,972 $83,326 -------- ------- -------- -------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 17 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS) FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 FOREIGN ADDITIONAL CURRENCY NOTE TOTAL SHARES COMMON PAID-IN RETAINED TRANSLATION RECEIVABLE SHAREHOLDERS' OUTSTANDING STOCK CAPITAL EARNINGS ADJUSTMENT ESOP EQUITY ------------------------------------------------------------------------------------------------------------------------------ Balances, December 31, 1991 10,657 $10,657 $35,590 $29,272 $(7,083) $68,436 Repayment of loan to ESOP 2,428 2,428 Issuance of common stock in payment of employee benefits 170 170 1,559 - - 1,729 Net loss - - - (4,191) - - (4,191) -------- ------- ------- ------- ------- ------- Balances, December 31, 1992 10,827 10,827 37,149 25,081 (4,655) 68,402 Repayment of loan to ESOP - - - - 2,429 2,429 Issuance of common stock in payment of: Employee benefits 8 8 59 - - 67 Restructuring cost 53 53 212 - - 265 Net loss -- - - (4,098) - (4,098) ------- ------- ------- ------- ------- ------- Balances, December 31, 1993 10,888 10,888 37,420 20,983 (2,226) 67,065 Repayment of loan by ESOP - - - - 2,226 2,226 Issuance of common stock in payment of employee benefits 5 5 25 - - 30 Cumulative translation adjustment - - - - $(16) - 16 Net Loss - - - (2,023) - - (2,023) ------- ------- ------- ------- ------- ------- ------- Balances, December 31, 1994 10,893 $10,893 $37,445 $18,960 $(16) $- $67,282 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 18 CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS) FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 1994 1993 1992 --------------------------------------------------------------------------------------- Cash flows from operating activities: Net loss $(2,023) $(4,098) $(4,191) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 4,014 3,937 3,735 Loss on disposition of assets - 1,000 - Deferred income taxes (1,434) (403) 1,819 Minority interest 29 - - Changes in assets and liabilities, net of effects from acquisition of business: (Increase) decrease in: Accounts receivable (4,158) (3,141) 900 Inventories (12,209) (930) 4,313 Income taxes receivable 1,244 1,424 1,503 Prepayments (137) (250) (73) Increase (decrease) in: Accounts payable 7,198 1,161 (611) Accrued payroll and employee benefits 1,577 211 3 Other accrued expenses 920 1,204 206 Other 520 726 (150) ------- ------- ------- Net cash provided by (used in) operating activities (4,459) 841 7,454 ------- ------- ------- Cash flows from investing activities: Acquisition of a business, net of cash acquired (8,223) - - Additions to property, plant and equipment (1,929) (1,244) (4,390) Short-term investments - purchased (1,228) (15,651) (11,875) Short-term investments - redeemed 8,811 14,856 4,989 Other (111) 65 75 ------- ------- ------- Net cash used in investing activities (2,680) (1,974) (11,201) ------- ------- ------- Cash flows from financing activities: Net borrowings, note payable to bank 12,496 - - Capitalized loan fees and acquisition costs (1,260) - - Repayment of long-term debt (4,754) (3,350) (3,150) Proceeds from note receivable - ESOP 2,226 2,429 2,428 Proceeds from long-term debt - - 3,000 Other 46 - - ------- ------- ------- Net cash provided by (used in) financing activities 8,754 (921) 2,278 ------- ------- ------- Effect of exchange rates on cash and cash equivalents (16) - - ------- ------- ------- Increase (decrease) in cash and cash equivalents 1,599 (2,054) (1,469) Cash and cash equivalents: Beginning of year 37 2,091 3,560 ------- ------- ------- End of year $ 1,636 $ 37 $ 2,091 ------- ------- ------- ------- ------- -------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 19 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS) 1. ORGANIZATION AND OPERATIONS: Oregon Metallurgical Corporation (OREMET) and Subsidiaries (the Company) is a major producer and distributor of titanium sponge, ingot, mill products and castings for aerospace, industrial and commercial applications. As of December 31, 1994, the Company is 41% owned by the Oregon Metallurgical Corporation Employee Stock Ownership Plan (the ESOP). On September 20, 1994, the Company completed the acquisition of the net operating assets and subsidiaries of Titanium Industries Distribution Group (Distribution Group) from Kamyr, Inc. The Distribution Group is a full-line service titanium metals distributor with facilities in the United States, Canada and United Kingdom. The acquisition cost of approximately $13,502 was funded by $5,000 in cash, $4,002 of bank financing and $4,500 of seller financing. The acquired business is being operated under the name of Titanium Industries, Inc. (TI), an eighty percent (80%) owned subsidiary of OREMET. The acquisition was accounted for as a purchase with the results of TI included in the Company's financial statements from the acquisition date. The president and sole minority shareholder of TI is an officer and director of the Company. The Company has agreed to acquire, for net book value, the 20% minority interest in TI in annual increments of at least 15% of the minority interest beginning no earlier than 1999 and no later than 2004. The following unaudited pro forma information presents the results of operations of OREMET and TI for the years ended December 31, 1994 and 1993 assuming that the acquisition occurred as of the beginning of the respective periods. This pro forma information does not purport to be indicative of what would have occurred had the acquisition been made as of those dates or of results which may occur in the future.
1994 1993 -------------------------------------------------------------------------------- Net sales $95,875 $90,016 Net loss $(2,262) $(4,042) Net loss per share $ (0.20) $ (0.37)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: BASIS OF CONSOLIDATION - The consolidated financial statements include the accounts of OREMET and its majority-owned subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation. CASH AND CASH EQUIVALENTS - The Company classifies all cash on deposit with banks and all highly liquid debt investments purchased with a maturity of 90 days or less as cash and cash equivalents. SHORT-TERM INVESTMENTS - Short-term investments are stated at cost, which approximates market. INVENTORIES - Inventories are carried at the lower of cost or market. Cost is determined using the weighted average cost method. Inventory costs generally include material, labor cost and manufacturing overhead. PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are recorded at cost. Depreciation is provided using the straight-line method over the estimated useful lives of the assets for financial reporting purposes and accelerated methods are used for income tax reporting purposes. The cost and accumulated depreciation applicable to assets retired are removed from the accounts and the gain or loss on disposition is recognized. The Company capitalizes interest costs as part of the cost of constructing major facilities and equipment. No interest costs were capitalized in 1994 and 1993. $67 was capitalized in 1992. REVENUE RECOGNITION - Revenues from the sale of commercial products are recognized upon passage of title to the customer which in most cases coincides with shipment. INTANGIBLE ASSETS - Intangible assets consist of organizational and debt issuance costs and are included in "Other assets" at cost less amortization. Organizational costs are amortized on a straight-line basis over an estimated economic life of 15 years. Debt issue costs are amortized on the straight-line basis over 3 years, the life of the applicable credit agreement. Unamortized intangibles as of December 31, 1994 and 1993 were $1,178 and $114, respectively. DEFERRED INCOME TAXES - Effective January 1, 1992, the Company adopted the method of accounting for deferred income taxes prescribed by Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes". The Standard requires a change from the deferred to the liability method of computing deferred income taxes. Deferred income taxes are recognized for tax consequences of "temporary differences" by applying enacted statutory tax rates, applicable to future years, to differences between the financial reporting and the tax basis of existing assets and liabilities. CONCENTRATION OF CREDIT RISK - The Company sells its products to both domestic and international companies. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. FORWARD FOREIGN EXCHANGE CONTRACTS - The Company may enter into forward foreign exchange contracts as a hedge against currency fluctuations relating to net foreign transactions and commitments denominated in foreign currencies. Gains and losses on forward contracts are deferred and offset against foreign exchange gains or losses on the underlying hedged items. FOREIGN CURRENCY TRANSLATION - The Company's foreign subsidiaries' accounts are measured using local currency as the functional currency. Assets and liabilities are translated at the exchange rate in effect at year end. Revenues and expenses are translated at the average rate of exchange prevailing during the year. Translation adjustments arising from differences in exchange rates from period to period are included in the cumulative adjustment account in shareholders' equity. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS - Effective January 1, 1992, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 106, "Employers' Accounting for Postretirement Benefits other than Pensions". This Standard requires the accrual during the period of employment of the cost of salaried employees' health benefits after retirement. Postretirement health care benefits paid on behalf of retired employees were $107, $85 and $76 in 1994, 1993 and 1992, respectively. 20 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ENVIRONMENTAL EXPENDITURES - Environmental expenditures that relate to current operations are expensed or capitalized as appropriate. Expenditures that relate to an existing condition caused by past operations, and which do not contribute to current or future revenue generation, are expensed. Liabilities are recorded when environmental assessments and/or remedial efforts are probable, and the costs can be reasonably estimated. Generally, the timing of these accruals coincides with completion of a feasibility study or the Company's commitment to a formal plan of action. EARNINGS PER SHARE - Earnings (loss) per share are based on the weighted average number of shares of common stock and common stock equivalents outstanding during each year presented. Common stock equivalents consist of warrants and amounts due to be settled in shares pursuant to OREMET's excess benefit plan. Common stock equivalents are computed using the treasury stock method. 3. ADDITIONAL CASH FLOW INFORMATION The Company's noncash investing and financing activities and cash payments for interest and income taxes for the year ended December 31 are as follows:
1994 1993 1992 -------------------------------------------------------------------------------- Cash paid (received) during the year for Interest, net of amounts capitalized $ 614 $ 523 $ 662 Income taxes (refunds, net of payments) (1,327) (2,817) (4,477) -------- -------- -------- Noncash investing activities: Acquisition of business, net of cash acquired Working capital other than cash $(9,630) -- -- Properties (3,278) -- -- Long-term debt assumed 185 -- -- Note issued to seller 4,500 -- -- -------- -------- -------- $(8,223) $ -- $ -- -------- -------- -------- -------- -------- -------- Noncash financing transactions: Issuance of common stock in payment of employee benefits $ 30 $ 67 $ 1,729 -------- -------- -------- -------- -------- --------
4. INVENTORIES Inventories at December 31 are comprised of the following:
1994 1993 -------------------------------------------------------------------------------- Finished goods $14,656 $ 5,511 Work-in-progress 15,288 4,535 Raw materials 19,079 15,806 -------- ------- Total $49,023 $25,852 -------- ------- -------- -------
5. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment at December 31 are comprised of the following:
1994 1993 -------------------------------------------------------------------------------- Land $ 1,189 $ 1,118 Buildings and improvements 11,087 8,902 Machinery and equipment 39,940 36,763 Integrated sponge facility 45,309 44,882 Construction in progress 1,976 1,209 -------- ------- 99,501 92,874 Less accumulated depreciation 61,981 56,670 -------- -------- Total $37,520 $36,204 -------- -------- -------- --------
6. INCOME TAXES Effective January 1, 1992, the Company prospectively adopted SFAS No. 109. The cumulative effect of this accounting change resulted in noncash income of $602 ($.05 per share) in 1992. The benefit for income taxes is comprised of the following:
1994 1993 1992 -------------------------------------------------------------------------------- Current provision (benefit) Federal $ 422 $(1,583) $(2,989) State 80 18 -- Deferred provision (credit) (1,217) (232) 1,335 -------- -------- -------- Total benefit $ (715) $(1,797) $(1,654) -------- -------- -------- -------- -------- --------
21 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Components of the deferred provision (benefit) for income taxes are as follows:
1994 1993 1992 -------------------------------------------------------------------------------- Depreciation $ 598 $ 1,186 $ 977 Allowance for doubtful accounts (299) -- -- Inventory, lower of cost or market adjustment -- 827 644 Inventory uniform capitalization (619) (827) (644) Accrued vacation pay (22) (67) (6) Deferred compensation payable (12) (54) 755 Unrealized tax benefit charged to additional paid-in capital -- -- (496) Pension expense (174) -- -- Benefit of state net operating loss carryforward (83) (449) (642) Benefit of federal net operating loss carryforward (851) -- -- Federal alternative minimum tax credit carryforward -- (900) -- Environmental expense provision (99) (367) -- Valuation allowance 216 628 784 Other 128 (209) (37) -------- -------- -------- Total $(1,217) $ (232) $1,335 -------- -------- -------- -------- -------- --------
The difference between the Company's tax benefit and federal tax at statutory rates is summarized as follows:
1994 1993 1992 -------------------------------------------------------------------------------- Federal taxes at statutory rates $ (921) $(2,004) $(1,964) State taxes (179) (389) (377) State tax valuation allowance 216 597 784 Alternative minimum tax limitation -- 212 -- Other 169 (213) (97) -------- -------- -------- Total $ (715) $(1,797) $(1,654) -------- -------- -------- -------- -------- --------
At December 31, 1994, the Company had a net operating loss carryforward for state income tax purposes of $1,248, $6,800, $8,600 and $13,500 from 1994, 1993, 1992 and 1991 operations, respectively. The Company had a net operating loss carryforward for federal income tax purposes of $1,248 from 1994 and $1,242 from 1993. If unused, the loss carryforwards expire fifteen (15) years after the year in which they arose. United States income tax returns for years 1989 through 1993 are currently under examination by the Internal Revenue Service. Assessments are not expected to have a material adverse effect on the financial statements. The components of the net deferred tax liability are as follows:
1994 1993 1992 -------------------------------------------------------------------------------- Assets Pension $ 304 $ -- $ -- Allowance for doubtful accounts 346 -- -- Warranty provision 126 81 81 Deferred compensation 358 229 175 Vacation accrual 469 447 380 Safe harbor lease 296 360 411 Postretirement benefits other than pension 591 542 482 Federal net operating loss carryforward 851 -- -- State net operating loss carryforward 2,130 2,048 1,599 Federal alternative minimum tax credit carryforward 900 900 -- Environmental provision 467 367 -- Capitalized investment costs 619 -- -- Other 219 278 45 Less valuation allowance (1,810) (1,595) (967) -------- -------- -------- 5,866 3,657 2,206 -------- -------- -------- Liabilities Excess tax over book depreciation and amortization 6,421 5,661 4,475 Pension payments -- -- 117 Other 26 11 32 -------- -------- -------- 6,447 5,672 4,624 -------- -------- -------- Net deferred tax liability $ 581 $ 2,015 $ 2,418 -------- -------- -------- -------- -------- -------- Balance sheet classification Current assets $ (517) $ (498) $ (389) Long-term liability 1,098 2,513 2,807 -------- -------- -------- Net deferred tax liability $ 581 $ 2,015 $ 2,418 -------- -------- -------- -------- -------- --------
7. NOTE PAYABLE TO BANK The Company may borrow up to $20 million under the terms of a revolving credit agreement at an interest rate of prime (8.5% on December 31, 1994) plus 1.5%. Borrowings under the agreement are collateralized by accounts receivable, inventories and other in tangible assets, including the Company's stock in TI. The Company must pay a nonuse fee of .5% annually on the unused portion of the commitment. The credit agreement matures September 1997 and can be renewed for one year periods with the consent of both parties. The credit agreement contains restrictive covenants with regard to various financial ratios and imposes limitations on capital expenditures and dividends. Annual cash dividends are limited to the lesser of fifty percent (50%) of net income or $1.8 million. 22 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8. LONG-TERM DEBT Long-term debt consists of the following:
1994 1993 -------------------------------------------------------------------------------- Subordinate Note Due to Kamyr, Inc. $4,500 $ -- County Industrial Development Authority Loan 181 -- Bank term loans -- 4,750 ------- ------- 4,681 4,750 Less current maturities 13 3,350 ------- ------- $4,668 $1,400 ------- ------- ------- -------
On September 19, 1994, as part of the Company's acquisition (see Note 1), TI entered into a subordinated debt agreement with Kamyr, Inc. for $4,500, interest at 8%, payable quarterly commencing December 1994. The initial principal payment of $300 is due March 1997, and payable thereafter in quarterly installments of $350 through March 2000. The subordinated debt agreement includes covenants relative to shareholders' equity, maximum amount of senior debt, relative financial ratios and restrictions on dividends, new borrowings and guarantees and liens. The loan is collateralized by a second lien on the accounts receivable, inventories, and general intangibles of TI. In conjunction with the acquisition, the Company retired all outstanding amounts which were due under its bank term loans. Aggregate maturities of long-term debt approximate the following at December 31, 1994: 1995 $ 13 1996 13 1997 1,362 1998 1,413 1999 1,413 Thereafter 467 ------ $4,681 ------ ------
On January 20, 1995, Titanium International, LTD. (T.I.L.), a foreign subsidiary, entered into a credit facility with the Midland Bank plc. The facility provides for a credit facility of approximately $2,300 a foreign exchange facility for $900 and other guarantees of approximately $250. The amount of borrowing is subject to 70% of eligible accounts receivable plus 60% of appraised value of building. The credit facility is collateralized by certain assets of T.I.L. Interest is to be charged at the rate of 1.5% over Midland Bank's base rate. The credit facility has financial covenants pertaining to net worth and repayment of loan to parent. The Bank has the option of terminating the funds at its discretion and is subject to review on December 31, 1995. 9. STOCK PURCHASE WARRANTS Warrants to purchase 200,000 shares of the Company's common stock are outstanding. The warrants and underlying shares are subject to forfeiture (15% per year) under certain circumstances, until September 1999. The warrants are exercisable at $6.375 per share, and expire September 2004. The warrants were issued in connection with the Company's acquisition of TI. The warrant holder is the president of TI, who is also an officer and director of the Company. 10. OPERATING LEASES Minimum annual rental commitments at December 31, 1994, under noncancelable operating leases, principally for railroad tank cars, sales and service center facilities, and various pieces of equipment, are payable as follows: 1995 $ 660 1996 610 1997 460 1998 360 1999 350 Thereafter 750
Total rental costs were $533 in 1994 and $421 and $408 in 1993 and 1992, respectively. 11. EMPLOYEE PENSION PLANS PENSION PLANS OREMET's hourly employees are covered by a union pension plan. Pension expense is based on a fixed rate per hour established under a negotiated union contract. OREMET maintains a defined benefit pension plan covering its salaried employees who have completed at least one year of service and have reached age 21. The benefits under this plan are based on years of service and the employee's final average earnings. The plan's assets consist of interest-bearing obligations and equities. Pension costs for OREMET's hourly and salaried plans were $1,287 in 1994, $1,274 in 1993 and $1,219 in 1992. The following table sets forth the amounts recognized in the Company's financial statements for the salaried plan's pension expense and the salaried plan's funded status at December 31:
1994 1993 1992 -------------------------------------------------------------------------------- Pension costs for the year: Service cost $ 522 $ 565 $ 509 Interest cost 859 779 677 Actual return on plan assets (250) (717) (638) Net amortization and deferral (397) 119 140 -------- -------- -------- Net cost $ 734 $ 746 $ 688 -------- -------- -------- -------- -------- -------- Plan assets at fair value $ 9,863 $10,122 $ 8,788 -------- -------- -------- Projected benefits based on employment service to date and present pay levels: Vested 7,976 9,542 9,562 Nonvested 300 335 432 -------- -------- -------- Accumulated benefit obligation 8,276 9,877 9,994 Additional amounts related to projected compensation increases 2,550 2,224 2,685 -------- -------- -------- Projected benefit obligation 10,826 12,101 12,679 -------- -------- -------- Plan assets less projected benefit obligation (963) (1,979) (3,891) Unrecognized net obligation 276 315 458 Unrecognized prior service cost 182 205 294 Unrecognized net loss 76 1,614 3,175 Minimum pension liability -- -- (385) -------- -------- -------- Prepaid pension cost (liability) $ (429) $ 155 $ (349) -------- -------- -------- -------- -------- --------
23 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In determining the actuarial present value of the projected benefit obligation, the assumed weighted-average discount rate was 8.50% in 1994, 6.75% in 1993 and 5.75% in 1992. For 1994 and 1993, the assumed rate of increase in future compensation levels was 4.5%. For 1992, the assumed rate of increase in future compensation was 5%. The expected long-term rate of return on retirement plan assets was 8.0% for each of the three years. The decrease in the unrecognized net loss from 1992 to 1994 was primarily due to the increase in the assumed weighted-average discount rate. During 1993, the Company restructured its workforce, resulting in the termination of a significant number of employees. The termination resulted in a partial curtailment of the salaried pension plan and increased the restructuring cost by $151. TI sponsors a domestic 401(k) retirement savings plan. Under the provisions of the plan, participants may contribute a percentage of their compensation not to exceed 12%. TI matches the participants' contributions up to 3%. Participants are fully vested with regard to TI's contributions and earnings thereon after one (1) year of service. TI's contributions to the plan were approximately $21. in 1994. Titanium International, LTD. (T.I.L.) sponsors a defined contribution pension plan for all employees over the age of 25 with one (1) year of service. Under the plan, participants may contribute between 17.5% to 40% of base pay depending upon their age. Participants are fully vested and T.I.L. matches between 2% to 14% of the employee's base pay, depending upon age and as long as the employee's contributions are at least 2%. The T.I.L. contribution for 1994 was approximately $19. THE ESOP In 1987, the Company established The Oregon Metallurgical Corporation Employee Stock Ownership Plan (ESOP), an employee stock ownership plan covering substantially all employees of OREMET. The ESOP borrowed $17 million from the Company to purchase shares of common stock from the Company. The loan obligation of the ESOP is considered unearned employee benefit expense and, as such, is recorded as a reduction of shareholders' equity. Both the loan obligation and the unearned benefit expense have been reduced by loan repayments made by the ESOP. The ESOP contribution expense totaled $2,382, $2,755 and $2,924 in 1994, 1993 and 1992, respectively. As of December 31, 1994, the note receivable from the ESOP has been fully repaid and all shares of common stock held by the ESOP (4,484 shares) have been allocated to OREMET employees. EXCESS BENEFIT PLAN OREMET maintains an unfunded excess benefit plan for participants whose allocations of common stock of the Company to the ESOP are reduced as a result of limitations imposed under federal income tax law. A portion of a participant's excess benefit shares is distributable after two years, but a participant may defer distributions. Distributions are required upon request following a participant's termination of employment. OREMET has the option to distribute shares in lieu of cash, but not in excess of 1% of the outstanding shares of common stock of the Company as of the prior year end. The cash value of dividends that would have been paid to the participant had the participant's allocation of shares to the ESOP not been reduced will be paid to the participant in conjunction with the payment of dividends on the Company's common stock. The liability under this plan is recorded as deferred compensation payable in the accompanying balance sheets. Excess benefit plan costs were $332, $259 and $100 in 1994, 1993 and 1992, respectively. POSTRETIREMENT BENEFIT PLANS OTHER THAN PENSIONS Effective January 1, 1992, the Company prospectively adopted SFAS No. 106 "Employers' Accounting for Postretirement Benefits other than Pensions." As part of adopting the Standard, the Company recorded in the first quarter of 1992 a noncash charge of $1,130 before taxes ($671 after taxes, or $.06 per share). Orement sponsors defined benefit postretirement plans that provide health care benefits to eligible retired salaried employees. Eligible retirees as of December 31, 1994 are not required to contribute toward retiree health care coverage. The following table sets forth the plan's status reconciled with the amount shown in the Company's balance sheets as of December 31: 1994 1993 1992 -------------------------------------------------------------------------------- Accumulated postretirement benefit obligation: Retirees $ 638 $ 701 $ 443 Fully eligible plan 140 90 529 participants Other active plan participants 770 949 214 Less plan assets at fair value -- -- -- -------- -------- -------- 1,548 1,740 1,186 Less recognized loss 91 404 -- -------- -------- -------- Accrued postretirement benefit benefit liability $1,457 $1,336 $1,186 -------- -------- -------- -------- -------- -------- The components of net periodic postretirement benefit costs are as follows: 1994 1993 1992 -------------------------------------------------------------------------------- Service cost, benefit attributed to employee service during the year $ 96 $ 97 $ 56 Interest cost on accumulated postretirement benefit obligation 118 123 76 Net amortization and deferral 15 15 Actual return on plan assets -- -- -- -------- -------- -------- Net periodic postretirement benefit cost $229 $235 $132 -------- -------- -------- -------- -------- --------
For measurement purposes, a 9.5% annual increase in the per capita cost of postretirement medical benefits was assumed for 1994; the rate is assumed to decrease gradually to 6% for 2001 and remain at that level thereafter. The health care cost trend rate assumption has a significant affect on the amounts reported. To illustrate, increasing the assumed health care cost trend rates by one percentage point in each year would increase the accumulated postretirement benefit obligation as of December 31, 1994 by $158, and the aggregate of the service and interest cost components of net periodic postretirement cost for the year then ended by $26. The discount rate used in determining the accumulated postretirement benefit obligation was 8.5%, 7.0% and 8.0% for 1994, 1993 and 1992, respectively. The unrecognized loss was $91 at December 31, 1994, compared to $404 at December 31, 1993, a decrease of $313. The decrease in the unrecognized loss was substantially attributable to the increase in the discount rate. During 1993, the Company restructured its workforce, result- 24 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ing in the termination of a significant number of employees. The terminations resulted in a partial curtailment of the postretirement benefit plan and decreased the unrecognized loss component of the postretirement benefit liability by $210. LABOR AGREEMENT AND COMPENSATION POLICY In 1994, OREMET concluded a new labor contract with its union employees and established a new compensation policy affecting nonunion employees. The new agreements provide for the restoration of pay and benefits which were reduced at the start of the ESOP cycle which began in December 1987 and concluded seven years later in December 1994. As a component of the restoration package, beginning in January 1995, each OREMET employee will earn one share of the Company's common stock for every $100 earned in salaries and wages. Additionally, OREMET will sponsor an employee savings plan. For each OREMET employee, OREMET will contribute one share of Company common stock for each day worked, or 260 shares a year for a full-time employee. Under further provisions of the plan, OREMET may, subject to the discretion of the Company's Board of Directors, match a percentage of participants' contributions. At OREMET's option, the Company match may be contributed in either cash or in common stock of the Company. At present levels of employment and compensation, management believes that the Company may issue employees approximately 290,000 shares of common stock for 1995 as a result of the above agreements. 12. ENVIRONMENTAL MATTERS The Company is subject to federal, state and local statutes and regulations concerning environmental matters and land use. Although the Company believes it is in material compliance with these laws, they are frequently modified to be more restrictive and it is impossible to predict accurately the future effect changes in these laws may have on the Company. Like all titanium producers, the Company generates certain waste materials and emissions, including materials for which disposal or emission requires compliance with environmental protection laws. The Company conducts its operations at an industrial site where hazardous materials have been managed for many years in connection with its operations, including periods before careful management of these materials was required or generally believed to be necessary. Consequently, the Company is subject to various environmental laws that impose compliance obligations and can create liability for historical releases of hazardous substances. The Company has entered into a consent order with the Oregon Department of Environmental Quality pursuant to which the Company is conducting an investigation of hazardous substances in portions of the soil and groundwater at its plant site (Albany, Oregon). The Company anticipates that its investigation will result in a determination that at least some remedial action is necessary. An estimate of the cost cannot be made at this time. Also, a neighboring property owner is investigating groundwater contamination at their property that may have migrated to OREMET's property and for which OREMET may have legal claims to recover a portion of its investigation costs. For a number of years, the Company utilized off-site disposal for various wastes generated from operations. Although the Company believes that disposal was conducted in compliance with laws in effect at the time, a facility to which the Company sent its wastes has been determined to be environmentally unsound under current law. Pursuant to a final agreement with the Oregon Department of Environmental Quality, the Company will relocate these waste materials to an approved facility. In February 1995, the Oregon Department of Environmental Quality modified OREMET's waste water discharge permit. The modified permit accelerates the implementation of more stringent water quality standards which were contained in OREMET's original permit. OREMET is reviewing its waste water management practices and has developed a number of feasible alternatives which can be implemented to maintain the Company's compliance with the terms of the modified permit and proposed implementation schedule. In 1991 and in 1993, the Pennsylvania Department of Environmental Regulation and the Environmental Protection Agency (EPA) performed site inspections, including soil and water sampling, at TI's site in Frackville, Pennsylvania, in connection with a regional groundwater investigation of the Frackville, Pennsylvania area. While the EPA's investigation is ongoing, management has not been informed of any pending or potentially required actions which may arise from this investigation. In conjunction with the purchase of TI (see Note 1), Kamyr, Inc. has agreed to undertake specified clean-up activities. In addition, Kamyr, Inc. has agreed to a substantial indemnification of the Company in the event damages arise which result from conditions which were not in compliance with environmental laws and regulations as they existed at the time of the sale of TI. Although no claims have been filed against the Company, it has completed engineering studies with regards to the above-mentioned items and less significant matters. As a result of these studies, which are ongoing, the Company made provisions for environmental expenses of $240, $970 and $200 in 1994, 1993 and 1992, respectively. These amounts are in addition to recurring environmental costs which are expensed as incurred and are included in cost of sales. Management is unable to reasonably predict when these environmental issues will be resolved. 13. MAJOR CUSTOMERS AND BUSINESS SEGMENTS The Company has a contract to supply titanium sponge and certain other titanium products through 2003 to RMI Titanium Company (RMI). Sales to RMI, as a percentage of net sales, were 13% for 1994, 30% and 25% for 1993 and 1992, respectively. The Company's operations are conducted primarily in one business segment, the production and marketing of titanium metal and related products. For years ended December 31, 1994, 1993 and 1992, foreign sales were $10,300, $6,600, and $6,200, respectively, principally to customers in western Europe. 14. RESTRUCTURING COST In 1993, the Company recorded a provision for restructuring of $2,027 which include nonrecurring costs of severance pay and benefits of $1,027, incurred and substantially all paid in the third and fourth quarters of 1993, and a write-down, in the fourth quarter of 1993, of construction in progress of $1,000 related to a curtailed expansion of the Titanium Sponge Reduction Plant and the related Magnesium Recovery Facility. The downsizing and restructuring were done to reduce fixed costs and to write-off the nonrecoverable portion of funds spent to increase sponge production capacity. Due to the reduced demand for sponge and the availability of low priced sponge from the Commonwealth of Independent States, the expansion was no longer needed. 25 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 15. QUARTERLY INFORMATION (UNAUDITED) The following table sets forth unaudited quarterly financial date for the years ended December 31, 1994 and 1993 (in thousands, except per share amounts):
GROSS NET NET INCOME PROFIT INCOME (LOSS) PER SALES (LOSS) (LOSS) SHARE -------------------------------------------------------------------------------- 1994 QUARTER: 1st $13,294 $ 89 $(1,085) $(.10) 2nd 14,503 660 (601) (.06) 3rd(1) 16,980 1,697 (400) (.03) 4th(1) 26,389 4,193 63 .01 ------- ------ -------- ------ $71,166 $6,639 $(2,023) $(.18) ------- ------ -------- ------ ------- ------ -------- ------ (1) Third and Fourth quarter results include the operating results of Titanium Industries, Inc. with sales of $1,464 and $10,053, respectively.
GROSS NET NET INCOME PROFIT INCOME (LOSS) PER SALES (LOSS) (LOSS) SHARE -------------------------------------------------------------------------------- 1993 QUARTER 1st $18,030 $1,979 $ 432 $ .04 2nd 14,651 1,308 111 .01 3rd 12,357 415 (1,071)(1) (.10)(1) 4th 10,313 (987) (3,570)(2) (.33)(2) ------- ------- -------- --------- $55,351 $2,715 $(4,098) $(.38) ------- ------- -------- --------- ------- ------- -------- --------- (1) Third quarter results include a provision for restructuring of $495, net of tax benefits, or $0.05 per share, which includes employment related expenses associated with the organizational downsizing. (2) Fourth quarter results include an additional provision for restructuring of $914, net of tax benefits, or $0.08 per share, which includes employment related expenses, as well as a write-down of construction in progress related to a curtailed expansion of the sponge and magnesium facilities. Also included is a provision for estimated environmental expenses of $674, net of tax benefits, or $0.06 per share.
REPORT OF INDEPENDENT ACCOUNTANTS TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF OREGON METALLURGICAL CORPORATION: We have audited the accompanying consolidated balance sheets of Oregon Metallurgical Corporation and subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of operations, shareholders, equity and cash flows for each of the three years in the period ended December 31, 1994. 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 audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Oregon Metallurgical Corporation and subsidiaries as of December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994 in conformity with generally accepted accounting principles. As discussed in Notes 6 and 11 to the Financial Statements, the Company changed its method of accounting for postretirement benefits other than pensions and accounting for income taxes in 1992. COOPERS & LYBRAND LLP Eugene, Oregon February 3, 1995 26 MANAGEMENT'S DISCUSSION AND ANALYSIS OVERVIEW ACQUISITION OF TITANIUM INDUSTRIES, INC. (TI) On September 20, 1994, the Company, through its newly formed subsidiary, acquired the assets and business of the Distribution Group of TI. The operating results of TI are included in the Company's consolidated financial results beginning with the date of acquisition. A significant majority of the Distribution Group's customers participate in the industrial (non-aerospace) market as compared to OREMET's customer base which is approximately 65% aerospace related. Beginning from the date of acquisition, TI reported 1994 sales of $11.5 million. MARKET FOR TITANIUM PRODUCTS The Company, as well as other major U.S. titanium producers, reported losses in 1994, continuing a trend which began in 1991. The reported losses are the result of declines in both demand and pricing. For each of the years 1991 through 1994, the U.S. Bureau of Mines (the Bureau) reported shipments for U.S. companies of 34-56 million pounds. The above compares to shipments of 53 million pounds for 1990 and average annual shipments of 44 million pounds for the ten year period ending December 31, 1993. The decrease in shipments for U.S. titanium producers, which began in 1991, is the direct result of the decline in the military aerospace market, weak commercial aerospace market and the availability of low priced titanium products from the FSU. The Company's twelve-month sales order backlog (sales backlog) was $44 million at December 31, 1994, an increase of 144% over the December 31, 1993 sales backlog of $18 million. The twelve-month sales order backlog reflects recent customer order placement but may not be an accurate indicator of annual or quarterly sales volume. For the two year period ended December 31, 1994, the fourth quarter of 1993 was the reported low point for both sales and the sales backlog. The steady increases, which began in the first quarter of 1994, are the result of general increases in demand coupled with the Company's belief that it is participating with a larger share of the overall market. Additionally, sales and the sales backlog were positively affected by the acquisition of TI. Management is cautiously optimistic that the factors responsible for the positive trends which now exist will continue through 1995. MARKET HIGHLIGHTS During 1994, the Company experienced strong demand for titanium ingot destined for use in the manufacture of recreational products. The Company expects that the recreational market will remain strong throughout 1995. In August 1994, the Company renegotiated its long-term conversion agreement with RMI Titanium Company (RMI). The conversion agreement provides that the Company will supply RMI with titanium sponge and certain other titanium products. The agreement terminates in December 2003. Sales to RMI were 13% and 30% of the Company's net sales for 1994 and 1993, respectively. [GRAPH] SALES & SALES BACKLOG DOLLARS (1) These amounts reflect the activities of Titanium Industries Inc. (TI) which was acquired by the Company on September 20, 1994. It's balances are as follows:
1994 ($ millions) Third Quarter Fourth Quarter Sales 1.5 10.0 Sales Backlog 7.0 7.6
In June of 1994, the Company entered into along-term contract with Aerospatiale Avions, France. The material to be provided under this contract will be used in the construction of the pylon assemblies for the Airbus A-320, A-340, and ATR 42/72 aircraft. Revenues from this contract are expected to exceed $10 million. In addition, the Company was awarded a contract to provide titanium plate to the French Navy. Revenues from this contract are expected to approximate $2.5 million with shipments to occur in 1995. In conjunction with efforts to expand its international markets, the Company has established a service center facility located close to Paris, France. The service center will stock and cut to order a variety of OREMET produced products. The service center is operated by OREMET France, S.a.r.l., a wholly-owned European subsidiary. LABOR AGREEMENT In August 1994, the Company and the United Steelworkers of America agreed upon a new labor contract. The new contract will extend through July 31, 2000. The employees represented by the Union are 27 MANAGEMENT'S DISCUSSION AND ANALYSIS also substantial owners of the Company through the Employee Stock Ownership Plan (ESOP). When the ESOP was adopted in December of 1987, the employees agreed to a 20% reduction in pay and benefits to provide the cash to purchase the ESOP shares. The new contract provides at the conclusion of the ESOP cycle, for the restoration of pay and benefits not previously reinstated. The financial cost of the restoration, which includes additional distributions of Company stock as well as increases in hourly pay and benefits, will be offset by a reduction in ESOP expenses. Any additional increases in wages for the most part are linked to the profitability of the Company. TITANIUM SPONGE While approximately 20% of the world's sponge production capacity is located within the U.S., it is currently estimated that approximately 50% is located within the FSU. After the end of the Cold War, sponge produced in the FSU became available and has been imported into the U.S. in ever increasing quantities. Industry sources estimate that approximately 11 million pounds of sponge were imported into the U.S. from the FSU during 1994. This is approximately 350% higher than the quantity imported during 1993, and it represents approximately 33% of the sponge consumed in the U.S. during 1994. Import duties, tariffs, dumping duties and the lack of critical aerospace qualifications have limited the applications where this sponge can be economically used. The Company understands that certain sponge producers in the FsU are working on programs to have their products qualified for use in aerospace applications and at the same time are lobbying to have the import tariffs and dumping duties removed or substantially reduced. If the FSU producers are successful and if they continue to sell material at prices which do not reflect the true economic costs of production, the Company would have to seriously consider closing its sponge production operation and purchasing sponge from the FSU producers. As of December 31, 1994, the Company's sponge production facilities had a net book value of approximately $21 million. If the Company were to permanently close it sponge facilities, the resulting write-off would be reflected in the Company's Statement of Operations in addition to other closure related expenses. Management and the Company's Board of Director's do not believe that such a closure is imminent, however, given the excess capacity now available in the industry and the potential of purchasing sponge at prices lower than the Company's costs of production, closure of the sponge plant at some point in the future is a possibility. Management believes that despite the closure of its sponge production facilities, the Company would remain competitive given the availability of lower cost titanium sponge from the FSU. RESULTS OF OPERATIONS 1994 COMPARED TO 1993 Net sales increased 29% to $71.1 million in 1994, compared to $55.4 million in 1993. The Company's 1994 net sales include $11.5 million of sales attributable to TI. Net sales of ingot, mill products and castings increased 29% in 1994 compared to 1993. The expansion in sales across the Company's primary product lines reflects a strengthening general economy. The increase in revenues for these products is primarily the result of increased shipments, average prices have remained stable between the two periods. Sales of titanium sponge and sponge conversion services decreased 36% in 1994. The decrease in sales and conversion of titanium sponge are a direct result of competition from lower priced titanium sponge available principally from the FSU. Cost of sales as a percentage of net sales decreased in 1994 to 91% from 95% for 1993. The positive change is primarily due to the increase in volume. As a result, gross profit increased $3.9 million to $6.6 million for 1994 from $2.7 million for 1993. During 1993, the Company recorded a non-recurring provision for restructuring costs of $2.0 million. No additional restructuring charges were incurred during 1994. In 1994, the Company recorded a provision for estimated environmental matters of $0.2 million, compared to $1.0 million in 1993, a decrease of $0.8 million or 80%. For further information see the Environmental section of this "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 12 to the Financial Statements. Research, technical and product development (R&D) increased 78% in 1994 to $1.4 million from $0.8 million in 1993. The Company has significantly increased its emphasis on new product development and technical support. This strategic commitment began in November 1993, with the appointment of Steven H. Reichman to the newly created position of Vice President-Technology and Corporate Development. Additionally, during 1994, the Company successfully completed its search for two newly defined positions, both of which have been filed by experienced metallurgists. Selling, general and administrative expenses (SG&A) increased 47% in 1994 to $7.5 million from $5.1 million in 1993. The addition of Titanium Industries, Inc. represents 69% of the increase in SG&A. The balance of the increase in SG&A arises from management's decision to increase its allowance for uncollectible accounts receivable and reflects the Company's increased commitment to the expansion of its marketing efforts. 28 MANAGEMENT'S DISCUSSION AND ANALYSIS As a result of the foregoing, the Company experienced a loss from operations of $2.5 million in 1994 compared to a loss from operations of $6.2 million in 1993. Interest income decreased to $0.4 million in 1994 compared to $0.8 million in 1993 due to the liquidation of the Company's portfolio of short-term investments and a smaller outstanding balance on the note receivable from the OREMET ESOP. The Company expects that interest income for 1995 and the foreseeable future should be negligible. Interest expense increased to $0.6 million in 1994 compared to $0.5 million in 1993 primarily as a result of the debt incurred by the Company in the purchase of TI. Additionally, the Company increased borrowings during the fourth quarter of 1994 in order to finance an increase in operating levels. The Company reported an income tax benefit of $0.7 million (effective tax rate of 26%) for 1994 compared to a tax benefit of $1.8 million, or an effective tax rate of 30% for 1993. See Note 6 to the Financial Statements for an analysis of the Company's effective tax rate. The Company reported a net loss of $2.0 million ($0.18 per share) for 1994 compared to a net loss of $4.1 million ($0.38 per share) for 1993. 1993 COMPARED TO 1992 Net sales decreased 2.5% to $55.4 million in 1993, compared to $56.8 in 1992. Decreased sales of ingot, castings, titanium sponge and conversion services were only partially offset by increased sales of mill products. Favorable mix shifts and small price changes in sponge, ingots, castings and mill products offset an approximate 5% decline in shipments. Reductions in toll melting, conversion and other services accounted for the majority of the $1.4 million decrease in sales. These net decreases were primarily due to a continuing weak demand for titanium metal and shrinkage of the military and commercial aerospace markets. Imports from the FSU have intensified the downward pressure on pricing. Cost of sales as a percentage of net sales improved in 1993 to 95% from 101% in 1992, due primarily to increased sales of higher value-added mill products and increased prices as previously noted. Cost of sales decreased 8.2% in 1993 to $52.6 million from $57.4 in 1992 primarily as a result of the decrease in shipments and the reduced levels of toll melting, conversion and other services. As a result, gross profit improved to $2.7 million in 1993 from a loss of $0.6 million in 1992. In 1993, the Company recorded a provision for restructuring costs of $2.0 million which included non-recurring costs for severance pay and benefits of $1.0 million and a write-down of construction in progress of $1.0 million related to the curtailed expansion of the titanium sponge reduction and magnesium recovery plants. This downsizing and restructuring was done to reduce fixed costs to a level which was more supportable by the then current level of business and to recognize that at that level and with the availability of low priced sponge from the FSU, the expansion was no longer needed. In addition, the Company recorded a provision for estimated environmental expenses of $1.0 million in 1993 compared to $0.2 million in 1992. For further information see Notes 12 and 14 of Notes to the Financial Statements. Selling, general and administrative expense and the research, technical and product development expense increased 14% in 1993 to $5.9 million from $5.2 million in 1992 and increased as a percentage of net sales to 10.6% from 9.1%. This increase is primarily due to employment related expenses associated with the transition to the new management team, increased administrative supply expenses and increased legal and professional expenses. As a result of the foregoing, the loss from operations increased to $6.2 million in 1993 compared to a loss of $5.9 million in 1992. Interest expense decreased to $0.5 million in 1993 compared to $0.7 million in the previous year due primarily to a reduction in the bank term loans. The loss before income taxes increased slightly to $5.9 million in 1993 compared to $5.8 million in the prior year. The income tax benefits of $1.8 million in 1993 and $1.7 million in the prior year are recorded at a rate different than the statutory rate primarily as a result of recording a state tax valuation allowance in compliance with SFAS No. 109 "Accounting For Income Taxes", and in 1993 recording an alternative minimum tax limitation. Therefore, the net loss decreased for 1993 to $4.1 million compared to $4.2 million in 1992 1992 COMPARED TO 1991 Net sales increased 5% to $56.8 million in 1992, compared to $54.2 million in 1991. Increased sales of titanium sponge more than offset decreased sales of ingot, mill products, castings and conversion services. Sales of titanium sponge increased three-fold to $22.4 million in 1992 from $6.5 million in 1991, primarily as a result of sponge shipments to RMI under the long-term conversion contract. The 18% decline in shipments of ingot, castings and mill products accounted for approximately 75% of the decline in sales of these products. Reductions in toll melting, conversion and other services were responsible for a $2.1 million decrease in sales. These decreases were primarily due to the weak commercial aircraft market, the continuing decline in defense spending and a weak national economy. Cost of sales as a percentage of net sales improved in 1992 to 102% from 106% in 1991 primarily as a result of not incurring an inventory valuation write-down as was required in the previous year. Cost of sales increased 29 MANAGEMENT'S DISCUSSION AND ANALYSIS in 1992 to $57.3 million from $57.4 million in 1991 primarily as a result of the increase in net shipments. As a result, gross profit improved to a loss of $0.6 million in 1992 from a loss of $3.2 million in 1991. In 1992, the Company recorded a provision for estimated environmental expenses of $0.2 million for estimated remediation costs at a facility which was used by the Company for waste disposal. For further information see Note 12 of Notes to Financial Statements. Selling, general and administrative expense decreased 2% in 1992 to $5.2 million from $5.3 million in 1991 and decreased as a percentage of net sales to 9.1% from 9.8%. This reduction was due primarily to management's focus on controlling costs. As a result of the foregoing, the loss from operations decreased to $5.9 million in 1992 compared to a loss of $8.5% million in 1991. Interest income declined to $0.8 million in 1992 compared to $1.2 million in 1991 due to a reduction in interest rates on short-term investments and a reduction in the amount of the note receivable from the ESOP and the corresponding interest income. Interest expense increased to $0.7 million in 1992 compared to $0.5 million in the previous year due primarily to a reduction in capitalized interest costs to $0.1 million in 1992 compared to $0.4 million in 1991. The loss before the cumulative effect of changes in accounting principles declined to $4.1 million in 1992 compared to $4.7 million in the previous year. The income tax benefits of $1.7 million in 1992 is recorded at a rate different from the statutory rate primarily as a result of recording a state tax valuation allowance in compliance with SFAS No. 109, "Accounting for Income Taxes". In 1991, the income tax benefit of $3.1 million was recorded at a rate different from the statutory rate as a result of OREMET's dividend payments to the ESOP which are deductible for income tax purposes. Two accounting changes as prescribed by the Financial Accounting Standards Board were implemented in 1992 retroactive to January 1, 1992. The net cumulative effect of these changes required by Accounting for Postretirement Benefits, SFAS 106, and Accounting for Income Taxes, SFAS 109, was an addition to the net loss of $0.1 million. Therefore, the net loss for 1992 decreased to $4.2 million compared to $4.7 million in 1991. LIQUIDITY AND CAPITAL RESOURCES In conjunction with the acquisition of TI, in September 1994, the Company entered into a $20 million revolving credit facility with BankAmerica Business Credit, Inc. The credit agreement expires in September 1997 and can be renewed for one year periods with the consent of both parties. OREMET utilized the credit agreement to refinance $3.0 million in long-term debt and an additional $4.0 million to finance the acquisition. As of December 31, 1994, the Company has $7.5 million available under the credit agreement. The amount of credit available under the agreement is determined by the Company's level of eligible accounts receivable and inventories which are the primary sources of collateral. The credit agreement is reported as a long-term liability in the Company's Consolidated Balance Sheets. Working capital increased $12.6 million to $49.1 million as of December 31, 1994, compared to $36.5 million as of December 31, 1993. The increase in working capital is primarily the result of the acquisition of TI. During the third quarter of 1994, the Company redeemed its portfolio of short-term investments, predominantly to reduce borrowings and meet the operating requirements of the Company. For the year ended December 31, 1994, the Company reported $4.5 million as net cash used in operating activities. In 1993 and 1992 the Company generated net cash from operations of $0.8 and $7.5 million, respectively. The 1994 decrease in net cash provided by operating activities is the result of the Company increasing its investment in inventories as a result of strong increases in both sales and the sales backlog. ENVIRONMENTAL MATTERS The Company is subject to federal, state and local statutes and regulations concerning environmental matters and land use. Although the Company believes it is in material compliance with these laws, they are frequently modified to be more restrictive and it is impossible to predict accurately the future effect changes in these laws may have on the Company. Like all titanium producers, the Company generates certain waste materials and emissions, including materials for which disposal or emission requires compliance with environmental protection laws. The Company conducts its operations at an industrial site where hazardous material have been managed for many years in connection with its operations, including periods before careful management of these materials was required or generally believed to be necessary. Consequently, the Company is subject to various environmental laws that impose compliance obligations and can create liability for historical releases of hazardous substances. (See Note 12 to the Financial Statements for a further discussion of the Company's environmental matters). 30 QUARTERLY STOCK DATA
MARKET FOR COMMON STOCK HIGH LOW ------------------------------------------------------------------------------- For the Year Ended December 31, 1994 First Quarter $6.75 $4.75 Second Quarter 6.37 4.37 Third Quarter 6.25 5.25 Fourth Quarter 8.37 5.62 For the Year Ended December 31, 1993 First Quarter $4.87 $3.87 Second Quarter 7.00 4.19 Third Quarter 7.50 4.87 Fourth Quarter 5.50 4.06
INVESTOR INFORMATION ANNUAL MEETING The annual meeting of shareholders of Oregon Metallurgical Corporation will be held in the auditorium of the Company's office building at 530 Southwest 34th Avenue in Albany, Oregon on the 27th day of April, 1995, at 10 o'clock a.m. FORM 10-K A copy of the Company's annual report on Form 10-K as filed with the Securities and Exchange Commission (without exhibits) will be furnished without charge to any shareholder on request to: DENNIS P. KELLY VICE PRESIDENT, FINANCE P.O. BOX 580 ALBANY, OR 97321 COMMON STOCK Traded NASDAQ National Market Systems (NMS) Symbol: OREM CORPORATE INFORMATION TRANSFER AGENT FIRST INTERSTATE BANK OF OREGON P.O. BOX 2971 PORTLAND, OR 97208 GENERAL COUNSEL WEATHERFORD, THOMPSON, QUICK & ASHENFELTER ALBANY, OR SPECIAL COUNSEL SCHWABE, WILLIAMSON & WYATT, P.C. PORTLAND, OR ACCOUNTANTS COOPERS & LYBRAND EUGENE, OR 31 DIRECTORS, OFFICERS AND LOCATIONS BOARD OF DIRECTORS CARLOS E. AGUIRRE (1) PRESIDENT AND CHIEF EXECUTIVE OFFICER OREGON METALLURGICAL CORPORATION GILBERT E. BEZAR (2)(3) RETIRED VICE PRESIDENT AEROSPACE AND STRATEGIC MATERIALS GROUP OWENS-CORNING FIBERGLAS CORPORATION ROBERT P. BOOTH CHAIRMAN OF THE BOARD NORTHWEST TELEVISION, INC. ROGER V. CARTER (2) INDEPENDENT METALS TECHNOLOGY CONSULTANT RETIRED CHIEF METALLURGIST AND MANAGER OF METALS TECHNOLOGY BOEING COMPANY NICHOLAS P. COLLINS (1)(3) VICE CHAIRMAN ESCO CORPORATION HOWARD T. CUSIC (1)(3) CHAIRMAN OF THE BOARD OREGON METALLURGICAL CORPORATION RETIRED SENIOR VICE PRESIDENT OWENS-CORNING FIBERGLAS CORPORATION DAVID H. LEONARD (1)(3) PARTNER CHURCHILL, LEONARD, BROWN, LINCOLN, LODINE AND HENDRIE JAMES S. PADDOCK VICE PRESIDENT OREGON METALLURGICAL CORPORATION PRESIDENT, CHIEF EXECUTIVE OFFICER, AND CHIEF OPERATING OFFICER TITANIUM INDUSTRIES, INC. JAMES R. PATE (2) FINANCIAL SERVICES MANAGER OREGON VOCATIONAL REHABILITATION DIVISION (1) MEMBER OF THE EXECUTIVE COMMITTEE (2) MEMBER OF THE AUDIT COMMITTEE (3) MEMBER OF THE FINANCE/COMPENSATION COMMITTEE CORPORATE OFFICERS CARLOS E. AGUIRRE PRESIDENT AND CHIEF EXECUTIVE OFFICER JOHN P. BYRNE VICE PRESIDENT - MANUFACTURING DAVID G. FLOYD VICE PRESIDENT - COMMERCIAL DENNIS P. KELLY VICE PRESIDENT - FINANCE, TREASURER AND CHIEF FINANCIAL OFFICER JAMES S. PADDOCK VICE PRESIDENT PRESIDENT, CHIEF EXECUTIVE OFFICER, AND CHIEF OPERATING OFFICER, TITANIUM INDUSTRIES, INC. STEVEN H. REICHMAN VICE PRESIDENT - TECHNOLOGY AND CORPORATE DEVELOPMENT STEPHEN C. STOCKS VICE PRESIDENT - SPECIAL PROJECTS ORVAL N. THOMPSON SECRETARY DENNIS D. ASHENFELTER ASSISTANT SECRETARY LOCATIONS OREGON METALLURGICAL CORPORATION 530 34TH AVENUE, S.W. ALBANY, OR 97321 OREMET FRANCE Z.I. DES BRUYERES AVENUE J.P. TIMBAUD 78190 TRAPPES, FRANCE TITANIUM INDUSTRIES, INC. 110 LEHIGH DRIVE FAIRFIELD, NJ 07006 TITANIUM WIRE CORPORATION 235 INDUSTRIAL PARK ROAD FRACKVILLE, PA 17931 TITANIUM INTERNATIONAL LTD. (U.K.) KEYS HOUSE, GRANBY AVENUE GARRETTS GREEN BIRMINGHAM 833 OSP UNITED KINGDOM 32 EX-21.1 12 EXHIBIT 21.1 EXHIBIT 21.1 SUBSIDIARIES OF OREGON METALLURGICAL CORPORATION State or Country Name of Subsidiary in Which Organized OREMET France S.a.r.l. France New TI, Inc., dba Titanium Industries, Inc. * Oregon Titanium Wire Corporation ** Pennsylvania Titanium International Limited ** United Kingdom * New TI, Inc. is a majority-owned (80%) subsidiary of Oregon Metallurgical Corporation. ** Titanium Wire Corporation and Titanium International Limited are wholly- owned subsidiaries of New TI, Inc. 227 EX-23.1 13 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Board of Directors Oregon Metallurgical Corporation We consent to the incorporation by reference in the Registration Statement of Oregon Metallurgical Corporation on Form S-8 (File No. 33-18650) of our reports dated February 3, 1995 on our audits of the consolidated financial statements and financial statement schedule (item 14(a) of Form 10-K) of Oregon Metallurgical Corporation as of December 31, 1994 and 1993, and for the years ended December 31, 1994, 1993, and 1992, which reports are appearing in and incorporated by reference in this Annual Report on Form 10-K. /s/ Coopers & Lybrand COOPERS & LYBRAND L.L.P. Eugene, Oregon March 23, 1995 228