Filed Pursuant to Rule 424(b)(3)
Registration No. 333-171034      
       

SUBJECT TO COMPLETION, DATED DECEMBER 8, 2010

 

PRELIMINARY PROSPECTUS SUPPLEMENT
(To Prospectus Dated December 8, 2010)

 

$175,000,000

RTI International Metals, Inc.

     % Convertible Senior Notes due 2015

 

 

 

 

We are offering $175,000,000 principal amount of our     % Convertible Senior Notes due 2015. The notes will bear interest at a rate of     % per year, payable semiannually in arrears on June 1 and December 1 of each year, beginning on June 1, 2011. The notes will mature on December 1, 2015 unless earlier repurchased or converted.

 

Holders may convert their notes at their option prior to the close of business on the business day immediately preceding June 1, 2015 only under the following circumstances: (1) during any calendar quarter commencing after December 31, 2010 (and only during such calendar quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the applicable conversion price on each applicable trading day; (2) during the five business day period after any five consecutive trading day period (the “measurement period”) in which, for each trading day of such measurement period, the trading price per $1,000 principal amount of notes on such trading day was less than 98% of the product of the last reported sale price of our common stock on such trading day and the applicable conversion rate on such trading day; or (3) upon the occurrence of specified corporate transactions. Irrespective of the foregoing conditions, on or after June 1, 2015, until the close of business on the second scheduled trading day immediately preceding the maturity date of the notes, holders may convert their notes, in integral multiples of $1,000 principal amount, at the option of the holder. Upon conversion, we will pay or deliver, as the case may be, shares of our common stock, cash or a combination of cash and shares of our common stock, at our election, as described in this prospectus supplement.

 

The initial conversion rate will be           shares of our common stock per $1,000 principal amount of notes, equivalent to an initial conversion price of approximately $      per share of common stock. The conversion rate will be subject to adjustment upon the occurrence of certain events as described in this prospectus supplement, but will not be adjusted for accrued and unpaid interest, if any. In addition, following certain corporate transactions, we will increase the conversion rate for a holder who elects to convert its notes in connection with such a corporate transaction in certain circumstances.

 

We may not redeem the notes prior to the maturity date of the notes.

 

If we undergo a “fundamental change” (as defined in this prospectus supplement under “Description of Notes — Fundamental Change Permits Holders to Require Us to Purchase Notes”) holders may, subject to certain conditions, require us to purchase all or any portion of the notes equal to $1,000 in principal amount or an integral multiple thereof for cash at a price equal to 100% of the principal amount of the notes to be purchased plus any accrued and unpaid interest up to, but excluding, the fundamental change purchase date.

 

The notes will be our senior unsecured obligations and will rank senior in right of payment to our existing and future indebtedness that is expressly subordinated in right of payment to the notes; will rank equal in right of payment to our existing and future unsecured indebtedness that is not so subordinated; will be effectively subordinated to any of our secured indebtedness to the extent of the value of the assets securing such secured indebtedness; and will be structurally subordinated to all existing and future indebtedness and other obligations of our subsidiaries that do not guarantee the notes. The notes will be guaranteed by each of our subsidiaries that, upon completion of our current credit facility amendment, guarantee our obligations under our existing credit facility as further described under “Description of Current Indebtedness” and “Description of Notes — Subsidiary Guarantees.”

 

For a more detailed description of the terms of the notes, see the “Description of Notes” section of this prospectus supplement.

 

The notes will not be listed on any securities exchange. Our common stock is listed on the New York Stock Exchange under the symbol “RTI.” The last reported sale price of our common stock on the New York Stock Exchange on December 7, 2010 was $29.96 per share.

 

Investment in the notes involves a high degree of risk. See “Risk Factors” beginning on page S-11 of this prospectus supplement for a discussion of certain risks that you should consider in connection with an investment in the notes.

 

 

 

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the notes or passed upon the accuracy or adequacy of this prospectus supplement or the accompanying prospectus. Any representation to the contrary is a criminal offense.

 

We have granted the underwriters a 30-day option to purchase up to an additional $26,250,000 aggregate principal amount of notes, solely to cover over-allotments, if any.

 

We expect that delivery of the notes will be made to investors in book-entry form through The Depository Trust Company on or about December   , 2010.

 

Joint Book-Running Managers

 

 

Co-Managers

 

 

 

December   , 2010

 

TABLE OF CONTENTS

 

PROSPECTUS SUPPLEMENT

 

 

This document consists of two parts. The first part is the prospectus supplement, which describes the specific terms of this offering and certain other matters relating to RTI International Metals, Inc. The second part, the accompanying prospectus, gives more general information, some of which does not apply to this offering. Generally, when we refer to the prospectus, we are referring to both parts of this document combined. You should read this prospectus supplement and the accompanying prospectus, together with the additional information described below under the headings “Where You Can Find More Information About Us” and “—Incorporation of SEC Filings” and in any free writing prospectus we have authorized for use in connection with this offering.

 

If the description of the offering varies between this prospectus supplement and the accompanying prospectus, you should rely on the information in this prospectus supplement.

 

Any statement made in this prospectus supplement or in a document incorporated or deemed to be incorporated by reference in this prospectus supplement will be deemed to be modified or superseded for purposes of this prospectus supplement to the extent that a statement contained in this prospectus supplement or in any other subsequently filed document that is also incorporated or deemed to be incorporated by reference in this prospectus supplement modifies or supersedes that statement. Any statement so modified or superseded will not be deemed, except as so modified or superseded, to constitute a part of this prospectus supplement. See “Where You Can Find More Information About Us.”

 

You should rely only on the information contained or incorporated by reference in this prospectus supplement and the accompanying prospectus or any free writing prospectus we have authorized for use in connection with this offering. We have not, and the underwriters have not, authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus supplement, the accompanying prospectus, the documents incorporated by reference and in any free writing prospectus we have authorized for use in connection with this offering is accurate only as of the respective dates of those documents in which this information is contained. Our business, financial condition, results of operations and prospects may have changed since those dates.

 

Industry and market data contained or incorporated by reference in this prospectus supplement were obtained through company research, surveys and studies conducted by third parties and industry and general publications, or based on our experience in the industry. Estimates are inherently uncertain, involve risks and uncertainties and are subject to change based on various factors, including those discussed under the heading “Risk Factors” in this prospectus supplement. We have not independently verified market and industry data from third-party sources. While we believe internal company surveys and assumptions are reliable and market definitions are appropriate, neither these surveys and assumptions nor these definitions have been verified by any independent sources and we cannot confirm that they are accurate.

 

We are required to file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission (the “SEC”). You may read and copy any reports, statements or other information we file with the SEC, including the registration statement of which this prospectus supplement is a part, at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information about the operation of the SEC’s Public Reference Room in Washington, D.C. by calling the SEC at (800) 732-0330. Our filings are also available to the public from commercial retrieval services, at the website maintained by the SEC at www.sec.gov, and on our website at www.rtiintl.com. Our common stock is listed and traded on the New York Stock Exchange (the “NYSE”), under the trading symbol

“RTI.” Our reports, proxy statements and other information can also be read at the offices of the NYSE, 20 Broad Street, New York, New York 10005.

 

We filed a registration statement on Form S-3 to register with the SEC the RTI securities we may offer and sell pursuant to this prospectus supplement. As allowed by SEC rules, this prospectus supplement does not contain all the information you can find in the registration statement or the exhibits to the registration statement. You may obtain copies of the Form S-3 and exhibits (and any amendments to those documents) in the manner described above.

 

Incorporation of SEC filings

 

The SEC’s rules allow us to “incorporate by reference” information into this prospectus supplement, which means that we can disclose important information to you by referring you to other documents that we have filed separately with the SEC. The information incorporated by reference is deemed to be part of this prospectus supplement, except for any information superseded by information contained directly in this prospectus supplement or in a later filed document incorporated by reference in this prospectus supplement. We incorporate by reference into this prospectus supplement the documents set forth below and any future filings made by us with the SEC under Sections 13(a), 13(c), 14 and 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), after the initial filing of this prospectus supplement and prior to the time that we sell all of the securities offered by this prospectus supplement, other than any information furnished pursuant to Item 2.02 or Item 7.01 of any Current Report on Form 8-K unless we specifically state in such Current Report that such information is considered to be “filed” under the Exchange Act or we incorporate it by reference into a filing under the Securities Act of 1933 (the “Securities Act”) or the Exchange Act. These documents contain important information about RTI.

 

 

You may obtain copies, without charge, of documents incorporated by reference in this prospectus supplement, by requesting them from us in writing or by telephone as follows:

 

RTI International Metals, Inc.
Westpointe Corporate Center One
1550 Coraopolis Heights Road, Fifth Floor
Pittsburgh, PA 15108-2973
Telephone: (412) 893-0026

 

Exhibits to the filings will not be sent, unless those exhibits have been specifically incorporated by reference in this prospectus.

 

General information about RTI, including our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as well as any amendments and exhibits to those reports, are available free of charge through our website at http:// www.rtiintl.com as soon as reasonably practicable after we file them with, or furnish them to, the SEC. Other information contained on our website is not incorporated into this prospectus or our other securities filings and is not a part of these filings.

 

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. This prospectus supplement and the accompanying prospectus (including the documents incorporated herein and therein by reference), may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act, and Section 21E of the Exchange Act. Additionally, we or our representatives may, from time to time, make other written or verbal forward-looking statements. In this prospectus supplement and the accompanying prospectus (including the documents incorporated by reference herein and therein), we discuss expectations regarding our business, financial condition and results of operations. Without limiting the foregoing, words or phrases such as “will likely result,” “are expected to,” “will continue,” “is anticipated,” “we believe,” “estimate,” “project” (including the negative or variations thereof) or similar terminology, generally identify forward-looking statements. Forward-looking statements may also represent challenging goals for us. As such, they are based on current expectations and are subject to certain risks and uncertainties. We caution that undue reliance should not be placed on such forward-looking statements, which speak only as of the date made. In order to comply with the terms of the safe harbor, we identify for investors important risk factors which could affect our financial performance and could cause actual results for future periods to differ materially from the anticipated results or other expectations expressed in the forward-looking statements.

 

Investing in our securities involves risk. Before you invest in our securities, you should carefully consider some of the factors which could cause our results to differ from those expressed in any forward-looking statement, which are set forth under the caption “Risk Factors” below, and in the accompanying prospectus, and subsequent Form 10-Q and Form 10-K filings made with the SEC, each of which is incorporated by reference herein, and include:

 

 

 

You should carefully consider all of the information in or incorporated by reference in this prospectus supplement and the accompanying prospectus prior to investing in our securities. Except as may be required under applicable law, we undertake no duty to update our forward-looking statements.

 

PROSPECTUS SUPPLEMENT SUMMARY

 

The Offering

Issuer		RTI International Metals, Inc., an Ohio corporation.
Securities		$175,000,000 aggregate principal amount of     % Convertible Senior Notes due 2015 (plus up to an additional $26,250,000 aggregate principal amount to cover over-allotments, if any).
Maturity		December 1, 2015, unless earlier repurchased or converted.
Issue Price		100% plus accrued interest, if any, from          , 2010.
Interest		% per year. Interest will accrue from          , 2010 and will be payable semiannually in arrears on June 1 and December 1 of each year, beginning June 1, 2011. We will pay additional interest, if any, under the circumstances described under “Description of Notes—Events of Default.” All references to interest in this summary of the offering and the “Description of Notes” section of this prospectus supplement are deemed to include additional interest, if any, that accrues as described in that section.
Subsidiary Guarantees		The notes will initially be guaranteed by four of our subsidiaries, which upon completion of our current amendment to our credit agreement, will be the same subsidiaries that guarantee our obligations under our existing credit facility. Any future subsidiaries that are added or removed as guarantors under our credit agreement will concurrently be added or removed as guarantors under the notes.
		Each subsidiary guarantee will be a joint and several, unconditional guarantee of our obligations under the indenture and the notes. See “Description of Notes—Subsidiary Guarantees” and “Description of Certain Indebtedness.”
Conversion Rights		Holders may convert their notes prior to the close of business on the business day immediately preceding June 1, 2015, in integral multiples of $1,000 principal amount, at the option of the holder, only under the following circumstances:
		• during any calendar quarter commencing after December 31, 2010 (and only during such calendar quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on the last trading day of the preceding calendar quarter is greater than or equal to 130% of the applicable conversion price on each applicable trading day;
		• during the five business day period after any five consecutive trading day period (the “measurement period”) in which the “trading price” (as defined under “Description of Notes—Conversion Rights—Conversion upon Satisfaction of Trading Price Condition”) per $1,000 principal amount of notes for each trading day of such measurement period was less than 98% of the product of the last reported sale price of our common stock and the applicable conversion rate on such trading day; or

		• upon the occurrence of specified corporate transactions described under “Description of Notes—Conversion Rights—Conversion upon Specified Corporate Transactions.”
		On or after June 1, 2015 until the close of business on the second scheduled trading day immediately preceding the maturity date of the notes, holders may convert their notes, in integral multiples of $1,000 principal amount, at the option of the holder regardless of whether any of the foregoing conditions has been met.
		The conversion rate for the notes is initially           shares of our common stock per $1,000 principal amount of notes (equal to an initial conversion price of approximately $      per share of common stock). The conversion rate will be subject to adjustment upon the occurrence of certain events as described in this prospectus supplement, but will not be adjusted for accrued and unpaid interest, if any.
		Upon conversion, we will pay or deliver, as the case may be, shares of our common stock, cash or any combination of cash and shares of our common stock, at our election. If we elect to settle all or any portion of our conversion obligation in cash, the amount of cash, if any, and the number of shares of our common stock, if any, will be based on a daily conversion value (as described herein) calculated on a proportionate basis for each trading day in a 40 trading day observation period, as described herein. If we elect to settle all of our conversion obligation in shares of our common stock, we will deliver the shares of our common stock on the third business day following the “conversion date” (as defined below under “Description of Notes—Conversion Rights—Conversion Procedures”), and for all other conversions, we will pay or deliver, as the case may be, the cash, shares of our common stock, or combination thereof, on the third business day following the last day of the applicable observation period, regardless of whether we elect to satisfy all or any portion of our conversion obligation in cash, except as described under “Description of Notes—Conversion Rights—Adjustment to Conversion Rate upon Conversion in Connection with a Make-whole Fundamental Change.” See “Description of Notes—Conversion Rights—Settlement upon Conversion.”
		Following certain corporate transactions, we will increase the conversion rate for a holder who elects to convert its notes in connection with such a corporate transaction in certain circumstances as described under “Description of Notes—Conversion Rights—Adjustment to Conversion Rate upon Conversion in Connection with a Make-whole Fundamental Change.”
		You will not receive any additional cash payment or additional shares representing accrued and unpaid interest, if any, upon conversion of a note, except in limited circumstances. Instead, upon conversion of a note, our delivery to you of the consideration due upon conversion, as described under “Description of Notes—Conversion Rights—Settlement upon Conversion” will be deemed to satisfy in full our obligation to pay the principal amount of the note and any accrued and unpaid interest up to, but not including, the conversion date.

Redemption		We may not redeem the notes prior to the maturity date of the notes.
Fundamental Change		If we undergo a “fundamental change” (as defined in this prospectus supplement under “Description of Notes—Fundamental Change Permits Holders to Require Us to Purchase Notes”), subject to certain conditions, you will have the option to require us to purchase all or any portion of your notes that is equal to $1,000 in principal amount or an integral multiple thereof for cash. The fundamental change purchase price will be 100% of the principal amount of the notes to be purchased, plus any accrued and unpaid interest up to, but excluding, the fundamental change purchase date.
Ranking		The notes will be our senior unsecured obligations and will:
		• rank senior in right of payment to our existing and future indebtedness that is expressly subordinated in right of payment to the notes;
		• rank equal in right of payment to our existing and future liabilities that are not so subordinated;
		• be effectively subordinated to any of our secured indebtedness to the extent of the value of the assets securing such indebtedness; and
		• be structurally subordinated to all existing and future indebtedness of our subsidiaries that do not guarantee the notes.
		Each subsidiary guarantee will be a general unsecured obligation of the applicable subsidiary guarantor and will:
		• rank senior in right of payment to all such subsidiary guarantor’s existing and future indebtedness that is expressly subordinated in right of payment to its subsidiary guarantee;
		• rank equal in right of payment to our existing and future liabilities of such subsidiary guarantor that are not so subordinated;
		• be effectively subordinated to any of the secured indebtedness of such subsidiary guarantor to the extent of the value of the assets securing such indebtedness; and
		• be structurally subordinated to all existing and future indebtedness and other obligations of subsidiaries of such subsidiary guarantor that do not themselves guarantee the notes.
		As of September 30, 2010, our total consolidated indebtedness was $48,000. As of September 30, 2010, we had no outstanding secured indebtedness or indebtedness that would have been subordinated to the notes or any subsidiary guarantee.
		As of September 30, 2010, our subsidiaries held substantially all of our consolidated assets and generated substantially all of our consolidated net income. As of September 30, 2010, our subsidiary guarantors collectively held approximately 71.1% of our consolidated assets and, for the year ended December 31, 2009 and the nine months ended September 30, 2010, represented approximately 61.4% and 56.1% of our consolidated net sales. For the nine months ended September 30, 2010, our subsidiary guarantors collectively represented 99.7% of our consolidated operating income. Additional financial information regarding RTI

		on an unconsolidated basis, the subsidiary guarantors and our subsidiaries that are not guarantor subsidiaries can be found in our Current Report on Form 8-K filed on December 8, 2010.
		The indenture governing the notes does not limit the amount of debt that we or our subsidiaries may incur.
Use of Proceeds		We estimate that the proceeds from this offering will be approximately $169.1 million (or approximately $194.6 million if the underwriters exercise their option to purchase additional notes in full), after deducting the underwriters’ discount and estimated offering expenses. The net proceeds from the sale of the notes will be used for working capital and general corporate purposes, including capital expenditures and potential future acquisitions. See “Use of Proceeds.”
		If the underwriters exercise their over-allotment option, we will use the net proceeds for general corporate purposes.
Book-Entry Form		The notes will be issued in book-entry form and will be represented by one or more permanent global certificates deposited with, or on behalf of, The Depository Trust Company (“DTC”) and registered in the name of a nominee of DTC. Beneficial interests in any of the notes will be shown on, and transfers will be effected only through, records maintained by DTC or its nominee and any such interest may not be exchanged for certificated securities, except in limited circumstances. See “Description of Notes—Book-entry, Settlement and Clearance.”
Denomination		The notes will be issued in denominations of $1,000 and integral multiples thereof.
Absence of a Public Market for The Notes		The notes are new securities and there is currently no established market for the notes. The underwriters have advised us that they currently intend to make a market in the notes. However, they are not obligated to do so, and they may discontinue any market making with respect to the notes without notice. We do not intend to apply for a listing of the notes on any securities exchange or arrange for the notes to be quoted on any automated dealer quotation system. Accordingly, we cannot assure you as to the development or liquidity of any market for the notes. Our common stock is listed on the New York Stock Exchange (the “NYSE”) under the symbol “RTI.”
Certain United States Federal Income Tax Considerations		For certain U.S. federal income tax considerations in connection with the holding, disposition and conversion of the notes, and the holding and disposition of shares of our common stock, see “Certain U.S. Federal Income Tax Considerations.”
Trustee, Paying Agent and Conversion Agent		The Bank of New York Mellon Trust Company, N.A.
Risk Factors		Investment in the notes involves significant risks. You should review the section titled “Risk Factors” and all other information included in this prospectus supplement and our SEC filings for a discussion of factors you should carefully consider before investing in the notes.

 

Summary Consolidated Financial and Operating Data

		Nine Months Ended
		September 30,								Year Ended December 31,
		2010				2009				2009				2008				2007
		(Unaudited)
		(In thousands, except per share data)
Income Statement Data:
Net sales		$	317,129			$	310,655			$	407,978			$	609,900			$	626,799
Operating income (loss)			11,545				(411	)			(87,276	)(1)			87,392				141,161
Income (loss) before income taxes			10,922				(9,087	)			(96,056	)(2)			87,975				142,467
Net income (loss)			4,862				(9,986	)			(67,239	)			55,695				92,631
Earnings (loss) per share:
Basic		$	0.16			$	(0.42	)		$	(2.67	)		$	2.42			$	4.01
Diluted		$	0.16			$	(0.42	)		$	(2.67	)		$	2.41			$	3.99

(1)		Includes asset-related impairment totaling $68.9 million related to the Company’s decision to indefinitely delay the construction of its titanium sponge plant in Hamilton, Mississippi, a goodwill impairment charge of $8.7 million at the Company’s Energy Fabrication reporting unit, and a $4.2 million charge related to the Company’s previously filed duty drawback claims.
(2)		In addition to those items noted above, includes $5.7 million in interest expense due to the termination of our interest rate swap agreements and write-off of deferred financing fees as a result of the payoff of our $225 million term loan in September 2009.

		As of
		September, 30				As of December 31,
		2010				2009				2008				2007
		(Unaudited)
Balance Sheet Data:
Cash, cash equivalents and short-term investments		$	133,891			$	121,258			$	284,449			$	107,505
Working capital			398,297				387,761				559,601				405,907
Total assets			857,587				854,735				1,029,203				755,284
Total debt			48				81				239,925				17,596
Total shareholders’ equity:		$	691,848			$	679,206			$	601,934			$	575,784

 

The table below sets forth our ratio of earnings to fixed charges on a historical basis for the periods indicated.

 

 

 

 

Any investment in our notes involves a high degree of risk. You should carefully consider the risks described below, in addition to the other information contained in or incorporated by reference in this prospectus supplement and the accompanying prospectus before deciding whether to purchase our notes. In addition, you should carefully consider, among other things, the matters discussed under “Risk Factors” in other documents that we subsequently file with the SEC, all of which are incorporated by reference in this prospectus supplement and the accompanying prospectus. The risks and uncertainties described below are not the only risks and uncertainties we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations. If any of the following risks actually occur, our business, financial condition and results of operations would suffer. In that event, our ability to fulfill our obligations under the notes could be materially affected, and you may lose all or part of your investment. The risks discussed below also include forward-looking statements and our actual results may differ substantially from those discussed in these forward-looking statements. See “Forward-Looking Statements.”

 

Risks Related to the Notes

 

Fluctuations in the market price of our common stock may prevent you from being able to convert the notes and may impact the trading price of the notes and make them more difficult to resell. Holders who receive common stock upon conversion of the notes will also be subject to the risk of volatility and depressed prices of our common stock.

 

Until June 1, 2015, the ability of holders of the notes to convert the notes is conditioned on the last reported sale price of our common stock reaching a specified threshold, the trading price of the notes falling below a specified threshold for a specified period or the occurrence of specified corporate transactions, such as fundamental changes. If the sales price condition for conversion of the notes is satisfied during a calendar quarter, holders may convert the notes only during the subsequent calendar quarter. If such sales price condition is not satisfied, the trading price of the notes does not fall below a specified threshold for a specified period and the other specified corporate transactions that would permit a holder to convert notes do not occur, holders would not be able to convert their notes except during the six month period prior to the maturity date. For these and other reasons, the trading price of the notes could be less than the conversion value of the notes. See “Description of Notes—Conversion Rights—General.”

 

The market price for our common stock has varied between a high of $32.77 on March 29, 2010 and a low of $18.68 on December 9, 2009 in the twelve month period ended November 30, 2010. Because the conversion value of the notes is based on the market price of our common stock, any decline in the market price of our common stock could have a similar effect on the trading price of the notes and could limit the amount of cash payable and the number of shares deliverable, if any, upon conversion of the notes. Our stock price is likely to continue to be volatile and subject to significant price and volume fluctuations in response to market and other factors, including the other factors discussed in “—Risks Related to Our Common Stock.”

 

The notes and subsidiary guarantees will be effectively subordinated to current and future secured debt of RTI or the subsidiary guarantors.

 

Our obligations under the notes and each subsidiary guarantor’s obligations under its subsidiary guarantee of the notes are unsecured. The notes and each subsidiary guarantee will rank equal in right of payment to the existing and future liabilities of RTI or the applicable subsidiary guarantor that are not expressly subordinated in right of payment to the notes or the applicable subsidiary guarantee, and will be effectively subordinated to any of our or the applicable subsidiary guarantor’s secured indebtedness to the extent of the value of the assets securing such indebtedness. As of September 30, 2010, we had no secured indebtedness and no indebtedness that would have been subordinated to the subsidiary guarantors’ secured indebtedness. In the event of our or any subsidiary guarantor’s bankruptcy, liquidation, reorganization or other winding up, our or such subsidiary guarantor’s assets that secure debt ranking senior or equal in right of payment to the notes or the applicable subsidiary guarantee will be available to pay obligations on the notes or the applicable subsidiary guarantee

only after such secured debt has been repaid in full. There may not be sufficient assets remaining to pay amounts due on the notes or the applicable subsidiary guarantee. See “Description of Certain Indebtedness.”

 

The notes will be structurally junior to indebtedness of our non-guarantor subsidiaries.

 

You will not have any claim as a creditor against any of our non-guarantor subsidiaries and indebtedness and other liabilities, including trade payables, of those subsidiaries will effectively be senior to your claims against those subsidiaries. At September 30, 2010, our non-guarantor subsidiaries had $65 million of outstanding liabilities, including trade payables, but excluding intercompany indebtedness. The notes will be structurally subordinated to all indebtedness and other obligations of our subsidiaries that do not guarantee the notes. In the event of a dissolution, bankruptcy, liquidation, reorganization or other winding up of any of our non-guarantor subsidiaries, holders of their indebtedness and their other creditors will generally be entitled to payment of their claims from the assets of those subsidiaries before any assets are made available for distribution to us. The indenture governing the notes does not prohibit us from incurring additional senior debt or secured debt, nor does it prohibit any of our subsidiaries from incurring additional debt or other liabilities.

 

As of September 30, 2010, our consolidated indebtedness was $48,000. After giving effect to the issuance of the notes (assuming no exercise of the underwriters’ over-allotment option) and the use of proceeds from the notes, our consolidated indebtedness would have been $175 million. Of such amount, $8,000 would constitute debt of our non-guarantor subsidiaries.

 

We may not have the ability to raise the funds necessary to settle conversions of the notes for cash or to purchase the notes upon a fundamental change.

 

At maturity, the entire principal amount of the notes then outstanding, plus any accrued and unpaid interest, will become due and payable by us. Holders of the notes will also have the right to require us to repurchase the notes upon the occurrence of a fundamental change at 100% of their principal amount plus accrued and unpaid interest, if any, as described under “Description of Notes—Fundamental Change Permits Holders to Require Us to Purchase Notes.” In addition, upon conversion of the notes, unless we elect to settle such conversion solely by delivery of shares of our common stock, we will be required to make cash payments in respect of the notes being converted as described under “Description of Notes—Conversion Rights—Settlement upon Conversion.” We may not have enough available cash or be able to obtain financing at the time it is required to make required repurchases of notes surrendered therefor or to meet our conversion obligations or other obligations with respect to the notes. Upon conversion of the notes, we will be required to elect a settlement method either on the business day following the conversion date or on the business day immediately preceding June 1, 2015. Our election of a settlement method will be irrevocable. Our cash on hand and our ability to obtain financing may decrease significantly during such period and it may be difficult for us to accurately predict such reductions. In addition, our ability to repurchase the notes or to pay cash upon conversion or the maturity of the notes may be limited by law, by regulatory authority, by agreements governing our existing or future indebtedness or by restrictions on the ability of our subsidiaries to make distributions to us. Our failure to repurchase surrendered notes at a time when such repurchase is required by the indenture or to pay any cash payable at maturity or on future conversions of the notes as required by the indenture would constitute a default under the indenture and would permit holders of the notes to accelerate our obligations under the notes. Such a default would also cause an event of default under our revolving credit facility and may also lead to a default under the agreements governing our other existing or future indebtedness. If the repayment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay such indebtedness and repurchase the notes or make cash payments upon conversions thereof. In addition, the occurrence of a fundamental change would cause an event of default under our revolving credit facility.

 

RTI International Metals, Inc.’s operations are conducted through, and substantially all of its consolidated assets are held by, its subsidiaries and only four subsidiaries will guarantee the notes.

 

The notes are obligations of RTI International Metals, Inc. and will be guaranteed by four RTI International Metals, Inc. subsidiaries, which upon completion of our current credit facility amendment will be

the only subsidiaries that guarantee our existing credit facility. See “Description of Certain Indebtedness” RTI International Metals, Inc. is a holding company and conducts all of its business operations through its subsidiaries. Substantially all of RTI International Metals, Inc.’s consolidated assets are held by its subsidiaries. Accordingly, RTI International Metals, Inc.’s ability to service its debt, including the notes, depends on the results of operations of its subsidiaries and upon the ability of such subsidiaries to provide it with cash, whether in the form of dividends, loans or otherwise, to pay amounts due on its obligations, including the notes. RTI International Metals, Inc.’s subsidiaries are separate and distinct legal entities and other than RMI Titanium Company, Extrusion Technology Corporation of America, RTI Finance Corp. and RTI Martinsville, Inc., no subsidiary will have any obligation, contingent or otherwise, to make payments on the notes or to make any funds available for that purpose. As of September 30, 2010, our four subsidiary guarantors held approximately 71.1% of our consolidated assets and, for the year ended December 31, 2009 and the nine months ended September 30, 2010, represented approximately 61.4% and 56.1% of our consolidated net sales For the nine months ended September 30, 2010, our subsidiary guarantors collectively represented 99.7% of our consolidated operating income. Additional financial information regarding RTI on an unconsolidated basis, the subsidiary guarantors and our subsidiaries that are not guarantor subsidiaries can be found in our Current Report on Form 8-K filed on December 8, 2010.

 

In addition, dividends, loans or other distributions to RTI International Metals, Inc. from such subsidiaries may be subject to contractual and other restrictions and are subject to other business considerations.

 

A court could void a subsidiary guarantee of the notes under fraudulent transfer laws.

 

Although the subsidiary guarantees provided by our four subsidiary guarantors provide you with a direct claim against the assets of the applicable subsidiary guarantor, under the federal bankruptcy laws and comparable provisions of state fraudulent transfer laws, a subsidiary guarantee could be voided, or claims with respect to a subsidiary guarantee could be subordinated to all other debts of the applicable subsidiary guarantor. In addition, a bankruptcy court could void (i.e., cancel) any payments by the subsidiary guarantor pursuant to its subsidiary guarantee and require those payments to be returned to the subsidiary guarantor or to a fund for the benefit of the other creditors of the subsidiary guarantor.

 

The bankruptcy court might take these actions if it found, among other things, that when a subsidiary guarantor executed its subsidiary guarantee (or, in some jurisdictions, when it became obligated to make payments under its subsidiary guarantee):

 

 

 

A bankruptcy court would likely find that a subsidiary guarantor received less than fair consideration or reasonably equivalent value for its subsidiary guarantee to the extent that it did not receive direct or indirect benefit from the issuance of the notes. A bankruptcy court could also void a subsidiary guarantee if it found that the subsidiary guarantor issued its subsidiary guarantee with actual intent to hinder, delay, or defraud creditors. Although courts in different jurisdictions measure solvency differently, in general, an entity would be deemed insolvent if the sum of its debts, including contingent and unliquidated debts, exceeds the fair value of its assets, or if the present fair saleable value of its assets is less than the amount that would be

required to pay the expected liability on its debts, including contingent and unliquidated debts, as they become due.

 

We cannot predict what standard a court would apply in order to determine whether a subsidiary guarantor was insolvent as of the date it issued its subsidiary guarantee or whether, regardless of the method of valuation, a court would determine that the subsidiary guarantor was insolvent on that date, or whether a court would determine that the payments under the subsidiary guarantee constituted fraudulent transfers or conveyances on other grounds.

 

The indenture governing the notes contains a “saving clause” intended to limit each subsidiary guarantor’s liability under its guarantee to the maximum amount that it could incur without causing the guarantee to be a fraudulent transfer under applicable law. There can be no assurance that this provision will be upheld as intended. In a recent case, the U.S. Bankruptcy Court in the Southern District of Florida found this kind of provision in that case to be ineffective, and held the subsidiary guarantees to be fraudulent transfers and voided them in their entirety.

 

If a subsidiary guarantee is deemed to be a fraudulent transfer, it could be voided altogether, or it could be subordinated to all other debts of the subsidiary guarantor. In such case, any payment by the subsidiary guarantor pursuant to its subsidiary guarantee could be required to be returned to the subsidiary guarantor or to a fund for the benefit of the creditors of the subsidiary guarantor. If a guarantee is voided or held unenforceable for any other reason, holders of the notes would cease to have a claim against the subsidiary guarantor based on the subsidiary guarantee and would be creditors only of us.

 

We may not have sufficient cash flow from our business to service our debt.

 

Our ability to make scheduled payments of the principal of, to pay interest on or to refinance our indebtedness, including our ability to make payments on the notes, depends on our future performance, which is subject to economic, financial, competitive and other factors beyond our control. Our business may not continue to generate cash flow from operations in the future sufficient to service our debt and make necessary capital expenditures. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations.

 

The notes are not protected by restrictive covenants. We will continue to have the ability to incur debt after this offering; if we incur substantial additional debt, our higher level of debt may affect our ability to pay the principal of, and interest on, the notes and any cash portion of our conversion obligation with respect to the notes.

 

The indenture governing the notes does not restrict our ability to incur additional indebtedness or require us to maintain financial ratios or specified levels of net worth or liquidity. If we incur substantial additional indebtedness in the future, these higher levels of indebtedness may affect our ability to pay principal of and interest on the notes and any cash portion of our conversion obligations with respect to the notes; as well as our creditworthiness generally. In addition, the indenture governing the notes does not contain any operating covenants or restrictions on the payment of dividends, transactions with affiliates, incurrence of liens or the issuance or repurchase of securities by us or any of our subsidiaries. For these reasons, you should not consider the covenants in the indenture as a significant factor in evaluating whether to invest in the notes.

 

We are required to repurchase the notes only upon the occurrence of a set of events included in the indenture’s definition of “fundamental change,” and that definition does not include all events or transactions that could adversely affect the trading price of the notes and our ability to make payments on the notes.

 

The term “fundamental change” is limited and does not include every event that might cause our creditworthiness or the trading price of the notes to decline. Our obligation to repurchase the notes upon a

fundamental change may not preserve the value of the notes in the event of a highly leveraged transaction, reorganization, merger or similar transaction. We could engage in many types of transactions, such as acquisitions, refinancings or recapitalizations, that could substantially affect our capital structure, the value of the notes and our common stock and our ability to make payments on the notes but that may not constitute a fundamental change that permits holders to require us to repurchase their notes. See “Description of Notes—Fundamental Change Permits Holders to Require Us to Repurchase Notes.”

 

The conversion rate of the notes may not be adjusted for all dilutive events that may occur.

 

As described under “Description of Notes—Conversion Rights—Conversion Rate Adjustments,” we will adjust the conversion rate of the notes for certain events, including, among others, the issuance of stock or cash dividends on our common stock, the issuance of certain rights, options or warrants, the distribution of common stock, certain indebtedness or assets, certain subdivisions and combinations of our common stock and certain tender or exchange offers.

 

We will not adjust the conversion rate for other events, such as an issuance of common stock for cash, issuances under our current benefit plans or third party tender or exchange offers that may adversely affect the trading price of the notes or the market price of our common stock. If we engage in any of these types of transactions, the value of the number of shares of our common stock that determine the amount of cash and the number of shares of common stock, if any, into which the notes may be convertible may be diluted. An event that adversely affects the value of the notes, but does not result in an adjustment to the conversion rate, may occur.

 

The conditional conversion features of the notes, if triggered, may adversely affect our financial condition and operating results.

 

If the conditional conversion features of the notes are triggered, holders of notes will be entitled to convert the notes at any time during specified periods at their option. See “Description of Notes—Conversion Rights.” If one or more holders elect to convert their notes, unless we elect to satisfy our conversion obligation by delivering solely shares of our common stock, we would be required to make cash payments to satisfy all or a portion of our conversion obligation based on the applicable conversion rate, which could adversely affect our liquidity. In addition, even if holders do not elect to convert their notes, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal amount of the notes as a current rather than long-term liability, which would result in a material reduction of our net working capital.

 

Future sales or issuances of our common stock or equity-related securities in the public market could lower the market price for our common stock and adversely impact the trading price of the notes.

 

In the future, we may sell additional shares of our common stock or equity-related securities to raise capital. Sales of a substantial number of shares of our common stock after this offering, or the perception by the market that those sales could occur, could cause the market price of our common stock to decline or could make it more difficult for us to raise funds through the sale of equity in the future. Likewise, additional equity financings or other share issuances by us could adversely affect the market price of our common stock. We cannot be sure that we will not need or want to raise additional capital in the future. If we seek to raise additional capital, there can be no assurance that we will be able to do so on favorable terms or at all. In addition, any such financing could be significantly dilutive to our existing shareholders and result in the issuance of securities that have rights, preferences and privileges that are senior to those of our common stock.

 

A substantial number of shares of our common stock are reserved for issuance upon conversion of the notes. We cannot predict the size of future issuances or the effect, if any, that they may have on the market price for our common stock. The issuance and sale of substantial amounts of our common stock or equity-related securities, or the perception that such issuances and sales may occur, could adversely affect the trading price of the notes and the market price of our common stock and impair our ability to raise capital through the sale of additional equity securities.

Holders of notes will not be entitled to any rights with respect to our common stock, but will be subject to all changes made with respect to them to the extent our conversion obligation includes shares of our common stock.

 

Holders of notes will not be entitled to any rights with respect to our common stock (including, without limitation, voting rights and rights to receive any dividends or other distributions on our common stock), but, to the extent our conversion obligation includes shares of our common stock, holders of notes will be subject to all changes affecting our common stock. For example, if an amendment is proposed to our current Articles of Incorporation or Code of Regulations requiring shareholder approval and the record date for determining the shareholders of record entitled to vote on the amendment occurs prior to the conversion date related to a holder’s conversion of its notes (if we have elected to settle the relevant conversion by delivering solely shares of our common stock (other than cash in lieu of any fractional share)) or the last trading day of the relevant observation period (if we elect to pay and deliver, as the case may be, a combination of cash and shares of our common stock in respect of the relevant conversion), such holder will not be entitled to vote on the amendment, although, to the extent our conversion obligation includes shares of our common stock, such holder will nevertheless be subject to any changes affecting our common stock.

 

The conditional conversion feature of the notes could result in your receiving less than the value of the cash, shares of our common stock or combination thereof into which the notes would otherwise be convertible.

 

Prior to the close of business on the business day immediately preceding June 1, 2015, you may convert your notes only if specified conditions are met. If the specific conditions for conversion are not met, you will not be able to convert your notes until June 1, 2015, and you may not be able to receive the value of the cash, shares of our common stock or combination of cash and shares of our common stock, as applicable, into which the notes would otherwise be convertible, which could adversely impact the value of the notes.

 

You may have to wait a substantial period of time before receiving amounts due upon conversion of the notes and upon conversion of the notes, you may receive less valuable consideration than expected because the value of our common stock may decline after you exercise your conversion right.

 

Under the notes, a converting holder will be exposed to fluctuations in the value of our common stock during the period from the date such holder surrenders notes for conversion until the date we settle our conversion obligation.

 

Upon conversion of the notes, we have the option to pay or deliver, as the case may be, cash, shares of our common stock, or a combination of cash and shares of our common stock. If we elect to satisfy our conversion obligation in cash or a combination of cash and shares of our common stock, the amount of consideration that you will receive upon conversion of your notes will be determined by reference to the volume weighted average prices of our common stock for each trading day in a 40-trading day observation period, and such consideration will be delivered on the third business day following the final trading day of such observation period. In certain circumstances, as described under “Description of Notes—Conversion Rights—Settlement upon Conversion,” you may have to wait up to six months after the conversion date before receiving the consideration due upon conversion. If the price of our common stock decreases during the applicable observation period, the value of cash, shares of our common stock or combination thereof you receive will be adversely affected. In addition, if the market price of our common stock at the end of such period is below the average of the volume weighted average prices of our common stock during such period, the value of shares of our common stock, if any, that you will receive in satisfaction of our conversion obligation will be less than the value used to determine the amount of consideration that you will receive.

 

If we elect to satisfy our conversion obligation solely in shares of our common stock upon conversion of the notes, we will be required to deliver the shares of our common stock, together with cash for any fractional share, on the third business day following the relevant conversion date. If the price of our common stock decreases following the conversion date, the value of the shares that you receive will be adversely affected and would be less than the conversion value of the notes on the conversion date.

Regulatory actions may adversely affect the trading price and liquidity of the notes.

 

We expect that many investors in, and potential purchasers of, the notes will employ, or seek to employ, a convertible arbitrage strategy with respect to the notes. Investors that employ a convertible arbitrage strategy with respect to convertible debt instruments typically implement that strategy by selling short the common stock underlying the convertible notes. As a result, any specific rules regulating short selling of securities or other governmental action that interferes with the ability of market participants to effect short sales in our common stock could adversely affect the ability of investors in, or potential purchasers of, the notes to conduct the convertible arbitrage strategy that we believe they will employ, or seek to employ, with respect to the notes. This could, in turn, adversely affect the trading price and liquidity of the notes.

 

At an open meeting on February 24, 2010, the SEC adopted a new short sale price test by amending Rule 201 of Regulation SHO. On May 10, 2010, the amendments to Rule 201 became effective. The amendments restrict the short selling of any “covered security” that triggers a circuit breaker by falling at least 10% in one day, at which point short sale orders can be displayed or executed only if the order price is above the current national best bid, subject to certain limited exceptions. Compliance with the amendments to Rule 201 was required as of November 10, 2010. Because our common stock is a “covered security,” the new restrictions may interfere with the ability of investors in, and potential purchasers of, the notes, to effect short sales in our common stock and to conduct the convertible arbitrage strategy that we believe they will employ, or seek to employ, with respect to the notes.

 

In addition, on May 18, 2010, several national securities exchanges filed proposed rule changes with the SEC under which they would be permitted to halt trading in certain individual stocks if the price of the stock moves at least 10% from a sale in a five-minute period. Similarly, on May 18, 2010, the Financial Industry Regulatory Authority, Inc., or FINRA, proposed an amendment to FINRA Rule 6121 (Trading Halts Due to Extraordinary Market Volatility) to allow FINRA to halt all trading by FINRA members otherwise than on an exchange following the initiation by a primary securities exchange of a trading halt under the rules of that exchange. On June 10, 2010, the SEC granted accelerated approval of the proposed rule changes. The proposed rule changes have been initially implemented during a pilot period ending on December 10, 2010, and only with respect to securities included in the S&P 500 Index. However, on September 10, 2010 the SEC approved FINRA’s request to expand the pilot to cover securities included in the Russell 1000 Index. Although our common stock is not included in the S&P 500 Index or the Russell 1000 Index at this time, FINRA and the exchanges are expected to file additional proposed rule changes, some of which may extend the pilot period, make the rule changes permanent or expand the list of securities covered by such rules. Both the rule changes already approved by the SEC and any future proposed rule changes, to the extent such rule changes apply to our common stock, may decrease, or prevent an increase in, the market price and/or liquidity of our common stock and/or interfere with the ability of investors in, and potential purchasers of, the notes, to effect hedging transactions in or relating to our common stock and to conduct the convertible arbitrage strategy that we believe they will employ, or will seek to employ, with respect to the notes.

 

On July 21, 2010, the U.S. enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). This new legislation may require many over-the-counter swaps to be centrally cleared and traded on exchanges or comparable trading facilities. In addition, swap dealers and major market participants may be required to comply with margin and capital requirements as well as public reporting requirements to provide transaction and pricing data on both cleared and uncleared swaps. These requirements could adversely affect the ability of investors in, or potential purchasers of, the notes to implement a convertible arbitrage strategy with respect to the notes (including increasing the costs incurred by such investors in implementing such strategy). This could, in turn, adversely affect the trading price and liquidity of the notes. The legislation will become effective on the later of 360 days following the enactment of the legislation or 60 days after the publication of the final rule. However, it is unclear whether the margin requirements will apply retroactively to existing swap transactions. We cannot predict how this legislation will be implemented by the SEC or the magnitude of the effect that this legislation will have on the trading price or liquidity of the notes.

Although the direction and magnitude of the effect that the amendments to Regulation SHO, any FINRA and national securities exchange rule changes and/or implementation of the Dodd-Frank Act may have on the trading price and the liquidity of the notes will depend on a variety of factors, many of which cannot be determined at this time, past regulatory actions have had a significant impact on the trading prices and liquidity of convertible debt instruments. For example, in September 2008 the SEC issued emergency orders generally prohibiting short sales in the common stock of a variety of financial services companies while Congress worked to provide a comprehensive legislative plan to stabilize the credit and capital markets. The orders made the convertible arbitrage strategy that many convertible debt investors employ difficult to execute and adversely affected both the liquidity and trading price of convertible debt instruments issued by many of the financial services companies subject to the prohibition. Any governmental action that similarly restricts the ability of investors in, or potential purchasers of, the notes to effect short sales in our common stock, including the recently adopted amendments to Regulation SHO, any proposed FINRA or exchange rule changes or the implementation of the Dodd-Frank Act, could similarly adversely affect the trading price and the liquidity of the notes.

 

We cannot assure you that an active trading market will develop for the notes.

 

Prior to this offering, there has been no trading market for the notes, and we do not intend to apply for the listing of the notes on any securities exchange or to arrange for the quotation of the notes on any interdealer quotation system. We have been informed by the underwriters that they intend to make a market in the notes after the offering is completed. However, the underwriters may cease their market-making at any time, for any reason or for no reason, without notice. If the underwriters cease to act as the market makers for the notes, we cannot assure you another firm or person will make a market in the notes. In addition, the liquidity of the trading market in the notes, and the market price quoted for the notes, may be adversely affected by changes in the overall market for this type of security, the number of holders of the notes, the interest of securities dealers in making a market in the notes, our financial performance or prospects or the prospects for companies in our industry generally and other factors. As a result, we cannot assure you that an active trading market will develop for the notes. If an active trading market does not develop or is not maintained, the market price and liquidity of the notes may be adversely affected. In that case you may not be able to sell your notes at a particular time or you may not be able to sell your notes at a favorable price.

 

Any adverse rating of the notes may cause their trading price to fall.

 

We do not intend to seek a rating on the notes. However, if a rating service were to rate the notes and if such rating service were to lower its rating on the notes below the rating initially assigned to the notes or otherwise announces its intention to put the notes on credit watch, the trading price of the notes could decline.

 

The additional shares that may be added to the conversion rate in connection with a make-whole fundamental change may not adequately compensate you for the lost option value of your notes that results from the occurrence of such make-whole fundamental change.

 

If you convert notes in connection with a make-whole fundamental change, we may be required to increase the conversion rate applicable to your notes, as described under “Description of Notes—Adjustment to Shares Delivered upon Conversion upon a Make-whole Fundamental Change.” While these increases in the applicable conversion rate are designed to compensate you for the lost value of the option embedded in your notes as a result of a make-whole fundamental change, such increases are only an approximation of such lost value and may not adequately compensate you for such loss. Our obligation to increase the conversion rate could be considered a penalty, in which case the enforceability thereof would be subject to general principles of reasonableness of economic remedies.

 

You should consider the U.S. federal income tax consequences of owning and converting the notes.

 

The U.S. federal income tax treatment of the conversion of the notes into cash and shares of our common stock, if any, is not entirely certain. You are urged to consult your tax advisors with respect to the U.S. federal income tax consequences resulting from the conversion of notes into a combination of cash and shares of our

common stock, if any. A discussion of the U.S. federal income tax consequences of ownership and disposition of the notes is contained in this prospectus supplement under the heading “Certain U.S. Federal Income Tax Considerations.”

 

You may have to pay taxes with respect to conversion rate adjustments even if you do not receive an actual distribution.

 

The conversion rate of the notes is subject to adjustment for certain events arising from stock splits and combinations, stock dividends, cash dividends and certain other actions by us that modify our capital structure. If, for example, the conversion rate is adjusted as a result of a distribution that is taxable to holders of our common stock, such as a cash dividend, you may be required to include an amount in income for U.S. federal income tax purposes, notwithstanding the fact that you do not receive an actual distribution. In addition, holders of the notes may, in certain circumstances, be deemed to have received a distribution subject to U.S. federal withholding taxes (including backup withholding taxes or withholding taxes for payments to foreign persons). If we pay withholding taxes on behalf of a holder, we may, at our option, set off such payments against payments of cash and deliveries of shares of our common stock, if any, on the notes. See the discussions under the headings “Certain U.S. Federal Income Tax Considerations.”

 

Conversion of the notes may dilute the ownership interest of existing shareholders, including holders who have previously converted their notes.

 

The conversion of some or all of the notes may dilute the ownership interests of existing shareholders. Any sales in the public market of any of our common stock issuable upon such conversion could adversely affect prevailing market prices of our common stock. In addition, the anticipated conversion of the notes into shares of our common stock or a combination of cash and shares of our common stock could depress the price of our common stock.

 

The fundamental change purchase feature of the notes may delay or prevent an otherwise beneficial takeover attempt of our company.

 

The terms of the notes will require us to purchase the notes for cash upon the occurrence of a fundamental change. A takeover of our company may trigger the requirement that we purchase the notes. In addition, the indenture governing the notes prohibits us from engaging in certain mergers or acquisitions unless, among other things, the surviving entity assumes our obligations under the notes. These and other provisions may have the effect of delaying or preventing a takeover of our company that would otherwise be beneficial to investors.

 

The accounting method for the notes is subject to uncertainty, including as a result of recent changes that could have a material effect on our reported financial results.

 

In May 2008, the Financial Accounting Standards Board (the “FASB”), issued FASB Staff Position No. APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash Settlement), which is now codified as Accounting Standards Codification Topic 470-20 (“ASC 470-20”). Under ASC 470-20, an entity must separately account for the liability and equity components of convertible debt instruments (such as the notes) that may be settled entirely or partially in cash upon conversion in a manner that reflects the issuer’s economic interest cost. The effect of ASC 470-20 on the accounting for the notes is that the equity component would be included in the additional paid-in capital section of shareholders’ equity on our consolidated balance sheet and the value of the equity component would be treated as original issue discount for purposes of accounting for the debt component of the notes. As a result, we will be required to record a greater amount of non-cash interest expense as a result of the amortization of the discounted carrying value of the notes to their face amount over the term of the notes. We will report lower net income in our financial results because ASC 470-20 will require interest to include both the current period’s amortization of the debt discount and the instrument’s coupon interest, which could adversely affect our reported or future financial results, the trading price of our common stock and the trading price of the notes.

Risks Relating to Our Common Stock

 

The price of our common stock has fluctuated and may continue to fluctuate, which may affect the price at which you could sell the shares of our common stock, if any, that you receive upon conversion, and the sale of substantial amounts of our common stock could adversely affect the price of our common stock.

 

The market price and trading volume of our common stock have been and may continue to be subject to significant fluctuations due not only to general stock market conditions, but also to a change in sentiment in the market regarding our industry operations, business prospects or liquidity. During the period for the 12 months ended November 30, 2010, our common stock has fluctuated from a high of $32.77 per share to a low of $18.68 per share. In addition to the risk factors discussed in this prospectus supplement and in the accompanying prospectus, the price and volume volatility of our common stock may be affected by:

 

 

Any volatility of or a significant decrease in the market price of our common stock could also negatively affect our ability to make acquisitions using common stock. Further, if we were to be the object of securities class action litigation as a result of volatility in our common stock price or for other reasons, it could result in substantial costs and diversion of our management’s attention and resources, which could negatively affect our financial results. In addition, in recent years, the global equity markets have experienced substantial price and volume fluctuations. This volatility has had a significant impact on the market price of securities issued by many companies including us and the companies in our industry. The price of our common stock could fluctuate based upon factors that have little or nothing to do with our company, and these fluctuations could materially reduce our stock price and your ability to sell your shares.

 

Future sales of our common stock in the public market or the issuance of securities senior to our common stock could adversely affect the trading price of our common stock and our ability to raise funds in new stock offerings.

 

Sales by us or our shareholders of a substantial number of shares of our common stock in the public markets following this offering, or the perception that these sales might occur, could cause the market price of our common stock to decline or could impair our ability to raise capital through a future sale of, or pay for acquisitions using, our equity securities. We and our executive officers and directors will agree, with limited exceptions, for a period of 90 days after the date of this prospectus supplement, that we and they will not, without the prior written consent of the representatives on behalf of the underwriters, directly or indirectly, offer to sell, sell or otherwise dispose of any shares of our common stock. All of the shares, if any, issued upon conversion of the notes sold in this offering will be freely transferable, except for any shares sold to our “affiliates,” as that term is defined in Rule 144 under the Securities Act.

 

We may issue common stock or equity securities senior to our common stock in the future for a number of reasons, including to finance our operations, growth plans or acquisitions, to adjust our ratio of debt-to-equity, to satisfy our obligations upon the exercise of options or for other reasons. We cannot predict the effect, if any, that future sales or issuance of shares of our common stock or other equity securities, or the

availability of shares of common stock or such other equity securities for future sale or issuance, will have on the trading price of our common stock.

 

Certain provisions of our Articles of Incorporation and Code of Regulations could discourage acquisitions, dilute shareholders and adversely affect the price of our common stock.

 

Certain provisions of our current Articles of Incorporation, Code of Regulations, credit facility and Ohio law could discourage potential acquisition proposals and could delay or prevent a change in control. We are authorized to issue up to five million shares of preferred stock, the relative rights and preferences of which may be fixed by our board of directors, subject to the provisions of our Articles of Incorporation, without shareholder approval. Although we have no present plans to issue any shares of preferred stock, the future issuance of preferred stock may have the effect of delaying, deferring or preventing a change in control or the payment of dividends on our common stock. The issuance of preferred stock could also adversely affect the voting power of the holders of common stock, including the loss of voting control to others. The provisions that discourage potential acquisitions of us and adversely affect the voting power of the holders of common stock may adversely affect the price of our common stock.

 

We do not intend to pay dividends on our common stock for the foreseeable future.

 

We have never declared or paid cash dividends on our common stock. In addition, we must comply with the covenants in our revolving credit facility if we want to pay cash dividends. We currently intend to retain our future earnings, if any, to finance the further development and expansion of our business and do not intend to pay cash dividends in the foreseeable future. Any future determination to pay dividends will be at the discretion of our board of directors and will depend upon our financial condition, results of operations, capital requirements, restrictions contained in current or future financing instruments and such other factors as our board of directors deems relevant.

 

Risks Relating to our Business

 

We expect to expand through acquisitions, which may divert our management’s attention and result in unexpected operating difficulties, increased costs and dilution to our shareholders. We also may never realize the anticipated benefits of the acquisitions.

 

We continually evaluate potential acquisition candidates as part of our broader strategic plan in an effort to enhance or improve our existing operations or capabilities, expand the potential scope of work with current customers, and provide access to new markets and/or customers for our products. The acquisition and integration of an acquired business involves a number of risks and may result in unforeseen operating difficulties and expenditures in assimilating or integrating the businesses, technologies, products, personnel or operations of the acquired business. Furthermore, future acquisitions may:

 

 

Some of the potential acquisitions we may pursue may be outside of the United States. International acquisitions often involve additional or increased risks including, for example:

 

 

 

To complete a future acquisition, we may determine that it is necessary to use a substantial amount of our cash or engage in equity or debt financing. If we raise additional funds through further issuances of equity or convertible debt securities, our existing shareholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges senior to those of holders of our common stock. Any debt financing obtained by us in the future could involve restrictive covenants relating to our capital-raising activities and other financial and operational matters that make it more difficult for us to obtain additional capital in the future and to pursue other business opportunities, including potential acquisitions. In addition, we may not be able to obtain additional financing on terms favorable to us, if at all, which could limit our ability to engage in acquisitions. Moreover, we can make no assurances that the anticipated benefits of any acquisition, such as operating improvements, revenue synergies or anticipated cost savings, would be realized or that we would not be exposed to unexpected liabilities in connection with any acquisition.

 

Further, an acquisition may negatively affect our operating results because it may require us to incur charges and substantial debt or other liabilities, may cause adverse tax consequences, substantial depreciation and amortization or deferred compensation charges, may require the amortization, write-down or impairment of amounts related to deferred compensation, goodwill and other intangible assets, or may not generate sufficient financial return to offset acquisition costs.

 

Fluctuations in our income tax obligations and effective income tax rate may result in volatility of our earnings and stock price.

 

We are subject to income taxes in many U.S. and certain foreign jurisdictions. Our effective income tax rate (calculated by application of generally accepted accounting principles (“GAAP”) in the United States) in a given financial statement period may be materially impacted by changes in the mix and level of earnings. As a result, there could be ongoing variability period to period in our income tax rates and reported net income.

 

We are subject to risks associated with global economic and political uncertainties.

 

Like other companies, we are susceptible to macroeconomic downturns in the United States and abroad that may affect our performance and the performance of our customers and suppliers. Further, the lingering effects of the global financial crisis may have an impact on our business and financial condition in ways that we currently cannot predict. The recent credit crisis and related turmoil in the global financial system has had and may continue to have an impact on our business and our financial condition. In addition to the impact that the global financial crisis has already had, we may face significant financial and operational challenges if conditions in the financial markets do not improve or if they worsen. For example, an extension of the credit crisis to other industries (for example, the availability of financing for the purchase of commercial aircraft) could adversely impact overall demand for our products, which could have a negative effect on our revenues. In addition, our ability to access the traditional bank and capital markets may be severely restricted, which could have an adverse impact on our ability to react to changing economic and business conditions.

 

In addition, we are subject to various domestic and international risks and uncertainties, including changing social conditions and uncertainties relating to the current and future political climate. Changes in policy resulting from the current political environment could have an adverse impact on the financial condition and the level of business activity of the defense industry or other market segments in which we participate. This may reduce our customers’ demand for our products and/or depress pricing of those products, resulting in a material adverse impact on our business, prospects, results of operations, revenues, and cash flows.

 

A significant amount of our future revenue is based on long-term contracts for new aircraft programs.

 

We have signed several long-term contracts in recent years to produce titanium mill products and complex engineered assemblies for several new aircraft programs, including the Boeing 787, the JSF and the

Airbus family of aircraft, including the A380, the A350XWB and the A400M military transport. In order to meet the delivery requirements of these contracts, we have invested in significant capital expansion projects. Because of the current global economic slowdown and production problems experienced by many of our customers, we have experienced significant delays in these programs. Further delays, program cancellations, or a loss of one or more customers associated with these programs, could have a material adverse impact on our business, prospects, results of operations, revenues, cash flows, and financial standing.

 

We may be affected by our ability to successfully expand our operations in a timely and cost effective manner.

 

In connection with several of our long-term commercial contracts, we have undertaken several major capital expansion projects which are currently estimated to continue through 2011, including the construction of our new titanium rolling mill and forging press facilities. Our inability to successfully complete the construction of these facilities in a timely and cost-effective manner, or at all, could have a material adverse effect on our business, financial condition and results of operations. Further, our undertaking of these significant initiatives places a significant demand on management, financial, and operational resources. Our success in these projects will depend upon the ability of key financial and operational management to ensure the necessary internal and external resources are in place to properly complete and operate these facilities.

 

We may be affected by our ability or inability to obtain financing.

 

Our ability to access the traditional bank or capital markets in the future for additional financing, if needed, and our future financial performance could be influenced by our ability to meet current covenant requirements associated with our existing credit agreement, our credit rating, or other factors.

 

The demand for our products and services may be adversely affected by demand for our customers’ products and services.

 

Our business is substantially derived from titanium mill products and fabricated metal parts, which are primarily used by our customers as components in the manufacture of their products. The ability or inability to meet our financial expectations could be directly impacted by our customers’ abilities or inabilities to meet their own financial expectations. A continued downturn in demand for our customers’ products and services could occur for reasons beyond their control such as unforeseen spending constraints, competitive pressures, rising prices, the inability to contain costs, and other domestic as well as global economic, environmental or political factors. A continued slowdown in demand by, or complete loss of business from, these customers could have a material impact on our results of operations and financial position, including, but not limited to, impairment of goodwill, which could be material.

 

A substantial amount of revenue is derived from the commercial aerospace and defense industries and a limited number of customers.

 

More than 80% of our annual revenue is derived from the commercial aerospace and defense industries. Within those industries are a relatively small number of consumers of titanium products. Those industries have historically been highly cyclical, resulting in the potential for sudden and dramatic changes in expected production and spending that, as a partner in the supply chain, can negatively impact our operational plans and, ultimately, the demand for our products and services. Some of our customers are particularly sensitive to the level of government spending on defense-related products. Government programs are dependent upon the continued availability of appropriations which are approved on an annual basis. Sudden reductions in defense spending could occur due to economic or political changes which could result in a downturn in demand for defense-related titanium products. In addition, changes to existing defense procurement laws and regulations, such as the domestic preference for specialty metals, could adversely affect our results of operations. Many of our customers are dependent on the commercial airline industry which has shown to be subject to significant economic and political challenges due to threats or acts of terrorism, rising or volatile fuel costs, pandemics, or other outbreaks of infectious diseases, aggressive competition, global economic slowdown, and other factors. In addition, new aerospace and defense platforms under which we have a contract to supply our

products may be subject to production delays which affect the timing of the delivery of our products for such platforms. Any one or combination of these factors could occur suddenly and result in a reduction or cancellation in orders of new airplanes and parts which could have an adverse impact on our business. Neither we nor our customers may be able to project or plan in a timely manner for the impact of these events.

 

We may be subject to competitive pressures.

 

The titanium metals industry is highly competitive on a worldwide basis. Our competitors are located primarily in the U.S., Japan, Russia, Europe, and China. Our Russian competitor, in particular, has significantly greater capacity than us and others in our industry. Not only do we face competition for a limited number of customers with other producers of titanium products, but we also must compete with producers of other generally less expensive materials of construction including stainless steel, nickel-based high temperature and corrosion resistant alloys, and composites.

 

Our competitors could experience more favorable operating conditions than us including lower raw materials costs, more favorable labor agreements, or other factors which could provide them with competitive cost advantages in their ability to provide goods and services. Changes in costs or other factors related to the production and supply of titanium mill products compared to costs or other factors related to the production and supply of other types of materials of construction may negatively impact our business and the industry as a whole. New competitive forces unknown to us today could also emerge which could have an adverse impact on our financial performance. Our foreign competitors in particular may have the ability to offer goods and services to our customers at more favorable prices due to advantageous economic, environmental, political, or other factors.

 

We may experience a lack of supply of raw materials at costs that provide us with acceptable margin levels.

 

The raw materials required for the production of titanium mill products (primarily titanium sponge and scrap) are acquired from a number of domestic and foreign suppliers. Although we have long-term contracts in place for the procurement of certain amounts of raw material, we cannot guarantee that our suppliers can fulfill their contractual obligations. Our suppliers may be adversely impacted by events within or outside of their control that may adversely affect our business operations. We cannot guarantee that we will be able to obtain adequate amounts of raw materials from other suppliers in the event that our primary suppliers are unable to meet our needs. We may experience an increase in prices for raw materials which could have a negative impact on our profit margins if we are unable to adequately increase product pricing, and we may not be able to project the impact that an increase in costs may cause in a timely manner. We may be contractually obligated to supply products to our customers at price levels that do not result in our expected margins due to unanticipated increases in the costs of raw materials. We may experience dramatic increases in demand and we cannot guarantee that we will be able to obtain adequate levels of raw materials at prices that are within acceptable cost parameters in order to fulfill that demand.

 

We are subject to changes in product pricing.

 

The titanium industry is highly cyclical. Consequently, excess supply and competition may periodically result in fluctuations in the prices at which we are able to sell certain products. Price reductions may have a negative impact on our operating results. In addition, our ability to implement price increases is dependent on market conditions, often beyond our control. Given the long manufacturing lead times for certain products, the realization of financial benefits from increased prices may be delayed.

 

We may experience a shortage in the supply of energy or an increase in energy costs to operate our plants.

 

We own twenty-four natural gas wells which provide some but not all of the non-electrical energy required by our Niles, Ohio operations. Because our operations are reliant on energy sources from outside suppliers, we may experience significant increases in electricity and natural gas prices, unavailability of

electrical power, natural gas, or other resources due to natural disasters, interruptions in energy supplies due to equipment failure or other causes, or the inability to extend expiring energy supply contracts on favorable economical terms.

 

We may not be able to recover the carrying value of our long-lived assets, which could require us to record additional asset impairment charges.

 

As of September 30, 2010, we had net property, plant, and equipment of $254.6 million. We operate in a highly competitive and highly cyclical industry. In addition, we have invested heavily in new machinery and facilities in order to win new long-term supply agreements related to next-generation aircraft such as the Boeing 787, the Airbus family of commercial aircraft, and the JSF program. If we were unable to realize the benefits under these agreements, for whatever reason, we could be required to record material asset and asset-related impairment charges in future periods which could adversely affect our results of operations.

 

The carrying value of goodwill and other intangible assets may not be recoverable.

 

As of September 30, 2010, we had goodwill of $41.3 million and other intangible assets of $13.9 million. Goodwill and other intangible assets are recorded at fair value on the date of acquisition. In accordance with applicable accounting guidance, we review such assets at least annually for impairment. Impairment may result from, among other things, deterioration in performance, adverse market conditions, adverse changes in applicable laws or regulations, and a variety of other factors. The amount of any impairment is expensed immediately through the Consolidated Statement of Operations. Any future goodwill or other intangible asset impairment could have a material adverse effect on our results of operations.

 

Our business could be harmed by strikes or work stoppages.

 

Approximately 332 hourly, clerical and technical employees at our Niles, Ohio facility are represented by the United Steelworkers of America. Our current labor agreement with this union expires June 30, 2013. Approximately 154 hourly employees at our RTI Tradco facility in Washington, Missouri are represented by the International Association of Machinists and Aerospace Workers. Our current labor agreement with this union expires February 19, 2011.

 

We cannot be certain that we will be able to negotiate new bargaining agreements upon expiration of the existing agreements on the same or more favorable terms as the current agreements, or at all, without production interruptions caused by a labor stoppage. If a strike or work stoppage were to occur in connection with the negotiation of a new collective bargaining agreement, or as a result of a dispute under our collective bargaining agreements with the labor unions, our business, financial condition, and results of operations could be materially adversely affected.

 

Our business is subject to the risks of international operations.

 

We operate subsidiaries and conduct business with suppliers and customers in foreign countries which exposes us to risks associated with international business activities. We could be significantly impacted by those risks, which include the potential for volatile economic and labor conditions, political instability, expropriation, and changes in taxes, tariffs, and other regulatory costs. We are also exposed to and can be adversely affected by fluctuations in the exchange rate of the U.S. Dollar against other foreign currencies, particularly the Canadian Dollar, the Euro, and the British Pound. Although we are operating primarily in countries with relatively stable economic and political climates, there can be no assurance that our business will not be adversely affected by those risks inherent to international operations.

 

We are dependent on services that are subject to price and availability fluctuations.

 

We often depend on third parties to provide outside material processing services that may be critical to the manufacture of our products. Purchase prices and availability of these services are subject to volatility. At any given time, we may be unable to obtain these critical services on a timely basis, at acceptable prices, or

on other acceptable terms, if at all. Further, if an outside processor is unable to produce to required specifications, our additional cost to cure may negatively impact our margins.

 

Our success depends largely on our ability to attract and retain key personnel.

 

Much of our future success depends on the continued service and availability of skilled personnel, including members of our executive team, management, materials engineers and other technical specialists, and staff positions. The loss of key personnel could adversely affect our ability to perform until suitable replacements are found. There can be no assurance that we will be able to continue to successfully attract and retain key personnel.

 

The demand for our products and services may be affected by factors outside of our control.

 

War, terrorism, natural disasters, and public health issues including pandemics, whether in the U.S. or abroad, have caused and could cause damage or disruption to international commerce by creating economic and political uncertainties that may have a negative impact on the global economy as a whole. Our business operations, as well as our suppliers’ and customers’ business operations, are subject to interruption by those factors as well as other events beyond our control such as governmental regulations, fire, power shortages, and others. Although it is impossible to predict the occurrences or consequences of any such events, they could result in a decrease in demand for our products, make it difficult or impossible for us to deliver products to our customers or to receive materials from our suppliers, and create delays and inefficiencies in our supply chain. Our operating results and financial condition may be adversely affected by these events.

 

The outcome of the U.S. Customs investigation of our previously filed duty drawback claims is uncertain.

 

During 2007, we received notice from U.S. Customs indicating that certain duty drawback claims previously filed by our agent, on our behalf, are under formal investigation. The investigation relates to discrepancies in, and lack of supporting documentation for, claims filed through our prior drawback broker. For additional detail regarding this investigation, see “Legal Proceedings” in our Annual Report on Form 10-K for the year ended December 31, 2009. While the ultimate outcome of the U.S. Customs investigation cannot be determined, it could potentially have an adverse impact on our financial performance.

 

We are subject to, and could incur substantial costs and liabilities under, environmental, health, and safety laws.

 

We own and/or operate a number of manufacturing and other facilities. Our operations and properties are subject to various laws and regulations relating to the protection of the environment and health and safety matters, including those governing the discharge of pollutants into the air and water, the management and disposal of hazardous substances and wastes, and the cleanup of contaminated sites. Some environmental laws can impose liability for all of the costs of a contaminated site without regard to fault or the legality of the original conduct. We could incur substantial costs, including fines, penalties, civil and criminal sanctions, investigation and cleanup costs, natural resource damages and third-party claims for property damage or personal injury, as a result of violations of or liabilities under environmental laws and regulations or the environmental permits required for our operations. Many of our properties have a history of industrial operations, including the use and storage of hazardous materials, and we are involved in remedial actions relating to some of our current and former properties and, along with other responsible parties, third-party sites. We have established reserves for such matters where appropriate. The ultimate costs of cleanup, and our share of such costs, however, are difficult to accurately predict and could exceed current reserves. We also could incur significant additional costs at these or other sites if additional contamination is discovered, additional cleanup obligations are imposed and/or the participation or financial viability of other responsible parties changes in the future. In addition, while the cost of complying with environmental laws and regulations has not had a material adverse impact on our operations in the past, such laws and regulations are subject to frequent modifications and revisions, and more stringent compliance requirements, or more stringent interpretation or enforcement of existing requirements, may be imposed in the future on us or the industries in which we operate. As a result, we could incur significant additional costs complying with environmental laws and regulations in the future.

 

We estimate that the net proceeds from this offering will be approximately $169.1 million (or approximately $194.6 million if the underwriters exercise their option to purchase additional notes in full), after deducting the underwriters’ discount and the estimated offering expenses payable by us. The net proceeds from the sale of the notes will be used for working capital and general corporate purposes, including capital expenditures, as well as potential future acquisitions. Pending these uses, we intend to invest the net proceeds from this offering primarily in investment-grade, interest-bearing instruments.

 

If the underwriters exercise their overallotment option, we expect to use the net proceeds from the sale of the additional notes for general corporate purposes.

 

The following table sets forth our consolidated capitalization as of September 30, 2010 on:

 

 

This table should be read in conjunction with “Use of Proceeds” appearing elsewhere in this prospectus supplement, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements, including the accompanying notes, appearing in our Annual Report on Form 10-K for the fiscal year ended December 31, 2009 and our Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2010, which are incorporated by reference into this offering memorandum. See “Where You Can Find More Information About Us.”

 

 

 

 

Our common stock is currently traded on the New York Stock Exchange under the symbol “RTI.” The high and low sales prices as reported on the New York Stock Exchange for the periods indicated are set forth in the table below.

 

 

On December 7, 2010, the last reported sale price of the common stock on the New York Stock Exchange was $29.96 per share. As of December 6, 2010, there were 587 common stock holders of record.

 

We have never declared or paid cash dividends on our common stock. In addition, we must comply with the covenants in our revolving credit facility if we want to pay cash dividends. We currently intend to retain our future earnings, if any, to finance the further development and expansion of our business and do not intend to pay cash dividends in the foreseeable future. Any future determination to pay dividends will be at the discretion of our board of directors and will depend upon our financial condition, results of operations, capital requirements, restrictions contained in current or future financing instruments and such other factors as our board of directors deems relevant.

 

The Company

 

We are a leading producer and global supplier of titanium mill products and manufacturer of fabricated titanium and specialty metal components for the national and international aerospace, defense, energy, industrial, and consumer markets. We are a successor to entities that have been operating in the titanium industry since 1951. We first became publicly traded on the New York Stock Exchange in 1990 under the name RMI Titanium Co., and were reorganized into a holding company structure in 1998 under the symbol “RTI.”

 

We conduct business in three segments: the Titanium Group, the Fabrication Group, and the Distribution Group.

 

The Titanium Group melts, processes, and produces a complete range of titanium mill products, which are further processed by our customers for use in a variety of commercial aerospace, defense, and industrial applications. The titanium mill products consist of basic mill shapes including ingot, slab, bloom, billet, bar, plate and sheet. The Titanium Group also produces ferro titanium alloys for steel-making customers.

 

The Fabrication Group comprises companies that extrude, fabricate, machine, and assemble titanium and other specialty metal parts and components. Its products, many of which are complex engineered parts and assemblies, serve the commercial aerospace, defense, oil and gas, power generation, and chemical process industries, as well as a number of other industrial and consumer markets.

 

The Distribution Group stocks, distributes, finishes, cuts-to-size, and facilitates just-in-time delivery services of titanium, steel, and other specialty metal products, primarily nickel-based specialty alloys.

 

Both the Fabrication Group and Distribution Group utilize the Titanium Group as their primary source of titanium mill products.

 

Industry Overview

 

Titanium’s physical characteristics include a high strength-to-weight ratio, high temperature performance, and superior corrosion and erosion resistance. Relative to other metals, it is particularly effective in extremely harsh conditions. Given these properties, its scope of potential uses would be much broader than current uses but for its higher cost of production as compared to other metals. The first major commercial application of titanium occurred in the early 1950s when it was used in components in aircraft gas turbine engines. Subsequent applications were developed to use the material in other aerospace component parts and in airframe construction. Traditionally, a majority of the U.S. titanium industry’s output has been used in aerospace applications. However, in recent years, significant quantities of the industry’s output have been used in non-aerospace applications, such as the global chemical processing industry, oil and gas exploration and production, geothermal energy production, medical products, consumer products, and non-aerospace military applications such as armor protection.

 

The U.S. titanium industry’s reported shipments were approximately 73 million pounds in 2007, 77 million pounds in 2008, was estimated to be approximately 60 million pounds in 2009, and is currently estimated to be approximately 80 million pounds in 2010. Demand from all major market segments is expected to increase in 2011 due to the ongoing recovery from the global economic downturn and progress made by manufacturers on next generation aircraft such as the Airbus A350XWB and A380, Boeing 787 and Lockheed Martin F-35; however, this increase is expected to be muted until the inventory overhang and destocking in the commercial aerostructure supply chain abate during the second half of 2011. The cyclical nature of the aerospace and defense industries have been the principal cause of the fluctuations in the demand for titanium-related products.

 

Management believes that aircraft manufacturers and their subcontractors generally order titanium mill products six to eighteen months in advance of final aircraft production. This long lead time is due to the time it takes to produce a final assembly or part that is ready for installation in an airframe or jet engine. Therefore, titanium demand from commercial aerospace is likely to precede any expected increase or decrease in aircraft production.

The following is a summary of our proportional sales to each of the three major markets we serve and a discussion of events occurring within those markets:

 

 

Commercial Aerospace

 

In 2009, our sales to the commercial aerospace market were approximately 44% of consolidated net sales, compared to 50% in both 2008 and 2007. Historically, growth in this market was the result of increased world-wide air travel, driving not only increased plane production but also larger aircraft with higher titanium content than previous models. Going forward, forecasted changes in global demographics, coupled with the need for more fuel efficient aircraft given higher energy costs and increased competition, are anticipated to drive significant growth in demand for new aircraft, as well as an expected replacement cycle of older aircraft. The leading manufacturers of commercial aircraft, Airbus and Boeing, reported an aggregate of 6,837 aircraft on order as of September 30, 2010, a 1.1% decrease from the prior year. This decrease was driven by production in excess of new aircraft orders placed during the year. Despite this decline, the order backlog represents over six years of production, at current rates, for both Airbus and Boeing. According to The Airline Monitor, reported deliveries of large commercial aircraft by Airbus and Boeing totaled 974 in 2009, 852 in 2008 and 888 in 2007. Further, The Airline Monitor forecasts deliveries of large commercial jets for Airbus and Boeing of approximately 993 aircraft in 2010, 1,136 aircraft in 2011 and 1,180 aircraft in 2012.

 

Airbus is now producing the largest commercial aircraft, the A380, and Boeing expects deliveries of the new 787 to begin in 2011. Airbus has also announced the launch of another new aircraft, the A350XWB, to compete with Boeing’s 787 models. The A350XWB is expected to go into service in 2013. All three of these new aircraft will use substantially more titanium per aircraft than on any other commercial aircraft. As production of these new aircraft increases, titanium demand is expected to grow to levels significantly above previous peak levels.

 

Projected Large Commercial Jet Airplane Deliveries

 

 

 

Source: The Airline Monitor, July 2010.

 

 

Defense

 

Defense markets represented approximately 40% of our revenues in 2009, compared to 34% in 2008 and 33% in 2007. Military aircraft make extensive use of titanium and other specialty metals in their airframe structures and jet engines. These aircraft include U.S. fighters such as the F/A-22, F/A-18, F-15, and the F-35 Joint Strike Fighter; and European fighters such as the Mirage, Rafale, and Eurofighter-Typhoon. Military troop transports such as the C-17 and A400M also use significant quantities of these metals.

 

The JSF is set to become the most utilized fighter for the 21st Century with expected production exceeding 3,000 aircraft over the life of the program. In 2007, we were awarded a long-term contract extension from Lockheed Martin to support full-rate production of the JSF through 2020. Under the contract, we will supply the first eight million pounds of titanium mill products annually as the program fully ramps up, which is expected in 2015. The products we will supply include sheet, plate, and billet.

 

In addition to aerospace applications, there are numerous titanium uses on ground vehicles and artillery driven by its armoring (greater strength) and mobility (lighter weight) enhancements. An example of these qualities is the light-weight Howitzer program which began full-rate production in 2005. We are the principal titanium supplier for the Howitzer under a contract with BAE Systems through the first quarter of 2012.

 

Industrial & Consumer

 

Industrial & Consumer markets provided approximately 16% of our revenue in 2009 and 2008, compared to 17% in 2007. These sales consist of shipments to the energy sector from the Fabrication Group and continued shipments of ferro titanium to the steel industry from the Titanium Group.

 

In the energy sector, demand for our products for oil and gas extraction, including deep-drilling exploration and production, increased in 2010 as we completed several complex engineered parts and assemblies for remediation of the Macondo well in the Gulf of Mexico; however, demand had decreased in 2009 as the price of oil fell from its record highs in 2008. Although there is uncertainty in the near-term outlook for oil exploration, demand for these products is expected to resume growing in the medium-term from the further development of energy from deepwater and difficult-to-reach locations around the globe. As the complexity of oil and gas exploration and production increases, the expected scope of potential uses for titanium-based structures and components is expected to increase.

 

Growth in developing nations, such as China, India, and the Middle East, has stimulated increased demand from the chemical process industry for heat exchangers, tubing for power plant construction, and specialty metals for desalinization plants.

 

Products and Segments

 

We conduct our operations in three reportable segments: the Titanium Group, the Fabrication Group, and the Distribution Group.

 

Titanium Group

 

The Titanium Group’s products consist primarily of titanium mill products and ferro titanium alloys (for use in steel and other industries). Its titanium furnaces (as well as other processing equipment) and products are certified and approved for use by all major domestic and most international manufacturers of commercial and military airframes and related jet engines. The attainment of such certifications is often time consuming and expensive and can serve as a barrier to entry into the titanium mill product market. Titanium mill products are fabricated into parts and utilized in aircraft structural sections such as landing gear, fasteners, tail sections, wing support and carry-through structures, and various engine components including rotor blades, vanes and discs, rings, and engine cases.

 

The mill products are sold to a customer base consisting primarily of manufacturing and fabrication companies in the supply chain for the commercial aerospace, defense, and industrial and consumer markets. Customers include prime aircraft manufacturers and their family of subcontractors including fabricators, forge

shops, extruders, castings producers, fastener manufacturers, machine shops, and metal distribution companies. Titanium mill products are semi-finished goods and usually represent the raw or starting material for these customers who then form, fabricate, machine, or further process the products into semi-finished and finished parts. Approximately 40% of our titanium mill products were sold to our Fabrication and Distribution Group’s during the first nine months of 2010, compared to 52% for the first nine months of 2009, and 53% of titanium mill products in 2009, compared to 43% in 2008 were sold to our Fabrication and Distribution Groups, where value-added services are performed on such parts prior to their ultimate shipment to the customer.

 

In connection with our long-term supply agreements for the JSF program and the Airbus family of commercial aircraft, we are constructing a new titanium forging and rolling facility in Martinsville, Virginia, and new melting facilities in Canton and Niles, Ohio, with anticipated capital spending of approximately $140 million. The Niles melting facility is substantially complete, while we have capital spending of approximately $5 million remaining on the Canton melting facility and expect it will begin operations in 2011. We have capital expenditures of approximately $55 million remaining related to the Martinsville, Virginia facility and anticipate that it will begin production in 2012. We expect this facility to enable us to enhance our throughput and shorten our lead times on certain products, primarily titanium sheet and plate. We continually evaluate market conditions as we move forward with these capital projects in an effort to match our operational capabilities with anticipated demand.

 

Fabrication Group

 

The Fabrication Group is comprised of companies with significant hard-metal expertise that extrude, fabricate, machine, and assemble titanium and other specialty metal parts and components. Its products, many of which are complex engineered parts and assemblies, serve commercial aerospace, defense, oil and gas, power generation, medical device, and chemical process industries, as well as a number of other industrial and consumer markets. With operations located in Houston, Texas; Washington, Missouri; Laval, Canada; and a representative office in China, the Fabrication Group provides value-added products and services such as engineered tubulars and extrusions, fabricated and machined components and sub-assemblies, as well as engineered systems for deepwater oil and gas exploration and production infrastructure.

 

Distribution Group

 

The Distribution Group stocks, distributes, finishes, cuts-to-size, and facilitates just-in-time delivery services of titanium, steel, and other specialty metal products, primarily nickel-based specialty alloys. With operations in Garden Grove, California; Windsor, Connecticut; Sullivan, Missouri; Staffordshire, England; and Rosny-Sur-Seine, France; the Distribution Group is in close proximity to its wide variety of commercial aerospace, defense, and industrial and consumer customers. When titanium products and fabrications are involved in a project, the Titanium Group and the Fabrication Group coordinate their varied capabilities to provide the best materials solution for its customers. An example is our Howitzer program. The Titanium Group is providing the titanium mill products to the Fabrication Group, which in turn is providing extrusions, hot formed parts, and machined components that are packaged as a kit and sent to BAE Systems for final assembly. This contract was awarded to us in 2005 for deliveries which extend through the first quarter 2012.

 

The amount and percentage of our consolidated net sales represented by each Group for the nine months ended September 30, 2010 and 2009, and for the past three years are summarized in the following table:

 

Operating income (loss) and the percentage of consolidated operating income (loss) contributed by each Group for the nine months ended September 30, 2010 and 2009, and for the past three years are summarized in the following table:

 

 

The Company’s total consolidated assets identified with each Group as of September 30, 2010, December 31, 2009, and December 31, 2008, are summarized in the following table:

 

 

 

 

Exports

 

The majority of our exports consist of titanium mill products, extrusions, and machined extrusions used in aerospace markets. Our export sales were 36%, 31%, and 26% of net sales for the years ended December 31, 2009, 2008, and 2007, respectively. Such sales were made primarily into Europe, where we are a leader in supplying flat-rolled titanium alloy mill products. In addition, sales to the Asian market continue to accelerate. Most of our export sales are denominated in U.S. Dollars.

 

We supply titanium alloy mill products and extrusions to the European market through our network of European distribution companies, which secures contracts to furnish mill products to the major European aerospace manufacturers. We are a major supplier of titanium flat-rolled products to Airbus. Our current long-term procurement frame contract with EADS Deutschland GmbH as lead buyer for the EADS group of companies, including Airbus, covers approximately 30% to 35% of Airbus’ requirements for covered mill products and runs through 2020.

 

Backlog

 

Our order backlog for all markets was approximately $346 million as of September 30, 2010, as compared to $342 million at December 31, 2009. Of the backlog at September 30, 2010, approximately $91 million is likely to be realized over the remainder of 2010. We define backlog as firm business scheduled for release into our production process for a specific delivery date. We have numerous contracts that extend multiple years, including the Airbus, JSF and Boeing 787 long-term supply agreements, which are not included in backlog until a specific release into production or a firm delivery date has been established.

Raw Materials

 

The principal raw materials used in the production of titanium mill products are titanium sponge (a porous metallic material, so called due to its appearance), titanium scrap, and various alloying agents. We source our raw materials from a number of domestic and foreign titanium suppliers under long-term contracts and other negotiated transactions. Currently, the majority of our titanium sponge requirements are sourced from foreign suppliers. Requirements for titanium sponge, scrap, and alloys vary depending upon the volume and mix of final products. Our cold-hearth melting process provides us with the flexibility to consume a wider range of metallics, thereby reducing our need for purchased titanium sponge.

 

We currently have supply agreements for certain critical raw materials. These contracts are with suppliers located in Japan, Kazakhstan, and the United States, and allow us to purchase certain quantities of raw materials at annually negotiated prices. Purchases under these contracts are U.S. Dollar denominated. These contracts expire at various periods through 2016. We purchase the balance of our raw materials opportunistically on the spot market as needed.

 

We believe we have adequate sources of supply for titanium sponge, scrap, alloying agents, and other raw materials to meet our near and medium-term raw material needs. Business units in the Fabrication and Distribution Groups obtain the majority of their titanium mill product requirements from the Titanium Group. Other metallic requirements are generally sourced from the best available supplier at competitive market prices.

 

Competition and Other Market Factors

 

The titanium metals industry is a highly competitive global business. Titanium competes with other materials of construction, including certain stainless steel, other nickel-based high temperature and corrosion resistant alloys, and composites. A metal manufacturing company with rolling and finishing facilities could participate in the mill product segment of the industry. It would either need to acquire intermediate product from an existing source or further integrate to include vacuum melting and forging operations to provide the starting stock for further rolling. In addition, many end-use applications, especially in aerospace, require rigorous testing, approvals, and customer certification prior to purchase which would require a significant investment of time and capital coupled with extensive technical expertise.

 

The aerospace consumers of titanium products tend to be highly concentrated. Boeing, Airbus, and Lockheed Martin manufacture airframes. General Electric, Pratt & Whitney, and Rolls Royce build jet engines. Through the direct purchase from these companies and their family of specialty subcontractors, they account for a majority of aerospace products for large commercial aerospace and defense applications.

 

Producers of titanium mill products are located primarily in the U.S., Japan, Russia, Europe, and China. We participate directly in the titanium mill product business primarily through our Titanium Group. Our principal competitors in the aerospace titanium market are Allegheny Technologies Incorporated (“ATI”) and Titanium Metals Corp. (“TIE”), both based in the United States, and Verkhnaya Salda Metallurgical Production Organization (“VSMPO”), based in Russia. TIE and certain Japanese producers are our principal competitors in the industrial and emerging markets. We compete primarily on the basis of price, quality of products, technical support, and the availability of products to meet customers’ delivery schedules.

 

Competition for the Fabrication and Distribution Groups is primarily on the basis of price, quality, timely delivery, and customer service. We believe that the business units in the Fabrication and Distribution Groups are well positioned to continue to compete and grow due to the range of goods and services offered and the increasing synergy with the Titanium Group for product and technical support.

 

Trade and Legislative Factors

 

Imports of titanium mill products from countries that receive the normal trade relations (“NTR”) tariff rate are subject to a 15% tariff. The tariff rate applicable to imports from countries that do not receive NTR treatment is 45%. A 15% tariff exists on unwrought titanium products entering the U.S., including titanium sponge. Currently, our imported titanium sponge from Kazakhstan and Japan is subject to this 15% tariff. Our

competitors that do not rely on imported titanium sponge are not subject to the additional 15% tariff in the cost of their products. We have sought relief from this tariff through the Offices of the U.S. Trade Representative but have been unsuccessful in having the tariff removed. We believe the U.S. Trade laws as currently applied to the domestic titanium industry create a competitive disadvantage to us.

 

U.S. Customs and Border Protection (“U.S. Customs”) administers a duty drawback program whereby duty paid on imported items can be recovered. In the event materials on which duty has been paid are used in the manufacture of products in the United States and such manufactured products are then exported, duties paid may be refunded as drawback provided various requirements are met. We participate in U.S. Customs’ duty drawback program.

 

The United States Government is required by 10 U.S.C. § 2533b, “Requirement to buy strategic materials critical to national security from American sources” (the “Specialty Metals Clause”), to use domestically melted titanium in all military procurement. The law, which dates back to the Berry Amendment of 1973, is important to us in that it supports the domestic specialty metals industry. Although the Specialty Metals Clause was revised comprehensively in the 2007 Defense Authorization Act (the “2007 Act”), the subject was reopened in the 2007-2008 legislative session as a result of dissatisfaction, on both sides of the debate, with how the 2007 Act was being implemented by the Department of Defense. Consequently, new provisions under the National Defense Authorization Act for Fiscal Year 2008 (“2008 Act”) reflect a compromise on domestic source requirements for specialty metals.

 

The 2008 Act provides an important clarification for the specialty metals industry. It affirms that the Specialty Metals Clause does apply to commercial off-the-shelf-items such as: specialty metals mill products like titanium bar, billet, slab, and sheet; forgings and castings of specialty metals (unless incorporated into a commercial off-the-shelf item or subassembly); and fasteners (unless incorporated into commercial off-the-shelf end items or subassemblies). As an accommodation to the concerns of military suppliers and the Department of Defense, the 2008 Act provides for a new de minimis exception whereby defense agencies may accept an item containing up to 2% noncompliant metal, based on the total weight of all of the specialty metals in an item. This exception might apply, for example, to small specialty metal parts in a jet engine if the source of the parts cannot be ascertained. Finally, the 2008 Act revises the rules for granting compliance waivers when compliant materials are not available. It requires that the Department of Defense reexamine previously granted waivers (which the specialty metals industry challenged as overly broad) and amend them, if necessary, to comply with the 2008 Act. The 2008 Act also requires greater “transparency” in the use of the waiver process and requires the Department of Defense to report to Congress on the first and second anniversaries of the legislation concerning the types of items that are being procured under the new commercial off-the-shelf exception.

 

We believe that the compromises contained in the 2008 Act provide a fair and workable solution bridging the biggest concerns on both sides of the debate. We, together with the specialty metals industry as a whole, will be closely monitoring the implementation of the 2008 Act to see that the Specialty Metals Clause continues to ensure a reliable, domestic source of supply for products that are critical to national security.

 

Environmental Liabilities

 

We are subject to environmental laws and regulations as well as various health and safety laws and regulations that are subject to frequent modifications and revisions. While the costs of compliance for these matters have not had a material adverse impact on us in the past, it is difficult to accurately predict the ultimate effect these changing laws and regulations may have on us in the future. We continue to evaluate our obligations for environmental related costs on a quarterly basis and make adjustments in accordance with provisions of Statement of Position 96-1, Environmental Remediation Liabilities and SFAS No. 5, Accounting for Contingencies.

 

Based on available information, we believe our share of possible environmental-related costs is in a range from $0.8 million to $2.2 million in the aggregate. At September 30, 2010 and December 31, 2009, the amounts accrued for future environmental-related costs were $1.4 million and $1.5 million, respectively. Of the total amount accrued at September 30, 2010, $0.1 million is expected to be paid out within one year and is included in the other accrued liabilities line of the balance sheet. The remaining $1.3 million is recorded in

other noncurrent liabilities. During the nine months ended September 30, 2010, we made payments totaling $0.1 million related to our environmental liabilities.

 

Marketing and Distribution

 

We market our titanium mill and related products and services worldwide. The majority of our sales are made through our own sales force. Our sales force has offices in Niles, Ohio; Houston, Texas; Los Angeles, California; Hartford, Connecticut; and Montreal, Canada. Technical Marketing personnel are available to service these offices. Customer support for new product applications and development is provided by our Customer Technical Service personnel at each business unit, as well as the corporate-level through our Technical Business Development and Research and Development organizations-located in Pittsburgh, Pennsylvania and Niles, Ohio, respectively. Sales of the Fabrication and Distribution Groups’ products and services are made by our corporate-level sales force and personnel at the locations set forth below. Fabrication Group locations include: Houston, Texas; Washington, Missouri; and Montreal, Canada. Distribution Group facilities are located at Garden Grove, California; Windsor, Connecticut; Sullivan, Missouri; Birmingham, England; Rosny-Sur-Siene, France; and Guangzhou, China.

 

Research, Technical, and Product Development

 

We conduct research, technical, and product development activities for both the Titanium Group and the Fabrication Group. Research includes not only new product development, but also new or improved technical and manufacturing processes. We are conducting research for the U.S. Army and have entered into discussions with both the U.S. Army and the Department of Defense on other research projects. We also participate in several other federal and state-funded research projects to develop lower cost titanium, advanced melting technology, and “as cast” extrusions, as well as improved flat product research. The principal goals of our research program, aside from U.S. Army and Department of Defense projects, are advancing technical expertise in the production of titanium mill and fabricated products and providing technical support in the development of new markets and products. Our research, technical, and product development costs totaled $2.5 million for the nine months ended September 30, 2010, and $2.0 million, $2.1 million and $1.7 million for 2009, 2008 and 2007, respectively.

 

Patents and Trademarks

 

We possess a substantial body of technical know-how and trade secrets and own a number of U.S. patents applicable primarily to product formulations and uses. We consider our expertise, trade secrets, and patents important to the conduct of our business, although no individual item is currently considered to be material to our current business.

 

Employees

 

At October 31, 2010, we and our subsidiaries employed 1,526 persons, 142 of whom were classified as administrative and sales personnel. Of the total number of employees, 643 employees were in the Titanium Group, 655 were in the Fabrication Group, 155 were in the Distribution Group and 73 were located at our corporate headquarters.

 

The United Steelworkers of America represents 332 of the hourly, clerical and technical employees at our plant in Niles, Ohio. The current Labor Agreement entered into on December 1, 2004 with the United Steelworkers of America is set to expire on June 30, 2013. Hourly employees at the RTI Tradco facility in Washington, Missouri are represented by the International Association of Machinists and Aerospace Workers. There are 154 employees in the bargaining unit. The current labor contract with the International Association of Machinists and Aerospace Workers expires on February 19, 2011. No other of our domestic employees are represented by a union.

 

Listed below are the executive officers of the Company, together with their ages and titles as of December 7, 2010.

 

 

Biographies

 

Ms. Hickton was appointed Vice Chairman and Chief Executive Officer in April 2007. Prior thereto, she served as Senior Vice President and Chief Administrative Officer from July 2005, Secretary from April 2004, and Vice President and General Counsel from June 1997. Prior to joining the Company, Ms. Hickton had been an Assistant Professor of Law at The University of Pittsburgh School of Law, and was employed at U.S. Steel Corporation from 1983 through 1994.

 

Mr. McCarley was appointed Executive Vice President—Operations on May 17, 2010. Prior thereto, he was employed at Wyman Gordon (a division of Precision Castparts Corp.), a global manufacturer of complex metal components, in various management roles from 1987 to 2009, including serving as Division President of Wyman Gordon-West since 2008. He has served as CEO of General Vortex Energy Inc., a private developer of engine and combustion technologies, since 2009.

 

Mr. Giangiordano was appointed Executive Vice President of Technology and Innovation in July 2008. Prior thereto, he served as Executive Vice President from April 2007, Senior Vice President, Titanium Group from October 2002 and Vice President, Titanium Group from July 1999. Prior to that assignment, he served as Vice President, Technology from 1994.

 

Mr. Hull was appointed Senior Vice President and Chief Financial Officer in April 2007. Prior thereto, he served as Vice President and Chief Accounting Officer from August 2005. Prior to joining the Company, Mr. Hull served as Corporate Controller of Stoneridge, Inc., of Warren, Ohio, where he was employed from 2000. Mr. Hull is a Certified Public Accountant.

 

Mr. Strome was appointed Senior Vice President—Strategic Planning and Finance in November 2007. Prior to joining the Company, Mr. Strome served as a Principal focusing on development projects at Laurel Mountain Partners, L.L.C. Prior to joining Laurel in 2006, Mr. Strome served as Senior Managing Director and Group Head, Investment Banking at the investment banking firm Friedman, Billings, Ramsey & Co., Inc. From 1981 to 2001, Mr. Strome was employed by PNC Financial Services Group, Inc. in various legal capacities and most recently managed PNC’s corporate finance advisory activities and its mergers and acquisitions services.

 

Mr. Whalen was appointed Vice President, General Counsel and Secretary in February 2007. Mr. Whalen practiced corporate law at the law firm of Buchanan Ingersoll & Rooney PC from 1999 until joining the Company.

 

The following is a summary of material terms and conditions of our material debt instruments. The summary is not complete and may not contain all of the information that is important to you.

 

Revolving Credit Facility

 

On September 8, 2008, we entered into the Amended and Restated Credit Agreement (the “Credit Agreement”), which amended and restated our prior credit agreement dated September 27, 2007. The Credit Agreement replaced our $240 million revolving credit facility with a term loan in the amount of $225 million (the “Term Loan”) and a revolving credit facility in the amount of $200 million (collectively, the “Credit Facility”). Borrowings under the Credit Agreement bear interest at the option of the Company at a rate equal to the London Interbank Offered Rate (the “LIBOR Rate”) plus an applicable margin or a prime rate plus an applicable margin. In addition, we pay a facility fee in connection with the Credit Agreement. Both the applicable margin and the facility fee vary based upon our consolidated net debt to consolidated EBITDA, as defined in the Credit Agreement. The Credit Agreement matures on September 27, 2012. The Credit Agreement contains covenants customary for agreements of this type which restrict the Company from engaging in certain transactions and which include limitations with respect to permitted indebtedness and guaranties, permitted liens, liquidations, mergers, consolidations, dispositions of assets or subsidiaries, dividends and distributions.

 

Our wholly-owned Canadian subsidiary RTI-Claro, Inc. (Claro), maintains a credit agreement with National City Bank, Canada Branch (the “Canadian Facility”) that provides for an unsecured $16 million Canadian credit facility. This credit facility bears interest at a rate ranging from Canadian Dollar Offered Rate plus 0.65% to Canadian Dollar Offered Rate plus 2.25% or Canadian Prime minus 0.75% to Canadian Prime plus 0.75%, depending upon our leverage ratio. The credit facility operated as a revolving credit facility until July 1, 2007, at which time the outstanding principal and interest were converted to a ten-year term loan effective July 1, 2007. On September 8, 2008, the credit facility maintained by Claro was amended to conform it to our credit facility discussed above.

 

Claro also maintains an interest-free loan agreement which allows for borrowings of up to $5.2 million Canadian Dollars. This loan agreement was obtained through an affiliate of the Canadian government. Borrowings under this agreement are to be used for new equipment related to the capital expansion efforts at our Claro facility. Under the terms of the loan, if we do not prepay the loan, the principal will be required to be repaid in 60 equal, monthly and consecutive payments, which began in March 2009.

 

In September 2009, we completed the offer and sale of 6,900,000 shares of our common stock of the Company, par value $0.01 per share. We utilized the proceeds of the offering to repay all amounts outstanding under our Term Loan, our Canadian Facility, and our Canadian interest-free loan agreement. We also completed the first amendment (the “Amendment”) to our Credit Agreement. The Amendment provides us with additional flexibility on the Interest Coverage Ratio covenant of the Credit Agreement by excluding the interest paid under the Term Loan and the Canadian Facility from the calculation and provides additional flexibility on the Net Debt to EBITDA ratio covenant by permitting certain charges to be added back to net income for the purpose of determining EBITDA. The Amendment also increased the margin added to both the base interest rate and the LIBOR interest rate and increased the facility fee. There were no additional changes to the covenants under the Credit Agreement. On January 19, 2010 the Credit Agreement was further modified to exclude from the Net Debt to EBITDA ratio covenant the letters of credit with respect to which the Company had deposited cash collateral. Each of our existing and future material domestic subsidiaries, defined as those U.S. subsidiaries of ours that have five percent or more of our assets on a consolidated basis, is required to guaranty our obligations under the Credit Agreement. On March 1, 2010, an additional lender provided a revolving credit commitment under a commitment increase agreement in the amount of $25 million, with the result that the total revolving credit commitments increased to $225 million.

 

Pursuant to a Third Amendment to our Credit Agreement, which is being effected simultaneously with the offering of the notes, those domestic subsidiaries of RTI which are no longer qualify as “Material Subsidiaries” as defined in the credit agreement are being released as guarantors of the revolving credit

facility, such that upon effectiveness of the Third Amendment we will have four subsidiaries providing a guarantee under our Credit Agreement, which are the same subsidiaries providing the subsidiary guarantor with respect to the notes. Also, the revolving credit facility provided to us by the banks which provide financing is being reduced from $225 million to $150 million. In addition, the definition of Consolidated EBITDA which is applicable to calculation of certain financial covenants has been revised in order to (i) exclude the LIFO valuation methodology in connection with non-cash charges, and (ii) modify the time period for which RTI may include up to $25 million of restructuring and acquisition charges in the EBITDA calculation.

 

The following description of the particular terms of the notes offered by this prospectus supplement supplements the description of the general terms and provisions of the debt securities set forth in the accompanying prospectus under the caption “Description of Debt Securities.”

 

We will issue the notes under an indenture dated as of December   , 2010 (the “base indenture”) between us and The Bank of New York Mellon Trust Company, N.A., as trustee (the “trustee”), as supplemented by a supplemental indenture to be dated as of December   , 2010 (the “supplemental indenture” and together with the base indenture, the “indenture”) between us, the subsidiary guarantors named therein and the trustee. The terms of the notes include those expressly set forth in the indenture and those made part of the indenture by reference to the Trust Indenture Act of 1939, as amended. You may request a copy of the base indenture and the supplemental indenture from us as described under “Where You Can Find More Information About Us.”

 

The following description is a summary of the material provisions of the notes and the indenture and does not purport to be complete. This summary is subject to and is qualified by reference to all the provisions of the notes and the indenture, including the definitions of certain terms used in the indenture. We urge you to read these documents because they, and not this description, define your rights as a holder of the notes.

 

For purposes of this description, references to “we,” “our” and “us” refer only to RTI International Metals, Inc. and not to any of its consolidated subsidiaries.

 

General

 

The notes:

 

 

Subject to fulfillment of certain conditions and during the periods described below, the notes may be converted as described below at the applicable conversion rate. The conversion rate will initially be           shares of our common stock per $1,000 principal amount of notes (equivalent to an initial conversion price of approximately $      per share of our common stock). The conversion rate is subject to adjustment if certain events occur.

 

Upon conversion of a note, we will deliver or pay, as the case may be, shares of our common stock, cash or a combination of cash and shares of our common stock, at our election, as described below under

“Conversion Rights—Settlement upon Conversion.” Upon conversion, you will not receive any separate cash payment or additional shares of our common stock representing interest, if any, accrued and unpaid to the conversion date except under the limited circumstances described below.

 

The indenture does not limit the amount of debt that we or our subsidiaries may issue under the indenture or otherwise. The indenture does not contain any financial covenants and does not restrict us from paying dividends or issuing or repurchasing our other securities. Other than restrictions described under “Fundamental Change Permits Holders to Require Us to Purchase Notes” and “Consolidation, Merger and Sale of Assets” below and except for the provisions set forth under “Conversion Rights—Adjustment to Conversion Rate Upon Conversion in Connection with a Make-whole Fundamental Change,” the indenture does not contain any covenants or other provisions designed to afford holders of the notes protection in the event of a highly leveraged transaction involving us or in the event of a decline in our credit rating as the result of a takeover, recapitalization, highly leveraged transaction or similar restructuring involving us that could adversely affect such holders.

 

We may, without the consent of the holders, issue additional notes under the indenture with the same terms and with the same CUSIP number as the notes offered hereby in an unlimited aggregate principal amount; provided that such additional notes must be part of the same issue as the notes offered hereby for federal income tax purposes. We may also from time to time repurchase notes in open market purchases or negotiated transactions without giving prior notice to holders. Any notes purchased by us will be deemed to be no longer outstanding under the indenture.

 

We do not intend to list the notes on a national securities exchange or arrange for the notes to be quoted on any interdealer quotation system.

 

Payments on the Notes; Paying Agent and Registrar; Transfer and Exchange

 

We will pay the principal of and interest on notes in global form registered in the name of or held by The Depository Trust Company (“DTC”) or its nominee in immediately available funds to DTC or its nominee, as the case may be, as the registered holder of such global note.

 

We will pay the principal of any certificated notes at the office or agency designated by us for that purpose in the Borough of Manhattan, The City of New York. We have initially designated the trustee as our paying agent and registrar and its agency at the corporate trust office of the trustee in New York, New York as a place where notes may be presented for payment or for registration of transfer. We may, however, change the paying agent or registrar without prior notice to the holders of the notes, and we may act as paying agent or registrar. Interest on certificated notes will be payable (i) to holders holding certificated notes having an aggregate principal amount of $5,000,000 or less, by check mailed to the holders of these notes and (ii) to holders holding certificated notes having an aggregate principal amount of more than $5,000,000, either by check mailed to each such holder or, upon application by such a holder to the registrar not later than the relevant record date, by wire transfer in immediately available funds to that holder’s account within the United States, which application shall remain in effect until the holder notifies, in writing, the registrar to the contrary.

 

A holder of certificated notes may transfer or exchange notes at the office of the registrar in accordance with the indenture. The registrar and the trustee may require a holder, among other things, to furnish appropriate endorsements and transfer documents. A holder of a beneficial interest in a global note may transfer such beneficial interest in accordance with the applicable procedures of the depositary. See “—Book-entry, Settlement and Clearance.” No service charge will be imposed by us, the trustee or the registrar for any registration of transfer or exchange of notes, but any documentary, stamp or similar issue or transfer tax due because a holder requests any shares of our common stock due upon conversion to be issued in a name other than such holder’s name will be paid by such holder. We are not required to transfer or exchange any note surrendered for conversion or required purchase upon the occurrence of a fundamental change.

 

The registered holder of a note will be treated as the owner of such note for all purposes.

Payment at Maturity

 

On the maturity date, each holder will be entitled to receive on such date $1,000 in cash for each $1,000 in principal amount of notes, together with accrued and unpaid interest to, but not including, the maturity date, unless earlier converted or purchased by us at the holder’s option upon a fundamental change.

 

Interest

 

The notes will bear cash interest at a rate of     % per year until maturity. Interest on the notes will accrue from          , 2010 or from the most recent date on which interest has been paid or duly provided for. Interest will be payable semiannually in arrears on June 1 and December 1 of each year, beginning June 1, 2011. We will pay additional interest, if any, under the circumstances described under “—Events of Default.”

 

Interest will be paid to the person in whose name a note is registered at the close of business on May 15 or November 15 (whether or not a business day), as the case may be, immediately preceding the relevant interest payment date. Interest on the notes will be computed on the basis of a 360-day year composed of twelve 30-day months. The term “open of business” means 9:00 a.m., New York City time, and the term “close of business” means 5:00 p.m., New York City time.

 

If any interest payment date, the maturity date or any earlier required repurchase date upon the occurrence of a fundamental change falls on a day that is not a business day, the required payment will be made on the next succeeding business day and no interest on such payment will accrue in respect of the delay. The term “business day” means any day other than a Saturday, a Sunday or a day on which the Federal Reserve Bank of New York is authorized or required by law or executive order to close or be closed.

 

Unless otherwise explicitly stated, all references to interest in this prospectus supplement are deemed to include additional interest, if any, payable at our election as the sole remedy during certain periods for an event of default relating to the failure to comply with our reporting obligations under the indenture, if applicable, as described under “—Events of Default.”

 

Ranking

 

The notes will be our general unsecured obligations and will rank senior in right of payment to all of our existing and future indebtedness that is expressly subordinated in right of payment to the notes. The notes will rank equal in right of payment with all of our existing and future liabilities that are not so subordinated. The notes will be effectively subordinated to any of our secured indebtedness to the extent of the value of the assets securing such indebtedness. The notes will be structurally subordinated to all existing and future indebtedness and other obligations of our subsidiaries that do not guarantee the notes. In the event of our bankruptcy, liquidation, reorganization or other winding up, our assets that secure secured debt will be available to pay obligations on the notes only after all indebtedness under such secured debt has been repaid in full. We advise you that there may not be sufficient assets remaining to pay amounts due on any or all the notes then outstanding.

 

As of September 30, 2010, our total consolidated indebtedness was $48,000. As of September 30, 2010, we had no secured indebtedness. After giving effect to the issuance of the notes (assuming no exercise of the underwriters’ over-allotment option) and the use of proceeds therefrom, our total consolidated indebtedness would have been $175 million. See “Risk Factors—Risks Related to the Notes—The notes and subsidiary guarantees will be effectively subordinated to current and future secured debt of RTI or the subsidiary guarantors.”

 

Each subsidiary guarantee will be a general unsecured obligation of such subsidiary guarantor and will rank senior in right of payment to all of such subsidiary guarantor’s existing and future indebtedness that is expressly subordinated in right of payment to its subsidiary guarantee. Each subsidiary guarantee will rank equal in right of payment with all existing and future liabilities of the applicable subsidiary guarantor that are not so subordinated. Each subsidiary guarantee will be effectively subordinated to any secured indebtedness of the applicable subsidiary guarantor to the extent of the value of the assets securing such indebtedness. Each subsidiary guarantee will be structurally subordinated to all existing and future indebtedness and other obligations of subsidiaries of the applicable subsidiary guarantor that do not themselves guarantee the notes. In

the event of the bankruptcy, liquidation, reorganization or other winding up of a subsidiary guarantor, the assets of such subsidiary guarantor that secure secured debt will be available to pay obligations on the applicable subsidiary guarantee only after all indebtedness under such secured debt has been repaid in full. We advise you that there may not be sufficient assets remaining to pay amounts due on the applicable subsidiary guarantee.

 

As of September 30, 2010, our subsidiaries held substantially all of our consolidated assets and generated substantially all of our consolidated net income. As of September 30, 2010, our subsidiary guarantors held approximately 71.1% of our consolidated assets and, for the year ended December 31, 2009 and the nine months ended September 30, 2010, represented approximately 61.4% and 56.1% of our consolidated net sales. For the nine months ended September 30, 2010, our subsidiary guarantors collectively represented 99.7% of our consolidated operating income. Additional financial information regarding RTI on an unconsolidated basis, the subsidiary guarantors and our subsidiaries that are not guarantor subsidiaries can be found in our Current Report on Form 8-K filed on December 8, 2010. No subsidiary other than the four subsidiary guarantors set forth in this prospectus has any obligations in respect of the notes. The ability of our subsidiaries to pay dividends and make other payments could be restricted by, among other things, applicable corporate and other laws and regulations as well as future agreements to which our subsidiaries could become parties. Accordingly, we may not be able to pay the amount of cash, if any, due upon any conversion of the notes, or to pay the cash fundamental change purchase price if a holder requires us to purchase notes as described under “—Fundamental Change Permits Holders to Require Us to Purchase Notes.”

 

Subsidiary Guarantees

 

The notes will be guaranteed by each of our subsidiaries that guarantee obligations under our Credit Facility (upon effectiveness of the current amendment to the Credit Facility), and will include any subsidiary that guarantees obligations under the Credit Facility, as amended and as the same may be amended, restated, supplemented, modified, renewed, refunded, replaced or refinanced (and whether or not with the same lenders and agents or other lenders, agent or financing sources), after the issue date of the notes. The notes initially will be guaranteed by our four subsidiaries that guarantee the obligations under our credit facility; RMI Titanium Company, Extrusion Technology Corporation of America, RTI Finance Corp. and RTI Martinsville, Inc. As used in this prospectus supplement, the term “subsidiary guarantor” refers to RMI Titanium Company, Extrusion Technology Corporation of America, RTI Finance Corp., RTI Martinsville, Inc. and any of our subsidiaries that may guarantee the notes in the future, and the term “subsidiary guarantee” refers to the guarantee of our obligations under the indenture and the notes by a subsidiary guarantor.

 

If after the issue date, any subsidiary of ours incurs or guarantees any obligations under the Credit Facility prior to the conversion, repurchase or maturity of the notes, the indenture will require us concurrently to cause such subsidiary to (A) execute and deliver to the trustee a supplemental indenture in a form reasonably satisfactory to the trustee pursuant to which such subsidiary shall fully and unconditionally guarantee all of our obligations under the notes and the indenture and (B) deliver to the trustee an opinion of counsel to the effect that (i) such supplemental indenture and subsidiary guarantee has been duly executed and authorized and (ii) such supplemental indenture and subsidiary guarantee constitutes a valid, binding and enforceable obligation of such subsidiary guarantor, except insofar as enforcement thereof may be limited by bankruptcy, insolvency or similar laws (including, without limitation, all laws relating to fraudulent transfers) and except insofar as enforcement thereof is subject to general principles of equity. Any such subsidiary guarantee shall be pari passu in right of payment with the obligations of such subsidiary under the Credit Facility.

 

The subsidiary guarantors will, jointly and severally, unconditionally guarantee our obligations under the indenture and the notes. Under the terms of the subsidiary guarantees, holders of the notes will not be required to exercise their remedies against us before they proceed directly against the subsidiary guarantors. The obligations of a subsidiary guarantor under its subsidiary guarantee will be limited as necessary to prevent the applicable subsidiary guarantee from constituting a fraudulent conveyance or fraudulent transfer under applicable law.

We may not permit our subsidiary guarantors to consolidate with or merge with or into, or sell, convey, assign, transfer or lease or otherwise dispose of, in one transaction or a series of transactions, all or substantially all of its assets to any person unless:

 

 

Each subsidiary guarantee shall be automatically and unconditionally released and discharged and the holders of the notes will be deemed to have consented to such release without any action on the part of the trustee or any holder of the notes in the following circumstances:

 

 

Upon the satisfaction of any such condition to the release of such subsidiary guarantee, at our request, the trustee will execute and deliver any documents, instructions or instruments necessary to evidence such release.

 

Conversion Rights

 

General

 

Prior to the close of business on the business day immediately preceding June 1, 2015, the notes will be convertible only upon satisfaction of one or more of the conditions described under the headings “—Conversion upon Satisfaction of Sale Price Condition,” “—Conversion upon Satisfaction of Trading Price Condition” and “—Conversion upon Specified Corporate Transactions.” On or after June 1, 2015, holders may convert their notes at the applicable conversion rate at any time prior to the close of business on the second scheduled trading day immediately preceding the maturity date of the notes regardless of whether any of the foregoing conditions has been met. The conversion rate will initially be           shares of our common stock per $1,000 principal amount of notes (equivalent to an initial conversion price of approximately $      per share of common stock). Upon conversion of a note, we will satisfy our conversion obligation by delivering or paying, as the case may be, shares of our common stock, cash or a combination of cash and shares of our common stock, at our election, all as set forth below under “—Settlement upon Conversion.”

 

The trustee will initially act as the conversion agent.

 

The conversion rate and the equivalent conversion price in effect at any given time are referred to as the “applicable conversion rate” and the “applicable conversion price,” respectively, and will be subject to adjustment as described below. The applicable conversion price at any given time will be computed by dividing $1,000 by the applicable conversion rate at such time. At any time that the notes are convertible, a holder may convert all or any portion of such holder’s notes so long as such portion is an integral multiple of the $1,000 principal amount.

Upon conversion, you will not receive any separate cash payment or additional shares of our common stock representing accrued and unpaid interest, if any, except as described below. We will not issue fractional shares of our common stock upon conversion of notes. Instead, we will pay cash in lieu of any fractional share as described under “—Settlement upon Conversion.” Our payment or delivery, as the case may be, to you of cash, shares of our common stock or a combination thereof, as the case may be, into which a note is convertible, together with any cash payment for any fractional share, will be deemed to satisfy in full our obligation to pay:

 

 

As a result, accrued and unpaid interest, if any, up to but not including the conversion date will be deemed to be paid in full rather than cancelled, extinguished or forfeited. Upon a conversion of notes into a combination of cash and shares of our common stock, accrued and unpaid interest, if any, will be deemed to be paid first out of any cash paid upon such conversion.

 

Notwithstanding the preceding paragraph, if notes are converted after the close of business on a regular record date for the payment of interest and prior to the open of business on the corresponding interest payment date, holders of such notes at the close of business on such record date will receive the full amount of interest payable on such notes on the corresponding interest payment date notwithstanding the conversion. Notes surrendered for conversion during the period from the close of business on any record date to the open of business on the immediately following interest payment date must be accompanied by funds equal to the amount of interest payable on the notes so converted; provided that no such payment need be made:

 

 

If a holder converts notes, we will pay any documentary, stamp or similar issue or transfer tax due on the issue of any shares of our common stock upon the conversion, unless such tax is due because the holder requests any shares to be issued in a name other than the holder’s name, in which case the holder will pay such tax.

 

Holders may surrender their notes for conversion under the following circumstances:

 

Conversion upon Satisfaction of Sale Price Condition

 

Prior to the close of business on the business day immediately preceding June 1, 2015, the notes will be convertible during any calendar quarter commencing after December 31, 2010 (and only during such calendar quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on the last trading day of the preceding calendar quarter is greater than or equal to 130% of the applicable conversion price on each applicable trading day. We will notify the trustee and the holders in the event the sale price condition has been met.

 

The “last reported sale price” of our common stock on any date means the closing sale price per share (or if no closing sale price is reported, the average of the bid and ask prices or, if more than one in either case, the average of the average bid and the average ask prices) on that date as reported in composite transactions for the principal U.S. securities exchange on which our common stock is traded.

 

If our common stock is not listed for trading on a U.S. national or regional securities exchange on the relevant date, the “last reported sale price” will be the average of the last quoted bid and ask prices for our common stock in the over-the-counter market on the relevant date as reported by Pink OTC Markets Inc. or a similar organization. If our common stock is not so quoted, the “last reported sale price” will be the average

of the mid-point of the last bid and ask prices for our common stock on the relevant date from each of at least three nationally recognized independent investment banking firms selected by us for this purpose.

 

“Trading day” means a day on which (i) trading in our common stock generally occurs on the NYSE or, if our common stock is not then listed on the NYSE, on the principal other United States national or regional securities exchange on which our common stock is then listed or, if our common stock is not then listed on a United States national or regional securities exchange, on the principal other market on which our common stock is then traded, and (ii) a last reported sale price for our common stock is available on such securities exchange or market. If our common stock (or other security for which a closing sale price must be determined) is not so listed or traded, “trading day” means a “business day.”

 

Conversion upon Satisfaction of Trading Price Condition

 

Prior to the close of business on the business day immediately preceding June 1, 2015, the notes will be convertible during the five business day period after any five consecutive trading day period (the “measurement period”) in which the “trading price” per $1,000 principal amount of notes, as determined following a request by a holder of notes in accordance with the procedures described below, for each trading day of such measurement period was less than 98% of the product of the last reported sale price of our common stock and the applicable conversion rate on such trading day.

 

The “trading price” of the notes on any date of determination means the average of the secondary market bid quotations obtained by the bid solicitation agent for $5 million principal amount of the notes at approximately 3:30 p.m., New York City time, on such determination date from three independent nationally recognized securities dealers we select for this purpose, which may include the underwriters; provided that, if three such bids cannot reasonably be obtained by the bid solicitation agent but two such bids are obtained, then the average of the two bids shall be used, and if only one such bid can reasonably be obtained by the bid solicitation agent, that one bid shall be used. If the bid solicitation agent cannot reasonably obtain at least one bid for $5 million principal amount of notes from a nationally recognized securities dealer on any determination date, then the trading price per $1,000 principal amount of notes on such determination date will be deemed to be less than 98% of the product of the last reported sale price of our common stock and the applicable conversion rate. If we do not so instruct the bid solicitation agent to obtain bids when required or if the bid solicitation agent fails to make such determination when obligated, the trading price per $1,000 principal amount of the notes will be deemed to be less than 98% of the product of the last reported sale price of our common stock and the applicable conversion rate on each day of such failure. We will initially act as the bid solicitation agent, either directly or through a designated agent.

 

The bid solicitation agent shall have no obligation to determine the trading price of the notes unless we have requested such determination; and we shall have no obligation to make such request unless a holder of a note provides us with reasonable evidence that the trading price per $1,000 principal amount of notes would be less than 98% of the product of the last reported sale price of our common stock and the applicable conversion rate. At such time, we shall instruct the bid solicitation agent in writing to determine the trading price of the notes in the manner described above beginning on the next trading day following the receipt of such evidence and on each successive trading day until the trading price per $1,000 principal amount of notes is greater than or equal to 98% of the product of the last reported sale price of our common stock and applicable conversion rate. If the trading price condition has been met, we will so notify the holders and the trustee within one business day. If, at any time after the trading price condition has been met, the trading price per $1,000 principal amount of notes is greater than or equal to 98% of the product of the last reported sale price of our common stock and the conversion rate for such date, we will so notify the holders and the trustee within one business day.

Conversion upon Specified Corporate Transactions

 

Certain Distributions

 

If, prior to the close of business on the business day immediately preceding June 1, 2015, we elect to:

 

 

then, in either case, we must notify the holders of the notes at least 35 scheduled trading days prior to the ex-dividend date for such issuance or distribution. Once we have given such notice, the notes will be convertible at any time until the earlier of (x) the close of business on the business day immediately preceding the ex-dividend date and (y) our announcement that such issuance or distribution will not take place, even if the notes are not otherwise convertible at such time. Holders of the notes may not exercise this conversion right if each holder will have the right to participate (as a result of holding the notes, and at the same time and on the same terms as holders of our common stock participate) in any of the transactions described above as if such holder of the notes held a number of shares of our common stock equal to (i) the applicable conversion rate, multiplied by (ii) (x) the principal amount of notes held by such holder divided by (y) $1,000, without having to convert its notes.

 

Certain Corporate Transactions

 

If a transaction or event that constitutes a “fundamental change” (as defined under “—Fundamental Change Permits Holders to Require Us to Purchase Notes”) or a “make-whole fundamental change” (as defined under “—Adjustment to Conversion Rate upon Conversion in Connection with a Make-whole Fundamental Change”) occurs prior to the close of business on the business day immediately preceding June 1, 2015, regardless of whether a holder has the right to require us to purchase the notes as described under “—Fundamental Change Permits Holders to Require Us to Purchase Notes,” or if we are a party to a consolidation, merger, binding share exchange, sale, conveyance, transfer or lease of all or substantially all of our assets, pursuant to which our common stock would be converted into cash, securities or other assets, the notes may be surrendered for conversion at any time from or after the business day following the effective date of the transaction until 35 trading days after the effective date of such transaction or, if such transaction also constitutes a fundamental change, until the related fundamental change purchase date (as defined below). We will notify holders and the trustee no later than the effective date of such transaction.

 

Conversions on or after June 1, 2015

 

On or after June 1, 2015, a holder may convert any of its notes at any time prior to the close of business on the second scheduled trading day immediately preceding the maturity date regardless of whether any of the foregoing conditions has been met.

 

Conversion Procedures

 

If you hold a beneficial interest in a global note, to convert you must comply with DTC’s procedures for converting a beneficial interest in a global note and, if required, pay funds equal to any interest payable on the next interest payment date to which you are not entitled and, if required, pay all documentary, stamp or similar issue or transfer taxes, if any.

If you hold a certificated note, to convert you must:

 

 

The date you comply with the relevant procedures for conversion described above is referred to as the “conversion date.”

 

If a holder has already delivered a purchase notice as described under “—Fundamental Change Permits Holders to Require Us to Purchase Notes” with respect to a note, the holder may not surrender that note for conversion until the holder has withdrawn the notice in accordance with the indenture.

 

Settlement upon Conversion

 

General

 

Upon conversion, we will deliver to holders, at our election:

 

 

We refer to each of physical settlement, cash settlement and combination settlement as a “settlement method.”

 

Prior to the close of business on the business day immediately preceding June 1, 2015, we will use the same settlement method for all conversions occurring on the same conversion date. However, prior to June 1, 2015, we will not have any obligation to use the same settlement method with respect to conversions that occur on different conversion dates. That is, we may choose on one conversion date to settle conversions using physical settlement, and choose on another conversion date cash settlement or combination settlement.

 

For conversions:

 

 

Any such notice of a settlement method may not be revoked.

If we do not elect a settlement method as described above, then combination settlement will apply and the cash amount will be $1,000. If we elect combination settlement as the settlement method and do not specify a cash amount, the cash amount will be $1,000.

 

As described above, we may elect physical settlement, cash settlement or combination settlement upon any conversion of the notes. We will from time to time make an election with respect to the method we choose to satisfy our obligation upon conversion, which election shall be effective until we provide notice of an election of a different method of settlement, subject to our obligation to give irrevocable notice of the settlement method in certain circumstances as described above.

 

Each conversion of notes will be deemed to have been effected on the relevant conversion date, and with respect to any shares of common stock that are issuable upon such conversion:

 

 

Physical Settlement

 

If physical settlement applies to any notes surrendered for conversion, we will deliver, for each $1,000 principal amount of notes being converted, a number of shares of our common stock equal to the applicable conversion rate as of the conversion date, together with cash in lieu of fractional shares as described below. Except as described under “—Adjustment to Conversion Rate upon Conversion in Connection with a Make-whole Fundamental Change,” we will deliver the shares on the third business day following the conversion date.

 

Cash Settlement

 

If cash settlement applies to any notes surrendered for conversion, we will pay, for each $1,000 principal amount of notes being converted, an amount of cash equal to the sum of the daily conversion values for each trading day during the relevant observation period. Except as described under “—Adjustment to Conversion Rate upon Conversion in Connection with a Make-whole Fundamental Change,” we will make such payment on the third business day following the last trading day of the applicable observation period.

 

Combination Settlement

 

If combination settlement applies to any notes surrendered for conversion, we will pay or deliver, as the case may be, for each $1,000 principal amount of notes being converted, the sum of the daily settlement amounts for each trading day during the relevant observation period. Except as described under “—Adjustment to Conversion Rate upon Conversion in Connection with a Make-whole Fundamental Change,” we will deliver the cash and shares of our common stock on the third business day following the last trading day of the applicable observation period.

 

Fractional Shares

 

We will deliver cash in lieu of any fractional share of common stock issuable in connection with the delivery of any shares as described above. If physical settlement applies, the amount of cash will be based on the daily VWAP of our common stock on the relevant conversion date if such conversion date occurs prior to the close of business on the business day immediately preceding June 1, 2015. If combination settlement applies, the amount of cash will be based on the daily VWAP on the last trading day of the applicable observation period.

Definitions

 

As used herein:

 

“daily settlement amount,” for each of the 40 consecutive trading days during the observation period, means:

 

 

“Daily conversion value” means, for each of the 40 consecutive trading days during the observation period, 2.5% of the product of (1) the applicable conversion rate and (2) the daily VWAP of our common stock on such trading day.

 

“Daily VWAP” means, for each of the 40 consecutive trading days during the applicable observation period, the per share volume-weighted average price as displayed under the heading “Bloomberg VWAP” on Bloomberg page “RTI.N<equity> AQR” (or its equivalent successor if such page is not available) in respect of the period from the scheduled open of trading until the scheduled close of trading of the primary trading session on such trading day (or if such volume-weighted average price is unavailable, the market value of one share of our common stock on such trading day determined, using a volume-weighted average method, by a nationally recognized independent investment banking firm retained for this purpose by us). Daily VWAP will be determined without regard to after hours trading or any other trading outside of the regular trading session trading hours.

 

“Observation period” with respect to any note surrendered for conversion means:

 

 

For the purpose of determining amounts due upon conversion only, “trading day” means a day on which (i) there is no “market disruption event” (as defined below) and (ii) trading in our common stock generally occurs on the NYSE or, if our common stock is not then listed on the NYSE, on the principal other United States national or regional securities exchange on which our common stock is then listed or, if our common stock is not then listed on a United States national or regional securities exchange, on the principal other market on which our common stock is then listed or admitted for trading. If our common stock (or other security for which a daily VWAP must be determined) is not so listed or admitted for trading, “trading day” means a “business day.”

 

“Scheduled trading day” means a day that is scheduled to be a trading day on the principal United States national or regional securities exchange or market on which our common stock is listed or admitted for trading. If our common stock is not so listed or admitted for trading, “scheduled trading day” means a business day.

 

“Market disruption event” means (i) a failure by the primary United States national or regional securities exchange or market on which our common stock is listed or admitted for trading to open for trading during its regular trading session or (ii) the occurrence or existence prior to 1:00 p.m., New York City time, on any scheduled trading day for our common stock for more than one half-hour period in the aggregate during regular trading hours of any suspension or limitation imposed on trading (by reason of movements in price

exceeding limits permitted by the relevant stock exchange or otherwise) in our common stock or in any options or futures contracts relating to our common stock.

 

Conversion Rate Adjustments

 

The conversion rate will be adjusted as described below, except that we will not make any adjustment to the conversion rate if holders of the notes participate (other than in the case of a share split or share combination), at the same time and upon the same terms as holders of our common stock and solely as a result of holding the notes, in any of the transactions described below without having to convert their notes as if they held a number of shares of our common stock equal to (i) the conversion rate in effect immediately prior to the effective time for such adjustment, multiplied by (ii) (x) the principal amount of notes held by such holder divided by (y) $1,000.

 

(1) If we exclusively issue shares of our common stock as a dividend or distribution on shares of our common stock, or if we effect a share split or share combination, the conversion rate will be adjusted based on the following formula:

 

CR1

=

CR0

×

OS1 OS0

 

where,

 

 

Any adjustment made under this clause (1) shall become effective immediately after the open of business on the ex-dividend date for such dividend or distribution, or immediately after the open of business on the effective date for such share split or share combination. If any dividend or distribution of the type described in this clause (1) is declared but not so paid or made, the conversion rate shall be immediately readjusted, effective as of the date our board of directors, or a committee thereof, determines not to pay such dividend or distribution, to the conversion rate that would then be in effect if such dividend or distribution had not been declared.

 

(2) If we issue to all or substantially all holders of our common stock any rights, options or warrants entitling them for a period of not more than 45 calendar days after the announcement date of such issuance to subscribe for or purchase shares of our common stock, at a price per share less than the average of the last reported sale prices of our common stock for the ten consecutive trading-day period ending on, and including, the trading day immediately preceding the date of announcement of such issuance, the conversion rate will be increased based on the following formula:

 

CR1

=

CR0

×

OS0 + X OS0 + Y

where,

 

 

Any increase made under this clause (2) will be made successively whenever any such rights, options or warrants are issued and shall become effective immediately after the open of business on the ex-dividend date for such issuance. To the extent that shares of our common stock are not delivered after the expiration of such rights, options or warrants, the conversion rate shall be decreased to the conversion rate that would then be in effect had the increase with respect to the issuance of such rights, options or warrants been made on the basis of delivery of only the number of shares of our common stock actually delivered. If such rights, options or warrants are not so issued, the conversion rate shall be decreased to the conversion rate that would then be in effect if such ex-dividend date for such issuance had not occurred.

 

For purposes of this clause (2) and the first bullet point under “—Conversion upon Specified Corporate Transactions—Certain Distributions” above, in determining whether any rights, options or warrants entitle the holders thereof to subscribe for or purchase shares of our common stock at less than such average of the last reported sale prices for the ten consecutive trading day period ending on, and including, the trading day immediately preceding the date of announcement for such issuance, and in determining the aggregate offering price of such shares of our common stock, there shall be taken into account any consideration received by us for such rights, options or warrants and any amount payable on exercise or conversion thereof, the value of such consideration, if other than cash, to be determined by our board of directors, or a committee thereof.

 

(3) If we distribute shares of our capital stock, evidences of our indebtedness, other assets or property of ours or rights, options or warrants to acquire our capital stock or other securities, to all or substantially all holders of our common stock, excluding

 

 

then the conversion rate will be increased based on the following formula:

 

CR1

=

CR0

×

SP0 SP0 − FMV

where,

 

 

If our board of directors, or a committee thereof, determines the “FMV” (as defined above) of any distribution for purposes of this clause (3) by reference to the actual or when-issued trading market for any securities, it will in doing so consider the prices in such market over the same period used in computing the last reported sale prices of our common stock over the ten consecutive trading-day period ending on, and including, the trading day immediately preceding the ex-dividend date for such distribution.

 

If “FMV” (as defined above) is equal to or greater than the “SP0” (as defined above), in lieu of the foregoing increase, each holder of a note shall receive, in respect of each $1,000 principal amount thereof, at the same time and upon the same terms as holders of our common stock, the amount and kind of our capital stock, evidences of our indebtedness, other assets or property of ours or rights, options or warrants to acquire our capital stock or other securities that such holder would have received if such holder owned a number of shares of common stock equal to the conversion rate in effect on the ex-dividend date for the distribution.

 

Any increase made under the portion of this clause (3) above will become effective immediately after the open of business on the ex-dividend date for such distribution. If such distribution is not so paid or made, the conversion rate shall be decreased to be the conversion rate that would then be in effect if such distribution had not been declared. If such a distribution of rights, options or warrants to acquire our capital stock or other securities is made, to the extent that shares of our capital stock or other securities are not delivered after the expiration of such rights, options or warrants, the conversion rate shall be decreased to the conversion rate that would then be in effect had the increase with respect to the issuance of such rights, options or warrants been made on the basis of delivery of only the number of shares of our capital stock or other securities actually delivered.

 

With respect to an adjustment pursuant to this clause (3) where there has been a payment of a dividend or other distribution on our common stock of shares of capital stock of any class or series, or similar equity interest, of or relating to a subsidiary or other business unit, in each case listed on a national or regional securities exchange (a “spin-off”) the conversion rate will be increased based on the following formula:

 

CR1

=

CR0

×

FMV0 + MP0 MP0

 

where,

 

The increase to the conversion rate under the preceding paragraph will be determined on the last trading day of the valuation period but will be given effect immediately after the open of business on the ex-dividend date for the spin-off; provided that in respect of any conversion during the valuation period, references in the portion of this clause (3) related to spin-offs to ten trading days shall be deemed replaced with such lesser number of trading days as have elapsed from, and including, the ex-dividend date of such spin-off to, and including, the conversion date in determining the applicable conversion rate. If the ex-dividend date for the spin-off is less than ten trading days prior to, and including, the end of the observation period in respect of any conversion, references in the portion of this clause (3) related to spin-offs to ten trading days shall be deemed replaced, for purposes of calculating the affected daily conversion rates in respect of that conversion, with such lesser number of trading days as have elapsed from, and including, the ex-dividend date for such spin-off to, and including, the last trading day of such observation period. If such spin-off is not made or completed, the conversion rate will be decreased to the conversion rate that would then be in effect if such spin-off had not been declared.

 

(4) If any cash dividend or distribution is made to all or substantially all holders of our common stock, the conversion rate will be increased based on the following formula:

 

CR1

=

CR0

×

SP0 SP0 − C

 

where,

 

 

If “C” (as defined above) is equal to or greater than “SP₀” (as defined above), in lieu of the foregoing increase, each holder of a note shall receive, for each $1,000 principal amount of notes, at the same time and upon the same terms as holders of shares of our common stock, the amount of cash that such holder would have received if such holder owned a number of shares of our common stock equal to the conversion rate on the ex-dividend date for such cash dividend or distribution.

 

Any such increase shall become effective immediately after the open of business on the ex-dividend date for such dividend or distribution. If such dividend or distribution is not so paid, the conversion rate shall be decreased, effective as of the date our board of directors, or a committee thereof, determines not to make or pay such dividend or distribution, to be the conversion rate that would then be in effect if such dividend or distribution had not been declared.

 

(5) If we or any of our subsidiaries make a payment in respect of a tender offer or exchange offer for our common stock, and the cash and value of any other consideration included in the payment per share of common stock exceeds the last reported sale price of our common stock on the trading day next succeeding the last date on which tenders or exchanges may be made pursuant to such tender or exchange offer, the conversion rate will be increased based on the following formula:

 

where,

 

 

The adjustment to the conversion rate under the preceding paragraph will be determined at the close of business on the tenth trading day immediately following, and including, the trading day next succeeding the date such tender or exchange offer expires but will be given effect immediately after the open of business on the trading day next succeeding the date such tender or exchange offer expires; provided that in respect of any conversion within the ten trading days immediately following, and including, the trading day next succeeding the expiration date of any tender or exchange offer, references in this clause (5) to ten trading days shall be deemed replaced with such lesser number of trading days as have elapsed from, and including, the trading day next succeeding the expiration date of such tender or exchange offer to, and including, the conversion date in determining the applicable conversion rate. If the trading day immediately following the date the tender or exchange offer expires is less than ten trading days prior to, and including, the end of the observation period in respect of any conversion, references in this clause (5) to ten trading days shall be deemed replaced, for purposes of calculating the affected daily conversion rates in respect of that conversion, with such lesser number of trading days as have elapsed from, and including, the trading day immediately following the date such tender or exchange offer expires to, and including, the last trading day of such observation period. In the event that we are, or one of our subsidiaries is, obligated to purchase shares of our common stock pursuant to any such tender offer or exchange offer, but we are, or such subsidiary is, permanently prevented by applicable law from effecting any such purchases, or any such purchases are rescinded, then the conversion rate shall be decreased to be the conversion rate which would then be in effect had the increase with respect to such tender or exchange offer been made on the basis of the number of shares actually purchased or exchanged pursuant to such tender offer or exchange offer. Except as set forth in the preceding sentence, if the application of this clause (5) to any tender offer or exchange offer would result in a decrease in the conversion rate, no adjustment shall be made for such tender offer or exchange offer under this clause (5).

 

Notwithstanding the above, certain listing standards of the NYSE may limit the amount by which we may increase the conversion rate pursuant to the events described in clauses (2) through (5) in this section and as described in the section captioned “—Adjustment to Conversion Rate upon Conversion in Connection with a Make-whole Fundamental Change” below. These standards generally require us to obtain the approval of our shareholders before entering into certain transactions that potentially result in the issuance of 20% or more of our common stock outstanding at the time the notes are issued unless we obtain shareholder approval of issuances in excess of such limitations. In accordance with these listing standards, these restrictions will apply at any time when the notes are outstanding, regardless of whether we then have a class of securities listed on the NYSE. Accordingly, in the event of an increase in the conversion rate above (except as the result of a share split) that would result in the notes, in the aggregate, becoming convertible into shares in excess of such limitations, we will, at our option, either obtain shareholder approval of such issuances or deliver cash in lieu of any shares of our common stock otherwise deliverable upon conversions in excess of such limitations based

on the daily VWAP of our common stock on each trading day of the relevant observation period in respect of which, in lieu of delivering shares of our common stock, we deliver cash pursuant to this paragraph.

 

Notwithstanding the foregoing, if a conversion rate adjustment becomes effective on any ex-dividend date as described above, and a holder that has converted its notes on or after such ex-dividend date and on or prior to the related record date would be treated as the record holder of shares of our common stock as of the related conversion date as described under “—Settlement upon Conversion” based on an adjusted conversion rate for such ex-dividend date, then, notwithstanding the foregoing conversion rate adjustment provisions, the conversion rate adjustment relating to such ex-dividend date will not be made for such converting holder. Instead, such holder will be treated as if such holder were the record owner of a number of shares of our common stock equal to the conversion rate on an unadjusted basis, for each $1,000 principal amount of notes, and participate in the related dividend, distribution or other event giving rise to such adjustment.

 

Except as stated herein, we will not adjust the conversion rate for the issuance of shares of our common stock or any securities convertible into or exchangeable for shares of our common stock or the right to purchase shares of our common stock or such convertible or exchangeable securities.

 

“Ex-dividend date” means the first date on which the shares of our common stock trade on the applicable exchange or in the applicable market, regular way, without the right to receive the issuance, dividend or distribution in question, from us or, if applicable, from the seller of our common stock on such exchange or market (in the form of due bills or otherwise) as determined by such exchange or market. As used in this section, the “effective date” means the first date on which the shares trade on the applicable exchange or in the applicable market, regular way, reflecting the transaction.

 

To the extent permitted by law and the rules of the NYSE or any other securities exchange on which any of our securities are then listed, we are permitted to increase the conversion rate of the notes by any amount for a period of at least 20 business days if our board of directors, or a committee thereof, determines that such increase would be in our best interest. We may also (but are not required to) increase the conversion rate to avoid or diminish income tax to holders of our common stock or rights to purchase shares of our common stock in connection with a dividend or distribution of shares (or rights to acquire shares) or similar event.

 

A holder may, in some circumstances, including a distribution of cash dividends to holders of shares of our common stock, be deemed to have received a distribution subject to U.S. federal income tax as a result of an adjustment or the non-occurrence of an adjustment to the conversion rate. For a discussion of the U.S. federal income tax treatment of an adjustment to the conversion rate, see “Certain U.S. Federal Income Tax Considerations.”

 

We do not currently have a rights plan. To the extent that we have a rights plan in effect upon conversion of the notes into common stock, you will receive, in addition to any shares of our common stock received in connection with such conversion, the rights under the rights plan, unless prior to any conversion, the rights have separated from our common stock, in which case, and only in such case, the conversion rate will be adjusted at the time of separation as if we distributed to all holders of our common stock, shares of our capital stock, evidences of indebtedness, assets, property, rights, options or warrants as described in clause (3) above, subject to readjustment in the event of the expiration, termination or redemption of such rights.

 

The conversion rate will not be adjusted:

 

 

 

Adjustments to the conversion rate will be calculated to the nearest 1/10,000th of a share. No adjustment to the conversion rate will be required unless the adjustment would require an increase or decrease of at least 1% of the conversion rate. However, we will carry forward any adjustments that are less than 1% of the conversion rate that we elect not to make and make such carried-forward adjustments upon (1) each of the 40 days of any observation period with respect any conversion of the notes (or, in the case of physical settlement, any conversion date), (2) the occurrence of a fundamental change (as described under “—Fundamental Change Permits Holders to Require Us to Purchase Notes”), (3) maturity and (4) such time as all adjustments that have not been made prior thereto would have the effect of adjusting the conversion rate by at least 1%.

 

Recapitalizations, Reclassifications and Changes of Our Common Stock

 

In the case of:

 

 

in each case as a result of which our common stock would be converted into, or exchanged for, stock, other securities or other property or assets (including cash or any combination thereof), then, at and after the effective time of the transaction, the right to convert each $1,000 principal amount of notes will be changed into a right to convert such principal amount of notes into the kind and amount of shares of stock, other securities, other property or assets (including cash or any combination thereof) that a holder of a number of shares of our common stock equal to the conversion rate immediately prior to such transaction would have owned or been entitled to receive (the “reference property”) upon such transaction. However, at and after the effective time of the transaction, (i) we will continue to have the right to determine the settlement method upon conversion of notes, as set forth under “—Settlement upon Conversion” and (ii)(x) any amount payable in cash upon conversion of the notes as set forth under “—Settlement upon Conversion” will continue to be payable in cash, (y) any shares of our common stock that we would have been required to deliver upon conversion of the notes as set forth under “—Settlement upon Conversion” will instead be deliverable in the amount and type of reference property that a holder of that number of shares of our common stock would have been entitled to receive in such transaction and (z) the daily VWAP will be calculated based on the value of a unit of reference property that a holder of one share of our common stock would have received in such transaction. If the transaction causes our common stock to be converted into, or exchanged for, the right to receive more than a single type of consideration (determined based in part upon any form of stockholder election), the reference property into which the notes will be convertible or used to calculate the daily VWAP, as the case may be, will be deemed to be the weighted average of the types and amounts of consideration received by the holders of our common stock that affirmatively make such an election. We will notify holders of the weighted average as soon as practicable after such determination is made. We will agree in the indenture not to become a party to any such transaction unless its terms are consistent with the foregoing.

 

Adjustments of Prices

 

Whenever any provision of the indenture requires us to calculate the last reported sale prices, the daily VWAPs, the daily conversion values or the daily settlement amounts over a span of multiple days (including an observation period and the “stock price” for purposes of a make-whole fundamental change), our board of directors, or a committee thereof, will make appropriate adjustments to each to account for any adjustment to

the conversion rate that becomes effective, or any event requiring an adjustment to the conversion rate where the ex-dividend date of the event occurs, at any time during the period when the last reported sale prices, the daily VWAPs, the daily conversion values or the daily settlement amounts are to be calculated.

 

Adjustment to Conversion Rate upon Conversion in Connection with a Make-whole Fundamental Change

 

If a “fundamental change” (as defined below and determined after giving effect to any and all exceptions to or exclusions from such definition, but without regard to the proviso in clause (2) of the definition thereof, a “make-whole fundamental change”) occurs prior to maturity and a holder elects to convert its notes in connection with such make-whole fundamental change, we will, under certain circumstances, increase the conversion rate for the notes so surrendered for conversion by a number of additional shares of common stock (the “additional shares”), as described below. A conversion of notes will be deemed for these purposes to be “in connection with” such make-whole fundamental change if the notice of conversion of the notes is received by the conversion agent from, and including, the effective date of the make-whole fundamental change up to, and including, the business day immediately prior to the related fundamental change purchase date (or, in the case of a make-whole fundamental change that would have been a fundamental change but for the proviso in clause (2) of the definition thereof, the 35th trading day immediately following the effective date of such make-whole fundamental change).

 

Upon surrender of notes for conversion in connection with a make-whole fundamental change, we will deliver shares of our common stock, cash or a combination of cash and shares of common stock as described under “—Conversion Rights—Settlement upon Conversion.” However, if the consideration for our common stock in any make-whole fundamental change described in clause (2) of the definition of fundamental change is comprised entirely of cash, for any conversion of notes following the effective date of such make-whole fundamental change, the consideration due upon conversion will be an amount of cash per $1,000 principal amount of converted notes equal to the applicable conversion rate (including any adjustment as described in this section) multiplied by the “stock price” (as defined below) for the transaction. In such event, the conversion obligation will be determined as of the conversion date and paid to holders in cash on the third business day following the conversion date. We will notify holders of the effective date of any make-whole fundamental change and issue a press release announcing such effective date no later than five business days after such effective date.

 

The number of additional shares, if any, by which the conversion rate will be increased will be determined by reference to the table below, based on the date on which the make-whole fundamental change occurs or becomes effective (the “effective date”) and the price (the “stock price”) paid (or deemed paid) per share of our common stock in the make-whole fundamental change. If the holders of our common stock receive only cash in a make-whole fundamental change described in clause (2) of the definition of fundamental change, the stock price shall be the cash amount paid per share. Otherwise, the stock price shall be the average of the last reported sale prices of our common stock over the five trading-day period ending on, and including, the trading day immediately preceding the effective date of the make-whole fundamental change.

 

The stock prices set forth in the column headings of the table below will be adjusted as of any date on which the conversion rate of the notes is otherwise adjusted. The adjusted stock prices will equal the stock prices immediately prior to such adjustment, multiplied by a fraction, the numerator of which is the conversion rate immediately prior to the adjustment giving rise to the stock price adjustment and the denominator of which is the conversion rate as so adjusted. The number of additional shares will be adjusted in the same manner and at the same time as the conversion rate as set forth under “—Conversion Rate Adjustments.”

The following table sets forth the number of additional shares to be added to the conversion rate for each stock price and effective date set forth below:

 

 

The exact stock prices and effective dates may not be set forth in the table above, in which case

 

 

Notwithstanding the foregoing, in no event will the total number of shares of our common stock issuable upon conversion exceed           per $1,000 principal amount of notes, subject to adjustment in the same manner as the conversion rate as set forth under “—Conversion Rate Adjustments,” and subject to our compliance with the listing standards of the NYSE, as described above under “—Conversion Rate Adjustments.”

 

Our obligation to satisfy the additional shares requirement could be considered a penalty, in which case the enforceability thereof would be subject to general principles of reasonableness and equitable remedies.

 

An increase in the conversion rate for notes as a result of a make-whole fundamental change may also be treated as a distribution subject to U.S. federal income tax as a dividend. See “Certain U.S. Federal Income Tax Considerations.”

 

Fundamental Change Permits Holders to Require Us to Purchase Notes

 

If a “fundamental change” (as defined below in this section) occurs at any time, you will have the right, at your option, to require us to purchase for cash all of your notes, or any portion of the principal amount thereof that is equal to $1,000 or an integral multiple of $1,000. The price we are required to pay is equal to 100% of the principal amount of the notes to be purchased plus accrued and unpaid interest, if any, up to but excluding the fundamental change purchase date (unless the fundamental change purchase date is after a record date and on or prior to the interest payment date to which such record date relates, in which case we will instead pay the full amount of accrued and unpaid interest, if any, to the holder of record on such record date and the fundamental change purchase price will be equal to 100% of the principal amount of the notes to be purchased). The fundamental change purchase date will be a date specified by us that is not less than 15 or more than 35 calendar days following the date of our fundamental change notice as described below. Any notes purchased by us will be paid for in cash.

A “fundamental change” will be deemed to have occurred at the time after the notes are originally issued that any of the following occurs:

 

(1) a “person” or “group” within the meaning of Section 13(d) of the Exchange Act, other than us, our subsidiaries and our and their employee benefit plans, has become the direct or indirect “beneficial owner,” as defined in Rule 13d-3 under the Exchange Act, of shares of our common equity representing more than 50% of the voting power of our common equity; or

 

(2) consummation of (A) any recapitalization, reclassification or change of our common stock (other than changes resulting from a subdivision or combination or changes solely in par value) as a result of which our common stock would be converted into, or exchanged for, stock, other securities, other property or assets or (B) any share exchange, consolidation or merger involving us pursuant to which our common stock will be converted into cash, securities or other property or any sale, lease or other transfer in one transaction or a series of transactions of all or substantially all of the consolidated assets of us and our subsidiaries, taken as a whole, to any person other than one of our subsidiaries; provided, however, that a transaction where the holders of all classes of our common equity immediately prior to such transaction that is a share exchange, consolidation or merger (each such holder, a “pre-transaction holder”) own, directly or indirectly, more than 50% of all classes of common equity of the continuing or surviving corporation or transferee or the parent thereof immediately after such event shall not be a fundamental change, so long as the proportion of the respective ownership of each pre-transaction holder does not substantially change solely pursuant to the terms of such transaction; or

 

(3) our shareholders approve any plan or proposal for our liquidation or dissolution; or

 

(4) our common stock (or other common stock underlying the notes) ceases to be listed or quoted on any of the NYSE, the NASDAQ Global Select Market or the NASDAQ Global Market (or any of their respective successors); or

 

(5) the first day on which a majority of the members of our board of directors does not consist of “continuing directors.”

 

A transaction or transactions described in clause (2) above will not constitute a fundamental change, however, if at least 90% of the consideration received or to be received by our common stockholders, excluding cash payments for fractional shares, in connection with such transaction or transactions consists of shares of common stock that are listed or quoted on any of the NYSE, the NASDAQ Global Select Market or the NASDAQ Global Market (or any of their respective successors) or will be so listed or quoted when issued or exchanged in connection with such transaction or transactions (these securities being referred to as “publicly traded securities”) and as a result of this transaction or transactions the notes become convertible into such publicly traded securities, excluding cash payments for fractional shares (subject to the provisions set forth above under “—Conversion Rights—Settlement upon Conversion”).

 

“Continuing directors” means (i) individuals who on the date of original issuance of the notes constituted our board of directors and (ii) any new directors whose election to our board of directors or whose nomination for election by our shareholders was approved by at least a majority of our directors then still in office (or a duly constituted committee thereof), either who were directors on the date of original issuance of the notes or whose election or nomination for election was previously so approved.

 

On or before the tenth day after the occurrence of a fundamental change, we will provide to all holders of the notes and the trustee and paying agent a notice of the occurrence of the fundamental change and of the resulting purchase right. Such notice shall state, among other things:

 

 

 

Simultaneously with providing such notice, we will issue a press release containing this information or publish the information on our website or through such other public medium as we may use at that time.

 

To exercise the fundamental change purchase right, you must deliver, on or before the close of business on the business day immediately preceding the fundamental change purchase date, the notes to be purchased, duly endorsed for transfer, together with a written purchase notice and the form entitled “Form of Fundamental Change Purchase Notice” on the reverse side of the notes duly completed, to the paying agent. If the notes are in global form, you must comply with DTC’s procedures for surrendering interests in global notes. Your purchase notice must state:

 

 

You may withdraw any purchase notice (in whole or in part) by a written notice of withdrawal delivered to the paying agent prior to the close of business on the business day immediately preceding the fundamental change purchase date. If the notes are in global form, you must comply with the relevant procedures of DTC. The notice of withdrawal shall state:

 

 

We will be required to purchase the notes on the fundamental change purchase date. You will receive payment of the fundamental change purchase price on the later of (i) the fundamental change purchase date and (ii) the time of book-entry transfer or the delivery of the notes. If the paying agent holds money sufficient to pay the fundamental change purchase price of the notes for which holders have delivered and not withdrawn purchase notices on the fundamental change purchase date, then:

 

 

In connection with any purchase offer pursuant to a fundamental change purchase notice, we will, if required:

 

 

No notes may be purchased by us on any date at the option of holders upon a fundamental change if the principal amount of the notes has been accelerated, and such acceleration has not been rescinded, on or prior to such date (except in the case of an acceleration resulting from a default by us in the payment of the fundamental change purchase price with respect to such notes).

 

The purchase rights of the holders upon a fundamental change could discourage a potential acquirer of us. The fundamental change purchase feature, however, is not the result of management’s knowledge of any specific effort to obtain control of us by any means or part of a plan by management to adopt a series of anti-takeover provisions. The term fundamental change is limited to specified transactions and may not include other events that might adversely affect our financial condition. In addition, the requirement that we offer to purchase the notes upon a fundamental change may not protect holders in the event of a highly leveraged transaction, reorganization, merger or similar transaction involving us.