-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UEaJgx2UHUEVTnTalHqhZ+T5dCEveBmyJE7kSFxOVCWgEgZcPbeQKjkI+2YRMf6b MDCQBjF7xJvZkF1PjKJqrw== 0000912057-96-005463.txt : 19960329 0000912057-96-005463.hdr.sgml : 19960329 ACCESSION NUMBER: 0000912057-96-005463 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960328 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: OREGON METALLURGICAL CORP CENTRAL INDEX KEY: 0000074856 STANDARD INDUSTRIAL CLASSIFICATION: ROLLING DRAWING & EXTRUDING OF NONFERROUS METALS [3350] IRS NUMBER: 930448167 STATE OF INCORPORATION: OR FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-01339 FILM NUMBER: 96540417 BUSINESS ADDRESS: STREET 1: 530 W 34TH AVE STREET 2: P O BOX 580 CITY: ALBANY STATE: OR ZIP: 97321 BUSINESS PHONE: 5039264281 MAIL ADDRESS: STREET 1: 530 34TH AVENUE SW STREET 2: PO BOX 580 CITY: ALBANY STATE: OR ZIP: 97321 10-K405 1 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, 1995 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 offices) (Zip Code) Registrant's Telephone number, including area code: (541) 967-9000 ___________________ 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. /X/ Based on the closing sales price of the Common Stock on March 21, 1996 as reported on the NASDAQ National Market System, the aggregate market value of the voting stock held by nonaffiliates of the registrant was $216,587,300. The number of shares outstanding of the registrant's common stock, $1.00 par value was 11,107,041 at March 21, 1996. DOCUMENTS INCORPORATED BY REFERENCE ___________________________________ Oregon Metallurgical Corporation Annual Report to Shareholders for 1995 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 25, 1996, is incorporated by reference in Part III of Form 10-K as stated herein. PART I ITEM 1. BUSINESS The following information contains forward-looking statements which involve certain risks and uncertainties. Actual results and events may differ significantly from those discussed in the forward- looking statements. 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, 1995, the ESOP's ownership interest is approximately 35%. 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., Germany 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. 1 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 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. While data for 1995 is not yet available, we estimate that industry shipments were approximately 41 million pounds. The improvement in industry shipments is the result of increased demand from the commercial aerospace industry and from the producers of golf clubs. 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. Golf club manufacturers are using titanium because of its strength and low weight which enables production of clubs with larger heads. 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 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 1995, the sponge plant operated at approximately 75% of its practical annual capacity of 13.5 million pounds. 2 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 1995, the ingot plant operated at approximately 70% of its estimated annual capacity of 20 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 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 specified that a cold hearth melting furnace be used for melting several 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. Services are provided by THT in accordance with a three-year agreement ending December 31, 1996 which agreement is renewed automatically for successive one-year terms unless either party has given the other not less than six months notice of its desire not to renew such term. OREMET has not experienced any delays or other problems associated with the competitor's 50% ownership of THT. Should the THT services agreement not be renewed, OREMET would attempt to obtain these services from another competitor which has a cold hearth melting furnace, or, if financially justified, build a separate furnace for OREMET's own use. 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 3 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 December 1995, in response to rapidly increasing recycle costs, the Company added surcharges to its product prices to offset the higher costs it is experiencing. 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. 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., Germany, or France. The service 4 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 45%, 60% and 70% of its net sales in 1995, 1994 and 1993, respectively. OREMET believes that its sales to the non-aerospace industry, as a percent of total sales, will continue to increase in 1996. 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 5%, 13% and 30% of OREMET's net sales in 1995, 1994 and 1993, 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 20%, 14% and 13% of OREMET's net sales in 1995, 1994 and 1993, 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. To assist in the implementation of this contract and to establish a basis for a sustained presence in 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. BACKLOG The Company's twelve month sales order backlog totaled approximately $105 million at December 31, 1995 and $44 million at December 31, 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 5 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. The Company estimates that its share of U.S. sponge capacity is approximately 30% and that its share of world capacity is about 5%. While approximately 15% of the world's sponge production capacity is located within the U.S., approximately 60% 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. 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 1995 and 1994. This is about 350% higher than the amount imported during 1993 and it is about 40% of the estimated 1995 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" sponge qualified for use in critical aerospace applications. Currently, FSU sponge is subject to import tariffs of 14% and dumping duties of 85%. Requests for a review of the dumping duty by the U.S. Department of Commerce are pending. An elimination or reduction of the dumping duties on sponge from the FSU could result in additional imports of their product which in turn could reduce the demand for sponge produced by the Company. 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. Imports of titanium ingot from the FSU totalled just under 2 million pounds during 1995. While this is an increase of almost 250% from the quantity imported from the FSU in 1994, it represents less than 5% of the estimated 1995 production of the U.S. producers. Continued expansion into the U.S. market by FSU producers could materially affect the operations of the Company. EMPLOYEE RELATIONS As of December 31, 1995, the Company employed 580 employees, of which 46 were employed outside of the U.S. All of the hourly production and maintenance workers (approximately 342) 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. 6 RESEARCH, TECHNICAL AND PRODUCT 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 $1.6 million in 1995, $1.4 million in 1994 and $0.8 million in 1993. 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 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. A neighboring property owner also is investigating groundwater contamination at their property that has migrated to Oremet's property and for which Oremet may have legal claims to recover a portion of its investigation costs. In February 1995, the Oregon Department of Environmental Quality modified Oremet's waste water discharge permit. The new permit imposes more stringent discharge limits according to a specified schedule. Oremet has identified several feasible alternatives for meeting the new limits, the most expensive of which would require capital expenditures of approximately $700. Oremet is working with the Department to explore less expensive alternatives. In connection with the preparation of its application for a new federal operating permit under Title V of the 1990 Clean Air Act Amendment, the Company discovered that some of its air emissions are greater than previously recognized. The Company has voluntarily reported these facts to the Oregon Department of Environmental Quality. To resolve these issues, the Company has agreed to undertake an evaluation of its emissions that could result in requirements to install additional pollution control equipment. At this point, the Company is unable to determine whether additional controls will be required, but the Company does not believe the cost of such additional controls would have a material effect on its capital expenditures, earnings or competitive position. 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 Titanium'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 sale of Titanium, Kamyr, Inc. (the seller) 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 Oremet purchased Titanium. 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 $0, $240 and $970 in 1995, 1994 and 1993, respectively. These amounts are in addition to recurring environmental costs which are expensed as incurred and are included in cost of sales. Management cannot reasonably predict when these environment issues will be resolved at the present time. 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. The Company believes that the plants are adequate and suitable for its operating needs. 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. The Company 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. 7 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDER No matters were submitted to a vote of the security holders during the fourth quarter of 1995. 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 42 of the 1995 Annual Report to Shareholders. (b) HOLDERS: At March 8, 1996, there were 2,342 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 1995 or 1994. 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 Financial Data Section on page 36 of the 1995 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 37 through 41 of the 1995 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 21 through 35 in the 1995 Annual Report to Shareholders and is incorporated by reference herein as listed in Item 14 hereof. 8 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 25, 1996, 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 25, 1996, in the sections titled "Compensation Policy," "Compensation Policies and Titanium Industries, Inc., Acquisition," and "Performance and 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 25, 1996 in the section titled "Security Ownership of Certain Beneficial Owners and 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 25, 1996, in the section titled "Transactions with Management and Others". 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. 9 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 21 through 35 of the Registrant's 1995 Annual Report to Shareholders: Report of Independent Accountants. Consolidated Statements of Operations - For The Years Ended December 31, 1995, 1994 and 1993. Consolidated Balance Sheets - December 31, 1995 and 1994. Consolidated Statements of Shareholders' Equity - For The Years Ended December 31, 1995, 1994 and 1993. Consolidated Statements of Cash Flows - For The Years Ended December 31, 1995, 1994 and 1993. Notes to Consolidated Financial Statements, 2. FINANCIAL STATEMENT SCHEDULES: The following financial statement schedule of Oregon Metallurgical Corporation for the years ended December 31, 1995, 1994 and 1993 is filed as part of this Report and should be read in conjunction with the Consolidated Financial Statements of Oregon Metallurgical Corporation: Page Report of Independent Accountants on Financial Statement Schedules . . . . . . S-1 Schedule II : Valuation and Qualifying Accounts. . . . . . . . . . . . . . . . . S-2 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 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: No reports on Form 8-K were filed by the Company during the year ended December 31, 1995. 10 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 22, 1996 /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: ______________ __________________________ Dennis P. Kelly, Vice President, Finance PRINCIPAL EXECUTIVE OFFICER Date:March 22, 1996 /s/ Carlos E. Aguirre ______________ _________________________________ Carlos E. Aguirre, President, Chief Executive Officer and Director BOARD OF DIRECTORS Date: ______________ ________________________ Howard T. Cusic, Chairman, Board of Directors Date: ______________ ____________________________________ Gilbert E. Bezar, Director Date: ______________ ___________________________________ Robert P. Booth, Director Date: ______________ ____________________________________ Roger V. Carter, Director Date: ______________ ____________________________________ Nicholas P. Collins, Director Date: ______________ _____________________________________ David H. Leonard, Director Date: ______________ ____________________________________ James S. Paddock, Director Date: ______________ ____________________________________ James R. Pate, Director 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: ______________ ___________________________________ 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 22, 1996 /s/ Dennis P. Kelly ______________ _____________________________ Dennis P. Kelly, Vice President, Finance PRINCIPAL EXECUTIVE OFFICER Date: ______________ __________________________________ Carlos E. Aguirre, President, Chief Executive Officer and Director BOARD OF DIRECTORS Date: ______________ __________________________________ Howard T. Cusic, Chairman, Board of Directors Date: ______________ _______________________________ Gilbert E. Bezar, Director Date: ______________ ________________________________ Robert P. Booth, Director Date: ______________ ________________________________ Roger V. Carter, Director Date: ______________ ________________________________ Nicholas P. Collins, Director Date: ______________ _________________________________ David H. Leonard, Director Date: ______________ ________________________________ James S. Paddock, Director Date: ______________ _________________________________ James R. Pate, Director 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: ______________ __________________________________ 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: ______________ _________________________________ Dennis P. Kelly, Vice President, Finance PRINCIPAL EXECUTIVE OFFICER Date: ______________ _________________________________ Carlos E. Aguirre, President, Chief Executive Officer and Director BOARD OF DIRECTORS Date:March 22, 1996 /s/ Howard T. Cusic ______________ _________________________________ Howard T. Cusic, Chairman, Board of Directors Date: ______________ _______________________________ Gilbert E. Bezar, Director Date: ______________ _________________________________ Robert P. Booth, Director Date: ______________ _________________________________ Roger V. Carter, Director Date: ______________ _________________________________ Nicholas P. Collins, Director Date: ______________ ________________________________ David H. Leonard, Director Date: ______________ ________________________________ James S. Paddock, Director Date: ______________ _________________________________ James R. Pate, Director 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: ______________ ________________________________ 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: ______________ _________________________________ Dennis P. Kelly, Vice President, Finance PRINCIPAL EXECUTIVE OFFICER Date: ______________ ________________________________ Carlos E. Aguirre, President, Chief Executive Officer and Director BOARD OF DIRECTORS Date: ______________ _________________________________ Howard T. Cusic, Chairman, Board of Directors Date:March 22, 1996 /s/ Gilbert E. Bezar ______________ _______________________________ Gilbert E. Bezar, Director Date: ______________ _________________________________ Robert P. Booth, Director Date: ______________ ________________________________ Roger V. Carter, Director Date: ______________ _________________________________ Nicholas P. Collins, Director Date: ______________ __________________________________ David H. Leonard, Director Date: ______________ _________________________________ James S. Paddock, Director Date: ______________ _________________________________ James R. Pate, Director 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: ______________ _________________________________ 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: ______________ ________________________________ Dennis P. Kelly, Vice President, Finance PRINCIPAL EXECUTIVE OFFICER Date: ______________ _________________________________ Carlos E. Aguirre, President, Chief Executive Officer and Director BOARD OF DIRECTORS Date: ______________ _________________________________ Howard T. Cusic, Chairman, Board of Directors Date: ______________ _________________________________ Gilbert E. Bezar, Director Date:March 21, 1996 /s/ Robert P. Booth ______________ ________________________________ Robert P. Booth, Director Date: ______________ ________________________________ Roger V. Carter, Director Date: ______________ _________________________________ Nicholas P. Collins, Director Date: ______________ ________________________________ David H. Leonard, Director Date: ______________ ________________________________ James S. Paddock, Director Date: ______________ ________________________________ James R. Pate, Director 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: ______________ _________________________________ 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: ______________ ______________________________ Dennis P. Kelly, Vice President, Finance PRINCIPAL EXECUTIVE OFFICER Date: ______________ _________________________________ Carlos E. Aguirre, President, Chief Executive Officer and Director BOARD OF DIRECTORS Date: ______________ _________________________________ Howard T. Cusic, Chairman, Board of Directors Date: ______________ ________________________________ Gilbert E. Bezar, Director Date: ______________ ____________________________ Robert P. Booth, Director Date:March 23, 1996 /s/ Roger V. Carter ______________ _________________________________ Roger V. Carter, Director Date: ______________ __________________________________ Nicholas P. Collins, Director Date: ______________ _________________________________ David H. Leonard, Director Date: ______________ _________________________________ James S. Paddock, Director Date: ______________ _________________________________ James R. Pate, Director 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: ______________ _________________________________ 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: ______________ _________________________________ Dennis P. Kelly, Vice President, Finance PRINCIPAL EXECUTIVE OFFICER Date: ______________ _________________________________ Carlos E. Aguirre, President, Chief Executive Officer and Director BOARD OF DIRECTORS Date: ______________ _________________________________ Howard T. Cusic, Chairman, Board of Directors Date: ______________ ______________________________ Gilbert E. Bezar, Director Date: ______________ _____________________________ Robert P. Booth, Director Date: ______________ ____________________________ Roger V. Carter, Director Date:March 24, 1996 /s/ Nicholas P. Collins ______________ _______________________________ Nicholas P. Collins, Director Date: ______________ ________________________________ David H. Leonard, Director Date: ______________ ______________________________ James S. Paddock, Director Date: ______________ _______________________________ James R. Pate, Director 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: ______________ ________________________________ 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: ______________ _____________________________ Dennis P. Kelly, Vice President, Finance PRINCIPAL EXECUTIVE OFFICER Date: ______________ ___________________________ Carlos E. Aguirre, President, Chief Executive Officer and Director BOARD OF DIRECTORS Date: ______________ ____________________________ Howard T. Cusic, Chairman, Board of Directors Date: ______________ ___________________________ Gilbert E. Bezar, Director Date: ______________ _____________________________ Robert P. Booth, Director Date: ______________ ______________________________ Roger V. Carter, Director Date: ______________ _____________________________ Nicholas P. Collins, Director Date:March 21, 1996 /s/ David H. Leonard ______________ _________________________________ David H. Leonard, Director Date: ______________ _________________________________ James S. Paddock, Director Date: ______________ _________________________________ James R. Pate, Director 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: ______________ ________________________________ 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: ______________ __________________________ Dennis P. Kelly, Vice President, Finance PRINCIPAL EXECUTIVE OFFICER Date: ______________ ________________________________ Carlos E. Aguirre, President, Chief Executive Officer and Director BOARD OF DIRECTORS Date: ______________ ____________________________ Howard T. Cusic, Chairman, Board of Directors Date: ______________ _________________________________ Gilbert E. Bezar, Director Date: ______________ _________________________________ Robert P. Booth, Director Date: ______________ ________________________________ Roger V. Carter, Director Date: ______________ ___________________________ Nicholas P. Collins, Director Date: ______________ _____________________________ David H. Leonard, Director Date:March 22, 1996 /s/ James S. Paddock ______________ ________________________________ James S. Paddock, Director Date: ______________ __________________________________ James R. Pate, Director COOPERS COOPERS & LYBRAND L.L.P. & LYBRAND a professional services firm REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES Our report on the consolidated financial statements of Oregon Metallurgical Corporation is included in the 1995 Annual Report of Oregon Metallurgical Corporation (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K). In connection with our audits of such financial statements, we have also audidted the related financial statements schedule listed in item 14(a) of this Form 10-K. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein. /s/ Coopers & Lybrand LLP Eugene, Oregon February 16, 1996, except for the second paragraph of Note 8, as to which the date is March 1, 1996 Coopers & Lybrand L.L.P. is a member of Coopers & Lybrand International, a limited liability association incorporated in Switzerland. S-1 OREGON METALLURGICAL CORPORATION SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (In thousands)
ADDITIONS BALANCE AT CHARGED TO BALANCE BEGINNING COSTS AND AT END OF DESCRIPTION OF YEAR EXPENSES DEDUCTIONS YEAR ____________________________________________________________________________ ALLOWANCE FOR DOUBTFUL ACCOUNTS: Year ended December 31, 1995 $1,024 $237 $ (4) (a) $1,257 ______ ____ _____ ______ Year ended December 31, 1994 $ 117 $962 $(55) (a) $1,024 ______ ____ _____ ______ Year ended December 31, 1993 $ 110 $ 39 $(32) (a) $ 117 ______ ____ _____ ______ (a) Amounts written off, less recoveries.
S-2 EXHIBIT INDEX EXHIBIT NO. DESCRIPTION _______ __________________ 2.1 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 Restated Articles of Incorporation. (Filed as exhibit 3.1 to Form 10-K for the year ended December 31, 1993) 3.2 Restated Bylaws. (Filed as exhibit 3.2 to Form 10.K for the year ended December 31, 1994) 3.3 Amendment to Restated Articles of Incorporation, Dated April 28, 1995. (Filed as exhibit 3.1 to Form 10-Q for the quarter ended June 30, 1995) 4.1 Specimen Common Stock Certificate. (Previously filed) 4.2 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 Employee Stock Ownership Plan of the Company. (Filed as exhibit 4.3 to Form S-8 Registration Statement 33-18650) * 10.2 Trust Agreement under Oregon Metallurgical Corporation Employee Stock Ownership Plan. * 10.3 Employment Agreement dated June 28, 1993 between the Company and Carlos Aguirre. (Filed as exhibit 10.3 to Form 10-K for the year ended December 31, 1994) * 10.4 Employment Agreement dated October 11, 1993 between the Company and Dennis P. Kelly. (Filed as exhibit 10.4 to Form 10-K for the year ended December 31, 1994) * 10.5 Employment Agreement dated October 8, 1993 between the Company and Steven H. Reichman. (Filed as exhibit 10.5 to Form 10-K for the year ended December 31, 1994) * 10.6 Employment Agreement dated February 20, 1995 between the Company and John P. Byrne. (Filed as exhibit 10.6 to Form 10-K for the year ended December 31, 1994) * 10.7 Loan and Security Agreement dated as of September 19, 1994 among the Company, New TI, Inc. and Bank of America Illinois. (Filed as exhibit 10.7 to Form 10-K for the year ended December 31, 1994) 10.8 Sales Agreement between RMI Titanium Company and the Company. (Filed as exhibit 10 to Form 10-Q for the period ended September 30, 1994) 10.9 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 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 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 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 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 Titanium Tetrachloride Agreement between SCM Chemicals, Inc. and the Company, dated August 11, 1990. (Filed as exhibit 10.14 to Form 10-K for the year ended December 31, 1994) 10.15 Subordinated promissory note between New TI, Inc. and the former Titanium Industries, Inc., dated September 19, 1994. (Filed as exhibit 10.15 to Form 10-K for the year ended December 31, 1994) 10.16 Employment Agreement dated December 18, 1995 between the Company and David G. Floyd. * 10.17 Oregon Metallurgical Corporation Long Term Incentive Compensation Stock Appreciation Rights Plan. * 10.18 Oregon Metallurgical Corporation Savings Plan. * 10.19 Trust Agreement Under Oregon Metallurgical Corporation Savings Plan. * 10.20 Amendment No. 2 Dated as of June 30, 1995, to Loan and Security Agreement with Oregon Metallurgical Corporation and Titanium Industries, Inc., Dated as of September 19, 1994. (Filed as exhibit 10.1 to the Form 10-Q for the quarter ended June 30, 1995) 11.1 Statement re: Computation of Per Share Earnings. 13.1 Portions of the 1995 Annual Report to Shareholders which have been incorporated by reference into this Annual Report on Form 10- K. Except for such portions expressly incorporated by reference, the 1995 Annual Report to Shareholders is not deemed to be filed as part of this Annual Report on Form 10-K. 21.1 Subsidiaries of the Company. 23.1 Consent of Independent Accountants. 27 Financial Data Schedule. * Management contract or compensatory plan. EX-10.2 2 TRUST AGREEMENT UNDER OREGON METALLURGICAL CORPORATION (OREMET) EMPLOYEE STOCK OWNERSHIP PLAN THIS TRUST AGREEMENT (HEREINAFTER CALLED THE "TRUST") MADE AS OF THE 1ST DAY OF JANUARY, 1995, BY AND BETWEEN OREGON METALLURGICAL CORPORATION (HEREINAFTER CALLED THE "COMPANY") AND KEY TRUST COMPANY OF THE NORTHWEST (HEREINAFTER CALLED THE "TRUSTEE"). WITNESSETH: WHEREAS, THE OREGON METALLURGICAL CORPORATION (OREMET) EMPLOYEE STOCK OWNERSHIP PLAN (HEREINAFTER CALLED THE "PLAN") HAS BEEN ESTABLISHED BY THE COMPANY; AND WHEREAS, THE COMPANY DESIRES THE TRUSTEE TO ACT AS TRUSTEE UNDER THIS TRUST AND THE TRUSTEE IS WILLING SO TO ACT IN ACCORDANCE WITH THE TERMS OF THIS TRUST; NOW, THEREFORE, IN CONSIDERATION OF THE PREMISES AND OF THE MUTUAL COVENANTS HEREIN CONTAINED, THE COMPANY AND THE TRUSTEE DO HEREBY COVENANT AND AGREE AS FOLLOWS: 1. TRUST FUND. THE TRUSTEE SHALL RECEIVE FROM THE COMPANY CASH OR OTHER PROPERTY ACCEPTABLE TO THE TRUSTEE. ALL ASSETS SO RECEIVED TOGETHER WITH THE INCOME THEREFROM AND ANY OTHER INCREMENT THEREON (HEREINAFTER CALLED THE "TRUST FUND") SHALL BE HELD, MANAGED AND -1- ADMINISTERED BY THE TRUSTEE PURSUANT TO THE TERMS OF THIS TRUST WITHOUT DISTINCTION BETWEEN PRINCIPAL AND INCOME. THE TRUSTEE SHALL NOT BE RESPONSIBLE FOR THE COLLECTION OF ANY CONTRIBUTIONS TO BE MADE UNDER THE PLAN AND THE TRUSTEE SHALL BE RESPONSIBLE ONLY FOR MONEY OR OTHER PROPERTY RECEIVED BY IT PURSUANT TO THIS TRUST. THE TRUSTEE SHALL BE UNDER NO DUTIES WHATSOEVER IN RESPECT OF THE ADMINISTRATION OF THE PLAN. THE TRUSTEE SHALL HAVE ONLY THOSE RESPONSIBILITIES SPECIFICALLY IMPOSED UPON IT BY THE PROVISIONS OF THIS TRUST AND NEITHER THE PLAN NOR ANY OTHER INSTRUMENT TO WHICH THE TRUSTEE IS NOT A PARTY, INCLUDING BUT NOT LIMITED TO ANY AGREEMENT ENTERED INTO BETWEEN ANY ONE OR MORE OF THE ESOP ADMINISTRATORS APPOINTED BY THE COMPANY TO ADMINISTER THE PLAN OR TO DIRECT INVESTMENTS UNDER THIS TRUST, INCLUDING WITHOUT LIMITATION, THE TWO PERSON COMMITTEE UNDER THE PLAN KNOWN AS THE ESOP ADMINISTRATORS (HEREINAFTER REFERRED TO AS THE "ESOP ADMINISTRATORS") AND AN INVESTMENT MANAGER APPOINTED PURSUANT TO SUBPARAGRAPH B OF PARAGRAPH 4 BELOW, SHALL IMPOSE ANY DUTIES OR OBLIGATIONS UPON THE TRUSTEE WITH RESPECT TO THE TRUST FUND. 2. DISTRIBUTIONS. SUBJECT TO THE PROVISIONS OF PARAGRAPHS 3 AND 4, THE TRUSTEE SHALL FROM TIME TO TIME ON THE DIRECTIONS OF THE ESOP ADMINISTRATORS, EACH OF WHICH IS HEREBY DESIGNATED A "NAMED FIDUCIARY" AS THAT TERM IS DEFINED IN THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974 (AS AMENDED, "ERISA"), MAKE DISTRIBUTIONS OUT OF THE TRUST FUND TO SUCH PERSONS, WHETHER NATURAL OR LEGAL, IN SUCH MANNER, IN SUCH AMOUNTS, AND FOR SUCH -2- PURPOSES, INCLUDING THE PURCHASE OF LIFE INSURANCE AND/OR ANNUITY CONTRACTS, AS MAY BE SPECIFIED IN THE DIRECTIONS OF THE ESOP ADMINISTRATORS. THE TRUSTEE SHALL BE UNDER NO DUTY TO MAKE INQUIRIES AS TO WHETHER ANY DISTRIBUTION DIRECTED BY THE ESOP ADMINISTRATORS IS MADE PURSUANT TO THE PROVISIONS OF THE PLAN. 3. PROHIBITION AGAINST DIVERSION. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS TRUST, OR IN ANY AMENDMENT THERETO, IT SHALL BE IMPOSSIBLE, AT ANY TIME PRIOR TO THE SATISFACTION OF ALL LIABILITIES WITH RESPECT TO THE PARTICIPANTS UNDER THE PLAN (THE "PARTICIPANTS") OR THEIR BENEFICIARIES, FOR ANY PART OF THE TRUST FUND, OTHER THAN SUCH PART AS IS REQUIRED TO PAY TAXES AND ADMINISTRATION FEES AND EXPENSES, TO BE USED FOR, OR DIVERTED TO, PURPOSES OTHER THAN FOR THE EXCLUSIVE USE OF THE PARTICIPANTS UNDER THE PLAN OR THEIR BENEFICIARIES. IN MAKING A DISTRIBUTION UPON A DIRECTION AS AUTHORIZED IN PARAGRAPH 2, THE TRUSTEE MAY ACCEPT SUCH DIRECTION AS A CERTIFICATION THAT SUCH PAYMENT COMPLIES WITH THE PROVISIONS OF THIS PARAGRAPH 3 AND NEED MAKE NO FURTHER INVESTIGATION. 4. POWERS, DUTIES AND IMMUNITIES OF THE TRUSTEE. A. GENERAL. The Trustee shall administer the Trust Fund as a nondiscretionary Trustee, and the Trustee shall not have any discretion or authority with regard to the investment of the Trust Fund and shall act solely as a directed Trustee of the Trust Fund. Notwithstanding anything herein to the contrary, it is intended that the Trust Fund be invested primarily in the -3- common stock of the Company. The Trustee, as a nondiscretionary Trustee, as may be directed by the ESOP ADMINISTRATORS (or the Participants to the extent provided herein pursuant to the terms of the Plan) is authorized and empowered, by way of limitation, with the following powers, rights and duties, each of which the Trustee shall exercise in a nondiscretionary manner as directed in accordance with the direction of the ESOP ADMINISTRATORS or the Participants (each as a Named Fiduciary), except to the extent that Plan assets are subject to the control and management of a properly appointed Investment Manager AS OTHERWISE PROVIDED IN THIS PARAGRAPH 4: (I) AT THE DIRECTION OF A NAMED FIDUCIARY, THE TRUSTEE MAY SELL, WRITE OPTIONS ON, LEASE FOR ANY TERM OR TERMS (WITH OR WITHOUT OPTION TO PURCHASE), TRANSFER OR EXCHANGE ALL OR ANY PART OF THE PROPERTY HELD BY IT IN THE TRUST FUND AND ALL PROPERTY THAT MAY FROM TIME TO TIME BE SUBSTITUTED THEREFOR OR ADDED THERETO, AT SUCH PRICES AND UPON SUCH TERMS AND CONDITIONS AND IN SUCH MANNER AS IT SHALL DEEM ADVISABLE. (II) AT THE DIRECTION OF A NAMED FIDUCIARY, THE TRUSTEE SHALL INVEST AND REINVEST ALL OR SUCH PART OF THE TRUST FUND AS IT SHALL DEEM ADVISABLE IN SUCH NOTES, DEBENTURES, BONDS, STOCKS, MUTUAL FUNDS (INCLUDING WITHOUT LIMITATION MUTUAL FUNDS TO WHICH THE TRUSTEE OR ANY AFFILIATE MAY SERVE AS INVESTMENT ADVISOR, UNDERWRITER, MANAGER, ADMINISTRATOR, DISTRIBUTOR, CUSTODIAN, TRANSFER AGENT OR IN ANY OTHER CAPACITY, FOR WHICH THE TRUSTEE OR ANY SUCH AFFILIATE MAY RECEIVE A FEE FROM SUCH FUND OR COMPANY (HEREINAFTER CALLED "PROPRIETARY MUTUAL FUNDS"); PROVIDED, HOWEVER, THAT IF THE TRUSTEE PURCHASES AS AN INVESTMENT UNITS IN A PROPRIETARY MUTUAL FUND FOR WHICH IT (OR ANY AFFILIATE) SERVES IN ONE OR MORE OF THE FOREGOING CAPACITIES AND FOR WHICH IT (OR ANY AFFILIATE) RECEIVES A FUND-LEVEL FEE, THE TRUSTEE SHALL NOTIFY THE ESOP ADMINISTRATORS, OR ANOTHER INDEPENDENT FIDUCIARY, IN WRITING, OF ITS INTENTION TO MAKE SUCH INVESTMENTS AND SHALL OBTAIN THE WRITTEN CONSENT OF THE ESOP ADMINISTRATORS, AND/OR SUCH OTHER FIDUCIARY AS MAY BE REQUIRED UNDER ERISA, TO THE FEE ARRANGEMENT), -4- LIMITED PARTNERSHIP INTERESTS, TRUST CERTIFICATES AND OTHER SECURITIES OR OPTIONS THEREON, INCLUDING STOCKS AND OTHER SECURITIES ISSUED BY THE COMPANY OR ANY SUBSIDIARY OR AFFILIATE THEREOF (ALL OF WHICH ARE HEREIN CALLED "SECURITIES"), LOANS, TIME AND SAVINGS DEPOSITS (INCLUDING SAVINGS DEPOSITS AND CERTIFICATES OF DEPOSIT IN THE TRUSTEE OR ANY AFFILIATE OF THE TRUSTEE IF SUCH DEPOSITS BEAR A REASONABLE RATE OF INTEREST), COMMERCIAL PAPER (INCLUDING PARTICIPATION IN POOLED COMMERCIAL PAPER ACCOUNTS), ANNUITY AND INSURANCE CONTRACTS (INCLUDING, BUT NOT LIMITED TO, RETIREMENT INCOME CONTRACTS OR CONTRACTS OF THE DEPOSIT ADMINISTRATION TYPE OR FOR THE ACCUMULATION OF INTEREST), REAL ESTATE, REAL ESTATE MORTGAGES AND OTHER KINDS OF PROPERTY OF EVERY KIND AND DESCRIPTION, AS THE TRUSTEE MAY DEEM PROPER AND SUITABLE. THE TRUSTEE MAY INVEST IN UNITS OF ANY ONE OR MORE COLLECTIVE TRUST FUNDS, INCLUDING BUT NOT LIMITED TO THE KEY TRUST MULTIPLE INVESTMENT TRUST FOR EMPLOYEE BENEFIT TRUSTS, THE KEY TRUST EB MANAGED GUARANTEED INVESTMENT CONTRACT FUND, OR IN UNITS OF ANY OTHER GROUP OR COLLECTIVE TRUST FUND HERETOFORE OR HEREAFTER CREATED, WHICH SHALL HAVE BEEN DETERMINED BY THE INTERNAL REVENUE SERVICE TO BE A "POOLED FUND ARRANGEMENT" AS DESCRIBED IN REVENUE RULING 81-100, AND WHICH SHALL BE ADMINISTERED BY THE TRUSTEE OR ANY OTHER AFFILIATED BANK, TRUST COMPANY OR CORPORATION, OR ANY OF THEIR SUCCESSORS OR ASSIGNS, OR ANY INVESTMENT MANAGER APPOINTED HEREUNDER OR ANOTHER FIDUCIARY HEREUNDER; PROVIDED, HOWEVER, SUCH INVESTMENT MANAGER OR OTHER FIDUCIARY QUALIFIES AS AN INVESTMENT MANAGER UNDER SECTION 3(38) OF ERISA (HEREINAFTER CALLED A "COLLECTIVE TRUST FUND"), IRRESPECTIVE OF THE PROPORTION OF THE TRUST FUND REPRESENTED BY ANY SUCH INVESTMENT OR ANY DELEGATION OF AUTHORITY RESULTING THEREFROM. AS LONG AS THE TRUSTEE HOLDS ANY GROUP OR COLLECTIVE TRUST FUND UNITS HEREUNDER, THE INSTRUMENTS ESTABLISHING AND/OR AMENDING ANY SUCH COLLECTIVE TRUST FUND SHALL BE ADOPTED AND MADE A PART OF THIS TRUST AS THOUGH FULLY SET FORTH HEREIN. NOTWITHSTANDING THE FOREGOING, THE TRUSTEE SHALL BE UNDER NO OBLIGATION TO INVEST IN ANY ASSET NOT REGULARLY OFFERED BY IT AS AN INVESTMENT OPTION UNLESS IT AGREES TO DO SO IN WRITING. TO THE EXTENT THAT THE TRUSTEE AGREES TO INVEST IN AND HOLD ANY ASSET NOT REGULARLY OFFERED BY IT AS AN INVESTMENT OPTION, THE TRUSTEE'S OBLIGATIONS WITH RESPECT TO THE ADMINISTRATION OF THAT ASSET SHALL BE LIMITED TO THOSE OF A CUSTODIAN. (III) AT THE DIRECTION OF A NAMED FIDUCIARY, THE TRUSTEE MAY (A) EXERCISE ANY EXCHANGE PRIVILEGES, CONVERSION PRIVILEGES AND/OR SUBSCRIPTION RIGHTS AVAILABLE IN CONNECTION WITH ANY PROPERTY AT ANY TIME HELD BY IT; (B) CONSENT TO, OR DISSENT FROM, THE REORGANIZATION, CONSOLIDATION, MERGER OR READJUSTMENT OF THE FINANCES OF, OR THE SALE, MORTGAGE, PLEDGE OR LEASE OF THE PROPERTY OF, ANY CORPORATION, COMPANY OR -5- ORGANIZATION, ANY OF THE SECURITIES OF WHICH MAY AT ANY TIME BE HELD BY IT; (C) DEPOSIT ANY PROPERTY HELD HEREUNDER WITH ANY PROTECTIVE, REORGANIZATION OR SIMILAR ESOP ADMINISTRATORS AND DELEGATE DISCRETIONARY POWER THERETO; AND (D) DO ANY ACT WITH REFERENCE TO THE MATTERS IN THIS PARAGRAPH, INCLUDING BUT NOT LIMITED TO THE EXERCISE OF OPTIONS, MAKING OF AGREEMENTS OR SUBSCRIPTIONS AND THE PAYMENT OF EXPENSES, ASSESSMENTS OR SUBSCRIPTIONS, WHICH THE TRUSTEE MAY DEEM NECESSARY OR ADVISABLE IN CONNECTION THEREWITH. (IV) AT THE DIRECTION OF A NAMED FIDUCIARY, THE TRUSTEE MAY RETAIN FOR SUCH TIME AS IT MAY DEEM ADVISABLE ANY PROPERTY ACQUIRED BY IT PURSUANT TO THE PRECEDING PARAGRAPH WHETHER OR NOT SUCH PROPERTY WOULD NORMALLY BE PURCHASED AS AN INVESTMENT HEREUNDER. (V) AT THE DIRECTION OF A NAMED FIDUCIARY, THE TRUSTEE MAY VOTE ANY STOCK OR OTHER SECURITIES AND EXERCISE ANY RIGHT APPURTENANT TO ANY STOCK, OTHER SECURITIES OR OTHER PROPERTY HELD HEREUNDER, EITHER IN PERSON OR BY GENERAL OR LIMITED PROXY, POWER OF ATTORNEY OR OTHER INSTRUMENT, EXCEPT AS THE SAME IS MODIFIED BY SUBPARAGRAPH B OF THIS PARAGRAPH 4 RELATING TO COMPANY STOCK. (VI) AT THE DIRECTION OF A NAMED FIDUCIARY, THE TRUSTEE MAY MANAGE, OPERATE, REPAIR AND IMPROVE ANY REAL OR PERSONAL PROPERTY HELD BY IT IN THE TRUST FUND. (VII) AT THE DIRECTION OF A NAMED FIDUCIARY, THE TRUSTEE MAY (A) RENEW OR EXTEND OR PARTICIPATE IN THE RENEWAL OR EXTENSION OF ANY DEBT OWING TO THE TRUST FUND, UPON SUCH TERMS AS IT MAY DEEM ADVISABLE, AND AGREE TO A REDUCTION IN THE RATE OF INTEREST ON ANY SUCH DEBT OR TO ANY OTHER MODIFICATION OR CHANGE IN THE TERMS OF ANY MORTGAGE OR OF ANY GUARANTEE PERTAINING THERETO, IN SUCH MANNER AND TO SUCH EXTENT AS IT MAY DEEM ADVISABLE FOR THE PROTECTION OF THE TRUST FUND OR THE PRESERVATION OF THE VALUE OF THE INVESTMENT; (B) WAIVE ANY DEFAULT WHETHER IN THE PERFORMANCE OF ANY COVENANT OR CONDITION OF ANY EVIDENCE OF SUCH INDEBTEDNESS OR MORTGAGE OR IN THE PERFORMANCE OF ANY GUARANTEE OR ENFORCE ANY RIGHTS AVAILABLE TO THE TRUSTEE BY REASON OF ANY SUCH DEFAULT IN SUCH MANNER AND TO SUCH EXTENT AS IT MAY DEEM ADVISABLE; (C) EXERCISE AND ENFORCE ANY AND ALL RIGHTS OF FORECLOSURE, BID IN PROPERTY AT FORECLOSURE, TAKE A DEED IN LIEU OF FORECLOSURE WITH OR WITHOUT PAYING A CONSIDERATION THEREFOR AND IN CONNECTION THEREWITH RELEASE THE OBLIGATION ON ANY NOTE OR OTHER EVIDENCE OF INDEBTEDNESS SECURED BY SUCH MORTGAGE; AND (D) EXERCISE AND ENFORCE IN ANY ACTION, -6- SUIT OR PROCEEDING AT LAW OR IN EQUITY ANY RIGHTS OR REMEDIES IN RESPECT TO ANY SUCH DEBT, MORTGAGE OR GUARANTEE. (VIII) AT THE DIRECTION OF A NAMED FIDUCIARY, THE TRUSTEE MAY SETTLE, COMPROMISE OR SUBMIT TO ARBITRATION ANY CLAIMS, DEBTS OR DAMAGES DUE TO OR OWING FROM THE TRUST FUND, COMMENCE, AND DEFEND SUITS OR LEGAL PROCEEDINGS AND ACT, IN ITS CAPACITY AS TRUSTEE, AS THE NAMED PARTY IN ALL SUITS OR LEGAL PROCEEDINGS BROUGHT BY OR AGAINST THE TRUST FUND. (IX) AT THE DIRECTION OF A NAMED FIDUCIARY, THE TRUSTEE MAY FORM OR JOIN WITH OTHERS IN THE FORMATION OF SUCH CORPORATIONS AS SHALL BE DEEMED ADVISABLE IN CONNECTION WITH THE ADMINISTRATION OR DISTRIBUTION OF THE TRUST FUND AND TRANSFER TO ANY SUCH CORPORATION SUCH PROPERTY AS THE TRUSTEE SHALL IN ITS DISCRETION DEEM ADVISABLE. (X) AT THE DIRECTION OF A NAMED FIDUCIARY, THE TRUSTEE MAY BORROW FROM ANY LENDER (INCLUDING A PARTY IN INTEREST AS DEFINED IN SECTION 3(14) OF ERISA) TO FINANCE THE ACQUISITION OF SHARES OF COMMON STOCK OF THE COMPANY, GIVING ITS NOTE AS TRUSTEE WITH SUCH REASONABLE INTEREST AND SECURITY FOR THE LOAN AS MAY BE APPROPRIATE OR NECESSARY; PROVIDED, HOWEVER, THAT ANY SUCH BORROWING SHALL COMPLY WITH THE PROVISIONS OF SECTION 5 OF THE PLAN; (XI) THE TRUSTEE MAY HOLD SECURITIES IN BEARER FORM AND MAY REGISTER SECURITIES AND OTHER PROPERTY HELD IN THE TRUST FUND IN ITS OWN NAME OR IN THE NAME OF A NOMINEE, COMBINE CERTIFICATES REPRESENTING SECURITIES WITH CERTIFICATES OF THE SAME ISSUE HELD BY THE TRUSTEE IN OTHER FIDUCIARY CAPACITIES, AND DEPOSIT, OR ARRANGE FOR DEPOSIT OF PROPERTY WITH ANY DEPOSITORY BUT THE BOOKS AND RECORDS OF THE TRUSTEE SHALL AT ALL TIMES SHOW THAT ALL SUCH SECURITIES ARE PART OF THE TRUST FUND. (XII) THE TRUSTEE MAY HOLD IN ITS BANKING DEPARTMENT UNINVESTED AND UNPRODUCTIVE OF INCOME, WITHOUT LIABILITY FOR INTEREST THEREON, EXCEPT SUCH AS MAY BE ALLOWED IN ACCORDANCE WITH ITS REGULATIONS, SUCH PART OF THE TRUST FUND AS IS REASONABLE UNDER THE CIRCUMSTANCES. (XIII) THE TRUSTEE MAY MAKE, EXECUTE AND DELIVER, AS TRUSTEE, WITH OR WITHOUT A PROVISION FOR NO INDIVIDUAL LIABILITY ON ITS PART, ANY AND ALL CONVEYANCES, NOTES, -7- CONTRACTS, WAIVERS, RELEASES, LEASES, ASSIGNMENTS, MORTGAGES, OPTIONS, POWERS OF ATTORNEY OR OTHER INSTRUMENTS IN WRITING THAT THE TRUSTEE MAY DEEM NECESSARY OR ADVISABLE IN ADMINISTERING THE TRUST FUND. (XIV) THE TRUSTEE MAY EMPLOY, at the expense of the Company or the Trust Fund, agents and delegate to them such duties as the Trustee sees fit; the Trustee shall not be responsible for any loss occasioned by any such agents selected by it with reasonable care; the Trustee may consult with legal counsel (who may be counsel for the Company) concerning any questions which may arise with reference to its power or duties under the Plan, and the written opinion of such counsel shall be full and complete protection with respect to any action taken or not taken by the Trustee in good faith and in accordance with the written opinion of such counsel. (XV) THE TRUSTEE MAY pay out of the Trust Fund any taxes imposed or levied with respect to the Trust Fund and may contest the validity or amount of any tax, assessment, penalty, claim or demand respecting the Trust Fund; however, unless the Trustee shall have first been indemnified to its satisfaction, it shall not be required to contest the validity of any tax, or to institute, maintain or defend against any other action or proceeding either at law or in equity. (XVI) THE TRUSTEE MAY make loans to Participants in accordance with policies established by the Company or the ESOP Administrators and in accordance with the terms of the Plan and to segregate or otherwise identify property of the Trust Fund as directed by the ESOP Administrators for such purpose including providing collateral for loans made pursuant to the Plan. (XVII) WITHOUT LIMITATION OF THE FOREGOING, THE TRUSTEE MAY DO ALL SUCH ACTS, EXECUTE ALL SUCH INSTRUMENTS, TAKE ALL SUCH PROCEEDINGS AND EXERCISE ALL SUCH RIGHTS, POWERS AND PRIVILEGES WITH RELATION TO ANY ASSETS CONSTITUTING A PART OF THE TRUST FUND, AS IT MAY DEEM NECESSARY OR ADVISABLE TO CARRY OUT THE PURPOSES OF THIS TRUST. B. DIRECTED INVESTMENTS. THE COMPANY OR THE ESOP Administrators SHALL HAVE THE FOLLOWING POWERS AND RESPONSIBILITIES WITH RESPECT TO THE ASSETS HELD IN THE TRUST FUND: -8- (I) COMPANY OR ESOP Administrators Direction. The assets of the Trust Fund shall be held in such number of Investment Funds (the "Investment Funds") as the ESOP Administrators and the Trustee may agree, plus a Company Stock Fund if elected by the ESOP Administrators and permitted by the terms of the Plan, as the ESOP Administrators shall designate in writing on the Investment Fund Designation form affixed hereto. Such Investment Funds shall be selected by the ESOP Administrators subject to the Trustee's agreement to administer such investments under this Agreement. The ESOP Administrators hereby acknowledge that, available as In- vestment Funds are interests in Proprietary Mutual Funds and Collective Funds. The ESOP Administrators acknowledge that as a Named Fiduciary, they have the sole responsibility for selection of the Investment Funds offered under the Plan, and have done so on the basis of the ESOP Administrators' determination, after due inquiry, of the appropriateness of the selected Investment Funds as vehicles for the investment of Plan assets pursuant to the terms of the Plan, considering all relevant facts and circumstances, including but not limited to (a) the investment policy and philosophy of the Company developed pursuant to ERISA 402(b)(1); (b) the Participants, including average level of investment experience and sophistication; (c) the ability of Participants, using an appropriate mix of Investment Funds, to diversify the investment of Plan assets held for their benefit; (d) the ability of Participants, utilizing an appropriate mix of Investment Funds, to structure an investment portfolio within their account in the Plan with risk and return characteristics within the normal range of risk and return characteristics for individuals with similar investment backgrounds, experience and expectations. In making the selection of Investment Funds, the ESOP Administrators represent that they did not rely on any representations or recommendations from the Trustee or any of its employees, except as may have been provided through written materials, including marketing materials provided by the various sponsors or distributors of the Investment Funds, and that the Investment Fund selection has not be influenced, approved, or encouraged through the actions of the Trustee or its employees. For purposes of the Plan, "Company Stock" shall mean common stock listed on a recognized securities exchange issued by the Company as employer of Employees covered by the Plan or by an affiliate of such Company and which shall be a "qualifying employer security" as defined in ERISA. The Company Stock Fund shall be invested and reinvested in shares of Company Stock, which stock shall be purchased by the Trustee to the extent not contributed to the Plan by the Company, except for amounts which may -9- reasonably be expected to be necessary to satisfy distributions to be made in cash. Up to 100% of the assets of the Trust Fund may be invested in Company Stock. All contributions shall be allocated by the Trustee to the Plan's Investment Funds specified by the ESOP Administrators. Dividends, interest and other distributions shall be reinvested in the same Investment Fund from which received. Unless specifically agreed to between the Trustee and the Company or the ESOP Administrators, the Trustee shall be under no obligation to invest in any asset not regularly offered by the Trustee for use as an Investment Fund. To the extent that the Trustee agrees to hold an asset not regularly offered by it as an Investment Fund, the Trustee's obligations with respect to the administration of that asset shall be limited to those of a custodian. The Trustee shall not be liable but shall be fully protected by reason of its taking or refraining from taking any action at the direction of the Company or the ESOP Administrators, nor shall the Trustee be liable but shall be fully protected by reason of its refraining from taking any action because of the failure of the Company, the ESOP Administrators, or any Participant to give a direction or order. The Trustee shall be under no duty to question or make inquiry as to any direction, notification or order or failure to give a direction, notification or order by the Company, the ESOP Administrators or any Participant. The Trustee shall be under no duty to make any review of investments directed by the Company, the ESOP Administrators or any Participant acquired for the Trust Fund and under no duty at any time to make any recommendation with respect to disposing of or continuing to retain any such investments. While the Company may direct the Trustee with respect to Plan investments, unless specifically authorized pursuant to ERISA under the plan, the Company may not (a) borrow from the Fund or pledge any assets of the Fund as security for a loan; (b) buy property or assets from or sell property or assets to the Fund; (c) charge any fee for services rendered to the Fund; or (d) receive any services from the Fund on a preferential basis. (II) INVESTMENT MANAGERS. FROM TIME TO TIME THE ESOP ADMINISTRATORS MAY DESIGNATE AN INVESTMENT MANAGER, WHO SHALL BE (A) EITHER REGISTERED AS AN INVESTMENT ADVISER UNDER THE INVESTMENT ADVISERS ACT OF 1940, (B) A BANK, AS DEFINED IN THAT ACT, OR (C) AN INSURANCE COMPANY QUALIFIED TO PERFORM INVESTMENT SERVICES UNDER THE LAWS OF MORE THAN ONE STATE OF THE UNITED STATES, AND WHO ACKNOWLEDGES IN WRITING TO THE -10- COMPANY AND THE TRUSTEE THAT IT IS A FIDUCIARY WITH RESPECT TO THE ASSETS OF THE TRUST FUND UNDER SUCH INVESTMENT MANAGER'S CONTROL WITH AUTHORITY TO DIRECT THE INVESTMENT AND REINVESTMENT OF AN INVESTMENT FUND OR FUNDS SPECIFIED IN SUCH NOTICE AND WITH SUCH ADDITIONAL AUTHORITY AS MAY BE SPECIFIED THEREIN. THE INVESTMENT MANAGER SHALL NOT BE THE AGENT OF THE TRUSTEE. THE ESOP Administrators MAY BY SIMILAR NOTICE MODIFY OR TERMINATE SUCH DESIGNATION AND AUTHORITY FROM TIME TO TIME. SO LONG AS, AND TO THE EXTENT THAT, ANY SUCH DESIGNATION IS IN EFFECT, THE TRUSTEE (A) SHALL INVEST, REINVEST AND RETAIN THE INVESTMENT FUND ASSIGNED TO AN INVESTMENT MANAGER IN ACCORDANCE WITH THE INSTRUCTIONS RECEIVED FROM SUCH INVESTMENT MANAGER, (B) WITH RESPECT TO ASSETS IN SUCH INVESTMENT FUND SHALL FOLLOW ANY INSTRUCTIONS RECEIVED BY IT FROM SUCH INVESTMENT MANAGER AS TO THE EXERCISE BY THE INVESTMENT MANAGER OF THE POWERS UNDER SUBSECTIONS (I) THROUGH (IX) OF SUBPARAGRAPH A OF THIS PARAGRAPH 4, WHICH POWERS SHALL BE EXCLUSIVELY HELD BY THE INVESTMENT MANAGER, AND (C) AS TO THOSE ASSETS IN THE INVESTMENT FUND, SHALL BE RELEASED AND RELIEVED OF ALL DUTIES, RESPONSIBILITIES AND LIABILITIES INCIDENT TO SUCH DESIGNATION, AND THEREAFTER ACT IN THE CAPACITY OF CUSTODIAN OF SUCH ASSETS AND A NONDISCRETIONARY TRUSTEE. THE TRUSTEE, IN ITS CAPACITY OF NONDISCRETIONARY TRUSTEE AND CUSTODIAN, SHALL RETAIN ONLY THOSE POWERS AND DUTIES SET FORTH IN SUBSECTIONS (XI) THROUGH (XVII) OF SUBPARAGRAPH A OF THIS PARAGRAPH 4 AS ARE NECESSARY TO ITS FUNCTIONS AS CUSTODIAN. THE OTHER POWERS SET FORTH IN SAID SUBPARAGRAPH A SHALL ONLY BE EXCERCISED UPON THE WRITTEN DIRECTIONS OF THE INVESTMENT MANAGER SO LONG AS, AND TO THE EXTENT THAT, NO SUCH DESIGNATION IS IN EFFECT, THE TRUSTEE SHALL INVEST, REINVEST AND RETAIN, IN ACCORDANCE WITH ITS OWN DISCRETION, THAT PART OF THE TRUST FUND NOT ASSIGNED TO AN INVESTMENT MANAGER. (III) INSURANCE. THE TRUSTEE MAY TRANSFER SUCH PORTION OF THE TRUST FUND AS THE ESOP Administrators SHALL DIRECT TO ANY INSURANCE COMPANY FOR ONE OR MORE POLICIES, ANNUITY OR OTHER CONTRACTS, WHETHER OR NOT THEY ARE GROUP CONTRACTS, INCLUDING CONTRACTS WHICH PROVIDE FOR THE ALLOCATION OF AMOUNTS THEREUNDER TO THE INSURANCE COMPANY'S GENERAL ACCOUNT AND/OR TO ONE OR MORE OF ITS SEPARATE ACCOUNTS MAINTAINED FOR THE COLLECTIVE INVESTMENT OF ASSETS OF QUALIFIED RETIREMENT PLANS. THE INSURANCE COMPANY SHALL HAVE ALL THE SAME POWERS WITH RESPECT TO THE ASSETS HELD UNDER A CONTRACT AS AN INVESTMENT MANAGER HAS WITH RESPECT TO ASSETS OF THE TRUST FUND PURSUANT TO SUBPARAGRAPH A OF THIS PARAGRAPH 4. (IV) FOLLOWING DIRECTIONS OF THE COMPANY OR ESOP Administrators. SO LONG AS, AND TO THE EXTENT THAT, THE COMPANY OR ESOP Administrators SHALL EXERCISE THE POWER TO -11- MANAGE AS A NAMED FIDUCIARY ASSETS HELD AS PART OF AN INVESTMENT FUND, THE TRUSTEE: (A) SHALL INVEST, REINVEST AND RETAIN THE INVESTMENT FUND ASSIGNED TO THE COMPANY OR ESOP Administrators IN ACCORDANCE WITH THE INSTRUCTIONS RECEIVED FROM THE COMPANY OR ESOP Administrators; (B) WITH RESPECT TO ASSETS IN SUCH INVESTMENT FUND SHALL FOLLOW ANY INSTRUCTIONS RECEIVED BY IT FROM THE COMPANY OR ESOP Administrators AS TO THE EXERCISE BY THE COMPANY OR ESOP Administrators OF THE POWERS UNDER SUBSECTIONS (I) THROUGH (X) OF SUBPARAGRAPH A OF THIS PARAGRAPH 4, WHICH POWERS SHALL BE EXCLUSIVELY HELD BY THE COMPANY OR ESOP Administrators; AND (C) AS TO THOSE ASSETS IN THE INVESTMENT FUND, SHALL BE RELEASED AND RELIEVED OF ALL DUTIES, RESPONSIBILITIES AND LIABILITIES INCIDENT TO SUCH POWER, AND THEREAFTER ACT IN THE CAPACITY OF CUSTODIAN OF SUCH ASSETS AND A NONDISCRETIONARY TRUSTEE. THE TRUSTEE, IN ITS CAPACITY OF NONDISCRETIONARY TRUSTEE AND CUSTODIAN, SHALL RETAIN ONLY THOSE POWERS AND DUTIES SET FORTH IN SUBSECTIONS (XI) THROUGH (XVII) OF SUBPARAGRAPH A OF THIS PARAGRAPH 4 AS ARE NECESSARY TO ITS FUNCTIONS AS CUSTODIAN. THE OTHER POWERS SET FORTH IN SAID SUBPARAGRAPH A SHALL ONLY BE EXCERCISED UPON THE WRITTEN DIRECTIONS OF THE COMPANY OR ESOP Administrators. (V) SPECIAL LIMITED PURPOSE FUNDS. THE COMPANY OR ESOP ADMINISTRATORS MAY DESIGNATE AN INVESTMENT FUND AS A SPECIAL PURPOSE OR LIMITED PURPOSE FUND THAT IS TO BE MANAGED (WHETHER BY THE COMPANY, THE ESOP ADMINISTRATORS, THE TRUSTEE OR AN INVESTMENT MANAGER) IN ACCORDANCE WITH SPECIAL OBJECTIVES OR LIMITATIONS OR INVESTMENT PRACTICES (SUCH AS, BUT NOT LIMITED TO, APPROXIMATING THE RESULTS OF A DESIGNATED MARKET INDEX). C. PARTICIPANT DIRECTION. Each Participant shall by such mechanism as may be agreed upon between the Trustee and the ESOP Administrators, have the ability to direct that the contributions made to his or her accounts for which the Participant may direct investments, as selected by the ESOP Administrators in the Plan, be invested in one or more of the Investment Funds, including the Company Stock Fund, if applicable. At the time an Employee becomes eligible for the Plan, he or she shall specify the percentage of his or her accounts (expressed in percentage increments as may be agreed to between the ESOP Administrators and the Trustee) to -12- be invested prorata in each such Investment Fund. In the event a Participant fails to direct investments of assets made to his or her accounts, the Trustee shall invest such assets in such investment fund or funds as the ESOP Administrators shall direct. For purposes of the immediately preceding sentence, the ESOP Administrators, as a Named Fiduciary, shall designate an investment fund or funds as a default investment into which all assets of Participants who fail to direct the investment of assets will be invested. (i) Upon prior written notice to the Trustee, or other form of notice acceptable to the Trustee, a Participant may change an investment direction with respect to future contributions. Through acceptable notice to the Trustee and pursuant to the terms of the Plan, the Participant may elect to transfer all or a portion of such Participant's interest in each Investment Fund (based on the value of such interest on the "Valuation Date" immediately preceding such election), to any other of the Investment Funds selected by the ESOP Administrators so that the Participant's interest in the said Investment Funds immediately after the transfer is allocated in percentage increments as may be agreed to by the ESOP Administrators and the Trustee. For purposes of this Trust Agreement a "Valuation Date" is the date or dates on which the Company and the Trustee mutually agree that the assets of the Trust Fund will be valued. (ii) Notwithstanding any Participant's election to change Investment Funds, the Trustee may, in its discretion, delay satisfaction of changes in Investment Funds pending settlement of prior changes in Investment Funds and will process such elections subject to any restrictions on withdrawals and admissions in any Collective Trust Fund. (iii) The Company will be responsible when transmitting Company and Employee contributions to show the dollar amount to be credited to each Investment Fund for each Employee. -13- (iv) Except as otherwise provided in the Plan, neither the Trustee, the Company, ESOP Administrators nor any fiduciary of the Plan shall be liable to the Participant or any of his or her beneficiaries for any loss resulting from action taken at the direction of the Participant. (V) NOTWITHSTANDING ANYTHING IN THE PLAN OR THIS TRUST TO THE CONTRARY, WHEN INVESTMENT FUNDS ARE ESTABLISHED OVER WHICH A PLAN PARTICIPANT OR BENEFICIARY OF A PLAN PARTICIPANT IS PERMITTED TO EXERCISE CONTROL OVER INVESTMENT OF THE PORTION OF THE TRUST FUND HELD FOR HIS BENEFIT (A "PARTICIPANT DIRECTED INVESTMENT"), THE TRUSTEE, ESOP ADMINISTRATORS, AND ALL OTHER FIDUCIARIES OF THE PLAN AND/OR TRUST SHALL BE SUBJECT TO THE PROPER DIRECTIONS OF SUCH PARTICIPANT. WHENEVER THE TRUSTEE, ESOP ADMINISTRATORS, OR ANY OTHER FIDUCIARY OF THE PLAN AND/OR TRUST RECEIVES DIRECTION FROM A PARTICIPANT REGARDING THE INVESTMENT OF HER/HIS ACCOUNT (TO THE EXTENT AUTHORIZED IN THE PLAN OR THIS TRUST), THE DIRECTION SHALL BE TREATED AS THE PROPER DIRECTION OF A "NAMED FIDUCIARY" AND THE TRUSTEE, ESOP ADMINISTRATORS, AND ALL OTHER FIDUCIARIES SHALL BE ENTITLED TO RELY ON SUCH DIRECTION WITHOUT OBLIGATION OF INQUIRY AS TO THE APPROPRIATENESS OF THE DIRECTION GIVEN BY SUCH PARTICIPANT. NEITHER THE TRUSTEE, THE COMPANY NOR THE ESOP ADMINISTRATORS SHALL HAVE ANY LIABILITY WHATSOEVER FOR ANY LOSSES WHICH MAY RESULT FROM EITHER A PARTICIPANT'S DIRECTION OF ANY INVESTMENT OR FOR ANY LOSS WHICH MAY RESULT BY FAILURE OF A PARTICIPANT TO MAKE SUCH DIRECTION. NOR SHALL THE TRUSTEE, THE COMPANY OR ESOP ADMINISTRATORS HAVE ANY LIABILITY OR RESPONSIBILITY WHATSOEVER FOR ANY DISPARITY BETWEEN THE PERFORMANCE OR RATES OF INVESTMENT RETURN OF ANY PARTICIPANT DIRECTED ACCOUNTS AND THE TRUST FUND IN GENERAL. D. INVESTMENT FUNDS GENERALLY. WHEN INVESTMENT FUNDS HAVE BEEN ESTABLISHED PURSUANT TO SUBPARAGRAPH B OF THIS PARAGRAPH 4: (I) THE ESOP ADMINISTRATORS SHALL REGULARLY NOTIFY EACH DESIGNATED INVESTMENT MANAGER OF THE ANTICIPATED CASH REQUIREMENTS FOR DISBURSEMENTS FROM THE INVESTMENT FUND OR FUNDS UNDER HIS OR ITS DIRECTION, AND THE INVESTMENT MANAGER SHALL DIRECT THE TRUSTEE TO HOLD CASH FUNDS UNINVESTED IN SUCH AMOUNTS AND FOR SUCH PERIODS OF TIME AS MAY APPEAR TO BE REASONABLY NECESSARY TO MEET SUCH CASH REQUIREMENTS. UPON THE APPOINTMENT OF AN INVESTMENT MANAGER, THE TRUSTEE SHALL INVEST AND REINVEST THE CASH FORMING A PART OF ANY INVESTMENT FUND, WHICH IT HAS NOT BEEN DIRECTED TO HOLD UNINVESTED, IN SUCH MONEY MARKET INSTRUMENTS, SUCH AS COMMERCIAL PAPER AND U.S. -14- TREASURY BILLS AND NOTES, REPURCHASE AGREEMENTS OR OTHER EVIDENCES OF INDEBTEDNESS WHICH ARE PAYABLE ON DEMAND OR WHICH GENERALLY HAVE A MATURITY DATE OF NOT MORE THAN FIFTEEN (15) MONTHS FROM THE TIME OF ACQUISITION, AND INCLUDING SHARES OF ANY MUTUAL FUND INCLUDING WITHOUT LIMITATION A PROPRIETARY MUTUAL FUND DESCRIBED IN SUBSECTION (II) OF SUBPARAGRAPH 4A. (II) THE INVESTMENT MANAGER SHALL PLACE THE BUY OR SELL ORDERS WITH THE BROKERS, OR OTHER PERSONS THROUGH WHOM SUCH TRANSACTIONS SHALL BE ACCOMPLISHED, PERTAINING TO THE INVESTMENT FUND WHICH IS SUBJECT TO THE DIRECTION OF THE INVESTMENT MANAGER. THE TRUSTEE'S SOLE DUTY AND OBLIGATION RELATING TO THE INVESTMENT FUND WHICH IS SUBJECT TO THE DIRECTION OF THE INVESTMENT MANAGER SHALL BE TO ACCEPT AND PAY FOR ANY PROPERTY OF ANY NATURE WHATSOEVER THAT IT MAY BE DIRECTED BY THE INVESTMENT MANAGER TO ACCEPT AND PAY FOR, AND TO DELIVER AGAINST PAYMENT THEREFOR, ANY PROPERTY OF ANY NATURE WHATSOEVER WHICH IT MAY BE DIRECTED BY SUCH INVESTMENT MANAGER TO DELIVER AGAINST PAYMENT THEREFOR. THE TRUSTEE SHALL USE ITS BEST EFFORTS TO CONSUMMATE ANY SUCH ACCEPTANCE AND PAYMENT, OR DELIVERY AGAINST PAYMENT, AS IT MAY BE DIRECTED SO TO DO, AND THIS SHALL CONSTITUTE THE TRUSTEE'S SOLE DUTY WITH RESPECT TO SUCH TRADING. (III) PAYMENT OF THE COSTS OF THE ACQUISITION, SALE OR EXCHANGE OF ANY SECURITY OR OTHER PROPERTY FOR AN INVESTMENT FUND SHALL BE CHARGED TO SUCH INVESTMENT FUND. IN THE ABSENCE OF A DIRECTION FROM THE ESOP ADMINISTRATORS TO THE CONTRARY, OTHER PAYMENTS AND DISBURSEMENTS FROM THE TRUST FUND SHALL BE CHARGED TO SUCH PART OF THE TRUST FUND AS THE TRUSTEE DEEMS ADVISABLE. (IV) ALL INSTRUCTIONS FROM AN INVESTMENT MANAGER (OR FROM PERSONS AUTHORIZED BY AN INVESTMENT MANAGER) TO THE TRUSTEE SHALL BE IN WRITING AND SHALL BE COMPLETE IN ALL REASONABLE AND NECESSARY DETAILS. THE TRUSTEE MAY, IN ITS DISCRETION, ACCEPT DIRECTIONS BY TELEPHONE OR TELEGRAPH CONFIRMED IN WRITING OR BY ANY OTHER MEANS OF COMMUNICATION WHICH IT BELIEVES TO BE GENUINE (INCLUDING COMMUNICATIONS RECEIVED THROUGH THE FACILITIES OF AN INSTITUTIONAL DELIVERY SYSTEM OF A DEPOSITORY) PROVIDED THAT THE TRUSTEE SHALL NOT BE LIABLE FOR EXECUTING OR FAILING TO EXECUTE ANY SUCH DIRECTIONS OR FOR ANY MISTAKE IN THE EXECUTION OF ANY SUCH INSTRUCTION EXCEPT FOR ITS WILLFUL DEFAULT OR GROSS NEGLIGENCE. THE TRUSTEE SHALL HAVE NO DUTY TO QUESTION SUCH INSTRUCTIONS NOR SHALL THE TRUSTEE INCUR ANY LIABILITY FOR FOLLOWING SUCH INSTRUCTIONS. -15- (V) IN THE EVENT THAT AN INVESTMENT MANAGER APPOINTED HEREUNDER IS AUTHORIZED AND EMPOWERED BY THE ESOP ADMINISTRATORS TO INVEST AND REINVEST ALL OR ANY PART OF THE TRUST FUND ALLOCATED TO ITS INVESTMENT FUND IN UNITS OF ANY COMMON, COLLECTIVE OR COMMINGLED TRUST FUND MAINTAINED BY SAID INVESTMENT MANAGER AS A QUALIFIED TRUST UNDER THE PROVISIONS OF SECTION 401(A) AND EXEMPT UNDER THE PROVISIONS OF SECTION 501(A) OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE") THEN, NOTWITHSTANDING ANY PROVISION IN THIS TRUST EXPRESSED OR IMPLIED TO THE CONTRARY, UPON DIRECTION OF AN INVESTMENT MANAGER, THE TRUSTEE SHALL MAKE SUCH TRANSFERS TO THE INVESTMENT MANAGER, AS THE TRUSTEE OF A COMMON, COLLECTIVE OR COMMINGLED TRUST FUND DESCRIBED ABOVE, AS ARE NECESSARY TO IMPLEMENT THE FOREGOING. (VI) NOTWITHSTANDING THE PROVISIONS OF THIS TRUST WHICH PLACE RESTRICTIONS UPON THE ACTIONS OF THE TRUSTEE, OR THE INVESTMENT MANAGER, TO THE EXTENT MONIES OR OTHER ASSETS ARE UTILIZED TO ACQUIRE UNITS OF ANY COMMON, COLLECTIVE OR GROUP TRUST, THE TERMS OF THE COMMON, COLLECTIVE OR GROUP TRUST INDENTURE SHALL SOLELY GOVERN THE INVESTMENT DUTIES, RESPONSIBILITIES AND POWERS OF THE TRUSTEE OF SUCH COMMON, COLLECTIVE OR GROUP TRUST, AND TO THE EXTENT REQUIRED BY LAW, SUCH TERMS, RESPONSIBILITIES AND POWERS SHALL BE INCORPORATED HEREIN BY REFERENCE AND SHALL BE PART OF THIS TRUST. THE TRUSTEE SHALL HAVE NO DUTY OR RESPONSIBILITY AS TO THE SAFEKEEPING OF SUCH ASSETS OR AS TO THE INVESTMENT AND REINVESTMENT OF THE SAME, EXCEPT THAT THE TRUSTEE SHALL REQUIRE SUCH STATEMENTS AND REPORTS FROM SUCH INVESTMENT MANAGER AS MAY BE NECESSARY TO ENABLE THE TRUSTEE TO CARRY OUT ITS RECORDKEEPING AND REPORTING DUTIES UNDER THIS TRUST. THE TRUSTEE SHALL ENTER INTO AND EXECUTE SUCH AGREEMENTS, RECEIPTS AND RELEASES AS SHALL BE REQUIRED TO CARRY OUT THE DIRECTIONS OF THE ESOP ADMINISTRATORS WITH RESPECT TO THE TRANSFER OF ANY ASSETS OF THE TRUST FUND TO OR FROM AN INVESTMENT MANAGER. (VII) TO THE EXTENT THAT PROVISIONS OF SUBPARAGRAPHS B, C AND D OF THIS PARAGRAPH 4 ARE INCONSISTENT WITH OTHER PROVISIONS OF THIS PARAGRAPH 4, THE PROVISIONS OF SAID SUBPARAGRAPHS B, C AND D SHALL BE CONTROLLING. E. INCOME. INCOME RECEIVED BY THE TRUST FUND SHALL BE ADDED PERIODICALLY TO THE PRINCIPAL OF THE TRUST FUND BY THE TRUSTEE AND THE PROFITS AND LOSSES OF THE TRUST FUND SHALL BE ALLOCATED TO THE PRINCIPAL OF THE TRUST FUND. -16- F. UNRELATED BUSINESS INCOME. NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, THE TRUSTEE MAY ENTER INTO A TRANSACTION OR RETAIN A TRUST INVESTMENT WHICH MAY, OR IN FACT DOES, GIVE RISE TO UNRELATED BUSINESS TAXABLE INCOME EITHER THROUGH THE EXERCISE OF THE TRUSTEE'S SOLE INVESTMENT AUTHORITY HEREUNDER OR PURSUANT TO THE DIRECTIONS OF THE ESOP ADMINISTRATORS OR AN INVESTMENT MANAGER. G. AUTHORITY OF TRUSTEE. NO PERSON DEALING WITH THE TRUST FUND OR THE TRUSTEE SHALL BE REQUIRED TO INQUIRE AS TO THE AUTHORITY OF THE TRUSTEE TO DO ANY ACT OR TO SEE TO THE APPLICATION OF FUNDS OR OTHER PROPERTY PAID OR DELIVERED TO OR UPON THE ORDER OF THE TRUSTEE, AND ANY ISSUING INSURANCE COMPANY MAY TREAT AS BINDING AND CONCLUSIVE UPON IT ANY ACTION WHICH THE TRUSTEE MAY TAKE WITH RESPECT TO ANY ANNUITY OR INSURANCE CONTRACT HELD BY THE TRUSTEE. H. INDEMNIFICATION. NEITHER THE TRUSTEE, THE COMPANY NOR THE ESOP ADMINISTRATORS SHALL BE RESPONSIBLE FOR THE INVESTMENT OF ANY PART OF THE TRUST FUND ALLOCATED TO AN INVESTMENT MANAGER. THE TRUSTEE SHALL BE UNDER NO DUTY TO QUESTION OR MAKE INQUIRY AS TO ANY DIRECTION, NOTIFICATION OR ORDER OR FAILURE TO GIVE A DIRECTION, NOTIFICATION OR ORDER BY THE ESOP ADMINISTRATORS, THE COMPANY OR AN INVESTMENT MANAGER. THE TRUSTEE SHALL BE UNDER NO DUTY TO MAKE ANY REVIEW OF INVESTMENTS ACQUIRED FOR AN INVESTMENT FUND MANAGED BY THE ESOP ADMINISTRATORS, THE COMPANY, OR AN INVESTMENT MANAGER AND UNDER NO DUTY AT ANY -17- TIME TO MAKE ANY RECOMMENDATION WITH RESPECT TO DISPOSING OF OR CONTINUING TO RETAIN ANY SUCH INVESTMENTS. THE COMPANY HEREBY INDEMNIFIES AND HOLDS THE TRUSTEE OR ITS NOMINEE HARMLESS FROM ANY AND ALL ACTIONS, CLAIMS, DEMANDS, LIABILITIES, LOSSES, DAMAGES OR REASONABLE EXPENSES OF WHATSOEVER KIND AND NATURE IN CONNECTION WITH OR ARISING OUT OF (I) ANY ACTION TAKEN OR OMITTED IN GOOD FAITH OR ANY INVESTMENT OR DISBURSEMENT OF ANY PART OF THE TRUST FUND MADE BY THE TRUSTEE IN ACCORDANCE WITH THE DIRECTIONS OF THE ESOP ADMINISTRATORS OR A PARTICIPANT PURSUANT TO PARAGRAPH 4 OF SUBPARAGRAPH C HEREOF OR ANY INACTION WITH RESPECT TO ANY INVESTMENT FUND MANAGED BY THE ESOP ADMINISTRATORS OR ANY PARTICIPANT DIRECTED INVESTMENT OR WITH RESPECT TO ANY INVESTMENT PREVIOUSLY MADE AT THE DIRECTION OF THE ESOP ADMINISTRATORS OR ANY PARTICIPANT DIRECTED INVESTMENT IN THE ABSENCE OF DIRECTIONS FROM THE ESOP ADMINISTRATORS OR THE PARTICIPANT THEREFOR, OR (II) ANY ACTION TAKEN OR OMITTED IN GOOD FAITH BY THE TRUSTEE WITH RESPECT TO AN INVESTMENT FUND MANAGED BY AN INVESTMENT MANAGER IN ACCORDANCE WITH ANY DIRECTION OF THE INVESTMENT MANAGER OR ANY INACTION WITH RESPECT TO ANY SUCH INVESTMENT FUND IN THE ABSENCE OF DIRECTIONS FROM THE INVESTMENT MANAGER, OR (III) ANY ACTION TAKEN IN GOOD FAITH BY THE TRUSTEE PURSUANT TO A NOTIFICATION OF AN ORDER TO PURCHASE OR SELL SECURITIES ISSUED BY AN INVESTMENT MANAGER OR THE ESOP ADMINISTRATORS DIRECTLY TO A BROKER OR DEALER, OR (IV) ANY FAILURE BY THE TRUSTEE TO PAY FOR ANY PROPERTY -18- PURCHASED BY AN INVESTMENT MANAGER OR THE ESOP ADMINISTRATORS FOR THE TRUST FUND BY REASON OF THE INSUFFICIENCY OF FUNDS IN THE TRUST FUND. ANYTHING HEREINABOVE TO THE CONTRARY NOTWITHSTANDING, THE COMPANY SHALL HAVE NO RESPONSIBILITY TO THE TRUSTEE UNDER THE FOREGOING INDEMNIFICATION IF THE TRUSTEE KNOWINGLY PARTICIPATED IN OR KNOWINGLY CONCEALED ANY ACT OR OMISSION OF THE ESOP ADMINISTRATORS OR ANY INVESTMENT MANAGER KNOWING THAT SUCH ACT OR OMISSION CONSTITUTED A BREACH OF FIDUCIARY RESPONSIBILITY, OR IF THE TRUSTEE FAILS TO PERFORM ANY OF THE DUTIES UNDERTAKEN BY IT UNDER THE PROVISIONS OF THIS TRUST, OF IF THE TRUSTEE FAILS TO ACT IN CONFORMITY WITH THE DIRECTIONS OF AN AUTHORIZED REPRESENTATIVE OF THE INVESTMENT MANAGER OR THE ESOP ADMINISTRATORS, WHICH ARE CONSISTENT WITH THE REQUIREMENTS OF ERISA; PROVIDED, HOWEVER, THAT IF THE TRUSTEE HAS KNOWLEDGE OF A BREACH COMMITTED BY AN INVESTMENT MANAGER, THE SOLE RESPONSIBILITY OF THE TRUSTEE SHALL BE TO NOTIFY THE COMPANY IN WRITING THEREOF, AND THE COMPANY SHALL THEREAFTER ASSUME FULL RESPONSIBILITY TO ALL PERSONS INTERESTED IN THE TRUST FUND TO REMEDY SAID BREACH. I. DELEGATION OF AUTHORITY. NO ALLOCATION OR DELEGATION BY THE COMPANY OR THE ESOP ADMINISTRATORS OF ANY OF THEIR RESPECTIVE POWERS, AUTHORITIES, OR RESPONSIBILITIES UNDER THIS TRUST TO THE TRUSTEE SHALL BECOME EFFECTIVE UNLESS SUCH ALLOCATION OR DELEGATION IS SPECIFICALLY SET FORTH IN THIS TRUST OR SHALL FIRST BE ACCEPTED BY THE TRUSTEE IN A WRITING SIGNED BY IT AND DELIVERED TO THE COMPANY OR THE ESOP ADMINISTRATORS AS THE CASE MAY BE. -19- J. COPIES OF DOCUMENTS. THE COMPANY SHALL PROVIDE THE TRUSTEE WITH COPIES OF ALL DOCUMENTS CONSTITUTING THE PLAN AT THE TIME THIS TRUST IS EXECUTED BY THE COMPANY AND ALL OTHER DOCUMENTS AMENDING OR SUPPLEMENTING THE PLAN PROMPTLY UPON THEIR ADOPTION AND THE ESOP ADMINISTRATORS SHALL PROVIDE THE TRUSTEE WITH COPIES OF ALL AGREEMENTS WITH ALL INVESTMENT MANAGERS APPOINTED BY THE ESOP ADMINISTRATORS AND ALL OTHER DOCUMENTS AMENDING OR SUPPLEMENTING SUCH AGREEMENTS AND THE TRUSTEE SHALL BE ENTITLED TO RELY UPON THE COMPANY'S AND THE ESOP ADMINISTRATOR'S ATTENTION TO THE AFORESAID OBLIGATION AND SHALL BE UNDER NO DUTY TO INQUIRE OF THE COMPANY OR THE ESOP ADMINISTRATORS OR ANY OTHER PERSON AS TO THE EXISTENCE OF ANY SUCH DOCUMENTS NOT PROVIDED BY THE COMPANY OR THE ESOP ADMINISTRATORS PURSUANT TO THE FOREGOING UNDERTAKING. K. SECURITIES LENDING. THE ESOP ADMINISTRATORS MAY APPOINT THE TRUSTEE OR ANY OF ITS AFFILIATES UNDER A SEPARATE AGENCY AGREEMENT TO ACT AS AGENT FOR THE TRUST FUND FOR PURPOSES OF LENDING ANY SECURITIES HELD IN THE TRUST FUND (INCLUDING ANY INVESTMENT FUND CREATED PURSUANT TO SUBPARAGRAPH B OF THIS PARAGRAPH 4 IF THE INVESTMENT MANAGER HAS CONSENTED) TO BROKER- DEALER(S) OR BANK(S), AND IN CONNECTION THEREWITH AUTHORIZE THE TRUSTEE OR ANY OF ITS AFFILIATES, AS AGENT, TO ENTER INTO SECURITIES LOAN AGREEMENT(S), TO RECEIVE A REASONABLE FEE AS IT AND THE ESOP ADMINISTRATORS MAY AGREE, TO DELIVER TO ANY SUCH BROKER- -20- DEALER(S), OR BANK(S), SUCH SECURITIES AND TO PERMIT THE LOANED SECURITIES TO BE TRANSFERRED INTO THE NAME OF AND VOTED BY THE BORROWER OR OTHERS. L. VOTING OF COMPANY STOCK. All voting rights on shares of Company Stock held in the Company Stock Fund shall be exercised by the Trustee only as directed by the Participants acting in their capacity as "Named Fiduciaries" (as defined in Section 402 of ERISA) in accordance with the following provisions of this Paragraph 4: (i) As soon as practicable before each annual or special shareholders' meeting of the Company, the Trustee shall furnish to each Participant sufficient copies of the proxy solicitation material sent generally to shareholders, together with a form requesting confidential instructions on how the shares of Company Stock allocated to such Participant's account, and, separately, such shares of Company Stock as may be unallocated ("Unallocated Shares") or allocated to Participant accounts but for which the Trustee does not receive timely voting instruction from the Participant ("Non-Directed Shares"), (including fractional shares to 1/1000th of a share) are to be voted. The direction with respect to Non-Directed Shares and Unallocated Shares shall apply to such number of votes equal to the total number of votes attributable to Non-Directed Shares and Unallocated Shares multiplied by a fraction, the numerator of which is the number of shares of Company Stock credited to the Participant's account and the denominator of which is the total number of shares credited to the accounts of all such Participants who have timely provided directions to the Trustee with respect to Non-Directed Shares and Unallocated Shares under this Paragraph 4. The Company and the ESOP Administrators will cooperate with the Trustee to ensure that Participants receive the requisite information in a timely manner. The materials furnished to the Participants shall include a notice from the Trustee that the Trustee will vote any shares for which timely instructions are not received by the Trustee as may be directed by those voting Participants, acting in their capacity as Named Fiduciaries of the Plan as provided above. Upon timely receipt of such instructions, the Trustee shall vote the shares as instructed. The instructions received by the Trustee from Participants or Beneficiaries shall be held by the Trustee in strict confidence and shall not be divulged or released to any person -21- including directors, officers or employees of the Company, or of any other company, except as otherwise required by law. (ii) With respect to all corporate matters submitted to shareholders, all shares of Company Stock shall be voted only in accordance with the directions of such Participants as Named Fiduciaries as given to the Trustee as provided in Section 4(L)(i). With respect to shares of Company Stock allocated to the account of a deceased Participant, such Participant's Beneficiary, as Named Fiduciary, shall be entitled to direct the voting of shares of Company Sock as if such Beneficiary were the Participant. M. TENDER OFFERS ON COMPANY STOCK. All tender or exchange decisions with respect to Company Stock held in the Company Stock Fund shall be made only by the Participants acting in their capacity as Named Fiduciaries with respect to the Company Stock allocated to their accounts in accordance with the following provisions of this Paragraph: (i) In the event an offer shall be received by the Trustee (including a tender offer for shares of Company Stock subject to Section 14(d)(1) of the Securities Exchange Act of 1934 or subject to Rule 13e-4 promulgated under that Act, as those provisions may from time to time be amended) to purchase or exchange any shares of Company Stock held by the Trust, the Trustee will advise each Participant who has shares of Company Stock credited to such Participant's account in writing of the terms of the offer as soon as practicable after its commencement and will furnish each Participant with a form by which he may instruct the Trustee confidentially whether or not to tender or exchange shares allocated to such Participant's account, and, separately, Unallocated Shares and Non-Directed Shares (including fractional shares to 1/1000th of a share). The directions with respect to Non-Directed Shares and Unallocated Shares shall apply to such number of Non-Directed Shares and Unallocated Shares equal to the total number of Non-Directed Shares and Unallocated Shares multiplied by a fraction, the numerator of which is the number of shares of Company Stock credited to the Participant's account and the denominator of which is the total number of shares credited to the accounts of all such Participants who have timely provided directions to the Trustee with respect to Non-Directed Shares and Unallocated Shares under this Paragraph. The materials furnished to the Participants shall include (i) a notice from the Trustee that, except as provided in this -22- Paragraph, the Trustee will not tender or exchange any shares for which timely instructions are not received by the Trustee and (ii) such related documents as are prepared by any person and provided to the shareholders of the Company pursuant to the Securities Exchange Act of 1934. The ESOP Administrators and the Trustee may also provide Participants with such other material concerning the tender or exchange offer as the Trustee or the ESOP Administrators in their discretion determine to be appropriate; provided, however, that prior to any distribution of materials by the ESOP Administrators, the Trustee shall be furnished with sufficient numbers of complete copies of all such materials. The Company and the ESOP Administrators will cooperate with the Trustee to ensure that Participants receive the requisite information in a timely manner. (ii) The Trustee shall tender or not tender shares or exchange shares of Company Stock (including fractional shares to 1/1000th of a share) only as and to the extent instructed by the Participants as Named Fiduciaries as provided in Paragraph 4(M)(i). With respect to shares of Company Stock allocated to the account of a deceased Participant, such Participant's Beneficiary, as a Named Fiduciary, shall be entitled to direct the Trustee whether or not to tender or exchange such shares as if such Beneficiary were the Participant. The instructions received by the Trustee from Participants or Beneficiaries shall be held by the Trustee in strict confidence and shall not be divulged or released to any person, including directors, officers or employees of the Company, or of any other company, except as otherwise required by law. (iii) In the event, under the terms of a tender offer or otherwise, any shares of Company Stock tendered for sale, exchange or transfer pursuant to such offer may be withdrawn from such offer, the Trustee shall follow such instructions respecting the withdrawal of such securities from such offer in the same manner and the same proportion as shall be timely received by the Trustee from the Participants, as Named Fiduciaries, entitled under this Paragraph 4(M) to give instructions as to the sale, exchange or transfer of securities pursuant to such offer. (iv) In the event an offer shall be received by the Trustee and instructions shall be solicited from Participants pursuant to this Paragraph 4(M) regarding such offer, and prior to termination of such offer, another offer is received by the Trustee for the securities subject to the first offer, the Trustee shall use its best efforts under the circumstances to solicit instructions from the Participants to the Trustee (i) with respect to -23- securities tendered for sale, exchange or transfer pursuant to the first offer, whether to withdraw such tender, if possible, and, if withdrawn, whether to tender any securities so withdrawn for sale, exchange or transfer pursuant to the second offer and (ii) with respect to securities not tendered for sale, exchange or transfer pursuant to the first offer, whether to tender or not to tender such securities for sale, exchange or transfer pursuant to the second offer. The Trustee shall follow all such instructions received in a timely manner from Participants in the same manner and in the same proportion as provided in Paragraph 4(M)(i). With respect to any further offer for any Company Stock received by the Trustee and subject to any earlier offer (including successive offers from one or more existing offerors), the Trustee shall act in the same manner as described above. (v) A Participant's instructions to the Trustee to tender or exchange shares of Company Stock will not be deemed a withdrawal or suspension from the Plan or a forfeiture of any portion of the Participant's interest in the Plan. Funds received in exchange for tendered shares will be credited to the account of the Participant whose shares were tendered and will be used by the Trustee to purchase Company Stock, as soon as practicable. In the interim, the Trustee will invest such funds in short-term investments permitted under the Plan, and in the same manner in which forfeited amounts are invested. (vi) In the event the Company initiates a tender or exchange offer, the Trustee may, in its sole discretion, enter into an agreement with the Company not to tender or exchange any shares of Company Stock in such offer, in which event, the foregoing provisions of this Paragraph shall have no effect with respect to such offer and the Trustee shall not tender or exchange any shares of Company Stock in such offer. N. DESIGNATION OF AGENTS RE COMPANY STOCK FUND. The Trustee acting with respect to the Company Stock Fund may, with the consent of the ESOP Administrators, employ an agent selected by the Trustee to solicit the instructions to vote or tender provided for in subparagraphs L and M of this Paragraph 4, and shall be held harmless in relying upon such agent's written advice as to how shares are to be voted or tendered. -24- O. SECURITIES LAWS. The Company shall be responsible for complying with applicable federal and state securities laws and regulations. P. VALUATIONS. As of each Valuation Date, the Trustee shall determine the fair market value of each Investment Fund, including the Company Stock Fund, if any, being administered by the Trustee; PROVIDED, HOWEVER, THAT WITH RESPECT TO ANY ASSET ACQUIRED BY THE COMPANY, THE ESOP ADMINISTRATORS OR AN INVESTMENT MANAGER, THE TRUSTEE WILL ONLY BE RESPONSIBLE FOR VALUING SUCH ASSET IF THE ASSET IS PUBLICLY TRADED OR REPORTED ON A PRICING SERVICE TO WHICH THE TRUSTEE SUBSCRIBES. THE COMPANY OR, IF DESIGNATED BY THE COMPANY, THE ESOP ADMINISTRATORS OR THE INVESTMENT MANAGER, WILL BE RESPONSIBLE FOR VALUING ALL OTHER ASSETS ACQUIRED BY THE COMPANY, THE ESOP ADMINISTRATORS OR AN INVESTMENT MANAGER FOR ALL PURPOSES OF THE TRUST FUND. IF AN ASSET IS VALUED BY THE COMPANY, THE ESOP ADMINISTRATORS OR AN INVESTMENT MANAGER, THE ESOP ADMINISTRATORS WILL DIRECT THE TRUSTEE ON THE USE OF THE VALUE SO DEVELOPED AND THE COMPANY AGREES TO INDEMNIFY AND HOLD THE TRUSTEE HARMLESS AGAINST ANY AND ALL CLAIMS, ACTIONS, DEMANDS, LIABILITIES, LOSSES, DAMAGES OR EXPENSES OF WHATSOEVER KIND AND NATURE, WHICH ARISE FROM OR ARE RELATED TO ANY USE OF SUCH VALUE BY THE TRUSTEE IN THE ADMINISTRATION OF THE TRUST FUND. With respect to each such Investment Fund, the Trustee shall determine (1) the change in value between the current Valuation Date and the then last preceding Valuation Date, (2) the net gain or loss resulting from expenses paid -25- (including fees and expenses, if any, which are to be charged to such Fund) and (3) realized and unrealized gains and losses. The transfer of funds to or from an Investment Fund pursuant to this Paragraph 4 and payments, distributions and withdrawals from an Investment Fund to provide benefits under the Plan for Participants or Beneficiaries shall not be deemed to be gains, expenses or losses of an Investment Fund. After each Valuation Date, the Trustee shall allocate the net gain or loss of each Investment Fund as of such Valuation Date to the accounts of Participants participating in such Investment Fund on such Valuation Date. Contributions, forfeitures and rollovers received and credited to Participants' accounts as of such Valuation Date, or as of any earlier date since the last preceding Valuation Date shall not be considered in allocating gains or losses allocated to Participants' accounts. The reasonable and equitable decision of the Trustee as to the value of each Investment Fund, including the Company Stock Fund, if any, and of any account as of each Valuation Date shall be conclusive and binding upon all persons having any interest, direct or indirect, in the Investment Funds or in any account. 5. INVESTMENT IN MASTER TRUST. NOTWITHSTANDING ANYTHING HEREIN CONTAINED TO THE CONTRARY, THE COMPANY MAY DIRECT THE TRUSTEE AT ANY TIME OR FROM TIME TO TIME TO TRANSFER ALL -26- OR ANY PART OF THE TRUST FUND TO ANY TRUST WHICH HAS BEEN QUALIFIED UNDER SECTION 401(A) AND IS EXEMPT UNDER SECTION 501(A) OF THE CODE ESTABLISHED AS A MEDIUM FOR THE COLLECTIVE INVESTMENT OF FUNDS OF PENSION, PROFIT SHARING OR OTHER EMPLOYEE BENEFIT TRUSTS ESTABLISHED BY THE COMPANY, OR ANY OF ITS SUBSIDIARIES OR AFFILIATES AND TO WITHDRAW ANY PART OR ALL OF THE TRUST FUND SO TRANSFERRED. ANY SUCH TRUST MAY PROVIDE, AMONG OTHER THINGS, FOR THE SEPARATE INVESTMENT OF ANY PORTION THEREOF AND THE ALLOCATION TO ANY SUCH SEPARATELY INVESTED PORTION OF ANY PART OF THE INTEREST OF ANY EMPLOYEE BENEFIT TRUST INVESTED THEREUNDER AND FOR THE DESIGNATION OF AN INVESTMENT MANAGER TO DIRECT THE TRUSTEE IN THE EXERCISE OF THE POWER GRANTED TO IT WITH RESPECT TO SUCH SEPARATELY INVESTED PORTION. THE PROVISIONS OF ANY SUCH TRUST SHALL BE DEEMED TO HAVE BEEN ADOPTED AND MADE A PART OF THIS TRUST AND THE PLAN. 6. COMPENSATION AND EXPENSES OF THE TRUSTEE. THE TRUSTEE SHALL BE ENTITLED TO RECEIVE REASONABLE FEES FOR ITS SERVICES HEREUNDER IN ACCORDANCE WITH ITS SCHEDULE OF FEES THEN IN EFFECT AND SHALL BE ENTITLED TO RECEIVE REIMBURSEMENT FOR ALL REASONABLE EXPENSES INCURRED BY IT IN THE ADMINISTRATION OF THIS TRUST. ANY PROPER CHARGES AND DISBURSEMENTS INCURRED BY THE TRUSTEE IN THE PERFORMANCE OF ITS DUTIES HEREUNDER, INCLUDING FEES FOR LEGAL SERVICES RENDERED TO THE TRUSTEE WHETHER DURING OR AFTER THE TIME IT IS ACTING HEREUNDER, SHALL BE PAID BY THE COMPANY. ALL TAXES OF ANY AND ALL KINDS WHATSOEVER THAT MAY BE LEVIED OR ASSESSED UNDER EXISTING OR FUTURE LAWS UPON OR IN RESPECT OF THE TRUST FUND OR THE INCOME THEREOF SHALL BE A CHARGE -27- AGAINST THE TRUST FUND; PROVIDED, HOWEVER, IN THE EVENT THAT THE COMPANY SHALL NOTIFY THE TRUSTEE THAT, IN THE OPINION OF ITS COUNSEL, ANY SUCH TAXES ARE UNLAWFULLY OR EXCESSIVELY ASSESSED, THE TRUSTEE SHALL, AT THE EXPENSE OF THE COMPANY, JOIN WITH THE COMPANY TO CONTEST THE VALIDITY OF SUCH ASSESSMENT IN ANY MANNER DEEMED APPROPRIATE BY THE COMPANY OR ITS COUNSEL. 7. ACCOUNTING BY TRUSTEE. THE TRUSTEE SHALL MAINTAIN SUCH ACCOUNTS AND RECORDS AS THE ESOP ADMINISTRATORS AND THE TRUSTEE SHALL AGREE UPON. THE TRUSTEE SHALL RENDER FROM TIME TO TIME ACCOUNTS OF ITS TRANSACTIONS TO THE ESOP ADMINISTRATORS, AND THE ESOP ADMINISTRATORS MAY APPROVE SUCH ACCOUNTS BY AN INSTRUMENT IN WRITING DELIVERED TO THE TRUSTEE. IN THE ABSENCE OF THE FILING IN WRITING WITH THE TRUSTEE BY THE ESOP ADMINISTRATORS OF EXCEPTIONS OR OBJECTIONS TO ANY SUCH ACCOUNT WITHIN SIXTY (60) DAYS, THE ESOP ADMINISTRATORS SHALL BE DEEMED TO HAVE APPROVED SUCH ACCOUNT; AND IN SUCH CASE, OR UPON THE WRITTEN APPROVAL BY THE ESOP ADMINISTRATORS OF ANY SUCH ACCOUNT, THE TRUSTEE SHALL BE RELEASED, RELIEVED AND DISCHARGED AS TO THE COMPANY WITH RESPECT TO ALL MATTERS AND THINGS SET FORTH IN SUCH ACCOUNT AS THOUGH SUCH ACCOUNT HAD BEEN SETTLED BY THE DECREE OF A COURT OF COMPETENT JURISDICTION. NO PERSON OTHER THAN THE ESOP ADMINISTRATORS MAY REQUIRE AN ACCOUNTING. -28- 8. RELIANCE OF TRUSTEE ON ESOP ADMINISTRATORS. THE TRUSTEE SHALL BE FULLY PROTECTED IN RELYING UPON A CERTIFICATION SIGNED BY ONE OR MORE OF THE MEMBERS OF THE ESOP ADMINISTRATORS (AS SHALL BE DESIGNATED IN A WRITTEN INSTRUMENT SIGNED BY ALL THE MEMBERS OF THE ESOP ADMINISTRATORS AND FILED WITH THE TRUSTEE) WITH RESPECT TO ANY INSTRUCTION, DIRECTION OR APPROVAL OF THE ESOP ADMINISTRATORS AND IN CONTINUING TO RELY UPON SUCH CERTIFICATION AND/OR INSTRUMENT UNTIL A SUBSEQUENT ONE IS FILED WITH THE TRUSTEE. THE TRUSTEE SHALL BE FULLY PROTECTED BY THE COMPANY IN ACTING UPON ANY INSTRUMENT, CERTIFICATE, OR PAPER BELIEVED BY IT TO BE GENUINE AND TO BE SIGNED OR PRESENTED BY THE PROPER PERSON(S), AND THE TRUSTEE SHALL BE UNDER NO DUTY TO MAKE ANY INVESTIGATION OR INQUIRY AS TO ANY STATEMENT CONTAINED IN ANY SUCH WRITING BUT MAY ACCEPT THE SAME AS CONCLUSIVE EVIDENCE OF THE TRUTH AND ACCURACY OF THE STATEMENTS THEREIN CONTAINED. THE TRUSTEE SHALL HAVE NO DUTY TO SEE TO THE PROPER APPLICATION OF ANY PART OF THE TRUST FUND IF DISTRIBUTIONS ARE MADE IN ACCORDANCE WITH THE WRITTEN DIRECTIONS OF THE ESOP ADMINISTRATORS AS HEREIN PROVIDED, NOR SHALL THE TRUSTEE BE RESPONSIBLE FOR THE ADEQUACY OF THE TRUST FUND TO MEET AND DISCHARGE ANY AND ALL DISTRIBUTIONS AND LIABILITIES UNDER THE PLAN. ALL PERSONS DEALING WITH THE TRUSTEE ARE RELEASED FROM INQUIRY INTO THE DECISIONS OR AUTHORITY OF THE TRUSTEE AND FROM SEEING TO THE APPLICATION OF ANY MONEYS, SECURITIES, OR OTHER PROPERTY PAID OR DELIVERED TO THE TRUSTEE. -29- 9. RESIGNATION OR REMOVAL OF TRUSTEE. ANY TRUSTEE ACTING HEREUNDER MAY RESIGN AT ANY TIME BY GIVING NOTICE IN WRITING TO THE COMPANY AT LEAST SIXTY (60) DAYS BEFORE SUCH RESIGNATION IS TO BECOME EFFECTIVE, UNLESS THE COMPANY SHALL ACCEPT AS ADEQUATE A SHORTER NOTICE. THE COMPANY MAY, WITH OR WITHOUT CAUSE, REMOVE ANY TRUSTEE ACTING HEREUNDER BY GIVING NOTICE IN WRITING TO SUCH TRUSTEE AT LEAST SIXTY (60) DAYS BEFORE SUCH REMOVAL IS TO BECOME EFFECTIVE, UNLESS THE TRUSTEE SHALL ACCEPT AS ADEQUATE A SHORTER NOTICE. IF FOR ANY REASON A VACANCY SHOULD OCCUR IN THE TRUSTEESHIP, A SUCCESSOR TRUSTEE SHALL FORTHWITH BE APPOINTED BY THE COMPANY. ANY SUCCESSOR TRUSTEE APPOINTED HEREUNDER SHALL EXECUTE, ACKNOWLEDGE, AND DELIVER TO THE COMPANY AND THE TRUSTEE AN INSTRUMENT IN WRITING ACCEPTING SUCH APPOINTMENT HEREUNDER. SUCH SUCCESSOR TRUSTEE THEREUPON SHALL BECOME VESTED WITH THE SAME TITLE TO THE PROPERTY COMPRISING THE TRUST FUND, AND THE SAME POWERS, DUTIES, AND IMMUNITIES WITH RESPECT THERETO, AS ARE HEREBY VESTED IN THE ORIGINAL TRUSTEE. THE PREDECESSOR TRUSTEE SHALL EXECUTE ALL SUCH INSTRUMENTS AND PERFORM ALL SUCH OTHER ACTS AS THE SUCCESSOR TRUSTEE SHALL REASONABLY REQUEST TO EFFECTUATE THE PROVISIONS HEREOF. THE SUCCESSOR TRUSTEE SHALL HAVE NO DUTY TO INQUIRE INTO THE ADMINISTRATION OF THIS TRUST FOR ANY PERIOD PRIOR TO ITS SUCCESSION. 10. AMENDMENT. SUBJECT TO PARAGRAPH 3 ABOVE, THE COMPANY AND THE TRUSTEE RESERVE THE RIGHT FROM TIME TO TIME TO AMEND THE PROVISIONS OF THIS TRUST IN ANY MANNER; PROVIDED, -30- HOWEVER, THAT ANY AMENDMENT THAT WOULD RESULT IN MAJOR SUBSTANTIVE CHANGES TO THE TRUST MAY BE ADOPTED ONLY UPON THE APPROVAL OF TWO- THIRDS OF THE VOTES CAST BY PARTICIPANTS, WITH EACH PARTICIPANT ENTITLED TO CAST THE NUMBER OF VOTES EQUAL TO THE NUMBER OF HIS YEARS OF SERVICE UNDER THE PLAN. ANY SUCH AMENDMENT SHALL BE BY WRITTEN INSTRUMENT EXECUTED BY THE COMPANY AND THE TRUSTEE. ANY SUCH AMENDMENT MAY BE MADE RETROACTIVELY IF SUCH AMENDMENT IS NECESSARY TO ENABLE THE PLAN AND THIS TRUST TO MEET THE REQUIREMENTS OF THE CODE (INCLUDING THE REGULATIONS AND RULINGS ISSUED THEREUNDER) OR THE REQUIREMENTS OF ANY GOVERNMENTAL AUTHORITY. NO AMENDMENT TO THIS TRUST AGREEMENT SHALL AFFECT THE TRUSTEE'S RIGHTS, DUTIES OR RESPONSIBILITIES UNLESS THE TRUSTEE CONSENTS THERETO IN WRITING. 11. PROHIBITION AGAINST ALIENATION. TO THE FULLEST EXTENT PERMITTED BY LAW NO INTEREST OR EXPECTANCY OF ANY PARTICIPANT OR BENEFICIARY TO ANY BENEFITS OR PAYMENTS UNDER THIS TRUST SHALL BE TRANSFERABLE OR ASSIGNABLE OR SUBJECT TO VOLUNTARY OR INVOLUNTARY ALIENATION, ENCUMBRANCE, GARNISHMENT, ATTACHMENT, ANTICIPATION, EXECUTION OR LEVY OF ANY KIND. IN THE EVENT A PARTICIPANT OR BENEFICIARY WHO IS RECEIVING OR IS ENTITLED TO RECEIVE BENEFITS UNDER THIS TRUST ATTEMPTS TO ASSIGN, TRANSFER OR DISPOSE OF SUCH RIGHT OR AN ATTEMPT IS MADE TO SUBJECT SUCH RIGHT TO SUCH PROCESS, SUCH ASSIGNMENT, TRANSFER OR DISPOSITION SHALL BE NULL AND VOID. 12. TERMINATION OF TRUST. THIS TRUST MAY BE TERMINATED AT ANY TIME BY THE COMPANY BY MAJORITY VOTE OF THE COMPANY'S BOARD OF DIRECTORS WITH THE APPROVAL OF TWO-THIRDS OF THE -31- VOTES CAST BY PARTICIPANTS, WITH EACH PARTICIPANT ENTITLED TO CAST THE NUMBER OF VOTES EQUAL TO THE NUMBER OF HIS YEARS OF SERVICE UNDER THE PLAN, AND UPON SUCH TERMINATION, THE TRUST FUND SHALL BE PAID OUT BY THE TRUSTEE AS AND WHEN DIRECTED BY THE ESOP ADMINISTRATORS IN ACCORDANCE WITH THE PROVISIONS OF PARAGRAPH 2. UPON SUCH DISTRIBUTION IN ACCORDANCE WITH THE DIRECTION OF THE ESOP ADMINISTRATORS THE TRUSTEE SHALL BE RELEASED AND DISCHARGED. 13. APPLICABLE LAW. THIS TRUST SHALL BE CONSTRUED, REGULATED, AND ADMINISTERED UNDER THE LAWS OF THE STATE/COMMONWEALTH IN WHICH THE PRINCIPAL OFFICE OF THE TRUSTEE IS LOCATED, THE CODE AND ERISA. ALL CONTRIBUTIONS TO THE TRUSTEE SHALL BE DEEMED TO TAKE PLACE IN THE STATE OF OREGON. THE TRUSTEE MAY AT ANY TIME INITIATE AN ACTION OR PROCEEDINGS FOR THE SETTLEMENT OF ITS ACCOUNTS OR FOR THE DETERMINATION OF ANY QUESTION OF CONSTRUCTION WHICH MAY ARISE, OR FOR INSTRUCTIONS. 14. TITLES. TITLES OF PARAGRAPHS ARE PLACED HEREIN FOR CONVENIENCE OF REFERENCE ONLY AND SHALL HAVE NO BEARING UPON THE INTERPRETATION OF THIS TRUST. 15. ACTS BY COMPANY. ANY ACTS BY THE COMPANY AUTHORIZED HEREUNDER SHALL BE EVIDENCED BY RESOLUTIONS OF ITS BOARD OF DIRECTORS. 16. COUNTERPARTS. THIS TRUST MAY BE EXECUTED IN ANY NUMBER OF COUNTERPARTS, EACH ONE OF WHICH SHALL BE DEEMED TO BE THE ORIGINAL. -32- 17. FILINGS REQUIRED BY LAW. THE COMPANY AGREES THAT IT WILL HAVE RESPONSIBILITY FOR THE PREPARATION AND DELIVERY TO PERSONS AND GOVERNMENTAL AGENCIES OF ALL INFORMATION, DESCRIPTIONS, REPORTS AND RETURNS REQUIRED BY LAW. THE TRUSTEE SHALL BE ENTITLED, AS IT MAY DEEM APPROPRIATE FROM TIME TO TIME, TO REQUIRE OF THE COMPANY, THE ESOP ADMINISTRATORS OR ANY OTHER PERSON INVOLVED IN THE ADMINISTRATION OF THE PLAN OR THE INVESTMENT OF THE TRUST FUND, OR HAVING ANY INTEREST UNDER THE PLAN OR IN, TO, OR UNDER THIS TRUST OR TO THE TRUST FUND HELD HEREUNDER, SUCH CERTIFICATIONS AND PROOFS OF FACTS AS SHALL PERMIT THE TRUSTEE TO PERFORM ITS DUTIES UNDER APPLICABLE LAW AND REGULATIONS ADOPTED THEREUNDER AS MAY BE IN EFFECT FROM TIME TO TIME, OR TO EXERCISE THE POWERS GRANTED THE TRUSTEE UNDER THIS TRUST. 18. WITHHOLDING. THE TRUSTEE, IN ACCORDANCE WITH THE WRITTEN INSTRUCTIONS OF THE COMPANY, SHALL WITHHOLD ANY TAX WHICH BY ANY PRESENT OR FUTURE LAW IS REQUIRED TO BE WITHHELD FROM ANY PAYMENT MADE HEREUNDER. 19. SUBSTITUTION OF TRUSTEE. ANY CORPORATION OR ASSOCIATION INTO WHICH THE TRUSTEE MAY BE CONVERTED, MERGED OR WITH WHICH IT MAY BE CONSOLIDATED, OR ANY CORPORATION OR ASSOCIATION RESULTING FROM ANY CONVERSION, MERGER, REORGANIZATION OR CONSOLIDATION TO WHICH THE TRUSTEE MAY BE A PARTY, SHALL BE THE SUCCESSOR OF THE TRUSTEE HEREUNDER WITHOUT THE EXECUTION OR FILING OF ANY INSTRUMENT OR THE PERFORMANCE OF ANY FURTHER ACT. -33- 20. REGULATION U COMPLIANCE. THE COMPANY REPRESENTS, WARRANTS AND AGREES THAT IT SHALL NOT CAUSE AND WILL DIRECT EACH INVESTMENT MANAGER NOT TO CAUSE THE TRUSTEE TO ENGAGE IN ANY TRADING ACTIVITY THAT MAY CAUSE AN EXTENSION OF CREDIT IN VIOLATION OF REGULATION U OF THE BOARD OF GOVERNOR'S OF THE FEDERAL RESERVE OR REGULATION T OR X. THIS INCLUDES TRADING ON MARGINABLE STOCK OR FAILURE TO HAVE CASH IN THE TRUST FUND ADEQUATE TO PAY FOR DELIVERY OF ANY SECURITIES TRADED. IT IS MUTUALLY AGREED THAT SHOULD THE TRUSTEE DETERMINE THAT A POTENTIAL REGULATION U VIOLATION, OR OVERDRAFT CAN OCCUR, THE TRUSTEE SHALL TAKE APPROPRIATE MEASURES, INCLUDING DISAFFIRMING OF THE TRADE AND THE LOSS SHALL BE ON THE ACCOUNT OF THE COMPANY. 21. ESOP FEATURES. NOTWITHSTANDING ANYTHING HEREIN OR IN THE PLAN TO THE CONTRARY, ALTHOUGH THE PLAN AND THIS TRUST AGREEMENT CONTAIN PROVISIONS ALLOWING THE ESOP ADMINISTRATORS TO DIRECT THE TRUSTEE TO BORROW MONEY AND TO USE SUCH BORROWED MONEY TO ACQUIRE COMPANY STOCK, THE COMPANY AGREES THAT NEITHER IT NOR THE ESOP ADMINISTRATORS WILL ISSUE ANY SUCH DIRECTION TO THE TRUSTEE UNLESS THE COMPANY PROVIDES THE TRUSTEE WITH AT LEAST NINETY (90) DAYS PRIOR WRITTEN NOTICE OF THE INTENTION TO ISSUE SUCH DIRECTION. 22. CONDITIONAL ADOPTION. THIS AGREEMENT SHALL BE CONDITIONED ON THE APPROVAL BY PLAN PARTICIPANTS IN ACCORDANCE WITH SECTION 21 OF THE PLAN, IF THIS AGREEMENT IS EXECUTED BEFORE SUCH APPROVAL IS OBTAINED, AND THIS AGREEMENT SHALL BE EFFECTIVE AT SUCH TIME AS THE PARTICIPANTS' APPROVAL IS OBTAINED. -34- IN WITNESS WHEREOF, THE COMPANY AND THE TRUSTEE HAVE CAUSED THIS TRUST TO BE EXECUTED THIS ________ DAY OF ________________________, 1995 ON THEIR BEHALF BY THEIR DULY AUTHORIZED OFFICERS AS OF THE DATE FIRST ABOVE WRITTEN. OREGON METALLURGICAL CORPORATION KEY TRUST COMPANY OF THE NORTHWEST, TRUSTEE BY: /s/ Dennis P. Kelly BY: /s/ Roger L. P. Greene _______________________________ _____________________________ AND: /s/ Gary A. Weber AND: /s/ Arlene Fraser ______________________________ ____________________________ G:\WJN\GJE\PRISTST2.DOC -35- EX-10.16 3 EMPLOYMENT AGREEMENT DATE: December 18, 1995 PARTIES: Oregon Metallurgical Corporation, (the "Company") an Oregon corporation 530 34th Avenue S.W. P.O. Box 580 Albany, OR 97321 David G. Floyd ("Employee") 950 Kouns Drive N.W. Albany, Oregon 97321 AGREEMENT: The parties agree as follows: SECTION 1. EMPLOYMENT 1.1 FIXED TERM. The Company agrees to employ Employee as its Vice President - Commercial for a term commencing on December 18, 1995, and terminating on December 18, 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 - Commercial 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 Sales and Marketing activities 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 activities, or charitable activities shall not be deemed a breach of this Agreement, provided that such purposes or activities do EMPLOYMENT AGREEMENT PAGE 1 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 one (1) year 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. SECTION 3. COMPENSATION EMPLOYMENT AGREEMENT PAGE 2 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 Thirty Thousand, Four Hundred Thirty-Nine Dollars ($130,439.00) per year (equivalent to $10,869.92 per month), through December 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. Employee shall not be entitled to cost of living adjustments under this Agreement. 3.2 ANNUAL BONUS. Employee will be a participant of the Annual Bonus Program of the Company, on terms no less favorable than those of other employees with similar responsibilities. 3.3 LONG TERM INCENTIVE PROGRAM. Company is in the process of developing a competitive long-term incentive program and when such program is placed in effect, Employee shall be a participant therein. 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 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. 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. SECTION 5. TERMINATION EMPLOYMENT AGREEMENT PAGE 3 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. Notwithstanding Employee's entitlement to a notice of termination as provided elsewhere in this Agreement, if Employee is terminated for any of the following reasons, Employer may relieve employee of his duties immediately without prior notice. In such event, Employee shall be entitled to receive the benefits provided in paragraphs 5.3 and 5.4: 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 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 EMPLOYMENT AGREEMENT PAGE 4 prior to December 18, 1995, and future years employed will be added to the ten (10) years for purposes of calculating service to determine vacation. 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. EMPLOYMENT AGREEMENT PAGE 5 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: /s/ Carlos E. Aguirre _______________________ President and Chief Executive Officer EMPLOYEE: /s/ David G. Floyd __________________________ David G. Floyd EX-10.17 4 OREGON METALLURGICAL CORPORATION LONG TERM INCENTIVE COMPENSATION STOCK APPRECIATION RIGHTS PLAN (Effective Date: December 14, 1995) 1. PURPOSE. The purposes of this Plan are to reward performance, aid in retention of key strategic employees, provide the Company with an additional element of competitive compensation, align key strategic employee interests with those of the shareholders and avoid dilution of existing shareholder ownership interest. The Plan will enable the Company to attract and retain the best available personnel for positions of substantial responsibility which will promote the success of the business of the Company and its Subsidiaries. 2. DEFINITIONS. As used herein, the following definitions shall apply: 2.1 "BOARD" or "BOARD OF DIRECTORS" means the Board of Directors of the Company. 2.2 "CAUSE" includes termination based on the commission of any act or acts involving dishonesty, fraud, illegality or moral turpitude. 2.3 "CODE" means the Internal Revenue Code of 1986, as amended and regulations and rulings thereunder as amended from time to time, and any successor thereto. 2.4 "COMMITTEE" means the committee of the Board appointed pursuant to Section 4. 2.5 "COMMON STOCK" means the common stock of the Company, $1.00 par value. 2.6 "COMPANY" means Oregon Metallurgical Corporation, an Oregon corporation. 2.7 "DIRECTOR" means any person serving on the Board of Directors of the Company. 2.8 "DISABILITY" means a mental or physical condition which, in the opinion of the Committee, renders a Grantee unable or incompetent to carry out the job responsibilities which such Grantee held or the tasks to which such Grantee was assigned at the time the disability was incurred, and which is expected to be permanent or for an indefinite duration exceeding one year. 1 - OREGON METALLURGICAL CORPORATION LONG TERM INCENTIVE COMPENSATION STOCK APPRECIATION RIGHTS PLAN (SWW2/65385/103687/PST/626971.3) 2.9 "EFFECTIVE DATE" means December 14, 1995. 2.10 "FAIR MARKET VALUE" of a Share means, as of any applicable date the closing price of a Share of the Common Stock on the National Association of Securities Dealers, Inc. Automated Quotations System ("Nasdaq") National Market System or any national securities exchange on which the Common Stock is traded (or if the Common Stock is not then traded on the Nasdaq National Market System or a national securities exchange, the representative closing bid price of the Common Stock on the over-the-counter market), as reported in The Wall Street Journal, or if no such reported sale shall have occurred on such date, on the next preceding date on which there was such a reported sale. 2.11 "GRANT DATE" means the date on which the award of Units shall be duly granted, as determined in accordance with Section 5.1. 2.12 "GRANTEE" means an individual who has been granted Units under this Plan. 2.13 "1934 ACT" means the Securities Exchange Act of 1934, as amended. References to a particular section of, or rule under, the 1934 Act shall include references to successor provisions. 2.14 "PLAN" means this Oregon Metallurgical Corporation Long Term Incentive Compensation Stock Appreciation Rights Plan. 2.15 "RETIREMENT" means termination of employment with the Company and its Subsidiaries any time after attaining age 65 with at least 5 years of Company service. 2.16 "SECTION 16 GRANTEE" means a person subject to potential liability under Section 16(b) of the 1934 Act with respect to transactions involving equity securities of the Company. 2.17 "SHARE" means a share of Common Stock. 2.18 "SUBSIDIARY" means any entity in which the Company directly or through intervening subsidiaries owns twenty-five percent (25%) or more of the total combined voting power or value of all classes of stock or, in the case of an unincorporated entity, a twenty-five percent (25%) or more interest in the capital and profits. 2.19 "UNIT" means an equal, undivided interest in the future appreciation in the value of a Share. 2 - OREGON METALLURGICAL CORPORATION LONG TERM INCENTIVE COMPENSATION STOCK APPRECIATION RIGHTS PLAN (SWW2/65385/103687/PST/626971.3) 3. ELIGIBILITY. Eligibility to participate in the Plan is limited to officers and key senior managers of the Company or any of its domestic Subsidiaries. In selecting the individuals to whom Units may be granted as well as determining the number of Units, and the other terms and conditions applicable to, each grant, the Committee shall take into consideration such factors as it deems relevant in promoting the purposes of this Plan. 4. ADMINISTRATION. 4.1 Subject to Section 4.2, the Plan shall be administered by a committee ("Committee") of the Board of Directors. The composition of the Committee shall be subject to such limitations as the Board deems appropriate to permit transactions pursuant to this Plan to be exempt or excluded from Section 16 of the 1934 Act. 4.2 The Board may, in its discretion, reserve to itself or delegate to another committee of the Board any or all of the authority and responsibility of the Committee with respect to awards who are not Section 16 Grantees at the time any such delegated authority or responsibility is exercised. Such other committee may consist of two or more directors who may, but need not be, officers or employees of the Company or its Subsidiaries. To the extent that the Board has reserved to itself or delegated to such other committee the authority and responsibility of the Committee, all references to the Committee in this Plan shall be to the Board or such other committee. 4.3 The Committee shall have full and final authority, in its discretion, subject to the express provisions of this Plan, as follows: 4.3.1 to grant Units. 4.3.2 to determine (A) when Units will be granted; or (B) which Grantees within the eligible group are to receive Units and the number of Units each Grantee is to receive. 4.3.3 to determine the Fair Market Value on any applicable valuation date. 4.3.4 to interpret this Plan and to make all determinations necessary or advisable for the administration of this Plan. 4.3.5 to prescribe, amend, and rescind rules and regulations relating to this Plan, including rules with respect to the exercisability and nonforfeitability of Units. 3 - OREGON METALLURGICAL CORPORATION LONG TERM INCENTIVE COMPENSATION STOCK APPRECIATION RIGHTS PLAN (SWW2/65385/103687/PST/626971.3) 4.3.6 to determine the terms and provisions and any restrictions or conditions, which need not be identical, of grants under the Plan and with the consent of the Grantee, to modify any such grant at any time. 4.3.7 to cancel, with the consent of the Grantee, outstanding Units and to grant new Units in substitution therefor. 4.3.8 to delegate its duties and responsibilities under this Plan, except its duties and responsibilities with respect to Section 16 Grantees and (A) the acts of such delegates shall be treated hereunder as acts of the Committee and (B) such delegates shall report to the Committee regarding the delegated duties and responsibilities. 4.3.9 to accelerate or waive any or all of the restrictions and conditions applicable to, any award or any group of awards for any reason. 4.3.10 subject to Section 7.2, to extend the time during which any award or group of awards may be exercised. 4.3.11 to correct any defect or supply any omission or reconcile any inconsistency in the Plan or in any grant under the Plan in the manner and to the extent it may deem expedient. 4.3.12 to make all other determinations necessary and advisable with respect thereto. The determination of the Committee on all matters relating to this Plan shall be conclusive and final. No member of the Committee shall be liable for any action or determination made in good faith with respect to this Plan. 4.4 The Board of Directors may from time to time appoint members of the Committee in substitution for and in addition to members previously appointed and may fill vacancies, however caused, in the Committee. The Committee may select one of its members as its chairperson and shall hold its meetings at such times and places as it shall deem advisable. A majority of the members of the Committee shall constitute a quorum. All actions of the Committee shall be taken by a majority of its members constituting a quorum. Any action may be taken by a written instrument signed by all Committee members, and all actions so taken shall be fully as effective as if it has been taken by a vote of a majority of the members at a meeting duly called and held. 4 - OREGON METALLURGICAL CORPORATION LONG TERM INCENTIVE COMPENSATION STOCK APPRECIATION RIGHTS PLAN (SWW2/65385/103687/PST/626971.3) 4.5 For each Grantee receiving a grant, an account shall be established in the Grantee's name. Each Grantee's account shall designate the number of Units which have been granted to that Grantee, the Grant Date on the Fair Market Value of a Share on the Grant Date. 5. AWARD OF UNITS; VESTING. 5.1 The Grant Date of an award of Units shall be the date on which the Committee grants the Units or such later date as specified in advance by the Committee. 5.2 Subject to Sections 5.6 and 8, each Unit shall entitle the Grantee, upon exercise, to receive from the Company in exchange therefor an amount equal in value to the excess, if any, of the Fair Market Value on the date of exercise of one Share of Common Stock of the Company over its Fair Market Value on the Grant Date, multiplied by the number of Units, or portion thereof, that is surrendered. 5.3 The Units represent a hypothetical investment only in the Company and do not constitute Shares. The Units represent, upon vesting, the right to receive cash. This Plan shall not give any Grantee a right to receive actual Shares of the Company and the Company shall not be required to issue Shares to a Grantee as a result of his or her participation in this Plan. 5.4 The maximum number of Units which the Committee may award each calendar year under this Plan is 3.5% of the number of issued and outstanding Shares of Common Stock on December 31 of the calendar year preceding the current calendar year in which the Committee is awarding Units. The Committee may not carryover Units from a prior calendar year that were available and not awarded by the Committee. 5.5 Subject to Sections 5.6 and 8, and unless otherwise extended in the grant, the Units granted to each Grantee shall become vested as follows: 50% of Units granted vest on the second anniversary of the Grant Date; 75% of the Units granted vest on the third anniversary of the Grant Date; and 100% of the Units granted vest on the fourth anniversary of the Grant Date. A separate vesting schedule shall be maintained for each grant of Units based on the Grant Date of the Units. Unless the Committee conditions the grant otherwise, such vesting shall occur only if the Grantee is in the full time employ of the Company or its Subsidiaries on each vesting date and has been continually employed (except for such leaves of absence as have been approved by the Board of Directors) for the period commencing as of the Grant Date of the Units. 5.6 All rights to any Units payable under the terms of this Plan shall be immediately forfeited if the Grantee engages in any act which, in the opinion of the Committee, is inimical to the best interests of the Company; including, but not limited to, fraud, embezzlement, or disloyalty. The judgment of the Committee shall be final as to the 5 - OREGON METALLURGICAL CORPORATION LONG TERM INCENTIVE COMPENSATION STOCK APPRECIATION RIGHTS PLAN (SWW2/65385/103687/PST/626971.3) determination of the nature of any acts performed by the Grantee which are subject to this Section. The Committee, in its sole discretion, may interpret and decide upon the nature of such acts. 6. STOCK ADJUSTMENTS. The Committee shall make equitable adjustment of the number of Units and the Fair Market Value of Shares to be used to determine the amount of the benefit payable upon exercise of a Unit to reflect a stock dividend, stock split, reverse stock split, share combination, recapitalization, merger, consolidation, separation, spinoff, reorganization, stock rights offering, or otherwise, of or by the Company. 7. EXERCISE; EXPIRATION OF UNITS. 7.1 At any time after a Grantee is vested in any Units granted to Grantee under this Plan, the Grantee may exercise all or a portion of his or her vested Units by delivery to the Company of written notice of intent to exercise a specific number of Units. 7.2 Notwithstanding any other provision in this Plan, all Units awarded to a Grantee shall expire ten years after the Units are granted. All amounts payable with respect to such expired Units shall be forfeited if not exercised pursuant this Section prior to the expiration date. 8. EFFECT OF TERMINATION OF EMPLOYMENT, DEATH, DISABILITY, RETIREMENT OR CHANGE IN CONTROL. 8.1 FOR CAUSE. If a Grantee has a termination of employment for Cause, then, any unexercised Units shall thereupon terminate. 8.2 ON ACCOUNT OF DEATH OR DISABILITY. If a Grantee has a termination of employment on account of death or Disability, then, any unexercised Units, whether or not exercisable on the date of such termination of employment, will be deemed vested and exercised. 8.3 ON ACCOUNT OF RETIREMENT. If a Grantee has a termination of employment on account of Retirement, then, any unexercised Units, whether or not exercisable on the date of such termination of employment, will be deemed vested. Such Units may be exercised in whole or in part by the Grantee no later than the 365th day following the Grantee's date of retirement. 8.4 ON ACCOUNT OF CHANGE IN CONTROL. In the event of a "Change in Control," any unexercised Units, whether or not exercisable on the date of such Change in Control, will be deemed vested. Such Units may be exercised in whole or in part by the Grantee no later than the 365th day following the Change in Control. A "Change in 6 - OREGON METALLURGICAL CORPORATION LONG TERM INCENTIVE COMPENSATION STOCK APPRECIATION RIGHTS PLAN (SWW2/65385/103687/PST/626971.3) Control" means a change in control of a nature that would be required to be reported in response to item 6(a) of Schedule 14A or Regulation 14A promulgated under the 1934 Act as in effect on November 15, 1988, provided that such a change in control shall be deemed to have occurred at such time as (i) any "person" (as that term is used in Section 13(d) and 14(d)(2) of the 1934 Act), is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the 1934 Act) directly or indirectly, of securities representing 20% or more of the combined voting power for election of directors of the then outstanding securities of the Company or any successor of the Company; (ii) during any period of two (2) consecutive years or less, individuals who at the beginning of such period constituted the Board of Directors of the Company cease, for any reason, to constitute at least a majority of the Board, unless the election or nomination for election of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period; (iii) the shareholders of the Company approve any merger or consolidation as a result of which the shares shall be changed, converted or exchanged (other than a merger with a wholly owned subsidiary of the Company) or any liquidation of the Company or any sale or other disposition of 50% or more of the assets or earning power of the Company; or (iv) the shareholders of the Company approve any merger or consolidation to which the Company is a party as a result of which the persons who were shareholders of the Company immediately prior to the effective date of the merger or consolidation shall have beneficial ownership of less than 50% of the combined voting power for election of directors of the surviving corporation following the effective date of such merger or consolidation; provided, however, that no Change in Control shall be deemed to have occurred if, prior to such times as a Change in Control would otherwise be deemed to have occurred, the Board of Directors determines otherwise. 8.5 ANY OTHER REASON. If a Grantee has a termination of employment for a reason other than for Cause, death of the Grantee, the Grantee's Disability, Retirement, or a Change in Control, any unexercised Units to the extent exercisable on the date of the Grantee's termination of employment, may be exercised in whole or in part by the Grantee, not later than the 365th day following the Grantee's termination of employment; provided that if such 365th day is not a business day, such Unit may be exercised not later than the first business day following such 365th day. Any unvested Units will be forfeited. 9. PAYMENT. 9.1 Within 30 days from the exercise date, the Company shall pay to the Grantee the exercised Unit amount as defined in Section 5.2. All amounts payable under this Section may be paid by the Company in a single lump sum or in installment payments, as elected by the Company. If installment payments are so elected, payments may be made in no more than 12 equal quarterly installments of principal and interest, commencing 30 days after the exercise date. All deferred amounts shall bear interest at the rate of 10% per annum from the exercise date until paid. 7 - OREGON METALLURGICAL CORPORATION LONG TERM INCENTIVE COMPENSATION STOCK APPRECIATION RIGHTS PLAN (SWW2/65385/103687/PST/626971.3) 9.2 The Company shall have the right to withhold from any payments under this Plan any taxes required by law to be withheld with respect to such payments. 10. GRANTEE'S RESPONSIBILITIES. In consideration for the benefits payable under the Plan, each Grantee shall agree that he or she will devote his or her full time, skill, diligence and attention to the Company's and its Subsidiaries' business and will not actively engage, either directly or indirectly, in any business or other activity which is or may be deemed to be in any way competitive with or adverse to the best interests of the business of the Company and its Subsidiaries. 11. RIGHTS AS A SHAREHOLDER. A Grantee shall have no rights as a shareholder with respect to any Unit. 12. RESTRICTION ON TRANSFER. Each Unit granted under this Plan shall not be assignable or transferable other than by will or the laws of descent and distribution or pursuant to a qualified domestic relations order as defined in the Code unless the Board or the Committee permit otherwise in writing. The rights of a Grantee under the terms of this Plan are personal to the Grantee. The rights of a Grantee or of any beneficiary are nontransferable and are not subject to voluntary or involuntary alienation, assignment or transfer by the Grantee or the beneficiary. Any attempt to transfer (including transfer by a trustee or receiver in bankruptcy) shall cause the Grantee or beneficiary to forfeit all rights to any benefit under the terms of this Plan. Each Unit granted to a Section 16 Grantee shall not be assignable or transferable other then by will or the laws of descent and distribution or pursuant to a qualified domestic relations order as defined in the Code unless the Board (or such committee) has determined that such restrictions are not then required for grants under this Plan to satisfy the requirements for the exemption or exclusion provided by Section 16 of the 1934 Act (in the form then applicable to the Company). Notwithstanding the foregoing, a Section 16 Grantee may, in a manner specified by the Committee and to the extent provided by this Plan, designate a beneficiary. 13. RELATIONSHIP BETWEEN THE PARTIES. 13.1 Nothing contained in this Plan and no action taken pursuant to the provisions of this Plan shall create or be construed to create a trust of any kind, or a fiduciary relationship between the Company and any Grantee, his or her beneficiaries or any other person. Any Company funds which may be subject to the provisions of this Agreement shall continue for all purposes to be the general funds of the Company. No person other than the Company shall have any interest in such funds by virtue of this Plan. 13.2 The rights of any Grantee to benefits under this Plan shall be solely those of any unsecured creditor of the Company. Any insurance policy or other assets 8 - OREGON METALLURGICAL CORPORATION LONG TERM INCENTIVE COMPENSATION STOCK APPRECIATION RIGHTS PLAN (SWW2/65385/103687/PST/626971.3) acquired or held by the Company in connection with the liabilities assumed by it pursuant to this Plan shall not be deemed to be held under any trust for the benefit of any Grantee, a beneficiary of any Grantee, any Grantee's estate, or to be security for the performance of the obligations of the Company but shall be a general, unpledged and unrestricted asset of the Company. 13.3 Any amount payable under this Plan shall not be deemed salary or other compensation of any Grantee for the purpose of computing benefits to which he or she may be entitled under any pension plan or other arrangement of the Company or its Subsidiaries for the benefit of its Grantees. 13.4 The benefits payable under this Plan shall be independent of, and in addition to, any other agreement relating to any Grantee's employment that may exist from time to time between the parties hereto, or any other compensation payable by the Company to any Grantee, whether salary, bonus or otherwise. 13.5 This Plan shall not be deemed to constitute a contract of employment between the Company and any Grantee, nor shall any provision of this Plan be interpreted to restrict the right of the Company to discharge any Grantee or restrict the right of any Grantee to terminate his or her employment. 13.6 The Company in its discretion may apply for and procure as owner and for its own benefit insurance on the life of any Grantee who is a participant in the Plan in such amounts and in such forms as the Company may choose. Such Grantee shall have no interest whatsoever in any such policy or policies, but at the request of the Company he or she shall submit to medical examinations and supply such information and execute such documents as may be required by the insurance company or companies to whom the Company has applied for insurance. 13.7 Transfer of any Grantee from employment by the Company to employment by a Subsidiaries or the transfer of any Grantee from employment by a Subsidiaries to the Company shall not be deemed a termination of employment. 13.8 Each Grantee shall execute a Grantee's statement substantially in the same form as Exhibit A. 13.9 The amounts payable under the Plan shall not be subject to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge. Any attempt to anticipate, alienate, transfer, assign, pledge, encumber or charge the same shall be void and shall terminate the Grantee's rights hereunder whereupon the Company shall have no further liability to him or her. 9 - OREGON METALLURGICAL CORPORATION LONG TERM INCENTIVE COMPENSATION STOCK APPRECIATION RIGHTS PLAN (SWW2/65385/103687/PST/626971.3) 13.10 Each Grantee shall file with the Company a written designation of one or more persons as beneficiary who shall be entitled to receive the amount, if any, payable under the Plan upon the death of the Grantee (substantially in the form of Exhibit B). A Grantee may revoke or change his or her beneficiary designation without the consent of a prior beneficiary by filing a new designation with the Company. The last such designation received by the Company shall be controlling; provided, however, that no designations shall be effective unless received by the Company prior to the Grantee's death and in no event shall it be effective as of the date prior to such receipt. Beneficiary designations of Grantees who are residents of community property states must also be executed by the Grantee's spouse, if any. 13.11 If no such beneficiary designation is in effect at the time of a Grantee's death, or if no designated beneficiary survives the Grantee, or if such designation conflicts with law, the Grantee's estate shall be deemed to have been designated his or her beneficiary and shall receive the payment of the amount, if any, payable under the Plan upon his or her death. If the Company is in doubt as to the right of any person to receive such amount, the Company may retain such amount, without incurring any liability to such person, and without liability for any interest on such amount, until the rights thereto are determined, or the Company may pay such amount into any court of appropriate jurisdiction and such payment shall be a complete discharge of the liability of the Plan and the Company therefor. 13.12 For accounting purposes, any grants which are forfeited under this Plan shall be treated as if they were returned to the Company and other Grantees shall have no rights in or to the forfeited amounts. 13.13 The Company shall annually give each Grantee who has been granted Units a statement (substantially in the form as Exhibit C) setting forth the number of Units granted, the Grant Date, the Fair Market Value for each grant, and the Fair Market Value for each grant as of the statement date. 14. CLAIMS PROCEDURE. 14.1 CLAIMS. If a Grantee is denied all or a portion of an expected benefit under the terms of this Plan for any reason, the Company shall notify the Claimant within 60 days of the determination of the denial. The notice shall be in writing, sent by mail to the Claimant's last known address and must contain the following information: 14.1.1 The specific reasons for the denial; 14.1.2 Specific reference to pertinent provisions of this Plan on which the denial is based; and 10 - OREGON METALLURGICAL CORPORATION LONG TERM INCENTIVE COMPENSATION STOCK APPRECIATION RIGHTS PLAN (SWW2/65385/103687/PST/626971.3) 14.1.3 If applicable, a description of any additional information or material necessary to perfect the claim, an explanation of why such information or material is necessary and an explanation of the claims review procedure. 14.2 REVIEW PROCEDURE. A Claimant is entitled to request a review of any denial by the Company. The request for review must be submitted in writing within 60 days of the Claimant's receipt of the notice of the denial. Absent a request for review within the 60-day period, the claim will be deemed to be conclusively denied. The Claimant or his or her representative shall be entitled to review all pertinent documents, and to submit issues and comments in writing. 14.3 FINAL DECISION. Within 60 days of receipt of the Claimant's request for review, the Company shall allow or deny the review. The decision shall be made in writing to the Claimant. The decision shall recite the facts and reasons for its position, with specific reference to the pertinent provisions of this Plan. 15. ACCOUNTING. All accounting issues arising due to the existence of this Plan shall be determined in accordance with generally accepted accounting principles. 16. AMENDMENT OR TERMINATION. This Plan shall terminate ten years from the Effective Date of the Plan or such earlier time as the Board may determine. The Board may from time to time in its discretion amend or modify this Plan without the approval of the shareholders of the Company, except as such approval as may be required under the 1934 Act or the Code. Any amendment or termination, whether in whole or in part, shall not affect a grant then outstanding under this Plan. 17. NONUNIFORM DETERMINATIONS. Neither the Committee's or the Board's determinations under this Plan need be uniform and may be made by the Committee or the Board selectively among persons who receive, or are eligible to receive, Units (whether or not such persons are similarly situated). 18. CONTROLLING LAW. The Plan and all determinations made and actions taken pursuant thereto shall be governed by the laws of the State of Oregon and construed in accordance therewith. 19. SEVERABILITY. If all or any part of this Plan is declared by any court, governmental authority or arbitrator to be unlawful or invalid, such unlawfulness or invalidity shall not serve to invalidity shall not serve to invalidate any portion of this Plan not declared to be unlawful or invalid. Any Section or part of a Section so declared to be unlawful or invalid shall, if possible, be construed in a manner which will give effect to the terms of such Section or part of a Section to the fullest extent possible while remaining lawful and valid. 11 - OREGON METALLURGICAL CORPORATION LONG TERM INCENTIVE COMPENSATION STOCK APPRECIATION RIGHTS PLAN (SWW2/65385/103687/PST/626971.3) 20. ARBITRATION. Any claim or controversy arising under or in connection with this Plan shall be settled exclusively by binding arbitration in Albany, Oregon in accordance with the rules of the American Arbitration Association and the laws of the State of Oregon then in effect. The parties consent to the jurisdiction of the Circuit Court of the State of Oregon, Linn County, and the United States District Court for the District of Oregon, for all purposes in connection with this Section. Judgment may be entered on the arbitrator's award in any court having jurisdiction. Costs of such arbitration shall be borne equally by the parties to the arbitration. Arbitration shall be by a single arbitrator selected by the parties or if the parties are unable to agree upon an arbitrator, the Circuit Court of the State of Oregon, Linn County, shall appoint an arbitrator. The parties agree that the arbitrator shall have no jurisdiction to consider evidence with respect to or render an award or judgment for punitive damages (or any other amount awarded for the purpose of imposing a penalty). The parties agree that all facts and other information relating to any arbitration arising under this Agreement shall be kept confidential to the fullest extent permitted by law. OREGON METALLURGICAL CORPORATION an Oregon corporation By:______________________ Its:______________________ 12 - OREGON METALLURGICAL CORPORATION LONG TERM INCENTIVE COMPENSATION STOCK APPRECIATION RIGHTS PLAN (SWW2/65385/103687/PST/626971.3) EXHIBIT A PARTICIPANT'S STATEMENT I have read the Oregon Metallurgical Corporation Long Term Incentive Compensation Stock Appreciation Rights Plan ("Plan") and understand that it sets forth my rights in the Plan and that I have no other rights except as set forth therein. I understand this is a discretionary, discriminatory Plan. I further understand that under certain circumstances, all or a portion of the benefits payable to me under the Plan may be forfeited. DATED this ______ day of ___________________, 19___. _________________________ Participant 1 - EXHIBIT A (SWW2/65385/103687/PST/626971.3) EXHIBIT B BENEFICIARY DESIGNATION Pursuant to the provisions of the Oregon Metallurgical Corporation Long Term Incentive Compensation Stock Appreciation Rights Plan, I designate the following as my beneficiary or beneficiaries to whom any interest I may then have in the Plan shall be paid in the event of my death (it being specifically understood that I reserve such rights as may be available to me under the Plan to change this beneficiary designation). PRIMARY BENEFICIARY SECONDARY BENEFICIARY ______________________________ __________________________ Name Name ______________________________ __________________________ Address Address ______________________________ __________________________ Social Security No. Social Security No. ______________________________ __________________________ Relationship Relationship NOTE: Give full name, address, Social Security number and relationship of beneficiary or beneficiaries. Attach additional designations, if necessary. DATED this ______ day of _____________________, 19____. __________________________ Participant _________________________ Spouse (if applicable) The forgoing form was received by Oregon Metallurgical Corporation on the ______ day of ___________________, 19_____. OREGON METALLURGICAL CORPORATION an Oregon corporation By:_______________________________ 1 - EXHIBIT B (SWW2/65385/103687/PST/626971.3) EXHIBIT C MODEL STATEMENT OF ACCOUNT _________________________ _________________________ _________________________ Name and Address of Participant _________________________ Social Security Number
================================================================================================================ A. B. C. D. E. F. G. Grant Number of Fair Fair Market Value of a Total Date Units Market Value of Share Unit as of Value of Percent Granted Value of of Company December Units Vested Share on Common 31, ______ (COLUMNS Grant December 31, (COLUMNS BxE) Date ____ D-C) _______________________________________________________________________________________________________________ _______________________________________________________________________________________________________________ _______________________________________________________________________________________________________________ _______________________________________________________________________________________________________________ Totals ===================================================================================================================
Fair Market Value of one Share of Common Stock of Oregon Metallurgical Corporation as of December 31, __________ was $________________. YOUR INTEREST IS CONTINGENT ONLY AND IS SUBJECT TO FORFEITURE. A COPY OF THE PLAN CAN BE OBTAINED FROM THE SECRETARY OF THE COMPANY. 1 - EXHIBIT C (SWW2/65385/103687/PST/626971.3) EX-10.18 5 OREGON METALLURGICAL CORPORATION SAVINGS PLAN Table of Contents DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.1. "Actual Contribution Percentage" . . . . . . . . . . . 1 1.2. "Actual Deferral Percentage" . . . . . . . . . . . . . 2 1.3. "Adjusted Balance" . . . . . . . . . . . . . . . . . . 2 1.4. "Annual Additions" . . . . . . . . . . . . . . . . . . 2 1.5. "Beneficiary". . . . . . . . . . . . . . . . . . . . . 2 1.6. "Board". . . . . . . . . . . . . . . . . . . . . . . . 2 1.7. "Break in Service" . . . . . . . . . . . . . . . . . . 2 1.8. "Code" . . . . . . . . . . . . . . . . . . . . . . . . 3 1.9. "Committee". . . . . . . . . . . . . . . . . . . . . . 3 1.10. "Company" or "Oremet". . . . . . . . . . . . . . . . . 4 1.11. "Company Discretionary Contribution" . . . . . . . . . 4 1.12. "Company Discretionary Contribution Account" . . . . . 4 1.13. "Compensation" or "Earnings" . . . . . . . . . . . . . 4 1.14. "Early Retirement Date". . . . . . . . . . . . . . . . 5 1.15. "Employee" . . . . . . . . . . . . . . . . . . . . . . 5 1.16. "Employment Year". . . . . . . . . . . . . . . . . . . 5 1.17. "Equity Contributions" . . . . . . . . . . . . . . . . 6 1.18. "Equity Contribution Accounts" . . . . . . . . . . . . 6 1.19. "Entry Date" . . . . . . . . . . . . . . . . . . . . . 6 1.20. "ERISA". . . . . . . . . . . . . . . . . . . . . . . . 6 1.21. "Highly Compensated Participant" . . . . . . . . . . . 6 1.22. "Hour of Service". . . . . . . . . . . . . . . . . . . 6 1.23. "Investment Fund" or "Fund". . . . . . . . . . . . . . 7 1.24. "Limitation Year". . . . . . . . . . . . . . . . . . . 7 1.25. "Matching Contributions" . . . . . . . . . . . . . . . 7 1.26. "Matching Contribution Account". . . . . . . . . . . . 7 1.27. "Maximum Permissible Amount" . . . . . . . . . . . . . 8 1.28. "Net Profits". . . . . . . . . . . . . . . . . . . . . 8 1.29. "Normal Retirement Date" . . . . . . . . . . . . . . . 8 1.30. "Participant". . . . . . . . . . . . . . . . . . . . . 8 1.31. "Percentage Return on Equity" or "Return on Equity". . 8 1.32. "Plan" . . . . . . . . . . . . . . . . . . . . . . . . 8 1.33. "Plan Year". . . . . . . . . . . . . . . . . . . . . . 8 1.34. "Related Employer" . . . . . . . . . . . . . . . . . . 8 1.35. "Related Plan" . . . . . . . . . . . . . . . . . . . . 8 1.36. "Salary Reduction Agreement" . . . . . . . . . . . . . 8 i 1.37. "Salary Reduction Contributions" . . . . . . . . . . . 8 1.38. "Salary Reduction Contribution Account". . . . . . . . 9 1.39. "Service". . . . . . . . . . . . . . . . . . . . . . . 9 1.40. "Supplemental Company Contribution". . . . . . . . . . 9 1.41. "Trust" or "Trust Fund". . . . . . . . . . . . . . . . 9 1.42. "Trust Agreement". . . . . . . . . . . . . . . . . . . 9 1.43. "Trustee". . . . . . . . . . . . . . . . . . . . . . . 9 1.44. "Valuation Date" or "Quarterly Valuation Date" . . . . 9 1.45. "Voluntary Contributions". . . . . . . . . . . . . . . 9 1.46. "Voluntary Contribution Account" . . . . . . . . . . . 9 1.47. "Year of Service". . . . . . . . . . . . . . . . . . . 9 PARTICIPATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 2.1. Eligibility. . . . . . . . . . . . . . . . . . . . . . 10 2.2. Salary Reduction Contributions . . . . . . . . . . . . 10 2.3. Reemployment of a Participant. . . . . . . . . . . . . 10 SALARY REDUCTION CONTRIBUTIONS. . . . . . . . . . . . . . . . . . . . 10 3.1. Salary Reductions. . . . . . . . . . . . . . . . . . . 10 3.2. Administrative Rules Governing Salary Reduction Agreements . . . . . . . . . . . . . . . . . . . . . 12 3.3. Limitations on Salary Reduction Contributions. . . . . 12 3.4. Recharacterization and Return of Certain Salary Reduction Contributions. . . . . . . . . . . . . . . 14 3.5. Treatment of Associated Matching Contribution. . . . . 14 3.6. Distributions From Salary Reduction Contribution Accounts . . . . . . . . . . . . . . . . . . . . . . 15 3.7. Accounting . . . . . . . . . . . . . . . . . . . . . . 15 3.8. Supplemental Company Contributions . . . . . . . . . . 15 OTHER CONTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . 16 4.1. Company Discretionary Contributions. . . . . . . . . . 16 4.2. Matching Contributions . . . . . . . . . . . . . . . . 16 4.3. Equity Contributions . . . . . . . . . . . . . . . . . 17 4.4 Voluntary Contributions. . . . . . . . . . . . . . . . 18 4.5. Limitations on Contributions . . . . . . . . . . . . . 18 4.6. Rules Governing Matching Contributions and Voluntary Contributions. . . . . . . . . . . . . . . . . . . . 19 4.7. Exclusive Benefit of Employees . . . . . . . . . . . . 22 4.8. Transfers From Qualified Plans . . . . . . . . . . . . 23 ALLOCATIONS TO PARTICIPANTS' ACCOUNTS . . . . . . . . . . . . . . . . 25 5.1. Separate Accounts. . . . . . . . . . . . . . . . . . . 25 5.2. Allocations of Company Discretionary Contributions and Forfeitures. . . . . . . . . . . . . . . . . . . . . 25 5.3. Allocation to Salary Reduction Contribution Accounts . . . . . . . . . . . . . . . . . . . . . . 25 5.4. Allocation of Matching Contributions . . . . . . . . . 26 5.5. Allocation of Voluntary Contributions and Forfeitures. . . . . . . . . . . . . . . . . . . . . 26 ii 5.6. Maximum Allocation . . . . . . . . . . . . . . . . . . 27 5.7. Vesting. . . . . . . . . . . . . . . . . . . . . . . . 29 5.8. Allocations and Adjustments to Accounts. . . . . . . . 30 5.9. Installments . . . . . . . . . . . . . . . . . . . . . 31 5.10 Valuation of Oremet Stock. . . . . . . . . . . . . . . 31 PAYMENT OF BENEFITS . . . . . . . . . . . . . . . . . . . . . . . . . 31 6.1. Payments on Retirement . . . . . . . . . . . . . . . . 31 6.2 Payments on Death. . . . . . . . . . . . . . . . . . . 32 6.3. Payments on Disability . . . . . . . . . . . . . . . . 33 6.4. Payments on Termination for Other Reasons. . . . . . . 34 6.5. Pretermination Distributions . . . . . . . . . . . . . 35 6.6. Methods of Payment . . . . . . . . . . . . . . . . . . 37 6.7. Distribution of Unallocated Employee Contributions . . 40 6.8. Administrative Powers Relating to Payments . . . . . . 40 6.9. Withdrawals from Voluntary Contribution Account. . . . 41 6.10 Investment Pending Distribution. . . . . . . . . . . . 41 PLAN ADMINISTRATION . . . . . . . . . . . . . . . . . . . . . . . . . 41 7.1. Company Responsibility . . . . . . . . . . . . . . . . 41 7.2. Powers and Duties of Committee . . . . . . . . . . . . 41 7.3. Organization and Operation of Committee. . . . . . . . 42 7.4. Records and Reports of Committee . . . . . . . . . . . 42 7.5. Claims Procedure . . . . . . . . . . . . . . . . . . . 42 7.6. Compensation and Expenses of Committee . . . . . . . . 43 7.7. Indemnity of Committee Members . . . . . . . . . . . . 43 7.8 Voting Rights and Stock Dispositions . . . . . . . . . 43 LOANS TO PARTICIPANTS . . . . . . . . . . . . . . . . . . . . . . . . 45 8.1. Loans to Participants. . . . . . . . . . . . . . . . . 45 8.2. Maximum Loan Amount. . . . . . . . . . . . . . . . . . 46 8.3. Repayment of Loans . . . . . . . . . . . . . . . . . . 47 8.4. Terms. . . . . . . . . . . . . . . . . . . . . . . . . 47 INVESTMENT FUNDS. . . . . . . . . . . . . . . . . . . . . . . . . . . 50 9.1. Investment Funds . . . . . . . . . . . . . . . . . . . 50 9.2. Initial Investment . . . . . . . . . . . . . . . . . . 51 9.3. Selection of Investment Funds. . . . . . . . . . . . . 51 AMENDMENT AND TERMINATION . . . . . . . . . . . . . . . . . . . . . . 52 10.1. Amendment of Plan. . . . . . . . . . . . . . . . . . . 52 10.2. Voluntary Termination of or Permanent Discontinuance of Contributions to the Plan . . . . . . . . . . . . 52 III 10.3. Involuntary Termination of Plan. . . . . . . . . . . . 52 10.4. Payments on Termination of or Permanent Discontinuance of Contributions to the Plan. . . . . 53 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 11.1. Duty To Furnish Information and Documents. . . . . . . 53 11.2. Committee's Annual Statements and Available Information. . . . . . . . . . . . . . . . . . . . . 53 11.3. No Enlargement of Employment Rights. . . . . . . . . . 54 11.4. Applicable Law . . . . . . . . . . . . . . . . . . . . 54 11.5. No Guarantee . . . . . . . . . . . . . . . . . . . . . 54 11.6. Unclaimed Funds. . . . . . . . . . . . . . . . . . . . 54 11.7. Merger or Consolidation of Plan. . . . . . . . . . . . 55 11.8. Interest Nontransferable . . . . . . . . . . . . . . . 55 11.9. Prudent Man Rule . . . . . . . . . . . . . . . . . . . 55 11.10. Limitations on Liability . . . . . . . . . . . . . . . 56 11.11. Headings . . . . . . . . . . . . . . . . . . . . . . . 56 11.12. Gender and Number. . . . . . . . . . . . . . . . . . . 56 11.13. ERISA and Approval Under Internal Revenue Code . . . . 56 11.14. Extension of Plan to Related Employers . . . . . . . . 56 TOP-HEAVY PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . . 57 12.1. Top-Heavy Status . . . . . . . . . . . . . . . . . . . 57 12.2. Definitions. . . . . . . . . . . . . . . . . . . . . . 57 12.3. Determination of Top-Heavy Status. . . . . . . . . . . 58 12.4. Vesting. . . . . . . . . . . . . . . . . . . . . . . . 59 12.5. Minimum Contribution . . . . . . . . . . . . . . . . . 60 12.6. Compensation . . . . . . . . . . . . . . . . . . . . . 60 12.7. Collective Bargaining Agreements . . . . . . . . . . . 60 iv OREGON METALLURGICAL CORPORATION SAVINGS PLAN This AGREEMENT is made this 27th day of September, 1995, by OREGON METALLURGICAL CORPORATION, a corporation (referred to as the Company), effective January 1, 1995. WITNESSETH: WHEREAS, the Company desires to increase certain of its Employees' interest in the Company by providing a medium through which they may share in the profitable operations of the Company; and WHEREAS, the Company wishes both to reward certain of its Employees for past service and to furnish additional security to certain of its Employees who become permanently disabled; NOW, THEREFORE, the Company hereby adopts the OREGON METALLURGICAL CORPORATION SAVINGS PLAN, effective as of January 1, 1995, as set forth below: ARTICLE I DEFINITIONS Whenever used herein the following words and phrases shall have the meanings stated below unless a different meaning is plainly required by the context: 1.1. "Actual Contribution Percentage" (if applicable for any year in which Voluntary Contributions are permitted) for a specified group of Participants for a given Plan Year means the average of the ratios, calculated separately for each Participant in such group, of: (a) the sum of the Voluntary Contributions, if any, contributed by the Participant to the Plan for such Plan Year and the Matching Contributions, if any, contributed by the Company on behalf of such Participant to the Plan for such Plan Year, to (b) the Participant's Compensation for the period of time during such Plan Year in which he was a participant. OREGON METALLURGICAL CORPORATION SAVINGS PLAN PAGE 1 1.2. "Actual Deferral Percentage" for a specified group of Participants for a given Plan Year means the average of the ratios, calculated separately for each Participant in such group, of: (a) the Salary Reduction Contributions, if any, and Supplemental Company Contributions, if any, contributed by the Company on behalf of each such Participant for such Plan Year to (b) the Participant's Compensation for the period of time during such Plan Year in which he was a Participant. 1.3. "Adjusted Balance" means the balance in a Participant's account or accounts, as adjusted in accordance with Sections 5.2, 5.3, 5.4, 5.5, 5.6 and 5.8 of the Plan as of the applicable Valuation Date. 1.4. "Annual Additions" means the total of: (a) Company contributions allocated to a Participant's accounts under this Plan and any Related Plan during any Limitation Year; (b) the amount of Employee contributions made by the Participant under this Plan and any Related Plan; and (c) forfeitures allocated to a Participant's accounts under this Plan and any Related Plan. Clauses (a) and (b) above include excess contributions under Sections 3.4 and 4.6. 1.5. "Beneficiary" means the person, persons, or entity designated or determined pursuant to the provisions of Section 6.2(b) of the Plan. 1.6. "Board" means the Board of Directors of the Company. 1.7. "Break in Service" means the termination of employment of an Employee followed by the expiration of an Employment Year in which the Employee accumulates fewer than 501 Hours of Service. For purposes of this Section: (a) A Break in Service shall not be deemed to have occurred if (i) the employment of a terminated Employee is resumed prior to the expiration of an Employment Year in which he accumulates fewer than 501 Hours of Service; (ii) the Employee is absent with the prior consent of the Company for a period not exceeding 12 months (which consent shall be granted under uniform rules applied to all Employees on a nondiscriminatory basis) and he returns to active employment with the Company upon the expiration of the period of authorized absence; or (iii) he leaves the Company to serve in the armed forces of the United States for a period during which his reemployment rights are guaranteed by law and he returns or offers to return to work for the Company prior to the expiration of his reemployment rights. OREGON METALLURGICAL CORPORATION SAVINGS PLAN PAGE 2 (b) An Employee who is absent from work with the Company because of (i) the Employee's pregnancy, (ii) the birth of the Employee's child, (iii) the placement of a child with the Employee in connection with the Employee's adoption of the child, or (iv) caring for such child immediately following such birth or placement shall receive credit, solely for purposes of determining whether a Break in Service has occurred under this Section, for the Hours of Service described in subsection (c) of this Section; provided that the total number of hours credited as Hours of Service under this subsection shall not exceed 501 Hours of Service. (c) In the event of an Employee's absence from work for any of the reasons set forth in subsection (b) of this Section, the Hours of Service that the Employee will be credited with under subsection (b) are (i) the Hours of Service that otherwise would normally have been credited to the Employee but for such absence, or (ii) eight Hours of Service per day of such absence if the Committee is unable to determine the Hours of Service described in clause (i). (d) An Employee who is absent from work for any of the reasons set forth in subsection (b) of this Section shall be credited with Hours of Service under subsection (b), (i) only in the Employment Year in which the absence begins, if the Employee would be prevented from incurring a Break in Service in that Year solely because the period of absence is treated as credited Hours of Service, as provided in subsections (b) and (c), or (ii) in any other case, in the immediately following Employment Year. (e) No credit for Hours of Service will be given pursuant to subsections (b), (c) and (d) of this Section unless the Employee furnishes to the Committee such timely information that the Committee may reasonably require to establish (i) that the absence from work is for one of the reasons specified in subsection (b) and (ii) the number of days for which there was such an absence. No credit for Hours of Service will be given pursuant to subsections (b), (c), and (d) for any purpose of the Plan other than the determination of whether an Employee has incurred a Break in Service pursuant to this Section. 1.8. "Code" means the Internal Revenue Code of 1986, as amended from time to time. Reference to a Section of the Code shall include that Section and any comparable Section or Sections of any future legislation that amends, supplements or supersedes said Section. 1.9. "Committee" means the Plan Administrative Committee described in Section 7.1 of the Plan. OREGON METALLURGICAL CORPORATION SAVINGS PLAN PAGE 3 1.10. "Company" or "Oremet" means OREGON METALLURGICAL CORPORATION, an Oregon corporation, or any successor corporation resulting from a merger or consolidation with the Company or transfer of substantially all of the assets of the Company, if such successor or transferee shall adopt and continue the Plan by appropriate corporate action, pursuant to Section 11.3 of the Plan. 1.11. "Company Discretionary Contribution" means a contribution made by the Company pursuant to the provisions of Section 4.1 of the Plan. 1.12. "Company Discretionary Contribution Account" means the record of money and assets held by the Trustee for an individual Participant or Beneficiary pursuant to the provisions of the Plan, derived from Company Discretionary Contributions to the Trust. 1.13. "Compensation" or "Earnings" means a Participant's total remuneration from the Company paid during a Plan Year for services rendered, as reflected in Box 10 (or similar item subsequently redesignated) of the participant's IRS Form W-2 for the calendar year corresponding to the Plan Year, and excludes the taxable portion of moving expense, and compensation which is not currently includible in the Participant's gross income by reason of the application of Code Section 125, 402 (e)(3), 402 (h)(1)(B), or 403 (b), and includes amounts subject to the Salary Reduction Agreement under this Plan. (a) In addition to other applicable limitations set forth in the Plan and notwithstanding any other provision of the Plan to the contrary, for Plan Years beginning on or after January 1, 1994, the annual Compensation of each Employee taken into account under the Plan shall not exceed the OBRA '93 annual compensation limit. The OBRA '93 annual compensation limit is $150,000, as adjusted by the Commissioner for increases in the cost of living in accordance with Section 401(a)(17)(B) of the Code. The cost-of-living adjustment in effect for a calendar year applies to any period, not exceeding 12 months, over which Compensation is determined (determination period) beginning in such calendar year. If a determination period consists of fewer than 12 months, the OBRA '93 annual compensation limit will be multiplied by a fraction, the numerator of which is the number of months in the determination period, and the denominator of which is 12. (b) For Plan Years beginning on or after January 1, 1994, any reference in this Plan to the limitation under Section 401(a)(17) of the Code shall mean the OBRA '93 annual compensation limit set forth in this provision. (c) If Compensation for any prior determination period is taken into account in determining an Employee's benefits accruing in the current Plan Year, the Compensation for that prior determination period is subject to the OBRA '93 annual compensation limit in effect for that prior determination period. For this purpose, for OREGON METALLURGICAL CORPORATION SAVINGS PLAN PAGE 4 determination periods beginning before the first day of the first Plan Year beginning on or after January 1, 1994, the OBRA '93 annual compensation limit is $150,000. (d) Compensation shall exclude (a)(1) contributions made by the Employer to a qualified or non-qualified plan of deferred compensation to the extent that the contributions are not includable in the gross income of the Participant for the taxable year in which contributed, (2) any distributions from a qualified or non-qualified plan of deferred compensation; (b) amounts realized from the exercise of a non-qualified stock option, or when restricted stock (or property) held by an Employee either becomes freely transferable or is no longer subject to a substantial risk of forfeiture; (c) amounts realized from the sale, exchange or other disposition of stock acquired under a qualified stock option; and (d) other amounts which receive special tax benefits. 1.14. "Early Retirement Date" means (a) the date a Participant attains age 55 and has completed five (5) years of service, or (b) the date that any combination of the total of a Participant's Years of Service and age add up to 75. 1.15. "Employee" means an individual employed by the Company that has completed IRS Form W-4, provided, however, that "Employee" does not include any individual who is a non-resident alien and who receives no earned income from the Company which constitutes income from sources within the United States. Employees of a Related Employer shall be excluded from this Plan unless the Plan is adopted by the Related Employer. Notwithstanding anything to the contrary contained in this Section 1.15, no provision of this Section 1.15 shall be construed or interpreted to require the Company to make a Company contribution under the Plan for any individual who is not an Employee. A person who performs service for the Company as an independent contractor is not an Employee for purposes of this Plan. A person who is not employed by the Company but who performs services for the Company pursuant to an agreement between the Company and a leasing organization shall be considered a "leased Employee" after such person performs such services on a substantially full-time basis for at least 12 months and the services are of a type historically performed by Employees in the business field of the Company. A person who is considered a leased Employee of the Company shall not be considered an Employee for purposes of the Plan. If a leased Employee subsequently becomes an Employee, and thereafter participates in the Plan, he shall be given credit for Hours of Service and Service for his period of employment as a leased Employee, except to the extent that the requirements of Section 414(n)(5) of the Code were satisfied with respect to such Employee while he was a leased Employee. 1.16. "Employment Year", if applicable, means a 12-consecutive-month period commencing with an Employee's initial date of hire (or last date of rehire if he has incurred a Break OREGON METALLURGICAL CORPORATION SAVINGS PLAN PAGE 5 in Service) or with any anniversary thereof. An Employee's date of hire shall be the first day on which he completes an Hour of Service and his date of rehire shall be the first day on which he completes an Hour of Service following a Break in Service. 1.17. "Equity Contributions" means amounts contributed by the Company pursuant to Section 4.3 of the Plan. 1.18. "Equity Contribution Accounts" means the record of Oremet common stock held by the Trustee for an Individual Participant or Beneficiary pursuant to the provisions of the Plan derived from Equity Contributions. 1.19. "Entry Date" means the Employee's date of hire, and for Employees employed on the Effective Date, the Entry Date is the Effective Date. 1.20. "ERISA" means Public Law No. 93-406, the Employee Retirement Income Security Act of 1974, as amended from time to time. 1.21. "Highly Compensated Participant" means a Participant who, during the current Plan Year or the preceding Plan Year, (a) was at any time a five-percent owner of the Company, (b) received Compensation from the Company in excess of $75,000 (or such greater amount provided by the Secretary of the Treasury pursuant to Section 414(q) of the Code), (c) received Compensation from the Company in excess of $50,000 (or such greater amount provided by the Secretary of the Treasury pursuant to Section 414(q) of the Code) and was in the top paid group of Employees for such Plan Year, or (d) was at any time an officer of the Company and received Compensation from the Company greater than 50% of the amount in effect under Section 415(b)(1)(A) of the Code for such Plan Year. The provisions of Section 414(q) of the Code shall apply in determining whether a Participant is a Highly Compensated Participant. The Company for any Plan Year may elect to identify Highly Compensated Participants based upon only the current Plan Year to the extent permitted by Section 414(q) of the Code and Regulations issued thereunder. 1.22. "Hour of Service" means (i) each hour for which an Employee is paid or entitled to payment for the performance of duties for the Company; and (ii) each hour for which an Employee is directly or indirectly paid by the Company or is entitled to payment from the Company during which no duties are performed by reason of vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence (but not in excess of 501 hours in any continuous period during which no duties are performed). Each Hour of Service for which back pay, irrespective of mitigation of damages, is either awarded or agreed to by the Company shall be included under either (i) or (ii) as may be appropriate. Hours of Service shall be credited: (a) in the case of hours referred to in clause (i) of the first sentence of this Section, for the computation period in which the duties are performed; OREGON METALLURGICAL CORPORATION SAVINGS PLAN PAGE 6 (b) in the case of hours referred to in clause (ii) of the first sentence of this Section, for the computation period or periods in which the period during which no duties are performed occurs; and (c) in the case of hours for which back pay is awarded or agreed to by the Company, for the computation period or periods to which the award or agreement pertains, rather than to the computation period in which the award, agreement or payment is made. In determining Hours of Service, an Employee who is employed by the Company on other than an hourly rated basis shall be credited with 10 Hours of Service per day for each day the Employee would, if hourly rated, be credited with service pursuant to clause (i) of the first sentence of this Section 1.22. If an Employee is paid for reasons other than the performance of duties pursuant to clause (ii) of the first sentence of this Section 1.22: (i) in the case of a payment made or due which is calculated on the basis of units of time, an Employee shall be credited with the number of regularly scheduled working hours included in the units of time on the basis of which the payment is calculated; and (ii) an Employee without a regular work schedule shall be credited with 8 Hours of Service per day (to a maximum of 40 Hours of Service per week) for each day that the Employee is so paid. Hours of Service shall be calculated in accordance with Department of Labor Regulations 2530.200b-2 or any future legislation or regulation that amends, supplements or supersedes said section. Solely for purposes of determining an Employee's (i) eligibility to participate in the Plan under Section 2.1, and (ii) vesting under Section 5.7, Hours of Service shall include hours during an approved leave of absence granted by an employer to an Employee on or after August 5, 1993 pursuant to the Family and Medical Leave Act, if the Employee returns to work for an employer at the end of such leave of absence. Such Hours of Service shall be calculated pursuant to the second sentence of this paragraph. 1.23. "Investment Fund" or "Fund" means any Fund as described on the schedule attached hereto. 1.24. "Limitation Year" means the 12-consecutive-month period to be used in determining the Plan's compliance with Code Section 415 and the regulations thereunder. The Company shall take all actions necessary to ensure that the Limitation Year is the same 12-month period as the Plan Year. 1.25. "Matching Contributions" means amounts contributed by the Company pursuant to Section 4.2 of the Plan. 1.26. "Matching Contribution Account" means the record of money and assets held by the Trustee for an individual Participant or Beneficiary pursuant to the provisions of the Plan derived from Matching Contributions. OREGON METALLURGICAL CORPORATION SAVINGS PLAN PAGE 7 1.27. "Maximum Permissible Amount" means the lesser of: (a) $30,000 (or, if greater, one-quarter of the dollar limitation in effect pursuant to Section 415(b)(1)(A) of the Code); or (b) 25% of a Participant's Compensation. 1.28. "Net Profits" means the net income or profits of the Company for a given fiscal year determined by the Company upon the basis of its books of account maintained in accordance with generally accepted accounting practices, consistently applied without any deduction for: (i) federal, state or local taxes based upon income; (ii) contributions made by the Company in accordance with the terms of this Plan; or (iii) contributions made by the Company to any other plan which is qualified under the provisions of Section 401 of the Code. 1.29. "Normal Retirement Date" means the date a Participant attains age 65. 1.30. "Participant" means an Employee who becomes a Participant under the provisions of Section 2.1 of the Plan. 1.31. "Percentage Return on Equity" or "Return on Equity" means profit (net income after tax) divided by average equity (the sum of the equity as of the end of the previous fiscal year and the end of each fiscal quarter divided by five). 1.32. "Plan" means the OREGON METALLURGICAL CORPORATION SAVINGS PLAN. For purposes of Section 401(a)(27)(B) of the Code, the Plan shall constitute a profit sharing plan. 1.33. "Plan Year" means the fiscal year of the Company, which is currently designated as the 12-month period from January 1 through December 31 of each year. Any other 12-consecutive- month period that may hereafter be designated as the fiscal year of the Company shall be the Plan Year. 1.34. "Related Employer" means (i) any corporation that is a member of a controlled group of corporations (as defined in Section 414(b) of the Code) that includes the Company; (ii) any trade or business (whether incorporated or unincorporated) that is under common control (as defined in Section 414(c) of the Code) with the Company; and (iii) any member of an affiliated service group (as defined in Section 414(m) of the Code) that includes the Company. 1.35. "Related Plan" means any other defined contribution plan (as defined in Section 415 of the Code) maintained by the Company or by any Related Employer. 1.36. "Salary Reduction Agreement" means a written agreement, entered into by a Participant, pursuant to the provisions of Sections 3.1 and 3.2 of the Plan. 1.37. "Salary Reduction Contributions" means amounts contributed by the Company on behalf of Participants pursuant to the provisions of Section 3.1 of the Plan. OREGON METALLURGICAL CORPORATION SAVINGS PLAN PAGE 8 1.38. "Salary Reduction Contribution Account" means the record of money and assets held by the Trustee for an individual Participant or Beneficiary pursuant to the provisions of the Plan, derived from Salary Reduction Contributions and Supplemental Company Contributions. 1.39. "Service" shall have the meaning set forth in "Year of Service", below. 1.40. "Supplemental Company Contribution" means a contribution made by the Company pursuant to the provisions of Section 3.8 of the Plan. 1.41. "Trust" or "Trust Fund" means all money, securities and other property held under the Trust Agreement for the purposes of the Plan. 1.42. "Trust Agreement" means the agreement between the Company and the Trustee governing the administration of the Trust, as it may be amended from time to time. 1.43. "Trustee" means the corporation or individuals appointed by the Board of Directors of the Company to administer the Trust. 1.44. "Valuation Date" or "Quarterly Valuation Date"means the last day of each calendar quarter and such other date, if any, as shall be selected by the Company, except that Company Discretionary Contributions shall have a Valuation Date that is the last day of the Plan Year (the "Annual Valuation Date") or such other date, if any, as shall be selected by the Company. "Valuation Period" means the time between consecutive Valuation Dates. 1.45. "Voluntary Contributions" means Participant after-tax contributions if specifically authorized by the Board and made pursuant to the provisions of Section 4.4. 1.46. "Voluntary Contribution Account" means the record of money and assets held by the Trustee for an individual Participant or Beneficiary pursuant to the provisions of the Plan, derived from Voluntary Contributions. 1.47. "Year of Service" means the computation period of twelve (12) consecutive months, herein set forth, during which an Employee has at least 1,000 Hours of Service. For vesting purposes, the computation period shall be the Plan Year, including periods prior to the Effective Date of the Plan. Service shall include an approved leave of absence granted to an Employee on or after August 5, 1993 pursuant to the Family and Medical Leave Act, if the Employee returns to work for an employer at the end of such leave of absence. Without regard to the preceding provisions of this Section 1.47, a Participant's years of Service after a period of five consecutive one-year Breaks in Service shall be disregarded for purposes of determining his nonforfeitable interest in his Company Discretionary Contribution Account as of the Valuation Date coincident with or next preceding the date he incurs such five consecutive one-year Breaks in Service. For any short Plan Year, the OREGON METALLURGICAL CORPORATION SAVINGS PLAN PAGE 9 determination of whether an Employee has completed a Year of Service shall be made in accordance with Department of Labor Regulation 2530.203-2(c). ARTICLE II PARTICIPATION 2.1. ELIGIBILITY. Each Employee employed on the Effective Date (January 1, 1995) shall become a Participant in this Plan on the Effective Date. Employees hired after the Effective Date shall become eligible to participate upon completion of a period of employment of 120 calendar days with the Company. After satisfying the eligibility requirements, an employee shall become a Participant as of the employee's date of hire. 2.2. SALARY REDUCTION CONTRIBUTIONS. Each Participant shall be entitled to authorize Salary Reduction Contributions to be made by the Company on his behalf effective as of the first full payroll period following satisfaction of the eligibility requirements of Section 2.1 after the date he becomes a Participant. Each such Participant shall authorize such Salary Reduction Contributions by executing and filing with the Committee a Salary Reduction Agreement and such other forms as may be required by the Committee, which the Committee will provide as soon as practicable after the Employee satisfies the eligibility requirements of Section 2.1. 2.3. REEMPLOYMENT OF A PARTICIPANT. If an Employee who has satisfied the eligibility requirements of Section 2.1 shall incur a Break in Service and shall thereafter be reemployed by the Company, he shall again become eligible to participate under the Plan on the date of his resumption of employment. Upon such reemployment by the Company, all Years of Service before such Break shall be taken into account for purposes of vesting under Section 5.7 if any part of the Participant's benefit derived from Company contributions was nonforfeitable. If no part of the Participant's benefit derived from Company contributions was nonforfeitable when he incurred such Break, years of Service with the Company completed prior to such Break shall not be required to be taken into account in any event if the number of consecutive one-year Breaks in Service equals or exceeds the greater of (A) five or (B) the aggregate number of years of Service completed prior to such Break. ARTICLE III SALARY REDUCTION CONTRIBUTIONS 3.1. SALARY REDUCTIONS. (a) (i) Each Participant may elect, by entering into a Salary Reduction Agreement with the Company, to reduce his Earnings from the Company by any integral percentage, as elected by the OREGON METALLURGICAL CORPORATION SAVINGS PLAN PAGE 10 Participant, but not to exceed a maximum of 15% of a Participant's Earnings. Reductions to a Participant's Earnings pursuant to his Salary Reduction Agreement shall be effected through payroll deductions. Salary Reduction Agreements shall be subject to the special rules set forth in this Article III. (ii) If specifically authorized by the Board, and effective when specified by the Committee, for the duration of the Collective Bargaining Agreement entered into in 1994 between the Company and the United Steelworkers of America, Local 7150, each Participant may elect as part of the Salary Reduction Agreement to defer receipt of all (or any portion) of the Participant's Equity Bonus Compensation. "Equity Bonus Compensation" means the bonus compensation of one (1) share of common stock of the Company awarded for each $100 of Earnings of the Participant as described in the Stock Compensation Plan -- Salaried Employees and the Stock Compensation Plan -- Union Employees. Deferred Equity Bonus Compensation shall be regarded as salary reduction for a Participant and held in the Participant's Equity Bonus Compensation Account. (b) Notwithstanding any provision of the Plan to the contrary, the elective deferrals (as defined in Section 402(g)(3) of the Code, including Salary Reduction Contributions) of any Participant for any taxable year of the Participant shall not exceed the amount set forth in Section 402(g) of the Code, as adjusted by the Secretary of the Treasury pursuant to Sections 402(g)(5) and 415(d) of the Code. Notwithstanding paragraph (a), fractional reductions shall be permitted where necessary to comply with the limit imposed by Section 402(g)(3) of the Code. Any amount contributed to the Plan by the Company on behalf of a Participant during any Plan Year, pursuant to the Participant's Salary Reduction Agreement, in excess of the limitations set forth in this subsection, adjusted for earnings, gains, and losses allocable thereto, shall be paid directly to the Participant within the time period set forth in Section 402(g)(2) of the Code. (c) The Company shall contribute to the Trust a Salary Reduction Contribution in an amount equal to the total amount subject to Salary Reduction Agreements and deducted from payroll during the period from the last preceding Valuation Date and not reduced pursuant to Sections 3.3 and 3.4. The Company shall pay to the Trustee its Salary Reduction Contribution as of the earliest date on which such Contributions can reasonably be segregated from the Company's general assets, not to exceed 90 days from the date on which such amounts would otherwise have been payable to the Participants in cash. OREGON METALLURGICAL CORPORATION SAVINGS PLAN PAGE 11 3.2. Administrative Rules Governing Salary Reduction Agreements. (a) The Committee will set rules on the time periods within which a Salary Reduction Agreement can be entered, amended, or revoked. (b) The Committee, at its election, may amend, suspend or revoke a Salary Reduction Agreement with a Participant at any time if the Committee determines that such amendment, suspension or revocation is necessary to ensure that the Annual Additions to the accounts of a Participant for any Plan Year do not exceed the Maximum Permissible Amount for such Participant for that Plan Year or to ensure that the requirements of Section 3.3 are met for such Plan Year. 3.3. LIMITATIONS ON SALARY REDUCTION CONTRIBUTIONS. (a) Notwithstanding anything to the contrary contained elsewhere in the Plan or contained in any Salary Reduction Agreement, all Salary Reduction Agreements entered into with respect to any Plan Year shall be valid only if one of the tests set forth in subsection (b) of this Section is satisfied for such Plan Year. In determining whether such tests are satisfied, all Salary Reduction Contributions, Supplemental Company Contributions, if any, and excess Salary Reduction Contributions under Section 3.1(b) of Highly Compensated Participants, if any, made with respect to such Plan Year shall be considered. (b) For each Plan Year the Actual Deferral Percentage for Highly Compensated Participants shall bear to the Actual Deferral Percentage for all other Participants a relationship that satisfies either of the following tests: (i) The Actual Deferral Percentage for Highly Compensated Participants is not more than the Actual Deferral Percentage of all other Participants multiplied by 1.25; or (ii) The Actual Deferral Percentage for Highly Compensated Participants is not more than the Actual Deferral Percentage for all other Participants multiplied by two and the excess of the Actual Deferral Percentage for the group of Highly Compensated Participants over that of all other Participants is not more than two percentage points. That portion of the Plan that benefits hourly employees subject to the Collective Bargaining Agreement with the United Steelworkers of America will be tested separately from that portion of the Plan benefiting salaried employees not subject to such Collective Bargaining Agreement. OREGON METALLURGICAL CORPORATION SAVINGS PLAN PAGE 12 (c) If at the end of any Plan Year neither of the tests set forth in subsection (b) of this Section is satisfied for such Year, then: (i) Salary Reduction Agreements entered into for such Year by Highly Compensated Participants shall be valid only to the extent permitted by one of the tests set forth in subsection (b) of this Section, and Salary Reduction Contributions made by the Company for such Year for Highly Compensated Participants shall be reduced in the manner set forth in subsection (c)(ii) to the extent necessary to comply with one of the tests set forth in subsection (b) of this Section. All Salary Reduction Contributions so reduced, adjusted for earnings, gains and losses allocable thereto, shall be allocated and distributed in the manner provided in Section 3.4. (ii) Reductions pursuant to subsection (i) next above shall be effected with respect to Highly Compensated Participants pursuant to the following procedure: The Actual Deferral Percentage of the Highly Compensated Participant with the highest Actual Deferral Percentage shall be reduced to the extent necessary to cause such Highly Compensated Participant's Actual Deferral Percentage to equal the Actual Deferral Percentage of the Highly Compensated Participant with the next highest Actual Deferral Percentage. This process shall be repeated until the Plan satisfies one of the tests set forth in subsection (b) of this Section for such Plan Year. (iii) Salary Reduction Agreements entered into by all Participants who are not Highly Compensated Participants shall be valid and Salary Deferral Contributions made by the Company for such Participants shall not be changed. The calculations, reductions and allocations required by this Section 3.3 and Section 3.4 shall be made by the Company with respect to a Plan Year at any time prior to the close of the following Plan Year. (d) If at any time during a Plan Year the Company, in its sole discretion, determines that neither of the tests set forth in subsection (b) of this Section 3.3 may be met for such Plan Year, then: (i) The Committee shall have the unilateral right during the Plan Year to require the prospective reduction, for the balance of such Year or any part thereof, of the percentage of the Earnings of Highly Compensated Participants that may be subject to Salary Reduction Agreements. Such reductions shall be made to the extent necessary, in the discretion of the Committee, to assure that one of the tests set forth in subsection (b) of this OREGON METALLURGICAL CORPORATION SAVINGS PLAN PAGE 13 Section 3.3 shall be met for the Plan Year and shall be based upon estimates made from data available to the Committee at any time during the Plan Year. (ii) Reductions pursuant to subsection (i) next above shall be effected with respect to Highly Compensated Participants pursuant to the following procedure: The Actual Deferral Percentage of the Highly Compensated Participant with the highest Actual Deferral Percentage shall be reduced to the extent necessary to cause such Highly Compensated Participant's Actual Deferral Percentage to equal the Actual Deferral Percentage of the Highly Compensated Participant with the next highest Actual Deferral Percentage. This process shall be repeated to the extent necessary to assure that one of the tests set forth in subsection (b) shall not be exceeded for such plan year. 3.4. RECHARACTERIZATION AND RETURN OF CERTAIN SALARY REDUCTION CONTRIBUTIONS. If a Salary Reduction Contribution made by the Company for a Highly Compensated Participant is reduced for a Plan Year pursuant to Section 3.3(c), the amount so reduced shall be allocated and distributed, at any time prior to the close of the following Plan Year, as follows: (a) To the extent permitted by regulations issued by the Secretary of the Treasury and as elected by the Highly Compensated Participant, if the Participant has not made Voluntary Contributions equal to the maximum amount permitted under the Plan, the amount reduced pursuant to Section 3.3(c), adjusted for earnings, gains and losses allocable thereto for the Plan Year, shall be deemed to be Voluntary Contributions made by the Participant and shall (within the limits contained in the Plan) be allocated to the Participant's Voluntary Contribution Account; or (b) To the extent that the procedure set forth in subsection (a) of this Section is not elected by the Highly Compensated Participant, or if the Highly Compensated Participant makes or is deemed to have made Voluntary Contributions equal to the maximum amount permitted by the Plan (through contributions made pursuant to Article IV of the Plan, pursuant to the operation of subsection (a), or both), any portion of the amount so reduced pursuant to Section 3.3(c) that is not allocated to the Participant's Voluntary Contribution Account pursuant to subsection (a) of this Section 3.4, adjusted for earnings, gains and losses allocable thereto for the Plan Year, pursuant to Section 401(k)(8) of the Code, shall be paid directly to the applicable Highly Compensated Participant. 3.5. TREATMENT OF ASSOCIATED MATCHING CONTRIBUTION. Any Matching Contribution that is associated with a Salary Reduction Contribution made by the Company for a Highly Compensated Participant that is reduced for a Plan Year pursuant to Section 3.3(c), shall continue to be treated as a Matching Contribution, subject to Section 4.6. OREGON METALLURGICAL CORPORATION SAVINGS PLAN PAGE 14 3.6. DISTRIBUTIONS FROM SALARY REDUCTION CONTRIBUTION ACCOUNTS. Notwithstanding anything to the contrary contained elsewhere in the Plan, a Participant's Salary Reduction Contribution Account shall not be distributable other than upon: (a) The Participant's separation from service, death, or disability; (b) Termination of the Plan without establishment or maintenance of another defined contribution plan (other than an employee stock ownership plan as defined in Section 4975(e)(7) of the Code); (c) The date of the sale or other disposition by the Company to an unrelated entity of substantially all of the assets (within the meaning of Section 409(d)(2) of the Code) used by the Company in a trade or business of the Company, where (i) the Participant is employed by such trade or business and continues employment with the entity acquiring such assets, and (ii) the Company continues to maintain the Plan after the sale or other disposition. The sale of 85% of the assets used in the trade or business shall be deemed a sale of "substantially all" of the assets used in such trade or business; (d) The date of the sale or other disposition by the Company of the Company's interest in a subsidiary (within the meaning of Section 409(d)(3) of the Code) to an unrelated entity, where (i) the Participant is employed by such subsidiary and continues employment with such subsidiary following such sale or other disposition, and (ii) the Company continues to maintain the Plan after the sale or other disposition; (e) The Participant's attainment of age 59 1/2; or (f) The Participant's hardship (as defined in Section 6.5(a)). Notwithstanding anything to the contrary contained herein, an event shall not be treated as described in clause (b), (c) or (d) above with respect to any Participant unless the Participant receives a lump sum distribution (as defined in Section 401(k)(10)(B)(ii) of the Code) by reason of the event. 3.7. ACCOUNTING. Each Participant's Salary Reduction Contribution Account shall be accounted for separately from the Participant's other accounts under the Plan. 3.8. SUPPLEMENTAL COMPANY CONTRIBUTIONS. The Company may contribute to the Trust with respect to any Plan Year a Supplemental Company Contribution in such amount as the Board, in its discretion, may determine by resolution adopted within 90 days after the end of such Year. Supplemental Company Contributions may be made to the Salary Reduction Contribution Accounts of the lowest-paid Participants only if, and to the extent that, such Contributions are necessary to OREGON METALLURGICAL CORPORATION SAVINGS PLAN PAGE 15 satisfy one of the tests contained in Section 3.3(b) of the Plan. Supplemental Contributions shall only be made to that portion of the Plan that has failed the ratio tests set forth in Section 3.3 (b), that is, the portion benefiting hourly employees subject to the Collective Bargaining Agreement, or that portion benefiting salaried employees not subject to the Collective Bargaining Agreement. The Supplemental Company Contribution for any Plan Year shall be allocated to such Participants' Salary Reduction Contribution Accounts pursuant to the provisions of Section 5.3 of the Plan. Upon allocation to the Salary Reduction Contribution Accounts of such Participants, the Supplemental Company Contribution shall be considered as Salary Reduction Contributions for all purposes of the Plan other than for purposes of Section 6.5 of the Plan and for purposes of determining the amount of Matching Contributions made on such Participant's behalf pursuant to Section 4.2, and shall be subject to all of the provisions of the Plan regarding Salary Reduction Contributions. The Company shall pay to the Trustee its Supplemental Company Contribution with respect to a particular Plan Year within 90 days after the end of such Plan Year. ARTICLE IV OTHER CONTRIBUTIONS 4.1. COMPANY DISCRETIONARY CONTRIBUTIONS. The Company may contribute to the Trust for each Plan Year such amount, if any, as the Board may determine by resolution adopted prior to the date of filing of the Company's federal income tax return for such Year including extensions thereof duly granted. Such amount shall be referred to as the "Company Discretionary Contribution" for such Year. The Company shall pay to the Trustee its Company Discretionary Contribution with respect to a particular Plan Year within the period of time prescribed by law for the filing of the Company's federal income tax return for such Year, including extensions thereof duly granted. 4.2. MATCHING CONTRIBUTIONS. (a) For the duration of the Collective Bargaining Agreement entered into in 1994, the Company shall contribute to the Trust for each Participant a Matching Contribution in an amount equal to a certain percent, as established by the Board, of the amount designated by such Participant pursuant to a Salary Reduction Agreement and deducted from his Earnings through payroll deductions during such Plan Year. The following schedule shall govern Matching Contributions: OREGON METALLURGICAL CORPORATION SAVINGS PLAN PAGE 16 Match (To a Maximum 100% of 3% of Percent Return on Equity in Prior Year Participant's Compensation) Less than 3% 25% 3-6% 50% 6-10% 75% Greater than 10% 100% Matching Contributions shall be held in trust uninvested by the Company and shall not accrue Earnings until remitted to the Trustee, which shall be during or as soon as practicable following the Valuation Date. Matching Contributions shall only be made to Participants employed by the Company as of the last day of the Plan Year. In no event will such Matching Contribution exceed (a) Three percent (3%) of a Participant's Compensation or (b) the Participant's Salary Reduction. For years when the Company's Return on Equity is zero or negative, the Company, in the discretion of the Board, may suspend such Matching Contribution, or continue them at a level set by the Board. Matching Contributions shall be subject to the special rules set forth in Section 4.6 below. The Company may establish additional levels of Matching Contributions in its discretion. (b) Matching Contributions made with respect to a Plan Year or any part thereof pursuant to this Section 4.2 shall in no event be made later than the time prescribed by law for filing the income tax return of the Company for the fiscal year of the Company (including extensions thereto) which corresponds to such Plan Year. However, the Company may elect to make such contributions on a quarterly basis, although it shall not be required to do so. (c) Matching Contributions to the Trust under the Plan shall be made in cash or other property as the Company, in its discretion, shall determine, although it is expected that all such contributions will be made in equity stock of the Company, and for all purposes of the Plan "Equity Matching Contributions" shall mean "Matching Contributions". 4.3. EQUITY CONTRIBUTIONS. (a) For the duration of the Collective Bargaining Agreement entered into in 1994, the Company shall contribute to the Trust .125 shares of Oremet common OREGON METALLURGICAL CORPORATION SAVINGS PLAN PAGE 17 stock for each hour worked by an hourly employee subject to the Collective Bargaining Agreement with the United Steelworkers of America, Local 7150, and one (1) share of Oremet common stock for each day worked by a salaried employee not subject to such Collective Bargaining Agreement. Equity contributions shall be held in trust uninvested by the Company and shall not accrue earnings until remitted to the Trustee, which shall be during or as soon as practicable following the Valuation Date. (b) Equity contributions made with respect to a Plan Year or any part thereof pursuant to this Section 4.3 shall in no event be made later than the time prescribed by law for filing the income tax return of the Company for the fiscal year of the Company (including extensions thereto) which correspond to such Plan Year. However, the Company may elect to make such contributions on a quarterly basis, although it shall not be required to do so. (c) Equity contributions to the trust under the Plan shall be made in cash or other property as the Company, in its discretion, shall determine, although it is expected that all such contributions will be made in equity stock of the Company. (d) Equity contributions shall be regarded as qualified Non-Elective Contributions under the Code. 4.4 VOLUNTARY CONTRIBUTIONS. Each Participant may elect, by executing a form provided by the Committee, to contribute to the Trust Fund an amount which does not exceed fifteen percent (15%), of his Compensation. The Committee shall establish the time of admission and periods within which election forms must be received. A Participant who has elected to make Voluntary Contributions may suspend his contributions at any time, by giving advance written notice to the Committee on a form provided by the Committee. Following a suspension of contributions, the Participant may not resume making contributions until the next admission period. All voluntary Contributions shall be credited with the earnings and losses of the Trust Fund in the manner and at the times set forth in Section 5.8 of the Plan. The Committee shall establish such rules and procedures for the acceptance of, manner of accounting for, distribution of Voluntary Contributions, and earnings thereon, as it shall deem advisable. 4.5. LIMITATIONS ON Contributions. Notwithstanding anything to the contrary in Sections 3.1, 3.8, 4.1 or 4.2 in no event shall: (i) the aggregate amount of such Contributions contributed by the Company pursuant to this Plan exceed the maximum deduction allowable by Section 404(a)(3)(A) of the Code; or (ii) the Company contribute an amount for any Limitation Year which would cause: (a) the Annual Additions to the accounts of any Participant to exceed the Maximum Permissible Amount for such Participant for that Year (except as provided in Section 5.6(b); or (b) OREGON METALLURGICAL CORPORATION SAVINGS PLAN PAGE 18 the sum of the defined benefit plan fraction and the defined contribution plan fraction (as such terms are defined in Section 5.6) to exceed one for any Participant for that Year. All contributions made by the Company under the Plan are conditioned upon the qualification of the Plan under Section 401 of the Code and deductibility of the contribution under Section 404 of the Code. 4.6. RULES GOVERNING MATCHING CONTRIBUTIONS AND VOLUNTARY CONTRIBUTIONS. (a) Notwithstanding any provisions of the Plan to the contrary, the Actual Contribution Percentage of Highly Compensated Participants shall bear to the Actual Contribution Percentage for all other Participants a relationship that satisfies either of the following tests: (i) The Actual Contribution Percentage for Highly Compensated Participants is not more than the Actual Contribution Percentage for all other Participants multiplied by 1.25; or (ii) The Actual Contribution Percentage for Highly Compensated Participants is not more than the Actual Contribution Percentage for all other Participants multiplied by two and the excess of the Actual Contribution Percentage for the group of Highly Compensated Participants over that of all other Participants is not more than two percentage points. (b) If, at the end of any Plan Year, neither of the tests set forth in subsection (a) is satisfied for such Year, then the Matching Contributions made for such Year on behalf of Highly Compensated Participants and the Voluntary Contribution made for such year by Highly Compensated Participants shall be reduced in the manner set forth in this subsection (b) to the extent necessary to comply with one of the tests set forth in subsection (a). Reductions pursuant to the preceding sentence shall be effected with respect to Highly Compensated Participants pursuant to the following procedure: The Actual Contribution Percentage of the Highly Compensated Participant with the highest Actual Contribution Percentage shall be reduced to the extent necessary to cause such Highly Compensated Participant's Actual Contribution Percentage to equal the Actual Contribution Percentage of the Highly Compensated Participant with the next highest Actual Contribution Percentage. This process shall be repeated until the Plan satisfies one of the tests set forth in subsection (a) for such Plan Year. (c) Voluntary Contributions made by Participants who are not Highly Compensated Participants and Matching Contributions made on account of Participants who are not Highly Compensated Participants shall be valid and shall not be affected by this Section. The unvested portion of Matching Contributions that is reduced pursuant to the preceding provisions of this Section for the Plan Year, adjusted for earnings, gains and losses allocable thereto pursuant to Section 401(m) OREGON METALLURGICAL CORPORATION SAVINGS PLAN PAGE 19 of the Code for such Plan Year, shall be returned to the Company and the reduced Voluntary Contributions and the vested portion of such reduced Matching Contributions, adjusted for earnings, gains and losses allocable thereto shall be paid directly to the applicable Participant. Voluntary Contributions shall be reduced first, and to the extent necessary, Vested Matching Contributions shall be reduced thereafter. If the vested portion of the Matching Contributions Account of the Participant is not sufficient to satisfy the necessary reduction, the nonvested portion of such Matching Contributions Account shall be forfeited pursuant Section 6.4 to the extent necessary to satisfy such reduction. The calculations, reductions, allocations and payments required by this Section shall be made by the Committee with respect to a Plan Year at any time prior to the close of the following Plan Year. (d) If at any time during the Plan Year the Committee, it its sole discretion, determines that neither of the tests set forth in subsection (a) of this Section 4.6 may be met for such Plan Year, then: (i) The Committee shall have the unilateral right during the Plan Year to require the prospective reduction, for the balance of the Year, or any part thereof, of the percentage of Earnings of Highly Compensated Participants that may be contributed as Voluntary Contributions. Such reductions shall be made to the extent necessary, in the discretion of the Committee, to assure that one of the tests set forth in subsection (a) of this Section 4.6 shall be met for the Plan Year and shall be based upon estimates made from data available to the Committee at any time during the Plan Year. (ii) Reductions pursuant to (i) above shall be effected with respect to Highly Compensated Participants pursuant to the following procedure: The Actual Contribution Percentage of the Highly-Compensated Participant with the highest Actual Contribution Percentage shall be reduced to the extent necessary to cause such Highly Compensated Participant's Actual Contribution Percentage to equal the Actual Contribution Percentage of the Highly Compensated Participant with the next highest Actual Contribution Percentage. This process shall be repeated to the extent necessary to assure that one of the tests set forth in subsection (a) shall not be exceeded for such Plan Year. (e) If a "Multiple Use of the Alternative Limitation" occurs in a Plan Year, then, notwithstanding any other provision of Section 3.3 or of this Section 4.6, the test in paragraph (a)(ii) of this Section shall not be used to satisfy the requirements of this Section for Voluntary Contributions and Matching Contributions OREGON METALLURGICAL CORPORATION SAVINGS PLAN PAGE 20 in the same Plan Year that the test contained in Section 3.3(b)(ii) is used to satisfy the requirements of Section 3.3 with respect to Salary Reduction Contributions. If the preceding sentence shall be applicable for a Plan Year, then the Committee shall determine whether to use the test in paragraph (a)(ii) of this Section to satisfy the requirements of this Section 4.6, or to use the test in paragraph (b)(ii) of Section 3.3 to satisfy the requirements of Section 3.3, for such Plan Year. A Multiple Use of the Alternative Limitation shall occur in any Plan Year if all of the following conditions are satisfied in the Plan Year. (1) At least one Highly Compensated Participant is eligible to authorize Salary Reduction Contributions to be made on his behalf; and to make Voluntary Contributions or have Matching Contributions allocated to his Matching Contributions Account, pursuant to the Plan during such Plan Year. (2) The sum of the Actual Deferral Percentage of the entire group of Highly Compensated Participants and of the Actual Contribution Percentage of the entire group of Highly Compensated Participants for such Plan Year exceeds the greater of A and B below: A. The sum of: (i) 125% of the greater of (I) the Actual Deferral Percentage of the group of Participants for such Plan Year who are not Highly Compensated Participants, or (II) the Actual Contribution Percentage of the group of Participants who are not Highly Compensated Participants for such Plan Year, and (ii) Two plus the lesser of (I) or (II) above. In no event, however, shall this amount exceed 200% of the lesser of (I) or (II) above; B. The sum of: (i) 125% of the lesser of (I) the Actual Deferral Percentage of the group of Participants who are not Highly Compensated Participants for such Plan Year, or (II) the Actual Contribution Percentage of the group of Participants who are not Highly Compensated Participants for such Plan Year, and (ii) Two plus the greater of (I) or (II) above. In no event, however, shall this amount exceed 200% of the greater of (I) or (II) above. OREGON METALLURGICAL CORPORATION SAVINGS PLAN PAGE 21 (3) The Actual Deferral Percentage of the entire group of Highly Compensated Participants exceeds the amount described in Section 3.3(b)(i); and (4) The Actual Contribution Percentage of the entire group of Highly Compensated Participants exceeds the amount described in Section 4.6(a)(i). 4.7. EXCLUSIVE BENEFIT OF EMPLOYEES. All contributions made pursuant to the Plan shall be held by the Trustee in accordance with the terms of the Trust Agreement for the exclusive benefit of those Employees who are Participants under the Plan, including former Employees and their Beneficiaries, and shall be applied to provide benefits under the Plan and to pay expenses of administration of the Plan and the Trust, to the extent that such expenses are not otherwise paid. At no time prior to the satisfaction of all liabilities with respect to such Employees and their Beneficiaries shall any part of the Trust Fund (other than such part as may be required to pay administration expenses and taxes), be used for, or diverted to, purposes other than for the exclusive benefit of such Employees and their Beneficiaries. However, without regard to the provisions of this Section 4.7. (a) If a contribution under the Plan is conditioned on initial qualification of the Plan under Section 401(a) of the Code, and the Plan receives an adverse determination with respect to its initial qualification, the Trustee shall, upon written request of the Company, return to the Company the amount of such contribution (increased by earnings attributable thereto and reduced by losses attributable thereto) within one calendar year after the date that qualification of the Plan is denied, provided that the application for the determination is made by the time prescribed by law for filing the Company's return for the taxable year in which the Plan is adopted, or such later date as the Secretary of the Treasury may prescribe; (b) If a contribution is conditioned upon the deductibility of the contribution under Section 404 of the Code, then, to the extent the deduction is disallowed, the Trustee shall upon written request of the Company return the contribution (to the extent disallowed) to the Company within one year after the day the deduction is disallowed; (c) If a contribution or any portion thereof is made by the Company by a mistake of fact, the Trustee shall, upon written request of the Company, return the contribution or such portion to the Company within one year after the date of payment to the Trustee; and (d) Earnings attributable to amounts to be returned to the Company pursuant to subsection (b) or (c) above shall not be returned, and losses attributable to amounts to be returned pursuant to subsection (b) or (c) shall reduce the amount to be so returned. OREGON METALLURGICAL CORPORATION SAVINGS PLAN PAGE 22 4.8. TRANSFERS FROM QUALIFIED PLANS. (a) With the consent of the Administrator, amounts may be transferred from other qualified plans by Participants, provided that the trust from which such funds are transferred permits the transfer to be made and the transfer will not jeopardize the tax exempt status of the Plan or trust, or create adverse tax consequences for the Employer. Transfers of Oremet Common Stock from the Oremet Employee Stock Ownership Plan ("ESOP") shall not be permitted; however, cash transfers from the ESOP shall be permitted if allowed under terms of the ESOP. The amounts transferred shall be set up in a separate account herein referred to as a "Participant's Rollover Account". Such account shall be fully vested at all times and shall not be subject to Forfeiture for any reason. (b) Amounts in a Participant's Rollover Account shall be held by the Trustee pursuant to the provisions of this Plan and may not be withdrawn by, or distributed to the Participant, in whole or in part, except as provided in paragraphs (c) and (d) of this Section. (c) Except as permitted by Regulations (including Regulation 1.411(d)-4), amounts attributable to elective contributions (as defined in Regulation 1.401(k)-1(g)(3), including amounts treated as elective contributions, which are transferred from another qualified plan in a plan-to-plan transfer shall be subject to the distribution limitations provided for in Regulation 1.401(k)-1(d). (d) (i) At Normal Retirement Date, or such other date when the Participant or his Beneficiary shall be entitled to receive benefits, the fair market value of the Participant's Rollover Account shall be used to provide additional benefits to the Participant or his Beneficiary. Any distributions of amounts held in a Participant's Rollover Account shall be made in a manner which is consistent with and satisfies the provisions of this Plan, including, but not limited to, all notice and consent requirements of Code Sections 417 and 411(a)(11) and the Regulations thereunder. Furthermore, such amounts shall be considered as part of a Participant's benefit in determining whether an involuntary cash-out of benefits without Participant consent may be made. (ii) Amounts transferred from the Oremet ESOP shall be held in Participant's ESOP Rollover Account and shall be distributed as provided in Section 6.5(c). (e) The Administrator may direct that Employee transfers made after a Valuation Date be segregated into a separate account for each Participant in a OREGON METALLURGICAL CORPORATION SAVINGS PLAN PAGE 23 federally insured savings account, certificate of deposit in a bank or savings and loan association, money market certificate, or other short-term debt security acceptable to the Trustee until such time as the allocations pursuant to this Plan have been made, at which time they may remain segregated or be invested as part of the general Trust Fund, to be determined by the Administrator. (f) All amounts allocated to a Participant's ESOP Account may be treated as a directed investment account, but only to the extent such rollover does not involve common stock of the Company. (g) For purposes of this Section, the term "qualified plan" shall mean any tax qualified plan under Code Section 401(a). The term "amounts transferred from other qualified plans" shall mean: (i) amounts transferred to this Plan directly from another qualified plan; (ii) distributions from another qualified plan which are eligible rollover distributions and which are either transferred by the Employee to this Plan within sixty (60) days following his receipt thereof or are transferred pursuant to a direct rollover; (iii) amounts transferred to this Plan from a conduit individual retirement account provided that the conduit individual retirement account has no assets other than assets which (A) were previously distributed to the Employee by another qualified plan as a lump-sum distribution (B) were eligible for tax-free rollover to a qualified plan and (C) were deposited in such conduit individual retirement account within sixty (60) days of receipt thereof and other than earnings on said assets; and (iv) amounts distributed to the Employee from a conduit individual retirement account meeting the requirements of clause (iii) above, and transferred by the Employee to this Plan within sixty (60) days of his receipt thereof from such conduit individual retirement account. (h) Prior to accepting any transfers to which this Section applies, the Administrator may require the Employee to establish that the amounts to be transferred to this Plan meet the requirements of this Section and may also require the Employee to provide an opinion of counsel satisfactory to the Employer that the amounts to be transferred meet the requirements of this Section. (i) This Plan shall not accept any direct or indirect transfers from a defined benefit plan, money purchase plan (including a target benefit plan), stock bonus or profit sharing plan which would otherwise have provided for a life annuity form of payment to the Participant. OREGON METALLURGICAL CORPORATION SAVINGS PLAN PAGE 24 (j) Notwithstanding anything herein to the contrary, a transfer directly to this Plan from another qualified plan (or a transaction having the effect of such a transfer) shall only be permitted if it will not result in the elimination or reduction of any "Section 411(d)(6) protected benefit" as described therein. ARTICLE V ALLOCATIONS TO PARTICIPANTS' ACCOUNTS 5.1. SEPARATE ACCOUNTS. The Committee shall create and maintain such separate accounts for each Participant as shall be needed or convenient, including, initially, a Company Discretionary Contribution Account, a Salary Reduction Contribution Account, an Equity Contribution Account, an Equity Bonus Contribution Account (if applicable), an ESOP (or other) Rollover Account and a Matching Contribution Account. The Committee shall also create and maintain a Suspense Account in the event that such an account is required pursuant to Section 5.6. Such accounts are primarily for accounting purposes and do not require a segregation of the Trust Fund. The Company may delegate the responsibility for the maintenance of the accounts to the Trustee or to the Committee. Notwithstanding any provisions of this Article, in no event shall an allocation be made to any account of any Participant, for any Limitation Year that would cause: (a) Annual Additions to the accounts of such Participant to exceed the Maximum Permissible Amount for that Year (except as permitted in Section 5.6(b)); or (b) the sum of the defined benefit Plan fraction (as defined in Section 5.6) and the defined contribution Plan fraction (as defined in Section 5.6) to exceed one for such Participant for that Year. 5.2. ALLOCATIONS OF COMPANY DISCRETIONARY CONTRIBUTIONS AND FORFEITURES. The Company Discretionary Contributions for each Plan Year shall be allocated as of the last day of such Plan Year (even though receipt of the Company Discretionary Contributions by the Trustee may take place after the close of such Year) among the Company Discretionary Contribution Accounts of each Participant who, during the course of such Plan Year: (i) completed at least 1,000 Hours of Service and was employed by the Company on the last day of such Plan Year; (ii) retired on or after his Normal Retirement Date; (iii) died; or (iv) became disabled as defined in Section 6.3. Such allocation shall be in the ratio that such Participant's Compensation (as defined in Section 1.13 of the Plan) during the Plan Year bears to the total Compensation during such Plan Year of all Participants entitled to share in such contributions. 5.3. ALLOCATION TO SALARY REDUCTION CONTRIBUTION ACCOUNTS. (a) Salary Reduction Contributions made on behalf of a Participant for a Plan Year shall be allocated to his Salary Reduction Contribution Account as of the last day of such Valuation Date (even though receipt of the Salary Reduction Contribution by the Trustee may take place after the close of such Valuation Date). The amount of the allocation to a Participant's Salary Reduction Contribution OREGON METALLURGICAL CORPORATION SAVINGS PLAN PAGE 25 Account shall be equal to (i) the amount by which the Participant's Earnings from the Company were reduced during the Valuation Period pursuant to such Participant's Salary Reduction Agreement in effect for such Period, reduced by (ii) any applicable amounts pursuant to the provisions of Sections 3.1(b) and 3.3(c). (b) In the event that the Company elects to make a Supplemental Company Contribution with respect to any Plan Year, such Contribution shall be allocated to the Salary Reduction Contribution Accounts of certain Participants who are not Highly Compensated and who are eligible to share in the Company Discretionary Contribution pursuant to Section 5.2 of the Plan, starting with the lowest paid 5% of such Participants and continuing with the remaining such Participants in groups of 5% in the inverse order of their Compensation until the Supplemental Company Contribution has been entirely allocated. Supplemental Company Contributions made for a Plan Year shall be allocated to Participants' Salary Reduction Contribution Accounts as of the last day of such Year (even though receipt of the Supplemental Company Contribution by the Trustee may take place after the close of such Year). 5.4. ALLOCATION OF MATCHING CONTRIBUTIONS. Matching Contributions made on behalf of a Participant for a Valuation Period pursuant to Section 4.2 and not reduced pursuant to Section 4.6, shall be allocated to his Matching Contributions Account as of the last day of the Valuation Date (even though receipt of the Matching Contributions by the Trustee may take place after the close of such Valuation Period). An allocation pursuant to this Section shall be made only to the Matching Contributions Account of a Participant whose Earnings were reduced through payroll deductions pursuant to a Salary Reduction Agreement during the applicable Plan Year. 5.5. ALLOCATION OF VOLUNTARY CONTRIBUTIONS AND FORFEITURES. (a) Voluntary Contributions made by a Participant, and not reduced pursuant to Section 4.6, shall be allocated to his Voluntary Contribution Account as of the Valuation Date coinciding with or immediately following receipt of such Contributions by the Trustee. (b) As of each Annual Valuation Date, any amounts which become forfeitures since the last Valuation Date shall be made available to reinstate the previously forfeited account balances of former Participants, if any. The remaining forfeitures, if any, shall be used to reduce the discretionary contribution or the matching contribution of the Company for the Plan Year in which such forfeitures occur and based on whether such forfeitures derive from the Discretionary Contribution Accounts or the Matching Contribution Accounts, respectively. OREGON METALLURGICAL CORPORATION SAVINGS PLAN PAGE 26 5.6. MAXIMUM ALLOCATION. (a) Except as provided in paragraph (b) of this Section, the allocations to the accounts of any Participant in any Limitation Year shall be limited so that the Participant's Annual Additions for such Year do not exceed the Maximum Permissible Amount. (b) If the foregoing limitation on allocations would be exceeded in any Limitation Year for any Participant as a result of (i) the allocation of forfeitures, (ii) reasonable error in estimating a Participant's Compensation, (iii) reasonable error in determining the amount of elective deferrals (within the meaning of Section 402(g)(3) of the Code) that may be made with respect to a Participant, or (iv) under such other limited facts and circumstances that the Commissioner of Internal Revenue, pursuant to Code Regulations 1.415-6(b)(6), finds justify the availability of this Section 5.6, the Voluntary Contributions and Salary Reduction Contributions made by or with respect to such Participant shall be distributed to him to the extent that any such distribution would reduce the amount in excess of the limits of this Section 5.6 and any amount in excess of the limits of this Section 5.6 remaining after such distribution shall be placed, unallocated to any Participant, in a Suspense Account. If a Suspense Account is in existence at any time during a particular Limitation Year, other than the Limitation Year described in the preceding sentence, all amounts in the Suspense Account must be allocated to Participants' accounts (subject to the limits of this Section 5.6) before any contributions which would constitute Annual Additions may be made to the Plan for that Limitation Year. The excess amount allocated pursuant to this Section 5.6(b) shall be used to reduce Company Discretionary Contributions and Matching Contributions for the next Limitation Year (and succeeding Limitation Years, as necessary) for that Participant. However, if that Participant is not covered by the Plan as of the end of the applicable Limitation Year, then the excess amounts must be held unallocated in the Suspense Account for the Limitation Year and allocated and reallocated in the next Limitation Year to all of the remaining Participants in the Plan. The Suspense Account will not share in the valuation of Participants' accounts and the allocation of earnings set forth in Section 5.8 of the Plan, and the change in fair market value and allocation of earnings attributable to the Suspense Account shall be allocated to the remaining accounts hereunder as set forth in Section 5.8. (c) Any reduction in the contributions and allocations under this Plan made with respect to a Participant's accounts required pursuant to this Section 5.6 and Section 415 of the Code shall be effected, to the minimum extent necessary, in the following manner: (i) first, Voluntary Contributions made by such Participant, adjusted for earnings, gains and losses allocated thereto, shall be reduced (ii) next, the Salary Reduction Contributions that would have been made by the Company for the applicable Limitation Year with respect to the Participant, adjusted for earnings, OREGON METALLURGICAL CORPORATION SAVINGS PLAN PAGE 27 gain and losses allocable thereto shall be reduced; (iii) next, Company Discretionary Contributions that would have been made by the Company for the applicable Limitation Year with respect to such Participant shall be reduced; and (iv) finally, the Matching Contributions that would have been made by the Company for the applicable Limitation Year with respect to such Participant shall be reduced. The amount of any reductions in Voluntary Contributions and Salary Reduction Contributions pursuant to clauses (i) and (ii), adjusted for earnings, gains and losses allocable to Voluntary Contributions and Salary Reduction Contributions, shall be paid by the Trustee directly to the affected Participant pursuant to subsection (b) of this Section, and any reductions in Company Discretionary Contributions and Matching Contributions, pursuant to clauses (iii) and (iv), adjusted for gains, earnings, and losses allocable thereto, shall be treated pursuant to subsection (b) of this Section. (d) Upon termination of the Plan, any amounts in a Suspense Account at the time of such termination shall revert to the Company. (e) In the event that any Participant under this Plan is also a Participant in a defined benefit Plan (as defined in Section 415(k) of the Code) maintained by the Company, the sum of the defined benefit Plan fraction and the defined contribution Plan fraction (as such terms are defined in Section 415(e) of the Code) for any Limitation Year with respect to such Participant shall not exceed one. If that sum exceeds one, then no reduction in contributions or allocations to obtain compliance with Section 415(e) of the Code shall occur under this Plan until the Participant's benefits under such defined benefit Plan have been reduced pursuant to the terms thereof. Any reduction under this Plan shall be made only to the extent necessary so that the sum of such fractions shall equal one. For purposes of this Section 5.6, a Plan is deemed to be maintained by the Company if the Plan is maintained by any Related Employer. (f) If a Participant is entitled to receive an allocation under this Plan and any Related Plan and, in the absence of the limitations contained in this Section 5.6, the Company would contribute or allocate to the accounts of that Participant an amount for a Limitation Year that would cause the Annual Additions to the accounts of the Participant to exceed the Maximum Permissible Amount for such Year, then the contributions and allocations made with respect to the Participant under this Plan shall not be reduced until the contributions or allocations under the Related Plan have been reduced to the extent necessary so that the allocation of such Annual Additions does not exceed the Maximum Permissible Amount. (g) The provisions of this Section shall be interpreted by the Committee, in the administration of the Plan, to reduce contributions and allocations (as required by this Section) only to the minimum extent necessary to reflect the requirements of OREGON METALLURGICAL CORPORATION SAVINGS PLAN PAGE 28 Section 415 of the Code, as amended and in force from time to time, and Regulations promulgated pursuant to that Section, which are incorporated by reference herein. 5.7. VESTING. (a) Each Participant shall have a vested interest in the Adjusted Balance of his Company Discretionary Contribution Account and Matching Contributions Account in accordance with the following formula:
Vested Forfeitable Years of Service Percentage Percentage ________________ __________ ___________ Less Than One Year 0% 100% One Year 20% 80% Two Years 40% 60% Three Years 60% 40% Four Years 80% 20% Five or More Years 100% 0%
(b) On reaching Normal Retirement Date or Early Retirement Date, a Participant shall be 100% vested in the Adjusted Balance of the Participant's Company Discretionary Contribution Account and Matching Contribution Account. (c) In the event a Participant dies or becomes disabled within the meaning of Section 6.2 or 6.3 while an Employee, he shall be 100% vested in the Adjusted Balance of his Company Discretionary Contribution Account and Matching Contributions Account as of the date of his death or disability. (d) In the event the Plan is terminated, or upon the complete discontinuance of Company contributions to the Plan, each Participant shall become 100% vested in the Adjusted Balance of his Company Discretionary Contribution Account and Matching Contributions Account, provided that the forfeitable percentage of the unpaid balances of such accounts of a Participant whose employment has terminated and who has incurred a one-year Break in Service on the date of such Plan termination or discontinuance shall be forfeited on the effective date of such termination on discontinuance of contributions and shall not be vested. OREGON METALLURGICAL CORPORATION SAVINGS PLAN PAGE 29 (e) Each Participant shall at all times be fully vested in the Adjusted Balances of his Salary Reduction Contribution Account, Rollover Accounts, Equity Bonus Compensation Account (if applicable), and Equity Contribution Account. 5.8. ALLOCATIONS AND ADJUSTMENTS TO ACCOUNTS. As of each valuation Date, and subject to Section 8.4(e), the Trustee shall determine, on an accrual basis of accounting, the Adjusted Balance of the account of each Participant in the following manner: (a) As soon as feasible after each Valuation Date, the Trustee shall determine the earnings and the amount of any realized or unrealized appreciation or depreciation in the fair market value of each of the Investment Funds, determined as of the Valuation Date or the next previous business day if the Valuation Date falls on a Saturday, Sunday, or holiday. In determining such value, the Trustee shall use such generally accepted methods and bases as the Trustee, in its discretion, shall deem advisable. The judgment of the Committee as to the fair market value of any asset shall be presumptively conclusive and binding on all persons. (b) The earnings on contributions made or deemed made pursuant to Sections 3.1, 4.1, 4.2, 4.3 and 4.4 that have been initially invested in short-term investment obligations selected by the Trustee from time to time pending allocation to one or more of the Investment Funds shall be allocated to a Participant's applicable account in the same proportion as such contributions shall be determined by multiplying the total amount of such earnings by a fraction, the numerator of which is the amount of such contributions allocated to a Participant's account for the period ending on the applicable Valuation Date and the denominator of which is the total amount of such contributions allocated to all participants' accounts for that period. (c) The earnings and market appreciation or depreciation of each Investment Fund for a period ending on a Valuation Date (including earnings and appreciation or depreciation attributable to the investment of any Suspense Account in such Investment Fund) shall be allocated to each applicable account (excluding any Suspense Account) that is invested in such Investment Fund on the current Valuation Date by multiplying the earnings and market appreciation or depreciation of such Fund by a fraction, the numerator of which is the Adjusted Balance of such account invested in the applicable Fund as of the prior Valuation Date and the denominator of which is the total of the Adjusted Balances of all such accounts (excluding any Suspense Account) invested in such Fund as of the prior Valuation Date. Each such account (excluding any Suspense Account) shall be adjusted by adding thereto or subtracting therefrom its share of the earnings and market appreciation or depreciation of each Investment Fund as determined by the preceding sentence. OREGON METALLURGICAL CORPORATION SAVINGS PLAN PAGE 30 (d) Each account shall then be further adjusted by adding to it the amount of contributions allocable thereto, for each Participant's account pursuant to Sections 5.2, 5.3, 5.4 and 5.5 for the Plan Year ending on that Valuation Date. (e) Following the above adjustments to each account there shall be deducted from each account the distributions and withdrawals made therefrom since the prior Valuation Date. 5.9. INSTALLMENTS. Whenever an account balance is distributable in installments, if applicable, the undistributed balance of such account shall participate in the valuation provided in Section 5.8 until fully distributed. In lieu of such participation, however, upon the written request of the former Participant or Beneficiary entitled to receive such installments, received by the Committee prior to the payment of the first installment, the Adjusted Balance of his accounts shall be deposited in the name of the Trustee in a savings account or certificate of deposit in a national or state bank, or in a federal savings and loan association and shall earn and be credited with such earnings (at not less than the current rate of earnings paid thereon by the depository). Any amounts deposited pursuant to this Section 5.9 and any earnings thereon shall be disregarded in computing the fair market value of Trust assets to be allocated under Section 5.8 of the Plan and the Earnings shall be payable to such former Participant or Beneficiary with payment of the aforementioned installments. Any expenses incurred by the Trustee and the Committee as the result of any deposit made pursuant to this Section shall be payable from the accounts of the former Participant or Beneficiary for whom such deposit was made. 5.10 VALUATION OF OREMET STOCK. The value of Oremet stock for contribution or allocation purposes shall be its closing value on the day transfer instructions are issued to the transfer agent of the Company with regard to such contribution. ARTICLE VI PAYMENT OF BENEFITS 6.1. PAYMENTS ON RETIREMENT. A Participant who attains his Normal Retirement Date and continues to be an Employee shall continue to share in the allocation of Company Discretionary Contributions, Supplemental Company Contributions, Salary Reduction Contributions, Equity Contributions, Equity Bonus Compensation Contributions, and Matching Contributions, and may elect or continue to make Voluntary Contributions and may elect or continue to enter into Salary reduction Agreements. Upon the retirement of a Participant at or after his Normal Retirement Date, the Committee shall notify the Trustee in writing of the Participant's retirement and shall direct the Trustee to make payment of the Adjusted Balance of the Participant's accounts as of the Valuation Date coinciding with or immediately preceding the date distribution is made to the Participant in a method provided in the Plan. OREGON METALLURGICAL CORPORATION SAVINGS PLAN PAGE 31 6.2 PAYMENTS ON DEATH. (a) Upon the death of a Participant, the Committee shall promptly notify the Trustee in writing of the Participant's death and the name of his Beneficiary and shall direct the Trustee to make payment of the Adjusted Balance (reduced by any security interest held by the Plan by reason of a loan outstanding to the Participant) as of the date of his death pursuant to Article VIII of the Participant's accounts as of the Valuation Date coinciding with or immediately preceding the date distribution is made to his Beneficiary, in a method provided in the Plan. (b) Each unmarried Participant or each married Participant whose surviving spouse has consented to an alternate Beneficiary designation or alternate method of payment as provided in subsection (c), shall have the right to designate, by giving a written designation to the Committee, (i) a person or persons or entity as Beneficiary to receive the death benefit provided under this Section 6.2 and (ii) the method of payment of such death benefit to his Beneficiary pursuant to Section 6.6. Successive designations may be made, and the last designation received by the Committee prior to the death of the Participant shall be effective and shall revoke all prior designations. If a designated Beneficiary shall die before the Participant, the Beneficiary's interest shall terminate, and, unless otherwise provided in the Participant's designation if the designation included more than one Beneficiary, such interest shall be paid in equal shares to those Beneficiaries, if any, who survive the Participant. A Participant to whom this subsection applies shall have the right to designate different Beneficiaries to receive the Adjusted Balance in his various accounts under the Plan and shall have the right to revoke the designation of any Beneficiary without the consent of the Beneficiary. (c) The Beneficiary of each married Participant shall be the surviving spouse of the Participant and the death benefits of any Participant who is married at the date of his death shall be paid in full to his surviving spouse in a single lump sum. Notwithstanding the preceding sentence, the death benefits provided pursuant to subsection (a) shall be distributed to any other Beneficiary designated by a married Participant as provided in subsection (b) of this Section and pursuant to the method, if any, designated by the Participant as provided in subsection (b), if the Participant's surviving spouse consented to such designation by the Participant, prior to the date of the Participant's death, in writing. Such consent must acknowledge the effect of the election and the identity of any nonsurviving spouse Beneficiary, including any class of Beneficiaries or contingent Beneficiaries, and must be witnessed by a representative of the Plan or a notary public. The consent of the Participant's surviving spouse shall not be required if the Participant establishes to the satisfaction of the Committee that consent may not be obtained because there is no surviving spouse or the surviving spouse cannot be located, or because of such other circumstances as the Secretary of the Treasury may prescribe by regulations. The OREGON METALLURGICAL CORPORATION SAVINGS PLAN PAGE 32 Participant may not subsequently change the method of distribution elected by the Participant or the designation of his Beneficiary unless his surviving spouse consents to the new election or designation in accordance with the requirements set forth in the preceding sentence, or unless the surviving spouse's consent permits the Participant to change the election of method of payment or the designation of his Beneficiary without the spouse's further consent. A spouse's consent shall be irrevocable. Any consent by a surviving spouse, or establishment that the consent of the surviving spouse may not be obtained, shall be effective only with respect to that surviving spouse. (d) If a Participant fails to designate a Beneficiary, if such designation is for any reason illegal or ineffective, or if no Beneficiary survives the Participant, his death benefits otherwise payable pursuant to subsection (b) or (c) shall be paid: (i) to his surviving spouse; (ii) if there is no surviving spouse, to his descendants (including legally adopted children or their descendants) per stirpes; (iii) if there is neither a surviving spouse nor surviving descendants, to the duly appointed and qualified executor or other personal representative of the Participant to be distributed in accordance with the Participant's will or applicable intestacy law; or (iv) if no such representative is duly appointed and qualified within six months after the date of death of such deceased Participant, then to such persons as, at the date of his death, would be entitled to share in the distribution of such deceased Participant's personal estate under the provisions of the applicable statute then in force governing the descent of intestate property, in the proportions specified in such statute. (e) The Committee may determine the identity of the distributees of any death benefit payable under the Plan and in so doing may act and rely upon any information it may deem reliable upon reasonable inquiry, and upon any affidavit, certificate, or other paper believed by it to be genuine, and upon any evidence believed by it sufficient. (f) A Participant's surviving spouse, for purposes of the Plan, is the person who is legally married to the Participant immediately prior to the death of the Participant. 6.3. PAYMENTS ON DISABILITY. Upon the termination of a Participant's employment with the Company by reason of a disability, the Committee shall notify the Trustee in writing of said OREGON METALLURGICAL CORPORATION SAVINGS PLAN PAGE 33 disability termination, and shall direct the Trustee to make payment of the Adjusted Balance of the Participant's accounts as of the Valuation Date coinciding with or immediately preceding the date a distribution is made to the Participant, in a method provided in the Plan. For purposes of this Section "disability" means a physical or mental condition which is expected to render the Participant permanently unable to perform any duties for the Company. The determination of the existence of such disability shall be made by the Committee and shall be final and binding upon the Participant and all other parties. The Committee may require the submission of such medical evidence as it may deem necessary in order to arrive at its determination. The Committee's determination of the existence of a disability will be made with reference to the nature of the injury without regard to the period the Participant is absent from work. 6.4. PAYMENTS ON TERMINATION FOR OTHER REASONS. Upon the termination of a Participant's employment with the Company for any reason other than retirement on or after his Normal Retirement Date, death, or permanent disability, the Committee shall notify the Trustee in writing of the termination and shall direct the Trustee to make payment of the Adjusted Balance of his Salary Reduction Contribution Account, if any, and the vested portion of the Adjusted Balance of his Company Discretionary Contribution Account and Matching Contributions Account, if any, as of the Valuation Date coinciding with or immediately preceding the date distribution is made to the Participant, in a method provided in the Plan. The vested portion of a Participant's Company Discretionary Contribution Account and Matching Contributions Account shall be determined in accordance with Section 5.7. The nonvested portion, if any, of the Adjusted Balance of his Company Discretionary Contribution Account and Matching Contributions Account shall be retained in his Company Discretionary Contribution Account and Matching Contributions Account, respectively, until a period has elapsed sufficient to determine whether he will be reemployed or will incur five consecutive one-year Breaks in Service. If he is reemployed before he incurs five consecutive one-year Breaks in Service, his Company Discretionary Contribution Account and Matching Contributions Account will continue to vest; if he incurs five consecutive one-year Breaks in Service, the amount in such accounts shall be deemed a forfeiture and shall reduce the Company Discretionary Contribution and the Matching Contributions, whichever applies, as of the last day of the Plan Year in which he incurs the last of such five consecutive one-year Breaks in Service. If a Participant who is rehired before he incurs five consecutive one-year Breaks in Service again incurs a termination of employment under circumstances in which he is not fully vested in his Company Discretionary Contribution Account and Matching Contributions Account, the portion of his Company Discretionary Contribution Account and Matching Contributions Account distributable on the date of his later termination of employment shall be calculated as follows: (i) the amount distributed to the Participant from his Company Discretionary Contribution Account and Matching Contributions Account upon his earlier termination of employment shall be added to the Adjusted Balance of his Company Discretionary Contribution Account and Matching Contributions Account; OREGON METALLURGICAL CORPORATION SAVINGS PLAN PAGE 34 (ii) the amount determined under paragraph (i) shall be multiplied by the vested percentage as of the date of his later termination of employment determined under Section 5.7; and (iii) the amount distributed to the Participant upon his earlier termination of employment shall be deducted from the product calculated under paragraph (ii) to determine the amount distributable upon his later termination of employment. 6.5. PRETERMINATION DISTRIBUTIONS. (a) The Committee may, upon the request of a Participant at any time prior to his termination of employment, direct the Trustee to make a lump sum distribution to the Participant from the portion of his Salary Reduction Contribution Account that is not being used as security for a loan under Section 8.4, determined as of the Valuation Date coinciding with or immediately preceding the date a request is made hereunder, for the purposes set forth below, subject to the following rules: (i) Each request for a distribution must be made by written application to the Committee supported by such evidence as the Committee may require; (ii) In no event shall the amount distributed to a Participant in accordance with this Section 6.5 exceed 100% of his Salary Reduction Contribution Account, not including any earnings thereon credited after December 31, 1988; (iii) Each distribution made pursuant to this Section 6.5 shall be on account of a hardship suffered by the Participant. For purposes of this Section 6.5, a hardship shall be limited to: (1) Medical expenses described in Code Section 213(d) previously incurred by the Participant, the Participant's spouse, or any dependents of the Participant (as defined in Code Section 152); or necessary for any of these persons to obtain medical care described in Code Section 213(d); (2) Purchase (excluding mortgage payments) of a principal residence for the Participant; (3) Payment of tuition and related educational fees for the next twelve months of post- secondary education for the Participant, his spouse, children or dependent; OREGON METALLURGICAL CORPORATION SAVINGS PLAN PAGE 35 (4) The need to prevent eviction of the Participant from his principal residence or foreclosure on the mortgage of the Participant's principal residence; and (5) Funeral expenses of a family member of the Participant; (iv) The amount distributed shall not be in excess of the immediate and heavy financial need of the Participant which need shall be deemed to include any amounts reasonably anticipated by the Participant to be necessary to pay federal, state or local income taxes and penalties incurred as a result of the distribution; (v) The Participant shall first obtain all distributions, other than hardship distributions, and all nontaxable loans currently available under the Plan and all other plans maintained by the Company; (vi) The Participant's elective contributions and employee contributions (as defined in Regulations 1.401(k)) shall be suspended under the Plan and all other deferred compensation plans maintained by the Company for 12 months after his receipt of the hardship distribution (except for mandatory employee contributions to a defined benefit plan); (vii) The Participant may not make elective contributions (as defined in Regulations 1.401(k)) under the Plan or any other Plan maintained by the Company for the Participant's taxable year immediately following the taxable year of the hardship distribution in excess of the applicable limit under Code Section 402(g) for such next taxable year less the amount of such Participant's elective contributions for the taxable year of the hardship distribution; (viii) The amount distributed to a Participant in accordance with this Section 6.5 shall not exceed (A) the Adjusted Balance of a Participant's Salary Reduction Contribution Account as of December 31, 1988, plus (B) Salary Reduction Contributions allocated to such Salary Reduction Contribution Account after December 31, 1988; and (ix) If a Participant's termination of employment occurs after a request is approved in accordance with this Section 6.5 but prior to distribution of the full amount approved, the approval of his request shall be automatically void and the benefits which he or his Beneficiary are entitled to receive under the Plan shall be distributed in accordance with the preceding provisions of this Article. OREGON METALLURGICAL CORPORATION SAVINGS PLAN PAGE 36 (b) A Participant who has attained the age of 59 1/2 may elect, by written instrument given to the Committee, to the extent such account is not being used as security for a loan as determined under Section 8.4 to withdraw from his Salary Reduction Contribution Account an amount not in excess of the Adjusted Balance thereof, determined as of the Valuation Date coinciding with or next succeeding the date the written instrument is delivered to the Committee. No withdrawal made under this paragraph (b) shall be for an amount which is less than the lesser of: (i) $200, or (ii) the Adjusted Balance in the Participant's Salary Reduction Contribution Account. (c) A Participant may elect by written instrument given to the Committee to withdraw from his ESOP Rollover Account an amount not in excess of the adjusted balance thereof, determined as of the Valuation Date coinciding with or next succeeding the date the written instrument is delivered to the Committee, and to the extent such account is not being used as security for a loan determined under Section 8.4. No withdrawal under this paragraph (c) shall be for an amount which is less than the lesser of: (i) $200 or (ii) the adjusted balance in the Participant's ESOP Rollover Account. (d) A request for a distribution pursuant to this Section 6.5 shall be approved or denied by written instrument given by the Committee to the Participant within 60 days after the date the written request is given to the Committee by the Participant. In the event that such request is approved, the distribution shall be made within 30 days after notice of approval is given by the Committee to the Participant. 6.6. METHODS OF PAYMENT. (a) Whenever the Committee shall direct the Trustee to make payment to a Participant or his Beneficiary upon termination of the Participant's employment (whether by reason of retirement, death, disability, or for other reasons), the Committee shall direct the Trustee to pay the Adjusted Balance of his Salary Reduction Contribution Account, Voluntary Contributions Account, ESOP (or other) Rollover Account, Equity Contributions Account, and Equity Bonus Compensation Account (if applicable), and the vested portion of the Adjusted Balance of his Company Discretionary Contribution Account and Matching Contributions Account, to or for the benefit of the Participant or his Beneficiary, in cash or wholly or partly in kind, in the following way in a lump sum, provided that distributions in kind shall be valued at the fair market value of the assets distributed on the date of such distribution. OREGON METALLURGICAL CORPORATION SAVINGS PLAN PAGE 37 (b) In the case of a Participant whose employment has terminated for any reason payment shall be made or commence as soon as administratively feasible after the end of the first calendar quarter following the quarter in which the Participant terminates. Notwithstanding the preceding sentence, if the Participant's account balances at the time for any distribution exceed $3,500, then neither such distribution nor any subsequent distribution shall be made to the Participant at any time before his 65th birthday without his written consent. (c) Notwithstanding anything to the contrary contained elsewhere in the Plan a Participant's benefits under the Plan will be distributed to him not later than the Required Distribution Date (as defined in subsection (e)). If the Participant dies before distribution has occurred, distribution will be made no later than five years after the Participant's death, unless the beneficiary is the Participant's spouse. (d) If the Beneficiary is the surviving spouse of the Participant, the distribution shall not be earlier than the date on which the Participant would have attained age 70 1/2, and if the surviving spouse dies before the distributions to that spouse begin, then this subsection (d) shall be applied as if the surviving spouse were the Participant. (e) For purposes of this Section, the Required Distribution Date means April 1 of the calendar year in which the Participant attains age 70 1/2, provided however that in the case of a Participant who attained age 70 1/2 during calendar year 1988 or 1989, the Required Distribution Date means April 1, 1990, and further provided that, if the Participant attained age 70 1/2 prior to January 1, 1988, distribution shall commence on the April 1 following the later of the calendar year in which he: (A) attained age 70 1/2, or (B) terminated service with the Company and all Related Employers, unless he was a five-percent owner (as defined in Section 416 of the Code) of the Company with respect to the Plan Year ending in the calendar year in which he attained age 70 1/2, in which case clause (B) shall not apply. (f) No Participant shall receive a distribution under circumstances that would impose an additional tax on such distribution pursuant to Section 72(t) of the Code unless and until that individual is notified in writing by the Committee of the tax and the individual, by writing delivered to the Committee, acknowledges receipt of the notification and requests the distribution. (g) This subsection 6.6(g) applies to distributions made on or after January 1, 1993. Notwithstanding any provision of the Plan to the contrary that would otherwise limit a Distributee's election under this subsection, a Distributee may elect, at the time and in the manner prescribed by the Plan Administrator, to have any portion of an Eligible Rollover Distribution paid directly to an Eligible Retirement Plan specified by the Distributee in a Direct Rollover. OREGON METALLURGICAL CORPORATION SAVINGS PLAN PAGE 38 (i) Definitions. (A) "Eligible Rollover Distribution" is any distribution of all or any portion of the balance to the credit of the Distributee, except that an Eligible Rollover Distribution does not include: Any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the Distributee or the joint lives (or joint life expectancies) of the Distributee and the Distributee's designated Beneficiary, or for a specified period of ten years or more; any distribution to the extent such distribution is required under Section 401(a)(9) of the Code; and the portion of any distribution that is not includable in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities). (B) "Eligible Retirement Plan is an individual retirement account described in Section 408(a) of the Code, an individual retirement annuity described in Section 408(b) of the Code, an annuity plan described in Section 403(a) of the Code, or a qualified trust described in Section 401(a) of the Code, that accepts the Distributee's eligible rollover distribution. However, in the case of an Eligible Rollover Distribution to the Surviving Spouse, an Eligible Retirement Plan is an individual retirement account or individual retirement annuity. (C) "Distributee" includes an Employee or former Employee. In addition, the Employee's or former Employee's Surviving Spouse and the Employee's or former Employee's spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in Section 414(p) of the Code, are Distributees with regard to the interest of the spouse or former spouse. (D) "Direct Rollover" is a payment by the Plan to the Eligible Retirement Plan specified by the Distributee. OREGON METALLURGICAL CORPORATION SAVINGS PLAN PAGE 39 (ii) If a distribution is one to which Sections 401(a)(11) and 417 of the Code do not apply, such distribution may commence less than 30 days after the notice required under Regulation 1.411(a)-11(c) is given, provided that: (A) The Committee clearly informs the Participant that the Participant has a right to a period of at least 30 days after receiving the notice to consider the decision of whether or not to elect a distribution (and, if applicable, a particular distribution option); and (B) The Participant, after receiving the notice, affirmatively elects a distribution. 6.7. DISTRIBUTION OF UNALLOCATED EMPLOYEE CONTRIBUTIONS. (a) If on the date of termination of a Participant's employment, the Company shall be holding Voluntary Contributions made by the Participant, but not yet allocated to his Voluntary Contribution Account, the Committee shall direct the Company to pay such amounts either directly to the Participant (or his Beneficiary, as the case may be) or to the Trustee, to be distributed by the Trustee in accordance with the method of distribution determined under Section 6.6. (b) If on the date of termination of a Participant's employment, a Participant's Earnings have been reduced by any amount pursuant to a Salary Reduction Agreement, and such amount has not yet been allocated to his Salary Reduction Contribution Account, the Committee shall direct the Company to pay such amounts to the Trustee to be credited to the Participant's Salary Reduction Contribution Account, to be distributed by the Trustee in accordance with the method of distribution determined under Section 6.6. 6.8. ADMINISTRATIVE POWERS RELATING TO PAYMENTS. If a Participant or Beneficiary is under a legal disability or, by reason of illness or mental or physical disability, is in the opinion of the Committee unable properly to attend to his personal financial matters, the Trustee may make such payments in such of the following ways as the Committee shall direct: (i) directly to such Participant or Beneficiary; (ii) to the legal representative of such Participant or Beneficiary; or OREGON METALLURGICAL CORPORATION SAVINGS PLAN PAGE 40 (iii) to some relative by blood or marriage, or friend, for the benefit of such Participant or Beneficiary. Any payment made pursuant to this Section shall be in complete discharge of the obligation therefor under the Plan. 6.9. WITHDRAWALS FROM VOLUNTARY CONTRIBUTION ACCOUNT. A Participant may withdraw from his Voluntary Contribution Account an amount not in excess of the Adjusted Balance thereof, determined as of the Valuation Date coinciding with or immediately succeeding the date a request is being made hereunder, that is not being used as security for a loan under Section 8.4. No withdrawal made under this Section 6.9 shall be for an amount which is less than the lesser of: (i) $200, or (ii) the Adjusted Balance in the Participant's Voluntary Contribution Account. 6.10 INVESTMENT PENDING DISTRIBUTION. The Committee, in its discretion, may direct the Trustee to invest the Accounts of a terminated Participant in a money-market or similar type of investment. ARTICLE VII PLAN ADMINISTRATION 7.1. COMPANY RESPONSIBILITY. The Company shall be responsible for and shall control and manage the operation and administration of the Plan. It shall be the "Plan Administrator" and "Named Fiduciary" for purposes of ERISA and shall be subject to service of process on behalf of the Plan. The Board may, in its discretion, appoint a Committee of one or more persons, to be known as the "Plan Administrative Committee" to act as the agent of the Company in performing these duties. In the event that the Board chooses not to appoint such a Committee, all references in the Plan to the "Committee" (except for such references in this Section 7.1) shall mean the Board. The members of the Committee shall serve at the pleasure of the Board; they may be officers, directors, or Employees of the Company or any other individuals. Any member may resign by delivering his written resignation to the Board and to the Committee. Vacancies in the Committee arising by resignation, death, removal or otherwise, shall be filed by the Board. The Company shall advise the Trustee in writing of the names of the members of the Committee and of changes in membership from time to time. 7.2. POWERS AND DUTIES OF COMMITTEE. The Committee shall administer the Plan in accordance with its terms and shall have all powers necessary to carry out the provisions of the Plan. The Committee shall direct the Trustee concerning all payments which shall be made out of the Trust pursuant to the Plan. The Committee shall interpret the Plan and shall determine all questions arising in the administration, interpretation, and application of the Plan, including but not limited to, questions of eligibility and the status and rights of Participants, Beneficiaries and other persons. Any such determination by the Committee shall presumptively be conclusive and binding on all OREGON METALLURGICAL CORPORATION SAVINGS PLAN PAGE 41 persons. The regularly kept records of the Company shall be conclusive and binding upon all persons with respect to an Employee's Hours of Service, date and length of employment, time and amount of Compensation and the manner of payment thereof, type and length of any absence from work and all other matters contained therein relating to Employees. All rules and determinations of the Committee shall be uniformly and consistently applied to all persons in similar circumstances. 7.3. ORGANIZATION AND OPERATION OF COMMITTEE. (a) The Committee shall act by majority vote of its members at the time in office, and such action may be taken either by a vote at a meeting or in writing without a meeting. The signatures of a majority of the members will be sufficient to authorize Committee action. A Committee member shall not participate in discussions of or vote upon matters pertaining to his own participation in the Plan. (b) The Committee may authorize any of its members or any other person to execute any document or documents on behalf of the Committee, in which event the Committee shall notify the Trustee in writing of such action and the name or names of such member or person. The Trustee thereafter shall accept and rely upon any document executed by such members or persons as representing action by the Committee, until the Committee shall file with the Trustee a written revocation of such designation. (c) The Committee may adopt such bylaws and regulations as it deems desirable for the conduct of its affairs and with the consent of the President or Vice President, Finance of the Company, may appoint such accountants, counsel, specialists, and other persons as it deems necessary or desirable in connection with the administration of this Plan. The Committee shall be entitled to rely conclusively upon, and shall be fully protected in any action taken by it in good faith in relying upon, any opinions or reports which shall be furnished to it by any such accountant, counsel, specialist or other person. 7.4. RECORDS AND REPORTS OF COMMITTEE. The Committee shall keep a record of all its proceedings and acts and shall keep all such books of account, records, and other data as may be necessary for proper administration of the Plan. The Committee shall notify the Trustee and the Company of any action taken by the Committee and, when required, shall notify any other interested person or persons. 7.5. CLAIMS PROCEDURE. Claims for benefits under the Plan shall be made in writing to the Committee. In the event a claim for benefits is wholly or partially denied by the Committee, the Committee shall, within a reasonable period of time, but not later than 90 days after receipt of the claim, notify the claimant in writing of the denial of the claim. If the claimant shall not be notified in writing of the denial of the claim within 90 days after it is received by the Committee, the claim shall be deemed denied. A notice of denial shall be written in a manner calculated to be understood OREGON METALLURGICAL CORPORATION SAVINGS PLAN PAGE 42 by the claimant, and shall contain (i) the specific reason or reasons for denial of the claim, (ii) a specific reference to the pertinent Plan provisions upon which the denial is based, (iii) a description of any additional material or information necessary for the claimant to perfect the claim, together with an explanation of why such material or information is necessary, and (iv) an explanation of the Plan's review procedure. Within 60 days of the receipt by the claimant of the written notice of denial of the claim, or within 60 days after the claim is deemed denied as set forth above, if applicable, the claimant may file a written request with the Committee that it conduct a full and fair review of the denial of the claimant's claim for benefits, including the conducting of a hearing, if deemed necessary by the Committee. In connection with the claimant's appeal of the denial of his benefit, the claimant may review pertinent documents and may submit issues and comments in writing. The Committee shall render a decision on the claim appeal promptly, but not later than 60 days after the receipt of the claimant's request for review, unless special circumstances (such as the need to hold a hearing, if necessary), require an extension of time for processing, in which case the 60-day period may be extended to 120 days. The Committee shall notify the claimant in writing of any such extension. The decision upon review shall (i) include specific reasons for the decision, (ii) be written in a manner calculated to be understood by the claimant and (iii) contain specific references to the pertinent Plan provisions upon which the decision is based. 7.6. COMPENSATION AND EXPENSES OF COMMITTEE. The members of the Committee shall serve without Compensation for services as such, but all proper expenses incurred by the Committee incident to the functioning of the Plan shall be paid by the Company, provided, however, that reasonable Compensation or expenses of administering the Plan shall be borne by, and paid out of the Plan assets, except to the extent the Board elects to have such expenses paid directly by the Company. 7.7. INDEMNITY OF COMMITTEE MEMBERS. The Company shall indemnify and defend each member of the Committee and each of its other Employees against any and all claims, loss, damages, expenses (including reasonable attorney fees), and liability arising in connection with the administration of the Plan, except when the same is judicially determined to be due to the gross negligence or willful misconduct of such member or other Employee. 7.8 VOTING RIGHTS AND STOCK DISPOSITIONS. (a) Governing Provisions. The voting, tendering, sale or other disposition of Oremet Stock held in the Trust (except in connection with a distribution) shall be governed by this Section 7.8. (b) Participant Directions. (i) Each Participant or Beneficiary shall have the right, with respect to Oremet Stock allocated to any of his Accounts, and, separately, shares allocated to accounts for which the Trustee has not received timely voting instructions and, if applicable, unallocated OREGON METALLURGICAL CORPORATION SAVINGS PLAN PAGE 43 shares, ("Non-Directed Shares"), to direct the Trustee as to the manner in which (x) to vote such Oremet Stock in any matter put to a shareholder vote; and (y) to respond to a tender or exchange offer or any other offer to dispose of stock held in the Trust. As to Non-Directed Shares, the Trustee shall vote, tender, exchange, sell or dispose of the Oremet Stock based on the following formula: Total number of Non-Directed Shares multiplied by a fraction, the numerator of which is the number of Shares credited to the voting Participant's Account and the denominator of which is the total number of Shares credited to the Accounts of all Participants who have provided timely directions to the Trustee. (ii) With respect to shares of Company Stock allocated to the account of a deceased Participant such Participant's Beneficiary, as Named Fiduciary, shall be entitled to direct the voting of shares of Company Stock as if such Beneficiary were the Participant. (iii) In the event a tender offer shall be received by the Trustee and instructions shall be solicited from Participants pursuant to this Section 7.8 (b) regarding such offer, and prior to termination of such offer, another offer is received by the Trustee for the securities subject to the first offer, the Trustee shall use its best efforts under the circumstances to solicit instructions from the Participants to the Trustee (x) with respect to securities tendered for sale, exchange or transfer pursuant to the first offer, whether to withdraw such tender, if possible, and, if withdrawn, whether to tender any securities so withdrawn for sale, exchange or transfer pursuant to the second offer and (y) with respect to securities not tendered for sale, exchange or transfer pursuant to the first offer, whether to tender or not to tender such securities for sale, exchange or transfer pursuant to the second offer. The Trustee shall follow all such instructions received in a timely manner from Participants in the same manner and in the same proportion as provided in Section 7.8 (b) (i). With respect to any further offer for any Company Stock received by the Trustee and subject to any earlier offer (including successive offers from one or more existing offerors), the Trustee shall act in the same manner as described above. (iv) A participant's instructions to the Trustee to tender or exchange shares of Company Stock will not be deemed a withdrawal or suspension from the Plan or a forfeiture of any portion of the Participant's interest in the Plan. Funds received in exchange for tendered shares will be credited to the account of the Participant OREGON METALLURGICAL CORPORATION SAVINGS PLAN PAGE 44 whose shares were tendered and will be used by the Trustee to purchase Company Stock, as soon as practicable. In the interim, the Trustee will invest such funds in short-term investments permitted under the Plan, and in the same manner in which forfeited amounts are invested. (v) In the event the Company initiates a tender or exchange offer, the Trustee may, in its sole discretion, enter into an agreement with the Company not to tender or exchange any shares of Company Stock in such offer, in which event the foregoing provisions of this Section 7.8 shall have no effect with respect to such offer, and the Trustee shall not tender or exchange any shares of Company Stock in such offer. (c) INFORMATION. On any matter in which a Participant (or Beneficiary) is entitled to direct the Trustee under this Section 7.8, the Trustee shall solicit such directions by distributing to each Participant and Beneficiary to whose Account Oremet Stock has been allocated, such information as shall be distributed to shareholders of Oremet generally in connection with a shareholder vote, tender, exchange or other offer, together with any additional information the Trustee deems appropriate in order for each Participant (or Beneficiary) to give proper directions to the Trustee. The directions received from any Participant (or Beneficiary) shall be held in confidence by the Trustee, and shall not be individually divulged or released to any person, including officers or employees of Oremet or the Union. Any costs incurred in connection with obtaining directions shall be treated as expenses of the Plan for the purposes of Section 7.8. ARTICLE VIII LOANS TO PARTICIPANTS 8.1. LOANS TO PARTICIPANTS. (a) The Committee shall direct the Trustee to make a loan or loans to active Participants and, to the extent not inconsistent with Section 401 (a) of the Code, to former Participants who are Parties in Interest (as defined in 3(14) of ERISA) and who retain account balances in the Plan following termination of employment ("Former Participants"), applied for pursuant to the terms of this Article. Such loans shall be in amounts that do not in the aggregate exceed the amount set forth in Section 8.2. Loans shall be made on the written application of the Participant to the Committee and on such terms and conditions as are set forth in this Section and Sections 8.2 and 8.3. In making such loans the Committee shall pursue uniform OREGON METALLURGICAL CORPORATION SAVINGS PLAN PAGE 45 policies and shall not discriminate in favor of or against any Participant or group of Participants. (b) Loans shall be made only from the Participant's Salary Reduction Contribution Account, Voluntary Contribution Account and ESOP (or other) Rollover Account, and the Participant shall specify in his loan application the Investment Funds in which such accounts are invested, from which any loan shall be paid and the allocation of the loan proceeds among such Investment Funds; provided that such allocation shall be in increments of one percent. Each such loan shall be made in accordance with the specification of the borrowing Participant or former Participant except that, if any Investment Fund imposes any restriction or penalty on a distribution as a loan, the loan shall be paid from the Investment Funds in such manner as will comply with the restriction and avoid the penalty. (c) The Committee may impose such additional uniform and nondiscriminatory requirements upon Participants and Former Participants applying for loans as the Committee may determine. 8.2. MAXIMUM LOAN AMOUNT. (a) In no event shall any loan made pursuant to this Article to any Participant or Former Participant be in an amount that shall cause the outstanding aggregate balance of all loans made to such Participant or Former Participant under this Plan and all other qualified employer plans (as defined in Section 72(p)(4) of the Code without regard to subparagraph (2)(D) thereof) maintained by the Company or any Related Employer to exceed the lesser of: (i) $50,000, reduced by the excess (if any) of: (A) the highest outstanding balance of loans from the Plan and such other qualified plans to the Participant during the one-year period ending on the day before the date such loan is made, over (B) the outstanding balance of loans from the Plan and such other qualified plans to the Participant on the date on which such loan is made, or (ii) 50% of the vested portion of the Adjusted Balance of such Participant's or former Participant's Salary Reduction Contribution Account, Company Discretionary Contribution Account, Matching Contribution Account, and Equity Contribution Account. OREGON METALLURGICAL CORPORATION SAVINGS PLAN PAGE 46 Notwithstanding the preceding provisions of this Subsection (a), in no event shall any loan exceed 100% of a Participant's Salary Reduction Contribution Account, Voluntary Contribution Account and ESOP (or other) Rollover Account. (b) For purposes of this Article, the balances of a borrowing Participant's or Former Participant's accounts shall be determined as of the Valuation Date for which a valuation of his accounts is most recently available on the date on which the proceeds of a loan made under this Article are disbursed to the borrowing Participant. 8.3. REPAYMENT OF LOANS. All loans made under this Article shall mature and be payable in full within five years alter the date such loan is made, except that a loan to a Participant used to acquire any dwelling unit that within a reasonable time alter the loan is made is to be used (determined at the time the loan is made) as the principal residence of the Participant shall mature and be payable in full within ten years after the date such loan is made. 8.4. TERMS. (a) Loans to Participants shall be made according to the following terms: (i) The minimum security for such loans shall be: (A) 50% of the vested portion of the Adjusted Balance of the Salary Reduction Contribution Account, Voluntary Contribution Account, Company Discretionary Contribution Account, Matching Contributions Account, Equity Bonus Compensation Account (if applicable), and Equity Contribution Account of the borrowing Participant, plus (B) in the discretion of the Committee, a security interest in such other property, determined by the Committee, that would be required in the case of an otherwise identical transaction in a normal commercial setting between unrelated parties on arm's-length terms; (ii) Interest shall be determined by the Committee at the time the loan is made and shall be charged at a rate that is commensurate with the interest rate charged by persons in the business of lending money for loans that would be made under similar circumstances in the local geographical area; (iii) Payments of principal and interest by an active Participant shall be made through payroll deductions, which deductions shall be OREGON METALLURGICAL CORPORATION SAVINGS PLAN PAGE 47 irrevocably authorized by the borrowing Participant in writing on a form supplied by the Committee or Trustee at the time the loan is made to him, and such payroll deductions shall be sufficient to amortize the principal and interest payable pursuant to the loan during the term thereof on a substantially level basis in equal quarterly (or more frequent) installments. Payments of principal and interest by a Former Participant shall be made by personal check in equal quarterly (or more frequent) installments. All payments of principal and interest shall be allocated to the accounts of the Participant or Former Participant to whom the loan was made; (iv) The borrowing Participant or Former Participant shall have the right to prepay all or any portion of the interest and principal of such loan without penalty; (v) The loans shall be evidenced by such forms of obligations, and shall be made upon such additional terms as to default, prepayment, security and otherwise as the Committee shall determine; (vi) The Committee may charge a borrowing Participant or Former Participant such reasonable administrative fees with respect to each loan as the Committee shall, in its discretion, decide; and (vii) If the borrowing Participant or Former Participant is married at the time for disbursement of the loan proceeds, disbursement may not be made unless such Participant's or Former Participant's spouse consents in writing to the loan and the terms thereof pursuant to procedures established by the Committee. (b) The entire unpaid balance of any loan made under this Article and all interest due thereon, including all arrearages thereon, shall, at the option of the Committee, immediately become due and payable without further notice or demand, if, with respect to the borrowing Participant or Former Participant, any of the following events of default occurs: (i) any payments of principal or accrued interest on the loan remain due and unpaid for a period of ten days after the same becomes due and payable under the terms of the loan; (ii) a proceeding in bankruptcy, receivership, or insolvency is commenced by or against the borrowing Participant or Former Participant; (iii) an active Participant's employment with the Company terminates and he does not become a Former Participant; OREGON METALLURGICAL CORPORATION SAVINGS PLAN PAGE 48 (iv) the borrowing Participant becomes a Former Participant and thereafter receives a final distribution of the Adjusted Balance of his accounts; (v) the borrowing Participant or Former Participant attempts to make an assignment, for the benefit of creditors, of any security for the loan; or (vi) the borrowing Participant or Former Participant marries or remarries and his new spouse does not consent in writing to the loan and the terms thereof pursuant to procedures established by the Committee within 30 days after marrying the Participant. Any payments of principal or interest on the loan not paid when due shall bear interest thereafter, to the extent permitted by law, at the rate specified by the terms of the loan. The payment and acceptance of any sum or sums at any time on account of the loan after an event of default, or any failure to act or enforce the rights granted hereunder upon an event of default, shall not be a waiver of the right of acceleration set forth in this paragraph. (c) If an event of default and an acceleration of the unpaid balance of the loan and interest due thereon shall occur, the Committee shall have the right to direct the Trustee to pursue any remedies available to a creditor at law or under the terms of the loan, including the right to execute on the security for the loan. Notwithstanding the preceding sentence, in no event shall either the Trustee or the Committee reduce the amount in the Participant's Salary Reduction Contribution Account at any time prior to the first to occur of the termination of the Participant's employment with the Company or the Participant's attainment of age 59 1/2. (d) If (i) an event of default (specified in Section 8.4(b)) occurs; and (ii) an event occurs pursuant to which the Participant or Former Participant, his estate or his Beneficiaries will receive a distribution from the Salary Reduction Contribution Account, Discretionary Contribution Account, Matching Contributions Account, or Equity Contribution Account of such Participant or Former Participant under the provisions of the Plan, then such Participant or Former Participant, if living, shall pay to the Trustee an amount equal to the portion of the loan or loans then outstanding, including all accrued interest thereon in accordance with Section 8.4(b), and such Participant or Former Participant shall thereafter receive the full amount of the distribution under the provisions of the Plan to which he is otherwise entitled. If such Participant or Former Participant is not then living, or if such Participant or Former Participant does not make full payment of the portion of the loan or loans then outstanding within 15 days after the date of the event of default, then the unpaid balance of the loan or loans will be deemed to be distributed to the OREGON METALLURGICAL CORPORATION SAVINGS PLAN PAGE 49 borrowing Participant, to the extent such a distribution would be allowed under the terms of the Plan, on the last date by which full payment should have been made. The amount of the deemed distribution will be deducted from the borrowing Participant's applicable Accounts and paid to the Trustee as payment on the loan or loans. No subsequent distribution shall be made to a Participant, or Former Participant, or his estate or his spouse or his Beneficiaries from his Salary Reduction Contribution Account, Discretionary Contribution Account, Matching Contributions Account, or Equity Contribution Account in an amount greater than the excess of the portion of his Salary Reduction Contribution Account, Discretionary Contribution Account, Matching Contributions Account, or Equity Contribution Account otherwise distributable over the aggregate of the deemed distribution. (e) All loans made pursuant to this Article shall be funded from the borrowing Participant's or Former Participant's Salary Reduction Contribution Account, Voluntary Contribution Account and ESOP (or other) Rollover Account. As set forth in Section 8.1(b), the Salary Reduction Contribution Account of a Participant or a Former Participant shall, to the extent used to fund such loan, not participate in the allocation of Earnings and losses pursuant to Section 5.8. All interest paid by a Participant or a Former Participant with respect to a loan shall be credited to the borrowing Participant's or Former Participant's Salary Reduction Contribution Account, Voluntary Contribution Account and ESOP (or other) Rollover Account and shall not be allocated pursuant to Section 5.8 as Earnings of the Investment Funds. All payments of principal and interest made by a Participant or Former Participant with respect to a loan shall be allocated to one or more of the Investment Funds based upon the form relating to the selection of Investment Funds that is in effect, at the time such payment is received by the Trustee, with respect to the Participant's Salary Reduction Contributions, Voluntary Contribution Account and ESOP (or other) Rollover Account. If such a form is not in effect at the time such payment is received, the payments shall be allocated based upon the last such form that was in effect for such Participant or Former Participant. ARTICLE IX INVESTMENT FUNDS 9.1. INVESTMENT FUNDS. The Adjusted Balance of each Participant's Salary Reduction Contribution Account, Voluntary Contribution Account and ESOP (or other) Rollover Account will be invested in the various Investment Funds. OREGON METALLURGICAL CORPORATION SAVINGS PLAN PAGE 50 9.2. INITIAL INVESTMENT. All Salary Reduction Contributions, Voluntary Contributions and ESOP (or other) Rollovers received by the Trustee will be initially invested in such short-term investment obligations as selected by the Trustee as directed by the Committee from time to time pending investment pursuant to Section 9.3. These deposits and Earnings will be allocated between the Investment Funds as of the Valuation Date next following receipt by the Trustee of such deposits and Earnings in accordance with Participants' selection of Investment Funds pursuant to Section 9.3. 9.3. SELECTION OF INVESTMENT FUNDS. (a) Each Participant shall have the right to file a form with the Committee directing that his Salary Reduction Contributions, Voluntary Contributions and ESOP (or other) Rollovers be invested, in specified multiples as determined by the Committee, in any one of the Investment Funds. In default of any Participant's direction, such contributions will be invested in each, or any one, of the Investment Funds described in the schedule attached hereto until a form designating a different Investment Fund is submitted to the Committee and forwarded to the Trustee. (b) Each Participant shall have the right to file a written form with the Committee modifying the direction made in subsection (a) with respect to subsequent Salary Reduction Contributions, Voluntary Contribution Account and ESOP (or other) Rollover Account under the Plan. (c) Each Participant shall have the right to file a written form with the Committee directing that the portion of his Salary Reduction Contribution Account, Voluntary Contribution Account and ESOP (or other) Rollover Account held in any one Investment Fund be transferred, in whole or in part, to any other Investment Fund. This direction shall be made by designating the percentage of the Adjusted Balance of such accounts that is to be divided among the various applicable Funds in multiples as determined by the Committee. (d) Any written form submitted pursuant to subsections (a), (b) or (c) shall be filed with the Committee, pursuant to rules it establishes, within a time period to be established by the Committee. The initial allocation to an Investment Fund pursuant to subsection (a) or subsection (b) or a reallocation among Investment Funds pursuant to subsection (c) shall be made as of the effective date of the form submitted pursuant to this subsection (d) or as soon as reasonably possible after such date. (e) The Committee will maintain individual accounts representing the interests of Participants in the several Investment Funds. Each Investment Fund may be invested as a single fund, however, without segregation of Fund assets to the accounts of Participants. OREGON METALLURGICAL CORPORATION SAVINGS PLAN PAGE 51 (f) All contributions in-kind of shares of Company Stock made as Company Discretionary Contributions, Equity Matching Contributions, Equity Bonus Compensation (if applicable), and Equity Contributions or with respect to any other accounts hereafter created, shall be held in the general trust fund by the Trustee under provisions of the Trust Agreement and shall not be subject to individual Participant investment direction unless authorized by the Company. ARTICLE X AMENDMENT AND TERMINATION 10.1. AMENDMENT OF PLAN. The Company shall have the right to amend the Plan at any time and from time to time by resolution of its Board of Directors, and all Employees and persons claiming any interest hereunder shall be bound thereby; provided, however, that no amendment shall have the effect of: (i) directly or indirectly divesting the interest of any Participant in any amount that he would have received had he terminated his employment with the Company immediately prior to the effective date of such amendment, or the interest of any Beneficiary as such interest existed immediately prior to the effective date of such amendment, (ii) directly or indirectly affecting the vesting schedule set forth in Section 5.7 used to determine the vested interest of a Participant on the effective date of the amendment unless the conditions of 203(c) of ERISA are satisfied; (iii) vesting in the Company any right, title or interest in or to any Plan assets; (iv) causing or effecting discrimination in favor of officers, shareholders, or highly compensated Employees; or (v) causing any part of the Plan assets to be used for any purpose other than for the exclusive benefit of the Participants and their Beneficiaries. 10.2. VOLUNTARY TERMINATION OF OR PERMANENT DISCONTINUANCE OF CONTRIBUTIONS TO THE PLAN. The Company expects the Plan to be permanent, but since future conditions affecting the Company cannot be anticipated, the Company shall have the right to terminate the Plan in whole or in part, or to permanently discontinue contributions to the Plan, at any time by resolution of its Board and by giving written notice of such termination or permanent discontinuance to the Trustee. Such resolution shall specify the effective date of termination or permanent discontinuance, which shall not be earlier than the first day of the Plan Year which includes the date of the resolution. 10.3. INVOLUNTARY TERMINATION OF PLAN. The Plan shall automatically terminate if the Company is legally adjudicated a bankrupt, makes a general assignment for the benefit of creditors, or is dissolved. In the event of the merger or consolidation of the Company with or into any other corporation, or in the event substantially all of the assets of the Company shall be transferred to another corporation, the successor corporation resulting from the consolidation or merger, or transfer of such assets, as the case may be, shall have the right to adopt and continue the Plan and succeed to the position of the Company hereunder. If, however, the Plan is not so adopted within 90 days after the effective date of such consolidation, merger or sale, the Plan shall automatically be deemed terminated as of the effective date of such transaction. Nothing in this Plan shall prevent the OREGON METALLURGICAL CORPORATION SAVINGS PLAN PAGE 52 dissolution, liquidation, consolidation or merger of the Company, or the sale or transfer of all or substantially all of its assets. 10.4. PAYMENTS ON TERMINATION OF OR PERMANENT DISCONTINUANCE OF CONTRIBUTIONS TO THE PLAN. If the Plan is terminated as herein provided, or if it should be partially terminated, or upon the complete discontinuance of Company contributions to the Plan, the following procedure shall be followed, except that, in the event of a partial termination, it shall be followed only in cases of those Participants and Beneficiaries directly affected: (i) The Committee may continue to administer the Plan, but if it fails to do so, its records, books of account and other necessary data shall be turned over to the Trustee and the Trustee shall act on its own motion as hereinafter provided. (ii) Notwithstanding any other provisions of the Plan, all interests of Participants shall become fully vested and nonforfeitable. (iii) The value of the Trust and the shares of all Participants and Beneficiaries shall be determined as of the date of termination or discontinuance. (iv) Distribution to Participants and Beneficiaries shall be made at such time after termination of or discontinuance of contributions to the Plan as shall be determined by the Committee (or the Trustee if no Committee is then acting) not later than the time specified in Section 6.6. ARTICLE XI MISCELLANEOUS 11.1. DUTY TO FURNISH INFORMATION AND DOCUMENTS. Participants and their Beneficiaries must furnish to the Committee and the Trustee such evidence, data or information as the Committee considers necessary or desirable for the purpose of administering the Plan, and the provisions of the Plan for each person are upon the condition that he will furnish promptly full, true, and complete evidence, data, and information requested by the Committee. All parties to, or claiming any interest under, the Plan hereby agree to perform any and all acts, and to execute any and all documents and papers, necessary or desirable for carrying out the Plan and the Trust. 11.2. COMMITTEE'S ANNUAL STATEMENTS AND AVAILABLE INFORMATION. The Committee shall advise Employees of the eligibility requirements and benefits under the Plan. As soon as practicable after making the annual valuations and allocations provided for in the Plan, and at such other times as the Committee may determine, the Committee shall provide each Participant, and each former OREGON METALLURGICAL CORPORATION SAVINGS PLAN PAGE 53 Participant and Beneficiary with respect to whom an account is maintained, with a statement reflecting the current status of his Accounts, including the Adjusted Balance thereof. No Participant, except a member of the Committee, shall have the right to inspect the records reflecting the account of any other Participant. The Committee shall make available for inspection at reasonable times by Participants and Beneficiaries copies of the Plan, any amendments thereto, the Plan summary, and all reports of Plan operations required by law. 11.3. NO ENLARGEMENT OF EMPLOYMENT RIGHTS. Nothing contained in the Plan shall be construed as a contract of employment between the Company and any person, nor shall the Plan be deemed to give any person the right to be retained in the employ of the Company or limit the right of the Company to employ or discharge any person with or without cause, or to discipline any Employee. 11.4. APPLICABLE LAW. All questions pertaining to the validity, construction and administration of the Plan shall be determined in conformity with the laws of Oregon to the extent that such laws are not preempted by ERISA and valid Regulations published thereunder. 11.5. NO GUARANTEE. Neither the Trustee, the Committee, nor the Company in any way guarantees the Trust Fund from loss or depreciation or the payment of any benefits that may be or become due to any person from the Trust Fund. No Participant or other person shall have any recourse against the Trustee, the Company or the Committee if the Trust Fund is insufficient to provide Plan benefits in full. Nothing herein contained shall be deemed to give any Participant, former Participant, or Beneficiary an interest in any specific part of the Trust Fund or any other interest except the right to receive benefits out of the Trust Fund in accordance with the provisions of the Plan. 11.6. UNCLAIMED FUNDS. Each Participant shall keep the Committee informed of his current address and the current address of his Beneficiary or Beneficiaries. None of the Company, the Committee and the Trustee shall be obligated to search for the whereabouts of any person. If the location of a Participant is not made known to the Committee within three years after the date on which distribution of the Participant's accounts may first be made, distribution may be made as though the Participant had died at the end of the three-year period. If, within one additional year after such three-year period has elapsed, or, within three years after the actual death of a Participant, the Committee is unable to locate any individual who would receive a distribution under the Plan upon the death of the Participant pursuant to Section 6.2 of the Plan, the Adjusted Balance in the Participant's accounts shall be deemed a forfeiture and shall be used to reduce Company Discretionary Contributions and Matching Contributions to the Plan for the Plan Year next following the year in which the forfeiture occurs; provided, however, that in the event that the Participant or a Beneficiary makes a claim for any amount that has been forfeited, the benefits which have been forfeited shall be reinstated. OREGON METALLURGICAL CORPORATION SAVINGS PLAN PAGE 54 11.7. MERGER OR CONSOLIDATION OF PLAN. Any merger or consolidation of the Plan with another plan, or transfer of Plan assets or liabilities to any other plan, shall be effected in accordance with such Regulations, if any, as may be issued pursuant to 208 of ERISA, in such a manner that each Participant in the Plan would receive, if the merged, consolidated or transferee Plan were terminated immediately following such event, a benefit that is equal to or greater than the benefit he would have been entitled to receive if the Plan had terminated immediately before such event. 11.8. INTEREST NONTRANSFERABLE. Except as provided in Article VIII and in this Section, no interest of any person or entity in, or right to receive distributions from, the Trust Fund shall be subject in any manner to sale, transfer, assignment, pledge, attachment, garnishment, or other alienation or encumbrance of any kind; nor may such interest or right to receive distributions be taken, either voluntarily or involuntarily, for the satisfaction of the debts of, or other obligations or claims against, such person or entity, including claims in bankruptcy proceedings. The account of any Participant, however, shall be subject to and payable in accordance with the applicable requirements of any qualified domestic relations order, as that term is defined in Section 414(p) of the Code, and the Committee shall direct the Trustee to provide for payment from a Participant's account in accordance with such order and with the provisions of Section 414(p) of the Code and any Regulations promulgated thereunder. A payment from a Participant's account may be made to an alternate payee (as defined in Section 414(p)(8) of the Code) prior to the date the Participant reaches his earliest retirement age (as defined in Section 414(p)(4)(B) of the Code) if such payments are made pursuant to the terms of a qualified domestic relations order. All such payments pursuant to a qualified domestic relations order shall be subject to reasonable rules and regulations promulgated by the Committee respecting the time of payment pursuant to such order and the valuation of the Participant's account or accounts from which payment is made; provided that all such payments are made in accordance with such order and Section 414(p). The balance of an account that is subject to any qualified domestic relations order shall be reduced by the amount of any payment made pursuant to such order. Notwithstanding the preceding paragraph, if any Participant borrows money pursuant to Article VIII, the Trustee and the Committee shall have all rights to collect upon such indebtedness as are granted pursuant to Article VIII and any agreements or documents executed in connection with such loan. 11.9. PRUDENT MAN RULE. Notwithstanding any other provision of this Plan, the Trustee, the Committee and the Company shall exercise their powers and discharge their duties under this Plan Agreement for the exclusive purpose of providing benefits to Employees and their Beneficiaries, and shall act with the care, skill, prudence and diligence under the circumstances that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims. Subject to the terms of the preceding sentence, the Trustee shall diversify investments of the Trust Fund so as to minimize the risk of large losses, unless under the circumstances it is clearly prudent not to do so. OREGON METALLURGICAL CORPORATION SAVINGS PLAN PAGE 55 11.10. LIMITATIONS ON LIABILITY. Notwithstanding any of the preceding provisions of the Plan, none of the Trustee, the Company, the Committee and each individual acting as an Employee or agent of any of them shall be liable to any Participant, former Participant or Beneficiary for any claim, loss, liability or expense incurred in connection with the Plan, except when the same shall have been judicially determined to be due to the gross negligence or willful misconduct of such person. The Company shall indemnify and hold harmless each individual acting as an Employee or agent of the Company (including Committee members) from any and all claims, liabilities, costs and expense (including attorney fees) arising out of any actual or alleged act or failure to act with respect to the administration of the Plan, except that no indemnification or defense shall be provided to any person with respect to conduct which has been judicially determined, or agreed by the parties, to have constituted bad faith or willful misconduct on the part of such person, or to have resulted in his receipt of personal profit or advantage to which he is not entitled. 11.11. HEADINGS. The headings in this Plan are inserted for convenience of reference only and are not to be considered in construction of the provisions hereof. 11.12. GENDER AND NUMBER. Except when otherwise required by the context, any masculine terminology in this document shall include the feminine, and any singular terminology shall include the plural. 11.13. ERISA AND APPROVAL UNDER INTERNAL REVENUE CODE. This Plan is intended to qualify as a plan meeting the requirements of Sections 401 and 501(a) of the Code, as now in effect or hereafter amended, so that the income of the Trust Fund may be exempt from taxation under Section 501(a) of the Code, contributions of the Company under the Plan may be deductible for federal income tax purposes under Section 404 of the Code and amounts subject to Salary Reduction Agreements are not treated as distributed to Participants for federal income tax purposes under Section 402(e)(3) of the Code. Any modification or amendment of the Plan and/or Trust Agreement may be made retroactively, as necessary or appropriate, to establish and maintain such qualification and to meet any requirement of the Code or ERISA. 11.14. EXTENSION OF PLAN TO RELATED EMPLOYERS. (a) With the approval of the Company, any Related Employer may adopt the Plan and qualify its Employees to become Participants thereunder by taking proper corporate action to adopt the Plan and making such contributions to the Trust Fund as the Board of Directors of the Related Employer may require. (b) The Plan will terminate with respect to any Related Employer that has adopted the Plan pursuant to this Section if the Related Employer ceases to be a Related Employer, revokes its adoption of the Plan by appropriate corporate action, permanently discontinues its contributions for its Employees, is judicially declared bankrupt, makes a general assignment for the benefit of creditors or is dissolved. If the Plan is terminated or contributions are discontinued with respect to any Related OREGON METALLURGICAL CORPORATION SAVINGS PLAN PAGE 56 Employer, the provisions of Section 10.4 shall apply to the interest in the Plan of the Employees of such Related Employer, and their Beneficiaries. (c) The terms "Company" and "Employee" in the Plan shall include any Related Employer that has adopted the Plan pursuant to this Section 11.14 and such Related Employer's Employees; provided, however, that the term "Company" shall not include any such Related Employer where used in Articles VI or VII of the Plan. The Company shall act as the agent for each Related Employer that adopts the Plan for all purposes of administration thereof. ARTICLE XII TOP-HEAVY PROVISIONS 12.1. TOP-HEAVY STATUS. Except as provided in Sections 12.4(b) and (c), the provisions of this Article shall not apply to the Plan with respect to any Plan Year for which the Plan is not Top-Heavy. If the Plan is or becomes Top-Heavy in any Plan Year, the provisions of this Article XII will supersede any conflicting provisions elsewhere in the Plan. 12.2. DEFINITIONS. For purposes of this Article XII, the following words and phrases shall have the meanings stated below unless a different meaning is required by the context: (a) "Determination Date" means, with respect to any Plan Year: (i) the last day of the preceding Plan Year, or (ii) in the case of the first Plan Year of the Plan, the last day of such Plan Year. (b) "Key Employee" means an Employee meeting the definition of "key employee" contained in Section 416(i)(1) of the Code and the Regulations interpreting that Section. For purposes of determining whether an Employee is a Key Employee, the definition of Compensation set forth in Section 12.6 shall apply. (c) "Non-Key Employee" means any Employee who is not a Key Employee. (d) "Valuation Date" means with respect to a particular Determination Date, the most recent annual Plan Year Valuation Date (as defined in Section 1.44) occurring within a 12-month period ending on the applicable Determination Date. OREGON METALLURGICAL CORPORATION SAVINGS PLAN PAGE 57 12.3. DETERMINATION OF TOP-HEAVY STATUS. (a) The Plan will be "Top-Heavy" with respect to any Plan Year if, as of the Determination Date applicable to such Year, the ratio of the Adjusted Balances in the accounts of Key Employees (determined as of the Valuation Date applicable to such Determination Date) to the Adjusted Balances in the accounts of all Employees (determined as of such Valuation Date) exceeds 60%. For purposes of computing such ratio, and for all other purposes of applying and interpreting this paragraph (a): (i) the amount of the accounts of any Employee shall be increased by the aggregate distributions made with respect to such Employee under the Plan during the five-year period ending on any Determination Date; (ii) benefits provided under all Plans which are aggregated pursuant to (b) of this Section must be considered; and (iii) the provisions of Section 416 of the Code and all Regulations interpreting that Section shall be applied. If any Employee has not performed services for the Company or any Related Employer at any time during the five-year period ending on any Determination Date, the balances of the accounts of such Employee shall not be taken into consideration for purposes of determining whether the Plan is Top-Heavy with respect to the Plan Year to which such Determination Date applies. (b) For purposes of determining whether the Plan is Top-Heavy, all qualified retirement Plans maintained by the Company and each Related Employer shall be aggregated to the extent that such aggregation is required under the applicable provisions of Section 416 of the Code and the Regulations interpreting that Section. All other qualified retirement Plans maintained by the Company and each Related Employer shall be aggregated only to the extent permitted by Section 416 of the Code and such Regulations and elected by the Company. (c) For purposes of determining whether the Plan is Top-Heavy, the Adjusted Balance of a Participant's accounts shall not include (i) the amount of a rollover contribution (or similar transfer) and Earnings thereon attributable to a rollover contribution (or similar transfer) accepted after December 31, 1983, initiated by the Participant and derived from a Plan not maintained by the Company or any Related Employer, or (ii) a distribution made with respect to an Employee which is a tax-free rollover contribution (or similar transfer) that is either not initiated by the Employee or that is made to a Plan maintained by the Company or any Related Employer. (d) Solely for purposes of determining whether the Plan is Top-Heavy, the accrued benefit of any Non-Key Employee shall be determined (i) under the method, if any, that uniformly applies for accrual purposes under all plans of the Company or any Related Employer, or (ii) if there is no such method, as if such OREGON METALLURGICAL CORPORATION SAVINGS PLAN PAGE 58 benefit accrued not more rapidly than the slowest accrual rate permitted under the fractional accrual rule of Section 411(b)(1)(C) of the Code. 12.4. VESTING. (a) If the Plan becomes Top-Heavy, the vested interest of a Participant in the portion of his Company Discretionary Contribution Account and Matching Contributions Account referred to in paragraph (b) below shall be determined in accordance with the following formula:
Vested Forfeitable Years of Service Percentage Percentage ________________ __________ ___________ Less than One Year 0% 100% One Year 20% 80% Two Years 40% 60% Three Years 60% 40% Four Years 80% 20% Five or More Years 100% 0%
For purposes of the above schedule, years of Service shall include all years of Service required to be counted under Section 411(a) of the Code, disregarding all years of Service permitted to be disregarded under Section 411(a)(4) of the Code. (b) The vesting schedule set forth in paragraph (a) shall apply to all amounts allocated to a Participant's Company Discretionary Contribution Account and Matching Contributions Account while the Plan is Top-Heavy and during the period of time before the Plan becomes Top- Heavy. This vesting schedule shall not apply to the Company Discretionary Contribution Account and Matching Contributions Account of any Employee who does not have an Hour of Service after the Plan becomes Top-Heavy. (c) If the Plan becomes Top-Heavy and subsequently ceases to be Top-Heavy, the vesting schedule set forth in subsection (a) shall automatically cease to apply, and the vesting schedule set forth in Section 5.7 shall automatically apply, with respect to all amounts allocated to a Participant's Company Discretionary Contribution Account and Matching Contributions Account for all Plan Years after OREGON METALLURGICAL CORPORATION SAVINGS PLAN PAGE 59 the Plan Year with respect to which the Plan was last Top Heavy. For purposes of this subsection (c), this change in vesting schedules shall only be valid to the extent that the conditions of Section 10.1 of the Plan and Section 411(a)(10) of the Code are satisfied. 12.5. MINIMUM CONTRIBUTION. For each Plan Year that the Plan is Top-Heavy, the Company will contribute and allocate to the Company Discretionary Contribution Account, Salary Reduction Contribution Account and Matching Contributions Account of each Participant who is a Non-Key Employee and is employed by the Company on the last day of such Plan Year an amount consisting of contributions and forfeitures equal to the lesser of (i) three percent of such Employee's Compensation (as defined in Section 12.6) for such Plan Year and (ii) the largest percentage of Company Discretionary Contributions, Salary Reduction Contributions, Supplemental Company Contributions, matching Contributions and forfeitures, as a percentage of the Key Employee's Compensation (as defined in Section 12.6), allocated to the Company Discretionary Contribution Account, Salary Reduction Contribution Account and Matching Contributions Account of any Key Employee for such Plan Year. The minimum contribution allocable pursuant to this Section 12.5 will be determined without regard to any contributions by the Company for any Employee under the Federal Social Security Act. A Non-Key Employee will not be excluded from an allocation pursuant to this Section merely because his compensation is less than a stated amount. A Non-Key Employee who has become a Participant but who fails to complete at least 1,000 Hours of Service in a Plan Year in which the Plan is Top-Heavy shall not be excluded from an allocation pursuant to this Section. A Non-Key Employee who is a Participant in the Plan and who declined to elect to have Salary Reduction Contributions made to his account for the Plan Year shall receive an allocation for that Plan Year pursuant to this Section. Notwithstanding anything to the contrary contained herein, in no event shall the Compensation of a Participant taken into account under the Plan for purposes of this Section 12.5 for any Plan Year commencing on and after January 1, 1989, and prior to January 1, 1994, exceed $200,000, or such greater amount provided pursuant to Section 401(a)(17) of the Code. The Compensation of a Participant taken into account for purposes of this Section 12.5 for Plan Years commencing on and after January 1, 1994, shall be limited in accordance with the provisions of subsections 1.13(a) through (c) of the Plan. 12.6. COMPENSATION. For any Plan Year in which the Plan is Top-Heavy, annual compensation for purposes of this Article XII shall have the meaning set forth in Section 414(q)(7) of the Code. 12.7. COLLECTIVE BARGAINING AGREEMENTS. The requirements of Sections 12.4 and 12.5 shall not apply with respect to any Employee included in a unit of Employees covered by a collective bargaining agreement between Employee representatives and the Company or a Related Employer if retirement benefits were the subject of good faith bargaining between such Employee representatives and the Company or Related Employer. OREGON METALLURGICAL CORPORATION SAVINGS PLAN PAGE 60 OREGON METALLURGICAL CORPORATION SAVINGS PLAN PAGE 61 IN WITNESS WHEREOF, the Company has caused this instrument to be executed in its name by its duly authorized officers and its corporate seal to be hereunto affixed, and the Trustee to evidence his acceptance, has hereunto set his hand, all on the day and year first above written. This Plan may be executed in separate counter-parts by the Company and Trustee, each of which, together shall constitute an original Plan. OREGON METALLURGICAL CORPORATION, an Oregon corporation By /s/ Dennis P. Kelly ____________________________________ Dennis P. Kelly, Vice President, Finance OREGON METALLURGICAL CORPORATION SAVINGS PLAN PAGE 62 [bjm:A:\OM-SAV.PLN:3/26/96] OREGON METALLURGICAL CORPORATION SAVINGS PLAN PAGE 63 EX-10.19 6 TRUST AGREEMENT UNDER OREGON METALLURGICAL CORPORATION ______________________________________________________ SAVINGS PLAN ____________ THIS TRUST AGREEMENT (HEREINAFTER CALLED THE "TRUST") MADE AS OF THE 1ST DAY OF JANUARY, 1995, BY AND BETWEEN OREGON METALLURGICAL CORPORATION (HEREINAFTER CALLED THE "COMPANY") AND KEY TRUST COMPANY OF THE NORTHWEST (HEREINAFTER CALLED THE "TRUSTEE"). WITNESSETH: WHEREAS, THE OREGON METALLURGICAL CORPORATION SAVINGS PLAN (HEREINAFTER CALLED THE "PLAN") HAS BEEN ESTABLISHED BY THE COMPANY; AND WHEREAS, THE COMPANY DESIRES THE TRUSTEE TO ACT AS TRUSTEE UNDER THIS TRUST AND THE TRUSTEE IS WILLING SO TO ACT IN ACCORDANCE WITH THE TERMS OF THIS TRUST; NOW, THEREFORE, IN CONSIDERATION OF THE PREMISES AND OF THE MUTUAL COVENANTS HEREIN CONTAINED, THE COMPANY AND THE TRUSTEE DO HEREBY COVENANT AND AGREE AS FOLLOWS: 1. TRUST FUND. THE TRUSTEE SHALL RECEIVE FROM THE COMPANY CASH OR OTHER PROPERTY ACCEPTABLE TO THE TRUSTEE. ALL ASSETS SO RECEIVED TOGETHER WITH THE INCOME THEREFROM AND ANY -1- OTHER INCREMENT THEREON (HEREINAFTER CALLED THE "TRUST FUND") SHALL BE HELD, MANAGED AND ADMINISTERED BY THE TRUSTEE PURSUANT TO THE TERMS OF THIS TRUST WITHOUT DISTINCTION BETWEEN PRINCIPAL AND INCOME. THE TRUSTEE SHALL NOT BE RESPONSIBLE FOR THE COLLECTION OF ANY CONTRIBUTIONS TO BE MADE UNDER THE PLAN AND THE TRUSTEE SHALL BE RESPONSIBLE ONLY FOR MONEY OR OTHER PROPERTY RECEIVED BY IT PURSUANT TO THIS TRUST. THE TRUSTEE SHALL BE UNDER NO DUTIES WHATSOEVER IN RESPECT OF THE ADMINISTRATION OF THE PLAN. THE TRUSTEE SHALL HAVE ONLY THOSE RESPONSIBILITIES SPECIFICALLY IMPOSED UPON IT BY THE PROVISIONS OF THIS TRUST AND NEITHER THE PLAN NOR ANY OTHER INSTRUMENT TO WHICH THE TRUSTEE IS NOT A PARTY, INCLUDING BUT NOT LIMITED TO ANY AGREEMENT ENTERED INTO BETWEEN ANY ONE OR MORE OF THE COMMITTEES APPOINTED BY THE COMPANY TO ADMINISTER THE PLAN OR TO DIRECT INVESTMENTS UNDER THIS TRUST (HEREINAFTER REFERRED TO COLLECTIVELY (IF MORE THAN ONE) OR INDIVIDUALLY AS THE "COMMITTEE") AND AN INVESTMENT MANAGER APPOINTED PURSUANT TO SUBPARAGRAPH B OF PARAGRAPH 4 BELOW, SHALL IMPOSE ANY DUTIES OR OBLIGATIONS UPON THE TRUSTEE WITH RESPECT TO THE TRUST FUND. 2. DISTRIBUTIONS. SUBJECT TO THE PROVISIONS OF PARAGRAPHS 3 AND 4, THE TRUSTEE SHALL FROM TIME TO TIME ON THE DIRECTIONS OF THE COMMITTEE, WHICH IS HEREBY DESIGNATED A "NAMED FIDUCIARY" AS THAT TERM IS DEFINED IN THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974 (AS AMENDED, "ERISA"), MAKE DISTRIBUTIONS OUT OF THE TRUST FUND TO SUCH PERSONS, WHETHER NATURAL OR LEGAL, IN SUCH MANNER, IN SUCH AMOUNTS, AND FOR SUCH PURPOSES, INCLUDING THE -2- PURCHASE OF LIFE INSURANCE AND/OR ANNUITY CONTRACTS, AS MAY BE SPECIFIED IN THE DIRECTIONS OF THE COMMITTEE. THE TRUSTEE SHALL BE UNDER NO DUTY TO MAKE INQUIRIES AS TO WHETHER ANY DISTRIBUTION DIRECTED BY THE COMMITTEE IS MADE PURSUANT TO THE PROVISIONS OF THE PLAN. 3. PROHIBITION AGAINST DIVERSION. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS TRUST, OR IN ANY AMENDMENT THERETO, IT SHALL BE IMPOSSIBLE, AT ANY TIME PRIOR TO THE SATISFACTION OF ALL LIABILITIES WITH RESPECT TO THE PARTICIPANTS UNDER THE PLAN (THE "PARTICIPANTS") OR THEIR BENEFICIARIES, FOR ANY PART OF THE TRUST FUND, OTHER THAN SUCH PART AS IS REQUIRED TO PAY TAXES AND ADMINISTRATION FEES AND EXPENSES, TO BE USED FOR, OR DIVERTED TO, PURPOSES OTHER THAN FOR THE EXCLUSIVE USE OF THE PARTICIPANTS UNDER THE PLAN OR THEIR BENEFICIARIES. IN MAKING A DISTRIBUTION UPON A DIRECTION AS AUTHORIZED IN PARAGRAPH 2, THE TRUSTEE MAY ACCEPT SUCH DIRECTION AS A CERTIFICATION THAT SUCH PAYMENT COMPLIES WITH THE PROVISIONS OF THIS PARAGRAPH 3 AND NEED MAKE NO FURTHER INVESTIGATION. 4. POWERS, DUTIES AND IMMUNITIES OF THE TRUSTEE. A. GENERAL. The Trustee shall administer the Trust Fund as a nondiscretionary Trustee, and the Trustee shall not have any discretion or authority with regard to the investment of the Trust Fund and shall act solely as a directed Trustee of the Trust Fund. The Trustee, as a nondiscretionary Trustee, as may be directed by the Committee (or the Participants to the extent provided herein pursuant to the terms of the Plan) is authorized and empowered, by way of -3- limitation, with the following powers, rights and duties, each of which the Trustee shall exercise in a nondiscretionary manner as directed in accordance with the direction of the Committee or the Participants (each as a Named Fiduciary), except to the extent that Plan assets are subject to the control and management of a properly appointed Investment Manager AS OTHERWISE PROVIDED IN THIS PARAGRAPH 4: (I) AT THE DIRECTION OF A NAMED FIDUCIARY, THE TRUSTEE MAY SELL, WRITE OPTIONS ON, LEASE FOR ANY TERM OR TERMS (WITH OR WITHOUT OPTION TO PURCHASE), TRANSFER OR EXCHANGE ALL OR ANY PART OF THE PROPERTY HELD BY IT IN THE TRUST FUND AND ALL PROPERTY THAT MAY FROM TIME TO TIME BE SUBSTITUTED THEREFOR OR ADDED THERETO, AT SUCH PRICES AND UPON SUCH TERMS AND CONDITIONS AND IN SUCH MANNER AS IT SHALL DEEM ADVISABLE. (II) AT THE DIRECTION OF A NAMED FIDUCIARY, THE TRUSTEE SHALL INVEST AND REINVEST ALL OR SUCH PART OF THE TRUST FUND AS IT SHALL DEEM ADVISABLE IN SUCH NOTES, DEBENTURES, BONDS, STOCKS, MUTUAL FUNDS (INCLUDING WITHOUT LIMITATION MUTUAL FUNDS TO WHICH THE TRUSTEE OR ANY AFFILIATE MAY SERVE AS INVESTMENT ADVISOR, UNDERWRITER, MANAGER, ADMINISTRATOR, DISTRIBUTOR, CUSTODIAN, TRANSFER AGENT OR IN ANY OTHER CAPACITY, FOR WHICH THE TRUSTEE OR ANY SUCH AFFILIATE MAY RECEIVE A FEE FROM SUCH FUND OR COMPANY (HEREINAFTER CALLED "PROPRIETARY MUTUAL FUNDS"); PROVIDED, HOWEVER, THAT IF THE TRUSTEE PURCHASES AS AN INVESTMENT UNITS IN A PROPRIETARY MUTUAL FUND FOR WHICH IT (OR ANY AFFILIATE) SERVES IN ONE OR MORE OF THE FOREGOING CAPACITIES AND FOR WHICH IT (OR ANY AFFILIATE) RECEIVES A FUND-LEVEL FEE, THE TRUSTEE SHALL NOTIFY THE Committee, OR ANOTHER INDEPENDENT FIDUCIARY, IN WRITING, OF ITS INTENTION TO MAKE SUCH INVESTMENTS AND SHALL OBTAIN THE WRITTEN CONSENT OF THE Committee, AND/OR SUCH OTHER FIDUCIARY AS MAY BE REQUIRED UNDER ERISA, TO THE FEE ARRANGEMENT), LIMITED PARTNERSHIP INTERESTS, TRUST CERTIFICATES AND OTHER SECURITIES OR OPTIONS THEREON, INCLUDING STOCKS AND OTHER SECURITIES ISSUED BY THE COMPANY OR ANY SUBSIDIARY OR AFFILIATE THEREOF (ALL OF WHICH ARE HEREIN CALLED "SECURITIES"), LOANS, TIME AND SAVINGS DEPOSITS (INCLUDING SAVINGS DEPOSITS AND CERTIFICATES OF DEPOSIT IN THE TRUSTEE OR ANY AFFILIATE OF THE TRUSTEE IF SUCH DEPOSITS BEAR A REASONABLE RATE OF INTEREST), COMMERCIAL PAPER (INCLUDING PARTICIPATION IN POOLED COMMERCIAL PAPER ACCOUNTS), ANNUITY AND INSURANCE CONTRACTS (INCLUDING, BUT NOT -4- LIMITED TO, RETIREMENT INCOME CONTRACTS OR CONTRACTS OF THE DEPOSIT ADMINISTRATION TYPE OR FOR THE ACCUMULATION OF INTEREST), REAL ESTATE, REAL ESTATE MORTGAGES AND OTHER KINDS OF PROPERTY OF EVERY KIND AND DESCRIPTION, AS THE TRUSTEE MAY DEEM PROPER AND SUITABLE. THE TRUSTEE MAY INVEST IN UNITS OF ANY ONE OR MORE COLLECTIVE TRUST FUNDS, INCLUDING BUT NOT LIMITED TO THE KEY TRUST MULTIPLE INVESTMENT TRUST FOR EMPLOYEE BENEFIT TRUSTS, THE KEY TRUST EB MANAGED GUARANTEED INVESTMENT CONTRACT FUND, OR IN UNITS OF ANY OTHER GROUP OR COLLECTIVE TRUST FUND HERETOFORE OR HEREAFTER CREATED, WHICH SHALL HAVE BEEN DETERMINED BY THE INTERNAL REVENUE SERVICE TO BE A "POOLED FUND ARRANGEMENT" AS DESCRIBED IN REVENUE RULING 81-100, AND WHICH SHALL BE ADMINISTERED BY THE TRUSTEE OR ANY OTHER AFFILIATED BANK, TRUST COMPANY OR CORPORATION, OR ANY OF THEIR SUCCESSORS OR ASSIGNS, OR ANY INVESTMENT MANAGER APPOINTED HEREUNDER OR ANOTHER FIDUCIARY HEREUNDER; PROVIDED, HOWEVER, SUCH INVESTMENT MANAGER OR OTHER FIDUCIARY QUALIFIES AS AN INVESTMENT MANAGER UNDER SECTION 3(38) OF ERISA (HEREINAFTER CALLED A "COLLECTIVE TRUST FUND"), IRRESPECTIVE OF THE PROPORTION OF THE TRUST FUND REPRESENTED BY ANY SUCH INVESTMENT OR ANY DELEGATION OF AUTHORITY RESULTING THEREFROM. AS LONG AS THE TRUSTEE HOLDS ANY GROUP OR COLLECTIVE TRUST FUND UNITS HEREUNDER, THE INSTRUMENTS ESTABLISHING AND/OR AMENDING ANY SUCH COLLECTIVE TRUST FUND SHALL BE ADOPTED AND MADE A PART OF THIS TRUST AS THOUGH FULLY SET FORTH HEREIN. NOTWITHSTANDING THE FOREGOING, THE TRUSTEE SHALL BE UNDER NO OBLIGATION TO INVEST IN ANY ASSET NOT REGULARLY OFFERED BY IT AS AN INVESTMENT OPTION UNLESS IT AGREES TO DO SO IN WRITING. TO THE EXTENT THAT THE TRUSTEE AGREES TO INVEST IN AND HOLD ANY ASSET NOT REGULARLY OFFERED BY IT AS AN INVESTMENT OPTION, THE TRUSTEE'S OBLIGATIONS WITH RESPECT TO THE ADMINISTRATION OF THAT ASSET SHALL BE LIMITED TO THOSE OF A CUSTODIAN. (III) AT THE DIRECTION OF A NAMED FIDUCIARY, THE TRUSTEE MAY (A) EXERCISE ANY EXCHANGE PRIVILEGES, CONVERSION PRIVILEGES AND/OR SUBSCRIPTION RIGHTS AVAILABLE IN CONNECTION WITH ANY PROPERTY AT ANY TIME HELD BY IT; (B) CONSENT TO, OR DISSENT FROM, THE REORGANIZATION, CONSOLIDATION, MERGER OR READJUSTMENT OF THE FINANCES OF, OR THE SALE, MORTGAGE, PLEDGE OR LEASE OF THE PROPERTY OF, ANY CORPORATION, COMPANY OR ORGANIZATION, ANY OF THE SECURITIES OF WHICH MAY AT ANY TIME BE HELD BY IT; (C) DEPOSIT ANY PROPERTY HELD HEREUNDER WITH ANY PROTECTIVE, REORGANIZATION OR SIMILAR COMMITTEE AND DELEGATE DISCRETIONARY POWER THERETO; AND (D) DO ANY ACT WITH REFERENCE TO THE MATTERS IN THIS PARAGRAPH, INCLUDING BUT NOT LIMITED TO THE EXERCISE OF OPTIONS, MAKING OF AGREEMENTS OR SUBSCRIPTIONS AND THE PAYMENT OF EXPENSES, ASSESSMENTS OR SUBSCRIPTIONS, WHICH THE TRUSTEE MAY DEEM NECESSARY OR ADVISABLE IN CONNECTION THEREWITH. -5- (IV) AT THE DIRECTION OF A NAMED FIDUCIARY, THE TRUSTEE MAY RETAIN FOR SUCH TIME AS IT MAY DEEM ADVISABLE ANY PROPERTY ACQUIRED BY IT PURSUANT TO THE PRECEDING PARAGRAPH WHETHER OR NOT SUCH PROPERTY WOULD NORMALLY BE PURCHASED AS AN INVESTMENT HEREUNDER. (V) AT THE DIRECTION OF A NAMED FIDUCIARY, THE TRUSTEE MAY VOTE ANY STOCK OR OTHER SECURITIES AND EXERCISE ANY RIGHT APPURTENANT TO ANY STOCK, OTHER SECURITIES OR OTHER PROPERTY HELD HEREUNDER, EITHER IN PERSON OR BY GENERAL OR LIMITED PROXY, POWER OF ATTORNEY OR OTHER INSTRUMENT, EXCEPT AS THE SAME IS MODIFIED BY SUBPARAGRAPH B OF THIS PARAGRAPH 4 RELATING TO COMPANY STOCK. (VI) AT THE DIRECTION OF A NAMED FIDUCIARY, THE TRUSTEE MAY MANAGE, OPERATE, REPAIR AND IMPROVE ANY REAL OR PERSONAL PROPERTY HELD BY IT IN THE TRUST FUND. (VII) AT THE DIRECTION OF A NAMED FIDUCIARY, THE TRUSTEE MAY (A) RENEW OR EXTEND OR PARTICIPATE IN THE RENEWAL OR EXTENSION OF ANY DEBT OWING TO THE TRUST FUND, UPON SUCH TERMS AS IT MAY DEEM ADVISABLE, AND AGREE TO A REDUCTION IN THE RATE OF INTEREST ON ANY SUCH DEBT OR TO ANY OTHER MODIFICATION OR CHANGE IN THE TERMS OF ANY MORTGAGE OR OF ANY GUARANTEE PERTAINING THERETO, IN SUCH MANNER AND TO SUCH EXTENT AS IT MAY DEEM ADVISABLE FOR THE PROTECTION OF THE TRUST FUND OR THE PRESERVATION OF THE VALUE OF THE INVESTMENT; (B) WAIVE ANY DEFAULT WHETHER IN THE PERFORMANCE OF ANY COVENANT OR CONDITION OF ANY EVIDENCE OF SUCH INDEBTEDNESS OR MORTGAGE OR IN THE PERFORMANCE OF ANY GUARANTEE OR ENFORCE ANY RIGHTS AVAILABLE TO THE TRUSTEE BY REASON OF ANY SUCH DEFAULT IN SUCH MANNER AND TO SUCH EXTENT AS IT MAY DEEM ADVISABLE; (C) EXERCISE AND ENFORCE ANY AND ALL RIGHTS OF FORECLOSURE, BID IN PROPERTY AT FORECLOSURE, TAKE A DEED IN LIEU OF FORECLOSURE WITH OR WITHOUT PAYING A CONSIDERATION THEREFOR AND IN CONNECTION THEREWITH RELEASE THE OBLIGATION ON ANY NOTE OR OTHER EVIDENCE OF INDEBTEDNESS SECURED BY SUCH MORTGAGE; AND (D) EXERCISE AND ENFORCE IN ANY ACTION, SUIT OR PROCEEDING AT LAW OR IN EQUITY ANY RIGHTS OR REMEDIES IN RESPECT TO ANY SUCH DEBT, MORTGAGE OR GUARANTEE. (VIII) AT THE DIRECTION OF A NAMED FIDUCIARY, THE TRUSTEE MAY SETTLE, COMPROMISE OR SUBMIT TO ARBITRATION ANY CLAIMS, DEBTS OR DAMAGES DUE TO OR OWING FROM THE TRUST FUND, COMMENCE, AND DEFEND SUITS OR LEGAL PROCEEDINGS AND ACT, IN ITS -6- CAPACITY AS TRUSTEE, AS THE NAMED PARTY IN ALL SUITS OR LEGAL PROCEEDINGS BROUGHT BY OR AGAINST THE TRUST FUND. (IX) AT THE DIRECTION OF A NAMED FIDUCIARY, THE TRUSTEE MAY FORM OR JOIN WITH OTHERS IN THE FORMATION OF SUCH CORPORATIONS AS SHALL BE DEEMED ADVISABLE IN CONNECTION WITH THE ADMINISTRATION OR DISTRIBUTION OF THE TRUST FUND AND TRANSFER TO ANY SUCH CORPORATION SUCH PROPERTY AS THE TRUSTEE SHALL IN ITS DISCRETION DEEM ADVISABLE. (X) THE TRUSTEE MAY HOLD SECURITIES IN BEARER FORM AND MAY REGISTER SECURITIES AND OTHER PROPERTY HELD IN THE TRUST FUND IN ITS OWN NAME OR IN THE NAME OF A NOMINEE, COMBINE CERTIFICATES REPRESENTING SECURITIES WITH CERTIFICATES OF THE SAME ISSUE HELD BY THE TRUSTEE IN OTHER FIDUCIARY CAPACITIES, AND DEPOSIT, OR ARRANGE FOR DEPOSIT OF PROPERTY WITH ANY DEPOSITORY BUT THE BOOKS AND RECORDS OF THE TRUSTEE SHALL AT ALL TIMES SHOW THAT ALL SUCH SECURITIES ARE PART OF THE TRUST FUND. (XI) THE TRUSTEE MAY HOLD IN ITS BANKING DEPARTMENT UNINVESTED AND UNPRODUCTIVE OF INCOME, WITHOUT LIABILITY FOR INTEREST THEREON, EXCEPT SUCH AS MAY BE ALLOWED IN ACCORDANCE WITH ITS REGULATIONS, SUCH PART OF THE TRUST FUND AS IS REASONABLE UNDER THE CIRCUMSTANCES. (XII) THE TRUSTEE MAY MAKE, EXECUTE AND DELIVER, AS TRUSTEE, WITH OR WITHOUT A PROVISION FOR NO INDIVIDUAL LIABILITY ON ITS PART, ANY AND ALL CONVEYANCES, NOTES, CONTRACTS, WAIVERS, RELEASES, LEASES, ASSIGNMENTS, MORTGAGES, OPTIONS, POWERS OF ATTORNEY OR OTHER INSTRUMENTS IN WRITING THAT THE TRUSTEE MAY DEEM NECESSARY OR ADVISABLE IN ADMINISTERING THE TRUST FUND. (XIII) THE TRUSTEE MAY EMPLOY, at the expense of the Company or the Trust Fund, agents and delegate to them such duties as the Trustee sees fit; the Trustee shall not be responsible for any loss occasioned by any such agents selected by it with reasonable care; the Trustee may consult with legal counsel (who may be counsel for the Company) concerning any questions which may arise with reference to its power or duties under the Plan, and the written opinion of such counsel shall be full and complete protection with respect to any action taken or not taken by the Trustee in good faith and in accordance with the written opinion of such counsel. -7- (XIV) THE TRUSTEE MAY pay out of the Trust Fund any taxes imposed or levied with respect to the Trust Fund and may contest the validity or amount of any tax, assessment, penalty, claim or demand respecting the Trust Fund; however, unless the Trustee shall have first been indemnified to its satisfaction, it shall not be required to contest the validity of any tax, or to institute, maintain or defend against any other action or proceeding either at law or in equity. (XV) THE TRUSTEE MAY make loans to Participants in accordance with policies established by the Company or the Committee and in accordance with the terms of the Plan and to segregate or otherwise identify property of the Trust Fund as directed by the Committee for such purpose including providing collateral for loans made pursuant to the Plan. (XVI) WITHOUT LIMITATION OF THE FOREGOING, THE TRUSTEE MAY DO ALL SUCH ACTS, EXECUTE ALL SUCH INSTRUMENTS, TAKE ALL SUCH PROCEEDINGS AND EXERCISE ALL SUCH RIGHTS, POWERS AND PRIVILEGES WITH RELATION TO ANY ASSETS CONSTITUTING A PART OF THE TRUST FUND, AS IT MAY DEEM NECESSARY OR ADVISABLE TO CARRY OUT THE PURPOSES OF THIS TRUST. B. DIRECTED INVESTMENTS. THE COMPANY OR THE COMMITTEE SHALL HAVE THE FOLLOWING POWERS AND RESPONSIBILITIES WITH RESPECT TO THE ASSETS HELD IN THE TRUST FUND: (I) COMPANY OR COMMITTEE DIRECTION. The assets of the Trust Fund shall be held in such number of Investment Funds (the "Investment Funds") as the Committee and the Trustee may agree, plus a Company Stock Fund if elected by the Committee, as the Committee shall designate in writing on the Investment Fund Designation form affixed hereto. Such Investment Funds shall be selected by the Committee subject to the Trustee's agreement to administer such investments under this Agreement. The Committee hereby acknowledges that, available as In- vestment Funds are interests in Proprietary Mutual Funds and Collective Funds. The Committee acknowledges that it, as a Named Fiduciary, has the sole responsibility for selection of the Investment Funds offered under the Plan, and it has done so on the basis of the Committee's determination, after due inquiry, of the appropriateness of the selected Investment Funds as vehicles for the investment of Plan assets pursuant to the terms of the Plan, considering all relevant facts and circumstances, including but not limited to (a) the investment policy and philosophy of the Company developed pursuant to ERISA 402(b)(1); (b) the -8- Participants, including average level of investment experience and sophistication; (c) the ability of Participants, using an appropriate mix of Investment Funds, to diversify the investment of Plan assets held for their benefit; (d) the ability of Participants, utilizing an appropriate mix of Investment Funds, to structure an investment portfolio within their account in the Plan with risk and return characteristics within the normal range of risk and return characteristics for individuals with similar investment backgrounds, experience and expectations. In making the selection of Investment Funds, the Committee represents that it did not rely on any representations or recommendations from the Trustee or any of its employees, except as may have been provided through written materials, including marketing materials provided by the various sponsors or distributors of the Investment Funds, and that the Investment Fund selection has not be influenced, approved, or encouraged through the actions of the Trustee or its employees. For purposes of the Plan, "Company Stock" shall mean common stock listed on a recognized securities exchange issued by the Company as employer of Employees covered by the Plan or by an affiliate of such Company and which shall be a "qualifying employer security" as defined in ERISA. The Company Stock Fund shall be invested and reinvested in shares of Company Stock, which stock shall be purchased by the Trustee to the extent not contributed to the Plan by the Company, except for amounts which may reasonably be expected to be necessary to satisfy distributions to be made in cash. Up to 100% of the assets of the Trust Fund may be invested in Company Stock. All contributions shall be allocated by the Trustee to the Plan's Investment Funds specified by the Committee. Dividends, interest and other distributions shall be reinvested in the same Investment Fund from which received. If the Company sponsors a 401(k) or profit sharing plan it, or the Committee, may elect to determine the Investment Funds, including a Company Stock Fund, if applicable, into which Matching Contributions and/or Company Contributions will be invested and/or into and out of which Participants may not direct contributions. By making these designations, the Company, or the Committee, shall be deemed to have advised the Trustee in writing regarding the retention of investment powers. Notwithstanding the foregoing provisions of this Paragraph 4, the Trustee may, in its discretion, accept certain investments which have been, and are, held as part of the Trust Fund prior to the date the Company adopted this Plan. Such investments shall be -9- considered investments directed by the Company or the Committee, if one is acting. The Trustee shall hold, administer and dispose of such investments in accordance with directions to the Trustee contained in a written notice from the Company or Committee. Any such notice shall advise the Trustee regarding the retention of investment powers by the Company or the Committee and shall be of a continuing nature or otherwise, and may be revoked in writing by the Company or Committee. In addition, unless specifically agreed to between the Trustee and the Company or the Committee, the Trustee shall be under no obligation to invest in any asset not regularly offered by the Trustee for use as an Investment Fund. To the extent that the Trustee agrees to hold an asset not regularly offered by it as an Investment Fund, the Trustee's obligations with respect to the administration of that asset shall be limited to those of a custodian. The Trustee shall not be liable but shall be fully protected by reason of its taking or refraining from taking any action at the direction of the Company or the Committee, nor shall the Trustee be liable but shall be fully protected by reason of its refraining from taking any action because of the failure of the Company, the Committee, or any Participant to give a direction or order. The Trustee shall be under no duty to question or make inquiry as to any direction, notification or order or failure to give a direction, notification or order by the Company, the Committee or any Participant. The Trustee shall be under no duty to make any review of investments directed by the Company, the Committee or any Participant acquired for the Trust Fund and under no duty at any time to make any recommendation with respect to disposing of or continuing to retain any such investments. While the Company may direct the Trustee with respect to Plan investments, unless specifically authorized pursuant to ERISA, the Company may not (a) borrow from the Fund or pledge any assets of the Fund as security for a loan; (b) buy property or assets from or sell property or assets to the Fund; (c) charge any fee for services rendered to the Fund; or (d) receive any services from the Fund on a preferential basis. (II) INVESTMENT MANAGERS. FROM TIME TO TIME THE COMMITTEE MAY DESIGNATE AN INVESTMENT MANAGER, WHO SHALL BE (A) EITHER REGISTERED AS AN INVESTMENT ADVISER UNDER THE INVESTMENT ADVISERS ACT OF 1940, (B) A BANK, AS DEFINED IN THAT ACT, OR (C) AN INSURANCE COMPANY QUALIFIED TO PERFORM INVESTMENT SERVICES UNDER THE LAWS OF MORE THAN ONE STATE OF THE UNITED STATES, AND WHO ACKNOWLEDGES IN WRITING TO THE COMPANY AND THE TRUSTEE THAT IT IS A FIDUCIARY WITH RESPECT TO THE ASSETS OF THE TRUST FUND UNDER SUCH INVESTMENT MANAGER'S CONTROL WITH AUTHORITY TO DIRECT THE INVESTMENT AND -10- REINVESTMENT OF AN INVESTMENT FUND OR FUNDS SPECIFIED IN SUCH NOTICE AND WITH SUCH ADDITIONAL AUTHORITY AS MAY BE SPECIFIED THEREIN. THE INVESTMENT MANAGER SHALL NOT BE THE AGENT OF THE TRUSTEE. THE COMMITTEE MAY BY SIMILAR NOTICE MODIFY OR TERMINATE SUCH DESIGNATION AND AUTHORITY FROM TIME TO TIME. SO LONG AS, AND TO THE EXTENT THAT, ANY SUCH DESIGNATION IS IN EFFECT, THE TRUSTEE (A) SHALL INVEST, REINVEST AND RETAIN THE INVESTMENT FUND ASSIGNED TO AN INVESTMENT MANAGER IN ACCORDANCE WITH THE INSTRUCTIONS RECEIVED FROM SUCH INVESTMENT MANAGER, (B) WITH RESPECT TO ASSETS IN SUCH INVESTMENT FUND SHALL FOLLOW ANY INSTRUCTIONS RECEIVED BY IT FROM SUCH INVESTMENT MANAGER AS TO THE EXERCISE BY THE INVESTMENT MANAGER OF THE POWERS UNDER SUBSECTIONS (I) THROUGH (IX) OF SUBPARAGRAPH A OF THIS PARAGRAPH 4, WHICH POWERS SHALL BE EXCLUSIVELY HELD BY THE INVESTMENT MANAGER, AND (C) AS TO THOSE ASSETS IN THE INVESTMENT FUND, SHALL BE RELEASED AND RELIEVED OF ALL DUTIES, RESPONSIBILITIES AND LIABILITIES INCIDENT TO SUCH DESIGNATION, AND THEREAFTER ACT IN THE CAPACITY OF CUSTODIAN OF SUCH ASSETS AND A NONDISCRETIONARY TRUSTEE. THE TRUSTEE, IN ITS CAPACITY OF NONDISCRETIONARY TRUSTEE AND CUSTODIAN, SHALL RETAIN ONLY THOSE POWERS AND DUTIES SET FORTH IN SUBSECTIONS (X) THROUGH (XVI) OF SUBPARAGRAPH A OF THIS PARAGRAPH 4 AS ARE NECESSARY TO ITS FUNCTIONS AS CUSTODIAN. THE OTHER POWERS SET FORTH IN SAID SUBPARAGRAPH A SHALL ONLY BE EXCERCISED UPON THE WRITTEN DIRECTIONS OF THE INVESTMENT MANAGER SO LONG AS, AND TO THE EXTENT THAT, NO SUCH DESIGNATION IS IN EFFECT, THE TRUSTEE SHALL INVEST, REINVEST AND RETAIN, IN ACCORDANCE WITH ITS OWN DISCRETION, THAT PART OF THE TRUST FUND NOT ASSIGNED TO AN INVESTMENT MANAGER. (III) INSURANCE. THE TRUSTEE MAY TRANSFER SUCH PORTION OF THE TRUST FUND AS THE COMMITTEE SHALL DIRECT TO ANY INSURANCE COMPANY FOR ONE OR MORE POLICIES, ANNUITY OR OTHER CONTRACTS, WHETHER OR NOT THEY ARE GROUP CONTRACTS, INCLUDING CONTRACTS WHICH PROVIDE FOR THE ALLOCATION OF AMOUNTS THEREUNDER TO THE INSURANCE COMPANY'S GENERAL ACCOUNT AND/OR TO ONE OR MORE OF ITS SEPARATE ACCOUNTS MAINTAINED FOR THE COLLECTIVE INVESTMENT OF ASSETS OF QUALIFIED RETIREMENT PLANS. THE INSURANCE COMPANY SHALL HAVE ALL THE SAME POWERS WITH RESPECT TO THE ASSETS HELD UNDER A CONTRACT AS AN INVESTMENT MANAGER HAS WITH RESPECT TO ASSETS OF THE TRUST FUND PURSUANT TO SUBPARAGRAPH A OF THIS PARAGRAPH 4. (IV) FOLLOWING DIRECTIONS OF THE COMPANY OR COMMITTEE. SO LONG AS, AND TO THE EXTENT THAT, THE COMPANY OR COMMITTEE SHALL EXERCISE THE POWER TO MANAGE AS A NAMED FIDUCIARY ASSETS HELD AS PART OF AN INVESTMENT FUND, THE TRUSTEE: (A) SHALL INVEST, REINVEST AND RETAIN THE INVESTMENT FUND ASSIGNED TO THE COMPANY OR COMMITTEE IN -11- ACCORDANCE WITH THE INSTRUCTIONS RECEIVED FROM THE COMPANY OR COMMITTEE; (B) WITH RESPECT TO ASSETS IN SUCH INVESTMENT FUND SHALL FOLLOW ANY INSTRUCTIONS RECEIVED BY IT FROM THE COMPANY OR COMMITTEE AS TO THE EXERCISE BY THE COMPANY OR COMMITTEE OF THE POWERS UNDER SUBSECTIONS (I) THROUGH (IX) OF SUBPARAGRAPH A OF THIS PARAGRAPH 4, WHICH POWERS SHALL BE EXCLUSIVELY HELD BY THE COMPANY OR COMMITTEE; AND (C) AS TO THOSE ASSETS IN THE INVESTMENT FUND, SHALL BE RELEASED AND RELIEVED OF ALL DUTIES, RESPONSIBILITIES AND LIABILITIES INCIDENT TO SUCH POWER, AND THEREAFTER ACT IN THE CAPACITY OF CUSTODIAN OF SUCH ASSETS AND A NONDISCRETIONARY TRUSTEE. THE TRUSTEE, IN ITS CAPACITY OF NONDISCRETIONARY TRUSTEE AND CUSTODIAN, SHALL RETAIN ONLY THOSE POWERS AND DUTIES SET FORTH IN SUBSECTIONS (X) THROUGH (XVI) OF SUBPARAGRAPH A OF THIS PARAGRAPH 4 AS ARE NECESSARY TO ITS FUNCTIONS AS CUSTODIAN. THE OTHER POWERS SET FORTH IN SAID SUBPARAGRAPH A SHALL ONLY BE EXCERCISED UPON THE WRITTEN DIRECTIONS OF THE COMPANY OR COMMITTEE. (V) SPECIAL LIMITED PURPOSE FUNDS. THE COMPANY OR COMMITTEE MAY DESIGNATE AN INVESTMENT FUND AS A SPECIAL PURPOSE OR LIMITED PURPOSE FUND THAT IS TO BE MANAGED (WHETHER BY THE COMPANY, THE COMMITTEE, THE TRUSTEE OR AN INVESTMENT MANAGER) IN ACCORDANCE WITH SPECIAL OBJECTIVES OR LIMITATIONS OR INVESTMENT PRACTICES (SUCH AS, BUT NOT LIMITED TO, APPROXIMATING THE RESULTS OF A DESIGNATED MARKET INDEX). C. PARTICIPANT DIRECTION. Each Participant shall by such mechanism as may be agreed upon between the Trustee and The Commitee, have the ability to direct that the contributions made to his or her accounts for which the Participant may direct investments, as selected by the the Commitee, be invested in one or more of the Investment Funds, including the Company Stock Fund, if applicable. At the time an Employee becomes eligible for the Plan, he or she shall specify the percentage of his or her accounts (expressed in percentage increments as may be agreed to between the The Commitee and the Trustee) to be invested prorata in each such Investment Fund. In the event a Participant fails to direct investments of assets made to his or her accounts, the Trustee shall invest such assets in such investment fund or funds as the -12- Committee shall direct. For purposes of the immediately preceding sentence, the Committee, as a Named Fiduciary, shall designate an investment fund or funds as a default investment into which all assets of Participants who fail to direct the investment of assets will be invested. (i) Upon prior written notice to the Trustee, or other form of notice acceptable to the Trustee, a Participant may change an investment direction with respect to future contributions. Through acceptable notice to the Trustee and pursuant to the terms of the Plan, the Participant may elect to transfer all or a portion of such Participant's interest in each Investment Fund (based on the value of such interest on the Valuation Date immediately preceding such election), to any other of the Investment Funds selected by the Committee so that the Participant's interest in the said Investment Funds immediately after the transfer is allocated in percentage increments as may be agreed to by the Committee and the Trustee. For purposes of this Trust Agreement a "Valuation Date" is the date or dates on which the Company and the Trustee mutually agree that the assets of the Trust Fund will be valued. (ii) Notwithstanding any Participant's election to change Investment Funds, the Trustee may, in its discretion, delay satisfaction of changes in Investment Funds pending settlement of prior changes in Investment Funds and will process such elections subject to any restrictions on withdrawals and admissions in any Collective Trust Fund. (iii) The Company will be responsible when transmitting Company and Employee contributions to show the dollar amount to be credited to each Investment Fund for each Employee. (iv) Except as otherwise provided in the Plan, neither the Trustee, the Company, the Committee, nor any fiduciary of the Plan shall be liable to the Participant or any of his or her beneficiaries for any loss resulting from action taken at the direction of the Participant. (V) NOTWITHSTANDING ANYTHING IN THE PLAN OR THIS TRUST TO THE CONTRARY, WHEN INVESTMENT FUNDS ARE ESTABLISHED OVER WHICH A PLAN PARTICIPANT OR BENEFICIARY -13- OF A PLAN PARTICIPANT IS PERMITTED TO EXERCISE CONTROL OVER INVESTMENT OF THE PORTION OF THE TRUST FUND HELD FOR HIS BENEFIT (A "PARTICIPANT DIRECTED INVESTMENT"), THE TRUSTEE, COMMITTEE, AND ALL OTHER FIDUCIARIES OF THE PLAN AND/OR TRUST SHALL BE SUBJECT TO THE PROPER DIRECTIONS OF SUCH PARTICIPANT. WHENEVER THE TRUSTEE, COMMITTEE, OR ANY OTHER FIDUCIARY OF THE PLAN AND/OR TRUST RECEIVES DIRECTION FROM A PARTICIPANT REGARDING THE INVESTMENT OF HER/HIS ACCOUNT (TO THE EXTENT AUTHORIZED IN THE PLAN OR THIS TRUST), THE DIRECTION SHALL BE TREATED AS THE PROPER DIRECTION OF A "NAMED FIDUCIARY" AND THE TRUSTEE, COMMITTEE, AND ALL OTHER FIDUCIARIES SHALL BE ENTITLED TO RELY ON SUCH DIRECTION WITHOUT OBLIGATION OF INQUIRY AS TO THE APPROPRIATENESS OF THE DIRECTION GIVEN BY SUCH PARTICIPANT. NEITHER THE TRUSTEE, THE COMPANY NOR THE COMMITTEE SHALL HAVE ANY LIABILITY WHATSOEVER FOR ANY LOSSES WHICH MAY RESULT FROM EITHER A PARTICIPANT'S DIRECTION OF ANY INVESTMENT OR FOR ANY LOSS WHICH MAY RESULT BY FAILURE OF A PARTICIPANT TO MAKE SUCH DIRECTION. NOR SHALL THE TRUSTEE, THE COMPANY OR COMMITTEE HAVE ANY LIABILITY OR RESPONSIBILITY WHATSOEVER FOR ANY DISPARITY BETWEEN THE PERFORMANCE OR RATES OF INVESTMENT RETURN OF ANY PARTICIPANT DIRECTED ACCOUNTS AND THE TRUST FUND IN GENERAL. D. INVESTMENT FUNDS GENERALLY. WHEN INVESTMENT FUNDS HAVE BEEN ESTABLISHED PURSUANT TO SUBPARAGRAPH B OF THIS PARAGRAPH 4: (I) THE COMMITTEE SHALL REGULARLY NOTIFY EACH DESIGNATED INVESTMENT MANAGER OF THE ANTICIPATED CASH REQUIREMENTS FOR DISBURSEMENTS FROM THE INVESTMENT FUND OR FUNDS UNDER HIS OR ITS DIRECTION, AND THE INVESTMENT MANAGER SHALL DIRECT THE TRUSTEE TO HOLD CASH FUNDS UNINVESTED IN SUCH AMOUNTS AND FOR SUCH PERIODS OF TIME AS MAY APPEAR TO BE REASONABLY NECESSARY TO MEET SUCH CASH REQUIREMENTS. UPON THE APPOINTMENT OF AN INVESTMENT MANAGER, THE TRUSTEE SHALL INVEST AND REINVEST THE CASH FORMING A PART OF ANY INVESTMENT FUND, WHICH IT HAS NOT BEEN DIRECTED TO HOLD UNINVESTED, IN SUCH MONEY MARKET INSTRUMENTS, SUCH AS COMMERCIAL PAPER AND U.S. TREASURY BILLS AND NOTES, REPURCHASE AGREEMENTS OR OTHER EVIDENCES OF INDEBTEDNESS WHICH ARE PAYABLE ON DEMAND OR WHICH GENERALLY HAVE A MATURITY DATE OF NOT MORE THAN FIFTEEN (15) MONTHS FROM THE TIME OF ACQUISITION, AND INCLUDING SHARES OF ANY MUTUAL FUND INCLUDING WITHOUT LIMITATION A PROPRIETARY MUTUAL FUND DESCRIBED IN SUBSECTION (II) OF SUBPARAGRAPH 4A. -14- (II) THE INVESTMENT MANAGER SHALL PLACE THE BUY OR SELL ORDERS WITH THE BROKERS, OR OTHER PERSONS THROUGH WHOM SUCH TRANSACTIONS SHALL BE ACCOMPLISHED, PERTAINING TO THE INVESTMENT FUND WHICH IS SUBJECT TO THE DIRECTION OF THE INVESTMENT MANAGER. THE TRUSTEE'S SOLE DUTY AND OBLIGATION RELATING TO THE INVESTMENT FUND WHICH IS SUBJECT TO THE DIRECTION OF THE INVESTMENT MANAGER SHALL BE TO ACCEPT AND PAY FOR ANY PROPERTY OF ANY NATURE WHATSOEVER THAT IT MAY BE DIRECTED BY THE INVESTMENT MANAGER TO ACCEPT AND PAY FOR, AND TO DELIVER AGAINST PAYMENT THEREFOR, ANY PROPERTY OF ANY NATURE WHATSOEVER WHICH IT MAY BE DIRECTED BY SUCH INVESTMENT MANAGER TO DELIVER AGAINST PAYMENT THEREFOR. THE TRUSTEE SHALL USE ITS BEST EFFORTS TO CONSUMMATE ANY SUCH ACCEPTANCE AND PAYMENT, OR DELIVERY AGAINST PAYMENT, AS IT MAY BE DIRECTED SO TO DO, AND THIS SHALL CONSTITUTE THE TRUSTEE'S SOLE DUTY WITH RESPECT TO SUCH TRADING. (III) PAYMENT OF THE COSTS OF THE ACQUISITION, SALE OR EXCHANGE OF ANY SECURITY OR OTHER PROPERTY FOR AN INVESTMENT FUND SHALL BE CHARGED TO SUCH INVESTMENT FUND. IN THE ABSENCE OF A DIRECTION FROM THE COMMITTEE TO THE CONTRARY, OTHER PAYMENTS AND DISBURSEMENTS FROM THE TRUST FUND SHALL BE CHARGED TO SUCH PART OF THE TRUST FUND AS THE TRUSTEE DEEMS ADVISABLE. (IV) ALL INSTRUCTIONS FROM AN INVESTMENT MANAGER (OR FROM PERSONS AUTHORIZED BY AN INVESTMENT MANAGER) TO THE TRUSTEE SHALL BE IN WRITING AND SHALL BE COMPLETE IN ALL REASONABLE AND NECESSARY DETAILS. THE TRUSTEE MAY, IN ITS DISCRETION, ACCEPT DIRECTIONS BY TELEPHONE OR TELEGRAPH CONFIRMED IN WRITING OR BY ANY OTHER MEANS OF COMMUNICATION WHICH IT BELIEVES TO BE GENUINE (INCLUDING COMMUNICATIONS RECEIVED THROUGH THE FACILITIES OF AN INSTITUTIONAL DELIVERY SYSTEM OF A DEPOSITORY) PROVIDED THAT THE TRUSTEE SHALL NOT BE LIABLE FOR EXECUTING OR FAILING TO EXECUTE ANY SUCH DIRECTIONS OR FOR ANY MISTAKE IN THE EXECUTION OF ANY SUCH INSTRUCTION EXCEPT FOR ITS WILLFUL DEFAULT OR GROSS NEGLIGENCE. THE TRUSTEE SHALL HAVE NO DUTY TO QUESTION SUCH INSTRUCTIONS NOR SHALL THE TRUSTEE INCUR ANY LIABILITY FOR FOLLOWING SUCH INSTRUCTIONS. (V) IN THE EVENT THAT AN INVESTMENT MANAGER APPOINTED HEREUNDER IS AUTHORIZED AND EMPOWERED BY THE COMMITTEE TO INVEST AND REINVEST ALL OR ANY PART OF THE TRUST FUND ALLOCATED TO ITS INVESTMENT FUND IN UNITS OF ANY COMMON, COLLECTIVE OR COMMINGLED TRUST FUND MAINTAINED BY SAID INVESTMENT MANAGER AS A QUALIFIED TRUST UNDER THE PROVISIONS OF SECTION 401(A) AND EXEMPT UNDER THE PROVISIONS OF SECTION 501(A) OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE") THEN, NOTWITHSTANDING ANY PROVISION IN THIS TRUST EXPRESSED OR IMPLIED TO THE CONTRARY, UPON -15- DIRECTION OF AN INVESTMENT MANAGER, THE TRUSTEE SHALL MAKE SUCH TRANSFERS TO THE INVESTMENT MANAGER, AS THE TRUSTEE OF A COMMON, COLLECTIVE OR COMMINGLED TRUST FUND DESCRIBED ABOVE, AS ARE NECESSARY TO IMPLEMENT THE FOREGOING. (VI) NOTWITHSTANDING THE PROVISIONS OF THIS TRUST WHICH PLACE RESTRICTIONS UPON THE ACTIONS OF THE TRUSTEE, OR THE INVESTMENT MANAGER, TO THE EXTENT MONIES OR OTHER ASSETS ARE UTILIZED TO ACQUIRE UNITS OF ANY COMMON, COLLECTIVE OR GROUP TRUST, THE TERMS OF THE COMMON, COLLECTIVE OR GROUP TRUST INDENTURE SHALL SOLELY GOVERN THE INVESTMENT DUTIES, RESPONSIBILITIES AND POWERS OF THE TRUSTEE OF SUCH COMMON, COLLECTIVE OR GROUP TRUST, AND TO THE EXTENT REQUIRED BY LAW, SUCH TERMS, RESPONSIBILITIES AND POWERS SHALL BE INCORPORATED HEREIN BY REFERENCE AND SHALL BE PART OF THIS TRUST. THE TRUSTEE SHALL HAVE NO DUTY OR RESPONSIBILITY AS TO THE SAFEKEEPING OF SUCH ASSETS OR AS TO THE INVESTMENT AND REINVESTMENT OF THE SAME, EXCEPT THAT THE TRUSTEE SHALL REQUIRE SUCH STATEMENTS AND REPORTS FROM SUCH INVESTMENT MANAGER AS MAY BE NECESSARY TO ENABLE THE TRUSTEE TO CARRY OUT ITS RECORDKEEPING AND REPORTING DUTIES UNDER THIS TRUST. THE TRUSTEE SHALL ENTER INTO AND EXECUTE SUCH AGREEMENTS, RECEIPTS AND RELEASES AS SHALL BE REQUIRED TO CARRY OUT THE DIRECTIONS OF THE COMMITTEE WITH RESPECT TO THE TRANSFER OF ANY ASSETS OF THE TRUST FUND TO OR FROM AN INVESTMENT MANAGER. (VII) TO THE EXTENT THAT PROVISIONS OF SUBPARAGRAPHS B, C AND D OF THIS PARAGRAPH 4 ARE INCONSISTENT WITH OTHER PROVISIONS OF THIS PARAGRAPH 4, THE PROVISIONS OF SAID SUBPARAGRAPHS B, C AND D SHALL BE CONTROLLING. E. INCOME. INCOME RECEIVED BY THE TRUST FUND SHALL BE ADDED PERIODICALLY TO THE PRINCIPAL OF THE TRUST FUND BY THE TRUSTEE AND THE PROFITS AND LOSSES OF THE TRUST FUND SHALL BE ALLOCATED TO THE PRINCIPAL OF THE TRUST FUND. F. UNRELATED BUSINESS INCOME. NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, THE TRUSTEE MAY ENTER INTO A TRANSACTION OR RETAIN A TRUST INVESTMENT WHICH MAY, OR IN FACT DOES, GIVE RISE TO UNRELATED BUSINESS TAXABLE INCOME EITHER THROUGH THE EXERCISE OF THE -16- TRUSTEE'S SOLE INVESTMENT AUTHORITY HEREUNDER OR PURSUANT TO THE DIRECTIONS OF THE COMMITTEE OR AN INVESTMENT MANAGER. G. AUTHORITY OF TRUSTEE. NO PERSON DEALING WITH THE TRUST FUND OR THE TRUSTEE SHALL BE REQUIRED TO INQUIRE AS TO THE AUTHORITY OF THE TRUSTEE TO DO ANY ACT OR TO SEE TO THE APPLICATION OF FUNDS OR OTHER PROPERTY PAID OR DELIVERED TO OR UPON THE ORDER OF THE TRUSTEE, AND ANY ISSUING INSURANCE COMPANY MAY TREAT AS BINDING AND CONCLUSIVE UPON IT ANY ACTION WHICH THE TRUSTEE MAY TAKE WITH RESPECT TO ANY ANNUITY OR INSURANCE CONTRACT HELD BY THE TRUSTEE. H. INDEMNIFICATION. NEITHER THE TRUSTEE, THE COMPANY NOR THE COMMITTEE SHALL BE RESPONSIBLE FOR THE INVESTMENT OF ANY PART OF THE TRUST FUND ALLOCATED TO AN INVESTMENT MANAGER. THE TRUSTEE SHALL BE UNDER NO DUTY TO QUESTION OR MAKE INQUIRY AS TO ANY DIRECTION, NOTIFICATION OR ORDER OR FAILURE TO GIVE A DIRECTION, NOTIFICATION OR ORDER BY THE COMMITTEE, THE COMPANY OR AN INVESTMENT MANAGER. THE TRUSTEE SHALL BE UNDER NO DUTY TO MAKE ANY REVIEW OF INVESTMENTS ACQUIRED FOR AN INVESTMENT FUND MANAGED BY THE COMMITTEE, THE COMPANY, OR AN INVESTMENT MANAGER AND UNDER NO DUTY AT ANY TIME TO MAKE ANY RECOMMENDATION WITH RESPECT TO DISPOSING OF OR CONTINUING TO RETAIN ANY SUCH INVESTMENTS. THE COMPANY HEREBY INDEMNIFIES AND HOLDS THE TRUSTEE OR ITS NOMINEE HARMLESS FROM ANY AND ALL ACTIONS, CLAIMS, DEMANDS, LIABILITIES, LOSSES, DAMAGES OR REASONABLE EXPENSES OF -17- WHATSOEVER KIND AND NATURE IN CONNECTION WITH OR ARISING OUT OF (I) ANY ACTION TAKEN OR OMITTED IN GOOD FAITH OR ANY INVESTMENT OR DISBURSEMENT OF ANY PART OF THE TRUST FUND MADE BY THE TRUSTEE IN ACCORDANCE WITH THE DIRECTIONS OF THE COMMITTEE OR A PARTICIPANT PURSUANT TO PARAGRAPH 4 OF SUBPARAGRAPH C HEREOF OR ANY INACTION WITH RESPECT TO ANY COMMITTEE MANAGED INVESTMENT FUND OR ANY PARTICIPANT DIRECTED INVESTMENT OR WITH RESPECT TO ANY INVESTMENT PREVIOUSLY MADE AT THE DIRECTION OF THE COMMITTEE OR ANY PARTICIPANT DIRECTED INVESTMENT IN THE ABSENCE OF DIRECTIONS FROM THE COMMITTEE OR THE PARTICIPANT THEREFOR, OR (II) ANY ACTION TAKEN OR OMITTED IN GOOD FAITH BY THE TRUSTEE WITH RESPECT TO AN INVESTMENT FUND MANAGED BY AN INVESTMENT MANAGER IN ACCORDANCE WITH ANY DIRECTION OF THE INVESTMENT MANAGER OR ANY INACTION WITH RESPECT TO ANY SUCH INVESTMENT FUND IN THE ABSENCE OF DIRECTIONS FROM THE INVESTMENT MANAGER, OR (III) ANY ACTION TAKEN IN GOOD FAITH BY THE TRUSTEE PURSUANT TO A NOTIFICATION OF AN ORDER TO PURCHASE OR SELL SECURITIES ISSUED BY AN INVESTMENT MANAGER OR THE COMMITTEE DIRECTLY TO A BROKER OR DEALER, OR (IV) ANY FAILURE BY THE TRUSTEE TO PAY FOR ANY PROPERTY PURCHASED BY AN INVESTMENT MANAGER OR THE COMMITTEE FOR THE TRUST FUND BY REASON OF THE INSUFFICIENCY OF FUNDS IN THE TRUST FUND. ANYTHING HEREINABOVE TO THE CONTRARY NOTWITHSTANDING, THE COMPANY SHALL HAVE NO RESPONSIBILITY TO THE TRUSTEE UNDER THE FOREGOING INDEMNIFICATION IF THE TRUSTEE KNOWINGLY PARTICIPATED IN OR KNOWINGLY CONCEALED ANY ACT OR OMISSION OF THE COMMITTEE OR ANY -18- INVESTMENT MANAGER KNOWING THAT SUCH ACT OR OMISSION CONSTITUTED A BREACH OF FIDUCIARY RESPONSIBILITY, OR IF THE TRUSTEE FAILS TO PERFORM ANY OF THE DUTIES UNDERTAKEN BY IT UNDER THE PROVISIONS OF THIS TRUST, OF IF THE TRUSTEE FAILS TO ACT IN CONFORMITY WITH THE DIRECTIONS OF AN AUTHORIZED REPRESENTATIVE OF THE INVESTMENT MANAGER OR THE COMMITTEE, WHICH ARE CONSISTENT WITH THE REQUIREMENTS OF ERISA; PROVIDED, HOWEVER, THAT IF THE TRUSTEE HAS KNOWLEDGE OF A BREACH COMMITTED BY AN INVESTMENT MANAGER, THE SOLE RESPONSIBILITY OF THE TRUSTEE SHALL BE TO NOTIFY THE COMPANY IN WRITING THEREOF, AND THE COMPANY SHALL THEREAFTER ASSUME FULL RESPONSIBILITY TO ALL PERSONS INTERESTED IN THE TRUST FUND TO REMEDY SAID BREACH. I. DELEGATION OF AUTHORITY. NO ALLOCATION OR DELEGATION BY THE COMPANY OR THE COMMITTEE OF ANY OF THEIR RESPECTIVE POWERS, AUTHORITIES, OR RESPONSIBILITIES UNDER THIS TRUST TO THE TRUSTEE SHALL BECOME EFFECTIVE UNLESS SUCH ALLOCATION OR DELEGATION IS SPECIFICALLY SET FORTH IN THIS TRUST OR SHALL FIRST BE ACCEPTED BY THE TRUSTEE IN A WRITING SIGNED BY IT AND DELIVERED TO THE COMPANY OR THE COMMITTEE AS THE CASE MAY BE. J. COPIES OF DOCUMENTS. THE COMPANY SHALL PROVIDE THE TRUSTEE WITH COPIES OF ALL DOCUMENTS CONSTITUTING THE PLAN AT THE TIME THIS TRUST IS EXECUTED BY THE COMPANY AND ALL OTHER DOCUMENTS AMENDING OR SUPPLEMENTING THE PLAN PROMPTLY UPON THEIR ADOPTION AND THE COMMITTEE SHALL PROVIDE THE TRUSTEE WITH COPIES OF ALL AGREEMENTS WITH ALL INVESTMENT MANAGERS APPOINTED BY THE COMMITTEE AND ALL OTHER DOCUMENTS AMENDING OR SUPPLEMENTING -19- SUCH AGREEMENTS AND THE TRUSTEE SHALL BE ENTITLED TO RELY UPON THE COMPANY'S AND THE COMMITTEE'S ATTENTION TO THE AFORESAID OBLIGATION AND SHALL BE UNDER NO DUTY TO INQUIRE OF THE COMPANY OR THE COMMITTEE OR ANY OTHER PERSON AS TO THE EXISTENCE OF ANY SUCH DOCUMENTS NOT PROVIDED BY THE COMPANY OR THE COMMITTEE PURSUANT TO THE FOREGOING UNDERTAKING. K. SECURITIES LENDING. THE COMMITTEE MAY APPOINT THE TRUSTEE OR ANY OF ITS AFFILIATES UNDER A SEPARATE AGENCY AGREEMENT TO ACT AS AGENT FOR THE TRUST FUND FOR PURPOSES OF LENDING ANY SECURITIES HELD IN THE TRUST FUND (INCLUDING ANY INVESTMENT FUND CREATED PURSUANT TO SUBPARAGRAPH B OF THIS PARAGRAPH 4 IF THE INVESTMENT MANAGER HAS CONSENTED) TO BROKER-DEALER(S) OR BANK(S), AND IN CONNECTION THEREWITH AUTHORIZE THE TRUSTEE OR ANY OF ITS AFFILIATES, AS AGENT, TO ENTER INTO SECURITIES LOAN AGREEMENT(S), TO RECEIVE A REASONABLE FEE AS IT AND THE COMMITTEE MAY AGREE, TO DELIVER TO ANY SUCH BROKER-DEALER(S), OR BANK(S), SUCH SECURITIES AND TO PERMIT THE LOANED SECURITIES TO BE TRANSFERRED INTO THE NAME OF AND VOTED BY THE BORROWER OR OTHERS. L. VOTING OF COMPANY STOCK. All voting rights on shares of Company Stock held in the Company Stock Fund shall be exercised by the Trustee only as directed by the Participants acting in their capacity as "Named Fiduciaries" (as defined in Section 402 of ERISA) in accordance with the following provisions of this Paragraph 4: -20- (i) As soon as practicable before each annual or special shareholders' meeting of the Company, the Trustee shall furnish to each Participant sufficient copies of the proxy solicitation material sent generally to shareholders, together with a form requesting confidential instructions on how the shares of Company Stock allocated to such Participant's account, and, separately, such shares of Company Stock as may be unallocated ("Unallocated Shares") or allocated to Participant accounts but for which the Trustee does not receive timely voting instruction from the Participant ("Non-Directed Shares"), (including fractional shares to 1/1000th of a share) are to be voted. The direction with respect to Non-Directed Shares and Unallocated Shares shall apply to such number of votes equal to the total number of votes attributable to Non-Directed Shares and Unallocated Shares multiplied by a fraction, the numerator of which is the number of shares of Company Stock credited to the Participant's account and the denominator of which is the total number of shares credited to the accounts of all such Participants who have timely provided directions to the Trustee with respect to Non-Directed Shares and Unallocated Shares under this Paragraph 4. The Company and the Committee will cooperate with the Trustee to ensure that Participants receive the requisite information in a timely manner. The materials furnished to the Participants shall include a notice from the Trustee that the Trustee will vote any shares for which timely instructions are not received by the Trustee as may be directed by those voting Participants, acting in their capacity as Named Fiduciaries of the Plan as provided above. Upon timely receipt of such instructions, the Trustee shall vote the shares as instructed. The instructions received by the Trustee from Participants or Beneficiaries shall be held by the Trustee in strict confidence and shall not be divulged or released to any person including directors, officers or employees of the Company, or of any other company, except as otherwise required by law. (ii) With respect to all corporate matters submitted to shareholders, all shares of Company Stock shall be voted only in accordance with the directions of such Participants as Named Fiduciaries as given to the Trustee as provided in Section 4(L)(i). With respect to shares of Company Stock allocated to the account of a deceased Participant, such Participant's Beneficiary, as Named Fiduciary, shall be entitled to direct the voting of shares of Company Sock as if such Beneficiary were the Participant. M. TENDER OFFERS ON COMPANY STOCK. All tender or exchange decisions with respect to Company Stock held in the Company Stock Fund shall be made only by the -21- Participants acting in their capacity as Named Fiduciaries with respect to the Company Stock allocated to their accounts in accordance with the following provisions of this Paragraph: (i) In the event an offer shall be received by the Trustee (including a tender offer for shares of Company Stock subject to Section 14(d)(1) of the Securities Exchange Act of 1934 or subject to Rule 13e-4 promulgated under that Act, as those provisions may from time to time be amended) to purchase or exchange any shares of Company Stock held by the Trust, the Trustee will advise each Participant who has shares of Company Stock credited to such Participant's account in writing of the terms of the offer as soon as practicable after its commencement and will furnish each Participant with a form by which he may instruct the Trustee confidentially whether or not to tender or exchange shares allocated to such Participant's account, and, separately, Unallocated Shares and Non-Directed Shares (including fractional shares to 1/1000th of a share). The directions with respect to Non-Directed Shares and Unallocated Shares shall apply to such number of Non-Directed Shares and Unallocated Shares equal to the total number of Non-Directed Shares and Unallocated Shares multiplied by a fraction, the numerator of which is the number of shares of Company Stock credited to the Participant's account and the denominator of which is the total number of shares credited to the accounts of all such Participants who have timely provided directions to the Trustee with respect to Non-Directed Shares and Unallocated Shares under this Paragraph. The materials furnished to the Participants shall include (i) a notice from the Trustee that, except as provided in this Paragraph, the Trustee will not tender or exchange any shares for which timely instructions are not received by the Trustee and (ii) such related documents as are prepared by any person and provided to the shareholders of the Company pursuant to the Securities Exchange Act of 1934. The Committee and the Trustee may also provide Participants with such other material concerning the tender or exchange offer as the Trustee or the Committee in its discretion determines to be appropriate; provided, however, that prior to any distribution of materials by the Committee, the Trustee shall be furnished with sufficient numbers of complete copies of all such materials. The Company and the Committee will cooperate with the Trustee to ensure that Participants receive the requisite information in a timely manner. (ii) The Trustee shall tender or not tender shares or exchange shares of Company Stock (including fractional shares to 1/1000th of a share) only as and to the -22- extent instructed by the Participants as Named Fiduciaries as provided in Paragraph 4(M)(i). With respect to shares of Company Stock allocated to the account of a deceased Participant, such Participant's Beneficiary, as a Named Fiduciary, shall be entitled to direct the Trustee whether or not to tender or exchange such shares as if such Beneficiary were the Participant. The instructions received by the Trustee from Participants or Beneficiaries shall be held by the Trustee in strict confidence and shall not be divulged or released to any person, including directors, officers or employees of the Company, or of any other company, except as otherwise required by law. (iii) In the event, under the terms of a tender offer or otherwise, any shares of Company Stock tendered for sale, exchange or transfer pursuant to such offer may be withdrawn from such offer, the Trustee shall follow such instructions respecting the withdrawal of such securities from such offer in the same manner and the same proportion as shall be timely received by the Trustee from the Participants, as Named Fiduciaries, entitled under this Paragraph 4(M) to give instructions as to the sale, exchange or transfer of securities pursuant to such offer. (iv) In the event an offer shall be received by the Trustee and instructions shall be solicited from Participants pursuant to this Paragraph 4(M) regarding such offer, and prior to termination of such offer, another offer is received by the Trustee for the securities subject to the first offer, the Trustee shall use its best efforts under the circumstances to solicit instructions from the Participants to the Trustee (i) with respect to securities tendered for sale, exchange or transfer pursuant to the first offer, whether to withdraw such tender, if possible, and, if withdrawn, whether to tender any securities so withdrawn for sale, exchange or transfer pursuant to the second offer and (ii) with respect to securities not tendered for sale, exchange or transfer pursuant to the first offer, whether to tender or not to tender such securities for sale, exchange or transfer pursuant to the second offer. The Trustee shall follow all such instructions received in a timely manner from Participants in the same manner and in the same proportion as provided in Paragraph 4(M)(i). With respect to any further offer for any Company Stock received by the Trustee and subject to any earlier offer (including successive offers from one or more existing offerors), the Trustee shall act in the same manner as described above. (v) A Participant's instructions to the Trustee to tender or exchange shares of Company Stock will not be deemed a withdrawal or suspension from the Plan or a forfeiture of any portion of the Participant's interest in the Plan. Funds received in -23- exchange for tendered shares will be credited to the account of the Participant whose shares were tendered and will be used by the Trustee to purchase Company Stock, as soon as practicable. In the interim, the Trustee will invest such funds in short-term investments permitted under the Plan, and in the same manner in which forfeited amounts are invested. (vi) In the event the Company initiates a tender or exchange offer, the Trustee may, in its sole discretion, enter into an agreement with the Company not to tender or exchange any shares of Company Stock in such offer, in which event, the foregoing provisions of this Paragraph shall have no effect with respect to such offer and the Trustee shall not tender or exchange any shares of Company Stock in such offer. N. DESIGNATION OF AGENTS RE COMPANY STOCK FUND. The Trustee acting with respect to the Company Stock Fund may, with the consent of the Committee, employ an agent selected by the Trustee to solicit the instructions to vote or tender provided for in subparagraphs L and M of this Paragraph 4, and shall be held harmless in relying upon such agent's written advice as to how shares are to be voted or tendered. O. SECURITIES LAWS. The Company shall be responsible for complying with applicable federal and state securities laws and regulations. P. VALUATIONS. As of each Valuation Date, the Trustee shall determine the fair market value of each Investment Fund, including the Company Stock Fund, if any, being administered by the Trustee; PROVIDED, HOWEVER, THAT WITH RESPECT TO ANY ASSET ACQUIRED BY THE COMPANY, THE COMMITTEE OR AN INVESTMENT MANAGER, THE TRUSTEE WILL ONLY BE RESPONSIBLE FOR VALUING SUCH ASSET IF THE ASSET IS PUBLICLY TRADED OR REPORTED ON A PRICING SERVICE TO WHICH THE TRUSTEE SUBSCRIBES. THE COMPANY OR, IF DESIGNATED BY THE COMPANY, THE COMMITTEE OR THE -24- INVESTMENT MANAGER, WILL BE RESPONSIBLE FOR VALUING ALL OTHER ASSETS ACQUIRED BY THE COMPANY, THE COMMITTEE OR AN INVESTMENT MANAGER FOR ALL PURPOSES OF THE TRUST FUND. IF AN ASSET IS VALUED BY THE COMPANY, THE COMMITTEE OR AN INVESTMENT MANAGER, THE COMMITTEE WILL DIRECT THE TRUSTEE ON THE USE OF THE VALUE SO DEVELOPED AND THE COMPANY AGREES TO INDEMNIFY AND HOLD THE TRUSTEE HARMLESS AGAINST ANY AND ALL CLAIMS, ACTIONS, DEMANDS, LIABILITIES, LOSSES, DAMAGES OR EXPENSES OF WHATSOEVER KIND AND NATURE, WHICH ARISE FROM OR ARE RELATED TO ANY USE OF SUCH VALUE BY THE TRUSTEEE IN THE ADMINISTRATION OF THE TRUST FUND. With respect to each such Investment Fund, the Trustee shall determine (1) the change in value between the current Valuation Date and the then last preceding Valuation Date, (2) the net gain or loss resulting from expenses paid (including fees and expenses, if any, which are to be charged to such Fund) and (3) realized and unrealized gains and losses. The transfer of funds to or from an Investment Fund pursuant to this Paragraph 4 and payments, distributions and withdrawals from an Investment Fund to provide benefits under the Plan for Participants or Beneficiaries shall not be deemed to be gains, expenses or losses of an Investment Fund. After each Valuation Date, the Trustee shall allocate the net gain or loss of each Investment Fund as of such Valuation Date to the accounts of Participants participating in such Investment Fund on such Valuation Date. Contributions, forfeitures and rollovers received and -25- credited to Participants' accounts as of such Valuation Date, or as of any earlier date since the last preceding Valuation Date shall not be considered in allocating gains or losses allocated to Participants' accounts. The reasonable and equitable decision of the Trustee as to the value of each Investment Fund, including the Company Stock Fund, if any, and of any account as of each Valuation Date shall be conclusive and binding upon all persons having any interest, direct or indirect, in the Investment Funds or in any account. 5. INVESTMENT IN MASTER TRUST. NOTWITHSTANDING ANYTHING HEREIN CONTAINED TO THE CONTRARY, THE COMPANY MAY DIRECT THE TRUSTEE AT ANY TIME OR FROM TIME TO TIME TO TRANSFER ALL OR ANY PART OF THE TRUST FUND TO ANY TRUST WHICH HAS BEEN QUALIFIED UNDER SECTION 401(A) AND IS EXEMPT UNDER SECTION 501(A) OF THE CODE ESTABLISHED AS A MEDIUM FOR THE COLLECTIVE INVESTMENT OF FUNDS OF PENSION, PROFIT SHARING OR OTHER EMPLOYEE BENEFIT TRUSTS ESTABLISHED BY THE COMPANY, OR ANY OF ITS SUBSIDIARIES OR AFFILIATES AND TO WITHDRAW ANY PART OR ALL OF THE TRUST FUND SO TRANSFERRED. ANY SUCH TRUST MAY PROVIDE, AMONG OTHER THINGS, FOR THE SEPARATE INVESTMENT OF ANY PORTION THEREOF AND THE ALLOCATION TO ANY SUCH SEPARATELY INVESTED PORTION OF ANY PART OF THE INTEREST OF ANY EMPLOYEE BENEFIT TRUST INVESTED THEREUNDER AND FOR THE DESIGNATION OF AN INVESTMENT MANAGER TO DIRECT THE TRUSTEE IN THE EXERCISE OF THE POWER -26- GRANTED TO IT WITH RESPECT TO SUCH SEPARATELY INVESTED PORTION. THE PROVISIONS OF ANY SUCH TRUST SHALL BE DEEMED TO HAVE BEEN ADOPTED AND MADE A PART OF THIS TRUST AND THE PLAN. 6. COMPENSATION AND EXPENSES OF THE TRUSTEE. THE TRUSTEE SHALL BE ENTITLED TO RECEIVE REASONABLE FEES FOR ITS SERVICES HEREUNDER IN ACCORDANCE WITH ITS SCHEDULE OF FEES THEN IN EFFECT AND SHALL BE ENTITLED TO RECEIVE REIMBURSEMENT FOR ALL REASONABLE EXPENSES INCURRED BY IT IN THE ADMINISTRATION OF THIS TRUST. UNLESS PAID DIRECTLY BY THE COMPANY, ANY PROPER CHARGES AND DISBURSEMENTS INCURRED BY THE TRUSTEE IN THE PERFORMANCE OF ITS DUTIES HEREUNDER, INCLUDING FEES FOR LEGAL SERVICES RENDERED TO THE TRUSTEE WHETHER DURING OR AFTER THE TIME IT IS ACTING HEREUNDER, SHALL BE PAID FROM THE TRUST FUND. ALL TAXES OF ANY AND ALL KINDS WHATSOEVER THAT MAY BE LEVIED OR ASSESSED UNDER EXISTING OR FUTURE LAWS UPON OR IN RESPECT OF THE TRUST FUND OR THE INCOME THEREOF SHALL BE A CHARGE AGAINST THE TRUST FUND; PROVIDED, HOWEVER, IN THE EVENT THAT THE COMPANY SHALL NOTIFY THE TRUSTEE THAT, IN THE OPINION OF ITS COUNSEL, ANY SUCH TAXES ARE UNLAWFULLY OR EXCESSIVELY ASSESSED, THE TRUSTEE SHALL, AT THE EXPENSE OF THE COMPANY, JOIN WITH THE COMPANY TO CONTEST THE VALIDITY OF SUCH ASSESSMENT IN ANY MANNER DEEMED APPROPRIATE BY THE COMPANY OR ITS COUNSEL. 7. ACCOUNTING BY TRUSTEE. THE TRUSTEE SHALL MAINTAIN SUCH ACCOUNTS AND RECORDS AS THE COMMITTEE AND THE TRUSTEE SHALL AGREE UPON. THE TRUSTEE SHALL RENDER FROM TIME TO TIME ACCOUNTS OF ITS TRANSACTIONS TO THE COMMITTEE, AND THE COMMITTEE MAY APPROVE SUCH ACCOUNTS -27- BY AN INSTRUMENT IN WRITING DELIVERED TO THE TRUSTEE. IN THE ABSENCE OF THE FILING IN WRITING WITH THE TRUSTEE BY THE COMMITTEE OF EXCEPTIONS OR OBJECTIONS TO ANY SUCH ACCOUNT WITHIN SIXTY (60) DAYS, THE COMMITTEE SHALL BE DEEMED TO HAVE APPROVED SUCH ACCOUNT; AND IN SUCH CASE, OR UPON THE WRITTEN APPROVAL BY THE COMMITTEE OF ANY SUCH ACCOUNT, THE TRUSTEE SHALL BE RELEASED, RELIEVED AND DISCHARGED AS TO THE COMPANY WITH RESPECT TO ALL MATTERS AND THINGS SET FORTH IN SUCH ACCOUNT AS THOUGH SUCH ACCOUNT HAD BEEN SETTLED BY THE DECREE OF A COURT OF COMPETENT JURISDICTION. NO PERSON OTHER THAN THE COMMITTEE MAY REQUIRE AN ACCOUNTING. 8. RELIANCE OF TRUSTEE ON COMMITTEE. THE TRUSTEE SHALL BE FULLY PROTECTED IN RELYING UPON A CERTIFICATION SIGNED BY ONE OR MORE OF THE MEMBERS OF THE COMMITTEE (AS SHALL BE DESIGNATED IN A WRITTEN INSTRUMENT SIGNED BY ALL THE MEMBERS OF THE COMMITTEE AND FILED WITH THE TRUSTEE) WITH RESPECT TO ANY INSTRUCTION, DIRECTION OR APPROVAL OF THE COMMITTEE AND IN CONTINUING TO RELY UPON SUCH CERTIFICATION AND/OR INSTRUMENT UNTIL A SUBSEQUENT ONE IS FILED WITH THE TRUSTEE. THE TRUSTEE SHALL BE FULLY PROTECTED BY THE COMPANY IN ACTING UPON ANY INSTRUMENT, CERTIFICATE, OR PAPER BELIEVED BY IT TO BE GENUINE AND TO BE SIGNED OR PRESENTED BY THE PROPER PERSON(S), AND THE TRUSTEE SHALL BE UNDER NO DUTY TO MAKE ANY INVESTIGATION OR INQUIRY AS TO ANY STATEMENT CONTAINED IN ANY SUCH WRITING BUT MAY ACCEPT THE SAME AS CONCLUSIVE EVIDENCE OF THE TRUTH AND ACCURACY OF THE STATEMENTS THEREIN CONTAINED. THE TRUSTEE SHALL HAVE NO DUTY TO SEE TO THE PROPER APPLICATION OF ANY PART OF THE TRUST FUND IF -28- DISTRIBUTIONS ARE MADE IN ACCORDANCE WITH THE WRITTEN DIRECTIONS OF THE COMMITTEE AS HEREIN PROVIDED, NOR SHALL THE TRUSTEE BE RESPONSIBLE FOR THE ADEQUACY OF THE TRUST FUND TO MEET AND DISCHARGE ANY AND ALL DISTRIBUTIONS AND LIABILITIES UNDER THE PLAN. ALL PERSONS DEALING WITH THE TRUSTEE ARE RELEASED FROM INQUIRY INTO THE DECISIONS OR AUTHORITY OF THE TRUSTEE AND FROM SEEING TO THE APPLICATION OF ANY MONEYS, SECURITIES, OR OTHER PROPERTY PAID OR DELIVERED TO THE TRUSTEE. 9. RESIGNATION OR REMOVAL OF TRUSTEE. ANY TRUSTEE ACTING HEREUNDER MAY RESIGN AT ANY TIME BY GIVING NOTICE IN WRITING TO THE COMPANY AT LEAST SIXTY (60) DAYS BEFORE SUCH RESIGNATION IS TO BECOME EFFECTIVE, UNLESS THE COMPANY SHALL ACCEPT AS ADEQUATE A SHORTER NOTICE. THE COMPANY MAY, WITH OR WITHOUT CAUSE, REMOVE ANY TRUSTEE ACTING HEREUNDER BY GIVING NOTICE IN WRITING TO SUCH TRUSTEE AT LEAST SIXTY (60) DAYS BEFORE SUCH REMOVAL IS TO BECOME EFFECTIVE, UNLESS THE TRUSTEE SHALL ACCEPT AS ADEQUATE A SHORTER NOTICE. IF FOR ANY REASON A VACANCY SHOULD OCCUR IN THE TRUSTEESHIP, A SUCCESSOR TRUSTEE SHALL FORTHWITH BE APPOINTED BY THE COMPANY. ANY SUCCESSOR TRUSTEE APPOINTED HEREUNDER SHALL EXECUTE, ACKNOWLEDGE, AND DELIVER TO THE COMPANY AND THE TRUSTEE AN INSTRUMENT IN WRITING ACCEPTING SUCH APPOINTMENT HEREUNDER. SUCH SUCCESSOR TRUSTEE THEREUPON SHALL BECOME VESTED WITH THE SAME TITLE TO THE PROPERTY COMPRISING THE TRUST FUND, AND THE SAME POWERS, DUTIES, AND IMMUNITIES WITH RESPECT THERETO, AS ARE HEREBY VESTED IN THE ORIGINAL TRUSTEE. THE PREDECESSOR -29- TRUSTEE SHALL EXECUTE ALL SUCH INSTRUMENTS AND PERFORM ALL SUCH OTHER ACTS AS THE SUCCESSOR TRUSTEE SHALL REASONABLY REQUEST TO EFFECTUATE THE PROVISIONS HEREOF. THE SUCCESSOR TRUSTEE SHALL HAVE NO DUTY TO INQUIRE INTO THE ADMINISTRATION OF THIS TRUST FOR ANY PERIOD PRIOR TO ITS SUCCESSION. 10. AMENDMENT. SUBJECT TO PARAGRAPH 3 ABOVE, THE COMPANY AND THE TRUSTEE RESERVE THE RIGHT FROM TIME TO TIME TO AMEND THE PROVISIONS OF THIS TRUST IN ANY MANNER. ANY SUCH AMENDMENT SHALL BE BY WRITTEN INSTRUMENT EXECUTED BY THE COMPANY AND THE TRUSTEE. ANY SUCH AMENDMENT MAY BE MADE RETROACTIVELY IF SUCH AMENDMENT IS NECESSARY TO ENABLE THE PLAN AND THIS TRUST TO MEET THE REQUIREMENTS OF THE CODE (INCLUDING THE REGULATIONS AND RULINGS ISSUED THEREUNDER) OR THE REQUIREMENTS OF ANY GOVERNMENTAL AUTHORITY. NO AMENDMENT TO THIS TRUST AGREEMENT SHALL AFFECT THE TRUSTEE'S RIGHTS, DUTIES OR RESPONSIBILITIES UNLESS THE TRUSTEE CONSENTS THERETO IN WRITING. 11. PROHIBITION AGAINST ALIENATION. TO THE FULLEST EXTENT PERMITTED BY LAW NO INTEREST OR EXPECTANCY OF ANY PARTICIPANT OR BENEFICIARY TO ANY BENEFITS OR PAYMENTS UNDER THIS TRUST SHALL BE TRANSFERABLE OR ASSIGNABLE OR SUBJECT TO VOLUNTARY OR INVOLUNTARY ALIENATION, ENCUMBRANCE, GARNISHMENT, ATTACHMENT, ANTICIPATION, EXECUTION OR LEVY OF ANY KIND. IN THE EVENT A PARTICIPANT OR BENEFICIARY WHO IS RECEIVING OR IS ENTITLED TO RECEIVE BENEFITS UNDER THIS -30- TRUST ATTEMPTS TO ASSIGN, TRANSFER OR DISPOSE OF SUCH RIGHT OR AN ATTEMPT IS MADE TO SUBJECT SUCH RIGHT TO SUCH PROCESS, SUCH ASSIGNMENT, TRANSFER OR DISPOSITION SHALL BE NULL AND VOID. 12. TERMINATION OF TRUST. THIS TRUST MAY BE TERMINATED AT ANY TIME BY THE COMPANY, AND UPON SUCH TERMINATION, THE TRUST FUND SHALL BE PAID OUT BY THE TRUSTEE AS AND WHEN DIRECTED BY THE COMMITTEE IN ACCORDANCE WITH THE PROVISIONS OF PARAGRAPH 2. UPON SUCH DISTRIBUTION IN ACCORDANCE WITH THE DIRECTION OF THE COMMITTEE THE TRUSTEE SHALL BE RELEASED AND DISCHARGED. 13. APPLICABLE LAW. THIS TRUST SHALL BE CONSTRUED, REGULATED, AND ADMINISTERED UNDER THE LAWS OF THE STATE/COMMONWEALTH IN WHICH THE PRINCIPAL OFFICE OF THE TRUSTEE IS LOCATED, THE CODE AND ERISA. ALL CONTRIBUTIONS TO THE TRUSTEE SHALL BE DEEMED TO TAKE PLACE IN THE STATE OF OREGON. THE TRUSTEE MAY AT ANY TIME INITIATE AN ACTION OR PROCEEDINGS FOR THE SETTLEMENT OF ITS ACCOUNTS OR FOR THE DETERMINATION OF ANY QUESTION OF CONSTRUCTION WHICH MAY ARISE, OR FOR INSTRUCTIONS. 14. TITLES. TITLES OF PARAGRAPHS ARE PLACED HEREIN FOR CONVENIENCE OF REFERENCE ONLY AND SHALL HAVE NO BEARING UPON THE INTERPRETATION OF THIS TRUST. 15. ACTS BY COMPANY. ANY ACTS BY THE COMPANY AUTHORIZED HEREUNDER SHALL BE EVIDENCED BY RESOLUTIONS OF ITS BOARD OF DIRECTORS. -31- 16. COUNTERPARTS. THIS TRUST MAY BE EXECUTED IN ANY NUMBER OF COUNTERPARTS, EACH ONE OF WHICH SHALL BE DEEMED TO BE THE ORIGINAL. FOR PURPOSES OF THIS AGREEMENT AND ANY AMENDMENTS HERETO, FACSIMILE SIGNATURES SHALL BE TREATED AS ORIGINALS. 17. FILINGS REQUIRED BY LAW. THE COMPANY AGREES THAT IT WILL HAVE RESPONSIBILITY FOR THE PREPARATION AND DELIVERY TO PERSONS AND GOVERNMENTAL AGENCIES OF ALL INFORMATION, DESCRIPTIONS, REPORTS AND RETURNS REQUIRED BY LAW. THE TRUSTEE SHALL BE ENTITLED, AS IT MAY DEEM APPROPRIATE FROM TIME TO TIME, TO REQUIRE OF THE COMPANY, THE COMMITTEE OR ANY OTHER PERSON INVOLVED IN THE ADMINISTRATION OF THE PLAN OR THE INVESTMENT OF THE TRUST FUND, OR HAVING ANY INTEREST UNDER THE PLAN OR IN, TO, OR UNDER THIS TRUST OR TO THE TRUST FUND HELD HEREUNDER, SUCH CERTIFICATIONS AND PROOFS OF FACTS AS SHALL PERMIT THE TRUSTEE TO PERFORM ITS DUTIES UNDER APPLICABLE LAW AND REGULATIONS ADOPTED THEREUNDER AS MAY BE IN EFFECT FROM TIME TO TIME, OR TO EXERCISE THE POWERS GRANTED THE TRUSTEE UNDER THIS TRUST. 18. WITHHOLDING. THE TRUSTEE, IN ACCORDANCE WITH THE WRITTEN INSTRUCTIONS OF THE COMPANY, SHALL WITHHOLD ANY TAX WHICH BY ANY PRESENT OR FUTURE LAW IS REQUIRED TO BE WITHHELD FROM ANY PAYMENT MADE HEREUNDER. 19. SUBSTITUTION OF TRUSTEE. ANY CORPORATION OR ASSOCIATION INTO WHICH THE TRUSTEE MAY BE CONVERTED, MERGED OR WITH WHICH IT MAY BE CONSOLIDATED, OR ANY CORPORATION OR ASSOCIATION RESULTING FROM ANY CONVERSION, MERGER, REORGANIZATION OR CONSOLIDATION TO WHICH -32- THE TRUSTEE MAY BE A PARTY, SHALL BE THE SUCCESSOR OF THE TRUSTEE HEREUNDER WITHOUT THE EXECUTION OR FILING OF ANY INSTRUMENT OR THE PERFORMANCE OF ANY FURTHER ACT. 20. REGULATION U COMPLIANCE. THE COMPANY REPRESENTS, WARRANTS AND AGREES THAT IT SHALL NOT CAUSE AND WILL DIRECT EACH INVESTMENT MANAGER NOT TO CAUSE THE TRUSTEE TO ENGAGE IN ANY TRADING ACTIVITY THAT MAY CAUSE AN EXTENSION OF CREDIT IN VIOLATION OF REGULATION U OF THE BOARD OF GOVERNOR'S OF THE FEDERAL RESERVE OR REGULATION T OR X. THIS INCLUDES TRADING ON MARGINABLE STOCK OR FAILURE TO HAVE CASH IN THE TRUST FUND ADEQUATE TO PAY FOR DELIVERY OF ANY SECURITIES TRADED. IT IS MUTUALLY AGREED THAT SHOULD THE TRUSTEE DETERMINE THAT A POTENTIAL REGULATION U VIOLATION, OR OVERDRAFT CAN OCCUR, THE TRUSTEE SHALL TAKE APPROPRIATE MEASURES, INCLUDING DISAFFIRMING OF THE TRADE AND THE LOSS SHALL BE ON THE ACCOUNT OF THE COMPANY. IN WITNESS WHEREOF, THE COMPANY AND THE TRUSTEE HAVE CAUSED THIS TRUST TO BE EXECUTED THIS 10TH DAY OF OCTOBER, 1995 ON THEIR BEHALF BY THEIR DULY AUTHORIZED OFFICERS AS OF THE DATE FIRST ABOVE WRITTEN. OREGON METALLURGICAL CORPORATION KEY TRUST COMPANY OF THE NORTHWEST, TRUSTEE BY: /s/ Dennis P. Kelly BY: /s/ Roger L. P. Greene _______________________________ ______________________________ -33- AND: /s/ Gary A. Weber AND: /s/ Arlene Fraser ______________________________ _____________________________ g:\wjn\gje\oregon2.doc -34- EX-11.1 7 OREGON METALLURGICAL CORPORATION EXHIBIT 11.1 Earnings per share computation
Three Years Ended December 31, 1995 (in thousands except per share data) 1995 1994 1993 ____ ____ ____ Net Income (loss) $ (2,415) $ (2,023) $ (4,098) ======== ======== ======== Weighted average shares outstanding 10,921 10,997 10,839 Weighted average share equivalents assumed issued from Excess Benefit Plan 121 --- --- Weighted average shares equivalents assumed issued from exercise of warrants 59 4 --- Weighted average share equivalents assumed issued as part of Employee Compensation policy 118 --- --- ________ ________ ________ Weighted average share and share equivalents outstanding 11,219 11,001 10,839 ======== ======== ======== Net income (loss) per share $ (0.22) $ (0.18) $ (0.38) ======== ======== ======== Earnings per share computed on both the primary and fully diluted bases are the same. t:\wpwin60\95annual\exhibit.111
EX-13.1 8 QUARTERLY STOCK DATA MARKET FOR COMMON STOCK
HIGH LOW ____ ___ For the Year Ended December 31, 1995 First Quarter $ 8.25 $ 6.00 Second Quarter 9.63 6.563 Third Quarter 13.50 9.375 Fourth Quarter 12.50 9.125 For the Year Ended December 31, 1994 First Quarter $ 6.75 $ 6.00 Second Quarter 6.37 4.37 Third Quarter 6.25 5.25 Fourth Quarter 8.37 5.62
FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA ____________________________________________ (In Thousands, Except Per Share Data)
FOR THE YEARS ENDED DECEMBER 31, 1995 1994 1993 1992 1991 ____ ____ ____ ____ ____ OPERATING RESULTS: Net Sales ......................................... $ 146,853 $ 71,166 $ 55,351 $ 56,785 $ 54,241 Cost of sales ..................................... 131,002 64,527 52,636 57,352 57,432 Gross profit (loss) ............................... 15,851 6,639 2,715 (567) (3,191) Restructuring and environmental charges ........... --- 240 2,997 200 --- Net (loss) ........................................ (2,415) (2,025) (4,098) 2) (4,122) 3) (4,685) Net cash provided by (used in) operating activities ............................ (10,969) (4,459) 841 7,454 961 Earnings (loss) per share ......................... (0.22) (0.18) (0.38) 2) (0.38) 3) (0.44) Weighted average number of shares and share equivalents outstanding ......................... 11,219 11,001 10,839 10,754 10,603 FINANCIAL POSITION: Cash, cash equivalents and short-term investments ..................................... 572 1,636 7,718 8,977 3,560 Working capital ................................... 63,769 49,082 1) 36,467 37,296 39,291 Current ratio ..................................... 2.95 3.1 1) 4.5 5.7 6.1 Net property, plant and equipment ................. 35,138 37,520 36,204 39,811 39,069 Total assets ...................................... 133,077 111,972 1) 83,326 85,701 86,520 Long-term debt, including current portion ......... 27,362 17,177 4,750 8,100 8,250 Shareholders' equity .............................. 65,887 67,282 67,065 68,402 68,436 Shareholders' equity per share .................... 5.98 6.18 6.16 6.32 6.42 Cash dividend per share ........................... --- --- --- --- .31 SUPPLEMENTARY DATA: Net income (loss) as a percent of net sale ........ (1.6)% (2.8)% (7.4)% (7.3)% 3) (8.6)% Number of employees ............................... 580 482 310 359 354 Number of shareholders ............................ 2,397 2,484 2,630 2,869 2,812 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 Titanium Industries, Inc. on September 20, 1994. 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 11 and 14 to the Consolidated Financial Statements) The net loss excludes the cumulative effect of changes in accounting principles for income taxes and post retirement benefits other than pensions.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW MARKET FOR TITANIUM PRODUCTS: The Company, and other major U.S. titanium producers, reported losses in 1995, which continued a trend which began in 1991. This period represents one of the longest and most severe downturns which the industry has seen. The years 1991 through 1994 were characterized by declining military aerospace markets, weak commercial aerospace markets and declining prices. While still reporting losses for the year, the titanium industry rebounded significantly in 1995. The industry benefited from both a recovery in the commercial aerospace sector and continued growth in the industrial sector. The recreation market (primarily golf club stock) displayed strong demand. In response to the increase in the demand for titanium products, production levels increased at a rapid pace, straining capacity and extending mill delivery dates. The Company believes that the market for golf club stock has grown to be the second largest consumer of titanium, after the commercial aerospace market. Additionally, the developing market for titanium armor (ballistic protection material) appears to be a significant new application for the titanium industry. The Company's twelve-month sales order backlog (sales backlog) was $105 million at December 31, 1995, an increase of 139% over the December 31, 1994 sales backlog of $44 million. The sales backlog reflects recent customer order placement but may not be an accurate indicator of annual or quarterly sales volume. 1995 - IN SUMMARY: The Company reported profits during the fourth quarter of 1994 and the first two quarters of 1995. However, during the last two quarters of 1995 and for the year, the Company incurred losses. Strong increases in demand resulted in shortages in raw material supply and escalating costs. The Company's rapid increase in production levels coupled with a larger and more complex mix of products, resulted in production inefficiencies, and higher conversion costs. These factors combined to depress margins on most of the Company's sales. The Company's fixed price long-term sales agreements were severely impacted, requiring the Company to record a charge to income during the fourth quarter to reflect anticipated losses on future shipments under its long-term sales agreements. The Company's 1995 Consolidated Financial Statements reflect the activities of Titanium Industries, Inc. (TI) for the entire year. TI was acquired by the Company in September 1994. TI operates titanium sales and service centers in North America and Western Europe. TI sells its product primarily into the industrial markets and to a lesser extent the commercial aerospace market. TI enjoyed the benefits of strong markets and stable margins in 1995. With the acquisition of TI and the emergence of the recreation and armor markets, the Company has reduced its level of dependence on the aerospace industry. Aerospace related sales represented approximately 45% of net sales in 1995, compared with 60% and 85% of net sales in 1994 and 1993, respectively. Access to a variety of markets has been a long-term goal of the Company's due to the traditionally cyclical nature of the aerospace industry. RESULTS OF OPERATION 1995 COMPARED TO 1994 NET SALES: Net sales increased 106% to $146.8 million in 1995, compared to $71.2 million in 1994. 1995 represents the first complete year in which Titanium Industries, Inc. (TI) results are consolidated with the Company. TI was acquired by the Company in September 1994. On a pro forma basis, as if TI had been included in results for all of 1994, the sales increase in 1995 would have been 53% as compared to the actual 1995 increase of 106%. The increase in sales was primarily driven by increased demand and pricing for both the Company's manufactured and service center products. TITANIUM SPONGE: During 1995, the Company's integrated sponge facility operated at near capacity, primarily supplying the Company's internal demand for titanium sponge and sales to RMI Titanium Company (RMI) under our long-term titanium sponge supply agreement. Sales of titanium sponge and sponge conversion services decreased 15% for 1995 compared to 1994. Sponge shipments decreased 22% and average sponge price per pound increased 9%. The increase in the average price per pound of 9% is attributable to sales of our high purity sponge which the Company started commercially producing during 1995 in limited quantities. Sales of titanium sponge have decreased due to greater internal consumption by the Company. The Company projects that for 1996 it will continue to operate its sponge facility at near capacity rates with substantially all production being needed for internal consumption or for supply to RMI. The Company anticipates it will supplement its sponge production in 1996 with purchases from other producers. INGOT: Sales of ingot increased 44% in 1995 compared to 1994. Ingot shipments increased 24% and the average ingot price per pound increased 16% from 1994. The company began operating its melt facilities at near capacity during the second-half of 1995. The Company produces ingot for both internal use in its mill products division and for sales to outside customers. MILL PRODUCTS: The OREMET Titanium Division (primary production facilities located in Albany, Oregon) of the Company directly produces or contracts for outside production a variety of mill products, including: billet, bar, plate, sheet and engineered parts. OREMET Titanium Division mill products sales increased 126% for 1995 compared to 1994. Shipments of mill products increased 110% and the average price per pound increased 8%. During 1995, Mill Products experienced increased sales across all product lines. Sales of titanium billet destined to be made into golf club heads had a favorable effect on 1995 mill product sales. The Company's service centers market a wide variety of mill products including engineered parts, manufactured by various producers. During 1995, both shipments and pricing for service center products increased. CASTINGS: Sales of castings increased 11% in 1995 compared to 1994. During the fourth quarter of 1995, a significant competitor of the Company discontinued their casting operations which has had a positive effect on casting orders and sales. The Company expects to expand its casting production facilities during 1996. COST OF SALES: Cost of sales for 1995 increased $66.5 million or 103%, to $131.0 million, compared to $64.5 million in 1994. TI's cost of sales were included for a full year in 1995, compared to approximately three months in 1994. The primary reasons for the increase in cost of sales were increased shipments coupled with rising raw material costs. The markets served by the Company's service centers, which were entered by the Company with the acquisition of TI, displayed strong growth and steady gross profits during 1995. The Company has traditionally entered into long-term agreements ("LTA(s)") with certain customers, primarily in the aerospace industry. The LTAs, which typically cover a two or three-year period, obligate the Company to sell product at a fixed price for the duration of the agreement. In 1995, rapidly increasing costs of raw materials and processing had a detrimental impact on the profitability of the Company's LTAs. Many LTAs were negatively affected and the Company expects to incur a loss on certain LTA's over the remaining term of the agreements. Therefore, the Company recorded a provision for losses on LTAs of $4.4 million at December 31, 1995 to cover future estimated losses. The provision for losses on LTA's was charged to cost of sales. The Company's most significant unfavorable LTA expires during the third quarter of 1997. In response to the changing market conditions, the Company has negotiated more favorable terms on many of its LTA's and has instituted raw material surcharges. The future profitability of the Company's fixed price LTAs is subject to change based upon the Company's costs of production. RESEARCH, TECHNICAL AND PRODUCT DEVELOPMENT EXPENSES: Research, technical and product development expenses (RT&D) increased $0.2 million or 16% in 1995, to $1.6 million compared to $1.4 million in 1994. RT&D salaries and related costs have increased in 1995 compared to 1994, reflecting an increase in technical personnel to support the Company's long-term commitments for research, development of new products and improvements in operating processes. SELLING GENERAL AND ADMINISTRATIVE EXPENSES: Selling, general and administrative expenses (SG&A) increased $7.0 million or 93% in 1995 to $14.5 million from $ 7.5 million in 1994. The inclusion of TI for a full year in the Company's 1995 results is the primary reason for the increase in the Company's SG&A. In response to an increased activity level, all departments included in the SG&A category added personnel during 1995. INTEREST INCOME: The Company did not have any interest income during 1995 compared to $0.4 million in 1994. The Company expects that interest income for 1996 and the foreseeable future should be negligible. INTEREST EXPENSE: Interest expense increased $1.5 million or 247% to $2.1 million in 1995 compared to $0.6 million in 1994. The increase in interest expense in 1995 compared to 1994 is the direct result of the purchase of TI in September of 1994 and increased borrowings required to support the Company's increased operating levels. MINORITY INTERESTS: The amounts reported as minority interests eliminate the minority shareholder's 20% interest in the net income of TI from the Company's Consolidated Statements of Operations. INCOME TAX BENEFIT: The Company's 1995 effective tax benefit rate on the net loss before income tax benefit and minority interests is 18%. The Company's income tax rate varies from the normally expected statutory rate due to differences between book and tax income for which recognition of a deferred tax asset is not currently considered appropriate. See note 7 to the Consolidated Financial Statements. During 1995, the Company concluded an IRS examination of its 1989 through 1993 Federal income tax filings. The examination did not give rise to any material adjustments. NET LOSS: The Company reported a net loss of $2.4 million, or $0.22 per share, for 1995 compared to a net loss of $2.0 million, or $0.18 per share, for 1994. 1994 COMPARED TO 1993 NET SALES: 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 Titanium Industries, Inc. 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 revenue 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 Former Soviet Union (FSU). COST OF SALES: Cost of sales as a percentage of net sales decreased in 1994 to 91% from 95% for 1993. The 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. RESTRUCTURING COSTS: During 1993, the Company recorded a non-recurring provision for restructuring costs of $2.0 million. No additional restructuring charges were incurred during 1994 (For further information, see Note 14 to the Consolidated Financial Statements). PROVISION FOR ESTIMATED ENVIRONMENTAL MATTERS: 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 Note 11 to the Consolidated Financial Statements.) RESEARCH, TECHNICAL AND PRODUCT DEVELOPMENT EXPENSES: Research, technical and product development expenses (RT&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. Also in 1994, the Company successfully completed its search for two newly defined positions, both of which have been filled by experienced metallurgists. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: 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. INTEREST INCOME: 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: 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 Titanium Industries, Inc. Additionally, the Company increased borrowings during the fourth quarter of 1994 to finance an increase in operating levels. MINORITY INTERESTS: The amounts reported as minority interests removes the minority shareholder's 20% interest in the net income of TI from the Company's Consolidated Statements of Operations. INCOME TAX BENEFIT: 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 7 to the Consolidated Financial Statements for an analysis of the Company's effective tax rate.) NET LOSS: 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: 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: 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. RESTRUCTURING COST: 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. (See note 14 to the Consolidated Financial Statements.) PROVISION FOR ESTIMATED ENVIRONMENTAL MATTERS: 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 Note 11 to the Consolidated Financial Statements. SELLING, GENERAL AND ADMINISTRATIVE, AND RESEARCH TECHNICAL AND PRODUCT DEVELOPMENT EXPENSES: Selling, general and administrative expense and 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 10.7% 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 as well as increased legal and professional expenses. INTEREST EXPENSE: 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. INCOME TAX BENEFIT: 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. NET LOSS: The Company reported a net loss of $4.1 Million, or $0.38 per share for 1993, compared to a net loss of $4.2 Million or 0.39 per share, for 1992. NON-U.S. OPERATIONS AND MONETARY ASSETS FOREIGN SUBSIDIARIES: The Company has the following foreign subsidiaries: - - Titanium International Limited (TIL), a sales and service center located in the United Kingdom, and Titanium International GmbH, a sales and service center located in Germany. Both service centers are wholly-owned subsidiaries of TI, an 80% owned subsidiary of the Company. As of December 31, 1995, TIL had $9.4 million in total assets and approximately 30 employees. Titanium International GmbH began operations in early 1996 with three employees. - - Oremet France, S.a.r.l., is a wholly owned service center located outside of Paris, France. Oremet France was in a start-up phase during 1994, and became operational in January 1995. Oremet France operates from a leased warehouse, has total assets as of December 31, 1995 of $0.9 million, and has six employees. Approximately 11% of the Company's 1995 net sales were derived from its European service centers. Changes in the value of non-U.S. currencies relative to the U.S. dollar cause fluctuations in U.S. dollar financial position and operating results. The impact of currency fluctuations on the Company was not significant in 1995. FORWARD FOREIGN EXCHANGE CONTRACTS: See notes 1 and 15 to the Company's 1995 Consolidated Financial Statements. LIQUIDITY AND CAPITAL RESOURCES OVERVIEW: Net cash used in operating activities totaled $11.0 million in 1995 compared to $4.5 million for 1994. Working capital increases required to support the sharp increase in operating levels are responsible for the most significant portion of the cash used by the Company's operating activities in 1995. The increase in the amount of cash flow used in operating activities is a trend which began in the second quarter of 1994. The timing of this trend is consistent with the Company's experience of increasing sales, sales order backlog and production. During 1995, the Company incurred $2.7 million in expenses relating to its Stock Compensation Plans and Savings Plan. The Company has, or will satisfy liabilities arising under these plans by issuing shares of the Company's common stock. ( See note 10 to the Consolidated Financial Statements for further discussion regarding the Company's Stock Compensation and Defined Contribution Plans.) During the fourth quarter of 1995, the Company incurred a non-cash charge to earnings of $4.4 million to establish an allowance for anticipated future losses on fixed price long-term sales agreements. (See note 6 to the Company's Consolidated Financial Statements.) Net cash used in investing activities totaled $2.2 million in 1995 compared to $2.7 million in 1994. The Company had additions to property, plant and equipment in 1995 of $1.9. Net cash provided by financing activities totaled $12.1 million in 1995, compared to $8.8 million in 1994. For 1995, $11.3 million was provided from net proceeds on the Company's revolving credit agreements and book overdraft, and $1.0 million from proceeds from a capital lease obligation. REVIEW OF SIGNIFICANT WORKING CAPITAL ACCOUNTS: Inventories increased $17.0 million, or 35%, to $66.0 million at December 31, 1995, compared to $49.0 million at December 31, 1994. In addition to an increase in finished goods inventory of $3.5 million, increases in raw materials and work-in-process have been made in support of higher production levels. In response to a growing sales backlog, the Company is continuing to raise its production levels. The Company is also experiencing higher raw material and conversion costs, which have increased the cost of the Company's inventory. Accounts receivable increased $5.5 million, or 27%, to $25.9 million at December 31, 1995, compared to $20.4 million as of December 31, 1994. The increase in accounts receivable is consistent with the Company's increase in sales volume. The Company had a book overdraft on December 31, 1995 of $2.0 million. The book overdraft represents Company checks which have been disbursed and are in transit as of the end of the year. When the checks clear the Company's bank, they are funded by draws on the Company's revolving credit agreement to the extent they are not funded by deposits. Accounts payable at December 31, 1995 of $17.0 million is comparable to the December 31, 1994 balance of $16.9 million. The minimal change in the accounts payable balance between 1995 and 1994 reflects the Company's use of other financing facilities, primarily its credit agreements, to fund the substantial increases in accounts receivable and inventory. Accrued payroll and employee benefits increased $3.7 million or 126% to $6.7 million at December 31, 1995, compared to $2.9 million as of December 31, 1994. Amounts payable in shares of the Company's common stock pursuant to its Stock Compensation and Retirement Savings Plans account for $1.8 million of the increase. The balance of the increase of $1.9 million relates to increased levels of activity in 1995. CREDIT AGREEMENTS: The Company may borrow up to $25 million under the terms of a revolving credit agreement with BankAmerica Business Credit, Inc. (BABC). The credit agreement expires in September 1997. The balance outstanding under the credit agreement as of December 31, 1995 is $21.2 million. The Company anticipates that the credit facility with BABC will expand to $35 million in 1996 in anticipation of increased financing requirements necessary to support higher operating levels. As of December 31, 1995, the Company was not in compliance with certain of its financial covenants contained in its BABC credit agreement. The Company obtained a written waiver from BABC on these matters. The Company believes that in the future, it will meet the covenants contained in its credit agreement with BABC. The Company has classified the outstanding balance on the credit agreement as a long-term liability on the Company's Consolidated Balance Sheets. The Company has an additional short-term credit facility with Midland Bank plc, in the United Kingdom. This credit agreement provides for a credit facility of approximately $2.3 million. The credit agreement is subject to renewal on December 31, 1996. The balance outstanding under the credit agreement as of December 31, 1995 is $0.5 million. (See note 8 to the Company's Consolidated Financial Statements for further information regarding the Company's credit agreements and other long-term debt.) CAPITAL EXPENDITURES: The Company has no material open commitments which obligate it to make future capital expenditures. The Company's 1996 capital plan anticipates that capital expenditures may approximate $7.5 million. Capital expenditures required to maintain compliance with applicable environmental regulations are included in the Company's capital plan to the extent that they can presently be determined. The Company's capital expenditures will be funded by a combination of internally generated cash and external financing. The Company's recent capital expenditure history is as follows (dollars in millions):
Year Ended December 31 ______________________ Budgeted Actual ________ __________________ 1996 1995 1994 1993 ____ ____ ____ ____ Additions to property, plant and equipment $7.5 $1.9 $1.9 $1.2
The 1996 capital expenditures budget includes amounts to rebuild and modernize existing equipment and to increase prodution capacity. The Company's revolving credit facility with BABC provides that capital expenditures may not exceed $4.5 million for any fiscal year. A change in the covenant to reflect the higher budgeted capital spending amount is currently being discussed with BABC. INCOME TAXES: For financial and income tax reporting purposes the Company incurred net losses for 1991 through 1994. The Company is unable to carryback any further losses for federal or state tax refunds. In 1995, the Company reported a loss for financial reporting purposes, but expects to report taxable income for both federal and state income tax reporting purposes. The Company anticipates that it will be able to utilize federal and state net operating loss carryforwards, limiting the amount of taxes actually payable to the taxing jurisdictions where it is subject to the largest taxes. The Company does pay minimal franchise and income taxes in various states. For 1995, the operations of TIL, located in the U.K., have resulted in the Company's most significant tax obligations. The Company has both federal and state net operating loss carryforwards which will provide it with some relief should its operations return to profitability within the carryforward periods. ( See note 7 to the Consolidated Financial Statements for a further discussion regarding the Company's income taxes.) ADEQUACY OF LIQUIDITY AND CAPITAL RESOURCES: The Company's access to borrowing facilities, internally generated cash and to capital markets are expected to be sufficient to provide the resources necessary to support increased operating needs and to finance its continued growth, capital expenditures and repayment of long-term debt obligations. ENVIRONMENTAL MATTERS (See note 11 to the Company's Consolidated Financial Statements.) GAW/dkt February 23, 1996 t:winwp60\95annual\mda95.wpd REPORT OF INDEPENDENT ACCOUNTANTS TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF OREGON METALLURGICAL CORPORATION AND SUBSIDIARIES: We have audited the accompanying consolidated balance sheets of Oregon Metallurgical Corporation and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1995. 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 statements 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 consolidated financial position of Oregon Metallurgical Corporation and subsidiaries as of December 31, 1995 and 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. /s/ COOPERS & LYBRAND L.L.P. Eugene, Oregon February 16, 1996, except for the second paragraph of Note 8, as to which the date is March 1, 1996 MANAGEMENT'S STATEMENT ON FINANCIAL REPORTING The management of Oregon Metallurgical Corporation is responsible for the preparation as well as the integrity of the consolidated financial statements and related data contained in this Annual Report. The consolidated 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 above, also review our systems of internal accounting control in accordance with generally accepted auditing standards for the purpose of expressing their opinion on the consolidated financial statements. The Board of Directors pursues its oversight role for these consolidated 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, have the opportunity to discuss the quality of financial reporting. /s/ Carlos Aguirre Carlos E. Aguirre President and Chief Executive Officer /s/ Dennis P. Kelly Dennis P. Kelly Vice President - Finance Treasurer and Chief Financial Officer CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) for the years ended December 31, 1995, 1994 and 1993
1995 1994 1993 ____ ____ ____ Net sales $146,853 $ 71,166 $ 55,351 Cost of sales, including provision for future losses on long-term agreements of $4,417 in 1995 (Note 6) 131,002 64,527 52,636 ________ ________ ________ Gross profit 15,851 6,639 2,715 Research, technical and product development expenses 1,595 1,376 773 Selling, general and administrative expenses 14,512 7,517 5,124 Provision for estimated environmental matters - 240 970 Restructuring cost - - 2,027 ________ ________ ________ Loss from operations (256) (2,494) (6,179) Interest income - 391 816 Interest expense (2,104) (606) (532) Minority interests (480) (29) - ________ ________ ________ Loss before income tax benefit (2,840) (2,738) (5,895) Income tax benefit 425 715 1,797 ________ ________ ________ Net loss $ (2,415) $ (2,023) $ (4,098) ======== ======== ======== Net loss per share $ (0.22) $ (0.18) $ (0.38) ======= ======== ======== Weighted average shares and share equivalents outstanding 11,219 11,001 10,839 ======= ======== ========
The accompanying notes are an integral part of these consolidated financial statements. CONSOLIDATED BALANCE SHEETS (in thousands, except par value) December 31, 1995 and 1994
1995 1994 ____ ____ ASSETS Current assets: Cash and cash equivalents $ 572 $ 1,636 Accounts receivable, less allowance for doubtful accounts of $1,257 and $858 25,894 20,444 Inventories 66,010 49,023 Income taxes receivable 321 Prepayments 689 1,031 Deferred tax assets 3,242 517 ________ ________ Total current assets 96,407 72,972 Property, plant and equipment, net 35,138 37,520 Other assets, net 1,532 1,480 ________ ________ $133,077 $111,972 ======== ======== LIABILITIES Current liabilities: Current portion of long-term debt $ 616 $ 13 Book overdraft 2,014 - Accounts payable 16,973 16,860 Accrued payroll and employee benefits 6,659 2,944 Provision for losses on long-term agreements 2,781 - Other accrued expenses 3,595 4,073 ________ ________ Total current liabilities 32,638 23,890 Long-term debt, less current portion 26,746 17,164 Deferred tax liabilities 3,149 1,098 Deferred compensation payable 678 881 Accrued postretirement benefit 1,563 1,457 Provision for losses on long-term agreements, less current portion 1,636 - Minority interest 780 200 ________ ________ Total liabilities 67,190 44,690 ________ ________ Commitments and contingencies (Note 11) SHAREHOLDERS' EQUITY Common stock, $1.00 par value; shares authorized, 25,000; shares issued, 1995 - 11,018; 1994 - 10,893 11,018 10,893 Additional paid-in capital 38,340 37,445 Retained earnings 16,545 18,960 Cumulative foreign currency translation adjustment (16) (16) ________ ________ 65,887 67,282 ________ ________ $133,077 $111,972 ======== ========
The accompanying notes are an integral part of these consolidated financial statements. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (in thousands) for the years ended December 31, 1993, 1994 and 1995
Foreign Additional Currency Note Common Stock Paid-in Retained Translation Receivable _________________ Shares Amount Capital Earnings Adjustment ESOP Total ______ ______ __________ ________ ___________ __________ _____ Balances, December 31, 1992 10,827 $ 10,827 $ 37,149 $ 25,081 - $ (4,655) $ 68,402 Repayment of loan by 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 0 0 0 (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 currency 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 ______ ________ ________ ________ ________ ________ ________ Issuance of common stock in payment of employee benefits 125 125 895 - - - 1,020 Net loss - - - (2,415) - - (2,415) ______ _______ ________ ________ ________ ________ ________ Balances, December 31, 1995 11,018 $ 11,018 $ 38,340 $ 16,545 $ (16) $ - $ 65,887 ====== ======== ======== ======== ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) for the years ended December 31, 1995, 1994 and 1993
1995 1994 1993 ____ ____ ____ Cash flows from operating activities: Net loss $ (2,415) $ (2,023) $ (4,098) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 4,632 4,014 3,937 Loss on disposition of assets - - 1,000 Deferred income tax benefit (674) (1,434) (403) Employee benefits paid or payable in common stock 2,666 125 - Provision for losses on long-term agreements 4,417 - - Minority interests' share of income 480 29 - Changes in current assets and liabilities, net of effects from acquisition of a business: Accounts receivable (5,450) (4,158) (3,141) Inventories (16,987) (12,209) (930) Other current assets 663 1,107 1,174 Accounts payable 113 7,198 1,161 Accrued payroll and employee benefits 2,153 1,577 211 Other accrued expenses (478) 920 1,204 Other (89) 395 726 ________ ________ ________ Net cash provided by (used in) operating activities (10,969) (4,459) 841 ________ ________ ________ Cash flows from investing activities: Acquisition of a business, net of cash acquired - (8,223) - Additions to property, plant and equipment (1,914) (1,929) (1,244) Short-term investments - purchased - (1,228) (15,651) Short-term investments - redeemed - 8,811 14,856 Other (334) (111) 65 ________ ________ ________ Net cash used in investing activities (2,248) (2,680) (1,974) ________ ________ ________ Cash flows from financing activities: Proceeds from revolving credit agreement 107,049 40,361 - Payments on revolving credit agreement (97,800) (27,865) - Capitalized loan fees and acquisition costs (54) (1,260) - Proceeds from long-term debt 990 - - Payments of long-term debt (54) (4,754) (3,350) Book overdraft 2,014 - - Proceeds from note receivable - ESOP - 2,226 2,429 Other - 46 - ________ ________ ________ Net cash provided by (used in) financing activities 12,145 8,754 (921) ________ ________ ________ Effect of exchange rates on cash and cash equivalents 8 (16) - ________ ________ ________ Net increase (decrease) in cash and cash equivalents (1,064) 1,599 (2,054) Cash and cash equivalents, beginning of year 1,636 37 2,091 ________ ________ ________ Cash and cash equivalents, end of year $ 572 $ 1,636 $ 37 ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: NATURE OF OPERATION - Oregon Metallurgical Corporation (Oremet) and Subsidiaries (the "Company") is a major producer and distributor of titanium sponge, ingot, mill products and castings, primarily for North American and western European aerospace, industrial and commercial customers. As of December 31, 1995, the Company is 35% owned by the Oregon Metallurgical Corporation Employee Stock Ownership Plan (the "ESOP"). In September 1994, the Company completed the acquisition of the net operating assets and subsidiaries of Titanium Industries Distribution Group from Kamyr, Inc. 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. (Titanium), an eighty percent (80%) owned subsidiary of Oremet. The acquisition was accounted for as a purchase, with the results of Titanium included in the Company's financial statements from the acquisition date. BASIS OF CONSOLIDATION - The consolidated financial statements include the accounts of Oremet, Titanium and another wholly-owned subsidiary. All material intercompany accounts and transactions are eliminated in consolidation. Operations of purchased businesses are included in the consolidated financial statements from the date of acquisition. USE OF ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 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. The carrying amounts approximate fair value because of the short maturity of these instruments. CONCENTRATIONS OF CREDIT RISK - Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and trade receivables. The Company places its cash and cash equivalents with high-credit-quality financial institutions and limits the amount of credit exposure at any one financial institution. At times, temporary cash investments may be in excess of the Federal Deposit Insurance Corporation insurance limit. Management believes that risk of loss on the Company's trade receivables is significantly reduced by ongoing credit evaluations of customers' financial condition. Generally, the Company does not require collateral. 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 historical 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 in the statement of operations. The Company capitalizes interest costs as part of the cost of constructing major facilities and equipment. No interest costs were capitalized in 1995, 1994 or 1993. EXCESS OF COST OVER NET ASSETS ACQUIRED - Excess cost over net assets acquired of $857 is included in other assets. The excess relates to the acquisition of Titanium and is being amortized on a straight-line basis over 15 years. Accumulated amortization was $70 and $13 in 1995 and 1994, respectively. INCOME TAXES - The Company uses the liability method to record deferred tax assets and liabilities that are based on the difference between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. These temporary differences result from the use of different accounting methods for financial statement and tax reporting purposes. 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, net of related deferred income taxes. 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, stock compensation and defined contribution plans. Common stock equivalents are computed using the treasury stock method. 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. Revenues from long-term, fixed price agreements are recognized as the work is performed and shipped. Losses estimated to be sustained upon completion of agreements are charged to income in the period such estimates are determined. ACCOUNTING STANDARDS PRONOUNCEMENTS - For the year ended December 31, 1995, the Company has adopted Statement of Financial Accounting Standards Board No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" (SFAS No. 121). The Standard requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount on an asset may not be recoverable. The adoption of SFAS No. 121 had no effect on the Company's financial position or results of operations. RECLASSIFICATIONS - Certain amounts in the 1994 and 1993 financial statements have been reclassified to conform with the current year's presentation. The reclassifications do not affect previously reported net loss. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued (in thousands) 2. ADDITIONAL CASH FLOWS STATEMENT INFORMATION: The Company's noncash investing and financing activities and cash payments for interest and income taxes for years ended December 31 are as follows:
1995 1994 1993 ____ ____ ____ Cash paid (received) during the year for: Interest, net of amounts capitalized $ 2,253 $ 614 $ 523 Income taxes (refunds, net of payments) 9 (1,327) (2,817) Noncash investing activities: Acquisition of business, net of cash acquired: Working capital, other than cash $ - $ (9,630) $ - Property, plant and equipment - (3,278) - Long-term debt assumed - 185 - Note payable issued to seller - 4,500 - ________ ________ ________ $ - $ (8,223) $ - ======== ======== ========
3. INVENTORIES:
Inventories at December 31 consist of: 1995 1994 ____ ____ Finished goods $ 18,141 $ 14,656 Work-in-progress 19,837 15,288 Raw materials 28,032 19,079 ________ ________ Total $ 66,010 $ 49,023 ======== ========
4. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment at December 31 consist of: 1995 1994 ____ ---- Land $ 1,189 $ 1,189 Buildings and improvements 11,455 11,087 Machinery and equipment 42,248 39,940 Integrated sponge facility 45,641 45,309 Construction in progress 846 1,976 -------- -------- 101,379 99,501 Less accumulated depreciation 66,241 61,981 -------- -------- $ 35,138 $ 37,520 ======== ========
Included in machinery and equipment at December 31, 1995 are leased capital assets of $969, net of accumulated amortization of $21. 5. OTHER ACCRUED EXPENSES:
Other accrued expenses at December 31 consist of: 1995 1994 ____ ---- Accrual for estimated environmental matters $ 909 $ 1,150 Sales returns and allowances 607 1,050 Income taxes payable 478 755 Other 1,601 1,118 ________ ________ $ 3,595 $ 4,073 ======== ========
6. PROVISION FOR LOSSES ON LONG-TERM AGREEMENTS: The Company has historically entered into long-term agreements ("LTAs") with certain customers, primarily in the aerospace industry. The LTAs, which typically cover a two or three-year period, obligate the Company to sell product at a fixed price for that duration. As a result of current projected costs of raw materials and processing being higher than those anticipated when the LTAs were executed, the Company recorded during 1995 a provision for losses on long-term agreements of $5,717 of which $4,417 remains outstanding at December 31, 1995. This provision represents management's current estimate of the amount by which the future costs of products supplied under these LTAs will exceed the revenues generated. This provision includes expected unfavorable yield losses and processing costs together with substantial increases in anticipated raw material costs. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued (in thousands) 7. INCOME TAXES:
The income tax benefit consists of the following: 1995 1994 1993 ____ ____ ____ Current provision (benefit): Federal $ (372) $ 422 $ (1,583) State 155 80 18 Foreign 466 - - Deferred provision (credit) (674) (1,217) (232) ________ _________ ________ Total benefit $ (425) $ (715) $ (1,797) ======== ========= ========
The difference between the Company's income tax benefit and federal tax at statutory rates is as follows: 1995 1994 1993 ____ ____ ____ Federal benefit at statutory rates $ (966) $ (931) $ (2,004) State tax benefit (193) (179) (389) Valuation allowance 1,138 216 597 Alternative minimum tax limitation 21 - 212 Adjustment of prior-year tax accrual (264) - - Other (161) 179 (213) ======== ======== ======== ________ ________ ________ Total $ (425) $ (715) $ (1,797) ======== ======== ======== ======== ========
At December 31, 1995, the Company has net operating loss carryforwards for state income tax purposes of $2,300, $6,900, $8,600 and $12,200 from 1994, 1993, 1992 and 1991 operations, respectively. The Company has net operating loss carryforwards for federal income tax purposes of $2,800 from 1994 and $800 from 1993. If unused, the loss carryforwards expire fifteen (15) years after the year in which they arose.
The components of the deferred taxes are as follows: 1995 1994 ____ ____ Assets: Tax loss and credit carryforwards $ 4,089 $ 3,881 Pension, retirement and other employment related items 1,715 1,722 Allowance for doubtful accounts 455 346 Safe harbor lease 215 296 Environmental accrual 350 467 Capitalized inventory costs 281 619 Provision for losses on long-term agreements 1,627 - Other 871 345 Less valuation allowance (2,948) (1,810) ________ ________ 6,655 5,866 Liabilities: Accumulated depreciation and amortization 6,562 6,421 Other - 26 ________ ________ 6,562 6,447 ________ ________ Net deferred tax asset (liability) $ 93 $ (581) ======== ======== Balance sheet classification: Current assets $ 3,242 $ 517 Long-term liability (3,149) (1,098) ________ ________ Net deferred tax asset (liability) $ 93 $ (581) ======== ========
The Company has recorded a valuation allowance with respect to the future tax benefits reflected in deferred income taxes as a result of the uncertainty of their future realization. Realization is dependent on generating sufficient taxable income prior to expiration of loss carryforwards and the reversal of certain temporary differences. The amount of the deferred tax assets considered realizable, however, could be increased in the near term if estimates of future taxable income during the carryforward period are increased. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued (in thousands) 8. LONG-TERM DEBT:
Long-term debt as of December 31 is as follows: 1995 1994 ____ ____ U.S. revolving credit agreement $ 21,228 $ 12,496 U.K. based credit facility 517 - Subordinated loan with Kamyr, Inc. 4,500 4,500 Obligations under capital leases and other 1,117 181 ________ ________ 27,362 17,177 Less current maturities 616 13 ________ ________ $ 26,746 $ 17,164 ======== ========
U.S. REVOLVING CREDIT AGREEMENT - The Company may borrow up to $25,000 under the terms of a revolving credit agreement with a U.S. bank at an interest rate of prime (8.5% at December 31, 1995) plus 1.5%, or LIBOR (6.43% at December 31, 1995) plus 2.5%. The Company has exercised the LIBOR option. Borrowings under the agreement are collateralized by accounts receivable, inventories and other intangible assets, including the Company's stock in Titanium. The Company must pay a nonuse fee of .5% annually on the unused portion of the commitment. The credit agreement matures in 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. As of December 31, 1995, the Company was not in compliance with covenants principally relating to interest coverage and minimum net worth requirements. On March 1, 1996, the Company obtained a written waiver from the lender on these matters. The Company believes that it will be in compliance with its financial covenants in the future. U.K. BASED CREDIT FACILITY - On January 19, 1996, Titanium International, Ltd. ("T.I.L."), a wholly-owned subsidiary of Titanium, amended its credit facility with 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 $450. Aggregate borrowings which include Parent loans cannot exceed shareholders' equity less intangible assets. The credit facility is collateralized by the assets of T.I.L. only. Interest is to be charged at the rate of 1.5% over Midland Bank's base rate on amounts borrowed up to $1,500 and 2% over Midland Bank's base rate on amounts borrowed in excess of $1,500. The credit facility has financial covenants pertaining to net worth and prepayment of loan to Parent. The Bank has the option of terminating the availability of credit at its discretion and the facility is subject to review on December 31, 1996. SUBORDINATE LOAN WITH KAMYR, INC. - On September 19, 1994, as part of the Company's acquisition of Titanium Industries, Inc. (Titanium), Titanium entered into a subordinated debt agreement with the seller, Kamyr, Inc., for $4,500, interest at 8%, payable quarterly. The initial principal payment of $300 is due March 1997, with additional quarterly installments of $350 through March 2000. The subordinated debt agreement includes covenants relative to shareholders' equity, the 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 Titanium. OTHER NOTES PAYABLE - Other notes payable principally consist of capital lease obligations (see Note 11) and are payable in monthly installments of $15, including interest. A balloon payment of $264 is due in July 2002. The loans bear interest at rates between 6.9% and 8.5%. The loans are collateralized by certain machinery and equipment. Aggregate contractual maturities of long-term debt approximate the following at December 31, 1995: 1996 $ 616 1997 22,683 1998 1,512 1999 1,518 2000 491 Thereafter 542 ________ $ 27,362 ======== 9. STOCK PURCHASE WARRANTS: Warrants to purchase 200 thousand shares of the Company's common stock are outstanding. The warrants are exercisable at $6.375 per share, and expire in September 2004. The warrants were issued in connection with the Company's acquisition of Titanium. The warrant holder is the president of Titanium, who is also an officer and director of the Company. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued (in thousands) 10. EMPLOYEE BENEFIT 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 an 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 $1,581 in 1995, $1,287 in 1994 and $1,274 in 1993. 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:
1995 1994 1993 ____ ____ ____ Pension costs for the year: Service cost $ 474 $ 522 $ 565 Interest cost 981 859 779 Actual return on plan asset (2,252) (250) (717) Net amortization of deferral 1,571 (397) 119 ________ ________ ________ Net pension cost $ 774 $ 734 $ 746 ======== ======== ======== Plan assets at fair value $ 12,246 $ 9,863 $ 10,122 ________ ________ ________ Projected benefits based on employment service to date and present pay levels: Vested 10,036 7,976 9,542 Nonvested 528 300 335 ________ ________ ________ Accumulated benefit obligation 10,564 8,276 9,877 Additional amounts related to projected compensation increases 4,443 2,500 2,224 ________ ________ ________ Projected benefit obligation 15,007 10,776 12,101 ________ ________ ________ Plan assets less projected benefit obligation (2,761) (913) (1,979) Unrecognized net obligation 237 276 315 Unrecognized prior service cost 255 182 205 Unrecognized net loss 1,874 76 1,614 ________ ________ ________ Prepaid pension cost (pension liability) $ (395) $ (379) $ 155 ======== ======== ========
Assumptions utilized to measure net pension cost and the projected benefit obligations are as follows:
1995 1994 1993 ____ ____ ____ Weighted average discount rate 7.25% 8.50% 6.75% Rate of compensation increase 4.50 4.50 4.50 Long-term rate of return on plan assets 8.00 8.00 8.00
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued (in thousands) 10. EMPLOYEE BENEFIT PLANS, continued Primarily, as a result of the change in the weighted average discount rate to 7.25% in 1995 from 8.50% in 1994, the Projected Benefit Obligation (PBO) as of December 31, 1995 increased $4,231 to $15,007, compared to the 1994 PBO of $10,826. Similarly, the decrease in the weighted average discount rate increased the unrecognized net loss by $1,798 to $1,874, compared to the December 31, 1994 unrecognized net loss of $76. The increase in the unrecognized net loss was partially offset by the returns on plan assets which were more than the assumed 8.0%. The decrease in the December 31, 1994 PBO and unrecognized net loss compared to 1993 was the result of the increase in the weighted average discount rate to 8.5% in 1994 from 6.75% in 1993. 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. POSTRETIREMENT BENEFIT PLANS OTHER THAN PENSIONS - The Company accrues the cost of postretirement benefits other than pensions during the period of employment of the salaried employees. The following table sets forth the plan's status, reconciled with the amount shown in the Company's balance sheets, as of December 31:
1995 1994 1993 ____ ____ ____ Accumulated postretirement benefit obligation: Retirees $ 611 $ 638 $ 701 Fully eligible plan participants 121 140 90 Other active plan participants 1,190 770 949 ________ ________ ________ 1,922 1,548 1,740 Less unrecognized loss 359 91 404 ________ ________ ________ Accrued postretirement benefit liability $ 1,563 $ 1,457 $ 1,336 ======== ======== ========
The components of net periodic postretirement benefit costs are as follows:
1995 1994 1993 ____ ____ ____ Service cost, benefits attributed to employee service during the year $ 89 $ 96 $ 97 Interest cost on accumulated postretirement benefit obligation 119 118 123 Net amortization and deferral - 15 15 ________ ________ ________ Net periodic postretirement benefit cost $ 208 $ 229 $ 235 ======== ======== ========
For measurement purposes, a 9% annual increase in the per capita cost of postretirement medical benefits was assumed for 1995; 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, 1995 by $250, and the aggregate of the service and interest cost components of net periodic postretirement cost for the year then ended by $36. The discount rate used in determining the accumulated postretirement benefit obligation was 7.25%, 8.5% and 7.0% for 1995, 1994 and 1993, respectively. The unrecognized loss was $359 at December 31, 1995, compared to $91 at December 31, 1994, an increase of $268. The increase in the unrecognized loss was substantially attributable to the decrease in the discount rate. During 1993, the Company restructured its workforce, resulting 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. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued (in thousands) 10. EMPLOYEE BENEFIT PLANS, Continued: DEFINED CONTRIBUTION PLANS - Oremet sponsors a domestic 401(k) retirement savings plan for the benefit of both its union and salaried employees. Under the provisions of the plan, Oremet will contribute one share of stock for each day worked, or approximately 260 shares a year for a full-time employee. Oremet will also contribute a matching contribution based on the profitability of the Company. The matching contribution is limited to 3% of the participant's compensation. Oremet's costs under the plan totaled $1,041 in 1995. No shares of the Company's common stock were issued under the plan in 1995. As of December 31, 1995, approximately 110 thousand shares are issuable pursuant to the Oremet savings plan. Titanium 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%. Titanium matches the participants' contributions up to 3%. Participants are fully vested with regard to Titanium's contributions and earnings thereon after one (1) year of service. Titanium's contributions to the plan were approximately $64 in 1995 and $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% and 14% of the employee's base pay, depending upon employee age and as long as the employee's contributions are at least 2%. T.I.L.'s contributions for 1995 and 1994 were approximately $51 and $19, respectively. 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 approximately 6.3 million shares of Oremet common stock. 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. In December 1994, the note receivable from the ESOP was fully repaid. As of December 31, 1995, the ESOP owned approximately 3.9 million shares or 35% of the outstanding common stock of the Company. All of the Company's common stock held in the ESOP has been allocated to Oremet employees. The Company made no contribution to the ESOP in 1995. The ESOP contribution expense totaled $2,382 and $2,755 in 1994 and 1993, respectively. EXCESS BENEFIT PLAN (EBP) - Oremet maintains an unfunded EBP 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. The Company made no contributions to the EBP in 1995. EBP costs were $332 and $259 in 1994 and 1993, respectively. As of December 31, 1995, the Company had recorded a liability to the EBP for 115 thousand shares of stock. STOCK COMPENSATION PLANS - Beginning in 1995, Oremet implemented stock compensation plans for the benefit of both its union and salaried employees. The employee earns one share of the Company's common stock for every one hundred dollars earned in salaries and wages. Stock Compensation Plan costs were $1,750 in 1995. During 1995, approximately 107 thousand shares were issued, and as of December 31, 1995 another 62 thousand are issuable under the union and salaried stock compensation plans. STOCK APPRECIATION RIGHTS (SARs) - In December of 1995, the Company established an incentive SARs plan. At the discretion of the Board of Directors, SARs may be granted to officers and other key employees. Upon exercise of a SAR, the holder is entitled to receive cash equal to the amount by which the market value of the Company's common stock on the exercise date exceeds the market value of the stock on the date of grant. The SARs become fully exercisable over a four-year vesting period measured from the date of grant; no SARs are vested as of December 31, 1995. The Board of Directors granted 166.5 thousand SARs, with a market value of $10.25 per share, on December 14, 1995. The SARs plan will expire in 2001 unless extended by the Board of Directors. 11. COMMITMENTS AND CONTINGENCIES: OPERATING LEASES - Minimum annual rental commitments at December 31, 1995, under noncancelable capital leases and operating leases, principally for railroad tank cars, sales and service center facilities, and various pieces of equipment, are payable as follows:
Capital Operating Leases Leases _______ _________ 1996 $ 148 $ 802 1997 148 617 1998 148 403 1999 148 368 2000 148 235 Thereafter 499 203 ________ ________ Total minimum lease payments 1,239 $ 2,628 ======== Less amounts representing interest 289 ________ Present value of net minimum payments 950 ________ Current portion 85 Long-term capitalized lease obligations (included in long-term debt) $ 865 ========
Total rental costs were $951, $533 and $421 in 1995, 1994 and 1993, respectively. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued (in thousands) 11. COMMITMENTS AND CONTINGENCIES, continued OTHER - Oremet has agreed to acquire the remaining 20% interest in Titanium in annual increments of at least 15% of the remaining interest no earlier than 1999 and no later than 2004. 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. A neighboring property owner also is investigating groundwater contamination at their property that has migrated to Oremet's property and for which Oremet may have legal claims to recover a portion of its investigation costs. In February 1995, the Oregon Department of Environmental Quality modified Oremet's waste water discharge permit. The new permit imposes more stringent discharge limits according to a specified schedule. Oremet has identified several feasible alternatives for meeting the new limits, the most expensive of which would require capital expenditures of approximately $700. Oremet is working with the Department to explore less expensive alternatives. In connection with the preparation of its application for a new federal operating permit under Title V of the 1990 Clean Air Act Amendment, the Company discovered that some of its air emissions are greater than previously recognized. The Company has voluntarily reported these facts to the Oregon Department of Environmental Quality. To resolve these issues, the Company has agreed to undertake an evaluation of its emissions that could result in requirements to install additional pollution control equipment. At this point, the Company is unable to determine whether additional controls will be required, but the Company does not believe the cost of such additional controls would have a material effect on its capital expenditures, earnings or competitive position. 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 Titanium'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 sale of Titanium, Kamyr, Inc. (the seller) 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 Oremet purchased Titanium. 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 $0, $240 and $970 in 1995, 1994 and 1993, respectively. These amounts are in addition to recurring environmental costs which are expensed as incurred and are included in cost of sales. Management cannot reasonably predict when these environment issues will be resolved at the present time. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued (in thousands) 12. 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 5% for 1995, 13% for 1994 and 30% for 1993. 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, 1995, 1994 and 1993, export sales approximated $30,000, $10,000 and $7,000, respectively, principally to customers in western Europe and Japan. Export sales include the sales of Titanium International, Ltd., a wholly-owned subsidiary of Titanium, located in the United Kingdom. 13. MAJOR SUPPLIERS/SIGNIFICANT OPERATING RISKS: DEPENDENCE ON SUPPLIER - The Company currently purchases all of its titanium tetrachloride (TICL4) under a long-term supply contract from a single domestic supplier. TICL4 is the primary ingredient in the manufacture of titanium sponge. Although there are a limited number of TICL4 producers, management believes that other suppliers could provide similar material on comparable terms. However, a sudden loss of TICL4 supply could have a near-term adverse impact on the Company's business, financial condition and results of operations. FLUCTUATIONS IN TITANIUM SCRAP AND SPONGE PRICES - The Company is a major recycler of titanium scrap. Where possible, the Company utilizes titanium scrap as a cost effective alternative to titanium sponge; both materials are used as primary ingredients in the manufacture of ingot. Much of the titanium scrap which is purchased by the Company originates from within the Former Soviet Union (FSU). Additionally, the Company purchases low priced titanium sponge, also produced in the FSU. Management believes that there are other sources which can provide these materials. Historically, the Company has sought to recover increases in titanium scrap and sponge prices through price increases of its products. There can be no assurance that titanium scrap and sponge prices will not increase or that the Company will be successful in implementing related price increases on its products. Any increases in titanium scrap and sponge prices which are not offset by increases in the Company's sales prices could have a material adverse effect on the Company's business, financial condition and results of operations. DEPENDENCE ON ESSENTIAL MACHINERY AND EQUIPMENT - The Company's manufacturing processes are dependent on the reliable operation of its machinery and equipment. The adverse consequences of an unexpected breakdown of certain pieces of the Company's machinery and equipment could be reasonably mitigated by the use of outside converters. However, the Company has certain critical pieces of machinery and equipment which may require significant lead times to complete necessary repairs and the functions which are performed may not be easily replaced by an outside converter. Such an event could have a material adverse impact on the Company's business, financial condition and results of operations. 14. RESTRUCTURING COST: In 1993, the Company recorded a provision for restructuring of $2,027 which includes 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 Former Soviet Union, the expansion was no longer needed. 15. FINANCIAL INSTRUMENTS: FOREIGN CURRENCY CONTRACTS - The Company enters into forward foreign exchange contracts to hedge foreign currency transactions on a continuing basis for periods consistent with its committed exposures. The Company does not enter into foreign currency contracts for trading or speculative purposes. This hedging minimizes the impact of foreign exchange rate movements on the Company's operating results. The Company's foreign exchange contracts do not subject the Company's results of operations to risk due to exchange rate movements because gains and losses on these contracts generally offset losses and gains on the assets and liabilities being hedged. At December 31, 1995 and 1994, the Company had notional principal amounts of approximately $490 and $1,813, respectively, in contracts to buy U.S. dollars within the future, with maturities of less than six months. Net foreign currency transaction gains occurring for 1995 and 1994 were approximately $121 and $48, respectively, which have been included in cost of goods sold. OTHER FINANCIAL INSTRUMENTS - At December 31, 1995 and 1994, the carrying value of financial instruments classified as current assets or liabilities approximated their fair values, based on the short-term maturities of these instruments. Fair value is determined based on future cash flows, discounted at market interest rates, and other appropriate valuation methodologies. At December 31, 1995 and 1994, the fair value of long-term debt with fixed interest terms approximated carrying value. Both periods include long-term borrowing with variable interest terms, for which the carrying value approximated market. The fair value of debt is determined by obtaining quotes from financial institutions. Exposure to market risk on foreign currency contracts results from fluctuations in currency rates during the periods the contracts are outstanding. The counterparties to foreign currency exchange contracts are major financial institutions. Credit loss from counterparty nonperformance is not anticipated. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued (in thousands) 16. QUARTERLY INFORMATION (Unaudited) The following table sets forth unaudited selected quarterly financial data for the years ended December 31, 1995 and 1994. Although the Company's business is not seasonal, growth rates of sales have varied from quarter to quarter as a result of the purchase of Titanium Industries, Inc. in September of 1994, the timing of new product introductions and short-term industry, and general U.S. and international economic conditions (in thousands, except per share amounts).
Net Income (Loss) Gross Net Per Profit Income Share Sales (Loss) (Loss) (3) _____ ______ ______ ______ 1995 Quarter: 1st $ 30,838 $ 5,332 $ 535 $ 0.05 2nd (1) 35,125 5,291 453 0.04 3rd 41,236 4,090 (439) (0.04) 4th (1)(2) 39,654 1,138 (2,964) (0.26) ________ ________ ________ $146,853 $ 15,851 $ (2,415) $(0.22) 1994 Quarter: 1st $ 13,294 $ 89 $ (1,085) $(0.10) 2nd 14,503 660 (601) (0.06) 3rd 16,980 1,697 (400) (0.03) 4th 26,389 4,193 63 0.01 ________ ________ ________ ______ $ 71,166 $ 6,639 $ (2,023) $(0.18) During the second quarter of 1995, the Company reported a pre-tax charge to income of $1,300 to reflect the impact of projected conversion costs on long-term agreements which were in excess of selling price. During the fourth quarter of 1995, the Company reported a pre-tax charge to income of $4,417 to reflect the impact of increased raw material costs on long-term agreements. The Company concluded the first nine months of 1995 with an effective tax provision rate of 37.9% on income before income taxes and minority interest of $1,434. For the fourth quarter of 1995, the Company's effective tax benefit rate was 25.5% on a net loss before income taxes and minority interest of $3,794. The Company's 1995 effective tax benefit rate was 18.0%. The above change in the Company's effective tax rate reflects the establishment of a valuation allowance on a substantial portion of the deferred tax assets which were generated by the Company's loss incurred during the fourth quarter of 1995. Earnings per share are computed independently for each of the quarters presented. The sum of the quarterly earnings per share in 1995 do not equal the total computed for the year due to stock issued under employee benefit plans (see Note 10).
EX-21.1 9 OREGON METALLURGICAL CORPORATION EXHIBIT 21.1 Subsidiaries of Oregon Metallurgical Corporation: _________________________________ State or Country Name of Subsidiary in Which Organized __________________ ________________ OREMET France S.a.r.l. (1)(3) France Titanium Industries, Inc. *(1)(3) Oregon Titanium Wire Corporation ** (2)(4) Pennsylvania Titanium International Limited ** (2)(3) United Kingdom Titanium International GmbH** (3)(5) Germany * Titanium Industries, Inc. is a majority-owned (80%) subsidiary of Oregon Metallurgical Corporation. ** The companies are wholly-owned subsidiaries of Titanium Industries, Inc. (1) Created 1994 (2) Acquired 1994 (3) Operates titanium Service Centers (4) Manufactures titanium rod and wire (5) Began operation in February 1996 EX-23.1 10 COOPERS COOPERS & LYBRAND L.L.P. & LYBRAND a professional services firm CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the Registration Statements of Oregon Metallurgical Corporation on Form S-8 (File Nos. 33-18650, 33-63449 and 333-00167) of our reports dated February 16, 1996, except for the second paragraph of Note 8, as to which the date is March 1, 1996, on our audits of the consolidated financial statements and financial statement schedule of Oregon Metallurgical Corporation as of December 31, 1995 and 1994, and for the years ended December 31, 1995, 1994, and 1993, which reports are included in this Annual Report on Form 10-K. /s/ Coopers & Lybrand LLP Eugene, Oregon March 25, 1996 Coopers & Lybrand L.L.P. is a member of Coopers & Lybrand International, a limited liability association incorporated in Switzerland. EX-27 11
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 U.S. 12-MOS DEC-31-1995 JAN-01-1995 DEC-31-1995 1.00 572 0 27,151 (1,257) 66,010 96,407 101,379 (66,241) 133,077 32,638 26,746 0 0 11,018 54,869 124,108 146,853 146,853 131,002 131,002 16,107 0 2,104 (2,840) (425) (2,415) 0 0 0 (2,415) (0.22) (0.22)
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