Document:

SUBORDINATED LOAN AGREEMENT

        This Subordinated Loan Agreement, dated as of December 17, 1999, is
between SPECIAL METALS CORPORATION, a Delaware corporation ("Borrower") and
SOCIETE INDUSTRIELLE DE MATERIAUX AVANCES, a societe anonyme organized under the
laws of the Republic of France ("SIMA").

                                    RECITALS:

        A. Borrower is a party to a Senior Secured Credit Agreement dated as of
October 28, 1998 among Borrower, the Lenders, the Issuing Bank and the Agent (as
those terms are defined therein), which Credit Agreement has been amended by a
First Amendment dated as of March 31, 1999 and a Second Amendment dated as of
June 8, 1999 (as amended, supplemented or otherwise modified from time to time,
herein called the "Credit Agreement") providing for the making of loans by the
Lenders to Borrower, and the issuance of letters of credit by the Issuing Bank
for the account of Borrower, in the amounts, and subject to the terms and
conditions, specified in the Credit Agreement.

        B. Borrower has requested that the Lenders waive certain existing
defaults under the Credit Agreement and modify certain of the provisions of the
Credit Agreement. Borrower, Lenders and the Agent are entering into a Third
Amendment to Credit Agreement and Limited Waiver dated as of December 29, 1999
pursuant to which certain provisions of the Credit Agreement will be waived or
amended (the "Third Amendment"). Lenders and the Agent are willing to enter into
the Third Amendment only upon the condition that Borrower arrange for additional
capital in the form of subordinated loans.

        C. SIMA is a major shareholder of Borrower and is willing to make
subordinated loans to Borrower upon the terms and conditions set forth in this
Subordinated Loan Agreement.

        NOW, THEREFORE, , in consideration of the premises, and in order to
induce the Lenders and the Agent to enter into the Third Amendment to the Credit
Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, SIMA and Borrower hereby agree as
follows:

        1. Certain Definitions.

                  (a) Capitalized terms that are not defined herein have the
respective meanings ascribed to them in the Credit Agreement and, in addition,
the following terms have the following meanings:

                  "Additional Advances" has the meaning specified in Section
2(b) hereof.

                  "Borrower" has the meaning specified in the preamble hereto.

                  "Converted Loan" has the meaning specified in Section 4.
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                  "Credit Agreement" has the meaning specified in Recital A.

                  "LIBOR" means the three-month London Interbank Offered Rate
published in The Wall Street Journal (or if not so published, as quoted by
Credit Lyonnais New York Branch) on the last Business Day of each calendar
quarter), provided that, until adjusted as herein provided, LIBOR shall mean the
London Interbank Offered Rate published in The Wall Street Journal on the
Business Day immediately preceding the date hereof.

                  "Maturity Date" means July 28, 2006.

                  "Revolving Loan" has the meaning specified in Section 3(a).

                  "Revolving Note" has the meaning specified in Section 3(a).

                  "Senior Claims" has the meaning specified in the Subordination
Agreement.

                  "SIMA" has the meaning specified in the preamble hereto.

                  "SIMA Commitment" has the meaning specified in Section 3.

                  "SIMA Commitment Period" means the period commencing on the
date hereof and ending on August 15, 2001.

                  "SIMA Loans" means the Term Loan (including any Additional
Advance and any Converted Loan and any interest added to the principal of the
Term Loan) and the Revolving Loans made hereunder.

                  "SIMA Notes" means the Revolving Note and the Term Note.

                  "Subordination Agreement" means the Debt Subordination
Agreement dated as of the date of the Third Amendment among Borrower, SIMA and
the Agent.

                  "Term Loan" has the meaning specified in Section 2(a).

                  "Term Note" has the meaning specified in Section 2(a).

                  "Third Amendment" has the meaning specified in Recital B.

        (b) Unless otherwise expressly specified herein, defined terms denoting
the singular number shall, when in the plural form, denote the plural number of
the matter or item to which such defined terms refer, and vice-versa.

        (c) Section headings used in this Agreement are for convenience only and
shall not affect the construction or meaning of any provisions of this
Agreement.

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        (d) Unless otherwise specified, the words "hereof", "herein",
"hereunder" and other similar words refer to this Agreement as a whole and not
just to the Section, subsection, paragraph or clause in which they are used; and
the words "this Agreement" refer to this Subordinated Loan Agreement, as
amended, modified or supplemented from time to time.

        (e) Unless otherwise specified, the term "including", whenever used in
this Agreement, shall be deemed to mean "including without limitation".

        2. Term Loan.

        (a) Subject to the terms and conditions of this Agreement,
SIMA agrees to make a loan (the "Term Loan") to the Borrower on or before
January 14, 2000 in the principal amount of Twenty Million Dollars ($20,000,000
(US)). The Term Loan may be advanced in one or more installments, all of which
shall be evidenced by a single promissory note (the "Term Note") of the Borrower
in substantially the form of Exhibit A hereto, dated the date of the first
advance of the Term Loan, and payable to the order of SIMA.

        (b) At the request of Borrower, SIMA may (but shall not be obligated to)
make additional Term Loan advances to Borrower ("Additional Advances") in excess
of $20,000,000. The proceeds of each Additional Advance shall be used solely (i)
to finance Capital Expenditures in excess of amounts permitted under clauses (a)
through (g) of subsection 9.8 of the Credit Agreement or (ii) to pay dividends
on Preferred Stock to the extent permitted under the Credit Agreement. Each
Additional Advance shall be (x) added to the principal of the Term Loan, (y)
subject to all the terms hereof applicable to the Term Loan, and (z) evidenced
by the Term Note.

        (c) SIMA shall endorse on the schedule attached to the Term Note the
amount of each advance (including any Additional Advance) made by it hereunder,
the amount of interest added to the principal of the Term Loan and the amount of
any payments or prepayments received by it in respect of principal on the Term
Loan. Any such endorsement shall constitute prima facie evidence of the accuracy
of the information so recorded, absent manifest error. SIMA's failure to make
any such notation shall not affect the obligation of Borrower to repay the
unpaid principal amount of and all accrued interest on the Term Loan.

        3. Revolving Loans.

        (a) Subject to the terms and conditions of this Agreement, SIMA hereby
irrevocably and unconditionally agrees to make loans (collectively, the
Revolving Loans) to Borrower from time to time during the SIMA Commitment Period
in an aggregate principal amount at any one time outstanding not exceeding
Thirty Million Dollars ($30,000,000 (US)) (the "SIMA Commitment"). Revolving
Loans may be borrowed at any time during the SIMA Commitment Period, but may be
repaid or prepaid only in accordance with the provisions of Section 6 hereof.
The Revolving Loans made by SIMA shall be evidenced by a single promissory note
(the "Revolving Note") in substantially the form of Exhibit B, dated the date
hereof and payable to the order of SIMA. SIMA shall endorse on the schedule
attached to the Revolving Note the amount of each Revolving Loan made by it
hereunder and the amount of any payments or prepayments received by it in
respect of principal or interest on each such

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Revolving Loan. Any such endorsement shall constitute prima facie evidence of
the accuracy of the information so recorded, absent manifest error. SIMA's
failure to make any such notation shall not affect the obligation of Borrower to
repay the unpaid principal amount of and all accrued interest on the Revolving
Loans.

        (b) SIMA acknowledges and agrees that its obligation to make SIMA Loans
to Borrower pursuant to paragraph (a) of this Section 3 shall be absolute and
unconditional and shall not be affected by any circumstance, including, without
limitation, (i) any setoff, counterclaim, recoupment, defense or other right
which SIMA may have against Borrower or any other Person for any reason
whatsoever; (ii) the occurrence or continuance of an Event of Default hereunder
(other than an Event of Default under Section 10(c) hereof) or under the Credit
Agreement; (iii) any adverse change in the condition (financial or otherwise) of
Borrower or any of its Subsidiaries; (iv) any breach of this Agreement by
Borrower; or (v) any other circumstance, happening or event whatsoever, whether
or not similar to any of the foregoing.

        (c) At the request of Borrower, SIMA may (but shall have no obligation
to) make Revolving Loans to Borrower in excess of the SIMA Commitment. Each such
Revolving Loan in excess of the SIMA Commitment shall be subject to all of the
terms hereof applicable to the Revolving Loans and shall be evidenced by the
Revolving Note.

        (d) Each Revolving Loan shall be made within five Business Days after
SIMA receives a request therefor from Borrower, specifying the amount and
borrowing date of such loan. SIMA shall make the proceeds of each Revolving Loan
available to Borrower on the requested borrowing date for such Loan, by a wire
transfer in U.S. dollars to the account designated by Borrower.

        (e) During the SIMA Commitment Period, neither SIMA nor Borrower shall
have the right to cancel or reduce the SIMA Commitment (except as provided
herein) or to reduce the SIMA Commitment Period without the prior written
approval of the Required Lenders, and any such attempted cancellation or
reduction without such consent shall be null and void.

        4. Conversion of Revolving Loans. If in any quarter through the first
quarter of 2001 Borrower's Consolidated EBITDA is less than the minimum amount
required under the Credit Agreement (after giving effect to the Third
Amendment), then a portion of the outstanding Revolving Loans automatically will
be converted into, and added to the principal of, the Term Loan effective as of
the last day of such quarter (the principal balance of the amount so converted
hereafter referred to as a "Converted Loan"). The amount to be converted for
each quarter will be equal to the difference between (i) Borrower's projected
EBITDA for the 12-month period ending on the last day of that quarter, as set
forth below:

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                                                    Projected
                        Quarter                       EBITDA
                        -------                       ------
                     Fourth   1999                 $30,190,000
                     First    2000                  30,570,000
                     Second   2000                  30,240,000
                     Third    2000                  39,940,000
                     Fourth   2000                  54,930,000
                     First    2001                  67,980,000

and (ii) Borrower's actual Consolidated EBITDA for the same 12-month period. If
the outstanding balance of the Revolving Loans is less than the amount to be
converted, Borrower shall borrow, and SIMA shall lend, additional Revolving
Loans until the full amount required to be converted has been converted or the
SIMA Commitment from SIMA been fully funded and remains outstanding. SIMA shall
endorse on the schedule attached to the Term Note the amount of each Converted
Loan made by it hereunder and the amount of any payments or prepayments received
by it in respect of principal or interest on each such Converted Loan. Any such
endorsement shall constitute conclusive evidence of the accuracy of the
information so recorded, absent manifest error. SIMA's failure to make any such
notation shall not affect the obligation of Borrower to repay the unpaid
principal amount of and all accrued interest on the Converted Loans. The SIMA
Commitment shall be permanently reduced by the principal amount of each
Converted Loan added to the principal of the Term Loan.

        5. Interest.

        (a) The unpaid principal amount of the Term Loan (including any
Additional Advance and any Converted Loan) and each Revolving Loan will accrue
interest for the period from (and including) the borrowing date for such Loan or
Additional Advance to the date such Loan shall be paid in full, at a rate per
annum equal to LIBOR plus 1.00%. The interest rate on each Loan will adjust as
of the first day of each January, April, July and October based upon LIBOR as of
the immediately preceding Business Day.

        (b) Accrued interest on each SIMA Loan will be paid in kind by addition
to the principal of the Term Loan on the last day of each calendar quarter. All
amounts so added to principal of the Term Loan shall begin to accrue interest at
the rate provided for herein as of the date so added to principal.

        6. Repayment and Prepayment of SIMA Loans.

        (a) The Term Loan shall be payable in full on the Maturity Date. Except
as permitted by subparagraph (c) below, Borrower shall not make any payment or
prepayment in respect of the principal amount of the Term Loan prior to the
Maturity Date.

        (b) The Revolving Loans will be due on the Maturity Date. Prior to the
Maturity Date, Borrower may pay principal of the Revolving Loans, at such times
and in such amounts as Borrower may elect, but only if and to the extent such
payments are

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<PAGE>

permitted under the Subordination Agreement. All amounts repaid under this
subparagraph (b) may be reborrowed at any time prior to the end of the SIMA
Commitment Period.

        (c) Notwithstanding anything herein to the contrary, Borrower may prepay
the SIMA Loans, in whole or in part, at any time the Senior Claims have been
indefeasibly paid in full in cash and none of the holders of Senior Claims are
obligated to extend credit to Borrower or any subsidiary of Borrower.

        (d) All payments due to SIMA under or pursuant to this Agreement and the
SIMA Notes and permitted to be paid under the Subordination Agreement shall be
made by Borrower when due in U.S. Dollars and in immediately available funds at
such address as SIMA may designate in writing from time to time.

        7. Letter of Credit. Pursuant to the Third Amendment, SIMA has agreed to
deliver to the Agent a standby letter of credit in the face amount of
$30,000,000 (the "Letter of Credit") in order to secure the performance of
SIMA's obligations to make Revolving Loans under this Agreement. If SIMA fails
to make available to the Borrower a Revolving Loan requested by Borrower
(whether requested pursuant to Section 3 or Section 4 hereof) within ten days of
such request, SIMA acknowledges and agrees that the Agent, upon notification
thereof by Borrower, is required to make a drawing under the Letter of Credit in
the amount of the Revolving Loan which Borrower had requested and is obligated
to remit the proceeds of such drawing to Borrower. Borrower and SIMA acknowledge
that all funds received by the Agent upon any drawing under the Letter of Credit
and remitted to Borrower shall be deemed to be a Revolving Loan made by SIMA
under this Agreement and shall be subject to all the terms of this Agreement
applicable to Revolving Loans.

        8. Representations and Warranties of Borrower. Borrower hereby
represents and warrants to SIMA that:

        (a) Borrower has full power and authority to execute and deliver this
Agreement and the SIMA Notes, to borrow hereunder and to incur and perform the
obligations provided for herein or therein.

        (b) The execution, delivery and performance of this Agreement and the
SIMA Notes by Borrower, the borrowings by it hereunder, and the incurrence and
performance of the obligations provided for herein or therein (i) have been duly
authorized by all requisite corporate action of Borrower, (ii) do not require
the approval of the stockholders of Borrower, and (iii) will not (a) violate any
law or regulation or the certificate of incorporation or by-laws of Borrower,
(b) violate or constitute (with due notice or lapse of time or both) a default
under any provision of any indenture, agreement, license or other instrument to
which Borrower is a party or by which it or any of its properties may be bound
or affected, (c) violate any order of any court, tribunal or governmental agency
binding upon Borrower or any of its properties, or (d) result in the creation or
imposition of any lien or encumbrance of any nature whatsoever upon any assets
or revenues of Borrower.

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<PAGE>

        (c) No authorizations, approvals and consents of, and no filings and
registrations with, any governmental or regulatory authority or agency are
necessary for the execution, delivery or performance by Borrower of this
Agreement or the SIMA Notes or for the validity or enforceability hereof or
thereof.

        (d) This Agreement and the SIMA Notes constitute the legal, valid and
binding obligations of Borrower, enforceable against Borrower in accordance with
their respective terms.

        9. Representations and Warranties of SIMA. SIMA hereby represents and
warrants to Borrower that:

        (a) SIMA is a societe anonyme duly organized, validly existing and in
good standing under the laws of the Republic of France. SIMA has full power and
authority to execute and deliver this Agreement and to incur and perform the
obligations provided for herein.

        (b) The execution, delivery and performance of this Agreement by SIMA
and the incurrence and performance by it of the obligations provided for herein,
including its extensions of credit to Borrower (i) have been duly authorized by
all requisite corporate action of SIMA, (ii) do not require the approval of the
stockholders of SIMA, and (iii) will not (a) violate any law or regulation or
the organizational documents of SIMA, (b) violate or constitute (with due notice
or lapse of time or both) a default under any provision of any indenture,
agreement, license or other instrument to which SIMA is a party or by which it
or any of its properties may be bound or affected, (c) violate any order of any
court, tribunal or governmental agency binding upon SIMA or any of its
properties, or (d) result in the creation or imposition of any lien or
encumbrance of any nature whatsoever upon any assets or revenues of SIMA.

        (c) No authorizations, approvals and consents of, and no filings and
registrations with, any governmental or regulatory authority or agency are
necessary for the execution, delivery or performance by SIMA of this Agreement
or for the validity or enforceability hereof.

        (d) This Agreement constitutes the legal, valid and binding obligation
of SIMA, enforceable against SIMA in accordance with its terms.

        10. Events of Default. The occurrence of any of the following events
shall constitute an event of default hereunder:

        (a) At any time after the Maturity Date, Borrower shall fail to make
payment of any amounts owing under this Agreement or the SIMA Notes within ten
(10) days following the due date thereof;

        (b) An Event of Default shall have occurred under the Credit
Agreement and the Lenders shall have declared amounts due thereunder to be due
and payable; or

        (c) (i) Borrower shall commence any case, proceeding or other action (A)
under any existing or future law of any jurisdiction, domestic or foreign,
relating to bankruptcy, insolvency, reorganization or relief of debtors seeking
to have an order for relief entered with

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respect to it, or seeking to adjudicate it bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment, winding-up, liquidation, dissolution,
composition or other relief with respect to it or its debts, or (B) seeking
appointment of a receiver, trustee, custodian or other similar official for it
or for all or any substantial part of its assets, or Borrower shall make a
general assignment for the benefit of its creditors; or (ii) there shall be
commenced against Borrower any case, proceeding or other action of a nature
referred to in clause (i) above which (A) results in the entry of an order for
relief for any such adjudication or appointment or (B) remains undismissed,
undischarged or unbonded for period of sixty (60) days; or (iii) there shall be
commenced against Borrower any case, proceeding or other action seeking issuance
of a warrant of attachment, execution, distraint or similar process against all
or any substantial part of its assets which results in the entry of an order for
any such relief which shall not have been vacated, discharged, or stayed or
bonded pending appeal within sixty (60) days from the entry thereof, or (iv)
Borrower shall take any action in furtherance of, or indicating its consent to,
approval of, or acquiescence in, any of the acts set forth in clause (i), (ii)
or (iii) above; or (v) Borrower shall generally not, or shall be unable to, or
shall admit in writing its inability to, pay its debts as they become due.

        Upon the occurrence of one of the events specified above, all amounts
due under this Agreement and the SIMA Notes shall automatically be accelerated
and become payable in full, subject to the terms of the Subordination Agreement,
and SIMA's obligation to make further Revolving Loans hereunder shall be
terminated.

        11. Confirmation of Subordination. Borrower and SIMA hereby acknowledge
and agree that all of the obligations of Borrower hereunder and under the SIMA
Notes, the indebtedness evidenced by the SIMA Notes and all claims SIMA may now
or at any time hereafter have against Borrower or any of its assets arising out
of or relating to this Agreement are subordinated to the Senior Claims as
provided in the Subordination Agreement and that payment of such obligations and
indebtedness is subject to the restrictions set forth in the Subordination
Agreement.

        12. Waivers and Amendments.

        (a) No failure on the part of SIMA to exercise, and no delay in
exercising, and no course of dealing with respect to, any right, power or remedy
hereunder shall operate as a waiver thereof or of any default hereunder, nor
shall any single or partial exercise by SIMA of any right, power or remedy
hereunder preclude any other or further exercise thereof or the exercise of any
other right, power or remedy. No amendment, modification or waiver of any
provision of this Agreement, nor any consent to any departure herefrom, shall in
any event be effective unless the same shall be in writing, signed by all the
parties hereto and consented to in writing by the Agent with the approval of the
Required Lenders under the Credit Agreement, and then such amendment,
modification, waiver or consent shall be effective only in the specific instance
and for the purpose for which given.

        (b) Borrower hereby waives presentment, protest, demand, notice of
dishonor or default, and notice of any kind except as herein required with
respect to this Agreement, the SIMA Notes or the performance of its obligations
under this Agreement or the SIMA Notes.

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        13. Governing Law. This Agreement and the rights and obligations of the
parties hereto shall be governed by, and shall be construed and interpreted in
accordance with, the laws of the State of New York, without reference to its
principles of conflict of laws.

        14. Submission to Jurisdiction.

        (a) Each of SIMA and Borrower hereby expressly submits to the exclusive
jurisdiction of all federal and state courts sitting in New York County, State
of New York, in any action or proceeding arising out of or relating to this
Agreement or the SIMA Notes or their respective obligations hereunder or
thereunder and each of them agrees that any process or notice of motion or other
application to any of said courts or a judge thereof may be served upon it
within or without such court's jurisdiction by registered or certified mail
(return receipt requested) or by personal service, at the address of such party
specified next to its signature hereto (or at such other address as such party
shall specify by a prior notice in writing to the other parties hereto).

        (b) Each of SIMA and Borrower hereby irrevocably waives any objection
which it may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement or the SIMA Notes
brought in any federal or state court sitting in New York County, State of New
York, and hereby further irrevocably waives any claim that any such suit, action
or proceeding brought in any such court has been brought in an inconvenient
forum.

        15. Waiver of Jury Trial. Each party hereto hereby waives any right it
may have to a trial by jury of any dispute arising under or relating to this
Agreement or the SIMA Notes and agrees that any such dispute shall be tried
before a judge sitting without a jury.

        16. Expenses. Borrower agrees to pay all costs and expenses of SIMA
(including the reasonable fees and disbursements of counsel) in connection with
the enforcement of any rights of SIMA hereunder or under the SIMA Notes

        17. Termination; Amendment. This Agreement is a continuing agreement and
shall remain in full force and effect so long as Borrower may borrow hereunder
or under the Credit Agreement or request the issuance of letters of credit under
the Credit Agreement and until the indefeasible payment in full of the Senior
Claims and of all obligations of Borrower to SIMA hereunder. This Agreement may
not be amended, modified or terminated without the prior written consent of (a)
SIMA and Borrower and (b) the Agent (acting upon instructions of the Required
Lenders under the Credit Agreement); provided that the consent of the Agent
shall not be required after the Senior Claims has been indefeasibly paid in full
and the Commitments under the Credit Agreement have expired.

        18. Assignments. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns;
provided, however, that neither Borrower nor SIMA shall transfer, sell or
otherwise dispose of any of its obligations hereunder or, in the case of SIMA,
any portion of the loans made by it to Borrower hereunder,

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without the prior written consent of the Agent (acting upon instructions of the
Required Lenders under the Credit Agreement).

        19. Addresses for Notices, Etc. All notices, requests, demands,
instructions, directions and other communications provided for hereunder shall
be in writing (which term shall include telecopied communications) and shall be
sent by overnight courier, telecopied or delivered to the applicable party at
the address or telecopier number specified for such party opposite its signature
line below or, as to any party, to such other address or telecopier number as
such party shall specify by a notice in writing to the other parties hereto.
Each notice, request, demand, instruction, direction or other communication
provided for hereunder shall be deemed delivered (i) if by overnight courier,
one Business Day (or, in the case of any party hereto that has indicated an
address for notices that is located outside the United States, two Business
Days) after being delivered to the overnight courier, addressed to the
applicable party at its address set forth above, (ii) if by hand, when delivered
to the applicable party at such address, and (iii) if by telecopy, when sent to
the applicable party at such telecopier number.

        20. Severability. Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render such provision unenforceable in any
other jurisdiction.

        21. Execution in Counterparts. This Agreement may be executed in any
number of counterparts and by different parties on separate counterparts, all of
which when taken together shall constitute but one and the same agreement.
Delivery of an executed signature page to this Agreement by facsimile shall be
as effective as delivery of a manually signed counterpart.

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        IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
officers to execute this Agreement as of the date first above written.

Address:                              SPECIAL METALS CORPORATION

4317 Middle Settlement Road
New Hartford, New York 13413          By _____________________________________
Attention: Donald C. Darling          Name: ___________________________________
Telecopier: (315)798-2001             Title: __________________________________

Address:                              SOCIETE INDUSTRIELLE DE MATERIAUX
41 Rue de Villiers                    AVANCES
92200 Neuilly Sur Seine
Cedex, France

                                      By: _____________________________________
Attention:  Francois Lefebvre         Name: ___________________________________
Telecopier:  01133140882180           Title: __________________________________

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                                    EXHIBIT A

EXHIBIT A
                                FORM OF TERM NOTE

                  The indebtedness and all obligations evidenced or represented
                  hereby, and certain other Subordinated Claims, are postponed,
                  subordinated and junior in right of payment to Senior Claims,
                  as such capitalized terms are defined in a Debt Subordination
                  Agreement dated December 29, 1999, executed and delivered for
                  the benefit of the holders of such Senior Claims by the maker
                  hereof and by Societe Industrielle de Materiaux Advances, a
                  societe anonyme organized under the laws of the Republic of
                  France. The provisions of said Debt Subordination Agreement
                  are hereby incorporated herein, as if set forth at length
                  herein.

                                                          New Hartford, New York
                                                              December ___, 1999

         For value received, SPECIAL METALS CORPORATION, a Delaware corporation
(the "Borrower,"), promises to pay to the order of SOCIETE INDUSTRIELLE DE
MATERIAUX AVANCES, a societe anonyme organized under the laws of the Republic of
France ("SIMA"), on the Maturity Date, the principal amount of Twenty Million
Dollars ($20,000,000 (US)) plus the principal amount of all Additional Advances
and Converted Loans, if any, made by SIMA to the Borrower pursuant to the
Subordinated Loan Agreement referred to below that are then outstanding. The
unpaid principal amount of this Note shall accrue interest from the date of each
advance hereunder is made until it is repaid in full, at the rate specified in
the Subordinated Loan Agreement. Accrued interest on this Note and the Revolving
Note (as defined in the Subordinated Loan Agreement) will be paid in kind by
addition to the principal of the Term Loan on the last day of each calendar
quarter. All amounts so added to principal shall begin to accrue interest at the
rate provided in the Subordinated Loan Agreement as of the date so added to
principal.

         All such payments under this Note shall be made in lawful money of the
United States of America and in immediately available funds in accordance with
the terms of the Subordinated Loan Agreement at the office of SIMA specified in
the Subordinated Loan or in accordance with wiring instructions specified by
SIMA.

         All Additional Advances and all Converted Loans made by SIMA and all
payments of the principal thereof shall be recorded by SIMA on the schedule
attached hereto or any continuation thereof. Any such recordation shall
constitute prima facie evidence of the existence and amounts of the obligations
of the Borrower so recorded; provided, however, that the failure of SIMA to make
any such recordation shall not affect the obligations of the Borrower hereunder
or under the Subordinated Loan Agreement.

         This Note is the Term Note referred to in the Subordinated Loan
Agreement dated as of December 17, 1999, between the Borrower and SIMA (as the
same may be amended, restated, supplemented or otherwise modified from time to
time with the approval of the Agent, the

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<PAGE>

"Subordinated Loan Agreement") and is entitled to the benefits thereof. Terms
defined in the Subordinated Loan Agreement are used herein with the same
meanings. Reference is made to the Subordinated Loan Agreement for provisions
for the prepayment hereof and the acceleration of the maturity hereof. The
Borrower hereby waives presentment, demand, protest and all other notices of any
kind in connection with this Note.

         THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS PRINCIPLES OF CONFLICT
OF LAWS.

                                 SPECIAL METALS CORPORATION

                                 By: ______________________________________
                                     Name:
                                     Title:

                                       13
<PAGE>

                           SCHEDULE TO PROMISSORY NOTE

Date of           Principal        Amount        Outstanding       Notation
Loan              Amount           Repaid        Balance           By
----              ------           ------        -------           --

                                       14
<PAGE>

                                    EXHIBIT B

EXHIBIT A
                             FORM OF REVOLVING NOTE

                  The indebtedness and all obligations evidenced or represented
                  hereby, and certain other Subordinated Claims, are postponed,
                  subordinated and junior in right of payment to Senior Claims,
                  as such capitalized terms are defined in a Debt Subordination
                  Agreement dated December 29, 1999, executed and delivered for
                  the benefit of the holders of such Senior Claims by the maker
                  hereof and by Societe Industrielle de Materiaux Advances, a
                  societe anonyme organized under the laws of the Republic of
                  France. The provisions of said Debt Subordination Agreement
                  are hereby incorporated herein, as if set forth at length
                  herein.
                                                        New Hartford, New York
                                                            December ___, 1999

         For value received, SPECIAL METALS CORPORATION, a Delaware corporation
(the "Borrower,"), promises to pay to the order of SOCIETE INDUSTRIELLE DE
MATERIAUX AVANCES, a societe anonyme organized under the laws of the Republic of
France ("SIMA"), on the Maturity Date, the principal amount of all Revolving
Loans made by SIMA to the Borrower pursuant to the Subordinated Loan Agreement
referred to below. The unpaid principal amount of each such Revolving Loan shall
accrue interest from the date such Revolving Loan is made until it is repaid in
full, at the rate specified in the Subordinated Loan Agreement. Accrued interest
will be paid in kind by addition to the principal of the Term Loan (as defined
in the Subordinated Loan Agreement) on the last day of each calendar quarter.
All amounts so added to principal of the Term Loan shall begin to accrue
interest thereunder at the rate provided in the Subordinated Loan Agreement as
of the date so added to principal.

         All such payments under this Note shall be made in lawful money of the
United States of America and in immediately available funds in accordance with
the terms of the Subordinated Loan Agreement at the office of SIMA specified in
the Subordinated Loan or in accordance with wiring instructions specified by
SIMA.

         All Revolving Loans made by SIMA and all payments of the principal
thereof shall be recorded by SIMA on the schedule attached hereto or any
continuation thereof. Any such recordation shall constitute prima facie evidence
of the existence and amounts of the obligations of the Borrower so recorded;
provided, however, that the failure of SIMA to make any such recordation shall
not affect the obligations of the Borrower hereunder or under the Subordinated
Loan Agreement.

         This Note is the Revolving Note referred to in the Subordinated Loan
Agreement dated as of December 17, 1999, between the Borrower and SIMA (as the
same may be amended, restated, supplemented or otherwise modified from time to
time with the approval of the Agent, the "Subordinated Loan Agreement") and is
entitled to the benefits thereof. Terms defined in the Subordinated Loan
Agreement are used herein with the same meanings. Reference is made to the
Subordinated Loan Agreement for provisions for the prepayment hereof and the
acceleration

                                       15
<PAGE>

of the maturity hereof. The Borrower hereby waives presentment, demand, protest
and all other notices of any kind in connection with this Note.

         THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS PRINCIPLES OF CONFLICT
OF LAWS.

                                   SPECIAL METALS CORPORATION

                                   By: ______________________________________
                                       Name:
                                       Title:

                                       16
<PAGE>

                           SCHEDULE TO PROMISSORY NOTE

Date of           Principal        Amount        Outstanding       Notation
Loan              Amount           Repaid        Balance           By
----              ------           ------        -------           --

                                       17DEBT SUBORDINATION AGREEMENT

        This Agreement is entered into as of December 29, 1999, by Societe
Industrielle de Materiaux Avances, a societe anonyme organized under the laws of
the Republic of France (the "Subordinated Lender") and Special Metals
Corporation, a Delaware corporation (the "Company"), for the benefit of (i)
Credit Lyonnais New York Branch ("Credit Lyonnais"), (ii) the Lenders from time
to time party to the Credit Lyonnais Credit Agreement described below and each
party (other than the Company) to each other Senior Credit Facility described
below (collectively, including Credit Lyonnais and such Lenders, the "Senior
Lenders") and (iii) each other present and future holder of Senior Claims (as
defined herein) from time to time outstanding.

                                    Recitals

        A. The Company and the Subordinated Lender have entered into a
Subordinated Loan Agreement, dated as of December 17, 1999 (as in effect on the
date hereof and from time to time amended with the prior written consent of the
Required Senior Lenders, the "Subordinated Credit Agreement"), relating to
subordinated unsecured revolving and term credit facilities of up to
$50,000,000.

        B. The Company, the Lenders party thereto and Credit Lyonnais, as Agent,
are parties to a Senior Secured Credit Agreement, dated as of October 28, 1998,
as amended by First Amendment to Credit Agreement and Limited Waiver, dated as
of March 31, 1999, Second Amendment to Credit Agreement, dated as of June 8,
1999, and Third Amendment to Credit Agreement and Limited Waiver, dated as of
December 29, 1999 (together with the Loan Documents (as defined therein)
thereunder and all other instruments and agreements at any time entered into
between the Company or any Subsidiary pursuant thereto or in connection
therewith, as the same may be modified, supplemented, extended, renewed,
replaced or otherwise changed from time to time by agreement of the signatory
parties thereto, the "Credit Lyonnais Credit Agreement").

        C. To induce the Senior Lenders to consent to the Borrower's entering
into the Subordinated Credit Agreement, the Company and the Subordinated Lender
have agreed to enter into this Agreement.

        Now Therefore, in consideration of the premises and in consideration of
the execution and delivery of the Third Amendment to Credit Agreement and
Limited Waiver, dated as of December 29, 1999, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Company and the Subordinated Lender, for themselves and for each other present
and future holder of any Subordinated Claim, hereby agree

                                       2
<PAGE>

for the direct and legally enforceable benefit of Credit Lyonnais, each other
Senior Lender and each other present and future holder of any Senior Claim as
follows:

        Section 1. Definitions. As used herein, the following terms (whether in
singular or plural usage) shall have the following meanings:

        "Bankruptcy Code" means Title 11 of the United States Code.

        "Bankruptcy, Insolvency or Liquidation Proceeding" means (a) any case
commenced by or against the Company or any Subsidiary under any chapter of the
Bankruptcy Code, any other proceeding for the reorganization, recapitalization
or adjustment or marshalling of the assets or liabilities of the Company or any
Subsidiary, any receivership or assignment for the benefit of creditors relating
to the Company or any Subsidiary or any similar case or proceeding relative to
the Company or any Subsidiary or the creditors of any of them, as such, in each
case whether or not voluntary, (b) any liquidation, dissolution, marshalling of
assets or liabilities or other winding up of or relating to the Company or any
Subsidiary, in each case whether or not voluntary and whether or not involving
bankruptcy or insolvency, or (c) any other proceeding of any type or nature in
which Claims against the Company or any Subsidiary are determined, proven or
paid.

        "Claim" is used as defined in the Bankruptcy Code, whether or not, in
the context in which it appears, a case under the Bankruptcy Code is pending.

        "Company" is defined in the preamble to this Agreement.

        "Credit Lyonnais" is defined in the preamble to this Agreement.

        "Credit Lyonnais Credit Agreement" is defined in paragraph B of the
Recitals.

        "Discharge of the Credit Lyonnais Financing" means that all commitments
for any extension of credit or incurrence of indebtedness under the Credit
Lyonnais Credit Agreement have been terminated, all letters of credit at any
time issued, guaranteed or provided under the Credit Lyonnais Credit Agreement
have expired or been discharged and all reimbursement obligations in respect
thereof and all loans and advances made and other credit extended and
indebtedness incurred under the Credit Lyonnais Credit Agreement have been paid
in full in cash and all other indebtedness and obligations for principal,
interest, prepayment premium, fees, taxes, expense reimbursements, indemnities
and other amounts outstanding under the Credit Lyonnais Credit Agreement and all
other Senior Claims at any time outstanding under or in respect of the Credit
Lyonnais Credit Agreement (except indemnification obligations which are then
contingent and as to which no payment is then due and no claim or demand has
then been made) have been paid in full and in cash.

                                       2
<PAGE>

"holder" includes, in respect of any Claim, each person or entity which owns, is
entitled to enforce, is entitled to the benefit of or otherwise holds or owns
such Claim and includes all persons and entities at any time receiving any
transfer of any interest in any Claim or otherwise succeeding to any interest in
any Claim.

        "including" is used illustratively, and not exhaustively or by way of
limitation, and means "including but not limited to."

        "Post-Petition Interest/Expense Claims" means any Claim for interest on
any Senior Claim accrued or computed for or as to any period of time at any time
after the commencement of any Bankruptcy, Insolvency or Liquidation Proceeding
at the rate (including any applicable post-default rate) set forth in or
applicable under any instrument or agreement evidencing or governing any Senior
Claim or for fees, expense reimbursements, indemnification or other similar
obligations accrued or determined for or as to any such period of time in
accordance with the provisions of such instrument or agreement, whether or not
such Claim is allowed, allowable or enforceable in such Bankruptcy, Insolvency
or Liquidation Proceeding and even if such Claim is not allowed or enforced
therein.

        "Required Senior Lenders" means, at any time as to any act relating to
any Senior Credit Facility then in effect, such number of the holders of Senior
Claims for loans and other extensions of credit or indebtedness outstanding or
committed under such Senior Credit Facility as may, under the terms of the
agreement governing such Senior Credit Facility, have the power to bind all such
holders in respect of such act.

        "Senior Agent" means Credit Lyonnais or any successor to Credit Lyonnais
as Agent under the Credit Lyonnais Credit Agreement, until Discharge of the
Credit Lyonnais Financing, and thereafter means any Senior Lender acting as
Agent under any Senior Credit Facility or, if there is no Agent so acting, the
Required Senior Lenders under such Senior Credit Facility.

        "Senior Claim Collateral" means any and all of the property of every
type and description, whether real, personal or mixed, whether tangible or
intangible, and whether now owned or hereafter acquired by the Company or any
Subsidiary, upon which any security interest or lien is granted as security for
any Senior Claim.

        "Senior Claims" means (a) all present and future Claims against the
Company or any Subsidiary on account or in respect of the principal of and
interest and prepayment premium (if any) on any and all loans and letter of
credit liabilities and other extensions of credit or indebtedness at any time
incurred under any Senior Credit Facility, including any guaranty thereof, (b)
all present and future Claims at any time arising or secured, or purported to be
secured, under

                                       3
<PAGE>

any instrument, conveyance or agreement delivered by the Company or any
Subsidiary governing, securing or relating in any respect to any Senior Credit
Facility, and (c) all present and future Claims in any manner based thereon,
arising therefrom or related thereto, in each case whether now outstanding or at
any time hereafter arising, and specifically includes (without limitation) all
Claims for fees, taxes, expense reimbursements, indemnities and other amounts
payable by the Company or any Subsidiary under the Credit Lyonnais Credit
Agreement or any other such instrument, conveyance or agreement and all
Post-Petition Interest/Expense Claims in any Bankruptcy, Insolvency or
Liquidation Proceeding.

        "Senior Credit Facility" means (a) all loans, letter of credit
liabilities and other extensions of credit and indebtedness from time to time
outstanding or committed to be made available under the Credit Lyonnais Credit
Agreement, whether or not in any respect subordinated to any other loans,
extensions of credit or indebtedness, and (b) after Discharge of the Credit
Lyonnais Financing, in each case if and to the extent the Company agrees in
writing that the same shall be a Senior Credit Facility for the purposes of this
Agreement, (i) all loans, letter of credit liabilities or other extensions of
credit or indebtedness at any time incurred by or committed to be made available
to the Company or any Subsidiary for the purpose of repaying, retiring,
refinancing or replacing the Credit Lyonnais Credit Agreement and (ii) all other
indebtedness at any time incurred by or committed to the Company or any
Subsidiary for money borrower or credit extended or under any note or other debt
security.

        "Senior Credit Facility Default" means (a) the failure to pay when due
any payment on any Senior Claim or (b) any event that does or, with the giving
of any notice or the lapse of any period of time (or both), would constitute a
Default or an Event of Default under (and as defined in) any Senior Credit
Facility.

        "Senior Lenders" is defined in the preamble to this Agreement.

        "SIMA Letter of Credit" means one or more standby letter(s) of credit
issued in the aggregate face amount of $30,000,000 and delivered to the Senior
Agent on or prior to the date hereof, in form and substance satisfactory to the
Senior Agent and the Required Senior Lenders under the Credit Lyonnais Credit
Agreement.

        "Subordinated Claims" means (a) all present and future Claims against
the Company or any Subsidiary on account or in respect of the principal of and
interest and prepayment premium (if any) on the Subordinated Loans and any and
all other extensions of credit or indebtedness at any time incurred or arising
under the Subordinated Credit Agreement, (b) any and all Claims arising under
any of the Subordinated Loan Documents, and (c) any and all Claims in any manner
based thereon, arising therefrom or related thereto, in each case whether now
outstanding or at any time hereafter arising and whether based on contract or
quasi-contract or founded in tort or arising by law or otherwise, and
specifically includes (without limitation) all

                                       4
<PAGE>

Claims against the Company or any Subsidiary for fees, taxes, expense
reimbursements, indemnities and other amounts, obligations or liabilities under
the Subordinated Loan Documents.

        "Subordinated Credit Agreement" is defined in paragraph A of the
Recitals.

        "Subordinated Lender" is defined in the preamble to this Agreement.

        "Subordinated Loan Documents" means the Subordinated Credit Agreement,
the Subordinated Notes and all other instruments and agreements of every type
and description at any time delivered by the Company or any Subsidiary
evidencing, governing, securing, assuring, or otherwise relating to the
Subordinated Credit Agreement or any other Subordinated Claim.

        "Subordinated Loan Maturity Date" means July 28, 2006.

        "Subordinated Loans" means the Subordinated Revolving Loan and the
Subordinated Term Loan.

        "Subordinated Notes" means each and all of the promissory notes
evidencing the loans made pursuant to the Subordinated Credit Agreement.

        "Subordinated Revolving Loan" means each and all of the Revolving Loans
(as defined in the Subordinated Credit Agreement) funded under the Subordinated
Credit Agreement, except any such Subordinated Revolving Loans converted into
Subordinated Term Loans in accordance with the Credit Lyonnais Credit Agreement.

        "Subordinated Term Loan" means each and all of the Term Loans (as
defined in the Subordinated Credit Agreement) funded under the Subordinated
Credit Agreement, together with (i) all Subordinated Revolving Loans converted
into Subordinated Term Loans in accordance with the Credit Lyonnais Credit
Agreement, (ii) all additional advances added to the Term Loans and (iii) all
interest at any time accrued on the Subordinated Loans.

        "subsidiary" means, with respect to any person or entity at any time,
any corporation, limited liability company, partnership, association or other
entity of which equity securities or other ownership interests representing more
than 50% of the equity or profit interests or more than 50% of the ordinary
voting power or, in the case of a partnership, more than 50% of the general
partnership interests are, as of such date, owned, controlled or held by, or
that is otherwise controlled by, the parent or one or more subsidiaries of the
parent or by the parent and one or more of its subsidiaries.

        "Subsidiary" means any subsidiary of the Company.

                                       5
<PAGE>

        References in this Agreement to a "Section," when not further identified
by reference to any document, are references to the Sections of this Agreement.

        Section 2. Subordination. The Company and the Subordinated Lender, on
behalf of all present and future holders of Subordinated Claims, hereby covenant
and agree that the Subordinated Claims are and shall be postponed, subordinated
and junior in right of payment to the prior payment in full in cash of all
Senior Claims, on the terms and conditions herein set forth.

        Section 3. Payment of Subordinated Claims. For as long as any holder of
Senior Claims may be obligated to extend credit to the Company or any Subsidiary
under any Senior Credit Facility, and thereafter until all Senior Claims have
been paid in full in cash and discharged, the Company will not make or permit
any Subsidiary to make, and no Subordinated Lender or other holder of
Subordinated Claims will demand, accept, receive or retain, any payment or
distribution of any kind or character, whether in cash, property, securities or
otherwise, on account or in respect of any Subordinated Claim, except that:

                (a) Principal of the Subordinated Term Loan may be paid if (and
        only if) at the time of such payment no commitments to extend credit
        under any Senior Credit Facility are outstanding and all Senior Claims
        have been paid in full in cash;

                (b) Principal of the Subordinated Revolving Loan may be paid if
        (and only if) at the time of such payment and after giving effect
        thereto (i) no Senior Credit Facility Default has occurred and is
        continuing or would result therefrom and (ii) the aggregate amount of
        revolving credit loans and letters of credit obligations outstanding
        under the Credit Lyonnais Credit Agreement is not greater than
        $76,000,000; provided, nevertheless, that:

                        (1) if prior to the time of such payment any advance
                under the Subordinated Revolving Loan was funded by a payment
                demand under the SIMA Letter of Credit, the SIMA Letter of
                Credit must have been amended (by an amendment acceptable to the
                Senior Agent) to increase the amount available for payment under
                the SIMA Letter of Credit by an amount of such advances funded
                under the SIMA Letter of Credit;

                        (2) no such payment may be made at any time during the
                period commencing on March 31, 2001 and ending on August 31,
                2001 unless the Consolidated EBITDA (as defined in the Credit
                Lyonnais Credit Agreement) of the Company and its consolidated
                Subsidiaries for the 12-month period ending on March 31, 2001
                was $55,000,000 or more; and

                                       6
<PAGE>

                        (3) no such payment may be made at any time when any
                Bankruptcy, Insolvency or Liquidation Proceeding is pending.

                (c) Interest on the Subordinated Loans may be added to the
        principal of the Subordinated Term Loan pursuant to the terms and
        conditions of the Credit Lyonnais Credit Agreement and the Subordinated
        Credit Agreement. Interest on the Subordinated Loans may be paid only if
        at the time of such payment the Company is permitted to pay the
        principal of the Subordinated Term Loan pursuant to Section 3(a).

        Section 4. Bankruptcy, Insolvency or Liquidation Proceedings. In any
Bankruptcy, Insolvency or Liquidation Proceeding:

                (a) All Senior Claims (including all Post-Petition
        Interest/Expense Claims) shall be paid in full in cash before any
        Subordinated Lender or any other holder of any Subordinated Claim shall
        be entitled to receive any payment or distribution of any kind or
        character, whether in cash, property, securities or otherwise, on
        account or in respect of any Subordinated Claim in such Bankruptcy,
        Insolvency or Liquidation Proceeding.

                (b) The holders of Senior Claims arising under or in respect of
        the Credit Lyonnais Credit Agreement and, after Discharge of the Credit
        Lyonnais Financing, each other holder of Senior Claims shall be entitled
        to receive each payment and distribution of any kind or character,
        whether in cash, property, securities or otherwise (including any such
        payment or distribution which may become payable or deliverable by
        reason of any other Claim being subordinated to any Subordinated Claim),
        that may become payable or deliverable on account or in respect of any
        Subordinated Claim, for application to the payment of Senior Claims of
        such holders (including all Post-Petition Interest/Expense Claims),
        until all holders of Senior Claims have received payment in full in cash
        of all Senior Claims (including all Post-Petition Interest/Expense
        Claims). All such payments and distributions shall be delivered by the
        debtor, trustee, receiver, disbursing agent or other person making such
        payment or distribution in such Bankruptcy, Insolvency or Liquidation
        Proceeding directly to the Senior Agent for the benefit of such holders
        of Senior Claims.

                (c) Except as otherwise agreed in writing by the Required Senior
        Lenders, no payment or distribution consisting of any property or
        securities other than cash shall be deemed applied to the payment of
        Senior Claims at any adjudicated or imputed value. No discharge of the
        liability of the debtor in such Bankruptcy, Insolvency or Liquidation
        Proceeding shall, as against the holders of Subordinated Claims,
        constitute payment of the Senior Claims or shall in any respect affect
        or impair the right of the holders of Senior Claims to receive each
        payment or distribution on account or in respect of Subordinated Claims
        and to apply such payment or distribution to pay the Senior Claims

                                       7
<PAGE>

        (including all Post-Petition Interest/Expense Claims accrued or incurred
        through the date on which cash proceeds have been received by the
        holders of Senior Claims in an amount sufficient to pay all Senior
        Claims in full), until cash proceeds have been received and applied to
        the payment of Senior Claims in an amount sufficient to pay, in full and
        in cash, all Senior Claims (including all Post-Petition Interest/Expense
        Claims accrued or incurred through the date on which cash proceeds in
        such amount are received).

                (d) No holder of Subordinated Claims shall, in such Bankruptcy,
        Insolvency or Liquidation Proceeding, (i) assert, or request relief
        predicated on the assertion that, or join with any creditor or the
        debtor or any trustee or representative in asserting or requesting
        relief predicated on the assertion that, any of the Senior Claims is not
        enforceable, should be equitably subordinated, is subject to avoidance
        on any ground or is not secured by lawfully granted, continuously
        perfected and nonavoidable security interests in the Senior Claim
        Collateral, (ii) oppose or otherwise contest, or join with any creditor
        or the debtor or any trustee or representative in opposing or otherwise
        contesting any request by any Senior Lender for relief from any
        automatic stay or from any other form of order or restraint for the
        purpose of permitting such Senior Lender or its agent to foreclose upon
        or otherwise enforce any or all of its security interests and liens upon
        any Senior Claim Collateral or (iii) seek, or join with any creditor or
        the debtor or any trustee or representative in seeking, substantive
        consolidation of the estate of the debtor with the assets, liabilities
        or estate of its parent company or any of its subsidiaries or any other
        person or entity.

                (e) Each holder of Subordinated Claims shall file, in
        appropriate form, all claims and proofs of claim in respect of such
        holder's Subordinated Claims whenever the filing of claims is required
        or permitted by law upon any of the Subordinated Claims. If any holder
        of Subordinated Claims does not file any such claim or proof of claim
        promptly upon the request of any Senior Lender, then the Senior Agent or
        the Required Senior Lenders under each Senior Credit Facility, and each
        of their respective agents, is hereby irrevocably authorized and
        empowered (but shall not be obligated), as attorney-in-fact for such
        holder of Subordinated Claims with full power of substitution, either to
        file such claim or proof thereof in the name of such holder or, at the
        option of such Senior Agent or the Required Senior Lenders, to assign
        such claim to the Senior Agent, for the benefit of the holders of Senior
        Claims as their interest may appear in accordance with the provisions of
        this Agreement, or to their nominee, and cause such claim or proof
        thereof to be filed.

        Section 5. Turnover. If and in each instance that, notwithstanding the
provisions of Section 3 and Section 4, any holder of any Subordinated Claim
receives any payment or distribution of any kind or character, whether in cash,
property, securities or otherwise (including any such payment or distribution
which may become payable or deliverable by reason of any other Claim being
subordinated to any Subordinated Claim but excluding any

                                       8
<PAGE>

payment of principal that is made on any day when payment is expressly permitted
to be made as set forth in Section 3), on account or in respect of any
Subordinated Claim at any time when any Senior Claim or any commitment for any
extension of credit or incurrence of indebtedness under a Senior Credit Facility
is outstanding, then and in each such event:

                (a) Such holder shall forthwith pay over, transfer and deliver
        such payment or distribution to the Senior Agent, for the benefit of the
        holders of Senior Claims arising under or in respect of the Credit
        Lyonnais Credit Agreement and, after Discharge of the Credit Lyonnais
        Financing, for the benefit of each other holder of Senior Claims, for
        application to the payment of Senior Claims, until all Senior Claims
        arising under or in respect of the Credit Lyonnais Credit Agreement and,
        after Discharge of the Credit Lyonnais Financing, all other Senior
        Claims (including, in each case, all Post-Petition Interest/Expense
        Claims) have been paid in full in cash; and

                (b) Each holder of a Subordinated Claim shall, and hereby agrees
        to, hold in trust for the Senior Agent, for the benefit of the holders
        of such Senior Claims, in the identical form received (except for any
        necessary endorsement to the Senior Agent) and as trustee of an express
        trust, all payments and distributions required to be paid over,
        transferred and delivered pursuant to this Section 5.

        Section 6. Subrogation. In any Bankruptcy, Insolvency or Liquidation
Proceeding, subject to the prior payment in full and in cash of any and all
Senior Claims (including all Post-Petition Interest/Expense Claims), the holders
of Subordinated Claims shall have and may enforce any and all rights of
subrogation accorded by law in respect of any payment or distribution on account
of any Subordinated Claim that is applied to the payment of any Senior Claim
pursuant to the provisions of this Agreement. For such purposes:

                (a) No right of subrogation shall be available to or may be
        enforced by any holder of any Subordinated Claim, unless and until all
        Senior Claims (including all Post-Petition Interest/Expense Claims) have
        been paid in full in cash.

                (b) No holder of any Senior Claim makes any representation or
        warranty, or shall otherwise have any responsibility, as to whether any
        such right of subrogation is accorded or available to any holder of any
        Subordinated Claim or is enforceable by any holder of any Subordinated
        Claim in any particular circumstance.

                (c) No holder of any Senior Claim shall have any duty to any
        holder of any Subordinated Claim to ensure, perfect, protect, enforce or
        maintain any right of subrogation that might otherwise be accorded or
        available to or enforceable by any holder of any Subordinated Claim. The
        subordination provided herein and the rights of the holders of Senior
        Claims hereunder shall remain fully enforceable on the terms set forth

                                       9
<PAGE>

        herein, regardless of any act, omission or circumstance (whether or not
        attributable to any holder of any Senior Claim and whether or not
        wrongful) which does or might in any manner or in any respect destroy,
        limit, reduce, affect or impair any right of subrogation otherwise
        accorded or available to or enforceable by any holder of any
        Subordinated Claim. Each holder of any Senior Claim shall remain utterly
        free to take or fail to take any and all actions in respect of any
        Senior Claim or any person or entity liable therefor or any collateral
        security therefor (including each and all of the acts, omissions and
        matters described in Section 11), without exonerating any holder of a
        Subordinated Claim, even if any right of subrogation is destroyed,
        limited, reduced, affected or impaired thereby.

                (d) The subordination provided herein and the rights of the
        holders of Senior Claims hereunder shall be fully enforceable as to all
        Senior Claims which are not allowed, allowable or enforceable in such
        Bankruptcy, Insolvency or Liquidation Proceeding (including
        Post-Petition Interest/Expense Claims), even if and even though no right
        of subrogation is available in respect of such Senior Claims.

                (e) For purposes of enforcing any right of subrogation on the
        terms set forth in this Section 6, no payment or distribution on account
        of any Subordinated Claim applied to the payment of a Senior Claim
        shall, as between the Company and the holder of such Subordinated Claim
        and to the extent of the payment or distribution so applied, discharge
        the liability of the Company for the payment of such Senior Claim and,
        to this end, the Company shall remain obligated to pay such Senior Claim
        in full despite any such application.

        Section 7. Restrictions as to Security for Subordinated Claims.

                (a) The Company will not grant or permit to exist, and no holder
        of Subordinated Claims will demand, accept, take, seize or retain, any
        security interest or lien upon any property now owned or hereafter
        acquired by the Company or any Subsidiary as security for any
        Subordinated Claim.

                (b) The Company will not cause, permit or suffer any Subsidiary
        to guarantee or otherwise become or remain liable for the payment of any
        Subordinated Claim or to become or remain bound by any covenant or
        agreement or any other form of assurance in any respect relating
        thereto, and no holder of Subordinated Claims will demand, accept or
        retain any such guarantee, liability, covenant, agreement or assurance.

        Section 8. Restrictions Relating to Senior Documents. No holder of any
Subordinated Claim will accept or retain the benefit of any agreement in any
respect restricting the right of the Company or any Subsidiary (i) to incur or
repay or secure any Senior Claims in any amount, (ii) to enter into, amend,

                                       10
<PAGE>

supplement, change, terminate, replace or refinance the Credit Lyonnais Credit
Agreement or any other agreement governing or relating to any Senior Credit
Facility, or (iii) to sell, transfer or otherwise dispose of any or all of the
capital stock of, or partnership or limited liability company interests in, or
other equity interests in, any Subsidiary or to sell, transfer or otherwise
dispose of any or all of the property or assets of the Company or any
Subsidiary, including dispositions by merger or consolidation, except only the
sale, transfer or other disposition of all or substantially all of the assets of
the Company and its Subsidiaries, taken as a whole. To the extent any of the
foregoing is prohibited or restricted in any manner under any provision of the
Subordinated Loan Documents, such provision is hereby forever waived by each
holder of Subordinated Claims.

        Section 9. Amendment of Subordinated Loan Documents. No holder of
Subordinated Claims will enter into or accept any agreement to amend,
supplement, terminate or otherwise change any of the Subordinated Loan
Documents, except upon the prior written consent of the Required Senior Lenders.

        Section 10. Acceleration and Enforcement of Subordinated Claims. Until
all commitments for any extension of credit under each outstanding Senior Credit
Facility have been discharged and all outstanding Senior Claims have been paid
in full in cash, no holder of Subordinated Claims will (a) demand, accelerate,
bring suit to collect or otherwise exercise or enforce any right or remedy in
respect of any Subordinated Claim or commence or prosecute any action or
proceeding thereon, (b) commence any Bankruptcy, Insolvency or Liquidation
Proceeding or join with any creditor in commencing any Bankruptcy, Insolvency or
Liquidation Proceeding, or appear in any Bankruptcy, Insolvency or Liquidation
Proceeding commenced by any other creditor in support of the commencement or
continuation thereof, or (c) otherwise exercise or enforce any right or remedy
in respect of any Subordinated Claim, including any right or remedy that
otherwise might be available to it in any Bankruptcy, Insolvency or Liquidation
Proceeding, unless:

                (a) the Senior Agent has received written notice thereof,
        stating the action to be taken and the grounds therefor, and

                (b) at least 360 days have elapsed since the date such written
        notice was received by the Senior Agent.

        Notwithstanding the foregoing, nothing in this Section 10 shall limit
the rights of the Subordinated Lender to (i) refuse to make additional loans or
advances upon commencement of a Bankruptcy, Insolvency or Liquidation Proceeding
or (ii) prove and establish its Subordinated Claims in any such Bankruptcy,
Insolvency or Liquidation Proceeding.

        Section 11. Subordination not Prejudiced, Affected or Impaired. No right
of any present or future holder of any Senior Claim to enforce subordination as
provided in this

                                       11
<PAGE>

Agreement shall at any time in any way be prejudiced, affected or impaired by
any act or failure to act on the part of the Company or any Subsidiary or by any
act or failure to act on the part of any holder of Senior Claims or by any
breach or default by the Company or any Subsidiary in the performance or
observance of any promise, covenant or obligation enforceable by any holder of
Subordinated Claims, regardless of any knowledge thereof that any holder of
Senior Claims may have or otherwise be charged with.

                (a) Without in any way limiting the generality of the foregoing,
        each holder of any Senior Claim may at any time and from time to time,
        without the consent of or notice to any holder of Subordinated Claims,
        without incurring any responsibility or liability to any holder of
        Subordinated Claims and without in any manner prejudicing, affecting or
        impairing the subordination provided herein or the obligations of the
        holders of Subordinated Claims under this Agreement:

                        (1) Make loans and advances to the Company or any
                Subsidiary or issue, guaranty or obtain letters of credit for
                account of the Company or any Subsidiary or otherwise extend
                credit to the Company or any Subsidiary, in any amount and on
                any terms, whether pursuant to a commitment or as a
                discretionary advance and whether or not any default or event of
                default or failure of condition is then continuing;

                        (2) Change the manner, place or terms of payment or
                extend the time of payment of, or renew or alter, compromise,
                accelerate, extend or refinance, any Senior Claim or any
                agreement, guaranty, lien or obligation of the Company or any
                Subsidiary or any other person or entity in any manner related
                thereto, or otherwise amend, supplement or change in any manner
                any Senior Claim or any such agreement, guaranty, lien or
                obligation;

                        (3) Increase or reduce the amount of any Senior Claim or
                the interest, premium, fees or other amounts payable in respect
                thereof;

                        (4) Release or discharge any Senior Claim or any
                guaranty thereof or any agreement or obligation of the Company
                or any Subsidiary or any other person or entity with respect
                thereto;

                        (5) Take or fail to take any collateral security for any
                Senior Claim or take or fail to take any action which may be
                necessary or appropriate to ensure that any security interest or
                lien upon any property securing any Senior Claim is duly
                enforceable or perfected or entitled to priority as against any
                other lien or to ensure that any proceeds of any property
                subject to any security interest or lien are applied to the
                payment of any Senior Claim;

                                       12
<PAGE>

                        (6) Release, discharge or permit the lapse of any or all
                security interests or liens upon any property at any time
                securing any Senior Claim;

                        (7) Exercise or enforce, in any manner, order or
                sequence, or fail to exercise or enforce, any right or remedy
                against the Company or any Subsidiary or any collateral security
                or any other person, entity or property in respect of any Senior
                Claim or any security interest or lien securing any Senior Claim
                or any right under this Agreement, and apply any payment or
                proceeds of collateral in any order of application; or

                        (8) Sell, exchange, release, foreclose upon or otherwise
                deal with any property that may at any time be subject to any
                security interest or lien securing any Senior Claim.

                (b) No exercise, delay in exercising or failure to exercise any
        right arising under this Agreement, no act or omission of any holder of
        Senior Claims in respect of the Company or any Subsidiary or any other
        person or entity or any collateral security for any Senior Claim or any
        right arising under this Agreement, no change, impairment, or suspension
        of any right or remedy of any holder of any Senior Claim, and no other
        act, failure to act, circumstance, occurrence or event which, but for
        this provision, would or could act as a release or exoneration of the
        obligations of the holders of Subordinated Claims hereunder shall in any
        way affect, decrease, diminish or impair any of the obligations of any
        holder of Subordinated Claims under this Agreement or give any holder of
        Subordinated Claims or any other person or entity any recourse or
        defense against any holder of Senior Claims in respect of any right
        arising under this Agreement.

        Section 12. Reinstatement. If any payment or other transfer at any time
applied to the payment or satisfaction of any Senior Claim is thereafter
rescinded, recovered, set aside, avoided or required to be returned, then such
Senior Claim and all rights of the holder of such Senior Claim to enforce
subordination as set forth herein shall be automatically and unconditionally
reinstated, as fully as if such payment or transfer had never been made.

        Section 13. Transferees to be Bound.

                (a) The Company and each holder of Subordinated Claims
        represents, warrants and agrees that the following legend is and shall
        at all times remain placed conspicuously upon the face and signatures
        pages of each Subordinated Note and each other instrument evidencing any
        Subordinated Claim held by such holder:

                                       13
<PAGE>

                The indebtedness and all obligations evidenced or represented
                hereby, and certain other Subordinated Claims, are postponed,
                subordinated and junior in right of payment to Senior Claims, as
                defined in and on the terms set forth in a Debt Subordination
                Agreement dated December 29, 1999, executed and delivered for
                the benefit of the holders of such Senior Claims by the maker
                hereof, and certain Subordinated Lender signatory thereto. The
                provisions of said Debt Subordination Agreement are hereby
                incorporated herein, as if set forth at length herein.

        The Company agrees to issue any promissory note in substitution,
        replacement or exchange for any Subordinated Note or any such other
        instrument only on the terms set forth in the form of Subordinated Note
        attached as Exhibits A and B to the Subordinated Credit Agreement, with
        such legend likewise placed thereon.

                (b) Prior to making or agreeing to make any transfer of any
        Subordinated Note or any other instrument evidencing any Subordinated
        Claim or any transfer of any interest in any Subordinated Claim, the
        then holder thereof will (i) deliver a copy of this Agreement to the
        transferee, (ii) cause the transferee duly to execute and deliver its
        agreement to be bound by the provisions hereof, by execution of a
        counterpart of the signature page hereto, stating the interest
        transferred, and (iii) deliver such counterpart, so executed, to the
        Senior Agent, accompanied by, if requested by the Senior Agent, an
        opinion of reputable counsel stating that the execution and delivery of
        such counterpart is within the power of such transferee and that such
        counterpart was duly authorized, executed and delivered by such
        transferee and is enforceable against such transferee in accordance with
        its terms, subject to laws generally affecting the enforcement of the
        rights of creditors and the applicability of general equitable
        principles.

        Section 14. Specific Enforcement. The Company and the Subordinated
Lender acknowledge and agree that an action for money damages is not an adequate
remedy for enforcement of this Agreement and, accordingly, agree that each and
all of the obligations arising hereunder may, at the option of the Senior Agent
or the Required Senior Lenders, be enforced by an action for specific
performance or other lawful specific or injunctive relief.

        Section 15. Powers and Authorities Irrevocable; No Duty. All rights,
powers and authorities herein granted to any Senior Agent or Senior Lender, or
to the Required Senior Lenders, are coupled with an interest and are irrevocable
until Discharge of the Credit Lyonnais Financing and thereafter until all
commitments for any extension of credit or incurrence of indebtedness under each
outstanding Senior Credit Facility have been discharged and all outstanding
Senior Claims have been paid in full in cash. Such rights, powers and
authorities may

                                       14
<PAGE>

be freely exercised by each Senior Agent or Senior Lender, or by the Required
Senior Lenders, or not exercised by any of them, in each instance as each of
them may see fit given its own individual interest as a holder of Senior Claims,
without any duty of care, duty of loyalty or other duty whatsoever to any holder
of Subordinated Claims.

        Section 16. Enforceability. This Agreement (a) shall be binding upon and
enforceable against the Company and its successors and transferees and the
Subordinated Lender and each and all of its successors and transferees, (b) may
be jointly or separately enforced in any lawful manner against any one or more
or all of the persons and entities bound hereby, without any requirement that
other Claims or persons or entities bound hereby be joined (and no single or
partial exercise or enforcement of any right hereunder shall preclude any other
or further exercise or enforcement thereof), and (c) shall inure to the benefit
of and be enforceable by Credit Lyonnais, each Senior Lender and each other
present and future holder of any Senior Claim.

        Section 17. Subordinated Lender's Representations and Warranties. The
Subordinated Lender hereby represents and warrants to each present and future
holder of any Senior Claim that (a) the Recital set forth in paragraph A above
is true and correct as of the date hereof, (b) it owns and is the sole holder of
the indebtedness outstanding under the Subordinated Credit Agreement, (c) it has
duly executed and delivered this Agreement, in compliance with all laws and
regulations applicable to it and all agreements binding upon it, with full power
and authority to bind itself and all holders of Subordinated Claims based upon
or arising in respect of such indebtedness, (d) this Agreement is binding upon
and legally enforceable against it and each such holder of Subordinated Claims,
and (e) its execution and delivery of this Agreement, and the performance of its
obligations hereunder and the obligations hereunder of each such holder of
Subordinated Claims, does not violate or conflict with, or constitute a default
under, any law, regulation, agreement or other contractual obligation binding
upon or enforceable against such party.

        Section 18. Complete Agreement; Inconsistency; Modification; Waiver.
This Agreement sets forth definitively and exhaustively the complete agreement
of the parties with respect to the subject matter hereof. To the extent any
provision hereof is inconsistent with any provision in any of the Subordinated
Loan Documents, the provisions of this Agreement shall govern. No provision
hereof and no right arising hereunder may be modified or waived by any oral
agreement or shall be deemed to have been modified or waived by any act or
failure to act or shall otherwise be affected or changed, except as and to the
extent expressly set forth in a writing signed by the party to be bound thereby.

        Section 19. Notices. Each notice required or permitted under this
Agreement to be given to any holder of Subordinated Claims shall be deemed
sufficiently given if delivered by mail, telecopy, overnight courier, personal
delivery or otherwise in any reasonable manner to the Subordinated Lender at
Societe Industrielle de Materiaux Avances, 41 Rue de Villiers, 922200

                                       15
<PAGE>

Neuilly Sur Seine, Cedex, France, Attention: Francois Lefebvre, telecopy number
011-33-1-40882180.

        Section 20. Headings. The paragraph headings herein are inserted solely
for convenience of reference and shall not be used to construe, interpret,
define or limit the provisions hereof.

        Section 21. Governing Law; Consent to Jurisdiction. This Agreement shall
be governed by, and construed in accordance with, the laws of the State of New
York. Each of the Company and the Subordinated Lender and all other holders of
Subordinated Claims hereby (a) irrevocably consents to the exclusive
jurisdiction of the courts of the County of New York in the State of New York or
the courts of the United States for the Southern District of New York in respect
of any action or proceeding arising out of or in connection with this Agreement
or for the enforcement of any right hereunder, (b) waives any objection which it
may have at any time to the laying of venue of any such action or proceeding in
any such court, waives any claim that such action or proceeding has been brought
in an inconvenient forum, and further waives the right to object that such court
does not have jurisdiction over such party, and (c) agrees that process in any
such action or proceeding may be served upon it, and shall be sufficiently
served upon it, by mail to its address set out on the signature pages hereof,
without limiting the right of any person or entity to serve process in any other
manner permitted by law.

        Section 22. Waiver of Right to Trial by Jury. Each party hereto hereby
waives, absolutely, unconditionally, irrevocably and forever, any right to trial
by jury in any action or proceeding arising out of or in connection with this
Agreement or for the enforcement of any right hereunder.

        Section 23. Continuing and Irrevocable Agreement; Acceptance. This
Agreement is a continuing and irrevocable agreement enforceable against each
signatory party hereto by Credit Lyonnais, each Senior Lender and each other
present and future holder of any Senior Claim. Notice of acceptance hereof by
Credit Lyonnais, any Senior Lender or any such holder is hereby waived, and
reliance hereon by each of them is hereby unconditionally and conclusively
acknowledged.

        Section 24. Counterparts. This Agreement may be executed in any number
of counterparts and by the parties on one or more counterparts, all of which
taken together shall constitute a single agreement. Delivery of an executed
signature page to this Agreement by facsimile shall be effective as delivery of
a manually signed counterpart.

                                       16
<PAGE>

        IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
as of the day and year first above stated.

                                            SPECIAL METALS CORPORATION

                                            By:________________________________
                                               Name:___________________________
                                               Title:__________________________

                                            CREDIT LYONNAIS NEW YORK BRANCH

                                            By:________________________________
                                               Name:___________________________
                                               Title:__________________________

                                            Societe Industrielle de Materiaux
                                            Avances

                                            By:________________________________
                                               Name:___________________________
                                               Title:__________________________

                                       17

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