AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 2, 1996
REGISTRATION NO. 333-5411
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
HAYNES INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 3356 06-118540
(State or other jurisdiction (Primary S.I.C. Code Number) (I.R.S. Employer
of incorporation or Identification No.)
organization)
</TABLE>
-------------------
1020 WEST PARK AVENUE
KOKOMO, INDIANA 46904-9013
(317) 456-6000
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
-------------------
MICHAEL D. AUSTIN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
HAYNES INTERNATIONAL, INC.
1020 WEST PARK AVENUE
KOKOMO, INDIANA 46904-9013
(317) 456-6000
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
-------------------
COPIES TO:
<TABLE>
<S> <C>
STEPHEN J. HACKMAN, ESQ. WINTHROP B. CONRAD, JR., ESQ.
ICE MILLER DONADIO & RYAN DAVIS POLK & WARDWELL
ONE AMERICAN SQUARE, BOX 82001 450 LEXINGTON AVENUE
INDIANAPOLIS, INDIANA 46282-0002 NEW YORK, NEW YORK 10017
(317) 236-2100 (212) 450-4000
</TABLE>
-------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable
after this Registration Statement becomes effective.
If any of the securities registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: / /
-------------------
CALCULATION OF REGISTRATION FEE
[CAPTION]
<TABLE>
PROPOSED MAXIMUM
TITLE OF EACH CLASS PROPOSED MAXIMUM AGGREGATE AMOUNT OF
OF SECURITIES TO BE AMOUNT TO BE OFFERING PRICE OFFERING PRICE REGISTRATION FEE
REGISTERED REGISTERED PER UNIT (1) (2)
<S> <C> <C> <C> <C>
% Senior Notes due 2004 $100,000,000 % $100,000,000 $34,483
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE
The current name of the registrant for the offering of the notes described
in this Registration Statement (the "Offering") is Haynes International, Inc.
The name of the registrant will be changed to Haynes Corp. prior to the
effectiveness of this Registration Statement. Approximately thirty days after
the closing of the Offering, the registrant will be merged with and into its
sole stockholder, Haynes Holdings, Inc. (whose name will be changed to Haynes
International, Inc. after the registrant's name change and prior to the
effectiveness of the Registration Statement), and the name of the surviving
entity will be "Haynes International, Inc."
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED AUGUST 2, 1996
PROSPECTUS HAYNES
- ---------- ------
$100,000,000 International
--------------
HAYNES CORP.
TO BE MERGED WITH AND CONTINUE AS
HAYNES INTERNATIONAL, INC.
% SENIOR NOTES DUE 2004
-------------------
Interest on the % Senior Notes due 2004 (the "Notes") of Haynes Corp. (the
"Company") will be payable semiannually on and of each year,
commencing on , 1997. On or after , 2000, the Notes will be redeemable
at the Company's option, in whole or in part, at the redemption prices set forth
herein, together with accrued and unpaid interest, if any, to the redemption
date. At any time on or prior to , 1999, the Company, at its option,
may redeem up to $25.0 million aggregate principal amount of the Notes from the
net proceeds of one or more Public Equity Offerings (as defined) by the Company,
at a redemption price of % of the principal amount thereof, together with
accrued and unpaid interest, if any, to the redemption date; provided that after
giving effect to such redemption, at least $70.0 million in aggregate principal
amount of the Notes remains outstanding following such redemption. In addition,
upon the occurrence of a Change in Control (as defined), each holder of the
Notes will have the right to require the Company to repurchase, in whole or in
part, such holder's Notes at a cash purchase price equal to 101% of the
principal amount thereof, together with accrued and unpaid interest, if any, to
the repurchase date. In addition, the Notes will be redeemable, at the option of
the Company, in whole or in part, after a Change in Control at a redemption
price calculated pursuant to a formula described herein. See "Description of the
Notes."
The Notes will be senior unsecured indebtedness of the Company and will be
subordinated in right of payment to all existing and future secured indebtedness
of the Company, including indebtedness under the New Credit Facility (as
defined), and will rank pari passu in right of payment with all other existing
and future senior indebtedness of the Company. The Notes will also be
effectively subordinated to indebtedness of the Company's subsidiaries. Under
the terms of the Indenture (as defined), the Company will be permitted, upon the
satisfaction of certain conditions, to incur additional secured indebtedness. As
of June 30, 1996, the Company had outstanding approximately $156.1 million of
indebtedness. After giving effect to the Recapitalization (as defined), on a pro
forma basis as of June 30, 1996, there would have been outstanding approximately
$19.0 million of secured indebtedness ranking senior to the Notes, and no
indebtedness ranking pari passu with the Notes.
Concurrently with the Offering, Haynes International, Inc., the sole
stockholder of the Company, is offering, by means of a separate prospectus,
shares of its Common Stock in an initial public offering (the "Equity
Offering"). The consummation of the Offering and the Equity Offering
(collectively, the "Offerings") are conditioned upon each other and are also
conditioned upon the prior or concurrent consummation of certain other
transactions described under "The Recapitalization." Approximately 30 days after
consummation of the Offerings, the Company will be merged with and into Haynes
International, Inc., and the name of the surviving corporation will be "Haynes
International, Inc." See "The Recapitalization."
The Common Stock of Haynes International, Inc. has been approved for
quotation on the Nasdaq National Market under the symbol "HAYN."
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE NOTES.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) COMMISSION(2) COMPANY(1)(3)
<S> <C> <C> <C>
Per Note............................... % % %
Total.................................. $ $ $
</TABLE>
(1) Plus accrued interest, if any, from , 1996.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(3) Before deducting expenses payable by the Company estimated at .
-------
-------------------
The Notes are offered by the Underwriters, subject to prior sale, when, as
and if issued to and accepted by them, and subject to approval of certain legal
matters by counsel for the Underwriters and certain other conditions. The
Underwriters reserve the right to withdraw, cancel or modify such offer and to
reject orders in whole or in part. It is expected that delivery of the Notes
will be made in New York, New York on or about , 1996.
-------------------
MERRILL LYNCH & CO. PAINEWEBBER INCORPORATED
-------------------
The date of this Prospectus is , 1996.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
Picture of a commercial aircraft with inset diagram showing a jet engine.
Picture of a reactor vessel, lined with Hastelloy B-2, producing acetic acid.
Picture of flue gas desulfurization unit lined with Hastelloy C-22.
Picture of industrial gas turbine using a variety of the Company's alloy
products.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES OF THE
COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
-------------------
"HAYNES," "HASTELLOY," "ULTIMET," "HR-160," "G-50," "G-30" AND "C-22" ARE
ALL REGISTERED TRADEMARKS OF THE COMPANY, AND "HR-120," "D-205," "214," "242"
AND "230" ARE TRADEMARKS OF THE COMPANY.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus. All references to fiscal years in this Prospectus refer to the
Company's fiscal years which, for all periods presented, ended on September 30.
As used in this Prospectus, the term the "Company" includes, when the context so
requires, Haynes Corp. and its consolidated subsidiaries. Investors should
carefully consider the information set forth under the heading "Risk Factors."
THE COMPANY
The Company develops, manufactures and markets technologically advanced,
high performance alloys primarily for use in the aerospace and chemical
processing industries. The Company's products are high temperature alloys
("HTA") and corrosion resistant alloys ("CRA"). The Company's HTA products are
used by manufacturers of equipment that is subjected to extremely high
temperatures, such as jet engines for the aerospace industry, gas turbine
engines used for power generation, and waste incineration and industrial heating
equipment. The Company's CRA products are used in applications that require
resistance to extreme corrosion, such as chemical processing, power plant
emissions control and hazardous waste treatment. Based on available industry
data, the Company believes that it is one of three leading worldwide producers
of high performance alloy products in sheet, coil and plate forms, which in the
aggregate represented approximately 64% of the Company's net revenues in fiscal
1995. In addition, the Company produces its alloy products as seamless and
welded tubulars, and in bar, billet and wire forms.
High performance alloys are characterized by highly engineered, often
proprietary, metallurgical formulations primarily of nickel, cobalt and other
metals with complex physical properties. The complexity of the manufacturing
process for high performance alloys is reflected in the Company's relatively
high average selling price of approximately $12.18 per pound for fiscal 1995,
compared to the average selling price of other metals such as carbon steel
sheet, stainless steel sheet and aluminum, which currently range from $0.17 to
$1.25 per pound. Demanding end-user specifications, a multi-stage manufacturing
process and the technical sales, marketing and manufacturing expertise required
to develop new applications combine to create significant barriers to entry in
the high performance alloy industry. The Company derived approximately 30% of
its fiscal 1995 net revenues from products that are protected by United States
patents and derived an additional approximately 15% of its fiscal 1995 net
revenues from sales of products that are not patented, but for which the Company
has limited or no competition.
Core Competencies
Based upon its customer relationships in the aerospace and chemical
processing industries, the Company believes it has a leadership position in the
high performance alloy industry and has a strong reputation for quality and
reliability. The Company's core competencies include the following:
. Metallurgical expertise. With over 50 years of product research and
development in the high performance alloy industry, the Company believes
it is a leader in the development and manufacturing technology of nickel-
and cobalt-based alloys. Over the last seven years, the Company's
technical programs have yielded seven new proprietary alloys, five of
which are protected by United States patents. Three additional United
States patents regarding the new proprietary alloys are pending. The
Company currently maintains a total of 43 United States patents and
approximately 180 foreign counterpart patents targeted at countries with
significant existing or potential markets for the patented products. As a
result of the Company's research and development efforts, Chemical
Processing magazine recognized the Company's products five
3
<PAGE>
times in the last twelve years as having made significant contributions to
the chemical processing industry.
. Technical marketing support. Through the combined efforts of the Company's
direct sales organization, including its four domestic Company-owned
service centers and its research and development group, the Company works
closely with its customers in order to identify, develop and support
diverse applications for its alloys and to anticipate customers' future
materials requirements. The Company believes this integrated approach is
unique in the high performance alloy industry.
. Flexible manufacturing capabilities. The Company's four-high Steckel mill,
in conjunction with its sophisticated, multi-stage, melting and refining
operation, produces a broad array of sheet, coil and plate products made
to exacting specifications. The Company also operates a three-high mill
and a two-high mill that enable the Company to produce small batch orders
that generally are not practical or economical for competitors to
manufacture.
Business Strategy
The Company intends to capitalize on its core competencies to implement its
business strategy, which includes the following principal elements:
Develop new applications for existing alloys. The Company actively seeks to
develop new applications and new market segments for its existing products. The
sales force, in coordination with the research and development staff, works
closely with end-users to identify applications for the Company's existing
products that address its customers' specialized needs. Management believes that
new product applications represent a significant opportunity for revenue growth.
The Company has identified and is pursuing new applications for its alloys,
including applications for the automotive, medical and instrumentation
industries.
Continue customer-driven new product development. The Company emphasizes
customer contact and an awareness of customer needs in its product development
process. The Company believes that new opportunities in end-markets are best
identified through close contact with customers. This approach allows the
Company to focus its research and development efforts and enables the Company's
products to be specified for use in the production of customers' products.
Expand export sales. The Company believes there are significant
opportunities to increase its sales in international markets. In fiscal 1995,
approximately 39% of the Company's net revenues were outside the United States,
primarily in European markets where the Company has established sales and
manufacturing facilities. In addition, the Company is pursuing significant
growth opportunities in other regions, particularly the Pacific Rim.
Increase productivity through strategic equipment investment. The Company
believes that future investment in plant and equipment will allow it to increase
capacity and produce higher quality products at reduced costs. The
Recapitalization described herein, combined with improved market conditions,
will enable the Company to increase its investment in plant and equipment above
the amounts expended in recent years. See "The Recapitalization." During fiscal
1996 through 1998, the Company anticipates investing approximately $19.5 million
in new plant and equipment and approximately $3.2 million in new integrated
information systems. The principal benefits of these investments are expected to
be (i) the expansion of annual production capacity by 25% from approximately
20.0 million pounds to approximately 25.0 million pounds, based on the current
product mix, (ii) improved production quality resulting in lower internal
rejection rates and rework costs and (iii) improved coordination among sales,
marketing and manufacturing personnel resulting in more efficient pricing
practices.
4
<PAGE>
The Company experienced a significant decline in demand for its products
from fiscal 1992 through fiscal 1994. This decline resulted from a confluence of
major economic events, including a decline in military aerospace procurement in
the aftermath of the Persian Gulf War and the collapse of the Soviet Union, a
major inventory correction by jet engine manufacturers following cancellations
and deferrals of orders for new commercial aircraft as a consequence of the 1990
to 1991 recession and a delay in spending on maintenance and repair in the
chemical processing industry. From fiscal 1991 to fiscal 1994, the Company's
shipments declined by 21% from approximately 16.9 million pounds to
approximately 13.3 million pounds, while net revenues decreased 33% from
approximately $225.4 million in fiscal 1991 to approximately $150.6 million in
fiscal 1994. During the same period, the Company's net loss increased from
approximately $0.7 million in 1991 to approximately $140.5 million in 1994;
fiscal 1994 included non-cash charges of approximately $79.6 million and
approximately $37.1 million relating to an accounting change for post-retirement
benefits and a write-off of goodwill, respectively. For the same period,
earnings before interest, taxes, depreciation and amortization decreased from
approximately $39.0 million in fiscal 1991 to approximately $10.7 million in
fiscal 1994.
Since fiscal 1994, demand for the Company's products has increased in its
primary end markets, aerospace and chemical processing, reflecting improved
market conditions. The Company's shipments to the aerospace industry, which
represented 33% of net revenues in fiscal 1995, increased 42% from 3.3 million
pounds in fiscal 1994 to 4.7 million pounds in fiscal 1995, and 23% in the first
nine months of fiscal 1996 to approximately 4.3 million pounds from
approximately 3.5 million pounds in the corresponding period of fiscal 1995. The
Company's shipments to the chemical processing industry, which represented 36%
of net revenues in fiscal 1995, increased 22% in fiscal 1995 over fiscal 1994
from approximately 5.0 million pounds to approximately 6.1 million pounds and
increased 2.8% in the first nine months of fiscal 1996 over the corresponding
period in fiscal 1995. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations".
The Company owns and operates manufacturing facilities in Kokomo, Indiana;
Arcadia, Louisiana; and Openshaw, England. The Kokomo plant is the main
production facility for all HTA and CRA products and most product forms,
including sheet, coil, plate, bar, billet and wire. The Arcadia plant is the
primary facility for the production of welded and seamless tubing and piping
using nickel- and cobalt-based alloys and seamless titanium tubing. The Openshaw
plant produces HTA and CRA products in bar and billet form for the European
market.
THE RECAPITALIZATION
Concurrently with this Offering, Haynes International, Inc., the sole
stockholder of the Company, is offering, by means of a separate prospectus,
shares of its Common Stock in an initial public offering. The consummation of
the Offering is conditioned upon and is a condition to the consummation of the
Equity Offering and certain other transactions described under "The
Recapitalization." In addition, the Company will replace its existing revolving
credit facility, which has a maximum commitment of $25.0 million (the "Existing
Credit Facility"), with a new revolving credit facility that will have a maximum
commitment of $50.0 million, to be secured by a first priority security interest
in the Company's accounts receivable and inventories (the "New Credit
Facility"). Borrowings under the New Credit Facility will bear interest at the
lower of the prime rate plus 0.25% or LIBOR plus 2.25%, which would have
resulted in a borrowing rate of approximately 7.8% per annum at July 1, 1996.
Amounts outstanding under the New Credit Facility will be due at maturity, which
will be three years after the date of closing unless extended or terminated. The
Company will use the net proceeds from the Offerings and borrowings under the
New Credit Facility to refinance its existing indebtedness consisting of $50.0
million of 11 1/4% Senior Secured Notes due 1998 (the "Existing Senior Notes"),
$90.0 million of 13 1/2% Senior Subordinated Notes due 1999 (the "Existing
Subordinated Notes" and, with the Existing Senior Notes, the "Existing Notes")
and the indebtedness outstanding under the Existing Credit Facility
(collectively, the "Existing Indebtedness"). As of June 30, 1996, there were
outstanding revolving borrowings under the Existing Credit Facility of
approximately $16.1 million. The Company will repay the amounts outstanding
under the Existing Credit Facility immediately following the closing
5
<PAGE>
of the Offerings. The redemption of the Existing Notes (the "Redemption") will
occur approximately thirty days after the closing of the Offerings. As soon as
practicable after the Redemption, the Company will be merged with and into
Haynes International, Inc. (the "Merger"). The Offerings, the establishment of
the New Credit Facility, the repayment of amounts outstanding under the Existing
Credit Facility, the Redemption and the Merger are collectively referred to
herein as the "Recapitalization." See "The Recapitalization," "Use of Proceeds"
and "Capitalization."
THE OFFERING
<TABLE>
<S> <C>
Notes Offered................ $100,000,000 aggregate principal amount of % Senior Notes
due 2004 (the "Notes").
Maturity Date................ , 2004.
Interest Payment Dates....... and of each year, commencing , 1997.
Optional Redemption.......... The Notes are redeemable at the option of the Company, in
whole or in part, at any time on or after , 2000,
at the redemption prices set forth herein, together with
accrued and unpaid interest to the date of redemption. In
addition, prior to , 1999, in the event one or more
Public Equity Offerings (as defined) are consummated after
the issue date of the Notes, the Company may redeem in the
aggregate up to a maximum of $25.0 million of the Notes with
the net proceeds thereof at a redemption price equal to % of
the principal amount thereof plus accrued and unpaid
interest to the redemption date; provided that, after giving
effect thereto, at least $70.0 million aggregate principal
amount of Notes remains outstanding.
Change of Control............ Upon a Change of Control (as defined), each holder of Notes
may require the Company to purchase all or a portion of such
holder's Notes at a purchase price in cash equal to 101% of
the principal amount thereof, together with accrued and
unpaid interest to the date of repurchase. In addition, the
Notes will be redeemable, at the option of the Company, in
whole or in part, after a Change of Control at a redemption
price equal to the sum of (i) the principal amount thereof
plus (ii) accrued and unpaid interest, if any, to the
redemption date plus (iii) the greater of (x) 1.0% of the
then outstanding principal amount of such Notes and (y) the
excess of (A) the present value of the required interest and
principal payments due on such Notes, computed using a
discount rate equal to the Treasury Rate (as defined) plus
the Applicable Spread (as defined), over (B) the principal
amount of such Notes. Neither the Equity Offering nor the
Merger constitutes a Change of Control under the terms of
the Notes.
Ranking...................... The Notes will be unsecured senior obligations of the
Company, ranking pari passu in right of payment with all
other existing and future senior indebtedness of the
Company. The Notes will be effectively subordinated to
secured indebtedness, including the Company's indebtedness
under the New Credit Facility and initially to the Existing
Senior Notes. As of June 30, 1996, giving effect to the
transactions described under "The Recapitalization,"
including the redemption of the Existing Notes, $19.0
million of senior secured indebtedness would have been
outstanding under the New
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
Credit Facility, all of the Company's existing indebtedness
(including the Existing Senior Notes) would have been repaid
and the Company would have had no other senior indebtedness
outstanding, other than the Notes offered hereby. Although
the Notes and the obligations under the New Credit Facility
will be senior obligations of the Company, the lender under
the New Credit Facility (and any other indebtedness secured
by assets of the Company) will have a claim ranking prior to
that of the holders of the Notes with respect to the
distribution of the assets and the proceeds thereof securing
the Company's obligations thereunder.
Certain Covenants............ The Indenture (as defined) will contain certain covenants,
including, but not limited to, covenants with respect to the
following matters: (i) limitation on indebtedness; (ii)
limitation on restricted payments; (iii) limitation on
transactions with affiliates; (iv) limitation on liens; (v)
limitation on sale of assets; (vi) limitation on issuance
and sale of preferred stock of subsidiaries; (vii)
limitation on dividends and other payment restrictions
affecting subsidiaries; and (viii) restrictions on
consolidations, mergers and the transfer of all or
substantially all of the assets of the Company to another
person.
Use of Proceeds.............. The net proceeds from the Offering will be approximately
$96.1 million. Such net proceeds, together with estimated
net proceeds from the Equity Offering of approximately $46.2
million and borrowings under the New Credit Facility of
approximately $19.0 million, will be utilized to repay the
Existing Indebtedness pursuant to the Recapitalization.
Absence of Public Market for
the Notes.................... There is no public market for the Notes and the Company does
not intend to apply for listing of the Notes on any national
securities exchange or for quotation of the Notes on the
Nasdaq National Market. The Company has been advised by the
Underwriters that, following the completion of the Offering,
the Underwriters presently intend to make a market in the
Notes; however, they are under no obligation to do so and
may discontinue any market-making activities at any time
without notice. No assurance can be given as to the
liquidity of the trading market for the Notes or that an
active public market for the Notes will develop or, if
developed, will continue. If an active public market does
not develop or is not maintained, the market price and
liquidity of the Notes may be adversely affected.
</TABLE>
RISK FACTORS
Prior to making an investment in the Notes, prospective purchasers should
consider all of the information set forth in this Prospectus and should evaluate
the information set forth in "Risk Factors" herein.
7
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT RATIO AND OPERATING DATA)
The following summary financial, operating and pro forma data were derived
from the Consolidated Financial Statements of the Company, including the notes
thereto, as well as the selected financial, operating and pro forma information
included elsewhere in this Prospectus. The information set forth below should be
read in conjunction with the Consolidated Financial Statements included
elsewhere herein, "Selected Consolidated Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED SEPTEMBER 30, ENDED JUNE 30,
-------------------------------------------------- --------------------------
1991 1992 1993 1994 1995 1995 1996
-------- -------- -------- -------- -------- --------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues................... $225,386 $169,344 $162,454 $150,578 $201,933 $ 149,973 $170,386
Cost of sales (1).............. 175,176 152,911(2) 137,102 171,957(3) 167,196 125,305 136,711
Selling and administrative
expenses....................... 20,762 19,641(2) 14,569 15,039 15,475 11,604 12,966
Research and technical
expenses....................... 4,578 3,894 3,603 3,630 3,049 2,286 2,529
Operating income (loss)........ 24,870 (7,102) 7,180 (40,048) 16,213 10,778 18,180
Other cost, net................ 324 882(2) 400 816 1,767 578 413
Interest expense, net.......... 23,167 20,107 18,497 19,582 19,904 14,938 15,138
Income (loss) before cumulative
effect of change in accounting
principle...................... (675) (16,771) (8,275) (60,866) (6,771) (5,353) 1,600
Cumulative effect of change in
accounting principle (net of
tax benefit).................. -- -- -- (79,630 (4) -- -- --
Net income (loss).............. (675) (16,771) (8,275) (140,496) (6,771) (5,353) 1,600
<CAPTION>
JUNE 30, 1996
--------------------------
ACTUAL AS ADJUSTED(5)
--------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (6)............ $ 69,312 $ 66,412
Property, plant and equipment,
net............................ 31,779 31,779
Total assets................... 164,669 165,256
Total debt..................... 156,131 119,031
Accrued post-retirement
benefits....................... 95,291 95,291
Stockholder's equity
(deficit)...................... (121,453) (82,339)
<CAPTION>
NINE MONTHS
YEAR ENDED SEPTEMBER 30, ENDED JUNE 30,
-------------------------------------------------- --------------------------
1991 1992 1993 1994 1995 1995 1996
-------- -------- -------- -------- -------- --------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
Depreciation and amortization
(7)............................ $ 14,458 $ 16,484 $ 13,766 $ 51,555(3) $9,000 $ 6,168 $ 6,534
Capital expenditures........... 4,567 821 56 771 1,934 1,465 801
EBITDA (8)..................... 39,004 8,500 20,546 10,691 23,446 16,368 24,301
Ratio of EBITDA to interest
expense........................ 1.68x 0.42x 1.11x 0.55x 1.18x 1.10x 1.61x
Ratio of earnings before fixed
charges to fixed charges
(9)........................... 1.06x -- -- -- -- -- 1.17x
Net cash provided from (used
in) operations................ $ 22,270 $ 19,850 $ 5,711 $(12,801) $ (2,883) $ (1,522) $ (2,983)
Net cash provided from (used
in) investment activities..... (4,521) (757) 318 746 (1,895) (1,438) (744)
Net cash provided from (used
in) financing activities...... (18,640) (16,440) (2,014) 7,102 3,912 1,609 3,654
PRO FORMA DATA (10):
Interest expense............... $ 11,861 $ 8,879 $ 9,052
Net income (loss).............. 1,601 944 7,943
EBITDA......................... 23,446 16,368 24,301
Ratio of earnings before fixed
charges to fixed charges...... 1.25x 1.18x 1.99x
Ratio of EBITDA to interest
expense........................ 1.98x 1.84x 2.68x
OPERATING DATA:
Shipments by markets (millions of
pounds):
Aerospace..................... 5.7 3.4 3.3 3.3 4.7 3.5 4.3
Chemical processing........... 5.3 4.6 5.2 5.0 6.1 4.6 4.7
Other markets................. 5.9 5.9 6.8 5.0 5.5 4.5 3.3
-------- -------- -------- -------- -------- --------- -------
Total....................... 16.9 13.9 15.3 13.3 16.3 12.6 12.3
-------- -------- -------- -------- -------- --------- -------
-------- -------- -------- -------- -------- --------- -------
Average selling price per
pound.......................... $ 13.26 $ 12.04 $ 10.48 $ 11.17 $ 12.18 $ 11.73 $ 13.63
Employees (end of period)...... 1,074 898 896 854 872 860 925
</TABLE>
(footnotes on following page)
8
<PAGE>
- ------------
(1) The Company was acquired by Morgan Lewis Githens & Ahn and its affiliates
("MLGA") and the management of the Company in August 1989 (the "1989
Acquisition"). For financial statement purposes, the 1989 Acquisition was
accounted for as a purchase transaction effective September 1, 1989;
accordingly, inventories were adjusted to reflect estimated fair market
values at that date. This adjustment to inventories was amortized to cost
of sales as inventories were reduced from the base layer. Non-cash charges
for this adjustment included in cost of sales were $3,361, $5,210, $3,686
and $488 for fiscal 1991, 1992, 1993 and 1994, respectively; no charges
have been recognized since fiscal 1994.
(2) Includes costs related to the implementation of cost reduction measures,
the implementation of a just-in-time and total quality management program
and the renegotiation of the terms of the 1989 Acquisition credit
agreement. In fiscal 1992, these charges were reflected in cost of sales,
selling and administrative expenses, and other cost, net in the amounts of
$6,937, $1,156 and $603, respectively.
(3) Reflects the write-off of $37,117 of goodwill created in connection with
the 1989 Acquisition remaining at September 30, 1994. See Note 10 of the
Notes to Consolidated Financial Statements.
(4) During fiscal 1994, the Company adopted Statement of Financial Accounting
Standards No. 106, "Employers' Accounting for Postretirement Benefits Other
Than Pensions" ("SFAS 106"). The Company elected to immediately recognize
the transition obligation for benefits earned as of October 1, 1993,
resulting in a non-cash charge of $79,630, net of a $10,580 tax benefit,
representing the cumulative effect of the change in accounting principles.
The tax benefit recognized was limited to then existing net deferred tax
liabilities. See Note 8 of the Notes to Consolidated Financial Statements.
(5) Assumes an initial public offering price of $22.00 per share for the Haynes
International, Inc. Common Stock, the mid-point of the price range set
forth in the Equity Offering prospectus. Adjusted to reflect the
consummation of the Offerings, anticipated borrowings under the New Credit
Facility, the application of the net proceeds of the Offerings and such
borrowings as described under "Use of Proceeds" and the consummation of the
other transactions described under "The Recapitalization."
(6) Reflects the excess of current assets over current liabilities as set forth
in the Consolidated Financial Statements. Historical and adjusted current
liabilities include amounts outstanding under the Existing Credit Facility
and amounts to be outstanding under the New Credit Facility, respectively.
(7) Reflects (i) depreciation and amortization as presented in the Company's
Consolidated Statement of Cash Flows and set forth in note (8) below, plus
(ii) other non-cash charges, including the amortization of prepaid pension
costs (which is included in the change in other asset category) and the
amortization of inventory costs as described in note (1) above, minus
amortization of debt issuance costs, all as set forth in note (8) below.
(8) Represents for the relevant period net income plus expenses recognized for
interest, taxes, depreciation, amortization and other non-cash charges
(excluding any non-cash charges which require accrual or reserve for cash
charges for any future period), as such amounts are calculated in
accordance with the terms of the indenture for the Notes. In addition to
net interest expense as listed in the table, the following charges are
added to net income to calculate EBITDA:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED SEPTEMBER 30, ENDED JUNE 30,
---------------------------------------------------- ------------------
1991 1992 1993 1994 1995 1995 1996
------- -------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Provision for (benefit from)
income taxes................. $ 2,054 $(11,320) $(3,442) $ 420 $ 1,313 $ 615 $ 1,029
Depreciation.................. 8,710 8,752 8,650 8,208 8,188 6,127 5,844
Amortization:
Debt issuance costs........ 1,401 1,333 2,120 1,680 1,444 1,086 1,035
Goodwill................... 1,434 1,490 1,487 38,607 -- -- --
Inventory (see note (1)
above)........................ 3,361 5,210 3,686 488 -- -- --
Prepaid pension costs...... 953 1,032 (57) 314 130 188 229
------- -------- ------- ------- ------- ------- -------
7,149 9,065 7,236 41,089 1,574 1,274 1,264
SFAS 106 Post-retirement -- -- -- 3,938 682 (147) 461
Amortization of debt issuance
costs......................... (1,401) (1,333) (2,120) (1,680) (1,444) (1,086) (1,035)
------- -------- ------- ------- ------- ------- -------
Total......................... $16,512 $ 5,164 $10,324 $51,975 $10,313 $ 6,783 $ 7,563
------- -------- ------- ------- ------- ------- -------
------- -------- ------- ------- ------- ------- -------
</TABLE>
EBITDA should not be construed as a substitute for income from operations,
net earnings (loss) or cash flows from operating activities determined in
accordance with Generally Accepted Accounting Principles ("GAAP"). The
Company has included EBITDA because it believes it is commonly used by
certain investors and analysts to analyze and compare companies on the
basis of operating performance, leverage and liquidity and to determine a
company's ability to service debt. Because EBITDA is not calculated in the
same manner by all entities, EBITDA as calculated by the Company may not
necessarily be comparable to that of the Company's competitors or of other
entities.
(9) For purposes of these computations, earnings before fixed charges consist
of income (loss) before provision for (benefit from) income taxes and
cumulative effect of change in accounting principle plus fixed charges.
Fixed charges consist of interest on debt and amortization of debt issuance
costs. Earnings were insufficient to cover fixed charges by $28,091,
$11,717, $60,446 and $5,458 for fiscal 1992, 1993, 1994 and 1995,
respectively, and by $4,738 for the first nine months of fiscal 1995.
(10) Assumes an initial public offering price of $22.00 per share for the Haynes
International, Inc. Common Stock, the mid-point of the price range set
forth in the Equity Offering prospectus and the transactions described
under "The Recapitalization" were effected as of October 1, 1994, resulting
in approximately 1,955,000 shares of newly issued common stock being used
to retire $40,000 of Existing Indebtedness and a corresponding reduction in
interest expense of $8,043, $6,059 and $ 6,086 for the fiscal year ended
September 30, 1995, the nine months ended June 30, 1995 and the nine months
ended June 30, 1996, respectively. Actual interest savings may differ from
pro forma amounts due to differences in interest rates and borrowing
levels.
9
<PAGE>
RISK FACTORS
Prospective investors in the Notes offered hereby should consider the
specific Risk Factors set forth below as well as the other information contained
in this Prospectus. This Prospectus contains statements that constitute forward
looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995. Those statements appear in a number of places in this
Prospectus and may include statements regarding the intent, belief or current
expectations of the Company or its officers with respect to (i) the Company's
strategic plans, (ii) the policies of the Company regarding capital
expenditures, financing or other matters, and (iii) industry trends affecting
the Company's financial condition or results of operations. Prospective
investors are cautioned that any such forward looking statements are not
guarantees of future performance and involve risks and uncertainties and that
actual results may differ materially from those in the forward looking
statements as a result of various factors including the Risk Factors set forth
below.
INDUSTRY CYCLICALITY; FLUCTUATIONS IN OPERATING RESULTS. The Company's
principal customers are manufacturers and fabricators of machinery, parts and
equipment for highly specialized applications. In many instances, the Company's
products pass through a series of fabricators prior to sale to the manufacturer
of the end product. Demand for the Company's products is dependent upon and
derived from the level of demand for the machinery, parts and equipment produced
by these customers, which in turn is often dependent upon and derived from the
demand for the products of the Company's customers. Over the past several years,
certain of the markets in which the Company competes, particularly the
aerospace, flue gas desulfurization ("FGD") and oil and gas industries, have
experienced wide demand fluctuations. Because of the comparatively high level of
fixed costs associated with the Company's manufacturing processes, in recent
years significant declines in those markets have resulted in disproportionately
adverse impacts on the Company's operating results. In 1992, the Company
suffered significant downturns in its two largest markets. Although the
Recapitalization should enable the Company to better respond to and withstand
future downturns, if similar downturns were to occur in the future and continue
for a significant period of time, the Company's operations would be materially
adversely affected. Furthermore, the Company's operations may in the future be
subject to substantial period-to-period fluctuations as a consequence of
industry cyclicality, domestic and foreign economic conditions and other
factors. There can be no assurance that such factors will not have a material
adverse effect on the Company's business, operating results or financial
condition. See "--Leverage and Debt Service Obligations; Restrictive Debt
Covenants; Ability to Meet Fixed Charges."
LEVERAGE AND DEBT SERVICE OBLIGATIONS; RESTRICTIVE DEBT COVENANTS; ABILITY
TO MEET FIXED CHARGES. The Company is highly leveraged and will continue to be
highly leveraged following the Recapitalization. For the past three years, the
Company's earnings have been inadequate to cover fixed charges. See "--Net
Losses in Recent Years; Stockholders' Deficit." As of June 30, 1996, the Company
had approximately $156.1 million of consolidated indebtedness. On a pro forma
basis, giving effect to the Recapitalization as of June 30, 1996, the Company
would have had approximately $119.0 million of consolidated indebtedness. The
degree to which the Company is leveraged could affect its ability to make debt
service payments and restrict the Company's activities, including its ability to
make capital expenditures, to respond efficiently to market conditions, to take
advantage of business opportunities and to obtain additional financing and could
force the Company to restructure or refinance its indebtedness or seek
additional equity capital. Over the past several years, the Company's financial
condition and liquidity constraints have limited its ability to make capital
expenditures. Additional capital expenditures will be necessary in the future to
maintain and increase production capacity, improve quality and productivity and
meet anticipated competitive requirements. Failure of the Company to generate
sufficient internal funds to meet its capital expenditure needs or to obtain
financing for these expenditures on acceptable terms could have a material
adverse effect on the Company.
10
<PAGE>
Unexpected declines in demand for the Company's products, fluctuations in
raw material prices, increases in costs or the inability to borrow additional
funds to cover shortfalls could impair the Company's ability to meet its debt
service obligations and, therefore, could have a material adverse effect on the
Company's financial condition and future prospects. No assurance can be given
that additional debt or equity financing will be available when needed to cover
shortfalls, or, if available, will be obtainable on terms that are acceptable to
the Company. In addition, borrowings under the New Credit Facility will bear
interest at variable rates. Increases in interest rates on such borrowings could
materially adversely affect the Company's financial condition and results of
operations and the Company's ability to meet its debt service obligations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
The Company's earnings were inadequate to cover fixed charges in fiscal
1993, 1994 and 1995 by approximately $11.7 million, $60.4 million and $5.5
million, respectively. The failure by the Company to cover fixed charges in the
future could result in a failure to meet the Company's debt service obligations,
restrictions on the Company's activities or other material adverse effects on
the Company's financial condition and results of operations.
Although the Notes will be senior obligations of the Company, they will be
unsecured. Accordingly, the Notes will be effectively subordinated to borrowings
under the New Credit Facility and to any future secured indebtedness of the
Company, to the extent of the value of the collateral securing such borrowings
or indebtedness. The Notes will also be effectively subordinated to indebtedness
of the Company's subsidiaries to the extent that the assets of a particular
subsidiary are available to satisfy its liabilities.
The indenture under which the Notes will be issued (the "Indenture") and the
New Credit Facility will contain a number of covenants, including covenants that
restrict the ability of the Company and its subsidiaries to (i) incur additional
indebtedness, (ii) make certain restricted payments, (iii) engage in
transactions with affiliates, (iv) create liens on assets, (v) sell assets, (vi)
issue and sell preferred stock of subsidiaries, (vii) make dividend payments and
(viii) engage in consolidations, mergers and transfers. In addition, under the
terms of the New Credit Facility, the Company will be required to maintain its
net worth (as defined in the New Credit Facility) above a specified level. The
covenants described in the two foregoing sentences represent all the covenants
which are material to investors to be contained in the Indenture and the New
Credit Facility. The Company's ability to continue to comply with the covenants
and restrictions in the agreements governing its indebtedness, and to otherwise
meet the obligations under its indebtedness generally, will be dependent upon
future performance, which will be subject to demand for the Company's products,
prevailing economic and competitive conditions and other factors, including
factors beyond the control of the Company. See "Description of the Notes."
The breach of any covenants or restrictions under any of the Company's
indebtedness could result in a default under the existing agreements and
indentures and the new agreements and/or the Indenture, which would permit the
lenders or noteholders, as the case may be, to declare all amounts borrowed
thereunder to be due and payable together with accrued and unpaid interest, and
the commitments of bank and other lenders to make further loans under the new
agreements could be terminated. If the Company were unable to repay its
indebtedness to bank and other lenders or noteholders, those lenders or
noteholders could proceed against the collateral securing that indebtedness, if
any, which includes the Company's inventories, accounts receivable and certain
other assets. A default under either the Indenture or the New Credit Facility
will cause a default under both agreements. Upon such a default, the right of
the holders of the Notes to repayment would be effectively subordinated to the
ability of the lender under the New Credit Facility or any other holder of
Senior Indebtedness to enforce its rights against any applicable debtor.
NET LOSSES IN RECENT YEARS; STOCKHOLDERS' DEFICIT. The Company has incurred
substantial net losses in recent years, resulting from high interest expenses
incurred due to significant leverage, certain
11
<PAGE>
special charges and declines in demand and prices for products in certain of the
Company's principal markets through fiscal 1994. The Company's net losses for
fiscal 1993, 1994 and 1995 were $8.3 million, $140.5 million and $6.8 million,
respectively. Over the same three-year period, stockholders' equity decreased
from approximately $22.9 million in fiscal 1993 to a deficit of approximately
$116.0 million in fiscal 1994 and to a deficit of approximately $121.9 million
in fiscal 1995. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations." Assuming the completion of this Offering and the
Recapitalization had occurred on June 30, 1996, the Company would have had a
stockholders' deficit of approximately $82.3 million at that date. See "Use of
Proceeds" and "The Recapitalization."
Although the Company has taken steps over the past several years to increase
revenues, reduce costs and improve efficiency, resulting in the Company
recognizing net income for the first nine months of fiscal 1996, there can be no
assurance that the Company will be able to sustain profitability. The Company's
ability to sustain profitability is dependent upon a number of factors,
including the continued successful implementation of its product development,
manufacturing improvement and cost reduction efforts, as well as various factors
beyond the Company's control, such as the impact of raw material price
fluctuations and the demand for high performance alloys. The failure of the
Company to sustain profitability could hinder its ability to make debt service
payments, to respond efficiently to market conditions, to make capital
expenditures and to take advantage of business opportunities, the failure to
perform any one of which could have a material adverse effect on the Company's
financial condition and results of operations. Future sustained losses by the
Company could have a material adverse effect on the Company's operations.
SIGNIFICANT FLUCTUATIONS IN QUARTERLY RESULTS. The Company's quarterly
revenues and operating results have varied significantly in the past and may
continue to do so in the future. Quarterly revenues and operating results may
fluctuate as a result of significant fluctuations in the cost of raw materials,
changes in demand for the Company's products, changes in the level of operating
expenses, timing of inventory adjustments, competitive conditions and general
economic conditions. In addition, the results of any quarterly period may not be
indicative of the results to be expected for a full fiscal year. It is possible
that the Company's operating results in certain future quarters may be below the
expectations of market analysts and investors.
DEPENDENCE ON KOKOMO FACILITY. The Company's principal assets are located at
its primary integrated production facility in Kokomo, Indiana and at its
production facilities in Arcadia, Louisiana and Openshaw, England. The Arcadia
and Openshaw plants rely to a significant extent upon feedstock produced at the
Kokomo facility. Any production failures, shutdowns or other significant
problems at the Kokomo facility could have a material adverse effect on the
Company's financial condition and results of operations. The Company believes
that it maintains adequate property damage insurance to provide for
reconstruction of damaged equipment, as well as business interruption insurance
to mitigate losses resulting from any production shutdown caused by an insured
loss; however, there can be no assurance that such insurance will be adequate to
cover such losses. See "Business--Properties."
Although the Company believes that its facilities are generally in good
operating condition, the Company expects that significant maintenance and repair
of its facilities will be required on a continuing basis. Maintenance and repair
of the Company's facilities will require shutdowns of specific pieces of
equipment. Extended interruptions in the Company's production capabilities could
adversely affect the Company's results of operations.
GROWTH DEPENDENT UPON NEW APPLICATIONS AND NEW PRODUCTS. The Company's
performance depends materially on its ability to offer products that have equal
or better performance characteristics than competing products at competitive
prices. The Company's future growth will depend, in large part, on its ability
to address the increasingly demanding needs of its customers by enhancing the
properties of its existing alloys, by timely developing new applications for its
existing products, and by timely
12
<PAGE>
developing and introducing new products. There can be no assurance that the
Company will be successful in these efforts or that the Company will not
experience difficulties that could delay or prevent the successful development,
introduction and sale of these products, or that its new products and product
enhancements will adequately meet the requirements of the marketplace and
achieve market acceptance. See "Business--Research and Technical Development."
COMPETITION. The high performance alloy market is a highly competitive
market in which eight to ten producers participate in various product forms. The
Company faces strong competition from domestic and foreign manufacturers of both
the Company's high performance alloys and other competing metals. Some of the
Company's current competitors have and future competitors may have greater
financial resources than the Company. Prior to fiscal 1994, this competition,
coupled with declining demand in several of the Company's key markets, had led
to significant erosion in the price for certain of the Company's products. The
Company may face additional competition in the future to the extent new
materials are developed, such as plastics or ceramics, that may be substituted
for the Company's products. There can be no assurance that the Company will be
able to compete effectively in the future or that competition will not
significantly depress the price of the Company's products in the future. See
"Business--Competition."
RAW MATERIAL PRICE FLUCTUATIONS. The raw materials used by the Company,
primarily nickel, cobalt and molybdenum, all have experienced significant
fluctuations in price. In fiscal 1995, average prices per pound for nickel,
cobalt and molybdenum increased 44%, 37% and 202%, respectively, over the
averages for fiscal 1994. Raw material costs account for approximately one-half
of the total cost of sales. Approximately one-half of the raw material costs is
for nickel. The Company attempts to mitigate the effects of fluctuations in the
price of nickel by purchasing forward contracts with respect to approximately
one-half of its uncovered future commitments. However, there can be no assurance
that such hedging transactions will adequately protect the Company in the event
of significant fluctuations in the price of nickel or that the Company will not
incur a loss on such transactions. Generally, the Company has passed significant
raw material price increases through to its customers, but there can be no
assurance it will be able to do so in the future. Furthermore, the Company
maintains a policy of pricing its products at the time of order shipment. As a
result, rapidly escalating raw material costs during the period between the time
the Company receives an order and the time the Company purchases the raw
materials used to fill such order, which has averaged approximately 30 days in
recent months, can negatively affect profitability. In addition, the Company
obtains certain raw materials from only one or two sources, some of which are
located in foreign countries. Although to date the Company has been able to
obtain an adequate supply of these materials, there can be no assurance that the
Company will be able to obtain adequate supplies of these raw materials in the
future. In the event that the Company is unable to obtain adequate supplies of
raw materials in a timely fashion or that raw material price increases occur
that the Company is unable to pass on to its customers, the Company's business,
financial condition and operating results will be materially adversely affected.
See "Business-- Raw Materials."
POTENTIAL COSTS OF ENVIRONMENTAL COMPLIANCE. The Company's facilities are
subject to certain foreign, federal, state and local laws, regulations, permits
and consent agreements relating to the protection of human health and the
environment, and the Company has made, and will continue to make, expenditures
to comply with such provisions. Expenses and capital expenditures related to
environmental compliance are expected to be approximately $3.9 million for
fiscal 1996 through fiscal 1998. There can be no assurance that these planned
expenditures will be adequate to ensure compliance with environmental laws and
regulations. Pursuant to certain environmental laws, if a release of hazardous
substances occurs on or from the Company's properties or any associated off-site
disposal location, the Company may be held liable, and there can be no assurance
that the amount of such liability will not be material. The Company is currently
conducting groundwater monitoring and post-closure maintenance in connection
with certain disposal areas, and the Company is aware of certain contaminants in
the groundwater. In addition, the Company has completed an investigation of
eight
13
<PAGE>
specifically identified solid waste management units located at the Kokomo
facility. The Company is aware of elevated levels of certain contaminants in the
groundwater, some of which contaminants may have migrated from a nearby
superfund site. If corrective action is required in connection with these
disposal areas or solid waste management units, there can be no assurance that
the costs of such corrective action will not have a material adverse effect on
the Company's financial condition, results of operations or liquidity. In
addition, the Company has been named as one of many potentially responsible
parties ("PRPs") at two waste disposal sites. The Comprehensive Environmental
Response, Compensation and Liability Act, as amended ("CERCLA"), imposes strict,
joint and several liability for investigatory and cleanup costs upon all PRPs.
To date, the Company has contributed approximately $212,000 toward investigatory
and cleanup costs for the two sites at which it has been named as a PRP. PRPs
are jointly and severally liable for required remediation costs, which as of
June 30, 1996 aggregated approximately $78.6 million at these two sites. Since
environmental laws are becoming increasingly stringent, the Company's
environmental capital expenditures and costs for environmental compliance may
increase in the future. In addition, due to the possibility of unanticipated
regulatory or other developments and the possibility that regulators may pursue
enforcement of applicable environmental laws and regulations more vigorously,
the amount and timing of future environmental expenditures may vary
substantially from those currently anticipated. See "Business--Environmental
Matters."
FRAUDULENT TRANSFER CONSIDERATIONS. Under applicable provisions of the
United States Bankruptcy Code (the "Bankruptcy Code") and similar provisions of
applicable state fraudulent transfer or conveyance law, if the Company, at the
time it issued the Notes, (a) incurred such indebtedness with the actual intent
to hinder, delay or defraud creditors, or (b)(i) received less than reasonably
equivalent value or fair consideration in exchange for the incurrence of such
indebtedness and (ii)(A) was insolvent at the time of such incurrence, (B) was
rendered insolvent by reason of such incurrence (and the application of the
proceeds thereof), (C) was engaged or was about to engage in a business or
transaction for which the assets remaining with the Company constituted
unreasonably small capital to carry on its business, or (D) intended to incur,
or believed that it would incur, debts beyond its ability to pay such debts as
they become due, then, in each such case, a court of competent jurisdiction
could avoid, in whole or in part, the Notes or, in the alternative, subordinate
the Notes to existing and future indebtedness of the Company. The measure of
insolvency for purposes of the foregoing would likely vary depending upon the
law applied in each case. Generally, however, the Company would be considered
insolvent if the sum of its debts, including contingent liabilities, was greater
than all of its assets at a fair market valuation, or if the present fair
salable value of its assets was less than the amount that would be required to
pay the probable liabilities on its existing debts, including contingent
liabilities, as such debts become liquidated and become due. Management of the
Company believes that, for purposes of the Bankruptcy Code and state fraudulent
transfer or conveyance laws, the Notes are being issued without the intent to
hinder, delay or defraud creditors and for proper purposes and in good faith,
that the Company will receive reasonably equivalent value or fair consideration
therefor, and that after the issuance of the Notes and the application of the
net proceeds therefrom, the Company will be solvent, will not be left with such
unreasonably small capital as to prevent the Company from carrying on its
business and will be able to pay its debts as they become due. However, there
can be no assurance that a court passing on such issues would agree with the
determination of the Company's management. Furthermore, other jurisdictions may
have laws relating to bankruptcy, receivership, insolvency, fraudulent transfer
and conveyance and creditors' rights generally that may be applicable to the
Company.
INCOME TAX AUDIT. On October 19, 1995, at the conclusion of an audit by the
Internal Revenue Service (the "IRS") of the Company's tax returns for the five
taxable years ending September 30, 1993 (the "Years in Issue"), the IRS proposed
to disallow approximately $5.5 million in deductions claimed by the Company
during the Years in Issue. These deductions represent the amortization of a
portion of certain loan fees in the original amount of approximately $10.4
million incurred in connection with the
14
<PAGE>
1989 Acquisition. The Company claimed similar deductions for such amortization
in its 1994 and 1995 tax years, and will deduct the remaining balance upon
consummation of the Redemption. The Company filed a formal protest to the IRS'
proposed disallowance with the IRS Appeals Office on March 25, 1996, and intends
to challenge the IRS with respect to the proposed disallowance. Until the issue
is finally resolved, there can be no assurance that the Company's position will
ultimately be sustained. If the Company's position is not sustained, the
Company's available NOLs would be reduced by up to approximately $10.4 million
(the total amount of loan fees which could otherwise be deducted by the
Company). Reductions in the amount of the Company's available NOLs may
accelerate the date on which the Company is required to pay federal income tax
and may increase the Company's federal income tax liability for its current tax
year and any future tax years in which NOLs resulting from the disallowed
deductions are used to offset taxable income. Depending upon the timing of the
final resolution of this issue, it is possible that the entire increased tax
liability, including interest thereon, would be payable in the fiscal quarter in
which the issue is finally resolved.
VOTING CONTROL; CHANGE OF CONTROL. Prior to the Offering, MLGA Fund II,
L.P., an investment limited partnership ("Fund II"), and its affiliates owned
approximately 93.7% of the outstanding Common Stock of the Company on a
fully-diluted basis. Assuming the exercise of all outstanding options, following
completion of this Offering, Fund II and its affiliates will own approximately
56.0% of the outstanding Common Stock of the Company. As a result, Fund II and
its affiliates will continue to be able to control the outcome of the vote on
all matters submitted to a vote of the stockholders of the Company. An affiliate
of MLGA is the general partner of Fund II. See "The Company" and "Principal
Stockholders."
Transfers of shares of Common Stock by Fund II to a person or a group of
persons may cause a Change of Control giving each holder of Notes the right to
require the Company to purchase all or a portion of such holder's Notes at a
purchase price equal to 101% of the principal amount thereof, plus accrued and
unpaid interest to the date of repurchase. A change of control will also
constitute a default under the New Credit Facility, and thereby cause a default
under the Notes. Upon such default, the rights of the holders of the Notes to
repayment would be effectively subordinated to the ability of the lender under
the New Credit Facility or any other holder of Senior Indebtedness to enforce
its rights against any applicable debtor. See "--Leverage and Debt Service
Obligations; Restrictive Debt Covenants; Ability to Meet Fixed Charges." There
can be no assurance that in the event of a Change in Control the Company would
have the ability to satisfy any or all of its mandatory redemption obligations
in connection therewith. Fund II is under no obligation to the Company to
restrict its transfers of Common Stock so as to avoid a Change of Control. See
"Principal Stockholders" and "Description of the Notes."
DEPENDENCE ON KEY MANAGEMENT. The Company's ability to maintain its
competitive position is dependent upon the management and leadership skills of
Michael D. Austin, the Company's President and Chief Executive Officer, and
other members of the Company's senior management team. The loss of any of these
individuals or an inability to attract and retain additional qualified personnel
could adversely affect the Company. There can be no assurance that the Company
will be able to retain its existing senior management personnel or to attract
additional qualified personnel. See "Management."
ADVERSE EFFECTS OF FOREIGN CURRENCY FLUCTUATIONS. In fiscal 1995,
international sales represented approximately 39% of the Company's net revenues,
and the Company expects that international sales will continue to account for a
significant portion of its net revenues in the future. The Company's policy is
to denominate all export shipments from the United States, including those to
its foreign operations, in U.S. dollars. The foreign operations generally sell
products in local or other foreign currencies, creating the risk that currency
exchange rate fluctuations could adversely affect their earnings. The managers
of each of the foreign operations are responsible for assessing this risk and
for hedging against possible foreign currency fluctuations as they deem
appropriate, subject to a Company policy requiring any foreign affiliate that
desires to enter into a hedging contract that would cause it to have aggregate
15
<PAGE>
open currency hedging positions in excess of $500,000 to first obtain the
approval of the Company's Chief Executive Officer or Chief Accounting Officer.
The maximum aggregate notional amount of hedged positions at any time during the
past three fiscal years was approximately $3.2 million. As of September 30,
1995, there were foreign currency exchange contracts outstanding in the amount
of approximately $1.7 million with no unrealized gain or loss. During fiscal
1995, sales by the Company's foreign operations totaled approximately $41.3
million, or 53% of total international sales, and the foreign operations
recorded expenses of approximately $200,000 due to currency exchange
fluctuations.
Since the Company's foreign operations also have assets and liabilities
denominated in foreign currencies, there is a risk that fluctuations in exchange
rates could adversely affect the Company's equity balance. Exchange gains or
losses on balance sheet items are taken directly to equity as a separate
component of stockholders' deficit. The Company has not historically engaged in
activities to mitigate the effects foreign currency fluctuations may have on
these items. At both September 30, 1995 and June 30, 1996, the foreign
operations had approximately $7.5 million in assets net of liabilities
denominated in foreign currencies and the Company's balance sheet at September
30, 1995 and June 30, 1996 reflected accumulated foreign currency translation
gains of approximately $4.1 million and $2.9 million, respectively, in the
stockholders' deficit section.
There can be no assurance that any current or future efforts to mitigate the
possible adverse effects of foreign currency fluctuations on the Company's
foreign operations and on the Company's overall results of operations will be
successful. Furthermore, in addition to the risk of currency exchange
fluctuations, the complexity of futures contracts and hedging programs also
generally creates the risk of loss in such hedging transactions. The Company's
foreign operations may also be subject to certain economic and market risks,
including longer payment cycles, greater difficulties in accounts receivable
collection, the necessity of paying import and export duties and the requirement
of complying with a wide variety of foreign laws. In addition, the Company's
foreign operations are affected by general economic conditions in the
international markets in which the Company does business. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business-- Sales and Marketing."
ABSENCE OF PUBLIC MARKET FOR THE NOTES. There is no public market for the
Notes, and the Company does not intend to apply for listing of the Notes on any
national securities exchange or for quotation on the Nasdaq National Market. The
Company has been advised by the Underwriters that they presently intend to make
a market in the Notes after the consummation of the Offering, although they are
not obligated to do so and may discontinue any market-making activities with
respect to the Notes at any time without notice. Accordingly, no assurance can
be given as to the liquidity of the trading market for the Notes or that an
active public market for the Notes will develop or, if developed, will continue.
If an active public market for the Notes does not develop or is not maintained,
the market price and liquidity of the Notes may be adversely affected.
16
<PAGE>
THE COMPANY
The Company develops, manufactures and markets technologically advanced,
high performance alloys primarily for use in the aerospace and chemical
processing industries. The Company's products are high temperature alloys and
corrosion resistant alloys. The Company's HTA products are used by manufacturers
of equipment that is subjected to extremely high temperatures, such as jet
engines for the aerospace industry, gas turbine engines used for power
generation, and waste incineration and industrial heating equipment. The
Company's CRA products are used in applications that require resistance to
extreme corrosion, such as chemical processing, power plant emissions control
and hazardous waste treatment. Based on available industry data, the Company
believes that it is one of three leading worldwide producers of high performance
alloy products in sheet, coil and plate forms, which in the aggregate
represented approximately 64% of the Company's net revenues in fiscal 1995. In
addition, the Company produces its alloy products as seamless and welded
tubulars, and in bar, billet and wire forms.
The business of the Company was founded in 1912 as Haynes Stellite Works.
Haynes Stellite Works was acquired by Union Carbide Corp. in 1920, and sold to
Cabot Corporation ("Cabot") in 1970. Cabot incorporated the business in 1986 and
continued as its principal owner until August 1989. Control of the Company was
acquired in August 1989 by certain affiliates of MLGA and management of the
Company in a leveraged buyout for an aggregate purchase price of approximately
$223.0 million. As a result of the 1989 Acquisition, the Company became a
wholly-owned subsidiary of Haynes International, Inc. In connection with the
1989 Acquisition, the Company issued $100.0 million principal amount of Existing
Subordinated Notes. In February 1990, the Company became a reporting company
under section 15(d) of the Exchange Act of 1934, as amended (the "Exchange
Act"). In 1993, the Company issued $50.0 million aggregate principal amount of
Existing Senior Notes and used a portion of the proceeds therefrom to redeem
$10.0 million of the Existing Subordinated Notes. The Company's Exchange Act
reporting obligations extended to the Existing Senior Notes. Haynes
International, Inc. unconditionally guaranteed the Existing Senior Notes.
Registration of Haynes International, Inc.'s guarantee of the Existing Senior
Notes caused Haynes International, Inc. to become a reporting company under
section 15(d) of the Exchange Act. In 1994, the Company's and Haynes
International, Inc.'s reporting obligations under the Exchange Act terminated.
The Company will be merged with and into Haynes International, Inc. as soon
as practicable following the redemption of the Existing Notes, which is expected
to occur approximately 30 days after the consummation of the Offerings. See "The
Recapitalization--The Merger."
The Company was incorporated under the laws of Delaware on December 1, 1986.
The Company's executive offices are located at 1020 West Park Avenue, Kokomo,
Indiana 46904-9013, and its telephone number is (317) 456-6000.
THE RECAPITALIZATION
The Offering is part of a recapitalization plan that the Company is
implementing to reduce its indebtedness, improve its financial flexibility and
enhance its competitive position. The components of the Recapitalization are (i)
the Offering, (ii) the Equity Offering, (iii) the establishment of the New
Credit Facility, (iv) the redemption of the Existing Notes and repayment of
amounts outstanding under the Existing Credit Facility and (v) the merger of the
Company with and into Haynes International, Inc., its sole stockholder. On a pro
forma basis, giving effect to the Recapitalization as of October 1, 1994 for the
fiscal year ended September 30, 1995, (a) the Company's net income (loss) would
have increased from approximately $(6.8) million to approximately $1.6 million,
(b) the Company's interest expense would have decreased from approximately $20.2
million to approximately $11.9 million, (c) the Company's ratio of EBITDA to
interest expense would have improved from 1.18x to 1.98x and (d) the Company's
ratio of earnings before fixed charges to fixed charges would have improved from
0.73x (a deficiency of approximately $5.5 million) to 1.25x. On a pro forma
basis, giving effect to the
17
<PAGE>
Recapitalization as of October 1, 1994, for the nine months ended June 30, 1996
(a) the Company's net income would have increased from approximately $1.6
million to approximately $7.9 million, (b) the Company's interest expense would
have decreased from approximately $15.4 million to approximately $9.1 million,
(c) the Company's ratio of EBITDA to interest expense would have improved from
1.61x to 2.68x, and (d) the Company's ratio of earnings before fixed charges to
fixed charges would have improved from 1.17x to 1.99x. See "Selected
Consolidated Financial Data."
The Equity Offering. Concurrently with this Offering, Haynes International,
Inc. is offering, by means of a separate prospectus, 2,300,000 shares of its
Common Stock in an initial public offering. Consummation of the Equity Offering
is conditioned upon the consummation of the Offering and the establishment of
the New Credit Facility.
The New Credit Facility. In connection with the Offering, the Company will
enter into an agreement with Congress Financial Corporation (Central) as agent
for itself and CoreStates Bank, N.A. (the "Lenders") to provide the New Credit
Facility in the amount of $50.0 million. Borrowings under the New Credit
Facility will bear interest at the lower of the prime rate plus 0.25% or LIBOR
plus 2.25%, which would have resulted in a borrowing rate of approximately 7.8%
per annum at July 1, 1996, and will be secured by a first priority security
interest in the Company's accounts receivable and inventories. Amounts
outstanding under the New Credit Facility will be due at maturity, which will be
three years after the date of closing unless extended or terminated. The New
Credit Facility will contain several covenants that, among other things, require
the Company to maintain a specified level of net worth (as defined therein). See
"Description of Other Indebtedness." The Lender's obligation to enter into the
New Credit Facility will be conditioned upon, among other things, consummation
of the Offerings. Consummation of the Offerings is conditioned upon the
establishment of the New Credit Facility.
Redemption of the Existing Notes and repayment of the Existing Credit
Facility. The Company will use the net proceeds of the Offerings and borrowings
under the New Credit Facility to redeem the Existing Notes (the "Redemption")
and repay amounts outstanding under the Existing Credit Facility. The Existing
Senior Notes and Existing Subordinated Notes bear interest at 11 1/4% and 13
1/2% per annum, respectively, and borrowings under the Existing Credit Facility
bear interest at a fluctuating per annum rate equal to the prime rate plus
1.75%. The Redemption will require the Company to pay a prepayment premium to
the holders of the Existing Subordinated Notes of approximately $1.5 million.
The Company will also be required to pay a prepayment premium to the holders of
the Existing Senior Notes to the extent that (i) the present value of all
remaining principal and interest payments on the Existing Senior Notes,
determined using a discount rate equal to the yield on U.S. Government
Obligations (as defined in the governing indenture) having a term approximately
equal to the remaining term of the Existing Senior Notes, plus 2.0%, is greater
than (ii) the principal amount of the Existing Senior Notes, plus accrued
interest thereon to the date of redemption. Assuming the Redemption had occurred
on July 31, 1996, the prepayment premium on the Existing Senior Notes would have
been approximately $2.8 million. The Company will mail redemption notices to the
holders of the Existing Notes immediately after the close of the Offerings, and
the Existing Notes will be redeemed approximately thirty days thereafter. In the
quarter in which the Redemption occurs, the Company will record a charge against
earnings, reflecting the prepayment premiums and a non-cash charge for
accelerated amortization of the cost of issuing the Existing Notes. Assuming the
Redemption had occurred as of July 31, 1996, those amounts would have been
approximately $4.3 million and $3.6 million, respectively. The Company will also
incur charges of approximately $400,000 in connection with the termination of
and repayment of amounts outstanding under the Existing Credit Facility. During
the period following the consummation of the Offerings and prior to the date of
the Redemption, the Company will incur interest expense on the Existing Notes
and the Notes, which will exceed the interest income earned on the proceeds from
the Offerings designated for the Redemption by approximately $900,000.
The Merger. Immediately after the Redemption, the Company will be merged
with and into Haynes International, Inc. its sole stockholder, and the surviving
corporation will continue its operations under the name "Haynes International,
Inc." Following the Merger, the surviving corporation will assume all
obligations of the Company under the Notes, the Indenture and the New Credit
Facility.
18
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Notes offered hereby
are estimated to be $96.1 million. The Company intends to use the net proceeds
from the Offering, together with the net proceeds from the Equity Offering and
amounts available under the New Credit Facility, to redeem the Existing Notes
and to repay amounts outstanding under the Existing Credit Facility. See "The
Recapitalization."
The following is a description of sources and uses of proceeds, giving
effect to the Recapitalization as of June 30, 1996 (in thousands):
SOURCES:
New Credit Facility (1)(2).................................... $ 19,031
Notes Offering................................................ 100,000
Equity Offering (2)........................................... 50,600
--------
$169,631
--------
--------
USES:
Repayment of Existing Credit Facility......................... $ 16,131
Redemption of Existing Senior Notes........................... 50,000
Redemption of Existing Subordinated Notes..................... 90,000
Estimated redemption and repayment premiums on Existing
Indebtedness (3)................................................ 4,700
Estimated fees and expenses related to the Recapitalization
(4)............................................................. 8,800
--------
$169,631
--------
--------
- ------------
(1) The New Credit Facility will have a maximum availability of $50.0 million.
(2) If the over-allotment option granted to the underwriters of the Company's
Common Stock in connection with the Equity Offering is exercised in full,
the net proceeds to the Company from the Equity Offering will be
approximately $53.2 million and borrowings under the New Credit Facility
will be approximately $11.4 million.
(3) Represents an estimated prepayment premium of $2.8 million related to the
redemption of the Existing Senior Notes, a prepayment premium of $1.5
million related to the redemption of the Existing Subordinated Notes, and a
payment of approximately $400,000 in connection with the termination of and
repayment of amounts outstanding under the Existing Credit Facility. The
maturity date of the Existing Senior Notes, which bear interest at 11 1/4%,
is June 15, 1998. The maturity date of the Existing Subordinated Notes,
which bear interest at 13 1/2%, is August 15, 1999, subject to partial
mandatory redemption on each of August 15, 1997 and August 15, 1998 in the
amounts of $23.3 million and $33.3 million, respectively, of the principal
amount of the Existing Subordinated Notes. See "The Recapitalization."
(4) Includes underwriting discounts and commissions related to the Offerings and
expenses payable by the Company in connection with the Recapitalization.
19
<PAGE>
CAPITALIZATION
The following table sets forth the actual consolidated capitalization of the
Company as of June 30, 1996 and as adjusted to give effect to the
Recapitalization. See "Use of Proceeds."
<TABLE>
<CAPTION>
JUNE 30, 1996
------------------------
ACTUAL AS ADJUSTED
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt (1):
Existing Credit Facility........................................... $ 16,131 $ --
New Credit Facility................................................ -- 19,031
--------- -----------
Total short-term debt.......................................... 16,131 19,031
Long-term debt:
Existing Senior Notes.............................................. 50,000 --
Existing Subordinated Notes........................................ 90,000 --
Notes offered hereby............................................... -- 100,000
--------- -----------
Total long-term debt........................................... 140,000 100,000
--------- -----------
Total debt..................................................... 156,131 119,031
Redeemable common stock of parent company (2)........................ 1,427 --
Stockholders' deficit:
Common Stock, $.01 par value, 100 shares authorized and issued..... -- --
Additional paid-in capital......................................... 46,306 93,703
Accumulated deficit (3)............................................ (170,685) (178,968)
Foreign currency translation adjustment............................ 2,926 2,926
--------- -----------
Total stockholders' deficit.................................... (121,453) (82,339)
--------- -----------
Total capitalization........................................... $ 36,105 $ 36,612
--------- -----------
--------- -----------
</TABLE>
- ------------
(1) Amounts outstanding under the Existing Credit Facility are, and amounts to
be outstanding under the New Credit Facility will be, treated for accounting
purposes as short-term debt. However, because of the longer term of the
facilities under which this debt is issued (three years with respect to the
New Credit Facility), the Company considers debt under these credit
facilities to be part of its total capitalization and, accordingly, has
included them in this table.
(2) Represents the estimated liability to be funded by the Company on behalf of
Haynes International, Inc. in connection with the put and call rights
provided for in the Stock Subscription Agreement among Haynes International,
Inc. and the investors specified therein (the "Stock Subscription
Agreement") with respect to certain options granted pursuant to the Haynes
International, Inc. Employee Stock Option Plan (the "Existing Stock Option
Plan"). The Stock Subscription Agreement and the related put and call rights
will terminate upon consummation of the Equity Offering. See
"Management--Stock Option Plans" and Note 11 of the Notes to Consolidated
Financial Statements.
(3) The increase in the accumulated deficit as adjusted to give effect to the
Recapitalization is due to the write-off of deferred debt issuance costs of
approximately $3.6 million and the recognition of prepayment premiums
related to the redemption of the Existing Indebtedness of approximately $4.7
million.
20
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT RATIO AND OPERATING DATA)
The following table sets forth selected consolidated financial, operating and
pro forma data of the Company. The selected consolidated financial data as of
and for the years ended September 30, 1991, 1992, 1993, 1994 and 1995 are
derived from the audited consolidated financial statements of the Company. The
selected consolidated financial data as of and for the nine months ended June
30, 1995 and 1996 have been derived from financial statements that are not
audited, but, in the opinion of management, such financial statements include
all adjustments, consisting only of normal recurring adjustments, necessary for
a fair presentation of the financial position and results of operations as of
such dates and for such periods. Results of operations for the nine months ended
June 30, 1996 are not necessarily indicative of results for the full fiscal
year. Pro forma data may not be indicative of future results.
These selected financial data are qualified in their entirety by reference
to, and should be read in conjunction with, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Consolidated
Financial Statements of the Company and the related notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED SEPTEMBER 30, ENDED JUNE 30,
------------------------------------------------------------ -----------------------------
1991 1992 1993 1994 1995 1995 1996
-------- -------- -------- -------- -------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues..................... $225,386 $169,344 $162,454 $150,578 $201,933 $149,973 $170,386
Cost of sales (1)................ 175,176 152,911(2) 137,102 171,957(3) 167,196 125,305 136,711
Selling and administrative
expenses......................... 20,762 19,641(2) 14,569 15,039 15,475 11,604 12,966
Research and technical
expenses......................... 4,578 3,894 3,603 3,630 3,049 2,286 2,529
Operating income (loss).......... 24,870 (7,102) 7,180 (40,048) 16,213 10,778 18,180
Other cost, net.................. 324 882(2) 400 816 1,767 578 413
Interest expense, net............ 23,167 20,107 18,497 19,582 19,904 14,938 15,138
Income (loss) before cumulative
effect of change in accounting
principle........................ (675) (16,771) (8,275) (60,866) (6,771) (5,353) 1,600
Cumulative effect of change in
accounting principle (net of tax
benefit)......................... -- -- -- (79,630)(4) -- -- --
Net income (loss)................ (675) (16,771) (8,275) (140,496) (6,771) (5,353) 1,600
<CAPTION>
SEPTEMBER 30, JUNE 30, 1996
------------------------------------------------------------ -----------------------------
1991 1992 1993 1994 1995 ACTUAL AS ADJUSTED (5)
-------- -------- -------- -------- -------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (6).............. $ 97,805 $ 39,344 $ 72,131 $ 60,182 $ 62,616 $ 69,312 $ 66,412
Property, plant and equipment,
net.............................. 68,792 60,700 51,676 43,119 36,863 31,779 31,779
Total assets..................... 256,142 214,585 194,200 145,723 151,316 164,669 165,256
Total debt....................... 169,000 142,194 140,180 148,141 152,477 156,131 119,031
Accrued post-retirement
benefits......................... -- -- -- 94,148 94,830 95,291 95,291
Stockholders' equity (deficit)... 37,630 35,162 22,938 (116,029) (121,909) (121,453) (82,339)
<CAPTION>
NINE MONTHS
YEAR ENDED SEPTEMBER 30, ENDED JUNE 30,
------------------------------------------------------------ -----------------------------
1991 1992 1993 1994 1995 1995 1996
-------- -------- -------- -------- -------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
Depreciation and amortization
(7).............................. $ 14,458 $ 16,484 $ 13,766 $ 51,555(3) $ 9,000 $ 6,168 $ 6,534
Capital expenditures............. 4,567 821 56 771 1,934 1,465 801
EBITDA (8)....................... 39,004 8,500 20,546 10,691 23,446 16,368 24,301
Ratio of EBITDA to interest
expense.......................... 1.68x 0.42x 1.11x 0.55x 1.18x 1.10x 1.61x
Ratio of earnings before fixed
charges to fixed charges (9).... 1.06x -- -- -- -- -- 1.17x
Net cash provided from (used in)
operations....................... $ 22,270 $ 19,850 $ 5,711 $(12,801) $ (2,883) $ (1,522) $ (2,983)
Net cash provided from (used in)
investment activities............ (4,521) (757) 318 746 (1,895) (1,438) (744)
Net cash provided from (used in)
financing activities............ (18,640) (16,440) (2,014) 7,102 3,912 1,609 3,654
PRO FORMA DATA (10):
Interest expense................. $ 11,861 $ 8,879 $ 9,052
Net income....................... 1,601 944 7,943
Ratio of earnings before fixed
charges to fixed charges........ 1.25x 1.18x 1.99x
EBITDA........................... $ 23,446 $ 16,368 $ 24,301
Ratio of EBITDA to interest
expense.......................... 1.98x 1.84x 2.68x
OPERATING DATA:
Shipments by markets (millions of
pounds):
Aerospace....................... 5.7 3.4 3.3 3.3 4.7 3.5 4.3
Chemical processing............. 5.3 4.6 5.2 5.0 6.1 4.6 4.7
Other markets................... 5.9 5.9 6.8 5.0 5.5 4.5 3.3
-------- -------- -------- -------- -------- -------- -------
Total......................... 16.9 13.9 15.3 13.3 16.3 12.6 12.3
-------- -------- -------- -------- -------- -------- -------
-------- -------- -------- -------- -------- -------- -------
Average selling price per
pound............................ $ 13.26 $ 12.04 $ 10.48 $ 11.17 $ 12.18 $ 11.73 $ 13.63
Employees (end of period)........ 1,074 898 896 854 872 860 925
</TABLE>
(footnotes on following page)
21
<PAGE>
- ------------
(1) The Company was acquired by MLGA and the management of the Company in
August 1989. For financial statement purposes, the 1989 Acquisition was
accounted for as a purchase transaction effective September 1, 1989;
accordingly, inventories were adjusted to reflect estimated fair values at
that date. This adjustment to inventories was amortized to cost of sales as
inventories were reduced from the base layer. Non-cash charges for this
adjustment included in cost of sales were $3,361, $5,210, $3,686 and $488
for fiscal 1991, 1992, 1993 and 1994, respectively; no charges have been
recognized since fiscal 1994.
(2) Includes costs related to the implementation of certain cost reduction
measures, the implementation of a just-in-time and total quality management
program and the renegotiation of the terms of the 1989 Acquisition credit
agreement. In fiscal 1992, these charges were reflected in cost of sales,
selling and administrative expenses, and other cost, net in the amounts of
$6,937, $1,156 and $603, respectively.
(3) Reflects the write-off of $37,117 of goodwill created in connection with
the 1989 Acquisition remaining at September 30, 1994. See Note 10 of the
Notes to Consolidated Financial Statements.
(4) During fiscal 1994, the Company adopted SFAS 106. The Company elected to
immediately recognize the transition obligation for benefits earned as of
October 1, 1993, resulting in a non-cash charge of $79,630, net of a
$10,580 tax benefit, representing the cumulative effect of the change in
accounting principles. The tax benefit recognized was limited to then
existing net deferred tax liabilities. See Note 8 of the Notes to
Consolidated Financial Statements.
(5) Assumes an initial public offering price of $22.00 per share for the Haynes
International, Inc. Common Stock, the mid-point of the price range set
forth in the Equity Offering prospectus and adjusted to reflect the
consummation of the Offerings, anticipated borrowings under the New Credit
Facility, the application of the net proceeds of the Offerings and such
borrowings as described under "Use of Proceeds" and the consummation of the
other transactions described under "The Recapitalization."
(6) Reflects the excess of current assets over historical and adjusted current
liabilities as set forth in the Consolidated Financial Statements.
Historical and adjusted current liabilities include amounts outstanding
under the Existing Credit Facility and amounts to be outstanding under the
New Credit Facility, respectively.
(7) Reflects (i) depreciation and amortization as presented in the Company's
Consolidated Statement of Cash Flows and set forth in note (8) below, plus
(ii) other non-cash charges, including the amortization of prepaid pension
costs (which is included in the change in other asset category) and the
amortization of inventory costs as described in note (1) above, minus
amortization of debt issuance costs, all as set forth in note (8) below.
(8) Represents for the relevant period net income plus expenses recognized for
interest, taxes, depreciation, amortization and other non-cash charges
(excluding any non-cash charges which require accrual or reserve for cash
charges for any future period), as such amounts are calculated in
accordance with the terms of the Indenture. In addition to net interest
expense as listed in the table, the following charges are added to net
income to calculate EBITDA:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, JUNE 30,
---------------------------------------------------- ------------------
1991 1992 1993 1994 1995 1995 1996
------- -------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Provision for (benefit from) income
taxes................................... $ 2,054 $(11,320) $(3,442) $ 420 $ 1,313 $ 615 $ 1,029
Depreciation............................ 8,710 8,752 8,650 8,208 8,188 6,127 5,844
Amortiation:
Debt issuance costs.................. 1,401 1,333 2,120 1,680 1,444 1,086 1,035
Goodwill............................. 1,434 1,490 1,487 38,607 -- -- --
Inventory (see note (1) above)....... 3,361 5,210 3,686 488 -- -- --
Prepaid pension costs................ 953 1,032 (57) 314 130 188 229
------- -------- ------- ------- ------- ------- -------
7,149 9,065 7,236 41,089 1,574 1,274 1,264
SFAS 106-Post-retirement -- -- -- 3,938 682 (147) 461
Amortization of debt issuance costs..... (1,401) (1,333) (2,120) (1,680) (1,444) (1,086) (1,035)
------- -------- ------- ------- ------- ------- -------
Total................................... $16,512 $ 5,164 $10,324 $51,975 $10,313 $ 6,783 $ 7,563
------- -------- ------- ------- ------- ------- -------
------- -------- ------- ------- ------- ------- -------
</TABLE>
EBITDA should not be construed as a substitute for income from operations,
net earnings (loss) or cash flows from operating activities determined in
accordance with Generally Accepted Accounting Principles ("GAAP"). The
Company has included EBITDA because it believes it is commonly used by
certain investors and analysts to analyze and compare companies on the basis
of operating performance, leverage and liquidity and to determine a
company's ability to service debt. Because EBITDA is not calculated in the
same manner by all entities, EBITDA as calculated by the Company may not
necessarily be comparable to that of the Company's competitors or of other
entities.
(9) For purposes of these computations, earnings before fixed charges consist of
income (loss) before provision for (benefit from) income taxes and
cumulative effect of change in accounting principle plus fixed charges.
Fixed charges consist of interest on debt and amortization of debt issuance
costs. Earnings were insufficient to cover fixed charges by $28,091,
$11,717, $60,446, and $5,458 for fiscal 1992, 1993, 1994 and 1995,
respectively, and by $4,738 for the first nine months of fiscal 1995.
(10) Assumes an initial public offering price of $22.00 per share, the mid-point
of the price range set forth in the Equity Offering prospectus, and that
the transactions described under "The Recapitalization" were effected as of
October 1, 1994, resulting in approximately 1,955,000 shares of newly
issued Common Stock being used to retire $40,000 of Existing Indebtedness
and in a corresponding reduction in interest expense of $8,043, $6,059 and
$6,086 for the year ended September 30, 1995, the nine months ended June
30, 1995 and the nine months ended June 30, 1996, respectively. Actual
interest savings may differ from pro forma amounts due to differences in
interest rates and borrowing levels.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
COMPANY BACKGROUND
The Company sells high temperature alloys and corrosion resistant alloys,
which accounted for 55% and 45%, respectively, of the Company's net revenues in
fiscal 1995. The Company is one of three leading worldwide producers of high
performance alloys in flat product form, which includes sheet, coil and plate
forms, and also produces its alloys in round and tubular forms. In fiscal 1995,
flat products accounted for 70% of shipments and 64% of net revenues.
The Company's annual production capacity varies depending upon the mix of
alloys, forms, product sizes, gauges and order sizes. Based on the current
product mix, the Company estimates that its annual production capacity, which
has been unchanged for the past five years, is approximately 20.0 million
pounds. As a result of changes in the Company's primary markets, sales volume
has ranged from a high of 16.9 million pounds in fiscal 1991, to a low of 13.3
million pounds in fiscal 1994. The Company is not currently capacity
constrained, but has planned capital expenditures of approximately $19.5 million
from fiscal 1996 through fiscal 1998, one of the principal benefits of which
will be to increase annual capacity by approximately 25% to approximately 25.0
million pounds. See "--Liquidity and Capital Resources."
The Company sells its products primarily through its direct sales
organization, which includes four domestic Company-owned service centers, three
wholly-owned European subsidiaries and sales agents serving the Pacific Rim who
operate on a commission basis. Approximately 73% of the Company's net revenues
in fiscal 1995 was generated by the Company's direct sales organization. The
remaining 27% of the Company's fiscal 1995 net revenues was generated by
independent distributors and licensees in the United States, Europe and Japan,
some of whom have been associated with the Company for over 25 years.
The proximity of production facilities to export customers is not a
significant competitive factor, since freight and duty costs per pound are minor
in comparison to the selling price per pound of high performance alloy products.
In fiscal 1995, sales to customers outside the United States accounted for
approximately 39% of the Company's net revenues. Sales of domestically-produced
products accounted for approximately 47% of the Company's foreign sales in
fiscal 1995, and the balance of foreign sales was derived from sales of products
produced overseas.
Virtually all export sales are denominated in U.S. dollars. The Company's
foreign subsidiaries generally sell products in local or other foreign
currencies, creating the risk that currency exchange rate fluctuations could
adversely affect earnings. Because the Company believes the managers of the
foreign operations are better able to monitor their respective operation's
exposure to currency fluctuations and assess the risk of currency exchange loss,
each of the foreign operations is responsible for hedging as its managers deem
appropriate. If a foreign operation desires to enter into a hedging contract
that would cause it to have open positions exceeding $500,000, Company policy
requires its managers to first obtain the consent of the Chief Financial Officer
or the Chief Accounting Officer of the Company. During fiscal 1995, sales by the
foreign operations totaled approximately $41.4 million, or 53% of total
international sales. As of the end of fiscal 1995, there were foreign currency
exchange contracts outstanding of approximately $1.7 million, with no unrealized
gain or loss. During fiscal 1995, the foreign operations recorded expenses of
approximately $200,000 due to currency exchange fluctuations. The maximum
aggregate notional amount of hedged positions at any time during the past three
fiscal years was approximately $3.2 million. See "Risk Factors--Adverse Effects
of Foreign Currency Fluctuations."
The high performance alloy industry is characterized by high capital
investment and high fixed costs, and profitability is therefore very sensitive
to changes in volume. The cost of raw materials is the
23
<PAGE>
primary variable cost in the high performance alloy manufacturing process and
represents approximately one-half of total manufacturing costs. Other
manufacturing costs, such as labor, energy, maintenance and supplies, often
thought of as variable, have a significant fixed element. Accordingly,
relatively small changes in volume can result in significant variations in
earnings. The Company's results in fiscal 1994 reflect this sensitivity. While
volume declined by 13% from fiscal 1993 to fiscal 1994, primarily due to
declines in demand for the Company's products in the oil and gas and FGD
markets, EBITDA declined 48%, despite a 7% increase in the average selling price
per pound of the Company's products, calculated as described in Note (8) to
Selected Consolidated Financial Data.
The Company strives to achieve premium pricing and margins in those alloys
where the opportunities exist. In fiscal 1995, proprietary products represented
approximately 30% of the Company's net revenues and 33% of gross margin. In
addition to these patent-protected alloys, nine other alloys manufactured by the
Company have little or no direct competition because they are difficult to
produce and require relatively small production runs to satisfy demand. In
fiscal 1995, these nine alloys represented approximately 15% of the Company's
net revenues and 23% of gross margin.
Order to shipment lead times can be a competitive factor as well as an
indication of the strength of the demand for high performance alloys. The
Company's current average manufacturing lead time for flat products is
approximately 10 to 12 weeks, although due to current backlog levels, lead times
from order to shipment are approximately 14 to 18 weeks. The Company believes
its lead times are consistent with those offered by its competitors.
24
<PAGE>
OVERVIEW OF MARKETS
A breakdown of sales, shipments and average selling prices to the markets
served by the Company for the last five fiscal years is shown in the following
table:
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995
-------------- -------------- -------------- -------------- --------------
% OF % OF % OF % OF % OF
SALES (DOLLARS IN MILLIONS) AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Aerospace................... $83.6 37.1% $45.7 27.0% $46.7 28.7% $46.4 30.8% $66.4 32.9%
Chemical processing......... 64.5 28.6 52.8 31.2 52.2 32.1 50.1 33.3 72.2 35.8
Land-based gas turbines..... 8.6 3.8 10.7 6.3 12.6 7.8 17.0 11.3 14.3 7.1
Flue gas desulfurization.... 8.6 3.8 11.4 6.7 17.4 10.7 10.2 6.7 6.6 3.3
Oil and gas................. 30.9 13.7 18.8 11.1 11.0 6.8 4.2 2.8 4.5 2.2
Other markets............... 27.9 12.4 28.0 16.6 20.5 12.6 20.6 13.7 34.6 17.1
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Total product............... 224.1 99.4 167.4 98.9 160.4 98.7 148.5 98.6 198.6 98.4
Other revenue (1)........... 1.3 0.6 1.9 1.1 2.1 1.3 2.1 1.4 3.3 1.6
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Net revenues................ $225.4 100.0% $169.3 100.0% $162.5 100.0% $150.6 100.0% $201.9 100.0%
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
U.S........................ $147.7 $116.4 $109.1 $94.8 $122.3
Foreign.................... $77.7 $52.9 $53.4 $55.8 $79.6
SHIPMENTS BY MARKET
(MILLIONS OF POUNDS)
Aerospace................... 5.7 33.7% 3.4 24.5% 3.3 21.6% 3.3 24.8% 4.7 28.8%
Chemical processing......... 5.3 31.4 4.6 33.1 5.2 34.0 5.0 37.6 6.1 37.4
Land-based gas turbines..... 0.7 4.2 1.3 9.4 1.2 7.8 1.6 12.0 1.3 8.0
Flue gas desulfurization.... 0.9 5.3 1.6 11.4 2.9 19.0 1.5 11.3 0.9 5.5
Oil and gas................. 2.3 13.6 1.3 9.4 1.1 7.2 0.4 3.0 0.5 3.1
Other markets............... 2.0 11.8 1.7 12.2 1.6 10.4 1.5 11.3 2.8 17.2
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Total shipments............ 16.9 100.0% 13.9 100.0% 15.3 100.0% 13.3 100.0% 16.3 100.0%
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
AVERAGE SELLING PRICE PER
POUND
Aerospace................... $14.67 $13.44 $14.15 $14.06 $14.13
Chemical processing......... 12.17 11.48 10.04 10.02 11.84
Land-based gas turbines..... 12.29 8.23 10.50 10.63 11.00
Flue gas desulfurization.... 9.56 7.13 6.00 6.80 7.33
Oil and gas................. 13.43 14.46 10.00 10.50 9.00
Other markets............... 13.95 16.47 12.81 13.73 12.36
All markets................ 13.26 12.04 10.48 11.17 12.18
</TABLE>
- ------------
(1) Includes toll conversion and royalty income.
Fluctuations in net revenues and volume from fiscal 1991 through fiscal 1995
are a direct result of significant changes in each of the Company's major
markets.
Aerospace. Demand for the Company's products in the aerospace industry is
driven by orders for new jet engines as well as requirements for spare parts and
replacement parts for jet engines. Demand for the Company's aerospace products
declined significantly from fiscal 1991 to fiscal 1992, as order rates for
commercial aircraft fell below delivery rates due to cancellations and deferrals
of previously placed orders. The Company believes that, as a result of these
cancellations and deferrals, engine manufacturers and their fabricators and
suppliers were caught with excess inventories. The draw down of these
inventories, and the implementation of just-in-time delivery requirements by
many jet engine manufacturers, exacerbated the decline experienced by suppliers
to these manufacturers, including the Company. Demand for products used in
manufacturing military aircraft and engines also dropped during this period as
domestic defense spending declined following the Persian Gulf War. These
conditions persisted through fiscal 1994.
25
<PAGE>
The Company began to see a recovery in the demand for its aerospace products
at the beginning of fiscal 1995. Reports prepared by The Boeing Co. and
McDonnell Douglas Corp. project that commercial aircraft production will remain
strong through 1998. The firm order backlog of The Boeing Co., McDonnell Douglas
Corp. and Airbus Industrie, as reported by The Airline Monitor, increased to
1,869 planes at December 31, 1995 from 1,742 planes at December 31, 1994.
Additionally, passenger miles flown world-wide, which increased from
approximately 1,500 billion in 1994 to 1,576 billion in 1995, are expected to
reach approximately 1,961 billion in 1999. Federal Aviation Administration
regulations mandate maintenance of aircraft engines based in part on the number
of miles flown and the number of takeoffs and landings. Increased air travel
therefore requires additional maintenance and repair of aircraft engines, which
in turn increases demand for HTA products. Reflecting increased aircraft
production and maintenance, the Company's net revenues to the aerospace industry
in the first nine months of fiscal 1996 increased 33.9% over the comparable
period in fiscal 1995.
Chemical Processing. Demand for the Company's products in the chemical
processing industry is driven primarily by maintenance requirements of chemical
processing facilities, and tends to track overall economic activity due to the
diverse nature of chemical products and their applications. Major projects
involving the expansion of existing chemical processing facilities or the
construction of new facilities periodically increase demand for CRA products in
the industry. Demand for the Company's products used in the chemical processing
industry declined in fiscal 1991 and fiscal 1992, but began to increase in late
fiscal 1993. In fiscal 1995, sales of the Company's products to the chemical
processing industry reached a five-year high, and the Company believes that the
outlook for sales of the Company's products to the chemical processing industry
continues to improve. Concerns regarding the reliability of chemical processing
facilities, their potential impact on the environment and the safety of their
personnel as well as the need for higher throughput should support demand for
more sophisticated alloys, such as the Company's CRA products.
The Company expects that growth in the chemical processing industry will
result from volume increases and selective price increases as a result of
increased demand. In addition, the Company's key proprietary CRA products, the
recently introduced Hastelloy C-2000, which the Company believes provides better
overall corrosion resistance and versatility than any other readily available
CRA product, and Hastelloy C-22, are expected to contribute substantially to the
Company's growth in this market, although there can be no assurance that this
will be the case.
Land-Based Gas Turbines. The Company leveraged its metallurgical expertise
to develop LBGT applications for alloys it had historically sold to the
aerospace industry. Electric generating facilities powered by land-based gas
turbines are less expensive to construct and operate and produce fewer sulfur
dioxide ("SO2") emissions than traditional fossil fuel-fired facilities. The
Company believes these factors are primarily responsible for creating demand for
its products in the LBGT industry. Prior to the enactment of the Clean Air Act
of 1990, as amended (the "Clean Air Act"), land based gas turbines were used
primarily to satisfy peak power requirements. However, legislated standards for
lowering emissions from fossil fuel-fired electric utilities and cogeneration
facilities, such as the Clean Air Act, together with self-imposed standards,
contributed to increased demand for some of the Company's products in the early
1990s, when Phase I of the Clean Air Act was being implemented. The Company
believes that the outlook appears favorable for land-based gas turbines, since
they are gaining acceptance as a clean, low-cost alternative to fossil
fuel-fired electric generating facilities. The Company believes that compliance
with Phase II of the Clean Air Act, which begins in 2000, will further
contribute to demand for its products.
Flue Gas Desulfurization. The Clean Air Act is the primary factor
determining the demand for high performance alloys in the FGD industry. FGD
projects have been undertaken by electric utilities and cogeneration facilities
powered by fossil fuels in the United States, Europe and the Pacific Rim in
response to concerns over emissions. FGD projects are generally highly visible
and as a result are highly price competitive, especially when demand for high
performance alloys in other major markets is weak.
26
<PAGE>
The Company anticipates increasing sales opportunities in the FGD market as
deadlines for Phase II of the Clean Air Act approach in 2000.
Oil and Gas. The Company's participation in the oil and gas industry
consists primarily of providing tubular goods for sour gas production. Demand
for the Company's products in this industry is driven by the rate of development
of sour gas fields, which in turn is driven by the price of natural gas and the
need to commence production in order to protect leases. This market was very
active in fiscal 1991, especially in the offshore sour gas fields in the Gulf of
Mexico, but demand for the Company's sour gas tubular products has declined
significantly since that time. Due to the volatility of the oil and gas
industry, the Company has chosen not to invest in certain manufacturing
equipment necessary to perform certain intermediate steps of the manufacturing
process for these tubular products. However, the Company can outsource the
necessary processing steps in the manufacture of these tubulars when prices rise
to attractive levels. The Company intends to selectively take advantage of
future opportunities as they arise, but plans no capital expenditures to
increase its internal capabilities in this area.
Other Markets. In addition to the industries described above, the Company
also targets a variety of other markets. Representative industries served in
fiscal 1995 include waste incineration, industrial heat treating, automotive,
medical and instrumentation. Many of the Company's lower volume proprietary
alloys are experiencing growing demand in these other markets. Markets capable
of providing growth are being driven by increasing performance, reliability and
service life requirements for products used in these markets, which could
provide further applications for the Company's products.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, consolidated
statements of operations data as a percentage of net revenues:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED SEPTEMBER 30, ENDED JUNE 30,
--------------------------- ----------------
1993 1994 1995 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net revenues................................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales (1)........................... 84.4 89.6 82.8 83.6 80.2
Selling and administrative expenses......... 9.0 10.0 7.7 7.7 7.6
Research and technical expenses............. 2.2 2.4 1.5 1.5 1.5
Other cost, net............................. 0.3 0.5 0.9 0.4 0.2
Interest expense............................ 11.6 13.2 10.0 10.1 9.0
Interest income............................. (0.3) (0.2) (0.2) (0.2) (0.2)
Goodwill write-off.......................... -- 24.6(2) -- -- --
----- ----- ----- ----- -----
Income (loss) before provision for income
taxes and effect of change in accounting
principle................................... (7.2) (40.1) (2.7) (3.1) 1.7
Provision for (benefit from) income taxes... (2.1) 0.3 0.6 0.4 0.6
Cumulative effect of change in accounting
principle (net of tax benefit).............. -- (52.9)(3) -- -- --
----- ----- ----- ----- -----
Net income (loss)........................... (5.1)% (93.3)% (3.3)% (3.5)% 1.1%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>
- ------------
(1) For financial statement purposes, the 1989 Acquisition was accounted for as
a purchase transaction effective September 1, 1989; accordingly, inventories
were adjusted to reflect estimated fair values at that date. This adjustment
to inventories was amortized to cost of sales as inventories were reduced
from the base layer. Non-cash charges for this adjustment included in cost
of sales were approximately $3.7 million and $488,000 for fiscal 1993 and
1994, respectively; no charges have been recognized since fiscal 1994.
(2) Reflects the write-off of $37.1 million of goodwill created in connection
with the 1989 Acquisition remaining at September 30, 1994. See Note 10 of
the Notes to Consolidated Financial Statements.
(3) During fiscal 1994, the Company adopted SFAS 106. The Company elected to
immediately recognize the transition obligation for benefits earned as of
October 1, 1993, resulting in a non-cash charge of approximately $79.6
million net of an approximately $10.6 million tax benefit, representing the
cumulative effect of the change in accounting principle. The tax benefit
recognized was limited to then existing net deferred tax liabilities. See
Note 8 of the Notes to Consolidated Financial Statements.
27
<PAGE>
NINE MONTHS ENDED JUNE 30, 1996 COMPARED TO NINE MONTHS ENDED JUNE 30, 1995
Net revenues increased approximately $20.4 million, or 13.6%, to
approximately $170.4 million for the first nine months of fiscal 1996 from
approximately $150.0 million for the same period in fiscal 1995, as a result of
a 16.2% increase in the average selling price per pound, from $11.73 to $13.63.
The increase in average selling price was partially offset by a 2.4% decrease in
volume to 12.3 million pounds from 12.6 million pounds, as volume increases in
the aerospace, chemical processing and LBGT markets were more than offset by
lower volume in the FGD and other markets.
Sales to the aerospace market increased by 33.9% to approximately $64.0
million in the first nine months of fiscal 1996 from approximately $47.8 million
for the same period in fiscal 1995. Volume increased 20.7% and the average
selling price per pound increased 11.0%. Increased demand for the Company's
products in fiscal 1996 from the aerospace market was generated primarily by
domestic engine producers, as demand in Europe remained relatively flat.
Sales to the chemical processing industry, which achieved a five-year high
in fiscal 1995, increased 18.1% to approximately $61.6 million in the first nine
months of fiscal 1996 from approximately $52.2 million for the same period in
fiscal 1995. Volume increased 2.8% despite lower exports to the Pacific Rim. In
addition, the average selling price per pound increased 14.9% as a result of
higher demand from both the domestic and European markets.
Sales to the LBGT market increased 26.7% to approximately $13.4 million in
the first nine months of fiscal 1996 from approximately $10.5 million for the
corresponding period in fiscal 1995 as a result of a 22.7% increase in volume
and a 3.2% increase in the average selling price per pound. This reflected
strong demand for cleaner burning power generation from gas turbines. In
addition, the Company has been favorably impacted by its success in marketing
Haynes 230 to European turbine manufacturers as a replacement for competing
alloys.
Sales to the FGD market were unchanged at approximately $6.1 million in the
first nine months of fiscal 1996 and 1995. Volume decreased 20.0% as a result of
the absence of major orders from the Pacific Rim and Europe that were
experienced in the first half of fiscal 1995, but average selling price per
pound increased by 24.4%.
Sales to the oil and gas industry increased 57.6% to approximately $4.3
million in the first nine months of fiscal 1996 from sales of approximately $2.8
million for the first nine months of fiscal 1995. Sales to this market occurred
primarily in the third quarter for both fiscal years due to sour gas projects in
Mobile Bay off the coast of Alabama. Volume increased 14.8%, while average
selling price per pound increased 37.3% due primarily to a favorable product
mix.
Sales to other markets decreased by 35.1% to approximately $18.4 million for
the first nine months of fiscal 1996 from approximately $28.4 million in the
first nine months of fiscal 1995, as a result of a 53.1% decrease in volume,
which was only partially offset by a 38.3% increase in average selling price per
pound. The Company benefitted from a one-time order of approximately $3.5
million for a major waste treatment facility in Eastern Europe and a $6.1
million one-time order for defense-related recuperators on M-1 tanks in the
first nine months of fiscal 1995. Sales to the waste incineration market
increased as a result of greater use of the Company's products in high
temperature corrosion applications. In addition, increased use of Haynes HR-120
as a substitute for competing products (including stainless steels) in the
industrial heating market led to higher sales in that segment.
Cost of sales increased by approximately $11.4 million, or 9.1%, to
approximately $136.7 million for the first nine months of fiscal 1996 from
approximately $125.3 million in the same period in fiscal 1995. However, cost of
sales as a percent of net revenues decreased to 80.2% from 83.6% in the
respective periods as a result of higher average selling prices and a favorable
change in product mix. Although total volume declined in the first nine months
of fiscal 1996, volume in the higher-margin, high value-added product forms such
as sheet, wire and seamless tubulars increased in fiscal 1996 over fiscal 1995
levels. Increased capacity utilization in the higher-cost operations used to
manufacture these forms led to efficiencies that lowered the per unit cost.
Also, during the first nine months of fiscal 1995 raw material costs escalated,
thereby temporarily reducing margins until price increases could be fully
implemented. In the first nine months of fiscal 1996, these increased costs had
been fully passed through as reflected in higher selling prices.
28
<PAGE>
Selling and administrative expenses increased approximately $1.4 million, or
11.7%, to approximately $13.0 million for the first nine months of fiscal 1996
from approximately $11.6 million for the same period in fiscal 1995. However,
selling and administrative expenses declined as a percentage of net revenues
from 7.7% to 7.6%. The increase in absolute dollars was primarily a result of
salary increases and the payment of management bonuses of approximately
$439,000 which were awarded for fiscal 1995 perfomance but paid in January 1996
and the accrual of 1996 bonuses for which a similar accrual was not made in
fiscal 1995. In addition, sales and marketing personnel were hired as part of
the Company's effort to increase market coverage and customer contact.
Research and technical expenses increased approximately $243,000, or 10.6%,
to approximately $2.5 million for the first nine months of fiscal 1996 from
approximately $2.3 million for the same period in fiscal 1995, primarily as a
result of salary increases. Headcount increased as part of the Company's ongoing
commitment to technological leadership.
As a result of the above factors, the Company recognized operating income
for the first nine months of fiscal 1996 of approximately $18.2 million,
approximately $3.9 million of which was contributed by the Company's foreign
subsidiaries. For the first nine months of fiscal 1995, operating income was
approximately $10.8 million, of which approximately $3.2 million was contributed
by the Company's foreign subsidiaries.
Other costs, net decreased approximately $165,000, or 28.5%, to
approximately $413,000 for the first nine months of fiscal 1996 from
approximately $578,000 in the same period in fiscal 1995, primarily as a result
of foreign exchange gains in fiscal 1996 compared to foreign exchange losses in
fiscal 1995.
Interest expense increased approximately $219,000, or 1.4%, to approximately
$15.4 million for the first nine months of fiscal 1996 from approximately $15.2
million for the same period in fiscal 1995, due primarily to higher average
borrowings under the Existing Credit Facility.
The provision for income taxes of approximately $1.0 million for the first
nine months of fiscal 1996 increased by approximately $414,000 from
approximately $615,000 for the first nine months of fiscal 1995, due primarily
to taxes on foreign earnings against which the Company was unable to utilize its
U.S. federal income tax net operating loss carryforwards ("NOLs"). U.S.
operations generated taxable income of approximately $6.7 million during the
first nine months of fiscal 1996, which was offset by NOLs.
As a result of the above factors, the Company recognized net income for the
first nine months of fiscal 1996 of approximately $1.6 million, compared to a
net loss of approximately $5.4 million for the same period in fiscal 1995.
YEAR ENDED SEPTEMBER 30, 1995 COMPARED TO YEAR ENDED SEPTEMBER 30, 1994
Net revenues increased approximately $51.3 million, or 34.1%, to
approximately $201.9 million in fiscal 1995 from approximately $150.6 million in
fiscal 1994, as a result of a 22.6% increase in volume to 16.3 million pounds
from approximately 13.3 million pounds and a 9.0% increase in average selling
price to $12.18 per pound from $11.17 per pound. Volume increases were due to
higher demand in the aerospace, chemical processing, waste incineration and
industrial heating industries. Alloy price increases were implemented in fiscal
1995 in response to rising raw material costs, which resulted in higher average
selling prices.
Sales to the aerospace market increased 43.0% to approximately $66.4 million
in fiscal 1995 from approximately $46.4 million in fiscal 1994 due to a 42.4%
increase in volume as reflected by the increased order backlog for commercial
aircraft and jet engines in fiscal 1995. In addition, the Company greatly
increased its sales to distributors serving the aerospace market by meeting
competitive prices for
29
<PAGE>
certain higher volume HTA products. Due to changes in product mix, the average
selling price per pound to the aerospace market in fiscal 1995 remained flat as
compared to fiscal 1994 despite generally higher alloy prices.
Sales to the chemical processing industry increased 44.1% to approximately
$72.2 million in fiscal 1995 from approximately $50.1 million in fiscal 1994 as
a result of higher spending in the United States and Europe for smaller
maintenance and improvement projects, as well as along the Pacific Rim for
certain large capacity expansion projects. Volume increased 22.0% and average
selling price per pound increased 18.2%. The large Pacific Rim projects were
very competitively bid upon, resulting in lower average selling prices per pound
for these projects as compared to other projects. The lower average selling
prices for these products were more than offset, however, by higher prices in
smaller projects. In addition, the Company was favorably impacted in fiscal 1995
by its shift from production of a low-priced duplex stainless steel that it had
manufactured for several years to other higher-priced, higher-margin products as
a result of stronger market demand for such products.
Sales to the LBGT market decreased 15.9% to approximately $14.3 million in
fiscal 1995 from approximately $17.0 million in fiscal 1994. During fiscal 1995,
a few of the larger LBGT manufacturers decreased purchases of alloys as they
reduced their inventories; as a result, the Company's volume decreased 18.8%.
Although Haynes 230 was gaining acceptance, especially in Europe, the Company
experienced temporary disruptions in sales of this product due to production and
delivery problems, and as a result the Company's fiscal 1995 average selling
price per pound was unchanged as compared to fiscal 1994.
Sales to the FGD market declined 35.3% to approximately $6.6 million in
fiscal 1995 from approximately $10.2 million in fiscal 1994 as a result of a
40.0% decrease in volume and a 7.7% increase in average selling price per pound.
Sharply lower domestic sales were partially offset by increased sales in Europe
and along the Pacific Rim. The weakness in domestic markets reflected lower
demand for wet scrubbing facilities for fossel fuel-fired electric generating
plants.
Demand in the oil and gas market has been weak and orders have been only
sporadic since fiscal 1992, when a major sour gas production project in the Gulf
of Mexico was completed. Sales increased 7.1% in fiscal 1995 as compared to
fiscal 1994 as a result of a 25.0% increase in volume, which was partially
offset by a 14.3% decrease in average selling price per pound.
Sales to other markets increased 69.4% to approximately $34.9 million in
fiscal 1995 from approximately $20.6 million in fiscal 1994 due primarily to a
shipment in fiscal 1995 to a large waste treatment project destined for
installation in Eastern Europe and the completion of a short-term contract in
support of the U.S. Army's M-1 tank program. These projects resulted in an 86.7%
increase in volume in fiscal 1995 as compared to fiscal 1994 and a 9.2% decrease
in average selling price per pound for the same periods.
Cost of sales decreased approximately $4.8 million, or 2.8%, to
approximately $167.2 million in fiscal 1995 from approximately $172.0 million in
fiscal 1994. Fiscal 1994 cost of sales included the write-off of goodwill as
discussed in Note 10 of the Notes to Consolidated Financial Statements. Cost of
sales as a percent of the Company's net revenues decreased to 82.8% from 89.6%
in the respective years, excluding the effect of the write-off of goodwill in
fiscal 1994 as discussed above. This was due primarily to increased capacity
utilization and increased profitability in the European subsidiaries. During the
first half of fiscal 1995, raw material costs escalated rapidly, resulting in
lower margins. As a result, the spread between average selling price and
material cost per pound was lower in fiscal 1995 than in fiscal 1994. This was
partially offset in the second half of fiscal 1995 as price increases for the
Company's alloys became effective. Higher volume reduced unit fixed costs and
led to improved operating efficiencies. In addition, the European subsidiaries
experienced improved volume and margins in fiscal 1995, reflecting improved
business conditions which further improved the Company's cost of sales as a
percent of net revenues.
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Selling and administrative expenses increased approximately $436,000, or
2.9%, to approximately $15.5 million in fiscal 1995 from approximately $15.0
million in fiscal 1994 primarily as a result of expenses which previously had
been reported as research and technology expenses in fiscal 1994 being
reclassified as selling and administrative expenses in fiscal 1995.
Research and technical expenses decreased approximately $581,000, or 16.0%,
to approximately $3.0 million in fiscal 1995 from approximately $3.6 million in
fiscal 1994 due in part to the reclassification of expenses noted above. In
addition, certain costs associated with engineering functions recorded as
manufacturing costs in fiscal 1995 were reported as research and technical
expenses in fiscal 1994.
As a result of the above factors, the Company recognized operating income in
fiscal 1995 of approximately $16.2 million as compared to an operating loss of
approximately $35.6 million in fiscal 1994. Operating loss in fiscal 1994 was
approximately $2.9 million prior to the write off of approximately $37.1 million
of goodwill as described in Note 10 of the Notes to Consolidated Financial
Statements. Operating income contributed by the Company's foreign subsidiaries
was approximately $5.3 million in fiscal 1995 and approximately $1.6 million in
fiscal 1994.
Other costs, net increased approximately $951,000, or 116.5%, to
approximately $1.8 million in fiscal 1995 from approximately $816,000 in fiscal
1994, primarily as a result of fluctuations in foreign exchange rates, which
accounted for approximately $150,000 of the increase, and approximately $478,000
in costs incurred associated with obtaining options to purchase certain of the
Company's Existing Subordinated Notes. The options expired in October 1995.
Interest expense increased approximately $317,000, or 1.6%, to approximately
$20.2 million in fiscal 1995 from approximately $19.9 million in fiscal 1994,
primarily as a result of higher average borrowings under the Existing Credit
Facility.
The provision for income taxes for fiscal 1995 was approximately $1.3
million compared to approximately $420,000 in fiscal 1994, due primarily to
taxes on foreign earnings against which the Company was unable to utilize its
NOLs.
As a result of the above factors, the Company reported a net loss of
approximately $6.8 million in fiscal 1995 compared to a net loss of
approximately $140.5 million in fiscal 1994, including SFAS 106 expense of
approximately $79.6 million.
YEAR ENDED SEPTEMBER 30, 1994 COMPARED TO YEAR ENDED SEPTEMBER 30, 1993
Net revenues decreased approximately $11.9 million, or 7.3%, to
approximately $150.6 million in fiscal 1994 from approximately $162.5 million in
fiscal 1993 as a result of a 13.1% decrease in volume partially offset by a 6.6%
increase in average selling price per pound.
Sales to the aerospace market decreased 0.6% to approximately $46.4 million
in fiscal 1994 from approximately $46.7 million in fiscal 1993 despite slightly
higher domestic demand for jet engines. The Company did not benefit from the
higher domestic demand because of lost orders for generic alloys due to
uncompetitive pricing, as reflected by flat volume and average selling price per
pound. Sales to the European aerospace industry increased slightly in fiscal
1994 as a result of improved demand for jet engines in that market.
Sales to the chemical processing industry declined 4.0% to approximately
$50.1 million in fiscal 1994 from approximately $52.2 million in fiscal 1993.
This decrease was due to lower domestic sales partially offset by higher
European and Pacific Rim sales resulting from increased maintenance and process
improvement expenditures. Although the domestic market for chemical processing
was strong, the Company was negatively affected when one of its significant
distributors to this market outsourced a greater percentage of its purchases to
competing producers based on increased concern about the Company's financial
resources and its ability to maintain an uninterrupted supply of product.
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Sales to the LBGT market increased 34.9% to approximately $17.0 million in
fiscal 1994 from approximately $12.6 million in fiscal 1993 as a result of
higher global demand for this relatively inexpensive and clean source of
electric power and increased use of Haynes 230 as a replacement for other
competing materials in certain hot sections of the turbines. Consequently,
volume increased 33.3% and average selling price per pound increased 1.2%.
Sales for FGD applications decreased 41.4% to approximately $10.2 million in
fiscal 1994 from approximately $17.4 million in fiscal 1993 reflecting the
completion of many of the planned facilities built in response to Phase I Clean
Air Act requirements and a reduction in the number of utilities opting for wet
scrubbing of flue gases. However, increased sales along the Pacific Rim and in
Europe reflected increasing demand in those areas for wet scrubbing as a
response to more stringent environmental standards. Volume decreased 48.3%,
while average selling price per pound increased 13.3%.
Sales to the oil and gas industry decreased 61.8% to approximately $4.2
million in fiscal 1994 from approximately $11.0 million in fiscal 1993. Volume
decreased 63.6% due to reduced activity in sour gas production, while prices
increased 5.0%.
Sales to other markets increased 0.5% to approximately $20.6 million in
fiscal 1994 from approximately $20.5 million in fiscal 1993. Lower demand in
industrial heating applications was offset by increased demand in the waste
incineration market, particularly in Europe, where alloys were sold to a large
waste facility construction project. The average selling price per pound
increased 7.2%.
At September 30, 1994, the Company elected to write off the goodwill balance
from the 1989 Acquisition of approximately $37.1 million, as more fully
discussed in Note 10 to the Notes to Consolidated Financial Statements. Cost of
sales therefore increased approximately $34.9 million, or 25.4%, to
approximately $172.0 million in fiscal 1994 from approximately $137.1 million in
fiscal 1993. Cost of sales as a percent of the Company's net revenues, excluding
the write-off of goodwill, increased to 89.6% in fiscal 1994, compared to 84.4%
in fiscal 1993. Approximately 2.7% of this increase was due to the recognition
of additional non-cash charges pertaining to accrued post-retirement benefits,
with the remaining increase resulting from lower overall capacity utilization
and higher costs. Efforts to raise prices in fiscal 1994 resulted in a slight
improvement in the variable margin per pound of product sold, but the resulting
loss of volume more than offset this benefit.
Selling and administrative expenses increased approximately $470,000, or
3.2%, to approximately $15.0 million in fiscal 1994 from approximately $14.6
million in fiscal 1993, primarily because of higher salaries.
Research and technical expense was essentially flat in fiscal 1994 compared
to fiscal 1993, as a result of increases in salaries, offset by lower personnel
levels.
As a result of the above factors, the Company reported an operating loss in
fiscal 1994 of approximately $40.0 million, but generated operating loss of
approximately $2.9 million prior to the write-off of goodwill compared to
approximately $7.2 million of operating income in the prior year. The Company's
foreign subsidiaries contributed approximately $1.6 million and approximately
$2.0 million of operating income in fiscal 1994 and fiscal 1993, respectively.
Other cost, net increased approximately $416,000, or 104.0%, to
approximately $816,000 in fiscal 1994 from approximately $400,000 in fiscal
1993. This increase was primarily due to an increase in the provision for bad
debts.
Interest expenses increased approximately $1.0 million, or 5.3%, to
approximately $19.9 million in fiscal 1994 from approximately $18.9 million in
fiscal 1993 as a result of higher average borrowings under the Existing Credit
Facility and higher average interest rates.
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The provision for income taxes for fiscal 1994 was approximately $420,000
compared to a benefit from income tax of approximately $3.4 million in fiscal
1993. The provision for fiscal 1994 represents taxes on earnings generated from
the foreign subsidiaries. In connection with the Company's adoption of SFAS 106
and Statement of Financial Accounting Standards No. 109, "Accounting for Income
Tax" ("SFAS 109") effective October 1, 1993, the Company recognized a tax
benefit that eliminated the domestic deferred tax liabilities as of September
30, 1993. Due to the Company's net operating loss carryforward position as set
forth in the Consolidated Financial Statements, the Company was not able to
recognize any tax benefit resulting from the operating losses from domestic
operations incurred in fiscal 1994.
As a result of the above factors, the Company reported a net loss in fiscal
1994 before the effect of a change in accounting principle of approximately
$60.9 million (approximately $23.8 million before the goodwill write-off)
compared to a net loss of approximately $8.3 million in fiscal 1993.
LIQUIDITY AND CAPITAL RESOURCES
In connection with the Recapitalization, the Company will redeem the
Existing Notes, repay amounts outstanding under the Existing Credit Facility and
pay the related fees and expenses. The funds required to consummate the
Recapitalization will be provided by the net proceeds to the Company from the
Offerings and borrowings under the New Credit Facility. See "Use of Proceeds."
The Company expects to consummate the Recapitalization during the fourth quarter
of fiscal 1996. On a pro forma basis, giving effect to the Recapitalization as
of June 30, 1996, total indebtedness would have been approximately $119.0
million and stockholders' deficit would have been approximately $82.3 million.
The New Credit Facility expires in 1999 if not renewed or extended. The Company
will have no other scheduled debt amortization payments until the Notes mature
in 2004. Following consummation of the Offerings, the Company's principal source
of liquidity, other than funds generated from operations, will be the commitment
of up to $50.0 million available for revolving credit loans and letters of
credit under the New Credit Facility.
The Company's near-term future cash needs will be driven by working capital
requirements, which are likely to increase, and planned capital expenditures.
Capital expenditures were approximately $801,000 in the first nine months of
fiscal 1996 and are expected to be approximately $1.5 million for all of fiscal
1996, approximately $10.1 million in fiscal 1997 and approximately $10.4 million
in fiscal 1998. Capital expenditures were approximately $56,000, $772,000 and
$1.9 million for fiscal 1993, 1994 and 1995, respectively. The increased capital
investments for fiscal 1997 and 1998 are designated for significant new
equipment additions and expenditures of approximately $3.2 million for new
integrated information systems. The primary benefits of this spending are
expected to be (i) the expansion of annual production capacity by 25% from
approximately 20.0 million pounds to approximately 25.0 million pounds, based on
the current product mix, (ii) improved production quality resulting in lower
internal rejection rates and rework costs and (iii) improved coordination among
sales, marketing and manufacturing personnel resulting in more efficient pricing
practices. The Company does not expect such capital expenditures to have a
material adverse effect on its long term liquidity. Moreover, the Company does
not currently have any significant capital expenditure commitments. The Company
expects to fund its working capital needs and capital expenditures with cash
provided from operations, supplemented by borrowings under the New Credit
Facility. The Company believes these sources of capital will be sufficient to
fund these capital expenditures and working capital requirements, although there
can be no assurance that this will be the case. See "The Recapitalization" and
"Description of New Credit Facility."
Net cash used in operations in the first nine months of fiscal 1996 was
approximately $3.0 million, as compared to approximately $1.5 million for the
same period in fiscal 1995. The negative cash flow from operations for the first
nine months of fiscal 1996 was primarily a result of increases of approximately
$14.1 million in inventories and approximately $5.8 million in accounts
receivable, which
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were offset by non-cash depreciation and amortization expenses of approximately
$6.9 million, positive net income of approximately $1.6 million, an increase in
the accounts payable and accrued expenses balance of approximately $9.3 million
and other adjustments. Cash used for investment activities declined from
approximately $1.4 million in the first nine months of fiscal 1995 to
approximately $744,000 in the first nine months of fiscal 1996, primarily as a
result of lower capital expenditures. Cash provided by financing activities for
the first nine months of fiscal 1996 was approximately $3.7 million due to
increased borrowings under the Existing Credit Facility. Cash for the first nine
months of fiscal 1996 decreased approximately $200,000, resulting in a June 30,
1996 cash balance of approximately $4.8 million. Cash in the first nine months
of fiscal 1995 decreased approximately $1.2 million, resulting in a cash balance
of approximately $4.5 million at June 30, 1995.
Net cash used in operations in fiscal 1995 was approximately $2.9 million,
as compared to approximately $12.8 million in fiscal 1994. Cash used in
operations in fiscal 1995 was primarily a result of a net loss of approximately
$6.8 million, an increase in accounts receivable of approximately $7.4 million
and an increase in inventories of approximately $6.5 million, offset by
depreciation and amortization of approximately $9.6 million, an increase in
accounts payable and accrued expenses of approximately $6.3 million and other
changes in working capital. The ending cash balance at September 30, 1995 was
approximately $5.0 million as compared to approximately $5.7 million at
September 30, 1994.
At June 30, 1996, the Company had net working capital of approximately $69.3
million as compared to approximately $62.6 million at September 30, 1995 and
approximately $60.2 million at September 30, 1994. The increase in working
capital of approximately $6.7 million in the first nine months of fiscal 1996
was a result of increases in accounts receivable and inventories of
approximately $5.8 million and $14.1 million, respectively, offset by an
increase of approximately $9.3 million in accounts payable and accrued expenses,
an increase of approximately $3.7 million in borrowings under the Existing
Credit Facility and a decrease of approximately $78,000 in income taxes payable.
The increase in working capital of approximately $2.4 million in fiscal 1995 is
a result of increases in accounts receivable and inventories of approximately
$7.6 million and $6.7 million, respectively, offset by an increase of
approximately $6.1 million in accounts payable and accrued expenses, an increase
of approximately $4.3 million in borrowings under the Existing Credit Facility
and an increase of approximately $752,000 in income taxes payable.
The Indenture and the New Credit Facility will contain a number of covenants
limiting the Company's access to capital, including covenants that restrict the
ability of the Company and its subsidiaries to (i) incur additional
Indebtedness, (ii) make certain restricted payments, (iii) engage in
transactions with affiliates, (iv) create liens on assets, (v) sell assets, (vi)
issue and sell preferred stock of subsidiaries, and (vii) engage in
consolidations, mergers and transfers.
The Company is currently conducting groundwater monitoring and post-closure
monitoring in connection with certain disposal areas, and has completed an
investigation of eight specifically identified solid waste management units, at
the Kokomo facility. The results of the investigation have been filed with the
U.S. Environmental Protection Agency ("EPA"). If the EPA or the Indiana
Department of Environmental Management ("IDEM") were to require corrective
action in connection with such disposal areas or solid waste management units,
there can be no assurance that the costs of such corrective action will not have
a material adverse effect on the Company's financial condition, results of
operations or liquidity. In addition, the Company has been named as a
potentially responsible party at two waste disposal sites. Although there can be
no assurance, based on current information, the Company believes that its
involvement at these two sites will not have a material adverse effect on the
Company's financial condition, results of operations or liquidity. Expenses and
capital expenditures related to environmental compliance are expected to be
approximately $3.9 million for fiscal 1996 through fiscal 1998. See
"Business--Environmental Matters." Based on information currently available to
the Company, the Company is not aware of any information which would indicate
that litigation
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pending against the Company is reasonably likely to have a material adverse
effect on the Company's operations or liquidity. See "Business--Legal
Proceedings."
INFLATION
The Company believes that inflation has not had a material impact on its
operations.
INCOME TAX CONSIDERATIONS
Section 382 Limitation. At September 30, 1995, the Company had, in addition
to other tax loss attributes, NOLs of approximately $36.8 million available to
reduce regular federal taxable income, which NOLs expire in 2005 through 2010.
For a discussion of a possible reduction of these NOLs as a result of an ongoing
IRS audit, see "Risk Factors--Income Tax Audit" and "Business--Legal
Proceedings."
If the Company were to undergo an "ownership change" within the meaning of
Section 382 of the Internal Revenue Code of 1986, as amended (the "Code"), the
utilization of NOLs by the Company would be subject to an annual limitation.
Generally, an "ownership change" occurs with respect to a corporation when the
percentage of stock (determined on the basis of value) owned by one or more
holders of at least 5% of such stock ("5% stockholders") has increased by more
than 50 percentage points from the lowest percentage of stock that was owned by
such 5% stockholders at any time during a statutorily prescribed "testing
period." Regulations under Section 382 provide that, in general, investors who
buy stock in a public offering and who each own less than 5% of the issuer's
stock after the offering are treated in the aggregate as a single 5% stockholder
for purposes of determining whether an ownership change has occurred as a result
of the Equity Offering. The Company believes that the sale of the shares of
Common Stock offered concurrently will not result in an ownership change, as
defined by Section 382 and the regulations thereunder, that would cause the
annual limitation to apply. However, an ownership change could result from other
equity transactions following the Equity Offering, including transactions such
as purchases or sales of Common Stock by certain stockholders and other
issuances of Common Stock by the Company. If the annual limitation on utilizing
NOLs were to apply to the Company, the amount of the limitation would generally
equal the product of (i) the fair market value of the Company's equity
immediately prior to the ownership change, with certain adjustments, including a
possible adjustment to exclude certain capital contributions made in the two
years preceding the date of the ownership change and (ii) a federal long-term
tax exempt rate of return published monthly by the IRS. The annual limitation on
utilizing other tax loss attributes is dependent upon the annual limitation on
utilizing the NOLs. Should the annual limitation apply, the Company believes
that it would not materially affect the potential use of the NOLs to reduce any
future income tax liabilities for the foreseeable future; however, it is
possible that the Company's taxable income in a particular year could exceed the
annual limitation, in which case such excess would not be reduced by the NOLs
and the Company's tax liability would be correspondingly higher. The foregoing
discussion, including with respect to the Company's beliefs expressed above, has
been prepared with the advice of Coopers & Lybrand L.L.P., which has acted as
special tax advisor to the Company in connection with this matter.
The Merger. Based on the tax advice of Coopers & Lybrand, L.L.P., the
Company believes that the Merger will qualify as a tax-free transaction under
Section 332 and 368 (a)(1)(A) of the Code and therefore not generate any adverse
tax consequences.
Financial Report--Accounting for Income Taxes. For financial reporting
purposes the Company recognizes deferred tax assets and liabilities for the
expected future tax consequences of events that have been recognized in the
Company's financial statements or tax returns. SFAS 109 requires a valuation
allowance when it is more likely than not that some portion or all of a deferred
tax asset will not be realized. It further states that forming a conclusion that
a valuation allowance is not needed is difficult when there is negative evidence
such as cumulative losses in recent years. The ultimate
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realization of all or part of the Company's deferred tax assets depends upon the
Company's ability to generate sufficient taxable income in the future.
At September 30, 1995, the Company had a net deferred tax asset
approximating $33.2 million consisting principally of temporary differences
relating to available NOLs and postretirement benefits other than pensions
offset by depreciation. Because of unfavorable operating results in recent
years, the Company has established a 100% valuation allowance to eliminate the
net deferred tax asset, resulting in a charge to operations and thereby reducing
equity. The Company will periodically evaluate its strategic and business plans
in light of evolving business conditions and actual operating results, and the
valuation allowance may be adjusted for future income expectations resulting
from that process.
As a result, the application of the SFAS 109 valuation allowance
determination process could result in recognition of significant income tax
provisions or benefits in a single interim or annual period due to actual
operating results and changes in future income expectations over several years.
Such tax provision or benefit effect could likely be material in the context of
the specific interim or annual financial reporting period in which changes in
judgment about extended future periods are reported. The SFAS 109 valuation
allowance determination process is a balance sheet oriented model and does not
have as its objective the periodic matching of pre-tax income or loss with the
related actual income tax effects.
The Section 382 limitation described above could, if applicable, limit the
income tax provision or benefit in a particular year as a result of the
application of the SFAS 109 valuation allowance determination process; however,
it is not expected to have an adverse impact over time.
If the Company's principal markets continue to exhibit improvement, and such
improvement is manifested in positive trends in the value and profitability of
customer orders and backlog, additional tax benefits may be reported in future
periods as the valuation allowance is reduced. Alternatively, to the extent that
the Company's future profit expectations remain static or are diminished, tax
provisions may be charged against pretax income. In either event, such valuation
allowance-related tax provisions or benefits should not necessarily be viewed as
recurring. Further, subject to the effects, if any, of the Section 382
limitation described above, the amount of current taxes that the Company expects
to pay for the foreseeable future is minimal, and the Company's carryforward tax
attributes are viewed by management as a significant competitive advantage to
the extent that profits can be sheltered effectively from tax and re-employed in
the growth of the business.
ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," is
effective for the year ending September 30, 1996. In the opinion of management,
this statement will not impact the Company's financial position or results of
operations.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock
Based Compensation," is effective for the year ending September 30, 1997. The
Company has not decided how it intends to apply the accounting and disclosure
provisions of this statement.
36
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BUSINESS
GENERAL
The Company develops, manufactures and markets technologically advanced,
high performance alloys primarily for use in the aerospace and chemical
processing industries. The Company's products are high temperature alloys and
corrosion resistant alloys. The Company's HTA products are used by manufacturers
of equipment that is subjected to extremely high temperatures, such as jet
engines for the aerospace industry, gas turbine engines used for power
generation, and waste incineration and industrial heating equipment. The
Company's CRA products are used in applications that require resistance to
extreme corrosion, such as chemical processing, power plant emissions control
and hazardous waste treatment. Based on available industry data, the Company
believes that it is one of three leading worldwide producers of high performance
alloy products in sheet, coil and plate forms, which in the aggregate
represented approximately 64% of the Company's net revenues in fiscal 1995. In
addition, the Company produces its alloy products as seamless and welded
tubulars, and in bar, billet and wire forms.
High performance alloys are characterized by highly engineered, often
proprietary, metallurgical formulations primarily of nickel, cobalt and other
metals with complex physical properties. The complexity of the manufacturing
process for high performance alloys is reflected in the Company's relatively
high average selling price of approximately $12.18 per pound for fiscal 1995,
compared to the average selling price of other metals such as carbon steel
sheet, stainless steel sheet and aluminum, which currently range from $0.17 to
$1.25 per pound. Demanding end-user specifications, a multi-stage manufacturing
process and the technical sales, marketing and manufacturing expertise required
to develop new applications combine to create significant barriers to entry in
the high performance alloy industry. The Company derived approximately 30% of
its fiscal 1995 net revenues from products that are protected by United States
patents and derived an additional approximately 15% of its fiscal 1995 net
revenues from sales of products that are not patented, but for which the Company
has limited or no competition.
CORE COMPETENCIES
Based upon its customer relationships in the aerospace and chemical
processing industries, the Company believes it has a leadership position in the
high performance alloy industry and has a strong reputation for quality and
reliability. The Company's core competencies include the following:
. Metallurgical expertise. With over 50 years of product research and
development in the high performance alloy industry, the Company believes
it is a leader in the development and manufacturing technology of nickel-
and cobalt-based alloys. Over the last seven years, the Company's
technical programs have yielded seven new proprietary alloys, five of
which are protected by United States patents. Three additional United
States patents regarding the new proprietary alloys are pending. The
Company currently maintains a total of 43 United States patents and
approximately 180 foreign counterpart patents targeted at countries with
significant existing or potential markets for the patented products. As a
result of the Company's research and development efforts, Chemical
Processing magazine recognized the Company's products five times in the
last twelve years as having made significant contributions to the chemical
processing industry.
. Technical marketing support. Through the combined efforts of the Company's
direct sales organization, including its four domestic Company-owned
service centers and its research and development group, the Company works
closely with its customers in order to identify, develop and support
diverse applications for its alloys and to anticipate customers' future
materials requirements. The Company believes this integrated approach is
unique in the high performance alloy industry.
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. Flexible manufacturing capabilities. The Company's four-high Steckel mill,
in conjunction with its sophisticated, multi-stage, melting and refining
operation, produces a broad array of sheet, coil and plate products made
to exacting specifications. The Company also operates a three-high mill
and a two-high mill that enable the Company to produce small batch orders
that generally are not practical or economical for competitors to
manufacture.
BUSINESS STRATEGY
The Company intends to capitalize on its core competencies to implement its
business strategy, which includes the following principal elements:
Develop new applications for existing alloys. The Company actively seeks to
develop new applications and new market segments for its existing products. The
sales force, in coordination with the research and development staff, works
closely with end-users to identify applications for the Company's existing
products that address its customers' specialized needs. Management believes that
new product applications represent a significant opportunity for revenue growth.
The Company has identified and is pursuing new applications for its alloys,
including applications for the automotive, medical and instrumentation
industries.
Continue customer-driven new product development. The Company emphasizes
customer contact and an awareness of customer needs in its product development
process. The Company believes that new opportunities in end-markets are best
identified through close contact with customers. This approach allows the
Company to focus its research and development efforts and enables the Company's
products to be specified for use in the production of customers' products.
Expand export sales. The Company believes there are significant
opportunities to increase its sales in international markets. In fiscal 1995,
approximately 39% of the Company's net revenues were outside the United States,
primarily in European markets where the Company has established sales and
manufacturing facilities. In addition, the Company is pursuing significant
growth opportunities in other regions, particularly the Pacific Rim.
Increase productivity through strategic equipment investment. The Company
believes that future investment in plant and equipment will allow it to increase
capacity and produce higher quality products at reduced costs. The
Recapitalization described herein, combined with improved market conditions,
will enable the Company to increase its investment in plant and equipment above
the amounts expended in recent years. See "The Recapitalization." During fiscal
1996 through 1998, the Company anticipates investing approximately $19.5 million
in new plant and equipment and approximately $3.2 million in new integrated
information systems. The principal benefits of these investments are expected to
be (i) the expansion of annual production capacity by 25% from approximately
20.0 million pounds to approximately 25.0 million pounds, based on the current
product mix, (ii) improved production quality resulting in lower internal
rejection rates and rework costs and (iii) improved coordination among sales,
marketing and manufacturing personnel resulting in more efficient pricing
practices.
PRODUCTS
The alloy market consists of four primary segments: stainless steel, super
stainless steel, nickel alloys and high performance alloys. The Company competes
exclusively in the high performance alloy segment, which includes HTA and CRA
products. The Company believes that the high performance alloy segment
represents less than 10% of the total alloy market. In fiscal 1995, HTA products
and CRA products accounted for 55% and 45%, respectively, of the Company's net
revenues.
HTA products are used primarily in manufacturing components used in the hot
sections of jet engines. Stringent safety and performance standards in the
aerospace industry result in development lead times typically as long as eight
to ten years in the introduction of new aerospace-related market
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applications for HTA products. However, once a particular new alloy is shown to
possess the properties required for a specific application in the aerospace
industry, it tends to remain in use for extended periods. HTA products are also
used in gas turbine engines produced for use in applications such as naval and
commercial vessels, electric power generators, power sources for offshore
drilling platforms, gas pipeline booster stations and emergency standby power
stations.
CRA products are used in a variety of applications, such as chemical
processing, power plant emissions control, hazardous waste treatment and sour
gas production. Historically, the chemical processing industry has represented
the largest end user segment for CRA products. Due to maintenance, safety and
environmental considerations, management of the Company believes this industry
represents an area of potential long-term growth for the Company. Unlike
aerospace applications within the HTA product market, the development of new
market applications for CRA products generally does not require long lead times.
High Temperature Alloys. The following table sets forth information with
respect to certain of the Company's significant high temperature alloys:
<TABLE>
<CAPTION>
END MARKETS AND APPLICATIONS
ALLOY AND YEAR INTRODUCED (1) FEATURES
- ----------------------------- ----------------------------- -----------------------------
<S> <C> <C>
Haynes HR-160 (1990) (2) Waste incineration/CPI-boiler Good resistance to
tube shields sulfidation at high
temperatures
Haynes 242 (1990) (2) Aero-seal rings High strength, low expansion
and good fabricability
Haynes HR-120 (1990) (2) Industrial Good strength-to-cost ratio
heating-heat-treating as compared to competing
baskets alloys
Haynes 230 (1984) (2) Aero/LBGT-ducting Good combination of strength,
stability, oxidation
resistance and fabricability
Haynes 214 (1981) (2) Aero-honeycomb seals Good combination of oxidation
resistance and fabricability
among nickel-based alloys
Haynes 188 (1968) Aero-burner cans, High strength, oxidation
after-burner components resistant cobalt-based alloy
Haynes 625 (1964) Aero/CPI-ducting, tanks, Good fabricability and
vessels, weld overlays general corrosion resistance
Haynes 263 (1960) Aero/LBGT-components for gas Good ductibility and high
turbine hot gas exhaust pan strength at temperatures up
to 1,600 deg. F
Haynes 718 (1955) Aero-ducting, vanes, nozzles Weldable high strength alloy
with good fabricability
Hastelloy X (1954) Aero/LBGT-burner cans, Good high temperature
transition ducts strength at relatively low
cost
Haynes Ti3-2.5 (1950) Aero-aircraft hydraulic and Light weight, high strength
fuel systems components titanium-based alloy
</TABLE>
- ------------
(1) "Aero" refers to aerospace; "LBGT" refers to land-based gas turbines; "CPI"
refers to the chemical processing industry.
(2) Represents a patented product or a product with respect to which the Company
believes it has limited or no competition.
The higher volume HTA products, including Haynes 625, Haynes 718 and
Hastelloy X, are generally considered industry standards, especially in the
manufacture of aircraft and LBGT. These products have been used in such
applications since the 1950s and because of their widespread use have been most
subject to competitive pricing pressures. In fiscal 1995, sales of these HTA
products accounted for 22% of the Company's net revenues.
The Company also produces and sells cobalt-based alloys introduced over the
last three decades, which are more highly specialized and less price competitive
than nickel-based alloys. Haynes 188 and Haynes 263 are the most widely used of
the Company's cobalt-based products and accounted for 8% of the Company's net
revenues in fiscal 1995. Three of the more recently introduced HTA products,
39
<PAGE>
Haynes 242, Haynes 230 and Haynes 214, initially developed for the aerospace and
LBGT markets, are still patent-protected and together accounted for 6% of the
Company's net revenues in fiscal 1995. These newer alloys are gaining acceptance
for applications in industrial heating and waste incineration.
Haynes HR-160 and Haynes HR-120 were introduced in fiscal 1990 and targeted
for sale in industrial heat treating applications. Haynes HR-160 is a higher
priced cobalt-based alloy designed for use when the need for long-term
performance outweighs initial cost considerations. Potential applications for
Haynes HR-160 include use in key components in waste incinerators, chemical
processing equipment, mineral processing kilns and fossil fuel energy plants.
Haynes HR-120 is a lower priced, iron-based alloy and is designed to replace
competitive alloys not manufactured by the Company that may be slightly lower in
price but also less effective. In fiscal 1995, these two alloys accounted for 5%
of the Company's net revenues.
The Company also produces seamless titanium tubing for use as hydraulic
lines in airframes and as bicycle frames. During fiscal 1995, sales of these
products accounted for 4% of the Company's net revenues.
Corrosion Resistant Alloys. The following table sets forth information with
respect to certain of the Company's significant corrosion resistant alloys:
<TABLE>
<CAPTION>
END MARKETS AND APPLICATIONS
ALLOY AND YEAR INTRODUCED (1) FEATURES
- ----------------------------- ----------------------------- -----------------------------
<S> <C> <C>
Hastelloy C-2000 (1995) (2) CPI-tanks, mixers, piping Versatile alloy with good
resistance to uniform
corrosion
Hastelloy B-3 (1994) (2) CPI-acetic acid plants Better fabrication
characteristics compared to
other nickel-molybdenum
alloys
Hastelloy D-205 (1993) (2) CPI-plate heat exchangers Corrosion resistance to hot
sulfuric acid
Ultimet (1990) (2) CPI-pumps, vales Wear and corrosion resistant
nickel-based alloy
Hastelloy G-50 (1989) (2) Oil and gas-sour gas tubulars Good resistance to down hole
corrosive environments
Hastelloy C-22 (1985) (2) CPI/FGD-tanks, mixers, piping Resistance to localized
corrosion and pitting
Hastelloy G-30 (1985) (2) CPI-tanks, mixers, piping Lower cost alloy with good
corrosion resistance in
phosphoric acid
Hastelloy B-2 (1974) CPI-acetic acid Resistance to hydrochloric
acid and other reducing
acids
Hastelloy C-4 (1973) CPI-tanks, mixers, piping Good thermal stability
Hastelloy C-276 (1968) CPI/FGD/oil and gas-tanks, Broad resistance to many
mixers, piping environments
</TABLE>
- ------------
(1) "CPI" refers to the chemical processing industry; "FGD" refers to flue gas
desulfurization.
(2) Represents a patented product or a product with respect to which the Company
believes it has limited or no competition.
During fiscal 1995, sales of the CRA alloys Hastelloy C-276, Hastelloy C-22
and Hastelloy C-4 accounted for approximately 31% of the Company's net revenues.
Hastelloy C-276, introduced by the Company in 1968, is widely recognized as a
standard for corrosion protection in the chemical processing industry and is
also used extensively for FGD and oil and gas exploration and production
applications. Hastelloy C-22, a proprietary alloy of the Company, was introduced
in 1985 as an improvement on Hastelloy C-276 and is currently sold to the
chemical processing and FGD markets for essentially the same applications as
Hastelloy C-276. Hastelloy C-22 offers greater and more versatile corrosion
resistance and therefore has gained market share at the expense of the
non-proprietary Hastelloy C-276. Hastelloy C-22's improved corrosion resistance
has led to increased sales in semiconductor gas handling systems, pharmaceutical
manufacturing and waste treatment applications. Hastelloy C-4 is
40
<PAGE>
specified in many chemical processing applications in Germany and is sold almost
exclusively to that market.
The Company also produces alloys for more specialized applications in the
chemical processing industry and other industries. For example, Hastelloy B-2
was introduced in 1970 for use in the manufacture of equipment utilized in the
production of acetic acid and ethyl benzine and is still sold almost exclusively
for those purposes. Due to its limited use and difficult manufacturing process,
there is little competition for sales of this material. Hastelloy B-3 was
developed for the same applications and has superior properties, as well as
greater ease in fabrication. The Company expects Hastelloy B-3 to eventually
replace Hastelloy B-2. Hastelloy G-30 is used primarily in the production of
superphosphoric acid and fluorinated aromatics. Hastelloy G-50 has gained
acceptance as a lower priced alternative to Hastelloy C-276 for production of
tubing for use in sour gas wells. These more specialized products accounted for
approximately 10% of the Company's net revenues in fiscal 1995.
The Company's patented Ultimet is used in a variety of industrial
applications that result in material degradation by "corrosion-wear." Ultimet is
designed for applications where conditions require resistance to corrosion and
wear and is currently being tested in spray nozzles, fan blades, filters, bolts,
rolls, pump and valve parts where these properties are critical. Hastelloy
D-205, introduced in 1993, is designed for use in handling hot concentrated
sulfuric acid and other highly corrosive substances.
The Company believes that its most recently introduced alloy, Hastelloy
C-2000, which is designed to improve upon Hastelloy C-22, provides better
overall corrosion resistance and versatility than any other readily available
CRA. Hastelloy C-2000, which the Company expects will be used extensively in the
chemical processing industry, can be used in both oxidizing and reducing
environments.
END MARKETS
Aerospace. The Company has maintained a leading position in the aerospace
market for HTA products since it entered the market in the late 1930s, as
evidenced by the Company's development of numerous proprietary alloys for and
numerous customers in this market. The Company sold products to approximately
400 customers in this segment in fiscal 1995, and no one customer accounted for
more than 2% of the Company's net revenues. Representative aerospace customers
include General Electric Company, Rolls-Royce plc, Pratt & Whitney and SNECMA
Group.
Customers in the aerospace markets tend to be the most demanding with
respect to meeting specifications within very low tolerances and achieving new
product performance standards. Stringent safety standards and continuous efforts
to reduce equipment weight require close coordination between the Company and
its customers in the selection and development of HTA products. As a result,
sales to aerospace customers tend to be made through the Company's direct sales
force. Unlike the FGD and oil and gas production industries, where large,
competitively bid projects can have a significant impact on demand and prices,
demand for the Company's products in the aerospace industry is based on the new
and replacement market for jet engines and the maintenance needs of operators of
commercial and military aircraft. The hot sections of jet engines are subjected
to substantial wear and tear and accordingly require periodic maintenance and
replacement. This maintenance-based demand, while potentially volatile, is
generally less subject to wide fluctuations than demand in the FGD and sour gas
production industries.
Chemical Processing. The chemical processing industry segment represents a
large base of customers with diverse CRA applications. The Company sells its CRA
products to hundreds of chemical processing customers worldwide and no one
customer in this industry accounted for over 2% of the Company's net revenues in
fiscal 1995. Representative customers include E.I. DuPont de Nemours and Co.,
Alfa-Laval Thermal A.B. and Monsanto Company. CRA products supplied by the
Company have been used in the chemical processing industry since the early
1930s.
41
<PAGE>
Demand for the Company's products in this industry is based on the level of
maintenance, repair and expansion of existing chemical processing facilities as
well as the construction of new facilities. The Company believes the extensive
worldwide network of Company-owned service centers and independent distributors
is a competitive advantage in marketing its CRA products to this market. Sales
of the Company's products in the chemical processing industry tend to be more
stable than the aerospace, FGD and oil and gas markets. Increased concerns
regarding the reliability of chemical processing facilities, their potential
environmental impact and safety hazards to their personnel have led to an
increased demand for more sophisticated alloys, such as the Company's CRA
products.
Land-Based Gas Turbines. The LBGT industry represents a growing market, with
demand for the Company's products driven by the construction of cogeneration
facilities and electric utilities operating electric generating facilities.
Demand for the Company's alloys in the LBGT industry has also been driven by
concerns regarding lowering emissions from generating facilities powered by
fossil fuels. LBGT generating facilities are gaining acceptance as clean,
low-cost alternatives to fossil fuel-fired electric generating facilities.
Significant customers include ABB Asea Brown Boveri, A.G., General Electric
Company and Westinghouse Electric Corporation.
Flue Gas Desulfurization. The FGD industry has been driven by both
legislated and self-imposed standards for lowering emissions from fossil
fuel-fired electric generating facilities. In the United States, the Clean Air
Act mandates a two-phase program aimed at significantly reducing SO2 emissions
from electric generating facilities powered by fossil fuels by 2000. Canada and
its provinces have also set goals to reduce emissions of SO2 over the next
several years. Phase I of the Clean Air Act program affected approximately 100
steam-generating plants representing 261 operating units fueled by fossil fuels,
primarily coal. Of these 261 units, 25 units were retrofitted with FGD systems
while the balance opted mostly for switching to low sulfur coal to achieve
compliance. The market for FGD systems peaked in 1992 at approximately $1.1
billion, and then dropped sharply in 1993 to a level of approximately $174.0
million due to a curtailment of activity associated with Phase I. Phase II
compliance begins in 2000 and affects 785 generating plants with more than 2,100
operating units. Options available under the Clean Air Act to bring the targeted
facilities into compliance with Phase II SO2 emissions requirements include fuel
switching, clean coal technologies, purchase of SO2 allowances, closure of
facilities and off-gas scrubbing utilizing FGD technology. Significant FGD
customers include PSI Energy, Inc., Louisville Gas and Electric Company and
Houston Lighting and Power Company.
Oil and Gas. The Company also sells its products for use in the oil and gas
industry, primarily in connection with sour gas production. Sour gas contains
extremely corrosive materials and is produced under high pressure, necessitating
the use of corrosion resistant materials. The demand for sour gas tubulars is
driven by the rate of development of sour gas fields. The factors influencing
the development of sour gas fields include the price of natural gas and the need
to commence drilling in order to protect leases that have been purchased from
either the federal or state governments. As a result, competing oil companies
often place orders for the Company's products at approximately the same time,
adding volatility to the market. This market was very active in 1991, especially
in the offshore sour gas fields in the Gulf of Mexico, but demand for the
Company's products declined significantly thereafter. More recently there has
been less drilling activity and more use of lower performing alloys, which
together have resulted in intense price competition. Demand for the Company's
products in the oil and gas industry is tied to the global demand for natural
gas.
Other Markets. In addition to the industries described above, the Company
also targets a variety of other markets. Other industries to which the Company
sells its HTA products include waste incineration, industrial heat treating,
automotive and instrumentation. Other industries to which the Company sells its
CRA products include automotive, medical and instrumentation. Demand in these
markets for many of the Company's lower volume proprietary alloys has grown in
recent periods. For example, incineration of municipal, biological, industrial
and hazardous waste products typically produces very corrosive conditions that
demand high performance alloys. Markets capable of providing growth are being
driven by increasing performance, reliability and service life requirements for
products used in these markets which could provide further applications for the
Company's products.
42
<PAGE>
SALES AND MARKETING
Providing technical assistance to customers is an important part of the
Company's marketing strategy. The Company provides analyses of its products and
those of its competitors for its customers. These analyses enable the Company to
evaluate the performance of its products and to make recommendations as to the
substitution of Company products for other products in appropriate applications,
enabling the Company's products to be specified for use in the production of
customers' products. The market development engineers, six of whom have doctoral
degrees in metallurgy, are assisted by the research and development staff in
directing the sales force to new opportunities. The Company believes its
combination of direct sales, technical marketing and research and development
customer support is unique in the high performance alloy industry. This activity
allows the Company to obtain direct insight into customers' alloy needs and
allows the Company to develop novel proprietary alloys that provide solutions to
customers' problems.
The Company sells its products primarily through its direct sales
organization, which includes four domestic Company-owned service centers, three
wholly-owned European subsidiaries and sales agents serving the Pacific Rim who
operate on a commission basis. Approximately 73% of the Company's net revenues
in fiscal 1995 was generated by the Company's direct sales organization. The
remaining 27% of the Company's fiscal 1995 net revenues was generated by
independent distributors and licensees in the United States, Europe and Japan,
some of whom have been associated with the Company for over 25 years. The
following table sets forth the approximate percentage of the Company's fiscal
1995 net revenues obtained through each of the Company's distribution channels.
<TABLE>
<CAPTION>
DOMESTIC FOREIGN TOTAL
-------- ------- -----
<S> <C> <C> <C>
Company sales office/direct........................... 31% 13% 44%
Company-owned service centers......................... 12 17 29
Independent distributors/sales agents................. 18 9 27
-- --
-----
Total............................................. 61% 39% 100%
-- --
-- --
-----
-----
</TABLE>
A specific field sales person is assigned to maintain contact with each
account. Internal marketing and inside sales personnel support the field sales
organization and also maintain direct contact with customers. Sales management
personnel also retain some direct sales responsibility. Smaller orders that are
maintenance related are usually supplied from either the Company-owned service
centers or independent distributors. Such distributors usually have their own
sales staffs and, although some represent other suppliers, most purchase the
majority of their alloys from the Company. As with major accounts, a specific
sales representative is assigned to each major distributor. The Company believes
its sales force's extensive contact with its customers is more effective than
less direct marketing approaches.
The top twenty customers not affiliated with the Company accounted for
approximately 37% of the Company's net revenues in fiscal 1995. Sales to
Spectrum Metals, Inc. and Rolled Alloys, Inc., which are affiliated with each
other, accounted for 11.7% of the Company's net revenues in fiscal 1995. No
other customer of the Company accounted for more than 10% of the Company's net
revenues in fiscal 1995.
The Company's foreign and export sales were approximately $53.4 million,
$55.7 million and $79.6 million for fiscal 1993, 1994 and 1995, respectively,
and approximately $64.8 million for the nine months of fiscal 1996. Additional
information concerning foreign operations and export sales is set forth in Note
12 of the Notes to Consolidated Financial Statements appearing elsewhere herein.
43
<PAGE>
MANUFACTURING PROCESS
High performance alloys require a lengthier, more complex melting process
and are more difficult to manufacture than lower performance alloys, such as
stainless steels. The alloying elements in high performance alloys must be
highly refined, and the manufacturing process must be tightly controlled to
produce precise chemical properties. The resulting alloyed material is more
difficult to process because, by design, it is more resistant to deformation.
Consequently, high performance alloys require that greater force be applied when
hot or cold working and are less susceptible to reduction or thinning when
rolling or forging, resulting in more cycles of rolling, annealing and pickling
than a lower performance alloy to achieve proper dimensions. Certain alloys may
undergo as many as 40 distinct stages of melting, remelting, annealing, forging,
rolling and pickling over a period of weeks before they achieve the
specifications required by a customer. The Company manufactures products in
sheet, plate, tubular, billet, bar and wire forms, which represented 46%, 24%,
13%, 11%, 4% and 2%, respectively, of total volume sold in fiscal 1995 (after
giving effect to the conversion of billet to bar by the Company's U.K.
subsidiary).
The manufacturing process begins with raw materials being combined, melted
and refined in a precise manner to produce the chemical composition specified
for each alloy. For most alloys, this molten material is cast into electrodes
and additionally refined through electroslag remelting. The resulting ingots are
then forged or rolled to an intermediate shape and size depending upon the
intended final product. Intermediate shapes destined for flat products are then
sent through a series of hot and cold rolling, annealing and pickling operations
before being cut to final size.
The Argon Oxygen Decarburization ("AOD") gas controls in the Company's
primary melt facility remove carbon and other undesirable elements, thereby
allowing more tightly-controlled chemistries which in turn produce more
consistent properties in the alloys. The AOD gas control system also allows for
statistical process control monitoring in real time to improve product quality.
The Company has a four-high Steckel mill for use in hot rolling material.
The four-high mill was installed in 1982 at a cost of approximately $60.0
million and is one of only two such mills in the high performance alloy
industry. The mill is capable of generating approximately 12.0 million pounds of
separating force and rolling plate up to 72 inches wide. The mill includes
integrated computer controls (with automatic gauge control and programmed
rolling schedules), two coiling Steckel furnaces and five heating furnaces.
Computer-controlled rolling schedules for each of the hundreds of combinations
of alloy shapes and sizes the Company produces allow the mill to roll numerous
widths and gauges to exact specifications without stoppages or changeovers.
The Company also operates a three-high rolling mill and a two-high rolling
mill, each of which is capable of custom processing much smaller quantities of
material than the four-high mill. These mills provide the Company with
significant flexibility in running smaller batches of varied products in
response to customer requirements. The Company believes the flexibility provided
by the three-high and two-high mills gives the Company an advantage over its
major competitors in obtaining smaller specialty orders.
BACKLOG
As of June 30, 1996, the Company's backlog orders aggregated approximately
$57.5 million, compared to approximately $49.9 million at September 30, 1995,
and approximately $41.5 million at September 30, 1994. The increase in backlog
orders is primarily due to an increase in orders for chemical processing and
aerospace products worldwide. Substantially all orders in the backlog at June
30, 1996 are expected to be shipped within the twelve months beginning July 1,
1996. Due to the cyclical nature of order entry experienced by the Company,
there can be no assurance that order entry will continue at current levels. See
"Risk Factors--Industry Cyclicality; Fluctuations in Operating
44
<PAGE>
Results" and "Risk Factors--Competition." The historical and current backlog
amounts shown in the following table are also indicative of relative demand over
the past few years.
HAYNES BACKLOG
AT FISCAL QUARTER END
(IN MILLIONS)
The omitted bar graph depicts the approximate amount of backlog orders the
Company had at the end of each quarter in fiscal 1993, 1994, 1995 and the end of
the first three quarters in fiscal 1996.1
RAW MATERIALS
Nickel is the primary material used in the Company's alloys. Each pound of
alloy contains, on average, 0.48 pounds of nickel. Other raw materials include
cobalt, chromium, molybdenum and tungsten. Melt materials consist of virgin raw
material, purchased scrap and internally produced scrap. The significant sources
of cobalt are the countries of Zambia, Zaire and Russia; all other raw materials
used by the Company are available from a number of alternative sources.
Since most of the Company's products are produced to specific orders, the
Company purchases materials against known production schedules. Materials are
purchased from several different suppliers, through consignment arrangements,
annual contracts and spot purchases. These arrangements involve a variety of
pricing mechanisms, but the Company generally can establish selling prices with
reference to known costs of materials, thereby reducing the risk associated with
changes in the cost of raw materials. The Company maintains a policy of pricing
its products at the time of order placement. As a result, rapidly escalating raw
material costs during the period between the time the Company receives an order
and the time the Company purchases the raw materials used to fill such order,
which has averaged approximately 30 days in recent months, can negatively affect
profitability even though the high performance alloy industry has generally been
able to pass raw material price increases through to its customers.
Raw material costs account for a significant portion of the Company's cost
of sales. The prices of the Company's products are based in part on the cost of
raw materials, a significant portion of which is nickel. The Company covers
approximately half its open market exposure to nickel price changes through
hedging activities through the London Metals Exchange. See "Risk Factors--Raw
Material
45
<PAGE>
Price Fluctuations." The following table sets forth the average per pound prices
for nickel as reported by the London Metals Exchange for the fiscal years
indicated.
YEAR ENDED
SEPTEMBER 30, AVERAGE PRICE
------------- -------------
1988....................................... $ 4.12
1989....................................... 5.77
1990....................................... 4.29
1991....................................... 4.21
1992....................................... 3.48
1993....................................... 2.53
1994....................................... 2.54
1995....................................... 3.66
RESEARCH AND TECHNICAL DEVELOPMENT
The Company believes it is a leader in the development and manufacturing
technology of nickel-and cobalt-based alloys. As of June 30, 1996, the research
and technical development staff consisted of 37 persons, 15 of whom have
engineering or science degrees, including six with doctoral degrees, with the
majority of degrees in the field of metallurgical engineering.
Research and technical development costs relate to efforts to develop new
proprietary alloys, to improve current or develop new manufacturing methods, to
provide technical service to customers, to maintain quality assurance methods
and to provide metallurgical training to engineer and non-engineer employees.
The Company spent approximately $3.6 million, $3.6 million, $3.0 million and
$2.5 million for research and technical development activities for fiscal 1993,
1994 and 1995 and for the first nine months of fiscal 1996, respectively.
In the research area, exploratory alloy development projects are focused on
new CRA products for hydrofluoric and phosphoric acid service. The research and
technical group is also preparing for volume production of a new alloy,
Hastelloy C-2000, to be used as a construction material in the chemical
processing industry. Engineering projects include manufacturing process
development, welding development and application support for two large volume
projects involving the LBGT and steelmaking industries. The Company is also
developing a computerized database management system to better manage its
corrosion, high temperature and mechanical property data.
The Company's research facilities are located at the Company's Kokomo
facility and consist of 90,000 square feet of offices and laboratories, as well
as an additional 90,000 square feet of paved storage area. The Company has ten
fully equipped laboratories, including a mechanical test lab, a metallographic
lab, an electron microscopy lab, a corrosion lab and a high temperature lab,
among others. These facilities also contain a reduced scale, fully equipped melt
shop and process lab.
Over the last seven years, the Company's technical programs have yielded
seven new proprietary alloys and seven United States patents, with an additional
three United States patent applications pending. The Company currently maintains
a total of 43 United States patents and approximately 180 foreign counterpart
patents targeted at countries with significant or potential markets for the
patented products. In fiscal 1995, approximately 30% of the Company's net
revenues was derived from the sale of patented products and an additional 39%
was derived from the sale of products for which patents formerly held by the
Company had expired. While the Company believes its patents are important to its
competitive position, significant barriers to entry continue to exist beyond the
expiration of any patent period. Five of the alloys considered by management to
be of future commercial significance, Ultimet, Hastelloy C-22, Haynes 230,
Hastelloy G-30 and Hastelloy G-50, are protected by United States patents that
continue until the years 2008, 2002, 2001, 2000 and 1996, respectively.
46
<PAGE>
COMPETITION
The high performance alloy market is a highly competitive market in which
eight to ten producers participate in various product forms. The Company faces
strong competition from domestic and foreign manufacturers of both the Company's
high performance alloys and other competing metals. The Company's primary
competitors include Inco Alloys International, Inc., a subsidiary of Inco
Limited, Allegheny Ludlum Corporation and Krupp VDM GmbH. Prior to fiscal 1994,
this competition, coupled with declining demand in several of the Company's key
markets, had led to significant erosion in the price for certain of the
Company's products. The Company may face additional competition in the future to
the extent new materials are developed, such as plastics or ceramics, that may
be substituted for the Company's products. See "Risk Factors--Competition."
EMPLOYEES
As of June 30, 1996, the Company had approximately 925 employees. All
eligible hourly employees at the Kokomo plant are covered by a collective
bargaining agreement with the United Steelworkers of America ("USWA") which was
ratified on June 11, 1996 and which expires on June 11, 1999. As of June 30,
1996, 487 employees of the Kokomo facility were covered by the collective
bargaining agreement. The Company began to negotiate the terms of a new contract
with USWA in April 1996. The Company has not experienced a strike at the Kokomo
plant since 1967. None of the employees of the Company's Arcadia or Openshaw
plants are represented by a labor union. Management considers its employee
relations in each of the facilities to be satisfactory.
PROPERTIES
The Company's facilities, each of which is owned by the Company, and the
products provided at each facility, are as follows:
Kokomo, Indiana--all product forms, other than tubular goods.
Arcadia, Louisiana--welded and seamless tubular goods.
Openshaw, England--bar and billet for the European market.
The Kokomo plant, the primary production facility, is located on
approximately 236 acres of industrial property and includes over one million
square feet of building space. There are three sites consisting of a
headquarters and research lab; melting and annealing furnaces, forge press and
several hot mills; and the four-high mill and sheet product cold working
equipment, including two cold strip mills. All alloys and product forms other
than tubular goods are produced in Kokomo.
The Arcadia plant consists of approximately 42 acres of land and over
135,000 square feet of buildings on a single site. Arcadia uses feedstock
produced in Kokomo to fabricate welded and seamless alloy pipe and tubing and
purchases extruded tube hollows to produce seamless titanium tubing.
Manufacturing processes at Arcadia require cold pilger mills, weld mills, draw
benches, annealing furnaces and pickling facilities.
The Openshaw plant, located near Manchester, England, consists of
approximately 15 acres of land and over 200,000 square feet of buildings on a
single site. The plant produces bar and billet using billets produced in Kokomo
as feedstock. Additionally, products not competitive with the Company's products
are processed for third parties. The processes require hot rotary forges, bar
mills and miscellaneous straightening, turning and cutting equipment.
Although capacity can be limited from time to time by certain production
processes, the Company believes that its existing facilities will provide
sufficient capacity for current demand.
47
<PAGE>
LEGAL PROCEEDINGS
In Leslie Baxter, et. al. vs. Haynes International, Inc. and Haynes Group
Insurance Plan, filed July 6, 1995 in the U.S. District Court, Southern District
of Indiana, Indianapolis Division, retirees and the surviving spouse of a
retiree filed suit on behalf of themselves and similarly situated retirees and
surviving spouses for restoration of the retiree health insurance to benefit
levels prevailing before the reduction of those benefit levels on January 1,
1995 and to maintain the restored insurance benefit levels for the lives of the
covered retirees and their surviving spouses. The suit also seeks judgment in
damages for the benefits that have been lost as a result of the January 1, 1995
reductions in benefit levels and for the medical expenses, premiums paid and
other damages incurred, including reasonable attorneys' fees and costs of
maintaining the suit. This lawsuit is in the very early stages of discovery, and
the Company is not able at this time to assess the likelihood that or the extent
to which this lawsuit could have an impact on the Company's financial position
or operations. The Company intends to vigorously defend against the claims.
In addition to the foregoing proceeding, on October 19, 1995, at the
conclusion of an audit by the IRS of the Company's tax returns for the five
taxable years ending September 30, 1993 (the "Years in Issue"), the IRS proposed
to disallow deductions claimed by the Company during the Years in Issue in an
amount aggregating approximately $5.5 million. These deductions represent the
amortization of loan fees in the original aggregate amount of approximately
$10.4 million incurred in connection with the 1989 Acquisition. The loan fees
are being amortized over a 10-year period ending in 1999. In addition to
proposed disallowance of the deductions claimed during the Years in Issue, the
IRS' position, if sustained, would prohibit amortization deductions for the
years following the Years in Issue in an aggregate amount of approximately $4.9
million. The Company filed a formal protest to the IRS' proposed disallowance on
March 25, 1996, and intends to challenge the IRS with respect to the proposed
disallowance. Even if the deductions in question are disallowed, the Company
does not expect it will be required to pay any significant amount of additional
federal income tax with respect to the Years in Issue, although the Company's
NOLs as of September 30, 1995 would be reduced by approximately $7.6 million. In
addition, if the IRS' position with respect to the deductions at issue is
sustained, the Company's taxable income for its current taxable year and future
taxable years might be increased by up to approximately $10.4 million (the total
amount of loan fees which the Company would be prevented from deducting), in
which case the Company's federal income tax liability for those years would be
increased. See "Risk Factors--Income Tax Audit."
The Company also is involved in other routine litigation incidental to the
conduct of its business, none of which is believed by management to be material.
ENVIRONMENTAL MATTERS
The Company's facilities and operations are subject to certain foreign,
federal, state and local laws and regulations relating to the protection of
human health and the environment, including those governing the discharge of
pollutants into the environment and the storage, handling, use, treatment and
disposal of hazardous substances and wastes. Violations of these laws and
regulations can result in the imposition of substantial penalties and can
require facilities improvements. In addition, the Company may be required in the
future to comply with certain regulations pertaining to the emission of
hazardous air pollutants under the Clean Air Act. However, since these
regulations have not been proposed or promulgated, the Company cannot predict
the cost, if any, associated with compliance with such regulations. Capital
expenditures and other expenses related to environmental compliance are expected
to be approximately $3.9 million for fiscal year 1996 through fiscal year 1998.
Although there can be no assurance, based upon current information available to
the Company, the Company does not expect that costs of environmental
contingencies, individually or in the aggregate, will have a material adverse
effect on the Company's financial condition, results of operations or liquidity.
48
<PAGE>
The Company's facilities are subject to periodic inspection by various
regulatory authorities, who from time to time have issued findings of violations
of governing laws, regulations and permits. In the past five years, the Company
has paid administrative fines, none of which has exceeded $50,000 for alleged
violations relating to environmental matters, including the handling and storage
of hazardous wastes, and record keeping requirements relating to, and handling
of, polychlorinated biphenyls ("PCBs"). Although the Company does not believe
that similar regulatory or enforcement actions would have a material impact on
its operations, there can be no assurance that violations will not be alleged or
will not result in the assessment of additional penalties in the future.
The Company has received permits from IDEM and EPA to close and to provide
post-closure monitoring and care for certain areas at the Kokomo facility used
for the storage and disposal of wastes, some of which are classified as
hazardous under applicable regulations. The closure project, essentially
complete, entailed installation of a clay liner under the disposal areas, a
leachate collection system and a clay cap and revegetation of the site.
Construction was completed in May 1994 and a closure certification has been
filed with IDEM. Thereafter, the Company will be required to monitor groundwater
and to continue post-closure maintenance of the former disposal areas. The
Company is aware of elevated levels of certain contaminants in the groundwater.
The Company believes that some or all of these contaminants may have migrated
from a nearby superfund site. If it is determined that the disposal areas have
impacted the groundwater underlying the Kokomo facility, additional corrective
action by the Company could be required. The Company is unable to estimate the
costs of such action, if any. There can be no assurance, however, that the costs
of future corrective action would not have a material effect on the Company's
financial condition, results of operations or liquidity. Additionally, it is
possible that the Company could be required to obtain permits and undertake
other closure projects and post-closure commitments for any other waste
management unit determined to exist at the facility.
As a condition of these closure and post-closure permits, the Company must
provide and maintain assurances to IDEM and EPA of the Company's financial
responsibility and capability to satisfy closure and post-closure requirements,
including possible future corrective action as necessary. On April 30, 1991,
IDEM issued a Notice of Inadequacy relating to the financial assurance
requirements for the former disposal areas. An Agreed Order dated July 2, 1992
was entered into between the Company and the IDEM in resolution of this Notice
of Inadequacy, and IDEM notified the Company on September 1, 1992 that it was in
compliance with the terms of that Agreed Order. The Company paid a civil penalty
of $50,000 provided for by the Agreed Order.
The Company has completed an investigation, pursuant to a work plan approved
by the EPA, of eight specifically identified solid waste management units at the
Kokomo facility. Results of this investigation have been filed with the EPA.
Based on the results of this investigation compared to Indiana's Tier II
clean-up goals, the Company believes that no further actions will be necessary.
Until the EPA reviews the results, the Company is unable to determine whether
further corrective action will be required or, if required, whether it will have
a material adverse effect on the Company's financial condition, results of
operations or liquidity.
The Company may also incur liability for alleged environmental damages
associated with the off-site transportation and disposal of its wastes. The
Company's operations generate hazardous wastes, and while a large percentage of
these wastes are reclaimed or recycled, the Company also accumulates hazardous
wastes at each of its facilities for subsequent transportation and disposal
off-site by third parties. Generators of hazardous waste transported to disposal
sites where environmental problems are alleged to exist are subject to claims
under CERCLA, and state counterparts. CERCLA imposes strict, joint and several
liability for investigatory and cleanup costs upon waste generators, site owners
and operators and other "potentially responsible parties" ("PRPs"). Based on its
prior shipment of waste oil contaminated with PCBs, the Company is one of
approximately 700 PRPs in connection with the cleanup of PCB contamination at
the Rose Chemical site in Missouri. The Company has contributed over $130,000
towards the private cleanup currently being implemented by a group of many of
these
49
<PAGE>
PRPs, approximately $52,000 of which has been refunded, and does not anticipate
that further significant expenditures by the Company will be required in
connection with this site. Based on its prior shipment of certain hydraulic
fluid, the Company is one of approximately 300 PRPs in connection with the
proposed cleanup of the Fisher-Calo site in Indiana. The PRPs have negotiated a
Consent Decree implementing a remedial design/remedial action plan ("RD/RA") for
the site with the EPA. The Company has paid approximately $138,000 as its share
of the total estimated cost of the RD/RA under the Consent Decree. Based on
information available to the Company concerning the status of the cleanup
efforts at the Rose Chemical and Fisher-Calo sites, the large number of PRPs at
each site and the prior payments made by the Company in connection with these
sites, management does not expect the Company's involvement in these sites to
have a material adverse effect on the financial condition, results of operations
or liquidity of the Company. The Company may have generated hazardous wastes
disposed of at other sites potentially subject to CERCLA or equivalent state law
remedial action. Thus, there can be no assurance that the Company will not be
named as a PRP at additional sites in the future or that the costs associated
with those sites would not have a material adverse effect on the Company's
financial condition, results of operations or liquidity.
In November 1988, the EPA approved startup of a new waste water treatment
plant at the Arcadia, Louisiana facility, which discharges treated industrial
waste water to the municipal sewerage system. Following exceedances of certain
EPA effluent limitations in 1989, the EPA issued an administrative order in 1992
which set new effluent limitations for the facility. The waste water plant is
currently operating under this order and the Company believes it is meeting such
effluent limitations. However, the Company anticipates that in the future
Louisiana will take over waste water permitting authority from the EPA and may
issue a waste water permit, the conditions of which could require modification
to the plant. Reasonably anticipated modifications are not expected to have a
substantial impact on operations.
50
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information concerning the persons
who served as the directors and executive officers of the Company as of June 30,
1996. Except as indicated in the following paragraphs, the principal occupations
of these persons have not changed during the past five years.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ------------------------------------------ --- ------------------------------------------
<S> <C> <C>
Michael D. Austin......................... 56 President and Chief Executive Officer;
Director
Joseph F. Barker.......................... 49 Chief Financial Officer; Vice President,
Finance; Secretary; Treasurer; Director
F. Galen Hodge............................ 58 Vice President, International
Michael F. Rothman........................ 49 Vice President, Engineering & Technology
Charles J. Sponaugle...................... 47 Vice President, Sales and Marketing
Frank J. LaRosa........................... 36 Vice President, Human Resources and
Information Technology
August A. Cijan........................... 40 Vice President, Operations
Theodore T. Brown......................... 37 Controller; Chief Accounting Officer
Robert I. Hanson.......................... 52 General Manager, Arcadia Tubular Products
Perry J. Lewis............................ 58 Director, Chairman of the Board
Robert Egan............................... 65 Director, Vice Chairman of the Board
John A. Morgan............................ 65 Director
Thomas F. Githens......................... 68 Director
Sangwoo Ahn............................... 57 Director
Ira Starr................................. 37 Director
</TABLE>
Mr. Austin was elected President, Chief Executive Officer and a director of
the Company in September 1993. From 1987 to the time he joined the Company, Mr.
Austin was President and Chief Executive Officer of Tuscaloosa Steel
Corporation, a mini hot strip mill owned by British Steel PLC with approximately
$200 million in annual revenue ("Tuscaloosa").
Mr. Barker was elected Vice President, Finance and a director of the Company
in September 1992 and Treasurer and Secretary in September 1993. Mr. Barker was
also elected Chief Financial Officer in May 1996. He had served as Controller of
the Company and its predecessors since November 1986.
Dr. Hodge was elected Vice President, International in June 1994 after
having served as Vice President of Technology since September 1989. He was
Marketing and Technical Manager for the European Sales and Distribution
operations from 1985 to 1987 and Director of Technology from 1987 to 1989.
Mr. Rothman was elected Vice President, Engineering and Technology in
October 1995 after having served as Marketing Manager since 1994. He previously
served in various marketing and technical positions since joining the Company in
1975.
Mr. Sponaugle was elected Vice President, Sales and Marketing in October
1994 after having served as Quality Control Manager and Total Quality Manager
since September 1992. He previously served as Marketing Manager from 1985 to
1992.
Mr. LaRosa was elected Vice President, Human Resources and Information
Technology in April 1996 after having served as Manager, Human Resources and
Information Technology from June 1994 to April 1996. From September 1993 until
June 1994, Mr. LaRosa served as Manager, Human Resources. From December 1990
until joining the Company in September 1993, he served in various management
capacities at Tuscaloosa.
Mr. Cijan was elected Vice President, Operations in April 1996. He joined
the Company in 1993 as Manufacturing Manager and was Manager, Maintenance and
Engineering for Tuscaloosa from 1987 until he joined the Company in 1993.
51
<PAGE>
Mr. Brown was elected Controller and Chief Accounting Officer of the Company
in May, 1996 after having served as General Accounting Manager since 1992. From
1988 to 1992 he served in various financial capacities with the Company.
Mr. Hanson was named General Manager, Arcadia Tubular Products Facility in
November 1994. He previously served the Company and its predecessors in various
technical, production and engineering capacities since October 1987.
Mr. Lewis has served as a general partner of MLGAL Partners L.P. ("MLGAL"),
a Connecticut limited partnership that is the general partner of Fund II, since
its formation in 1987. He was elected a director of the Company in 1989 and has
served as Chairman of the Board of the Company since October 1993. Mr. Lewis
also serves on the boards of directors of Aon Corporation, Evergreen Media
Corporation, Tyler Corporation, Quaker Fabric Corporation, Stuart Entertainment,
Inc. and ITI Technologies, Inc.
Mr. Egan was elected as a director and Vice Chairman of the Board of the
Company in December 1993. Mr. Egan is retired. He was formerly the Chairman and
Chief Executive Officer of Alloy Rods Corporation from 1985 to 1993. Mr. Egan
also serves on the board of directors of Robroy Inc.
Mr. Morgan has served as a general partner of MLGAL since its formation in
1987. He was elected a director of the Company in 1989. Mr. Morgan also serves
on the boards of directors of TriMas Corporation, Flight Safety International,
Mascotech, Inc., Masco Corp., Allied Digital Technologies, Inc. and McDermott
International Incorporated.
Mr. Githens has been a retired partner of MLGAL since January 1, 1993. From
1982 until his retirement, Mr. Githens was a partner in MLGAL, although he
ceased his active involvement in the operations of MLGAL in December 1991.
Mr. Ahn has served as a general partner of MLGAL since its formation in
1987. He was elected a director of the Company in 1989. Mr. Ahn also serves on
the boards of directors of Kaneb Services, Inc., Kaneb Pipe Line Partners, L.P.,
PAR Technology Corp., Quaker Fabric Corporation, Stuart Entertainment, Inc. and
ITI Technologies, Inc.
Mr. Starr has served as a general partner of MLGAL since 1994. Mr. Starr
served as Vice President of MLGAL from 1988 to 1994. He was elected a director
of the Company in 1989. Mr. Starr also serves on the boards of directors of
Quaker Fabric Corporation and Stuart Entertainment, Inc.
The Company, Haynes International, Inc., Fund II and the investors in the
Company who are officers or directors of the Company or employees of MLGA or the
Company entered into the Stock Subscription Agreement, which requires certain
persons be elected to the board of directors. The same parties, together with
certain institutional investors, entered into a Stockholders Agreement dated
August 31, 1989 (the "Stockholder Agreement"). Both the Stock Subscription
Agreement and the Stockholders Agreement will terminate upon consummation of the
Offering.
Each member of the board of directors is elected for a term of one year.
Except for Messrs. Austin, Barker and Egan, who were elected in September 1993,
September 1992 and October 1993, respectively, each of the directors has served
in that capacity since August 1989. Each of the directors is nominated and
elected pursuant to the terms of the Stock Subscription Agreement, which will
terminate upon the closing of the Offering.
The Company's Certificate of Incorporation (the "Certificate") authorizes
the board of Directors to designate the number of directors. The board currently
has designated eleven directors, and there are three existing vacancies on the
board of directors, which the Company does not intend to fill in the near
future. Directors of the Company serve until their successors are duly elected
and qualified or until their earlier resignation or removal. Officers of the
Company serve at the discretion of the board of directors, subject, in the case
of Mr. Austin, to the terms of his employment contract. See "--Austin Employment
Agreement."
52
<PAGE>
The board has established an Audit Committee and a Compensation Committee.
The Audit Committee consists of Messrs. Egan, Githens and Starr and the
Compensation Committee consists of Messrs. Lewis, Ahn and Egan. The Audit
Committee is responsible for recommending independent auditors, reviewing, in
connection with the independent auditors, the audit plan, the adequacy of
internal controls, the audit report and management letter and undertaking such
other incidental functions as the board may authorize. The Compensation
Committee is responsible for administering the Stock Option Plans, determining
executive compensation policies and administering compensation plans and salary
programs, including performing an annual review of the total compensation and
recommended adjustments for all executive officers. See "--Stock Option Plans."
COMPENSATION
The following tables and notes present the compensation provided by the
Company to its Chief Executive Officer and the Company's four other most highly
compensated executive officers, who served as executive officers as of September
30, 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION (1) LONG-TERM
------------------------------ COMPENSATION
NAME AND PRINCIPAL FISCAL AWARDS/OPTIONS ALL OTHER
POSITION YEAR SALARY BONUS (NUMBER OF SHARES) COMPENSATION (3)
- ------------------------------ ------ -------- -------- ------------------ ----------------
<S> <C> <C> <C> <C> <C>
Michael D. Austin............. 1995 $314,167 -- -- $ 75,631
President and Chief 1994 314,167 $100,000(2) -- 5,520
Executive Officer 1993 27,100 -- 112,995 444
Joseph F. Barker.............. 1995 130,500 -- 16,045 1,808
Vice President, Finance; 1994 130,500 -- -- 2,252
Secretary; Treasurer 1993 114,200 -- -- 1,842
F. Galen Hodge................ 1995 129,033 -- 12,994 3,651
Vice President, 1994 129,033 -- -- 2,580
International 1993 128,100 -- -- 2,096
August A. Cijan............... 1995 117,800 -- 22,599 55,677
Vice President, Operations 1994 106,893 -- -- 295
1993 -- -- -- --
Frank J. LaRosa............... 1995 116,000 -- 22,599 22,478
Vice President, Human 1994 106,466 -- -- 285
Resources and Information 1993 -- -- --
Technology
</TABLE>
- ------------
(1) Additional compensation in the form of perquisites was paid to certain of
the named officers in the periods presented; however, the amount of such
compensation was less than the level required for reporting.
(2) Mr. Austin was elected President and Chief Executive Officer of the Company
on September 2, 1993 and, under the terms of an Executive Employment
Agreement with the Company, Mr. Austin received a $100,000 bonus to cover
deferred compensation forfeited at his former employer. See "--Austin
Employment Agreement."
(3) Premium payments to the group term life insurance plan, gainsharing payments
and relocation reimbursements which were made by the Company.
53
<PAGE>
STOCK OPTION PLANS
Prior Option Plan and Existing Stock Option Plan. In 1986, Haynes Corp., the
Company's wholly-owned subsidiary, adopted a stock incentive plan, which was
amended and restated in 1987, for certain key management employees (the "Prior
Option Plan"). The Prior Option Plan allowed participants to acquire restricted
common stock from the Company by exercising stock options (the "Prior Options")
granted pursuant to the terms and conditions of the Prior Option Plan. In
connection with the 1989 Acquisition, the Company established the Haynes
International, Inc. Employee Stock Option Plan (the "Existing Stock Option
Plan"). The Existing Stock Option Plan authorizes the granting of options to
certain key employees and directors of the Company and its subsidiaries for the
purchase of a maximum of 511,803 shares of the Company's Common Stock. As of
June 30, 1996, options to purchase 445,228 shares were outstanding under the
Existing Stock Option Plan, leaving 66,575 options available for grant. Upon
consummation of the 1989 Acquisition, the holders of the Prior Options exchanged
all of their remaining Prior Options for options pursuant to the Stock Option
Plan (the "Rollover Options"). Except for the Rollover Options, the Compensation
Committee, which administers the Existing Stock Option Plan, is authorized to
determine which eligible employees will receive options and the amount of such
options. Pursuant to the Existing Stock Option Plan, the Compensation Committee
is authorized to grant options to purchase Common Stock at any price in excess
of the lower of Book Value (as defined in the Existing Stock Option Plan) or 50%
of the Fair Market Value (as defined in the Existing Stock Option Plan) per
share of Common Stock on the date of the award. However, actual options
outstanding under the Existing Stock Option Plan have been granted at the
estimated fair market value per share at the date of grant, resulting is no
compensation being charged to operations.
Subject to earlier exercise upon death, disability or normal retirement,
upon a change of control (as defined in the Existing Stock Option Plan) of the
Company, upon the determination of the Compensation Committee in its discretion,
or upon the sale of all or substantially all of the assets of the Company,
options granted under the Existing Stock Option Plan (other than the Rollover
Options and options granted to existing Management Holders (as defined in the
Existing Stock Option Plan) that are immediately exercisable) become exercisable
on the third anniversary thereof unless otherwise provided by the Compensation
Committee and terminate on the earlier of (i) three months after the optionee
ceases to be employed by the Company or any of its subsidiaries or (ii) ten
years and two days after the date of grant. Options granted pursuant to the
Existing Stock Option Plan may not be assigned or transferred by an optionee
other than by last will and testament or by the laws of descent and
distribution, and any attempted transfer of such options may result in
termination thereof. The grant, holding or exercise of options granted pursuant
to the Existing Stock Option Plan may, in the Compensation Committee's
discretion, be conditioned upon the optionee becoming a party to the Stock
Subscription Agreement or the Stockholders Agreement entered into by the
investors in the Company at the time of the 1989 Acquisition; however, both the
Stock Subscription Agreement and the Stockholders Agreement will terminate upon
closing of the Offering.
In fiscal 1995, 182,429 options were granted by the Compensation Committee
pursuant to the Existing Stock Option Plan. No options were granted in the nine
months ended June 30, 1996, and the board of directors of the Company has
determined that no additional options will be granted under the Existing Stock
Option Plan following consummation of the Offering. The following table sets
forth the number of options of Common Stock granted to the persons named in the
Summary Compensation Table in fiscal 1995.
54
<PAGE>
OPTION GRANTS IN FISCAL 1995
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
NUMBER OF % OF TOTAL APPRECIATION FOR
SECURITIES OPTIONS GRANTED OPTION TERM(1)
UNDERLYING TO EMPLOYEES EXERCISE EXPIRATION ----------------
NAME OPTIONS GRANTED IN FISCAL 1995 PRICE ($/SH) DATE 5%($) 10%($)
- ------------------------------- --------------- --------------- ------------ ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Joseph F. Barker............... 16,045 8.8% 4.425 12/07/04 44,651 113,154
F. Galen Hodge................. 12,994 7.1 4.425 12/07/04 36,160 91,638
August A. Cijan................ 22,599 12.4 4.425 12/07/04 62,890 159,375
Frank J. LaRosa................ 22,599 12.4 4.425 12/07/04 62,890 159,375
</TABLE>
- ------------
(1) The potential realizable value is calculated based on the term of the
option at the time of grant (ten years). Stock price appreciation of 5% and
10% is based on the fair values at the time of grant and assumes that the
option is exercised at the exercise price and sold on the last day of its
term at the appreciated price, pursuant to rules promulgated by the
Securities and Exchange Commission. The potential realizable value does not
represent the Company's prediction of its stock price performance. This
table does not take into account any appreciation for the fair value of the
Common Stock from December 7, 1994, the date of grant, to date. There can
be no assurance that the actual stock price appreciation over the ten-year
option term will be at the assumed 5% or 10% level or at any other defined
level.
The options listed in the above table were originally granted in December
1994 with an exercise price of $8.85 per share. In order to provide a meaningful
incentive to management, in January 1996 the Company's board of directors
reduced the exercise price for the options listed in the table (and options to
purchase an additional 108,192 shares of Common Stock granted to other members
of the Company's management) to $4.425 per share, which the board of directors
determined was the fair market value at that time. The board of directors'
action was based on several factors. First, at the time of the repricing it was
uncertain whether the Company would be able to make a February 15, 1996 interest
payment of approximately $6.1 million on the Existing Subordinated Notes.
Second, although conditions in some of the major markets to which the Company
sells had begun to improve in the last two fiscal quarters of fiscal 1995, the
extent of the recovery was still unclear. Third, prior to the date of this
prospectus, there has been virtually no market for or trading in the Common
Stock. Finally, efforts to sell the Company, which began in May 1995, were
unsuccessful. The last offer the Company received from a potential acquiror was
received in December 1995 and reflected a price that was lower than the exercise
price of the Common Stock established by the board of directors in January 1996.
The Company believes several factors have contributed to the increase in the
price of the Common Stock from the revised option exercise price to the
estimated initial public offering price. By increasing the borrowing limits
under the Existing Credit Facility, which increase was effective at the end of
January 1996, the Company improved its liquidity and was able to make the
February 1996 interest payment on the Existing Subordinated Notes. In addition,
the Company's results of operations for the second quarter of fiscal 1996
demonstrated that the Company's improved earnings trend was continuing. In early
April 1996, based on the improved earnings trend, the Company met for the first
time with prospective underwriters to discuss a possible public offering of
Common Stock. Without the improved earnings trend, the Company would not be able
to conduct this Offering and effect the Recapitalization. As a result of the
Recapitalization, the Company will have significantly lower interest expense and
much improved liquidity, thus increasing the value of the Company and the Common
Stock.
New Stock Option Plan. The Company has adopted the Haynes International,
Inc. 1996 Employee Stock Option Plan (the "New Stock Option Plan" and, together
with the Existing Stock
55
<PAGE>
Option Plan, the "Stock Option Plans") to be effective upon the consummation of
the Offering. The New Stock Option Plan will be administered by the Compensation
Committee, which consists of three directors who do not participate in the New
Stock Option Plan. Participants in the New Stock Option Plan will be employees
of the Company as may be selected from time to time by the Compensation
Committee. All persons administering the New Stock Option Plan are deemed
"disinterested," as such term is used in Rule 16b-3, promulgated under the
Securities Exchange Act of 1934, as amended ("Rule 16b-3"). A total of 400,000
shares of Common Stock are reserved for issuance upon exercise of options
granted under the New Stock Option Plan. The board has adopted and the
stockholders have approved the New Stock Option Plan.
Options granted under the New Stock Option Plan may be incentive stock
options as defined in Section 422 of the Code ("ISOs") or nonqualified stock
options that do not meet the requirements of Section 422 of the Code ("NQSOs").
The per share exercise price of an ISO or an NQSO will not be less than the fair
market value of the Common Stock on the date of the grant, except that the per
share exercise price for ISOs granted to holders of 10% or more of the
outstanding Common Stock ("10% Stockholders") will be not less than 110.0% of
such fair market value. In addition, for each participant, the maximum aggregate
fair market value on the date of grant of all shares subject to ISOs first
exercisable in any one year may not exceed $100,000.
Under the New Stock Option Plan, the exercise price is required to be paid
in full at the time of exercise, in any combination of cash, cash equivalents or
shares of Common Stock. Options granted will expire in not more than ten years
from the date of grant (five years, in the case of ISO's issued to holders of
10.0% Stockholders under the New Stock Option Plan). The New Stock Option Plan
provides for an automatic acceleration of the exercisability of option grants
upon a change in control (as defined in the New Stock Option Plan). A "change in
control" includes: (i) a change in ownership of at least 50.0% of the Company's
outstanding voting stock or (ii) a change in the composition of a majority of
the Board.
Options granted under the New Stock Option Plan generally will expire upon
the earlier of the expiration date of the option or the termination of
employment, unless termination occurs as a result of: (i) retirement with the
Company's consent, in which case such options will expire three months after
such event or (ii) death or permanent disability, in which case such options
will expire one year after such event. In addition, the Compensation Committee
have the discretion to extend the expiration date to a date within three months
following the date of termination of employment. Options are not transferable
other than by will or the laws of descent and distribution. Other terms,
including when and how long an option is exercisable, are determined by the
Committee.
SEVERANCE AGREEMENTS
In connection with the events leading up to the acquisition of the Company
by Morgan Lewis Githens & Ahn and management of the Company in August 1989, the
Company entered into Severance Agreements with certain key employees (the "Prior
Severance Agreements"). In 1995, the Company determined that the provisions of
the Prior Severance Agreements were no longer appropriate for the key employees
who were parties thereto and that several other key employees who were employed
after 1989 should be entitled to severance benefits. Consequently, during and
after July 1995, the Company entered into Severance Agreements (the "Severance
Agreements") with Messrs. Austin, Barker, Cijan, Hodge, LaRosa and Sponaugle and
with certain other key employees of the Company (the "Eligible Employees"). The
Severance Agreements superseded in all respects the Prior Severance Agreements
that were then in effect.
The Severance Agreements provide for an initial term expiring April 30,
1996, subject to one- year automatic extensions (unless terminated by the
Company or the Eligible Employee 60 days prior to May 1 of any year). The
Severance Agreements automatically terminate upon termination of the Eligible
Employee's employment prior to a Change in Control of the Company, as defined in
the Severance Agreements (a "Severance Change in Control"), unless the
termination of employment
56
<PAGE>
occurs as a result of action of the Company other than for Cause (as defined in
the Severance Agreements) within 90 days of a Severance Change in Control. A
Severance Change in Control occurs upon a change in ownership of 50.0% or more
of the combined voting power of the outstanding securities of the Company or
upon the merger, consolidation, sale of all or substantially all of the assets
or liquidation of the Company. A Severance Change in Control will not occur upon
the consummation of the Offering.
The Severance Agreements provide that if an Eligible Employee's employment
with the Company is terminated within six months following a Severance Change in
Control by reason of such Eligible Employee's disability, retirement or death,
the Company will pay the Eligible Employee (or his estate) his Base Salary (as
defined in the Severance Agreements) plus any bonuses or incentive compensation
earned or payable as of the date of termination. In the event that the Eligible
Employee's employment is terminated by the Company for Cause (as defined in the
Severance Agreements) within the six-month period, the Company is obligated only
to pay the Eligible Employee his Base Salary through the date of termination. In
addition, if within the six-month period the Eligible Employee's employment is
terminated by the Eligible Employee or the Company (other than for Cause or due
to disability, retirement or death), the Company must (among other things) (i)
pay to the Eligible Employee such Eligible Employee's full Base Salary and any
bonuses or incentive compensation earned or payable as of the date of
termination; (ii) continue to provide life insurance and medical and hospital
benefits to the Eligible Employee for up to 12 months following the date of
termination (18 months for Messrs. Austin and Barker); (iii) pay to the Eligible
Employee $12,000 for outplacement costs to be incurred, (iv) pay to the Eligible
Employee a lump sum cash payment equal to either (a) 150% of the Eligible
Employee's Base Salary in the case of Messrs. Austin and Barker, or (b) 100% of
the Eligible Employee's Base Salary in the case of the other Eligible Employees,
provided that the Company may elect to make such payments in installments over
an 18 month period in the case of Messrs. Austin or Barker or a 12 month period
in the case of the other Eligible Employees. As a condition to receipt of
severance payments and benefits, the Severance Agreements require that Eligible
Employees execute a release of all claims.
Pursuant to the Severance Agreements, each Eligible Employee agrees that
during his employment with the Company and for an additional one year following
the termination of the Eligible Employee's employment with the Company by reason
of disability or retirement, by the Eligible Employee within six months
following a Severance Change in Control or by the Company for Cause, the
Eligible Employee will not, directly or indirectly, engage in any business in
competition with the business of the Company.
AUSTIN EMPLOYMENT AGREEMENT
On September 2, 1993, the board of directors elected Michael D. Austin
President and Chief Executive Officer of the Company. The Company and Haynes
International, Inc. entered into an Executive Employment Agreement with Mr.
Austin (the "Executive Employment Agreement") which provides that, in exchange
for his services as President and Chief Executive Officer of the Company, the
Company will pay Mr. Austin (1) an annual base salary of not less than $325,000,
subject to annual adjustment at the sole discretion of the board of directors,
and (2) incentive compensation as determined by the board of directors based on
the actual results of operations of the Company in relation to budgeted results
of operation of the Company. In addition, Mr. Austin is entitled to receive
vacation leave and to participate in all benefit plans generally applicable to
senior executives of the Company and to receive fringe benefits as are customary
for the position of Chief Executive Officer.
Under the terms of the Executive Employment Agreement, the Company agreed to
pay Mr. Austin the sum of $100,000 as compensation for deferred compensation
forfeited by Mr. Austin at his former employer. The Company also indemnified Mr.
Austin against any loss incurred in the sale of Mr. Austin's residence at his
prior location and paid certain financing costs incurred in connection with the
residence. The Company provided supplemental life, health, and accident coverage
for Mr. Austin until he was eligible to participate in the Company's benefit
plans.
57
<PAGE>
Pursuant to the Executive Employment Agreement, the Company also granted Mr.
Austin the option to purchase 112,995 shares of Common Stock at a purchase price
of $8.8498 per share through the Existing Stock Option Plan. In January 1996 the
purchase price for exercise of the option was reduced to $4.4249 per share.
These options vest at a rate of 22,599 shares September 1 of each year until
fully vested, so long as Mr. Austin continues to be employed by the Company on
such dates and provided that all options would vest upon a "change in control"
as defined in the Existing Stock Option Plan or certain sales of assets as
specified in the Existing Stock Option Plan. Mr. Austin also became a party to
the Stock Subscription Agreement and the Stockholders Agreement. In the event of
a change in control and the termination of Mr. Austin's employment by the
Company thereafter, the Company is also obligated to pay the difference, if any,
between the pension benefit payable to Mr. Austin under the U.S. Pension Plan
(as defined below) at the time of such change in control and the pension benefit
that would be payable under the U.S. Pension Plan if Mr. Austin had completed 10
years of service with the Company.
On July 15, 1996, the Company, Haynes International, Inc. and Mr. Austin
entered into an amendment of the Executive Employment Agreement which extends
its term to August 31, 1999 (with year to year continuation thereafter unless
the Company or Mr. Austin elects otherwise) and requires the Company to
reimburse Mr. Austin for up to $10,000 for estate or financial planning
services. The amendment of the Executive Employment Agreement also requires that
in 1996 the Company review and evaluate the existing bonus plans and consider,
among other alternatives, a deferred compensation plan for the management of the
Company.
If Mr. Austin's employment is terminated by the Company prior to August 31,
1999 without "Cause," as defined in the Executive Employment Agreement, as
amended, Mr. Austin is entitled to continuation of his annual base salary until
the later of August 31, 1999 or 24 months following the date of termination.
Also, if the Company terminates Mr. Austin's employment without Cause after
August 31, 1999 or elects not to renew the Executive Employment Agreement on a
one year basis, Mr. Austin is entitled to annual base salary continuation for a
period of 12 months following the date of termination of his employment. In the
event that Mr. Austin is entitled to termination benefits under the Severance
Agreement to which he is a party, he is not entitled to salary continuation or
benefits under the Executive Employment Agreement, as amended.
U.S. PENSION PLAN
The Company maintains for the benefit of eligible domestic employees a
defined benefit pension plan, designated as the Haynes International, Inc.
Pension Plan (the "U.S. Pension Plan"). Under the U.S. Pension Plan, all Company
employees completing at least 1,000 hours of employment in a 12-month period
become eligible to participate in the plan. Employees are eligible to receive an
unreduced pension annuity on reaching age 65, reaching age 62 and completing 10
years of service, or completing 30 years of service. The final option is
available only for union employees hired before July 3, 1988 or for salaried
employees who were plan participants on March 31, 1987.
For salaried employees employed on or after July 3, 1988, the normal monthly
pension benefit provided under the U.S. Pension Plan is the greater of (i) 1.2%
of the employee's average monthly earnings multiplied by years of credited
service, plus an additional 0.5% of the employee's average monthly earnings, if
any, in excess of the monthly Social Security covered compensation for each year
of credited service up to 35 years, or (ii) the employee's accrued benefit as of
March 31, 1987.
There are provisions for delayed retirement benefits, early retirement
benefits, disability and death benefits, optional methods of benefit payments,
payments to an employee who leaves after a certain number of years of service
and payments to an employee's surviving spouse. Employees are vested and
eligible to receive pension benefits after completing five years of service.
Vested benefits are paid beginning at or after age 55. Early retirement benefits
are available after age 55.
58
<PAGE>
The following table sets forth the range of estimated annual benefits
payable upon retirement for graduated levels of average annual earnings and
years of service for employees under the plan, based on retirement at age 65 in
1995. The maximum annual benefit permitted for 1995 under Section 415(b) of the
Code is $120,000.
<TABLE>
<CAPTION>
YEARS OF SERVICE
AVERAGE ANNUAL ----------------------------------------------------
REMUNERATION 15 20 25 30 35
- ------------------------------------------- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
$100,000.................................. $ 23,800 $31,700 $39,700 $47,600 $55,500
$150,000.................................. 36,500 48,700 60,900 73,100 85,300
$200,000.................................. 49,300 65,700 82,200 98,600 115,000
$250,000.................................. 62,000 82,700 103,400 124,100 144,800
$300,000.................................. 74,800 99,700 124,700 149,600 174,500
$350,000.................................. 87,500 116,700 145,900 175,100 204,300
$400,000.................................. 100,300 133,700 167,200 200,600 234,000
$450,000.................................. 113,000 150,700 188,400 226,100 263,800
</TABLE>
The estimated credited years of service of each of the individuals named in
the Summary Compensation Table as of September 30, 1995 are as follows:
<TABLE>
<CAPTION>
CREDITED
SERVICE
--------
<S> <C>
Michael D. Austin................................................. 2
F. Galen Hodge.................................................... 26
Joseph F. Barker.................................................. 15
Frank J. LaRosa................................................... 2
August A. Cijan................................................... 2
</TABLE>
U.K. PENSION PLAN
The Company maintains a pension plan for its employees in the United Kingdom
(the "U.K. Pension Plan"). The U.K. Pension Plan is a contributory plan under
which eligible employees contribute 3% or 6% of their annual earnings. Normal
retirement age under the U.K. Pension Plan is age 65 for males and age 60 for
females. The annual pension benefit provided at normal retirement age under the
U.K. Pension Plan ranges from 1% to 1 2/3% of the employee's final average
annual earnings for each year of credited service, depending on the level of
employee contributions made each year during the employee's period of service
with the Company. The maximum annual pension benefit for employees with at least
10 years of service is two-thirds of the individual's final average annual
earnings. Similar to the U.S. Pension Plan, the U.K. Pension Plan also includes
provisions for delayed retirement benefits, early retirement benefits,
disability and death benefits, optional methods of benefit payments, payments to
employees who leave after a certain number of years of service, and payments to
an employee's surviving spouse. The U.K. Pension Plan also provides for payments
to an employee's surviving children.
PROFIT SHARING AND SAVINGS PLAN
The Company maintains the Haynes International, Inc. Profit Sharing and
Savings Plan and the Haynes International, Inc. Hourly Profit Sharing and
Savings Plan (the "Profit Sharing Plans") to provide retirement, tax-deferred
savings for eligible employees and their beneficiaries.
The board of directors has sole discretion to determine the amount, if any,
to be contributed by the Company. No Company contributions were made to the
Profit Sharing Plans for the fiscal years ended September 30, 1995, 1994 and
1993.
The Profit Sharing Plans are qualified under Section 401 of the Code,
permitting the Company to deduct for federal income tax purposes all amounts
contributed by it to the Profit Sharing Plans.
59
<PAGE>
In general, all salaried employees completing at least 1,000 hours of
employment in a 12-month period are eligible to participate after completion of
one full year of employment. Each participant's share in the annual allocation,
if any, to the Profit Sharing Plans is represented by the percentage which his
or her plan compensation (up to $260,000) bears to the total plan compensation
of all participants in the plan. Employees may also elect to make elective
salary reduction contributions to the Profit Sharing Plans, in amounts up to 10%
of their plan compensation. Elective salary reduction contributions may be
withdrawn subject to the terms of the Profit Sharing Plans.
Vested individual account balances attributable to Company contributions may
be withdrawn only after the amount to be distributed has been held by the plan
trustee in the profit sharing account for at least 24 consecutive calendar
months. Participants vest in their individual account balances attributable to
Company contributions at age 65, death, disability or on completing five years
of service.
INCENTIVE PLAN
In January 1996, the Company awarded and paid management bonuses of
approximately $439,000 pursuant to its management incentive program. The January
bonuses were calculated based on the Company's fiscal 1995 performance.
Additionally, the Company adopted a management incentive plan effective for
fiscal 1996 pursuant to which senior managers and managers in the level below
senior managers will be paid a bonus based on actual EBITDA compared to budgeted
EBITDA. Based on results for the first half of fiscal 1996, the Company believes
that management will be eligible for bonuses for fiscal 1996 and that it will
accrue additional expenses for management bonuses of approximately $900,000
during fiscal 1996.
HAYNES INTERNATIONAL, LTD PLAN
In fiscal 1995, the Company's affiliate Haynes International, LTD instituted
a gainsharing plan. For fiscal 1995, the Company made gainsharing payments
pursuant to this plan of approximately $269,000.
DIRECTOR COMPENSATION
The directors of the Company other than Thomas F. Githens and Robert Egan
receive no compensation for their services as such. The non-management members
of the board of directors are reimbursed by the Company for their out-of-pocket
expenses incurred in attending meetings of the board of directors. Mr. Githens
receives a director's fee of $3,000 per calendar quarter, $1,000 per board
meeting attended and $750 per board committee meeting attended. Mr. Egan
receives a director's fee of $2,000 per month plus an advisory fee of $2,000 per
month.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Sangwoo Ahn, Perry J. Lewis and Robert Egan served on the Compensation
Committee during fiscal 1995. None of the members of the Compensation Committee
are now serving or previously have served as employees or officers of the
Company or any subsidiary, and none of the Company's executive officers serve as
directors of, or in any compensation related capacity for, companies with which
members of the Compensation Committee are affiliated.
CERTAIN TRANSACTIONS
A former officer and director of the Company, Aziz I. Asphahani, left the
Company's employ and resigned as a director of the Company effective January 24,
1994. In satisfaction of certain obligations of the Company under the Stock
Subscription Agreement, on October 11, 1994 the Company paid Dr. Asphahani
$449,894.50 to repurchase all of Dr. Asphahani's options to purchase Common
Stock, representing an aggregate option purchase price of $426,092.24 and
interest from March 10, 1994 to the purchase date totaling $23,802.26.
60
<PAGE>
PRINCIPAL STOCKHOLDERS
All of the outstanding capital stock of the Company is owned by Haynes
International, Inc. The only stockholder of record of Haynes International, Inc.
owning more than five percent of its outstanding Common Stock at June 30, 1996
was MLGA Fund II, L.P. ("Fund II"), a Connecticut limited partnership that is
controlled by John A. Morgan, Perry J. Lewis, Sangwoo Ahn, Ira Starr and William
C. Ughetta, Jr., all principals of MLGAL. The following table sets forth the
number and percentage of shares of Common Stock of Haynes International, Inc.
owned by (i) Fund II, (ii) all affiliates of Fund II, (iii) each of the
directors of the Company and each of the executive officers named in the Summary
Compensation Table, (iv) all affiliates of Fund II as a group and (v) all
directors and executive officers of the Company as a group, as of June 30, 1996
and as adjusted to reflect the sale of shares offered in connection with the
Equity Offering. The address of Fund II, and of Messrs. Ahn, Lewis, Morgan,
Starr and Ughetta, is 2 Greenwich Plaza, Greenwich, Connecticut 06830. The
address of Messrs. Austin and Barker is 1020 West Park Avenue, Kokomo, Indiana
46904-9013. The address of Mr. Githens is 41 Crescent Place, Shorthills, New
Jersey 07078. The address of Mr. Egan is 4 Foxwood Drive, Pittsburgh,
Pennsylvania 15238.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
EQUITY OFFERING(1) EQUITY OFFERING(1)
------------------------- ------------------------
NAME NUMBER PERCENT NUMBER PERCENT(2)
- ------------------------------------------------- --------- ------- --------- -----------
<S> <C> <C> <C> <C>
Fund II.......................................... 3,254,217 90.6% 3,254,217 54.2%
Sangwoo Ahn...................................... 3,321,981(3)(4) 92.5 3,321,981 55.3
Perry J. Lewis................................... 3,321,981(3)(4) 92.5 3,321,981 55.3
John A. Morgan................................... 3,321,981(3)(4) 92.5 3,321,981 55.3
Ira Starr........................................ 3,307,526(3)(4) 92.1 3,307,526 55.1
William C. Ughetta, Jr........................... 3,303,289(3)(4) 92.0 3,303,289 55.0
Thomas F. Githens................................ 30,954 (6) 30,954 (6)
Robert Egan...................................... 0 -- 0 (6)
Michael D. Austin................................ 45,198(5) 1.3 45,198 (6)
F. Galen Hodge................................... 32,243(5) (6) 32,243 (6)
Joseph F. Barker................................. 23,121(5) (6) 23,121 (6)
August A. Cijan.................................. 4,519(5) (6) 4,519 (6)
Frank J. LaRosa.................................. 4,519(5) (6) 4,519 (6)
All Fund II affiliates as a group................ 3,363,602 93.7 3,363,602 56.0
All directors and executive officers of the
Company as a group.............................. 3,519,860(3) 94.8 3,519,860 58.5
</TABLE>
- ------------
(1) Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, the persons named in the table have sole
voting and investment power with respect to all shares of Common Stock
(2) Assumes no exercise of the over-allotment option granted to the underwriters
of the Company's Common Stock in connection with the Equity Offering. Shares
outstanding after the Offering include 109,566 shares to be issued to Paul
F. Troiano at the time of the Offering pursuant to the exercise of stock
options covering such shares and 4,519 shares issued pursuant to the
exercise of a stock option effected on July 31, 1996.
(3) Includes the shares reported in the table as owned by Fund II and 49,072
shares owned by MLGAL.
(4) The named shareholder disclaims beneficial ownership of the shares held by
Fund II and MLGAL, except to the extent of his pecuniary interest therein
arising from his general partnership interest in MLGAL.
(5) Represents shares of Common Stock underlying options exercisable within 60
days of the date of this Prospectus which are deemed to be beneficially
owned by the holders of such options. See "Management--Stock Option Plans."
(6) Less than 1%.
61
<PAGE>
DESCRIPTION OF THE NOTES
The Notes offered hereby will be issued under an Indenture to be dated as of
, 1996 (the "Indenture") between the Company and National City Bank,
as trustee (the "Trustee"), a copy of the form of which is filed as an exhibit
to the Registration Statement of which this Prospectus is a part. The Indenture
is subject to and is governed by the Trust Indenture Act. The following summary
of the material provisions of the Indenture does not purport to be complete, and
where reference is made to particular provisions of the Indenture, such
provisions, including the definitions of certain terms, are qualified in their
entirety by reference to all of the provisions of the Indenture and those terms
made a part of the Indenture by the Trust Indenture Act. For definitions of
certain capitalized terms used in the following summary, see "--Certain
Definitions."
GENERAL
The Notes will mature on , 2004, will be limited to $100,000,000
aggregate principal amount, and will be unsecured senior obligations of the
Company. Each Note will bear interest at the rate set forth on the cover page
hereof from , 1996 or from the most recent interest payment date to
which interest has been paid, payable semiannually on and
each year, commencing , 1997, to the Person in whose
name the Note (or any predecessor Note) is registered at the close of business
on the or next preceding such interest payment date.
Principal of, premium, if any, and interest on the Notes will be payable,
and the Notes will be exchangeable and transferable, at the office or agency of
the Company in the City of New York maintained for such purposes (which
initially will be the Trustee); provided, however, that payment of interest may
be made at the option of the Company by check mailed to the Person entitled
thereto as shown on the security register.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months. Interest on overdue principal and (to the extent permitted by
law) on overdue installments of interest, will accrue at the rate of interest
borne by the Notes.
BOOK-ENTRY; DELIVERY AND FORM
The Notes will be represented by a single, permanent global certificate in
definitive, fully registered form (the "Global Note") and will be deposited
with, or on behalf of Cede & Co., as nominee for The Depository Trust Company
("DTC") or will remain in the custody of the Trustee pursuant to a FAST Balance
Certificate Agreement between DTC and the Trustee. The Notes will be issued
without coupons in denominations of $1,000 and any integral multiples thereof.
At the option of the Holder, subject to the terms of the Indenture and the
limitations applicable to the Global Note, Notes will be exchangeable for other
Notes of any authorized denomination and of a like tenor and aggregate principal
amount. No service charge will be made for any registration of transfer or
exchange of Notes, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge imposed in connection therewith.
If the Notes are to be redeemed in part, the Company will not be required to
(i) issue, register the transfer of or exchange any Note during a period
beginning at the opening of business 15 days before the day of mailing of notice
of redemption of any such Note that may be selected for redemption and ending at
the close of business on the day of such mailing or (ii) register the transfer
of or exchange any Note so selected for redemption, in whole or in part, except
the unredeemed portion of any such Note being redeemed in part.
62
<PAGE>
RANKING
The Notes will be unsecured senior obligations of the Company, ranking pari
passu in right of payment with all other existing and future Senior Indebtedness
of the Company. The Notes will be effectively subordinated to secured
Indebtedness, including the Company's Indebtedness under the New Credit Facility
and initially to the Company's Existing Senior Notes until redeemed as described
under "The Recapitalization." As of June 30, 1996 and after giving effect to the
transactions described under "The Recapitalization," $19.0 million of Senior
Indebtedness would have been outstanding under the New Credit Facility, all of
the Company's existing Indebtedness (including the Existing Senior Notes) would
have been repaid and the Company would have had no other Senior Indebtedness
outstanding, other than the Notes offered hereby. Although the Notes and the
obligations under the New Credit Facility will be senior obligations of the
Company, the lender under the New Credit Facility (and any lender with respect
to other Indebtedness secured by assets of the Company) will have a claim
ranking prior to that of the holders of the Notes with respect to the
distribution of assets and the proceeds thereof securing the Company's
obligations thereunder.
OPTIONAL REDEMPTION
The Notes will be subject to redemption at any time on or after
, 2000, at the option of the Company, in whole or in part, on not
less than 30 nor more than 60 days' prior notice in amounts of $1,000 or an
integral multiple thereof at the following redemption prices (expressed as
percentages of the principal amount), if redeemed during the 12-month period
beginning on of the years indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- ---------------------------------------------------------------- ----------
<S> <C>
2000............................................................ %
2001............................................................ %
</TABLE>
and thereafter at 100% of the principal amount, in each case together with
accrued and unpaid interest, if any, to the redemption date (subject to the
right of holders of record on relevant record dates to receive interest due on
an interest payment date).
In addition, prior to , 1999, in the event one or more Public
Equity Offerings of the Company are consummated after the issue date, the
Company may redeem in the aggregate up to a maximum of $25.0 million aggregate
principal amount of the Notes with the net proceeds thereof at a redemption
price equal to % of the principal amount thereof plus accrued and unpaid
interest to the redemption date; provided that, after giving effect thereto, at
least $70.0 million aggregate principal amount of Notes remains outstanding.
If less than all of the Notes are to be redeemed, the Trustee shall select
the Notes or portions thereof to be redeemed pro rata, by lot or by any other
method the Trustee shall deem fair and reasonable; provided that any redemption
pursuant to the provisions relating to a sale of the Common Stock of the Company
pursuant to one or more Public Equity Offerings shall be made on a pro rata
basis or on as nearly a pro rata basis as practicable (subject to any procedures
of DTC).
CHANGE OF CONTROL PROVISIONS
Purchase of Notes Upon a Change of Control. If a Change of Control shall
occur at any time, then each holder of Notes shall have the right to require
that the Company purchase such holder's Notes in whole or in part in integral
multiples of $1,000, at a purchase price (the "Change of Control Purchase
Price") in cash equal to 101% of the principal amount of such Notes, plus
accrued and unpaid interest, if any, to the date of purchase (the "Change of
Control Purchase Date"), pursuant to the offer described below (the "Change of
Control Offer") and the other procedures set forth in the Indenture.
63
<PAGE>
Within 30 days following any Change of Control, the Company shall notify the
Trustee thereof and give written notice of such Change of Control to each holder
of Notes, by first-class mail, postage prepaid, at its address appearing in the
security register, stating, among other things, the Change of Control Purchase
Price and that the Change of Control Purchase Date shall be a Business Day no
earlier than 30 days nor later than 60 days from the date such notice is mailed,
or such later date as is necessary to comply with requirements under the
Exchange Act; that any Note not tendered will continue to accrue interest; that,
unless the Company defaults in the payment of the purchase price, any Notes
accepted for payment of the Change of Control Purchase Price pursuant to the
Change of Control Offer shall cease to accrue interest after the Change of
Control Purchase Date; and certain other procedures that a holder of Notes must
follow to accept a Change of Control Offer or to withdraw such acceptance.
If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the Change of Control
Purchase Price for all of the Notes that might be delivered by holders of the
Notes seeking to accept the Change of Control Offer and, accordingly, none of
the holders of the Notes may receive the Change of Control Purchase Price for
their Notes in the event of a Change of Control. The failure of the Company to
make or consummate the Change of Control Offer or pay the Change of Control
Purchase Price when due will give the Trustee and the holders of the Notes the
rights described under "--Events of Default."
The term "all or substantially all" as used in the definition of "Change of
Control" has not been interpreted under New York law (which is the governing law
of the Indenture) to represent a specific quantitative test. As a consequence,
in the event the holders of the Notes elected to exercise their rights under the
Indenture and the Company elected to contest such election, there could be no
assurance as to how a court interpreting New York law would interpret the
phrase.
The existence of a holder's right to require the Company to repurchase such
holder's Notes upon a Change of Control may deter a third party from acquiring
the Company in a transaction which constitutes a Change of Control.
The provisions of the Indenture may not afford holders of Notes the right to
require the Company to repurchase the Notes in the event of a highly leveraged
transaction or certain transactions with the Company's management or its
affiliates, including a reorganization, restructuring, merger or similar
transaction (including, in certain circumstances, an acquisition of the Company
by management or its affiliates) involving the Company that may adversely affect
holders of the Notes, if such transaction is not a transaction defined as a
Change of Control. Reference is made to "--Certain Definitions" for the
definition of "Change of Control." A transaction involving the Company's
management or its affiliates, or a transaction involving a recapitalization of
the Company, will result in a Change of Control if it is the type of transaction
specified by such definition.
The Company will comply with the applicable tender offer rules, including
Rule 14e-1 under the Exchange Act, and any other applicable securities laws or
regulations in connection with a Change of Control Offer.
Optional Redemption Upon Change of Control. The Notes will be redeemable, at
the option of the Company, in whole or in part at any time within 180 days after
a Change of Control upon not less than 30 nor more than 60 days' prior notice to
each holder of Notes to be redeemed, at a redemption price equal to the sum of
(i) the then outstanding principal amount thereof plus (ii) accrued and unpaid
interest, if any, to the redemption date plus (iii) the Applicable Premium.
"Applicable Premium" with respect to the Notes is defined as the greater of
(i) 1.0% of the then outstanding principal amount of such Notes and (ii) the
excess of (A) the present value of the required interest and principal payments
due on such Notes, computed using a discount rate equal to the Treasury Rate
plus the Applicable Spread, over (B) the then outstanding principal amount of
such Notes.
64
<PAGE>
"Applicable Spread" is defined as 75 basis points.
"Treasury Rate" is defined as the yield to maturity at the time of
computation of United States Treasury securities with a constant maturity (as
compiled by and published in the most recent Federal Reserve Statistical Release
H.15 (519) which has become publicly available at least two business days prior
to the date fixed for prepayment (or, if such Statistical Release is no longer
published, any publicly available source of similar market data)) most nearly
equal to the then remaining Average Life of the Notes; provided, that if the
Average Life of the Notes is not equal to the constant maturity of a United
States Treasury security for which a weekly average yield is given, the Treasury
Rate shall be obtained by linear interpolation (calculated to the nearest
one-twelfth of a year) from the weekly average yields of United States Treasury
securities for which such yields are given, except that if the Average Life of
the Notes is less than one year, the weekly average yield on actually traded
United States Treasury securities adjusted to a constant maturity of one year
shall be used.
SINKING FUND
The Notes will not be entitled to the benefit of any sinking fund.
SAME DAY SETTLEMENT AND PAYMENT
The Indenture will require that payments in respect of the Notes represented
by the Global Note (including principal, premium, if any, interest and
liquidated damages, if any) be made by wire transfer of immediately available
funds to the accounts specified by the Global Note holder. With respect to
certificated securities, the Company will make all payments of principal,
premium, if any, interest and liquidated damages, if any, by wire transfer of
immediately available funds to the accounts specified by the holders thereof or,
if no such account is specified, by mailing a check to each such holder's
registered address. The Notes represented by the Global Note are expected to
trade in DTC's Same Day Funds Settlement System, and any secondary trading
activity in the Notes will, therefore, be required to be settled in immediately
available funds. The Company expects that secondary trading in the certificated
securities will also be settled in immediately available funds.
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants:
Limitation on Indebtedness. (a) The Company will not, and will not permit
any of its Subsidiaries to, create, issue, assume, guarantee, or otherwise in
any manner become directly or indirectly liable for or with respect to or
otherwise incur (collectively, "incur") any Indebtedness, including any Acquired
Indebtedness (other than Permitted Indebtedness); provided, however, and subject
to paragraph (b) below in the case of Indebtedness of any Subsidiary, the
Company and its Subsidiaries will be permitted to incur Indebtedness if the
Consolidated Fixed Charge Coverage Ratio for the Company for the four full
fiscal quarters immediately preceding the incurrence of such Indebtedness taken
as one period (and after giving pro forma effect to (i) the incurrence of such
Indebtedness and (if applicable) the application of the net proceeds therefrom,
including to refinance other Indebtedness, as if such Indebtedness was incurred,
and the application of such proceeds occurred, at the beginning of such four-
quarter period; (ii) the incurrence, repayment or retirement of any other
Indebtedness by the Company and its Subsidiaries since the first day of such
four-quarter period as if such Indebtedness was incurred, repaid or retired at
the beginning of such four-quarter period (except that, in making such
computation, the amount of Indebtedness under any revolving credit facility
shall be computed based upon the average daily balance of such Indebtedness
during such four-quarter period); (iii) in the case of Acquired Indebtedness,
the related acquisition; and (iv) any acquisition or disposition by the Company
and its Subsidiaries of any company or any business or any assets out of the
ordinary course of business, or any related repayment of Indebtedness, in each
case since the first day of such four-quarter period, assuming such acquisition
or disposition and any such related repayment had been consummated on the first
day of such four-quarter period) is at least equal to 2.00 to 1.00 during the
period from the date
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hereof to the second anniversary of the date hereof, and 2.25 to 1.00 thereafter
(each such ratio defined herein as the "Applicable Coverage Ratio").
(b) The Company will not permit any of its Subsidiaries to incur any
Indebtedness other than Permitted Subsidiary Indebtedness.
Limitation on Restricted Payments. (a) The Company will not, and will not
permit any Subsidiary to, directly or indirectly:
(i) declare or pay any dividend on, or make any distribution to holders
of, any shares of the Company's Capital Stock (other than dividends or
distributions payable solely in shares of its Qualified Capital Stock or in
options, warrants or other rights to acquire such Qualified Capital Stock
and other than payments with respect to fractional shares resulting from a
reverse split of the Common Stock of Haynes International, Inc., the
Company's sole stockholder, effected shortly before the initial public
offering of Haynes International, Inc.);
(ii) purchase, redeem or otherwise acquire or retire for value, directly
or indirectly, any shares of the Capital Stock of the Company or any
Affiliate of the Company (other than the Capital Stock of any Wholly-Owned
Subsidiary of the Company) or options, warrants or other rights to acquire
such Capital Stock;
(iii) make any principal payment on, or repurchase, redeem, defease,
retire or otherwise acquire for value, prior to any scheduled principal
payment, sinking fund or maturity, any Subordinated Indebtedness;
(iv) declare or pay any dividend or distribution on any Capital Stock of
any Subsidiary to any Person (other than the Company or any of its
Wholly-Owned Subsidiaries) or purchase, redeem or otherwise acquire or
retire for value any Capital Stock of any Subsidiary held by any Person
(other than the Company or any of its Wholly-Owned Subsidiaries);
(v) incur, create or assume any guarantee of Indebtedness of any
Affiliate of the Company (other than a Wholly-Owned Subsidiary of the
Company); or
(vi) make any Investment in any Person (other than any Permitted
Investments)
(any of the foregoing payments described in clauses (i) through (vi) and not
excepted therefrom, collectively, "Restricted Payments") unless after giving
effect to the proposed Restricted Payment (the amount of any such Restricted
Payment, if other than cash, as determined by the board of directors of the
Company, whose determination shall be conclusive and evidenced by a board
resolution), (1) no Default or Event of Default shall have occurred and be
continuing and such Restricted Payment shall not be an event which is, or after
notice or lapse of time or both, would be, an "event of default" under the terms
of any Indebtedness of the Company or its Subsidiaries; (2) immediately before
and immediately after giving effect to such transaction on a pro forma basis,
the Company could incur $1.00 of additional Indebtedness (other than Permitted
Indebtedness) under the provisions of the "Limitation on Indebtedness" covenant
and (3) the aggregate amount of all such Restricted Payments declared or made
after the date of the Indenture does not exceed the sum of:
(A) 50% of the aggregate cumulative Consolidated Net Income of the
Company accrued on a cumulative basis during the period beginning on the
first day of the Company's fiscal quarter commencing prior to the date of
the Indenture and ending on the last day of the Company's last fiscal
quarter ending prior to the date of the Restricted Payment (or, if such
aggregate cumulative Consolidated Net Income shall be a loss, minus 100% of
such loss); plus
(B) the aggregate net cash proceeds received after the date of the
Indenture by the Company as capital contributions to the Company (other than
from any of its Subsidiaries); plus
(C) the aggregate Net Cash Proceeds received after the date of the
Indenture by the Company from the issuance or sale (other than to any of its
Subsidiaries) of its shares of Qualified Capital Stock or any options,
warrants or rights to purchase such shares of Qualified Capital Stock
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of the Company (except, in each case, to the extent such proceeds are used
to purchase, redeem or otherwise retire Capital Stock or Pari Passu or
Subordinated Indebtedness as set forth below); plus
(D) the aggregate Net Cash Proceeds received after the date of the
Indenture by the Company (other than from any of its Subsidiaries) upon the
exercise of any options or warrants to purchase shares of Qualified Capital
Stock of the Company; plus
(E) the aggregate Net Cash Proceeds received after the date of the
Indenture by the Company from debt securities or Redeemable Capital Stock
that have been converted into or exchanged for Qualified Capital Stock of
the Company to the extent such debt securities or Redeemable Capital Stock
are originally sold for cash plus the aggregate Net Cash Proceeds received
by the Company at the time of such conversion or exchange.
(b) Notwithstanding the foregoing, and in the case of clauses (ii), (iii)
and (iv) below, as long as no Default shall have occurred and be continuing, the
foregoing provisions shall not prohibit:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at such date of declaration such payment would be
permitted by the provisions of paragraph (a) above or paragraph (vi) below
and such payment shall be deemed to have been paid on such date of
declaration for purposes of the calculation required by paragraph (a) above;
(ii) the repurchase, redemption, or other acquisition or retirement of
any shares of any class of Capital Stock of the Company in exchange for
(including any such exchange pursuant to the exercise of a conversion right
or privilege in connection with which cash is paid in lieu of the issuance
of fractional shares or scrip), or out of the Net Cash Proceeds of a
substantially concurrent issuance and sale for cash (other than to a
Subsidiary) of other shares of Qualified Capital Stock of the Company;
provided that the Net Cash Proceeds from the issuance of such shares of
Qualified Capital Stock are excluded from the calculations pursuant to
clause 3(C) of paragraph (a) above;
(iii) any repurchase, redemption, defeasance, retirement or acquisition
for value or payment of principal of any Subordinated Indebtedness in
exchange for, or out of the net proceeds of a substantially concurrent
issuance and sale for cash (other than to any Subsidiary of the Company) of
any Qualified Capital Stock of the Company, provided that the Net Cash
Proceeds from the issuance of such shares of Qualified Capital Stock are
excluded from the calculations pursuant to clause (3)(C) of paragraph (a)
above;
(iv) the repurchase, redemption, defeasance, retirement, refinancing,
acquisition for value or payment of principal of any Subordinated
Indebtedness (other than Redeemable Capital Stock) (a "refinancing") through
the issuance of new Subordinated Indebtedness of the Company, provided that
any such new Subordinated Indebtedness (1) shall be in a principal amount
that does not exceed the principal amount so refinanced (or, if such
Subordinated Indebtedness provides for an amount less than the principal
amount thereof to be due and payable upon declaration or acceleration
thereof, then such lesser amount as of the date of determination), plus the
lesser of (I) the stated amount of any premium or other payment required to
be paid in connection with such a refinancing pursuant to the terms of the
Subordinated Indebtedness being refinanced or (II) the amount of premium or
other payment actually paid at such time to refinance the Subordinated
Indebtedness, plus, in either case, the amount of expenses of the Company
incurred in connection with such refinancing; (2) has an Average Life to
Stated Maturity greater than the remaining Average Life to Stated Maturity
of the Notes; (3) has a Stated Maturity for its final scheduled principal
payment later than the Stated Maturity for the final scheduled principal
payment of the Notes; and (4) is expressly subordinated in right of payment
to the Notes at least to the same extent as the Subordinated Indebtedness to
be refinanced;
(v) the redemption by the Company of its Existing Notes within 45 days
after the date of the Indenture; and
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(vi) the declaration and payment of dividends on the Common Stock of up
to an amount equal to 6% of the proceeds (after underwriting discounts,
commissions, and issuance expenses) received at any time from any public
offering of Common Stock, including without limitation the Equity Offering.
Limitation on Transactions with Affiliates. The Company will not, and will
not permit any of its Subsidiaries to, directly or indirectly, enter into or
suffer to exist any transaction or series of related transactions (including,
without limitation, the sale, purchase, exchange or lease of assets, property or
services) with any Affiliate of the Company (other than the Company or a Wholly
Owned Subsidiary) unless (i) such transaction or series of transactions is in
writing on terms that are no less favorable to the Company or such Subsidiary,
as the case may be, than would be available in a comparable transaction in
arm's-length dealings with an unrelated third party and (ii) with respect to any
transaction or series of transactions involving aggregate payments or value in
excess of $1.0 million, the Company delivers an officers' certificate to the
Trustee certifying that such transaction or series of transactions complies with
clause (i) above and such transaction or series of related transactions has been
approved by a majority of the Disinterested Directors of the board of directors
of the Company. In addition to the foregoing, with respect to a transaction or
series of related transactions involving aggregate payments or value equal to or
greater than $2.5 million, the Company must deliver to the Trustee a written
opinion from an Independent Financial Advisor stating that such transaction or
series of transactions are fair from a financial point of view. This covenant
will not restrict the Company from (a) redeeming or paying dividends in respect
of its Capital Stock permitted under the "Limitation on Restricted Payments"
covenant, (b) making loans or advances to officers of the Company for bona fide
business purposes of the Company not in excess of $1.0 million in the aggregate
at any one time outstanding, and (c) paying advisory and transaction fees to
MLGA in amounts that are in accordance with past practices and in the ordinary
course of business for the rendering of financial advice and services in
connection with acquisitions, dispositions and financings by the Company.
Limitation on Liens. The Company will not, and will not permit any
Subsidiary to, directly or indirectly, create, incur, affirm or suffer to exist
any Lien of any kind upon any of its property or assets (including any
intercompany notes), now owned or acquired after the date of the Indenture, or
any income or profits therefrom, except if the Notes are directly secured
equally and ratably with (or prior to in the case of Liens with respect to
Subordinated Indebtedness) the obligation or liability secured by such Lien,
excluding, however, from the operation of the foregoing any of the following:
(a) Any Lien existing as of the date of the Indenture.
(b) Any Lien arising by reason of (1) any judgment, decree or order of
any court, so long as such Lien is adequately bonded and any appropriate
legal proceedings which may have been duly initiated for the review of such
judgment, decree or order shall not have been finally terminated or the
period within which such proceedings may be initiated shall not have
expired; (2) taxes not yet delinquent or which are being contested in good
faith; (3) security for payment of workers' compensation or other insurance;
(4) good faith deposits in connection with tenders, leases, contracts (other
than contracts for the payment of money); (5) zoning restrictions,
easements, licenses, reservations, title defects, rights of others for
rights of way, utilities, sewers, electric lines, telephone or telegraph
lines, and other similar purposes, provisions, covenants, conditions,
waivers, restrictions on the use of property or minor irregularities of
title (and with respect to leasehold interests, mortgages, obligations,
liens and other encumbrances incurred, created, assumed or permitted to
exist and arising by, through or under a landlord or owner of the leased
property, with or without consent of the lessee), none of which materially
impairs the use of any parcel of property material to the operation of the
business of the Company or any Subsidiary or the value of such property for
the purpose of such business; (6) deposits to secure public or statutory
obligations, or in lieu of surety or appeal bonds; or (7) operation of law
in favor of mechanics, materialmen, laborers, employees or suppliers,
incurred in the ordinary course of business for sums which are not
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yet delinquent or are being contested in good faith or negotiations or by
appropriate proceedings which suspend the collection thereof.
(c) Any Lien on property of the Company or any Subsidiary securing the
New Credit Facility.
(d) Any Lien securing Acquired Indebtedness created prior to (and not
created in connection with, or in contemplation of) the incurrence of such
Indebtedness by the Company or any Subsidiary.
(e) Any Lien to secure the performance of bids, trade contracts, leases
(including, without limitation, statutory and common law landlord's liens),
statutory obligations, surety and appeal bonds, letters of credit and other
obligations of a like nature and incurred in the ordinary course of business
of the Company or any Subsidiary.
(f) Any Lien securing Indebtedness permitted to be incurred pursuant to
clause (vi) of the definition of "Permitted Indebtedness" and which is not
prohibited to be incurred under the "Limitation on Indebtedness" covenant.
(g) Any Lien securing obligations under hedging agreements that the
Company enters into in the ordinary course of business for the purpose of
protecting its production against fluctuations in commodity prices.
(h) Any Lien securing Indebtedness permitted to be incurred under
Interest Rate Agreements or otherwise incurred to hedge interest rate risk.
(i) Any extension, renewal, refinancing or replacement, in whole or in
part, of any lien described in the foregoing clauses (a) through (h) so long
as no additional collateral is granted as security thereby.
Limitation on Sale of Assets. (a) The Company will not, and will not permit
any of its Subsidiaries to, directly or indirectly, consummate an Asset Sale
unless (i) at least 85% of the proceeds from such Asset Sale are received in
cash and (ii) the Company or such Subsidiary receives consideration at the time
of such Asset Sale at least equal to the Fair Market Value of the shares or
assets sold (as determined by the board of directors of the Company and
evidenced in a board resolution).
(b) If all or a portion of the Net Cash Proceeds of any Asset Sale are not
required to be applied to repay permanently any Indebtedness under the New
Credit Facility then outstanding, the Company determines not to apply such Net
Cash Proceeds to the permanent prepayment of such Indebtedness under the New
Credit Facility or if no such Indebtedness under the New Credit Facility is then
outstanding, then the Company may within six months of the Asset Sale, invest
the Net Cash Proceeds in properties and assets that (as determined by the board
of directors) replace the properties and assets that were the subject of the
Asset Sale or in properties and assets that will be used in the businesses of
the Company or its Subsidiaries existing on the date of the Indenture or
reasonably related thereto. The amount of such Net Cash Proceeds neither used to
permanently repay or prepay Indebtedness under the New Credit Facility nor used
or invested as set forth in this paragraph constitutes "Excess Proceeds."
(c) When the aggregate amount of Excess Proceeds equals $5.0 million or
more, the Company shall within 20 business days apply the Excess Proceeds to the
repayment of the Securities and any Pari Passu Indebtedness required to be
repurchased under the instrument governing such Pari Passu Indebtedness as
follows: (a) the Company shall make an offer to purchase (an "Offer") from all
holders of the Notes in accordance with the procedures set forth in the
Indenture the maximum principal amount (expressed as a multiple of $1,000) of
Notes that may be purchased out of an amount (the "Security Amount") equal to
the product of such Excess Proceeds multiplied by a fraction, the numerator of
which is the outstanding principal amount of the Notes, and the denominator of
which is the outstanding principal amount of the Notes and such Pari Passu
Indebtedness (subject to proration in the event such amount is less than the
aggregate Offered Price (as defined herein) of all Notes tendered) and (b) to
the extent required by such Pari Passu Indebtedness to reduce permanently the
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principal amount of such Pari Passu Indebtedness, the Company shall make an
offer to purchase or otherwise repurchase or redeem Pari Passu Indebtedness (a
"Pari Passu Offer") in an amount (the "Pari Passu Debt Amount") equal to the
excess of the Excess Proceeds over the Security Amount; provided that in no
event shall the Pari Passu Debt Amount exceed the principal amount of such Pari
Passu Indebtedness plus the amount of any premium required to be paid to
repurchase such Pari Passu Indebtedness. The offer price shall be payable in
cash in an amount equal to 100% of the principal amount of the Notes plus
accrued and unpaid interest, if any, to the date (the "Offer Date") such Offer
is consummated (the "Offered Price"), in accordance with the procedures set
forth in the Indenture. To the extent that the aggregate Offered Price of the
Notes tendered pursuant to the Offer is less than the Security Amount relating
thereto or the aggregate amount of Pari Passu Indebtedness that is purchased is
less than the Pari Passu Debt Amount (the amount of such shortfall, if any,
constituting a "Deficiency"), the Company shall use such Deficiency in the
business of the Company and its Subsidiaries. Upon completion of the purchase of
all the Notes tendered pursuant to an Offer and repurchase of the Pari Passu
Indebtedness pursuant to a Pari Passu Offer, the amount of Excess Proceeds, if
any, shall be reset at zero.
(d) Whenever the Excess Proceeds received by the Company exceed $5.0
million, such Excess Proceeds shall, prior to the purchase of Notes or any Pari
Passu Indebtedness described in paragraph (c) above, be set aside by the Company
in a separate account pending (i) deposit with the depository or a paying agent
of the amount required to purchase the Notes or Pari Passu Indebtedness tendered
in an Offer or a Pari Passu Offer, (ii) delivery by the Company of the Offered
Price to the holders of the Notes or Pari Passu Indebtedness tendered in an
Offer or a Pari Passu Offer and (iii) application, as set forth above, of Excess
Proceeds in the business of the Company and its Subsidiaries. Such Excess
Proceeds may be invested in Temporary Cash Investments, provided that the
maturity date of any such investment made after the amount of Excess Proceeds
exceeds $5.0 million shall not be later than the Offer Date. The Company shall
be entitled to any interest or dividends accrued, earned or paid on such
Temporary Cash Investments, provided that the Company shall not withdraw such
interest from the separate account if an Event of Default has occurred and is
continuing.
(e) If the Company becomes obligated to make an Offer pursuant to clause (c)
above, the Notes shall be purchased by the Company, at the option of the holders
thereof, in whole or in part in integral multiples of $1,000, on a date that is
not earlier than 45 days and not later than 60 days from the date the notice is
given to holders, or such later date as may be necessary for the Company to
comply with the requirements under the Exchange Act, subject to proration in the
event that the Security Amount is less than the aggregate Offered Price of all
Notes tendered.
(f) The Company shall comply with the applicable tender offer rules,
including Rule 14e-1 under the Exchange Act, and any other applicable securities
laws or regulations in connection with an Offer.
(g) The Company will not, and will not permit any Subsidiary to, create or
permit to exist or become effective any restriction (other than restrictions
existing under Indebtedness as in effect on the date of the Indenture as such
Indebtedness may be refinanced from time to time) that would materially impair
the ability of the Company to make an Offer to purchase the Notes or, if such
Offer is made, to pay for the Notes tendered for purchase.
Limitation on Issuance and Sale of Preferred Stock of Subsidiaries. The
Company will not permit (a) any Subsidiary of the Company to issue any Preferred
Stock (other than to the Company or any Wholly-Owned Subsidiary) or (b) any
Person (other than the Company or any Wholly-Owned Subsidiary) to own any
Preferred Stock of any Subsidiary.
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Limitation on Dividends and Other Payment Restrictions Affecting
Subsidiaries. The Company will not, and will not permit any of its Subsidiaries
to, directly or indirectly, create or otherwise cause or suffer to exist or
become effective any encumbrance or restriction on the ability of any Subsidiary
of the Company to (i) pay dividends, in cash or otherwise, or make any other
distribution on its Capital Stock, (ii) pay any Indebtedness owed to the Company
or a Subsidiary of the Company, (iii) make any Investment in the Company or a
Subsidiary of the Company or (iv) transfer any of its properties or assets to
the Company or any Subsidiary, except (a) any encumbrance or restriction,
pursuant to an agreement in effect on the date of the Indenture and listed on a
schedule thereto; (b) any encumbrance or restriction, with respect to a
Subsidiary that is not a Subsidiary of the Company on the date of the Indenture,
in existence at the time such Person becomes a Subsidiary of the Company and, in
the case of clauses (a) and (b), not incurred in connection with, or in
contemplation of, such Person becoming a Subsidiary; and (c) any encumbrance or
restriction existing under any agreement that extends, renews, refinances or
replaces the agreements containing the encumbrances or restrictions in the
foregoing clauses (a) and (b), or in this clause (c), provided that the terms
and conditions of any such encumbrances or restrictions are not materially less
favorable to the holders of the Notes than those under or pursuant to the
agreement evidencing the Indebtedness so extended, renewed, refinanced or
replaced.
Provision of Financial Statements. Whether or not the Company is subject to
Section 13(a) or 15(d) of the Exchange Act, the Company will, to the extent
permitted under the Exchange Act, file with the Commission the annual reports,
quarterly reports and other documents which the Company would have been required
to file with the Commission pursuant to such Section 13(a) or 15(d) if the
Company were so subject, such documents to be filed with the Commission on or
prior to the respective dates (the "Required Filing Dates") by which the Company
would have been required so to file such documents if the Company were so
subject. The Company will also in any event (x) within 15 days of each Required
Filing Date (i) transmit by mail to all holders of the Notes, as their names and
addresses appear in the Security Register, without cost to such holders of the
Notes and (ii) file with the Trustee copies of the annual reports, quarterly
reports and other documents which the Company would have been required to file
with the Commission pursuant to Section 13(a) or 15(d) of the Exchange Act if
the Company were subject to such Sections and (y) if filing such documents by
the Company with the Commission is not permitted under the Exchange Act,
promptly upon written request and payment of the reasonable cost of duplication
and delivery, supply copies of such documents to any prospective holder of Notes
at the Company's cost.
CONSOLIDATION, MERGER, SALE OF ASSETS
The Company shall not, in a single transaction or a series of related
transactions, consolidate with or merge with or into any other Person or sell,
assign, convey, transfer, lease or otherwise dispose of all or substantially all
of its properties and assets to any Person or group of affiliated Persons, or
permit any of its Subsidiaries to enter into any such transaction or
transactions if such transaction or transactions, in the aggregate, would result
in a sale, assignment, conveyance, transfer, lease or disposition of all or
substantially all of the properties and assets of the Company and its
Subsidiaries on a consolidated basis to any other Person or group of affiliated
Person, unless (i) either (a) the Company shall be the continuing corporation or
(b) the Person (if other than the Company) formed by such consolidation or into
which the Company is merged or the Person which acquires by sale, assignment,
conveyance, transfer, lease or disposition of all or substantially all of the
properties and assets of the Company and its Subsidiaries on a consolidated
basis (the "Surviving Entity") shall be a corporation duly organized and validly
existing under the laws of the United States of America, any state thereof or
the District of Columbia and such Person assumes by a supplemental indenture in
a form reasonably satisfactory to the Trustee all the obligations of the Company
under the Notes and the Indenture, and the Indenture shall remain in full force
and effect; (ii) immediately before and immediately after giving effect to such
transaction, no Default or Event of Default shall have occurred and be
continuing; (iii) immediately after giving effect to such transaction, the
Consolidated Net Worth of the Company (or the Surviving
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Entity if the Company is not the continuing obligor under the Indenture) is
equal to or greater than the Consolidated Net Worth of the Company immediately
prior to such transaction; (iv) immediately before and immediately after giving
effect to such transaction on a pro forma basis (on the assumption that the
transaction occurred on the first day of the four-quarter period immediately
prior to the consummation of such transaction with the appropriate adjustments
with respect to the transaction being included in such pro forma calculation),
the Company (or the surviving Entity if the Company is not the continuing
obligor under the Indenture) could incur $1.00 of additional Indebtedness under
the provisions of the "Limitation on Indebtedness" covenant (other than
Permitted Indebtedness); and (v) the Company shall have delivered, or caused to
be delivered, to the Trustee, in form and substance reasonably satisfactory to
the Trustee, an officers' certificate and an opinion of counsel, each to the
effect that such consolidation, merger, transfer, lease or other transaction and
the supplemental indenture in respect thereto comply with the provisions
described herein and that all conditions precedent herein provided for relating
to such transaction have been complied with. Notwithstanding any provision to
the contrary contained herein or in the Indenture, the Company shall not be
prevented, restricted or limited in any way from merging with and into Haynes
International, Inc.
In the event of any consolidation, merger, transfer, sale, assignment, lease
or other transaction described in, and complying with, the conditions listed in
the immediately preceding paragraph in which the Company is not the continuing
corporation, the successor Person formed or remaining shall succeed to, and be
substituted for, and may exercise every right and power of, the Company, and the
Company would be discharged from all obligations and covenants under the
Indenture and the Notes, provided that, in the case of a transfer by lease, the
predecessor shall not be discharged from the obligation to make payments of
principal and interest on the Notes.
EVENTS OF DEFAULT
An Event of Default will occur under the Indenture if:
(i) there shall be a default in the payment of any interest on any Note
when it becomes due and payable, and such default shall continue for a
period of 30 days;
(ii) there shall be a default in the payment of the principal of (or
premium, if any, on) any Note at its Stated Maturity, upon redemption, upon
repurchase pursuant to a Change of Control Offer or an Offer in respect of
Excess Proceeds, upon acceleration or otherwise;
(iii) (a) there shall be a default in the performance, or breach, of any
covenant or agreement of the Company under the Indenture (other than a
default in the performance, or breach, of a covenant or agreement which is
specifically dealt with in clauses (i) or (ii) or in clauses (b), (c) and
(d) of this clause (iii)) and such default or breach shall continue for a
period of 30 days after written notice of such failure requiring the Company
to remedy the same shall have been given, (x) to the Company by the Trustee
or (y) to the Company and the Trustee by the holders of at least 25% in
aggregate principal amount of the outstanding Notes; (b) there shall be a
default in the performance or breach of the provisions described in
"--Consolidation, Merger, Sale of Assets"; (c) the Company shall have failed
to make or consummate an Offer in respect of Excess Proceeds in accordance
with the provisions of the "Limitation on Sale of Assets" covenant; or (d)
the Company shall have failed to make or consummate a Change of Control
Offer in accordance with the provisions of the "Purchase of Notes Upon a
Change of Control" covenant;
(iv) (a) any default in the payment of the principal, premium, if any,
or interest on any Indebtedness shall have occurred under any agreements,
indentures or instruments under which the Company or any Subsidiary then has
outstanding Indebtedness in excess of $5.0 million when the same shall
become due and payable and continuation of such default after any applicable
grace period or (b) an event of default as defined in any of the agreements,
indentures or instruments described in clause (a) of this paragraph (iv)
shall have occurred; and the Indebtedness thereunder,
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if not already matured at its final maturity in accordance with its terms,
shall have been accelerated;
(v) one or more judgments, orders or decrees for the payment of money in
excess of $2.5 million, either individually or in the aggregate (net of
amounts for which an insurance company has agreed in writing that it is
liable) shall be entered against the Company or any Subsidiary or any of
their respective properties and shall not be discharged and either (a) any
creditor shall have commenced an enforcement proceeding upon such judgment,
order or decree or (b) there shall have been a period of 90 consecutive days
during which a stay of enforcement of such judgment or order, by reason of
an appeal or otherwise, shall not be in effect;
(vi) there shall have been the entry by a court of competent
jurisdiction of (a) a decree or order for relief in respect of the Company
or any Material Subsidiary in an involuntary case or proceeding under any
applicable Bankruptcy Law or (b) a decree or order adjudging the Company or
any Material Subsidiary bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment or composition of or in respect of the Company or
any Material Subsidiary under any applicable Federal or state law, or
appointing a custodian, receiver, liquidator, assignee, trustee,
sequestrator (or other similar official) of the Company or any Material
Subsidiary or of any substantial part of its property, or ordering the
winding up or liquidation of its affairs, and any such decree or order for
relief shall continue to be in effect, or any such other decree or order
shall be unstayed and in effect, for a period of 90 consecutive days;
(vii) (a) the Company or any Material Subsidiary commences a voluntary
case or proceeding under any applicable Bankruptcy Law or any other case or
proceeding to be adjudicated bankrupt or insolvent, (b) the Company or any
Material Subsidiary consents to the entry of a decree or order for relief in
respect of the Company or such Material Subsidiary in an involuntary case or
proceeding under any applicable Bankruptcy Law or to the commencement of any
bankruptcy or insolvency case or proceeding against it, (c) the Company or
any Material Subsidiary files a petition or answer or consent seeking
reorganization or relief under any applicable Federal or state law, (d) the
Company or any Material Subsidiary (x) consents to the filing of such
petition or the appointment of, or taking possession by, a custodian,
receiver, liquidator, assignee, trustee, sequestrator, or similar official
of the Company or such Material Subsidiary of any substantial part of its
property, (y) makes an assignment for the benefit of creditors or (z) admits
in writing its inability to pay its debts generally as they become due or
(e) the Company or any Material Subsidiary takes any corporate action in
furtherance of any such actions in this paragraph (vii);
(viii) any holder or holders of at least $5.0 million in aggregate
principal amount of Indebtedness of the Company or any Subsidiary after a
default under such Indebtedness shall notify the Trustee of the intended
sale or disposition of any assets of the Company or any Subsidiary that have
been pledged to or for the benefit of such holder or holders to secure such
Indebtedness or shall commence proceedings, or take any action (including by
way of set-off), to retain in satisfaction of such Indebtedness or to
collect on, seize, dispose of or apply in satisfaction of Indebtedness,
assets of the Company or any Subsidiary (including funds on deposit or held
pursuant to lock-box and other similar arrangements); or
(ix) the Company shall fail to redeem the Existing Senior Notes and the
Existing Subordinated Notes within 45 days after the date of the original
issuance of the Notes.
If an Event of Default (other than as specified in clauses (vi) and (vii) of
the prior paragraph) shall occur and be continuing, the Trustee or the holders
of 25% in aggregate principal amount of the Notes then outstanding may declare
the Notes due and payable immediately at their principal amount together with
accrued and unpaid interest, if any, to the date the Notes become due and
payable and thereupon the Trustee may, at its discretion, proceed to protect and
enforce the rights of the holders of Notes by appropriate judicial proceeding.
If an Event of Default specified in clause (vi) or (vii) of the prior paragraph
occurs and is continuing, then all the Notes shall ipso facto become and be
immediately
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due and payable, in an amount equal to the principal amount of the Notes,
together with accrued and unpaid interest, if any, to the date the Notes become
due and payable, without any declaration or other act on the part of the Trustee
or any holder of the Notes.
After a declaration of acceleration, but before a judgment or decree for
payment of the money due has been obtained by the Trustee, the holders of a
majority in aggregate principal amount of the Notes outstanding, by written
notice to the Company and the Trustee, may annul such declaration if (a) the
Company has paid or deposited with the Trustee a sum sufficient to pay (i) all
sums paid or advanced by the Trustee under the Indenture and the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, (ii) all overdue interest on all Notes, and (iii) to the extent
that payment of such interest is lawful, interest upon overdue interest at the
rate borne by the Notes; and (b) all Events of Default, other than the
non-payment of principal of the Notes which have become due solely by such
declaration of acceleration, have been cured or waived.
The holders of not less than a majority in principal amount of the Notes
outstanding may on behalf of the holders of all the Notes waive any past
defaults under the Indenture, except a default in the payment of the principal
of, premium, if any, or interest on any Note, or in respect of a covenant or
provision which under the Indenture cannot be modified or amended without the
consent of the holder of each outstanding Note that is affected by such
modification or amendment.
The Company is also required to notify the Trustee within five business days
of the occurrence of any Default.
The Trust Indenture Act contains limitations on the right of the Trustee,
should it become a creditor of the Company or any Guarantor, to obtain payment
of claims cases or to realize on certain property received by it in respect of
any such claims, as security or otherwise. The Trustee is permitted to engage in
other transactions, provided that if it acquires any conflicting interest it
must eliminate such conflict upon the occurrence of an Event of Default or else
resign.
DEFEASANCE OR COVENANT DEFEASANCE OF INDENTURE
The Company may, at its option and at any time, elect to have the
obligations of the Company discharged with respect to the outstanding Notes
("defeasance"). Such defeasance means that the Company shall be deemed to have
paid and discharged the entire indebtedness represented by the outstanding
Notes, except for (i) the rights of holders of outstanding Notes to receive
payments in respect of the principal of, premium, if any, and interest on such
Notes when such payments are due, (ii) the Company's obligations with respect to
the Notes concerning issuing temporary Notes, registration of Notes, mutilated,
destroyed, lost or stolen Notes, and the maintenance of an office or agency for
payment and money for security payments held in trust, (iii) the rights, powers,
trusts, duties and immunities of the Trustee, and (iv) the defeasance provisions
of the Indenture. In addition, the Company may, at its option and at any time,
elect to have the obligations of the Company released with respect to certain
covenants that are described in the Indenture ("covenant defeasance") and any
omission to comply with such obligations shall not constitute a Default or an
Event of Default with respect to the Notes. In the event covenant defeasance
occurs, certain events (not including non-payment or bankruptcy and insolvency
events) described under "Events of Default" will no longer constitute an Event
of Default with respect to the Notes.
In order to exercise either defeasance or covenant defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit of
the holders of the Notes, cash in United States dollars, U.S. Government
Obligations (as defined in the Indenture), or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay and discharge the principal of, premium,
if any, and interest on the outstanding Notes on the Stated Maturity (or on any
date after , 2000 if such Notes are to be redeemed on such date) (such date
being referred to as the "Defeasance Redemption Date"), if prior to electing to
exercise either defeasance or covenant defeasance, the Company has delivered to
the Trustee an
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irrevocable notice to redeem all of the outstanding Notes on the Defeasance
Redemption Date of such principal or installment of principal or interest; (ii)
in the case of defeasance, the Company shall have delivered to the Trustee an
opinion of independent counsel in the United States stating that (A) the Company
has received from, or there has been published by, the Internal Revenue Service
a ruling or (B) since the date of the Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that, and based
thereon such opinion of counsel in the United States shall confirm that, the
holders of the outstanding Notes will not recognize income, gain or loss for
federal income tax purposes as a result of each defeasance and will be subject
to federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such defeasance had not occurred; (iii) in
the case of covenant defeasance, the Company shall have delivered to the Trustee
an opinion of independent counsel in the United States to the effect that the
holders of the outstanding Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such covenant defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such covenant defeasance had not
occurred; (iv) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit; (v) such defeasance or covenant
defeasance shall not cause the Trustee for the Notes to have a conflicting
interest with respect to any securities of the Company; (vi) such defeasance or
covenant defeasance shall not result in a breach or violation of, or constitute
a Default under, the Indenture or any other material agreement or instrument to
which the Company is a party or by which it is bound; (vii) the Company shall
have delivered to the Trustee an opinion of independent counsel in the United
States to the effect that the defeasance trust does not violate the Investment
Company Act of 1940 and after the passage of 123 days following the deposit the
trust fund will not be subject to the effect of sections 547 and 550 of the
United States Bankruptcy Code or section 15 of the New York Debtor and Creditor
Law; (viii) the Company shall have delivered to the Trustee an officers'
certificate stating that the deposit was not made by the Company with the intent
of preferring the holders of the Notes over the other creditors of the Company
with the intent of defecting, hindering, delaying or defrauding creditors of the
Company or others; (ix) no event or condition shall exist on the date of deposit
that would prevent the Company from making payments of the principal of,
premium, if any, and interest on the Notes on the date of such deposit or at any
time ending on the 123rd day after the date of such deposit; and (x) the Company
shall have delivered to the Trustee an officers' certificate and an opinion of
independent counsel, each stating that all conditions precedent provided for
relating to either the defeasance or the covenant defeasance, as the case may
be, have been complied with.
SATISFACTION AND DISCHARGE
The Indenture will cease to be of further effect (except as to surviving
rights of registration of transfer or exchange of the Notes, as expressly
provided for in the Indenture) as to all outstanding Notes when (i) either (a)
all the Notes theretofore authenticated and delivered (except lost, stolen or
destroyed Notes which have been replaced or paid and Notes for whose payment
funds have been deposited in trust by the Company and thereafter repaid to the
Company or discharged from such trust) have been delivered to the Trustee for
cancellation or (b) all Notes not theretofore delivered to the Trustee for
cancellation (x) have become due and payable, (y) will become due and payable at
their Stated Maturity within one year or (z) are to be called for redemption
within one year under arrangements satisfactory to the Trustee for the giving of
notice of redemption by the Trustee in the name, and at the expense, of the
Company and the Company has irrevocably deposited or caused to be deposited with
the Trustee funds in an amount sufficient to pay and discharge the entire
indebtedness on the Notes not theretofore delivered to the Trustee for
cancellation, for principal of, premium, if any, and interest to the date of
deposit; (ii) the Company has paid all other sums payable under the Indenture by
the Company; and (iii) the Company has delivered to the Trustee an officers'
certificate and an opinion of counsel each stating that all conditions precedent
under the Indenture relating to the satisfaction and discharge of the Indenture
have been complied with and that such satisfaction and discharge will not result
in a breach or violation of, or constitute a default under, the Indenture or any
other material agreement or instrument to which the Company is a party or by
which the Company is bound.
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MODIFICATIONS AND AMENDMENTS
Modifications and amendments of the Indenture may be made by the Company and
the Trustee with the consent of at least 50% of the holders in aggregate
outstanding principal amount of the Notes; provided, however, that no such
modification or amendment may, without the consent of the holder of each
outstanding Note affected thereby: (i) change the Stated Maturity of the
principal of, or any installment of interest on, any Note or waive a default in
the payment of the principal or interest on any Note or reduce the principal
amount thereof or the rate of interest thereon or any premium payable upon the
redemption thereof, or change the coin or currency in which any Note or any
premium or the interest thereon is payable, or impair the right to institute
suit for the enforcement of any such payment after the Stated Maturity thereof;
(ii) amend, change or modify the obligation of the Company to make and
consummate an Offer with respect to any Asset Sales or the obligation of the
Company to make and consummate a Change of Control Offer in the event of a
Change of Control or modify any of the provisions or definitions with respect
thereto; (iii) amend, change or modify the obligation or ability of the Company
to make and consummate an offer in accordance with "--Change of Control
Provisions-- Optional Redemption upon Change of Control," including amending,
changing or modifying any of the provisions or definitions with respect thereto;
(iv) reduce the percentage in principal amount of outstanding Notes, the consent
of whose holders is required for any such supplemental indenture, or the consent
of whose holders is required for any waiver; (v) modify any of the provisions
relating to supplemental indentures requiring the consent of holders or relating
to the waiver of past defaults or relating to the waiver of certain covenants,
except to increase the percentage of outstanding Notes required for such actions
or to provide that certain other provisions of the Indenture cannot be modified
or waived without the consent of the holder of each Note affected thereby; (vi)
except as otherwise permitted under "--Consolidation, Merger, Sale of Assets",
consent to the assignment or transfer by the Company of any of its rights and
obligations under the Indenture; or (vii) amend or modify any of the provisions
of the Indenture in any manner which subordinates the Notes in right of payment
to other Indebtedness of the Company.
The holders of a majority in aggregate principal amount of the Notes
outstanding may waive compliance with certain restrictive covenants and
provisions of the Indenture.
CERTAIN DEFINITIONS
"Acquired Indebtedness" means Indebtedness of a Person (i) existing at the
time such Person becomes a Subsidiary or (ii) assumed in connection with the
acquisition of assets from such Person, in each case, other than Indebtedness
incurred in connection with, or in contemplation of, such Person becoming a
Subsidiary or such acquisition. Acquired Indebtedness shall be deemed to be
incurred on the date of the related acquisition of assets from any Person or the
date the acquired Person becomes a Subsidiary.
"Adjusted Consolidated Interest Expense" of any Person means, without
duplication, for any period, as applied to any Person, the sum of (a) the
interest expense of such Person and its Consolidated Subsidiaries for such
period, on a Consolidated basis, including without limitation, (i) amortization
of debt discount, (ii) the net cost under interest rate contracts (including
amortization of discounts), (iii) the interest portion of any deferred payment
obligation and (iv) accrued interest, plus (b) (i) the interest component of the
Capital Lease Obligations paid, accrued and/or scheduled to be paid, or accrued
by such Person during such period, and (ii) all capitalized interest of such
Person and its Consolidated Subsidiaries, in each case as determined in
accordance with GAAP consistently applied.
"Affiliate" means, (i) with respect to any specified Person, (A) any other
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person or (B) any other Person that
owns, directly or indirectly, 5% or more of such Person's Capital Stock or any
officer or director of any such specified Person or other Person described in
clauses (A) or (B), or (ii) with respect to any natural Person, any person
having a relationship with such Person by
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blood, marriage or adoption not more remote than first cousin. For the purposes
of this definition, "control" when used with respect to any specified Person
means the power to direct the management and policies of such Person directly or
indirectly, whether through ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Asset Sale" means any sale, issuance, conveyance, transfer, lease or other
disposition (including, without limitation, by way of merger, consolidation or
Sale and Leaseback Transaction) (collectively, a "transfer"), directly or
indirectly, in one or a series of related transactions, of (a) any Capital Stock
of any Subsidiary; (b) all or substantially all of the properties or assets of
any division or line of business of the Company or its Subsidiaries; or (c) any
other properties or assets of the Company or any Subsidiary, other than in the
ordinary course of business; provided that the sale of any material portion of
the Company's facilities in Kokomo, Indiana, Arcadia, Louisiana or Openshaw,
England shall be deemed to be not in the ordinary course of business. For the
purposes of this definition, the term "Asset Sale" shall not include any
transfer of properties and assets (A) that is governed by the provisions
described under "Consolidation, Merger, Sale of Assets", (B) that is of the
Company to any Wholly-Owned Subsidiary, or of any Subsidiary to the Company or
any Wholly-Owned Subsidiary in accordance with the terms of the Indenture or (C)
for which the Fair Market Value of any transferred properties or assets is less
than $1 million.
"Average Life to Stated Maturity" means, as of the date of determination
with respect to any Indebtedness, the quotient obtained by dividing (i) the sum
of the products of (a) the number of years from the date of determination to the
date or dates of each successive scheduled principal payment of such
Indebtedness multiplied by (b) the amount of each such principal payment; by
(ii) the sum of all such principal payments.
"Bankruptcy Law" means Title 11, United States Bankruptcy Code of 1978, as
amended, or any similar United States Federal or State law relating to
bankruptcy, insolvency, receivership, winding-up, liquidation, reorganization or
relief of debtors or any amendment to, succession to or change in any such law.
"Capital Lease Obligation" of any Person means any obligations of such
Person and its Subsidiaries on a Consolidated basis under any capital lease of
real or personal property which, in accordance with GAAP, has been recorded as a
capitalized lease obligation.
"Capital Stock" of any Person means any and all shares, interests,
participation or other equivalents (however designated) of such Person's capital
stock.
"Change of Control" means the occurrence of any of the following events: (i)
any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of
the Exchange Act), other than Permitted Holders, is or becomes the "beneficial
owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that
a Person shall be deemed to have "beneficial ownership" of all shares that such
Person has the right to acquire, whether such right is exercisable immediately
or only after the passage of time), directly or indirectly, of more than 50% of
the total outstanding Voting Stock of the Company; (ii) during any period of two
consecutive years, individuals who at the beginning of such period constituted
the board of directors of the Company (together with any new directors whose
election to such board or whose nomination for election by the stockholders of
the Company, was approved by a vote of 66 2/3% of the directors then still in
office who were either directors at the beginning of such period or whose
election or nomination for election was previously so approved) cease for any
reason to constitute a majority of such board of directors then in office; (iii)
the Company consolidates with, or merges with or into, another Person or sells,
assigns, conveys, transfers, leases or otherwise disposes of all or
substantially all of its assets to any Person, or any Person consolidates with,
or merges with or into, the Company, in any such event pursuant to a transaction
in which the outstanding Voting Stock of the Company is converted into or
exchanged for cash, securities or other property, other than any such
transaction where (a) the outstanding Voting Stock of the Company is converted
into or
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exchanged for (1) Voting Stock (other than Redeemable Capital Stock) of the
surviving or transferee corporation or (2) cash, securities and other
property in an amount which could be paid by the Company as a Restricted
Payment under the Indenture and (b) immediately after such transaction no
"person" or "group" (as such terms are used in Section 13(d) and 14(d) of the
Exchange Act), other than Permitted Holders, is the "beneficial owner" (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a person
shall be deemed to have "beneficial ownership" of all securities that such
person has the right to acquire, whether such right is exercisable immediately
or only after the passage of time), directly or indirectly, of more than 50% of
the total outstanding Voting Stock of the surviving or transferee corporation;
or (iv) the Company is liquidated or dissolved or adopts a plan of liquidation
or dissolution other than in a transaction which complies with the provisions
described under "Description of the Notes--Consolidation, Merger, Sale of
Assets."
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission, as from time to
time constituted, created under the Exchange Act, or if at any time after the
execution of the Indenture such Commission is not existing and performing the
duties now assigned to it under the Trust Indenture Act, then the body
performing such duties at such time.
"Company" means Haynes Corp., a corporation incorporated under the laws of
Delaware, until a successor Person shall have become such pursuant to the
applicable provisions of the Indenture, and thereafter "Company" shall mean such
successor Person, including without limitation the successor to Haynes Corp.
resulting from the Merger.
"Consolidated Fixed Charge Coverage Ratio" of any Person means, for any
period, the ratio of EBITDA to the sum of Adjusted Consolidated Interest Expense
for such period and cash and non-cash dividends paid on any Preferred Stock of
such Person during such period; provided that (i) in making such computation,
the Adjusted Consolidated Interest Expense attributable to interest on any
Indebtedness shall be computed on a pro forma basis (calculated as described
under "--Certain Covenants-- Limitation on Indebtedness") and (A) where such
Indebtedness was outstanding during the period and bore a floating interest
rate, interest shall be computed as if the rate in effect on the date of
computation had been the applicable rate for the entire period and (B) where
such indebtedness was not outstanding during the period for which the
computation is being made but which bears, at the option of the Company, a fixed
or floating rate of interest, shall be computed by applying at the option of the
Company, either the fixed or floating rate and (ii) in making such computation,
the Adjusted Consolidated Interest Expense of such Person attributable to
interest on any Indebtedness under a revolving credit facility computed on a pro
forma basis shall be computed based upon the average daily balance of such
Indebtedness during the applicable period.
"Consolidated Income Tax Expense" means for any period, as applied to any
Person, the provision for federal, state, local and foreign income taxes of such
Person and its Consolidated Subsidiaries for such period as determined in
accordance with GAAP consistently applied.
"Consolidated Net Income" of any Person means, for any period, the
consolidated net income (or loss) of such Person and its Consolidated
Subsidiaries for such period as determined in accordance with GAAP consistently
applied, adjusted, to the extent included in calculating such net income (loss),
by excluding, without duplication, (i) all extraordinary gains or losses (less
all fees and expenses relating thereto), (ii) the portion of net income (or
loss) of such Person and its Consolidated Subsidiaries allocable to minority
interests in unconsolidated Persons to the extent that cash dividends or
distributions have not actually been received by such Person or one of its
Consolidated Subsidiaries, (iii) net income (or loss) of any Person combined
with the Company or any of its Subsidiaries on a "pooling of interests" basis
attributable to any period prior to the date of combination, (iv) any gain or
loss, net of taxes, realized upon the termination of any employee pension
benefit plan, (v) net gains or losses (less all fees and expenses relating
thereto) in respect of dispositions of assets other than in the ordinary course
of business, (vi) the expenses recognized in connection with the payment of the
prepayment premiums
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related to the Redemption, (vii) the expenses recognized in connection with the
termination of and repayment of amounts outstanding under the Existing Credit
Facility, (viii) the expenses recognized related to amortization of fees and
other charges in connection with the 1989 Acquisition, (ix) an amount equal to
the excess of (A) the interest expense incurred on the Existing Notes and the
Notes during the period following the consummation of the Offerings and prior to
the date of the Redemption, over (B) the interest income earned on the proceeds
from the Offerings designated for the Redemption during the same period, or (x)
the net income of any Subsidiary to the extent that the declaration of dividends
or similar distributions by that Subsidiary of that income is not at the time
permitted, directly or indirectly, by operation of the terms of its charter or
any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Subsidiary or its stockholders.
"Consolidated Net Worth" of any Person means the Consolidated stockholders'
equity (excluding Redeemable Capital Stock) of such Person and its Subsidiaries,
as determined in accordance with GAAP consistently applied.
"Consolidated Non-Cash Charges" of any Person means, for any period, the
aggregate depreciation, amortization and other non-cash charges of such Person
and its consolidated subsidiaries for such period, as determined in accordance
with GAAP (excluding any non-cash charge that requires an accrual or reserve for
cash charges for any future period and all non-cash charges incurred in
connection with the valuation of inventory on a LIFO basis).
"Consolidation" means, with respect to the accounts of any Person, the
consolidation of such Person and each of its subsidiaries if and to the extent
the accounts of such Person and each of its subsidiaries would normally be
consolidated with those of such Person, all in accordance with GAAP consistently
applied. The term "Consolidated" shall have a similar meaning.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Disinterested Director" means, with respect to any transaction or series of
related transactions, a member of the board of directors who does not have any
material direct or indirect financial interest in or with respect to such
transaction or series of related transactions.
"EBITDA" means the sum of Consolidated Net Income, Adjusted Consolidated
Interest Expense, Consolidated Income Tax Expense and Consolidated Non-Cash
Charges deducted in computing Consolidated Net Income in each case, for such
period, of the Company and its Subsidiaries on a Consolidated basis, all
determined in accordance with GAAP consistently applied.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" means, with respect to any asset or property, the sale
value that would be obtained in an arm's-length transaction between an informed
and willing seller under no compulsion to sell and an informed and willing
buyer.
"Generally Accepted Accounting Principles" or "GAAP" means generally
accepted accounting principles in the United States, consistently applied, which
are in effect on the date of the Indenture.
"Guaranteed Debt" of any Person means, without duplication, all Indebtedness
of any other Person (debtor) referred to in the definition of "Indebtedness"
below guaranteed directly or indirectly in any manner by such Person, or in
effect guaranteed directly or indirectly by such Person through an agreement (i)
to pay or purchase such Indebtedness or to advance or supply funds for the
payment or purchase of such Indebtedness, (ii) to purchase, sell or lease (as
lessee or lessor) property, or to purchase or sell services, primarily for the
purpose of enabling the debtor to make payment of such Indebtedness or to assure
the holder of such Indebtedness against loss, (iii) to supply funds to, or in
any other manner invest in, the debtor (including any agreement to pay for
property or services without requiring that such property be received or such
services be rendered), (iv) to maintain working capital or equity capital of the
debtor, or otherwise to maintain the net worth, solvency or other financial
condition of the
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debtor or (v) otherwise to assure a creditor against loss; provided that the
term "guarantee" shall not include endorsements for collection or deposit, in
either case in the ordinary course of business.
"Indebtedness" means, with respect to any Person, without duplication, (i)
all indebtedness of such Person for borrowed money or for the deferred purchase
price of property or services, excluding any trade payables and other accrued
current liabilities arising in the ordinary course of business, but including,
without limitation, all obligations, contingent or otherwise, of such Person in
connection with any letters of credit issued under letter of credit facilities,
acceptance facilities or other similar facilities and in connection with any
agreement to purchase, redeem, exchange, convert or otherwise acquire for value
any Capital Stock of such Person, or any warrants, rights or options to acquire
such Capital Stock, now or hereafter outstanding, (ii) all obligations of such
Person evidenced by bonds, notes, debentures or other similar instruments, (iii)
all indebtedness created or arising under any conditional sale or other title
retention agreement with respect to property acquired by such Person (even if
the rights and remedies of the seller or lender under such agreement in the
event of default are limited to repossession or sale of such property), but
excluding trade payables arising in the ordinary course of business, (iv) all
obligations under Interest Rate Agreements of such Person, (v) all Capital Lease
Obligations of such Person, (vi) all Indebtedness referred to in clauses (i)
through (v) above of other Persons and all dividends of other Persons, the
payment of which is secured by (or for which the holder of such Indebtedness has
an existing right, contingent or otherwise, to be secured by) any Lien, upon or
with respect to property (including, without limitation, accounts and contract
rights) owned by such Person, even though such Person has not assumed or become
liable for the payment of such Indebtedness, (vii) all Guaranteed Debt of such
Person, (viii) all Redeemable Capital Stock valued at the greater of its
voluntary or involuntary maximum fixed repurchase price plus accrued and unpaid
dividends, and (ix) any amendment, supplement, modification, deferral, renewal,
extension, refunding or refinancing of any liability of the types referred to in
clauses (i) through (viii) above. For purposes hereof, the "maximum fixed
repurchase price" of any Redeemable Capital Stock which does not have a fixed
repurchase price shall be calculated in accordance with the terms of such
Redeemable Capital Stock as if such Redeemable Capital Stock were purchased on
any date on which Indebtedness shall be required to be determined pursuant to
the Indenture, and if such price is based upon, or measured by, the fair market
value of such Redeemable Capital Stock, such fair market value to be determined
in good faith by the board of directors of the issuer of such Redeemable Capital
Stock.
"Independent Financial Advisor" means a nationally recognized investment
banking firm (i) which does not, and whose directors, officers and employees or
Affiliates do not, have a direct or indirect financial interest in the Company
and (ii) which, in the judgment of the board of directors of the Company, is
otherwise independent and qualified to perform the task for which it is to be
engaged.
"Interest Rate Agreements" means one or more of the following agreements
which shall be entered into by one or more financial institutions: interest rate
protection agreements (including, without limitation, interest rate swaps, caps,
floors, collars and similar agreements) and/or other types of interest rate
hedging agreements from time to time.
"Investments" means, with respect to any Person, directly or indirectly, any
advance, loan, or other extension of credit or capital contribution to (by means
of any transfer of cash or other property to others or any payment for property
or services for the account or use of others), or any purchase, acquisition or
ownership by such Person of any Capital Stock, bonds, notes, debentures or other
securities issued or owned by any other Person.
"Lien" means any mortgage, charge, pledge, lien (statutory or otherwise),
privilege, security interest, hypothecation or other encumbrance upon or with
respect to any property of any kind, real or personal, movable or immovable, now
owned or hereafter acquired.
"Material Subsidiary" means a Subsidiary that is a "significant subsidiary"
of the Company as defined in Rule 1-02 of Regulation S-X under the Securities
Act and the Exchange Act.
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"Maturity" when used with respect to any Note means the date on which the
principal of such Note becomes due and payable as therein provided or as
provided in the Indenture, whether at Stated Maturity, the Offer Date, the
Change of Control Purchase Date or the redemption date and whether by
declaration of acceleration, Offer in respect of Excess Proceeds, Change of
Control, call for redemption or otherwise.
"Moody's" means Moody's Investors Service, Inc. or any successor rating
agency.
"Net Cash Proceeds" means (a) with respect to any Asset Sale by any Person,
the proceeds thereof in the form of cash or cash equivalents including payments
in respect of deferred payment obligations when received in the form of, or
stock or other assets when disposed for, cash or cash equivalents (except to the
extent that such obligations are financed or sold with recourse to the Company
or any Subsidiary) net of (i) brokerage commissions and other reasonable fees
and expenses (including fees and expenses of counsel and investment bankers)
related to such Asset Sale, (ii) provisions for all taxes payable as a result of
such Asset Sale, (iii) payments made to retire Indebtedness where payment of
such Indebtedness is secured by the assets or properties the subject of such
Asset Sale, (iv) amounts required to be paid to any Person (other than the
Company or any Subsidiary) owning a beneficial interest in the assets subject to
the Asset Sale and (v) appropriate amounts to be provided by the Company or any
subsidiary, as the case may be, as a reserve, in accordance with GAAP, against
any liabilities associated with such Asset Sale and retained by the Company or
any Subsidiary, as the case may be, after such Asset Sale, including without
limitation, pension and other post-employment benefit liabilities, liabilities
related to environmental matters and liabilities under any indemnification
obligations associated with such Asset Sale, all as reflected in an officers'
certificate delivered to the Trustee and (b) with respect to any issuance or
sale of Capital Stock or options, warrants or rights to purchase Capital Stock,
or debt securities or Capital Stock that have been converted into or exchanged
for Capital Stock, as referred to in the "Limitation on Restricted Payments"
covenant, the proceeds of such issuance or sale in the form of cash or cash
equivalents, including payments in respect of deferred payment obligations when
received in the form of, or stock or other assets when disposed for, cash or
cash equivalents (except to the extent that such obligations are financed or
sold with recourse to the Company or any Subsidiary), net of attorney's fees,
accountant's fees and brokerage, consultation, underwriting and other fees and
expenses actually incurred in connection with such issuance or sale and net of
taxes paid or payable as a result thereof.
"New Credit Facility" means the Loan and Security Agreement, dated as of the
close of the Offering, among the Company, Congress Financial Corporation
(Central) ("Congress"), as agent, and Congress and CoreStates Bank, N.A., as
lenders, as such agreement may be amended, renewed, extended, substituted,
refinanced, restructured, replaced, supplemented or otherwise modified from time
to time, whether by the same or any other lender or group of lenders (including,
without limitation, any successive renewals, extensions, substitutions,
refinancings, restructurings, replacements, supplementations or other
modifications of the foregoing).
"Pari Passu Indebtedness" means any Indebtedness of the Company that is pari
passu in right of payment to the Notes.
"Permitted Holders" means MLGA Fund II, L.P., and any Affiliates thereof.
"Permitted Indebtedness" means the following:
(i) Indebtedness of the Company under the New Credit Facility, under
which the sum of (a) the aggregate principal amount of revolving loan
advances and (b) the aggregate stated amount of letters of credit issued
pursuant thereto, at any one time outstanding does not exceed the greater of
(x) $50.0 million and (y) an amount equal to (i) 60% of Eligible Inventory
consisting of finished goods and raw materials for such finished goods, plus
(ii) 45% of Eligible Inventory consisting of work-in-process and
semi-processed goods plus (iii) 85% of the Net Amount of Eligible Accounts
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minus (iv) any Availability Reserves, as each of the capitalized terms in
this clause (y) is defined in the New Credit Facility;
(ii) Indebtedness of the Company pursuant to the Notes;
(iii) Indebtedness of the Company evidenced by the Existing Senior Notes
and the Subordinated Notes to be redeemed pursuant to a notice of redemption
given on the date hereof;
(iv) Indebtedness of the Company owing to a Subsidiary, provided that
any Indebtedness of the Company owing to a Subsidiary is made pursuant to an
intercompany note and is subordinated in right of payment from and after
such time as the Notes shall become due and payable (whether at Stated
Maturity, acceleration or otherwise) to the payment and performance of the
Company's obligations under the Notes; provided, further, that any
disposition, pledge or transfer of any such Indebtedness to a Person (other
than the Company or another Subsidiary) shall be deemed to be an incurrence
of such Indebtedness by the Company not permitted by this clause (iv);
(v) obligations of the Company entered into in the ordinary course of
business pursuant to Interest Rate Agreements designed to protect the
Company or any Subsidiary against fluctuations in interest rates in respect
of Indebtedness of the Company or any of its Subsidiaries, which obligations
do not exceed the aggregate principal amount of such Indebtedness and
hedging arrangements that the Company enters into in the ordinary course of
business for the purpose of protecting its production against fluctuations
in commodity prices;
(vi) Indebtedness of the Company incurred (a) as a Purchase Money
Obligation, (b) under any Capital Lease Obligation, or (c) with respect to
letters of credit not otherwise permitted pursuant to clause (i) of this
definition of "Permitted Indebtedness" in a principal amount for clauses
(a), (b) and (c) in the aggregate not to exceed $5.0 million in any fiscal
year of the Company;
(vii) Indebtedness of the Company in addition to that described in
clauses (i) through (vi) of this definition of "Permitted Indebtedness," not
to exceed $10.0 million at any time outstanding in the aggregate; provided
that such amount shall be reduced by the amount, if any, of Permitted
Subsidiary Indebtedness then outstanding under clause (iii) of the
definition of "Permitted Subsidiary Indebtedness";
(viii) any renewals, extensions, substitutions, refundings, refinancings
or replacements (collectively, a "renewal/refinancing") of any Indebtedness
described in clauses (ii) and (vi) of this definition of "Permitted
Indebtedness," including any successive renewal/refinancings so long as the
aggregate principal amount of Indebtedness represented thereby is not
increased by such renewal/refinancing plus the lesser of (I) the stated
amount of any premium or other payment required to be paid in connection
with such renewal/refinancing pursuant to the terms of such Indebtedness or
(II) the amount of premium or other payment actually paid at such time to
refinance the Indebtedness, plus, in either case, the amount of expenses of
the Company incurred in connection with such renewal/refinancing and, in the
case of Pari Passu Indebtedness or Subordinated Indebtedness, such
renewal/refinancing does not reduce the Average Life to Stated Maturity or
the Stated Maturity of such Indebtedness; and
(ix) Permitted Subsidiary Indebtedness that is permitted to be incurred
by a Subsidiary pursuant to clauses (ii) and (iii) under the definition of
"Permitted Subsidiary Indebtedness."
(x) Acquired Indebtedness that, after giving pro forma effect thereto,
and to the related acquisition as provided in "--Certain
Covenants--Limitation on Indebtedness," results in (x) the Consolidated
Fixed Coverage Ratio being less than the Applicable Coverage Ratio but
greater than or equal to 1.75 to 1.00 and (y) the Consolidated Fixed
Coverage Ratio increasing as a consequence of such incurrence.
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"Permitted Investment" means (i) Investments in any Wholly-Owned Subsidiary;
(ii) Indebtedness of a Subsidiary described under clause (ii) of the definition
of "Permitted Subsidiary Indebtedness" or Indebtedness of the Company described
under clause (iv) of the definition of "Permitted Indebtedness;" (iii) Temporary
Cash Investments; (iv) Investments acquired by the Company or any Subsidiary in
connection with an Asset Sale permitted under the "Limitation on Sale of Assets"
covenant to the extent such investments are non-cash proceeds as permitted under
such covenant; and (v) other Investments in the aggregate not to exceed $5.0
million.
"Permitted Subsidiary Indebtedness" means:
(i) Acquired Indebtedness of any Subsidiary;
(ii) Indebtedness of a Wholly-Owned Subsidiary owing to the Company or
another Wholly-Owned Subsidiary; provided that any such Indebtedness is made
pursuant to an intercompany note in the form attached as an exhibit to the
Indenture; provided, further, that (x) any disposition, pledge or transfer
of any such Indebtedness to a Person (other than the Company or a Wholly-
Owned Subsidiary and other than any pledge as security for the New Credit
Facility) shall be deemed to be an incurrence of such Indebtedness by the
obligor not permitted by this clause (ii) and (y) any transaction pursuant
to which any Wholly-Owned Subsidiary, which has Indebtedness owing to the
Company or any other Wholly-Owned Subsidiary, ceases to be a Wholly-Owned
Subsidiary shall be deemed to be the incurrence of Indebtedness by the
Company or such other Wholly-Owned Subsidiary that is not permitted under
this clause (ii);
(iii) Indebtedness of a Subsidiary in addition to that described in
clauses (i) and (ii) of this definition of "Permitted Subsidiary
Indebtedness," not to exceed $10.0 million at any time outstanding in the
aggregate; provided, that such amount shall be reduced by the amount, if
any, of Permitted Indebtedness then outstanding under clause (vii) of the
definition of "Permitted Indebtedness"; and
(iv) any renewals, extensions, substitutions, refinancings or
replacements (collectively, a "debt refinancing") of any Indebtedness
described in clause (i) of this definition of "Permitted Subsidiary
Indebtedness," including any successive debt refinancings thereof, so long
as any such new Indebtedness shall be in a principal amount that does not
exceed the principal amount so refinanced, plus an amount equal to the
lesser of (x) the stated amount of any premium required to be paid in
connection with any such debt refinancing and (y) the amount of premium
actually paid in connection with any such debt refinancing plus the amount
of expenses of such Subsidiary incurred in connection therewith.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Preferred Stock" means, with respect to any Person, any and all shares,
interests, participation or other equivalents (however designated) of such
Person's preferred stock whether now outstanding, or issued after the date of
the Indenture, and including, without limitation, all classes and series of
preferred or preference stock.
"Public Equity Offering" means any underwritten public offering of common
stock of the Company pursuant to a registration statement filed pursuant to the
Securities Act which offering is consummated after the Issue Date, excluding
shares of Common Stock issued in the Equity Offering.
"Purchase Money Obligation" means any Indebtedness secured by a Lien on
assets related to the business of the Company or its Subsidiaries, and any
additions and accessions thereto, which are purchased by the Company or any
Subsidiary at any time after the Notes are issued; provided that (i) the
security agreement or conditional sales or other title retention contract
pursuant to which the Lien on such assets described above is created
(collectively a "Purchase Money Security Agreement") shall
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be entered into within 90 days after the purchase or substantial completion of
the construction of such assets and shall at all times be confined solely to the
assets so purchased or acquired, any additions and accessions thereto and any
proceeds therefrom, (ii) at no time shall the aggregate principal amount of the
outstanding Indebtedness secured thereby be increased, except in connection with
the purchase of additions and accessions thereto and except in respect of fees
and other obligations in respect of such Indebtedness and (iii) (A) the
aggregate outstanding principal amount of Indebtedness secured thereby
(determined on a per asset basis in the case of any additions and accessions)
shall not at the time such Purchase Money Security Agreement is entered into
exceed 100% of the purchase price to the Company or any Subsidiary of the assets
subject thereto or (B) the Indebtedness secured thereby shall be with recourse
solely to the assets so purchased or acquired, any additions and accessions
thereto and any proceeds therefrom.
"Qualified Capital Stock" of any Person means any and all Capital Stock of
such Person other than Redeemable Capital Stock.
"Redeemable Capital Stock" means any Capital Stock that, either by its terms
or by the terms of any security into which it is convertible or exchangeable or
otherwise, is or upon the happening of any event or passage of time would be,
required to be redeemed prior to any Stated Maturity of the principal of the
Notes or is redeemable at the option of the holder thereof at any time prior to
any such Stated Maturity, or is convertible into or exchangeable for debt
securities at any time prior to any such Stated Maturity at the option of the
holder thereof.
"S&P" means Standard & Poor's Corporation or any successor rating agency.
"Sale and Leaseback Transaction" means any transaction or series of related
transactions pursuant to which the Company or a Subsidiary sells or transfers
any property or asset in connection with the leasing, or the resale against
installment payments, of such property or asset to the Company or such
Subsidiary.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Indebtedness" means the Indebtedness of the Company other than
Subordinated Indebtedness.
"Stated Maturity" when used with respect to any Indebtedness or any
installment of interest thereon, means the dates specified in such Indebtedness
as the fixed date on which the principal of such Indebtedness or such
installment of interest is due and payable.
"Subordinated Indebtedness" means Indebtedness of the Company which is by
its terms expressly subordinated in right of payment to the Notes.
"Subsidiary" means any Person a majority of the equity ownership or the
Voting Stock of which is at the time owned, directly or indirectly, by the
Company or by one or more other Subsidiaries, or by the Company and one or more
other Subsidiaries; provided, that an Unrestricted Subsidiary shall not be
deemed a Subsidiary for purposes of the Indenture.
"Temporary Cash Investments" means (i) any evidence of Indebtedness,
maturing not more than two years after the date of acquisition, issued by the
United States of America, or an instrumentality or agency thereof and guaranteed
fully as to principal, premium, if any, and interest by the United States of
America; (ii) any certificate of deposit, maturing not more than two years after
the date of acquisition, issued by, or time deposit of, a commercial banking
institution that is a member of the Federal Reserve System and that has combined
capital and surplus and undivided profits of not less than $500,000,000, whose
debt has a rating, at the time as of which any investment therein is made, of
"P-1" (or higher) according to Moody's or "A-1" (or higher) according to S&P;
(iii) commercial paper, maturing not more than one year after the date of
acquisition, issued by a corporation (other than an Affiliate or Subsidiary of
the Company) organized and existing under the laws of the United States of
America with a rating, at the time as of which any investment therein is made,
of "P-1" (or higher)
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according to Moody's or "A-1" (or higher) according to S&P; (iv) any money
market deposit accounts issued or offered by (a) a domestic commercial bank
having capital and surplus in excess of $500,000,000 or (b) a nationally
recognized investment bank having capital and surplus and undivided profits in
excess of $150,000,000; (v) repurchase obligations for underlying securities of
the type described in clause (i) above entered into with any financial
institution designated as a "Primary Dealer" by the Federal Reserve Bank of New
York or any commercial banking institution that satisfies the criteria set forth
in clause (ii) of this definition of "Temporary Cash Investments" as a
counterparty; and (vi) Eurodollar certificates of deposit, maturing not more
than two years after the date of acquisition issued by, or any time deposit of,
a commercial banking institution outside the United States having equity capital
and surplus and undivided profits of not less than $250,000,000 and foreign
denominated money market deposit accounts issued by a commercial banking
institution outside the United States having equity capital and surplus and
undivided profits of not less than $250,000,000.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended.
"Unrestricted Subsidiary" means any Subsidiary as to which all of the
following conditions apply: (a) neither the Company nor any of its Subsidiaries
provides credit support for any Indebtedness of such Subsidiary (including any
undertaking, agreement or instrument evidencing such Indebtedness); (b) such
Subsidiary is not liable, directly or indirectly, with respect to any
Indebtedness other than Unrestricted Subsidiary Indebtedness; (c) neither the
Company nor any of its Subsidiaries has made an Investment in such Unrestricted
Subsidiary unless such Investment was not prohibited by the provisions of the
"Limitation on Restricted Payments" covenant; and (d) the board of directors of
the Company, as provided below, shall have designated such Subsidiary to be an
Unrestricted Subsidiary. Any such designation by the board of directors shall be
evidenced to the Trustee by filing with the Trustee a Board Resolution giving
effect to such designation and an Officers' Certificate certifying that such
designation complies with the foregoing conditions. The board of directors may
designate any Unrestricted Subsidiary as a Subsidiary; provided, that (i)
immediately after giving effect to such designation, the Company could incur
$1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to
the restrictions of the "Limitation on Indebtedness" covenants; and (ii) all
Indebtedness of such Unrestricted Subsidiary shall be deemed to be incurred on
the date such Unrestricted Subsidiary becomes a Subsidiary.
"Unrestricted Subsidiary Indebtedness" of any Unrestricted Subsidiary means
Indebtedness of such Unrestricted Subsidiary (a) as to which neither the Company
nor any Subsidiary is directly or indirectly liable (by virtue of the Company or
any such Subsidiary being the primary obligor on, guarantor of, or otherwise
liable in any respect to, such Indebtedness), and (b) which, upon the occurrence
of a default with respect thereto, does not result in, or permit any holder of
any Indebtedness of the Company or any Subsidiary to declare, a default on such
Indebtedness of the Company or any Subsidiary or cause the payment thereof to be
accelerated or payable prior to its stated maturity.
"Voting Stock" means stock of the class or classes pursuant to which the
holders thereof have the general voting power under ordinary circumstances to
elect at least a majority of the board of directors, managers or trustees of a
corporation (irrespective of whether or not at the time stock of any other class
or classes shall have or might have voting power by reason of the happening of
any contingency).
"Wholly-Owned Subsidiary" means a Subsidiary all the Capital Stock (other
than directors' qualifying shares) of which is owned by the Company or another
Wholly-Owned Subsidiary.
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DESCRIPTION OF NEW CREDIT FACILITY
In connection with the Recapitalization, the Company will enter into a loan
agreement with Congress Financial Corporation (Central) as agent for itself and
CoreStates Bank, N.A. as lenders (the "Lenders"), to provide the New Credit
Facility, which will provide for a revolving loan facility in the aggregate
principal amount of up to $50.0 million, including a letter of credit facility
subject to a sublimit in the aggregate principal amount of up to $10.0 million.
Amounts outstanding under the New Credit Facility will be due at maturity, which
will be three years after the date of closing unless extended or terminated.
Revolving loans under the New Credit Facility will be limited, in the
aggregate, to the lesser of the $50.0 million commitment amount and a "borrowing
base" amount less, in each case, the principal amount of outstanding letters of
credit. The borrowing base will not exceed the sum of 85% of eligible accounts
receivable (generally, accounts receivable of the Company from domestic
customers that are current or past due 60 or fewer days) plus 60% of eligible
raw materials and finished goods inventories plus 45% of eligible
work-in-process inventory of the Company, such inventories to be calculated at
the lower of cost or current market value.
The New Credit Facility will contain certain covenants, including, without
limitation, maintenance of minimum net worth, and limitations on capital
expenditures, investments, incurrences of additional debt, impositions of liens,
dispositions of assets and payments of dividends and distributions. The New
Credit Facility will be secured by first priority security interests in all
accounts receivable and inventories of the Company (excluding all accounts
receivable and inventories of the Company's foreign subsidiaries) and the
proceeds therefrom.
Interest on revolving loans under the New Credit Facility will be payable
monthly in arrears at a per annum rate equal to 0.25% above the prime rate
announced by CoreStates Bank, N.A. from time to time or, at the Company's
option, 2.25% above LIBOR. In the event of a default, the interest rate will
increase to 2.25% over the then prevailing prime rate of CoreStates Bank, N.A.
The interest rates will be reduced by 0.25% per annum if the Company's EBITDA
exceeds $34.0 million for any period of four consecutive fiscal quarters ending
on or after September 30, 1996 and will remain at that reduced level so long as
the Company's EBITDA continues to be above $34.0 million on a rolling
four-quarter basis thereafter. In addition, the New Credit Facility will provide
for a closing fee of $375,000 and an unused line fee of 0.375% on the amount by
which $40.0 million exceeds the average monthly balance of revolving loans and
letters of credit under the New Credit Facility. The New Credit Facility will
also provide for the payment of early termination fees in certain circumstances
and certain other fees payable by the Company to the Lenders.
The Lenders' obligation to enter into the New Credit Facility will be
conditioned upon, among other things, consummation of the Offerings. In
addition, the Company anticipates that all of the loans and other credit
accommodations provided to the Company (other than the New Credit Facility) will
be required to be used exclusively to redeem or repay existing indebtedness, to
make capital expenditures, and for working capital of the Company.
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UNDERWRITING
Subject to the terms and conditions set forth in a purchase agreement (the
"Purchase Agreement") among the Company and each of Merrill Lynch, Pierce,
Fenner & Smith Incorporated and PaineWebber Incorporated (the "Underwriters"),
the Company has agreed to sell to each of the Underwriters and each of the
Underwriters has agreed to purchase from the Company the aggregate principal
amount of the Notes set forth opposite its respective name below. Pursuant to
the Purchase Agreement, the Underwriters will be obligated to purchase all of
the Notes if they purchase any of them.
<TABLE>
<CAPTION>
PRINCIPAL
UNDERWRITER AMOUNT
- ------------------------------------------------------------ ------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated..................................... $
PaineWebber Incorporated....................................
------------
Total............................................ $100,000,000
------------
------------
</TABLE>
The Underwriters propose to offer the Notes to the public at the public
offering price set forth on the cover page of this Prospectus, and to certain
dealers at such price less a concession not in excess of % of the principal
amount of the Notes. The Underwriters may allow, and such dealers may reallow, a
discount not in excess of % of the principal amount of the Notes to certain
other dealers. After the initial public offering, the public offering price,
concession and discount may be changed.
There is no public market for the Notes and the Company does not intend to
apply for listing of the Notes on any national securities exchange or for
quotation of the Notes on the Nasdaq National Market. The Company has been
advised by the Underwriters that they presently intend to make a market in the
Notes after the consummation of the Offering contemplated hereby, although they
are under no obligation to do so and may discontinue any market-making
activities at any time without any notice. No assurance can be given, however,
as to the liquidity of the trading market for the Notes or that an active public
market for the Notes will develop. If an active public market for the Notes does
not develop, the market price and liquidity of the Notes may be adversely
affected.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act.
The Company has agreed, without prior consent of the Underwriters, that it
will not, for a period of 180 days after the date of this Prospectus, directly
or indirectly, issue, sell or offer to sell, grant any option for the sale of,
or otherwise dispose of, or register for sale by others, any debt securities,
other than the initial sale of the Notes, and the indebtedness under the New
Credit Facility.
Merrill Lynch, Pierce, Fenner & Smith Incorporated and PaineWebber
Incorporated are acting as underwriters in connection with the Equity Offering.
The Offering is being conducted in accordance with Rule 2720, formerly
Schedule E (the "Rule"), to the By-laws of the National Association of
Securities Dealers, Inc. (the "NASD") which provides that, among other things,
when a NASD member participates in the offering of equity securities of a
company with whom such member has a "conflict of interest" (as defined in the
Rule), the initial public offering price can be no higher than that recommended
by a "qualified independent underwriter" (as defined in the Rule)(a "QIU"). The
NASD requires that a QIU (a) be a NASD member experienced in the securities or
investment banking business, (b) not be an affiliate of the issuer of the
securities and (c) agree to undertake the responsibilities and liabilities of an
underwriter under the Act. In accordance with this requirement, PaineWebber
Incorporated is serving as the QIU in the Offering and has recommended a price
in compliance with the requirements of the Rule. PaineWebber Incorporated has
performed due diligence investigations and reviewed and participated in the
preparation of this
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Prospectus and the Registration Statement of which this Prospectus forms a part.
PaineWebber Incorporated, in its capacity as QIU, will receive no additional
compensation as such in connection with the Offering.
In addition, the Underwriters will not confirm sales to any discretionary
account without the prior specific written approval of the customer.
LEGAL MATTERS
The validity of the Notes being offered hereby and certain other legal
matters relating to the Offering will be passed upon for the Company by Ice
Miller Donadio & Ryan, Indianapolis, Indiana. Certain legal matters will be
passed upon for the Underwriters by Davis Polk & Wardwell.
EXPERTS
The consolidated balance sheet as of September 30, 1994 and 1995, and the
consolidated statements of operations and cash flows for each of the three years
in the period ended September 30, 1995 appearing in this Prospectus have been
incorporated herein in reliance on the report, which includes an emphasis of a
matter explanatory paragraph regarding the Company's liquidity, of Coopers &
Lybrand L.L.P., independent accountants, given on the authority of that firm as
experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement, of which
this Prospectus is a part, under the Securities Act with respect to the Notes
offered hereby. This Prospectus does not contain all the information set forth
in the Registration Statement and the exhibits thereto. For further information
with respect to the Company and the Notes offered by this Prospectus, reference
is made to such Registration Statement and exhibits which have been filed with
the Commission through the Electronic Data Gathering, Analysis and Retrieval
system. Statements contained herein concerning the provisions of documents are
necessarily summaries of such documents and each statement is qualified in its
entirety by reference to the copy of the applicable document filed with the
Commission. Such information is publicly available through the Commission's
World Wide Web site (http:/www.sec.gov) or can be inspected and copied at the
office of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and
at its regional offices located at Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511 and 7 World Trade Center, New
York, New York 10048. Copies of such material may also be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates.
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HAYNES CORP.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants.................................................... F-2
Consolidated Balance Sheet as of September 30, 1994 and 1995......................... F-3
Consolidated Statement of Operations for the years ended September 30, 1993, 1994,
and 1995........................................................................... F-4
Consolidated Statement of Cash Flows for the years ended September 30, 1993, 1994,
and 1995........................................................................... F-5
Notes to Consolidated Financial Statements........................................... F-6
Condensed Consolidated Balance Sheet as of September 30, 1995 and June 30, 1996
(Unaudited).......................................................................... F-21
Unaudited Condensed Consolidated Statement of Operations for the nine months ended
June 30, 1995 and 1996............................................................... F-22
Unaudited Condensed Consolidated Statement of Cash Flows for the nine months ended
June 30, 1995 and 1996............................................................... F-23
Notes to Unaudited Condensed Consolidated Financial Statements....................... F-24
</TABLE>
The accompanying consolidated financial statements and notes thereto
represent the consolidated financial position, results of operations and cash
flows for the periods indicated therein of Haynes International, Inc. As is
discussed in Note 1 of the Notes to Consolidated Financial Statements, the
financial statements (including the report of Independent Accountants thereon)
have been prepared to reflect the Company's name change to Haynes Corp.
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
Haynes Corp.
We have audited the accompanying consolidated balance sheet of Haynes Corp.
(the Company), a wholly owned subsidiary of Haynes International, Inc., as of
September 30, 1994 and 1995, and the related consolidated statements of
operations and cash flows for each of the three years in the period ended
September 30, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
The Company's accumulated deficit at September 30, 1994 and 1995 includes
the effects of adopting SFAS No. 106 ($79.6 million) and a write-off of goodwill
($37.1 million) in 1994. The accumulated deficit, along with increased working
capital requirements due to higher sales levels in 1995, has resulted in
increased borrowings to fund the Company's operations. Management's plan for
meeting the Company's liquidity needs is summarized in Note 1 to the
consolidated financial statements.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Haynes Corp. as
of September 30, 1994 and 1995, and the consolidated results of its operations
and cash flows for each of the three years in the period ended September 30,
1995, in conformity with generally accepted accounting principles.
As discussed in Notes 1 and 8 to the consolidated financial statements, the
Company changed its method of accounting for income taxes and postretirement
benefits during 1994.
Coopers & Lybrand, L.L.P.
Fort Wayne, Indiana
November 3, 1995
F-2
<PAGE>
HAYNES CORP.
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------
1994 1995
--------- ---------
<S> <C> <C>
ASSETS:
Current Assets:
Cash and cash equivalents.......................................... $ 5,690 $ 5,035
Accounts and notes receivable, less allowance for doubtful accounts
of $520 and $979, respectively................................... 30,496 38,089
Inventories........................................................ 53,543 60,234
--------- ---------
Total current assets............................................. 89,729 103,358
--------- ---------
Net property, plant and equipment.................................... 43,119 36,863
Prepayments and deferred charges, net................................ 12,875 11,095
--------- ---------
Total assets..................................................... $ 145,723 $ 151,316
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities:
Accounts payable and accrued expenses.............................. $ 16,868 22,975
Accrued postretirement benefits.................................... 4,100 4,100
Revolving credit................................................... 8,141 12,477
Income taxes payable............................................... 438 1,190
--------- ---------
Total current liabilities........................................ 29,547 40,742
--------- ---------
Long-term debt....................................................... 140,000 140,000
Deferred income taxes................................................ 274 326
Accrued postretirement benefits...................................... 90,048 90,730
--------- ---------
Total liabilities................................................ 259,869 271,798
--------- ---------
Commitments and Contingencies
Redeemable common stock of Parent Company............................ 1,881 1,427
Stockholder's deficit:
Common stock, $.01 par value (100 shares authorized, issued and
outstanding)
Additional paid-in capital......................................... 46,276 46,306
Accumulated deficit................................................ (165,514) (172,285)
Foreign currency translation adjustment............................ 3,211 4,070
--------- ---------
Total stockholder's deficit...................................... (116,027) (121,909)
--------- ---------
Total liabilities and stockholder's deficit.................... $ 145,723 $ 151,316
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
HAYNES CORP.
CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------
1993 1994 1995
-------- --------- --------
<S> <C> <C> <C>
Net revenues............................................... $162,454 $ 150,578 $201,933
Costs and expenses:
Cost of sales............................................ 137,102 134,840 167,196
Goodwill write-off....................................... 37,117
Selling and administrative............................... 14,569 15,039 15,475
Research and technical................................... 3,603 3,630 3,049
Other cost, net.......................................... 400 816 1,767
Interest expense......................................... 18,912 19,916 20,233
Interest income.......................................... (415) (334) (329)
-------- --------- --------
Total Costs and expenses................................. 174,171 211,024 207,391
-------- --------- --------
Loss before provision for (benefit from) income taxes and
cumulative effect of change in accounting principle........ (11,717) (60,446) (5,458)
Provision for (benefit from) income taxes.................. (3,442) 420 1,313
-------- --------- --------
Loss before cumulative effect of change in accounting
principle.................................................. (8,275) (60,866) (6,771)
Cumulative effect of change in accounting principle, net of
tax benefit.............................................. (79,630)
-------- --------- --------
Net loss............................................... $ (8,275) $(140,496) $ (6,771)
-------- --------- --------
-------- --------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
HAYNES CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------
1993 1994 1995
------- --------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................... $(8,275) $(140,496) $(6,771)
Adjustments to reconcile net loss to net cash provided from
(used in) operations:
Depreciation................................................ 8,650 8,208 8,188
Amortization and goodwill write-off......................... 3,607 40,287 1,444
Deferred income taxes....................................... (4,432) (10,633) 2
(Gain) loss on property disposal............................ 56 (397) (37)
Change in assets and liabilities:
Accounts and notes receivable............................. 3,712 (3,028) (7,354)
Inventories............................................... 8,446 (951) (6,480)
Other assets.............................................. (3,932) (58) 347
Accounts payable and accrued expenses..................... (2,474) 4,291 6,322
Income taxes payable...................................... 353 (234) 774
Accrued postretirement benefits........................... 90,210 682
------- --------- -------
Net cash provided from (used in) operations............. 5,711 (12,801) (2,883)
------- --------- -------
Cash flows from investment activities:
Additions to property, plant and equipment.................. (56) (771) (1,934)
Proceeds from disposals of property, plant, and equipment... 374 1,517 39
------- --------- -------
Net cash provided from (used in) investment
activities.................................................... 318 746 (1,895)
------- --------- -------
Cash flows from financing activities:
Net additions (reductions) of revolving credit.............. (2,014) 7,960 4,337
Retirement of stock options................................. (858) (425)
------- --------- -------
Net cash provided from (used in) financing activities... (2,014) 7,102 3,912
------- --------- -------
Effect of exchange rates on cash.............................. (744) 129 211
------- --------- -------
Increase (decrease) in cash and cash equivalents.............. 3,271 (4,824) (655)
Cash and cash equivalents:
Beginning of year........................................... 7,243 10,514 5,690
------- --------- -------
End of year................................................. $10,514 $ 5,690 $ 5,035
------- --------- -------
------- --------- -------
Supplemental disclosures of cash flow information:
Cash paid (received) during period for:
Interest.................................................. $15,672 $ 17,891 $18,840
Income taxes.............................................. (1,805) 848 560
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
HAYNES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Haynes
International, Inc. and its wholly-owned subsidiaries (collectively, the
"Company"). The financial statements have been prepared to reflect Haynes
International, Inc. changing its name to Haynes Corp. The name change does not
affect the financial position, results of operations, cash flows or other
disclosures of the Company. In conjunction with this transaction, the Company's
parent will change its name from Haynes Holdings, Inc. to Haynes International,
Inc. All significant intercompany transactions and balances are eliminated.
B. CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investment instruments, including
investments with maturities of three months or less at acquisition, to be cash
equivalents the carrying value of which approximates fair value due to the short
maturity of these investments. At September 30, 1994, $863 in cash was
restricted for property, plant, and equipment acquisition.
C. INVENTORIES
Inventories are stated at the lower of cost or market. The cost of domestic
inventories is determined using the last-in, first-out method (LIFO). The cost
of foreign inventories is determined using the first-in, first-out (FIFO) method
and average cost method.
D. PROPERTY, PLANT AND EQUIPMENT
Additions to property, plant and equipment are recorded at cost.
Depreciation of property, plant and equipment is calculated primarily by using
the straight-line method based on estimated economic useful lives. Buildings are
generally depreciated over 40 years and machinery and equipment are depreciated
over periods ranging from 5 to 14 years.
Expenditures for maintenance and repairs and minor renewals are charged to
expense; major renewals are capitalized. Upon retirement or sale of assets, the
cost of the disposed assets and the related accumulated depreciation are removed
from the accounts and any resulting gain or loss is credited or charged to
operations.
E. FOREIGN CURRENCY TRANSLATION
The Company's foreign operating entities' financial statements are expressed
in their functional currencies, which are their local currencies. Substantially
all assets and liabilities of the Company's foreign operations are translated to
U.S. dollars at year-end exchange rates and revenues and expenses are translated
at the weighted average rate for the year. Foreign currency gains and losses
arising from transactions are reflected in net losses. Balance sheet translation
gains and losses are reflected as a separate component of stockholders' deficit.
F-6
<PAGE>
HAYNES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
F. INCOME TAXES
Effective October 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS No. 109). SFAS
No. 109 is an asset and liability approach that requires the recognition of
deferred tax assets and liabilities for the expected future tax consequences of
events that have been recognized in the Company's financial statements or tax
returns. If it is more likely than not that some portion or all of a deferred
tax asset will not be realized, a valuation allowance is recognized (see Note
5). Previously, the Company used SFAS No. 96, "Accounting for Income Taxes."
Financial statements for the prior years have not been restated and the
cumulative effect of the accounting change was not material.
G. DEFERRED CHARGES
Deferred charges include debt issuance costs which are amortized over the
terms of the related debt using the effective interest method. Accumulated
amortization at September 30, 1994 and 1995 was $7,822 and $9,266, respectively.
H. FINANCIAL INSTRUMENTS
The Company enters into forward currency exchange contracts and nickel
futures contracts on a continuing basis for periods consistent with its
contractual exposures. The effect of this practice is to minimize the
variability in the Company's operating results arising from foreign exchange
rate movements and nickel price movements. These contracts are considered
short-term financial instruments, the carrying value of which approximates fair
value due to the relatively short duration of the contracts. The Company does
not engage in foreign currency or nickel futures speculation. Gains and losses
on these contracts are recognized in income in the month the contracts are
settled. At September 30, 1995, the Company had $1,700 of foreign currency
exchange contracts and $4,441 of nickel futures contracts outstanding with a net
unrealized loss of $103. With respect to the Consolidated Statement of Cash
Flows, contracts accounted for as hedges are classified in the same category as
the items being hedged.
I. RECLASSIFICATIONS
Certain amounts in prior year financial statements have been reclassified to
conform with current year presentation.
J. LIQUIDITY
At September 30, 1994 and 1995, the Company has an accumulated deficit of
$165,514 and $172,285 respectively, which includes the effects of adopting SFAS
No. 106 ($79.6 million--see Note 8) and a write-off of goodwill ($37.1
million--see Note 10) both of which occurred during 1994. The accumulated
deficit, along with increased working capital requirements due to higher sales
levels in 1995, has resulted in increased borrowings to fund the Company's
operations. In response to operating losses in 1993 and 1994, the Company
implemented cost reduction measures which, among other things, included wage and
hiring freezes, reductions in the Company's workforce by approximately
F-7
<PAGE>
HAYNES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
20%, reorganization of the Company's Sales and Marketing function, healthcare
cost containment, and certain measures designed to reduce manufacturing costs
and enhance working capital management.
In 1995, the Company's sales volume and earnings before interest and taxes
improved significantly over prior years. Continued activity at current levels in
the markets served by the Company, along with consistent monitoring of cost
reduction measures as described above, should contribute to improved financial
results.
Due to sales volume increases, the Company has been required to invest in
increased working capital. As of September 30, 1995, $12,477 had been borrowed
pursuant to the Existing Credit Facility (see Note 6) and approximately $2,800
in letter of credit reimbursement obligations under the letter of credit
facility have been incurred by the Company. The Company believes that borrowing
available under the Existing Credit Facility are adequate to meet its
obligations as they come due and working capital requirements through at least
fiscal 1996, although there can be no assurance with respect thereto. The
Company's ability to operate with sufficient liquidity in fiscal 1996 will
depend upon the Company's ability to generate sufficient cash. Current programs
for reducing inventory levels and improving sales volume, if successful, should
improve the Company's liquidity.
K. ACCOUNTING PRONOUNCEMENTS
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," is effective for the year ending September
30, 1996. In the opinion of management, this statement will not impact the
Company's financial position or results of operations. SFAS No. 123, "Accounting
for Stock Based Compensation," is effective for the year ending September 30,
1997. The Company has not decided how it intends to apply the accounting and
disclosure provisions of this statement.
NOTE 2: INVENTORIES
The following is a summary of the major classes of inventories:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------
1994 1995
------- -------
<S> <C> <C>
Raw materials........................................... $ 3,395 $ 2,998
Work-in-process......................................... 29,677 38,488
Finished goods.......................................... 17,858 20,616
Other................................................... 961 2,428
Amount necessary to increase (decrease) certain
inventories to the LIFO method........................ 1,652 (4,296)
------- -------
Net inventories......................................... $53,543 $60,234
------- -------
------- -------
</TABLE>
Inventories valued using the LIFO method comprises 77% and 73% of
consolidated inventories before LIFO adjustment at September 30, 1994 and 1995,
respectively.
F-8
<PAGE>
HAYNES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 3: PROPERTY, PLANT AND EQUIPMENT
The following is a summary of the major classes of property, plant, and
equipment:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------
1994 1995
------- -------
<S> <C> <C>
Land and land improvements.............................. $ 1,920 $ 1,920
Buildings............................................... 6,621 6,623
Machinery and equipment................................. 73,621 74,951
Construction in process................................. 202 664
------- -------
82,364 84,158
Less accumulated depreciation........................... (39,245) (47,295)
------- -------
Net property, plant and equipment....................... $43,119 $36,863
------- -------
------- -------
</TABLE>
NOTE 4: ACCOUNTS PAYABLE AND ACCRUED EXPENSES
The following is a summary of the major classes of accounts payable and
accrued expenses:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------
1994 1995
------- -------
<S> <C> <C>
Accounts payable, trade................................. $ 8,853 $14,477
Employee compensation................................... 1,508 1,995
Taxes, other than income taxes.......................... 1,840 2,226
Interest................................................ 3,209 3,160
Landfill closure costs.................................. 37
Other................................................... 1,421 1,117
------- -------
$16,868 $22,975
------- -------
------- -------
</TABLE>
F-9
<PAGE>
HAYNES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 5: INCOME TAXES
The components of income (loss) before provision for (benefit from) income
taxes and cumulative effect of a change in accounting principle consist of the
following:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------
1993 1994 1995
-------- -------- -------
<S> <C> <C> <C>
Income (loss) before provision for (benefit from) income taxes
and cumulative effect of a change in accounting principle
U.S....................................................... $(13,803) $(58,509) $(9,332)
Foreign................................................... 2,086 (1,937) 3,874
-------- -------- -------
Total................................................... $(11,717) $(60,446) $(5,458)
-------- -------- -------
-------- -------- -------
Income tax provision (benefit):
Current:
Foreign................................................... $ 951 $ 411 $ 1,284
State..................................................... 39 62 27
-------- -------- -------
Current total........................................... 990 473 1,311
-------- -------- -------
Deferred:
U. S. Federal............................................. (3,945) 2
Foreign................................................... 152 (53)
State..................................................... (639)
-------- -------- -------
Deferred total.......................................... (4,432) (53) 2
-------- -------- -------
Total tax provision (benefit)........................... $ (3,442) $ 420 $ 1,313
-------- -------- -------
-------- -------- -------
</TABLE>
The provision for (benefit from) income taxes applicable to results of
operations before the cumulative effect of a change in accounting principle
differed from the U.S. federal statutory rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------
1993 1994 1995
------- ---------- -------
<S> <C> <C> <C>
Statutory federal tax rate.................................. 34% 34% 34%
Tax provision (benefit) at the statutory rate............... $(3,984) $ (20,552) $(1,856)
Foreign tax rate differentials.............................. 97 951 (162)
Goodwill amortization and write-off......................... 465 12,054
Provision for (benefit from) state taxes, net of federal
tax......................................................... (396) 62 27
U.S. tax on distributed and undistributed earnings of
foreign subsidiaries...................................... 491 1,735 980
Increase in valuation allowance related to continuing
operations.................................................. 5,639 2,057
Other....................................................... (115) 531 267
------- ---------- -------
Provision (benefit) at effective tax rate................... $(3,442) $ 420 $ 1,313
------- ---------- -------
------- ---------- -------
</TABLE>
F-10
<PAGE>
HAYNES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 5: INCOME TAXES--(CONTINUED)
Deferred income tax assets (liabilities) are comprised of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------
1994 1995
------- -------
<S> <C> <C>
Current deferred income tax assets (liabilities):
Inventory capitalization............................................. $ 842 $ 853
Postretirement benefits other than pensions.......................... 1,555 1,590
Vacation accrual..................................................... 356 446
Foreign tax credit carryforward...................................... 287
Other................................................................ 230 606
------- -------
Gross deferred tax assets........................................ 3,270 3,495
Less: Valuation allowance.................................... (1,907) (2,132)
------- -------
1,363 1,363
Inventory purchase accounting........................................ (5,743) (5,637)
------- -------
Total net current deferred tax liability......................... (4,380) (4,274)
------- -------
Noncurrent deferred income tax assets (liabilities):
Property, plant and equipment, net................................... (11,904) (9,344)
Prepaid pension costs................................................ (2,198) (2,107)
Investment in subsidiary............................................. (475) (466)
Other foreign related................................................ (274) (390)
Undistributed earnings of foreign subsidiaries....................... (1,739) (2,669)
------- -------
Gross non-current deferred tax liability......................... (16,590) (14,976)
------- -------
Other................................................................ 34
Postretirement benefits other than pensions.......................... 35,001 35,182
Executive compensation............................................... 564 553
Investment in subsidiary............................................. 563
Net operating loss carryforwards..................................... 13,633 13,283
Alternative minimum tax credit carryforwards......................... 414 414
------- -------
Gross non-current deferred tax asset............................. 49,646 49,995
Less: Valuation allowance........................................ (28,950) (31,071)
------- -------
20,696 18,924
------- -------
Total net noncurrent deferred tax asset...................... 4,106 3,948
------- -------
Total.................................................... $ (274) $ (326)
------- -------
------- -------
</TABLE>
The valuation allowance used to offset deferred tax assets is as follows:
<TABLE>
<CAPTION>
<S> <C>
Allowance at October 1, 1993..................................... $24,422
Increase in allowance............................................ 6,435
-------
Allowance at September 30, 1994.................................. 30,857
Increase in allowance............................................ 2,346
-------
Allowance at September 30, 1995.................................. $33,203
-------
-------
</TABLE>
As of September 30, 1995 the Company had net operating loss carryforwards
for regular tax purposes of approximately $36,800 (expiring in fiscal years 2005
to 2010), of which $15,200 are available for alternative minimum tax. The
Company has alternative minimum tax credit carryforwards of approximately $400
which are available to reduce federal regular income taxes, if any, over an
indefinite period.
F-11
<PAGE>
HAYNES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 5: INCOME TAXES--(CONTINUED)
The Company recently completed an examination by the Internal Revenue
Service (IRS) for the five taxable years ending September 30, 1993. The IRS has
proposed to disallow aggregate deductions in the amount of $5.5 million relative
to the amortization of certain loan fees, totalling $10.4 million, incurred with
the 1989 acquisition of the Company. The Company claimed similar deductions in
1994 and 1995. The Company intends to vigorously protest disallowance of these
deductions. If the Company does not prevail in its defense, then the amount of
available net operating loss carryforwards would be reduced accordingly.
NOTE 6: DEBT
Long-term debt, consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1994 1995
-------- --------
<S> <C> <C>
Existing Subordinated Notes (due 1997-1999, 13.5%).... $ 90,000 $ 90,000
Existing Senior Notes (due 1998, 11.25%).............. 50,000 50,000
-------- --------
$140,000 $140,000
-------- --------
-------- --------
</TABLE>
BANK FINANCING
The Company has available a $16,000 working capital facility (the "Existing
Credit Facility") with Congress Financial Corporation ("Congress"). The amount
available for revolving credit loans equals the difference between the $16,000
total facility amount less any letter of credit reimbursement obligations
incurred by the Company. The total availability will not exceed the sum of 85%
of eligible accounts receivable (generally, accounts receivable of the Company
from domestic and export customers that are current or less than 60 days
outstanding) plus 60% of eligible inventories (defined to exclude work-in
process and semi-finished goods) calculated at the lower of cost or current
market value minus any availability reserves established by Congress. Loans
based on eligible inventories will be subject to a sublimit of $10,000. Unused
line fees during the revolving credit loan period are .375% of the amount by
which the $16,000 maximum credit exceeds the average daily principal balance of
the outstanding revolving loans and letter of credit accommodations. The
Existing Credit Facility also provides certain other fees payable by the
Company.
The Existing Credit Facility bears interest at a fluctuating per annum rate
equal to 1.75% plus prime rate. At September 30, 1995 the interest rate for
revolving credit loans was 10.50%. As of September 30, 1995, $2,775 in letter of
credit reimbursement obligations have been incurred by the Company. The total
amount available for borrowings at September 30, 1995 was $748.
The credit agreement contains covenants common to such agreements including
working capital and net worth requirements.
EXISTING SUBORDINATED NOTES
The Senior Subordinated Notes of the Company (the "Existing Subordinated
Notes") are uncollateralized obligations of the Company and are subordinated in
right of payment to obligations under
F-12
<PAGE>
HAYNES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 6: DEBT--(CONTINUED)
the Existing Senior Notes (as defined below) and the Existing Credit Facility.
The Company must retire $23,333, $33,333, and $33,334 principal amount of the
Existing Subordinated Notes in 1997, 1998, and 1999, respectively. Interest is
payable semi-annually on February 15 and August 15.
The Existing Subordinated Notes are redeemable, in whole or in part, at the
Company's option at any time on or after August 14, 1992 at redemption prices
ranging from 108.4% to 100% plus accrued interest to the date of redemption.
The Senior Subordinated Notes limit the incurrence of additional
indebtedness, restricted payments, mergers, consolidations and asset sales.
EXISTING SENIOR NOTES
The Senior Secured Notes of the Company (the "Existing Senior Notes") are
collateralized by a first priority lien subject to certain permitted
encumbrances on substantially all of the Company's tangible and intangible
property other than accounts receivables and inventories and the proceeds
thereof. Interest is payable semi-annually on June 15 and December 15.
The Existing Senior Notes are redeemable at the option of the Company, in
whole or in part, and at any time prior to maturity at a price equal to the
greater of (i) the present value of all remaining interest and principal
payments plus 2.0%, or (ii) 100% of principal amount plus accrued interest to
the redemption date. Upon a change of control, each holder of the Existing
Senior Notes has the right to require the Company to purchase its Existing
Senior Notes at a price equal to 101% of principal amount plus accrued interest
to the purchase date. The Existing Senior Notes are not subject to mandatory
redemption prior to maturity.
The Existing Senior Notes rank senior in right of payment to all existing
and future subordinated indebtedness of the Company. The indenture contains
restrictive covenants including limitations on additional indebtedness, mergers,
consolidations, and asset sales.
The estimated fair value, based upon an independent market quotation, of the
Company's long-term debt was approximately $95,950 and $106,750 at September 30,
1994 and 1995, respectively. The carrying value of the Company's Existing Credit
Facility approximates fair value.
OTHER
In addition, the Company's UK Affiliate (Haynes International, Ltd.) has
recently entered into a revolving credit agreement with Midland Bank that
provides for availability of 1 million pounds sterling collateralized by the
assets of the Affiliate. This revolving credit agreement was available in its
entirety on September 30, 1995 as a means of financing the activities of the
Affiliate including payments to Haynes International, Inc. for intercompany
purchases.
F-13
<PAGE>
HAYNES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 7: STOCKHOLDER'S EQUITY (DEFICIT)
The following is a summary of changes in stockholder's equity (deficit):
<TABLE>
<CAPTION>
COMMON STOCK FOREIGN TOTAL
-------------------- ADDITIONAL CURRENCY STOCKHOLDER'S
NO. OF AT PAID IN ACCUMULATED TRANSLATION EQUITY
SHARES PAR CAPITAL DEFICIT ADJUSTMENT (DEFICIT)
-------- -------- ---------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1992..... 100 $ 0 $ 46,087 $ (16,743) $ 5,818 $ 35,162
Year ended September 30, 1993:
Net loss......................... (8,275) (8,275)
Foreign exchange................. (3,949) (3,949)
-------- -------- ---------- ----------- ----------- -------------
Balance at September 30, 1993..... 100 0 46,087 (25,018) 1,869 22,938
Year ended September 30, 1994:
Net loss......................... (140,496) (140,496)
Dividend to Parent Co. to
repurchase stock............... (83) (83)
Reclassification of redeemable
common stock................... 272 272
Foreign exchange................. 1,342 1,342
-------- -------- ---------- ----------- ----------- -------------
Balance at September 30, 1994..... 100 0 46,276 (165,514) 3,211 (116,027)
Year ended September 30, 1995:
Net loss......................... (6,771) (6,771)
Dividend to Parent Co. to
repurchase stock............... (70) (70)
Reclassification of redeemable
common stock................... 100 100
Foreign exchange................. 859 859
-------- -------- ---------- ----------- ----------- -------------
Balance at September 30, 1995..... 100 $ 0 $ 46,306 $(172,285) $ 4,070 $(121,909)
-------- -------- ---------- ----------- ----------- -------------
-------- -------- ---------- ----------- ----------- -------------
</TABLE>
F-14
<PAGE>
HAYNES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 8: PENSION PLAN AND RETIREMENT BENEFITS
The Company has non-contributory defined benefit pension plans which cover
most employees in the United States and certain foreign subsidiaries.
Benefits provided under the Company's domestic defined benefit pension plan
are based on years of service and the employee's final compensation. The
Company's funding policy is to contribute annually an amount deductible for
federal income tax purposes based upon an actuarial cost method and actuarial
and economic assumptions designed to achieve adequate funding of benefit
obligations.
Net periodic pension cost on a consolidated basis was $447, $611, and $458
for the years ended September 30, 1993, 1994 and 1995, respectively.
For the domestic pension plan, net periodic pension cost was comprised of
the following elements:
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
-------------------------------
1993 1994 1995
-------- ------- --------
<S> <C> <C> <C>
Service cost................................. $ 1,864 $ 2,165 $ 1,713
Interest cost................................ 6,932 6,536 7,060
Actual return on plan assets................. (14,573) (639) (18,727)
Net amortization and deferral................ 5,719 (7,748) 10,084
-------- ------- --------
Net periodic pension cost (benefit).......... $ (58) $ 314 $ 130
-------- ------- --------
-------- ------- --------
</TABLE>
The following table sets forth the domestic pension plan's funded status:
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------
1994 1995
-------- ---------
<S> <C> <C>
Accumulated benefit obligation, including vested
benefits of $76,740 and $86,227, respectively...... $ 80,385 $ 90,285
-------- ---------
-------- ---------
Projected benefit obligation for service rendered to
date................................................. $(91,864) $(103,149)
Plan assets at fair value (primarily debt
securities).......................................... 110,729 122,103
-------- ---------
Plan assets in excess of projected benefit
obligation........................................... 18,865 18,954
Unrecognized net gain from past experience different
from that assumed and effects of changes in
assumptions.......................................... (13,235) (13,459)
Unrecognized prior service costs..................... (66) (62)
-------- ---------
Prepaid pension cost recognized in the consolidated
balance sheet........................................ $ 5,564 $ 5,433
-------- ---------
-------- ---------
Assumptions:
Weighted average discount rate....................... 8.00% 7.00%
-------- ---------
-------- ---------
Average rate of increase in compensation levels...... 5.50% 5.25%
-------- ---------
-------- ---------
Expected rate of return on plan assets during year... 8.50% 7.50%
-------- ---------
-------- ---------
</TABLE>
In addition to providing pension benefits, the Company provides certain
health care and life insurance benefits for retired employees. Substantially all
domestic employees become eligible for these benefits if they reach normal
retirement age while working for the Company. Prior to 1994, the cost of
F-15
<PAGE>
HAYNES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 8: PENSION PLAN AND RETIREMENT BENEFITS--(CONTINUED)
retiree health care and life insurance benefits was recognized as expense upon
payment of claims or insurance premiums. These costs were $4,298 for the period
ended September 30, 1993.
Effective October 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 106, "Employers Accounting for Postretirement Benefits
Other Than Pensions" (SFAS 106) which requires companies to accrue the cost of
postretirement benefits over the years employees provide services to the date of
their full eligibility for such benefits. The Company's policy is to fund the
cost of benefits on an annual basis. The Company elected to immediately
recognize the transition obligation for benefits earned as of October 1, 1993,
resulting in a pre-tax, non-cash charge of $90,210 representing a cumulative
effect of the change in accounting principle. In addition, during fiscal 1994
and 1995, operations were charged approximately $7,997 and $4,671 for these
benefits.
Effective January 1, 1995, the Company amended its health care plan by
requiring retirees and surviving spouses to share in the cost of medical care by
paying a portion of the cost of continuing health care insurance protection. As
a result of this amendment, the accumulated postretirement benefit obligation
was reduced by $13,583 and will be amortized to operations over approximately
12.5 years.
Because of unfavorable operating results in recent years and the Company's
net operating loss carryforward position (see Note 5), the Company is able to
recognize only a partial tax benefit resulting from this charge to operations.
Therefore a valuation reserve has been established to offset the deferred tax
asset created by this charge to operations. If in the future the facts and
circumstances of the Company's financial position and operating performance
change, the valuation reserve will be adjusted accordingly. The effect of SFAS
106 and the establishment of the valuation reserve reduced net worth at
September 30, 1994 by $79,630.
The following sets forth the funded status of the plans in the aggregate
reconciled with amounts reported in the Company's statement of financial
position:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------
1994 1995
------- -------
<S> <C> <C>
Accumulated postretirement benefit obligation (APBO):
Retirees and dependents............................... $59,907 $47,039
Active plan participants eligible to receive
benefits................................................ 8,286 6,941
Active plan participants not yet eligible to receive
benefits................................................ 18,087 15,823
------- -------
Total APBO.......................................... 86,280 69,803
Unrecognized prior service cost....................... 12,674
Unrecognized net gain................................. 7,868 12,353
------- -------
Accrued postretirement liability...................... $94,148 $94,830
------- -------
------- -------
</TABLE>
F-16
<PAGE>
HAYNES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 8: PENSION PLAN AND RETIREMENT BENEFITS--(CONTINUED)
Net periodic postretirement benefit cost included the following components:
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
----------------
1994 1995
------ ------
<S> <C> <C>
Service cost.............................................. $1,624 $1,036
Interest cost............................................. 6,373 5,126
Amortization of net gain.................................. (582)
Amortization of prior service cost........................ (909)
------ ------
Net periodic postretirement benefit cost.................. $7,997 $4,671
------ ------
------ ------
</TABLE>
An 11.98 percent annual rate of increase for ages under 65 and a 9.66
percent annual rate of increase for ages over 65 in the costs of covered health
care benefits was assumed for 1996, gradually decreasing for both age groups to
5.25 percent by the year 2009. Increasing the assumed health care cost trend
rates by one percentage point in each year would increase the accumulated
postretirement benefit obligation as of September 30, 1995 by $10,257 and
increase the net periodic postretirement benefit cost for 1995 by $1,576. A
discount rate of 7.5 percent was used to determine the accumulated
postretirement benefit obligation at September 30, 1995 and 8.0 percent at
September 30, 1994.
The Company sponsors certain profit sharing and performance plans for the
benefit of employees meeting certain eligibility requirements. There were no
contributions for these plans for the three years in the period ended September
30, 1995.
NOTE 9: COMMITMENTS
The Company leases certain transportation vehicles, warehouse facilities,
office space and machinery and equipment under cancelable and non-cancelable
leases, most of which expire within 10 years and may be renewed by the Company.
Rent expense under such arrangements totaled $1,609, $1,567 and $1,431 for the
period ended September 30, 1993, 1994 and 1995, respectively. Future minimum
rental commitments under non-cancelable leases in effect at September 30, 1995
are as follows:
<TABLE>
<S> <C>
1996.............................................................. $1,826
1997.............................................................. 964
1998.............................................................. 718
1999.............................................................. 522
2000 and thereafter............................................... 1,026
------
$5,056
------
------
</TABLE>
NOTE 10: OTHER
Other costs, net consists of net foreign currency transaction losses in the
amounts of $54, $56 and $207 for the periods ended September 30, 1993, 1994 and
1995, respectively, and miscellaneous costs.
At September 30, 1994 the Company elected to write-off the remaining
goodwill balance of $37,117. The reason for the write-off was that excess
industry capacity, aggressive competitive activity, just-in-time inventory
management programs, and weakness in certain economic sectors of the economy
F-17
<PAGE>
HAYNES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 10: OTHER--(CONTINUED)
have been adversely affecting the specialty corrosion and high-temperature alloy
industry operating conditions and the Company's operating results since 1992.
Accordingly, the Company revised its projections and determined that its
projected operating results would not support the future amortization of the
Company's remaining goodwill balance.
The methodology employed to assess the recoverability of the Company's
goodwill first involved the projection of operating results forward 25 years,
which approximated the remaining amortization period of goodwill as of September
30, 1994. The Company then evaluated the recoverability of goodwill on the basis
of this forecast of future operations. Based on this forecast, the cumulative
discounted net loss, before goodwill amortization and after interest expense,
was insufficient to recover the remaining goodwill balance and accordingly,
operations were charged for the entire unamortized balance.
The Company, like others in similar businesses, is involved as defendant in
several legal actions and is subject to extensive federal, state and local
environmental laws and regulations. Although Company environmental policies and
practices are designed to ensure compliance with these laws and regulations,
future developments and increasingly stringent regulation could require the
Company to make additional unforeseen environmental expenditures.
Although the level of future expenditures for environmental and other legal
matters cannot be determined with any degree of certainty, based on the facts
presently known to it, management does not believe that such costs will have a
material effect on the Company's financial position, results of operations or
liquidity.
NOTE 11: STOCK OPTION PLAN
The Company has a stock option plan (the "Plan"). Under the Plan, options to
purchase up to 511,803 shares of common stock may be granted to certain
employees at a price not less than the lower of book value or 50% of fair market
value, as defined in the Plan. The options must be exercised within ten years
from the date of grant and become exercisable on a pro rata basis over a five
year period from the date of grant, subject to approval by the Board of
Directors.
All holders of options with exercise prices of $4.04 and $5.73 per share
have the right to redeem such options at a price equal to book value per share,
as defined in the Plan. Further, the Company has the right to call these options
at an amount equal to the greater of $17.70 per share or fair market value per
share, as defined in the Plan. The difference between the fair market value of
the stock on the last measurement date and the exercise price of these options
is classified as redeemable common stock. Due to the redemption of some of these
options, redeemable common stock was reduced by $1,046 and $454 during 1994 and
1995, respectively.
Certain holders of 180,793 options with exercise prices of $8.85 per share
have the right to redeem such options at a price equal to book value per share,
as defined in the Plan. Further, the Company has the right to call these options
at an amount equal to the greater of $8.85 per share (the estimated fair market
value on the last measurement date) or fair market value per share, as defined
in the Plan.
F-18
<PAGE>
HAYNES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 11: STOCK OPTION PLAN--(CONTINUED)
Pertinent information covering the Plan is as follows:
<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE FISCAL YEAR SHARES
SHARES PER SHARE OF EXPIRATION EXERCISABLE
--------- ------------ ------------- -----------
<S> <C> <C> <C> <C>
Outstanding at September 30, 1992............. 359,359 $ 4.04-8.85 1999-2002 310,794
Granted..................................... 112,996 8.85
Redeemed.................................... -- --
Cancelled................................... -- --
---------
Outstanding at September 30, 1993............. 472,355 4.04-8.85 1999-2003 334,511
Granted..................................... 3,955 8.85
Redeemed.................................... (78,710) 4.04-5.73
Cancelled................................... (60,622) 8.85
---------
Outstanding at September 30, 1994............. 336,978 4.04-8.85 1999-2004 245,451
Granted..................................... 182,432 8.85
Redeemed.................................... (35,480) 4.04-5.73
Cancelled................................... (20,622) 8.85
---------
Outstanding at September 30, 1995........... 463,308 $ 4.04-8.85 1999-2005 213,079
--------- ------------ -----------
--------- ------------ -----------
Options Outstanding at September 30, 1995 consist of:
55,660 $4.04 55,660
55,666 5.73 55,666
351,982 8.85 101,753
--------- -----------
463,308 213,079
--------- -----------
--------- -----------
</TABLE>
F-19
<PAGE>
HAYNES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 12: FINANCIAL INFORMATION BY GEOGRAPHIC AREA
The Company develops, manufactures and markets high performance alloys
engineered to withstand hostile environments. During 1994, sales to a single
customer approximated $15,452 or 10% of net revenues. During 1995, sales to one
group of affiliated customers approximated $23,718 or 12% of net revenues.
Financial information by geographic area is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
--------------------------------
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Sales
United States............................................. $109,061 $ 94,830 $122,334
Export sales.............................................. 40,634 43,045 63,235
-------- -------- --------
149,695 137,875 185,569
Europe.................................................... 32,934 31,560 42,935
-------- -------- --------
182,629 169,435 228,504
Less: eliminations........................................ 20,175 18,857 26,571
-------- -------- --------
Net sales and operating revenue........................... $162,454 $150,578 $201,933
-------- -------- --------
-------- -------- --------
Operating income (loss) and other cost, net
United States............................................. $ 5,047 $(38,636) $ 10,825
Europe.................................................... 2,148 (1,894) 3,950
-------- -------- --------
Total operating income (loss) and other cost, net........... 7,195 (40,530) 14,775
Interest.................................................... 18,912 19,916 20,233
-------- -------- --------
Loss before provision for (benefit from) income taxes and
cumulative effect of a change in accounting principle....... $(11,717) $(60,446) $ (5,458)
-------- -------- --------
-------- -------- --------
Identifiable assets
United States............................................. $159,498 $115,251 $116,428
Europe.................................................... 23,758 24,490 29,649
General corporate assets*................................. 10,514 5,690 5,035
Equity in affiliates...................................... 430 292 204
-------- -------- --------
$194,200 $145,723 $151,316
-------- -------- --------
-------- -------- --------
</TABLE>
- ------------
* General corporate assets include cash, temporary cash investments and income
tax receivables.
F-20
<PAGE>
HAYNES CORP.
CONDENSED CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1995 1996
------------- -----------
<S> <C> <C>
(UNAUDITED)
ASSETS:
Current Assets:
Cash and cash equivalents......................................... $ 5,035 $ 4,789
Accounts and notes receivable, less allowance for doubtful
accounts of $979 and $1,030, respectively....................... 38,089 43,886
Inventories....................................................... 60,234 74,294
------------- -----------
Total current assets.......................................... 103,358 122,969
------------- -----------
Net property, plant and equipment................................... 36,863 31,779
Prepayments and deferred charges, net............................... 11,095 9,921
------------- -----------
Total assets.................................................. $ 151,316 $ 164,669
------------- -----------
------------- -----------
LIABILITIES AND STOCKHOLDER'S DEFICIT:
Current liabilities:
Accounts payable and accrued expenses............................. $ 22,975 $ 32,314
Accrued postretirement benefits................................... 4,100 4,100
Revolving credit.................................................. 12,477 16,131
Income taxes payable.............................................. 1,190 1,112
------------- -----------
Total current liabilities..................................... 40,742 53,657
------------- -----------
Long-term debt...................................................... 140,000 140,000
Deferred income taxes............................................... 326 (153)
Accrued postretirement benefits..................................... 90,730 91,191
------------- -----------
Total liabilities............................................. 271,798 284,695
------------- -----------
Redeemable common stock of parent company........................... 1,427 1,427
Stockholder's deficit:
Common stock, $.01 par value (100 shares authorized, issued and
outstanding)........................................................
Additional paid-in capital........................................ 46,306 46,306
Accumulated deficit............................................... (172,285) (170,685)
Foreign currency translation adjustment........................... 4,070 2,926
------------- -----------
Total stockholder's deficit................................... (121,909) (121,453)
------------- -----------
Total liabilities and stockholder's deficit......................... $ 151,316 $ 164,669
------------- -----------
------------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE>
HAYNES CORP.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JUNE 30,
--------------------
1995 1996
-------- --------
<S> <C> <C>
Net revenues........................................................... $149,973 $170,386
Costs and expenses:
Cost of sales........................................................ 125,305 136,711
Selling and administrative........................................... 11,604 12,966
Research and technical............................................... 2,286 2,529
Other cost, net...................................................... 578 413
Interest expense..................................................... 15,176 15,395
Interest income...................................................... (238) (257)
-------- --------
Total costs and expenses............................................... 154,711 167,757
-------- --------
Income (loss) before provision for income taxes...................... (4,738) 2,629
Provision for income taxes............................................. 615 1,029
-------- --------
Net income (loss).................................................... $ (5,353) $ 1,600
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-22
<PAGE>
HAYNES CORP.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JUNE 30,
------------------
1995 1996
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)...................................................... $(5,353) $ 1,600
Depreciation........................................................... 6,127 5,844
Amortization........................................................... 1,086 1,035
Adjustments (net)...................................................... (3,382) (11,462)
------- -------
Net cash used in operating activities.................................. (1,522) (2,983)
------- -------
Cash flows from investment and other activities:
Additions to property.................................................. (1,465) (801)
Other investment activities............................................ 27 57
------- -------
Net cash used in investment activities................................. (1,438) (744)
------- -------
Cash flows from financing activities:
Net additions to revolving credit...................................... 2,034 3,654
Other financing activities............................................. (425) --
------- -------
Net cash provided from financing activities............................ 1,609 3,654
------- -------
Effect of exchange rates on cash......................................... 199 (173)
------- -------
Decrease in cash and cash equivalents.................................... (1,152) (246)
Cash and cash equivalents, beginning of period........................... 5,690 5,035
------- -------
Cash and cash equivalents, end of period................................. $ 4,538 $ 4,789
------- -------
------- -------
Supplemental disclosures of cash flow information:
Cash paid during period for:
Interest............................................................. $12,455 $12,729
Income taxes......................................................... 490 1,535
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-23
<PAGE>
HAYNES CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED JUNE 30, 1996
(DOLLARS IN THOUSANDS)
NOTE 1. BASIS OF PRESENTATION
The interim financial statements are unaudited and reflect all adjustments
(consisting solely of normal recurring adjustments) that, in the opinion of
management, are necessary for a fair presentation of results of the interim
periods presented. This report includes information in a condensed form and
should be read in conjunction with the audited consolidated financial statements
for the fiscal year ending September 30, 1995. The results of operations for the
nine months ended June 30, 1996 are not necessarily indicative of the results to
be expected for the full year or any other interim period.
NOTE 2. INVENTORIES
The following is a summary of the major classes of inventories:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995 JUNE 30, 1996
------------------ -------------
(UNAUDITED)
<S> <C> <C>
Raw materials................................ $ 2,998 $ 5,974
Work-in-process.............................. 38,488 44,665
Finished goods............................... 20,616 28,941
Other, net................................... (1,868) (5,286)
-------- -------------
Net inventories.............................. $ 60,234 $74,294
-------- -------------
-------- -------------
</TABLE>
NOTE 3. DEBT
During February 1996, the Company increased the maximum amount available on
its Existing Credit Facility from $16,000 to $25,000.
NOTE 4. INCOME TAXES
The provision for income taxes for the nine months ended June 30, 1995 and
1996 differed from the U.S. federal statutory rate of 34% primarily due to taxes
on foreign earnings against which the Company was unable to utilize its U.S.
federal net operating loss carryforwards.
F-24
<PAGE>
Picture of four-high Steckel mill.
Picture of high temperature alloy testing.
Picture of high temperature alloy stress testing.
Picture of computer controlled four-high Steckel process.
<PAGE>
- --------------------------------------- --------------------------------------
- --------------------------------------- --------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, $100,000,000
SUCH OTHER INFORMATION AND
REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE COMPANY [HAYNES LOGO]
OR THE UNDERWRITERS. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION HAYNES CORP.
THAT THERE HAS BEEN NO CHANGE IN THE TO BE MERGED WITH
AFFAIRS OF THE COMPANY SINCE THE DATE AND CONTINUE AS
HEREOF OR THAT THE INFORMATION CONTAINED HAYNES INTERNATIONAL, INC.
HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL, OR % SENIOR NOTES DUE 2004
A SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OTHER THAN THE REGISTERED
SECURITIES TO WHICH IT RELATES. THE
PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO
BUY SUCH SECURITIES IN ANY CIRCUMSTANCES
IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL.
-------------------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary...................3
Risk Factors........................10
The Company.........................17
The Recapitalization................17
Use of Proceeds.....................19 ---------------------
Capitalization......................20 P R O S P E C T U S
Selected Consolidated Financial ---------------------
Data.............................21
Management's Discussion and Analysis
of Financial Condition and
Results of Operations............23 MERRILL LYNCH & CO.
Business............................37
Management..........................51
Certain Transactions................60 PAINEWEBBER INCORPORATED
Principal Stockholders..............61
Description of the Notes............62
Description of New Credit Facility..86
Underwriting........................87
Legal Matters.......................88
Experts.............................88
Additional Information..............88 , 1996
Index to Consolidated Financial
Statements..........................F-1
UNTIL , 1996, ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------- --------------------------------------
- --------------------------------------- --------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<CAPTION>
EXPENSES AMOUNT
- --------------------------------------------------------------------------------- --------
<S> <C>
Securities and Exchange Commission registration fee.............................. $ 29,311
National Association of Securities Dealers, Inc. fee............................. 9,000
Printing and engraving expenses.................................................. 150,000
Legal fees and expenses.......................................................... 475,000
Accounting expenses and fees..................................................... 170,000
Transfer Agent and Registrar fees................................................ 9,000
Blue Sky fees and expenses (including fees of counsel)........................... 20,000
Miscellaneous.................................................................... 37,689
--------
Total........................................................................ $900,000
--------
--------
</TABLE>
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Certificate of Incorporation of the Registrant provides for the
indemnification by the Registrant of each individual who was or is made a party
or is threatened to be made a party to or is involved in an action, suit or
proceeding by reason of the fact that such individual, or an individual of whom
such individual is the legal representative, (i) is or was a director or officer
of the Registrant, (ii) is or was serving (at such time as such individual is or
was a director or officer of such Registrant) at the request of the Registrant
as a director, officer, partner, trustee, administrator, employee or agent of
another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans to the
fullest extent authorized by the Delaware General Corporations Law. Section 145
of the General Corporation Law of the State of Delaware provides that a
corporation organized under the laws of Delaware may indemnify directors,
officers, employees, and agents. Section 145 provides in pertinent part as
follows:
(a) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceedings, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
(b) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or
II-1
<PAGE>
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of the corporation, or is or was
serving at the request of he corporation as a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the court of Chancery or such other court
shall deem proper.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of Section
145, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
(d) Any indemnification under subsections (a) and (b) of Section 145 (unless
ordered by a court) shall be made by the corporation only as authorized in the
specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in subsections (a) and (b) of Section
145. Such determination shall be made (1) by the board of directors by a
majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding, or (2) if such a quorum is not obtainable, or, even
if obtainable a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (3) by the stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or director
in defending any civil, criminal, administrative, or investigative action, suit
or proceeding may be paid by the corporation in advance of the final disposition
of such action, suit or proceeding upon receipt of an undertaking by or on
behalf of such director or officer to repay such amount if it shall ultimately
be determined that he is not entitled to be indemnified by the corporation as
authorized in Section 145. Such expenses (including attorneys' fees) incurred by
other employees and agents may be so paid upon such terms and conditions, if
any, as the board of directors deems appropriate.
(f) The indemnification and advancement of expenses provided by, or granted
pursuant to, the other subsections of Section 145 shall not be deemed exclusive
of any other rights to which those seeking indemnification or advancement of
expenses may be entitled under any by-law, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding such office.
(g) A corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under this section.
* * *
(j) The indemnification and advancement of expenses provided by, or granted
pursuant to, this section shall, unless otherwise provided when authorized or
ratified, continue as to a person who has
II-2
<PAGE>
ceased to be a director, officer, employee, or agent and shall inure to the
benefit of the heirs, executors and administrators of such person.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Not Applicable.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
The list of exhibits is incorporated herein by reference to the Index to
Exhibits on pages E-1 through E-5.
(b) Financial Statement Schedules:
All other financial statement schedules are omitted since the required
information is not applicable or is not present in amounts sufficient to require
submission of the schedules or because the information is included in the
Financial Statements or the Notes thereto.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification for such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liabilities under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in the form of
prospectus to be filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Kokomo, State of Indiana,
on August 2, 1996.
HAYNES INTERNATIONAL, INC.
By: /s/ MICHAEL D. AUSTIN
*
..................................
Michael D. Austin, President And
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
CAPACITY DATE
-------------------------------- ---------------
<S> <C> <C>
/s/ MICHAEL D. AUSTIN * President and Chief Executive August 2, 1996
........................................ Officer (Principal Executive
Michael D. Austin Officer) and Director
/s/ PERRY J. LEWIS * Director August 2, 1996
........................................
Perry J. Lewis
/s/ JOHN A. MORGAN * Director August 2, 1996
........................................
John A. Morgan
/s/ THOMAS F. GITHENS * Director August 2, 1996
........................................
Thomas F. Githens
/s/ SANGWOO AHN * Director August 2, 1996
........................................
Sangwoo Ahn
/s/ IRA STARR * Director August 2, 1996
........................................
Ira Starr
/s/ ROBERT EGAN * Director August 2, 1996
........................................
Robert Egan
/s/ JOSEPH F. BARKER Vice President--Finance; August 2, 1996
........................................ Director (Principal Financial
Joseph F. Barker Officer)
/s/ THEODORE T. BROWN * Controller (Principal Accounting August 2, 1996
........................................ Officer)
Theodore T. Brown
*By: /s/ JOSEPH F. BARKER
....................................
Joseph F. Barker,
Attorney-in-Fact
</TABLE>
II-4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIAL
NUMBER NUMBERING
ASSIGNED IN SYSTEM PAGE
REGULATION S-K NUMBER OF
ITEM 601 DESCRIPTION OF EXHIBIT EXHIBIT
- --------------- -------------------------------------------------------------- -----------
<S> <C> <C> <C>
(1) 1.01 Form of Purchase Agreement, dated August , 1996, by and
among Haynes Corp., Haynes International, Inc., Merrill Lynch,
Pierce, Fenner & Smith Incorporated and PaineWebber
Incorporated relating to the sale of the % Senior Notes Due
2004.
(2) 2.01 Form of Certificate of Ownership and Merger. (Incorporated by
reference to Exhibit 2.01 to the Registration Statement
on Form S-1, Registration No. 333-5203.)
(3) 3.01 Restated Certificate of Incorporation of Registrant.
(Incorporated by reference to Exhibit 3.01 to Registration
Statement on Form S-1, Registration No. 33-32617.)
3.02 Bylaws of Registrant. (Incorporated by reference to Exhibit
3.02 to Registration Statement on Form S-1, Registration No.
33-32617.)
(4) 4.01 See Exhibits 3.01 and 3.02.
4.02 Indenture, dated as of August 31, 1989, between Haynes
Acquisition Corporation and The Connecticut National Bank,
relating to the 13 1/2% Senior Subordinated Notes Due 1999,
table of contents and cross-reference sheet. (Incorporated by
reference to Exhibit 4.02 to Registration Statement on Form
S-1, Registration No. 33-32617.)
4.03 First Supplement to Indenture, dated as of August 31, 1989,
among Haynes International, Inc., Haynes Acquisition
Corporation and The Connecticut National Bank. (Incorporated
by reference to Exhibit 4.03 to Registration Statement on Form
S-1, Registration No. 33-32617.)
4.04 Second Supplement to Indenture, dated as of February 5, 1990,
between Haynes International, Inc. and The Connecticut
National Bank. (Incorporated by reference to Exhibit 4.09 to
Amendment No. 1 to Registration Statement on Form S-1,
Registration No. 33-32617.)
4.05 Third Supplement to Indenture, dated as of February 9, 1995,
between Haynes International, Inc. and Shawmut Bank
Connecticut, National Association (formerly known as The
Connecticut National Bank.)*
4.06 Fourth Supplement to Indenture, dated as of January 31, 1996,
between Haynes International, Inc. and Fleet National Bank of
Connecticut (formerly known as Shawmut Bank Connecticut,
National Association, formerly known as The Connecticut
National Bank.)*
4.07 Indenture, dated as of July 1, 1993, among Haynes
International, Inc., Haynes Holdings, Inc. and Society
National Bank, Indiana, as Trustee, relating to the 11 1/4%
Senior Secured Notes Due 1998, table of contents and
cross-reference sheet. (Incorporated by reference to Exhibit
4.01 to the Registration Statement on Form S-4, Registration
No. 33-66346.)
4.08 Registration Rights Agreement, dated July 1, 1993, by and
among Haynes International, Inc., Haynes Holdings, Inc. and
Prudential Securities Incorporated. (Incorporated by reference
to
</TABLE>
- ------------
* Previously filed.
** To be filed by amendment.
E-1
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
NUMBER NUMBERING
ASSIGNED IN SYSTEM PAGE
REGULATION S-K NUMBER OF
ITEM 601 DESCRIPTION OF EXHIBIT EXHIBIT
- --------------- -------------------------------------------------------------- -----------
<S> <C> <C> <C>
Exhibit 4.03 to Registration Statement on Form S-4,
Registration No. 33-66346.)
4.09 Form of 11 1/4% Senior Secured Note Due 1998, Series B.
(Included as Appendix B to the Indenture filed as Exhibit
4.07.) (Incorporated by Reference to Exhibit 4.02 to the
Registration Statement on Form S-4, Registration No.
33-66346.)
4.10 Form of Indenture, dated as of August , 1996, among
Haynes International, Inc., Haynes Corp. and National City
Bank, as Trustee, relating to the % Senior Notes Due 2004,
table of contents and cross-reference sheet.
4.11 Form of % Senior Note Due 2004.
4.12 Description of Specimen Stock Certificate for Common Stock of
Haynes International, Inc. (Incorporated by reference to
Exhibit 4.12 to Amendment No. 2 to Registration Statement on
Form S-1, Registration No. 333-5203.)
(5) 5.01 Opinion of Ice Miller Donadio & Ryan as to the legality of the
Notes to be registered.
(6) No Exhibit.
(7) No Exhibit.
(8) No Exhibit.
(9) No Exhibit.
(10) 10.01 Form of Severance Agreements, dated as of March 10, 1989,
between Haynes International, Inc. and the employees of Haynes
International, Inc. named in the schedule to the Exhibit.
(Incorporated by reference to Exhibit 10.03 to Registration
Statement on Form S-1, Registration No. 33-32617.)
10.02 Purchase Agreement, dated as of August 31, 1989, among Haynes
Acquisition Corporation, Haynes Holdings, Inc. and Purchasers
named on the signature pages relating to the sale of the 13
1/2% Senior Subordinated Notes Due 1999 and Common Stock of
Haynes Holdings, Inc. (Incorporated by reference to Exhibit
4.01 to Registration Statement on Form S-1, Registration No.
33-32617.)
10.03 Stock Subscription Agreement, dated as of August 31, 1989,
among Haynes Holdings, Inc., Haynes International, Inc. and
the persons listed on the signature pages thereto (Investors).
(Incorporated by reference to Exhibit 4.07 to Registration
Statement on Form S-1, Registration No. 33-32617.)
10.04 Amendment to the Stock Subscription Agreement To Add a Party,
dated August 14, 1992, among Haynes Holdings, Inc., Haynes
International, Inc., MLGA Fund II, L.P., and the persons
listed on the signature pages thereto. (Incorporated by
reference to Exhibit 10.17 to Registration Statement on Form
S-4, Registration No. 33-66346.)
10.05 Second Amendment to Stock Subscription Agreement, dated March
16, 1993, among Haynes Holdings, Inc., Haynes International,
Inc., MLGA Fund II, L.P., MLGAL Partners, Limited Partnership,
and the persons listed on the signature pages thereto.
(Incorporated by reference to Exhibit 10.21 to
</TABLE>
- ------------
* Previously filed.
** To be filed by amendment.
E-2
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
NUMBER NUMBERING
ASSIGNED IN SYSTEM PAGE
REGULATION S-K NUMBER OF
ITEM 601 DESCRIPTION OF EXHIBIT EXHIBIT
- --------------- -------------------------------------------------------------- -----------
<S> <C> <C> <C>
Registration Statement on Form S-4, Registration No.
33-66346.)
10.06 Stockholders Agreement, dated as of August 31, 1989, among
Haynes Holdings, Inc. and the persons listed on the signature
pages thereto (Investors). (Incorporated by reference to
Exhibit 4.08 to Registration Statement on Form S-1,
Registration No. 33-32617.)
10.07 Amendment to the Stockholders Agreement To Add a Party, dated
August 14, 1992, among Haynes Holdings, Inc., MLGA Fund II,
L.P., and the persons listed on the signature pages thereto.
(Incorporated by reference to Exhibit 10.18 to Registration
Statement on Form S-4, Registration No. 33-66346.)
10.08 Investment Agreement, dated August 10, 1992, between MLGA Fund
II, L.P., and Haynes Holdings, Inc. (Incorporated by reference
to Exhibit 10.22 to Registration Statement on Form S-4,
Registration No. 33-66346.)
10.09 Investment Agreement, dated August 10, 1992, between MLGAL
Partners, Limited Partnership and Haynes Holdings, Inc.
(Incorporated by reference to Exhibit 10.23 to Registration
Statement on Form S-4, Registration No. 33-66346.)
10.10 Investment Agreement, dated August 10, 1992, between Thomas F.
Githens and Haynes Holdings, Inc. (Incorporated by reference
to Exhibit 10.24 to Registration Statement on Form S-4,
Registration No. 33-66346.)
10.11 Consent and Waiver Agreement, dated August 14, 1992, among
Haynes Holdings, Inc., Haynes International, Inc., MLGA Fund
II, L.P., and the persons listed on the signature pages
thereto. (Incorporated by reference to Exhibit 10.19 to
Registration Statement on Form S-4, Registration No.
33-66346.)
10.12 Retirement Agreement, dated as of May 21, 1993, between Haynes
International, Inc. and Paul F. Troiano. (Incorporated by
reference to Exhibit 10.02 to Registration Statement on Form
S-4, Registration No. 33-66346).
10.13 Purchase Agreement, dated June 30, 1993, by and among Haynes
International, Inc., Haynes Holdings, Inc. and Prudential
Securities Incorporated relating to the sale of 11 1/4% Senior
Secured Notes Due 1998, Series A. (Incorporated by reference
to Exhibit 10.20 to Registration Statement on Form S-4,
Registration No. 33-66346.)
10.14 Executive Employment Agreement, dated as of September 1, 1993,
by and among Haynes International, Inc., Haynes Holdings, Inc.
and Michael D. Austin. (Incorporated by reference to Exhibit
10.26 to the Registration Statement on Form S-4, Registration
No. 33-66346.)
10.15 Amendment to Employment Agreement, dated as of July 15, 1996
by and among Haynes International, Inc., Haynes Holdings, Inc.
and Michael D. Austin.*
10.16 Loan and Security Agreement, dated August 11, 1994, between
Congress Financial Corporation (Central) and Haynes
International, Inc.*
10.17 Amendment No. 1 to Loan and Security Agreement, dated
</TABLE>
- ------------
* Previously filed.
** To be filed by amendment.
E-3
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
NUMBER NUMBERING
ASSIGNED IN SYSTEM PAGE
REGULATION S-K NUMBER OF
ITEM 601 DESCRIPTION OF EXHIBIT EXHIBIT
- --------------- -------------------------------------------------------------- -----------
<S> <C> <C> <C>
February 9, 1995, by and between Congress Financial
Corporation (Central) and Haynes International, Inc.*
10.18 Amendment No. 2 to Loan and Security Agreement, dated February
12, 1996, by and between Congress Financial Corporation
(Central) and Haynes International, Inc.*
10.19 Haynes Holdings, Inc. Employee Stock Option Plan.
(Incorporated by reference to Exhibit 10.08 to Registration
Statement on Form S-1, Registration No. 33-32617.)
10.20 Form of "New Option" Agreements between Haynes Holdings, Inc.
and the executive officers of Haynes International, Inc. named
in the schedule to the Exhibit. (Incorporated by reference to
Exhibit 10.09 to Registration Statement on Form S-1,
Registration No. 33-32617.)
10.21 Form of "September Option" Agreements between Haynes Holdings,
Inc. and the executive officers of Haynes International, Inc.
named in the schedule to the Exhibit. (Incorporated by
reference to Exhibit 10.10 to Registration Statement on Form
S-1, Registration No. 33-32617.)
10.22 Form of "January 1992 Option" Agreements between Haynes
Holdings, Inc. and the executive officers of Haynes
International, Inc. named in the schedule to the Exhibit.
(Incorporated by reference to Exhibit 10.08 to Registration
Statement on Form S-4, Registration No. 33-66346.)
10.23 Form of "Amendment to Holdings Option Agreements" between
Haynes Holdings, Inc. and the executive officers of Haynes
International, Inc. named in the schedule to the Exhibit.
(Incorporated by reference to Exhibit 10.09 to Registration
Statement on Form S-4, Registration No. 33-66346.)
10.24 Haynes International, Inc. 1996 Employee Stock Option Plan*
10.25 Form of Employee Option Agreement to be used in connection
with the Haynes International, Inc. 1996 Employee Stock Option
Plan. (Incorporated by reference to Exhibit 10.25 to Amendment No. 2
to Registration Statement on Form S-1, Registration No. 333-5203.)
10.26 Form of Underwriting Agreement, dated August , 1996, by and
among Haynes International, Inc., Haynes Corp., PaineWebber
Incorporated, Merrill Lynch, Pierce, Fenner & Smith
Incorporated and the Selling Stockholders relating to the sale
of the Common Stock, $.01 par value per share, of Haynes
International, Inc. (Incorporated by reference to Exhibit 1.01
to Amendment No. 2 to Registration Statement on Form S-1,
Registration No. 333-5203.)
10.27 Amended and Restated Loan Agreement by and among CoreStates
Bank, N.A. and Congress Financial Corporation (Central), as
Lenders, Congress Financial Corporation (Central), as Agent
for Lenders, and Haynes Corp., as Borrower.**
(11) No Exhibit.
(12) 12.01 Statement re: computation of ratio of earnings to fixed
charges.
(14) No Exhibit.
(15) No Exhibit.
(16) No Exhibit.
</TABLE>
- ------------
* Previously filed.
** To be filed by amendment.
E-4
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
NUMBER NUMBERING
ASSIGNED IN SYSTEM PAGE
REGULATION S-K NUMBER OF
ITEM 601 DESCRIPTION OF EXHIBIT EXHIBIT
- --------------- -------------------------------------------------------------- -----------
<S> <C> <C> <C>
(21) 21.01 Subsidiaries of the Registrant.
(23) 23.01 Consent of Coopers & Lybrand, L.L.P. dated August 2, 1996.
23.02 Consent of Ice Miller Donadio & Ryan. (Included as part of
Exhibit 5.01.)
(24) 24.01 Power of Attorney.*
(25) 25.01 Statement of Eligibility of The Connecticut National Bank, as
Trustee under the Indenture for 13 1/2% Senior Subordinated
Notes, Due 1999. (Incorporated by reference to Exhibit 26.01
to Registration Statement on Form S-1, No. 33-32617.)
25.02 Statement of Eligibility of Society National Bank, Indiana, as
Trustee under the Indenture for the 11 1/4% Senior Secured
Notes, Due 1998. (Incorporated by reference to Exhibit 25.01
to the Registration Statement on Form S-4, Registration No.
33-66346.)
25.03 Statement of Eligibility of National City Bank as Trustee
under the Indenture for % Senior Notes due 2004.
(26) No Exhibit.
(27) 27.01 Financial Data Schedule.
(28) No Exhibit.
(99) No Exhibit.
</TABLE>
- ------------
* Previously filed.
** To be filed by amendment.
E-5
Exhibit 1.01
HAYNES CORP.
$100,000,000
____% Senior Notes Due 2004
PURCHASE AGREEMENT
August __, 1996
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
PAINEWEBBER INCORPORATED
c/o Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Merrill Lynch World Headquarters
North Tower
World Financial Center
New York, New York 10281-1305
Ladies and Gentlemen:
Haynes Corp., a Delaware corporation (including its successors, the
"Issuer"), together with Haynes International, Inc., a Delaware corporation
which is the sole stockholder of the Issuer (including its successors,
"Haynes"), confirm their agreement with Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") and PaineWebber Incorporated (collectively, the
"Underwriters" which term shall also include any Underwriters substituted as
hereinafter provided in Section 10) with respect to the sale by the Issuer and
the purchase by the Underwriters of $100,000,000 aggregate principal amount of
the Issuer's ___% Senior Notes Due 2004 (the "Notes"), in the respective amounts
set forth in Schedule A hereto, except as may otherwise be provided in the
Pricing Agreement. The Notes are to be issued (the "Offering") pursuant to an
indenture to be dated as of August __, 1996 (the "Indenture") between
<PAGE>
the Issuer and National City Bank, as trustee (the "Trustee").
Concurrently with the Offering, pursuant to the certain underwriting
agreement (the "Equity Underwriting Agreement") dated as of the date hereof
among Haynes, the Issuer and Merrill Lynch and PaineWebber Incorporated, as
representatives of the several underwriters referred to therein, relating to the
sale of 2,438,446 shares of Common Stock of Haynes, $.01 par value per share
(the "Common Stock"), Haynes proposes to offer 2,300,000 shares of Common Stock
to the public (the "Equity Offering"). Approximately 30 days after Closing Time
(as defined below), the Issuer will be merged with and into Haynes (the
"Merger"). Consummation of the Offering and the Equity Offering are conditioned
upon each other and are also conditioned upon certain conditions of the
Underwriters' obligations set forth in Section 5 hereof.
Prior to the purchase and public offering of the Notes by the Underwriters,
the Issuer, Haynes and the Underwriters shall enter into an agreement
substantially in the form of Exhibit A hereto (the "Pricing Agreement" and the
time and date of execution of the Pricing Agreement being herein called the
"Representation Date"). The Pricing Agreement may take the form of an exchange
of any standard form of written telecommunication among the Issuer, Haynes and
the Underwriters, and shall specify such applicable information as is indicated
in Exhibit A hereto. The offering of the Notes will be governed by this
Agreement, as supplemented by the Pricing Agreement. From and after the date of
execution and delivery of the Pricing Agreement, this Agreement shall be deemed
to incorporate the Pricing Agreement.
The Issuer has prepared and filed with the Securities and Exchange
Commission (the "SEC") a registration statement on Form S-1 (File No. 333-5411)
and a related preliminary prospectus for the registration of the Notes under the
Securities Act of 1933, as amended (the "1933 Act"), has filed such amendments
thereto, if any, and such amended preliminary prospectuses as may have been
required to the date hereof, and will file such additional amendments thereto
and such amended prospectuses as may hereafter be required. Such registration
statement (as amended) and the prospectus constituting a part thereof (including
in each case all documents deemed to be incorporated by reference therein and
the information, if any, deemed to be part thereof pursuant to Rule 430A(b) or
Rule 434 of the rules and regulations of the SEC under the 1933 Act (the "1933
Act Regulations"), as from time to time
2
<PAGE>
may be amended or supplemented pursuant to the 1933 Act or otherwise) are
hereinafter referred to as the "Registration Statement" and the "Prospectus,"
respectively, except that if any revised prospectus shall be provided to the
Underwriters by the Issuer for use in connection with the offering of the Notes
which differs from the Prospectus on file at the SEC at the time the
Registration Statement becomes effective (whether or not such revised prospectus
is required to be filed by the Issuer pursuant to Rule 424(b) of the 1933 Act
Regulations), the term "Prospectus" shall refer to such revised prospectus from
and after the time it is first provided to the Underwriters for such use. If the
Issuer elects to rely on Rule 434 of the 1933 Act Regulations, all references to
the Prospectus shall be deemed to include, without limitation, the form of
Prospectus and the term sheet, taken together, provided to the Underwriters by
the Issuer in reliance on Rule 434 of the 1933 Act Regulations (the "Rule 434
Prospectus"). If the Issuer files a registration statement to register a portion
of the Notes and relies on Rule 462(b) of the 1933 Act Regulations for such
registration statement to become effective upon filing with the SEC (the "Rule
462 Registration Statement"), then any reference to the Registration Statement
herein shall be deemed to refer to both the registration statement referred to
above and the Rule 462 Registration Statement, as each such registration
statement may be amended pursuant to the 1933 Act.
Each of the Issuer and Haynes understands that the Underwriters propose to
make a public offering of the Notes as soon as the Underwriters deem advisable
after the Registration Statement becomes effective, the Pricing Agreement has
been executed and delivered and the Indenture has been qualified under the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act").
SECTION 1. Representations and Warranties. (a) Each of the Issuer and
Haynes represents and warrants to each Underwriter as of the date hereof, as of
the Representation Date and as of Closing Time (as defined in Section 2 hereof)
as follows:
(i) At the time the Registration Statement becomes effective and any
post-effective amendment thereto becomes effective and at the
Representation Date, the Registration Statement will comply in all material
respects with the requirements of the 1933 Act and the 1933 Act Regulations
and the Trust Indenture Act and the rules and regulations of the SEC
thereunder and will not contain an untrue statement of a material fact or
omit to state a material fact required to be
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stated therein or necessary to make the statements therein not misleading.
The Prospectus, at the Representation Date (unless the term "Prospectus"
refers to a prospectus which has been provided to the Underwriters by the
Issuer for use in connection with the offering of the Notes which differs
from the Prospectus on file at the SEC at the time the Registration
Statement becomes effective, in which case at the time it is first provided
to the Underwriters for such use) and at Closing Time, will not include an
untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided that the
representations and warranties in this subsection shall not apply to
statements in or omissions from the Registration Statement or Prospectus
contained under the caption "Underwriting" in the Prospectus made in
reliance upon and in conformity with information furnished to the Issuer in
writing by the Underwriters expressly for use in the Registration Statement
or Prospectus. For purposes of this Section 1(a), all references to the
Registration Statement, any post-effective amendments thereto and the
Prospectus shall be deemed to include, without limitation, any
electronically transmitted copies thereof, including, without limitation,
any copy filed with the SEC pursuant to its Electronic Data Gathering,
Analysis, and Retrieval System ("EDGAR").
(ii) Coopers & Lybrand L.L.P., the accountants who certified the
consolidated financial statements and supporting schedules with respect to
the Issuer included in the Registration Statement, are independent public
accountants as required by the 1933 Act and the 1933 Act Regulations.
(iii) The financial statements included in the Registration Statement
and the Prospectus present fairly in all material respects the consolidated
financial position of the Issuer and its consolidated subsidiaries, in each
case as at the dates indicated, and the results of their operations for the
periods specified; except as otherwise stated in the Registration
Statement, said financial statements have been prepared in conformity with
generally accepted accounting principles applied on a consistent basis; the
supporting schedules included in the Registration Statement present fairly
in all material respects the information required to be stated therein; and
the pro forma financial data included in the Registration
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Statement and the Prospectus have been prepared in accordance with the
requirements of Section 11-02 of Regulation S-X under the 1933 Act and all
adjustments to historical data made by the Issuer in preparing the pro
forma data were reasonable.
(iv) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, except as otherwise stated
therein, (A) there has been no material adverse change in the condition
(financial or otherwise), assets, earnings, liabilities (contingent or
otherwise) or prospects of the Issuer and its subsidiaries considered as
one enterprise, whether or not arising in the ordinary course of business,
(B) there have been no transactions entered into by the Issuer or any of
its subsidiaries which are material with respect to the Issuer and its
subsidiaries considered as one enterprise, other than those in the ordinary
course of business, (C) there has been no dividend or distribution of any
kind declared, paid or made by Haynes or the Issuer on any class of its
capital stock, other than payments with respect to fractional shares
resulting from a reverse split of the Common Stock of Haynes, and (D) there
are no liabilities or obligations of the Issuer or its subsidiaries, direct
or indirect, contingent or matured, which are material to the Issuer and
its subsidiaries considered as one enterprise, other than those reflected
in the Registration Statement or Prospectus.
(v) Each of the Issuer and Haynes has been duly incorporated and is
validly existing as a corporation, in good standing under the laws of its
respective jurisdiction of incorporation, and has corporate power and
authority to own, lease or operate its properties and to conduct its
business as described in the Prospectus and to enter into and perform its
obligations under this Agreement, the Pricing Agreement, the Equity
Underwriting Agreement and, with respect to the Issuer, the Indenture; and
each of the Issuer and Haynes is duly qualified as a foreign corporation to
transact business and is in good standing in each jurisdiction in which
such qualification is required, whether by reason of the ownership or
leasing of property or the conduct of business, except where the failure to
so qualify would not have a material adverse effect on the condition
(financial or otherwise), assets, earnings, liabilities (contingent or
otherwise) or prospects of Haynes and its subsidiaries considered as one
enterprise.
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(vi) Each subsidiary of Haynes has been duly organized and is validly
existing as a corporation, limited liability company, general partnership
or limited partnership, as the case may be, in good standing under the laws
of its respective jurisdiction of incorporation, organization or formation,
has corporate, organizational or partnership power and authority, as the
case may be, to own, lease and operate its properties and to conduct its
business as described in the Prospectus and is duly qualified to transact
business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure to so qualify
would not have a material adverse effect on the condition (financial or
otherwise), assets, earnings, liabilities (contingent or otherwise) or
prospects of Haynes and its subsidiaries considered as one enterprise;
except as described in the Registration Statement and Prospectus, all of
the issued and outstanding capital stock or ownership interests of each
subsidiary of the Issuer other than CabVal, a New York general partnership,
has been duly authorized and validly issued, is fully paid and
nonassessable and is owned by Haynes, directly or through subsidiaries,
free and clear of any security interest, lien, option, claim or other
encumbrance, except for pledges of all of the capital stock of the Issuer
and a majority of the outstanding capital stock of the Issuer's
subsidiaries to secure the Issuer's obligations under the Existing Senior
Notes (as defined in the Prospectus) and the related guarantee thereof by
Haynes. Haynes indirectly owns a 50% partnership interest in CabVal (the
"Partnership Interest") free and clear of any security interest, lien,
option, claim or other encumbrance except for pledges of the Partnership
Interest to secure the Issuer's obligations under the Existing Senior Notes
(as defined in the Prospectus) and the related guarantee thereof by Haynes.
(vii) The authorized, issued and outstanding capitalization of the
Issuer is as set forth in the Prospectus under "Capitalization" in the
Column "Actual" and in the column "As Adjusted" after giving effect to the
transactions described in the Prospectus under the caption "The
Recapitalization," including without limitation the issuance of the Notes
pursuant to this Agreement.
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(viii) Neither Haynes nor any of its subsidiaries is (A) in violation
of its organizational documents, (B) in default in the performance or
observance of any material obligation, agreement, covenant or condition
contained in any contract, indenture, mortgage, loan agreement, note, lease
or other instrument to which Haynes or any of its subsidiaries is a party
or by which it or any of them may be bound, or to which any of their
property or assets is subject, including without limitation any contract or
other agreement relating to the Existing Indebtedness (as defined in the
Prospectus) and the New Credit Facility (as defined below), or (C) in
violation of any judgment, order or decree of any court with jurisdiction
over Haynes or any of its subsidiaries, or other governmental or regulatory
authority with jurisdiction over Haynes or any of its subsidiaries, except
where any such violation or default would not have a material adverse
effect on the condition (financial or otherwise), assets, earnings,
liabilities (contingent or otherwise) or prospects of the Issuer and its
subsidiaries, taken as a whole. The execution, delivery and performance of
this Agreement, the Pricing Agreement, the Equity Underwriting Agreement
and, with respect to the Issuer, the Indenture, and the consummation of the
transactions contemplated herein and therein and compliance by the Issuer
and Haynes with their respective obligations hereunder and thereunder have
been duly authorized by all necessary corporate action and will not
conflict with or constitute a material breach of, or a material default
under, or result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of Haynes or any of its
subsidiaries pursuant to, any material contract, indenture, mortgage, loan
agreement, note, lease or other instrument to which Haynes or any of its
subsidiaries is a party or by which it or any of them may be bound, or to
which any of their property or assets is subject, including without
limitation any contract or other agreement relating to the Existing
Indebtedness and the New Credit Facility, nor will such action result in
any violation of or conflict with the provisions of the certificate of
incorporation or by-laws, certificate of formation or operating agreement
or certificate of limited partnership or partnership agreement of Haynes or
any of its subsidiaries or any applicable law, rule or regulation, or any
judgment, order or decree of any court with jurisdiction over Haynes or any
subsidiary thereof, or other governmental or regulatory authority with
jurisdiction over Haynes or any of its subsidiaries, except where any such
violation or
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conflict would not have a material adverse effect on the condition
(financial or otherwise), assets, earnings, liabilities (contingent or
otherwise) or prospects of the Issuer and its subsidiaries, taken as a
whole.
(ix) No labor dispute with the employees of Haynes or any of its
subsidiaries exists or to the knowledge of the Issuer or Haynes is
imminent; and neither the Issuer nor Haynes has knowledge of any existing
or imminent labor disturbance by the employees of any of their principal
suppliers, manufacturers or contractors which might be expected to result
in any material adverse change in the condition (financial or otherwise),
assets, earnings, liabilities (contingent or otherwise) or prospects of
Haynes and its subsidiaries considered as one enterprise which is required
to be disclosed in the Registration Statement or Prospectus (other than as
disclosed therein). Haynes has entered into a labor contract with the
United Steelworkers of America (the "USWA") that expires on June 11, 1999,
which contract replaces the contract with the USWA that expired on June 11,
1996. Neither the Issuer nor Haynes is a party to any other collective
bargaining agreement.
(x) There is no action, suit or proceeding before or by any court or
governmental agency or body, domestic or foreign, now pending or, to the
knowledge of the Issuer and Haynes, threatened against or affecting Haynes
or any of its subsidiaries which is required to be disclosed in the
Registration Statement (other than as disclosed therein), or which might
otherwise, if adversely determined, result in any material adverse change
in the condition (financial or otherwise), assets, earnings, liabilities
(contingent or otherwise) or prospects of Haynes and its subsidiaries
considered as one enterprise, or which might materially and adversely
affect the properties or assets thereof or which might materially and
adversely affect the consummation of the transactions contemplated by this
Agreement and the Equity Underwriting Agreement; and there are no contracts
or documents of Haynes or any of its subsidiaries which are required by the
1933 Act or the 1933 Act Regulations to be filed as exhibits to the
Registration Statement or the documents incorporated by reference therein
which have not been so filed.
(xi) Except as disclosed in the Registration Statement, Haynes and its
subsidiaries own or possess,
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or can acquire on reasonable terms, the material patents, patent rights,
licenses, inventions, copyrights, know-how (including trade secrets and
other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures), trademarks, service marks and trade
names (collectively, "patent and proprietary rights") presently employed by
them in connection with the business now operated by them, and neither
Haynes nor any of its subsidiaries has received any written notice or
otherwise has actual knowledge of any infringement of or conflict with
asserted rights of others with respect to any patent or proprietary rights,
or of any basis for rendering any patent and proprietary rights invalid or
inadequate to protect the interest of the Issuer or any of its subsidiaries
therein.
(xii) No authorization, approval or consent of any court or
governmental authority or agency is necessary in connection with the
offering, issuance or sale of the Notes hereunder, except as such may be
required under the 1933 Act or the 1933 Act Regulations or state securities
laws and the qualification of the Indenture under the Trust Indenture Act.
(xiii) Haynes and its subsidiaries possess such certificates,
authorities or permits issued by the appropriate state, federal or foreign
regulatory agencies or bodies necessary to conduct the business now
operated by them, except where the failure to possess such certificates,
authorities or permits would not have a material adverse effect on the
condition (financial or otherwise), assets, earnings, liabilities
(contingent or otherwise) or prospects of Haynes and its subsidiaries,
taken as a whole, and neither Haynes nor any of its subsidiaries has
received any notice of proceedings relating to the revocation or
modification of any such certificate, authority or permit, except where
such revocation or modification would not have a material adverse effect on
the condition (financial or otherwise), assets, earnings, liabilities
(contingent or otherwise) or prospects of Haynes and its subsidiaries,
taken as a whole.
(xiv) This Agreement has been, and at the Representation Date, the
Pricing Agreement will have been, duly authorized, executed and delivered
by the Issuer and Haynes.
(xv) The Indenture has been duly authorized by the Issuer and Haynes
and, at Closing Time, will have
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been duly qualified under the Trust Indenture Act of 1939, as amended, and
duly executed and delivered by the Issuer and will constitute a valid and
binding agreement of the Issuer, enforceable against it in accordance with
its terms, except as the enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally or by general equitable principles.
(xvi) The Notes have been duly authorized by the Issuer and Haynes
and, at Closing Time, the Notes will have been duly executed by the Issuer
and, when authenticated in the manner provided for in the Indenture and
delivered against payment of the purchase price therefor specified in the
Pricing Agreement, the Notes will constitute valid and binding obligations
of the Issuer, enforceable in accordance with their terms, except as the
enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles, and the
Notes will be in the form contemplated by and entitled to the benefits of
the Indenture.
(xvii) The Notes and the Indenture conform in all material respects to
the respective statements relating thereto contained in the Prospectus and
will be in substantially the respective forms filed or incorporated by
reference, as the case may be, as exhibits to the Registration Statement.
(xviii) Except as set forth in the Prospectus, Haynes and its
subsidiaries are in compliance in all material respects with all applicable
laws, statutes, ordinances, rules or regulations the enforcement of which,
individually or in the aggregate, would be reasonably expected to have a
material adverse effect on the condition (financial or otherwise), assets,
earnings, liabilities (contingent or otherwise) or prospects of Haynes and
its subsidiaries considered as one enterprise.
(xix) Haynes and its subsidiaries have good and marketable title to
all properties (real and personal) owned by them, free and clear of all
mortgages, pledges, liens (other than liens permitted by the Indenture),
security interests, claims, restrictions or encumbrances of any kind except
such as (a) are described in the Prospectus, (b) are encumbrances securing
the obligations of the Issuer under the
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Existing Senior Notes and the Existing Credit Facility (each as defined in
the Prospectus) and the obligations of Haynes under its guarantee of the
Issuer's obligations under the Existing Senior Notes or (c) do not, singly
or in the aggregate, materially affect the value of such property and do
not interfere with the use made and proposed to be made of such property by
them; and all properties held under lease by the Issuer and its
subsidiaries are held under valid, subsisting and enforceable leases,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles.
(xx) Neither the Issuer nor Haynes is, nor upon the issuance and sale
of the Notes and the application of the net proceeds therefrom as described
in the Prospectus under the caption "Use of Proceeds" will either of them
be, an "investment company" or an entity "controlled" by an "investment
company" as such terms are defined in the Investment Company Act of 1940,
as amended (the "1940 Act").
(xxi) Each of Haynes and its subsidiaries has filed all foreign,
federal or state income and franchise tax returns required to be filed and
have paid all taxes shown thereon as due, and there is no material tax
deficiency which has been or is reasonably likely to be asserted against
any of them; all material tax liabilities of the Issuer and its
subsidiaries are adequately provided for on the books thereof or described
in the Prospectus.
(xxii) No person holds any right to include any securities in the
Registration Statement that has not been exercised or that has not expired
by reason of lapse of time following notification of Haynes' intent to file
the Registration Statement.
(xxiii) Neither the Issuer nor any agent thereof acting on its behalf
has taken, and none of them will take, any action that might cause this
Agreement or the issuance or sale of the Notes to violate Regulation G (12.
C.F.R. Part 207), Regulation T (12 C.F.R. Part 220), Regulation U (12
C.F.R. Part 221) or Regulation X (12 C.F.R. Part 224) of the Board of
Governors of the Federal Reserve System, in each case as in effect now or
as the same may hereafter be in effect at the Closing Time.
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(xxiv) Each of Haynes and its subsidiaries (i) is in compliance with
any and all applicable foreign, federal, state and local laws and
regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (ii) has received all permits,
licenses or other approvals required of them under applicable Environmental
Laws to conduct their respective businesses and (iii) is in compliance with
all terms and conditions of any such permit, license or approval, except
where such noncompliance with Environmental Laws, failure to receive
required permits, licenses or other approvals or failure to comply with the
terms and conditions of such permits, licenses or approvals would not,
individually or in the aggregate, result in a material adverse effect on
the business, prospects or operations of Haynes and its subsidiaries, taken
as a whole, except as described in the Registration Statement or
Prospectus. There are no costs and liabilities associated with or arising
in connection with Environmental Laws as currently in effect including,
without limitation, costs of compliance therewith which would, singly or in
the aggregate, have a material adverse effect on the condition (financial
or otherwise) assets, earnings, liabilities (contingent or otherwise), or
prospects of Haynes and its subsidiaries, considered as one enterprise,
except as described in the Registration Statement or Prospectus.
(xxv) Contemporaneously herewith, Haynes is entering into a definitive
agreement with Congress Financial Corporation, as agent for itself and for
CoreStates Bank, N.A. (the "Lenders") whereby the lenders will provide
Haynes with a credit facility in the maximum amount of $50.0 million (the
"New Credit Facility").
(b) Any representation contained in any certificate signed by any
officers of the Issuer or Haynes and delivered to the Underwriters or to counsel
for the Underwriters pursuant to the terms of this Agreement shall be deemed a
representation and warranty by the Issuer or Haynes, as the case may be, to the
Underwriters as to the matters covered thereby.
SECTION 2. Sale and Delivery to the Underwriters; Closing. (a) On the
basis of the representations and warranties herein contained and subject to the
terms and conditions herein set forth, the Issuer agrees to sell to each
Underwriter, severally and not jointly, and each
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Underwriter, severally and not jointly, agrees to purchase from the Issuer, at
the purchase price set forth in the Pricing Agreement, the entire aggregate
principal amount of Notes set forth in Schedule A opposite the name of such
Underwriter (except as otherwise provided in the Pricing Agreement), plus any
additional principal amount of Notes which such Underwriter may become obligated
to purchase pursuant to the provisions of Section 10 hereof.
(b) Payment of the purchase price for, and delivery of, the Notes to
be purchased by the Underwriters shall be made at the offices of Davis Polk &
Wardwell, 450 Lexington Avenue, New York, New York 10017 or at such other place
as shall be agreed upon by the Underwriters and the Issuer, at 10:00 A.M. on the
third (or fourth, if the pricing shall occur after 4:30 P.M.) business day
following the date hereof or such other time not later than ten business days
after such date as shall be agreed upon by the Underwriters and the Issuer (such
time and date of payment and delivery being herein called "Closing Time").
Payment shall be made to the Issuer by wire transfer in immediately
available funds to the account or accounts specified by the Issuer to the
Underwriters against delivery to the Underwriters of the Notes.
(c) Certificates for the Notes shall be in such denominations ($1,000
or integral multiples thereof) and registered in such names as the Underwriters
may request in writing at least two full business day before Closing Time. The
certificates for the Notes will be made available for examination and packaging
by the Underwriters in The City of New York not later than 10:00 A.M. on the
business day prior to the Closing Time.
SECTION 3. Covenants of the Issuer and Haynes. The Issuer covenants,
and Haynes covenants to cause the Issuer to comply with such covenants, with
each of the Underwriters as follows:
(a) The Issuer will use its best efforts to cause the Registration
Statement to become effective (as and when requested by the Underwriters)
and, if the Issuer elects to rely upon Rule 430A of the 1933 Act
Regulations and subject to Section 3(b), will comply with the requirements
of Rule 430A of the 1933 Act Regulations and will notify the Underwriters
immediately, and confirm the notice in writing, (i) of the effectiveness of
the Registration Statement and any amendment thereto (including any
post-effective amendment), (ii) of the receipt of any comments from
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the SEC, (iii) of any request by the SEC for any amendment to the
Registration Statement or any amendment or supplement to the Prospectus or
for additional information, and (iv) of the issuance by the SEC of any stop
order suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose. The Issuer will make every
reasonable effort to prevent the issuance of any stop order and, if any
stop order is issued, to obtain the lifting thereof at the earliest
possible moment. If the Issuer elects to rely on Rule 434 of the 1933 Act
Regulations, the Issuer will prepare a term sheet that complies with the
requirements of Rule 434 of the 1933 Act Regulations. The Issuer will
provide the Underwriters with copies of the form of Prospectus, in such
number as the Underwriters may reasonably request, and file with the SEC
such Prospectus in accordance with Rule 424(b) of the 1933 Act Regulations
by the close of business in New York on the business day immediately
succeeding the date of the Pricing Agreement. If the Issuer elects to rely
on Rule 434 of the 1933 Act Regulations, the Issuer will provide the
Underwriters with copies of the Rule 434 Prospectus in such number as the
Underwriters may reasonably request by the close of business in New York on
the business day immediately succeeding the date of the Pricing Agreement.
(b) The Issuer will give the Underwriters notice of its intention to
file or prepare any amendment to the Registration Statement (including any
post-effective amendment) or any amendment or supplement to the Prospectus
(including any revised prospectus which the Issuer proposes for use by the
Underwriters in connection with the offering of the Notes which differs
from the Prospectus on file at the SEC at the time the Registration
Statement becomes effective, whether or not such revised prospectus is
required to be filed pursuant to Rule 424(b) of the 1933 Act Regulations or
in any term sheet prepared in reliance on Rule 434 of the 1933 Act
Regulations), will furnish the Underwriters with copies of any such
amendment or supplement a reasonable amount of time prior to such proposed
filing or use, as the case may be, and will not file any such amendment or
supplement or use any such prospectus to which the Underwriters or counsel
for the Underwriters shall reasonably object.
(c) The Issuer will deliver to the Underwriters two copies of the
Registration Statement as originally filed and of each amendment thereto
(including exhibits
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filed therewith or incorporated by reference therein) and will also deliver
to the Underwriters as many conformed copies of the Registration Statement
as originally filed and of each amendment thereto as the Underwriters may
reasonably request.
(d) The Issuer will deliver to the Underwriters, without charge, from
time to time until the effective date of the Registration Statement (or, if
the Issuer has elected to rely upon Rule 430A of the 1933 Act Regulations,
until such time as the Pricing Agreement is executed and delivered) as many
copies of each preliminary prospectus as the Underwriters may reasonably
request, and the Issuer hereby consents to the use of said copies for
purposes permitted by the 1933 Act. The Issuer will furnish to the
Underwriters, from time to time during the period when the Prospectus is
required to be delivered under the 1933 Act or the 1934 Act, such number of
copies of the Prospectus (as amended or supplemented) as the Underwriters
may reasonably request for the purposes contemplated by the 1933 Act and
the 1933 Act Regulations.
(e) If any event shall occur as a result of which it is necessary, in
the opinion of counsel for the Underwriters, to amend or supplement the
Prospectus in order to make the Prospectus not misleading in the light of
the circumstances existing at the time it is delivered to a purchaser, the
Issuer will forthwith amend or supplement the Prospectus (in form and
substance satisfactory to counsel for the Underwriters) so that, as so
amended or supplemented, the Prospectus will not include an untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements therein, in the light of the circumstances
existing at the time it is delivered to a purchaser, not misleading, and
the Issuer will furnish to the Underwriters a reasonable number of copies
to such amendment or supplement.
(f) The Issuer will endeavor, in cooperation with the Underwriters, to
qualify the Notes for offering and sale under the applicable securities
laws of such states and other jurisdictions of the United States as the
Underwriters may designate; provided, that the Issuer shall not be
obligated to qualify as a foreign corporation in any jurisdiction in which
it is not so qualified. In each jurisdiction in which the Notes have been
so qualified, the Issuer will file such statements and reports as may be
required by the laws of such jurisdiction to continue such qualification in
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effect for a period of not less than one year from the effective date of
the Registration Statement.
(g) The Issuer will make generally available to its security holders
as soon as practicable, but not later than 45 days after the close of the
period covered thereby, an earnings statement (in form complying with the
provisions of Rule 158 of the 1933 Act Regulations) covering a twelve month
period beginning not later than the first day of the Issuer's fiscal
quarter next following the "effective date" (as defined in said Rule 158)
of the Registration Statement.
(h) The Issuer will use the net proceeds from the Offering received by
it from the sale of the Notes in the manner specified in the Prospectus
under "Use of Proceeds." The net proceeds to be used for refinancing the
Existing Indebtedness (as defined in the Prospectus) shall be set aside and
held in an escrow account until any redemption payments or repayment
payments in connection with such refinancing are made.
(i) If, at the time that the Registration Statement becomes effective,
any information shall have been omitted therefrom in reliance upon Rule
430A of the 1933 Act Regulations, then immediately following the execution
of the Pricing Agreement, the Issuer will prepare, and file or transmit for
filing with the SEC in accordance with such Rule 430A and Rule 424(b) of
the 1933 Act Regulations, copies of an amended Prospectus, or, if required
by such Rule 430A, a post-effective amendment to the Registration Statement
(including an amended Prospectus), containing all information so omitted.
(j) For a period of 180 days from the date of this Agreement, the
Issuer will not, and will not permit any of its subsidiaries to, without
the prior written consent of the Underwriters, directly or indirectly,
issue, sell or offer to sell, grant any option for the sale of, or
otherwise dispose of, or register for sale by others, any debt securities,
other than the initial sale of the Notes, and the indebtedness under the
New Credit Facility.
(k) Each of the Issuer and Haynes will use its best efforts to cause
the transactions described in the Prospectus under the heading "The
Recapitalization" to be consummated on or prior to the Closing Time, except
with respect to the Merger and the refinancing of the
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Existing Indebtedness, which transactions each of the Issuer and Haynes
will use its best efforts to consummate as soon as practicable thereafter
but in no event later than 35 days after the Closing Time.
SECTION 4. Payment of Expenses. (a) The Issuer agrees to pay all
expenses incident to the performance of its obligations under this Agreement,
including (i) the preparation, printing and filing of the Registration Statement
(including financial statements and exhibits) as originally filed and of each
amendment thereto, (ii) the preparation, printing and delivery to the
Underwriters of this Agreement, the Pricing Agreement, the Indenture and such
other documents as may be required in connection with the offering, purchase,
sale and delivery of the Notes, (iii) the preparation, printing, issuance and
delivery of the certificates for the Notes to the Underwriters, including any
transfer taxes or duties payable upon the sale of the Notes to the Underwriters,
(iv) the fees and disbursements of counsel for the Issuer, accountants and any
other advisors, (v) the qualification of the Notes under state securities laws
in accordance with the provisions of Section 3(f) hereof, including filing fees
and the reasonable fees and disbursements of counsel for the Underwriters in
connection therewith and in connection with the preparation of the Blue Sky
Survey, any supplement thereto and any Legal Investment Survey, (vi) the
printing and delivery to the Underwriters of copies of each preliminary
prospectus and of the Prospectus and any amendments or supplements thereto,
including any term sheet delivered by the Issuer pursuant to Rule 434 of the
1933 Act Regulations, (vii) the preparation, printing and delivery to the
Underwriters of copies of the Blue Sky Survey, any supplement thereto and any
Legal Investment Survey, (viii) the filing fees incident to review by the
National Association of Securities Dealers,Inc. (the "NASD") of the terms of the
sale of the Notes, (ix) any fees payable in connection with the rating of the
Notes and (x) the fees and expenses of the Trustee, including the fees and
disbursements of counsel for the Trustee in connection with the Indenture and
the Notes.
(b) If this Agreement is terminated by the Underwriters in accordance
with the provisions of Section 5 or Section 9(a)(i) hereof, the Issuer agrees to
reimburse the Underwriters for all of their reasonable out-of-pocket expenses,
including the reasonable fees and disbursements of counsel for the Underwriters.
SECTION 5. Conditions of the Underwriters' Obligations. The
obligations of the Underwriters to
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purchase and pay for the Notes are subject to the continued accuracy in all
material respects of the representations and warranties of the Issuer and Haynes
herein contained (including those contained in the Pricing Agreement), to the
accuracy of the statements of the Issuer and Haynes made in any certificate
pursuant to the provisions hereof, to the performance by the Issuer and Haynes
of its obligations hereunder, and to the following further conditions:
(a) The Registration Statement shall have become effective not later
than 5:30 P.M. on the date hereof, or with the consent of the Underwriters,
at a later time and date, not later, however, than 5:30 P.M. on the first
business day following the date hereof, or at such later time and date as
may be approved by the Underwriters; and at Closing Time no stop order
suspending the effectiveness of the Registration Statement shall have been
issued under the 1933 Act or proceedings therefor initiated or threatened
by the SEC. If the Issuer has elected to rely upon Rule 430A of the 1933
Act Regulations, the price of the Notes and any price-related information
previously omitted from the effective Registration Statement pursuant to
such Rule 430A shall have been transmitted to the SEC for filing pursuant
to Rule 424(b) of the 1933 Act Regulations within the prescribed time
period and prior to Closing Time the Issuer shall have provided evidence
satisfactory to the Underwriters of such timely filing, or a post-effective
amendment providing such information shall have been promptly filed and
declared effective in accordance with the requirements of Rule 430A of the
1933 Act Regulations.
(b) The Issuer shall have furnished to the Underwriters the opinion of
Ice Miller Donadio & Ryan, counsel for the Issuer, dated as of Closing
Time, in form and substance satisfactory to counsel for the Underwriters to
the effect that:
(i) Each of the Issuer and Haynes has been duly incorporated,
organized or formed, as the case may be, and is validly existing as a
corporation, limited liability company or limited partnership, as the
case may be, in good standing under the laws of its respective
jurisdiction of incorporation, organization or formation.
(ii) Each of the Issuer and Haynes has the requisite corporate
power and authority to own and lease its properties and to operate and
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conduct its business as described in the Registration Statement.
(iii) To such counsel's knowledge, each of the Issuer and Haynes
is duly qualified to transact business as a foreign corporation,
limited liability company, or limited partnership, as the case may be,
and is in good standing in each jurisdiction in which such
qualification is required, except where the failure to qualify would
not have a material adverse effect on the condition (financial or
otherwise), assets, earnings, liabilities (contingent or otherwise) or
prospects of the Issuer and its subsidiaries considered as one
enterprise.
(iv) The Notes have been duly authorized by the Issuer and when
executed by the Issuer and authenticated by the Trustee in the manner
provided in the Indenture (assuming the due authorization, execution
and delivery of the Indenture by the Trustee) and delivered against
payment of the purchase price therefor specified in the Pricing
Agreement, the Notes will constitute valid and binding obligations of
the Issuer in each case enforceable in accordance with their terms and
entitled to the benefits of the Indenture, except as the enforcement
thereof may be subject to (1) bankruptcy, insolvency, receivership,
reorganization, moratorium, fraudulent conveyance and transfer or
other similar laws now or hereafter in effect relating to or affecting
creditors' rights generally and (2) general equitable principles
(regardless of whether such enforcement may sought in a proceeding at
law or in equity).
(v) The Notes conform in all material respects to the
descriptions thereof contained in the Prospectus.
(vi) The Indenture has (A) been duly and validly authorized,
executed and delivered by the Issuer and (B) is duly qualified under
the Trust Indenture Act, and (assuming the due authorization,
execution and delivery by the Trustee) constitutes the valid and
binding agreement of the Issuer enforceable in accordance with its
terms, except as the enforcement thereof may be subject to (1)
bankruptcy, insolvency, receivership, reorganization, moratorium,
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fraudulent conveyance and transfer or other similar laws now or
hereafter in effect relating to creditors' rights generally and (2)
general equitable principles (regardless of whether such enforcement
may be sought in a proceeding at law or in equity).
(vii) Each subsidiary of Haynes organized under the laws of a
jurisdiction in the United States has been duly incorporated,
organized or formed, as the case may be, and is validly existing as a
corporation, limited liability company or limited partnership, as the
case may be, in good standing under the laws of the jurisdiction of
its incorporation, organization or formation, as the case may be, has
power and authority to own, lease and operate its properties and to
conduct its business as described in the Registration Statement and,
to such counsel's knowledge, is duly qualified to transact business as
a foreign corporation, limited liability company or limited
partnership and is in good standing in each jurisdiction in which such
qualification is required, except where the failure to qualify would
not have a material adverse effect on the condition (financial or
otherwise), assets, earnings, liabilities (contingent or otherwise) or
prospects of Haynes and its subsidiaries considered as one enterprise;
all of the issued and outstanding capital stock of each such
subsidiary has been duly authorized and validly issued, is fully paid
and non-assessable and, to such counsel's knowledge, except as
described in the Registration Statement and the Prospectus, is owned
by Haynes, directly or through subsidiaries, free and clear of any
security interest, mortgage, pledge, lien, encumbrance, claim or
equity, except for pledges of all of the capital stock of the Issuer
and a majority of the outstanding capital stock of the Issuer's
subsidiaries to secure the Issuer's obligations under the Existing
Senior Notes (as defined in the Prospectus) and the related guarantee
thereof by Haynes.
(viii) The Purchase Agreement and the Pricing Agreement have been
duly authorized, executed and delivered by the Issuer and Haynes.
(ix) The Registration Statement is effective under the 1933 Act
and, to such counsel's
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knowledge, no stop order suspending the effectiveness of the
Registration Statement has been issued under the 1933 Act or
proceedings therefor initiated or threatened by the SEC.
(x) At the Representation Date, the Registration Statement (other
than the Statement of Eligibility and Qualification of the Trustee on
Form T-1 and the financial statements, including the notes thereto,
supporting schedules or any financial or statistical data set forth
therein found in or derivable from the financial or internal records
of the Issuer and its subsidiaries or any forward looking or projected
financial or statistical data relating to the Issuer and its
subsidiaries, as to which no opinion need be rendered) complied as to
form in all material respects with the requirements of the 1933 Act
and the 1933 Act Regulations.
(xi) To such counsel's knowledge, there are no legal or
governmental actions, suits or proceedings of any nature pending or
threatened which are required to be disclosed in the Registration
Statement other than those disclosed therein.
(xii) The information in the Prospectus under "Business--Legal
Proceedings," to the extent that such information constitutes matters
of law, summaries of legal matters, documents or proceedings or legal
conclusions, has been reviewed by such counsel and to such counsel's
knowledge is correct in all material respects. The information in the
Prospectus under "Description of the Notes," to the extent that such
information constitutes matters of law, summaries of legal matters,
documents or proceedings or legal conclusions, has been reviewed by
such counsel and is an accurate summary in all material respects of
all material terms of the Notes.
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(xiii) To such counsel's knowledge, (A) there are no contracts,
indentures, mortgages, loan agreements, notes, leases or other
arrangements or documents required to be described or referred to in
the Registration Statement or to be filed as exhibits thereto other
than those described or referred to therein or filed or incorporated
by reference as exhibits thereto and (B) no default exists in the due
performance or observance of any material obligation thereunder; the
descriptions thereof or references thereto in the Registration
Statement are materially correct.
(xiv) No authorization, approval, consent or order of any court
or governmental agency is required in connection with the sale of the
Notes to the Underwriters, except such as may be required under the
1933 Act or the 1933 Act Regulations or state securities laws and the
qualification of the Indenture under the Trust Indenture Act; and, to
such counsel's knowledge, the execution and delivery of the Purchase
Agreement, the Pricing Agreement, the Indenture and the Equity
Underwriting Agreement and the consummation of the transactions
contemplated therein will not conflict with or constitute a breach of,
or default (or event which, with notice or lapse of time or both,
would constitute a default) under, or result in the creation or
imposition of any lien, charge or encumbrance upon any property or
assets of Haynes or any or its subsidiaries pursuant to, any material
contract, indenture, mortgage, loan agreement, note, lease or other
instrument listed in the Registration Statement to which any of the
property or assets of Haynes or any of its subsidiaries is subject,
including without limitation any contract or other agreement relating
to the Existing Indebtedness and the New Credit Facility, nor will
such action result in any violation of the provisions of the
certificate of incorporation or bylaws, certificate of formation or
operating agreement or certificate of limited partnership or
partnership agreement, as the case may be, of Haynes or any of its
subsidiaries, or any applicable law, administrative regulation or
administrative or court decree.
(xv) Nothing has come to such counsel's attention in the course
of its representation of the Company that would cause it to conclude
that the information contained in the Registration Statement under the
caption "Risk Factors--Potential Costs of Environmental Compliance,"
the last paragraph under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity
and Capital Resources" and the caption "Business--Environmental
Matters" includes any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements
therein not misleading.
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In addition such counsel shall state that such counsel has
participated in conferences with officers and other representatives of the
Issuer, counsel for the Issuer, representatives of the Underwriters and
representatives of the independent auditors for the Issuer at which the
contents of the Registration Statement and the Prospectus and related
matters were discussed and, although such counsel does not pass upon, and
does not assume any responsibility for the accuracy, completeness or
fairness of the statements contained in the Registration Statement or the
Prospectus (except to the extent set forth in clauses
23
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(v), (xii) and the last part of clause (xiii)(B) above), such counsel
advises the Underwriters that, on the basis of the foregoing (relying as to
materiality upon the opinions of officers and other representatives of the
Issuer), no facts have come to the attention of such counsel which lead
such counsel to believe that the Registration Statement, when such
Registration Statement became effective or as of the Representation Date,
or the Prospectus (unless the term "Prospectus" refers to a prospectus
which has been provided to the Underwriters by the Issuer for use in
connection with the offering of the Notes which differs from the Prospectus
on file at the SEC at the Representation Date, in which case at the time it
is first provided to the Underwriters for such use) as of the
Representation Date, contained or contains an untrue statement of a
material fact or omitted or omits to state a material fact required to be
stated therein or necessary to make the statements therein (in the case of
the Prospectus, in light of the circumstances under which they are being
made) not misleading (it being understood that such counsel has not been
requested to and does not make any comment with respect to the Trustee's
Statement of Eligibility on Form T-1, the financial statements and the
notes thereto and related schedules, and other financial or statistical
data found in or derivable from the financial or internal records of the
Issuer and its subsidiaries and any forward-looking or projected financial
or statistical data relating to the Issuer and its subsidiaries included in
the Registration Statement or the Prospectus).
In rendering such opinions, such counsel (A) need not express any
opinion with regard to the application of laws of any jurisdiction other
than the federal law of the United States, the laws of the State of Indiana
and the General Corporation Law of the State of Delaware and (B) may rely,
as to matters of fact, to the extent they deem proper, on representations
or certificates of responsible officers of the Issuer and its subsidiaries
and certificates of public officials; provided that copies of such
certificates have been delivered to the Underwriters.
(c) The Underwriters shall have received the favorable opinion, dated
as of Closing Time, of Davis Polk & Wardwell, counsel for the Underwriters,
with respect to the matters set forth in clauses (iv) (assuming due
authorization and execution of the Notes by the Issuer), (v), (vi)(B)
(assuming due authorization, execution and delivery of the Indenture
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by the Issuer), (ix) and (x) of subsection (b) of this Section.
In giving its opinion required by this subsection (c) of this Section
5, Davis Polk & Wardwell shall additionally state that such counsel has
participated in conferences with officers and other representatives of the
Issuer, counsel for the Issuer, representatives of the Underwriters and
representatives of the independent auditors for the Issuer at which the
contents of the Registration Statement and the Prospectus and related
matters were discussed and, although such counsel does not pass upon, and
does not assume any responsibility for the accuracy, completeness or
fairness of the statements contained in the Registration Statement or the
Prospectus such counsel advises the Underwriters that, on the basis of the
foregoing (relying as to materiality to a large extent upon the opinions of
officers and other representatives of the Issuer), no facts have come to
the attention of such counsel which lead such counsel to believe that the
Registration Statement, when such Registration Statement became effective
or as of the Representation Date, or the Prospectus (unless the term
"Prospectus" refers to a prospectus which has been provided to the
Underwriters by the Issuer for use in connection with the offering of the
Notes which differs from the Prospectus on file at the SEC at the
Representation Date, in which case at the time it is first provided to the
Underwriters for such use) as of the Representation Date, contained an
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein
(in the case of the Prospectus, in light of the circumstances under which
they are being made) not misleading (it being understood that such counsel
has not been requested to and does not make any comment with respect to the
Trustee's Statement of Eligibility on Form T-1, the financial statements
and the notes thereto and related schedules, and other financial or
statistical data found in or derivable from the financial or internal
records of the Issuer and its subsidiaries and any forward-looking or
projected financial or statistical data relating to the Issuer and its
subsidiaries included in the Registration Statement or the Prospectus).
(d) At Closing Time, there shall not have been, since the date hereof
or since the respective dates as of which information is given in the
Prospectus, any material adverse change in the condition (financial or
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otherwise), assets, earnings, liabilities (contingent or otherwise), or
prospects of Haynes and its subsidiaries considered as one enterprise,
whether or not arising in the ordinary course of business, and the
Underwriters shall have received certificates of the President or a Vice
President of the Issuer and Haynes and of the chief financial or chief
accounting officer of the Issuer and Haynes and dated as of Closing Time,
to the effect that (i) there has been no such material adverse change, (ii)
the representations and warranties in Section 1 hereof are true and correct
with the same force and effect as though expressly made at and as of
Closing Time, (iii) each of the Issuer and Haynes has complied with all
agreements and satisfied all conditions on their part to be performed or
satisfied at or prior to Closing Time, and (iv) no stop order suspending
the effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been initiated or threatened by the SEC.
As used in this Section 5(d), the term "Prospectus" means the Prospectus in
the form first used to confirm sales of the Notes.
(e) At the time of the execution of this Agreement, the Underwriters
shall have received from Coopers & Lybrand L.L.P. a letter dated such date,
in form and substance satisfactory to the Underwriters containing
statements and information of the type ordinarily included in accountants'
"comfort letters" to underwriters with respect to the financial statements
and certain financial information contained in or incorporated by reference
in the Registration Statement and the Prospectus.
(f) At Closing Time, the Underwriter shall have received from Coopers
& Lybrand L.L.P. a letter dated as of Closing Time, to the effect that they
reaffirm the statements made in the letters furnished pursuant to
subsection (e) of this Section, except that the specified date referred to
shall be a date not more than three days prior to Closing Time.
(g) Prior to Closing Time, the common stock of Haynes shall have been
duly authorized for quotation on the Nasdaq National Market System upon
official notice of issuance, and the National Association of Securities
Dealers, Inc. shall have approved in writing the Underwriters'
participation in the distribution of the Notes and such approval shall not
have been withdrawn or limited.
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(h) At Closing Time, the Notes shall be rated at least "__" by Moody's
Investors Service Inc. and "__" by Standard & Poor's Corporation, and since
the date of this Agreement (i) no downgrading shall have occurred in the
rating accorded any of the securities of the Issuer or any of its
subsidiaries by any "nationally recognized statistical rating
organization," as that term is defined by the SEC for purposes of Rule
436(g)(2) of the 1933 Act Regulations, and (ii) no such organization shall
have publicly announced that it has under surveillance or review, with
possible negative implications, its rating of the securities of the Issuer
or any of the subsidiaries.
(i) At Closing Time, counsel for the Underwriters shall have been
furnished with such information, certificates and documents as they may
reasonably require for the purpose of enabling them to pass upon the
issuance and sale of the Notes as contemplated herein and related
proceedings, or in order to evidence the accuracy of any of the
representations or warranties, or the fulfillment of any of the conditions
herein contained; and all opinions and certificates mentioned above or
elsewhere in this Agreement shall be reasonably satisfactory in form and
substance to the Underwriters and counsel for the Underwriters.
(j) Haynes shall have closed the Equity Offering in accordance with
the Equity Underwriting Agreement simultaneously with the closing of this
offering.
(k) The Issuer shall have entered into the New Credit Facility on
substantially the terms described in the Prospectus.
(l) The Issuer shall have prepared notices for the redemption of its
11 1/4% Senior Secured Notes Due 1998 and its 13 1/2% Senior Subordinated
Notes Due 1999, which notices shall be sent or mailed to the holders of
such notes no later than two business days following Closing Time.
If any condition specified in this Section 5 shall not have been
fulfilled in all material respects when and as required to be fulfilled, this
Agreement may be terminated by the Underwriters by notice to the Issuer, and
such termination shall be without liability of any party to any other party
except as provided in Section 4. Notwithstanding any such termination, the
provisions of Sections 6, 7 and 8 shall remain in effect.
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SECTION 6. Indemnification. (a) Each of the Issuer and Haynes agrees,
jointly and severally, to indemnify and hold harmless each Underwriter and each
person, if any, who controls an Underwriter within the meaning of Section 15 of
the 1933 Act or Section 20 of the 1934 Act as follows:
(i) against any and all loss, liability, claim damage and expense
whatsoever, as incurred arising out of any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(or any amendment thereto), including the information deemed to be part of
the Registration Statement pursuant to Rule 430A or Rule 434 of the 1933
Act Regulations, if applicable, or the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary to
make the statements therein not misleading or arising out of any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto), or the omission or alleged omission therefrom of a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission; provided that (subject to Section
6(d) below) any such settlement is effected with the written consent of the
Issuer and Haynes; and
(iii) against any and all expense whatsoever, as incurred (including
the fees and disbursements of counsel chosen by the Underwriters),
reasonably incurred in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency
or body, commenced or threatened, or any claim whatsoever based upon any
such untrue statement or omission, or any such alleged untrue statement or
omission, to the extent that any such expense is not paid under (i) or (ii)
above;
provided that this indemnity agreement shall not apply to any loss, liability,
claim, damage or expense to the extent
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arising out of any untrue statement or omission or alleged untrue statement or
omission made in reliance upon and in conformity with written information
furnished to the Issuer by the Underwriter expressly for use in the Registration
Statement (or any amendment thereto), including the information deemed to be
part of the Registration Statement pursuant to Rule 430A or Rule 434 of the 1933
Act Regulations, or any preliminary prospectus or the Prospectus (or any
amendment or supplement thereto).
(b) Each Underwriter severally but not jointly agrees to indemnify and
hold harmless each of the Issuer, its directors, each of its officers who signed
the Registration Statement, and each person, if any, who controls the Issuer
within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act
against any and all loss, liability, claim, damage and expense described in the
indemnity contained in subsection (a) of this Section, as incurred, but only
insofar as such loss, claim, liability, damage or expense arises out of or is
based on any untrue statements or omissions, or alleged untrue statements or
omissions, made in the Registration Statement (or any amendment thereto),
including the information deemed to be part of the Registration Statement
pursuant to Rule 430A or Rule 434 of the 1933 Act Regulations, or any
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto) in reliance upon and in conformity with written information furnished
to the Issuer by such Underwriter through the Underwriters expressly for use in
the "Underwriting" section of the Registration Statement (or any amendment
thereto) or such preliminary prospectus or the Prospectus (or any amendment or
supplement thereto).
(c) Each indemnified party shall give notice as promptly as reasonably
practicable to each indemnifying party of any action commenced against it in
respect of which indemnity may be sought hereunder, but failure to so notify an
indemnifying party shall not relieve such indemnifying party from any liability
hereunder to the extent the Indemnifying Party is not materially prejudiced as a
result thereof and in any event shall not relieve it from any liability which it
may have otherwise than on account of this indemnity agreement. In the case of
parties indemnified pursuant to Section 6(a) above, counsel to the indemnified
parties shall be selected by the Underwriters and, in the case of parties
indemnified pursuant to Section 6(b) above, counsel to the indemnified parties
shall be selected by the Issuer. An indemnifying party may participate at its
own expense in the defense of any such action; provided that counsel to the
indemnifying party shall not (except with the consent of the indemnified party)
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also be counsel to the indemnified party. In no event shall the indemnifying
parties be liable for fees and expenses of more than one counsel (in addition to
any local counsel) separate from their own counsel for all indemnified parties
in connection with any one action or separate but similar or related actions in
the same jurisdiction arising out of the same general allegations or
circumstances. No indemnifying party shall, without the prior written consent of
the indemnified parties, settle or compromise or consent to the entry of any
judgment with respect to any litigation, or any investigation or proceeding by
any governmental agency or body, commenced or threatened, or any claim
whatsoever in respect of which indemnification or contribution could be sought
under this Section 6 or Section 7 hereof (whether or not the indemnified parties
are actual or potential parties thereto), unless such settlement, compromise or
consent (i) includes an unconditional release of each indemnified party from all
liability arising out of such litigation, investigation, proceeding or claim and
(ii) does not include a statement as to or an admission of fault, culpability or
a failure to act by or on behalf of any indemnified party.
(d) If at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses of
counsel, such indemnifying party agrees that it shall be liable for any
settlement of the nature contemplated by Section 6(a)(ii) effected without its
written consent if (i) such settlement is entered into more than 45 days after
receipt by such indemnifying party of the aforesaid request, (ii) such
indemnifying party shall have received notice of the terms of such settlement at
least 30 days prior to such settlement being entered into and (iii) such
indemnifying party shall not have reimbursed such indemnified party in
accordance with such request prior to the date of such settlement.
SECTION 7. Contribution. If the indemnification provided for in
Section 6 hereof is for any reason unavailable to or insufficient to hold
harmless an indemnified party in respect of any losses, liabilities, claims,
damages or expenses referred to therein, then each indemnifying party shall
contribute to the aggregate amount of such losses, liabilities, claims, damages
and expenses incurred by such indemnified party, as incurred, (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Issuer and Haynes on the one hand and the Underwriters on the other hand from
the offering of the Notes pursuant to this Agreement or (ii) if the allocation
provided by clause (i) is not permitted by applicable law, in such proportion as
is appropriate to reflect not only the relative benefits referred to in clause
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(i) above but also the relative fault of the Issuer and Haynes on the one hand
and of the Underwriters on the other hand in connection with the statements or
omissions which resulted in such losses, liabilities, claims, damages or
expenses, as well as any other relevant equitable considerations.
The relative benefits received by the Issuer and Haynes on the one
hand and the Underwriters on the other hand in connection with the offering of
the Notes pursuant to this Agreement shall be deemed to be in the same
respective proportions as the total net proceeds from the offering of the Notes
pursuant to this Agreement (before deducting expenses) received by the Issuer
and Haynes and the total underwriting discount received by the Underwriters, in
each case as set forth on the cover of the Prospectus or, if Rule 434 of the
1933 Act Regulations is used, the corresponding location on the term sheet
delivered by the Issuer pursuant to such rule bear to the aggregate initial
public offering price of the Notes as set forth on such cover.
The relative fault of the Issuer and Haynes on the one hand and the
Underwriters on the other hand shall be determined by reference to, among other
things, whether any such untrue or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact relates to information
supplied by the Issuer and Haynes or by the Underwriters and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
The Issuer, Haynes and the Underwriters agree that it would not be
just and equitable if contribution pursuant to this Section 7 were determined by
pro rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to above in this Section 7. The
aggregate amount of losses, liabilities, claims, damages and expenses incurred
by an indemnified party and referred to above in this Section 7 shall be deemed
to include any legal or other expenses reasonably incurred by such indemnified
party in investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged untrue
statement or omission or alleged omission.
Notwithstanding the provisions of Section 7, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the
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Notes underwritten by it and distributed to the public were offered to the
public exceeds the amount of any damages which such Underwriter has otherwise
been required to pay by reason of any such untrue or alleged untrue statement or
omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the 1933 Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 7, each person, if any, who controls an
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act shall have the same rights to contribution as the Underwriter, and
each director of the Issuer and Haynes, each officer of the Issuer who signed
the Registration Statement, and each person, if any, who controls the Issuer or
Haynes within the meaning of Section 15 of the 1933 Act or Section 20 of the
1934 Act shall have the same rights to contribution as the Issuer and Haynes.
SECTION 8. Representations, Warranties and Agreements To Survive
Delivery. All representations, warranties, and agreements contained in this
Agreement and the Pricing Agreement, or contained in certificates of officers of
the Issuer or Haynes submitted pursuant hereto, shall remain operative and in
full force and effect, regardless of any investigation made by or on behalf of
any Underwriter or any controlling person, or by or on behalf of the Issuer or
Haynes, and shall survive delivery of and payment for the Notes hereunder.
SECTION 9. Termination of Agreement. (a) The Underwriters may
terminate this Agreement by notice to the Issuer, at any time prior to Closing
Time, (i) if there has been, since the time of execution of this Agreement or
since the respective dates as of which information is given in the Prospectus,
any material adverse change in the condition (financial or otherwise), assets,
earnings, liabilities (contingent or otherwise) or prospects of Haynes and its
subsidiaries considered as one enterprise, or (ii) if there has occurred any
material adverse change in the financial markets in the United States, any
outbreak of hostilities or escalation thereof or other calamity or crisis or any
change or development involving a prospective change in national or
international political, financial or economic conditions, in each case the
effect of which is such as to make it, in the judgment of the Underwriters,
impracticable to market the Notes or to enforce contracts for the sale of the
Notes, (iii) if trading in any of the securities of the Issuer or
32
<PAGE>
Haynes has been suspended or limited by the SEC or the New York Stock Exchange,
or if trading generally on the American Stock Exchange or the New York Stock
Exchange or in the Nasdaq National Market has been suspended or limited, or
minimum or maximum prices for trading have been fixed, or maximum ranges for
prices have been required, by any of said exchanges or by such system or by
order of the SEC, the NASD or any other governmental authority, or (iv) if a
banking moratorium has been declared by either United States or New York
authorities. As used in this Section 9(a), the term "Prospectus" means the
Prospectus in the form first used to confirm sales of the Notes.
(b) If this Agreement is terminated pursuant to this Section 9, such
termination shall be without liability of any party to any other party except as
provided in Section 4 hereof, and provided further that Sections 6, 7 and 8
shall survive such termination and remain in full force and effect.
SECTION 10. Default by One or More of the Underwriters. If one or more
of the Underwriters shall fail at Closing Time to purchase the Notes which it or
they are obligated to purchase under this Agreement and the Pricing Agreement
(the "Defaulted Notes"), the Underwriters shall have the right, within 24 hours
thereafter, to make arrangements for one or more of the non-defaulting
Underwriters, or any other underwriters, to purchase all, but not less than all,
of the Defaulted Notes in such amounts as may be agreed upon and upon the terms
herein set forth; if, however, the Underwriters shall not have completed such
arrangements within such 24-hour period, then:
(a) if the aggregate principal amount of Defaulted Notes does not
exceed 10% of the aggregate principal amount of the Notes, each of the
non-defaulting Underwriters shall be obligated, severally and not jointly,
to purchase the full amount thereof in the proportions that their
respective underwriting obligations hereunder bear to the underwriting
obligations of all non-defaulting Underwriters, or
(b) if the aggregate principal amount of Defaulted Notes exceeds 10%
of the aggregate principal amount of the Notes, this Agreement shall
terminate without liability on the part of any non-defaulting Underwriter
(except as provided in Section 6 and 7 hereof).
33
<PAGE>
No action taken pursuant to this Section shall relieve any defaulting
Underwriter from liability in respect of its default.
In the event of any such default which does not result in a
termination of this Agreement, either the Underwriters or the Issuer shall have
the right to postpone Closing Time for a period not exceeding seven days in
order to effect any required changes in the Registration Statement or Prospectus
or in any other documents or arrangements. As used herein, the term
"Underwriter" includes any person substituted for an Underwriter under this
Section 10.
SECTION 11. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the
Underwriters shall be directed to the Underwriters, c/o Merrill Lynch & Co. at
Merrill Lynch World Headquarters, North Tower, World Financial Center, New York,
New York 10281-1305, attention of __________; notices to the Issuer and Haynes
shall be directed to Haynes International, Inc. at 1020 West Park Avenue, Kokomo
Indiana 46904-9013, attention of Joseph F. Barker.
SECTION 12. Parties. This Agreement and the Pricing Agreement shall
each inure to the benefit of and be binding upon the Underwriters, the Issuer,
Haynes and their respective successors, heirs and legal representatives. Nothing
expressed or mentioned in this Agreement or the Pricing Agreement is intended or
shall be construed to give any person, firm or corporation, other than the
Underwriters, the Issuer and Haynes and their respective successors, heirs and
legal representatives and the controlling persons and officers and directors
referred to in Sections 6 and 7 and their heirs and legal representatives, any
legal or equitable right, remedy or claim under or in respect of this Agreement
or the Pricing Agreement or any provision herein or therein contained. This
Agreement and the Pricing Agreement and all conditions and provisions hereof and
thereof are intended to be for the sole and exclusive benefit of the
Underwriters, the Issuer and Haynes and their respective successors, heirs and
legal representatives, and said controlling persons and officers and directors
and their heirs and legal representatives, and for the benefit of no other
person, firm or corporation. No purchaser of Notes from any Underwriter shall be
deemed to be a successor by reason merely of such purchase.
SECTION 13. Governing Law and Time. This Agreement and the Pricing
Agreement shall be governed by and
34
<PAGE>
construed in accordance with the laws of the State of New York applicable to
agreements made and to be performed in said State. Specified times of day refer
to New York City time unless otherwise indicated.
SECTION 14. Effect of Headings. The Article and Section headings
herein are for convenience only and shall not affect the construction hereof.
SECTION 15. Counterparts. This Agreement may be executed in one or
more counterparts and, when a counterpart has been executed by each party, all
such counterparts taken together shall constitute one and the same agreement.
35
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Issuer a counterpart hereof, whereupon
this instrument, along with all counterparts, will become a binding agreement
among the Underwriters, the Issuer and Haynes in accordance with its terms.
Very truly yours,
HAYNES CORP.
By:
------------------------
Title: President and
Chief Executive
Officer
HAYNES INTERNATIONAL, INC.
By:
------------------------
Title: President and
Chief Executive
Officer
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
PAINEWEBBER INCORPORATED
By: Merrill Lynch, Pierce, Fenner & Smith
Incorporated
By:
-------------------------
Title:
36
<PAGE>
SCHEDULE A
Principal Amount
Name of Underwriter of Securities
- ------------------- ----------------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................... $
PaineWebber Incorporated.......................... ____________
Total.......................................... $100,000,000
<PAGE>
EXHIBIT A
HAYNES INTERNATIONAL, INC.
$100,000,000
___% Senior Notes Due 2004
PRICING AGREEMENT
August __, 1996
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
PAINEWEBBER INCORPORATED
c/o Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Merrill Lynch World Headquarters
North Tower
World Financial Center
New York, New York 10281-1305
Ladies and Gentlemen:
Reference is made to the Purchase Agreement dated August __, 1996 (the
"Purchase Agreement") among Haynes Corp., a Delaware corporation (including its
successors, the "Issuer"), together with Haynes International, Inc. which is the
sole stockholder of the Issuer (including its successors, "Haynes"), and Merrill
Lynch, Pierce, Fenner & Smith Incorporated and PaineWebber Incorporated
(collectively, the "Underwriters"), relating to the purchase by you from the
Issuer, subject to the terms and conditions set forth therein, of $100,000,000
aggregate principal amount of ___% Senior Notes Due 2004 (the "Notes") of the
Issuer. This Agreement is the Pricing Agreement referred to in the Purchase
Agreement and capitalized terms used herein without definition shall have the
meanings assigned to them in the Purchase Agreement.
Pursuant to Section 2 of the Purchase Agreement, the Issuer and Haynes
agree with you as follows:
1. The initial public offering price of the Notes, as referred to in
said Section 2, shall be __% of the
<PAGE>
principal amount thereof, plus accrued interest, if any, from _______, 1996.
2. The purchase price of the Notes to be paid by the Underwriters
shall be ___% of the principal amount thereof.
3. The interest rate to be borne by the Notes shall be ___% per annum.
4. The Notes will mature on _______, 2004.
5. The Notes will be redeemable at the election of the Issuer at ____%
of principal amount at any time on or after __________ and prior to __________,
at ___% of principal amount on or after __________, at ___% of principal amount
on or after May 15, 2003 and prior to __________, and at ___% of principal
amount at any time on or after __________, in each case plus accrued and unpaid
interest, if any.
6. The redemption price of the Notes upon a Public Equity Offering (as
defined in the Registration Statement) shall be ___% of the principal amount
thereof.
7. The interest payment dates shall be _______ and _______, commencing
_______, 1996.
Each of the Issuer and Haynes represents and warrants to the
Underwriters that the representations and warranties of each of the Issuer and
Haynes set forth in Section 1 of the Purchase Agreement are accurate in all
material respects as though expressly made at and as of the date hereof.
This Pricing Agreement shall be governed by the internal laws of the
State of New York.
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us a counterpart hereof, whereupon this
instrument, along with
2
<PAGE>
all counterparts and together with the Purchase Agreement, will be a binding
agreement among the Issuer, Haynes and the Underwriters in accordance with its
terms and the terms of the Purchase Agreement.
Very truly yours,
HAYNES CORP.
By:
-------------------------
Title:
HAYNES INTERNATIONAL, INC.
By:
-------------------------
Title:
CONFIRMED AND ACCEPTED, as of the date first above written:
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
PAINEWEBBER INCORPORATED
By: Merrill Lynch, Pierce, Fenner & Smith
Incorporated
By:
-------------------------
Title:
3
Exhibit 4.10
HAYNES CORP.
and
NATIONAL CITY BANK, AS TRUSTEE
---------
INDENTURE
Dated as of August ____ , 1996
$100,000,000
____ % Senior Notes due 2004
<PAGE>
Reconciliation and tie between Trust Indenture Act of 1939
and Indenture, dated as of _________, 1996
Trust Indenture Indenture
Act Section Section
----------- -------
ss. 310 (a)(1)............................................................6.8
(a)(2)............................................................6.8
(a)(5)............................................................6.8
(b)...........................................................6.7,6.9
ss. 311 (a)..............................................................6.12
(b)..............................................................6.12
ss. 312 (a)...............................................................7.1
(b)...............................................................7.2
(c)...............................................................7.2
ss. 313 (a)...............................................................7.3
(b)...............................................................7.3
(c)...............................................................7.3
(d)...............................................................7.3
ss. 314 (a)(1)............................................................7.4
(a)(2)............................................................7.4
(a)(3)............................................................7.4
(a)(4)..........................................................10.18
(c)(1)............................................................1.3
(c)(2)............................................................1.3
(e)...............................................................1.3
ss. 315 (a)...............................................................6.2
(b)...............................................................6.1
(c).......................................................5.2 et seq.
(d)...............................................................6.2
(e)..............................................................5.14
ss. 316 (a)(last
(sentence).........................................1.1("Outstanding")
(a)(1)(A)........................................................5.12
(a)(1)(B)........................................................5.13
(b)...............................................................5.8
(c)...............................................................9.7
ss. 317 (a)(1)............................................................5.3
(a)(2)............................................................5.4
(b)..............................................................10.3
ss. 318 (a)...............................................................1.8
____________
Note: This reconciliation and tie shall not, for any purpose, be deemed to
be a part of this Indenture.
<PAGE>
TABLE OF CONTENTS
PAGE
----
PARTIES..................................................................... 1
RECITALS.....................................................................1
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 1.1. Definitions............................................ 1
Section 1.2. Other Definitions...................................... 19
Section 1.3. Compliance Certificates and Opinions................... 19
Section 1.4. Form of Documents Delivered to Trustee................. 20
Section 1.5. Acts of Holders........................................ 21
Section 1.6. Notices, etc., to Trustee and the Company.............. 21
Section 1.7. Notice to Holders; Waiver.............................. 22
Section 1.8. Conflict with Trust Indenture Act...................... 22
Section 1.9. Effect of Headings and Table of Contents............... 23
Section 1.10. Successors and Assigns................................. 23
Section 1.11. Separability Clause.................................... 23
Section 1.12. Be nefits of Indenture................................. 23
SECTION 1.13. GOVERNING LAW.......................................... 23
Section 1.14. Legal Holidays......................................... 23
Section 1.15. Schedules.............................................. 24
Section 1.16. Counterparts........................................... 24
ARTICLE II
SECURITY FORMS
Section 2.1. Forms Generally........................................ 24
Section 2.2. Form of Face of Security............................... 25
Section 2.3. Form of Reverse of Security............................ 27
Section 2.4. Form of Trustee's Certificate of Authentication........ 30
ARTICLE III
THE SECURITIES
i
<PAGE>
PAGE
----
Section 3.1. Title and Terms........................................ 32
Section 3.2. Denominations.......................................... 32
Section 3.3. Execution, Authentication, Delivery and Dating......... 32
Section 3.4. Temporary Securities................................... 34
Section 3.5. Registration, Registration of Transfer and Exchange.... 34
Section 3.6. Mutilated, Destroyed, Lost and Stolen Securities....... 35
Section 3.7. Payment of Interest; Interest Rights Preserved......... 36
Section 3.8. Persons Deemed Owners.................................. 37
Section 3.9. Cancellation........................................... 37
Section 3.10. Computation of Interest................................ 38
Section 3.11. Depositary Procedures.................................. 38
Section 3.12. Book-Entry............................................. 38
Section 3.13. Same-Day Settlement and Payment........................ 39
Section 3.14. Legends................................................ 39
ARTICLE IV
DEFEASANCE AND COVENANT DEFEASANCE
Section 4.1. Company's Option to Effect Defeasance or Covenant
Defeasance ............................................ 39
Section 4.2. Defeasance and Discharge............................... 39
Section 4.3. Covenant Defeasance.................................... 40
Section 4.4. Conditions to Defeasance or Covenant Defeasance........ 40
Section 4.5. Deposited Money and U.S. Government Obligations
to Be Held in Trust; Other Miscellaneous Provisions.... 42
Section 4.6. Reinstatement.......................................... 43
ARTICLE V
REMEDIES
Section 5.1. Events of Default...................................... 44
Section 5.2. Acceleration of Maturity; Rescission and Annulment..... 46
Section 5.3. Collection of Indebtedness and Suits for Enforcement
by Trustee ............................................ 46
Section 5.4. Trustee May File Proofs of Claim....................... 47
Section 5.5. Trustee May Enforce Claims Without Possession of
Securities ............................................ 48
Section 5.6. Application of Money Collected......................... 48
Section 5.7. Limitation on Suits.................................... 49
Section 5.8. Unconditional Right of Holders to Receive Principal,
Premium and Interest................................... 49
Section 5.9. Restoration of Rights and Remedies..................... 49
Section 5.10. Rights and Remedies Cumulative......................... 50
Section 5.11. Delay or Omission Not Waiver........................... 50
Section 5.12. Control by Holders..................................... 50
ii
<PAGE>
PAGE
----
Section 5.13. Waiver of Past Defaults............................... 50
Section 5.14. Undertaking for Costs................................. 51
Section 5.15. Waiver of Stay, Extension or Usury Laws............... 51
Section 5.16. Remedies Subject to Applicable Law.................... 51
ARTICLE VI
THE TRUSTEE
Section 6.1. Notice of Defaults..................................... 52
Section 6.2. Certain Rights of Trustee.............................. 52
Section 6.3. Trustee Not Responsible for Recitals, Dispositions
of Securities or Application of Proceeds Thereof....... 53
Section 6.4. Trustee and Agents May Hold Securities;
Collections; etc. ..................................... 54
Section 6.5. Money Held in Trust.................................... 54
Section 6.6. Compensation and Indemnification of Trustee and Its
Prior Claim............................................ 54
Section 6.7. Conflicting Interests.................................. 55
Section 6.8. Corporate Trustee Required; Eligibility................ 55
Section 6.9. Resignation and Removal; Appointment of Successor
Trustee ................................................ 55
Section 6.10. Acceptance of Appointment by Successor.................. 57
Section 6.11. Merger, Conversion, Consolidation or Succession to
Business. .............................................. 58
Section 6.12. Preferential Collection of Claims Against Company...... 58
ARTICLE VII
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
Section 7.1. Company to Furnish Trustee Names and Addresses
of Holders. ........................................... 58
Section 7.2. Disclosure of Names and Addresses of Holders........... 59
Section 7.3. Reports by Trustee..................................... 59
Section 7.4. Reports by Company..................................... 59
ARTICLE VIII
CONSOLIDATION, MERGER, SALE OF ASSETS
Section 8.1. Company May Merge, Consolidate etc., Only on
Certain Terms.......................................... 60
Section 8.2. Successor Substituted.................................. 61
iii
<PAGE>
PAGE
----
ARTICLE IX
SUPPLEMENTAL INDENTURES
Section 9.1. Supplemental Indentures and Agreements without
Consent of Holders..................................... 62
Section 9.2. Supplemental Indentures and Agreements with
Consent of Holders..................................... 63
Section 9.3. Execution of Supplemental Indentures and Agreements.... 64
Section 9.4. Effect of Supplemental Indentures...................... 64
Section 9.5. Conformity with Trust Indenture Act.................... 64
Section 9.6. Reference in Securities to Supplemental Indentures..... 65
Section 9.7. Record Date............................................ 65
ARTICLE X
COVENANTS
Section 10.1. Payment of Principal, Premium and Interest............ 65
Section 10.2. Maintenance of Office or Agency....................... 65
Section 10.3. Money for Security Payments to be Held in Trust....... 66
Section 10.4. Corporate Existence................................... 67
Section 10.5. Payment of Taxes and Other Claims..................... 67
Section 10.6. Maintenance of Properties............................. 68
Section 10.7. Insurance............................................. 68
Section 10.8. Limitation on Indebtedness............................ 68
Section 10.9. Limitation on Restricted Payments..................... 69
Section 10.10. Limitation on Transactions with Affiliates............ 72
Section 10.11. Limitation on Liens................................... 72
Section 10.12. Limitation on Sale of Assets.......................... 74
Section 10.13. Purchase of Securities upon a Change of Control....... 78
Section 10.14. Optional Redemption Upon Change of Control............ 81
Section 10.15. Limitation on Issuance and Sale of Preferred Stock
of Subsidiaries....................................... 82
Section 10.16. Limitation on Dividends and Other Payment Restrictions
Affecting Subsidiaries................................ 82
Section 10.17. Provision of Financial Statements..................... 82
Section 10.18. Statement by Officers as to Default................... 83
Section 10.19. Waiver of Certain Covenants........................... 83
ARTICLE XI
iv
<PAGE>
PAGE
----
REDEMPTION OF SECURITIES
Section 11.1. Right of Redemption................................... 84
Section 11.2. Applicability of Article.............................. 84
Section 11.3. Election to Redeem; Notice to Trustee................. 84
Section 11.4. Selection by Trustee of Securities to Be Redeemed..... 84
Section 11.5. Notice of Redemption.................................. 85
Section 11.6. Deposit of Redemption Price........................... 86
Section 11.7. Securities Payable on Redemption Date................. 86
Section 11.8. Securities Redeemed or Purchased in Part.............. 86
ARTICLE XII
SATISFACTION AND DISCHARGE
Section 12.1. Satisfaction and Discharge of Indenture............... 87
Section 12.2. Application of Trust Money............................ 88
SIGNATURES AND SEALS
ACKNOWLEDGMENTS
SCHEDULE I. Restrictions on Dividends of Subsidiaries
EXHIBIT A Form of Intercompany Security
v
<PAGE>
INDENTURE, dated as of [_____], 1996, among HAYNES CORP., a Delaware
corporation (as more fully defined below, the "Company"), and National City
Bank, a national banking association, as trustee (the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the creation of an issue of __% Senior
Notes due 2004 (the "Securities"), of substantially the tenor and amount
hereinafter set forth, and to provide therefor, the Company has duly authorized
the execution and delivery of this Indenture;
This Indenture is subject to, and shall be governed by, the provisions of
the Trust Indenture Act that are required to be part of and to govern indentures
qualified under the Trust Indenture Act; and
All acts and things necessary have been done to make (i) the Securities,
when executed by the Company and authenticated and delivered hereunder and duly
issued by the Company, the valid obligations of the Company and (ii) this
Indenture a valid agreement of the Company in accordance with the terms of this
Indenture.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the Securities
by the Holders thereof, it is mutually covenanted and agreed, for the equal and
proportionate benefit of all Holders of the Securities, as follows:
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 1.1. Definitions.
For all purposes of this Indenture, except as otherwise expressly provided
or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned to
them in this Article, and include the plural as well as the singular;
(b) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein;
(c) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP;
<PAGE>
(d) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision; and
(e) all references to $, US$, dollars or United States dollars shall
refer to the lawful currency of the United States of America.
The following terms shall have the meanings set forth in this Section.
"Acquired Indebtedness" means Indebtedness of a Person (i) existing at the
time such Person becomes a Subsidiary or (ii) assumed in connection with the
acquisition of assets from such Person, in each case, other than Indebtedness
incurred in connection with, or in contemplation of, such Person becoming a
Subsidiary or such acquisition. Acquired Indebtedness shall be deemed to be
incurred on the date of the related acquisition of assets from any Person or the
date the acquired Person becomes a Subsidiary.
"Adjusted Consolidated Interest Expense" of any Person means, without
duplication, for any period, as applied to any Person, the sum of (a) the
interest expense of such Person and its Consolidated Subsidiaries for such
period, on a Consolidated basis, including without limitation, (i) amortization
of debt discount, (ii) the net cost under interest rate contracts (including
amortization of discounts), (iii) the interest portion of any deferred payment
obligation and (iv) accrued interest, plus (b)(i) the interest component of the
Capital Lease Obligations paid, accrued and/or scheduled to be paid, or accrued
by such Person during such period, and (ii) all capitalized interest of such
Person and its Consolidated Subsidiaries, in each case as determined in
accordance with GAAP consistently applied.
"Affiliate" means, (i) with respect to any specified Person, (A) any other
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person or (B) any other Person that
owns, directly or indirectly, 5% or more of such Person's Capital Stock or any
officer or director of any such specified Person or other Person described in
clauses (A) or (B), or (ii) with respect to any natural Person, any person
having a relationship with such Person by blood, marriage or adoption not more
remote than first cousin. For the purposes of this definition, "control" when
used with respect to any specified Person means the power to direct the
management and policies of such Person directly or indirectly, whether through
ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Asset Sale" means any sale, issuance, conveyance, transfer, lease or other
disposition (including, without limitation, by way of merger, consolidation or
Sale and Leaseback Transaction)(collectively, a "transfer"), directly or
indirectly, in one or a series of related transactions, of (a) any Capital Stock
of any Subsidiary; (b) all or substantially all of the properties and assets of
any division or line of business of the Company or its Subsidiaries; or (c) any
other properties or assets of the Company or any Subsidiary, other than in the
ordinary course of business; provided that the sale of any material portion of
the Company's facilities in Kokomo, Indiana, Arcadia, Louisiana or Openshaw,
England shall be
2
<PAGE>
deemed to be not in the ordinary course of business. For the purposes of this
definition, the term "Asset Sale" shall not include any transfer of properties
and assets (A) that is governed by the provisions described under
"Consolidation, Merger, Sale of Assets", (B) that is of the Company to any
Wholly-Owned Subsidiary, or of any Subsidiary to the Company or any Wholly-Owned
Subsidiary in accordance with the terms hereof or (C) for which the Fair Market
Value of any transferred properties or assets is less than $1 million.
"Average Life to Stated Maturity" means, as of the date of determination
with respect to any Indebtedness, the quotient obtained by dividing (i) the sum
of the products of (a) the number of years from the date of determination to the
date or dates of each successive scheduled principal payment of such
Indebtedness multiplied by (b) the amount of each such principal payment; by
(ii) the sum of all such principal payments.
"Bankruptcy Law" means Title 11, United States Bankruptcy Code of 1978, as
amended, or any similar United States Federal or State law relating to
bankruptcy, insolvency, receivership, winding-up, liquidation, reorganization or
relief of debtors or any amendment to, succession to or change in any such law.
"Board of Directors" means the board of directors of the Company or any
duly authorized committee of such board.
"Board Resolution" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of the Company to have been duly adopted by such Board
of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in The City of New York or the
city in which the principal office of the Trustee is located are authorized or
obligated by law or executive order to close.
"Capital Lease Obligation" of any Person means any obligations of such
Person and its Subsidiaries on a Consolidated basis under any capital lease of
real or personal property which, in accordance with GAAP, has been recorded as a
capitalized lease obligation.
"Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents (however designated) of such Person's
capital stock.
"Change of Control" means the occurrence of any of the following events:
(i) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d)
of the Exchange Act), other than Permitted Holders, is or becomes the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act,
except that a Person shall be deemed to have "beneficial ownership" of all
shares that such Person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of more than 50% of the total outstanding Voting Stock of the
Company, (ii)
3
<PAGE>
during any period of two consecutive years, individuals who at the beginning of
such period constituted the Board of Directors of the Company (together with any
new directors whose election to such Board or whose nomination for election by
the stockholders of the Company, was approved by a vote of 66 2/3% of the
directors then still in office who were either directors at the beginning of
such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of such Board of
Directors then in office; (iii) the Company consolidates with, or merges with or
into, another Person or sells, assigns, conveys, transfers, leases or otherwise
disposes of all or substantially all of its assets to any Person, or any Person
consolidates with, or merges with or into, the Company, in any such event
pursuant to a transaction in which the outstanding Voting Stock of the Company
is converted into or exchanged for cash, securities or other property, other
than any such transaction where (a) the outstanding Voting Stock of the Company
is converted into or exchanged for (1) Voting Stock (other than Redeemable
Capital Stock) of the surviving or transferee corporation or (2) cash,
securities and other property in an amount which could be paid by the Company as
a Restricted Payment as described under Section 10.9 (and such amount shall be
treated as a Restricted Payment as described under Section 10.9) and (b)
immediately after such transaction no "person" or "group" (as such terms are
used in Section 13(d) and 14(d) of the Exchange Act), other than Permitted
Holders, is the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under
the Exchange Act, except that a person shall be deemed to have "beneficial
ownership" of all securities that such person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time),
directly or indirectly, of more than 50% of the total outstanding Voting Stock
of the surviving or transferee corporation; or (iv) the Company is liquidated or
dissolved or adopts a plan of liquidation or dissolution other than in a
transaction which complies with the provisions described under Article VIII.
"Commission" means the Securities and Exchange Commission, as from time to
time constituted, created under the Exchange Act, or if at any time after the
execution of this Indenture such Commission is not existing and performing the
duties now assigned to it under the Trust Indenture Act of 1939, then the body
performing such duties at such time.
"Common Stock" means the common stock, par value $.01 per share, of the
Company.
"Company" means Haynes Corp., a corporation incorporated under the laws of
Delaware until a successor Person shall have become such pursuant to the
applicable provisions of the Indenture, and thereafter "Company" shall mean such
successor Person, including without limitation the successor to Haynes Corp.
resulting from the Merger (as defined in the Prospectus relating to the
Securities dated July , 1996).
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by any one if its Chairman of the Board, its
Vice Chairman, its President or a Vice President (regardless of Vice
Presidential designation), and by any one of its Treasurer, an Assistant
Treasurer, its Secretary or an Assistant Secretary, and delivered to the
Trustee.
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"Consolidated Fixed Charge Coverage Ratio" of any Person means, for any
period, the ratio of EBITDA to the sum of Adjusted Consolidated Interest Expense
for such period and cash and non-cash dividends paid on any Preferred Stock of
such Person during such period; provided that (i) in making such computation,
the Adjusted Consolidated Interest Expense attributable to interest on any
Indebtedness shall be computed on a pro forma basis (calculated as described
under Article X) and (A) where such Indebtedness was outstanding during the
period and bore a floating interest rate, interest shall be computed as if the
rate in effect on the date of computation had been the applicable rate for the
entire period and (B) where such indebtedness was not outstanding during the
period for which the computation is being made but which bears, at the option of
the Company, a fixed or floating rate of interest, shall be computed by applying
at the option of the Company, either the fixed or floating rate and (ii) in
making such computation, the Adjusted Consolidated Interest Expense of such
Person attributable to interest on any Indebtedness under a revolving credit
facility computed on a pro forma basis shall be computed based upon the average
daily balance of such Indebtedness during the applicable period.
"Consolidated Income Tax Expense" means for any period, as applied to any
Person, the provision for federal, state, local and foreign income taxes of such
Person and its Consolidated Subsidiaries for such period as determined in
accordance with GAAP consistently applied.
"Consolidated Net Income" of any Person means, for any period, the
consolidated net income (or loss) of such Person and its Consolidated
Subsidiaries for such period as determined in accordance with GAAP consistently
applied, adjusted, to the extent included in calculating such net income (loss),
by excluding, without duplication, (i) all extraordinary gains or losses (less
all fees and expenses relating thereto), (ii) the portion of net income (or
loss) of such Person and its Consolidated Subsidiaries allocable to minority
interests in unconsolidated Persons to the extent that cash dividends or
distributions have not actually been received by such Person or one of its
Consolidated Subsidiaries, (iii) net income (or loss) of any Person combined
with the Company or any of its Subsidiaries on a "pooling of interests" basis
attributable to any period prior to the date of combination, (iv) any gain or
loss, net of taxes, realized upon the termination of any employee pension
benefit plan, (v) net gains or losses (less all fees and expenses relating
thereto) in respect of dispositions of assets other than in the ordinary course
of business, (vi) the expenses recognized in connection with the payment of the
prepayment premiums related to the Redemption, (vii) the expenses recognized in
connection with the termination of and repayment of amounts outstanding under
the Existing Credit Facility, (viii) the expenses recognized related to
amortization of fees and other charges in connection with the 1989 Acquisition,
(ix) an amount equal to the excess of (A) the interest expense incurred on the
Existing Notes and the Securities during the period following the consummation
of the Offerings and prior to the date of the Redemption, over (B) the interest
income earned on the proceeds from the Offerings designated for the Redemption
during the same period, or (x) the net income of any Subsidiary to the extent
that the declaration of dividends or similar distributions by that Subsidiary of
that income is not at the time permitted, directly or indirectly, by operation
of the terms of its charter or any agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation applicable to that Subsidiary or
its stockholders.
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"Consolidated Net Worth" of any Person means the Consolidated stockholders'
equity (excluding Redeemable Capital Stock) of such Person and its Subsidiaries,
as determined in accordance with GAAP consistently applied.
"Consolidated Non-Cash Charges" of any Person means, for any period, the
aggregate depreciation, amortization and other non-cash charges of such Person
and its Consolidated Subsidiaries for such period, as determined in accordance
with GAAP (excluding any non-cash charge that requires an accrual or reserve for
cash charges for any future period and all non-cash charges incurred in
connection with the valuation of inventory on a LIFO basis).
"Consolidation" means, with respect to the accounts of any Person, the
consolidation of such Person and each of its subsidiaries if and to the extent
the accounts of such Person and each of its subsidiaries would normally be
consolidated with those of such Person, all in accordance with GAAP consistently
applied. The term "Consolidated" shall have a similar meaning.
"Corporate Trust Office" means the office of the Trustee or an affiliate or
agent thereof at which at any particular time the corporate trust business for
the purposes of this Indenture shall be principally administered, which office
at the date of execution of this Indenture is located at __________.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Disinterested Director" means, with respect to any transaction or series
of related transactions, a member of the Board of Directors who does not have
any material direct or indirect financial interest in or with respect to such
transaction or series of related transactions.
"EBITDA" means the sum of Consolidated Net Income, Adjusted Consolidated
Interest Expense, Consolidated Income Tax Expense and Consolidated Non-Cash
Charges deducted in computing Consolidated Net Income, in each case, for such
period, of the Company and its Subsidiaries on a Consolidated basis, all
determined in accordance with GAAP consistently applied.
"Eligible Inventory" means [to be filled in based on terms of New Credit
Agt.]
"Equity Offering" means the public sale of Common Stock of the Company
concurrent with the offering of Securities.
"Event of Default" has the meaning specified in Article V.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
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"Existing Credit Facility" means the revolving credit facility established
pursuant to a Loan and Security Agreement between the Company and Congress
Financial Corporation (Central) dated August 11, 1994, as amended.
"Existing Notes" means the Company's 11 1/4% Senior Secured Notes due 1998
and 13 1/2% Senior Subordinated Notes due 1999.
"Fair Market Value" means, with respect to any asset or property, the sale
value that would be obtained in an arm's-length transaction between an informed
and willing seller under no compulsion to sell and an informed and willing
buyer.
"Generally Accepted Accounting Principles" or "GAAP" means generally
accepted accounting principles in the United States, consistently applied, which
are in effect on the date of this Indenture.
"Guaranteed Debt" of any Person means, without duplication, all
Indebtedness of any other Person (debtor) referred to in the definition of
"Indebtedness" contained in this Section guaranteed directly or indirectly in
any manner by such Person, or in effect guaranteed directly or indirectly by
such Person through an agreement (i) to pay or purchase such Indebtedness or to
advance or supply funds for the payment or purchase of such Indebtedness, (ii)
to purchase, sell or lease (as lessee or lessor) property, or to purchase or
sell services, primarily for the purpose of enabling the debtor to make payment
of such Indebtedness or to assure the holder of such Indebtedness against loss,
(iii) to supply funds to, or in any other manner invest in, the debtor
(including any agreement to pay for property or services without requiring that
such property be received or such services be rendered), (iv) to maintain
working capital or equity capital of the debtor, or otherwise to maintain the
net worth, solvency or other financial condition of the debtor or (v) otherwise
to assure a creditor against loss; provided that the term "guarantee" shall not
include endorsements for collection or deposit, in either case in the ordinary
course of business.
"Holder" means a Person in whose name a Security is registered in the
Security Register.
"Indebtedness" means, with respect to any Person, without duplication, (i)
all indebtedness of such Person for borrowed money or for the deferred purchase
price of property or services, excluding any trade payables and other accrued
current liabilities arising in the ordinary course of business, but including,
without limitation, all obligations, contingent or otherwise, of such Person in
connection with any letters of credit issued under letter of credit facilities,
acceptance facilities or other similar facilities and in connection with any
agreement to purchase, redeem, exchange, convert or otherwise acquire for value
any Capital Stock of such Person, or any warrants, rights or options to acquire
such Capital Stock, now or hereafter outstanding, (ii) all obligations of such
Person evidenced by bonds, notes, debentures or other similar instruments, (iii)
all indebtedness created or arising under any conditional sale or other title
retention agreement with respect to property acquired by such Person (even if
the rights and remedies of the seller or lender under such agreement in the
event of default are limited to repossession or sale of such property), but
excluding trade
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payables arising in the ordinary course of business, (iv) all obligations under
Interest Rate Agreements of such Person, (v) all Capital Lease Obligations of
such Person, (vi) all Indebtedness referred to in clauses (i) through (v) above
of other Persons and all dividends of other Persons, the payment of which is
secured by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien, upon or with respect to
property (including, without limitation, accounts and contract rights) owned by
such Person, even though such Person has not assumed or become liable for the
payment of such Indebtedness, (vii) all Guaranteed Debt of such Person, (viii)
all Redeemable Capital Stock valued at the greater of its voluntary or
involuntary maximum fixed repurchase price plus accrued and unpaid dividends,
and (ix) any amendment, supplement, modification, deferral, renewal, extension,
refunding or refinancing of any liability of the types referred to in clauses
(i) through (viii) above. For purposes hereof, the "maximum fixed repurchase
price" of any Redeemable Capital Stock which does not have a fixed repurchase
price shall be calculated in accordance with the terms of such Redeemable
Capital Stock as if such Redeemable Capital Stock were purchased on any date on
which Indebtedness shall be required to be determined pursuant to the Indenture,
and if such price is based upon, or measured by, the fair market value of such
Redeemable Capital Stock, such fair market value to be determined in good faith
by the Board of Directors of the issuer of such Redeemable Capital Stock.
"Indenture" means this instrument as originally executed (including all
exhibits and schedules thereto) and as it may from time to time be supplemented
or amended by one or more indentures supplemental hereto entered into pursuant
to the applicable provisions hereof.
"Indenture Obligations" means the obligations of the Company and any other
obligor under the Indenture or under the Securities to pay principal of,
premium, if any, and interest when due and payable, and all other amounts due or
to become due under or in connection with the Indenture, the Securities and the
performance of all other obligations to the Trustee and the holders under the
Indenture and the Securities, according to the terms thereof.
"Independent Financial Advisor" means a nationally recognized investment
banking firm (i) which does not, and whose directors, officers and employees or
Affiliates do not, have a direct or indirect financial interest in the Company
and (ii) which, in the judgment of the board of directors of the Company, is
otherwise independent and qualified to perform the task for which it is to be
engaged.
"Interest Payment Date" means the Stated Maturity of a regular installment
of interest on the Securities or the Special Payment Date with respect to
Defaulted Interest.
"Interest Rate Agreements" means one or more of the following agreements
which shall be entered into by one or more financial institutions: interest rate
protection agreements (including, without limitation, interest rate swaps, caps,
floors, collars and similar agreements) and/or other types of interest rate
hedging agreements from time to time.
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"Investment Grade" means BBB- or higher by S&P or Baa3 or higher by Moody's
or the equivalent of such ratings by S&P or Moody's or in the event Moody's or
S&P shall cease rating the Securities and the Company shall select any Rating
Agency, the equivalent of such ratings by another Rating Agency.
"Investments" means, with respect to any Person, directly or indirectly,
any advance, loan, or other extension of credit or capital contribution to (by
means of any transfer of cash or other property to others or any payment for
property or services for the account or use of others), or any purchase,
acquisition or ownership by such Person of any Capital Stock, bonds, notes,
debentures or other securities issued or owned by any other Person.
"Lien" means any mortgage, charge, pledge, lien (statutory or otherwise),
privilege, security interest, hypothecation or other encumbrance upon or with
respect to any property of any kind, real or personal, movable or immovable, now
owned or hereafter acquired.
"Material Subsidiary" means a Subsidiary that is a "significant subsidiary"
of the Company as defined in Rule 1-02 of Regulation S-X under the Securities
Act and the Exchange Act.
"Maturity" when used with respect to any Security means the date on which
the principal of such Security becomes due and payable as therein provided or as
provided in the Indenture, whether at Stated Maturity, the Offer Date, the
Change of Control Purchase Date or the redemption date and whether by
declaration of acceleration, Offer in respect of Excess Proceeds, Change of
Control, call for redemption or otherwise.
"MLGA" means Morgan, Lewis, Githens, & Ahn, an investment partnership.
"MLGA Fund II, L.P." means MLGA Fund II, L.P., a Connecticut limited
partnership controlled by certain principals of MLGA.
"Moody's" means Moody's Investors Service, Inc. or any successor rating
agency.
"Net Cash Proceeds" means (a) with respect to any Asset Sale by any Person,
the proceeds thereof in the form of cash or cash equivalents including payments
in respect of deferred payment obligations when received in the form of, or
stock or other assets when disposed for, cash or cash equivalents (except to the
extent that such obligations are financed or sold with recourse to the Company
or any Subsidiary) net of (i) brokerage commissions and other reasonable fees
and expenses (including fees and expenses of counsel and investment bankers)
related to such Asset Sale, (ii) provisions for all taxes payable as a result of
such Asset Sale, (iii) payments made to retire Indebtedness where payment of
such Indebtedness is secured by the assets or properties the subject of such
Asset Sale, (iv) amounts required to be paid to any Person (other than the
Company or any Subsidiary) owning a beneficial interest in the assets subject to
the Asset Sale and (v) appropriate
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amounts to be provided by the Company or any Subsidiary, as the case may be, as
a reserve, in accordance with GAAP, against any liabilities associated with such
Asset Sale and retained by the Company or any Subsidiary, as the case may be,
after such Asset Sale, including, without limitation, pension and other
post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated with
such Asset Sale, all as reflected in an officers' certificate delivered to the
Trustee and (b) with respect to any issuance or sale of Capital Stock or
options, warrants or rights to purchase Capital Stock, or debt securities or
Capital Stock that have been converted into or exchanged for Capital Stock, as
referred to under Section 10.9 the proceeds of such issuance or sale in the form
of cash or cash equivalents, including payments in respect of deferred payment
obligations when received in the form of, or stock or other assets when disposed
for, cash or cash equivalents (except to the extent that such obligations are
financed or sold with recourse to the Company or any Subsidiary), net of
attorney's fees, accountant's fees and brokerage, consultation, underwriting and
other fees and expenses actually incurred in connection with such issuance or
sale and net of taxes paid or payable as a result thereof.
"New Credit Facility" means the Loan and Security Agreement, dated on or
before the Closing Date, among the Company, Congress Financial Corporation
(Central) ("Congress"), as agent, and Congress and CoreStates Bank, N.A., as
lenders, and _________________________, as the "facing bank" for letters of
credit issued thereunder, as such agreement may be amended, renewed, extended,
substituted, refinanced, restructured, replaced, supplemented or otherwise
modified from time to time, whether by the same or any other lender or group of
lenders (including, without limitation, any successive renewals, extensions,
substitutions, refinancings, restructurings, replacements, supplementations or
other modifications of the foregoing).
"Officers' Certificate" means a certificate signed by the Chairman of the
Board, Vice Chairman, President or a Vice President (regardless of Vice
Presidential designation), and by the Treasurer, Secretary or an Assistant
Secretary, of the Company, and delivered to the Trustee.
"Opinion of Counsel" means a written opinion of counsel, who may be counsel
for the Company or the Trustee, and who shall be reasonably acceptable to the
Trustee, including but not limited to an Opinion of Independent Counsel.
"Opinion of Independent Counsel" means a written opinion by someone who is
not an employee or consultant of the Company and who shall be reasonably
acceptable to the Trustee.
"Outstanding" when used with respect to Securities means, as of the date of
determination, all Securities theretofore authenticated and delivered under this
Indenture, except:
(a) Securities theretofore canceled by the Trustee or delivered to the
Trustee for cancellation;
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(b) Securities, or portions thereof, for whose payment or redemption
money in the necessary amount has been theretofore deposited with the Trustee or
any Paying Agent (other than the Company) in trust or set aside and segregated
in trust by the Company (if the Company shall act as its own Paying Agent) for
the Holders of such Securities; provided, that if such Securities are to be
redeemed, notice of such redemption has been duly given pursuant to this
Indenture or provision therefor reasonably satisfactory to the Trustee has been
made;
(c) Securities, except to the extent provided in Sections 4.2 and 4.3,
with respect to which the Company has effected defeasance or covenant defeasance
as provided in Article IV; and
(d) Securities in exchange for or in lieu of which other Securities
have been authenticated and delivered pursuant to this Indenture, other than any
such Securities in respect of which there shall have been presented to the
Trustee and Company proof reasonably satisfactory to each of them that such
Securities are held by a bona fide purchaser in whose hands the Securities are
valid obligations of the Company; provided, however, that in determining whether
the Holders of the requisite principal amount of Outstanding Securities have
given any request, demand, authorization, direction, notice, consent or waiver
hereunder, Securities owned by the Company or any other obligor upon the
Securities or any Affiliate of the Company or such other obligor shall be
disregarded and deemed not to be Outstanding, except that, in determining
whether the Trustee shall be protected in relying upon any such request, demand,
authorization, direction, notice, consent or waiver, only Securities which the
Trustee knows to be so owned shall be so disregarded. Securities so owned which
have been pledged in good faith may be regarded as Outstanding if the pledgee
establishes to the reasonable satisfaction of the Trustee the pledgee's right so
as to act with respect to such Securities and that the pledgee is not the
Company or any other obligor upon the Securities or any Affiliate of the Company
or such other obligor.
"Pari Passu Indebtedness" means any Indebtedness of the Company that is
pari passu in right of payment to this Securities.
"Participants" means Persons for whom the Depositary holds Securities.
"Paying Agent" means any Person authorized by the Company to pay the
principal, premium, if any, or interest on any Securities on behalf of the
Company.
"Permitted Holders" means MLGA Fund II, L.P. and any Affiliates thereof.
"Permitted Indebtedness" means the following:
(i) Indebtedness of the Company under the New Credit Facility under
which the sum of (a) the aggregate principal amount of revolving loan advances
and (b) the aggregate stated amount of letters of credit issued pursuant
thereto, at any one time outstanding does not exceed the greater of (x) $50.0
million and (y) an amount equal to (i) 60% of Eligible Inventory consisting of
finished goods and raw materials for such finished
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goods, plus (ii) 45% of Eligible Inventory consisting of work-in-process and
semi-processed goods plus (iii) 85% percent of the Net Amount of Eligible
Accounts minus (iv) any Availability Reserves, as each of the capitalized terms
in this clause (y) is defined in the New Credit Facility;
(ii) Indebtedness of the Company pursuant to the Securities;
(iii) Indebtedness of the Company evidenced by the Existing Notes to
be redeemed pursuant to a notice of redemption given on the date hereof;
(iv) Indebtedness of the Company owing to a Subsidiary; provided that
any Indebtedness of the Company owing to a Subsidiary is made pursuant to an
intercompany note and is subordinated in right of payment from and after such
time as the Securities shall become due and payable (whether at Stated Maturity,
acceleration or otherwise) to the payment and performance of the Company's
obligations under the Securities; provided, further, that any disposition,
pledge or transfer of any such Indebtedness to a Person (other than the Company
or another Subsidiary) shall be deemed to be an incurrence of such Indebtedness
by the Company not permitted by this clause (iv);
(v) obligations of the Company entered into in the ordinary course of
business pursuant to Interest Rate Agreements designed to protect the Company or
any Subsidiary against fluctuations in interest rates in respect of Indebtedness
of the Company or any of its Subsidiaries, which obligations do not exceed the
aggregate principal amount of such Indebtedness and hedging arrangements that
the Company enters into in the ordinary course of business for the purpose of
protecting its production against fluctuations in commodity prices;
(vi) Indebtedness of the Company incurred (a) as a Purchase Money
Obligation, (b) under any Capital Lease Obligation, or (c) with respect to
letters of credit not otherwise permitted pursuant to clause (i) of this
definition of "Permitted Indebtedness" in a principal amount for clauses (a),
(b) and (c) in the aggregate not to exceed $5 million in any fiscal year of the
Company;
(vii) Indebtedness of the Company in addition to that described in
clauses (i) through (vi) of this definition of "Permitted Indebtedness," not to
exceed $10.0 million at any time outstanding in the aggregate; provided that
such amount shall be reduced by the amount, if any, of Permitted Subsidiary
Indebtedness then outstanding under clause (iii) of the definition of "Permitted
Subsidiary Indebtedness";
(viii) any renewals, extensions, substitutions, refundings,
refinancings or replacements (collectively, a "renewal/refinancing") of any
Indebtedness described in clauses (ii) and (vi) of this definition of "Permitted
Indebtedness," including any successive renewal/refinancings so long as the
aggregate principal amount of Indebtedness represented thereby is not increased
by such renewal/refinancing plus the lesser of (I) the stated amount of any
premium or other payment required to be paid in connection with such
renewal/refinancing pursuant to the terms of the Indebtedness being refinanced
or (II) the
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amount of premium or other payment actually paid at such time to refinance the
Indebtedness, plus, in either case, the amount of expenses of the Company
incurred in connection with such renewal/refinancing and, in the case of Pari
Passu Indebtedness or Subordinated Indebtedness, such renewal/refinancing does
not reduce the Average Life to Stated Maturity or the Stated Maturity of such
Indebtedness;
(ix) Permitted Subsidiary Indebtedness that is permitted to be
incurred by a Subsidiary pursuant to clauses (ii) and (iii) under the definition
of "Permitted Subsidiary Indebtedness"; and
(x) Acquired Indebtedness that, after giving pro forma effect thereto,
and to the related acquisition as provided in Section 10.8(a), results in (x)
the Consolidated Fixed Coverage Ratio being less than the Applicable Coverage
Ratio (as defined in Section 10.8 hereof) but greater than or equal to 1.75 to
1.00 and (y) the Consolidated Fixed Coverage Ratio increasing as a consequence
of such incurrence.
"Permitted Investment" means (i) Investments in any Wholly-Owned
Subsidiary; (ii) Indebtedness of a Subsidiary described under clause (ii) of the
definition of "Permitted Subsidiary Indebtedness" or Indebtedness of the Company
described under clauses (iv) of the definition of "Permitted Indebtedness;"
(iii) Temporary Cash Investments; (iv) Investments acquired by the Company or
any Subsidiary in connection with an Asset Sale permitted under Section 10.12 to
the extent such Investments are non-cash proceeds as permitted under such
covenant; and (v) other Investments in the aggregate not to exceed $5 million.
"Permitted Subsidiary Indebtedness" means:
(i) Acquired Indebtedness of any Subsidiary;
(ii) Indebtedness of a Wholly-Owned Subsidiary owing to the Company or
another Wholly-Owned Subsidiary; provided that any such Indebtedness is made
pursuant to an intercompany note in the form attached as an exhibit to the
Indenture; provided, further, that (x) any disposition, pledge or transfer of
any such Indebtedness to a Person (other than the Company or a Wholly-Owned
Subsidiary and other than any pledge as security for the New Credit Facility)
shall be deemed to be an incurrence of such Indebtedness by the obligor not
permitted by this clause (ii) and (y) any transaction pursuant to which any
Wholly-Owned Subsidiary, which has Indebtedness owing to the Company or any
other Wholly-Owned Subsidiary, ceases to be a Wholly-Owned Subsidiary shall be
deemed to be the incurrence of Indebtedness by the Company or such other
Wholly-Owned Subsidiary that is not permitted under this clause (ii);
(iii) Indebtedness of a Subsidiary in addition to that described in
clauses (i) and (ii) of this definition of "Permitted Subsidiary Indebtedness,"
not to exceed $10 million at any time outstanding in the aggregate; provided,
that such amount shall be reduced by the amount, if any, of Permitted
Indebtedness then outstanding under clause (vii) of the definition of "Permitted
Indebtedness"; and
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(iv) any renewals, extensions, substitutions, refinancings or
replacements (collectively, a "debt refinancing") of any Indebtedness described
in clause (i) of this definition of "Permitted Subsidiary Indebtedness,"
including any successive debt refinancings thereof, so long as any such new
Indebtedness shall be in a principal amount that does not exceed the principal
amount so refinanced, plus an amount equal to the lesser of (x) the stated
amount of any premium required to be paid in connection with any such debt
refinancing and (y) the amount of premium actually paid in connection with any
such debt refinancing plus the amount of expenses of such Subsidiary incurred in
connection therewith.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security; and, for the purposes of this definition, any Security
authenticated and delivered under Section 3.6 in exchange for a mutilated
Security or in lieu of a lost, destroyed or stolen Security shall be deemed to
evidence the same debt as the mutilated, lost, destroyed, or stolen Security.
"Preferred Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of such
Person's preferred stock whether now outstanding, or issued after the date of
the Indenture, and including, without limitation, all classes and series of
preferred or preference stock.
"Public Equity Offering" means any underwritten public offering of common
stock of the Company pursuant to a registration statement filed pursuant to the
Securities Act which offering is consummated after the date of the offering of
equity securities concurrent with the offering of the Securities, excluding
shares of Common Stock issued in such offering.
"Purchase Money Obligation" means any Indebtedness secured by a Lien on
assets related to the business of the Company or its Subsidiaries, and any
additions and accessions thereto, which are purchased by the Company or any
Subsidiary at any time after the Securities are issued; provided that (i) the
security agreement or conditional sales or other title retention contract
pursuant to which the Lien on such assets described above is created
(collectively a "Purchase Money Security Agreement") shall be entered into
within 90 days after the purchase or substantial completion of the construction
of such assets and shall at all times be confined solely to the assets so
purchased or acquired, any additions and accessions thereto and any proceeds
therefrom, (ii) at no time shall the aggregate principal amount of the
outstanding Indebtedness secured thereby be increased, except in connection with
the purchase of additions and accessions thereto and except in respect of fees
and other obligations in respect of such Indebtedness and (iii) (A) the
aggregate outstanding principal amount of Indebtedness secured thereby
(determined on a per asset basis in the case of any additions and accessions)
shall not at the time such Purchase Money Security Agreement is
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entered into exceed 100% of the purchase price to the Company or any Subsidiary
of the assets subject thereto or (B) the Indebtedness secured thereby shall be
with recourse solely to the assets so purchased or acquired, any additions and
accessions thereto and any proceeds therefrom.
"Qualified Capital Stock" of any Person means any and all Capital Stock of
such Person other than Redeemable Capital Stock.
"Redeemable Capital Stock" means any Capital Stock that, either by its
terms or by the terms of any security into which it is convertible or
exchangeable or otherwise, is or upon the happening of any event or passage of
time would be, required to be redeemed prior to any Stated Maturity of the
principal of the Securities or is redeemable at the option of the holder thereof
at any time prior to any such Stated Maturity, or is convertible into or
exchangeable for debt securities at any time prior to any such Stated Maturity
at the option of the holder thereof.
"Redemption" means the redemption of the Existing Notes.
"Redemption Date" when used with respect to any Security to be redeemed
pursuant to any provision in this Indenture means the date fixed for such
redemption by or pursuant to this Indenture.
"Redemption Price" when used with respect to any Security to be redeemed
pursuant to any provision in this Indenture means the price at which it is to be
redeemed pursuant to this Indenture.
"Regular Record Date" for the interest payable on any Interest Payment Date
means [ ] or [ ], as the case may be (whether or not a Business Day), next
preceding such Interest Payment Date.
"Responsible Officer" when used with respect to the Trustee means any
officer assigned to the Corporate Trust Office of the Trustee or any agent of
the Trustee appointed hereunder, including the chairman or vice chairman of the
board of directors or the executive committee of the board of directors, the
president, any vice president, any assistant vice president, the secretary, any
assistant secretary, the treasurer, any assistant treasurer, the cashier, any
assistant cashier, any trust officer or assistant trust officer, the controller
or any other officer of the Trustee customarily performing functions similar to
those performed by any of the above-designated officers or any other officer
appointed hereunder to whom any corporate trust matter is referred because of
his or her knowledge of and familiarity with the particular subject.
"S&P" means Standard and Poor's Corporation or any successor rating agency.
"Sale and Leaseback Transaction" means any transaction or series of related
transactions pursuant to which the Company or a Subsidiary sells or transfers
any property or
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asset in connection with the leasing, or the resale against installment
payments, of such property or asset to the Company or such Subsidiary.
"Securities" has the meaning specified in the first recital of this
Indenture.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Indebtedness" means Indebtedness of the Company other than
Subordinated Indebtedness.
"Special Record Date" for the payment of any Defaulted Interest means a
date fixed by the Trustee pursuant to Section 3.7.
"Stated Maturity" when used with respect to any Indebtedness or any
installment of interest thereon, means the dates specified in such Indebtedness
as the fixed date on which the principal of such Indebtedness or such
installment of interest is due and payable.
"Subordinated Indebtedness" means Indebtedness of the Company which is by
its terms expressly subordinated in right of payment to the Securities.
"Subsidiary" means any Person a majority of the equity ownership or the
Voting Stock of which is at the time owned, directly or indirectly, by the
Company or by one or more other Subsidiaries, or by the Company and one or more
other Subsidiaries; provided that an Unrestricted Subsidiary shall not be deemed
a Subsidiary for purposes of the Indenture.
"Temporary Cash Investments" means (i) any evidence of Indebtedness,
maturing not more than two years after the date of acquisition, issued by the
United States of America, or an instrumentality or agency thereof and guaranteed
fully as to principal, premium, if any, and interest by the United States of
America; (ii) any certificate of deposit, maturing not more than two years after
the date of acquisition, issued by, or time deposit of, a commercial banking
institution that is a member of the Federal Reserve System and that has combined
capital and surplus and undivided profits of not less than $500,000,000, whose
debt has a rating, at the time as of which any investment therein is made, of
"P-1" (or higher) according to Moody's or "A-1" (or higher) according to S&P,
(iii) commercial paper, maturing not more than one year after the date of
acquisition, issued by a corporation (other than Affiliate or Subsidiary of the
Company) organized and existing under the laws of the United States of America
with a rating, at the time as of which any investment therein is made, of "P-1"
(or higher) according to Moody's or "A-1" (or higher) according to S&P; (iv) any
money market deposit accounts issued or offered by (a) a domestic commercial
bank having capital and surplus in excess of $500,000,000 or (b) a nationally
recognized investment bank having capital and surplus and undivided profits in
excess of $150,000,000; (v) repurchase obligations for underlying securities of
the type described in clause (i) above entered into with any financial
institution designated as a "Primary Dealer" by the Federal Reserve Bank of New
York or any commercial banking institution that satisfies the criteria set forth
in clause (ii) of this definition of "Temporary Cash Investments" as a
counterparty;
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and (vi) Eurodollar certificates of deposit maturing not more than two years
after the date of acquisition issued by, or any time deposit of, a commercial
banking institution outside the United States having equity capital and surplus
and undivided profits of not less than $250,000,000 and foreign denominated
money market deposit accounts issued by a commercial banking institution outside
the United States having equity capital and surplus and undivided profits of not
less than $250,000,000.
"Trustee" means the Person named as the "Trustee" in the first paragraph of
this Indenture, until a successor Trustee shall have become such pursuant to the
applicable provisions of this Indenture, and thereafter "Trustee" shall mean
such successor Trustee.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended.
"Unrestricted Subsidiary" means any Subsidiary as to which all of the
following conditions apply: (a) neither the Company nor any of its Subsidiaries
provides credit support for any Indebtedness of such Subsidiary (including any
undertaking, agreement or instrument evidencing such Indebtedness); (b) such
subsidiary is not liable, directly or indirectly, with respect to any
Indebtedness other than Unrestricted Subsidiary Indebtedness; (c) neither the
Company nor any of its Subsidiaries has made an Investment in such Unrestricted
Subsidiary unless such Investment was not prohibited by the provisions described
under Section 10.9 hereunder; and (d) the Board of Directors of the Company, as
provided below, shall have designated such Subsidiary to be an Unrestricted
Subsidiary. Any such designation by the Board of Directors shall be evidenced to
the Trustee by filing with the Trustee a Board Resolution giving effect to such
designation and an Officers' Certificate certifying that such designation
complies with the foregoing conditions. The Board of Directors may designate any
Unrestricted Subsidiary as a Subsidiary; provided, that (i) immediately after
giving effect to such designation, the Company could incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) pursuant to the restrictions
under Section 10.8 hereunder; and (ii) all Indebtedness of such Unrestricted
Subsidiary shall be deemed to be incurred on the date such Unrestricted
Subsidiary becomes a Subsidiary.
"Unrestricted Subsidiary Indebtedness" of any Unrestricted Subsidiary means
Indebtedness of such Unrestricted Subsidiary (a) as to which neither the Company
nor any Subsidiary is directly or indirectly liable (by virtue of the Company or
any such Subsidiary being the primary obligor on, guarantor of, or otherwise
liable in any respect to, such Indebtedness), and (b) which, upon the occurrence
of a default with respect thereto, does not result in, or permit any holder of
any Indebtedness of the Company or any Subsidiary to declare, a default on such
Indebtedness of the Company or any Subsidiary or cause the payment thereof to be
accelerated or payable prior to its stated maturity.
"Voting Stock" means stock of the class or classes pursuant to which the
holders thereof have the general voting power under ordinary circumstances to
elect at least a majority of the board of directors, managers or trustees of a
corporation (irrespective of whether or not at the time stock of any other class
or classes shall have or might have voting power by reason of the happening of
any contingency).
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"Wholly-Owned Subsidiary" means a Subsidiary all the Capital Stock (other
than directors' qualifying shares) of which is owned by the Company or another
Wholly-Owned Subsidiary.
"1989 Acquisition" means the acquisition in 1989 of the Company by MLGA and
its Affiliates, together with management of the Company, in a leveraged buy-out.
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Section 1.2. Other Definitions.
Term Defined in
- ---- Section
----------
"Act" 1.5
"Applicable Coverage Ratio" 10.8
"Applicable Premium" 10.14
"Applicable Spread 10.14
"Certificated Notes" 3.1
"Change of Control Offer" 10.13
"Change of Control Purchase Date" 10.13
"Change of Control Purchase Notice" 10.13
"Change of Control Purchase Price" 10.13
"Closing Date" 3.1
"covenant defeasance" 4.3
"Defaulted Interest" 3.7
"defeasance" 4.2
"Defeasance Redemption Date" 4.4
"Defeased Securities" 4.1
"Deficiency" 10.12
"Depositary" 3.1
"event of default" 10.9
"Excess Proceeds" 10.12
"Global Note" 3.1
"Global Note Holder" 3.1
"incur" 10.8
"Offer" 10.12
"Offer Date" 10.12
"Offered Price" 10.12
"refinancing" 10.9
"Required Filing Dates" 10.17
"Security Amount" 10.12
"Security Register" 3.5
"Security Registrar" 3.5
"Special Payment Date" 3.7
"Surviving Entity" 8.1
"Treasury Rate" 10.14
"U.S. Government Obligations" 4.4
Section 1.3. Compliance Certificates and Opinions.
Upon any application or request by the Company to the Trustee to take any
action under any provision of this Indenture, the Company and each other obligor
of the Securities shall furnish to the Trustee an Officers' Certificate to the
effect that all conditions precedent, if any, provided for in this Indenture
(including any covenant compliance which constitutes a
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condition precedent) relating to the proposed action have been complied with and
an Opinion of Counsel to the effect that in the opinion of such counsel all such
conditions precedent, if any, have been complied with, except that, in the case
of any such application or request as to which the furnishing of any
certificates and/or opinions is specifically required by any provision of this
Indenture, relating to such particular application or request, no additional
certificate or opinion need be furnished.
Every certificate or Opinion of Counsel with respect to compliance with a
condition or covenant provided for in this Indenture (other than certificates
provided pursuant to Section 10.18 of this Indenture) shall include:
(a) a statement to the effect that each individual or firm signing
such certificate or opinion has read such covenant or condition and the
definitions herein relating thereto;
(b) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement to the effect that, in the opinion of each such
individual or such firm, he has made such examination or investigation as is
necessary to enable him or them to express an informed opinion as to whether or
not such covenant or condition has been complied with; and
(d) a statement as to whether, in the opinion of each such individual
or such firm, such condition or covenant has been complied with.
Section 1.4. Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company or other obligor of
the Securities may be based, insofar as it relates to legal matters, upon a
certificate or opinion of, or representations by, counsel, unless such officer
knows, or in the exercise of reasonable care should know, that the certificate
or opinion or representations with respect to the matters upon which his
certificate or opinion is based are erroneous. Any certificate or opinion of
such an officer or of counsel may be based, insofar as it relates to factual
matters, upon a certificate or opinion of, or representations by, an officer or
officers of the Company or other obligor of the Securities with respect to such
factual matters and which contains a statement to the effect that the
information with respect to such factual matters is in the possession of the
Company or other obligor of the Securities, unless such officer or counsel
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knows that the certificate or opinion or representations with respect to such
matters are erroneous. Opinions of Counsel required to be delivered to the
Trustee may have qualifications customary for opinions of the type required and
counsel delivering such Opinions of Counsel may rely on certificates of the
Company or government or other officials customary for opinions of the type
required, including certificates certifying as to matters of fact, including
that various financial covenants have been complied with.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Section 1.5. Acts of Holders.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by an agent duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Indenture and conclusive in favor of the Trustee and the Company, if made in the
manner provided in this Section.
(b) The ownership of Securities shall be proved by the Security
Register.
(c) Any request, demand, authorization, direction, notice, consent,
waiver or other Act by the Holder of any Security shall bind every future Holder
of the same Security or the Holder of every Security issued upon the transfer
thereof or in exchange therefor or in lieu thereof, in respect of anything done,
suffered or omitted to be done by the Trustee, any Paying Agent or the Company
or any other obligor in reliance thereon, whether or not notation of such action
is made upon such Security.
(d) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where such
execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of his authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner which the Trustee deems sufficient.
Section 1.6. Notices, etc., to Trustee and the Company.
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Any request, demand, authorization, direction, notice, consent, waiver or
Act of Holders or other document provided or permitted by this Indenture to be
made upon, given or furnished to, or filed with:
(a) the Trustee by any Holder or by the Company or any other obligor
of the Securities shall be sufficient for every purpose hereunder if made,
given, furnished or filed, in writing, by first-class mail postage prepaid
(return receipt requested) or delivered in person or by recognized overnight
courier to or with the Trustee at _________________________________________,
Attention: Corporate Trust Administration or at any other address furnished in
writing prior thereto to the Holders, the Company or any other obligor of the
Securities by the Trustee; or
(b) the Company shall be sufficient for every purpose (except as
provided in Section 5.1(c)) hereunder if in writing and mailed, first-class
postage prepaid or delivered by recognized overnight courier, to the Company
addressed to it at 1020 West Park Avenue, Kokomo, Indiana 46904-9013, Attention:
Chief Financial Officer, or at any other address previously furnished in writing
to the Trustee by the Company, with a copy to Ice Miller Donadio & Ryan, One
American Square, Box 82001, Indianapolis, Indiana 46282- 0002, Attention:
Stephen J. Hackman.
Section 1.7. Notice to Holders; Waiver.
Where this Indenture provides for notice to Holders of any event, such
notice shall be sufficiently given (unless otherwise herein expressly provided)
if in writing and mailed, first-class postage prepaid, to each Holder affected
by such event, at such Holder's address as it appears in the Security Register,
not later than the latest date, and not earlier than the earliest date,
prescribed for the giving of such notice. In any case where notice to Holders is
given by mail, neither the failure to mail such notice, nor any defect in any
notice so mailed, to any particular Holder shall affect the sufficiency of such
notice with respect to other Holders. Any notice when mailed to a Holder in the
aforesaid manner shall be conclusively deemed to have been received by such
Holder whether or not actually received by such Holder. Where this Indenture
provides for notice in any manner, such notice may be waived in writing by the
Person entitled to receive such notice, either before or after the event, and
such waiver shall be the equivalent of such notice. Waivers of notice by Holders
shall be filed with the Trustee, but such filing shall not be a condition
precedent to the validity of any action taken in reliance upon such waiver.
In case by reason of the suspension of regular mail service or by reason of
any other cause, it shall be impracticable to mail notice of any event as
required by any provision of this Indenture, then any method of giving such
notice as shall be reasonably satisfactory to the Trustee shall be deemed to be
a sufficient giving of such notice.
Section 1.8. Conflict with Trust Indenture Act.
If any provision hereof limits, qualifies or conflicts with any provision
of the Trust Indenture Act or another provision which is required or deemed to
be included in this
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Indenture by any of the provisions of the Trust Indenture Act, the provision or
requirement of the Trust Indenture Act shall control. If any provision of this
Indenture modifies or excludes any provision of the Trust Indenture Act that may
be so modified or excluded, such provision of the Trust Indenture Act shall be
deemed to apply to this Indenture as so modified or to be excluded, as the case
may be.
Section 1.9. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.
Section 1.10. Successors and Assigns.
All covenants and agreements in this Indenture by the Company and any other
obligor of the Securities shall bind their successors and assigns, whether so
expressed or not.
Section 1.11. Separability Clause.
In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
Section 1.12. Benefits of Indenture.
Nothing in this Indenture or in the Securities, express or implied, shall
give to any Person (other than the parties hereto and their successors
hereunder, any Paying Agent and the Holders) any benefit or any legal or
equitable right, remedy or claim under this Indenture.
SECTION 1.13. GOVERNING LAW.
THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO THE
CONFLICT OF LAWS PRINCIPLES THEREOF).
Section 1.14. Legal Holidays.
In any case where any Interest Payment Date, Redemption Date, Maturity or
Stated Maturity of any Security shall not be a Business Day, then
(notwithstanding any other provision of this Indenture or of the Securities)
payment of interest or principal or premium, if any, need not be made on such
date, but may be made on the next succeeding Business Day with the same force
and effect as if made on the Interest Payment Date or Redemption Date, or at
Maturity or the Stated Maturity, and no interest shall accrue with respect to
such payment for the period from and after such Interest Payment Date,
Redemption Date, Maturity or Stated Maturity, as the case may be, to the next
succeeding Business Day.
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Section 1.15. Schedules.
All schedules attached hereto are by this reference made a part with the
same effect as if herein set forth in full.
Section 1.16. Counterparts.
This Indenture may be executed in any number of counterparts, each of which
shall be an original; but such counterparts shall together constitute but one
and the same instrument.
ARTICLE II
SECURITY FORMS
Section 2.1. Forms Generally.
(a) The Securities will initially be issued in the form of one or more
global notes (the "Global Note"). The Global Note will be deposited on the date
of the closing of the sale of the Securities offered hereby (the "Closing Date")
with, or on behalf of, The Depository Trust Company or its successors and
assigns (the "Depositary") and registered in the name of Cede & Co., as nominee
of the Depositary (such nominee being referred to herein as the "Global Note
Holder").
(b) Notwithstanding Section 2.1(a), Securities that are issued in
accordance with Section 2.1(c) will be issued in the form of registered
definitive certificates (the "Certificated Notes"). Such Certificated Notes may,
unless the Global Note has previously been exchanged for Certificated Notes, be
exchanged for an interest in the Global Note representing the principal amount
of Securities being transferred.
(c) Any person owning a beneficial interest in the Global Note may,
upon request to the Trustee, exchange such beneficial interest for Securities in
the form of Certificated Notes. Upon any such issuance, the Trustee is required
to register such Certificated Notes in the name of, and cause the same to be
delivered to, such Person or Persons (or the nominee of any thereof). In
addition, if (i) the Company notifies the Trustee in writing that the Depositary
is no longer willing or able to act as a depositary and the Company is unable to
locate a qualified successor within 90 days, or (ii) the Company, at its option,
notifies the Trustee in writing that it elects to cause the issuance of
Securities in the form of Certificated Notes under the Indenture, then, upon
surrender by the Global Note Holder of its Global Note, Certificated Notes will
be issued to each Person that the Global Note Holder and the Depositary identify
as being the beneficial owner of the related Securities. If the Company
determines to replace the Depositary with another qualified securities
depository, the Company shall prepare or cause to be prepared a new
fully-registered Global Note, registered in the name of such successor or
substitute securities
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<PAGE>
depositary or its nominee, or make such other arrangements as are acceptable to
the Company, the Trustee and the securities depository and not inconsistent with
the terms of this Indenture.
(d) Neither the Company nor the Trustee will be liable for any delay
by the Global Note Holder or the Depositary in identifying the beneficial owners
of the Securities, and the Company and the Trustee may conclusively rely on, and
will be protected in relying on, instructions from the Global Note Holder or the
Depositary for all purposes.
(e) Securities and the Trustee's certificates of authentication
thereof shall be in substantially the forms set forth in this Article II, with
such appropriate insertions, omissions, substitutions and other variations as
are required or permitted by this Indenture and may have such letters, numbers
or other marks of identification and such legends or endorsements placed thereon
as may be required to comply with the rules of any securities exchange, any
organizational document or governing instrument or applicable law or as may,
consistently herewith, be determined by the officers executing such Securities,
as evidenced by their execution of the Securities. Any portion of the text of
any Security may be set forth on the reverse thereof, with an appropriate
reference thereto on the face of the Security.
(f) The Certificated Notes shall be printed, lithographed or engraved
or produced by any combination of these methods or may be produced in any other
manner permitted by the rules of any securities exchange on which the Securities
may be listed, all as determined by the officers executing such Securities, as
evidenced by their execution of such Securities.
Section 2.2. Form of Face of Security.
The form of the face of the Securities shall be substantially as follows:
HAYNES CORP.
to be merged with
and continue as
Haynes International, Inc.
----------
__% Senior Notes due 2004
No.__________
HAYNES CORP., a Delaware corporation (herein called the "Company," which
term includes any successor), for value received, hereby promises to pay to
_______ or registered assigns, the principal sum of $__________ United States
dollars on _______ 2004, at the office or agency of the Company referred to
below, and to pay interest thereon from _________, 1996 or from the most recent
Interest Payment Date to which interest has been paid or duly provided for, as
the case may be, semiannually on ______ and _______ of each year commencing
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_______, 1997 at the rate of______% per annum, in United States dollars, until
the principal hereof is paid or duly provided for.
The interest so payable, and punctually paid or duly provided for, on any
Interest Payment Date will, as provided in the Indenture, be paid to the Person
in whose name this Security (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date for such
interest, which shall be _______or _______ (whether or not a Business Day), as
the case may be, next preceding such Interest Payment Date. Any such interest
not so paid, or duly provided for, and interest on such defaulted interest at
the interest rate borne by the Securities, to the extent lawful, shall forthwith
cease to be payable to the Holder in whose name such Security is registered as
of such Regular Record Date, and may be paid on the Special Payment Date to the
Person in whose name this Security (or one or more Predecessor Securities) is
registered at the close of business on a Special Record Date to be fixed by the
Trustee (and for which notice shall be given to Holders of Securities not less
than 10 days prior to such Special Record Date) or may be paid at any time in
any other lawful manner not inconsistent with the requirements of any securities
exchange on which the Securities may be listed, and upon such notice as may be
required by such exchange, all as more fully provided in said Indenture.
Payment of the principal of, premium, if any, and interest on this Security
will be made at the office or agency of the Company maintained for that purpose
in The City of New York, or at such other office or agency of the Company as may
be maintained for such purpose, in such coin or currency of the United States of
America as at the time of payment is legal tender for payment of public and
private debts; provided, however, that payment of interest may be made at the
option of the Company by check mailed to the address of the Person entitled
thereto as such address shall appear on the Security Register. Interest shall be
computed on the basis of a 360-day year of twelve 30-day months.
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been duly executed by
the Trustee referred to on the reverse hereof or by the authenticating agent
appointed as provided in the Indenture by manual signature, this Security shall
not be entitled to any benefit under the Indenture, or be valid or obligatory
for any purpose.
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IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by the manual or facsimile signature of its authorized officers and its
corporate seal to be affixed or reproduced hereon.
Dated: _________ HAYNES CORP.
By:_____________________
Attest: [SEAL]
_______________________
Secretary
Section 2.3. Form of Reverse of Security.
The form of the reverse of the Securities shall be substantially as
follows:
This Security is one of the duly authorized issue of Securities of the
Company designated as its % Senior Notes due 2004 (herein called the
"Securities"), limited (except as otherwise provided in the Indenture referred
to below) in aggregate principal amount to $100.0 million which may be issued
under and are subject to the terms of an indenture (herein called the
"Indenture") dated as of ________, 1996 among the Company and National City
Bank, as trustee (together with any successor trustee under the Indenture, the
"Trustee"), to which Indenture and all indentures supplemental thereto reference
is hereby made for a statement of the respective rights, limitations of rights,
duties, obligations and immunities thereunder of the Company, the Trustee and
the Holders, and of the terms upon which the Securities are, and are to be,
authenticated and delivered.
The Indenture contains provisions for defeasance at any time of (a) the
entire Indebtedness on this Security and (b) certain covenants and related
Defaults and Events of Default thereunder, in each case upon compliance with
certain conditions set forth therein.
The Securities are subject to redemption at any time on or after ____,
2000, at the option of the Company, in whole or in part, on not less than 30 nor
more than 60 days' prior notice in amounts of $1,000 or an integral multiple
thereof at the following redemption prices (expressed as percentages of the
principal amount), if redeemed during the 12-month period beginning _______ of
the years indicated below:
Redemption
Year Price
---- -----
2000 %
2001 %
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and thereafter at 100% of the principal amount, in each case together with
accrued and unpaid interest, if any, to the redemption date (subject to the
right of holders of record on relevant record dates to receive interest due on
an interest payment date).
In addition, prior to ______, 1999, in the event one or more Public Equity
Offerings of the Company are consummated after the date of the issue of the
equity securities issued concurrently with the Securities, the Company may
redeem in the aggregate up to a maximum of $25.0 million aggregate principal
amount of the Securities with the net proceeds thereof at a Redemption Price
equal to __% of the principal amount thereof plus accrued and unpaid interest to
the Redemption Date; provided that, after giving effect thereto, at least $70.0
million aggregate principal amount of Securities remains outstanding.
If less than all of the Securities are to be redeemed, the Trustee shall
select the Securities or portions thereof to be redeemed pro rata, by lot or by
any other method the Trustee shall deem fair and reasonable, provided that, any
redemption pursuant to the provisions relating to a sale of the Common Stock of
the Company pursuant to one or more Public Equity Offerings shall be made on a
pro rata basis or on as nearly a pro rata basis as practicable (subject to any
procedures of the Depositary).
If a Change of Control shall occur at any time, then each holder of
Securities shall have the right to require that the Company purchase such
holder's Securities in whole or in part in integral multiples of $1,000, at a
purchase price in cash in an amount equal to 101% of the principal amount of
such Securities, plus accrued and unpaid interest, if any, to the date of
purchase pursuant to the offer procedures set forth in the Indenture.
In addition, if a Change of Control shall occur at any time, then the
Company shall, within 180 days after a Change of Control and upon not less than
30 nor more than 60 days' prior notice to each holder of Securities, have the
right to purchase the Securities, in whole or in part, at a redemption price
equal to the sum of (i) the then outstanding principal amount plus (ii) accrued
and unpaid interest, if any, to the Redemption Date, plus (iii) a premium
defined as the greater of (a) 1.0% of the then outstanding principal amount of
the Securities and (b) the excess of (1) the present value of the required
payments on the Securities, computed using a discount rate equal to the Treasury
Rate plus 75 basis points, over (2) the then outstanding principal amount of the
Securities.
Under certain circumstances, in the event the Net Cash Proceeds that are
received by the Company from any Asset Sale, and that are not applied within the
time periods set forth in the Indenture to repay or prepay permanently any
Indebtedness under the New Credit Facility then outstanding or invested in
properties or assets that replace the assets sold or that are used in the
businesses of the Company or its Subsidiaries, equal or exceed $5.0 million, the
Company will be required to offer, pursuant to the offer procedures set forth in
the Indenture, to apply such proceeds to the repayment of the Securities at 100%
of the principal amount of such Securities, plus accrued and unpaid interest, if
any, to the date of purchase and to the repayment of certain Indebtedness
ranking pari passu with the Securities.
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In the case of any redemption of Securities, interest installments whose
Stated Maturity is on or prior to the Redemption Date will be payable to the
Holders of such Securities of record as of the close of business on the relevant
Regular Record Date or Special Record Date referred to on the face hereof.
Securities (or portions thereof) for whose redemption and payment provision is
made in accordance with the Indenture shall cease to bear interest from and
after the Redemption Date.
In the event of redemption of this Security in part only, a new Security or
Securities for the unredeemed portion hereof shall be issued in the name of the
Holder hereof upon the cancellation hereof.
If an Event of Default shall occur and be continuing, the principal amount
of all the Securities may be declared due and payable in the manner and with the
effect provided in the Indenture.
The Indenture permits, with certain exceptions (including certain
amendments permitted without the consent of any Holders) as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders under the Indenture and the Securities at
any time with the consent of the Holders of not less than a majority in
aggregate principal amount of the Securities at the time Outstanding. The
Indenture also contains provisions permitting the Holders of not less than a
majority in aggregate principal amount of the Securities at the time
Outstanding, on behalf of the Holders of all the Securities, to waive compliance
by the Company with certain provisions of the Indenture and the Securities and
certain past Defaults under the Indenture and their consequences. Any such
consent or waiver by or on behalf of the Holder of this Security shall be
conclusive and binding upon such Holder and upon all future Holders of this
Security and of any Security issued upon the registration of transfer hereof or
in exchange herefor or in lieu hereof whether or not notation of such consent or
waiver is made upon this Security.
No reference herein to the Indenture and no provision of this Security or
of the Indenture shall alter or impair the obligation of the Company or any
other obligor under the Securities (in the event such other obligor is obligated
to make payments in respect of the Securities), which is absolute and
unconditional, to pay the principal of, premium, if any, and interest on this
Security at the times, place, and rate, and in the coin or currency, herein
prescribed.
As set forth in, and subject to, the provisions of the Indenture, no Holder
of any Security will have any right to institute any proceeding with respect to
the Indenture or for any remedy thereunder, unless (a) such Holder shall have
previously given to the Trustee written notice of a continuing Event of Default,
(b) the Holders of not less than 25% in principal amount of the Outstanding
Securities shall have made written request, and offered reasonable indemnity, to
the Trustee to institute such proceeding as trustee, (c) the Trustee shall not
have received from the Holders of a majority in principal amount of the
Outstanding Securities a direction inconsistent with such request and (d) the
Trustee shall have failed to institute such proceeding within 60 days; provided,
however, that such
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limitations do not apply to a suit instituted by the Holder hereof for the
enforcement of payment of the principal of (and premium, if any) or any interest
on this Security on or after the respective due dates expressed herein.
As provided in the Indenture and subject to certain limitations therein set
forth, the transfer of this Security is registrable on the Security Register of
the Company, upon surrender of this Security for registration of transfer at the
office or agency of the Company maintained for such purpose in The City of New
York or at such other office or agency of the Company as may be maintained for
such purpose, duly endorsed by, or accompanied by a written instrument of
transfer in form satisfactory to the Company and the Security Registrar duly
executed by, the Holder hereof or his attorney duly authorized in writing, and
thereupon one or more new Securities, of authorized denominations and for the
same aggregate principal amount, will be issued to the designated transferee or
transferees.
The Securities are issuable only in registered form without coupons in
denominations of $1,000 and any integral multiple thereof. As provided in the
Indenture and subject to certain limitations therein set forth, the Securities
are exchangeable for a like aggregate principal amount of Securities of a
different authorized denomination, as requested by the Holder surrendering the
same.
No service charge shall be made for any registration of transfer or
exchange or redemption of Securities, but the Company may require payment of a
sum sufficient to cover any tax or other governmental charge payable in
connection therewith.
Prior to due presentment of this Security for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name this Security is registered as the owner hereof for all
purposes, whether or not this Security is overdue, and none of the Company, the
Trustee nor any agent shall be affected by notice to the contrary.
Upon any consolidation or merger, or any sale, assignment, conveyance,
transfer or disposition (other than pursuant to a lease) of all or substantially
all of the properties and assets of the Company in accordance with the
Indenture, subject to the terms and conditions of the Indenture, the successor
Person to such transaction shall become the obligor on this Security, and the
Company shall be discharged from all obligations and covenants under this
Security and the Indenture.
All terms used in this Security which are defined in the Indenture and not
otherwise defined herein shall have the meanings assigned to them in the
Indenture.
Section 2.4. Form of Trustee's Certificate of Authentication.
The Trustee's certificate of authentication shall be included on the form
of the face of the Securities substantially in the following form:
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TRUSTEES CERTIFICATE OF AUTHENTICATION.
This is one of the Securities referred to in the within-mentioned
Indenture.
National City Bank,
as Trustee
By:_____________________
Authorized Signatory
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ARTICLE III
THE SECURITIES
Section 3.1. Title and Terms.
The aggregate principal amount of Securities which may be authenticated and
delivered under this Indenture is limited to $100,000,000 in principal amount of
Securities, except for Securities authenticated and delivered upon registration
of transfer of, or in exchange for, or in lieu of, other Securities pursuant to
Section 3.3, 3.4, 3.5, 3.6, 9.6, 10.12, 10.13, 10.14 or 11.8.
The Securities shall be known and designated as the "_____ % Senior Notes
due 2004" of the Company. The Stated Maturity of the Securities shall be_____
2004, and the Securities shall bear interest at the rate of_____ % per annum
from , 1996 or from the most recent Interest Payment Date to which interest has
been paid or duly provided for, as the case may be, payable commencing on_____ ,
1997 and semiannually thereafter on_____ and_____ in each year, until the
principal thereof is paid or duly provided for. Interest on any overdue
principal, interest (to the extent lawful) or premium, if any, shall be payable
as provided in Section 3.7.
The principal of, premium, if any, and interest on the Securities shall be
payable at the office or agency of the Company maintained for such purpose in
The City of New York, or at such other office or agency of the Company as may be
maintained for such purpose; provided, however, that at the option of the
Company interest may be paid by check mailed to addresses of the Persons
entitled thereto as such addresses as shall appear on the Security Register.
The Securities shall be redeemable as provided in Article XI.
At the election of the Company, the entire indebtedness on the Securities
or certain of the Company's obligations and covenants and certain Defaults and
Events of Default thereunder may be defeased as provided in Article IV.
Section 3.2. Denominations.
The Securities shall be issuable only in registered form without coupons
and only in denominations of $1,000 and any integral multiple thereof.
Section 3.3. Execution, Authentication, Delivery and Dating.
The Securities shall be executed on behalf of the Company by one of its
Chairman of the Board, Vice-Chairman, President or one of its Vice Presidents
under its corporate seal reproduced thereon attested by its Secretary or one of
its Assistant Secretaries. The signature of any of these officers on the
Securities may be manual or facsimile.
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Securities bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices on the date of such Securities.
At any time and from time to time after the execution and delivery of this
Indenture, the Company may deliver Securities executed by the Company to the
Trustee for authentication, together with a Company Order for the authentication
and delivery of such Securities; and the Trustee in accordance with such Company
Order shall authenticate and deliver such Securities as provided in this
Indenture and not otherwise.
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Security a
certificate of authentication, substantially in the form provided for herein,
duly executed by the Trustee by manual signature of an authorized signatory, and
such certificate upon any Security shall be conclusive evidence, and the only
evidence, that such Security has been duly authenticated and delivered hereunder
and is entitled to the benefits of this Indenture.
In case the Company or any of its Subsidiaries, pursuant to Article VIII,
shall be consolidated or merged with or into any other Person or shall sell,
convey, assign, transfer, lease or otherwise dispose of all or substantially all
of its properties and assets to any Person or group of affiliated Persons, and
the successor Person resulting from such consolidation, or surviving such
consolidation or merger, or into which the Company shall have been merged or
consolidated, or the successor Person which shall have received a conveyance,
transfer, lease or other disposition as aforesaid, shall have executed an
indenture supplemental hereto with the Trustee pursuant to Article VIII, any of
the Securities authenticated or delivered prior to such consolidation, merger,
conveyance, transfer, lease or other disposition may, from time to time, at the
request of the successor Person, be exchanged for other Securities executed in
the name of the successor Person with such changes in phraseology and form as
may be appropriate, but otherwise in substance of like tenor as the Securities
surrendered for such exchange and of like principal amount; and the Trustee,
upon Company Request of the successor Person, shall authenticate and deliver
Securities as specified in such request for the purpose of such exchange. If
Securities shall at any time be authenticated and delivered in any new name of a
successor Person pursuant to this Section in exchange or substitution for or
upon registration of transfer of any Securities, such successor Person, at the
option of a Holder but without expense to such Holder, shall provide for the
exchange of all Securities at the time Outstanding held by such Holder for
Securities authenticated and delivered in such new name.
The Trustee may appoint an authenticating agent reasonably acceptable to
the Company to authenticate Securities on behalf of the Trustee. Unless limited
by the terms of such appointment, an authenticating agent may authenticate
Securities whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes
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authentication by such agent. An authenticating agent has the same rights as any
Security Registrar or Paying Agent to deal with the Company and its Affiliates.
Section 3.4. Temporary Securities.
Pending the preparation of definitive Securities, the Company may execute,
and upon Company Order the Trustee shall authenticate and deliver, temporary
Securities which are printed, lithographed, typewritten or otherwise produced,
in any authorized denomination, substantially of the tenor of the definitive
Securities in lieu of which they are issued and with such appropriate
insertions, omissions, substitutions and other variations as the officers
executing such Securities may determine, as conclusively evidenced by their
execution of such Securities.
If temporary Securities are issued, the Company will cause definitive
Securities to be prepared without unreasonable delay. After the preparation of
definitive Securities, the temporary Securities shall be exchangeable for
definitive Securities upon surrender of the temporary Securities at the office
or agency of the Company designated for such purpose pursuant to Section 10.2
(or in accordance with Section 3.3, in the case of the initial Securities),
without charge to the Holders thereof. Upon surrender for cancellation of any
one or more temporary Securities, the Company shall execute and the Trustee
shall authenticate and deliver in exchange therefor a like principal amount of
definitive Securities of authorized denominations. Until so exchanged, the
temporary Securities shall in all respects be entitled to the same benefits
under this Indenture as definitive Securities.
Section 3.5. Registration, Registration of Transfer and Exchange.
The Company shall cause to be kept at the Corporate Trust Office of the
Trustee, or such other office as the Trustee may designate, a register (the
register maintained in such office being herein sometimes referred to as the
"Security Register") in which, subject to such reasonable regulations as the
Security Registrar may prescribe, the Company shall provide for the registration
of Securities and of transfers of Securities. The Trustee or an agent thereof or
of the Company shall initially be the "Security Registrar" for the purpose of
registering Securities and transfers of Securities as herein provided. The
Company may appoint one or more co-registrars.
Subject to the requirements of applicable law, upon surrender for
registration of transfer of any Security at the office or agency of the Company
designated pursuant to Section 10.2, the Company shall execute, and the Trustee
shall authenticate and deliver, in the name of the designated transferee or
transferees, one or more new Securities of any authorized denomination or
denominations, of a like aggregate principal amount.
At the option of the Holder, Securities may be exchanged for other
Securities of any authorized denomination or denominations, of a like aggregate
principal amount, upon surrender of the Securities to be exchanged at such
office or agency. Whenever any Securities are so surrendered for exchange, the
Company shall execute, and the Trustee shall
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authenticate and deliver, the Securities which the Holder making the exchange is
entitled to receive.
All Securities issued upon any registration of transfer or exchange of
Securities shall be the valid obligations of the Company, evidencing the same
Indebtedness, and entitled to the same benefits under this Indenture, as the
Securities surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration of transfer, or
for exchange or redemption, shall (if so required by the Company or the Trustee)
be duly endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Company and the Security Registrar, duly executed by the
Holder thereof or such Holder's attorney duly authorized in writing.
No service charge shall be made to a Holder for any registration of
transfer, exchange or redemption of Securities, but the Company may require
payment of a sum sufficient to pay all documentary, stamp or similar issue or
transfer taxes or other governmental charges that may be imposed in connection
with any registration of, transfer, exchange or redemption of Securities, other
than exchanges pursuant to Section 3.3, 3.4, 3.6, 9.6, 10.12, 10.13, 10.14 or
11.8 not involving any transfer.
The Company shall not be required (a) to issue, register the transfer of or
exchange any Security during a period beginning at the opening of business (i)
15 days before the mailing of a notice of redemption of the Securities selected
for redemption under Section 11.4 and ending at the close of business on the day
of such mailing or (ii) 15 days before an Interest Payment Date and ending on
the close of business on the Interest Payment Date, or (b) to register the
transfer of or exchange any Security selected for redemption in whole or in
part, except the unredeemed portion of Securities being redeemed in part.
Section 3.6. Mutilated, Destroyed, Lost and Stolen Securities.
If (a) any mutilated Security is surrendered to the Trustee, or (b) the
Company and the Trustee receive evidence to their satisfaction of the
destruction, loss or theft of any Security, and there is delivered to the
Company, any other obligor under the Securities and the Trustee, such security
and/or indemnity, in each case as may be required by them to save each of them
harmless, then, in the absence of notice to the Company, any other obligor under
the Securities or the Trustee that such Security has been acquired by a bona
fide purchaser, the Company shall execute and upon its written request the
Trustee shall authenticate and deliver, in exchange for any such mutilated
Security or in lieu of any such destroyed, lost or stolen Security, a
replacement Security of like tenor and principal amount, bearing a number not
contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has become
or is about to become due and payable, the Company in its discretion may,
instead of issuing a replacement Security, pay such Security.
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Upon the issuance of any replacement Securities under this Section, the
Company may require the payment of a sum sufficient to pay all documentary,
stamp or similar issue or transfer taxes or other governmental charge that may
be imposed in relation thereto and any other expenses (including the fees and
expenses of the Trustee) connected therewith.
Every replacement Security issued pursuant to this Section in lieu of any
destroyed, lost or stolen Security shall constitute an original additional
contractual obligation of the Company and any other obligor of the Securities,
whether or not the destroyed, lost or stolen Security shall be at any time
enforceable by anyone, and shall be entitled to all benefits of this Indenture
equally and proportionately with any and all other Securities duly issued
hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities.
Section 3.7. Payment of Interest; Interest Rights Preserved.
Interest on any Security which is payable, and is punctually paid or duly
provided for, on the Stated Maturity of such interest shall be paid to the
Person in whose name that Security is registered at the close of business on the
Regular Record Date for such interest payment.
Any interest on any Security which is payable, but is not paid or duly
provided for on the Stated Maturity of such interest (or within 15 days after
the Stated Maturity of such interest) and interest on such defaulted interest at
the then applicable interest rate borne by the Securities, to the extent lawful
(such defaulted interest and interest thereon herein collectively called
"Defaulted Interest") shall forthwith cease to be payable to the Holder in whose
name such Security is registered as of the Regular Record Date; and such
Defaulted Interest may be paid by the Company, at its election in each case, as
provided in Subsection (a) or (b) below:
(a) The Company may elect to make payment of any Defaulted Interest to
the Persons in whose names the Securities are registered at the close of
business on a Special Record Date for the payment of such Defaulted Interest,
which shall be fixed in the following manner.
The Company shall notify the Trustee in writing of the amount of Defaulted
Interest proposed to be paid on each Security and the date of the proposed
payment (the "Special Payment Date"), and at the same time the Company shall
deposit with the Trustee an amount of money equal to the aggregate amount
proposed to be paid in respect of such Defaulted Interest or shall make
arrangements satisfactory to the Trustee for such deposit prior to the Special
Payment Date, such money when deposited to be held in trust for the benefit of
the Persons entitled to such Defaulted Interest as in this Subsection provided.
Such notice shall be received by the Trustee no less than 30 days prior to the
Special Payment Date. Thereupon the Trustee shall fix a Special Record Date for
the payment of
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such Defaulted Interest which Special Record Date shall be not more than 15 days
and not less than 10 days prior to the Special Payment Date and not less than 10
days after the receipt by the Trustee of the notice of the proposed payment. The
Trustee shall promptly notify the Company in writing of such Special Record Date
and Special Payment Date. In the name and at the expense of the Company, the
Trustee shall cause notice of the proposed payment of such Defaulted Interest
and the Special Record Date and Special Payment Date therefor to be mailed,
certified or registered (return receipt requested) first-class postage prepaid,
to each Holder at his address as it appears in the Security Register, not less
than 10 days prior to such Special Record Date. Notice of the proposed payment
of such Defaulted Interest and the Special Record Date therefor having been so
mailed, such Defaulted Interest shall be paid to the Persons in whose names the
Securities are registered on such Special Record Date and shall no longer be
payable pursuant to the following Subsection (b).
(b) The Company may make payment to the Persons in whose name the
Securities are registered at the close of business on the Special Record Date
and Special Payment Date of any Defaulted Interest in any other lawful manner
not inconsistent with the requirements of any securities exchange on which the
Securities may be listed, and upon such notice as may be required by such
exchange, unless, after written notice given by the Company to the Trustee of
the proposed payment pursuant to this Subsection, such manner of payment shall
not be deemed practicable by the Trustee (acting reasonably). The Trustee shall
give prompt written notice to the Company of any such determination.
Subject to the foregoing provisions of this Section 3.7, each Security
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Security shall carry the rights to interest accrued
and unpaid, and to accrue, which were carried by such other Security.
Section 3.8. Persons Deemed Owners.
Prior to due presentment of a Security for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name any Security is registered as the owner of such Security
for the purpose of receiving payment of principal of, premium, if any, and
(subject to Section 3.7) interest on such Security and for all other purposes
whatsoever, whether or not such Security is overdue, and none of the Company,
the Trustee or any agent of the Company or the Trustee shall be affected by
notice to the contrary.
Section 3.9. Cancellation.
All Securities surrendered for payment, purchase, redemption, registration
of transfer or exchange shall be delivered to the Trustee and, if not already
canceled, shall be promptly canceled by it. The Company or any Subsidiary may at
any time deliver to the Trustee for cancellation any Securities previously
authenticated and delivered hereunder which the Company or any such Subsidiary
may have acquired in any manner whatsoever, and all Securities so delivered
shall be promptly canceled by the Trustee. No Securities shall be authenticated
in lieu of or in exchange for any Securities canceled as provided in this
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Section, except as expressly permitted by this Indenture. All canceled
Securities held by the Trustee shall be destroyed in accordance with its
customary procedures and certification of their destruction delivered to the
Company unless by a Company Order received by the Trustee prior to such
destruction the Company shall direct that the canceled Securities be returned to
it. The Trustee shall provide the Company a list of all Securities that have
been canceled from time to time as requested by the Company.
Section 3.10. Computation of Interest.
Interest on the Securities shall be computed on the basis of a 360-day year
of twelve 30-day months.
Section 3.11. Depositary Procedures.
(a) The following procedures will be established: (i) upon deposit of
the Global Note, the Depositary will credit the accounts of Participants
designated by the underwriters of the Securities with portions of the principal
amount of the Global Note, and (ii) ownership of the Securities evidenced by the
Global Note will be shown on, and the transfer of ownership thereof will be
effected only through, records maintained by the Depositary (with respect to the
interests in the Depositary's Participants), the Depositary's Participants and
the Depositary's indirect Participants.
(b) So long as the Global Note Holder is the registered holder of the
Global Note, the Global Note Holder will be considered for all purposes under
the Indenture as the sole and absolute owner of the Securities evidenced by the
Global Note. Beneficial owners of Securities evidenced by the Global Note will
not be considered the owners or holders thereof under the Indenture for any
purpose. Without limiting the foregoing sentence, neither the Company nor the
Trustee will have any responsibility or liability for (i) any aspect of the
records of the Depositary, (ii) maintaining, supervising, or reviewing any
records of the Depositary relating to the Securities, (iii) the selection by the
Depositary of beneficial interests in the Securities to be redeemed in part or
(iv) the payment to any beneficial owner or other Person, other than the
Depositary, of any amount with respect to principal of, premium, if any, or
interest with respect to the Securities.
Section 3.12. Book-Entry.
Payments in respect of the principal of, premium, if any, and interest on
any Securities registered in the name of the Global Note Holder on the
applicable record date will be payable by an office or agency established by the
Company under the Indenture for such purpose to or at the direction of the
Global Note Holder in its capacity as the holder of the Global Note. The Company
and the Trustee may treat the Persons in whose name Securities, including the
Global Note, are registered as the owners thereof for the purpose of receiving
such payments. Consequently, neither the Company nor the Trustee has or will
have any responsibility or liability for the payment of such amounts to
beneficial owners of Securities. Payments by the Participants to the beneficial
owners of Securities will be
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governed by standing instructions and customary practice and will be the
responsibility of the Depositary's Participants.
Section 3.13. Same-Day Settlement and Payment.
Payments in respect of the Securities represented by the Global Note
(including principal, premium, if any, interest and liquidated damages, if any)
shall be made in immediately available funds to the accounts specified by the
Global Note Holder. With respect to Certificated Notes, the Company will make
all payments of principal, premium, if any, interest, and liquidated damages, if
any, in immediately available funds to the accounts specified by the Holders
thereof, either at the office or agency of a Paying Agent or by mailing a check
to each such Holder's registered address. The Securities represented by the
Global Note are expected to trade in the Depositary's Same-Day Funds Settlement
System, and secondary market trading activity in such Securities will,
therefore, be required by the Depositary to be settled in immediately available
funds.
Section 3.14. Legends.
All Global Notes shall bear the following legend:
Unless this certificate is presented by an authorized representative of The
Depository Trust Company, a New York corporation ("DTC"), to the Company or its
agent for registration of transfer, exchange, or payment and any certificate
issued is registered in the name of Cede & Co. or to such other entity as is
requested by an authorized representative of DTC (and any payment is made to
Cede & Co. or to such other entity as is requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner
hereof, Cede & Co., has an interest herein.
ARTICLE IV
DEFEASANCE AND COVENANT DEFEASANCE
Section 4.1. Company's Option to Effect Defeasance or Covenant Defeasance.
The Company may, at its option by Board Resolution, at any time, with
respect to the Securities, elect to have either Section 4.2 or Section 4.3 be
applied to all of the Outstanding Securities (the "Defeased Securities"), upon
compliance with the conditions set forth below in this Article IV.
Section 4.2. Defeasance and Discharge.
Upon the Company's exercise under Section 4.1 of the option applicable to
this Section 4.2, both the Company and any other obligor on the Securities shall
be deemed to have been discharged from their obligations with respect to the
Defeased Securities on the
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date the conditions set forth below are satisfied (hereinafter, "defeasance").
For this purpose, such defeasance means that the Company and any other obligor
of the Securities shall be deemed to have paid and discharged the entire
indebtedness represented by the Defeased Securities, which shall thereafter be
deemed to be "Outstanding" only for the purposes of Section 4.5 and the other
Sections of this Indenture referred to in (a) and (b) below, and to have
satisfied all its other obligations under such Securities and this Indenture
insofar as such Securities are concerned (and the Trustee, at the expense of the
Company and upon written request, shall execute proper instruments acknowledging
the same), except for the following which shall survive until otherwise
terminated or discharged hereunder: (a) the rights of Holders of Defeased
Securities to receive, solely from the trust fund described in Section 4.4 and
as more fully set forth in such Section, payments in respect of the principal
of, premium, if any, and interest on such Securities when such payments are due,
(b) the Company's obligations with respect to such Defeased Securities under
Section 3.4, 3.5, 3.6, 10.2 and 10.3, (c) the rights, powers, trusts, duties,
indemnities and immunities of the Trustee hereunder, and (d) this Article IV.
Subject to compliance with this Article IV, the Company may exercise its option
under this Section 4.2 notwithstanding the prior exercise of its option under
Section 4.3 with respect to the Securities.
Section 4.3. Covenant Defeasance.
Upon the Company's exercise under Section 4.1 of the option applicable to
this Section 4.3, both the Company and any other obligor on the Securities shall
be released from their obligations under any covenant or provision contained in
Sections 10.5 through 10.17, inclusive with respect to the Defeased Securities
on and after the date the conditions set forth below are satisfied (hereinafter,
"covenant defeasance"), and the Defeased Securities shall thereafter be deemed
to be not "Outstanding" for the purposes of any direction, waiver, consent or
declaration or Act of Holders (and the consequences of any thereof) in
connection with such covenants and provisions, but shall continue to be deemed
"Outstanding" for all other purposes hereunder. For this purpose, such covenant
defeasance means that, with respect to the Defeased Securities, the Company and
any other obligor of the Securities may omit to comply with and shall have no
liability in respect of any term, condition or limitation set forth in any such
Section or Article, whether directly or indirectly, by reason of any reference
elsewhere herein or in such Defeased Securities to any such Section or Article
or by reason of any reference in any such Section or Article to any other
provision herein or in any other document and such omission to comply shall not
constitute a Default or an Event of Default under Section 5.1(c), (d) or (e),
but, except as specified above, the remainder of this Indenture and such
Defeased Securities shall be unaffected thereby.
Section 4.4. Conditions to Defeasance or Covenant Defeasance.
The following shall be the conditions to application of either Section 4.2
or Section 4.3 to the Defeased Securities:
(1) The Company shall irrevocably have deposited or caused to be
deposited with the Trustee as trust funds in trust for the purpose of making the
following payments, specifically pledged as security for, and dedicated solely
to, the benefit of the
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Holders of such Securities, (a) United States dollars in an amount, (b) U.S.
Government Obligations which through the scheduled payment of principal and
interest in respect thereof in accordance with their terms will provide, not
later than one day before the due date of any payment, money in an amount, or
(c) a combination thereof, in such amounts as will be sufficient, as reflected
in the written report of a nationally recognized firm of independent public
accountants or a nationally recognized investment banking firm delivered to the
Trustee, to pay and discharge (and which shall be applied by the Trustee to pay
and discharge) the principal of, premium, if any, and interest on the Defeased
Securities on the Stated Maturity (or on any date after __________, 2000 (such
date being referred to as the "Defeasance Redemption Date"), if prior to
electing either defeasance or covenant defeasance, the Company has delivered to
the Trustee an irrevocable notice to redeem all of the outstanding Securities on
the Defeasance Redemption Date) of such principal or installment of interest;
provided that the Trustee (or such qualifying trustee) shall have been
irrevocably instructed to apply such United States dollars or the proceeds of
such U.S. Government Obligations to said payments with respect to the
Securities. For this purpose, "U.S. Government Obligations" means securities
that are (i) direct obligations of the United States of America for the timely
payment of which its full faith and credit is pledged or (ii) obligations of a
Person controlled or supervised by and acting as an agency or instrumentality of
the United States of America the timely payment of which is unconditionally
guaranteed as a full faith and credit obligation by the United States of
America, which, in either case, are not callable or redeemable at the option of
the issuer thereof, and shall also include a depository receipt issued by a bank
(as defined in Section 3(a)(2) of the Securities Act), as custodian with respect
to any such U.S. Government Obligation or a specific payment of principal of or
interest on any such U.S. Government Obligation held by such custodian for the
account of the holder of such depository receipt, provided that (except as
required by law) such custodian is not authorized to make any deduction from the
amount payable to the holder of such depository receipt from any amount received
by the custodian in respect of the U.S. Government Obligation or the specific
payment of principal of or interest on the U.S.
Government Obligation evidenced by such depository receipt.
(2) In the case of an election under Section 4.2, the Company shall
have delivered to the Trustee an Opinion of Independent Counsel in the United
States to the effect that (A) the Company has received from, or there has been
published by, the Internal Revenue Service a ruling or (b) since the date of
this Indenture, there has been a change in the applicable Federal income tax
law, in either case to the effect that the Holders of the Outstanding Securities
will not recognize income, gain or loss for Federal income tax purposes as a
result of such defeasance and will be subject to Federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such defeasance had not occurred.
(3) In the case of an election under Section 4.3, the Company shall
have delivered to the Trustee an Opinion of Independent Counsel in the United
States to the effect that the Holders of the Outstanding Securities will not
recognize income, gain or loss for Federal income tax purposes as a result of
such covenant defeasance and will be subject to Federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such covenant defeasance had not occurred.
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(4) No Default or Event of Default shall have occurred and be
continuing on the date of such deposit;
(5) Such defeasance or covenant defeasance shall not cause the Trustee
to have a conflicting interest with respect to any securities of the Company.
(6) Such defeasance or covenant defeasance shall not result in a
breach or violation of, or constitute a Default under, this Indenture or any
other material agreement or instrument to which the Company is a party or by
which it is bound.
(7) The Company shall have delivered to the Trustee an Opinion of
Independent Counsel in the United States to the effect that (A) the trust funds
will not be subject to any rights of holders of Senior Indebtedness, including
without limitation, those arising under this Indenture and (B) the defeasance
trust does not violate the Investment Company Act of 1940 and after the passage
of 123 days following the deposit the trust fund will not be subject to the
effect of sections 547 and 550 of the United States Bankruptcy Code or section
15 of the New York Debtor and Creditor Law.
(8) The Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the intent
of preferring the holders of the Securities over the other creditors of the
Company or with the intent of defeating, hindering, delaying or defrauding
creditors of the Company or others.
(9) No event or condition shall exist on the date of such deposit that
would prevent the Company from making payments of the principal of, premium, if
any, and interest on the Securities on the date of such deposit or at any time
ending on the 123rd day after the date of such deposit.
(10) The Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Independent Counsel, each to the effect that all
conditions precedent provided for relating to either the defeasance under
Section 4.2 or the covenant defeasance under Section 4.3 (as the case may be)
have been complied with as contemplated by this Section 4.4.
Opinions of Counsel required to be delivered under this Section may have
qualifications customary for opinions of the type required and counsel
delivering such Opinions of Counsel may rely on certificates of the Company or
government or other officials customary for opinions of the type required, which
certificates shall be limited to matters of fact, including that various
financial covenants have been complied with.
Section 4.5. Deposited Money and U.S. Government Obligations to Be Held in
Trust; Other Miscellaneous Provisions.
Subject to the provisions of the last paragraph of Section 10.3, all United
States dollars and U.S. Government Obligations (including the proceeds thereof)
deposited with the Trustee pursuant to Section 4.4 in respect of the Defeased
Securities shall be held in trust
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and applied by the Trustee, in accordance with the provisions of such Securities
and this Indenture, to the payment, either directly or through any Paying Agent
as the Trustee may determine, to the Holders of such Securities of all sums due
and to become due thereon in respect of principal, premium, if any, and
interest, but such money need not be segregated from other funds except to the
extent required by law.
The Company shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the U.S. Government Obligations
deposited pursuant to Section 4.4 or the principal and interest received in
respect thereof, other than any such tax, fee or other charge which by law is
for the account of the Holders of the Defeased Securities.
Anything in this Article IV to the contrary notwithstanding, the Trustee
shall deliver or pay to the Company from time to time upon Company Request any
United States dollars or U.S. Government Obligations held by it as provided in
Section 4.4 which, in the opinion of a nationally recognized firm of independent
public accountants or nationally recognized investment banking firm expressed in
a written report delivered to the Trustee, are in excess of the amount thereof
which would then be required to be deposited to effect defeasance or covenant
defeasance. In the event of an error in any calculation resulting in a
withdrawal hereunder, the Company shall deposit an amount equal to the amount
erroneously withdrawn as promptly as practicable after becoming aware of such
error.
Section 4.6. Reinstatement.
If the Trustee or Paying Agent is unable to apply any United States dollars
or U.S. Government Obligations in accordance with Section 4.2 or 4.3, as the
case may be, by reason of any order or judgment of any court or governmental
authority enjoining, restraining or otherwise prohibiting such application, then
the Company's obligations under this Indenture and the Securities shall be
revived and reinstated as though no deposit had occurred pursuant to Section 4.2
or 4.3, as the case may be, until such time as the Trustee or Paying Agent is
permitted to apply all such United States dollars or U.S. Government Obligations
in accordance with Section 4.2 or 4.3, as the case may be; provided, however,
that (a) if the Company makes any payment to the Trustee or Paying Agent of
principal, premium, if any, or interest on any Security following the
reinstatement of its obligations, the Trustee or Paying Agent shall promptly pay
any such amount to the Holders of the Securities and the Company shall be
subrogated to the rights of the Holders of such Securities to receive such
payment from the United States dollars and U.S. Government Obligations held by
the Trustee or Paying Agent and (b) the Trustee or Paying Agent shall return all
such United States dollars and U.S. Government Obligations to the Company
promptly after receiving a Company Request therefor at any time, if the Trustee
or Paying Agent receives written notice from the Company that such reinstatement
of the Company's obligations has occurred and continues to be in effect at such
time.
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ARTICLE V
REMEDIES
Section 5.1. Events of Default.
"Event of Default," wherever used herein, means any one of the following
events (whatever the reason for such Event of Default and whether it shall be
voluntary or involuntary or be effected by operation of law or pursuant to any
judgment, decree or order of any court or any order, rule or regulation of any
administrative or governmental body);
(a) there shall be a default in the payment of any interest on any
Security when it becomes due and payable, and such default shall continue for a
period of 30 days;
(b) there shall be a default in the payment of the principal of or
premium, if any, on any Security at its Stated Maturity (upon acceleration,
optional or mandatory redemption, repurchase pursuant to a Change of Control
Offer, an offer in respect of Excess Proceeds or otherwise);
(c) (i) there shall be a default in the performance, or breach, of any
covenant or agreement of the Company under this Indenture (other than a default
in the performance, or breach, of a covenant or agreement which is specifically
dealt with in Section 5.1(a) or (b) or in clauses (ii), (iii) or (iv) of this
Section 5.1(c)) and such default or breach shall continue for a period of 30
days after written notice of such failure requiring the Company to remedy the
same has been given, by certified mail, (x) to the Company by the Trustee or (y)
to the Company and the Trustee by the Holders of at least 25% in aggregate
principal amount of the Outstanding Securities; (ii) there shall be a default in
the performance or breach of the provisions of Article VIII; (iii) the Company
shall have failed to make or consummate an Offer in accordance with the
provisions of Section 10.12 or (iv) the Company shall have failed to make or
consummate a Change of Control Offer in accordance with the provisions of
Section 10.13;
(d) (i) any default in the payment of the principal, premium, if any,
or interest on any Indebtedness shall have occurred under any agreements,
indentures or instruments under which the Company or any Subsidiary then has
outstanding Indebtedness in excess of $5 million when the same shall become due
and payable and continuation of such default after any applicable grace period
and, if not already matured at its final maturity in accordance with its terms,
the holder of such Indebtedness shall have no right to accelerate such
Indebtedness or (ii) an event of default as defined in any of the agreements,
indentures or instruments described in clause (i) of this Section 5.1(d) shall
have occurred and the Indebtedness thereunder, if not already matured at its
final maturity in accordance with its terms, shall have been accelerated;
(e) one or more judgments, orders or decrees for the payment of money
in excess of $2.5 million, either individually or in the aggregate (net of
amounts for
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which an insurance company has agreed that it is liable) shall be entered
against the Company or any Subsidiary or any of their respective properties and
shall not be discharged and either (i) any creditor shall have commenced an
enforcement proceeding upon such judgment, order or decree or (ii) there shall
have been a period of 90 consecutive days during which a stay of enforcement of
such judgment or order, by reason of an appeal or otherwise, shall not be in
effect;
(f) there shall have been the entry by a court of competent
jurisdiction of (i) a decree or order for relief in respect of the Company or
any Material Subsidiary in an involuntary case or proceeding under any
applicable Bankruptcy Law or (ii) a decree or order adjudging the Company or any
Material Subsidiary bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment or composition of or in respect of the Company or any
Material Subsidiary under any applicable Federal or state law, or appointing a
custodian, receiver, liquidator, assignee, trustee, sequestrator (or other
similar official) of the Company or any Material Subsidiary or of any
substantial part of its property, or ordering the winding up or liquidation of
its affairs, and any such decree or order for relief shall continue to be in
effect, or any such other decree or order shall be unstayed and in effect, for a
period of 90 consecutive days;
(g) (i) the Company or any Material Subsidiary commences a voluntary
case or proceeding under any applicable Bankruptcy Law or any other case or
proceeding to be adjudicated bankrupt or insolvent, (ii) the Company or any
Material Subsidiary consents to the entry of a decree or order for relief in
respect of the Company or such Material Subsidiary in an involuntary case or
proceeding under any applicable Bankruptcy Law or to the commencement of any
bankruptcy or insolvency case or proceeding against it, (iii) the Company or any
Material Subsidiary files a petition or answer or consent seeking reorganization
or relief under any applicable Federal or state law, (iv) the Company or any
Material Subsidiary (A) consents to the filing of such petition or the
appointment of, or taking possession by, a custodian, receiver, liquidator,
assignee, trustee, sequestrator, or similar official of the Company or such
Material Subsidiary or of any substantial part of its property, (B) makes an
assignment for the benefit of creditors or (C) admits in writing its inability
to pay its debts generally as they become due or (v) the Company or any Material
Subsidiary takes any corporate action in furtherance of any such actions in this
Section 5.1(g);
(h) any holder or holders of at least $5 million in aggregate
principal amount of Indebtedness of the Company or any Subsidiary after a
default under such Indebtedness shall notify the Trustee of the intended sale or
disposition of any assets of the Company or any Subsidiary that have been
pledged to or for the benefit of such holder or holders to secure such
Indebtedness or shall commence proceedings, or take any action (including by way
of set-off), to retain in satisfaction of such Indebtedness or to collect on,
seize, dispose of or supply in satisfaction of Indebtedness, assets of the
Company or any Subsidiary (including funds on deposit or held pursuant to
lock-box and other similar arrangements); or
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(i) the Company shall fail to redeem the Existing Notes within 45 days
after the date of the original issuance of the Securities.
Section 5.2. Acceleration of Maturity; Rescission and Annulment.
If an Event of Default (other than an Event of Default specified in
Sections 5.1(f) and (g)) occurs and is continuing, the Trustee or the Holders of
not less than 25% in aggregate principal amount of the Outstanding Securities
may declare all the Securities to be due and payable immediately in an amount
equal to the principal amount of the Outstanding Securities, together with
accrued and unpaid interest, if any, to the date the Securities shall have
become due and payable, by a notice in writing to the Company (and to the
Trustee, if given by Holders) and thereupon the Trustee may, at its discretion,
proceed to protect and enforce the rights of the Holder of the Securities by
appropriate judicial proceeding. If an Event of Default specified in Section
5.1(f) or (g) occurs and is continuing, then all the Securities shall ipso facto
become and be immediately due and payable, in an amount equal to the principal
amount of the Securities, together with accrued and unpaid interest, if any, to
the date the Securities become due and payable, without any declaration or other
act on the part of the Trustee or any Holder.
At any time after such declaration of acceleration has been made and before
a judgment or decree for payment of the money due has been obtained by the
Trustee as provided hereinafter in this Article, the Holders of at least a
majority in aggregate principal amount of the Outstanding Securities, by written
notice to the Company and the Trustee, may rescind and annul such declaration
and its consequences if:
(a) the Company has paid or deposited with the Trustee a sum
sufficient to pay:
(i) all sums paid or advanced by the Trustee under Section 6.6 and the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel,
(ii) all overdue interest on all Securities, and
(iii) to the extent that payment of such interest is lawful, interest
upon overdue interest at the rate borne by the Securities; and
(b) all Events of Default, other than the non-payment of principal of
the Securities which have become due solely by such declaration of acceleration,
have been cured or waived as provided in Section 5.13.
No such rescission shall affect any subsequent Default or impair any right
consequent thereon.
Section 5.3. Collection of Indebtedness and Suits for Enforcement by
Trustee.
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The Company covenants that if:
(a) default is made in the payment of any interest on any Security
when such interest becomes due and payable and such default continues for a
period of 30 days, or
(b) default is made in the payment of the principal of or premium, if
any, on any Security at the Stated Maturity (upon acceleration, optional or
mandatory redemption, required repurchase or otherwise) thereof,
the Company will, upon demand of the Trustee, pay to it, for the benefit of the
Holders of such Securities the whole amount then due and payable on such
Securities for principal and premium, if any, and interest, with interest upon
the overdue principal and premium, if any, and, to the extent that payment of
such interest shall be legally enforceable, upon overdue installments of
interest, at the rate borne by the Securities.
If the Company fails to pay such amounts forthwith upon such demand, the
Trustee, in its own name and as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid and may
prosecute such proceeding to judgment or final decree, and may enforce the same
against the Company or any other obligor upon the Securities and collect the
moneys adjudged or decreed to be payable in the manner provided by law out of
the property of the Company or any other obligor upon the Securities, wherever
situated.
If an Event of Default occurs and is continuing, the Trustee may in its
discretion proceed to protect and enforce its rights and the rights of the
Holders under this Indenture by such appropriate private or judicial proceedings
as the Trustee shall deem most effectual to protect and enforce such rights, and
may enforce any other proper remedy, subject however to Section 5.12.
The rights and remedies under this Section 5.3 are in addition to the other
rights and remedies under this Article V.
Section 5.4. Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
similar judicial proceeding relative to the Company or any other obligor upon
the Securities or the property of the Company or of such other obligor or their
creditors, the Trustee (irrespective of whether the principal of the Securities
shall then be due and payable as therein expressed or by declaration or
otherwise and irrespective of whether the Trustee shall have made any demand on
the Company for the payment of overdue principal or interest) shall be entitled
and empowered, by intervention in such proceeding or otherwise:
(a) to file and prove a claim for the whole amount of principal, and
premium, if any, and interest owing and unpaid in respect of the Securities and
to file such other papers or documents as may be necessary or advisable in order
to have the claims of
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the Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and of the
Holders allowed in such judicial proceeding; and
(b) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
similar official in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay the
Trustee any amount due if for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 6.6.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment, composition or other similar
arrangement affecting the Securities or the rights of any Holder thereof, or to
authorize the Trustee to vote in respect of the claim of any Holder in any such
proceeding.
Section 5.5. Trustee May Enforce Claims Without Possession of Securities.
All rights of action and claims under this Indenture or the Securities may
be prosecuted and enforced by the Trustee without the possession of any of the
Securities or the production thereof in any proceeding relating thereto, and any
such proceeding instituted by the Trustee shall be brought in its own name and
as trustee of an express trust, and any recovery of judgment shall, after
provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of the Holders of the Securities in respect of which judgment
has been recovered.
Section 5.6. Application of Money Collected.
Any money collected by the Trustee pursuant to this Article or otherwise on
behalf of the Holders or the Trustee pursuant to this Article or through any
proceeding or any arrangement or restructuring in anticipation or in lieu of any
proceeding contemplated by this Article shall be applied, subject to the
applicable law, in the following order, at the date or dates fixed by the
Trustee and, in case of the distribution of such money on account of principal,
premium, if any, or interest, upon presentation of the Securities and the
notation thereon of the payment if only partially paid and upon surrender
thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under Section
6.6;
SECOND: To the payment in full of the amounts then due and unpaid upon
the Securities for principal, premium, if any, and interest, in respect of which
or for the benefit of which such money has been collected, ratably, without
preference or priority
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of any kind, according to the amounts due and payable on such Securities for
principal, premium, if any, and interest; and
THIRD: The balance, if any, to the Person or Persons entitled thereto
as a court of competent jurisdiction shall direct, or to the Company, provided
that all sums due and owing to the Holders and the Trustee have been paid in
full as required by this Indenture.
Section 5.7. Limitation on Suits.
No Holder of any Securities shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture or the
Securities, or for the appointment of a receiver or trustee, or for any remedy
hereunder, unless:
(a) such Holder has previously given written notice to the Trustee of
a continuing Event of Default;
(b) the Holders of not less than 25% in principal amount of the
Outstanding Securities shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default in its own name as
Trustee hereunder;
(c) such Holder or Holders have offered, and if requested have
provided, to the Trustee an indemnity satisfactory to the Trustee in its sole
discretion against the costs, expenses and liabilities to be incurred in
compliance with such request,
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or seek to obtain priority or preference over any other Holders or
to enforce any right under this Indenture, except in the manner provided in this
Indenture and for the equal and ratable benefit of all the Holders.
Section 5.8. Unconditional Right of Holders to Receive Principal, Premium
and Interest.
Notwithstanding any other provision in this Indenture, the Holder of any
Security shall have the right on the terms stated herein, which is absolute and
unconditional, to receive payment of the principal of, premium, if any, and
(subject to Section 3.7) interest on such Security on the respective Stated
Maturities expressed in such Security (or, in the case of redemption, on the
Redemption Date) and to institute suit for the enforcement of any such payment,
and such rights shall not be impaired without the consent of such Holder.
Section 5.9. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to enforce any
right or remedy under this Indenture and such proceeding has been discontinued
or abandoned for any reason, or has been determined adversely to the Trustee or
to such Holder, then and in every
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such case, subject to any determination in such proceeding, (a) the Company and
any other obligor under the Securities, the Trustee and the Holders shall be
restored severally and respectively to their former positions hereunder, and (b)
thereafter all rights and remedies of the Trustee and the Holders shall continue
as though no such proceeding had been instituted.
Section 5.10. Rights and Remedies Cumulative.
Except as provided in Section 3.6, no right or remedy herein conferred upon
or reserved to the Trustee or to the Holders is intended to be exclusive of any
other right or remedy, and every right and remedy shall, to the extent permitted
by law, be cumulative and in addition to every other right and remedy given
hereunder or now or hereafter existing at law or in equity or otherwise. The
assertion or employment of any right or remedy hereunder, or otherwise, shall
not prevent the concurrent assertion or employment of any other appropriate
right or remedy.
Section 5.11. Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any Security to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article or by law to
the Trustee or to the Holders may be exercised from time to time, and as often
as may be deemed expedient, by the Trustee or by the Holders, as the case may
be.
Section 5.12. Control by Holders.
The Holders of not less than a majority in aggregate principal amount of
the Outstanding Securities shall have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred on the Trustee, provided that:
(a) such direction shall not be in conflict with any rule of law or
with this Indenture (including, without limitation, Section 5.7) or expose the
Trustee to personal liability; and
(b) subject to the provisions of Section 315 of the Trust Indenture
Act, the Trustee may take any other action deemed proper by the Trustee which is
not inconsistent with such direction.
Section 5.13. Waiver of Past Defaults.
The Holders of not less than a majority in aggregate principal amount of
the Outstanding Securities may, on behalf of the Holders of all the Securities,
waive any past Default hereunder and its consequences, except a Default:
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(a) in the payment of the principal of, premium, if any, or interest
on any Security, or
(b) in respect of a covenant or provision hereof which under Article
IX cannot be modified or amended without the consent of the Holder of each
Outstanding Security affected by such modification or amendment.
Upon any such waiver, such Default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured, for every purpose
of this Indenture; but no such waiver shall extend to any subsequent or other
Default or impair any right consequent thereon.
Section 5.14. Undertaking for Costs.
All parties to this Indenture agree, and each Holder of any Security by his
acceptance thereof shall be deemed to have agreed, that any court may in its
discretion require, in any suit for the enforcement of any right or remedy under
this Indenture, or in any suit against the Trustee for any action taken,
suffered or omitted by it as Trustee, the filing by any party litigant in such
suit of an undertaking to pay the costs of such suit, and that such court may in
its discretion assess reasonable costs, including reasonable attorney's fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section shall not apply to any suit instituted by the
Trustee, to any suit instituted by any Holder, or group of Holders, holding in
the aggregate more than 10% in principal amount of the Outstanding Securities,
or to any suit instituted by any Holder for the enforcement of the payment of
the principal of, premium, if any, or interest on any Security on or after the
respective Stated Maturities expressed in such Security (or, in the case of
redemption, on or after the Redemption Date).
Section 5.15. Waiver of Stay, Extension or Usury Laws.
Each of the Company and any other obligor under the Securities covenants
(to the extent enforceable under law) that it will not at any time insist upon,
or plead, or in any manner whatsoever claim or take the benefit or advantage of,
the automatic stay under section 362 of the United States Bankruptcy Code or any
other stay or extension law or any usury or other similar law wherever enacted,
now or at any time hereafter in force, which would prohibit or forgive the
Company or any other obligor under the Securities from paying all or any portion
of the principal of, premium, if any, or interest on the Securities contemplated
herein or in the Securities or which may affect the covenants or the performance
of this Indenture; and each of the Company and any other obligor under the
Securities (to the extent that it may lawfully do so) hereby expressly waives
all benefit or advantage of any such law, and covenants that it will not hinder,
delay or impede the execution of any power herein granted to the Trustee, but
will suffer and permit the execution of every such power as though no such law
had been enacted.
Section 5.16. Remedies Subject to Applicable Law.
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All rights, remedies and powers provided by this Article may be exercised
only to the extent that the exercise thereof does not violate any applicable
provision of law in the premises, and all the provisions of this Indenture are
intended to be subject to applicable mandatory provisions of law which may be
controlling in the premises and to be limited to the extent necessary so that
they will not render this Indenture invalid, unenforceable or not entitled to be
recorded, registered or filed under the provisions of any applicable law.
ARTICLE VI
THE TRUSTEE
Section 6.1. Notice of Defaults.
Within 30 days after a Responsible Officer of the Trustee receives notice
of the occurrence of any Default, the Trustee shall transmit by mail to all
Holders or any other persons entitled to receive reports pursuant to Trust
Indenture Act Section 313(c) notice of such Default, unless such Default shall
have been cured or waived. Except in the case of a Default or Event of Default
in payment of the principal of, premium, if any, or interest on any Security,
the Trustee may withhold and shall be protected in withholding such notice if
and so long as the board of directors of the Trustee, the executive committee of
the board of directors of the Trustee or a committee of Responsible Officers of
the Trustee in good faith determines that withholding the notice is in the
interests of the Holders; provided that the Trustee shall have no obligation to
present such question for determination by its board of directors or any such
committee.
Section 6.2. Certain Rights of Trustee.
Subject to the provisions of Trust Indenture Act Section 315(a) through
315(d):
(a) the Trustee, in the absence of willful misconduct or negligence on
its part, may rely conclusively on, and shall be protected in acting or
refraining from acting upon, any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture,
security, other evidence of indebtedness or other paper or document believed by
it to be genuine and to have been signed or presented by the proper party or
parties;
(b) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any resolution
of the Board of Directors may be sufficiently evidenced by a Board Resolution;
(c) wherever in the administration of this Indenture the Trustee shall
deem it desirable that a matter be proved or established prior to the taking,
suffering or omitting of any action hereunder, the Trustee (unless other
evidence be herein specifically prescribed) in the absence of bad faith or
negligence on its part, may rely conclusively upon
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an Officers' Certificate and/or an Opinion of Counsel that conforms to the
requirements of this Indenture;
(d) the Trustee may consult with counsel and any written advice of
such counsel or any Opinion of Counsel shall be full and complete authorization
and protection in respect of any action taken, suffered or omitted by it
hereunder in good faith without negligence and in reliance thereon in accordance
with such advice or Opinion of Counsel;
(e) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Holders pursuant to this Indenture, unless such Holders shall have
offered to the Trustee security or indemnity satisfactory to the Trustee in its
sole discretion against the costs, expenses and liabilities which might be
incurred therein or thereby in compliance with such request or direction;
(f) the Trustee shall not be liable for any action taken or omitted by
it in good faith and believed by it to be authorized or within the discretion,
rights or powers conferred upon it by this Indenture other than any liabilities
arising out of the negligence or willful misconduct of the Trustee;
(g) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, approval,
appraisal, bond, debenture, security, coupon, security or other paper or
document; but the Trustee in its discretion may make such further inquiry or
investigation in accordance with any of the provisions of this Indenture into
such facts or matters as it may see fit, and, if the Trustee shall determine to
make such further inquiry or investigation, it shall be entitled to examine such
relevant books, records and premises of the Company as may be reasonable,
personally or by agent or attorney;
(h) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent (other than an agent who is an employee of
the Trustee) or attorney appointed with due care by it hereunder; and
(i) no provision of this Indenture shall require the Trustee to expend
or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder, or in the exercise of any of its
rights and powers if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it.
Section 6.3. Trustee Not Responsible for Recitals, Dispositions of
Securities or Application of Proceeds Thereof.
The recitals contained herein and in the Securities, except the Trustee's
certificates of authentication, shall be taken as the statements of the Company,
and the Trustee assumes
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no responsibility for their correctness. The Trustee makes no representations as
to the validity or sufficiency of this Indenture or the Securities, except that
the Trustee represents that it is duly authorized to execute and deliver this
Indenture, authenticate the Securities and perform its obligations hereunder and
that the statements made by it in a Statement of Eligibility and Qualification
on Form T-1 supplied to the Company are true and accurate subject to the
qualifications set forth therein. The Trustee shall not be accountable for the
use or application by the Company of Securities or the proceeds thereof.
Section 6.4. Trustee and Agents May Hold Securities; Collections; etc.
The Trustee, any Paying Agent, Security Registrar or any other agent of the
company, in its individual or any other capacity, may become the owner or
pledgee of Securities, with the same rights it would have if it were not the
Trustee, Paying Agent, Security Registrar or such other agent and, subject to
Trust Indenture Act Sections 310 and 311, may otherwise deal with the Company
and receive, collect, hold and retain collections from the Company with the same
rights it would have if it were not the Trustee, Paying Agent, Security
Registrar or such other agent.
Section 6.5. Money Held in Trust.
All moneys received by the Trustee shall, until used or applied as herein
provided, be held in trust for the purposes for which they were received, but
need not be segregated from other funds except to the extent required by
mandatory provisions of law. Except for funds or securities deposited with the
Trustee pursuant to Article IV, the Trustee shall only be required to invest
moneys received by the Trustee, until used with the directions of the Company.
Section 6.6. Compensation and Indemnification of Trustee and Its Prior
Claim.
The Company covenants and agrees to pay to the Trustee from time to time,
and the Trustee shall be entitled to, reasonable compensation for all services
rendered by it hereunder (which, to the extent lawful, shall not be limited by
any provision of law in regard to the compensation of a trustee of an express
trust) and the Company covenants and agrees to reimburse the Trustee and each
predecessor Trustee upon its request for all reasonable expenses, disbursements
and advances incurred or made by or on behalf of it in accordance with any of
the provisions of this Indenture (including the reasonable compensation and the
expenses and disbursements of its counsel and of all agents and other persons
not regularly in its employ) except any such expense, disbursement or advance as
may arise from its negligence, bad faith or willful misconduct. When the Trustee
incurs expenses and renders services in connection with an Event of Default
specified in Section 5.1(f) or Section 5.1(g), the expenses (including the
reasonable compensation and the expenses and disbursements of its counsel) and
the compensation for the services are intended to constitute expenses of
administration under any applicable Federal or state bankruptcy, insolvency or
other similar law. The Company also covenants to indemnify the Trustee and each
predecessor Trustee, and their respective officers, agents and employees for,
and to hold them harmless against, any claim, loss, liability, tax, assessment
or other governmental charge (other than taxes
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applicable to the Trustee's compensation hereunder) or expense incurred without
negligence, bad faith or willful misconduct on its part, arising out of or in
connection with the acceptance or administration of this Indenture or the trusts
hereunder and its duties hereunder, including enforcement of this Section 6.6
and also including any liability which the Trustee may incur as a result of the
Company's failure to withhold, pay or report any tax, assessment or other
governmental charge, and the costs and expenses of defending itself against or
investigating any claim of liability in the premises. The obligations of the
Company under this Section to compensate and indemnify the Trustee and each
predecessor Trustee and to pay or reimburse the Trustee and each predecessor
Trustee for expenses, disbursements and advances shall constitute an additional
obligation hereunder and shall survive the satisfaction and discharge of this
Indenture and the resignation or removal of the Trustee and each predecessor
Trustee.
Section 6.7. Conflicting Interests.
The Trustee shall comply with the provisions of Section 310(b) of the Trust
Indenture Act.
Section 6.8. Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee hereunder which shall be eligible to
act as Trustee under Trust Indenture Act Section 310(a) and which shall have a
combined capital and surplus of at least $100,000,000, and have a Corporate
Trust Office in The City of New York to the extent there is such an institution
eligible and willing to serve. If the Trustee does not have an office in The
City of New York, the Trustee shall appoint an agent in The City of New York
reasonably acceptable to the Company to conduct any activities which the Trustee
is required under this Indenture to conduct in The City of New York. The Trustee
may not rescind any such agency without the consent of the Company, which
consent may not be unreasonably withheld, unless the Trustee appoints a
satisfactory replacement or has a Corporate Trust Office in The City of New
York. If such corporation publishes reports of condition at least annually,
pursuant to law or to the requirements of Federal, state, territorial or
District of Columbia supervising or examining authority, then for the purposes
of this Section, the combined capital and surplus of such corporation shall be
deemed to be its combined capital and surplus as set forth in its most recent
report of condition so published. If at any time the Trustee shall cease to be
eligible in accordance with the provisions of this Section, the Trustee shall
resign immediately in the manner and with the effect hereinafter specified in
this Article.
Section 6.9. Resignation and Removal; Appointment of Successor Trustee.
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee under Section 6.10.
(b) The Trustee, or any trustee or trustees hereafter appointed, may
at any time resign by giving written notice thereof to the Company. Upon
receiving such notice of
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resignation, the Company shall use its best efforts to promptly appoint a
successor Trustee by Board Resolution or written instrument executed by
authority of the Board of Directors of the Company, a copy of which shall be
delivered to the resigning Trustee and a copy to the successor Trustee. If an
instrument of acceptance by a successor Trustee shall not have been delivered to
the Trustee within 30 days after the giving of such notice of resignation, the
resigning Trustee may, or any Holder who has been a bona fide Holder of a
Security for at least six months may, on behalf of himself and all others
similarly situated, petition any court of competent jurisdiction for the
appointment of a successor Trustee. Such court may thereupon, after such notice,
if any, as it may deem proper, appoint a successor Trustee.
(c) The Trustee may be removed at any time by an Act of the Holders of
not less than a majority in aggregate principal amount of the Outstanding
Securities, delivered to the Trustee and to the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with the provisions of Trust
Indenture Act Section 310(b) after written request therefor by the Company
or by any Holder who has been a bona fide Holder of the Security for at
least six months, or
(2) the Trustee shall cease to be eligible under Section 6.9 and shall
fail to resign after written request therefor by the Company or by any such
Holder, or
(3) the Trustee shall become incapable of acting or shall be adjudged
a bankrupt or insolvent, or a receiver of the Trustee or of its property
shall be appointed or any public officer shall take charge or control of
the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation; then, in any case, (i) the
Company by a Board Resolution may remove the Trustee, or (ii) subject to
Section 5.14, any Holder of any security who has been a bona fide Holder of
a Security for at least six months may, on behalf of himself and all others
similarly situated, petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee. Such
court may thereupon, after such notice, if any, as it may deem proper and
prescribe, remove the Trustee and appoint a successor Trustee.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of the Trustee for any cause,
the Company, by a Board Resolution or written instrument executed by authority
of the Board of Directors of the Company, shall use its best efforts to promptly
appoint a successor Trustee and shall comply with the applicable requirements of
Section 6.11. If, within one year after such resignation, removal or
incapability, or the occurrence of such vacancy, the Company or a court of
competent jurisdiction has not appointed a successor Trustee, a successor
Trustee shall be appointed by Act of the Holders of a majority in principal
amount of the Outstanding Securities delivered to the Company and the retiring
Trustee, and the successor Trustee so appointed shall, forthwith upon its
acceptance of such appointment, become the successor Trustee and supersede the
successor Trustee appointed by the Company. If no successor Trustee shall have
been so appointed by the Company or the Holders of the Securities and
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accepted appointment in the manner hereinafter provided, any Holder of a
Security who has been a bona fide Holder for at least six months may, subject to
Section 5.14, on behalf of himself and all others similarly situated, petition
any court of competent jurisdiction for the appointment of a successor Trustee.
(f) The Company shall give notice of each resignation and each removal
of the Trustee and each appointment of a successor Trustee by mailing written
notice of such event by first-class mail, postage prepaid, to the Holders of
Securities as their names and addresses appear in the Security Register. Each
notice shall include the name of the successor Trustee and the address of its
Corporate Trust Office or agent hereunder.
Section 6.10. Acceptance of Appointment by Successor.
In case of the appointment hereunder of a successor Trustee with respect to
the Securities, every such successor Trustee so appointed shall execute,
acknowledge and deliver to the Company and to the retiring Trustee an instrument
accepting such appointment, and thereupon the resignation or removal of the
retiring Trustee shall become effective and such successor Trustee, without any
further act, deed or conveyance, shall become vested with all rights, powers,
trusts and duties of the retiring Trustee under this Indenture; but,
nevertheless, on the written request of the Company or the successor Trustee,
upon payment of its charges then unpaid, such retiring Trustee shall pay over to
the successor Trustee all moneys at the time held by it hereunder and shall
execute and deliver an instrument transferring to such successor Trustee all
such rights, powers, duties and obligations.
Upon request of any such successor Trustee, the Company shall execute any
and all instruments for more fully and certainly vesting in and confirming to
such successor Trustee all such rights and powers. Any Trustee ceasing to act
shall, nevertheless, retain a prior claim upon all property or funds held or
collected by such Trustee or such successor Trustee to secure any amounts then
due such Trustee pursuant to the provisions of Section 6.6.
No successor Trustee with respect to the Securities shall accept
appointment as provided in this Section 6.10 unless at the time of such
acceptance such successor Trustee shall be eligible to act as Trustee under the
provisions of Trust Indenture Act Section 310(a) and this Article VI and shall
have a combined capital and surplus of at least $100,000,000 and have a
Corporate Trust Office or an agent selected in accordance with Section 6.8 in
The City of New York.
Upon acceptance of appointment by any successor Trustee as provided in this
Section 6.10, the Company shall give notice thereof to the Holders of the
Securities, by mailing such notice to such Holders at their addresses as they
shall appear on the Security Register. If the acceptance of appointment is
substantially contemporaneous with the resignation, then the notice called for
by the preceding sentence may be combined with the notice called for by Section
6.10. If the Company fails to give such notice within 10 days after acceptance
of appointment by the successor Trustee, the successor Trustee shall cause such
notice to be given at the expense of the Company.
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Section 6.11. Merger, Conversion, Consolidation or Succession to Business.
Any corporation into which the Trustee may be merged or converted or with
which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto; provided that such corporation shall be eligible
under Trust Indenture Act Section 310(a) and this Article VI and shall have a
combined capital and surplus of at least $100,000,000.
In case at the time such successor to the Trustee shall succeed to the
Trusts created by this Indenture any of the Securities shall have been
authenticated but not delivered, any such successor to the Trustee may adopt the
certificate of authentication of any predecessor Trustee and deliver such
Securities so authenticated; and, in case at that time any of the Securities
shall not have been authenticated, any successor to the Trustee may authenticate
such Securities either in the name of any predecessor hereunder or in the name
of the successor Trustee; and in all such cases such certificate shall have the
full force which it is anywhere in the Securities or in this Indenture provided
that the certificate of the Trustee shall have; provided that the right to adopt
the certificate of authentication of any predecessor Trustee or to authenticate
Securities in the name of any predecessor Trustee shall apply only to its
successor or successors by merger, amalgamation, conversion or consolidation.
Section 6.12. Preferential Collection of Claims Against Company.
If and when the Trustee shall be or become a creditor of the Company (or
other obligor under the Securities), the Trustee shall be subject to the
provisions of the Trust Indenture Act regarding the collection of claims against
the Company (or any such other obligor). In particular, the Trustee shall comply
with the Trust Indenture Act Section 311(a), excluding any creditor relationship
listed in Trust Indenture Act Section 311(b). A Trustee who has resigned or been
removed shall be subject to Trust Indenture Act Section 311(a) to the extent
indicated therein.
ARTICLE VII
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
Section 7.1. Company to Furnish Trustee Names and Addresses of Holders.
The Company will furnish or cause to be furnished to the Trustee:
(a) semiannually, not more than 10 days after each Regular Record
Date, a list, in such form as the Trustee may reasonably require, of the names
and addresses of the Holders as of such Regular Record Date; and
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(b) at such other times as the Trustee may reasonably request in
writing, within 30 days after receipt by the Company of any such request, a list
of similar form and content to that in Subsection (a) hereof as of a date not
more than 15 days prior to the time such list is furnished;
provided, however, that if and so long as the Trustee shall be the Security
Registrar, no such list need be furnished.
Section 7.2. Disclosure of Names and Addresses of Holders.
Holders may communicate pursuant to Trust Indenture Act Section 312(b) with
other Holders with respect to their rights under this Indenture or the
Securities, and the Trustee shall comply with Trust Indenture Act Section
312(b). The Company, the Trustee, the Registrar and any other Person shall have
the protection of Trust Indenture Act Section 312(c). Further, every Holder of
Securities, by receiving and holding the same, agrees with the Company and the
Trustee that neither the Company nor the Trustee nor any agent of either of them
shall be held accountable by reason of the disclosure of any information as to
the names and addresses of the Holders in accordance with Trust Indenture Act
Section 312, regardless of the source from which such information was derived,
and that the Trustee shall not be held accountable by reason of mailing any
material pursuant to a request made under Trust Indenture Action Section 312.
Section 7.3. Reports by Trustee.
(a) Within 60 days after May 15 of each year commencing with the first
May 15 after the issuance of Securities, the Trustee, if so required under the
Trust Indenture Act shall transmit by mail to all Holders in the manner and to
the extent provided in Trust Indenture Act Section 313(c), a brief report dated
as of such May 15 in accordance with and with respect to the matters required by
Trust Indenture Act Section 313(a). The Trustee shall also transmit by mail to
the Holders, in the manner and to the extent provided in Trust Indenture Act
Section 313(c), a brief report in accordance with and with respect to the
matters required by Trust Indenture Act Section 313(b)(2).
(b) A copy of each report transmitted to Holders pursuant to this
Section 7.3 shall, at the time of such transmission, be mailed to the Company
and filed with each stock exchange, if any, upon which the Securities are listed
and also with the Commission.
Section 7.4. Reports by Company.
The Company shall:
(a) file with the Trustee, in accordance with Section 10.17 hereof,
and in any event within 30 days after the Company is required to file the same
with the Commission, copies of the annual reports and of the information,
documents and other reports (or copies of such portions of any of the foregoing
as the Commission may from time to time by rules and regulations prescribe)
which the Company is required to file with the
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Commission pursuant to Section 13 or Section 15(d) of the Exchange Act; or, if
the Company is not required to file information, documents or reports pursuant
to either of said Sections, then it shall (i) deliver to the Trustee annual
audited financial statements of the Company and its Subsidiaries, prepared on a
consolidated basis in conformity with GAAP, within 120 days after the end of
each fiscal year of the Company, and (ii) file with the Trustee and the
Commission, in accordance with, and so long as not prohibited by, the rules and
regulations prescribed from time to time by the Commission, such of the
supplementary and periodic information, documents and reports which may be
required pursuant to Section 13 of the Exchange Act in respect of a security
listed and registered on a national securities exchange as may be prescribed
from time to time in such rules and regulations;
(b) file with the Trustee and the Commission, in accordance with the
rules and regulations prescribed from time to time by the Commission, such
additional information, documents and reports with respect to compliance by the
Company with the conditions and covenants for this Indenture as is required from
time to time by such rules and regulations (including such information,
documents and reports referred to in Trust Indenture Act Section 314(a)); and
(c) within 30 days after the filing thereof with the Trustee, transmit
by mail to all Holders in the manner and to the extent provided in Trust
Indenture Act Section 313(c), such summaries of any information, documents and
reports required to be filed by the Company pursuant to Section 10.18 hereunder
and subsections (a) and (b) of this Section as is required and not prohibited by
rules and regulations prescribed from time to time by the Commission.
ARTICLE VIII
CONSOLIDATION, MERGER, SALE OF ASSETS
Section 8.1. Company May Merge, Consolidate etc., Only on Certain Terms.
The Company shall not, in a single transaction or a series of related
transactions, consolidate with or merge with or into any other Person or sell,
assign, convey, transfer, lease or otherwise dispose of all or substantially all
of its properties and assets to any Person or group of affiliated Persons, or
permit any of its Subsidiaries to enter into any such transaction or
transactions if such transaction or transactions, in the aggregate, would result
in a sale, assignment, conveyance, transfer, lease or disposition of all or
substantially all of the properties and assets of the Company and its
Subsidiaries on a Consolidated basis to any other Person or group of affiliated
Persons, unless: (i) either (a) the Company shall be the continuing corporation
or (b) the Person (if other than the Company) formed by such consolidation or
into which the Company is merged or the Person which acquires by sale,
assignment, conveyance, transfer, lease or disposition of all or substantially
all of the properties and assets of the Company and its Subsidiaries on a
Consolidated basis (the "Surviving Entity") shall be a corporation duly
organized and validly existing under the laws of the United States of America,
any state thereof or the District of Columbia and such
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Person assumes by a supplemental indenture in a form reasonably satisfactory to
the Trustee all the obligations of the Company under the Securities and this
Indenture, and this Indenture shall remain in full force and effect; (ii)
immediately before and immediately after giving effect to such transaction, no
Default or Event of Default shall have occurred and be continuing; (iii)
immediately after giving effect to such transaction, the Consolidated Net Worth
of the Company (or the Surviving Entity if the Company is not the continuing
obligor under the Indenture) is equal to or greater than the Consolidated Net
Worth of the Company immediately prior to such transaction; (iv) immediately
before and immediately after giving effect to such transaction on a pro forma
basis (on the assumption that the transaction occurred on the first day of the
four-quarter period immediately prior to the consummation of such transaction
with the appropriate adjustments with respect to the transaction being included
in such pro forma calculation), the Company (or the Surviving Entity if the
Company is not the continuing obligor under the Indenture) could incur $1.00 of
additional Indebtedness under the provisions of Section 10.8 (other than
Permitted Indebtedness); and (v) the Company shall have delivered, or caused to
be delivered, to the Trustee, in form and substance reasonably satisfactory to
the Trustee, an Officers' Certificate and an Opinion of counsel, each to the
effect that such consolidation, merger, transfer, lease or other transaction and
the supplemental indenture in respect thereto comply with the provisions
described in this Section 8.1 and that all conditions precedent herein provided
for in this Section 8.1 relating to such transaction have been complied with.
Notwithstanding any provision to the contrary contained in this Indenture,
including without limitation the agreements and restrictions contained in this
Article VIII and the agreements and covenants elsewhere contained herein, the
Company shall not be prevented, restricted or limited in any way from merging
with and into Haynes International, Inc.
Section 8.2. Successor Substituted.
Upon any consolidation or merger, or any sale, assignment, conveyance,
transfer, lease or disposition of all or substantially all of the properties and
assets on a Consolidated basis of the Company in accordance with Section 8.1
with respect to which the Company is not the continuing corporation, the
successor Person formed by such consolidation or into which the Company is
merged or the successor Person to which such sale, assignment, conveyance,
transfer, lease or disposition is made shall succeed to, and be substituted for,
and may exercise every right and power of, the Company under this Indenture,
with the same effect as if such successor had been named as the Company herein.
When a successor assumes all the obligations of its predecessor under this
Indenture or the Securities, the predecessor shall be released from those
obligations; provided that, in the case of a transfer by lease, the predecessor
shall not be released from the payment of principal and interest on the
Securities.
Any successor to the Company described in the foregoing paragraph may cause
to be signed, and may issue either in its own name or in the name of the
Company, any or all of the Securities issuable hereunder which theretofore shall
not have been signed by the Company and delivered to the Trustee; and, upon the
order of such successor, instead of the Company, and subject to the terms,
conditions and limitations in this Indenture prescribed, the Trustee shall
authenticate and shall delivered any Securities which previously shall have
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been signed and delivered by the officers of the Company to the Trustee for
authentication, and any Securities which such successor thereafter shall cause
to be signed and delivered to the Trustee for that purpose. All the Securities
so issued shall in all respects have the same legal rank and benefit under this
Indenture as the Securities theretofore or thereafter issued in accordance with
the terms of this Indenture as though all of such Securities had been issued at
the date of the execution of this Indenture.
ARTICLE IX
SUPPLEMENTAL INDENTURES
Section 9.1. Supplemental Indentures and Agreements without Consent of
Holders.
Without the consent of any Holders, the Company and the Trustee, at any
time and from time to time, may enter into one or more indentures supplemental
hereto in form and substance reasonably satisfactory to the Trustee, for any of
the following purposes:
(a) to evidence the succession of another Person to the Company and
the assumption by any such successor of the covenants of the Company herein and
in the Securities;
(b) to add to the covenants of the Company for the benefit of the
Holders, or to surrender any right or power conferred upon the Company in this
Indenture or the Securities;
(c) to cure any ambiguity or to correct or supplement any provision in
this Indenture or the Securities which may be defective or inconsistent with any
other provision in this Indenture or the Securities;
(d) to comply with the requirements of the Commission in order to
effect or maintain the qualification of this Indenture under the Trust Indenture
Act, as contemplated by Section 9.5 or otherwise;
(e) to add a guarantor of the Indenture Obligations;
(f) to evidence and provide the acceptance of the appointment of a
successor Trustee hereunder;
(g) to mortgage, pledge, hypothecate or grant a security interest in
favor of the Trustee for the benefit of the Holders as additional security, for
the payment and performance of the Indenture Obligations, in any property or
assets, including any which are required to be mortgaged, pledged or
hypothecated, or in which a security interest is required to be granted, to the
Trustee pursuant to this Indenture or otherwise; and
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(h) to clarify any other provisions with respect to matters or
questions arising under this Indenture or the Securities; provided that, in each
case, such clarification or provision thus made shall not adversely affect the
interests of the Holders.
Section 9.2. Supplemental Indentures and Agreements with Consent of
Holders.
Except as permitted by Section 9.1, with the consent of the Holders of not
less than a majority in aggregate principal amount of the Outstanding
Securities, by Act of said Holders delivered to the Company and the Trustee, the
Company and the Trustee may (i) enter into an indenture or indentures
supplemental hereto in form and substance reasonably satisfactory to the
Trustee, for the purpose of adding any provisions to or amending, modifying or
changing in any manner or eliminating any of the provisions of this Indenture or
the Securities (including, but not limited to, for the purpose of modifying in
any manner the rights of the Holders under this Indenture or the Securities) or
(ii) waive compliance with any provision in this Indenture or the Securities
(other than waivers of past Defaults covered by Section 5.13 and waivers of
covenants which are covered by Section 10.19); provided, however, that no such
supplemental indenture, agreement or instrument shall, without the consent of
the Holder of each Outstanding Security affected thereby:
(a) change the Stated Maturity of the principal of, or any installment
of interest on, any Security or waive a default in the payment of the principal
or interest on any Security or reduce the principal amount thereof or the rate
of interest thereon or any premium payable upon the redemption thereof, or
change the coin or currency in which the principal of any Security or any
premium or the interest thereon is payable, or impair the right to institute
suit for the enforcement of any such payment after the Stated Maturity thereof;
(b) amend, change or modify the obligation of the Company to make and
consummate an offer in accordance with Section 10.12, including amending,
changing or modifying any of the provisions or definitions with respect thereto;
(c) amend, change or modify the obligation of the Company to make and
consummate an offer in accordance with Section 10.13, including amending,
changing or modifying any of the provisions or definitions with respect thereto;
(d) amend, change or modify the ability of the Company to make and
consummate an offer in accordance with Section 10.14, including amending,
changing or modifying any of the provisions or definitions with respect thereto;
(e) reduce the percentage in principal amount of the Outstanding
Securities, the consent of whose Holders is required for any such supplemental
indenture or the consent of whose Holders is required for any waiver of
compliance with certain provisions of this Indenture or certain Defaults
hereunder and their consequences provided for in this Indenture;
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(f) modify any of the provisions of this Section or Section 5.13 or
10.18, except to increase the percentage of Outstanding Securities required for
such actions or to provide that certain other provisions of this Indenture
cannot be modified or waived without the consent of the Holder of each Security
affected thereby;
(g) except as otherwise permitted under Article VIII, consent to the
assignment or transfer by the Company of any of its rights and obligations under
this Indenture; or
(h) amend or modify any of the provisions of this Indenture in any
manner which subordinates the Securities in right of payment to other
Indebtedness of the Company.
Upon the written request of the Company, accompanied by a copy of a Board
Resolution authorizing the execution of any such supplemental indenture, and
upon the filing with the Trustee of evidence of the consent of Holders as
aforesaid, the Trustee shall join with the Company in the execution of such
supplemental indenture.
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.
Section 9.3. Execution of Supplemental Indentures and Agreements.
In executing, or accepting the additional trusts created by, any
supplemental indenture, agreement or instrument permitted by this Article or the
modifications thereby of the trusts created by this Indenture, the Trustee shall
be entitled to receive, and (subject to Trust Indenture Act Section 315(a)
through 315(d) and Section 6.3 hereof) shall be fully protected in relying upon,
an Opinion of Counsel and an Officers' Certificate to the effect that the
execution of such supplemental indenture, agreement or instrument is authorized
or permitted by this Indenture. The Trustee may, but shall not be obligated to,
enter into any such supplemental indenture, agreement or instrument which
affects the Trustee's own rights, duties or immunities under this Indenture or
otherwise.
Section 9.4. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article, this
Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Securities theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby.
Section 9.5. Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to this Article shall
conform to the requirements of the Trust Indenture Act as then in effect.
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Section 9.6. Reference in Securities to Supplemental Indentures.
Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article IX may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Securities modified so as to conform to any such supplemental indenture, in
the opinion of the Trustee and the Board of Directors, may be prepared and
executed by the Company and authenticated and delivered by the Trustee in
exchange for Outstanding Securities.
Section 9.7. Record Date.
If the Company shall solicit from the Holders any request, demand,
authorization, direction, notice, consent, waiver or other Act, the Company may,
but shall not be obligated to, fix a record date for the purpose of determining
the Holders entitled to consent to any supplemental indenture, agreement or
instrument or any waiver, and shall promptly notify the Trustee of any such
record date. If a record date is fixed, those Persons who were Holders at such
record date (or their duly designated proxies), and only those Persons, shall be
entitled to consent to such supplemental indenture, agreement or instrument or
waiver or to revoke any consent previously given, whether or not such Persons
continue to be Holders after such record date. The record date shall be a date
no more than 30 days prior to the first solicitation of Holders generally in
connection therewith and no later than the date such solicitation is completed.
No such consent shall be valid or effective for more than six months after such
record date. Subject to applicable law, until any supplemental indenture,
agreement, instrument or waiver becomes effective, or a consent to it by a
Holder of a Security shall cease to be valid and effective as set forth in the
preceding sentence, such consent is a continuing consent by the Holder and every
subsequent Holder of a Security or portion of a Security that evidences the same
debt as the consenting Holder's Security.
ARTICLE X
COVENANTS
Section 10.1. Payment of Principal, Premium and Interest.
The Company will duly and punctually pay the principal of, premium, if any,
and interest on the Securities in accordance with the terms of the Securities
and this Indenture.
Section 10.2. Maintenance of Office or Agency.
The Company will maintain in The City of New York, an office or agency
where Securities may be presented or surrendered for payment, where Securities
may be surrendered for registration of transfer or exchange and where notices
and demands to or upon the Company in respect of the Securities and this
Indenture may be served. The office of the agent of the Trustee at
_______________________________________________, New
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York, New York _____ shall be such office or agency of the Company, unless the
Company shall designate and maintain some other office or agency for one or more
of such purposes. The Company will give prompt written notice to the Trustee of
any change in the location of any such office or agency. If at any time the
Company shall fail to maintain any such required office or agency or shall fail
to furnish the Trustee with the address thereof, such presentations, surrenders,
notices and demands may be made or served at the Corporate Trust Office, and the
Company hereby appoints the Trustee as its agent to receive all such
presentations, surrenders, notices and demands.
The Company may from time to time designate one or more other offices or
agencies (in or outside of The City of New York) where the Securities may be
presented or surrendered for any or all such purposes, and may from time to time
rescind such designation; provided, however, that no such designation or
rescission shall in any manner relieve the Company of its obligation to maintain
an office or agency in The City of New York for such purposes. The Company will
give prompt written notice to the Trustee of any such designation or rescission
and any change in the location of any such office or agency.
Section 10.3. Money for Security Payments to be Held in Trust.
The Company will, on or before each due date of the principal of, premium,
if any, or interest on, any Securities, deposit with a Paying Agent (which shall
not be the Company) a sum in same day funds sufficient to pay the principal,
premium, if any, or interest so becoming due, such sum to be held in trust for
the benefit of the Persons entitled to such principal, premium or interest, and
(unless such Paying Agent is the Trustee) the Company will promptly notify the
Trustee of such action or any failure so to act.
The Company will cause each Paying Agent other than the Trustee to execute
and deliver to the Trustee an instrument in which such Paying Agent shall agree
with the Trustee, subject to the provisions of this Section, that such Paying
Agent will:
(a) hold all sums held by it for the payment of the principal of,
premium, if any, or interest on Securities in trust for the benefit of the
Persons entitled thereto until such sums shall be paid to such Persons or
otherwise disposed of as herein provided;
(b) give the Trustee notice of any Default by the Company (or any
other obligor upon the Securities) in the making of any payment of principal,
premium, if any, or interest;
(c) at any time during the continuance of any such Default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so held in
trust by such Paying Agent and account for any funds disbursed; and
(d) acknowledge, accept and agree to comply in all aspects with the
provisions of this Indenture relating to the duties, rights and disabilities of
such Paying Agent.
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The Company may at any time, for the purpose of obtaining the satisfaction
and discharge of this Indenture or for any other purpose, by Company Order
direct any Paying Agent to pay to the Trustee all sums held in trust by such
Paying Agent, such sums to be held by the Trustee upon the same trusts as those
upon which such sums were held by such Paying Agent; and upon such payment by
any Paying Agent to the Trustee, such Paying Agent shall be released from all
further liability with respect to such money.
Any money deposited with the Trustee or any Paying Agent in trust for the
payment of the principal of, premium, if any, or interest on any Security and
remaining unclaimed for two years after such principal and premium, if any, or
interest has become due and payable shall promptly be paid to the Company upon
Company Request; and the Holders of such Security shall thereafter, as an
unsecured general creditor, look only to the Company for payment thereof, and
all liability of the Trustee or such Paying Agent with respect to such trust
money, and all liability of the Company as trustee thereof, shall thereupon
cease; provided, however, that the Trustee or such Paying Agent, before being
required to make any such payment to the Company, may at the expense of the
Company cause to be published once, in The New York Times and The Wall Street
Journal (national edition), notice that such money remains unclaimed and that,
after a date specified therein, which shall not be less than 30 days from the
date of such notification or publication, any unclaimed balance of such money
then remaining will promptly be repaid to the Company.
Section 10.4. Corporate Existence.
Subject to Article VIII, the Company will do or cause to be done all things
necessary to preserve and keep in full force and effect its corporate existence
and related rights and franchises (charter and statutory) of the Company and
each Subsidiary; provided, however, that the Company shall not be required to
preserve any such right or franchise or the corporate existence of any such
Subsidiary if the Board of Directors of the Company shall determine that the
preservation thereof is no longer desirable in the conduct of the business of
the Company and its Subsidiaries as a whole and that the loss thereof would not
reasonably be expected to have a material adverse effect on the ability of the
Company to perform its obligations hereunder; and provided, further, however,
that the foregoing shall not prohibit a sale, transfer or conveyance of a
Subsidiary or any of its assets in compliance with the terms of this Indenture.
Section 10.5. Payment of Taxes and Other Claims.
The Company will pay or discharge or cause to be paid or discharged, on or
before the date the same shall become due and payable, (a) all material taxes,
assessments and governmental charges levied or imposed upon the Company or any
Subsidiary shown to be due on any return of the Company or any Subsidiary or
otherwise assessed or upon the income, profits or property of the Company or any
Security and (b) all material lawful claims for labor, materials and supplies,
which, if unpaid, would by law become a Lien upon the property of the Company or
any Subsidiary, except for any Lien permitted to be incurred under Section
10.11; provided, however, that the Company shall not be required to pay or
discharge or cause to be paid or discharged any such tax, assessment, charge or
claim whose
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amount, applicability or validity is being contested in good faith by
appropriate proceedings properly instituted and diligently conducted and in
respect of which appropriate reserves (in the good faith judgment of management
of the Company) are being maintained in accordance with GAAP consistently
applied.
Section 10.6. Maintenance of Properties.
The Company will cause all material properties owned by the Company or any
Subsidiary or used or held for use in the conduct of its business or the
business of any Subsidiary to be maintained and kept in good condition, repair
and working order (ordinary wear and tear excepted) and supplied with all
necessary equipment and will cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in the judgment of
the Company may be consistent with sound business practice and reasonably
necessary so that the business carried on in connection therewith may be
properly conducted at all times; provided, however, that nothing in this Section
10.6 shall prevent the Company from discontinuing the maintenance of any of such
properties if such discontinuance is, in the judgment of the Company, desirable
in the conduct of the business of the Company and its Subsidiaries and not
reasonably expected to have a material adverse effect on the ability of the
Company to perform its obligations hereunder.
Section 10.7. Insurance.
The Company will at all times keep all of its and its Subsidiaries'
properties which are of an insurable nature reasonably self-insured or insured
with insurers, believed by the Company to be responsible, against loss or damage
to the extent that property of similar character is usually so insured by
corporations similarly situated and owning like properties in the same general
geographic areas in which the Company and its Subsidiaries operate, except where
the failure to do so would not reasonably be expected to have a material adverse
effect on the condition (financial or otherwise), earnings or business affairs
of the Company and its Subsidiaries, taken as a whole.
Section 10.8. Limitation on Indebtedness.
(a) The Company will not, and will not permit any of its Subsidiaries
to, create, issue, assume, guarantee, or otherwise in any manner become directly
or indirectly liable for or with respect to or otherwise incur (collectively,
"incur") any Indebtedness, including any Acquired Indebtedness (other than
Permitted Indebtedness); provided, however, and subject to paragraph (b) below
in the case of Indebtedness of any Subsidiary, the Company and its Subsidiaries
will be permitted to incur Indebtedness if the Consolidated Fixed Charge
Coverage Ratio for the Company for the four full fiscal quarters immediately
preceding the incurrence of such Indebtedness taken as one period (and after
giving pro forma effect to (i) the incurrence of such Indebtedness and (if
applicable) the application of the net proceeds therefrom, including to
refinance other Indebtedness, as if such Indebtedness was incurred, and the
application of such proceeds occurred, at the beginning of such four-quarter
period; (ii) the incurrence, repayment or retirement of any other Indebtedness
by the Company and its Subsidiaries since the first day of such four-quarter
period as if such
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Indebtedness was incurred, repaid or retired at the beginning of such
four-quarter period (except that, in making such computation, the amount of
Indebtedness under any revolving credit facility shall be computed based upon
the average daily balance of such Indebtedness during such four-quarter period);
(iii) in the case of Acquired Indebtedness, the related acquisition; and (iv)
any acquisition or disposition by the Company and its Subsidiaries of any
company or any business or any assets out of the ordinary course of business, or
any related repayment of Indebtedness, in each case since the first day of such
four-quarter period, assuming such acquisition or disposition and any such
related prepayment had been consummated on the first day of such four-quarter
period) is at least equal to 2.00 to 1.00 during the period from the date hereof
to the second anniversary of the date hereof, and 2.25 to 1.00 thereafter (each
such ratio defined herein as the "Applicable Coverage Ratio").
(b) The Company will not permit any of its Subsidiaries to incur any
Indebtedness other than Permitted Subsidiary Indebtedness.
Section 10.9. Limitation on Restricted Payments.
(a) The Company will not, and will not permit any Subsidiary to,
directly or indirectly:
(i) declare or pay any dividend on, or make any distribution to
holders of, any shares of the Company's Capital Stock (other than dividends
or distributions payable solely in shares of its Qualified Capital Stock or
in options, warrants or other rights to acquire such Qualified Capital
Stock and other than payments with respect to fractional shares resulting
from a reverse split of the Common Stock of Haynes International, Inc., the
Company's sole stockholder, effected shortly before the initial public
offering of Haynes International, Inc.);
(ii) purchase, redeem or otherwise acquire or retire for value,
directly or indirectly, any shares of the Capital Stock of the Company or
any Affiliate of the Company (other than the Capital Stock of any
Wholly-Owned Subsidiary of the Company) or options, warrants or other
rights to acquire such Capital Stock;
(iii) make any principal payment on, or repurchase, redeem, defease,
retire or otherwise acquire for value, prior to any scheduled principal
payment, sinking fund or maturity, any Subordinated Indebtedness;
(iv) declare or pay any dividend or distribution on any Capital Stock
of any Subsidiary to any Person (other than the Company or any of its
Wholly-Owned Subsidiaries) or purchase, redeem or otherwise acquire or
retire for value any Capital Stock of any Subsidiary held by any Person
(other than the Company or any of its Wholly-Owned Subsidiaries);
(v) incur, create or assume any guarantee of Indebtedness of any
Affiliate of the Company (other than a Wholly-Owned Subsidiary of the
Company); or
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(vi) make any Investment in any Person (other than any Permitted
Investments)
(any of the foregoing payments described in clauses (i) through (vi) and
not excepted therefrom, collectively, "Restricted Payments") unless after
giving effect to the proposed Restricted Payment (the amount of any such
Restricted Payment, if other than cash, as determined by the Board of
Directors of the Company, whose determination shall be conclusive and
evidenced by a board resolution), (1) no Default or Event of Default shall
have occurred and be continuing and such Restricted Payment shall not be an
event which is, or after notice or lapse of time or both, would be, an
"event of default" under the terms of any Indebtedness of the Company or
its Subsidiaries; (2) immediately before and immediately after giving
effect to such transaction on a pro forma basis, the Company could incur
$1.00 of additional Indebtedness (other than Permitted Indebtedness) under
the provisions described under Section 10.8; and (3) the aggregate amount
of all such Restricted Payments declared or made after the date of the
Indenture does not exceed the sum of:
(A) 50% of the aggregate cumulative Consolidated Net Income of the
Company accrued on a cumulative basis during the period beginning on the
first day of the Company's fiscal quarter commencing prior to the date of
the Indenture and ending on the last day of the Company's last fiscal
quarter ending prior to the date of the Restricted Payment (or, if such
aggregate cumulative Consolidated Net Income shall be a loss, minus 100% of
such loss); plus
(B) the aggregate Net Cash Proceeds received after the date of the
Indenture by the Company as capital contributions to the Company (other
than from any of its Subsidiaries); plus
(C) the aggregate Net Cash Proceeds received after the date of the
Indenture by the Company from the issuance or sale (other than to any of
its Subsidiaries) of its shares of Qualified Capital Stock or any options,
warrants or rights to purchase such shares of Qualified Capital Stock of
the Company (except, in each case, to the extent such proceeds are used to
purchase, redeem or otherwise retire Capital Stock or Pari Passu or
Subordinated Indebtedness as set forth below); plus
(D) the aggregate Net Cash Proceeds received after the date of the
Indenture by the Company (other than from any of its Subsidiaries) upon the
exercise of any options or warrants to purchase shares of Qualified Capital
Stock of the Company; plus
(E) the aggregate Net Cash Proceeds received after the date of the
Indenture by the Company from debt securities or Redeemable Capital Stock
that have been converted into or exchanged for Qualified Capital Stock of
the Company, to the extent such debt securities or Redeemable Capital Stock
are originally sold for cash, plus the aggregate Net Cash Proceeds received
by the Company at the time of such conversion or exchange.
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(b) Notwithstanding the foregoing, and in the case of clauses (ii),
(iii) and (iv) below, as long as no Default shall have occurred and be
continuing, the foregoing provisions shall not prohibit:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at such date of declaration such payment would be
permitted by the provisions of paragraph (a) of this Section or paragraph
(vi) below and such payment shall be deemed to have been paid on such date
of declaration for purposes of the calculation required by paragraph (a) of
this Section;
(ii) the repurchase, redemption, or other acquisition or retirement of
any shares of any class of Capital Stock of the Company in exchange for
(including any such exchange pursuant to the exercise of a conversion right
or privilege in connection with which cash is paid in lieu of the issuance
of fractional shares or scrip), or out of the Net Cash Proceeds of, a
substantially concurrent issuance and sale for cash (other than to a
Subsidiary) of other shares of Qualified Capital Stock of the Company;
provided that the Net Cash Proceeds from the issuance of such shares of
Qualified Capital Stock are excluded from the calculation pursuant to
clause (3)(C) of paragraph (a) of this Section;
(iii) any repurchase, redemption, defeasance, retirement or
acquisition for value or payment of principal of any Subordinated
Indebtedness in exchange for,or out of the net proceeds of, a substantially
concurrent issuance and sale for cash (other than to any Subsidiary of the
Company) of any Qualified Capital Stock of the Company provided that the
Net Cash Proceeds from the issuance of such shares of Qualified Capital
Stock are excluded from clause (3)(C) of paragraph (a) of this Section;
(iv) the repurchase, redemption, defeasance, retirement, refinancing,
acquisition for value or payment of principal of any Subordinated
Indebtedness (other than Redeemable Capital Stock) (a "refinancing")
through the issuance of new Subordinated Indebtedness provided that any
such new Subordinated Indebtedness (1) shall be in a principal amount that
does not exceed the principal amount so refinanced (or, if such
Subordinated Indebtedness provides for an amount less than the principal
amount thereof to be due and payable upon a declaration or acceleration
thereof, then such lesser amount as of the date of determination), plus the
lesser of (I) the stated amount of any premium or other payment required to
be paid in connection with such a refinancing pursuant to the terms of the
Subordinated Indebtedness being refinanced or (II) the amount of premium or
other payment actually paid at such time to refinance the Subordinated
Indebtedness, plus, in either case, the amount of expenses of the Company
incurred in connection with such refinancing; (2) has an Average Life to
Stated Maturity greater than the remaining Average Life to Stated Maturity
of the Securities; (3) has a Stated Maturity for its final scheduled
principal payment later than the Stated Maturity for the final scheduled
principal payment of the Securities; and (4) is expressly subordinated in
right of payment to the Securities at least to the same extent as the
Subordinated Indebtedness to be refinanced;
(v) the redemption by the Company of its 13 1/2% Senior Subordinated
Notes due 1999 within 45 days after the date of the Indenture; and
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(vi) the declaration and payment of dividends on the Common Stock of
up to an amount equal to 6% of the proceeds (after underwriting discounts,
commissions, and issuance expenses) received at any time from any public
offering of Common Stock, including without limitation the Equity Offering.
Section 10.10. Limitation on Transactions with Affiliates.
The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, enter into or suffer to exist any transaction or series
of related transactions (including, without limitation, the sale, purchase,
exchange or lease of assets, property or services) with any Affiliate of the
Company (other than the Company or a Wholly-Owned Subsidiary) unless (i) such
transaction or series of transactions is in writing on terms that are no less
favorable to the Company or such Subsidiary, as the case may be, than would be
available in a comparable transaction in arm's-length dealings with an unrelated
third party and (ii) with respect to any transaction or series of transactions
involving aggregate payments or value in excess of $1,000,000, the Company
delivers an Officers' Certificate to the Trustee certifying that such
transaction or series of related transactions complies with clause (i) above and
such transaction or series of related transactions has been approved by a
majority of the Disinterested Directors of the Board of Directors of the
Company. In addition to the foregoing, with respect to a transaction or series
of related transactions involving aggregate payments or value equal to or
greater than $2.5 million, the Company must deliver to the Trustee a written
opinion from an Independent Financial Advisor stating that such transaction or
series of transactions are fair from a financial point of view. This covenant
will not restrict the Company from (a) redeeming or paying dividends in respect
of its Capital Stock permitted under Section 10.9 hereunder, (b) making loans or
advances to officers of the Company for bona fide business purposes of the
Company not in excess of $1.0 million in the aggregate at any one time
outstanding, and (c) paying advisory and transaction fees to MLGA in amounts
that are in accordance with past practices and in the ordinary course of
business for the rendering of financial advice and services in connection with
acquisitions, dispositions, and financings by the Company.
Section 10.11. Limitation on Liens.
The Company will not, and will not permit any Subsidiary to, directly or
indirectly, create, incur, affirm or suffer to exist any Lien of any kind upon
any of its property or assets (including any intercompany notes), now owned or
acquired after the date of this Indenture, or any income or profits therefrom,
except if the Securities are directly secured equally and ratably with (or prior
to in the case of Liens with respect to Subordinated Indebtedness) the
obligation or liability secured by such Lien, excluding, however, from the
operation of the foregoing any of the following:
(a) any Lien existing as of the date of this Indenture;
(b) any Lien arising by reason of (1) any judgment, decree or order of
any court, so long as such Lien is adequately bonded and any appropriate legal
proceedings which may have been duly initiated for the review of such judgment,
decree or order shall
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not have been finally terminated or the period within which such proceedings may
be initiated shall not have expired; (2) taxes not yet delinquent or which are
being contested in good faith; (3) security for payment of workers' compensation
or other insurance; (4) good faith deposits in connection with tenders, leases,
contracts (other than contracts for the payment of money); (5) zoning
restrictions, easements, licenses, reservations, title defects, rights of others
for rights of way, utilities, sewers, electric lines, telephone or telegraph
lines, and other similar purposes, provisions, covenants, conditions, waivers,
restrictions on the use of property or minor irregularities of title (and with
respect to leasehold interests, mortgages, obligations, liens and other
encumbrances incurred, created, assumed or permitted to exist and arising by,
through or under a landlord or owner of the leased property, with or without
consent of the lessee), none of which materially impairs the use of any parcel
of property material to the operation of the business of the Company or any
Subsidiary or the value of such property for the purpose of such business; (6)
deposits to secure public or statutory obligations, or in lieu of surety or
appeal bonds, or (7) operation of law in favor of mechanics, materialmen,
laborers, employees or suppliers, incurred in the ordinary course of business
for sums which are not yet delinquent or are being contested in good faith by
negotiations or by appropriate proceedings which suspend the collection thereof;
(c) any Lien on property of the Company or any Subsidiary securing the
New Credit Facility;
(d) any Lien securing Acquired Indebtedness created prior to (and not
created in connection with, or in contemplation of) the incurrence of such
Indebtedness by the Company or any Subsidiary;
(e) any Lien to secure the performance of bids, trade contracts,
leases (including, without limitation, statutory and common law landlord's
liens), statutory obligations, surety and appeal bonds, letters of credit and
other obligations of a like nature and incurred in the ordinary course of
business of the Company or any Subsidiary;
(f) any Lien securing Indebtedness permitted to be incurred pursuant
to clause (vi) of the definition of "Permitted Indebtedness" and which is not
prohibited to be incurred under Section 10.8;
(g) any Lien securing obligations under hedging agreements that the
Company enters into in the ordinary course of business for the purpose of
protecting its production against fluctuations in commodity prices;
(h) any Lien securing Indebtedness permitted to be incurred under
Interest Rate Agreements or otherwise incurred to hedge interest rate risk;
(i) any extension, renewal, refinancing or replacement, in whole or in
part, of any Lien described in the foregoing clauses (a) through (h) so long as
no additional collateral is granted as security thereby.
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Section 10.12. Limitation on Sale of Assets.
(a) The Company will not, and will not permit any of its Subsidiaries
to, directly or indirectly, consummate an Asset Sale unless (i) at least 85% of
the proceeds from such Asset Sale are received in cash and (ii) the Company or
such Subsidiary receives consideration at the time of such Asset Sale at least
equal to the Fair Market Value of the shares or assets sold (as determined by
the Board of Directors of the Company and evidenced in a board resolution).
(b) If all or a portion of the Net Cash Proceeds of any Asset Sale are
not required to be applied to repay permanently any Indebtedness under the New
Credit Facility then outstanding, the Company determines not to apply such Net
Cash Proceeds to the permanent prepayment of such Indebtedness under the New
Credit Facility or if no such Indebtedness under the New Credit Facility is then
outstanding, then the Company may within 6 months of the Asset Sale, invest the
Net Cash Proceeds in properties and assets that (as determined by the Board of
Directors) replace the properties and assets that were the subject of the Asset
Sale or in properties and assets that will be used in the businesses of the
Company or its Subsidiaries existing on the date of the Indenture or reasonably
related thereto. The amount of such Net Cash Proceeds neither used to
permanently repay or prepay Indebtedness under the New Credit Facility nor used
or invested as set forth in this paragraph constitutes "Excess Proceeds."
(c) When the aggregate amount of Excess Proceeds equals $5 million or
more, the Company shall within 20 business days apply the Excess Proceeds to the
repayment of the Securities and any Pari Passu Indebtedness required to be
repurchased under the instrument governing such Pari Passu Indebtedness as
follows: (a) the Company shall make an offer to purchase (an "Offer") from all
holders of the Securities in accordance with the procedures set forth in this
Indenture the maximum principal amount (expressed as a multiple of $1,000) of
Securities that may be purchased out of an amount (the "Security Amount") equal
to the product of such Excess Proceeds multiplied by a fraction, the numerator
of which is the outstanding principal amount of the Securities, and the
denominator of which is the sum of the outstanding principal amount of the
Securities and such Pari Passu Indebtedness (subject to proration in the event
such amount is less than the aggregate Offered Price (as defined herein) of all
Securities tendered) and (b) to the extent required by such Pari Passu
Indebtedness to reduce permanently the principal amount of such Pari Passu
Indebtedness, the Company shall make an offer to purchase or otherwise
repurchase or redeem Pari Passu Indebtedness (a "Pari Passu Offer") in an amount
(the "Pari Passu Debt Amount") equal to the excess of the Excess Proceeds over
the Security Amount; provided that in no event shall the Pari Passu Debt Amount
exceed the principal amount of such Pari Passu Indebtedness plus the amount of
any premium required to be paid to repurchase such Pari Passu Indebtedness. The
offer price shall be payable in cash in an amount equal to 100% of the principal
amount of the Securities plus accrued and unpaid interest, if any, to the date
(the "Offer Date") such Offer is consummated (the "Offered Price"), in
accordance with the procedures set forth in this Indenture. To the extent that
the aggregate Offered Price of the Securities tendered pursuant to the Offer is
less than the Security Amount relating thereto or the aggregate amount of Pari
Passu Indebtedness that is purchased is less
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than the Pari Passu Debt Amount (the amount of such shortfall, if any,
constituting a "Deficiency"), the Company shall use such Deficiency in the
business of the Company and its Subsidiaries. Upon completion of the purchase of
all the Securities tendered pursuant to an Offer and repurchase of the Pari
Passu Indebtedness pursuant to a Pari Passu Offer, the amount of Excess
Proceeds, if any, shall be reset at zero.
(d) Whenever the Excess Proceeds received by the Company exceed $5
million, such Excess Proceeds shall, prior to the purchase of Securities or any
Pari Passu Indebtedness described in paragraph (c) above, be set aside by the
Company in a separate account pending (i) deposit with the depository or a
paying agent of the amount required to purchase the Securities or Pari Passu
Indebtedness tendered in an Offer or a Pari Passu Offer, (ii) delivery by the
Company of the Offered Price to the holders of the Securities or Pari Passu
Indebtedness tendered in an Offer or a Pari Passu Offer and (iii) application,
as set forth above, of Excess Proceeds in the business of the Company and its
Subsidiaries. Such Excess Proceeds may be invested in Temporary Cash
Investments, provided that the maturity date of any such investment made after
the amount of Excess Proceeds exceeds $5,000,000 shall not be later than the
Offer Date. The Company shall be entitled to any interest or dividends accrued,
earned or paid on such Temporary Cash Investments, provided that the Company
shall not withdraw such interest from the separate account if an Event of
Default has occurred and is continuing.
(e) If the Company becomes obligated to make an Offer pursuant to
clause (c) above, the Securities shall be purchased by the Company, at the
option of the holders thereof, in whole or in part in integral multiples of
$1,000, on a date that is not earlier than 45 days and not later than 60 days
from the date the notice is given to holders, or such later date as may be
necessary for the Company to comply with the requirements under the Exchange
Act, subject to proration in the event that the Security Amount is less than the
aggregate Offered Price of all Securities tendered.
(f) The Company shall comply with the applicable tender offer rules,
including Rule 14e-1 under the Exchange Act, and any other applicable securities
laws or regulations in connection with an Offer.
(g) The Company will not, and will not permit any Subsidiary to,
create or permit to exist or become effective any restriction (other than
restrictions existing under Indebtedness as in effect on the date of the
Indenture as such Indebtedness may be refinanced from time to time) that would
materially impair the ability of the Company to make an Offer to purchase the
Securities or, if such Offer is made, to pay for the Securities tendered for
purchase.
(h) Within 20 business days after the date on which the amount of
Excess Proceeds equals or exceeds $5,000,000, the Company shall send by
first-class mail, post prepaid, to the Trustee and to each Holder of the
Securities, at such Holder's address appearing in the Security Register, a
notice stating or including:
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(A) that the Holder has the right to require the Company to
repurchase, subject to proration, part or all of such Holder's Securities
at the Offered Price;
(B) the Offer Date;
(C) the instructions a Holder must follow in order to have its
Securities purchased in accordance with paragraph (c) of this Section; and
(D) (i) the most recently filed Annual Report on Form 10-K (including
audited consolidated financial statements) of the Company, the most recent
subsequently filed Quarterly Report on Form 10-Q, as applicable, and any
Current Report on Form 8-K of the Company filed subsequent to such
Quarterly Report, other than Current Reports describing Asset Sales
otherwise described in the offering materials (or corresponding successor
reports) (or in the event the Company is not required to prepare any of the
foregoing Forms, the comparable information required pursuant to Section
10.17), (ii) a description of material developments in the Company's
business subsequent to the date of the latest of such Reports, (iii) if
material, appropriate pro forma financial information, and (iv) such other
information, if any, concerning the business of the Company and its
Subsidiaries which the Company in good faith believes will enable such
Holders to make an informed investment decision regarding the Offer;
(E) the Offered Price;
(F) the names and addresses of the Paying Agent and the offices or
agencies referred to in Section 10.2;
(G) that Securities must be surrendered at least three Business Days
prior to the Purchase Date to the Paying Agent or to an office or agency
referred to in Section 10.2 to collect payment;
(H) that any Securities not tendered will continue to accrue interest
and that unless the Company defaults in the payment of the Offered Price,
any Security accepted for payment pursuant to the Offer shall cease to
accrue interest on and after the Offer Date; and
(I) the procedures for withdrawing a tender.
(i) Holders electing to have Securities purchased hereunder will be
required to surrender such Securities at the address specified in the notice at
least three Business Days prior to the Offer Date. Holders will be entitled to
withdraw their election to have their Securities purchased pursuant to this
Section 10.12 if the Company receives, not later than three Business Days prior
to the Offer Date, a telegram, telex, facsimile transmission or letter setting
forth (1) the name of the Holder, (2) the certificate number of the Security in
respect of which such notice of withdrawal is being submitted, (3) the principal
amount of the Security (which shall be $1,000 or an integral multiple thereof)
delivered for purchase by the Holder as to which his election is to be
withdrawn, (4) a statement that such Holder is
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withdrawing such Holder's election to have such principal amount of such
Security purchased, and (5) the principal amount, if any, of such Security
(which shall be $1,000 or an integral multiple thereof) that remains subject to
the original notice of the Offer and that has been or will be delivered for
purchase by the Company.
(j) The Company shall (i) not later than the Offer Date, accept for
payment Securities or portions thereof tendered pursuant to the Offer, (ii) not
later than 10:00 a.m. (New York time) on the Offer Date, deposit with the
Trustee or with a Paying Agent an amount of money in same day funds (or New York
Clearing House funds if such deposit is made prior to the Offer Date) the lesser
of the Security Amount and an amount sufficient to pay the aggregate Offered
Price of all the Securities or portions thereof which are to be purchased on
that date and (iii) not later than 10:00 a.m. (New York Time) on the Offer Date,
deliver to the Paying Agent an Officers' Certificate stating the Securities or
portions thereof accepted for payment by the Company.
The Trustee and the Paying Agent shall return to the Company any cash that
remains unclaimed after the Business Day following the Offer Date, together with
interest, if any, thereon, held by them for the payment of the Offered Price;
provided, however, that, (x) to the extent that the aggregate amount of cash
deposited by the Company with the Trustee in respect of an Offer exceeds the
aggregate Offered Price of the Securities or portions thereof to be purchased,
then the Trustee shall hold such excess for the Company and (y) unless otherwise
directed by the Company in writing, promptly after the Business Day following
the Offer Date the Trustee shall return any such excess to the Company together
with interest or dividends, if any, thereon.
(k) Securities to be purchased shall, on the Offer Date, become due
and payable at the Offered Price and from and after such date (unless the
Company shall default in the payment of the Offered Price) such Securities shall
cease to bear interest. The Offered Price shall be paid to such Holder promptly
following the later of the Offer Date and the time of delivery of such Security
to the relevant Paying Agent at the office of such Paying Agent by the Holder
thereof in the manner required. Upon surrender of any such Security for purchase
in accordance with the foregoing provisions, such Security shall be paid by the
Company at the Offered Price; provided, however, that installments of interest
whose Stated Maturity is on or prior to the Offer Date shall be payable to the
Holders of such Securities, or one or more Predecessor Securities, registered as
such on the relevant Regular Record Dates according to the terms and the
provisions of Section 3.7; provided, further, that Securities to be purchased
are subject to proration in the event the Security Amount is less than the
aggregate Offered Price of all Securities tendered for purchase, with such
adjustments as may be appropriate by the Trustee so that only Securities in
denominations of $1,000 or integral multiples thereof shall be purchased. If any
Security tendered for purchase in accordance with the terms of this Section
shall not be so paid upon surrender thereof by deposit of funds with the Trustee
or a Paying Agent in accordance with paragraph (j) above, the principal thereof
(and premium, if any, thereon) shall, until paid, bear interest from the Offer
Date at the rate borne by such Security. Any Security that is to be purchased
only in part shall be surrendered to a Paying Agent in accordance with the terms
of this Section at the office of such Paying Agent (with, if the Company or the
Trustee so requires,
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due endorsement by, or a written instrument of transfer in form satisfactory to
the Company and the Trustee duly executed by, the Holder thereof or such
Holder's attorney duly authorized in writing), and the Company shall execute and
the trustee shall authenticate and deliver to the Holder of such Security,
without service charge, one or more new Securities of any authorized
denomination as requested by such Holder in an aggregate principal amount equal
to, and in exchange for, the portion of the principal amount of the Security so
surrendered that is not purchased.
Section 10.13. Purchase of Securities upon a Change of Control.
(a) If a Change of Control shall occur at any time, then each Holder
shall have the right to require that the Company purchase such Holder's
Securities, pursuant to an offer described in subsection (b) of this Section (a
"Change of Control Offer"), in whole or in part in integral multiples of $1,000,
at a purchase price (the "Change of Control Purchase Price") in cash in an
amount equal to 101% of the principal amount of such Securities, plus accrued
and unpaid interest, if any, to the date of purchase (the "Change of Control
Purchase Date"), in accordance with the procedures set forth in paragraphs (b),
(c), (d) and (e) of this Section.
(b) Within 30 days following any Change of Control, the Company shall
notify the Trustee thereof and give written notice (a "Change of Control
Purchase Notice") of such Change of Control to each Holder by first-class mail,
postage prepaid, to the Trustee and to each Holder, at his address appearing in
the Security Register stating or including:
(A) that a Change of Control has occurred, the date of such event, and
that such Holder has the right to require the Company to repurchase such
Holder's Securities at the Change of Control Purchase Price;
(B) the circumstances and relevant facts regarding such Change of
Control (including but not limited to information with respect to pro forma
historical income, cash flow and capitalization after giving effect to such
Change of Control, if any);
(C) that the Change of Control Offer is being made pursuant to Section
10.13(a) and that all Securities properly tendered pursuant to the Change
of Control Offer will be accepted for payment at the Change of Control
Offer Purchase Price;
(D) the Change of Control Purchase Date which shall be a Business Day
no earlier than 30 days nor later than 60 days from the date such notice is
mailed or such later date as may be necessary for the Company to comply
with the requirements under the Exchange Act;
(E) (i) the most recently filed Annual Report on Form 10-K (including
audited consolidated financial statements) of the Company, the most recent
subsequently filed Quarterly Report on Form 10-Q, as applicable, and any
Current Report on Form 8-K of the Company filed subsequent to such
Quarterly Report (or in the event the Company is not required to prepare
any of the foregoing Forms, the comparable information required to be
prepared by the Company pursuant to Section 10.17), (ii) a description of
material
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developments in the Company's business subsequent to the date of the latest
of such reports and (iii) such other information, if any, concerning the
business of the Company and its Subsidiaries which the Company in good
faith believes will enable such Holders to make an informed investment
decision regarding the Change of Control Offer;
(F) the Change of Control Purchase Price;
(G) the names and addresses of the Paying Agent and the offices or
agencies referred to in Section 10.2;
(H) that Securities must be surrendered at least three Business Days
prior to the Change of Control Purchase Date to the Paying Agent at the
office of the Paying Agent or to an office or agency referred to in Section
10.2 to collect payment;
(I) that the Change of Control Purchase Price for any Security which
has been properly tendered and not withdrawn will be paid promptly
following the Change of Control Purchase Date;
(J) the procedures for withdrawing a tender of Securities and Change
of Control Purchase Notice;
(K) that any Security not tendered will continue to accrue interest;
and
(L) that, unless the Company defaults in the payment of the Change of
Control Purchase Price, any Security accepted for payment pursuant to the
Change of Control Offer shall cease to accrue interest on and after the
Change of Control Purchase Date.
(c) Upon receipt by the Company of the proper tender of Securities,
each Holder of a Security in respect of which such proper tender was made shall
(unless the tender of such Security is properly withdrawn) thereafter be
entitled to receive solely the Change of Control Purchase Price with respect to
such Security. Upon surrender of any such Security for purchase in accordance
with the foregoing provisions, such Security shall be paid by the Company at the
Change of Control Purchase Price; provided, however, that installments of
interest whose Stated Maturity is on or prior to the Change of Control Purchase
Date shall be payable to the Holders of such Securities, or one or more
Predecessor Securities, registered as such on the relevant Regular Record Dates
according to the terms and the provisions of Section 3.7. If any Security
tendered for purchase in accordance with the provisions of this Section shall
not be so paid upon surrender thereof by deposit of funds with the Paying Agent
in accordance with paragraph (d) below, the principal thereof (and premium, if
any, thereon) shall, until paid, bear interest from the Change of Control
Purchase Date at the rate borne by such Security. Holders electing to have
Securities purchased will be required to surrender such Securities to the Paying
Agent at the address specified in the notice at least three Business Days prior
to the Change of Control Purchase Date. Any Security that is to be purchased
only in part shall be surrendered to a Paying Agent in accordance with the
provisions of this Section at the office of such Paying Agent
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(with, if the Company or the Trustee so requires, due endorsement by, or a
written instrument of transfer in form satisfactory to the Company and the
Trustee duly executed by, the Holder thereof or such Holder's attorney duly
authorized in writing), and the Company shall execute and the Trustee shall
authenticate and deliver to the Holder of such Security, without service charge,
one or more new Securities of any authorized denomination as requested by such
Holder in an aggregate principal amount equal to, and in exchange for, the
portion of the principal amount of the Security so surrendered that is not
purchased.
(d) The Company shall (i) not later than the Change of Control
Purchase Date, accept for payment Securities or portions thereof tendered
pursuant to the Change of Control Offer, (ii) not later than 10:00 a.m. (New
York time) on the Change of Control Purchase Date, deposit with Paying Agent an
amount of cash sufficient to pay the aggregate Change of Control Purchase Price
of all the Securities or portions thereof which are to be purchased as of the
Change of Control Purchase Date and (iii) not later than 10:00 a.m. (New York
time) on the Change of Control Purchase Date, deliver to the Paying Agent an
Officers' Certificate stating the Securities or portions thereof accepted for
payment by the Company. The Paying Agent shall promptly mail or deliver to
Holders of Securities so accepted payment in an amount equal to the Change of
Control Purchase Price of the Securities purchased from each such Holder. Any
Securities not so accepted shall be promptly mailed or delivered by the Paying
Agent at the Company's expense to the Holder thereof. The Company will publicly
announce the results of the Change of Control Offer on the Change of Control
Purchase Date. For purposes of this Section 10.13 the Company shall choose a
Paying Agent which shall not be the Company.
(e) A tender made in response to a Change of Control Purchase Notice
may be withdrawn before or after delivery by the Holder to the Paying Agent at
the office of the Paying Agent of the Security to which such Change of Control
Purchase Notice relates, by means of a written notice of withdrawal delivered by
the Holder to the Paying Agent at the office of the Paying Agent or to the
office or agency referred to in Section 10.2 to which the related Change of
Control Purchase Notice was delivered not later than three Business Days prior
to the Change of Control Purchase Date specifying, as applicable:
(1) the name of the Holder;
(2) the certificate number of the Security in respect of which such
notice of withdrawal is being submitted;
(3) the principal amount of the Security (which shall be $1,000 or an
integral multiple thereof) delivered for purchase by the Holder as to which
such notice of withdrawal is being submitted;
(4) a statement that such Holder is withdrawing such Holder's election
to have such principal amount of such Security purchased; and
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(5) the principal amount, if any, of such Security (which shall be
$1,000 or an integral multiple thereof) that remains subject to the
original Change of Control Purchase Notice and that has been or will be
delivered for purchase by the Company.
(f) The Trustee and the Paying Agent shall return to the Company any
cash that remains unclaimed, together with interest or dividends, if any,
thereon, held by them for the payment of the Change of Control Purchase Price;
provided, however, that (x) to the extent that the aggregate amount of cash
deposited by the Company pursuant to clause (ii) of paragraph (d) above exceeds
the aggregate Change of Control Purchase Price of the Securities or portions
thereof to be purchased, then the Trustee shall hold such excess for the Company
and (y) unless otherwise directed by the Company in writing, promptly after the
Business Day following the Change of Control Purchase Date, the Trustee shall
return any such excess to the Company together with interest, if any, thereon.
(g) The Company shall comply with the applicable tender offer rules,
including Rule 14e-1 under the Exchange Act, and any other applicable securities
laws or regulations in connection with a Change of Control Offer.
(h) Notwithstanding the occurrence of a Change of Control, the Company
shall not be obligated to repurchase the Securities pursuant to a Change of
Control Offer, or otherwise comply with this Section 10.13, if the Company has
elected to redeem all of the Securities in accordance with Article XI.
Section 10.14. Optional Redemption Upon Change of Control.
The Securities will be redeemable, at the option of the Company, in whole
or in part at any time within 180 days after a Change of Control upon not less
than 30 nor more than 60 days' prior notice to each holder of the Securities to
be redeemed, at a redemption price equal to the sum of (i) the then outstanding
principal amount thereof plus (ii) accrued and unpaid interest, if any, to the
redemption date plus (iii) the Applicable Premium. Any optional redemption by
the Company upon a Change of Control shall be effected in accordance with the
redemption procedures set forth in Article XI hereof.
"Applicable Premium" with respect to the Securities is defined as the
greater of (i) 1.0% of the then outstanding principal amount of such Securities
and (ii) the excess of (A) the present value of the required interest and
principal payments due on such Securities, computed using a discount rate equal
to the Treasury Rate plus the Applicable Spread, over (B) the then outstanding
principal amount of such Securities.
"Applicable Spread" is defined as 75 basis points.
"Treasury Rate" is defined as the yield to maturity at the time of
computation of United States Treasury securities with a constant maturity (as
compiled by and published in the most recent Federal Reserve Statistical Release
H.15(519) which has become publicly available at least two business days prior
to the date fixed for prepayment (or, if such Statistical Release is no longer
published, any publicly available source of similar market
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data)) most nearly equal to the then remaining Average Life of the Securities;
provided, that if the Average Life of the Securities is not equal to the
constant maturity of a United States Treasury security for which a weekly
average yield is given, the Treasury Rate shall be obtained by linear
interpolation (calculated to the nearest one-twelfth of a year) from the weekly
average yields of United States Treasury securities for which such yields are
given, except that if the Average Life of the Securities is less than one year,
the weekly average yield on actually traded United States Treasury securities
adjusted to a constant maturity of one year shall be used.
Section 10.15. Limitation on Issuance and Sale of Preferred Stock of
Subsidiaries.
The Company will not permit (a) any Subsidiary of the Company to issue any
Preferred Stock (other than to the Company or any Wholly-Owned Subsidiary) or
(b) any Person (other than the Company or any Wholly-Owned Subsidiary) to own
any Preferred Stock of any Subsidiary.
Section 10.16. Limitation on Dividends and Other Payment Restrictions
Affecting Subsidiaries.
The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, create or otherwise cause or suffer to exist or become
effective any encumbrance or restriction on the ability of any Subsidiary of the
Company to (i) pay dividends, in cash or otherwise, or make any other
distribution on its Capital Stock, (ii) pay any Indebtedness owed to the Company
or a Subsidiary of the Company, (iii) make any Investment in the Company or a
Subsidiary of the Company or (iv) transfer any of its properties or assets to
the Company or any Subsidiary, except (a) any encumbrance or restriction
pursuant to an agreement in effect on the date of the Indenture and listed on
Schedule II hereto; (b) any encumbrance or restriction, with respect to a
Subsidiary that is not a Subsidiary of the Company on the date of the Indenture,
in existence at the time such Person becomes a Subsidiary of the Company and, in
the case of clauses (a) and (b), not incurred in connection with, or in
contemplation of, such Person becoming a Subsidiary; and (c) any encumbrance or
restriction existing under any agreement that extends, renews, refinances or
replaces the agreements containing the encumbrances or restrictions in the
foregoing clauses (a) and (b), or in this clause (c); provided that the terms
and conditions of any such encumbrances or restrictions are not materially less
favorable to the holders of the Securities than those under or pursuant to the
agreement evidencing the Indebtedness so extended, renewed, refinanced or
replaced.
Section 10.17. Provision of Financial Statements.
Whether or not the Company is subject to Section 13(a) or 15(d) of the
Exchange Act, the Company will, to the extent permitted under the Exchange Act,
file with the Commission the annual reports, quarterly reports and other
documents which the Company would have been required to file with the Commission
pursuant to such Section 13(a) or 15(d) if the Company were so subject, such
documents to be filed with the Commission on
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or prior to the respective dates (the "Required Filing Dates") by which the
Company would have been required so to file such documents if the Company were
so subject. The Company will also in any event (x) within 15 days of each
Required Filing Date (i) transmit by mail to all Holders, as their names and
addresses appear in the Security Register, without cost to such Holders and (ii)
file with the Trustee copies of the annual reports, quarterly reports and other
documents which the Company would have been required to file with the Commission
pursuant to Section 13(a) or 15(d) of the Exchange Act if the Company were
subject to such Sections and (y) if filing such documents by the Company with
the Commission is not permitted under the Exchange Act, promptly upon written
request and payment of the reasonable cost of duplication and delivery, supply
copies of such documents to any prospective holder of Securities.
Section 10.18. Statement by Officers as to Default.
(a) The Company will deliver to the Trustee, on or before a date not
more than 45 days after the end of each fiscal quarter and not more than 90 days
after the end of each fiscal year of the Company ending after the date hereof, a
written statement signed by two executive officers of the Company, one of whom
shall be the principal executive officer, principal financial offer or principal
accounting officer of the Company, stating whether or not, after a review of the
activities of the Company during such year or such quarter and of the Company's
performance under this Indenture, to the best knowledge, based on such review,
of the signers thereof, the Company has fulfilled all its obligations and is in
compliance with all conditions and covenants under this Indenture throughout
such year or quarter, as the case may be, and, if there has been a Default,
specifying each Default and the nature and status thereof.
(b) When any Default or Event of Default has occurred and is
continuing, or if the Trustee or any Holder or the trustee for or the holder of
any other evidence of Indebtedness of the Company or any Subsidiary gives any
notice or takes any other action with respect to a claimed default, the Company
shall deliver to the Trustee by registered or certified mail or by telegram,
telex or facsimile transmission followed by hard copy an Officers' Certificate
specifying such Default, Event of Default, notice or other action, the status
thereof and what action the Company is taking or proposes to take with respect
thereto, within five Business Days of its occurrence.
Section 10.19. Waiver of Certain Covenants.
The Company may omit in any particular instance to comply with any covenant
or condition set forth in Sections 10.5 through 10.11 and Section 10.15 through
10.17 if, before or after the time for such compliance, the Holders of not less
than a majority in aggregate principal amount of the Securities at the time
Outstanding waive such compliance in such instance with such covenant or
condition, but no such waiver shall extend to or affect such covenant or
condition except to the extent so expressly waived, and, until such waiver shall
become effective, the obligations of the Company and the duties of the Trustee
in respect of any such covenant or condition shall remain in full force and
effect.
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ARTICLE XI
REDEMPTION OF SECURITIES
Section 11.1. Right of Redemption.
The Securities may be redeemed, at the election of the Company, as a whole
at any time or from time to time in part, on or after _______ __, 2000, subject
to the conditions and at the Redemption Prices specified in the form of
Security, together with accrued and unpaid interest, if any, to the Redemption
Date (subject to the right of Holders of record on relevant Regular Record Dates
and Special Record Dates to receive interest due on relevant Interest Payment
Dates). In addition, prior to __________ __, 1999, in the event one or more
Public Equity Offerings of the Company are consummated after the date of the
issue of the equity securities being offered concurrently with the Securities,
the Company may redeem in the aggregate up to a maximum of $25.0 million
aggregate principal amount of the Securities with the net proceeds thereof at a
Redemption Price equal to % of the principal amount thereof plus accrued and
unpaid interest to the Redemption Date; provided that, after giving effect
thereto, at least $70.0 million aggregate principal amount of the Securities
remain outstanding.
Section 11.2. Applicability of Article.
Redemption of Securities at the election of the Company or otherwise, as
permitted or required by any provision of this Indenture, shall be made in
accordance with such provision and this Article.
Section 11.3. Election to Redeem; Notice to Trustee.
The election of the Company to redeem any Securities pursuant to Section
11.1 shall be evidenced by a Company Order and an Officers' Certificate. In case
of any redemption at the election of the Company, the Company shall, not less
than 30 nor more than 60 days prior to the Redemption date fixed by the Company
(unless a shorter notice period shall be satisfactory to the Trustee), notify
the Trustee in writing of such Redemption Date and of the principal amount of
Securities to be redeemed.
Section 11.4. Selection by Trustee of Securities to Be Redeemed.
If less than all the Securities are to be redeemed, the particular
Securities or portions thereof to be redeemed shall be selected not more than 60
days prior to the Redemption Date by the Trustee (or such shorter period as the
Trustee may agree upon), from the Outstanding Securities not previously called
for redemption, by lot or such other method as the Trustee shall deem fair and
reasonable, and the amounts to be redeemed may be equal to $1,000 or any
integral multiple thereof.
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The Trustee shall promptly notify the Company and each Security Registrar
in writing of the Securities selected for redemption and, in the case of any
Securities selected for partial redemption, the principal amount thereof to be
redeemed.
For all purposes of this Indenture, unless the context otherwise requires,
all provisions relating to redemption of Securities shall relate, in the case of
any Security redeemed or to be redeemed only in part, to the portion of the
principal amount of such Security which has been or is to be redeemed.
Notwithstanding anything else in this Section, any redemption pursuant to
the provisions relating to one or more Public Equity Offerings shall be made on
a pro rata basis or on as nearly a pro rata basis as practicable (subject to any
procedures of the Depositary).
Section 11.5. Notice of Redemption.
Notice of redemption shall be given by first-class mail, postage prepaid,
mailed not less than 30 nor more than 60 days prior to the Redemption Date, to
each Holder of Securities to be redeemed, at the address appearing in the
Security Register.
All notices of redemption shall state:
(a) the Redemption Date;
(b) the Redemption Price;
(c) if less than all Outstanding Securities are to be redeemed, the
identification of the particular Securities to be redeemed;
(d) in the case of a Security to be redeemed in part, the principal
amount of such Security to be redeemed and that after the Redemption Date upon
surrender of such Security, a new Security or Securities in the aggregate
principal amount equal to the unredeemed portion thereof will be issued;
(e) that Securities called for redemption must be surrendered to the
Paying Agent to collect the Redemption Price;
(f) that on the Redemption Date the Redemption Price will become due
and payable upon each such Security or portion thereof to be redeemed, and that
(unless the Company shall default in payment of the Redemption Price) interest
thereon shall cease to accrue on and after said date;
(g) the place or places where such Securities are to be surrendered
for payment of the Redemption Price; and
(h) the CUSIP number, if any, relating to such Securities.
85
<PAGE>
Notice of redemption of Securities to be redeemed at the election of the
Company shall be given by the Company or, at the Company's written request, by
the Trustee in the name and at the expense of the Company. If the Company elects
to give notice of redemption, it shall provide the Trustee with a certificate
stating that such notice has been given in compliance with the requirements of
this Section 11.5.
Such notice if mailed in the manner herein provided shall be conclusively
presumed to have been given, whether or not the Holder receives such notice. In
any case, failure to give such notice by mail or any defect in the notice to the
Holder of any Security designated for redemption as a whole or in part shall not
affect the validity of the proceedings for the redemption of any other Security.
Section 11.6. Deposit of Redemption Price.
On or prior to 10:00 a.m. (New York time) on any Redemption Date, the
Company shall deposit with the Trustee or with a Paying Agent an amount of money
in same day funds sufficient to pay the Redemption Price of, and, except if the
Redemption Date shall be an Interest Payment Date, accrued interest on, all the
Securities or portions thereof which are to be redeemed on that date. The
Trustee or the Paying Agent shall hold in trust for, and return to, the Company
promptly after the Business Day following the Redemption Date all interest or
dividends, if any, earned on amounts deposited with the Trustee or the Paying
Agent remaining after the payment of the aggregate Redemption Price for all
securities to be redeemed.
Section 11.7. Securities Payable on Redemption Date.
Notice of redemption having been given as aforesaid, the Securities so to
be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified and from and after such date (unless the
Company shall not have deposited funds in accordance with Section 11.6 in
respect of the payment of the Redemption Price and accrued interest) such
Securities shall cease to bear interest. Upon surrender of any such Security for
redemption in accordance with said notice, such Security shall be paid by the
Company at the Redemption Price together with accrued interest to the Redemption
Date; provided, however, that installments of interest whose Stated Maturity is
on or prior to the Redemption Date shall be payable to the Holders of such
Securities, or one or more Predecessor Securities, registered as such on the
relevant Regular Record Dates according to the terms and the provisions of
Section 3.7.
If any Security called for redemption shall not be so paid upon surrender
thereof for redemption, by deposit or segregation of funds in accordance with
Section 11.6, the principal and premium, if any, shall, until paid, bear
interest from the Redemption Date at the rate borne by such Security.
Section 11.8. Securities Redeemed or Purchased in Part.
86
<PAGE>
Any Security which is to be redeemed or purchased only in part shall be
surrendered to the Paying Agent at the office or agency maintained for such
purpose pursuant to Section 10.2 (with, if the Company, the Security Registrar
or the Trustee so requires, due endorsement by, or a written instrument of
transfer in form satisfactory to the Company, the Security Registrar or the
Trustee, as the case may be, duly executed by the Holder thereof or such
Holder's attorney duly authorized in writing), and the Company shall execute,
and the Trustee shall authenticate and deliver to the Holder of such Security
without service charge, a new Security or Securities, of any authorized
denomination as requested by such Holder in aggregate principal amount equal to,
and in exchange for, the unredeemed portion of the principal of the Security so
surrendered that is not redeemed or purchased.
ARTICLE XII
SATISFACTION AND DISCHARGE
Section 12.1. Satisfaction and Discharge of Indenture.
This Indenture shall cease to be of further effect (except as to surviving
rights of registration of transfer or exchange of the Securities herein
expressly provided for) and the Trustee, on demand of and at the expense of the
Company, shall execute proper instruments acknowledging satisfaction and
discharge of this Indenture, when:
(a) either:
(1) all the Securities theretofore authenticated and delivered (other
than (i) lost, stolen or destroyed Securities which have been replaced or
paid as provided in Section 3.6 and (ii) Securities for whose payment
United States dollars have theretofore been deposited in trust by the
Company and thereafter repaid to the Company or discharged from such trust,
as provided in Section 10.3) have been delivered to the Trustee for
cancellation; or
(2) all Securities not theretofore delivered to the Trustee for
cancellation:
(i) have become due and payable, or
(ii) will become due and payable at their Stated Maturity within
one year, or
(iii) are to be called for redemption within one year under
arrangements satisfactory to the Trustee for the giving of notice of
redemption by the Trustee in the name, and at the expense, of the
Company,
and the Company has irrevocably deposited or caused to be deposited
with the Trustee as trust funds in trust an amount sufficient (as confirmed in a
written report of a
87
<PAGE>
nationally recognized firm of independent public accountants or a nationally
recognized investment banking firm) to pay and discharge the entire indebtedness
on the Securities not theretofore delivered to the Trustee for cancellation,
including principal of, premium, if any, and accrued interest on such Securities
at such Maturity, Stated Maturity or Redemption Date;
(b) the Company has paid all other sums payable hereunder by the
Company; and
(c) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel each to the effect that all conditions precedent
herein provided for relating to the satisfaction and discharge of this Indenture
have been complied with and that such satisfaction and discharge will not result
in a breach or violation of, or constitute a default under, this Indenture or
any other material agreement to which the Company is a party or by which the
Company is bound.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 6.6 and, if United
States dollars shall have been deposited with the Trustee pursuant to subclause
(2) of Subsection (a) of this Section, the obligations of the Trustee under
Section 12.2 and the last paragraph of Section 10.3 shall survive.
Section 12.2. Application of Trust Money.
Subject to the provisions of the last paragraph of Section 10.3, all United
States dollars deposited with the Trustee pursuant to Section 12.1 shall be held
in trust and applied by it, in accordance with the provisions of the Securities
and this Indenture, to the payment, either directly or through any Paying Agent
as the Trustee may determine, to the Persons entitled thereto, of the principal
of, premium, if any, and interest on the Securities for whose payment such
United States dollars have been deposited with the Trustee.
88
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
HAYNES CORP.
By:___________________
Name:
Title:
Attest:_______________
Name:
Title:
NATIONAL CITY BANK,
as Trustee
By:___________________
Name:
Title:
Attest:_______________
Name:
Title:
<PAGE>
[STATE OF_______ )
) ss.:
COUNTY OF_________ )
On the ___ day ______ 1996, before me personally came _______________, to
me known, who, being by me duly sworn, did depose and say that he resides at
______________; that he is ___ _________________ of Haynes International, Inc.,
one of the corporations described in and which executed the foregoing
instrument; that he knows the corporate seal of such corporation; that the seal
affixed to said instrument is such corporate seal; that it was so affixed
pursuant to authority of the Board of Directors of such corporation; and that he
signed his name thereto pursuant to like authority.
(NOTARIAL
SEAL)]
____________________
<PAGE>
STATE OF_______ )
) ss.:
COUNTY OF_________ )
On the ____ day _____ 1996, before me personally came ________________, to
me known, who, being by me duly sworn, did depose and say that he resides at
_________________; that he is an authorized officer of National City Bank, one
of the corporations described in and which executed the foregoing instrument;
that he knows the corporate seal of such corporation; that the seal affixed to
said instrument is such corporate seal; that it was so affixed pursuant to
authority of the Board of Directors of such corporation; and that he signed his
name thereto pursuant to like authority.
(NOTARIAL
SEAL)
___________________
<PAGE>
SCHEDULE I
Restrictions on Dividends of Subsidiaries
Exhibit 4.11
HAYNES CORP.
FORM OF ___% SENIOR NOTE DUE 2004
The form of the face of the Securities shall be substantially as follows:
HAYNES CORP.
to be merged with
and continue as
Haynes International, Inc.
----------
__% Senior Notes due 2004
No.__________
HAYNES CORP., a Delaware corporation (herein called the "Company," which
term includes any successor), for value received, hereby promises to pay to
_______ or registered assigns, the principal sum of $__________ United States
dollars on _______ 2004, at the office or agency of the Company referred to
below, and to pay interest thereon from _________, 1996 or from the most recent
Interest Payment Date to which interest has been paid or duly provided for, as
the case may be, semiannually on ______ and _______ of each year commencing
<PAGE>
_______, 1997 at the rate of______% per annum, in United States dollars, until
the principal hereof is paid or duly provided for.
The interest so payable, and punctually paid or duly provided for, on any
Interest Payment Date will, as provided in the Indenture, be paid to the Person
in whose name this Security (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date for such
interest, which shall be _______or _______ (whether or not a Business Day), as
the case may be, next preceding such Interest Payment Date. Any such interest
not so paid, or duly provided for, and interest on such defaulted interest at
the interest rate borne by the Securities, to the extent lawful, shall forthwith
cease to be payable to the Holder in whose name such Security is registered as
of such Regular Record Date, and may be paid on the Special Payment Date to the
Person in whose name this Security (or one or more Predecessor Securities) is
registered at the close of business on a Special Record Date to be fixed by the
Trustee (and for which notice shall be given to Holders of Securities not less
than 10 days prior to such Special Record Date) or may be paid at any time in
any other lawful manner not inconsistent with the requirements of any securities
exchange on which the Securities may be listed, and upon such notice as may be
required by such exchange, all as more fully provided in said Indenture.
Payment of the principal of, premium, if any, and interest on this Security
will be made at the office or agency of the Company maintained for that purpose
in The City of New York, or at such other office or agency of the Company as may
be maintained for such purpose, in such coin or currency of the United States of
America as at the time of payment is legal tender for payment of public and
private debts; provided, however, that payment of interest may be made at the
option of the Company by check mailed to the address of the Person entitled
thereto as such address shall appear on the Security Register. Interest shall be
computed on the basis of a 360-day year of twelve 30-day months.
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been duly executed by
the Trustee referred to on the reverse hereof or by the authenticating agent
appointed as provided in the Indenture by manual signature, this Security shall
not be entitled to any benefit under the Indenture, or be valid or obligatory
for any purpose.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by the manual or facsimile signature of its authorized officers and its
corporate seal to be affixed or reproduced hereon.
Dated: _________ HAYNES CORP.
By:_____________________
Attest: [SEAL]
_______________________
Secretary
The form of the reverse of the Securities shall be substantially as
follows:
This Security is one of the duly authorized issue of Securities of the
Company designated as its % Senior Notes due 2004 (herein called the
"Securities"), limited (except as otherwise provided in the Indenture referred
to below) in aggregate principal amount to $100.0 million which may be issued
under and are subject to the terms of an indenture (herein called the
"Indenture") dated as of ________, 1996 among the Company and National City
Bank, as trustee (together with any successor trustee under the Indenture, the
"Trustee"), to which Indenture and all indentures supplemental thereto reference
is hereby made for a statement of the respective rights, limitations of rights,
duties, obligations and immunities thereunder of the Company, the Trustee and
the Holders, and of the terms upon which the Securities are, and are to be,
authenticated and delivered.
The Indenture contains provisions for defeasance at any time of (a) the
entire Indebtedness on this Security and (b) certain covenants and related
Defaults and Events of Default thereunder, in each case upon compliance with
certain conditions set forth therein.
The Securities are subject to redemption at any time on or after ____,
2000, at the option of the Company, in whole or in part, on not less than 30 nor
more than 60 days' prior notice in amounts of $1,000 or an integral multiple
thereof at the following redemption prices (expressed as percentages of the
principal amount), if redeemed during the 12-month period beginning _______ of
the years indicated below:
Redemption
Year Price
---- -----
2000 %
2001 %
<PAGE>
and thereafter at 100% of the principal amount, in each case together with
accrued and unpaid interest, if any, to the redemption date (subject to the
right of holders of record on relevant record dates to receive interest due on
an interest payment date).
In addition, prior to ______, 1999, in the event one or more Public Equity
Offerings of the Company are consummated after the date of the issue of the
equity securities issued concurrently with the Securities, the Company may
redeem in the aggregate up to a maximum of $25.0 million aggregate principal
amount of the Securities with the net proceeds thereof at a Redemption Price
equal to __% of the principal amount thereof plus accrued and unpaid interest to
the Redemption Date; provided that, after giving effect thereto, at least $70.0
million aggregate principal amount of Securities remains outstanding.
If less than all of the Securities are to be redeemed, the Trustee shall
select the Securities or portions thereof to be redeemed pro rata, by lot or by
any other method the Trustee shall deem fair and reasonable, provided that, any
redemption pursuant to the provisions relating to a sale of the Common Stock of
the Company pursuant to one or more Public Equity Offerings shall be made on a
pro rata basis or on as nearly a pro rata basis as practicable (subject to any
procedures of the Depositary).
If a Change of Control shall occur at any time, then each holder of
Securities shall have the right to require that the Company purchase such
holder's Securities in whole or in part in integral multiples of $1,000, at a
purchase price in cash in an amount equal to 101% of the principal amount of
such Securities, plus accrued and unpaid interest, if any, to the date of
purchase pursuant to the offer procedures set forth in the Indenture.
In addition, if a Change of Control shall occur at any time, then the
Company shall, within 180 days after a Change of Control and upon not less than
30 nor more than 60 days' prior notice to each holder of Securities, have the
right to purchase the Securities, in whole or in part, at a redemption price
equal to the sum of (i) the then outstanding principal amount plus (ii) accrued
and unpaid interest, if any, to the Redemption Date, plus (iii) a premium
defined as the greater of (a) 1.0% of the then outstanding principal amount of
the Securities and (b) the excess of (1) the present value of the required
payments on the Securities, computed using a discount rate equal to the Treasury
Rate plus 75 basis points, over (2) the then outstanding principal amount of the
Securities.
Under certain circumstances, in the event the Net Cash Proceeds that are
received by the Company from any Asset Sale, and that are not applied within the
time periods set forth in the Indenture to repay or prepay permanently any
Indebtedness under the New Credit Facility then outstanding or invested in
properties or assets that replace the assets sold or that are used in the
businesses of the Company or its Subsidiaries, equal or exceed $5.0 million, the
Company will be required to offer, pursuant to the offer procedures set forth in
the Indenture, to apply such proceeds to the repayment of the Securities at 100%
of the principal amount of such Securities, plus accrued and unpaid interest, if
any, to the date of purchase and to the repayment of certain Indebtedness
ranking pari passu with the Securities.
<PAGE>
In the case of any redemption of Securities, interest installments whose
Stated Maturity is on or prior to the Redemption Date will be payable to the
Holders of such Securities of record as of the close of business on the relevant
Regular Record Date or Special Record Date referred to on the face hereof.
Securities (or portions thereof) for whose redemption and payment provision is
made in accordance with the Indenture shall cease to bear interest from and
after the Redemption Date.
In the event of redemption of this Security in part only, a new Security or
Securities for the unredeemed portion hereof shall be issued in the name of the
Holder hereof upon the cancellation hereof.
If an Event of Default shall occur and be continuing, the principal amount
of all the Securities may be declared due and payable in the manner and with the
effect provided in the Indenture.
The Indenture permits, with certain exceptions (including certain
amendments permitted without the consent of any Holders) as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders under the Indenture and the Securities at
any time with the consent of the Holders of not less than a majority in
aggregate principal amount of the Securities at the time Outstanding. The
Indenture also contains provisions permitting the Holders of not less than a
majority in aggregate principal amount of the Securities at the time
Outstanding, on behalf of the Holders of all the Securities, to waive compliance
by the Company with certain provisions of the Indenture and the Securities and
certain past Defaults under the Indenture and their consequences. Any such
consent or waiver by or on behalf of the Holder of this Security shall be
conclusive and binding upon such Holder and upon all future Holders of this
Security and of any Security issued upon the registration of transfer hereof or
in exchange herefor or in lieu hereof whether or not notation of such consent or
waiver is made upon this Security.
No reference herein to the Indenture and no provision of this Security or
of the Indenture shall alter or impair the obligation of the Company or any
other obligor under the Securities (in the event such other obligor is obligated
to make payments in respect of the Securities), which is absolute and
unconditional, to pay the principal of, premium, if any, and interest on this
Security at the times, place, and rate, and in the coin or currency, herein
prescribed.
As set forth in, and subject to, the provisions of the Indenture, no Holder
of any Security will have any right to institute any proceeding with respect to
the Indenture or for any remedy thereunder, unless (a) such Holder shall have
previously given to the Trustee written notice of a continuing Event of Default,
(b) the Holders of not less than 25% in principal amount of the Outstanding
Securities shall have made written request, and offered reasonable indemnity, to
the Trustee to institute such proceeding as trustee, (c) the Trustee shall not
have received from the Holders of a majority in principal amount of the
Outstanding Securities a direction inconsistent with such request and (d) the
Trustee shall have failed to institute such proceeding within 60 days; provided,
however, that such
<PAGE>
limitations do not apply to a suit instituted by the Holder hereof for the
enforcement of payment of the principal of (and premium, if any) or any interest
on this Security on or after the respective due dates expressed herein.
As provided in the Indenture and subject to certain limitations therein set
forth, the transfer of this Security is registrable on the Security Register of
the Company, upon surrender of this Security for registration of transfer at the
office or agency of the Company maintained for such purpose in The City of New
York or at such other office or agency of the Company as may be maintained for
such purpose, duly endorsed by, or accompanied by a written instrument of
transfer in form satisfactory to the Company and the Security Registrar duly
executed by, the Holder hereof or his attorney duly authorized in writing, and
thereupon one or more new Securities, of authorized denominations and for the
same aggregate principal amount, will be issued to the designated transferee or
transferees.
The Securities are issuable only in registered form without coupons in
denominations of $1,000 and any integral multiple thereof. As provided in the
Indenture and subject to certain limitations therein set forth, the Securities
are exchangeable for a like aggregate principal amount of Securities of a
different authorized denomination, as requested by the Holder surrendering the
same.
No service charge shall be made for any registration of transfer or
exchange or redemption of Securities, but the Company may require payment of a
sum sufficient to cover any tax or other governmental charge payable in
connection therewith.
Prior to due presentment of this Security for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name this Security is registered as the owner hereof for all
purposes, whether or not this Security is overdue, and none of the Company, the
Trustee nor any agent shall be affected by notice to the contrary.
Upon any consolidation or merger, or any sale, assignment, conveyance,
transfer or disposition (other than pursuant to a lease) of all or substantially
all of the properties and assets of the Company in accordance with the
Indenture, subject to the terms and conditions of the Indenture, the successor
Person to such transaction shall become the obligor on this Security, and the
Company shall be discharged from all obligations and covenants under this
Security and the Indenture.
All terms used in this Security which are defined in the Indenture and not
otherwise defined herein shall have the meanings assigned to them in the
Indenture.
The Trustee's certificate of authentication shall be included on the form
of the face of the Securities substantially in the following form:
<PAGE>
TRUSTEES CERTIFICATE OF AUTHENTICATION.
This is one of the Securities referred to in the within-mentioned
Indenture.
National City Bank,
as Trustee
By:_____________________
Authorized Signatory
Exhibit 5.01
August 2, 1996
Board of Directors
Haynes International, Inc.
1020 West Park Avenue
Kokomo, IN 46902-9013
Gentlemen:
We have acted as counsel to Haynes International, Inc., a Delaware
corporation (the "Company"), in connection with the filing of a Registration
Statement on Form S-1, Registration No. 333-5411 (the "Registration Statement"),
with the Securities and Exchange Commission (the "Commission") for the purpose
of registering under the Securities Act of 1933, as amended (the "Securities
Act"), $100,000,000 in principal amount of Senior Notes due 2004 of the Company,
which are to be offered to the public (the "Notes"). Prior to the effectiveness
of the Registration Statement, the name of the Company will be changed to Haynes
Corp.
In connection therewith, we have investigated those questions of law we
have deemed necessary or appropriate for purposes of this opinion. We have also
examined originals, or copies certified or otherwise identified to our
satisfaction, of those documents, corporate or other records, certificates and
other papers that we deemed necessary to examine for the purpose of this
opinion, including:
1. The Company's Restated Certificate of Incorporation, together with all
amendments thereto;
2. A copy of the By-laws of the Company;
3. Resolutions relating to the offering of the Notes and the filing of the
Registration Statement adopted by the Company's Board of Directors on
May 28, 1996 (the "Resolutions");
4. A form of the Note;
5. The Registration Statement; and
6. The form of Indenture by and between the Company and National City Bank,
as Trustee (the "Indenture").
<PAGE>
We have also relied, without investigation as to the accuracy thereof, on
other certificates of, and oral and written communication from, public officials
and officers of the Company.
For the purposes of this opinion, we have assumed (i) the genuineness of
all signatures of all parties other than the Company; (ii) the authenticity of
all documents submitted to us as originals and the conformity to authentic
originals of all documents submitted to us as certified or photostatic copies;
(iii) as to all parties other than the Company, the due authorization, execution
and delivery of all documents and the validity and enforceability thereof as
against all parties other than the Company; (iv) that each person other than the
Company who is a party to the Indenture, as defined in the Registration
Statement, and the Notes has full power, authority and legal right, under its
charter and other governing documents and the laws applicable to it, to perform
its respective obligations thereunder; (v) the due execution and authentication
of the Notes in accordance with the Indenture; (vi) that the Resolutions will
not be amended, altered or superseded prior to the issuance of the Notes; and
(vii) that no changes will occur in the applicable law or the pertinent facts
prior to the issuance of the Notes.
Based upon the foregoing and subject to the qualifications set forth in
this letter, we are of the opinion that the Notes are validly authorized and,
when (a) the pertinent provisions of the Securities Act and all relevant state
securities laws have been compiled with and (b) the Notes have been delivered
against payment therefor as contemplated by the Registration Statement and the
Indenture, the Notes will be legally issued and binding obligations of the
Company, except that (i) the legality or binding nature thereof may be limited
or otherwise affected by bankruptcy, insolvency, reorganization, liquidation,
readjustment of debt, moratorium, equity of redemption or similar laws and/or
general principles of equity (regardless of whether applied in proceedings at
law or in equity) and (ii) rights of acceleration and the availability of
equitable remedies may be limited by equitable principles of general
applicability.
Our opinion is subject to the effect of, and we express no opinion as to
the application of, any applicable fraudulent conveyance, fraudulent transfer or
other similar law to the execution of the Indenture or the issuance of the
Notes. Also, we express no opinion as to the enforceability of the waiver of
stay and extension of usury laws in the Indenture.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the prospectus included as part of the Registration
Statement. In giving this consent, we do not admit that we are within the
category of persons whose consent is required under Section 7 of the Securities
Act or under the rules and regulations of the Commission relating thereto.
Very truly yours,
/s/ ICE MILLER DONADIO & RYAN
Exhibit 12.01
Haynes International, Inc.
Ratio of Earnings Before Fixed Charges to Fixed Charges
<TABLE>
<CAPTION>
1991 1992 1993
---- ---- ----
<S> <C> <C> <C>
Line 1 Income (loss) before income taxes and cumulative effect of change in
accounting principle $ 1,379 ($28,091) ($11,717)
Line 2 Interest on indebtedness 22,120 19,211 16,792
Line 3 Amortization of debt issuance costs 1,401 1,333 2,120
------- -------- ---------
Line 4 Total earnings before fixed charges (Line 1 plus Line 2 plus Line 3) $24,900 ($ 7,547) $ 7,195
----------------------------------------------------------------------
Line 5 Interest on indebtedness $22,120 $19,211 $16,792
Line 6 Amortization of debt issuance costs 1,401 1,333 2,120
------- ------- --------
Line 7 Total fixed charges (Line 5 plus Line 6) $23,521 $20,544 $18,912
Ratio of earnings before fixed charges to fixed charges (Line 4
divided by Line 7) 1.06 N/A* N/A*
<CAPTION>
9 months
1994 1995 1995
---- ---- ----
<S> <C> <C> <C>
Line 1 Income (loss) before income taxes and cumulative effect of change in
accounting principle ($60,446) ($ 5,458) ($ 4,738)
Line 2 Interest on indebtedness 18,236 18,789 14,090
Line 3 Amortization of debt issuance costs 1,680 1,444 1,086
--------- -------- --------
Line 4 Total earnings before fixed charges (Line 1 plus Line 2 plus Line 3) ($40,530) $14,775 $10,438
----------------------------------------------------------------------
Line 5 Interest on indebtedness $18,236 $18,789 $14,090
Line 6 Amortization of debt issuance costs 1,680 1,444 1,086
-------- ------- -------
Line 7 Total fixed charges (Line 5 plus Line 6) $19,916 $20,233 $15,176
Ratio of earnings before fixed charges to fixed charges (Line 4
divided by Line 7) N/A* N/A* N/A*
<CAPTION>
Proforma Proforma Proforma
9 months Year 9 months 9 months
1996 1995 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Line 1 Income (loss) before income taxes and cumulative effect of change in
accounting principle $ 2,629 $ 2,914 $ 1,559 $ 8,972
Line 2 Interest on indebtedness 14,360 11,245 8,417 8,590
Line 3 Amortization of debt issuance costs 1,035 616 462 462
------- ------- ------- -------
Line 4 Total earnings before fixed charges (Line 1 plus Line 2 plus Line 3) $18,024 $14,775 $10,438 $18,024
----------------------------------------------------------------------
Line 5 Interest on indebtedness $14,360 $11,245 $ 8,417 $ 8,590
Line 6 Amortization of debt issuance costs 1,035 616 462 462
------- ------- ------- -------
Line 7 Total fixed charges (Line 5 plus Line 6) $15,395 $11,861 $ 8,879 $ 9,052
Ratio of earnings before fixed charges to fixed charges (Line 4
divided by Line 7) 1.17 1.25 1.18 1.99
* Earnings before fixed charges were insufficient to cover fixed charges.
</TABLE>
EXHIBIT 21.01
SUBSIDIARIES OF THE REGISTRANT
------------------------------
Haynes International, Inc., a Delaware corporation, is a wholly-owned
subsidiary of Haynes Holdings, Inc., a Delaware corporation. Haynes
Holdings, Inc. has no other subsidiaries. The subsidiaries of Haynes
International, Inc. are as follows:
SUBSIDIARY JURISDICTION
---------- ------------
Haynes Sour Gas Tubulars, Inc. Delaware
Haynes International S.A.R.L. France
Haynes International Ltd. United Kingdom
Nickel-Contor AG Switzerland
CABVAL (a partnership) New York
EXHIBIT 23.01
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement on Form S-1 of
our report, which includes an emphasis of a matter explanatory paragraph
regarding the Company's liquidity, dated November 3, 1995 on our audits of the
financial statements of Haynes International, Inc. We also consent to the
references to our firm under the captions "Experts," "Income Tax
Considerations-- Section 382 Limitation" and "Income Tax Considerations--The
Merger."
/S/ COOPERS & LYBRAND L.L.P.
Fort Wayne, Indiana
August 2, 1996
Exhibit 25.03
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------
FORM T-1
STATEMENT OF ELIGIBILITY AND QUALIFICATION
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
Check if an application to determine eligibility of a Trustee pursuant to
section 305(b) (2)
NATIONAL CITY BANK
(Exact name of Trustee as specified in its charter)
34-0420310
(I.R.S. Employer Identification No.)
1900 East Ninth Street
Cleveland, Ohio 44114
(Address of principal executive (zip code)
offices)
David L. Zoeller
Senior Vice President and General Counsel
National City Corporation
1900 East Ninth Street
Cleveland, Ohio 44114
(216) 575-9313
(Name, address and telephone number of agent for service)
--------
HAYNES CORP.
(Exact name of obligor as specified in its charter)
DELAWARE 06-118540
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1020 West Park Avenue
Kokomo, Indiana 46904-9013
(Address of principal (zip code)
executive offices)
__% Senior Notes due 2004
(Title of the Indenture securities)
<PAGE>
GENERAL
1. General information. Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to which
it is subject.
Comptroller of the Currency, Washington, D.C.
The Federal Reserve Bank of Cleveland, Cleveland, Ohio
Federal Deposit Insurance Corporation, Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
National City Bank is authorized to exercise corporate trust powers.
2. Affiliations with obligor. If the obligor is an affiliate of the trustee,
describe such affiliation.
NONE
16. List of exhibits
(1) A copy of the Articles of Association of the Trustee.
Incorporated herein by reference is Charter No. 786 Merger No. 1043
the Articles of Association of National City Bank, which Articles of
Association were included as a part of Exhibit 1 to Form T-1 filing
made by said National City Bank with the Securities and Exchange
Commission in November 1973 (File No. 2-49786).
Incorporated herein by reference is an amendment to the Articles of
Association of National City Bank, which amendment was included as a
part of Exhibit 1 to Form T-1 filing made by said National City Bank
with the Securities and Exchange Commission in April 1996 (File No.
333-02761)
(2) A copy of the certificate of authority of the Trustee to commence
business:
(a) a copy of the certificate of NCB National Bank to commence
business.
<PAGE>
Incorporated herein by reference is a true and correct copy of the
certificate issued by the Comptroller of the Currency under date of
April 26, 1973, whereby NCB National Bank was authorized to commence
the business of banking as a National banking Association, which true
copy of said Certificate was included as Exhibit 2(a) to Form T-1
filing made by said National City Bank with the Securities and
Exchange Commission in November 1973 (File 2-49786)
(b) a copy of the approval of the merger of The National City Bank of
Cleveland into NCB National Bank under the charter of NCB
National Bank and under the title "National City Bank."
Incorporated herein by reference is a true and correct copy of the
certificate issued by The Comptroller of the Currency and under date
of April 27, 1973, whereby the National City Bank of Cleveland was
merged into NCB National Bank, which true copy of said certificate was
included as Exhibit 2(b) to Form T-1 filing made by said National City
Bank with the Securities and Exchange Commission in November 1973
(File 2-49786).
(3) A copy of the authorization of the Trustee to exercise corporate trust
powers.
Incorporated herein by reference is a true and correct copy of the
certificate dated April 13, 1973 issued by the Comptroller of the
Currency whereby said National City Bank has been granted the right to
exercise certain trust powers, which true copy of said certificate was
included as Exhibit 3 to Form T-1 filing made by said National City
Bank with the Securities and Exchange Commission in November 1973
(File 2-49786).
(4) A copy of existing By-Laws of the Trustee.
Incorporated herein by reference is a true and correct copy of the
National City Bank By-Laws as amended through January 1, 1993. This
true copy of said By-Laws was included as Exhibit 4 to Form T-1 filing
made by National City Bank with the Securities and Exchange Commission
in March, 1995 (File 22-26594).
(5) Not applicable.
<PAGE>
(6) Consent of the United States Institutional Trustee required by Section
321(b) of the Act.
CONSENT
In accordance with Section 321(b) of the Trust Indenture Act of 1939, as
amended, and to the extent required thereby to enable it to act as an indenture
trustee, National City Bank hereby consents as of the date hereof that reports
of examinations of it by the Treasury Department, the Comptroller of the
Currency, the Board of Governors of the Federal Reserve Banks, the Federal
Deposit Insurance Corporation or of any other Federal or State authority having
the right to examine National City Bank, may be furnished by similar authorities
to the Securities and Exchange Commission upon request thereon.
NATIONAL CITY BANK
By /s/ Faith Berning
-------------------------
Faith Berning
Vice President
(7) A copy of the latest report of condition of the Trustee published
pursuant to law or the requirements of its supervising or examining
authority.
Attached hereto as Exhibit 7 is the latest report of condition of
National City Bank.
(8) Not applicable.
(9) Not applicable.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939 the
Trustee, National City Bank, a national banking association organized and
existing under the laws of the United States of America, has duly caused this
statement of eligibility to be signed on its behalf by the undersigned,
thereunto duly authorized, all in the City of Cleveland, and State of Ohio, on
the 12th day of July, 1996.
NATIONAL CITY BANK
By: /s/ Faith Berning
-------------------------
Faith Berning
Vice President
<PAGE>
REPORT OF CONDITION
NATIONAL CITY BANK
(Including Domestic and Foreign Subsidiaries)
Of Cleveland, in the State of Ohio, at the close of business on March 31, 1996,
published in response to call made by Comptroller of the Currency,
under Title 12, United States Code, Section 161.
ASSETS
------
(In Thousands)
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin ........... $510,965
Interest-bearing balances .................................... 1,620
Securities:
Held-to-maturity securities .................................. 0
Available-for-sale securities ................................ 1,608,534
Federal funds sold and securities purchased under agreements
to resell in domestic offices of the bank and of its Edge
and Agreement subsidiaries, and in IBFs:
Federal funds sold ........................................... 969,335
Securities purchased under agreements to resell ............... 0
Loans and lease financing receivables:
Loans and leases, net of unearned
income ........................................ $6,572,236
Less: Allowance for loan and lease losses ..... 108,643
Loans and leases, net of unearned income and allowance ....... 6,463,593
Assets held in trading accounts ................................ 398
Premises and fixed assets (including capitalized leases) ....... 94,935
Other real estate owned ........................................ 1,576
Customers' liability to this bank on acceptances outstanding ... 36,555
Intangible assets .............................................. 1,202
Other assets ................................................... 421,154
-----------
TOTAL ASSETS ................................................. $10,109,867
===========
LIABILITIES
-----------
Deposits:
In domestic offices .......................................... $5,426,864
Non-interest bearing ........................ $1,394,349
Interest-bearing ............................ 4,032,575
In foreign offices, Edge and Agreement subsidiaries,
and IBFs....................................... 423,401
Interest-bearing ............................ 423,401
Federal funds purchased and securities sold under agreements
to repurchase in domestic offices of the bank and of its
Edge and Agreement subsidiaries, and in IBFs:
Federal Funds Purchased ...................................... 1,186,454
Securities sold under agreements to repurchase ............... 762,059
Demand Notes issued to the U.S. Treasury ....................... 20,990
Trading Liabilities ............................................ 0
Other borrowed money:
With a remaining maturity of one year or less ................ 626,336
With a remaining maturity of more than one year .............. 524,663
Bank's liability on acceptances executed and outstanding ....... 36,555
Subordinated notes and debentures .............................. 174,147
Other liabilities .............................................. 290,045
-----------
TOTAL LIABILITIES ............................................ 9,471,514
-----------
EQUITY CAPITAL
--------------
Common Stock ................................................... 7,436
Surplus ........................................................ 55,822
Undivided profits and capital reserves ......................... 576,470
Net unrealized holding gains (losses) on
available-for-sale securities ................................ (1,375)
-----------
TOTAL EQUITY CAPITAL ......................................... 638,353
-----------
TOTAL LIABILITIES AND EQUITY CAPITAL ......................... $10,109,867
===========
I, Gary M. Small, Vice President and Comptroller of the above named bank do
hereby declare that this Report of Condition is true and correct to the best of
my knowledge and belief.
Gary M. Small
We, the undersigned directors attest to the correctness of this Report of
Condition. We declare that it has been examined by us, and to the best of our
knowledge and belief has been prepared in conformance with the instructions and
is true and correct.
William E. MacDonald, III
William R. Robertson
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
HAYNES HOLDINGS, INC.
FINANCIAL DATA SCHEDULE
(dollars in thousands, except per share data)
The schedule contains summary financial information extracted from the
consolidated financial statements of Haynes Holdings, Inc. and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> SEP-30-1995 JUN-30-1996
<PERIOD-END> SEP-30-1995 JUN-30-1996
<CASH> 5,035 4,789
<SECURITIES> 0 0
<RECEIVABLES> 39,068 44,916
<ALLOWANCES> (979) (1,030)
<INVENTORY> 60,234 74,294
<CURRENT-ASSETS> 103,358 122,969
<PP&E> 84,158 84,756
<DEPRECIATION> (47,295) (52,977)
<TOTAL-ASSETS> 151,316 164,669
<CURRENT-LIABILITIES> 40,742 53,657
<BONDS> 140,000 140,000
0 0
0 0
<COMMON> 36 36
<OTHER-SE> (121,945) (121,489)
<TOTAL-LIABILITY-AND-EQUITY> 151,316 164,669
<SALES> 201,933 170,386
<TOTAL-REVENUES> 201,933 170,386
<CGS> 167,196 136,711
<TOTAL-COSTS> 207,391 167,757
<OTHER-EXPENSES> 1,767 413
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 20,233 15,395
<INCOME-PRETAX> (5,458) 2,629
<INCOME-TAX> 1,313 1,029
<INCOME-CONTINUING> (6,771) 1,600
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (6,771) 1,600
<EPS-PRIMARY> (1.89) 0.45
<EPS-DILUTED> (1.89) 0.45
</TABLE>
