AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 7, 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
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
OF SECURITIES TO BE AMOUNT TO BE OFFERING PRICE OFFERING PRICE AMOUNT OF
REGISTERED REGISTERED PER UNIT (1) REGISTRATION FEE
<S> <C> <C> <C> <C>
% Senior Notes due 2004 $85,000,000 % $85,000,000 $29,311
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
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.
The Index to Exhibits is located at page in the sequential numbering
system.
Total number of pages:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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>
HAYNES INTERNATIONAL, INC.
CROSS REFERENCE SHEET
Cross Reference Sheet Between Items in Form S-1 and the Prospectus
Pursuant to Regulation S-K, Item 501
<TABLE>
<CAPTION>
ITEM NUMBER AND HEADING IN FORM S-1 LOCATION OR CAPTION IN PROSPECTUS
-------------------------------------------- --------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus.. Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages
of Prospectus........................... Inside Front Cover Page of Prospectus;
Outside Back Cover Page of Prospectus
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges...... Inside Front Cover Page of Prospectus;
Prospectus Summary; Risk Factors; Selected
Consolidated Financial Data
4. Use of Proceeds........................... The Recapitalization; Use of Proceeds
5. Determination of Offering Price........... Not Applicable
6. Dilution.................................. Not Applicable
7. Selling Security Holders.................. Not Applicable
8. Plan of Distribution...................... Outside Front Cover Page of Prospectus;
Underwriting
9. Description of Securities to be
Registered.............................. Capitalization; Description of the Notes
10. Interests of Named Experts and Counsel.... Not Applicable
11. Information with Respect to Registrant.... Outside Front Cover Page of Prospectus;
Prospectus Summary; Risk Factors; The
Company; The Recapitalization;
Capitalization; Selected Consolidated
Financial Data; Management's Discussion
and Analysis of Financial Condition and
Results of Operations; Business;
Management; Certain Transactions;
Description of the Notes; Description of
Other Indebtedness; Experts; Index to
Consolidated Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities........................... Not Applicable
</TABLE>
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JUNE 7, 1996
PROSPECTUS
$85,000,000
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 $20.0 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 $60.0 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 March 31, 1996, on a pro forma basis after giving effect to the
Recapitalization (as defined), there would have been outstanding approximately
$ million of secured indebtedness of the Company and $85.0 million of senior
unsecured indebtedness of the Company consisting of 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."
Haynes International, Inc. has applied to have its Common Stock 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.
[CAPTION]
<TABLE>
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>
PICTURES DEPICTING PRODUCTS
AND END-USERS
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. The Company is a major supplier
of high performance alloys to General Electric Co., Pratt & Whitney, Rolls-Royce
plc, SNECMA, E.I. DuPont de Nemours & Co., The Dow Chemical Co. and Monsanto
Company. The Company 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
The Company believes it has attained 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. 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. 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
half of fiscal 1996 to approximately 2.7 million pounds from approximately 2.2
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 6.6% in the first six 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 expects to 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"). 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 April 30, 1996,
there were outstanding revolving borrowings under the Existing Credit Facility
of approximately $10.5 million. The Company will repay the amounts outstanding
under the Existing Credit Facility immediately following the closing 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."
5
<PAGE>
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
Notes Offered................ $85,000,000 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 $20.0 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 $60.0 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.
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 March 31, 1996, giving effect to the
transactions described under "The Recapitalization,"
including the redemption of the Existing Notes, $
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
other indebtedness secured by assets of the Company) will
have a claim
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
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
$ million. Such net proceeds, together with
estimated net proceeds from the Equity Offering of $
million and borrowings under the New Credit Facility of
$ 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 PER SHARE, 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>
SIX MONTHS
YEAR ENDED SEPTEMBER 30, ENDED MARCH 31,
----------------------------------------------------- ------------------
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 $93,516 $109,985
Cost of sales (1)............. 175,176 152,911(2) 136,255 171,771(3) 167,196 80,732 88,406
Selling and administrative
expenses..................... 20,762 19,641(2) 14,569 15,039 15,475 7,790 8,430
Research and technical
expenses..................... 4,578 3,894 3,603 3,630 3,049 1,521 1,675
Operating income (loss)....... 24,870 (7,102) 8,027 (39,862) 16,213 3,473 11,474
Other cost, net............... 324 882(2) 1,247 1,002 1,767 259 377
Interest expense, net......... 23,167 20,107 18,497 19,582 19,904 9,877 10,083
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) (6,871) 256
OTHER FINANCIAL DATA:
EBITDA (5)................... $ 39,004 $ 8,500 $ 20,546 $ 10,691 $ 23,446 $ 7,362 $ 15,322
Depreciation and amortization
(6).......................... 14,458 16,484 13,766 51,555(3) 9,000 4,148 4,225
Capital expenditures.......... 4,567 821 56 771 1,934 866 374
OPERATING DATA:
Shipments by markets (millions
of pounds):
Aerospace.................... 5.7 3.4 3.3 3.3 4.7 2.2 2.7
Chemical processing.......... 5.3 4.6 5.2 5.0 6.1 3.0 3.2
Other markets................ 5.9 5.9 6.8 5.0 5.5 2.9 1.9
-------- -------- -------- --------- -------- ------- --------
Total...................... 16.9 13.9 15.3 13.3 16.3 8.1 7.8
-------- -------- -------- --------- -------- ------- --------
-------- -------- -------- --------- -------- ------- --------
Average selling price per
pound........................ $ 13.26 $ 12.04 $ 10.48 $ 11.17 $ 12.18 $ 11.51 $ 13.88
Employees (end of period)..... 1,074 898 896 854 872 868 910
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED
SEPTEMBER 30, 1995 MARCH 31, 1996 MARCH 31, 1996 (8)
------------------ ---------------- -------------------
<S> <C> <C> <C>
PRO FORMA DATA (7):
EBITDA....................................... $ 23,446 $ 15,322 $ 31,406
Interest expense............................. 11,297 5,739 11,446
Net income................................... 1,969 4,683 9,078
Ratio of EBITDA to interest expense.......... 2.08x 2.67x 2.74x
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
----------------------------
ACTUAL AS ADJUSTED (9)
--------- ---------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital (10).................................................. $ 66,298 $
Property, plant and equipment, net.................................... 33,264
Total assets.......................................................... 154,986
Total debt............................................................ 154,928
Accrued postretirement benefits....................................... 95,030
Stockholders' deficit................................................. (122,375)
</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) 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. EBITDA should not
be construed as a substitute for income from operations, net earnings
(loss) and 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.
(6) Reflects (i) depreciation and amortization as presented in the Company's
Consolidated Statement of Cash Flows of $11,544, $11,575, $12,257, $48,495
and $9,632 for fiscal 1991, 1992, 1993, 1994 and 1995, respectively, and
$4,819 and $4,639 for the first six months of fiscal 1995 and 1996,
respectively, 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.
(7) Assumes the transactions described under "The Recapitalization" were
effected as of October 1, 1994, resulting in a reduction in interest
expense of $8,936, $4,527 and $9,019 for the year ended September 30, 1995,
the six months ended March 31, 1996 and the twelve months ended March 31,
1996, respectively. Actual interest savings may differ from pro forma
amounts due to differences in interest rates and borrowing levels.
(8) Pro forma data for the twelve months ended March 31, 1996 are provided to
give prospective investors a better perspective as to the impact the
Recapitalization would have had on recent operations.
(9) 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."
(10) 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.
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."
LEVERAGE AND DEBT SERVICE OBLIGATIONS; RESTRICTIVE DEBT COVENANTS. 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 March 31, 1996, the Company had approximately
$154.9 million of consolidated indebtedness. On a pro forma basis, giving effect
to the Recapitalization as of March 31, 1996, the Company would have had
approximately $ 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.
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
10
<PAGE>
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 covenants that, among other things, 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
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. Any default under the agreements with the Company's bank and other
lenders or noteholders or under the Indenture could have a material adverse
effect on the market value and the marketability of the Common Stock.
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 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 1994 and
to a deficit of approximately $121.9 million in fiscal 1995. See "Management's
Discussion
11
<PAGE>
and Analysis of Financial Condition and Results of Operations." Upon completion
of this Offering and the Recapitalization, the Company will continue to have a
stockholders' deficit of approximately $
million. 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 six 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 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
Development."
12
<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. 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. 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. The Company has budgeted approximately $3.3
million for expenses and capital expenditures related to environmental
compliance 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 has
completed an investigation of eight specifically identified solid waste
management units located at the Kokomo facility. 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 a
potentially responsible party at two waste disposal 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
13
<PAGE>
environmental expenditures may vary substantially from those currently
anticipated. See "Business-- Environmental Matters."
COLLECTIVE BARGAINING AGREEMENT. The hourly employees of the Company at the
Kokomo, Indiana plant are represented by the United Steelworkers of America (the
"USWA"). None of the employees at the Company's other plants or locations are
represented by a labor union. The employees at the Kokomo plant are currently
working under a labor contract that expires on June 11, 1996. The Company
commenced contract negotiations with the USWA in April 1996. There can be no
assurance of the outcome of such negotiations or the possible impact on the
financial condition or results of operations of the Company. See
"Business--Employees."
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. 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 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. Although the Company believes that
these fees were properly deducted, 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
14
<PAGE>
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. Prior to the Offering, MLGA Fund II, L.P., an investment
limited partnership ("Fund II"), and its affiliates owned approximately 94.2% 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 will own approximately % 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."
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. 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 September 30, 1995 and March 31, 1996, the foreign operations
had approximately $7.5 million and $5.5 million, respectively, in assets net of
liabilities denominated in foreign currencies and the Company's balance sheet at
those dates reflected accumulated foreign currency translation gains of
approximately $4.1 million and $3.3 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. 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."
15
<PAGE>
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. The Company is a major supplier of high
performance alloys to General Electric Co., Pratt & Whitney, Rolls-Royce plc,
SNECMA, E.I. DuPont de Nemours & Co., The Dow Chemical Co. and Monsanto Company.
The Company 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. 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 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 April 1, 1995 for the
twelve months ended March 31, 1996, (a) the Company's net income would have
increased from approximately $356,000 to approximately $9.1 million, (b) the
Company's interest expense would have decreased from approximately $20.5 million
to approximately $11.4 million and (c) the Company's ratio of EBITDA to interest
expense would have improved from 1.53x to 2.74x. See "Selected Consolidated
Financial Data."
The Equity Offering. Concurrently with this Offering, Haynes International,
Inc. is offering, by means of a separate prospectus, 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. The Company expects to receive a commitment from
CoreStates Bank N.A. (the "Lender") to provide the New Credit Facility in the
amount of $50.0 million. The Company anticipates that borrowings under the New
Credit Facility will be secured by a first priority security interest in the
Company's accounts receivable and inventories. The Company expects that the New
17
<PAGE>
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 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 April 30, 1996, the
prepayment premium on the Existing Senior Notes would have been approximately
$3.0 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 April 30, 1996, those amounts would have been approximately
$4.5 million and $3.8 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 $ 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 April 30, 1996 (in thousands):
SOURCES:
New Credit Facility (1)(2)..................................... $
Notes Offering................................................. 85,000
Equity Offering (2)............................................
-------
$
-------
-------
USES:
Repayment of Existing Credit Facility.......................... $10,451
Redemption of Existing Senior Notes............................ 50,000
Redemption of Existing Subordinated Notes...................... 90,000
Estimated redemption and repayment premiums on Existing
Indebtedness (3).............................................. 4,900
Estimated fees and expenses related to the Recapitalization
(4)...........................................................
-------
$
-------
-------
- ------------
(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 proceeds from the Equity Offering will be approximately $ and
borrowings under the New Credit Facility will be approximately $ .
(3) Represents an estimated prepayment premium of $3.0 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 March 31, 1996 and as adjusted to give effect to the
Recapitalization. See "Use of Proceeds."
<TABLE>
<CAPTION>
MARCH 31, 1996
------------------------
ACTUAL AS ADJUSTED
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt (1):
Existing Credit Facility............................................ $ 14,928 $ --
New Credit Facility................................................. --
--------- -----------
Total short-term debt........................................... 14,928
Long-term debt:
Existing Senior Notes............................................... 50,000 --
Existing Subordinated Notes......................................... 90,000 --
Notes offered hereby................................................ -- 85,000
--------- -----------
Total long-term debt............................................ 140,000 85,000
--------- -----------
Total debt...................................................... 154,928
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
Accumulated deficit................................................. (172,029)
Foreign currency translation adjustment............................. 3,348 3,348
--------- -----------
Total stockholders' deficit..................................... (122,375)
--------- -----------
Total capitalization............................................ $ 33,980 $
--------- -----------
--------- -----------
</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.
20
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE, 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 six months ended March
31, 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 six months ended
March 31, 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>
SIX MONTHS
YEAR ENDED SEPTEMBER 30, ENDED MARCH 31,
--------------------------------------------------------------- ---------------------
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 $ 93,516 $ 109,985
Cost of sales (1)............ 175,176 152,911(2) 136,255 171,771(3) 167,196 80,732 88,406
Selling and administrative
expenses.................... 20,762 19,641(2) 14,569 15,039 15,475 7,790 8,430
Research and technical
expenses.................... 4,578 3,894 3,603 3,630 3,049 1,521 1,675
Operating income (loss)...... 24,870 (7,102) 8,027 (39,862) 16,213 3,473 11,474
Other cost, net.............. 324 882(2) 1,247 1,002 1,767 259 377
Interest expense, net........ 23,167 20,107 18,497 19,582 19,904 9,877 10,083
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) (6,871) 256
OTHER FINANCIAL DATA:
EBITDA (5)................... $ 39,004 $ 8,500 $ 20,546 $ 10,691 $ 23,446 $ 7,362 $ 15,322
Depreciation and amortization
(6)......................... 14,458 16,484 13,766 51,555(3) 9,000 4,148 4,225
Capital expenditures......... 4,567 821 56 771 1,934 866 374
Ratio of earnings before
fixed charges to fixed
charges (7)................. 1.06x -- -- -- -- -- 1.10x
OPERATING DATA:
Shipments by markets
(millions of pounds):
Aerospace................... 5.7 3.4 3.3 3.3 4.7 2.2 2.7
Chemical processing......... 5.3 4.6 5.2 5.0 6.1 3.0 3.2
Other markets............... 5.9 5.9 6.8 5.0 5.5 2.9 1.9
--------- --------- --------- --------- --------- --------- ---------
Total..................... 16.9 13.9 15.3 13.3 16.3 8.1 7.8
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Average selling price per
pound....................... $ 13.26 $ 12.04 $ 10.48 $ 11.17 $ 12.18 $ 11.51 $ 13.88
Employees (end of period).... 1,074 898 896 854 872 868 910
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED
SEPTEMBER 30, 1995 MARCH 31, 1996 MARCH 31, 1996 (9)
------------------ ---------------- -------------------
<S> <C> <C> <C>
PRO FORMA DATA (8):
EBITDA....................................... $ 23,446 $ 15,322 $ 31,406
Interest expense............................. 11,297 5,739 11,446
Net income................................... 1,969 4,683 9,078
Ratio of earnings before fixed charges to
fixed charges............................... 0.31x 0.97x 0.98x
Ratio of EBITDA to interest expense.......... 2.08x 2.67x 2.74x
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
----------------------------
ACTUAL AS ADJUSTED (10)
-------- ----------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital (11).................................................. $ 66,298 $
Property, plant and equipment, net.................................... 33,264
Total assets.......................................................... 154,986
Total debt............................................................ 154,928
Accrued postretirement benefits....................................... 95,030
Stockholders' deficit................................................. (122,375)
</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) 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. EBITDA should not be construed
as a substitute for income from operations, net earnings (loss) and cash
flows from operating activities determined in accordance with 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.
(6) Reflects (i) depreciation and amortization as presented in the Company's
Consolidated Statement of Cash Flows of $11,544, $11,575, $12,257, $48,495
and $9,632 for fiscal 1991, 1992, 1993, 1994 and 1995, and $4,819 and
$4,639 for the first six months of fiscal 1995 and 1996, respectively, 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.
(7) 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, 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 $6,663 for the first six months of fiscal 1995. Actual
interest savings may differ from pro forma amounts due to differences in
interest rates and borrowing levels.
(8) Assumes the transactions described under "The Recapitalization" were
effected as of October 1, 1994, resulting in a reduction in interest
expense of $8,936, $4,527 and $9,019 for the year ended September 30, 1995,
the six months ended March 31, 1996 and the twelve months ended March 31,
1996, respectively. Actual interest savings may differ from pro forma
amounts due to differences in interest rates and borrowing levels.
(9) Pro forma data for the twelve months ended March 31, 1996 are provided to
give prospective investors a better perspective as to the impact the
Recapitalization would have had on recent operations.
(10) 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."
(11) Reflects the excess of current assets over historical and adjusted current
liabilities as set forth in the Consolidated Financial Statements. Current
liabilities include amounts outstanding under the Existing Credit Facility
and amounts to be outstanding under the New Credit Facility, respectively.
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.
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. During fiscal 1995, sales by the foreign operations totaled
approximately $41.4 million, or 52% 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.
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 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
23
<PAGE>
markets, EBITDA declined 48%, despite a 7% increase in the average selling price
per pound of the Company's products.
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
--------------- --------------- --------------- --------------- ---------------
SALES (DOLLARS IN % OF % OF % OF % OF % OF
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. Industry sources 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 six months of fiscal 1996
increased 35.2% 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>
SIX MONTHS
YEAR ENDED SEPTEMBER 30, ENDED MARCH 31,
--------------------------- ----------------
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)........................... 83.9 89.4 82.8 86.3 80.4
Selling and administrative expenses......... 9.0 10.0 7.7 8.3 7.7
Research and technical expenses............. 2.2 2.4 1.5 1.6 1.5
Other cost, net............................. 0.8 0.7 0.9 0.3 0.3
Interest expense............................ 11.6 13.2 10.0 10.7 9.3
Interest income............................. (0.3) (0.2) (0.2) (0.1) (0.1)
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) (7.1) 0.9
Provision for (benefit from) income taxes... (2.1) 0.3 0.6 0.2 0.7
Cumulative effect of change in accounting
principle (net of tax benefit)............. -- (52.9)(3) -- -- --
----- ----- ----- ----- -----
Net income (loss)........................... (5.1)% (93.3)% (3.3)% (7.3)% 0.2%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</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>
SIX MONTHS ENDED MARCH 31, 1996 COMPARED TO SIX MONTHS ENDED MARCH 31, 1995
Net revenues increased approximately $16.5 million, or 17.6%, to
approximately $110.0 million for the first half of fiscal 1996 from
approximately $93.5 million for the same period in fiscal 1995, as a result of a
20.6% increase in the average selling price per pound, from $11.51 to $13.88.
The increase in average selling price was partially offset by a 3.7% decrease in
volume to 7.8 million pounds from 8.1 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 35.0% to approximately $40.5
million in the first half of fiscal 1996 from approximately $30.0 million for
the same period in fiscal 1995. Volume increased 19.9% and the average selling
price per pound increased 12.7%. 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 28.4% to approximately $42.1 million in the first six
months of fiscal 1996 from approximately $32.8 million for the same period in
fiscal 1995. Volume increased 6.6% despite lower exports to the Pacific Rim. In
addition, the average selling price per pound increased 20.4% as a result of
higher demand from both the domestic and European markets.
Sales to the LBGT market increased 24.0% to approximately $9.3 million in
the first half of fiscal 1996 from approximately $7.5 million for the
corresponding period in fiscal 1995 as a result of a 21.2% increase in volume
and a 2.7% 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 decreased by 30.0% to approximately $3.5 million in
the first half of fiscal 1996 from approximately $5.0 million in the same period
of fiscal 1995 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. Volume
decreased 47.4%, but average selling price per pound increased by 30.1%.
Sales to the oil and gas industry were approximately $300,000 in the first
half of fiscal 1996 as compared to sales of approximately $200,000 for the first
half of fiscal 1995.
Sales to other markets decreased by 30.0% to approximately $12.6 million for
the first half of fiscal 1996 from approximately $18.0 million in the first half
of fiscal 1995, as a result of a 49.8% decrease in volume, offset by a 40.2%
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 in the first half 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 $7.7 million, or 9.5%, to
approximately $88.4 million for the first half of fiscal 1996 from approximately
$80.7 million in the same period in fiscal 1995. However, cost of sales as a
percent of net revenues decreased to 80.3% from 86.3% 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 half 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
half of fiscal 1995 raw material costs escalated, thereby temporarily reducing
margins until price increases could be fully implemented. In the first half 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 $640,000, or
8.2%, to approximately $8.4 million for the first half of fiscal 1996 from
approximately $7.8 million for the same period in fiscal 1995. However, selling
and administrative expenses declined as a percentage of net revenues from 8.3%
to 7.7%. The increase in absolute dollars was primarily a result of salary
increases and the payment of performance-based management bonuses of
approximately $439,000 which were awarded and paid in January 1996. 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
expense for management bonuses of approximately $900,000 during fiscal 1996. 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 $154,000, or 10.1%,
to approximately $1.7 million for the first half of fiscal 1996 from
approximately $1.5 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 half of fiscal 1996 of approximately $11.5 million, approximately
$2.0 million of which was contributed by the Company's foreign subsidiaries. For
the first half of fiscal 1995, operating income was approximately $3.5 million,
of which approximately $2.0 million was contributed by the Company's foreign
subsidiaries.
Other costs, net increased approximately $118,000, or 45.6%, to
approximately $377,000 for the first half of fiscal 1996 from approximately
$259,000 in the same period in fiscal 1995, primarily as a result of payments
made to lenders for amendments to the Existing Credit Facility which were
partially offset by lower foreign currency exchange adjustments.
Interest expense increased approximately $232,000, or 2.1%, to approximately
$10.1 million for the first half of fiscal 1996 from approximately $9.9 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 $758,000 for the first half
of fiscal 1996 increased by approximately $550,000 from approximately $208,000
for the first half 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").
As a result of the above factors, the Company recognized net income for the
first half of fiscal 1996 of approximately $256,000, compared to a net loss of
approximately $6.9 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 certain higher volume HTA products. Due to changes in
product mix, the average selling price per
29
<PAGE>
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 $4.6 million, or 2.7%, to
approximately $167.2 million in fiscal 1995 from approximately $171.8 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 89.4%
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.
30
<PAGE>
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 $16.5 million as compared to an operating loss of
approximately $35.6 million in fiscal 1994. Operating income in fiscal 1994 was
approximately $1.5 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 $765,000, or 76.4%, to
approximately $1.8 million in fiscal 1995 from approximately $1.0 million in
fiscal 1994, primarily as a result of fluctuations in foreign exchange rates and
costs associated with the purchase of 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 $60.9 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.
31
<PAGE>
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 $35.5 million, or 26.1%, to
approximately $171.8 million in fiscal 1994 from approximately $136.3 million in
fiscal 1993. Cost of sales as a percent of the Company's net revenues, excluding
the write-off of goodwill, increased to 89.4% in fiscal 1994, compared to 83.9%
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 operating income of
approximately $1.5 million prior to the write-off of goodwill in fiscal 1994
compared to approximately $8.4 million 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 decreased approximately $245,000, or 19.7%, to approximately
$1.0 million in fiscal 1994 from approximately $1.2 million in fiscal 1993. This
decrease was due to lower realized losses on certain nickel hedging contracts,
which were partially offset by 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.
32
<PAGE>
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 approximately $ million of borrowings under the New Credit
Facility. 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 March 31, 1996, total indebtedness would have been
approximately $ million and stockholders' deficit would have been
approximately $ 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 believes that cash provided from
operations, supplemented by borrowings under the New Credit Facility, will be
sufficient to meet the Company's cash requirements for the foreseeable future,
although there can be no assurance that this will be the case. See "The
Recapitalization" and "Description of Other Indebtedness."
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 are expected to increase from approximately $374,000 in the
first six months of fiscal 1996 to approximately $1.8 million in the second six
months of fiscal 1996 and approximately $10.1 million in fiscal 1997. 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
1996 and 1997 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. However,
the Company does not currently have any significant capital expenditure
commitments.
Net cash used in operations in the first six months of fiscal 1996 was
approximately $3.6 million, as compared to approximately $4.0 million for the
same period in fiscal 1995. The negative cash flow from operations for the first
six months of fiscal 1996 was primarily a result of increases of approximately
$4.3 million in inventories and approximately $5.1 million in accounts
receivable, which were offset by non-cash depreciation and amortization expenses
of approximately $4.6 million, positive net income of
33
<PAGE>
approximately $256,000, an increase in the accounts payable and accrued expenses
balance of approximately $1.5 million and other adjustments. Cash used for
investment activities declined from approximately $865,000 in the first six
months of fiscal 1995 to approximately $314,000 in the first six months of
fiscal 1996, primarily as a result of lower capital expenditures. Cash provided
by financing activities for the first six months of fiscal 1996 was
approximately $2.5 million due to increased borrowings under the Existing Credit
Facility. Cash for the first six months of fiscal 1996 decreased approximately
$1.5 million, resulting in a March 31, 1996 cash balance of approximately $3.6
million. Cash in the first six months of fiscal 1995 increased approximately
$100,000, resulting in a cash balance of approximately $5.8 million at March 31,
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 March 31, 1996, the Company had net working capital of approximately
$66.3 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 $3.7 million in the first six months of fiscal 1996 was
a result of increases in accounts receivable and inventories of approximately
$5.1 million and $4.3 million, respectively, offset by an increase of
approximately $1.5 million in accounts payable and accrued expenses, an increase
of approximately $2.5 million in borrowings under the Existing Credit Facility
and an increase of approximately $278,000 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 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. The Company
has budgeted approximately $3.3 million for expenses and capital expenditures
related to environmental compliance for fiscal 1996 through fiscal 1998. See
"Business--Environmental Matters."
INFLATION
The Company believes that inflation has not had a material impact on its
operations.
34
<PAGE>
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.
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 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 of
approximated $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
35
<PAGE>
due to actual operating results and changes in future income expectations over
several years. Such tax provision or benefit effect would 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, adversely
impact 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 materially 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
<PAGE>
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. The Company is a major supplier of high
performance alloys to General Electric Co., Pratt & Whitney, Rolls-Royce plc,
SNECMA, E.I. DuPont de Nemours & Co., The Dow Chemical Co. and Monsanto Company.
The Company 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
The Company believes it has attained 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. 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.
37
<PAGE>
. 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
38
<PAGE>
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. 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. The Company's major aerospace customers include General Electric Co.,
Rolls-Royce plc, Pratt & Whitney and SNECMA.
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. Significant customers include E.I. DuPont de Nemours & Co.,
Alfa-Laval, Inc. 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, Ltd., General Electric Co.
and Westinghouse Electric Corp.
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 Co. and Houston
Lighting and Power Company, Inc.
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 $44.6 million for the first six 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.
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
43
<PAGE>
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 March 31, 1996, the Company's backlog orders aggregated approximately
$61.9 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 March
31, 1996 are expected to be shipped within the twelve months beginning April 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 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.
44
<PAGE>
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 each of the first three quarters in fiscal 1996.1
<TABLE>
<CAPTION>
END OF FISCAL QUARTER AMOUNT OF BACKLOG ORDERS
- ---------------------------------------------------------------------- ------------------------
(IN MILLIONS)
<S> <C>
First Quarter 1993.................................................... $ 41.5
Second Quarter 1993................................................... 38.9
Third Quarter 1993.................................................... 31.5
Fourth Quarter 1993................................................... 31.1
First Quarter 1994.................................................... 29.5
Second Quarter 1994................................................... 35.5
Third Quarter 1994.................................................... 38.0
Fourth Quarter 1994................................................... 41.5
First Quarter 1995.................................................... 49.7
Second Quarter 1995................................................... 64.8
Third Quarter 1995.................................................... 55.8
Fourth Quarter 1995................................................... 49.9
First Quarter 1996.................................................... 61.2
Second Quarter 1996................................................... 61.9
Third Quarter 1996.................................................... 66.7
</TABLE>
- ------------
(1) Backlog for the third quarter of fiscal 1996 is as of April 30, 1996.
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 order placement and shipment 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
Materials
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 March 31, 1996, the research
and technical development staff consisted of 35 persons, 14 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
$1.7 million for research and technical development activities for fiscal 1993,
1994 and 1995 and for the first six 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 Corp. and VDM Nickel-Technologies AG. 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 March 31, 1996, the Company had approximately 910 employees. All
eligible hourly employees at the Kokomo plant are covered by a collective
bargaining agreement with the United Steelworkers of America which was ratified
in 1993 and which expires on June 11, 1996. The Company began to negotiate the
terms of a new contract with USWA in April 1996. See "Risk Factors-- Collective
Bargaining Agreement." 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.
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
47
<PAGE>
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. The Company intends to vigorously defend against the
claims.
In addition to the foregoing proceeding, 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 $4.8 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. The Company
has budgeted approximately $3.3 million for capital expenditures and other
expenses related to environmental compliance for fiscal year 1996 through fiscal
year 1998.
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 been significant, 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
48
<PAGE>
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 the Comprehensive Environmental Response, Compensation and Liability Act,
as amended ("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 PRPs, has received a refund of approximately $52,000 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,
49
<PAGE>
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.
The Company is required to collect, treat and properly dispose of process
waste waters generated in the course of its operations. 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. Due to a backlog of applications to EPA, the waste
water plant is operating under an interim order pending issuance of a formal
permit. The conditions of the permit could require modifications to the plant,
but 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 1,
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............................ 57 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................................. 36 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,
52
<PAGE>
subject, in the case of Mr. Austin, to the terms of his employment contract. See
"--Austin Employment Agreement."
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 -- 200,000 444
Joseph F. Barker.............. 1995 130,500 -- 28,400 1,808
Vice President, Finance; 1994 130,500 -- -- 2,252
Secretary; Treasurer 1993 114,200 -- -- 1,842
F. Galen Hodge................ 1995 129,033 -- 23,000 3,651
Vice President, 1994 129,033 -- -- 2,580
International 1993 128,100 -- -- 2,096
August A. Cijan............... 1995 117,800 -- 40,000 55,677
Vice President, Operations 1994 106,893 -- -- 295
1993 -- -- -- --
Frank J. LaRosa............... 1995 116,000 -- 40,000 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 553,297 shares of the Company's Common Stock. Options
to purchase 481,325 shares have been issued under the Existing Stock Option
Plan, leaving 71,972 shares available for issuance. 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.
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, 197,222 options were granted by the Compensation Committee
pursuant to the Existing Stock Option Plan. No options were granted in the six
months ended March 31, 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(2)
UNDERLYING TO EMPLOYEES EXERCISE EXPIRATION ----------------
NAME OPTIONS GRANTED IN FISCAL 1995 PRICE ($/SH)(1) DATE 5%($) 10%($)
- ----------------------------- --------------- --------------- --------------- ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Joseph F. Barker............. 17,346 8.8% 4.0931 12/07/04 44,883 113,154
F. Galen Hodge............... 14,048 7.1 4.0931 12/07/04 36,161 91,640
August A. Cijan.............. 24,431 12.4 4.0931 12/07/04 62,886 159,372
Frank J. LaRosa.............. 24,431 12.4 4.0931 12/07/04 62,886 159,372
</TABLE>
- ------------
(1) The options listed in the table were originally granted with an exercise
price of $8.1862 per share. Effective January , 1996, the Company's board
of directors reduced the exercise price for these options to $4.0931.
(2) 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.
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 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
55
<PAGE>
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 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
56
<PAGE>
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.
Pursuant to the Executive Employment Agreement, the Company also granted Mr.
Austin the option to purchase 122,156 shares of Common Stock at a purchase price
of $8.1862 per share through the Existing Stock Option Plan. In January 1996 the
purchase price for exercise of the option was reduced to $4.0931 per share.
These options vest at a rate of 24,431 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 June , 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.
57
<PAGE>
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.
AMENDMENT TO 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, the normal monthly pension benefit provided under
the U.S. Pension Plan is the greater of (i) 1.2% of the employee's total final
monthly earnings, plus an additional 0.5% of the employee's final 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.
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
----------------------------------------------------
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>
58
<PAGE>
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:
CREDITED
SERVICE
--------
Michael D. Austin................................................. 2
F. Galen Hodge.................................................... 26
Joseph F. Barker.................................................. 15
Frank J. LaRosa................................................... 2
August A. Cijan................................................... 2
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 (the "Profit Sharing Plan") 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 Plan for the fiscal years ended September 30, 1995, 1994 and
1993.
The Profit Sharing Plan is 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 Plan.
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 Plan is represented by the percentage which his or
her plan compensation (up to $150,000) 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 Plan, in amounts up to 10% of
their plan compensation. Elective salary reduction contributions may be
withdrawn subject to the terms of the Profit Sharing Plan.
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.
59
<PAGE>
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 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 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 March 31, 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, (iv) all affiliates of Fund II as a group and (v) all
directors and executive officers of the Company as a group, as of March 31, 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.......................................... 3,518,049 90.6% 3,518,049
Sangwoo Ahn...................................... 3,591,306(3)(4) 92.5 3,591,306
Perry J. Lewis................................... 3,591,306(3)(4) 92.5 3,591,306
John A. Morgan................................... 3,591,306(3)(4) 92.5 3,591,306
Ira Starr........................................ 3,575,679(3)(4) 92.1 3,575,679
William C. Ughetta, Jr........................... 3,571,099(3)(4) 92.0 3,571,099
Thomas F. Githens................................ 33,470 (6) 33,470
Robert Egan...................................... 4,275 (6) 4,275
Michael D. Austin................................ 48,862(5) 1.2(7) 48,862
F. Galen Hodge................................... 34,857(5) (6)(7) 34,857
Joseph F. Barker................................. 24,995(5) (6)(7) 24,995
Charles J. Sponaugle............................. 12,092(8) (6)(7) 12,092
August A. Cijan.................................. 4,886(5) (6)(7) 4,886
Frank J. LaRosa.................................. 4,886(5) (6)(7) 4,886
All Fund II affiliates as a group................ 3,656,507 94.2 3,656,507
All directors and executive officers of the
Company as a group.............................. 3,759,629(3) 93.7(7) 3,889,602
</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.
(3) Includes the shares reported in the table as owned by Fund II and 53,051
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 such person. See "Management--Stock Option Plans."
(6) Less than 1%.
(7) Calculated on the basis of the number of outstanding shares of Common Stock
plus, for each person or group, the number of shares of Common Stock
underlying options exercisable within 60 days of the date of this Prospectus
which are deemed to be beneficially owned by such person or by persons
within such group. See "Management-- Stock Option Plans."
(8) Includes 9,038 shares of Common Stock underlying options exercisable within
60 days of the date of this Prospectus which are deemed to be beneficially
owned by Mr. Sponaugle. See "Management--Stock Option Plans."
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 , 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 $85,000,000
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
(the "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 , 1996 and after giving effect
to the transactions described under "The Recapitalization", $ 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:
REDEMPTION
YEAR PRICE
- ---- ----------
2000............................................................ %
2001............................................................ %
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 $20.0 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 $60.0 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 The Depository Trust Company).
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,
63
<PAGE>
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.
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.
64
<PAGE>
"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.
"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 the 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 (other than Permitted
Indebtedness but including any Acquired 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,
65
<PAGE>
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 hereof to the second anniversary of
the date hereof, and 2.25 to 1.00 thereafter (each such ratio hereinafter
referred to 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);
(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
66
<PAGE>
(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.
(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
or paragraph (vi) below;
(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 payment 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,
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(D) 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)(D) 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 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
67
<PAGE>
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 Subordinated Notes within 45
days after the date of the Indenture; and
(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 related transactions
complies with clause (i) above and such transaction or series 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 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 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,
68
<PAGE>
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 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
69
<PAGE>
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 make an offer to purchase (an
"Offer") from all holders of the Notes in accordance with the procedures set
forth in the Indenture in the maximum principal amount (expressed as a multiple
of $1,000) of Notes that may be purchased with the Excess Proceeds. 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
Excess Proceeds (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, 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 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 tendered in an Offer, (ii) delivery by the Company of the
Offered Price to the holders of the Notes tendered in an 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 the Excess Proceeds are 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.
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
70
<PAGE>
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 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
71
<PAGE>
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.
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 or any Guarantor 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, 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
72
<PAGE>
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 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.
73
<PAGE>
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 Note outstanding.
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, as 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 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
74
<PAGE>
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 we 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 or
insofar as clause (vi) or (vii) under the first paragraph under "--Events of
Default" are concerned, at any time during the period ending on the 91st day
after the date of 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 after the 91st day following the deposit, the trust funds will not be
subject to the effect of any applicable bankruptcy, insolvency, reorganization
or similar laws affecting creditors' rights generally; (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 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 91st 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 and any Guarantor have 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.
75
<PAGE>
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 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) 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; (iv) 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; (v) 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 (vi) 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. Notwithstanding anything to the
contrary in this Prospectus, the Company may incur Acquired Indebtedness if,
after giving pro forma effect thereto, (x) the Consolidated Fixed Coverage Ratio
is less than the Applicable Coverage Ratio but is equal to or greater than 1.75
to 1.00 and (y) the Consolidated Fixed Coverage Ratio increases as a result of
such incurrence.
"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, with respect to any specified Person, (i) any other
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person or (ii) 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 (i) or (ii), or (iii) 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"
76
<PAGE>
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 shareholders 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
77
<PAGE>
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 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.
"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 "Description of the Notes-- 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 (Loss)" 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
78
<PAGE>
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 shareholders.
"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 (Loss) 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 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.
79
<PAGE>
"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 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 Obligations" means the obligations of the Company and any other
obligor under the Indenture or under the Notes 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, and the Notes, 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 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.
80
<PAGE>
"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 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 as 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, , as agent, the lenders party
thereto, 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 (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) percent of Eligible
Inventory consisting of finished goods and raw materials for such finished
goods, plus (ii) percent of Eligible Inventory consisting of
work-in-process and semi-processed goods plus (iii) 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;
81
<PAGE>
(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 "refinancing") of any Indebtedness
described in clauses (ii) and (vi) of this definition of "Permitted
Indebtedness," including any successive refinancings so long as the
aggregate principal amount of Indebtedness represented thereby is not
increased by such refinancing plus the lesser of (I) the stated amount of
any premium or other payment required to be paid in connection with such
refinancing pursuant to the terms of the Indebtedness being refinanced 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 refinancing and, in the case of
Pari Passu Indebtedness or Subordinated Indebtedness, such 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."
"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:
82
<PAGE>
(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 "refinancing") of any Indebtedness described
in clause (i) of this definition of "Permitted Subsidiary Indebtedness,"
including any successive 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 refinancing and (y) the amount of premium actually paid in connection
with any such 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 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
83
<PAGE>
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) 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
84
<PAGE>
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 and a
capital 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.
85
<PAGE>
DESCRIPTION OF OTHER INDEBTEDNESS
The following description summarizes the terms of the Company's other
indebtedness assuming consummation of the Recapitalization. Such summary is
qualified by and subject to the more complete description contained in those
documents relevant to the particular indebtedness described.
THE NEW CREDIT FACILITY
The Company expects to receive a commitment letter (the "Commitment")
pursuant to which CoreStates Bank, N.A. (the "Lender") will provide the New
Credit Facility, which provides 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.
The New Credit Facility will have an initial term of three years subject to
automatic renewal for successive one-year periods unless terminated by either
party on the initial maturity date or any subsequent maturity date upon 120 days
prior written notice.
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 % of eligible accounts
receivable (generally, accounts receivable of the Company from domestic
customers that are current or past due 60 or fewer days) plus % of eligible
raw materials and finished goods inventories plus % 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 the Lender 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 the Lender. The interest rates shall be
reduced by 0.25% per annum if the Company's EBITDA exceeds $34.0 million for the
fiscal year ended 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 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 Commitment also provides for the payment of early
termination fees in certain circumstances and certain other fees payable by the
Company to the Lender.
86
<PAGE>
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 as representatives of
the underwriters (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.
PRINCIPAL
UNDERWRITER AMOUNT
----------- -----------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.......................................
PaineWebber Incorporated......................................
-----------
Total.............................................. $85,000,000
===========
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.
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.
87
<PAGE>
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. 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 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.
88
<PAGE>
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
Unaudited Condensed Consolidated Balance Sheet as of September 30, 1995 and March 31,
1996............................................................................... F-21
Unaudited Condensed Consolidated Statement of Operations for the six months ended
March 31, 1995 and 1996............................................................ F-22
Unaudited Condensed Consolidated Statement of Cash Flows for the six months ended
March 31, 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 STOCKHOLDERS' 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
Stockholders' 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 stockholders' deficit...................................... (116,027) (121,909)
--------- ---------
Total liabilities and stockholders' 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............................................ 136,255 134,654 167,196
Goodwill write-off....................................... 37,117
Selling and administrative............................... 14,569 15,039 15,475
Research and technical................................... 3,603 3,630 3,049
Other costs, net......................................... 1,247 1,002 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, EXCEPT PER SHARE AMOUNTS)
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. At September 30, 1994, $863 in cash was restricted for property,
plant, and equipment acquisitions.
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.
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, EXCEPT PER SHARE AMOUNTS)
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.
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. 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 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.
F-7
<PAGE>
HAYNES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
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 materially
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:
SEPTEMBER 30,
------------------
1994 1995
------- -------
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
------- -------
------- -------
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, EXCEPT PER SHARE AMOUNTS)
NOTE 3: PROPERTY, PLANT AND EQUIPMENT
The following is a summary of the major classes of property, plant, and
equipment:
SEPTEMBER 30,
------------------
1994 1995
------- -------
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
------- -------
------- -------
NOTE 4: ACCOUNTS PAYABLE AND ACCRUED EXPENSES
The following is a summary of the major classes of accounts payable and
accrued expenses:
SEPTEMBER 30,
------------------
1994 1995
------- -------
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
------- -------
------- -------
F-9
<PAGE>
HAYNES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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, EXCEPT PER SHARE AMOUNTS)
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, EXCEPT PER SHARE AMOUNTS)
NOTE 6: DEBT
Long-term debt, consists of the following:
SEPTEMBER 30,
--------------------
1994 1995
-------- --------
Existing Subordinated Notes (due 1997-1999, 13.5%).... $ 90,000 $ 90,000
Existing Secured Notes (due 1998, 11.25%)............. 50,000 50,000
-------- --------
$140,000 $140,000
-------- --------
-------- --------
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 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 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.
F-12
<PAGE>
HAYNES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 6: DEBT--(CONTINUED)
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.
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, EXCEPT PER SHARE AMOUNTS)
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)
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:
YEAR ENDED
SEPTEMBER 30,
-------------------------------
1993 1994 1995
-------- ------- --------
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
-------- ------- --------
-------- ------- --------
The following table sets forth the domestic pension plan's funded status:
SEPTEMBER 30,
---------------------
1994 1995
-------- ---------
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%
-------- ---------
-------- ---------
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)
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:
SEPTEMBER 30,
------------------
1994 1995
------- -------
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
------- -------
------- -------
F-16
<PAGE>
HAYNES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8: PENSION PLAN AND RETIREMENT BENEFITS--(CONTINUED)
Net periodic postretirement benefit cost included the following components:
YEAR ENDED
SEPTEMBER 30,
----------------
1994 1995
------ ------
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
------ ------
------ ------
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:
1996.............................................................. $1,826
1997.............................................................. 964
1998.............................................................. 718
1999.............................................................. 522
2000 and thereafter............................................... 1,026
------
$5,056
------
------
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
have been adversely affecting the specialty corrosion and high-temperature alloy
industry operating
F-17
<PAGE>
HAYNES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10: OTHER--(CONTINUED)
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 905,880 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 $2.28 and $3.24 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 $10 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 320,000 options with exercise prices of $5.00 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 $5.00 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)
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............. 636,058 $ 2.28-$5.00 1999-2002 550,098
Granted..................................... 200,000 5.00
Redeemed.................................... -- --
Cancelled................................... -- --
---------
Outstanding at September 30, 1993............. 836,058 2.28-5.00 1999-2003 592,078
Granted..................................... 7,000 5.00
Redeemed.................................... (139,315) 2.28-3.24
Cancelled................................... (107,300) 5.00
---------
Outstanding at September 30, 1994............. 596,443 2.28-5.00 1999-2004 434,443
Granted..................................... 322,900 5.00
Redeemed.................................... (62,798) 2.28-3.24
Cancelled................................... (36,500) 5.00
---------
Outstanding at September 30, 1995........... 820,045 $ 2.28-$5.00 1999-2005 377,145
--------- ------------ -----------
--------- ------------ -----------
Options Outstanding at September 30, 1995 consist of:
98,517 $ 2.28 98,517
98,528 3.24 98,528
623,000 5.00 180,100
--------- -----------
820,045 377,145
--------- -----------
--------- -----------
</TABLE>
F-19
<PAGE>
HAYNES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 12: FINANCIAL INFORMATION BY GEOGRAPHIC AREA
The Company develops, manufactures and markets high performance alloys
engineered to withstand hostile environments. During 1994 and 1995, sales to a
single customer approximated 10% of net revenues for each period.
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, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1995 1996
------------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS:
Current Assets:
Cash and cash equivalents......................................... $ 5,035 $ 3,550
Accounts and notes receivable, less allowance for doubtful
accounts of $979 and $1,019, respectively....................... 38,089 43,198
Inventories....................................................... 60,234 64,500
------------- -----------
Total current assets.......................................... 103,358 111,248
------------- -----------
Net property, plant and equipment................................... 36,863 33,264
Prepayments and deferred charges, net............................... 11,095 10,474
------------- -----------
Total assets.................................................. $ 151,316 $ 154,986
------------- -----------
------------- -----------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses............................. $ 22,975 $ 24,454
Accrued postretirement benefits................................... 4,100 4,100
Revolving credit.................................................. 12,477 14,928
Income taxes payable.............................................. 1,190 1,468
------------- -----------
Total current liabilities..................................... 40,742 44,950
------------- -----------
Long-term debt...................................................... 140,000 140,000
Deferred income taxes............................................... 326 54
Accrued postretirement benefits..................................... 90,730 90,930
------------- -----------
Total liabilities............................................. 271,798 275,934
------------- -----------
Redeemable common stock of parent company........................... 1,427 1,427
Stockholders' deficit:
Common stock, $.01 par value (100 shares authorized, issued and
outstanding)....................................................
Additional paid-in capital........................................ 46,306 46,306
Accumulated deficit............................................... (172,285) (172,029)
Foreign currency translation adjustment........................... 4,070 3,348
------------- -----------
(121,909) (122,375)
------------- -----------
Total liabilities and stockholders' deficit......................... $ 151,316 $ 154,986
------------- -----------
------------- -----------
</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>
SIX MONTHS ENDED
MARCH 31,
-------------------
1995 1996
------- --------
<S> <C> <C>
Net sales and operating revenue......................................... $93,516 $109,985
Costs and expenses:
Cost of sales......................................................... 80,732 88,406
Selling and administrative............................................ 7,790 8,430
Research & technical.................................................. 1,521 1,675
Other costs, net...................................................... 259 377
Interest expense...................................................... 10,034 10,266
Interest income....................................................... (157) (183)
------- --------
Total costs and expenses................................................ 100,179 108,971
------- --------
Income (loss) before provision for Income taxes....................... (6,663) 1,014
Provision for income taxes.............................................. 208 758
------- --------
Net income (loss)..................................................... $(6,871) $ 256
------- --------
------- --------
</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>
SIX MONTHS ENDED
MARCH 31,
------------------
1995 1996
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)...................................................... $(6,871) $ 256
Depreciation........................................................... 4,090 3,924
Amortization........................................................... 729 715
Adjustments (net)...................................................... (1,984) (8,455)
------- -------
Net cash used in operating activities.................................. (4,036) (3,560)
------- -------
Cash flows from investment and other activities:
Additions to property.................................................. (866) (374)
Other investment activities............................................ 1 60
------- -------
Net cash used in investment activities................................. (865) (314)
------- -------
Cash flows from financing activities:
Net, additions to revolving credit..................................... 4,768 2,452
Reduction of revolving credit
Other financing activities............................................. (41)
------- -------
Net cash provided from financing activities............................ 4,727 2,452
------- -------
Effect of exchange rates on cash......................................... 273 (63)
------- -------
Increase (decrease) in cash and cash equivalents......................... 99 (1,485)
Cash and cash equivalents, beginning of period........................... 5,690 5,035
------- -------
Cash and cash equivalents, end of period................................. $ 5,789 $ 3,550
------- -------
------- -------
Supplemental disclosures of cash flow information:
Cash paid during period for:
Interest............................................................. $ 9,305 $ 9,551
Income taxes......................................................... 164 729
</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 SIX MONTHS ENDED MARCH 31, 1996
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
six months ended March 31, 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 MARCH 31, 1996
------------------ --------------
(UNAUDITED)
<S> <C> <C>
Raw materials............................... $ 2,998 $ 5,387
Work-in-process............................. 38,488 37,530
Finished goods.............................. 20,616 26,498
Other, net.................................. (1,868) (4,915)
-------- --------------
Net inventories............................. $ 60,234 $ 64,500
-------- --------------
-------- --------------
</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 six months ended March 31, 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>
- ------------------------------------------- --------------------------------
- ------------------------------------------- --------------------------------
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 $85,000,000
GIVEN OR MADE, SUCH OTHER INFORMATION AND
REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR THE
UNDERWRITERS. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF OR THAT THE INFORMATION CONTAINED HAYNES CORP.
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO BE MERGED WITH
TO ITS DATE. THIS PROSPECTUS DOES NOT AND CONTINUE AS
CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY ANY HAYNES INTERNATIONAL, INC.
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.
-------------------
% SENIOR NOTES DUE 2004
TABLE OF CONTENTS
PAGE
----
Prospectus Summary..................... 3
Risk Factors........................... 10
The Company............................ 17
The Recapitalization................... 17
Use of Proceeds........................ 19 ---------------------
Capitalization......................... 20
Selected Consolidated Financial Data... 21 P R O S P E C T U S
Management's Discussion and Analysis of
Financial Condition and Results of ---------------------
Operations........................... 23
Business............................... 37
Management............................. 51
Certain Transactions................... 60
Principal Stockholders................. 61
Description of the Notes............... 62
Description of Other Indebtedness...... 86 MERRILL LYNCH & CO.
Underwriting........................... 87
Legal Matters.......................... 87
Experts................................ 88 PAINEWEBBER INCORPORATED
Additional Information................. 88
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. , 1996
- ------------------------------------------- --------------------------------
- ------------------------------------------- --------------------------------
2
<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............................. *
Printing and engraving expenses.................................................. *
Legal fees and expenses.......................................................... *
Accounting expenses and fees..................................................... *
Transfer Agent and Registrar fees................................................ *
Blue Sky fees and expenses (including fees of counsel)........................... *
Miscellaneous.................................................................... *
--------
Total........................................................................ $
--------
--------
</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-4.
(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 June 6, 1996.
HAYNES INTERNATIONAL, INC.
By: /s/ MICHAEL D. AUSTIN
..................................
Michael D. Austin, President And
Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below irrevocably constitutes and
appoints Michael D. Austin and Joseph F. Barker, and each or either of them
(with full power to act alone), his true and lawful attorneys-in-fact and agents
with full power of substitution and re-substitution, for him and in his name,
place and stead, in any and all capacities, to sign any and all amendments to
this registration statement therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact, agents or their substitutes may lawfully do or cause to be
done by virtue hereof.
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 June 6, 1996
........................................ Officer (Principal Executive
Michael D. Austin Officer) and Director
/s/ PERRY J. LEWIS Director June 6, 1996
........................................
Perry J. Lewis
/s/ JOHN A. MORGAN Director June 6, 1996
........................................
John A. Morgan
/s/ THOMAS F. GITHENS Director June 6, 1996
........................................
Thomas F. Githens
/s/ SANGWOO AHN Director June 6, 1996
........................................
Sangwoo Ahn
/s/ IRA STARR Director June 6, 1996
........................................
Ira Starr
/s/ ROBERT EGAN Director June 6, 1996
........................................
Robert Egan
/s/ JOSEPH F. BARKER Vice President--Finance; Director June 6, 1996
........................................ (Principal Financial Officer)
Joseph F. Barker
/s/ THEODORE T. BROWN Controller (Principal Accounting June 6, 1996
........................................ Officer)
Theodore T. Brown
</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 Underwriting Agreement.*
(2) 2.01 Form of Plan of Merger.*
2.02 Form of Agreement of Merger.*
(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 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 Indenture, dated as of August , 1996, among Haynes
</TABLE>
E-1
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
NUMBER NUMBERING
ASSIGNED IN SYSTEM PAGE
REGULATION S-K NUMBER OF
ITEM 601 DESCRIPTION OF EXHIBIT EXHIBIT
- --------------- -------------------------------------------------------------- -----------
International, Inc., Haynes Corp. and Society National Bank,
Indiana, as Trustee, relating to the % Senior Notes Due
2004, table of contents and cross-reference sheet.*
<S> <C> <C> <C>
4.11 Form of % Senior Note Due 2004.*
4.12 Specimen Stock Certificate for Common Stock.*
(5) 5.01 Opinion of Ice Miller Donadio & Ryan as to the legality of the
Common Stock 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 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
</TABLE>
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>
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 June ,
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 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
</TABLE>
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>
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" Agreements between Haynes Holdings,
Inc. and the executive officers of Haynes Holdings, Inc. named
in the schedule to the Exhibit.*
10.26 Form of Purchase Agreement, dated , 1996, by and
among Haynes International, Inc., Haynes Corp., Merrill Lynch,
Pierce, Fenner & Smith Incorporated and PaineWebber
Incorporated related to the sale of the % Senior Notes Due
2004.*
(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.
(21) 21.01 Subsidiaries of the Registrant. (Incorporated by reference to
Exhibit 21.01 to Registration Statement on Form S-4,
Registration No. 33-66346.)
(23) 23.01 Consent of Coopers & Lybrand, L.L.P. dated June 5, 1996.
23.02 Consent of Ice Miller Donadio & Ryan. (Included as part of
Exhibit 5.01.)
(24) 24.01 Power of Attorney. (See Signature Pages.)
(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 Society National Bank, Indiana, 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>
- ------------
* To be filed by amendment.
E-4
Exhibit 4.05
- --------------------------------------------------------------------------------
THIRD SUPPLEMENT TO INDENTURE
-----------------------------
HAYNES INTERNATIONAL, INC.
and
SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION
(formerly known as
THE CONNECTICUT NATIONAL BANK),
Trustee
Dated February 9, 1995
Third Supplement to Indenture dated as of August 31, 1989 by and between
Haynes Acquisition Corporation and The Connecticut National Bank, Trustee, as
supplemented by a First Supplement to Indenture dated August 31, 1989 and a
Second Supplement to Indenture dated February 2, 1990, relating to 13 1/2%
Senior Subordinated Notes Due 1999.
- --------------------------------------------------------------------------------
<PAGE>
THIRD SUPPLEMENT TO INDENTURE
-----------------------------
THIRD SUPPLEMENT TO INDENTURE dated as of February 9, 1995, by and between
Haynes International, Inc., a Delaware corporation (the "Company"), and Shawmut
Bank Connecticut, National Association, a national banking association formerly
known as The Connecticut National Bank, as trustee under the Indenture
hereinafter mentioned (in such capacity, the "Trustee").
WHEREAS, the Company and the Trustee heretofore executed an Indenture dated
as of August 31, 1989 (the "Original Indenture") as supplemented by a First
Supplement to Indenture dated August 31, 1989 (the "First Supplement") and a
Second Supplement to Indenture dated February 2, 1990 (the "Second Supplement"
and, collectively with the Original Indenture and the First Supplement, the
"Indenture"), providing for the issuance of the Company's 13 1/2% Senior
Subordinated Notes Due 1999 (the "Securities"); and
WHEREAS, there have been issued and are now outstanding under the
Indenture, Securities in the aggregate principal amount of $90,000,000; and
WHEREAS, following the execution and delivery of the Second Supplement, The
Connecticut National Bank changed its name to Shawmut Bank Connecticut, National
Association; and
WHEREAS, the Company desires in and by this Third Supplement to Indenture,
pursuant to and as contemplated by Section 9.02 of the Indenture, to amend the
------------
Indenture as set forth herein; and
WHEREAS, all things necessary to make this Third Supplement to Indenture a
valid agreement of the Company in accordance with its terms, have been done;
NOW, THEREFORE, THIS THIRD SUPPLEMENT TO INDENTURE WITNESSETH, that, for
and in consideration of the premises, the Company agrees with the Trustee as
follows:
ARTICLE I.
AMENDMENTS TO INDENTURE
-----------------------
Section 1.01. Amendment of Section 4.12(b)(xii). Section 4.12(b)(xii) of
------------ --------------------------------- --------------------
the Indenture is hereby amended to read as follows:
"(xii) Other Indebtedness of the Company in an aggregate
principal amount at any one time outstanding not to exceed an amount
equal to (A) $16,000,000, less (B) the aggregate principal amount of
outstanding Indebtedness permitted under clause (vi)(B) above; and"
<PAGE>
ARTICLE II.
SUNDRY PROVISIONS
-----------------
Section 2.01. Instruments to be Read Together. This Third Supplement to
------------ -------------------------------
Indenture is supplemental to and in implementation of the Indenture; and the
Original Indenture, the First Supplement, the Second Supplement and this Third
Supplement to Indenture shall henceforth be read together.
Section 2.02. Certification. The Company hereby certifies to the Trustee
------------ -------------
that the execution and delivery of this Third Supplement to Indenture and the
effectuation of the amendments contemplated thereby have been authorized by the
Company and that the consent of the Holders of at least a majority of the
aggregate principal amount of the Securities outstanding on the date hereof has
been obtained.
Section 2.03. Confirmation. The Indenture as amended and supplemented by
------------ ------------
this Third Supplement to Indenture is in all respects confirmed and preserved.
Section 2.04. Terms Defined. All terms defined elsewhere in the Indenture
------------ -------------
have the same meanings herein.
Section 2.05. Counterparts. This Third Supplement to Indenture may be
------------ ------------
executed in any number of counterparts, each of which so executed shall be
deemed to be an original, but all such counterparts shall together constitute
but one and the same instrument.
Section 2.06. Effectiveness. The provisions of this Third Supplement to
------------ -------------
Indenture will take effect immediately upon its execution and delivery by the
Trustee.
Section 2.07. Governing Law. This Third Supplement to Indenture shall be
------------ -------------
construed in accordance with and governed by the laws of the State of New York
to the extent provided in Section 11.10 of the Indenture.
-------------
- 2 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Third Supplement to
Indenture to be duly executed, all as of the date and year first above written.
HAYNES INTERNATIONAL, INC.
By: /s/ MICHAEL D. AUSTIN
---------------------
Michael D. Austin
President
SHAWMUT BANK CONNECTICUT,
NATIONAL ASSOCIATION, Trustee
By: /s/ PABLO DE LA CANAL
---------------------
Pablo de la Canal
Corporate Trust Officer
The undersigned holders of a majority of the principal amount of the
Securities outstanding on the date hereof hereby consent to the amendment of the
Indenture as and to the extent set forth herein, effective as of the date and
year first above written.
Holder Principal Amount
------ ----------------
PUTNAM INVESTMENT MANAGEMENT, INC.
Investment adviser for accounts holding
Securities in the aggregate principal
amount indicated
By: /S/ JENNIFER L.E. LEICHTER $37,750,000.00
-------------------------------
Name: Jennifer L.E. Leichter
Title: Senior Vice President
DELTEC ASSET MANAGEMENT CORPORATION
Investment adviser for accounts holding
Securities in the aggregate principal
amount indicated
By: /S/ JOHN CENTO $10,100,000.00
-------------------------------
Name: John Cento
Title: Senior Vice President
- 3 -
Exhibit 4.06
- --------------------------------------------------------------------------------
FOURTH SUPPLEMENT TO INDENTURE
------------------------------
HAYNES INTERNATIONAL, INC.
and
FLEET NATIONAL BANK OF CONNECTICUT
(formerly known as
SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION,
formerly known as
THE CONNECTICUT NATIONAL BANK),
Trustee
Dated January 31, 1996
Fourth Supplement to Indenture dated as of August 31, 1989 by and between
Haynes Acquisition Corporation and The Connecticut National Bank, Trustee, as
supplemented by a First Supplement to Indenture dated August 31, 1989, a Second
Supplement to Indenture dated February 2, 1990 and a Third Supplement to
Indenture dated February 9, 1995, relating to 13 1/2% Senior Subordinated Notes
Due 1999.
- --------------------------------------------------------------------------------
<PAGE>
FOURTH SUPPLEMENT TO INDENTURE
------------------------------
FOURTH SUPPLEMENT TO INDENTURE dated as of January 31, 1996, by and between
Haynes International, Inc., a Delaware corporation (the "Company"), and Fleet
National Bank of Connecticut (formerly known as Shawmut Bank Connecticut,
National Association, formerly known as The Connecticut National Bank), as
trustee under the Indenture hereinafter mentioned (in such capacity, the
"Trustee").
WHEREAS, the Company and the Trustee heretofore executed an Indenture dated
as of August 31, 1989 (the "Original Indenture") as supplemented by a First
Supplement to Indenture dated August 31, 1989 (the "First Supplement"), a Second
Supplement to Indenture dated February 2, 1990 (the "Second Supplement") and a
Third Supplement to Indenture dated February 9, 1995 (the "Third Supplement"
and, collectively with the Original Indenture, the First Supplement and Second
Supplement, the "Indenture"), providing for the issuance of the Company's 13
1/2% Senior Subordinated Notes Due 1999 (the "Securities"); and
WHEREAS, there have been issued and are now outstanding under the
Indenture, Securities in the aggregate principal amount of $90,000,000; and
WHEREAS, following the execution and delivery of the Third Supplement,
Shawmut Bank Connecticut, National Association changed its name to Fleet
National Bank of Connecticut; and
WHEREAS, the Company desires in and by this Fourth Supplement to Indenture,
pursuant to and as contemplated by Section 9.02 of the Indenture, to amend the
------------
Indenture as set forth herein; and
WHEREAS, all things necessary to make this Fourth Supplement to Indenture a
valid agreement of the Company in accordance with its terms, have been done;
NOW, THEREFORE, THIS FOURTH SUPPLEMENT TO INDENTURE WITNESSETH, that, for
and in consideration of the premises, the Company agrees with the Trustee as
follows:
ARTICLE I.
AMENDMENTS TO INDENTURE
-----------------------
Section 1.01. Amendment of Section 4.12(b)(xii)Section 4.12(b)(xii) of the
------------ -----------------------------------------------------
Indenture is hereby amended to read as follows:
"(xii) Other Indebtedness of the Company in an aggregate
principal amount at any one time outstanding not to exceed an amount
equal to $20,000,000; and"
Section 1.02. Amendment of Section 9.02The first paragraph of Section 9.02
------------ ------------------------- ------------
of the Indenture is hereby amended to read as
<PAGE>
follows (the second, third, fourth and fifth paragraphs of Section 9.02 shall
------------
remain unchanged):
"Section 9.02. With Consent of Holders. Except as otherwise set
------------- -----------------------
forth herein, the Company and the Trustee may amend any provision of
either this Indenture (including Article Ten) or the Securities with
the written consent of the Holders of at least a majority of the
principal amount of the Securities then outstanding. Except as
otherwise set forth herein, the Holders of at least a majority of the
principal amount of the then outstanding Securities may waive
compliance by the Company or any other obligor under this Indenture
with any such provision in writing. However, neither the definition
of "Change of Control" in Section 1.01 nor Section 4.16 of this
Indenture shall be amended, nor may compliance with such provisions be
waived, without the written consent of the Holders of at least 75% of
the principal amount of the Securities then outstanding. Further,
without the written consent of each Security-holder affected, an
amendment or waiver under this Section may not:
(1) reduce the amount of Securities whose Holders must
consent to an amendment or waiver;
(2) reduce the rate of or change the time for payment of
interest on any Security;
(3) reduce the principal of or change the fixed maturity of
any Security or alter the redemption provisions with respect
thereto or change the amount or time of any payment required by
paragraph 6 of the Securities, provided that this clause (3)
--------
shall not apply to the provisions of Section 4.13 or 4.16;
(4) make any Security payable in money other than that
stated in the Security; or
(5) make any change in Sections 6.04 or 6.07 or the third
or fourth sentence of this Section."
ARTICLE II.
SUNDRY PROVISIONS
-----------------
Section 2.01. Instruments to be Read Together. This Fourth Supplement to
------------ -------------------------------
Indenture is supplemental to and in implementation of the Indenture; and the
Original Indenture, the First Supplement, the Second Supplement, the Third
Supplement and this Fourth Supplement to Indenture shall henceforth be read
together.
- 2 -
<PAGE>
Section 2.02. Certification. The Company hereby certifies to the Trustee
------------ -------------
that the execution and delivery of this Fourth Supplement to Indenture and the
effectuation of the amendments contemplated thereby have been authorized by the
Company and that the consent of the Holders of at least a majority of the
aggregate principal amount of the Securities outstanding on the date hereof has
been obtained.
Section 2.03. Confirmation. The Indenture as amended and supplemented by
------------ ------------
this Fourth Supplement to Indenture is in all respects confirmed and preserved.
Section 2.04. Terms Defined. All terms defined elsewhere in the Indenture
------------ -------------
have the same meanings herein.
Section 2.05. Counterparts. This Fourth Supplement to Indenture may be
------------ ------------
executed in any number of counterparts, each of which so executed shall be
deemed to be an original, but all such counterparts shall together constitute
but one and the same instrument.
Section 2.06. Effectiveness. The provisions of this Fourth Supplement to
------------ -------------
Indenture will take effect immediately upon its execution and delivery by the
Trustee.
Section 2.07. Governing Law. This Fourth Supplement to Indenture shall be
------------ -------------
construed in accordance with and governed by the laws of the State of New York
to the extent provided in Section 11.10 of the Indenture.
-------------
- 3 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Fourth Supplement
to Indenture to be duly executed, all as of the date and year first above
written.
HAYNES INTERNATIONAL, INC.
By: /s/ MICHAEL D. AUSTIN
---------------------------
Michael D. Austin
President
FLEET NATIONAL BANK OF
CONNECTICUT, Trustee
By: /s/ ROBERT L. REYNOLDS
---------------------------
Robert L. Reynolds
Vice President
The undersigned holders of a majority of the principal amount of the
Securities outstanding on the date hereof hereby consent to the amendment of the
Indenture as and to the extent set forth herein, effective as of the date and
year first above written. Each of the undersigned represents that the custodian
designated in parentheses below holds the Securities for the benefit of the
undersigned, and that the undersigned is the beneficial owner of the Securities
listed.
Holder Principal Amount
- ------ ----------------
- 4 -
<PAGE>
IDS Extra Income Fund, Inc. (1st Trust National Bank) $ 8,000,000
By: /s/ PETER J. ANDERSON
--------------------------
Name: Peter J. Anderson
Title: Vice President - Investments
Eos Partners (Goldman Sachs) $ 2,290,000
By: /s/ BRIAN D. YOUNG
---------------------------
Name: Brian D. Young
Title: General Partner
Franklin Principal Maturity Trust (Bank of America) $ 8,500,000
By: /s/ CHAUNCEY LUFKIN
----------------------------
Name: Chauncey Lufkin
Title: Portfolia Manager
International Nederlanden (U.S.) Capital Corp. $ 5,500,000
(Chemical Bank)
By: /s/ GEOFFREY W. ARENS
---------------------------
Name: Geoffrey W. Arens
Title: Vice President
Bennett Restructuring Fund, L.P. (Bear Stearns) $ 12,970,000
By: Restructuring Capital Associates, L.P.,
General Partner
By: /s/ JAMES D. BENNETT
---------------------------
Name: James D. Bennett
Title: President of the General Partner
of the General Partner
RF Account (Bear Stearns) $ 1,170,000
- 5 -
<PAGE>
By: Restructuring Capital Associates, L.P.,
Investment Manager
By: /s/ JAMES D. BENNETT
---------------------------
Name: James D. Bennett
Title: President of the General Partner
of the Investment Manager
Bennett Offshore Restructuring Fund, Inc.
(Bear Stearns) $ 2,360,000
By: Bennett Offshore Investment Corp.
Investment Manager
By: /s/ JAMES D. BENNETT
---------------------------
Name: James D. Bennett
Title: President of the Investment Manager
BT Securities Corp. (no custodian) $ 6,700,000
By: /s/ JAMES LANG
---------------------------
Name: James Lang
Title: Assistant Treasurer
- 6 -
Exhibit 10.16
Loan and Security Agreement
by and between
Congress Financial Corporation (Central)
as Lender
and
Haynes International, Inc.
as Borrower
Dated: August 11, 1994
<PAGE>
TABLE OF CONTENTS
-----------------
Page
SECTION 1. DEFINITIONS 1
SECTION 2. CREDIT FACILITIES
2.1 Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.2 Letter of Credit Accommodations . . . . . . . . . . . . . . . . . 12
2.3 Availability Reserves . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 3. INTEREST AND FEES
3.1 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.2 Closing Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.3 Servicing Fee . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.4 Unused Line Fee . . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 4. CONDITIONS PRECEDENT
4.1 Conditions Precedent to Initial Loans and Letter of Credit
Accommodations . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.2 Conditions Precedent to All Loans and Letter of Credit
Accommodations . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 5. GRANT OF SECURITY INTEREST . . . . . . . . . . . . . . . . . . 16
SECTION 6. COLLECTION AND ADMINISTRATION
6.1 Borrower's Loan Account . . . . . . . . . . . . . . . . . . . . . 17
6.2 Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.3 Collection of Accounts . . . . . . . . . . . . . . . . . . . . . 17
6.4 Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.5 Authorization to Make Loans . . . . . . . . . . . . . . . . . . . 18
6.6 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 7. COLLATERAL REPORTING AND COVENANTS
7.1 Collateral Reporting . . . . . . . . . . . . . . . . . . . . . . 19
7.2 Accounts Covenants . . . . . . . . . . . . . . . . . . . . . . . 19
7.3 Inventory Covenants . . . . . . . . . . . . . . . . . . . . . . . 21
7.4 Equipment Covenants . . . . . . . . . . . . . . . . . . . . . . . 21
7.5 Power of Attorney . . . . . . . . . . . . . . . . . . . . . . . . 21
7.6 Right to Cure . . . . . . . . . . . . . . . . . . . . . . . . . . 22
7.7 Access to Premises . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 8. REPRESENTATIONS AND WARRANTIES
8.1 Corporate Existence, Power and Authority; Subsidiaries . . . . . 23
8.2 Financial Statements; No Material Adverse Change. . . . . . . . . 23
8.3 Chief Executive Office; Collateral Locations. . . . . . . . . . . 23
<PAGE>
8.4 Priority of Liens; Title to Properties . . . . . . . . . . . . . 23
8.5 Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
8.6 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
8.7 Compliance with Other Agreements and Applicable Laws . . . . . . 24
8.8 Employee Benefits. . . . . . . . . . . . . . . . . . . . . . . . 24
8.9 Environmental Compliance . . . . . . . . . . . . . . . . . . . . 25
8.10 Accuracy and Completeness of Information. . . . . . . . . . . . 25
8.11 Survival of Warranties; Cumulative . . . . . . . . . . . . . . . 26
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS
9.1 Maintenance of Existence . . . . . . . . . . . . . . . . . . . . 26
9.2 New Collateral Locations . . . . . . . . . . . . . . . . . . . . 26
9.4 Payment of Taxes and Claims . . . . . . . . . . . . . . . . . . . 27
9.5 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.6 Financial Statements and Other Information . . . . . . . . . . . 28
9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc . . . . . 29
9.8 Encumbrances . . . . . . . . . . . . . . . . . . . . . . . . . . 30
9.9 Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . 31
9.10 Loans, Investments, Guarantees, Etc . . . . . . . . . . . . . . 33
9.11 Dividends and Redemptions . . . . . . . . . . . . . . . . . . . 35
9.12 Transactions with Affiliates . . . . . . . . . . . . . . . . . . 36
9.13 Compliance with ERISA . . . . . . . . . . . . . . . . . . . . . 36
9.14 Working Capital . . . . . . . . . . . . . . . . . . . . . . . . 37
9.16 Costs and Expenses . . . . . . . . . . . . . . . . . . . . . . . 37
9.17 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 10. EVENTS OF DEFAULT AND REMEDIES
10.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . 38
10.2 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING LAW
11.1 Governing Law; Choice of Forum; Service of Process; Jury Trial
Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
11.2 Waiver of Notices . . . . . . . . . . . . . . . . . . . . . . . 43
11.3 Amendments and Waivers . . . . . . . . . . . . . . . . . . . . 43
11.4 Waiver of Counterclaims . . . . . . . . . . . . . . . . . . . . 43
11.5 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS
12.1 Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
12.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
12.4 Partial Invalidity . . . . . . . . . . . . . . . . . . . . . . 45
12.5 Successors . . . . . . . . . . . . . . . . . . . . . . . . . . 46
12.6 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . 46
(ii)
<PAGE>
INDEX TO
EXHIBITS AND SCHEDULES
----------------------
Exhibit A Information Certificate
Schedule 1.47 Senior Note Collateral
Schedule 8.4 Existing Liens
Schedule 8.8 Pension Plans
Schedule 8.9 Environmental Matters
(iii)
<PAGE>
LOAN AND SECURITY AGREEMENT
This Loan and Security Agreement dated August 11, 1994 is entered into by
and between Congress Financial Corporation (Central), an Illinois corporation
("Lender") and Haynes International, Inc., a Delaware corporation ("Borrower").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, Borrower has requested that Lender enter into certain financing
arrangements with Borrower pursuant to which Lender may make loans and provide
other financial accommodations to Borrower; and
WHEREAS, Lender is willing to make such loans and provide such financial
accommodations on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual conditions and agreements
set forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
SECTION 1. DEFINITIONS
-----------
All terms used herein which are defined in Article 1 or Article 9 of the
Uniform Commercial Code shall have the meanings given therein unless otherwise
defined in this Agreement. All references to the plural herein shall also mean
the singular and to the singular shall also mean the plural. All references to
Borrower and Lender pursuant to the definitions set forth in the recitals
hereto, or to any other person herein, shall include their respective successors
and assigns. The words "hereof", "herein", "hereunder", "this Agreement" and
words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not any particular provision of this Agreement and as
this Agreement now exists or may hereafter be amended, modified, supplemented,
extended, renewed, restated or replaced. An Event of Default shall exist or
continue or be continuing until such Event of Default is waived in accordance
with Section 11.3 or cured in a manner satisfactory to Lender as acknowledged by
Lender to Borrower in writing. Any accounting term used herein unless otherwise
defined in this Agreement shall have the meanings customarily given to such term
in accordance with GAAP. For purposes of this Agreement, the following terms
shall have the respective meanings given to them below:
1.1 "Accounts" shall mean all of Borrower's now owned and hereafter
acquired or arising accounts, contract rights related thereto, and any other
rights to payment for the sale or lease of goods or rendition of services
whether or not they have been earned by performance and including, all assets,
however arising, which are due to Borrower from any affiliate of Borrower.
1.2 "Adjusted Net Worth" shall mean as to any Person, at any time,
calculated in accordance with GAAP (except as otherwise specifically set forth
below), on a consolidated basis for such Person and its Subsidiaries (if any),
the amount equal to the difference between: (a) the aggregate net book value
of all assets of such Person and its Subsidiaries, calculating the book value of
inventory for this
<PAGE>
purpose on a last-in-first-out basis, after deducting from such book values all
appropriate reserves in accordance with GAAP (including all reserves for
doubtful receivables, obsolescence, depreciation and amortization) and (b) the
aggregate amount of the indebtedness and other liabilities of such Person and
its Subsidiaries, including tax and other proper accruals; provided, that, as to
-------- ----
Borrower, (i) any non-cash write-offs or charges required after the date hereof
solely as a result of the application of Statement of Financial Accounting
Standards No. 106 "Employers' Accounting for Postretirement Benefit other than
Pension" or the application of Statement of Financial Accounting Standards No.
112 "Employer Accounting for Postemployment Benefits" to Borrower, in each case
in accordance with GAAP, shall not be considered in the determination of the
Adjusted Net Worth of Borrower, (ii) any non-cash write-offs of goodwill or
other non-cash purchase accounting adjustments after the date hereof established
as a result of the acquisition of the stock of Borrower by the Fund on August
31, 1989 shall not be considered in the determination of the Adjusted Net Worth
of Borrower, (iii) the redeemable common stock of the parent company included in
the balance sheet of Borrower in accordance with GAAP shall not be considered in
the calculation of the amounts provided for in Sections 1.2(a) and 1.2(b) above,
and (iv) in the event the foreign currency translation adjustment for Borrower
calculated in accordance with GAAP is greater than $1,700,000, the amount by
which the foreign currency translation adjustment exceeds $1,700,000 shall be
subtracted from the amount equal to the difference between the amounts
determined in accordance with Sections 1.2(a) and 1.2(b) above, and in the event
the foreign currency translation adjustment for Borrower calculated in
accordance with GAAP is less than $1,700,000, the amount by which $1,700,000
exceeds such foreign currency translation adjustment shall be added to the
amount equal to the difference between the amounts determined in accordance with
Sections 1.2(a) and 1.2(b) above.
1.3 "Affiliate" shall mean with respect to any Person, (a) any other
Person which, directly or indirectly, controls, is controlled by or is under
common control with, such Person; (b) any other Person which beneficially owns
or holds, directly or indirectly, five (5%) percent or more of any class of
voting stock of such Person; or (c) any other Person, five (5%) percent or more
of any class of the voting stock (or if such Person is not a corporation, five
(5%) percent or more of the equity interest) of which is beneficially owned or
held, directly or indirectly, by such Person. The term "control" (including,
with correlative meanings, the terms "controlled by" and "under common control
with"), as used herein, means the possession, directly or indirectly, of the
power in any form to direct or cause the direction of the management and
policies of the Person in question.
1.4 "Annual Cash Amount" shall mean $1,000,000.
1.5 "Availability Reserves" shall mean, as of any date of determination,
such amounts as Lender may from time to time establish and revise in good faith
reducing the amount of Loans and Letter of Credit Accommodations which would
otherwise be available to Borrower under the lending formula(s) provided for
herein: (a) to reflect events, conditions, contingencies or risks which, as
determined by Lender in good faith, do or are reasonably likely to adversely
affect either (i) the Collateral or any other property which is security for the
Obligations or its value, or the security interests and other rights of Lender
in the Collateral (including the enforceability, perfection and priority
thereof) or (ii) have a reasonable likelihood of adversely affecting the
business or assets of Borrower or any Obligor or (b) to reflect Lender's good
faith belief that any collateral report or financial information furnished by or
on behalf of Borrower or any Obligor to Lender is or may have been incomplete,
inaccurate or misleading in any material respect or (c) in respect of any state
of facts which Lender determines in good faith constitutes an Event of Default
or Lender determines in good faith has a reasonable likelihood of constituting
an Event of Default, with notice or passage of time or
- 2 -
<PAGE>
both.
1.6 "Blocked Accounts" shall have the meaning set forth in Section 6.3
hereof.
1.7 "Capital Leases" shall mean, as applied to any Person, any leases of
(or any agreement conveying the right to use) any property (whether real,
personal or mixed) by such person as lessee which, in accordance with GAAP, is
required to be reflected as a liability on the balance sheet of such person.
1.8 "Change of Control" shall mean (a) any transaction or series of
transactions that results in the ownership by the Company Control Group,
directly or indirectly, of fifty (50%) percent or less of the total voting power
of Borrower entitled generally to vote in the election of directors of Borrower;
provided, that, ownership of Borrower by the Company Control Group, directly or
- -------- ----
indirectly, of forty (40%) percent or greater but fifty (50%) percent or less,
of the total voting power entitled generally to vote in the election of
directors of Borrower, shall not be a Change of Control, if the Company Control
Group through direct representation by partners or employees, controls a
majority of the Board of Directors; and provided, further, that the foregoing
-------- -------
minimum percentages in the preceding provision shall be deemed not satisfied if
any person (as defined in Section 13(d) of the Exchange Act) shall, directly or
indirectly, own more of the total voting power entitled generally to vote in the
election of directors than the Company Control Group or (b) any dissolution,
termination or winding up of the affairs of the Fund or any sale by the Fund of
all or substantially all of its assets or any distribution by the Fund of all or
substantially all of its assets to its partners.
1.9 "Code" shall mean the Internal Revenue Code of 1986, as the same now
exists or may from time to time hereafter be amended, modified, recodified or
supplemented, together with all rules, regulations and interpretations
thereunder or related thereto.
1.10 "Collateral" shall have the meaning set forth in Section 5 hereof.
1.11 "Company Control Group" shall mean MLGAL Partners L.P., a Connecticut
limited partnership, which is the sole general partner of the Fund and any
successor partnership into which it is reorganized and its Affiliates.
1.12 "Eligible Accounts" shall mean Accounts created by Borrower which are
and continue to satisfy the criteria set forth below as determined by Lender in
good faith. In general, Accounts shall be Eligible Accounts if:
(a) such Accounts arise from the actual and bona fide sale and
---- ----
delivery of goods by Borrower or rendition of services by Borrower in the
ordinary course of its business which transactions are completed in accordance
with the terms and provisions contained in any documents related thereto;
(b) such Accounts are not unpaid more than ninety (90) days after the
date of the original invoice for them;
(c) such Accounts comply with the terms and conditions contained in
Section 7.2(c) of this Agreement;
- 3 -
<PAGE>
(d) such Accounts do not arise from sales on consignment, guaranteed
sale, sale and return, sale on approval, or other terms under which payment by
the account debtor may be conditional or contingent;
(e) the chief executive office of the account debtor with respect to
such Accounts is located in the United States of America, or, at Lender's
option, if either: (i) the account debtor has delivered to Borrower an
irrevocable letter of credit issued or confirmed by a bank satisfactory to
Lender, sufficient to cover such Account, in form and substance satisfactory to
Lender and, if required by Lender, the original of such letter of credit has
been delivered to Lender or Lender's agent and the issuer thereof notified of
the assignment of the proceeds of such letter of credit to Lender, or (ii) such
Account is subject to credit insurance payable to Lender issued by an insurer
and on terms and in an amount acceptable to Lender, or (iii) such Account is
otherwise acceptable in all respects to Lender (subject to such lending formula
with respect thereto as Lender may determine);
(f) such Accounts do not consist of progress billings, bill and hold
invoices or retainage invoices, except as to bill and hold invoices, if Lender
shall have received an agreement in writing from the account debtor, in form and
substance satisfactory to Lender, confirming the unconditional obligation of the
account debtor to take the goods related thereto and pay such invoice;
(g) the account debtor with respect to such Accounts has not asserted
a counterclaim, defense or dispute and does not have, and does not engage in
transactions which may give rise to, any right of setoff against such Accounts
(except that to the extent the account debtor engages in transactions which may
give rise to a right of setoff, the portion of the Accounts of such account
debtor in excess of the amount at any time and from time to time owing by
Borrower to such account debtor may be deemed Eligible Accounts);
(h) there are no facts, events or occurrences which would impair the
validity, enforceability or collectability of such Accounts or reduce the amount
payable or delay payment thereunder;
(i) such Accounts are subject to the first priority, valid and
perfected security interest of Lender and any goods giving rise thereto are not,
and were not at the time of the sale thereof, subject to any liens except those
permitted in this Agreement;
(j) neither the account debtor nor any officer or employee of the
account debtor with respect to such Accounts is an Affiliate of Borrower
directly or indirectly, including, without limitation, CabVal, a New York
general partnership or K.A.M. Specialties, Inc., a Florida corporation;
(k) the account debtors with respect to such Accounts are not any
foreign government, the United States of America, any State, political
subdivision, department, agency or instrumentality thereof, unless, if the
account debtor is the United States of America, any State, political
subdivision, department, agency or instrumentality thereof, upon Lender's
request, the Federal Assignment of Claims Act of 1940, as amended or any similar
State or local law, if applicable, has been complied with in a manner determined
by Lender in good faith to be satisfactory;
(l) there are no proceedings or actions which are threatened or
pending against the account debtors with respect to such Accounts which might
result in any material adverse change in any such account debtor's financial
condition;
- 4 -
<PAGE>
(m) such Accounts of a single account debtor or its affiliates do not
constitute more than fifteen (15%) percent of all otherwise Eligible Accounts
(but the portion of the Accounts not in excess of such percentage may be deemed
Eligible Accounts);
(n) such Accounts are not owed by an account debtor who has Accounts
unpaid more than ninety (90) days after the date of the original invoice for
them which constitute more than fifty (50%) percent of the total Accounts of
such account debtor;
(o) such Accounts are owed by account debtors whose total
indebtedness to Borrower does not exceed the credit limit with respect to such
account debtors as determined in good faith by Lender from time to time based on
the good faith determination by Lender of the financial condition of the account
debtor and its ability to satisfy its obligations to Borrower (but the portion
of the Accounts not in excess of such credit limit may still be deemed Eligible
Accounts); and
(p) such Accounts are owed by account debtors deemed creditworthy at
all times by Lender, as determined by Lender in good faith.
General criteria for Eligible Accounts may be established and revised from time
to time by Lender in good faith based on events, conditions, circumstances or
risks which Lender in good faith determines are reasonably likely to affect the
Accounts, the value of the Accounts or the security interests and other rights
of Lender in the Accounts and for which no Availability Reserve has been
established. Any Accounts which are not Eligible Accounts shall nevertheless be
part of the Collateral.
1.13 "Eligible Inventory" shall mean Inventory consisting of finished
goods held for resale in the ordinary course of the business of Borrower and raw
materials for such finished goods which satisfy and continue to satisfy the
criteria set forth below as determined by Lender in good faith. In general,
Eligible Inventory shall not include (a) work-in-process and semi-finished
goods; (b) components which are not part of finished goods; (c) spare parts for
equipment; (d) packaging and shipping materials; (e) supplies used or consumed
in Borrower's business; (f) Inventory at premises other than those owned and
controlled by Borrower, except if Lender shall have received an agreement in
writing from the person in possession of such Inventory and/or the owner or
operator of such premises in form and substance satisfactory to Lender
acknowledging Lender's first priority security interest in the Inventory,
waiving security interests and claims by such person against the Inventory and
permitting Lender access to, and the right to remain on, the premises so as to
exercise Lender's rights and remedies and otherwise deal with the Collateral;
(g) Inventory subject to a security interest or lien in favor of any person
other than Lender except those permitted in this Agreement; (h) bill and hold
goods; (i) unserviceable, obsolete or slow moving Inventory; (j) Inventory which
is not subject to the first priority, valid and perfected security interest of
Lender; (k) returned, damaged and/or defective Inventory; or (l) Inventory
purchased or sold on consignment. General criteria for Eligible Inventory may
be established and revised from time to time by Lender in good faith based on
events, conditions, circumstances or risks which Lender in good faith determines
are reasonably likely to affect the Inventory, the value of the Inventory or the
security interests and other rights of Lender in the Inventory and for which no
Availability Reserve has been established. Any Inventory which is not Eligible
Inventory shall nevertheless be part of the Collateral.
1.14 "Employee Notes" shall mean, collectively, promissory notes issued
by Borrower payable to Holdings from time to time to fund all or a portion of
the purchase price to be paid by Holdings for Holdings Common Stock, or options
to purchase Holdings Common Stock, owned by
- 5 -
<PAGE>
existing or former employees of Borrower; provided, that, each such note (a)
-------- ----
shall bear interest at a rate not to exceed one and one-half (1-1/2%) percent
per annum in excess of the Prime Rate in effect from time to time, (b) shall not
require any principal payments prior to six (6) months after the date on which
this Agreement shall terminate pursuant to Section 12.1(a) and (c) shall be
subordinated in right of payment to the full and final payment of all of the
Obligations on terms and conditions acceptable to Lender.
1.15 "Environmental Laws" shall mean all federal, state, district, local
and foreign laws, rules, regulations, ordinances, and consent decrees relating
to health, safety, hazardous substances, pollution and environmental matters, as
now or at any time hereafter in effect, applicable to Borrower's business and
facilities (whether or not owned by it), including laws relating to emissions,
discharges, releases or threatened releases of pollutants, contamination,
chemicals, or hazardous, toxic or dangerous substances, materials or wastes into
the environment (including, without limitation, ambient air, surface water,
ground water, land surface or subsurface strata) or otherwise relating to the
generation, manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of pollutants, contaminants, chemicals, or
hazardous, toxic or dangerous substances, materials or wastes.
1.16 "Equipment" shall mean all of Borrower's now owned and hereafter
acquired equipment, machinery, computers and computer hardware and software
(whether owned or licensed), vehicles, tools, furniture, fixtures, all
attachments, accessions and property now or hereafter affixed thereto or used in
connection therewith, and substitutions and replacements thereof, wherever
located.
1.17 "ERISA" shall mean the United States Employee Retirement Income
Security Act of 1974, as the same now exists or may hereafter from time to time
be amended, modified, recodified or supplemented, together with all rules,
regulations and interpretations thereunder or related thereto.
1.18 "ERISA Affiliate" shall mean any person required to be aggregated
with Borrower or any of its Subsidiaries under Sections 414(b), 414(c), 414(m)
or 414(o) of the Code.
1.19 "Excess Availability" shall mean the amount, as determined by
Lender, calculated at any time, equal to: (a) the Total Availability minus (b)
-----
the sum of: (i) the amount of all then outstanding and unpaid Obligations, plus
(ii) the aggregate amount of all trade payables of Borrower which are more than
ninety (90) days past due as of such time.
1.20 "Excess Refinancing Proceeds Account" shall mean Account No.
5299047, established and maintained by Borrower at The First National Bank of
Chicago, and shall include all notes, certificates of deposit, instruments,
securities and other personal property, if any, representing from time to time
the investment of the funds held in such account, and any proceeds thereof, to
the extent such investments constitute investments permitted in Section 9.10(b)
hereof.
1.21 "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, as the same now exists or may hereafter from time to time be amended,
modified, recodified or supplemented, together with all rules, regulations and
interpretations thereunder or related thereto.
1.22 "Event of Default" shall mean the occurrence or existence of any
event or condition described in Section 10.1 hereof.
- 6 -
<PAGE>
1.23 "Financing Agreements" shall mean, collectively, this Agreement and
all notes, guarantees, security agreements and other agreements, documents and
instruments now or at any time hereafter executed and/or delivered by Borrower
or any Obligor in connection with this Agreement, as the same now exist or may
hereafter be amended, modified, supplemented, extended, renewed, restated or
replaced.
1.24 "Foreign Subsidiary" shall mean a Subsidiary of Borrower that is
organized under the laws of a jurisdiction outside of the United States of
America or the District of Columbia and that has its principal place of business
outside the United States of America.
1.25 "Fund" shall mean MLGA Fund II, L.P., a Delaware limited partnership
and its successors and assigns.
1.26 "GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect from time to time as set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and the statements and pronouncements
of the Financial Accounting Standards Board which are applicable to the
circumstances as of the date of determination consistently applied, except that,
for purposes of Sections 9.14 and 9.15 hereof, GAAP shall be determined on the
basis of such principles in effect on the date hereof and consistent with those
used in the preparation of the audited financial statements delivered to Lender
prior to the date hereof.
1.27 "Hazardous Materials" shall mean any hazardous, toxic or dangerous
substances, materials and wastes, including, without limitation, hydrocarbons
(including naturally occurring or man-made petroleum and hydrocarbons),
flammable explosives, asbestos, urea formaldehyde insulation, radioactive
materials, biological substances, polychlorinated biphenyls, pesticides,
herbicides and any other kind and/or type of pollutants or contaminants
(including, without limitation, materials which include hazardous constituents),
sewage, sludge, industrial slag, solvents and/or any other similar substances,
materials, or wastes and including any other substances, materials or wastes
that are or become regulated under any Environmental Law (including, without
limitation any that are or become classified as hazardous or toxic under any
Environmental Law).
1.28 "Holdings" shall mean Haynes Holdings, Inc., a Delaware corporation,
and its successors and assigns.
1.29 "Holdings Common Stock" shall mean the common stock, par value $0.01
per share, of Holdings.
1.30 "Information Certificate" shall mean the Information Certificate of
Borrower constituting Exhibit A hereto containing material information with
respect to Borrower, its business and assets provided by or on behalf of
Borrower to Lender in connection with the preparation of this Agreement and the
other Financing Agreements and the financing arrangements provided for herein.
1.31 "Inventory" shall mean all of Borrower's now owned and hereafter
acquired inventory, goods, merchandise, and other personal property, wherever
located, to be furnished under any contract of service or held for sale or
lease, all raw materials, work-in-process, semi-finished goods, finished goods,
returned and repossessed goods, and materials and supplies of any kind, nature
or description which are or might be consumed in Borrower's business or used in
connection with the manufacture, packing, shipping, advertising, selling or
finishing of such inventory, goods,
- 7 -
<PAGE>
merchandise and such other personal property, and all documents of title or
other documents representing them.
1.32 "LC Limit" shall mean the amount equal to: (a) $6,000,000 minus (b)
-----
the aggregate amount of the indebtedness of Borrower and its Subsidiaries
outstanding at such time in respect of surety bonds, reimbursement obligations
in respect of standby letters of credit which are issued for purposes similar to
those for which surety bonds are issued and appeal bonds required in the
ordinary course of business or in connection with the enforcement of rights or
claims of Borrower or any Subsidiary of Borrower (but not including any such
reimbursement obligations arising in connection with the Letter of Credit
Accommodations).
1.33 "LC Loans" shall mean the loans now or hereafter made by Lender to
or for the benefit of Borrower arising pursuant to payment made by Lender to any
beneficiary or issuer of any of the Letter of Credit Accommodations as set forth
in Section 2.2 hereof.
1.34 "Letter of Credit Accommodations" shall mean the letters of credit
which are from time to time either (a) issued or opened by Lender for the
account of Borrower or any Obligor or (b) with respect to which Lender has
agreed to indemnify the issuer or guaranteed to the issuer the performance by
Borrower of its obligations to such issuer.
1.35 "Loans" shall mean the Revolving Loans and the LC Loans.
1.36 "Maximum Credit" shall mean the amount of $16,000,000.
1.37 "Net Amount of Eligible Accounts" shall mean the gross amount of
Eligible Accounts less (a) sales, excise or similar taxes included in the amount
thereof and (b) returns, discounts, claims, credits and allowances of any nature
at any time issued, owing, granted, outstanding, available or claimed with
respect thereto.
1.38 "Obligations" shall mean any and all Loans, Letter of Credit
Accommodations and all other obligations, liabilities and indebtedness of every
kind, nature and description owing by Borrower to Lender and/or its affiliates,
including principal, interest, charges, fees, costs and expenses, however
evidenced, whether as principal, surety, endorser, guarantor or otherwise,
whether arising under this Agreement or otherwise, whether now existing or
hereafter arising, whether arising before, during or after the initial or any
renewal term of this Agreement or after the commencement of any case with
respect to Borrower under the United States Bankruptcy Code or any similar
statute (including, without limitation, the payment of interest and other
amounts which would accrue and become due but for the commencement of such
case), whether direct or indirect, absolute or contingent, joint or several, due
or not due, primary or secondary, liquidated or unliquidated, secured or
unsecured, and however acquired by Lender.
1.39 "Obligor" shall mean any guarantor, endorser, acceptor, surety or
other person liable on or with respect to the Obligations or who is the owner of
any property which is security for the Obligations, other than Borrower.
1.40 "Payment Account" shall have the meaning set forth in Section 6.3
hereof.
1.41 "Person" or "person" shall mean any individual, sole proprietorship,
partnership, corporation (including, without limitation, any corporation which
elects subchapter S status under the
- 8 -
<PAGE>
Code), limited liability company, business trust, unincorporated association,
joint stock corporation, trust, joint venture or other entity or any government
or any agency or instrumentality or political subdivision thereof.
1.42 "Prime Rate" shall mean the rate from time to time publicly
announced by Philadelphia National Bank, incorporated as CoreStates Bank, N.A.,
or its successors, at its office in Philadelphia, Pennsylvania, as its prime
rate, whether or not such announced rate is the best rate available at such
bank.
1.43 "Receivables" shall mean the Accounts, together with: (a) all
interest, late charges, penalties, collection fees, and other sums which shall
be due and payable in connection with any Account; (b) proceeds of any letters
of credit issued in connection with any Account and naming Borrower as
beneficiary; (c) to the extent constituting proceeds of, related to or arising
in connection with Accounts or Inventory, contract rights, chattel paper,
instruments, notes, general intangibles and all forms of obligations owing to
Borrower (and including obligations owing to Borrower by its Subsidiaries and
Affiliates); (d) guarantees and other security for any of the foregoing; and
rights of stoppage in transit, replevin, and reclamation; and (e) other rights
or remedies of an unpaid vendor, lienor or secured party.
1.44 "Records" shall mean all of Borrower's present and future books,
records, ledger cards, data processing records, computer software and other
property and general intangibles at any time evidencing or relating to the
Receivables and Inventory and other personal property referred to in Sections
5.1(a), 5.1(b), 5.1(c) and 5.1(e) hereof.
1.45 "Revolving Loan Limit" shall mean $10,000,000.
1.46 "Revolving Loans" shall mean the loans now or hereafter made by
Lender to or for the benefit of Borrower on a revolving basis (involving
advances, repayments and readvances) as set forth in Section 2.1 hereof.
1.47 "Senior Note Collateral" shall mean, collectively, all of the
property and assets pledged to the Senior Note Trustee by the Borrower pursuant
to the "Collateral Documents" (as defined in the Senior Note Indenture) as set
forth in Schedule 1.47 hereto.
1.48 "Senior Note Collateral Account" means account no. 92200803
maintained by the Borrower with Society National Bank, Indiana.
1.49 "Senior Note Documents" shall mean, collectively, the following (as
the same now exist or may hereafter be amended, modified, supplemented,
extended, received, restated or replaced), (a) the Senior Note Indenture, all
schedules and exhibits thereto, and (b) all other agreements, documents and
instruments executed and delivered in connection with the transactions
contemplated thereby, including, without limitation, each of the "Collateral
Documents" (as defined in the Senior Note Indenture).
1.50 "Senior Note Indenture" shall mean the Indenture, dated as of July
1, 1993, among the Senior Note Trustee, Holdings and Borrower, as the same now
exists or may hereafter be amended, modified, supplemented, extended, renewed,
restated or replaced.
- 9 -
<PAGE>
1.51 "Senior Note Trustee" shall mean Society National Bank, Indiana, a
national banking association, in its capacity as Trustee under the Senior Note
Indenture, and any successor trustee appointed pursuant to the terms of the
Senior Note Indenture.
1.52 "Senior Notes" shall mean, collectively the 11-1/4% Senior Secured
Notes due 1998, Series B, issued by Borrower in the aggregate principal amount
of $50,000,000 pursuant to the Senior Note Indenture, as the same now exist or
may hereafter be amended, modified, supplemented, extended, renewed, restated or
replaced.
1.53 "Subordinated Note Documents" shall mean, collectively, the
following (as the same now exist or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced): (a) the Subordinated
Note Indenture, all schedules and exhibits thereto, and (b) all other
agreements, documents and instruments executed and delivered in connection with
the transactions contemplated thereby.
1.54 "Subordinated Note Indenture" shall mean the Indenture, dated as of
August 31, 1989, among the Subordinated Note Trustee and Haynes Acquisition
Corporation, a Delaware corporation, as supplemented by a First Supplement to
Indenture dated as of August 31, 1989 and a Second Supplement to Indenture,
dated as of February 2, 1990, in each case between the Subordinated Note Trustee
and Borrower (for itself and as successor by merger to Haynes Acquisition
Corporation), as the same now exists or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced.
1.55 "Subordinated Notes" shall mean, collectively, the 13-1/2% Senior
Subordinated Notes due 1999 issued by Borrower in the aggregate principal amount
of $100,000,000 pursuant to the Subordinated Note Indenture, as the same now
exist or may hereafter be amended, modified, supplemented, extended, renewed,
restated or replaced.
1.56 "Subordinated Note Trustee" shall mean Shawmut Bank, as successor to
The Connecticut National Bank, a national banking association, in its capacity
as Trustee under the Subordinated Note Indenture, and any successor trustee
appointed pursuant to the terms of the Subordinated Note Indenture.
1.57 "Subscription Agreement" shall mean the Stock Subscription
Agreement, dated as of August 31, 1989, by and among Borrower, Holdings and the
persons named therein or added as a party thereto, as the same now exists or may
hereafter be amended, modified, supplemented, extended, renewed, restated or
replaced.
1.58 "Subsidiary" shall mean, with respect to any Person, any
corporation, limited or general partnership, trust, association or other
business entity of which an aggregate of at least a majority of the outstanding
capital stock or other interests entitled to vote in the election of the board
of directors of such corporation (irrespective of whether, at the time, capital
stock of any other class or classes of such corporation shall have or might have
voting power by reason of the happening of any contingency), managers, trustees
or other controlling persons, or an equivalent controlling interest therein, of
such Person is, at the time, directly or indirectly, owned by such Person and/or
one or more Subsidiaries of such Person.
1.59 "Total Availability" shall mean the amount equal to: (a) the sum of
(i) sixty (60%) percent of the Value of Eligible Inventory consisting of
finished goods and raw materials for such
- 10 -
<PAGE>
finished goods, but in no event an amount greater than $10,000,000 plus (ii)
----
eighty-five (85%) percent of the Net Amount of Eligible Accounts minus (b) any
-----
Availability Reserves.
1.60 "Value" shall mean, as determined by Lender in good faith, with
respect to Inventory, the lower of (a) cost computed on a first-in-first-out
basis in accordance with GAAP or (b) market value.
1.61 "Working Capital" shall mean as to any Person, at any time, in
accordance with GAAP, on a consolidated basis for such Person and its
Subsidiaries (if any), the amount equal to the difference between: (a) the
aggregate net book value of all current assets of such Person and its
Subsidiaries (as determined in accordance with GAAP), calculating the book value
of inventory for this purpose on a last-in-first-out basis, and (b) all current
liabilities of such Person and its Subsidiaries (as determined in accordance
with GAAP), provided, that, as to Borrower, for purposes of Section 9.14, the
-------- ----
liabilities of Borrower and its Subsidiaries to Lender under this Agreement
shall not be considered current liabilities (whether or not classified as
current liabilities in accordance with GAAP).
SECTION 2. CREDIT FACILITIES
-----------------
2.1 Loans.
-----
(a) Subject to, and upon the terms and conditions contained herein,
Lender agrees to make Revolving Loans to Borrower from time to time in amounts
requested by Borrower up to the lesser of: (i) the amount equal to (A) the
Total Availability minus (B) the outstanding Letter of Credit Accommodations and
LC Loans and (ii) the Revolving Loan Limit.
(b) Lender may, in its discretion, from time to time, upon not less
than five (5) days prior notice to Borrower, (i) reduce the lending formula with
respect to Eligible Accounts to the extent that Lender determines in good faith
that: (A) the dilution with respect to the Accounts for any period (based on
the ratio of (1) the aggregate amount of reductions in Accounts other than as a
result of payments in cash to (2) the aggregate amount of total sales) has
increased in any material respect or may be reasonably anticipated to increase
in any material respect above historical levels, or (B) the general
creditworthiness of account debtors has declined or (ii) reduce the lending
formula(s) with respect to Eligible Inventory to the extent that Lender
determines in good faith that: (A) the number of days of the turnover of the
Inventory for any period has changed in any material respect or (B) the
liquidation value of the Eligible Inventory, or any category thereof, has
decreased in any material respect, or (C) the nature and quality of the
Inventory has deteriorated in any material respect. In determining whether to
reduce the lending formula(s), Lender may consider events, conditions,
contingencies or risks which are also considered in determining Eligible
Accounts, Eligible Inventory or in establishing Availability Reserves.
(c) Except in Lender's discretion, (i) the aggregate amount of the
Loans and the Letter of Credit Accommodations outstanding at any time shall not
exceed the Maximum Credit and (ii) the aggregate amount of the Revolving Loans
shall not exceed the Revolving Loan Limit. In the event that the outstanding
amount of any component of the Loans, or the aggregate amount of the outstanding
Loans and Letter of Credit Accommodations, exceed the amounts available under
the lending formulas, the Revolving Loan Limit, the LC Limit or the Maximum
Credit, as applicable, such event shall not limit, waive or otherwise affect any
rights of Lender in that circumstance or on
- 11 -
<PAGE>
any future occasions and Borrower shall, upon demand by Lender, which may be
made at any time or from time to time, immediately repay to Lender the entire
amount of any such excess(es) for which payment is demanded.
2.2 Letter of Credit Accommodations.
-------------------------------
(a) Subject to, and upon the terms and conditions contained herein,
at the request of Borrower, Lender agrees to provide or arrange for Letter of
Credit Accommodations in accordance with its customary procedures and practices
for the account of Borrower containing terms and conditions acceptable to Lender
and the issuer thereof up to the lesser of: (i) the amount equal to (A) the
Total Availability minus (B) the outstanding Revolving Loans and (ii) the LC
-----
Limit. All Letter of Credit Accommodations shall be for standby letters of
credit which are issued for purposes similar to those for which surety bonds are
issued and appeal bonds required in the ordinary course of business or in
connection with the enforcement of rights or claims of Borrower or any
Subsidiary of Borrower. Any payments made by Lender to any issuer thereof
and/or related parties in connection with the Letter of Credit Accommodations
shall constitute LC Loans to Borrower pursuant to this Section 2.
(b) In addition to any charges, fees or expenses charged by any bank
or issuer in connection with the Letter of Credit Accommodations, Borrower shall
pay to Lender a letter of credit fee at a rate equal to two and one-quarter (2-
1/4%) percent per annum on the daily outstanding balance of the Letter of Credit
Accommodations for the immediately preceding month (or part thereof), payable in
arrears as of the first day of each succeeding month. Such letter of credit fee
shall be calculated on the basis of a three hundred sixty (360) day year and
actual days elapsed and the obligation of Borrower to pay such fee shall survive
the termination or non-renewal of this Agreement.
(c) No Letter of Credit Accommodations shall be available unless on
the date of the proposed issuance of any Letter of Credit Accommodations, the
amount equal to the Total Availability minus the then outstanding amount of the
Loans, subject to the Maximum Credit and the LC Limit, is equal to or greater
than one hundred (100%) percent of the face amount of the proposed Letter of
Credit Accommodations and all other commitments and obligations made or incurred
by Lender with respect thereto.
(d) Except in Lender's discretion, the aggregate amount of all
outstanding Letter of Credit Accommodations and all other commitments and
obligations made or incurred by Lender in connection therewith and the LC Loans
shall not at any time exceed the LC Limit. At any time an Event of Default
exists or has occurred, upon Lender's request, Borrower will either furnish cash
collateral to secure the reimbursement obligations to the issuer in connection
with any Letter of Credit Accommodations or furnish cash collateral to Lender
for the Letter of Credit Accommodations, and in either case, the Loans otherwise
available to Borrower shall not be reduced as provided in Section 2.2(c) to the
extent of such cash collateral.
(e) Borrower shall indemnify and hold Lender harmless from and
against any and all losses, claims, damages, liabilities, costs and expenses
which Lender may suffer or incur in connection with any Letter of Credit
Accommodations and any documents, drafts or acceptances relating thereto,
including, but not limited to, any losses, claims, damages, liabilities, costs
and expenses due to any action taken by any issuer or correspondent with respect
to any Letter of Credit Accommodation. Borrower assumes all risks with respect
to the acts or omissions of the drawer under or beneficiary of any Letter of
Credit Accommodation and for such purposes the drawer or
- 12 -
<PAGE>
beneficiary shall be deemed Borrower's agent. Borrower assumes all risks for,
and agrees to pay, all foreign, Federal, State and local taxes, duties and
levies relating to any goods subject to any Letter of Credit Accommodations or
any documents, drafts or acceptances thereunder. Borrower hereby releases and
holds Lender harmless from and against any acts, waivers, errors, delays or
omissions, whether caused by Borrower, by any issuer or correspondent or
otherwise with respect to or relating to any Letter of Credit Accommodation.
The provisions of this Section 2.2(e) shall survive the payment of Obligations
and the termination or non-renewal of this Agreement.
(f) Nothing contained herein shall be deemed or construed to grant
Borrower any right or authority to pledge the credit of Lender in any manner.
Lender shall have no liability of any kind with respect to any Letter of Credit
Accommodation provided by an issuer other than Lender unless Lender has duly
executed and delivered to such issuer the application or a guarantee or
indemnification in writing with respect to such Letter of Credit Accommodation.
Borrower shall be bound by any interpretation made in good faith by Lender, or
any other issuer or correspondent under or in connection with any Letter of
Credit Accommodation or any documents, drafts or acceptances thereunder,
notwithstanding that such interpretation may be inconsistent with any
instructions of Borrower. Lender shall have the sole and exclusive right and
authority to, and Borrower shall not: (i) at any time an Event of Default exists
or has occurred and is continuing, (A) approve or resolve any questions of non-
compliance of documents, (B) give any instructions as to acceptance or rejection
of any documents or goods or (C) execute any and all applications for steamship
or airway guaranties, indemnities or delivery orders, and (ii) at all times,
(A) grant any extensions of the maturity of, time of payment for, or time of
presentation of, any drafts, acceptances, or documents, and (B) agree to any
amendments, renewals, extensions, modifications, changes or cancellations of any
of the terms or conditions of any of the applications, Letter of Credit
Accommodations, or documents, drafts or acceptances thereunder or any letters of
credit included in the Collateral. Lender may take such actions either in its
own name or in Borrower's name.
(g) Any rights, remedies, duties or obligations granted or undertaken
by Borrower to any issuer or correspondent in any application for any Letter of
Credit Accommodation, or any other agreement in favor of any issuer or
correspondent relating to any Letter of Credit Accommodation, shall be deemed to
have been granted or undertaken by Borrower to Lender. Any duties or
obligations undertaken by Lender to any issuer or correspondent in any
application for any Letter of Credit Accommodation, or any other agreement by
Lender in favor of any issuer or correspondent relating to any Letter of Credit
Accommodation, shall be deemed to have been undertaken by Borrower to Lender and
to apply in all respects to Borrower.
2.3 Availability Reserves. All Loans otherwise available to Borrower
---------------------
pursuant to the lending formulas and subject to the Maximum Credit and other
applicable limits hereunder shall be subject to Lender's continuing right to
establish and revise Availability Reserves as provided in this Agreement.
SECTION 3. INTEREST AND FEES
-----------------
3.1 Interest.
--------
(a) Borrower shall pay to Lender interest on the outstanding
principal amount of the non-contingent Obligations at the rate of one and three-
quarters (1-3/4%) percent per annum in excess of the Prime Rate, except that
Borrower shall pay to Lender interest, at Lender's option, without
- 13 -
<PAGE>
notice, at the rate of three and three-quarters (3-3/4%) percent per annum in
excess of the Prime Rate: (i) on the non-contingent Obligations for the period
from and after the date of termination or non-renewal hereof and until such time
as Lender has received full and final payment of all such Obligations
(notwithstanding entry of any judgment against Borrower), or the date of the
occurrence of an Event of Default, and for so long as such Event of Default is
continuing, and (ii) on the Loans at any time outstanding in excess of the
amounts available to Borrower under Section 2 (whether or not such excess(es),
arise or are made with or without Lender's knowledge or consent and whether made
before or after an Event of Default). All interest accruing hereunder on and
after the occurrence of any of the events referred to in Sections 3.1(a)(i) or
3.1(a)(ii) above shall be payable on demand.
(b) Interest shall be payable by Borrower to Lender monthly in
arrears not later than the first day of each calendar month and shall be
calculated on the basis of a three hundred sixty (360) day year and actual days
elapsed. The interest rate shall increase or decrease by an amount equal to
each increase or decrease in the Prime Rate effective on the first day of the
month after any change in such Prime Rate is announced based on the Prime Rate
in effect on the last day of the month in which any such change occurs. In no
event shall charges constituting interest payable by Borrower to Lender exceed
the maximum amount or the rate permitted under any applicable law or regulation,
and if any part or provision of this Agreement is in contravention of any such
law or regulation, such part or provision shall be deemed amended to conform
thereto.
3.2 Closing Fee. Borrower shall pay to Lender as a closing fee the
-----------
amount of $160,000, which shall be fully earned as of and payable on the date
hereof.
3.3 Servicing Fee. Borrower shall pay to Lender monthly a servicing fee
-------------
in an amount equal to $3,000 in respect of Lender's services for each month (or
part thereof) while this Agreement remains in effect and for so long thereafter
as any of the Obligations are outstanding, which fee shall be fully earned as of
and payable in advance on the date hereof and on the first day of each month
hereafter.
3.4 Unused Line Fee. Borrower shall pay to Lender monthly an unused line
---------------
fee equal at a rate equal to three-eighths of one (3/8%) percent per annum
calculated upon the amount by which the Maximum Credit exceeds the average daily
principal balance of the outstanding Loans and Letter of Credit Accommodations
during the immediately preceding month (or part thereof) while this Agreement is
in effect and for so long thereafter as any of the Obligations are outstanding,
which fee shall be payable on the first day of each month in arrears.
SECTION 4. CONDITIONS PRECEDENT
--------------------
4.1 Conditions Precedent to Initial Loans and Letter of Credit
----------------------------------------------------------
Accommodations. Each of the following is a condition precedent to Lender making
- --------------
the initial Loans and providing the initial Letter of Credit Accommodations
hereunder:
(a) Lender shall have received, in form and substance satisfactory to
Lender, all releases, terminations and such other documents as Lender may
request to evidence and effectuate the termination by BankAmerica Business
Credit, Inc. to Borrower of its financing arrangements with Borrower and the
termination and release by it of any interest in and to any assets and
properties of Borrower and each Obligor, duly authorized, executed and delivered
by it, including, but not limited
- 14 -
<PAGE>
to, UCC termination statements for all UCC financing statements previously filed
by it or their predecessors, as secured party and Borrower or any Obligor, as
debtor;
(b) all requisite corporate action and proceedings in connection with
this Agreement and the other Financing Agreements shall be satisfactory in form
and substance to Lender, and Lender shall have received all information and
copies of all documents, including, without limitation, records of requisite
corporate action and proceedings which Lender may have requested in connection
therewith, such documents where requested by Lender or its counsel to be
certified by appropriate corporate officers or governmental authorities;
(c) no material adverse change shall have occurred in the assets,
business or prospects of Borrower since the date of Lender's latest field
examination and no change or event shall have occurred which would impair the
ability of Borrower or any Obligor in any material respect to perform its
obligations hereunder or under any of the other Financing Agreements to which it
is a party or of Lender to enforce the Obligations or realize upon the
Collateral;
(d) Lender shall have completed a field review of the Records and
such other information with respect to the Collateral as Lender may require to
determine the amount of Loans available to Borrower, the results of which shall
be satisfactory to Lender, not more than three (3) business days prior to the
date hereof;
(e) Lender shall have received, in form and substance satisfactory to
Lender, all consents, waivers, acknowledgments and other agreements from third
persons which Lender may deem necessary or desirable in order to permit, protect
and perfect its security interests in and liens upon the Collateral or to
effectuate the provisions or purposes of this Agreement and the other Financing
Agreements, including, without limitation, acknowledgements by lessors,
mortgagees and warehousemen of Lender's security interests in the Collateral,
waivers by such persons of any security interests, liens or other claims by such
persons to the Collateral and agreements permitting Lender access to, and the
right to remain on, the premises to exercise its rights and remedies and
otherwise deal with the Collateral;
(f) the Excess Availability as determined by Lender, as of the date
hereof, shall be not less than $10,000,000 after giving effect to the initial
Loans made or to be made and Letter of Credit Accommodations issued or to be
issued in connection with the initial transactions hereunder;
(g) Lender shall have received, in form and substance satisfactory to
Lender, the intercreditor agreement between Lender and the Senior Note Trustee,
as acknowledged and agreed to by Borrower, providing for certain rights of
Lender with respect to the fixed assets of Borrower, and related matters, duly
authorized, executed and delivered by the Senior Note Trustee and Borrower;
(h) Lender shall have received evidence of insurance and loss payee
endorsements required hereunder and under the other Financing Agreements, in
form and substance satisfactory to Lender, and certificates of insurance
policies and/or endorsements naming Lender as loss payee;
(i) Lender shall have received, in form and substance satisfactory to
Lender, such opinion letters of counsel to Borrower with respect to the
Financing Agreements and such other matters as Lender may request; and
- 15 -
<PAGE>
(j) the other Financing Agreements and all instruments and documents
hereunder and thereunder shall have been duly executed and delivered to Lender,
in form and substance satisfactory to Lender.
4.2 Conditions Precedent to All Loans and Letter of Credit
------------------------------------------------------
Accommodations. Each of the following is an additional condition precedent to
- --------------
Lender making Loans and/or providing Letter of Credit Accommodations to
Borrower, including the initial Loans and Letter of Credit Accommodations and
any future Loans and Letter of Credit Accommodations:
(a) all representations and warranties contained herein and in the
other Financing Agreements shall be true and correct in all material respects
with the same effect as though such representations and warranties had been made
on and as of the date of the making of each such Loan or providing each such
Letter of Credit Accommodation and after giving effect thereto; and
(b) no Event of Default and no event or condition which, with notice
or passage of time or both, would constitute an Event of Default, shall exist or
have occurred and be continuing on and as of the date of the making of such Loan
or providing each such Letter of Credit Accommodation and after giving effect
thereto.
SECTION 5. GRANT OF SECURITY INTEREST
--------------------------
5.1 To secure payment and performance of all Obligations, Borrower hereby
grants to Lender a continuing security interest in, a lien upon, and a right of
set off against, and hereby assigns to Lender as security, the following
property and interests in property of Borrower, whether now owned or hereafter
acquired or existing, and wherever located (collectively, the "Collateral"):
(a) all Receivables and Inventory;
(b) all monies, securities and other personal property, now or
hereafter held or received by, or in transit to, Lender or a bailee of Lender or
any Affiliate of Lender from or for Borrower, whether for safekeeping, pledge,
custody, transmission, collection or otherwise, including, without limitation,
all of Borrower's deposit accounts, credits and balances with Lender or any
Affiliate of Lender at any time existing;
(c) all of Borrower's deposit accounts (other than the Senior Note
Collateral Account and the Excess Refinancing Proceeds Account) with any
financial institutions with which Borrower maintains deposits;
(d) all Records; and
(e) all accessions to, substitutions for and replacements, products
and proceeds of any of the foregoing, and all proceeds of such proceeds and
products, including, without limitation, all cash and credit balances, all
payments under any indemnity, warranty, or guaranty payable with respect to any
of the foregoing, all proceeds of insurance, and all money and other personal
property obtained as a result of any claims against third parties or any legal
action or proceeding with respect to any of the foregoing.
- 16 -
<PAGE>
5.2 Notwithstanding anything contained herein to the contrary, the
Collateral shall not include the following:
(a) the Senior Note Collateral Account; and
(b) the Excess Refinancing Proceeds Account and the amounts on
deposit therein on the date hereof, constituting certain of the proceeds from
the loans to Borrower under the Credit Agreement, dated as of August 31, 1989,
by and among Borrower, certain financial institutions identified therein and
Bank of America National Trust and Savings Association, as agent for such
financial institutions and earnings thereon and all notes, certificates of
deposit, instruments, securities and other personal property, if any,
representing from time to time the investment of the funds held in such account,
and any proceeds thereof, to the extent such investments constitute investments
permitted under Section 9.10(b) hereof.
SECTION 6. COLLECTION AND ADMINISTRATION
-----------------------------
6.1 Borrower's Loan Account. Lender shall maintain one or more loan
-----------------------
account(s) on its books in which shall be recorded (a) all Loans, Letter of
Credit Accommodations and other Obligations and the Collateral, (b) all payments
made by or on behalf of Borrower and (c) all other appropriate debits and
credits as provided in this Agreement, including, without limitation, fees,
charges, costs, expenses and interest. All entries in the loan account(s) shall
be made in accordance with Lender's customary practices as in effect from time
to time.
6.2 Statements. Lender shall render to Borrower each month a statement
----------
setting forth the balance in Borrower's loan account(s) maintained by Lender for
Borrower pursuant to the provisions of this Agreement, including principal,
interest, fees, costs and expenses. Each such statement shall be subject to
subsequent adjustment by Lender but shall, absent manifest errors or omissions,
be considered correct and deemed accepted by Borrower and conclusively binding
upon Borrower as an account stated except to the extent that Lender receives a
written notice from Borrower of any specific exceptions of Borrower thereto
within thirty (30) days after the date such statement has been mailed by Lender.
Until such time as Lender shall have rendered to Borrower a written statement as
provided above, the balance in Borrower's loan account(s) shall be presumptive
evidence of the amounts due and owing to Lender by Borrower.
6.3 Collection of Accounts.
----------------------
(a) Borrower shall establish and maintain, at its expense, blocked
accounts or lockboxes and related blocked accounts (in either case, "Blocked
Accounts"), as Lender may specify, with such banks as are acceptable to Lender
into which Borrower shall promptly deposit and direct its account debtors to
directly remit all payments on Accounts and all payments constituting proceeds
of Inventory or other Collateral in the identical form in which such payments
are made, whether by cash, check or other manner. The banks at which the
Blocked Accounts are established shall enter into an agreement, in form and
substance satisfactory to Lender, providing that all items received or deposited
in the Blocked Accounts are the property of Lender, that the depository bank has
no lien upon, or right to setoff against, the Blocked Accounts, the items
received for deposit therein, or the funds from time to time on deposit therein
and that the depository bank will wire, or otherwise transfer, in immediately
available funds, on a daily basis, all funds received or deposited into the
Blocked Accounts to such bank account of Lender as Lender may from time to time
designate for
- 17 -
<PAGE>
such purpose ("Payment Account"). Borrower agrees that all payments made to
such Blocked Accounts or other funds received and collected by Lender, whether
on the Accounts or as proceeds of Inventory or other Collateral shall be the
property of Lender.
(b) For purposes of calculating interest on the Obligations, such
payments or other funds received will be applied (conditional upon final
collection) to the Obligations one (1) business day following the date of
receipt of immediately available funds by Lender in the Payment Account. For
purposes of calculating the amount of the Loans available to Borrower such
payments will be applied (conditional upon final collection) to the Obligations
on the business day of receipt by Lender in the Payment Account, if such
payments are received within sufficient time (in accordance with Lender's usual
and customary practices as in effect from time to time) to credit Borrower's
loan account on such day, and if not, then on the next business day.
(c) Borrower and all of its affiliates, subsidiaries, shareholders,
directors, employees or agents shall, acting as trustee for Lender, receive, as
the property of Lender, any monies, checks, notes, drafts or any other payment
relating to and/or proceeds of Accounts or other Collateral which come into
their possession or under their control and immediately upon receipt thereof,
shall deposit or cause the same to be deposited in the Blocked Accounts, or
remit the same or cause the same to be remitted, in kind, to Lender. In no
event shall the same be commingled with Borrower's own funds. Borrower agrees
to reimburse Lender on demand for any amounts owed or paid to any bank at which
a Blocked Account is established or any other bank or person involved in the
transfer of funds to or from the Blocked Accounts arising out of Lender's
payments to or indemnification of such bank or person. The obligation of
Borrower to reimburse Lender for such amounts pursuant to this Section 6.3 shall
survive the termination or non-renewal of this Agreement.
6.4 Payments. All Obligations shall be payable to the Payment Account as
--------
provided in Section 6.3 or such other place as Lender may designate from time to
time. Lender may apply payments received or collected from Borrower or for the
account of Borrower (including, without limitation, the monetary proceeds of
collections or of realization upon any Collateral) to such of the Obligations,
whether or not then due, in such order and manner as Lender determines.
Borrower shall make all payments in respect of the Obligations as set forth in
Sections 9.9(d)(iv) and 9.9(e)(vi) hereof. At Lender's option, all principal,
interest, fees, costs, expenses and other charges provided for in this Agreement
or the other Financing Agreements may be charged directly to the loan account(s)
of Borrower. Borrower shall make all payments to Lender on the Obligations free
and clear of, and without deduction or withholding for or on account of, any
setoff, counterclaim, defense, duties, taxes, levies, imposts, fees, deductions,
withholding, restrictions or conditions of any kind. If after receipt of any
payment of, or proceeds of Collateral applied to the payment of, any of the
Obligations, Lender is required to surrender or return such payment or proceeds
to any Person for any reason, then the Obligations intended to be satisfied by
such payment or proceeds shall be reinstated and continue and this Agreement
shall continue in full force and effect as if such payment or proceeds had not
been received by Lender. Borrower shall be liable to pay to Lender, and does
hereby indemnify and hold Lender harmless for the amount of any payments or
proceeds surrendered or returned. This Section 6.4 shall remain effective
notwithstanding any contrary action which may be taken by Lender in reliance
upon such payment or proceeds. This Section 6.4 shall survive the payment of
the Obligations and the termination or non-renewal of this Agreement.
6.5 Authorization to Make Loans. Lender is authorized to make the Loans
---------------------------
and provide the Letter of Credit Accommodations based upon telephonic or other
instructions received from anyone purporting to be an officer of Borrower or
other authorized person or, at the discretion of Lender, if
- 18 -
<PAGE>
such Loans are necessary to satisfy any Obligations. If a beneficiary draws
under any of the Letter of Credit Accommodations, Lender is authorized to make
an LC Loan to Borrower in an amount equal to the amount drawn under such Letter
of Credit Accommodation and to pay the proceeds of such LC Loan to the
beneficiary of such Letter of Credit Accommodation or to the issuer of such
Letter of Credit Accommodation in satisfaction of such draw. All requests for
Loans or Letter of Credit Accommodations hereunder shall specify the date on
which the requested advance is to be made or Letter of Credit Accommodations
established (which day shall be a business day) and the amount of the requested
Loan. Requests received after 11:00 a.m. Chicago time on any day shall be
deemed to have been made as of the opening of business on the immediately
following business day. All Loans and Letter of Credit Accommodations under
this Agreement shall be conclusively presumed to have been made to, and at the
request of and for the benefit of, Borrower when deposited to the credit of
Borrower or otherwise disbursed or established in accordance with the
instructions of Borrower or in accordance with the terms and conditions of this
Agreement.
6.6 Use of Proceeds. Borrower shall use the initial proceeds of the
---------------
Loans provided by Lender to Borrower hereunder only for: (a) payments to each
of the persons listed in the disbursement direction letter furnished by Borrower
to Lender on or about the date hereof and (b) costs, expenses and fees in
connection with the preparation, negotiation, execution and delivery of this
Agreement and the other Financing Agreements. All other Loans made or Letter of
Credit Accommodations provided by Lender to Borrower pursuant to the provisions
hereof shall be used by Borrower only for general operating, working capital and
other proper corporate purposes of Borrower not otherwise prohibited by the
terms hereof. None of the proceeds will be used, directly or indirectly, for
the purpose of purchasing or carrying any margin security or for the purposes of
reducing or retiring any indebtedness which was originally incurred to purchase
or carry any margin security or for any other purpose which might cause any of
the Loans to be considered a "purpose credit" within the meaning of Regulation G
of the Board of Governors of the Federal Reserve System, as amended.
SECTION 7. COLLATERAL REPORTING AND COVENANTS
----------------------------------
7.1 Collateral Reporting. Borrower shall provide Lender with the
--------------------
following documents in a form satisfactory to Lender: (a) on a regular basis as
required by Lender, a schedule of Accounts; (b) on a monthly basis or more
frequently as Lender may request, (i) perpetual inventory reports, (ii)
inventory reports by category and (iii) agings of accounts payable, (c) upon
Lender's request, (i) copies of customer statements and credit memos, remittance
advices and reports, and copies of deposit slips and bank statements, (ii)
copies of shipping and delivery documents, and (iii) copies of purchase orders,
invoices and delivery documents for Inventory acquired by Borrower; (d) agings
of accounts receivable on a monthly basis or more frequently as Lender may
request; and (e) such other reports as to the Collateral as Lender shall request
from time to time. If any of Borrower's records or reports of the Collateral
are prepared or maintained by an accounting service, contractor, shipper or
other agent, Borrower hereby irrevocably authorizes such service, contractor,
shipper or agent to deliver such records, reports, and related documents to
Lender and to follow Lender's instructions with respect to further services at
any time that an Event of Default exists or has occurred and is continuing.
- 19 -
<PAGE>
7.2 Accounts Covenants.
------------------
(a) Borrower shall notify Lender promptly of: (i) any material delay
in Borrower's performance of any of its obligations to any account debtor or the
assertion of any claims, offsets, defenses or counterclaims by any account
debtor, or any disputes with account debtors, or any settlement, adjustment or
compromise thereof, (ii) all material adverse information relating to the
financial condition of any account debtor obtained by Borrower pursuant to the
diligent exercise by Borrower of its credit procedures in accordance with past
practices and (iii) any event or circumstance which, to Borrower's knowledge,
would cause the Account not to satisfy the criteria for Eligible Accounts set
forth herein. No credit, discount, allowance or extension or agreement for any
of the foregoing shall be granted to any account debtor without Lender's
consent, except in the ordinary course of Borrower's business in accordance with
practices and policies previously disclosed in writing to Lender. So long as no
Event of Default exists or has occurred and is continuing, Borrower shall
settle, adjust or compromise any claim, offset, counterclaim or dispute with any
account debtor. At any time that an Event of Default exists or has occurred and
is continuing, Lender shall, at its option, have the exclusive right to settle,
adjust or compromise any claim, offset, counterclaim or dispute with account
debtors or grant any credits, discounts or allowances.
(b) Borrower shall promptly report to Lender any return of Inventory
by an account debtor. At any time that Inventory is returned, reclaimed or
repossessed, the related Account shall not be deemed an Eligible Account to the
extent of the portion of the Account which relates to the sale by Borrower to
the account debtor of the returned, reclaimed or repossessed Inventory. In the
event any account debtor returns Inventory when an Event of Default exists or
has occurred and is continuing, Borrower shall, upon Lender's request, (i) hold
the returned Inventory in trust for Lender, (ii) segregate all returned
Inventory from all of its other property, (iii) dispose of the returned
Inventory solely according to Lender's instructions, and (iv) not issue any
credits, discounts or allowances with respect thereto without Lender's prior
written consent.
(c) With respect to each Account: (i) the amounts shown on any
invoice delivered to Lender or schedule thereof delivered to Lender shall be
true and complete, (ii) no payments shall be made thereon except payments
immediately delivered to Lender pursuant to the terms of this Agreement, (iii)
no credit, discount, allowance or extension or agreement for any of the
foregoing shall be granted to any account debtor except as reported to Lender in
accordance with this Agreement and except for credits, discounts, allowances or
extensions made or given in the ordinary course of Borrower's business in
accordance with practices and policies previously disclosed to Lender, (iv)
there shall be no setoffs, deductions, contras, defenses, counterclaims or
disputes existing or asserted with respect thereto except as reported to Lender
in accordance with the terms of this Agreement, (v) none of the transactions
giving rise thereto will violate any applicable State or Federal law or
regulation, all documentation relating thereto will be legally sufficient under
such laws and regulations and all such documentation will be legally enforceable
in accordance with its terms.
(d) Lender shall have the right at any time or times, in Lender's
name or in the name of a nominee of Lender, to verify the validity, amount or
any other matter relating to any Account or other Collateral, by mail,
telephone, facsimile transmission or otherwise.
(e) Borrower shall deliver or cause to be delivered to Lender, with
appropriate endorsement and assignment, with full recourse to Borrower, all
chattel paper and instruments which Borrower now owns or may at any time acquire
as a payment on or with respect to any Account immediately upon Borrower's
receipt thereof, except as Lender may otherwise agree.
- 20 -
<PAGE>
(f) Lender may, at any time or times that an Event of Default exists
or has occurred and is continuing, (i) notify any or all account debtors that
the Accounts have been assigned to Lender and that Lender has a security
interest therein and Lender may direct any or all accounts debtors to make
payment of Accounts directly to Lender, (ii) extend the time of payment of,
compromise, settle or adjust for cash, credit, return of merchandise or
otherwise, and upon any terms or conditions, any and all Accounts or other
obligations included in the Collateral and thereby discharge or release the
account debtor or any other party or parties in any way liable for payment
thereof without affecting any of the Obligations, (iii) demand, collect or
enforce payment of any Accounts or such other obligations, but without any duty
to do so, and Lender shall not be liable for its failure to collect or enforce
the payment thereof nor for the negligence of its agents or attorneys with
respect thereto and (iv) take whatever other action Lender may deem necessary or
desirable for the protection of its interests. At any time that an Event of
Default exists or has occurred and is continuing, at Lender's request, all
invoices and statements sent to any account debtor shall state that the Accounts
and such other obligations have been assigned to Lender and are payable directly
and only to Lender and Borrower shall deliver to Lender such originals of
documents evidencing the sale and delivery of goods or the performance of
services giving rise to any Accounts as Lender may require.
7.3 Inventory Covenants. With respect to the Inventory: (a) Borrower
-------------------
shall at all times maintain inventory records reasonably satisfactory to Lender,
keeping correct and accurate records itemizing and describing the kind, type,
quality and quantity of Inventory, Borrower's cost therefor and daily
withdrawals therefrom and additions thereto; (b) Borrower shall conduct a
physical count of the Inventory at least once each year, but at any time or
times as Lender may request on or after an Event of Default, and promptly
following such physical inventory shall supply Lender with a report in the form
and with such specificity as may be reasonably satisfactory to Lender concerning
such physical count; (c) Borrower shall not remove any Inventory from the
locations set forth or permitted herein, without the prior written consent of
Lender, except for sales of Inventory in the ordinary course of Borrower's
business and except to move Inventory directly from one location set forth or
permitted herein to another such location; (d) upon Lender's request, Borrower
shall, at its expense, no more than once in any twelve (12) month period, but at
any time or times as Lender may request on or after an Event of Default, deliver
or cause to be delivered to Lender written reports or appraisals as to the
Inventory in form, scope and methodology acceptable to Lender and by an
appraiser acceptable to Lender, addressed to Lender or upon which Lender is
expressly permitted to rely; (e) Borrower shall produce, use, store and maintain
the Inventory, with all reasonable care and caution and in accordance with
applicable standards of any insurance and in conformity with applicable laws
(including, but not limited to, the requirements of the Federal Fair Labor
Standards Act of 1938, as amended and all rules, regulations and orders related
thereto); (f) Borrower assumes all responsibility and liability arising from or
relating to the production, use, sale or other disposition of the Inventory; (g)
Borrower shall not sell Inventory to any customer on approval, or any other
basis which entitles the customer to return or may obligate Borrower to
repurchase such Inventory; (h) Borrower shall keep the Inventory in good and
marketable condition; and (i) Borrower shall not, without prior written notice
to Lender, acquire or accept any Inventory on consignment or approval, except,
------
that, Borrower may acquire or accept Inventory on consignment; provided, that,
- ---- -------- ----
each of the following conditions is satisfied: (i) the aggregate value of such
Inventory shall not exceed $4,000,000 at any time, (ii) the consignor of such
Inventory shall not have any claim or interest in any Receivables, (iii) all of
such consigned Inventory shall, at all times, be reported to Lender as consigned
Inventory (and not included in any reports as Inventory of Borrower), and (iv)
such consigned Inventory shall, at all times, be conspicuously labelled or
otherwise marked as "consigned" Inventory and shall be physically separated from
Inventory owned by Borrower in designated
- 21 -
<PAGE>
segregated areas of Borrower's facilities used solely for the purpose of storing
such consigned Inventory.
7.4 Equipment Covenants. With respect to the Equipment: (a) Borrower
-------------------
shall keep the Equipment in good order, repair, running and marketable condition
(ordinary wear and tear excepted); (b) Borrower shall use the Equipment with all
reasonable care and caution and in accordance with applicable standards of any
insurance and in conformity with all applicable laws; (c) the Equipment is and
shall be used in Borrower's business and not for personal, family, household or
farming use; and (d) Borrower assumes all responsibility and liability arising
from the use of the Equipment.
7.5 Power of Attorney. Borrower hereby irrevocably designates and
-----------------
appoints Lender (and all persons designated by Lender) as Borrower's true and
lawful attorney-in-fact, and authorizes Lender, in Borrower's or Lender's name,
to: (a) at any time an Event of Default exists or has occurred and is continuing
(i) demand payment on Accounts or other proceeds of Inventory or other
Collateral, (ii) enforce payment of Accounts by legal proceedings or otherwise,
(iii) exercise all of Borrower's rights and remedies to collect any Account or
other Collateral, (iv) sell or assign any Account upon such terms, for such
amount and at such time or times as the Lender deems advisable, (v) settle,
adjust, compromise, extend or renew an Account, (vi) discharge and release any
Account, (vii) prepare, file and sign Borrower's name on any proof of claim in
bankruptcy or other similar document against an account debtor, (viii) notify
the post office authorities to change the address for delivery of Borrower's
mail to an address designated by Lender (after two (2) days prior written notice
to Borrower), and open and dispose of all mail addressed to Borrower, and (ix)
do all acts and things which are necessary, in Lender's determination, to
fulfill Borrower's obligations under this Agreement and the other Financing
Agreements and (b) at any time for the purpose of exercising its rights
hereunder, under the other Financing Agreements and under applicable law, as
determined in good faith by Lender (including, without limitation, the handling
and monitoring of the Collateral and proceeds of the Collateral, exercising its
remedies hereunder, under the other Financing Agreements and applicable law, and
protecting its rights in the Collateral): (i) take control in any manner of any
item of payment or proceeds thereof, (ii) have access to any lockbox or postal
box into which Borrower's mail is deposited, (iii) endorse Borrower's name upon
any items of payment or proceeds thereof with respect to the Collateral and
deposit the same in the Lender's account for application to the Obligations,
(iv) endorse Borrower's name upon any chattel paper, document, instrument,
invoice, or similar document or agreement relating to any Account or any goods
pertaining thereto or any other Collateral, (v) sign Borrower's name on any
verification of Accounts and notices thereof to account debtors and (vi) execute
in Borrower's name and file any UCC financing statements or amendments thereto.
Borrower hereby releases Lender and its officers, employees and designees from
any liabilities arising from any act or acts under this power of attorney and in
furtherance thereof, whether of omission or commission, except as a result of
Lender's own gross negligence or wilful misconduct as determined pursuant to a
final non-appealable order of a court of competent jurisdiction.
7.6 Right to Cure. Lender may, at its option, (a) cure any default by
-------------
Borrower under any agreement with a third party or pay or bond on appeal any
judgment entered against Borrower, (b) discharge taxes, liens, security
interests or other encumbrances at any time levied on or existing with respect
to the Collateral and (c) pay any amount, incur any expense or perform any act
which, in Lender's judgment, is necessary or appropriate to preserve, protect,
insure or maintain the Collateral and the rights of Lender with respect thereto.
Lender may add any amounts so expended to the Obligations and charge Borrower's
account therefor, such amounts to be repayable by Borrower on
- 22 -
<PAGE>
demand. Lender shall be under no obligation to effect such cure, payment or
bonding and shall not, by doing so, be deemed to have assumed any obligation or
liability of Borrower. Any payment made or other action taken by Lender under
this Section shall be without prejudice to any right to assert an Event of
Default hereunder and to proceed accordingly.
7.7 Access to Premises. From time to time as requested by Lender, at the
------------------
cost and expense of Borrower, (a) Lender or its designee shall have complete
access to all of Borrower's premises during normal business hours and after
notice to Borrower, or at any time and without notice to Borrower if an Event of
Default exists or has occurred and is continuing, for the purposes of
inspecting, verifying and auditing the Collateral and all of Borrower's books
and records, including, without limitation, the Records, and (b) Borrower shall
promptly furnish to Lender such copies of such books and records or extracts
therefrom as Lender may request, and (c) use during normal business hours such
of Borrower's personnel, equipment, supplies and premises as may be reasonably
necessary for the foregoing and if an Event of Default exists or has occurred
and is continuing for the collection of Accounts and realization of other
Collateral.
SECTION 8. REPRESENTATIONS AND WARRANTIES
------------------------------
Borrower hereby represents and warrants to Lender the following (which
shall survive the execution and delivery of this Agreement), the truth and
accuracy of which are a continuing condition of the making of Loans and
providing Letter of Credit Accommodations by Lender to Borrower:
8.1 Corporate Existence, Power and Authority; Subsidiaries. Borrower is
------------------------------------------------------
a corporation duly organized and in good standing under the laws of its state of
incorporation and is duly qualified as a foreign corporation and in good
standing in all states or other jurisdictions where the nature and extent of the
business transacted by it or the ownership of assets makes such qualification
necessary, except for those jurisdictions in which the failure to so qualify
would not have a material adverse effect on Borrower's financial condition,
results of operation or business or the rights of Lender in or to any of the
Collateral. The execution, delivery and performance of this Agreement, the
other Financing Agreements and the transactions contemplated hereunder and
thereunder are all within Borrower's corporate powers, have been duly authorized
and are not in contravention of law or the terms of Borrower's certificate of
incorporation, by-laws, or other organizational documentation, or any indenture,
agreement or undertaking to which Borrower is a party or by which Borrower or
its property are bound. This Agreement and the other Financing Agreements
constitute legal, valid and binding obligations of Borrower enforceable in
accordance with their respective terms. Borrower does not have any Subsidiaries
except as set forth on the Information Certificate.
8.2 Financial Statements; No Material Adverse Change. All financial
------------------------------------------------
statements relating to Borrower which have been or may hereafter be delivered by
Borrower to Lender have been prepared in accordance with GAAP and fairly present
in all material respects the financial condition and the results of operation of
Borrower as at the dates and for the periods set forth therein. Except as
disclosed in any interim financial statements furnished by Borrower to Lender
prior to the date of this Agreement, there has been no material adverse change
in the assets, liabilities, properties and condition, financial or otherwise, of
Borrower, since the date of the most recent audited financial statements
furnished by Borrower to Lender prior to the date of this Agreement.
8.3 Chief Executive Office; Collateral Locations. The chief executive
--------------------------------------------
office of Borrower and Borrower's Records concerning Accounts are located only
at the address set forth below and its
- 23 -
<PAGE>
only other places of business and the only other locations of Collateral, if
any, are the addresses set forth in the Information Certificate, subject to the
right of Borrower to establish new locations in accordance with Section 9.2
below. The Information Certificate correctly identifies any of such locations
which are not owned by Borrower and sets forth the owners and/or operators
thereof and to the best of Borrower's knowledge, the holders of any mortgages on
such locations.
8.4 Priority of Liens; Title to Properties. The security interests and
--------------------------------------
liens granted to Lender under this Agreement and the other Financing Agreements
constitute valid and perfected first priority liens and security interests in
and upon the Collateral subject only to the liens indicated on Schedule 8.4
hereto and the other liens permitted under Section 9.8 hereof. Borrower has
good and marketable title to all of its properties and assets subject to no
liens, mortgages, pledges, security interests, encumbrances or charges of any
kind, except those granted to Lender and such others as are specifically listed
on Schedule 8.4 hereto or permitted under Section 9.8 hereof.
8.5 Tax Returns. Borrower has filed, or caused to be filed, in a timely
-----------
manner all tax returns, reports and declarations which are required to be filed
by it (without requests for extensions of Federal, State or local income taxes
except as previously disclosed in writing to Lender). All information in such
tax returns, reports and declarations is complete and accurate in all material
respects. Borrower has paid or caused to be paid all taxes due and payable or
claimed due and payable in any assessment received by it, except taxes the
validity of which are being contested in good faith by appropriate proceedings
diligently pursued and available to Borrower and with respect to which adequate
reserves have been set aside on its books. Adequate provision has been made for
the payment of all accrued and unpaid Federal, State, county, local, foreign and
other taxes whether or not yet due and payable and whether or not disputed.
8.6 Litigation. Except as set forth on the Information Certificate,
----------
there is no present investigation by any governmental agency pending, or to the
best of Borrower's knowledge threatened, against or affecting Borrower, its
assets or business and there is no action, suit, proceeding or claim by any
Person pending, or to the best of Borrower's knowledge threatened, against
Borrower or its assets or goodwill, or against or affecting any transactions
contemplated by this Agreement, which if adversely determined against Borrower
would result in any material adverse change in the assets, business or prospects
of Borrower or would impair the ability of Borrower to perform its obligations
hereunder or under any of the other Financing Agreements to which it is a party
or of Lender to enforce any Obligations or realize upon any Collateral.
8.7 Compliance with Other Agreements and Applicable Laws. Borrower is
----------------------------------------------------
not in default in any material respect under, or in violation in any material
respect of any of the terms of, any agreement, contract, instrument, lease or
other commitment to which it is a party or by which it or any of its assets are
bound and Borrower is in compliance in all material respects with all applicable
provisions of laws, rules, regulations, licenses, permits, approvals and orders
of any foreign, Federal, State or local governmental authority.
8.8 Employee Benefits.
-----------------
(a) Borrower has not engaged in any transaction in connection with
which Borrower or any of its ERISA Affiliates could be subject to either a civil
penalty assessed pursuant to Section 502(i) of ERISA or a tax imposed by Section
4975 of the Code, including any accumulated funding deficiency described in
Section 8.8(c) hereof and any deficiency with respect to vested accrued benefits
described in Section 8.8(d) hereof.
- 24 -
<PAGE>
(b) No liability to the Pension Benefit Guaranty Corporation has been
or is expected by Borrower to be incurred with respect to any employee benefit
plan of Borrower or any of its ERISA Affiliates. There has been no reportable
event (within the meaning of Section 4043(b) of ERISA) or any other event or
condition with respect to any employee benefit plan of Borrower or any of its
ERISA Affiliates which presents a risk of termination of any such plan by the
Pension Benefit Guaranty Corporation.
(c) As of the last day of the most recent fiscal year of such plan,
full payment has been made of all amounts which Borrower or any of its ERISA
Affiliates is required under Section 302 of ERISA and Section 412 of the Code to
have paid under the terms of each employee benefit plan as contributions to such
plan , and no accumulated funding deficiency (as defined in Section 302 of ERISA
and Section 412 of the Code), whether or not waived, exists with respect to any
employee benefit plan, including any penalty or tax described in Section 8.8(a)
hereof and any deficiency with respect to vested accrued benefits described in
Section 8.8(d) hereof.
(d) As of the last day of the most recent fiscal year of such plan,
the current value of all vested accrued benefits under all employee benefit
plans maintained by Borrower that are subject to Title IV of ERISA does not
exceed the current value of the assets of such plans allocable to such vested
accrued benefits, including any penalty or tax described in Section 8.8(a)
hereof and any accumulated funding deficiency described in Section 8.8(c)
hereof. The terms "current value" and "accrued benefit" have the meanings
specified in ERISA.
(e) Neither Borrower nor any of its ERISA Affiliates is or has ever
been obligated to contribute to any "multiemployer plan" (as such term is
defined in Section 4001(a)(3) of ERISA) that is subject to Title IV of ERISA,
except as set forth on Schedule 8.8 hereof.
8.9 Environmental Compliance.
------------------------
(a) Except as set forth on Schedule 8.9 hereto, Borrower has not
generated, used, stored, treated, transported, manufactured, handled, produced
or disposed of any Hazardous Materials, on or off its premises (whether or not
owned by it) in any manner which at any time violates any applicable
Environmental Law or any license, permit, certificate, approval or similar
authorization thereunder and the operations of Borrower comply in all material
respects with all Environmental Laws and all licenses, permits, certificates,
approvals and similar authorizations thereunder.
(b) Except as set forth on Schedule 8.9 hereto, there has been no
investigation, proceeding, complaint, order, directive, claim, citation or
notice by any governmental authority or any other person nor is any pending or
to the best of Borrower's knowledge threatened, with respect to any
non-compliance with or violation of the requirements of any Environmental Law by
Borrower or the release, spill or discharge, threatened or actual, of any
Hazardous Material or the generation, use, storage, treatment, transportation,
manufacture, handling, production or disposal of any Hazardous Materials or any
other environmental, health or safety matter, which affects Borrower or its
business, operations or assets or any properties at which Borrower has
transported, stored or disposed of any Hazardous Materials.
(c) Borrower has no material liability (contingent or otherwise) in
connection with a release, spill or discharge, actual or to the best of
Borrower's knowledge threatened, of any
- 25 -
<PAGE>
Hazardous Materials or the generation, use, storage, treatment, transportation,
manufacture, handling, production or disposal of any Hazardous Materials.
(d) Borrower has all licenses, permits, certificates, approvals or
similar authorizations required to be obtained or filed in connection with the
operations of Borrower under any Environmental Law and all of such licenses,
permits, certificates, approvals or similar authorizations are valid and in full
force and effect.
8.10 Accuracy and Completeness of Information. All information furnished
----------------------------------------
by or on behalf of Borrower in writing to Lender in connection with this
Agreement or any of the other Financing Agreements or any transaction
contemplated hereby or thereby, including, without limitation, all information
in the Information Certificate is true and correct in all material respects on
the date as of which such information is dated or certified and does not omit
any material fact necessary in order to make such information not misleading.
No event or circumstance has occurred which has had or could reasonably be
expected to have a material adverse effect on the business, assets or prospects
of Borrower, which has not been fully and accurately disclosed to Lender in
writing.
8.11 Survival of Warranties; Cumulative. All representations and
----------------------------------
warranties contained in this Agreement or any of the other Financing Agreements
shall survive the execution and delivery of this Agreement and shall be deemed
to have been made again to Lender on the date of each additional borrowing or
other credit accommodation hereunder and shall be conclusively presumed to have
been relied on by Lender regardless of any investigation made or information
possessed by Lender. The representations and warranties set forth herein shall
be cumulative and in addition to any other representations or warranties which
Borrower shall now or hereafter give, or cause to be given, to Lender.
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS
----------------------------------
9.1 Maintenance of Existence. Borrower shall, and shall cause each
------------------------
Subsidiary to, at all times preserve, renew and keep in full force and effect
its corporate existence and rights and franchises with respect thereto and
maintain in full force and effect all permits, licenses, trademarks, tradenames,
approvals, authorizations, leases and contracts necessary to carry on the
business as presently or proposed to be conducted. Borrower shall give Lender
thirty (30) days prior written notice of any proposed change in its corporate
name, which notice shall set forth the new name and Borrower shall deliver to
Lender a copy of the amendment to the Certificate of Incorporation of Borrower
providing for the name change certified by the Secretary of State of the
jurisdiction of incorporation of Borrower as soon as it is available.
9.2 New Collateral Locations. Borrower may open any new location within
------------------------
the continental United States provided Borrower (a) gives Lender thirty (30)
days prior written notice of the intended opening of any such new location and
(b) executes and delivers, or causes to be executed and delivered, to Lender
such agreements, documents, and instruments as Lender may deem reasonably
necessary or desirable to protect its interests in the Collateral at such
location, including, without limitation, UCC financing statements.
- 26 -
<PAGE>
9.3 Compliance with Laws, Regulations, Etc.
---------------------------------------
(a) Borrower shall, at all times, comply in all material respects
with all laws, rules, regulations, licenses, permits, approvals and orders
applicable to it and duly observe all requirements of any Federal, State or
local governmental authority, including, without limitation, ERISA, the
Occupational Safety and Hazard Act of 1970, as amended, the Fair Labor Standards
Act of 1938, as amended, and all statutes, rules, regulations, orders, permits
and stipulations relating to environmental pollution and employee health and
safety, including, without limitation, all of the Environmental Laws.
(b) Borrower shall establish and maintain, at its expense, a system
to assure and monitor its continued compliance with all Environmental Laws in
all of its operations, which system shall include annual reviews of such
compliance by employees or agents of Borrower who are familiar with the
requirements of the Environmental Laws. Copies of all environmental surveys,
audits, assessments, feasibility studies and results of remedial investigations
shall be promptly furnished, or caused to be furnished, by Borrower to Lender.
Borrower shall take prompt and appropriate action to respond to any non-
compliance with any of the Environmental Laws and shall regularly report to
Lender on such response.
(c) Borrower shall give both oral and written notice to Lender
immediately upon Borrower's receipt of any notice of, or Borrower's otherwise
obtaining knowledge of, (i) the occurrence of any event involving the release,
spill or discharge, threatened or actual, of any Hazardous Material which
violates or may violate any Environmental Law or requires any report thereof
under any Environmental Law or (ii) any investigation, proceeding, complaint,
order, directive, claims, citation or notice with respect to: (A) any non-
compliance with or violation of any Environmental Law by Borrower or (B) the
release, spill or discharge, threatened or actual, of any Hazardous Material or
(C) the generation, use, storage, treatment, transportation, manufacture,
handling, production or disposal of any Hazardous Materials or (D) any other
environmental, health or safety matter, which affects Borrower or its business,
operations or assets or any properties at which Borrower transported, stored or
disposed of any Hazardous Materials.
(d) Without limiting the generality of the foregoing, whenever Lender
reasonably determines that there is non-compliance, or any condition which
requires any action by or on behalf of Borrower in order to avoid any material
non-compliance, with any Environmental Law, upon Lender's request Borrower shall
at Borrower's expense: (i) cause an independent environmental engineer
acceptable to Lender to conduct such tests of the site where Borrower's non-
compliance or alleged non-compliance with such Environmental Laws has occurred
as to such non-compliance and prepare and deliver to Lender a report as to such
non-compliance setting forth the results of such tests, a proposed plan for
responding to any environmental problems described therein, and an estimate of
the costs thereof and (ii) provide to Lender a supplemental report of such
engineer whenever the scope of such non-compliance, or Borrower's response
thereto or the estimated costs thereof, shall change in any material respect;
provided, that, in the event Borrower shall fail to comply with Lender's
- -------- ----
request, Lender may take any of the actions described in this Section 9.3(d) at
Borrower's expense.
(e) Borrower shall indemnify and hold harmless Lender, its directors,
officers, employees, agents, invitees, representatives, successors and assigns,
from and against any and all losses, claims, damages, liabilities, costs, and
expenses (including attorneys' fees and legal expenses) directly or indirectly
arising out of or attributable to the use, generation, manufacture,
reproduction, storage, release, threatened release, spill, discharge, disposal
or presence of a Hazardous Material, including, without limitation, the costs of
any required or necessary repair, cleanup or other remedial
- 27 -
<PAGE>
work with respect to any property of Borrower and the preparation and
implementation of any closure, remedial or other required plans. Borrower shall
cooperate in all respects with Lender in connection with such indemnification by
Borrower of Lender and the other persons as provided herein, including, but not
limited to, promptly delivering or causing to be delivered to Lender such
information as Lender may, in good faith, request, and allowing Lender or its
representatives or agents access during normal business hours upon one (1) day
prior notice to any of the premises, personnel or books and records of Borrower
as Lender may require, at Borrower's expense. All covenants and
indemnifications in this Section 9.3(e) shall survive the payment of the
Obligations and the termination or non-renewal of this Agreement.
9.4 Payment of Taxes and Claims. Borrower shall, and shall cause each
---------------------------
Subsidiary to, duly pay and discharge all taxes, assessments, contributions and
governmental charges upon or against it or its properties or assets, except for
taxes the validity of which are being contested in good faith by appropriate
proceedings diligently pursued and available to Borrower and with respect to
which adequate reserves have been set aside on its books. Borrower and its
Subsidiaries shall be liable for any tax or penalties imposed on Lender as a
result of the financing arrangements provided for herein and Borrower agrees to
indemnify and hold Lender harmless with respect to the foregoing, and to repay
to Lender on demand the amount thereof, and until paid by Borrower such amount
shall be added and deemed part of the Loans, provided, that, nothing contained
-------- ----
herein shall be construed to require Borrower or its Subsidiaries to pay any
income or franchise taxes attributable to the income of Lender from any amounts
charged or paid hereunder to Lender. The foregoing indemnity shall survive the
payment of the Obligations and the termination or non-renewal of this Agreement.
9.5 Insurance. Borrower shall, at all times, maintain with financially
---------
sound and reputable insurers insurance with respect to the Collateral against
loss or damage and all other insurance of the kinds and in the amounts
customarily insured against or carried by corporations of established reputation
engaged in the same or similar businesses and similarly situated. Said policies
of insurance shall be satisfactory to Lender as to form, amount and insurer.
Borrower shall furnish certificates, policies or endorsements to Lender as
Lender shall require as proof of such insurance, and, if Borrower fails to do
so, Lender is authorized, but not required, to obtain such insurance at the
expense of Borrower. All such insurance policies shall provide for at least
thirty (30) days prior written notice to Lender of any cancellation or reduction
of coverage and that Lender may act as attorney for Borrower in obtaining, and
at any time an Event of Default exists or has occurred and is continuing,
adjusting, settling, amending and canceling such insurance. Borrower shall
cause Lender to be named as a loss payee and an additional insured (but without
any liability for any premiums) under such insurance policies and Borrower shall
obtain non-contributory lender's loss payable endorsements to all such insurance
policies in form and substance satisfactory to Lender. Such lender's loss
payable endorsements shall specify that the proceeds of such insurance shall be
payable to Lender as its interests may appear and further specify that Lender
shall be paid regardless of any act or omission by Borrower or any of its
affiliates. At its option, Lender may apply any insurance proceeds received by
Lender at any time to the cost of repairs or replacement of Collateral and/or to
payment of the Obligations, whether or not then due, in any order and in such
manner as Lender may determine or hold such proceeds as cash collateral for the
Obligations.
9.6 Financial Statements and Other Information.
------------------------------------------
(a) Borrower shall keep proper books and records in which true and
complete entries shall be made of all dealings or transactions of or in relation
to the Collateral and the business of Borrower and its Subsidiaries in
accordance with GAAP and Borrower shall furnish or cause to be
- 28 -
<PAGE>
furnished to Lender: (i) within thirty (30) days after the end of each fiscal
month, monthly unaudited consolidated financial statements, and unaudited
consolidating financial statements (including in each case balance sheets,
statements of income and loss and statements of shareholders' equity), all in
reasonable detail, fairly presenting in all material respects the financial
position and the results of the operations of Borrower and its Subsidiaries as
of the end of and through such fiscal month and (ii) within ninety (90) days
after the end of each fiscal year, audited consolidated financial statements and
audited consolidating financial statements of Borrower and its Subsidiaries
(including in each case balance sheets, statements of income and loss,
statements of cash flow and statements of shareholders' equity), and the
accompanying notes thereto, all in reasonable detail, fairly presenting the
financial position and the results of the operations of Borrower and its
Subsidiaries as of the end of and for such fiscal year, together with the
opinion of independent certified public accountants, which accountants shall be
an independent accounting firm selected by Borrower and reasonably acceptable to
Lender, that such financial statements have been prepared in accordance with
GAAP, and present fairly in all material respects the results of operations and
financial condition of Borrower and its Subsidiaries as of the end of and for
the fiscal year then ended.
(b) Borrower shall promptly notify Lender in writing of the details
of (i) any material loss or damage to any of the Collateral not otherwise
reported by Lender to Borrower pursuant to the terms hereof, or any
investigation, action, suit, proceeding or claim relating to the Collateral or
any other property which is security for the Obligations or which would result
in any material adverse change in Borrower's business, properties, assets,
goodwill or condition, financial or otherwise and (ii) the occurrence of any
Event of Default or event which, with the passage of time or giving of notice or
both, would constitute an Event of Default.
(c) Borrower shall promptly after the sending or filing thereof
furnish or cause to be furnished to Lender copies of all reports which Borrower
sends to its stockholders generally and copies of all reports and registration
statements which Borrower files with the Securities and Exchange Commission, any
national securities exchange or the National Association of Securities Dealers,
Inc.
(d) Borrower shall furnish or cause to be furnished to Lender such
budgets, forecasts, projections and other information respecting the Collateral
and the business of Borrower, as Lender may, from time to time, reasonably
request. Lender is hereby authorized to deliver a copy of any financial
statement or any other information relating to the business of Borrower to any
court or other government agency or to any participant or assignee or
prospective participant or assignee. Borrower hereby irrevocably authorizes and
directs all accountants or auditors to deliver to Lender, at Borrower's expense,
copies of the financial statements of Borrower and any reports or management
letters prepared by such accountants or auditors. Any documents, schedules,
invoices or other papers delivered to Lender may be destroyed or otherwise
disposed of by Lender one (1) year after the same are delivered to Lender,
except as otherwise designated by Borrower to Lender in writing.
9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc. Borrower
--------------------------------------------------------
shall not, and shall not permit any Subsidiary to, directly or indirectly, (a)
merge into or with or consolidate with any other Person or permit any other
Person to merge into or with or consolidate with it, except, that any Subsidiary
------ ----
of Borrower may merge with and into Borrower or any Subsidiary of Borrower may
merge with and into any other Subsidiary of Borrower, provided, that, (i) Lender
-------- ----
shall have received not less than thirty (30) business days prior written notice
of the intention of Borrower or its Subsidiaries to so merge and such other
information in connection therewith as Lender may request, (ii) as of the
effective date of the merger and after giving effect thereto, no Event of
Default, or act,
- 29 -
<PAGE>
condition or event which with notice or passage of time or both would constitute
an Event of Default, shall exist or have occurred, (iii) Lender shall have
received true, correct and complete copies of all agreements, documents and
instruments relating to such merger, including, but not limited to, the
certificate of merger as filed with the appropriate Secretary of State, (iv) in
the event any Subsidiary of Borrower may merge with and into Borrower, (A) the
surviving entity shall immediately upon the effectiveness of the merger
expressly assume in writing pursuant to an agreement, in form and substance
satisfactory to Lender, all of the Obligations and the Financing Agreements and
execute and deliver such other agreements, documents and instruments as Lender
may request in connection therewith, and (B) the surviving entity shall,
immediately before and immediately after giving effect to such transaction or
series of transactions, have a Consolidated Net Worth (including, without
limitation, any indebtedness incurred or anticipated to be incurred in
connection with or in respect of such transaction or series of transactions)
equal to or greater than the Consolidated Net Worth of Borrower immediately
prior to such transaction or series of transactions and (v) neither Borrower nor
any Subsidiary would thereupon become obligated with respect to any
indebtedness, nor any of its property become subject to any lien, unless
Borrower or such Subsidiary could incur such indebtedness or create such lien
hereunder; or (b) sell, assign, lease, transfer, abandon or otherwise dispose of
any stock or indebtedness to any other Person or any of its assets to any other
Person (except for (i) sales of Inventory in the ordinary course of business,
(ii) the sale by Borrower of its approximately 119 acres of undeveloped land in
Louden, Tennessee, (iii) the sale by Borrower of its approximately 100 acres of
undeveloped farm land in Kokomo, Indiana, (iv) the disposition of worn-out or
obsolete Equipment or Equipment no longer used in the business of Borrower, and
(v) the sale by Borrower and its Subsidiaries of fixed assets (other than sales
of fixed assets as permitted in Sections 9.7(b)(ii), (iii) and (iv) above) with
an aggregate net book value not exceeding $750,000 in any fiscal year of
Borrower or its Subsidiaries, or (c) form or acquire any subsidiaries, or (d)
wind up, liquidate or dissolve or (e) agree to do any of the foregoing.
9.8 Encumbrances. Borrower shall not, and shall not permit any
------------
Subsidiary to, create, incur, assume or suffer to exist any security interest,
mortgage, pledge, lien, charge or other encumbrance of any nature whatsoever on
any of its assets or properties, including, without limitation, the Collateral,
except:
- ------
(a) the security interests and liens of Lender;
(b) liens securing the payment of taxes not yet payable or liens for
taxes not in excess of $250,000, the validity of which are being contested in
good faith by appropriate proceedings diligently pursued and available to
Borrower and with respect to which adequate reserves have been set aside on its
books;
(c) non-consensual statutory liens (other than liens securing the
payment of taxes or imposed under ERISA or any Environmental Laws) arising in
the ordinary course of Borrower's business to the extent: (i) such liens secure
indebtedness which is not overdue or (ii) such liens secure indebtedness
relating to claims or liabilities which are fully insured and being defended at
the sole cost and expense and at the sole risk of the insurer or being contested
in good faith by appropriate proceedings diligently pursued and available to
Borrower, in each case prior to the commencement of foreclosure or other similar
proceedings and with respect to which adequate reserves have been set aside on
its books;
(d) zoning restrictions, easements, licenses, covenants and other
restrictions affecting the use of real property which do not interfere in any
material respect with the use of such real
- 30 -
<PAGE>
property or ordinary conduct of the business of Borrower as presently conducted
thereon or materially impair the value of the real property which may be subject
thereto;
(e) purchase money security interests in Equipment (including Capital
Leases) and purchase money mortgages on real estate not to exceed $5,000,000 in
the aggregate at any time outstanding so long as such security interests and
mortgages do not apply to any property of Borrower other than the Equipment or
real estate so acquired, and the indebtedness secured thereby does not exceed
the cost of the Equipment or real estate so acquired, as the case may be;
(f) the security interests and liens in favor of the Senior Note
Trustee on the Senior Note Collateral to secure the indebtedness permitted under
Section 9.9(d) below;
(g) liens incurred or deposits made in the ordinary course of the
business of Borrower to the extent required in connection with workers'
compensation, unemployment insurance, social security and other similar laws
consistent with the past practices of Borrower prior to the date hereof;
(h) liens to secure the performance of tenders, contracts (other than
contracts for the payment of money) or leases, or surety and appeal bonds in
each case incurred in the ordinary course of business consistent with the past
practices of Borrower prior to the date hereof;
(i) liens on cash collateral pledged by Borrower to secure the
contingent reimbursement obligations of Borrower to BankAmerica Business Credit,
Inc. permitted under Section 9.10(j) below;
(j) the security interests and liens set forth on Schedule 8.4
hereto.
9.9 Indebtedness. Borrower shall not, and shall not permit any Subsidiary
------------
to, incur, create, assume, become or be liable in any manner with respect to, or
permit to exist, any obligations or indebtedness, except:
(a) the Obligations;
(b) trade obligations and normal accruals in the ordinary course of
business not more than thirty (30) days past due, or with respect to which
Borrower or any Subsidiary, as the case may be, is contesting in good faith the
amount or validity thereof by appropriate proceedings diligently pursued and
available to Borrower and with respect to which adequate reserves have been set
aside on its books;
(c) purchase money indebtedness (including Capital Leases) to the
extent not incurred or secured by liens (including Capital Leases) in violation
of any other provision of this Agreement;
(d) indebtedness of Borrower evidenced by the Senior Notes issued by
Borrower pursuant to the Senior Note Indenture; provided, that,
-------- ----
(i) such indebtedness shall not exceed the aggregate principal amount
of $50,000,000 (less the aggregate amount of all repayments or repurchases of
principal in respect thereof) plus interest thereon at the rate set forth in the
Senior Notes (as in effect on the date hereof),
- 31 -
<PAGE>
(ii) Lender shall have received true, correct and complete copies of
the Senior Note Documents,
(iii) Borrower shall only make regularly scheduled payments of
principal and interest, or to the extent permitted under Section 9.9(d)(iv)
below, other mandatory payments, in respect of such indebtedness in accordance
with the terms of the Senior Notes as in effect on the date hereof,
(iv) Borrower shall not, directly or indirectly,
(A) amend, modify, alter or change the terms of the Senior Notes or
any of the other Senior Note Documents, except that Borrower may, after not less
------ ----
than ten (10) business days prior written notice to Lender, amend or modify the
terms thereof so long as: (1) either such amendment or modification does not in
any manner adversely affect Lender or any rights of Lender as determined in good
faith by Lender and confirmed by Lender to Borrower in writing or Lender has
consented in writing to such amendment or modification, and (2) such amendment
or modification does not relate to the terms of payment of the indebtedness
evidenced thereby, the amount of such indebtedness, the interest rate or any
fees or charges or any collateral with respect thereto or make any terms thereof
more restrictive or burdensome than as in effect on the date hereof, as
determined in good faith by Lender and confirmed by Lender to Borrower in
writing, or
(B) redeem, retire, defease, purchase or otherwise acquire such
indebtedness, or set aside or otherwise deposit or invest any sums for such
purpose, except for purchases of Senior Notes required to be made under the
------ ---
terms of the Senior Note Indenture (as in effect on the date hereof): (1) to
the extent of net cash proceeds received by Borrower or to which Borrower is
entitled from an Asset Sale and including any Sale and Leaseback Transaction (as
each of such terms is defined in the Senior Note Indenture as in effect on the
date hereof), provided, that, any such net cash proceeds shall first be applied
-------- ----
to the Obligations to the extent such assets sold or otherwise disposed of
pursuant to the Asset Sale constitute Collateral; or (2) as a result of a Change
in Control, and
(v) Borrower shall furnish to Lender all notices, demands or other
materials concerning such indebtedness either received by Borrower or on its
behalf, promptly after receipt thereof, or sent by Borrower or on its behalf,
concurrently with the sending thereof, as the case may be;
(e) indebtedness of Borrower evidenced by the Subordinated Notes
issued by Borrower pursuant to the Subordinated Note Indenture; provided, that,
-------- ----
(i) such indebtedness is and shall at all times remain unsecured,
(ii) the Obligations constitute and shall at all times constitute
"Senior Indebtedness" as such term is defined in the Subordinated Note
Indenture,
(iii) such indebtedness shall not exceed $90,000,000 (less the
aggregate amount of all repayments or repurchases of principal in respect
thereof) plus interest thereon at the rate set forth in the Subordinated Notes
(as in effect on the date hereof),
(iv) such indebtedness is subject to, and subordinate in right of
payment to, the right of Lender to receive the prior payment in full of all of
the Obligations to the extent set forth in Section 10.02 of the Subordinated
Note Indenture (as in effect on the date hereof),
- 32 -
<PAGE>
(v) Borrower shall only make regularly scheduled payments of principal
and interest, or to the extent permitted under Section 9.9(e)(vi) below, other
mandatory payments, in respect of such indebtedness in accordance with the terms
of the Subordinated Notes as in effect on the date hereof (subject to
Section 10.02 of the Subordinated Note Indenture as in effect on the date
hereof),
(vi) Borrower shall not, directly or indirectly,
(A) amend, modify, alter or change any terms of the Subordinated
Notes or any of the other Subordinated Note Documents, except that Borrower may,
------ ----
after not less than ten (10) business days prior written notice to Lender, amend
or modify the terms thereof so long as: (1) either such amendment or
modification does not in any manner adversely affect Lender or any rights of
Lender as determined in good faith by Lender and confirmed by Lender to Borrower
in writing or Lender has consented in writing to such amendment or modification;
and (2) such amendment or modification does not relate to the terms of payment
of the indebtedness evidenced thereby, the amount of such indebtedness, the
interest rate or any fees or charges or any collateral with respect thereto or
make any terms thereof more restrictive or burdensome than as in effect on the
date hereof, as determined in good faith by Lender and confirmed by Lender to
Borrower in writing, or
(B) redeem, retire, defease, purchase or otherwise acquire such
indebtedness, or set aside or otherwise deposit or invest any sums for such
purpose, except for purchases of Subordinated Notes required to be made under
------ ---
the terms of the Subordinated Note Indenture (as in effect on the date hereof):
(1) to the extent of net cash proceeds received by Borrower from an Asset Sale
(as such term is defined in the Subordinated Note Indenture as in effect on the
date hereof), provided, that, (aa) any such net cash proceeds shall first be
-------- ----
applied to the repayment of all Senior Indebtedness (as such term is defined in
the Subordinated Note Indenture) other than the Obligations, except any such net
------
cash proceeds shall first be applied to the Obligations to the extent such
assets sold or otherwise disposed of pursuant to the Asset Sale constitute
Collateral and as to any Asset Sale on and after an Event of Default, any such
net cash proceeds shall first be applied to the repayment of all Senior
Indebtedness (as such term is defined in the Subordinated Note Indenture),
including, but not limited to, the Obligations, and (bb) if the gross proceeds
from Asset Sales are $20,000,000 or less during the term of the Subordinated
Note Indenture, to the extent the proceeds from Asset Sales are not applied to
the Senior Indebtedness, Borrower shall reinvest such proceeds in other assets
or properties related to, and for use in, the business of developing, marketing,
distributing or manufacturing of high-performance alloys within one hundred
twenty (120) days of the receipt of such proceeds; or (2) as a result of a
Change of Control, provided, that, Borrower shall first repay in full all of the
-------- ----
Obligations and all other Senior Indebtedness (as such term is defined in the
Subordinated Note Indenture as in effect on the date hereof) and
(vii) Borrower shall furnish to Lender all notices, demands or other
materials in connection with such indebtedness either received by Borrower or on
its behalf, promptly after the receipt thereof, or sent by Borrower or on its
behalf, concurrently with the sending thereof, as the case may be;
(f) indebtedness of each Foreign Subsidiary in an aggregate amount
not to exceed $2,000,000 at any one time outstanding (such amount to be
determined at the date of incurrence and without regard to subsequent
fluctuations in exchange rates); provided, that, (i) indebtedness of all Foreign
-------- ----
Subsidiaries shall not exceed $6,000,000 in the aggregate at any one time
outstanding (such amount to be determined at the date of incurrence and without
regard to subsequent fluctuations in
- 33 -
<PAGE>
exchange rates) and (ii) none of such indebtedness shall be secured by any
property of Borrower or any of its Subsidiaries, other than property of Foreign
Subsidiaries;
(g) indebtedness arising after the date hereof evidenced by the
Employee Notes; provided, that, Borrower should deliver to Lender true, correct
-------- ----
and complete copies of any Employee Notes promptly upon the execution thereof by
Borrower;
(h) indebtedness of Borrower to its Subsidiaries arising pursuant to
loans by such Subsidiaries to Borrower permitted pursuant to Section 9.10 below;
and
(i) indebtedness of Subsidiaries of Borrower to other Subsidiaries of
Borrower arising pursuant to loans by such Subsidiaries to such other
Subsidiaries permitted pursuant to Section 9.10 below.
9.10 Loans, Investments, Guarantees, Etc. Borrower shall not, and shall
------------------------------------
not permit any Subsidiary to, directly or indirectly, make any loans or advance
money or property to any person, or invest in (by capital contribution, dividend
or otherwise) or purchase or repurchase the stock or indebtedness or all or a
substantial part of the assets or property of any person, or guarantee, assume,
endorse, or otherwise become responsible for (directly or indirectly) the
indebtedness, performance, obligations or dividends of any Person or agree to do
any of the foregoing, except:
------
(a) the endorsement of instruments for collection or deposit in the
ordinary course of business;
(b) investments in (i) readily marketable obligations of or
obligations guaranteed by the United States of America or issued by any agency
thereof and backed by the full faith and credit of the United States of America,
(ii) readily marketable direct obligations issued by any state of the United
States of America or any political subdivision thereof having a rating in one of
the two highest rating categories obtainable from either Moody's Investors
Service, Inc. or Standard & Poor's Corporation, (iii) commercial paper having a
rating in one of the two highest rating categories of Moody's Investors
Services, Inc. or Standard & Poor's Corporation, (iv) certificates of deposit
issued by, bankers' acceptances and deposit accounts of, and time deposits with,
commercial banks of recognized standing chartered in the United States of
America or Canada with capital, surplus and undivided profits aggregating in
excess of $500,000,000, (v) agreements to sell or repurchase securities of the
kind described in clauses (i) and (ii) above, and (vi) shares of money market
funds that invest solely in investments of the kind described in clauses (i)
through (v) above; provided, that, as to any of the foregoing, unless waived in
-------- ----
writing by Lender, Borrower shall take such actions as are deemed necessary by
Lender to perfect the security interest of Lender in such investments (other
than such investments in the Senior Note Collateral Account and the Excess
Refinancing Proceeds Account);
(c) the existing equity investments of Borrower as of the date hereof
in its Subsidiaries as of the date hereof;
(d) the investments of Borrower in the Senior Note Collateral Account
and the Excess Refinancing Proceeds Account; provided, that, (i) Borrower shall
-------- ----
not, and shall not permit any Subsidiary to, after the date hereof, make any
payments into or deposits of any further cash or other property into the Excess
Refinancing Proceeds Account and (ii) Borrower shall not, and shall not permit
any Subsidiary to, after the date hereof, make any payments into or deposits of
any further
- 34 -
<PAGE>
cash or other property into the Senior Note Collateral Account except as
required under the terms of the Senior Note Indenture as in effect on the date
hereof;
(e) loans by any Subsidiary of Borrower to Borrower or loans by any
Subsidiary of Borrower to any other Subsidiary of Borrower (and, as to any loans
to Borrower, Borrower shall not repay all or any portion of such loans without
the prior written consent of Lender);
(f) stock or obligations issued to Borrower by any Person (or the
representative of such Person) in respect of indebtedness of such Person owing
to Borrower in connection with the insolvency, bankruptcy, receivership or
reorganization of such Person or a composition or readjustment of the debts of
such Person; provided, that, the original of any such stock or instrument
-------- ----
evidencing such obligations shall be promptly delivered to Lender, upon Lender's
request, together with such stock power, assignment or endorsement by Borrower
as Lender may request;
(g) obligations of account debtors to Borrower arising from Accounts
which are past due evidenced by a promissory note made by such account debtor
payable to Borrower; provided, that, promptly upon the receipt of the original
-------- ----
of any such promissory note by Borrower, such promissory note shall be endorsed
to the order of Lender by Borrower and promptly delivered to Lender as so
endorsed;
(h) loans and advances by Borrower or its Subsidiaries to employees
of Borrower or its Subsidiaries not to exceed the principal amount of $100,000
in the aggregate at any time outstanding for: (i) reasonable and necessary
work-related travel or other ordinary business expenses to be incurred by such
employees in connection with their work for Borrower and (ii) reasonable and
necessary relocation expenses of such employees (including home mortgage
financing for relocated employees);
(i) guarantees by any Subsidiary of Borrower of the Obligations in
favor of Lender;
(j) contingent reimbursement obligations of Borrower to any issuer of
a letter of credit established, opened or maintained for the account of Borrower
pursuant to the Letter of Credit Accommodations and the contingent reimbursement
obligations of Borrower to BankAmerica Business Credit, Inc. in connection with
letter of credit no. G753077, dated October 8, 1993, issued by Bank of America
National Trust and Savings Association, payable to Bank of America, Lahore,
Pakistan as beneficiary in the amount of $5,000 and letter of credit no. LASB
218793, dated March 14, 1994, issued by Bank of America National Trust and
Savings Association, payable to AT&T Credit Corporation as beneficiary in the
amount of $117,393; and
(k) the guarantees set forth in the Information Certificate.
9.11 Dividends and Redemptions. Borrower shall not, and shall not permit
-------------------------
any Subsidiary to, directly or indirectly, declare or pay any dividends on
account of shares of any class of capital stock of Borrower now or hereafter
outstanding, or set aside or otherwise deposit or invest any sums for such
purpose, or redeem, retire, defease, purchase or otherwise acquire any shares of
any class of capital stock (or set aside or otherwise deposit or invest any sums
for such purpose) for any consideration other than common stock or apply or set
apart any sum, or make any other distribution (by reduction of capital or
otherwise) in respect of any such shares or agree to do any of the foregoing,
except, that:
- ------ ----
- 35 -
<PAGE>
(a) any Subsidiary of Borrower may declare and pay any dividends or
make any other distributions to its shareholders in respect of shares of any
class of capital stock;
(b) Borrower may declare and pay dividends or make other
distributions to Holdings in respect of the shares of capital stock of Borrower
owned by Holdings to permit Holdings to pay Federal, State and local income
taxes applicable to Borrower and its Subsidiaries; provided, that, (i) such
-------- ----
payments shall not exceed the lesser of (A) actual payments by Holdings for
Federal, State and local income taxes and (B) the amount of taxes which would
have been payable by Borrower if it were the parent of a separate affiliated
group of which its Subsidiaries were members and (ii) the proceeds of such
dividends or other distributions shall be used by Holdings to pay such taxes
within five (5) business days after the receipt of such proceeds by Holdings;
(c) Borrower may declare and pay dividends or make other
distributions to Holdings in respect of the shares of capital stock of Borrower
owned by Holdings to pay franchise taxes and reasonable administrative expenses
(including reasonable professional fees and expenses) that benefit Borrower or
its Subsidiaries; provided, that, (i) no Event of Default, or act, condition or
-------- ----
event which with notice or passage of time or both would constitute an Event of
Default shall exist or have occurred, (ii) the aggregate amount of all such
franchise taxes and administrative expenses paid in any fiscal year of Borrower
shall not exceed $130,000, (iii) such administrative expenses shall not include
any amounts for management services rendered by Morgan Lewis Githens & Ahn,
Inc., or its Affiliates or management services provided by third parties which
are duplicative of any such services rendered by Morgan Lewis Githens & Ahn,
Inc., or its Affiliates for the benefit of Borrower or a Subsidiary of Borrower,
and (iv) the proceeds of such dividends or other distributions shall be used by
Holdings to pay such taxes and expenses within five (5) business days after the
receipt of such proceeds by Holdings;
(d) Borrower may declare and pay dividends or make other
distributions to Holdings in respect of the shares of capital stock of Borrower
owned by Holdings to permit the repurchase of Holdings Common Stock or options
to purchase Holdings Common Stock from employees of Borrower (other than
employees who are Affiliates or employees of a member of the Company Control
Group); provided, that, (i) no Event of Default or act, condition or event which
-------- ----
with notice or passage of time or both would constitute an Event of Default,
shall exist or have occurred, (ii) such dividends or other distributions shall
be in the form of cash or Employee Notes and the amount of cash expended for all
such repurchases in any fiscal year of Borrower shall not exceed the Annual Cash
Amount for such fiscal year plus the unexpended Annual Cash Amount, if any, for
----
the immediately preceding fiscal year (it being understood that a repurchase in
a specified fiscal year shall be charged first to the unexpended Annual Cash
Amount, if any, pertaining to the preceding fiscal year and then to the Annual
Cash Amount, if any, pertaining to such fiscal year), (iii) each such repurchase
is occasioned by the death, permanent disability or termination of employment of
the holder of Holdings Common Stock or options to purchase Holdings Common Stock
pursuant to the Subscription Agreement, (iv) such repurchase occurs during the
time during which Borrower has an option to repurchase such shares under such
Subscription Agreement and the amount of the repurchase price payable in cash in
connection with such repurchase shall not exceed the purchase price for such
shares specified in such Subscription Agreement (subject to any adjustment to
such purchase price thereunder resulting from a future recapitalization (or
transaction in the nature of a recapitalization) of the Borrower), (v) if
Employee Notes have been issued in connection with the repurchase of Holdings
Common Stock or options to purchase Holdings Common Stock in accordance with the
foregoing, any unexpended Annual Cash Amount that is available to the Borrower
for the payment of dividends or other distributions to Holdings pursuant to this
Section 9.11(d) may be used
- 36 -
<PAGE>
to repay such Employee Notes (without any prepayment premium), and the Annual
Cash Amount available to the Borrower for the payment of such Distributions
shall be reduced by the amount of the principal paid in connection with the
prepayment of such Employee Notes, and (vi) the proceeds of such dividends or
other distributions are used by Holdings to repurchase Holdings Common Stock or
options to purchase Holdings Common Stock as provided above within five (5)
business days after the receipt of such proceeds by holdings.
9.12 Transactions with Affiliates. Borrower shall not enter into any
----------------------------
transaction for the purchase, sale or exchange of property or the rendering of
any service to or by any Affiliate, except in the ordinary course of and
pursuant to the reasonable requirements of Borrower's business and upon fair and
reasonable terms no less favorable to the Borrower than Borrower would obtain in
a comparable arm's length transaction with an unaffiliated person; provided,
--------
that, the foregoing shall not apply to any transfer by any Subsidiary of
- ----
Borrower of the properties or assets of such Subsidiary to Borrower or any other
Subsidiary of Borrower. Any cash or other property or consideration required to
be paid or furnished by Borrower to any Subsidiary of Borrower as a result of
such transfer of properties or assets to Borrower shall be on fair and
reasonable terms no less favorable to Borrower than Borrower would obtain in a
comparable arm's length transaction with an unaffiliated person.
9.13 Compliance with ERISA. Borrower shall not with respect to any
---------------------
"employee pension benefit plans" maintained by Borrower or any of its ERISA
Affiliates:
(a) (i) terminate any of such employee pension benefit plans so as to
incur any liability to the Pension Benefit Guaranty Corporation established
pursuant to ERISA, (ii) allow or suffer to exist any prohibited transaction
involving any of such employee pension benefit plans or any trust created
thereunder which would subject Borrower or such ERISA Affiliate to a tax or
penalty or other liability on prohibited transactions imposed under Section 4975
of the Code or ERISA, (iii) fail to pay to any such employee pension benefit
plan any contribution which it is obligated to pay under Section 302 of ERISA,
Section 412 of the Code or the terms of such plan, (iv) allow or suffer to exist
any accumulated funding deficiency, whether or not waived, with respect to any
such employee pension benefit plan, (v) allow or suffer to exist any occurrence
of a reportable event or any other event or condition which presents a material
risk of termination by the Pension Benefit Guaranty Corporation of any such
employee pension benefit plan that is a single employer plan, which termination
could result in any liability to the Pension Benefit Guaranty Corporation or
(vi) incur any withdrawal liability with respect to any multiemployer pension
plan.
(b) As used in this Section 9.13, the term "employee pension benefit
plans," "employee benefit plans", "accumulated funding deficiency" and
"reportable event" shall have the respective meanings assigned to them in ERISA,
and the term "prohibited transaction" shall have the meaning assigned to it in
Section 4975 of the Code and ERISA.
9.14 Working Capital. Borrower shall, at all times, maintain Working
---------------
Capital of not less than $50,000,000.
9.15 Adjusted Net Worth. Borrower shall, at all times, maintain Adjusted
------------------
Net Worth of not less than $5,000,000.
9.16 Costs and Expenses. Borrower shall pay to Lender on demand all
------------------
costs, expenses, filing fees and taxes paid or payable in connection with the
preparation, negotiation, execution,
- 37 -
<PAGE>
delivery, recording, administration, collection, liquidation, enforcement and
defense of the Obligations, Lender's rights in the Collateral, this Agreement,
the other Financing Agreements and all other documents related hereto or
thereto, including any amendments, supplements or consents which may hereafter
be contemplated (whether or not executed) or entered into in respect hereof and
thereof, including, but not limited to: (a) all costs and expenses of filing or
recording (including Uniform Commercial Code financing statement filing taxes
and fees, documentary taxes, intangibles taxes and mortgage recording taxes and
fees, if applicable); (b) costs and expenses and fees for title insurance and
other insurance premiums, environmental audits, surveys, assessments,
engineering reports and inspections, appraisal fees and search fees; (c) costs
and expenses of remitting loan proceeds, collecting checks and other items of
payment, and establishing and maintaining the Blocked Accounts, together with
Lender's customary charges and fees with respect thereto; (d) charges, fees or
expenses charged by any bank or issuer in connection with the Letter of Credit
Accommodations; (e) costs and expenses of preserving and protecting the
Collateral; (f) costs and expenses paid or incurred in connection with obtaining
payment of the Obligations, enforcing the security interests and liens of
Lender, selling or otherwise realizing upon the Collateral, and otherwise
enforcing the provisions of this Agreement and the other Financing Agreements or
defending any claims made or threatened against Lender arising out of the
transactions contemplated hereby and thereby (including, without limitation,
preparations for and consultations concerning any such matters); (g) all out-of-
pocket expenses and costs heretofore and from time to time hereafter incurred by
Lender during the course of periodic field examinations of the Collateral and
Borrower's operations, plus a per diem charge at the rate of $500 per person per
day for Lender's examiners in the field and office; and (h) the fees and
disbursements of counsel (including legal assistants) to Lender in connection
with any of the foregoing.
9.17 Further Assurances. At the request of Lender at any time and from
------------------
time to time, Borrower shall, at its expense, duly execute and deliver, or cause
to be duly executed and delivered, such further agreements, documents and
instruments, and do or cause to be done such further acts as may be necessary or
proper to evidence, perfect, maintain and enforce the security interests and the
priority thereof in the Collateral and to otherwise effectuate the provisions or
purposes of this Agreement or any of the other Financing Agreements. Lender may
at any time and from time to time request a certificate from an officer of
Borrower representing that all conditions precedent to the making of Loans and
providing Letter of Credit Accommodations contained herein are satisfied. In
the event of such request by Lender, Lender may, at its option, cease to make
any further Loans or provide any further Letter of Credit Accommodations until
Lender has received such certificate and, in addition, Lender has determined
that such conditions are satisfied. Where permitted by law, Borrower hereby
authorizes Lender to execute and file one or more UCC financing statements
signed only by Lender.
SECTION 10. EVENTS OF DEFAULT AND REMEDIES
------------------------------
10.1 Events of Default. The occurrence or existence of any one or more
-----------------
of the following events are referred to herein individually as an "Event of
Default", and collectively as "Events of Default":
(a) Borrower fails to pay when due any of the Obligations or fails to
perform any of the terms, covenants, conditions or provisions contained in this
Agreement or any of the other Financing Agreements;
- 38 -
<PAGE>
(b) any representation, warranty or statement of fact made by
Borrower to Lender in this Agreement, the other Financing Agreements or any
other agreement, schedule, confirmatory assignment or otherwise shall when made
or deemed made be false or misleading in any material respect;
(c) any Obligor revokes, terminates or fails to perform any of the
terms, covenants, conditions or provisions of any guarantee, endorsement or
other agreement of such party in favor of Lender;
(d) any judgment for the payment of money is rendered against
Borrower or any Obligor in excess of $500,000 in any one case or in excess of
$1,000,000 in the aggregate and shall remain undischarged or unvacated for a
period in excess of thirty (30) days or execution shall at any time not be
effectively stayed, or any judgment other than for the payment of money, or
injunction, attachment, garnishment or execution is rendered against Borrower or
any Obligor or any of their assets;
(e) any Obligor (being a natural person or a general partner of an
Obligor which is a partnership) dies or Borrower or any Obligor, which is a
partnership or corporation, dissolves or suspends or discontinues doing
business;
(f) Borrower or any Obligor becomes insolvent (however defined or
evidenced), makes an assignment for the benefit of creditors, makes or sends
notice of a bulk transfer or calls a meeting of its creditors or principal
creditors;
(g) a case or proceeding under the bankruptcy laws of the United
States of America now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction now or hereafter in effect (whether at law or
in equity) is filed against Borrower or any Obligor or all or any part of its
properties and such petition or application is not dismissed within thirty (30)
days after the date of its filing or Borrower or any Obligor shall file any
answer admitting or not contesting such petition or application or indicates its
consent to, acquiescence in or approval of, any such action or proceeding or the
relief requested is granted sooner;
(h) a case or proceeding under the bankruptcy laws of the United
States of America now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction now or hereafter in effect (whether at a law
or equity) is filed by Borrower or any Obligor or for all or any part of its
property; or
(i) any default by Borrower or any Obligor under any agreement,
document or instrument relating to any indebtedness for borrowed money owing to
any person other than Lender, or any capitalized lease obligations, contingent
indebtedness in connection with any guarantee, letter of credit, indemnity or
similar type of instrument in favor of any person other than Lender, (including,
without limitation, the Senior Note Indenture and the other Senior Note
Documents and the Subordinated Note Indenture and the other Subordinated Note
Documents), which default continues for more than the applicable cure period, if
any, with respect thereto, or any default by Borrower or any Obligor under any
material contract, lease, license or other obligation to any person other than
Lender, which default continues for more than the applicable cure period, if
any, with respect thereto;
- 39 -
<PAGE>
(j) a Change of Control shall occur;
(k) the indictment or threatened indictment of Borrower or any
Obligor under any criminal statute, or commencement or threatened commencement
of criminal or civil proceedings (other than proceedings contemplated by Section
10(g) hereof) against Borrower or any Obligor, pursuant to which statute or
proceedings the penalties or remedies sought or available include forfeiture of
any of the property of Borrower or such Obligor;
(l) there shall be a material adverse change in the business or
assets or the occurrence of any event or condition which, in Lender's good faith
determination, has a reasonable likelihood of resulting in a material adverse
change in the business or assets of Borrower or any Obligor after the date
hereof; or
(m) there shall be an event of default under any of the other
Financing Agreements.
10.2 Remedies.
--------
(a) At any time an Event of Default exists or has occurred and is
continuing, Lender shall have all rights and remedies provided in this
Agreement, the other Financing Agreements, the Uniform Commercial Code and other
applicable law, all of which rights and remedies may be exercised without notice
to or consent by Borrower or any Obligor, except as such notice or consent is
expressly provided for hereunder or required by applicable law. All rights,
remedies and powers granted to Lender hereunder, under any of the other
Financing Agreements, the Uniform Commercial Code or other applicable law, are
cumulative, not exclusive and enforceable, in Lender's discretion,
alternatively, successively, or concurrently on any one or more occasions, and
shall include, without limitation, the right to apply to a court of equity for
an injunction to restrain a breach or threatened breach by Borrower of this
Agreement or any of the other Financing Agreements. Lender may, at any time or
times, proceed directly against Borrower or any Obligor to collect the
Obligations without prior recourse to the Collateral. Lender is hereby granted
a license or other right to use, without charge, the Borrower's labels, patents,
copyrights, name, trade secrets, trade names, trademarks, and advertising
matter, or any similar property, in completing production of, advertising or
selling any Collateral.
(b) Without limiting the foregoing, at any time an Event of Default
exists or has occurred and is continuing, Lender may, in its discretion and
without limitation, (i) accelerate the payment of all Obligations and demand
immediate payment thereof to Lender (provided, that, upon the occurrence of any
-------- ----
Event of Default described in Sections 10.1(g) and 10.1(h), all Obligations
shall automatically become immediately due and payable), (ii) with or without
judicial process or the aid or assistance of others, enter upon any premises on
or in which any of the Collateral may be located and take possession of the
Collateral or complete processing, manufacturing and repair of all or any
portion of the Collateral, (iii) require Borrower, at Borrower's expense, to
assemble and make available to Lender any part or all of the Collateral at any
place and time designated by Lender, (iv) collect, foreclose, receive,
appropriate, setoff and realize upon any and all Collateral, (v) remove any or
all of the Collateral from any premises on or in which the same may be located
for the purpose of effecting the sale, foreclosure or other disposition thereof
or for any other purpose, (vi) sell, lease, transfer, assign, deliver or
otherwise dispose of any and all Collateral (including, without limitation,
entering into contracts with respect thereto, public or private sales at any
exchange, broker's board, at any office of Lender or elsewhere) at such prices
or terms as Lender may deem reasonable, for cash, upon credit or for future
delivery, with the Lender having the right to purchase the whole or any part
- 40 -
<PAGE>
of the Collateral at any such public sale, all of the foregoing being free from
any right or equity of redemption of Borrower, which right or equity of
redemption is hereby expressly waived and released by Borrower and/or (vii)
terminate this Agreement. If any of the Collateral is sold or leased by Lender
upon credit terms or for future delivery, the Obligations shall not be reduced
as a result thereof until payment therefor is finally collected by Lender. If
notice of disposition of Collateral is required by law, five (5) days prior
notice by Lender to Borrower designating the time and place of any public sale
or the time after which any private sale or other intended disposition of
Collateral is to be made, shall be deemed to be reasonable notice thereof and
Borrower, to the extent permitted by law, waives any other notice. In the event
Lender institutes an action to recover any Collateral or seeks recovery of any
Collateral by way of prejudgment remedy, Borrower waives the posting of any bond
which might otherwise be required.
(c) In the event that Borrower is for any reason deemed domiciled in
or any of the Collateral is located in, the State of Louisiana or any security
interest created by this Agreement or any of the other Financing Agreements is
required to be governed by, and interpreted in accordance with, the laws of the
State of Louisiana, if an Event of Default occurs:
(i) Lender shall have all remedies available to a secured party
under the Louisiana Commercial Laws Secured Transaction, La. R.S. 10:9-101
et seq. in addition to the remedies provided in this Agreement and any of the
- -- ---
other Financing Agreements or any other applicable law.
(ii) For purposes of executory process under the laws of the
State of Louisiana, Borrower hereby acknowledges the Obligations and confesses
judgment in favor of Lender for the full amount of the Obligations, including,
without limitation, principal, interest, expenses, reasonable attorneys' fees,
and all other fees, and consents that judgment be rendered and signed whether
during term of court or in vacation for the full amount of the Obligations.
(iii) Borrower hereby expressly waives, to the extent permitted
by Louisiana law: (A) the benefit of appraisement provided for in Articles
2332, 2336, 2723 and 2724 of the Louisiana Code of Civil Procedure conferring
such benefits, (B) the demand and three (3) days delay accorded by Articles 2639
and 2721 of the Louisiana Code of Civil Procedure, (C) the notice of seizure
required by Articles 2293 and 2721 of the Louisiana Code of Civil Procedure, (D)
the three (3) days delay provided in Articles 2331 and 2722 of the Louisiana
Code of Civil Procedure, (E) the benefit of the other provisions of Articles
2331, 2722 and 2723 of the Louisiana Code of Civil Procedure, (F) the benefit of
the provisions of any other articles of the Louisiana Code of Civil Procedure
not specifically mentioned above, and (G) all rights of division and discussion
with respect to the Obligations.
(iv) In the event Lender elects, at its option, to enter suit
via ordinaria on the Obligations, in addition to the foregoing confession of
judgment, Borrower hereby waives citation, other legal process, and legal delays
and hereby consents that judgment for all amounts due on the Obligations,
including, without limitation, principal, interest, expenses, attorneys' fees
and all other fees, be rendered and signed immediately, whether during the
court's term or during vacation.
(v) Pursuant to La. R.S. 9:5136 et seq., Borrower hereby
-- ---
designates Lender or any employee, agent, or other person named by Lender at the
time of seizure to serve as keeper, pending judicial sale, of any Collateral of
which seizure is effected by Lender under the laws of the
- 41 -
<PAGE>
State of Louisiana. The keeper's fees shall be determined by the court before
which the proceedings are pending and shall be secured by this Agreement and the
other Financing Agreements.
(vi) At any time on or after the occurrence of an Event of
Default, Lender may proceed by summary process against Borrower to obtain
possession of any instruments and documents included in the Collateral to
exercise Lender's right to sell the instruments and documents pursuant to
La.R.S. 10:9-503(1)(b), to enforce the instruments and documents as provided by
La. R.S. 10:9-207 and 9-502, or to obtain the endorsement of Borrower on the
instruments and documents. Lender may sell, in the manner and with the effect
as provided by La. R.S. 10:9-504, the following Collateral: (A) goods included
in the Collateral or that are in Lender's possession or that have been
voluntarily delivered or surrendered to Lender by Borrower, either before or
after an Event of Default and (B) instruments, documents and Accounts included
in the Collateral. To the maximum extent permitted by applicable law, Borrower
waives all claims, damages and demands against Lender arising out of the
repossession, retention, or sale of the Collateral, except those resulting from
actions taken or not taken by Lender that are found pursuant to a final non-
appealable order of a court of competent jurisdiction to constitute gross
negligence or wilful misconduct.
(vii) Borrower agrees that the Collateral may be sold at one or
more sales, whether judicial, public or private. Borrower agrees that in the
event of a judicial sale of Collateral, notice of the judicial sale given
pursuant to the Louisiana Revised Statutes and the Louisiana Code of Civil
Procedure is reasonable notification of the sale. In the event of a public sale
of the Collateral, Lender shall have the right to conduct the sale on Borrower's
premises or elsewhere and shall have the right to use Borrower's premises
without charge for such sale for such time or times as Lender may see fit.
(viii) Lender shall have the right to cause all and singular
the Collateral to be seized and sold under executory process without
appraisement, appraisement being hereby expressly waived, as an entirety or in
parcels, as Lender may determine, to the highest bidder for cash.
(d) Lender may apply the cash proceeds of Collateral actually
received by Lender from any sale, lease, foreclosure or other disposition of the
Collateral to payment of the Obligations, in whole or in part and in such order
as Lender may elect, whether or not then due. Borrower shall remain liable to
Lender for the payment of any deficiency with interest at the highest rate
provided for herein and all costs and expenses of collection or enforcement,
including attorneys' fees and legal expenses.
(e) Without limiting the foregoing, upon the occurrence of an Event
of Default, Lender may, at its option, without notice, (i) cease making Loans or
arranging for Letter of Credit Accommodations or reduce the lending formulas or
amounts of Loans and Letter of Credit Accommodations available to Borrower
and/or (ii) terminate any provision of this Agreement providing for any future
Loans or Letter of Credit Accommodations to be made by Lender to Borrower.
- 42 -
<PAGE>
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS
AND CONSENTS; GOVERNING LAW
--------------------------------
11.1 Governing Law; Choice of Forum; Service of Process; Jury Trial
--------------------------------------------------------------
Waiver.
- ------
(a) The validity, interpretation and enforcement of this Agreement
and the other Financing Agreements and any dispute arising out of the
relationship between the parties hereto, whether in contract, tort, equity or
otherwise, shall be governed by the internal laws of the State of Illinois
(without giving effect to principles of conflicts of law).
(b) Borrower and Lender irrevocably consent and submit to the non-
exclusive jurisdiction of the Circuit Court of Cook County, Illinois and the
United States District Court for the Northern District of Illinois and waive any
objection based on venue or forum non conveniens with respect to any action
----- --- ----------
instituted therein arising under this Agreement or any of the other Financing
Agreements or in any way connected with or related or incidental to the dealings
of the parties hereto in respect of this Agreement or any of the other Financing
Agreements or the transactions related hereto or thereto, in each case whether
now existing or hereafter arising, and whether in contract, tort, equity or
otherwise, and agree that any dispute with respect to any such matters shall be
heard only in the courts described above (except that Lender shall have the
right to bring any action or proceeding against Borrower or its property in the
courts of any other jurisdiction which Lender deems necessary or appropriate in
order to realize on the Collateral or to otherwise enforce its rights against
Borrower or its property).
(c) To the extent permitted by law, Borrower hereby waives personal
service of any and all process upon it and consents that all such service of
process may be made by certified mail (return receipt requested) directed to its
address set forth on the signature pages hereof and service so made shall be
deemed to be completed five (5) days after the same shall have been so deposited
in the U.S. mails, or, at Lender's option, by service upon Borrower in any other
manner provided under the rules of any such courts. Within thirty (30) days
after such service, Borrower shall appear in answer to such process, failing
which Borrower shall be deemed in default and judgment may be entered by Lender
against Borrower for the amount of the claim and other relief requested.
(d) BORROWER AND LENDER EACH HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY
OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i) ARISING UNDER THIS AGREEMENT
OR ANY OF THE OTHER FINANCING AGREEMENTS OR (ii) IN ANY WAY CONNECTED WITH OR
RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO IN RESPECT OF THIS
AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR THE TRANSACTIONS RELATED
HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND
WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. BORROWER AND LENDER EACH HEREBY
AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL
BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT BORROWER OR LENDER MAY FILE AN
ORIGINAL COUNTERPART OF A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN
EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO
TRIAL BY JURY.
(e) Lender shall not have any liability to Borrower (whether in tort,
contract, equity or otherwise) for losses suffered by Borrower in connection
with, arising out of, or in any way related to the transactions or relationships
contemplated by this Agreement, or any act, omission or
- 43 -
<PAGE>
event occurring in connection herewith, unless it is determined by a final and
non-appealable judgment or court order binding on Lender, that the losses were
the result of acts or omissions constituting gross negligence or willful
misconduct. In any such litigation, Lender shall be entitled to the benefit of
the rebuttable presumption that it acted in good faith and with the exercise of
ordinary care in the performance by it of the terms of this Agreement.
11.2 Waiver of Notices. Borrower hereby expressly waives demand,
-----------------
presentment, protest and notice of protest and notice of dishonor with respect
to any and all instruments and commercial paper, included in or evidencing any
of the Obligations or the Collateral, and any and all other demands and notices
of any kind or nature whatsoever with respect to the Obligations, the Collateral
and this Agreement, except such as are expressly provided for herein. No notice
to or demand on Borrower which Lender may elect to give shall entitle Borrower
to any other or further notice or demand in the same, similar or other
circumstances.
11.3 Amendments and Waivers. Neither this Agreement nor any provision
----------------------
hereof shall be amended, modified, waived or discharged orally or by course of
conduct, but only by a written agreement signed by an authorized officer of
Lender. Lender shall not, by any act, delay, omission or otherwise be deemed to
have expressly or impliedly waived any of its rights, powers and/or remedies
unless such waiver shall be in writing and signed by an authorized officer of
Lender. Any such waiver shall be enforceable only to the extent specifically
set forth therein. A waiver by Lender of any right, power and/or remedy on any
one occasion shall not be construed as a bar to or waiver of any such right,
power and/or remedy which Lender would otherwise have on any future occasion,
whether similar in kind or otherwise.
11.4 Waiver of Counterclaims. Borrower waives all rights to interpose
-----------------------
any claims, deductions, setoffs or counterclaims of any nature (other then
compulsory counterclaims) in any action or proceeding with respect to this
Agreement, the Obligations, the Collateral or any matter arising therefrom or
relating hereto or thereto.
11.5 Indemnification. Borrower shall indemnify and hold Lender, and its
---------------
directors, agents, employees and counsel, harmless from and against any and all
losses, claims, damages, liabilities, costs or expenses imposed on, incurred by
or asserted against any of them in connection with any litigation,
investigation, claim or proceeding commenced or threatened related to the
negotiation, preparation, execution, delivery, enforcement, performance or
administration of this Agreement, any other Financing Agreements, or any
undertaking or proceeding related to any of the transactions contemplated hereby
or any act, omission, event or transaction related or attendant thereto,
including, without limitation, amounts paid in settlement, court costs, and the
fees and expenses of counsel. To the extent that the undertaking to indemnify,
pay and hold harmless set forth in this Section may be unenforceable because it
violates any law or public policy, Borrower shall pay the maximum portion which
it is permitted to pay under applicable law to Lender in satisfaction of
indemnified matters under this Section. The foregoing indemnity shall survive
the payment of the Obligations and the termination or non-renewal of this
Agreement.
- 44 -
<PAGE>
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS
--------------------------------
12.1 Term.
----
(a) This Agreement and the other Financing Agreements shall become
effective as of the date set forth on the first page hereof and shall continue
in full force and effect for a term ending on June 30, 1997 (the "Renewal
Date"), and from year to year thereafter, unless sooner terminated pursuant to
the terms hereof. Lender or Borrower may terminate this Agreement and the other
Financing Agreements effective on the Renewal Date or on the anniversary of the
Renewal Date in any year by giving to the other party at least sixty (60) days
prior written notice; provided, that, this Agreement and all other Financing
-------- ----
Agreements must be terminated simultaneously. In addition, Lender may, at its
option, terminate this Agreement and the other Financing Agreements upon notice
to Borrower at any time during the thirty (30) day period following the date on
which Borrower shall mail notice to the holders of the Subordinated Notes of an
"Asset Sale Offer" (as defined in the Subordinated Note Indenture as in effect
on the date hereof); provided, that, in the event Lender so elects to terminate
-------- ----
this Agreement, (i) Borrower agrees to pay, on demand, the then applicable early
termination fee provided for in Section 12.1(c) below and (ii) Borrower shall
not be required to deposit with Lender, pursuant to the requirements of this
Section 12.1(a) cash collateral with respect to any issued and outstanding
Letter of Credit Accommodations for up to thirty (30) days following the date on
which the Borrower shall receive notice of such termination. Upon the effective
date of termination or non-renewal of the Financing Agreements, Borrower shall
pay to Lender, in full, all outstanding and unpaid Obligations and shall furnish
cash collateral to Lender in such amounts as Lender determines are reasonably
necessary to secure Lender from loss, cost, damage or expense, including
attorneys' fees and legal expenses, in connection with any contingent
Obligations, including issued and outstanding Letter of Credit Accommodations
and checks or other payments provisionally credited to the Obligations and/or as
to which Lender has not yet received final and indefeasible payment. Such cash
collateral shall be remitted by wire transfer in Federal funds to such bank
account of Lender, as Lender may, in its discretion, designate in writing to
Borrower for such purpose. Interest shall be due until and including the next
business day, if the amounts so paid by Borrower to the bank account designated
by Lender are received in such bank account later than 12:00 noon, Chicago time.
(b) No termination of this Agreement or the other Financing
Agreements shall relieve or discharge Borrower of its respective duties,
obligations and covenants under this Agreement or the other Financing Agreements
until all Obligations have been fully and finally discharged and paid, and
Lender's continuing security interest in the Collateral and the rights and
remedies of Lender hereunder, under the other Financing Agreements and
applicable law, shall remain in effect until all such Obligations have been
fully and finally discharged and paid.
(c) If for any reason this Agreement is terminated prior to the end
of the then current term or renewal term of this Agreement, in view of the
impracticality and extreme difficulty of ascertaining actual damages and by
mutual agreement of the parties as to a reasonable calculation of Lender's lost
profits as a result thereof, Borrower agrees to pay to Lender, upon the
effective date of such termination, an early termination fee in the amount set
forth below if such termination is effective in the period indicated:
- 45 -
<PAGE>
Amount Period
------ ------
(i) Three (3%) percent of the From the date hereof to and including
Maximum Credit August 11, 1995
(ii) Two (2%) percent of the From August 12, 1995 to and
Maximum Credit including August 11, 1996
(iii) One (1%) percent of the From August 12, 1996 to and
Maximum Credit including June 29, 1997
Such early termination fee shall be presumed to be the amount of damages
sustained by Lender as a result of such early termination and Borrower agrees
that it is reasonable under the circumstances currently existing. The early
termination fee provided for in this Section 12.1 shall be deemed included in
the Obligations.
12.2 Senior Indebtedness. This Agreement, which is the instrument
-------------------
creating and evidencing the Obligations and pursuant to which the same are
outstanding, hereby expressly provides that the Obligations are and shall be in
all respects senior in right of payment to the Securities (as such term is
defined in the Subordinated Note Indenture) and the Obligations are and shall be
"Senior Indebtedness" (as such term is defined in the Subordinated Note
Indenture).
12.3 Notices. All notices, requests and demands hereunder shall be in
-------
writing and (a) made to Lender at its address set forth below and to Borrower at
its chief executive office set forth below, or to such other address as either
party may designate by written notice to the other in accordance with this
provision, and (b) deemed to have been given or made: if delivered in person,
immediately upon delivery; if by telex, telegram or facsimile transmission,
immediately upon sending and upon confirmation of receipt; if by nationally
recognized overnight courier service with instructions to deliver the next
business day, one (1) business day after sending; and if by certified mail,
return receipt requested, five (5) days after mailing.
12.4 Partial Invalidity. If any provision of this Agreement is held to
------------------
be invalid or unenforceable, such invalidity or unenforceability shall not
invalidate this Agreement as a whole, but this Agreement shall be construed as
though it did not contain the particular provision held to be invalid or
unenforceable and the rights and obligations of the parties shall be construed
and enforced only to such extent as shall be permitted by applicable law.
12.5 Successors. This Agreement, the other Financing Agreements and any
----------
other document referred to herein or therein shall be binding upon and inure to
the benefit of and be enforceable by Lender, Borrower and their respective
successors and assigns, except that Borrower may not assign its rights under
this Agreement, the other Financing Agreements and any other document referred
to herein or therein without the prior written consent of Lender. Lender may,
after notice to Borrower, assign its rights and delegate its obligations under
this Agreement and the other Financing Agreements and further may assign, or
sell participations in, all or any part of the Loans, the Letter of Credit
Accommodations or any other interest herein to another financial institution or
other person, in which event, the assignee or participant shall have, to the
extent of such assignment or participation, the same rights and benefits as it
would have if it were the Lender hereunder, except as otherwise provided by the
terms of such assignment or participation.
- 46 -
<PAGE>
12.6 Entire Agreement. This Agreement, the other Financing Agreements,
----------------
any supplements hereto or thereto, and any instruments or documents delivered or
to be delivered in connection herewith or therewith represents the entire
agreement and understanding concerning the subject matter hereof and thereof
between the parties hereto, and supersede all other prior agreements,
understandings, negotiations and discussions, representations, warranties,
commitments, proposals, offers and contracts concerning the subject matter
hereof, whether oral or written.
IN WITNESS WHEREOF, Lender and Borrower have caused these presents to be
duly executed as of the day and year first above written.
LENDER BORROWER
------ --------
CONGRESS FINANCIAL CORPORATION HAYNES INTERNATIONAL, INC.
(CENTRAL)
By: /s/ KENNETH SANDS By: /s/ JF BARKER
------------------------ -------------------------------
Title: Vice President Title: Vice President Finance
---------------------- -------------------------
Address: Chief Executive Office:
------- ----------------------
100 South Wacker Drive 1020 West Park Avenue
Chicago, Illinois 60606 Kokomo, Indiana 46904-9013
Attention: Mr. William H. Bloom Attention: Chief Financial Officer
Telecopier No.: 312-332-0424 Telecopier No.: 317-456-6905
- 47 -
<PAGE>
EXHIBIT A
INFORMATION CERTIFICATE
OF
HAYNES INTERNATIONAL, INC.
--------------------------
Dated: July 15, 1994
------- --
Congress Financial Corporation (Central)
-------
100 South Wacker Drive, Suite 1940
- ----------------------------------
Chicago, IL 60606
- -----------------
In order to assist you in the continuing evaluation of the financing you are
considering of Haynes International, Inc. (the "Corporation") and to expedite
--------------------------
the preparation of any documentation which may be required and to induce you to
provide such financing to the Corporation, we represent and warrant to you the
following information about the Corporation, its organizational structure and
other matters of interest to you:
1. The full and exact name of the Corporation as set forth in its Certificate
of Incorporation is:
Haynes International, Inc.
---------------------------------------------------------------------------
---------------------------------------------------------------------------
2. The Corporation uses and owns the following trade name(s) in the operation
of its business (e.g. billing, advertising, etc.; note: do not include
names which are product names only):
None
---------------------------------------------------------------------------
---------------------------------------------------------------------------
In the event any trade name appears on an invoice, a sample copy of such
invoice is annexed.
3. The date of incorporation of the Corporation was December 1, 1986, under
----------------
the laws of the State of Delaware, and the Corporation is in good standing
--------
under those laws. The Corporation has never been involved in a bankruptcy
or reorganization except: (explain)
N/A
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
- 1 -
<PAGE>
4. The Corporation is duly qualified and authorized to transact business as a
foreign corporation in the following states and is in good standing in such
states:
See Exhibit I
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
5. Since the date of incorporation, the corporate name of the Corporation has
been changed as follows:
Date Prior Name
---- ----------
No Change
--------- --------------------
--------- --------------------
--------- --------------------
6. Since the date of incorporation, the Corporation has made or entered into
the following mergers or acquisitions:
See Exhibit VII
---------------------------------------------------------------------------
---------------------------------------------------------------------------
7. The chief executive office of the Corporation is located at:
See Exhibit II
---------------------------------------------------------------------------
Street Address City State County
8. The books and records of the Corporation pertaining to accounts, contract
rights, inventory, etc. are located at (if other than the chief executive
office referred to in Section 7 above):
Same as above
---------------------------------------------------------------------------
Street Address City State County
9. The Corporation has other places of business and/or maintains inventory or
other assets at the following addresses (indicate whether locations are
owned, leased or operated by third parties and if leased or operated by
third parties, their name and address):
See Exhibit II
---------------------------------------------------------------------------
Street Address City State Lessor/Operator
- 2 -
<PAGE>
---------------------------------------------------------------------------
Street Address City State Lessor/Operator
---------------------------------------------------------------------------
Street Address City State Lessor/Operator
10. The premises listed below owned by the Corporation are subject to mortgages
as follows (state name and address of mortgagee and approximate principal
balance of mortgage):
Location Mortgagee Principal Balance
-------- --------- -----------------
All locations Society National Bank, Senior Secured 11-1/4%
-------------------- ---------------------- ----------------------
owned by Borrower as Trustee $50,000,000
-------------------- ---------------------- -----------------------
noted on Exhibit II. Notes Dues 1998
-------------------- ---------------------- -----------------------
11. The places of business or other locations of any assets used by the
Corporation during the last four (4) months other than those listed above
are as follows:
N/A
---------------------------------------------------------------------------
Street Address City State
---------------------------------------------------------------------------
Street Address City State
---------------------------------------------------------------------------
Street Address City State
12. The Corporation is affiliated with, or has ownership in, the following
corporations (including subsidiaries):
Chief Jurisdiction Ownership
Executive of Percentage or
Name Office Incorporation Relationship
---- --------- ------------- --------------
See Exhibit III
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
13. The Federal Employer Identification Number of the Corporation is as
follows:
06-1185400
---------------------------------------------------------------------------
- 3 -
<PAGE>
14. There is no provision in the Certificate of Incorporation or By-laws of the
Corporation, or in the laws of the State of its incorporation, requiring
any vote or consent of shareholders to borrow or to authorize the mortgage
or pledge of or creation of a security interest in any assets of the
Corporation or any subsidiary. Such power is vested exclusively in its
Board of Directors. YES
---
15. The officers of the Corporation and their respective titles are as follows:
Title Name
----- ----
See Exhibit IV
------------------ ----------------
------------------ ----------------
------------------ ----------------
------------------ ----------------
The following will have signatory powers as to all your of transactions
with the Corporation:
Michael D. Austin Dennis S. Acuncius
---------------------------------------------------------------------------
Joseph F. Barker Marcel Martin
---------------------------------------------------------------------------
F. Galen Hodge
---------------------------------------------------------------------------
16. With respect to the officers noted above, such officers are affiliated with
or have ownership in the following corporations (indicate name and address
of affiliated companies, type of operations, ownership percentage or other
relationship):
See Exhibit V
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
17. The members of the Board of Directors of the Corporation are:
See Exhibit VI
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
- 4 -
<PAGE>
18. The name of the stockholders of the Corporation and their stock holdings
are as follows (if stock is widely held indicate only stockholders owning
10% or more of the voting stock):
Ownership
Name No. of Shares Percentage
---- ------------- ----------
The Stockholder of Haynes International, Inc. is Haynes Holding, Inc.
---------------------------------------------------------------------------
Holdings owns 100% or all 100 shares of Haynes International, Inc.
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
19. There are no judgments or litigation pending by or against the Corporation,
its subsidiaries and/or affiliates or any of its officers/principals,
except as follows:
See Exhibit VIII
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
20. At the present time, there are no delinquent taxes due (including, but not
limited to, all payroll taxes, personal property taxes, real estate taxes
or income taxes) except as follows:
None
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
21. The Corporation's assets are owned and held free and clear of any security
interests, liens or attachments, except as follows:
Amount of
Lienholder Assets Debt Secured
---------- ------ ------------
B.A.B.C. A/R + Inventory $16,000,000
-------------------- --------------------- -----------------
Senior Secured Notes PP&E $50,000,000
-------------------- --------------------- -----------------
(See Exhibit X)
-------------------- --------------------- -----------------
-------------------- --------------------- -----------------
- 5 -
<PAGE>
22. The Corporation has not guaranteed and is not otherwise liable for the
obligations of others, except as follows:
Amount of
Debtor Creditor Obligation
------ -------- ----------
Except for endorsements on drafts and checks created
---------------------- ---------------------- -------------------
in the ordinary course of business.
---------------------- ---------------------- -------------------
23. The Corporation does not own or license any trademarks, patents, copyrights
or other intellectual property, except as follows (indicate type of
intellectual property and whether owned or licensed, registration number,
date of registration, and, if licensed, the name and address of the
licensor):
See Exhibit IX
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
24. The Corporation's fiscal year ends: September 30
---------------------------------------
25. With regard to any pension or profit sharing plan:
(a) A determination as to qualification has been issued.
(b) Funding is on a current basis and in compliance with established
requirements. YES
---
26. Certified Public Accountants for the Corporation is the firm of:
Name Coopers & Lybrand
----------------------------------------------------------------------
Address 490 Lincoln Bank Tower, Fort Wayne, IN 46282
-------------------------------------------------------------------
Partner Handling Relationship Thomas Jones
---------------------------------------------
Were statements uncertified for any fiscal year? No
--------------------------
- 6 -
<PAGE>
27. Prompt written notice will be given you of any change or amendment with
respect to any of the foregoing. Until such notice is received by you, you
shall be entitled to rely upon the foregoing in all respects.
Very truly yours,
CORPORATE SEAL TO BE
AFFIXED HEREINBELOW HAYNES INTERNATIONAL, INC.
By:
-----------------------------------------
Title: Vice President-Finance
- 7 -
<PAGE>
EXHIBIT I
Item 4.
Dated as of July 14, 1994
ORGANIZATION AND QUALIFICATION
Status In Which Qualified To Do Business As Foreign Corporation
---------------------------------------------------------------
Indiana
Louisiana
Texas
California
Connecticut
Tennessee
<PAGE>
EXHIBIT II
Item 7.
Chief Executive Office of Borrower
----------------------------------
1020 West Park Avenue
P.O. Box 9013
Kokomo, Indiana 46904-9013
Howard County
Item 9.
Other Places of Business or Assets of the Corporation
-----------------------------------------------------
(a) Locations Owned by Borrower:
1020 West Park Avenue
P. O. Box 9013
Kokomo, Indiana 46904-9013
2000 West Deffenbaugh Street
Kokomo, Indiana 46902
Highway 80 West
Route 1, P. O. Box 8
Arcadia, Louisiana 71001
<PAGE>
Item 9.
Other Places of Business or Assets of the Corporation
-----------------------------------------------------
(Continued)
(b) Locations Leased by Borrower:
722 South Lindsay Street
Kokomo, Indiana 46901
Landlord: Just D, Ltd.
Stadium Plaza
1520 South Sinclair Street
Anaheim, California 92806
Landlord: RREEF USA Fund-II, Inc.
430 Hayden Station Road
Windsor, Connecticut 06095
Landlord: Teacher's Retirement System of the State of Illinois
Northwood Industrial park
12241 FM529
Houston, Texas 77041
Landlord: Texas Development Co.
(c) Locations Not Owned or Leased by Borrower:
See Attachment A
- 2 -
<PAGE>
<TABLE><CAPTION>
Attachment A
06/09/93 APPROVED VENDER LISTING
PHONE #
NAME ADDRESS FAX # PROCESS CONTACT
<S> <C> <C> <C> <C>
ACRALINE 641 CLEVELAND ST. 317-675-8841 PLASMA TOM BOURIFF-QUOTES
PRODUCTS, TIPTON, IN 46072 317-675-6150 CUTTING JEFF JOHNSON
INC.
AEROCHEM 8801 ELMIRAGE 619-246-4191 CHEM MIKE BURNHAM
ADALANTO, CA 02301 619-388-4221 MILLING DOUG SHILLING
ALLVAC PO BOX 759 704-289-4511 GFM-55 DAVE BAKICH SALES
TELEDYNE ASHCRAFT AVE. 704-283-0135 JOHN PIGG-CONV. MGR
MONROE, NC 28110
STATE RD 919 COIL TO DAVE BAKICH
S. BOSTON VA 24592 STRA BAR ROGER JOHNSON
AVESTA, INC. ST. RD. 38 WEST 317-529-0120 PLATE JOHN GLAISTER
NEW CASTLE, IN 47362 317-521-7336 FLATTENING PROD CONT MGR
CHRIS STREIT MFG MGR
BRAMMALL, PO BOX 208 219-665-3176 COIL GALE BOOTS-SALES
INC. ANGOLA, IN 46703 REALIGN SHERLYN-SALES
CC LEWIS PO BOX 1810 800-628-8864 SPECIAL ROBERT COURNOYER-
209 PAGE BLVD 413-736-8030 PLATTEN PRES
SPRINGFIELD, MA 01101
C.F. ROARK PO BOX 67 317-852-3163 LASER CUT TED ROARK
BROWNSBURG IN 46112 2738
CLIMAX 460 JAY ST 517-279-9511 EXTRUSION JOE HIRT MGR
SPECIALTY COLDWATER MI 49036 517-279-9512 JOHN SCHIEDLER-
METALS SCHEDULER
DEAKINS 301 N. MURPHY AVE. 812-446-2651 CIRCLE BRIAN DEAKINS-
METAL BRAZIL, IN 47834 812-446-2277 SHEARING PLT MGR
SPINNING JEFF DEAKINS
COMPTROLLER
DIANNA-SALES
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
DEARBORN, 80 PORTLAND ST 207-935-2171 TREPANNING TOM SHAFFNER-
INC. FRYEBURG ME 0403 207-935-2908 COMPTROLLER
FRANK LAWRENCE-
SALES
ELGILOY LTD 1565 FLEETWOOD DR. 312-695-1900 THIN GAGE AL SCHOEK
PARTNERSHIP ELGIN, IL 60123 312-695-0169 COIL STAN CZUBA-ENG
FAB-ALLOYS 1163 BRIDGE ST. 517-787-4313 BAR OUT TO KATHY LEVY-SALES
CO. JACKSON, MI 49203 517-787-2128 LGTH FROM PHIL CLARK-SALES
COIL
FAXON 3325 COLERAIN AVE 513-681-0513 TREPANNING BARRY FAXON
MACHINING CINCINNATI, OH 45223 513-681-0798 BOB FAXON
GAUER METAL PO BOX 158 201-241-4080 GAUER EDGE MARIE LONG
PRODUCTS 175 N. MICHIGAN AE 201-245-2325
KENILWORTH, NJ 07033
G & S 1550 SPRUCE ST 216-263-0564 BAR DUANE HOFSTETTER-
EXTENSION 216-262-1550 DRAWING SALES
WOOSTER, OH 44691
HARRINGTON PO BOX 2246 615-479-8691 PERFOR- WAYNE HALL SALES
& KING SOUTH CLEVELAND TN 800-251-6026 ATING
37320-2248 615-479-8694
HYPER PO BOX 247 313-772-0571 FORM & RAY WEJRANDT
ALLOYS 29153 GROESBECK HWY 313-772-8751 WELD
ROSEVILLE MI 48066
INCO ALLOYS HUNTINGTON 304-526-5100 ROD COIL PHIL SKEEN
WV. 25720 304-526-5984 ROLLING
INDUSTRIAL 2131 NORTHWESTERN
HEAT TREAT AVE. 317-924-4321 HEAT TREAT DICK GREEN-HT TREAT
INDPLS, IN 46207 317-924-1703 DYE PEN MERRILL MILLER-
INSPECTION DYE PEN
KEN-TRON 1204 INDUSTRIAL DR 502-684-0431 FINE WIRE BRAUN MISCHEL-CONV
MFG. OWNESBORO, KY 42302 502-684-0435 DRAWING CATHY PULLEN-SALES
DON ROBERTS-PLT MGR
</TABLE>
- 2 -
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
LARSONS & 2645-65 N. 312-772-9700 RING GLENN LARSON
SONS KEELER AVE. FORGING
CHICAGO, IL 60639
LATROBE LATROBE, PA 15650 412-537-7711 ROD COIL DOUG HODZAK
STEEL CO 412-537-3080 ROLLING
LUICK 4401 S. 317-286-1818 WATERJET BOB NOTTINGHAM
QUALITY DELEWARE DR. 317-288-2346 CUTTING
GAGE & TOOL MUNCIE, IN 47302
LUKENS PO BOX 7780-1073 215-383-2000 WIDE PLATE JIM FORSYTHE-3191-
STEEL CO COATSVILLE, PA 19320 215-386-2182 PROCESSING SALES
JOHN GILLEN-2978-
SCHEDULING
MAIN STEEL 2100 GREENWOOD 708-869-4913 PLAT/CUT MIKE GOLDBERG-PLT
EVANSTON IN 60201 708-869-6490 LENGTH MGR
MCKAY 850 GRANTLEY RD 800-346-2529 COATED DEBBIE LEEDY-SALES
YORK, PA 17405 717-346-2365 ELECTRODES
MOON 700 W MORGAN ST 317-459-4194 SAND REX VEACH-PLT MGR
FABRICATING KOKOMO, IN 46901 317-452-6090 BLASTING TODD VEACH
NORTH- 411 N MAIN ST 203-621-8991 SPECIAL GARY MAJCHRZAK
EASTERN SOUTHINGTON CT 203-621-1602 WIRE LUCY CLARK
SHAPED WIRE 06489 ROLLING
P&C METAL 340 GLENDALE- 513-771-9143 PLATE/SHEET JAMES MULCAHEY-ENG
POLISHING MILFORD RD 513-771-9164 POLISHING DONNA-SALES
CINCINNATI, OH 45215
PRECISION 3500 N. WOLF RD 312-455-7000 SLITTING GUS KELLEY-CONV
STEEL WHSE FRANKLIN PARK, IL 312-455-1341 FLAT/OUT SALES
60131
QUALITY 3860 PROSPECT ST 317-357-8691 HEAT DICK MATSON
STEEL INDPLS, IN 46203 317-357-8695 TREATING KEVIN MATSON
TREATING CO
</TABLE>
- 3 -
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
RODNEY 1357 E. RODNEY 508-996-5691 THIN GAGE MIKE NESTER-
METALS FRENCH BLVD 508-993-3176 COIL SALES MGR
(TELEDYNE) NEW BEDFORD, ROLL/ANNEAL/
MA 02742 FINISHING
ROMAC PO BOX 836 800-438-6628 MFG PIPE PHIL MORGAN
METALS TROUTMAN 704-528-5058
NC 28166
ROME METALS PO BOX 106 412-775-1664 PLATE OUT JOHN DIOGUARDI-MGR
499 DELEWARE AVE 412-775-1668 & GRIND
ROCHESTER, PA 15074 BLAST
W. NEW CASTLE ST 412-452-1040 PLATE GRIND DAVE ROBSON-PLT MGR
RTE 588 SHEAR
ZELIENOPLE, PA 16063
SERVICE MAPLE ST EXT 804-798-1381 PUNCH WILLIAM SMALL QLTY
MACHINE ASHLAND VA 23005 804-752-6440 HOLES IN MGR
& WELDING PLATE
SHALMET PO BOX 202 717-366-1411 ROD COIL JOE MATTERA-MFG
CORP DEER LAKE IND. PARK 717-366-1829 SHAVINGROSE SNINSKY-SALES
ORWIGSBURG, PA 179961 HELMUT ORTMAN
STEEL 300 N 3RD ST 800-848-0496 FLAT-OUT VERN CHARLTON
CEILINGS COSHOCTON, OH 43812 614-622-8971 LENGTH
T. BRUCE PO BOX 607 412-528-9944 FLATTEN DICK MCBRIDGE
SALES RT 18 & 412-528-2050 PLATE ART HOOVER
CARBOUGH ST PRESS
WEST MIDDLESEX PA 16159
TATE MODEL PO BOX 3012 317-452-8283 CASTING TIM TATE
& 3030 N. COUNTY RD TED TATE
ENGINEERING KOKOMO IN 46901
TOOL KING 275 LARKIN DR 312-537-2881 SLITTING PETER HESTAD-MGR
WHEELING, IL 60090 312-537-6937 JOEY-SALES
ULBRICH PO BOX 294 203-239-4480 THIN GAGE GEORGE WOODHULL-
STAINLESS 57 DODGE AVE 203-239-7479 COIL SALES
STEEL NORTH HAVEN CT 06473 BILL FERGUSON-SALES
RON BRUCKER-ENG
</TABLE>
- 4 -
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
WESTERN 780 REED RD 408-727-7000 UPSET FORGE BILL FOURMAN
FORGE SANTA CLARA 408-968-7906
& FLANGE CA 95050
WILLIAMS 7640 REINOLD RD 513-821-5555 ABRASAVE- WAYNE WORKS-SUPT.
& CO. CINCINNATI, OH 4523 (EXT 54) PLASMA CUT
2105 LARRICK RD 614-439-5002 GAUER- JACKIE ROBINSON-
CAMBRIDGE, OH 43725 (REQUEST SHEAR & SALES
FAX) FLAT/CUT, KEN STUMP-PLT MGR
SLIT
WIRCO PO BOX 609 219-897-3768 BAR OUT TO PHIL SCHLINK
105 PROGRESS WAY 219-897-2525 LENGTH TOM WRIGHT
AVILLA IN 46710 FROM COIL
</TABLE>
- 5 -
<PAGE>
EXHIBIT III
Item 12.
SUBSIDIARIES AND AFFILIATES
---------------------------
Subsidiaries:
- ------------
<TABLE><CAPTION>
Jurisdiction Chief
of Executive Common Shares:
Name Incorporation Office Outstanding Authorized Owned by:
- ---- ------------- ---------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Haynes Sour Gas Delaware See Exhibit V 1,000 1,000 100% by Haynes
Tubulars, Inc. Attachment B International,
Inc.
Nickel-Contor AG Switzerland See Exhibit V 5,000 5,000 100% by Haynes
fur Nickel und Attachment B International,
Inc.
Nickellegierungen
("Nickel-Contor AG")
Haynes International France See Exhibit V 310,000 310,000 100% by Haynes
S.A.R.L. Attachment B International,
Inc.
Haynes International England See Exhibit V 10,000 10,000 100% by Haynes
LTD. Attachment B International,
Inc.
Haynes International Italy See Exhibit V 20,000,0001 20,000,0001 100% by Nickel
S.R.L. Attachment B Contor A.G.
CabVal2 N/A See Exhibit V N/A N/A 50% by Haynes
Attachment B International, Inc.
50% by Vallourec
S.A.
</TABLE>
1 Denomination of Liras
2 CabVal is a partnership governed by the Uniform Partnership Act as adopted
by the State of New York and is not qualified to do business in any state
other than Texas. Haynes Sour Gas Tubulars, Inc. has a 50% general
partnership interest in CabVal.
Affiliate:
- ----------
Name Relationship to Borrower
- ---- ------------------------
Haynes Holdings, Inc. ("Holdings") Owns 100% of common stock of Borrower
MLGA Fund II Owns 82.2% of common stock of Holdings
K.A.M. Specialties, Inc. ("K.A.M.") Borrower owns 10% of common stock
<PAGE>
EXHIBIT IV
Item 15.
Officers of Haynes International, Inc.
Michael D. Austin
President & CEO
F. Galen Hodge
Vice President - International
Joseph F. Barker
Vice President - Finance,
Secretary, Treasurer
Marcel Martin
Controller
Dennis S. Acuncius
Vice President - Sales & Marketing
Officers of Haynes Holdings, Inc.
Michael D. Austin
President & CEO
Joseph F. Barker
Secretary & Treasurer
Perry J. Lewis } All are:
Sangwoo Ahn } Assistant Secretary/
Ira Starr } Assistant Treasurer/
Assistant Vice President
<PAGE>
EXHIBIT V
Item 16.
<TABLE><CAPTION>
Name of Corporation Individual Affiliation
- ------------------- ---------- -----------
<S> <C> <C>
Nickel-Contor AG Michael D. Austin Director, Chairman
fur Nickel und
Nickellegierungen
("Nickel-Contor AF")
Haynes International LTD Michael D. Austin Director, Chairman
CabVal Dennis S. Acuncius Member, Executive Committee
F. Galen Hodge Member, Executive Committee
Haynes Holdings, Inc. Michael D. Austin Ownership of less than 1%/Director
("Holdings") Joseph F. Barker Ownership of less than 1%/Director
F. Galen Hodge Ownership of less than 1%
MLGA Fund II
Haynes Sour Gas Tubing Michael D. Austin Director
Joseph F. Barker Director
Dennis S. Acuncius Director
</TABLE>
See Attachment B for Addresses
<PAGE>
Attachment B.
Addresses per Locations:
- - U.S.A. - ITALY
Haynes Sour Gas Tubulars, Inc. Haynes International S.R.L.
1020 West Park Avenue Viale Brianza, 8
P. O. Box 9013 20127 Milano
Kokomo, Indiana 46904-9013 Tel: 39-2-2614-1331
Tel: 317-456-6000 Telex: 3505-87-MZMI
Telex: 27-2280 or 27-2232 Fax: 39-2-282-8273
Fax: 317-456-6905
- U.S.A.
- - SWITZERLAND CabVal
Nickel-Contor AG 14811 St. Marys Lane
Gotthardstrasse 21 Suite 150
CH-8022 Zurich Houston, TX 77079
Tel: 41-1-201-7322 Tel: 713-589-2000
Telex: 815-601 Telex: N/A
Fax: 41-1-201-7333 Fax: 713-589-7056
- - FRANCE
Haynes International, S.A.R.L.
Boite Postale 7110
95054 CERGY PONTOISE Cedex
Tel: 33-1-34-48-3100
Telex: 605373
Fax: 33-1-30-37-8022
- - ENGLAND
Haynes International, Ltd.
P. O. Box 10
Parkhouse Street
Openshaw
Manchester M11 2ER
Tel: 44-61-230-7777
Telex: 667611
Fax: 44-61-223-2412
- 2 -
<PAGE>
EXHIBIT VI
Item 17.
Board of Directors
As of July 15, 1994
Name Position with the Company
---- -------------------------
Michael D. Austin President and Chief Executive Officer;
Director
Joseph F. Barker Vice President, Finance;
Chief Financial Officer;
Director
John A. Morgan Director
William F. Ludwig Director
Perry J. Lewis Director, Chairman of the Board
Thomas F. Githens Director
Sangwoo Ahn Director
Ira Starr Director
Paul F. Troiano Director
Robert B. Egan Director
<PAGE>
EXHIBIT VII
Response to Item 6
- ------------------
Haynes Holdings, Inc. ("Holdings") and Haynes Acquisition Corporation
("HAC") were formed by Morgan Lewis Githens & Ahn, Inc. ("MLGA"), an
international investment banking firm, and management of Haynes International,
Inc. (the "Company") in connection with the Acquisition of the Company from
Cabot Corporation in August 1989 (the "Acquisition"). In the Acquisition,
Holdings caused HAC to acquire all the outstanding shares of the Company, and
immediately thereafter HAC was merged into the Company. As a result of the
Acquisition, the Company is a wholly-owned subsidiary of Holdings, a Delaware
corporation, owned by affiliates of Morgan Lewis Githens & Ahn, certain
management employees of the Company, and other investors.
<PAGE>
EXHIBIT VIII
Response to Item 19
- -------------------
Haynes International, Inc. v. Stephen B. MacNeil v. Haynes International,
-------------------------------------------------------------------------
Inc., and Haynes Holdings, Inc., Cause No. 29C01-9302-CP-00100, Hamilton County,
- --------------------------------------------------------------------------------
Indiana, Circuit Court. The Company filed this action to recover amounts
- ----------------------
allegedly paid to Mr. MacNeil to terminate or extinguish stock options issued to
him by Holdings. Subsequently, Mr. MacNeil asserted various claims against the
Company and Holdings.
Employment Discrimination Claims:
--------------------------------
(1) Stewart, Joseph: EEOC Charge Nos. 240930732; 240931517. On
-------------------------------------------------------
February 12, 1993, Joseph Stewart filed a charge of employment
discrimination with the Indiana Civil Rights Commission ("ICRC")
against the Company. On February 19, 1993, a charge of employment
discrimination was filed against the Company under the Age
Discrimination in Employment Act of 1967. We filed our appearance
with the EEOC on March 2, 1993 and our position statement with the
EEOC on March 19, 1993. On June 8, 1993, a charge of employment
discrimination was filed against the Company under the Americans with
Disabilities Act. The Company has filed its position statement on
these claims, and is awaiting a response. The Company has denied any
and all unlawful discrimination in the above-reference discharge case,
and is vigorously defending against such claim.
(2) LaCluyse, Alice; EEOC Charge No. 240931755. On September 1, 1993 a
------------------------------------------
charge of employment discrimination based on age, sex and disability
was filed against the Company under the Civil Rights Act of 1964, the
Age Discrimination in Employment Act of 1967, and the Americans with
Disabilities Act. The Company has filed its position statement on
this claim and is awaiting a response. The Company has denied any and
all unlawful discrimination in the above-referenced discharge case,
and is vigorously defending against such claim.
(3) Maddox, Elaine: EEOC Charge No. 24F930081; Indiana Civil Rights
----------------------------------------------------------------
Commission; Docket No. EMse 92111747; Office of Federal Contract
----------------------------------------------------------------
Compliance Program ("OFCCP") Complaint No. E920355. The EEOC issued a
--------------------------------------------------
Notice of Finding August 18, 1993 stating evidence failed to
substantiate an alleged charge of sex discrimination and issuing right
to sue. Ms. Maddox filed for reconsideration with OFCCP, Washington
DC on September 15, 1993. The Company has denied any and all unlawful
discrimination in the above-referenced discharge case, and is
vigorously defending against such claim.
Haynes International Inc. v. Jessop Steel Co., filed December 18, 1987, in
--------------------------------------------------------------------------
the United States District Court for the Western District of Pennsylvania. The
- -------------------------------------------------------------------------
Company has alleged
<PAGE>
EXHIBIT VIII - Continued
infringement by a competitor on the patent on HASTELLOY Alloy C-22, and the
competitor has asserted a counterclaim seeking to have the patent declared
invalid, void, unenforceable and not infringed. Pretrial statements by the
Company and the competitor have been filed. A motion by the competitor for
partial summary judgment was granted by the District Court on the grounds that
the competitor's product did not infringe the Company's patent. That decision
has been upheld on appeal but the other issues in the case await scheduling for
trial. Settlement negotiations are underway. Management believes that an
adverse decision would not have a material adverse effect on the Company's
business.
Eddie Allen v. Haynes International, EEOC Charge No. ###-##-####. The EEOC
----------------------------------------------------------------
decided in favor of Haynes relative to the race discrimination case. Particular
credence was given to the charging Party's poor performance and absenteeism
record throughout his employment at Haynes. The EEOC additionally gave weight
to the fact that four of the other employees terminated during the reduction in
force were white.
As is now stands, Mr. Allen had ninety days (or until April 4, 1994, to
file his lawsuit) from receipt of the EEOC determination to file a lawsuit
against Haynes in an appropriate court. At this time Haynes International is
not aware of any lawsuit being filed.
Haynes International, Inc. v. Textron Lycoming, Cause No. 27C01-9103-CP-
------------------------------------------------------------------------
167, Grant County, Indiana, Circuit Court. The Company has filed suit claiming
- -----------------------------------------
in excess of six million dollars in damages as a result of an alleged breach of
contract by the defendant. The suit was recently mediated unsuccessfully and is
currently scheduled for trial in January, 1995. The law firm of FELL, MCGARVEY,
TRAURING & WILSON is handling this matter for the Company.
James E. Akin, et. al. v. Big Three Industries, et. al., Case No. CIV-93-
-------------------------------------------------------------------------
832-C, U.S. District Court, Western District of Oklahoma. Approximately 170
- --------------------------------------------------------
plaintiffs have claimed damages for injuries allegedly caused by exposure to
toxic chemicals while working on jet engines for the U.S. Air Force at Tinker
Air Force Base in Oklahoma City, Oklahoma. The Company is one of twelve
defendants named in the case. This is a product liability matter for the
Company and as such is being handled through its insurance brokers, Alexander &
Alexander of Indiana, Inc., and the law firm of Mendes & Mount in New York.
Indiana Life and Health Insurance Guarantee Association (ILHIGA) v.
-------------------------------------------------------------------
Donna D. Bennett, as Acting Commissioner of Insurance of the Indiana Department
- -------------------------------------------------------------------------------
of Insurance and Haynes International, Inc. et. al., Cause No. 49D07-9403-
- --------------------------------------------------------------------------
CP025C, Marion County, Indiana, Superior Court. The Company has received a
- ----------------------------------------------
favorable ruling from the Commissioner of Insurance that would require ILHIGA to
cover the losses experienced by certain participants in the Company's 401K plan
caused by the bankruptcy of Executive Life Insurance Company of California.
Subsequent to the ruling, ILHIGA filed this petition to seek Judicial Review of
the ruling and to ask that the ruling be overturned.
- 2 -
<PAGE>
EXHIBIT VIII - Continued
Aziz I. Asphahani v. Haynes International, Inc. and Haynes Holdings, Inc.,
--------------------------------------------------------------------------
Cause No., IP94-915-C, U.S. District Court, Southern District of Indiana,
- -------------------------------------------------------------------------
Indianapolis Division. On June 9, 1994, Aziz Asphahani, a former officer and
- ---------------------
director of the Company filed suit seeking payment for unexercised stock options
and for severance benefits that he alleges were wrongfully denied him upon his
termination of employment by the Company. He is also seeking punitive damages
against the Company for alleged interference in his employment and other rights
with CabVal, Inc., an affiliate of the Company. The Company has denied all
claims and intends to vigorously defend against them.
Threatened Litigation:
- - Arthur E. Schneider
-------------------
Arthur Schneider, a former employee of the Company, has threatened to
sue the Company for wrongful termination of his employment. He is alleging
that his termination was the result of his coming forth with information
that might constitute anti-trust violations by other employees of the
Company. These allegations have been investigated by the Senior Legal
Counsel for the Company and reviewed by the law firm of Ice, Miller,
Donadio and Ryan. The Company believes the claims are completely without
merit.
- - J. Harvey Richards
------------------
Harvey Richards, a former officer and director of the Company, has
threatened to file an injunction in the United Kingdom, where the Company's
wholly-owned subsidiary (Haynes International, Ltd.) is located, to prevent
the disposal of any assets of Haynes International, Ltd. until his claims
for severance pay and his claim for payment of his unexercised stock
options have been settled.
- 3 -
<PAGE>
EXHIBIT IX
----------
<TABLE><CAPTION>
MARK CO CL APPLN. NO. REG. NO. DATE REG. EXPIRES
<S> <C> <C> <C> <C> <C> <C>
214 FR 06 896,866 1,442,399 1988/06/03 1997/12/29
214 US
230 FR 06 896,863 1,442,369 1988/06/03 1997/12/29
230 US
242 US
556 FR 06 896,865 1,442,398 1988/06/06 1997/12/29
556 US
B-3 US
C-22 BE 06 60,551 436,584 1987/11/19 1997/11/19
C-22 CA 595,473 377,433 1990/12/21 2005/12/21
C-22 FR 06 889,662 1,436,759 1988/04/29 1997/11/23
C-22 IL 06 68,155
C-22 IT 06 87/24679C 533,031 1990/09/04 2007/11/27
C-22 MX 6&9 37,430 349,181 1988/06/01 2003/02/15
C-22 US 06 73/701,790
C-22 ZA 06 87/9342 B 87/9342 1989/10/27 1997/11/16
G-30 BE 06 60,553 438,726 1987/11/19 1997/11/19
G-30 CA 595,475 347,500 1988/11/04 2003/11/04
G-30 FR 06 889,665 1,436,761 1988/04/29 1997/11/23
G-30 IL 06 68,156 68,156 1988/01/07 1995/01/07
G-30 IT 06 88/16682C 522,670 1990/02/14 2008/01/12
G-30 MX 6&9 37,470 349,273 1988/06/03 2003/02/16
G-30 US 06 73/701,791 1,600,332 1990/06/12 2000/06/12
G-30 ZA 06 87/9344 B 87/9344 1989/10/27 1997/11/16
G-50 US 06 74/168,140 1,711,142 1992/09/01 2002/09/01
H-9M BE 06 60,552 440,065 1987/11/19 1997/11/19
H-9M CA 595,474 347,499 1988/11/04 2003/11/04
H-9M FR 06 889,663 1,436,760 1988/04/29 1997/11/23
H-9M IT 06 88/16683C 522,671 1990/02/14 2008/01/12
H-9M ZA 06 87/9343 B 87/9343 1989/10/27 1997/11/16
HASTELLOY AR 06 1.063.333 1951/04/27 1993/09/02
HASTELLOY AT 06 38,984 1958/06/02 1998/06/30
HASTELLOY AU 06 A 92,883 1947/09/30 2003/09/30
HASTELLOY BD 06 11,338 11,338 1980/12/18 1996/06/30
HASTELLOY BE 06 77,943 1947/10/08 1997/11/12
HASTELLOY BR 06 811,723,208 811,723,208 1988/01/12 1998/01/11
HASTELLOY CA 211,777 NS 175/4458 1951/06/22 1996/06/22
HASTELLOY CH 06&7 151,540 P 271,285 1954/06/22 2004/06/04
HASTELLOY DE 06 701,325 1956/09/27 1996/09/27
HASTELLOY DK 06 399/58 2126/1958 1958/10/25 1998/10/25
HASTELLOY ES 06 329,908 1959/03/17 1999/03/17
</TABLE>
<PAGE>
<TABLE><CAPTION>
MARK CO CL APPLN. NO. REG. NO. DATE REG. EXPIRES
<S> <C> <C> <C> <C> <C> <C>
HASTELLOY ES 06 353,337 1959/09/03 1995/03/16
HASTELLOY FI 06 33,893 1959/05/22 1999/05/22
HASTELLOY FR 6&7 705,880 1,275,970 1984/06/15 2004/06/15
HASTELLOY GB 06 604,994 1939/03/02 2002/03/02
HASTELLOY GB 06 889,533 1966/01/20 2001/01/20
HASTELLOY GR 06 34,851 1966/01/14 1996/01/14
HASTELLOY IL 06 18,385 1960/02/02 1995/02/02
HASTELLOY IN 06 1,350 1942/06/24 1999/06/24
HASTELLOY IN 06 245,358 1967/11/07 1995/11/07
HASTELLOY IT 06 135,507 1956/11/12 1996/10/07
HASTELLOY JM 06 6/229 20,574 1981/08/05 2002/08/05
HASTELLOY JP 06 467,920 1955/07/09 1995/04/09
HASTELLOY JP 06 468,099 1955/07/13 1995/04/09
HASTELLOY JP 06 712923/1994 1,682,002 1984/04/20 1994/04/20
HASTELLOY KW 06 1,608 1964/04/08 1994/04/06
HASTELLOY MA 06 27,544 1957/07/03 1997/06/02
HASTELLOY MX 06 46,333 1943/08/27 2003/08/27
HASTELLOY NO 06 51,955 1958/02/05 1998/02/05
HASTELLOY NZ 06 45,516 1947/10/01 1996/10/01
HASTELLOY OA 06 54,434 4,213 1965/01/25 1995/01/25
HASTELLOY PK 06 13,063 1942/06/24 1996/06/24
HASTELLOY SE 6,7, 77,077 1954/11/26 1994/11/26
HASTELLOY TW 06 16,169 1963/10/01 1993/09/30
HASTELLOY US 06 667,590 605,011 1955/04/26 1995/04/26
HASTELLOY US 06 71/292,933 269,898 1930/04/22 2000/04/22
HASTELLOY ZA 06 47/2687 1947/10/04 1995/10/04
HASTELLOY C-22 AT 06 4783/87 120,376 1988/07/21 1998/07/31
HASTELLOY C-22 AU 06 A 479,153 A 479,153 1988/01/04 1995/01/04
HASTELLOY C-22 BR 06 815,342,330 815,342,330 1991/11/26 2001/11/02
HASTELLOY C-22 CH 06 7,534 358,783 1988/03/21 2007/11/19
HASTELLOY C-22 GB 06 1,326,706 1,326,706 1987/11/05 1994/11/05
HASTELLOY C-22 GB 11 1,366,720 1,366,720 1990/03/27 1995/12/13
HASTELLOY C-22 JP 06 20910/1988 2,285,601 1990/11/30 2000/08/31
HASTELLOY C-22 SE 06 87/9889 216,818 1990/05/11 2000/05/11
HASTELLOY G-30 AT 06 4784/87 AM 120,377 1988/07/21 1998/07/31
HASTELLOY G-30 AU 06 A 479,152 A 479,152 1988/01/04 1995/01/04
HASTELLOY G-30 BR 06 815,342,322 815,342,322 1991/11/26 2001/11/26
HASTELLOY G-30 CH 06 7,535 358,784 1988/03/21 2007/11/19
HASTELLOY G-30 GB 06 1,326,707
HASTELLOY G-30 GB 11 1,366,723 1,366,723 1988/12/13 1995/12/13
HASTELLOY G-30 JP 06 20911/1988 2,285,602 1990/11/30 2000/08/31
HASTELLOY G-30 SE 06 87/9891 216,820 1990/05/11 2000/05/11
</TABLE>
- 5 -
<PAGE>
<TABLE><CAPTION>
MARK CO CL APPLN. NO. REG. NO. DATE REG. EXPIRES
<S> <C> <C> <C> <C> <C> <C>
HASTELLOY H-9M AT 06 4782/87 AM 120,375 1988/07/21 1998/07/31
HASTELLOY H-9M AU 06 A 479,151 A 479,151 1988/01/04 1995/01/04
HASTELLOY H-9M BR 06 815,342,314 815,342,314 1991/11/26 2001/11/26
HASTELLOY H-9M CH 06 7,536 358,785 1988/03/21 2007/11/19
HASTELLOY H-9M GB 06 1,326,708
HASTELLOY H-9M GB 11 1,366,725 1,366,725 1988/12/13 1995/12/13
HASTELLOY H-9M JP 06 20912/1988 2,285,603 1990/11/30 2000/08/31
HASTELLOY H-9M SE 06 87/9890 216,819 1990/05/11 2000/05/11
HAYNES AR 06 1,492,101 1,188,753 1986/02/02 1996/02/02
HAYNES AR 09 1,645,689 914,899 1957/07/24 1988/07/12
HAYNES AR 10 1,645,690 914,899 1957/07/24 1988/07/12
HAYNES AT 06 38,900 1958/05/20 1998/05/31
HAYNES BD 06 11,344 11,344 1980/12/26 2003/01/10
HAYNES BE 06 77,944 1958/02/03 1998/11/12
HAYNES BR 06 814,309,801 814,309,801 1991/05/21 2001/05/21
HAYNES CA 115,468 1959/10/02 2004/10/02
HAYNES CH 06 292,047 1958/02/03 1997/12/13
HAYNES DE 06 706,256 1956/07/31 1996/07/31
HAYNES DE 06 C 25978/6 962,834 1976/11/12 1996/11/12
HAYNES DK 06 2491/1958 1958/12/13 1998/12/12
HAYNES ES 06 329,907 1959/03/17 1999/03/17
HAYNES FI 06 34,010 1959/06/23 1999/06/23
HAYNES FR 06 1,184,072 1956/11/07 2001/09/30
HAYNES GB 06 1,069,591 1976/10/19 1997/10/19
HAYNES GB 07 1,069,592 1976/10/19 1997/10/19
HAYNES IT 06 135,505 1958/04/12 1996/11/12
HAYNES JP 06 425,614 1953/05/20 2003/05/20
HAYNES KW 06 1,605 1964/04/08 1994/04/06
HAYNES MA 06 27,540 1957/07/03 1997/06/02
HAYNES NO 06 52,324 1958/02/04 1998/02/04
HAYNES OA 06 3,923 1965/01/25 1995/01/25
HAYNES PK 06 13,071 1951/01/10 2003/01/10
HAYNES TW 06 15,769 1963/08/01 2003/07/31
HAYNES US 06 586,534 566,221 1952/11/04 2002/11/04
HAYNES 214 GB 06 1,326,709 1,326,709 1990/10/05 1994/11/05
HAYNES 214 GB 11 1,366,729 1,366,729 1991/02/01 1995/12/12
HAYNES 230 GB 06 1,326,710 1,326,710 1990/10/05 1994/11/05
HAYNES 230 GB 11 1,366,730 1,366,730 1991/02/01 1995/12/13
HAYNES 556 GB 06 1,326,711 1,326,711 1990/10/05 1994/11/05
HAYNES 556 GB 11 1,366,732 1,366,732 1991/02/01 1995/12/13
</TABLE>
- 6 -
<PAGE>
<TABLE><CAPTION>
MARK CO CL APPLN. NO. REG. NO. DATE REG. EXPIRES
<S> <C> <C> <C> <C> <C> <C>
HR-120 US
HR-160 US 06 74/174,760 1,717,465 1992/09/22 2002/09/22
MULTIMET AR 06 1,756,128 1,416,092 1993/01/29 2003/01/29
MULTIMET AT 06 21,532 1951/03/06 2001/03/31
MULTIMET AU 06 101,652 1950/02/24 2006/02/24
MULTIMET BD 06 11,348 1981/09/24 2003/01/10
MULTIMET BE 06 79,211 1951/01/25 2001/11/10
MULTIMET BR 06 2,544,334 1950/04/15 2000/04/13
MULTIMET CA 118,603 1960/06/24 2005/06/24
MULTIMET CA NS 168/4276 1951/06/22 1996/06/22
MULTIMET CH 06 253,181 1951/01/23 2011/01/18
MULTIMET DE 06 609,423 1949/05/12 1999/05/12
MULTIMET DE 06 726,177 1958/02/27 1998/02/27
MULTIMET DK 06 685-1951 1951/05/19 2001/05/19
MULTIMET ES 06 243,617 1952/04/07 2001/01/23
MULTIMET FI 06 24,447 1951/07/02 2001/07/02
MULTIMET FR 06 58,420 1951/01/26 2000/05/16
MULTIMET GB 06 695,277 1951/01/12 2000/01/12
MULTIMET IL 06 18,386 1960/02/02 1995/02/02
MULTIMET IT 06 104,532 1951/02/01 1991/02/11
MULTIMET JP 06 467,923 1955/07/09 1995/04/09
MULTIMET JP 06 36877/1980 1,715,739 1984/09/26 1994/09/26
MULTIMET JP 07 416,742 1952/10/07 2002/04/08
MULTIMET MA 06 27,543 1957/07/03 1997/06/02
MULTIMET NO 06 40,151 1951/01/19 2001/01/19
MULTIMET PK 06 13,070 1951/01/10 2003/01/10
MULTIMET SE 06 66,242 1949/04/01 1999/04/01
MULTIMET US 06 157,340 756,690 1963/09/17 2003/09/17
MULTIMET US 06 493,683 423,980 1946/09/17 2006/09/17
MULTIMET US 09 159,440 759,676 1963/11/05 2003/11/05
NICOBRITE US 01 74/172,185 1,719,266 1992/09/22 2002/09/22
ULTIMET AT 06 91/5118 AM 140,035 1992/01/24 2002/01/24
ULTIMET AU 06 A 563,686 A 563 686 1991/09/16 1998/09/16
ULTIMET BE 6&9 72,054 499,414 1991/06/25 2001/06/25
ULTIMET BR 06 816,479,240 816 479 240 1993/04/06 2003/04/05
ULTIMET CA 693,946
ULTIMET CH 06 7171/1991 393,396 1992/07/21 2011/10/23
ULTIMET DE 6&79 466,494/6 2,045,806 1993/09/28 2001/10/30
ULTIMET ES 06 1,666,505 1993/10/05
ULTIMET FI 06 91/5221 124,102 1993/01/05 2003/01/05
ULTIMET FR 06 293,017 1,738,570 1994/06 2001/06/20
</TABLE>
- 7 -
<PAGE>
<TABLE><CAPTION>
MARK CO CL APPLN. NO. REG. NO. DATE REG. EXPIRES
<S> <C> <C> <C> <C> <C> <C>
ULTIMET GB 06 1,468,437
ULTIMET GB 09 1,492,982 1,492,982 1992/03/05 1999/03/05
ULTIMET IN 06 561,598
ULTIMET IT 06 M191X008966
ULTIMET JP 06 66263/1991 2,587,501 1993/10/29 2003/10/29
ULTIMET JP 06 99159/1991 2,629,077 1994/02/28 2004/02/28
ULTIMET MX 06 132,319 423,792 1992/10/16 2002/02/07
ULTIMET NO 06 91 5341
ULTIMET SE 06 91-5535 238,094 1992/07/24 2002/07/24
ULTIMET US 06 74/023,771 1,742,719 1992/12/29 2002/12/29
ULTIMET ZA 06 91/8990 91/8990 1991/10/24 2001/10/24
</TABLE>
- 8 -
<PAGE>
EXHIBIT X
Item 21.
Security interest, liens, and attachments with respect to
miscellaneous leases (including those set forth in
Schedule 8.4 of the loan Agreement) in no one
case exceeding $507,920.00
<PAGE>
SCHEDULE 1.47
TO
LOAN AND SECURITY AGREEMENT
SENIOR NOTE COLLATERAL
The following property and assets have been pledged by Borrower pursuant to
the Collateral Documents (as defined in the Senior Note Indenture).
A. Pursuant to a Mortgage, Assignment of Leases and Rents, Security
Agreement and Fixture Financing Statement, dated as of July 1, 1993, (the
"Indiana Mortgage"), Borrower granted a security interest in the following
property and assets:
Property. The land located in Howard County, State of Indiana, more
--------
particularly described in Exhibit A (the "Land"), together with (a) all
---------
buildings, structures, facilities and other improvements and fixtures of
every kind and description (at the time of the granting of the security
interest or thereafter) located on the Land (such buildings, structures,
facilities, improvements and fixtures being collectively called the
"Improvements"); (b) all constructions, repairs, replacements and
--------------
substitutions of and additions to any of the Improvements; and (c) all
right, title and interest of Borrower in and to all tenements,
hereditaments, appurtenances, easements, rights of way, servitudes,
licenses, rights and privileges now or hereafter belonging or in any way
appertaining to the Land or the Improvements, and all right, title and
interest of Borrower in and to any streets, roads, sidewalks, alleys, gores
or strips of land adjoining the Land (the Land, Improvements and other
property described in this paragraph being collectively called the
"Property").
Agreements. All right, title and interest of Borrower in and to all
----------
Insurance Policies (as defined in the Indiana Mortgage) (including all
unearned premiums and dividends thereunder), all guarantees and warranties
relating to the Property and all supply and service contracts for water,
sanitary and storm sewer, drainage, electricity, steam, gas, telephone and
other utilities now or hereafter relating to the Property (the foregoing
being collectively called the "Agreements").
Leases and Rents. All estate, right, title and interest of the
----------------
Mortgagor in and to all Leases now or hereafter in effect, whether or not
of record, for the use or occupancy of all or any part of the Property and
all rents, royalties, issues, profits, receipts, revenue, income and other
benefits now or hereafter accruing with respect to the Property, including
all rents and other sums now or hereafter payable pursuant to the Leases
(as defined in the Indiana Mortgage) and damages following default,
rejection or cancellation (the foregoing rents and other sums described in
this paragraph being collectively called the "Rents"), all of which
Borrower irrevocably directs be paid to the Collateral Agent (as defined in
the Senior Note Indenture) subject to the license granted to Borrower
pursuant to Section 3.06(b) of the Indiana Mortgage, to be held, applied
and disbursed as provided in the Indiana Mortgage.
<PAGE>
Permits. All right, title and interest of Borrower in and to all
-------
licenses, authorizations, certificates, variances, consents, approvals and
other permits now or hereafter appertaining to the Property (the foregoing
being collectively called the "Permits"), excluding from the grant under
this paragraph any Permits which cannot be transferred or encumbered by
Borrower without causing a default thereunder or a termination thereof.
Proceeds and Awards. All right, title and interest of Borrower in and
-------------------
to all proceeds of any Transfer (as defined in the Indiana Mortgage),
financing, refinancing or conversion into cash or liquidated claims,
whether voluntary or involuntary, of any of the Mortgaged Property,
including all Insurance Proceeds, Awards (as defined in the Indiana
Mortgage) and title insurance proceeds, and all rights, dividends and other
claims of any kind whatsoever (including damage, secured, unsecured,
priority and bankruptcy claims) now or hereafter relating to any of the
Mortgaged Property (as defined in the Indiana Mortgage), all of which
Borrower irrevocably directs be paid to the Collateral Agent to the extent
provided hereunder, to be held, applied and disbursed as provided in this
Mortgage.
Additional Property. All greater, additional or other right, title and
-------------------
interest of Borrower in and to the Mortgaged Property now or hereafter
acquired by Borrower, including all right, title and interest of Borrower
in, to, under or derived from all extensions, improvements, betterments,
renewals, substitutions and replacements of, and additions and
appurtenances to, any of the Mortgaged Property hereafter acquired by or
released to Borrower or constructed or located on, or affixed to, the
Property, in each case, immediately upon such acquisition, release,
construction, location or affixation; all estate, right, title and interest
of Borrower in, to, under or derived from any other property and rights
which are, by the provisions of the Security Documents (as defined in the
Senior Note Indenture), required to be subjected to the Lien of the Indiana
Mortgage; all estate, right, title and interest of Borrower in, to, under
or derived from any other property and rights which are necessary to
maintain the Property and Borrower's business or operations conducted
therein as a going concern in each case, to the fullest extent permitted by
law, without any further conveyance, mortgage, assignment or other act by
Borrower; and all estate, right, title and interest of Borrower in, to,
under or derived from all other property and rights which are by any
instrument or otherwise subjected to the Lien of the Indiana Mortgage by
Borrower.
B. Pursuant to an Act of Collateral Mortgage, dated July 8, 1993, (the
"Louisiana Mortgage") Borrower granted a security interest in the following
property and assets:
A. Those certain parcels of ground situated in Bienville Parish,
Louisiana, and more particularly described on Exhibit B attached
---------
hereto.
Together with all the present and future buildings and improvements
situated on the above described immovable property and all present
(which refers to the time
- 2 -
<PAGE>
of the granting of the security interest) and future batture,
appurtenances, rights, ways, privileges, servitudes, prescriptions and
advantages thereunto belonging or in anyway appertaining, including,
but without limitation, all component parts of the above-described
immovable property, and all component parts of any building or other
construction located on the above described immovable property, now or
hereafter part of or attached to said property or used in connection
therewith.
B. All incorporeal rights owned by Borrower that are or may be incidental
or accessory to any portion of the foregoing property or its use,
whether or not said incorporeal rights are evidenced in writing or are
now existing or arise in the future, including but not limited to, the
right to receive proceeds attributable to insurance loss or
condemnation of the foregoing property (including title insurance
proceeds) as provided in Louisiana Revised Statutes 9:5386.
Pursuant to an Act of Collateral Pledge Agreement, Borrower pledged a
Collateral Mortgage Note in the amount of $50,000,000.
C. Pursuant to a Deed of Trust, Assignment of Leases and Rents, Security
Agreement and Financing Statement, dated as of July 1, 1993 (the "Tennessee
Mortgage"), Borrower granted a security interest in the following property and
assets:
Property. The land located in Loudon County, State of Tennessee, more
--------
particularly described in Exhibit C (the "Land"), together with (a) all
---------
buildings, structures, facilities and other improvements and fixtures of
every kind and description now or hereafter located on the Land (such
buildings, structures, facilities, improvements and fixtures being
collectively called the "Improvements"); (b) all constructions, repairs,
-------------
replacements and substitutions of and additions to any of the Improvements;
and (c) all right, title and interest of Borrower in and to all tenements,
hereditaments, appurtenances, easements, rights of way, servitudes,
licenses, rights and privileges now or hereafter belonging or in any way
appertaining to the Land or the Improvements, and all right, title and
interest of Borrower in and to any streets, roads, sidewalks, alleys, gores
or strips of land adjoining the Land (the Land, Improvements and other
property described in this paragraph being collectively called the
"Property").
Agreements. All right, title and interest of Borrower in and to all
----------
Insurance Policies (as defined in the Tennessee Mortgage) (including all
unearned premiums and dividends thereunder), all guarantees and warranties
relating to the Property and all supply and service contracts for water,
sanitary and storm sewer, drainage, electricity, steam, gas, telephone and
other utilities now or hereafter relating to the Property (the foregoing
being collectively called the "Agreements").
Leases and Rents. All estate, right, title and interest of Borrower
----------------
in and to all Leases now or hereafter in effect, whether or not of record,
for the use or occupancy of all or any part of the Property and all rents,
royalties, issues, profits, receipts, revenue,
- 3 -
<PAGE>
income and other benefits now or hereafter accruing with respect to the
Property, including all rents and other sums now or hereafter payable
pursuant to the Leases and damages following default, rejection or
cancellation (the foregoing rents and other sums described in this
paragraph being collectively called the "Rents"), all of which Borrower
irrevocably directs be paid to the Collateral Agent, subject to the license
granted to Borrower pursuant to Section 3.06(b) of the Tennessee Mortgage,
to be held, applied and disbursed as provided in this Deed of Trust.
Permits. All right, title and interest of Borrower in and to all
-------
licenses, authorizations, certificates, variances, consents, approvals and
other permits now or hereafter appertaining to the Property (the foregoing
being collectively called the "Permits"), excluding from the grant under
this paragraph (put not the definition of the term "Permits" for the other
purposes hereof) any Permits which cannot be transferred or encumbered by
Borrower without causing a default thereunder or a termination thereof.
Proceeds and Awards. All right, title and interest of Borrower in and
-------------------
to all proceeds of any Transfer (as defined in the Tennessee Mortgage),
financing, refinancing or conversion into cash or liquidated claims,
whether voluntary or involuntary, of any of the Trust Property, including
all Insurance Proceeds, Awards and title insurance proceeds, and all
rights, dividends and other claims of any kind whatsoever (including
damage, secured, unsecured, priority and bankruptcy claims) now or
hereafter relating to any of the Trust Property, all of which Borrower
irrevocably directs be paid to the Collateral Agent to the extent provided
hereunder, to be held, applied and disbursed as provided in the Tennessee
Mortgage.
Additional Property. All greater, additional or other right, title
-------------------
and interest of Borrower in and to the Trust Property now or hereafter
acquired by Borrower, including all right, title and interest of Borrower
in, to, under or derived from all extensions, improvements, betterments,
renewals, substitutions and replacements of, and additions and
appurtenances to, any of the Trust Property hereafter acquired by or
released to Borrower or constructed or located on, or affixed to, the
Property, in each case, immediately upon such acquisition, release,
construction, location or affixation; all estate, right, title and interest
of Borrower in, to, under or derived from any other property and rights
which are, by the provisions of the Security Documents, required to be
subjected to the Lien (as defined in the Tennessee Mortgage) of the
Tennessee Mortgage; all estate, right, title and interest of Borrower in,
to, under or derived from any other property and rights which are necessary
to maintain the Property and Borrower's business or operations conducted
therein as a going concern in each case, to the fullest extent permitted by
law, without any further conveyance, mortgage, assignment or other act by
Borrower; and all estate, right, title and interest of Borrower in, to,
under or derived from all other property and rights which are by any
instrument or otherwise subjected to the Lien of the Tennessee Mortgage by
Borrower.
- 4 -
<PAGE>
D. Pursuant to that certain Security Agreement dated as of July l, 1993,
(the "Security Agreement"), Borrower granted a security interest in the
following property and assets:
(1) General Intangibles (as defined in the Security Agreement);
(2) Equipment (as defined in the Security Agreement);
(3) Documents (as defined in the Security Agreement);
(4) The Collateral Account (as defined in the Security Agreement), all
cash deposited therein from time to time, Permitted Investments (as
defined in the Security Agreement) made pursuant to Section 4.14(c) of
the Senior Note Indenture with funds drawn from the Collateral Account
and other monies and property of any kind of Borrower in the
possession or under the control of the Senior Note Trustee or the
Collateral Agent in their capacities as Senior Note Trustee and
Collateral Agent, respectively;
(5) All books and records (including, without limitation, customer lists,
credit files, computer programs, printouts and other computer
materials and records) of Borrower pertaining to any of the Collateral
(as defined in the Security Agreement);
(6) All fixtures now or hereafter located on the real property described
in the Louisiana Mortgage;
(7) All Proceeds (as defined in the Security Agreement) of all or any of
the Collateral described in Clauses 1 through 6 above.
- 5 -
<PAGE>
EXHIBIT A
LEGAL DESCRIPTION:
- -----------------
TRACT I
- -------
Part of the Southeast Quarter of Section 35 and part of the Southwest Quarter of
Section 36, Township 24 North, Range 3 East, City of Kokomo, Center Township,
Howard County, Indiana; also Lots Numbered 70 thru 102, inclusive, in Foster
Park Addition to City of Kokomo, Center Township, Howard County, Indiana, as
shown in Recorder's Plat Book 3, page 232, being more particularly described as
follows, to-wit:
Commencing at the Southwest corner of the Southwest Quarter of said Section 36;
thence North 88 degrees 59 minutes 20 seconds East and along the South line of
said Quarter Section 58.75 feet to the Southwest corner of A.F. Armstrong's
Sunnyside Addition, the plat of which is recorded in the Howard County
Recorder's Office in Plat Book 2, page 53; thence North 04 degrees 31 minutes
West and along the West line of said Addition 1252.55 feet to the intersection
of the centerline of Phillips Street and the center line of Park Avenue, said
point being the beginning point of this description; (the next 5 courses being
along the center line of Park Avenue); thence North 63 degrees 04 minutes East
405.46 feet; thence North 70 degrees 31 minutes East 276.62 feet; thence North
60 degrees 42 minutes East 199.04 feet; thence North 55 degrees 08 minutes East
225.93 feet; thence North 57 degrees 44 minutes 15 seconds East 196.60 feet to
the center line of McCann Street; thence North 00 degrees 15 minutes 50 seconds
East and along the center line of McCann Street 783.48 feet to a point in the
center of the bridge over Wildcat Creek; (the next 3 courses being along the
center of said Wildcat Creek); thence South 66 degrees 20 minutes 50 seconds
West 238.43 feet; thence South 54 degrees 41 minutes 50 seconds West 546.04
feet; thence South 45 degrees 14 minutes West 715.71 feet to a point in the
center line of Phillips Street Bridge over Wildcat Creek; thence South 00
degrees 45 minutes West and along the center of Phillips Street 147.70 feet;
thence South 03 degrees 58 feet East and along the center of Phillips Street
328.96 feet to the point of beginning.
TRACT II
- --------
Part of the Southeast Quarter of Section 35, Township 24 North, Range 3 East,
City of Kokomo, Center Township, Howard County, Indiana, described as follows,
to-wit:
Commencing at the Southeast corner of said Quarter Section; thence South 88
degrees 33 minutes West and along the South line of said Quarter Section 699.79
feet to the center line of Park Avenue; thence North 26 degrees 32 minutes East
and along the center line of said Avenue 520.90 feet to the beginning point of
this description; (the next 5 courses being along the center line of Park
Avenue); thence North 26 degrees 32 minutes East 139.81 feet; thence North 16
degrees 15 minutes East 245 feet; thence North 24 degrees 27 minutes East 255
feet; thence North 35 degrees 42 minutes East 110 feet; thence North 46 degrees
33 minutes East 174 feet to the center line of Phillips Street; thence North 03
degrees 58 minutes West and along the center line of Phillips Street 328.96
feet; thence North 00 degrees 45 minutes East along the
<PAGE>
center line of Phillips Street 147.70 feet to a point in the center line of the
Phillips Street Bridge over Wildcat Creek; thence south 34 degrees 20 minutes
West and along the center of Wildcat Creek 703.15 feet; thence South 33 degrees
37 minutes West and along the center of Wildcat Creek 655.47 feet; thence South
05 degrees 56 minutes West and along the center of Wildcat Creek 160.98 feet;
thence North 88 degrees 33 minutes East 370 feet to the point of beginning.
TRACT III
- ---------
Part of the Southwest Quarter of Section 2, Township 23 North, Range 3 East,
City of Kokomo, Center Township, Howard County, Indiana, described as follows,
to-wit:
Beginning at the Northwest corner of said Quarter Section; thence North 88
degrees 51 minutes 00 seconds East and along the North line thereof 2669.25 feet
to the Northeast corner of said Quarter Section; thence South 00 degrees 10
minutes 12 seconds East and along the East line thereof 2597.65 feet to a point
30 feet North of the Southeast corner of said Quarter Section; thence South 44
degrees 15 minutes 45 seconds West 42.84 feet to a point on the South line of
said Quarter Section, a distance 30 feet West of the Southeast corner thereof;
thence South 88 degrees 41 minutes 45 seconds West and along the Southline
thereof 2634.15 feet to the Southwest corner of said Quarter Section; thence
North 00 degrees 17 minutes 02 seconds West and along the West line thereof
2634.75 feet to the point of beginning.
EXCEPTING THEREFROM:
Part of the Southwest Quarter of Section 2, Township 23 North, Range 3 East,
Center Township, Howard County, Indiana, Described as follows, to-wit:
Beginning at the Southwest corner of said Quarter Section; thence North 88
degrees 55 minutes East, on and along the section line said Section line being
the centerline of Boulevard Street 417.42 feet; thence North 00 degrees 00
minutes East 417.42 feet; thence South 88 degrees 55 minutes West 417.42 feet to
the centerline of Dixon Road, said point being on the West line of said Quarter
Section; thence South 00 degrees 00 minutes West on and along the centerline of
Dixon Road and the West line of said Quarter Section 417.42 feet to the point of
beginning.
TRACT IV
- --------
Part of the Northwest Quarter of Section 2, Township 23 North, Range 3 East,
City of Kokomo, Center Township, Howard County, Indiana, described as follows,
to-wit:
Commencing at the Southwest corner of the Northwest Quarter of said Section 2;
thence North 88 degrees 51 minutes East and along the South line of said Quarter
Section 1074 feet; thence due North 18 feet to the beginning point of this
description; thence due North and along the East line of Belmont Park Addition
756 feet to the Northeast corner of said Addition; thence South 88 degrees 51
minutes West and along the North line of said Addition 760.39 feet to the
Southeasterly right of way line of the Nickel Plate Railroad; thence North 37
degrees 06 minutes
- 2 -
<PAGE>
10 seconds East and along said right of way line 1814.38 feet to the center line
of Wildcat Creek; (the next 18 courses being along the center of Wildcat Creek);
thence North 84 degrees 54 minutes East 154 feet; thence South 89 degrees 24
minutes East 195.60 feet; thence South 73 degrees 10 minutes East 118.75 feet;
thence South 49 degrees 44 minutes East 103.10 feet; thence South 38 degrees 07
minutes East 197.50 feet; thence South 26 degrees 05 minutes East 191 feet;
thence South 20 degrees 47 minutes East 92.60 feet; thence South 12 degrees 40
minutes East 90.10 feet; thence South 01 degree 17 minutes East 145.62 feet;
thence South 03 degrees 56 minutes West 95 feet; thence South 08 degrees 40
minutes West 86.56 feet; thence South 51 degrees 41 minutes West 203.73 feet;
thence South 34 degrees 22 minutes West 104.40 feet; thence South 17 degrees 16
minutes West 114.06 feet; thence South 01 degree 11 minutes West 85.72 feet;
thence South 07 degrees 21 minutes East 83.10 feet; thence South 14 degrees 46
minutes East 106.25 feet; thence South 33 degrees 11 minutes East 103.63; thence
due West 106.74 feet; thence due South 575 feet to a point 18 feet North of the
South line of said Quarter Section; thence South 88 degrees 51 minutes West and
parallel with said South line 851.25 feet to the point of beginning.
TRACT V
- -------
Part of the Northwest Quarter of Section 2, Township 23 North, Range 3 East,
City of Kokomo, Center Township, Howard County, Indiana, as described as
follows, to-wit:
Beginning at a point located South 88 degrees 51 minutes West 664.00 feet from
the Southeast corner of said Northwest Quarter; thence South 88 degrees 51
minutes West 79.0 feet; thence North 593.0 feet; thence North 88 degrees 51
minutes East 79.0 feet; thence South 593.0 feet to the point of beginning.
EXCEPTING THEREFROM:
A part of the Northwest Quarter of Section 2, Township 23 North, Range 3 East,
City of Kokomo, Center Township, Howard County, Indiana, described as follows,
to-wit:
Beginning at a point on the Quarter Section line South 88 degrees 51 minutes
West 664.00 feet from the Southeast corner of said Quarter Section; thence South
88 degrees 51 minutes West on and along the Quarter Section line 79.00 feet;
thence North 185.7 feet; thence North 88 degrees 51 minutes East 79.00 feet;
thence South 185.7 feet to the point of beginning.
- 3 -
<PAGE>
EXHIBIT B
LEGAL DESCRIPTION
TRACT 1:
- -------
A tract of land in NE 1/4 of SW 1/4, Section 12, Township 18 North, Range 6
West, Bienville Parish, Louisiana, described as commencing at the intersection
of the South right of way line of Louisiana Highway #9, and the East right of
way line of the highway connecting Louisiana Highway #9 and U.S. Highway #80,
and thence run in a Southerly direction along the East right of way line of said
Highway #80, 208.4 feet, thence run South 77 degrees 09 minutes 15 seconds East
210 feet, thence run North 2 degrees 01 minute 33 seconds West 196.3 feet to the
South boundary line of the right of way of Louisiana Highway #9, thence run in a
Northwesterly direction along the South boundary of the right of way line of
Highway #9 a distance of 207.1 feet to the point of beginning.
TRACT 2:
- -------
A tract of land in the NE 1/4 of the SW 1/4, Section 12, Township 18 North,
Range 6 West, Bienville Parish, Louisiana, described as follows: Beginning at a
certain iron stake at the intersection of the North right of way line of U.S.
Highway #80 with the East right of way line of the blacktop road connecting
Highway #80 with Highway #12, said stake being 60 feet North of the centerline
of Highway #80 and 30 feet East of the centerline of the said blacktop road,
thence North 0 degrees 11 minutes 18 seconds West along the East right of way
line of the blacktop road 118.78 feet, thence South 71 degrees 10 minutes 35
seconds East 402.76 feet, thence South 19 degrees 20 minutes 44 seconds West
181.2 feet to the North right of way line of Highway #80, thence Westerly along
the North right of way line 368.95 feet to the point of beginning.
TRACT 3:
- -------
A 26.844 Acre, more or less, tract of land comprised of two tracts being
described as: (Tracts 3A and 3B)
TRACT 3A:
- --------
Beginning at the point of intersection of the West line of the West 1/2 of the
SE 1/4 of Section 12, Township 18 North, Range 6 West with the South right of
way line of Louisiana Highway No. 798-2(50 feet from center) and from said point
of beginning, run South 0 degrees 18 minutes 41 seconds East 863.1], 50 degrees,
09 minutes 56 seconds East 290.01 feet, thence South 42 degrees 18 minutes 15
seconds West 215.44 feet to the North right of way of U.S. Highway #80 (60 feet
from center), thence South 49 degrees 48 minutes East along said North right of
way line of U.S. Highway #80 a distance of 80 feet, thence North 42 degrees 46
minutes 55 seconds East 250.43 feet, thence North 5 degrees 00 minutes 12
seconds East
<PAGE>
1006.98 feet to the south right of way line of Louisiana Highway 798-2 (50 feet
from center), thence North 77 degrees 16 minutes West along said right of way a
distance of 398.08 feet to point of beginning, situated in W 1/2 SE 1/4 Section
12, Township 18 North, Range 6 West, Bienville Parish, Louisiana.
TRACT 3B:
- --------
Beginning at the point of intersection of the East line of the East 1/2 of SW
1/4 of Section 12, Township 18 North, Range 6 West with the South right of way
line of Louisiana Highway No. 9 (50 feet from the center) and from said point of
beginning, run South 0 degrees 18 minutes, 41 seconds East 863.1 feet, thence
North 50 degrees 09 minutes 56 seconds West parallel with Highway No. 80 a
distance of 146.8 feet, thence South 39 degrees 59 minutes 26 seconds West 231.5
feet to the North right of way line of U.S. Highway No. 80 (60 feet from
center), thence North 49 degrees 48 minutes West along the North right of way
line of U.S. No. 80 a distance of 967.6 feet to the Southeast corner of the lot
sold by Leon Crawley to Byron F. Simmons by deed dated October 2, 1954, as
recorded in Conveyance Book 204, Page 270 of the Records of Bienville Parish,
Louisiana, thence North 19 degrees, 20 minutes 44 seconds East along the East
line of said Simmons lot 181.2 feet to the Northeast corner thereof, thence
North 71 degrees 10 minutes 35 seconds West along the North line of said Simmons
Lot 402.76 feet to the East right of way line of said Street connecting
Louisiana Highway No. 9 with U.S. Highway No. 80, thence North 0 degrees 11
minutes 18 seconds West along the East side of said connecting street 119.5 feet
to the Southwest corner of lot leased to W.G. Chandler (Book 264, Page 631),
thence South 77 degrees 09 minutes 15 seconds East 420 feet to the Southeast
corner of lot sold to Wade Hood in two deeds (Book 283, Page 443 and Book 288,
Page 353), thence North 3 degrees 22 minutes 51 seconds West along the East line
of said Hood lot 201.29 feet to the South line of Louisiana Highway No. 798.2
(50 feet from center) thence south 77 degrees 16 minutes East along the south
right of way line of said Highway No. 798.2 (50 feet from center) a distance of
941.86 feet to the starting point.
TRACT 4:
- -------
A 14.662 Acre, more or less, tract of land beginning at the Northwest corner of
tract presently owned by Industrial District Number 2, Parish of Bienville,
State of Louisiana, said point of beginning situated on the South right of way
(50 feet from center) of Louisiana Highway #9 at a point approximately 382 feet
North and 388 feet East of the Northwest corner of the Southwest 1/4 of the
Southeast 1/4 of Section 12, Township 18 North, Range 6 West, and from said
point of beginning, run South 5 degrees 00 minutes 12 seconds West 990.55 feet
to the West line of a two acre lot owned by G. Sims (Book 378, Page 708), thence
North 39 degrees 50 minutes 22 seconds East along said Sims line 154.98 feet to
Northwest corner of said Sims lot, thence South 49 degrees 54 minutes 28 seconds
East along North line of said Sims lot 210.06 feet to Northeast corner thereof,
thence South 39 degrees 44 minutes 34 seconds West along East line of said Sims
lot 210.03 feet to the Northwest corner of lot owned by C. Liles, et al, thence
South 48 degrees 32 minutes 53 seconds East along North line of said Liles lot
228.9 feet to Northwest corner of Neil Moon lot (Book 399, Page 698), thence
North 88 degrees 43 minutes
- 2 -
<PAGE>
48 seconds East 259.63 feet to West line of Arcadia Housing Authority lot (Book
239, Page 45), thence North 0 degrees 03 minutes 24 seconds East 291.86 feet, to
the Northwest corner of said Arcadia Housing Authority lot, thence North 89
degrees 35 minutes 20 seconds West 49.07 feet to Southwest corner of Sun City
Construction Company Lot (Book 305, Page 554), thence North 0 degrees 15 minutes
06 seconds West 465.8 feet to Northwest corner of said Sun City Construction
Company lot, thence North 87 degrees 40 minutes 17 seconds East 238.35 feet to
Southwest corner of Ruby Cole Murphy Lot, thence North 0 degrees 09 minutes 57
seconds East along West line of said Murphy lot and Congar lot (Book 351, Page
735), 396.7 feet to South right of way (50 feet from center) of Louisiana
Highway #9, thence North 77 degrees 16 minutes West along said right of way
232.95 feet to the Northeast corner of Lot owned by Bernice Parker, et al,
thence continue North 77 degrees 16 minutes West along said right of way 441.95
feet to the point of beginning situated in West 1/2 of the Southeast 1/4 Section
12, Township 18 North, Range 6 West, Town of Arcadia, Bienville Parish,
Louisiana.
- 3 -
<PAGE>
EXHIBIT C
PROPERTY DESCRIPTION
Those premises situate, lying and being in the First Civil District of Loudon
County, Tennessee, and being more particularly described as follows:
TRACT 1
BEING, a parcel of land located in First Civil District of Loudon County,
Tennessee, and being located at the northwest intersection of State Highway 72
and Matlock Bend Industrial Access Road and being a portion of W.D. 182, page
156 and being more particularly described as follows:
BEGINNING, at an iron rod set at the right-of-way intersection of the north
right-of-way line of State Highway 72 being 110 feet south and at right-angles
to the centerline and 50 feet west and at right-angles to the centerline of
Matlock Bend Industrial Access Road;
THENCE, the following calls along the northerly right-of-way line of State
Highway 72, north 74 deg. 55 min. 45 sec. west, 174.42 feet to an iron rod set;
THENCE, 1,237.28 feet along a curve to the right having a radius of 7,529.44
feet and a chord bearing of north 70 deg. 15 min. 30 sec. west, and a chord
distance of 1,235.82 feet to an existing right-of-way monument;
THENCE, north 55 deg. 02 min. 35 sec. west, 51.11 feet to an existing right-of-
way monument;
THENCE, 638.14 feet along a curve to the right having a radius of 7,521.09 feet
and a chord bearing of north 62 deg. 37 min. 35 sec. west, and a chord distance
of 637.98 feet to an existing right-of-way monument;
THENCE, north 56 deg. 47 min. 20 sec. west, 198.27 feet to an existing right-of-
way monument;
THENCE, north 68 deg. 55 min. 20 sec. west, 191.00 feet to an existing iron rod,
common corder to Harrison;
THENCE, leaving the northerly right-of-way line of State Highway 72, north 34
deg. 37 min. 45 sec. east, 525.91 feet along the common line of Harrison to an
existing iron pipe common corner to Harrison and AMFAC property;
THENCE, the following calls along the common line of AMFAC, north 41 deg. 10
min. 15 sec. east, 422.86 feet to an existing iron rod;
THENCE, north 28 deg. 50 min. 00 sec. east, 353.09 feet to an existing iron rod;
<PAGE>
THENCE, north 04 deg. 04 min. 00 sec. west, 80.27 feet to an existing iron rod;
THENCE, north 43 deg. 13 min. 10 sec. east, 540.78 feet to an existing iron rod;
THENCE, north 66 deg. 10 min. 50 sec. east, 213.83 feet to an existing iron rod;
THENCE, north 00 deg. 15 min. 45 sec. east, 821.14 feet to an existing iron rod;
THENCE, north 00 deg. 24 min. 50 sec. west, 545.60 feet to an existing angle
iron common corner to Matlock Development, Inc.;
THENCE, along the common line of Matlock Bend Development, Inc., north 89 deg.
22 min. 30 sec. east, 2,535.86 feet to an iron rod set in the west right-of-way
line of Matlock Bend Industrial Access Road, and passing two iron rod set at
735.00 feet and 710.00 feet;
THENCE, the following calls along the west right-of-way of Matlock Bend
Industrial Access Road, south 04 deg. 47 min. 05 sec. west, 460.89 feet to an
iron rod set;
THENCE, south 11 deg. 28 min. 10 sec. east, 203.96 feet to an iron rod set;
THENCE, south 00 deg. 09 min. 35 sec. east, 908.01 feet to an iron rod set;
THENCE; 879.85 feet along a curve to the right having a radius of 1,096.00 feet
and a chord bearing of south 22 deg. 50 min. 20 sec. west, and a chord distance
of 856.41 feet to an iron rod set;
THENCE, south 45 deg. 53 min. 50 sec. west, 1,163.36 feet to an iron rod set;
THENCE, 633.66 feet along a curve to the left having a radius of 1,196.00 feet
and a chord bearing of south 30 deg. 43 min. 10 sec. west, and a chord distance
of 626.27 feet to an iron rod set;
THENCE, south 15 deg. 32 min. 25 sec. west, 283.83 feet to the point of
Beginning.
Containing 9,690.804 square feet or 222.470 acres more or less and being shown
on a survey titled "Boundary Survey, Haynes International, Inc., File No. 13532-
00 dated June 9, 1993, bearings based on Tennessee State Grid north.
TRACT 2
BEGINNING, at an iron rod set at the right-of-way intersection of the north
right-of-way line of State Highway 72, 50 feet west and at right-angles to the
centerline of Matlock Bend Industrial Access Road; and the north right-of-line
of Old State Highway 72;
- 2 -
<PAGE>
THENCE, the following calls along the cast right-of-way line of Matlock Bend
Industrial access road, north 15 deg. 32 min. 25 sec. east, 242.58 feet to an
iron rod set;
THENCE, 430.36 feet along a curve to the right having a radius of 1,096.00 feet
and a chord bearing of north 26 deg. 47 min. 25 sec. east, and a chord distance
of 427.60 feet to an iron rod set;
THENCE, south 71 deg. 05 min. 25 sec. east, 15.33 feet to an existing iron rod
common with Johnson;
THENCE, with Johnson, south 01 deg. 50 min. 10 sec. east, 519.24 feet to an
existing iron rod in the northerly right-of-way line of Old State Highway 72;
THENCE, along said right-of-way line south 72 deg. 25 min. 40 sec. west, 303.00
feet to the point of Beginning.
Containing 96.952 square feet or 2.226 acres more or less and being shown on a
survey titled "Boundary Survey, Haynes International, Inc.," by Gary C. Clark,
RLS No. 1329, Barge, Waggoner, Sumner and Cannon, Inc., File No. 13532-00, dated
June 9, 1993, bearings are based on Tennessee State Grid north.
The above described property was conveyed to Haynes International, Inc., a
Delaware Corporation with offices in Kokomo, Indiana, by Deed from Cabot
Corporation, a Delaware Corporation with principal offices in Waltham,
Massachusetts, of record in Deed Book 169, page 554, Register's Office for
Loudon County, Tennessee, as corrected in Deed Book 182, page 156, said
Register's Office.
- 3 -
<PAGE>
SCHEDULE 8.4
TO
LOAN AND SECURITY AGREEMENT
PRIORITY OF LIENS; TITLE TO PROPERTIES
The liens and security interests evidenced
by the financing statements set forth on the attached list.
<PAGE>
SECRETARY OF STATE
STATE OF INDIANA
UCC-11 Extension Sheet
DEBTOR'S NAME HAYNES INTERNATIONAL, INC.
DATE 7/14/94 PAGE 1
FILE # DATE & HOUR OF FILING NAME(ES) & ADDRESS(ES) OF SECURED PARTY(IES)
- ------ --------------------- --------------------------------------------
1595684 89 AUG 03 PM 12:51 NORTH AMERICAN COMPUTER EQUIPMENT, INC.
255 E. BROWN ST., STE. 340
BIRMINGHAM, MI 48009
1614592 89 NOV 13 PM 12:30 NORTH AMERICAN COMPUTER EQUIPMENT, INC.
(SAME AS ABOVE)
1618624 89 DEC 04 PM 04:55 ASSIGNMENT
SHA-LI LEASING ASSOCIATES, INC.
39 BROADWAY
NEW YORK, NY 10006
1617193 89 NOV 27 PM 03:04 NORTH AMERICAN COMPUTER EQUIPMENT, INC.
(SAME AS ABOVE)
ASSIGNEE 1ST SOURCE BANK
100 N. MICHIGAN AVE.
SOUTH BEND, IN 46601
1618985 89 DEC 07 AM 11:44 NORTH AMERICAN COMPUTER EQUIPMENT, INC.
(SAME AS ABOVE)
ASSIGNEE M&SD FINANCIAL SERVICES, INC.
1200 WALL STREET WEST
LYNDHURST, NJ 07071
1653789 90 JUN 04 PM 01:45 NORTH AMERICAN COMPUTER EQUIPMENT, INC.
(SAME AS ABOVE)
ASSIGNEE COMDISCO, INC.
6111 N. RIVER ROAD
ROSEMONT, IL 60018
1667901 90 AUG 20 AM 10:53 EL CAMINO RESOURCES, LTD.
8550 BALBOA BLVD., STE. 140
NORTHRIDGE, CA 91325
1703868 91 MAR 11 PM 01:51 PELLA COMPUTER LEASING, INC.
2720 RIVER RD., STE. 148
DES PLAINES, IL 60018
ASSIGNEE MANUFACTURERS BANK
1200 N. ASHLAND AVE.
CHICAGO, IL 60622
<PAGE>
SECRETARY OF STATE
STATE OF INDIANA
UCC-11 Extension Sheet
DEBTOR'S NAME HAYNES INTERNATIONAL, INC.
DATE 7/14/94 PAGE 2
FILE # DATE & HOUR OF FILING NAME(ES) & ADDRESS(ES) OF SECURED PARTY(IES)
- ------ --------------------- --------------------------------------------
1703869 91 MAR 11 PM 01:51 PELLA COMPUTER LEASING, INC.
(SAME AS ABOVE)
ASSIGNEE MANUFACTURERS BANK
(SAME AS ABOVE)
1703870 91 MAR 11 PM 01:51 PELLA COMPUTER LEASING, INC.
2720 RIVER RD., STE. 148
DES PLAINES, IL 60018
ASSIGNEE MANUFACTURERS BANK
1200 N. ASHLAND AVE.
CHICAGO, IL 60622
1706795 91 MAR 26 PM 01:25 MERIDIAN LEASING CORPORATION
570 LAKE COOK RD., STE. 300
DEERFIELD, IL 60015
1706797 91 MAR 26 PM 01:26 MERIDIAN LEASING CORPORATION
(SAME AS ABOVE)
1838998 93 APR 08 PM 01:25 ASSIGNMENT
COMDISCO, INC.
6111 NORTH RIVER RD.
ROSEMONT, IL 60018
1706798 91 MAR 26 PM 01:26 MERIDIAN LEASING CORPORATION
(SAME AS ABOVE)
1725387 91 JUL 03 PM 12:09 ASSIGNMENT
ASSET SECURITIZATION CORPORATION
425 LEXINGTON AVE.
NEW YORK, NY 10017
1708376 91 APR 04 PM 01:33 PELLA COMPUTER LEASING, INC.
(SAME AS ABOVE)
ASSIGNEE MANUFACTURERS BANK
(SAME AS ABOVE)
1708377 91 APR 04 PM 01:34 PELLA COMPUTER LEASING, INC.
(SAME AS ABOVE)
ASSIGNEE MANUFACTURERS BANK
(SAME AS ABOVE)
- 2 -
<PAGE>
SECRETARY OF STATE
STATE OF INDIANA
UCC-11 Extension Sheet
DEBTOR'S NAME HAYNES INTERNATIONAL, INC.
DATE 7/14/94 PAGE 3
FILE # DATE & HOUR OF FILING NAME(ES) & ADDRESS(ES) OF SECURED PARTY(IES)
- ------ --------------------- --------------------------------------------
1732586 91 AUG 14 PM 02:13 PELLA COMPUTER LEASING, INC.
(SAME AS ABOVE)
ASSIGNEE MANUFACTURERS BANK
(SAME AS ABOVE)
1732587 91 AUG 14 PM 02:14 PELLA COMPUTER LEASING, INC.
(SAME AS ABOVE)
ASSIGNEE MANUFACTURERS BANK
(SAME AS ABOVE)
1736618 91 SEP 10 PM 01:29 EL CAMINO RESOURCES, LTD.
8550 BALBOA BLVD., STE. 140
NORTHRIDGE, CA 91325
1739969 91 SEP 26 PM 03:20 PELLA COMPUTER LEASING, INC.
2720 RIVER RD., STE. 148
DES PLAINES, IL 60018
ASSIGNEE MANUFACTURERS BANK
1200 N. ASHLAND AVE.
CHICAGO, IL 60622
1742145 91 OCT 10 AM 09:57 INDIANA CORPORATE FEDERAL CREDIT UNION
PO BOX 80239
INDIANAPOLIS, IN 46280-0239
1748339 91 NOV 15 AM 10:02 PITNEY BOWES CREDIT CORP.
201 MERRITT SEVEN
NORWALK, CT 06856
1752853 91 DEC 12 AM 11:25 PELLA COMPUTER LEASING, INC.
(SAME AS ABOVE)
ASSIGNEE FIRST AMERICAN BANK
4949 OLD ORCHARD RD.
SKOKIE, IL 60077
1754719 91 DEC 30 AM 09:01 COMDISCO, INC.
6111 N. RIVER RD.
ROSEMONT, IL 60018
- 3 -
<PAGE>
SECRETARY OF STATE
STATE OF INDIANA
UCC-11 Extension Sheet
DEBTOR'S NAME HAYNES INTERNATIONAL, INC.
DATE 7/14/94 PAGE 4
FILE # DATE & HOUR OF FILING NAME(ES) & ADDRESS(ES) OF SECURED PARTY(IES)
- ------ --------------------- --------------------------------------------
1768035 92 MAR 11 PM 04:32 ASSIGNMENT
ASSIGNEE GENERAL ELECTRIC CAPITAL CORPORATION
150 ROYALL ST.
CANTON, MA 02021
1756747 92 JAN 07 AM 09:02 PITNEY BOWES CREDIT CORPORATION
(SAME AS ABOVE)
1775455 92 APR 15 PM 03:43 CLIMAX MOLYBDENUM CO.
101 MERRITT 7, 1ST FLOOR
MORWALK, CT 06856-5113
1827594 93 FEB 09 PM 12:39 MERIDIAN LEASING CORPORATION
570 LAKE COOK RD., STE. 300
DEERFIELD, IL 60015
1862793 93 AUG 11 PM 02:20 THE CIT GROUP/EQUIPMENT FINANCING, INC.
ASSIGNMENT 1400 RENAISSANCE DR., STE. 400
PARK RIDGE, IL 60068
1856382 93 JUL 07 AM 09:09 SOCIETY NATIONAL BANK, INDIANA
900 MARKET TOWER, 10 W. MARKET ST.
INDIANAPOLIS, IN 46204
1857777 93 JUL 14 PM 12:14 SOCIETY NATIONAL BANK
202 S. MICHIGAN ST.
SOUTH BEND, IN 46624
1868649 93 SEP 20 PM 02:31 MEMOREX TELEX
TEXAS COMMERCE TOWER, 545 E. JOHN CARPENTER
IRVING, TX 75602
1883279 93 DEC 10 PM 01:02 AT&T CREDIT CORPORATION
2 GATEHALL DR.
PARSIPPANY, NJ 07054
1883280 93 DEC 10 PM 01:02 AT&T CREDIT CORPORATION
(SAME AS ABOVE)
- 4 -
<PAGE>
SECRETARY OF STATE
STATE OF INDIANA
UCC-11 Extension Sheet
DEBTOR'S NAME HAYNES INTERNATIONAL, INC.
DATE 7/14/94 PAGE 5
FILE # DATE & HOUR OF FILING NAME(ES) & ADDRESS(ES) OF SECURED PARTY(IES)
- ------ --------------------- --------------------------------------------
1902559 94 MAR 22 PM 03:55 MERIDIAN LEASING CORPORATION
570 LAKE COOK RD., STE. 300
DEERFIELD, IL 60015
ASSIGNEE FIRST TENNESSEE EQUIPMENT FINANCE CORP.
NASHVILLE CITY CENTER BLDG. - 3RD FL.
511 UNION ST.
NASHVILLE, TN 37219
1902560 94 MAR 22 PM 03:56 MERIDIAN LEASING CORPORATION
(SAME AS ABOVE)
ASSIGNEE PNC BANK, OHIO, NA
201 E. FIFTH LEASING
CINCINNATI, OH 45201-1198
1902561 94 MAR 22 PM 03:56 MERIDIAN LEASING CORPORATION
(SAME AS ABOVE)
1914565 94 MAY 16 AM 10:38 BGM EQUIPMENT COMPANY, INC.
PO BOX 1443
LOUISVILLE, KY 40201
ASSIGNEE HYSTER CREDIT COMPANY
PO BOX 4366
PORTLAND, OR 97208
- 5 -
<PAGE>
RECORDER OF HOWARD COUNTY, INDIANA
UCC Search Results
------------------
Debtor's Name: Haynes International, Inc.
Name(s) & Address(es) of Secured Party Date of Filing File Number
- -------------------------------------- -------------- -----------
North American Computer Equipment, Inc. 8-3-89 1842
255 E. Brown Street, Suite 340
Birmingham, MI 48009
North American Computer Equipment, Inc. 9-28-89 2228
255 E. Brown Street, Suite 340
Birmingham, MI 48009
North American Computer Equipment, Inc. 11-13-89 2643
255 E. Brown Street, Suite 340
Birmingham, MI 48009
North American Computer Equipment, Inc. 12-12-89 2852
255 E. Brown Street, Suite 340
Birmingham, MI 48009
North American Computer Equipment, Inc. 11-27-89 2745
255 E. Brown Street, Suite 340
Birmingham, MI 48009
(assigned to First Source Bank)
Pella Computer Leasing, Inc. 2-15-90 0294
2720 River Road, Suite 148
Des Plaines, IL 60018
(assigned to Manufacturers Bank)
Meridian Leasing Corporation 3-25-91 0450
570 Lake Cook Road, Suite 300
Deerfield, IL 60015
Meridian Leasing Corporation 9-16-91 1522
570 Lake Cook Road, Suite 300
Deerfield, IL 60015
(assigned to Asset Securitization Corporation)
<PAGE>
Name(s) & Address(es) of Secured Party Date of Filing File Number
- -------------------------------------- -------------- -----------
Meridian Leasing Corporation 3-25-91 0451
570 Lake Cook Road, Suite 300
Deerfield, IL 60015
Meridian Leasing Corporation 3-25-91 0452
570 Lake Cook Road, Suite 300
Deerfield, IL 60015
Pella Computer Leasing, Inc. 4-5-91 0525
2720 River Road, Suite 148
Des Plaines, IL 60018
(assigned to Manufacturers Bank)
Pella Computer Leasing, Inc. 4-5-91 0526
2720 River Road, Suite 148
Des Plaines, IL 60018
(assigned to Manufacturers Bank)
El Camino Resources, Ltd. 9-13-91 1511
8550 Balboa Blvd., Suite 140
Northridge, CA 91325
Pella Computer Leasing, Inc. 12-12-91 2196
2720 River Road, Suite 148
Des Plaines, IL 60018
(assigned to First American Bank)
Comdisco, Inc. 12-30-91 2277
6111 N. River Road
Rosemont, IL 60018
Comdisco, Inc. 3-9-92 0517
6111 N. River Road
Rosemont, IL 60018
(assigned to General Electric Capital
Corporation)
Climax Molybdenum 4-15-92 0811
101 Merritt 7, 1st Fl.
Norwalk, CT 06856-5113
- 2 -
<PAGE>
Name(s) & Address(es) of Secured Party Date of Filing File Number
- -------------------------------------- -------------- -----------
Pella Computer Leasing, Inc. 5-11-92 1029
2720 River Road, Suite 148
Des Plaines, IL 60018
(assigned to Manufacturers Bank)
Pella Computer Leasing, Inc. 5-26-92 1116
2720 River Road, Suite 148
Des Plaines, IL 60018
(assigned to Manufacturers Bank)
Pella Computer Leasing, Inc. 9-23-92 1913
2720 River Road, Suite 148
Des Plaines, IL 60018
(assigned to Manufacturers Bank)
Pella Computer Leasing, Inc. 9-23-92 1914
2720 River Road, Suite 148
Des Plaines, IL 60018
(assigned to Manufacturers Bank)
Elkam Metals Company 12-17-92 2608
P.O. Box 266
Pittsburgh, PA 15230-0266
Meridian Leasing Corporation 2-8-93 0262
570 Lake Cook Road, Suite 300
Deerfield, IL 60015
Meridian Leasing Corporation 8-12-93 1547
570 Lake Cook Road, Suite 300
Deerfield, IL 60015
(assigned to The CIT Group/Equipment
Financing, Inc.)
Society National Bank, Indiana, as 7-7-93 1343
Collateral Agent
900 Market Tower, 10 West Market Street
Indianapolis, IN 46204
- 3 -
<PAGE>
Name(s) & Address(es) of Secured Party Date of Filing File Number
- -------------------------------------- -------------- -----------
Society National Bank, Indiana, as 7-14-93 1390
Collateral Agent
202 South Michigan Street
South Bend, IN 46624
Society National Bank, Indiana, as 7-14-93 1391
Collateral Agent
202 South Michigan Street
South Bend, IN 46624
Memorex Telex 9-20-93 1765
Texas Commerce Tower
545 E. John Carpenter
Irving, TX 75602
AT&T Credit Corporation 12-10-93 2470
2 Gatehill Drive
Parsippany, NJ 07054
AT&T Credit Corporation 12-10-93 2469
2 Gatehill Drive
Parsippany, NJ 07054
Meridian Leasing Corporation 3-21-94 0500
570 Lake Cook Road, Suite 300
Deerfield, IL 60015
Meridian Leasing Corporation 3-21-94 0501
570 Lake Cook Road, Suite 300
Deerfield, IL 60015
(assigned to PNC Bank, Ohio N.A.)
Meridian Leasing Corporation 3-21-94 0502
570 Lake Cook Road, Suite 300
Deerfield, IL 60015
- 4 -
<PAGE>
CALIFORNIA SECRETARY OF STATE
UCC Search Results
------------------
Debtor's Name: Haynes International, Inc.
Name(s) & Address(es) of Secured Party Date of Filing File Number
- -------------------------------------- -------------- -----------
North American Computer Equipment, Inc. 11-27-89 303807
255 E. Brown Street, Suite 340
Birmingham, MI 48009
Assigned to:
1st Source Bank
100 North Michigan Avenue
South Bend, IN 46601
Pella Computer Leasing, Inc. 3-11-91 048241
2720 River Road, Suite 148
Des Plaines, IL 60018
Assigned to:
Manufacturers Bank
1200 N. Ashland Avenue
Chicago, IL 60622
Society National Bank, Indiana, as 7-7-93 135896
Collateral Agent
900 Market Tower, 10 West Market Street
Indianapolis, IN 46204
North American Computer Equipment, Inc. 6-4-90 139087
255 E. Brown Street, Suite 340
Birmingham, MI 48009
Assigned to:
Comdisco, Inc.
6111 N. River Road
Rosemont, IL 60018
<PAGE>
Name(s) & Address(es) of Secured Party Date of Filing File Number
- -------------------------------------- -------------- -----------
Pella Computer Leasing, Inc. 4-8-91 075514
2720 River Road, Suite 148
Des Plaines, IL 60018
Assigned to:
Manufacturers Bank
1200 N. Ashland Avenue
Chicago, IL 60622
- 2 -
<PAGE>
CONNECTICUT SECRETARY OF STATE
UCC Search Results
------------------
Debtor's Name: Haynes International, Inc.
Name(s) & Address(es) of Secured Party Date of Filing File Number
- -------------------------------------- -------------- -----------
El Camino Resources, Ltd. 9-7-90 893447
8550 Balboa Blvd., Suite 140
Northridge, CA 91325
Society National Bank, Indiana, as 7-7-93 1019665
Collateral Agent
900 Market Tower, 10 West Market Street
Indianapolis, IN 46204
Pella Computer Leasing, Inc. 2-20-90 864509
2720 River Road, Suite 148
Des Plaines, IL 60018
Assigned to:
Manufacturers Bank
1200 N. Ashland Avenue
Chicago, IL 60622
North American Computer Equipment, Inc. 6-11-90 880338
255 E. Brown Street, Suite 340
Birmingham, MI 48009
Assigned to:
Comdisco, Inc.
6111 N. River Road
Rosemont, IL 60018
Pella Computer Leasing, Inc. 9-24-92 982110
2720 River Road, Suite 148
Des Plaines, IL 60018
Assigned to:
Manufacturers Bank
1200 N. Ashland Avenue
Chicago, IL 60622
<PAGE>
Name(s) & Address(es) of Secured Party Date of Filing File Number
- -------------------------------------- -------------- -----------
Pella Computer Leasing, Inc. 8-21-91 935146
2720 River Road, Suite 148
Des Plaines,IL 60018
Assigned to:
Manufacturers Bank
1200 N. Ashland Avenue
Chicago, IL 60622
- 2 -
<PAGE>
BIENVILLE PARISH, LOUISIANA
UCC Search Results
------------------
Debtor's Name: Haynes International, Inc.
Name(s) & Address(es) of Secured Party Date of Filing File Number
- -------------------------------------- -------------- -----------
North American Computer Equipment, Inc. 3-7-89 AE3324
255 E. Brown Street
Birmingham, MI 48011
Assigned to:
M&SD Financial Services, Inc.
1200 Wall Street West
Lyndhurst, NJ 07071
Pella Computer Leasing, Inc. 5-15-89 AE4397
2720 River Road, Suite 148
Des Plaines, IL 60018
Assigned to:
Manufacturers Bank
1200 N. Ashland Avenue
Chicago, IL 60222
North American Computer Equipment, Inc. 10-10-89 AE6627
255 E. Brown Street, Suite 340
Birmingham, MI 48009
Pella Computer Leasing, Inc. 10-11-89 AE6635
3166 River Road, Suite 41
Des Plaines,IL 60018
Assigned to:
Manufacturers Bank
1200 N. Ashland Avenue
Chicago, IL 60222
<PAGE>
Name(s) & Address(es) of Secured Party Date of Filing File Number
- -------------------------------------- -------------- -----------
North American Computer Equipment, Inc. 12-6-89 AE7393
255 E. Brown Street, Suite 340
Birmingham, MI 48009
Assigned to:
1st Source Bank
100 N. Michigan Avenue
South Bend, IN 46601
North American Computer Equipment, Inc. 12-6-89 AE7394
255 E. Brown Street, Suite 340
Birmingham, MI 48009
Assigned to:
1st Source Bank
100 N. Michigan Avenue
South Bend, IN 46601
North American Computer Equipment, Inc. 12-8-89 AE7464
255 E. Brown Street, Suite 340
Birmingham, MI 48009
Assigned to:
M&SD Financial Services Inc.
1200 Wall Street West
Lyndhurst, NJ 07071
Pella Computer Leasing, Inc. 3-30-90 07-90-1407
2720 River Road, Suite 148
Des Plaines, IL 60018
Assigned to:
Manufacturers Bank
1200 N. Ashland Avenue
Chicago, IL 60222
- 2 -
<PAGE>
Name(s) & Address(es) of Secured Party Date of Filing File Number
- -------------------------------------- -------------- -----------
Pella Computer Leasing, Inc. 8-21-91 07-91-2922
2720 River Road, Suite 148
Des Plaines, IL 60018
Assigned to:
Manufacturers Bank
1200 N. Ashland Avenue
Chicago, IL 60222
Pella Computer Leasing, Inc. 9-23-92 07-92-3033
2720 River Road, Suite 148
Des Plaines, IL 60018
Assigned to:
Manufacturers Bank
1200 N. Ashland Avenue
Chicago, IL 60222
Society National Bank, Indiana, as 7-7-93 07-93-2267
Collateral Agent
900 Market Tower, 10 West Market Street
Indianapolis, IN 46204
Society National Bank, Indiana, as 7-12-93 07-93-2315
Collateral Agent
202 South Michigan Street
South Bend, IN 46624
AT&T Credit Corporation 12-14-93 07-93-4123
2 Gatehall Drive
Parsippany, NJ 07054
- 3 -
<PAGE>
TEXAS SECRETARY OF STATE
UCC Search Results
------------------
Debtor's Name: Haynes International, Inc.
Name(s) & Address(es) of Secured Party Date of Filing File Number
- -------------------------------------- -------------- -----------
North American Computer Equipment, Inc. 11-27-89 263136
255 E. Brown Street, Suite 340
Birmingham, MI 48009
Assigned to:
1st Source Bank
100 N. Michigan Avenue
South Bend, IN 46601
North American Computer Equipment, Inc. 6-5-90 121535
255 E. Brown Street, Suite 340
Birmingham, MI 48009
Assigned to:
Comdisco, Inc.
6111 N. River Road
Rosemont, IL 60018
El Camino Resources, Ltd. 8-13-90 175308
8550 Balboa Blvd., Suite 140
Northridge, CA 91325
Pella Computer Leasing, Inc. 3-12-91 043048
2720 River Road, Suite 148
Des Plaines, IL 60018
Assigned to:
Manufacturers Bank
1200 N. Ashland Avenue
Chicago, IL 60622
<PAGE>
Name(s) & Address(es) of Secured Party Date of Filing File Number
- -------------------------------------- -------------- -----------
Pella Computer Leasing, Inc. 8-15-91 157523
2720 River Road, Suite 148
Des Plaines, IL 60018
Assigned to:
Manufacturers Bank
1200 N. Ashland Avenue
Chicago, IL 60622
Inter-Tel/TSI 2-2-93 021832
6955 Port West Blvd., Suite 190
Houston, TX 77024
Society National Bank, Indiana, as 7-7-93 132035
Collateral Agent
900 Market Tower, 10 West Market Street
Indianapolis, IN 46204
- 2 -
<PAGE>
RECORDER OF HARRIS COUNTY, TEXAS
UCC Search Results
------------------
Debtor's Name: Haynes International, Inc.
Name(s) & Address(es) of Secured Party Date of Filing File Number
- -------------------------------------- -------------- -----------
Society National Bank, Indiana, as 7-7-93 868421
Collateral Agent
900 Market Tower, 10 West Market Street
Indianapolis, IN 46204
<PAGE>
SCHEDULE 8.8
TO
LOAN AND SECURITY AGREEMENT
EMPLOYEE BENEFITS
NONE
- ----
<PAGE>
SCHEDULE 8.9
TO
LOAN AND SECURITY AGREEMENT
ENVIRONMENTAL
The Company has received a permit from the Indiana Department of
Environmental Management ("IDEM") and the U.S. Environmental Protection Agency
("EPA") to close and to provide post-closure monitoring and care for two areas
at the Kokomo facility used for the storage and disposal of wastes, some of
which are classified as hazardous under applicable regulations. One area was
closed in 1989, and the Company is required to monitor ground water and to
continue post-closure maintenance. The second area closure project entailed
installation of a clay liner under the landfill disposal area, a leachate
collection system and a clay cap, and revegetation of the site. Construction
was completed in May 1994, and closure certification has been filed with IDEM.
Upon approval of closure certification by IDEM, the Company will be required to
monitor ground water and to continue post-closure maintenance of the former
disposal area. If it is determined that the disposal areas have impacted the
ground water underlying the Kokomo facility, additional corrective action could
be required.
As part of the permit to close the two waste disposal areas, the Company
has also completed the RCRA facility investigation ("RFI") based on an RFI work
plan approved by the EPA for eight specifically identified solid waste
management units at the Kokomo facility. Results of this RFI investigation have
been filed with the EPA. Based on the RFI results comparison with Indiana's
Tier II cleanup goals, the Company recommended that no further actions were
necessary. Until EPA reviews the Company's RFI report, it is impossible to
determine if further investigation or corrective action will be required.
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 IDEM in resolution of this Notice of
Inadequacy. IDEM notified the Company on September 1, 1992 that it is in
compliance with the terms of that Agreed Order. The Company has paid a civil
penalty of $50,000 provided for by the Agreed Order. There can be no assurance
that future corrective action will not be required in connection with this
closure project. 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.
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
<PAGE>
where environmental problems are alleged to exist are subject to claims under
the Comprehensive Environmental Response, Compensation, and Liability Act, as
amended (CERCLA). Based on its prior shipment of waste oil contaminated with
PCBs, the Company is one of approximately 700 potentially responsible parties
("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
PRPs. 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 $123,155 as its share of the total estimated
costs of the RD/RA under the Consent Decree. The Company may have generated
hazardous or solid wastes disposed of at other sites potentially subject to
CERCLA or equivalent State law remedial action. These sites include Byers
Landfill, Heritage Environmental Services, and INMETCO. Thus, there can be no
assurance that the Company will not be named as a PRP at additional sites in the
future.
In June 1994, IDEM conducted a RCRA inspection at the Company's Kokomo
facility. Four (4) possible violations were noted: 1) paperwork violations
related to training; 2) spills near the dust collections, baghouses and
associated dust conduits northwest of the main mill building; 3) spills from the
kolene sludge pad in the wastewater treatment plant; and 4) gully erosion at the
north landfill. The Company has addressed these concerns and believes that no
further action will be required. However, the inspection report has been
referred to IDEM's Office of Enforcement for Review, so enforcement activity by
IDEM is still a possibility. Similarly, enforcement by IDEM is still possible
with regard to issues raised in an inspection in December 1993, although the
Company believes that all of these issues have been adequately addressed. Thus,
there can be no assurance that the Company will not be named as a PRP at
additional sites in the future.
The Company is required to collect, treat and properly dispose of process
waters generated in the course of its operations. In November 1988, the EPA
approved start-up of a new wastewater treatment plant at the Arcadia, Louisiana,
facility which discharges treated industrial wastewater to the municipal
sewerage system. Due to a backlog of applications to EPA, the wastewater
treatment plant is operating under an interim order pending issuance of a formal
permit. In addition, in December 1988, the City of Kokomo, Indiana, issued a
permit for the discharge of treated industrial wastewater from the Company's
Kokomo facility to the municipal sewer system. The conditions of this permit
required minor modifications to the wastewater treatment plant at this facility
to be completed by December 31, 1989. These modifications were made, and the
discharge into the system is monitored on an ongoing basis.
- 2 -
Exhibit 10.17
AMENDMENT NO. 1 TO LOAN AND SECURITY AGREEMENT
----------------------------------------------
HAYNES INTERNATIONAL, INC.
1020 West Park Avenue
Kokomo, Indiana 46904
February 9, 1995
Congress Financial Corporation (Central)
100 South Wacker Drive, Suite 1940
Chicago, Illinois 60606
Gentlemen:
Congress Financial Corporation (Central) ("Lender") and Haynes
International, Inc. ("Borrower") have entered into certain financing
arrangements pursuant to the Loan and Security Agreement, dated August 11, 1994,
between Lender and Borrower (as the same now exists or may hereafter be amended,
modified, supplemented, extended, renewed, restated or replaced, the "Loan
Agreement", together with all agreements, documents and instruments at any time
executed and/or delivered in connection therewith or related thereto,
collectively, the "Financing Agreements").
Borrower has requested that Lender agree to certain amendments to the Loan
Agreement and the other Financing Agreements, and Lender is willing to agree to
such amendments, subject to the terms and conditions contained herein. By this
Amendment, Lender and Borrower desire and intend to evidence such amendments.
In consideration of the foregoing and the agreements and covenants
contained herein, the parties hereto agree as follows:
1. Definitions. All capitalized terms used herein shall have the meanings
-----------
assigned thereto in the Loan Agreement, unless otherwise defined herein.
2. Amendments.
----------
(a) Section 1.45 of the Loan Agreement is hereby deleted in its
entirety and the following substituted therefor: "Intentionally omitted."
(b) Section 2.1(a) of the Loan Agreement is hereby deleted in its
entirety and the following substituted therefor:
"(a) Subject to, and upon the terms and conditions contained herein,
Lender agrees to make Revolving Loans to Borrower from time to time in amounts
requested by
<PAGE>
Borrower up to the amount equal to (A) the Total Availability minus (B) the
outstanding Letter of Credit Accommodations and LC Loans."
(c) Section 2.1(c) of the Loan Agreement is hereby deleted in its
entirety and the following substituted therefor:
"(c) Except in Lender's discretion, the aggregate amount of the Loans
and the Letter of Credit Accommodations outstanding at any time shall not exceed
the Maximum Credit. In the event that the outstanding amount of any component
of the Loans, or the aggregate amount of the outstanding Loans and Letter of
Credit Accommodations, exceed the amounts available under the lending formulas,
the LC Limit or the Maximum Credit, as applicable, such event shall not limit,
waive or otherwise affect any rights of Lender in that circumstance or on any
future occasions and Borrower shall, upon demand by Lender, which may be made at
any time or from time to time, immediately repay to Lender the entire amount of
any such excess(es) for which payment is demanded."
3. Representations, Warranties and Covenants. In addition to the
-----------------------------------------
continuing representations, warranties and covenants heretofore or hereafter
made by Borrower to Lender pursuant to the Financing Agreements, Borrower hereby
represents, warrants and covenants with and to Lender as follows (which
representations, warranties and covenants are continuing and shall survive the
execution and delivery hereof and shall be incorporated into and made a part of
the Financing Agreements):
(a) No Event of Default exists on the date of this Amendment (after giving
effect to the amendment to the Financing Agreements made by this Amendment).
(b) This Amendment has been duly executed and delivered by Borrower and is
in full force and effect as of the date hereof, and the agreements and
obligations of Borrower contained herein constitute legal, valid and binding
obligations of Borrower enforceable against Borrower in accordance with their
respective terms.
4. Conditions Precedent. The effectiveness of the amendments contained
--------------------
herein shall be subject to the satisfaction of the following conditions
precedent in a manner satisfactory to Lender and its counsel:
(a) Lender shall have received, in form and substance satisfactory to
Lender, evidence that Borrower has obtained all consents or approvals from any
other persons required in order for Borrower to enter into this Amendment and to
perform or comply with the terms of the arrangements as provided herein,
including, without limitation, the Third Supplement to Subordinated Note
Indenture, dated on or about the date thereof, each duly authorized, executed
and delivered by the parties thereto;
(b) the receipt by Lender of an original of this Amendment, duly
authorized, executed and delivered by Borrower; and
<PAGE>
(c) no Event of Default shall have occurred and be continuing and no event
shall have occurred or condition be existing and continuing which, with notice
or passage of time or both, would constitute an Event of Default.
5. Effect of this Amendment. Except as modified pursuant hereto, no
------------------------
other changes or modifications to the Financing Agreements are intended or
implied and in all other respects the Financing Agreements are hereby
specifically ratified, restated and confirmed by all parties hereto as of the
effective date hereof. To the extent of conflict between the terms of this
Amendment and the other Financing Agreements, the terms of this Amendment shall
control. The Loan Agreement and this Amendment shall be read and construed as
one agreement.
6. Further Assurances. The parties hereto shall execute and deliver such
------------------
additional documents and take such additional action as may be necessary or
desirable to effectuate the provisions and purposes of this Amendment.
7. Confirmation of Supplemental Indenture. Lender hereby confirms to
--------------------------------------
Borrower that the amendments to the Subordinated Note Indenture set forth in the
Third Supplement to Subordinated Note Indenture, dated on or about the date
hereof, do not in any manner adversely affect Lender or any rights of Lender and
Lender hereby consents to such amendments.
8. Governing Law. The rights and obligations hereunder of each of the
-------------
parties hereto shall be governed by and interpreted and determined in accordance
with the laws of the State of Illinois (without giving effect to principles of
conflicts of law).
9. Binding Effect. This Amendment shall be binding upon and inure to the
--------------
benefit of each of the parties hereto and their respective successors and
assigns.
10. Counterparts. This Amendment may be executed in any number of
------------
counterparts, but all of such counterparts, but all of such counterparts shall
together constitute but one and the same agreement. In making proof of this
Amendment, it shall not be necessary to produce or account for more than one
counterpart thereof signed by each of the parties hereto.
Please sign the enclosed counterpart of this Amendment in the space
provided below, whereupon this Amendment, as so accepted by Lender, shall become
a binding agreement between Borrower and Lender.
Very truly yours,
HAYNES INTERNATIONAL, INC.
By: /s/ MICHAEL D. AUSTIN
------------------------------------------
Michael D. Austin
Title: President
-------------------------------------
<PAGE>
AGREED:
CONGRESS FINANCIAL CORPORATION (CENTRAL)
By: /s/ DIANA GUZZO
----------------------------------
Title: Assistant Vice President
-------------------------------
Exhibit 10.18
AMENDMENT NO. 2 TO LOAN AND SECURITY AGREEMENT
----------------------------------------------
HAYNES INTERNATIONAL, INC.
1020 West Park Avenue
Kokomo, Indiana 46904
February 12, 1996
Congress Financial Corporation (Central)
100 South Wacker Drive, Suite 1940
Chicago, Illinois 60606
Gentlemen:
Congress Financial Corporation (Central) ("Lender") and Haynes
International, Inc. ("Borrower") have entered into certain financing
arrangements pursuant to the Loan and Security Agreement, dated August 11, 1994,
between Lender and Borrower, as amended by Amendment No. 1 to Loan and Security
Agreement, dated February 9, 1995 (as the same now exists or may hereafter be
amended, modified, supplemented, extended, renewed, restated or replaced, the
"Loan Agreement", together with all agreements, documents and instruments at any
time executed and/or delivered in connection therewith or related thereto,
collectively, the "Financing Agreements").
Borrower has requested that Lender agree to increase the Maximum Credit and
to agree to certain other amendments to the Loan Agreement and the other
Financing Agreements, and Lender is willing to agree to so increase the Maximum
Credit and agree to such other amendments, subject to the terms and conditions
contained herein. By this Amendment, Lender and Borrower desire and intend to
evidence such amendments.
In consideration of the foregoing and the agreements and covenants
contained herein, the parties hereto agree as follows:
1. Definitions. All capitalized terms used herein shall have the
-----------
meanings assigned thereto in the Loan Agreement, unless otherwise defined
herein.
2. Amendments.
----------
(a) Section 1.12(e) of the Loan Agreement is hereby deleted in its
entirety and the following substituted therefor:
<PAGE>
"(e) the chief executive office of the account debtor with respect to
such Accounts is located in the United States of America, or, at Lender's
option, up to $5,000,000 of otherwise Eligible Accounts where the chief
executive offices of the account debtor(s) are located outside the United
States, if (i) the account debtor has delivered to Borrower an irrevocable
letter of credit issued or confirmed by a bank satisfactory to Lender,
sufficient to cover such Account, in form and substance satisfactory to
Lender and, if required by Lender, the original of such letter of credit
has been delivered to Lender or Lender's agent and the issuer thereof
notified of the assignment of the proceeds of such letter of credit to
Lender, or (ii) such Account is subject to credit insurance payable to
Lender issued by an insurer and on terms and in an amount acceptable to
Lender, or (iii) such Account is otherwise acceptable in all respects to
Lender (subject to such lending formula with respect thereto as Lender may
determine);"
(b) Section 1.13 of the Loan Agreement is hereby deleted in its entirety
and the following substituted therefor:
"1.13 "Eligible Inventory" shall mean Inventory consisting of finished
goods held for resale in the ordinary course of the business of Borrower,
raw materials for such finished goods and work-in-process and semi-finished
goods which satisfy and continue to satisfy the criteria set forth below as
determined by Lender in good faith. In general, Eligible Inventory shall
not include (a) components which are not part of finished goods; (b) spare
parts for equipment; (c) packaging and shipping materials; (d) supplies
used or consumed in Borrower's business; (e) Inventory at premises other
than those owned and controlled by Borrower, except if Lender shall have
received an agreement in writing from the person in possession of such
Inventory and/or the owner or operator of such premises in form and
substance satisfactory to Lender acknowledging Lender's first priority
security interest in the Inventory, waiving security interests and claims
by such person against the Inventory and permitting Lender access to, and
the right to remain on, the premises so as to exercise Lender's rights and
remedies and otherwise deal with the Collateral; (f) Inventory subject to a
security interest or lien in favor of any person other than Lender except
those permitted in this Agreement; (g) bill and hold goods; (h)
unserviceable, obsolete or slow moving Inventory; (i) Inventory which is
not subject to the first priority, valid and perfected security interest of
Lender; (j) returned, damaged and/or defective Inventory; or (k) Inventory
purchased or sold on consignment. General criteria for Eligible Inventory
may be established and revised from time to time by Lender in good faith
based on events, conditions, circumstances or risks which Lender in good
faith determines are reasonably likely to affect the Inventory, the value
of the Inventory or the security interests and other rights of Lender in
the Inventory and for which no Availability Reserve has been established.
Any Inventory which is not Eligible Inventory shall nevertheless be part of
the Collateral."
(c) Section 1.32 of the Loan Agreement is hereby deleted in its entirety
and the following substituted therefor:
- 2 -
<PAGE>
"1.32 "LC Limit" shall mean the amount equal to: (a) $5,000,000 minus
-----
(b) the aggregate amount of the indebtedness of Borrower and its
Subsidiaries outstanding at such time in respect of surety bonds,
reimbursement obligations in respect of standby letters of credit which are
issued for purposes similar to those for which surety bonds are issued and
appeal bonds required in the ordinary course of business or in connection
with the enforcement of rights or claims of Borrower or any Subsidiary of
Borrower (but not including any such reimbursement obligations arising in
connection with the Letter of Credit Accommodations)."
(d) Section 1.36 of the Loan Agreement is hereby deleted in its entirety
and the following substituted therefor:
"1.36 "Maximum Credit" shall mean the amount of $25,000,000."
(e) Section 1.45 of the Loan Agreement is hereby deleted in its entirety
and the following substituted therefor:
"1.45 "Revolving Loan Limit" shall mean $20,000,000."
(f) Section 1.59 of the Loan Agreement is hereby deleted in its entirety
and the following substituted therefor:
"1.59 "Total availability" shall mean the amount equal to: (a) the
sum of (i) sixty (60%) percent of the Value of Eligible Inventory
consisting of finished goods and raw materials for such finished goods,
plus (ii) forty (40%) percent of the Value of Eligible Inventory consisting
----
of work-in-process and semi-finished goods (the "WIP Amount") plus (iii)
----
eighty-five (85%) percent of the Net Amount of Eligible Accounts minus (b)
-----
any Availability Reserves; provided, that, for purposes of determining
-------- ----
Total Availability, at no time shall the WIP Amount exceed $10,000,000."
(g) Section 2.1(a) of the Loan Agreement is hereby deleted in its entirety
and the following substituted therefor:
"(a) Subject to, and upon the terms and conditions contained herein,
Lender agrees to make Revolving Loans to Borrower from time to time in
amounts requested by Borrower up to the lesser of: (i) the amount equal to
(A) the Total Availability minus (B) the outstanding Letter of Credit
Accommodations and LC Loans and (ii) the Revolving Loan Limit."
(h) Section 2.1(c) of the Loan Agreement is hereby deleted in its entirety
and the following substituted therefor:
"(c) Except in Lender's discretion, (i) the aggregate amount of the
Loans and the Letter of Credit Accommodations
- 3 -
<PAGE>
(i) outstanding at any time shall not exceed the Maximum Credit and (ii)
the aggregate amount of the Revolving Loans shall not exceed the Revolving Loan
Limit. In the event that the outstanding amount of any component of the Loans,
or the aggregate amount of the outstanding Loans and Letter of Credit
Accommodations, exceed the amounts available under the lending formulas, the LC
Limit or the Maximum Credit, as applicable, such event shall not limit, waive or
otherwise affect any rights of Lender in that circumstance or on any future
occasions and Borrower shall, upon demand by Lender, which may be made at any
time or from time to time, immediately repay to Lender the entire amount of any
such excess(es) for which payment is demanded."
3. Line Increase Fee. In consideration of the amendment set forth herein
-----------------
with respect to the increase of the Maximum Credit from $16,000,000 to
$25,000,000, Borrower shall, on the date hereof, pay to Lender, or Lender, at
its option, may charge the account of Borrower maintained by Lender, a line
increase fee in the amount of $90,000.
4. Representations, Warranties and Covenants. In addition to the
-----------------------------------------
continuing representations, warranties and covenants heretofore or hereafter
made by Borrower to Lender pursuant to the Financing Agreements, Borrower hereby
represents, warrants and covenants with and to Lender as follows (which
representations, warranties and covenants are continuing and shall survive the
execution and delivery hereof and shall be incorporated into and made a part of
the Financing Agreements):
(a) No Event of Default exists on the date of this Amendment (after giving
effect to the amendment to the Financing Agreements made by this Amendment).
(b) This Amendment has been duly executed and delivered by Borrower and is
in full force and effect as of the date hereof, and the agreements and
obligations of Borrower contained herein constitute legal, valid and binding
obligations of Borrower enforceable against Borrower in accordance with their
respective terms.
5. Conditions Precedent. The effectiveness of the amendments contained
--------------------
herein shall be subject to the satisfaction of the following conditions
precedent in a manner satisfactory to Lender and its counsel:
(a) Lender shall have received, in form and substance satisfactory to
Lender, evidence that Borrower has obtained all consents or approvals from any
other persons required in order for Borrower to enter into this Amendment and to
perform or comply with the terms of the arrangements as provided herein,
including, without limitation, the Fourth Supplement to Subordinated Note
Indenture, dated on or about the date hereof, each duly authorized, executed and
delivered by the parties thereto;
(b) the receipt by Lender of an original of this Amendment, duly
authorized, executed and delivered by Borrower; and
- 4 -
<PAGE>
(c) no Event of Default shall have occurred and be continuing and no event
shall have occurred or condition be existing and continuing which, with notice
or passage of time or both, would constitute an Event of Default.
6. Effect of this Amendment. Except as modified pursuant hereto, no
------------------------
other changes or modifications to the Financing Agreements are intended or
implied and in all other respects the Financing Agreements are hereby
specifically ratified, restated and confirmed by all parties hereto as of the
effective date hereof. To the extent of conflict between the terms of this
Amendment and the other Financing Agreements, the terms of this Amendment shall
control. The Loan Agreement and this Amendment shall be read and construed as
one agreement.
7. Further Assurances. The parties hereto shall execute and deliver such
------------------
additional documents and take such additional action as may be necessary or
desirable to effectuate the provisions and purposes of this Amendment.
8. Confirmation of Supplement to Indenture. Lender hereby confirms to
---------------------------------------
Borrower that the amendments to the Subordinated Note Indenture set forth in the
Fourth Supplement to Subordinated Note Indenture, dated on or about the date
hereof (the "Fourth Supplement Amendments"), do not in any manner adversely
affect Lender or any rights of Lender and Lender hereby consents to the Fourth
Supplement Amendments. Lender further confirms to Borrower that the Fourth
Supplement Amendments do not make any terms of the Subordinated Note Documents
more restrictive or burdensome than as in effect on the original date of the
Loan Agreement.
9. Governing Law. The rights and obligations hereunder of each of the
-------------
parties hereto shall be governed by and interpreted and determined in accordance
with the laws of the State of Illinois (without giving effect to principles of
conflicts of law).
10. Binding Effect. This Amendment shall be binding upon and inure to the
--------------
benefit of each of the parties hereto and their respective successors and
assigns.
11. Counterparts. This Amendment may be executed in any number of
------------
counterparts, but all of such counterparts shall together constitute but one and
the same agreement. In making proof of this Amendment, it shall not be
necessary to produce or account for more than one counterpart thereof signed by
each of the parties hereto.
- 5 -
<PAGE>
Please sign the enclosed counterpart of this Amendment in the space
provided below, whereupon this Amendment, as so accepted by Lender, shall become
a binding agreement between Borrower and Lender.
Very truly yours,
By: /s/ GEORGE KALESMITH
---------------------------------------------
Title: Senior Vice President
------------------------------------------
AGREED:
HAYNES INTERNATIONAL, INC.
By: /s/ J. F. BARKER
--------------------------------------
Title: Vice President Finance
-----------------------------------
- 6 -
Exhibit 10.24
HAYNES INTERNATIONAL, INC.
1996 EMPLOYEE STOCK OPTION PLAN
-------------------------------
Haynes International, Inc. (the "Company") sets forth the following terms
of this Haynes International, Inc. 1996 Employee Stock Option Plan (the "Plan"):
1. PURPOSE. The Plan is intended to advance the interests of the Company
-------
by providing key employees of the Company or of any "subsidiary corporation" of
the Company, as defined in Section 424(f) of the Internal Revenue Code of 1986,
as amended from time to time (the "Code"), or the corresponding provisions of
any subsequently enacted tax statutes, with an opportunity to acquire or
increase a proprietary interest in the Company, which thereby will create a
stronger incentive to expend maximum effort for the growth and success of the
Company and its subsidiaries, and will encourage such individuals to remain in
the employ or service of the Company or of one or more of its subsidiaries. The
Company and all such subsidiary corporations are hereinafter collectively
referenced from time to time as the "Employer." Except as set forth below, each
stock option granted under the Plan is intended to be an "incentive stock
option," as defined in Code Section 422 or the corresponding provisions of any
subsequently enacted tax statutes, and any provision of the Plan which would
operate so as to prevent an option that is intended to be an incentive stock
option from complying with the requirements of Code Section 422 shall be
inoperative. Options may be granted hereunder that are not intended to be
incentive stock options. Such options shall include any option that fails to
qualify as an incentive stock option or is specifically designated as not being
an incentive stock option (a "nonqualified stock option").
2. ADMINISTRATION.
--------------
(a) COMMITTEE. The Plan shall be administered by the Compensation
---------
Committee of the Board of Directors of the Company (the "Committee"). Each
member of the Committee shall qualify in all respects as a "disinterested
person" with respect to the Plan within the meaning of Rule 16b-3 or any
successor rule ("Rule 16b-3") under the Securities Exchange Act of 1934, as
amended (the "Exchange Act").
(b) POWER AND AUTHORITY. The Committee shall have the full power and
-------------------
authority to take all actions and make all determinations required or
provided for under the Plan, any option agreement, or any option granted
under the Plan; to interpret and construe the provisions of the Plan, any
option agreement, or any option granted under the Plan; and to take any and
all other actions and make any and all other determinations not
inconsistent with the specific terms and provisions of the Plan which the
Committee deems necessary or appropriate in the administration of the Plan.
All actions, determinations, decisions, interpretations and constructions
taken or made by the Committee in connection with the administration of the
Plan shall be final, conclusive, and binding on the Employer and the
optionee or optionees. The Committee may from time to time prescribe,
amend, and rescind rules and regulations applicable to the Plan.
<PAGE>
(c) ACTIONS AND DETERMINATIONS. The Committee may take actions and
--------------------------
make determinations in the manner prescribed by the Board of Directors of
the Company, provided such actions and determinations are permitted by the
Certificate of Incorporation and Bylaws of the Company, the Delaware
General Corporation Law, as amended, and all other applicable laws. A
majority of the directors serving on the Committee at a particular time
shall constitute a quorum for purposes of any action or determination by
the Committee. All actions and determinations of the Committee shall be
made by an affirmative vote of not less than a majority of its members.
(d) NO LIABILITY. No member of the Committee shall be liable for any
------------
action or determination made by the Committee or by such member in good
faith.
3. ELIGIBILITY.
-----------
(a) KEY EMPLOYEES. Only those persons who are key employees of the
-------------
Employer shall be eligible to participate in the Plan. The Committee shall
determine from time to time the particular employees of the Employer who
are "key employees" of the Employer and who shall be eligible to
participate in the Plan, and the terms and extent of their participation in
the Plan.
(b) 10% SHAREHOLDERS.
----------------
(i) Options granted under the Plan to any key employee of the
Employer who, at the time such option is granted, owns Shares possessing
more than 10% of the total combined voting power of all classes of shares
of the Company or of any parent corporation of the Company (as defined in
Code Section 424(e)) or subsidiary corporation of the Company (such
employee, a "10% Shareholder"), shall be treated as provided in
subparagraphs (ii) and (iii) below. In determining whether the percentage
limitations of this Section 3(b) are met, an employee shall be considered
------------
as owning any shares owned, directly or indirectly, by or for his or her
brothers or sisters (whether by the whole or half blood), spouse,
ancestors, lineal descendants, or by reason of any other relationships as
contemplated by Code Section 422(b)(6). For purposes of this Section 3(b),
------------
shares owned, directly or indirectly, by or for a corporation, partnership,
estate, or trust shall be considered as being owned proportionately by or
for its shareholders, partners, or beneficiaries.
(ii) An option granted to an employee who is a 10% Shareholder
shall qualify as an incentive stock option only if at the time such option
is granted the option price is at least 110% of the fair market value of
the shares subject to the option and such option by its terms is not
exercisable after the expiration of five years from the date such option is
granted.
(iii) To the extent that any option granted under the Plan to an
employee who is a 10% Shareholder does not satisfy subparagraph (ii) above,
it shall be deemed
- 2 -
<PAGE>
a nonqualified stock option and shall not be subject to the requirements
described in subparagraph (ii) above or Section 5 below.
---------
4. SHARES. The shares subject to the options and other provisions of the
------
Plan shall be authorized but unissued, or reacquired shares of the Company's
Common Stock, $.01 par value (the "Shares of Common Stock"). The total number
of Shares of Common Stock with respect to which options may be granted under
this Plan shall not exceed, in the aggregate, 400,000 Shares of Common Stock,
except as such number of Shares of Common Stock shall be adjusted in accordance
with the provisions set forth in Section 6(g) of this Plan. In the event any
------------
outstanding option under the Plan expires, is surrendered or otherwise
reacquired by the Company or is terminated (in each case prior to the exercise
thereof) in whole or in part for any reason prior to the end of the period
during which options may be granted, the Shares of Common Stock allocable to the
unexercised portion of such option may again be subject to an option granted
under the Plan. During the period that any options granted under the Plan are
outstanding, the Company shall reserve and keep available such number of Shares
of Common Stock as will be sufficient to satisfy all outstanding, unexercised
options.
5. MAXIMUM EXERCISE. The aggregate fair market value (determined at the
----------------
time the option is granted) of the Shares of Common Stock with respect to which
incentive stock options are exercisable for the first time by an employee during
any calendar year (under all option plans of the Company and its parent and
subsidiary corporations within the meaning of Code Section 422(d)) shall not
exceed $100,000. In the event the fair market value of the Shares of Common
Stock subject to such options exceeds $100,000, the options in excess of such
amount shall be deemed to be nonstatutory stock options, and the character of
all relevant options shall be determined by taking options into account in the
order in which they were granted.
6. TERMS AND CONDITIONS OF OPTIONS. Subject to the terms and conditions
-------------------------------
set forth in the Plan, the Committee may grant options to any eligible
individuals upon such terms and conditions as the Committee shall determine.
The date on which the Committee approves the grant of an option shall be
considered the date on which such option is granted, unless otherwise specified
by the Committee. Options granted pursuant to the Plan shall be evidenced by
option agreements in such form consistent with the Plan as the Committee shall
prescribe from time to time. Option agreements covering options granted from
time to time or at the same time need not contain similar provisions so long as
all such option agreements are consistent with the Plan. Such option agreements
shall state whether the options issued thereunder are incentive stock options or
non-statutory stock options, and shall comply with and be subject to the
following terms and conditions:
(a) MEDIUM AND TIME OF PAYMENT.
--------------------------
(i) In General. An option may be exercised by delivery of
----------
payment of the purchase price of the Shares of Common Stock subject to an
option accompanied by a properly executed written notice of exercise and
subscription agreement in such
- 3 -
<PAGE>
form as prescribed by the Committee. The notice of exercise shall specify
the date the option was granted, the number of Shares of Common Stock with
respect to which the option is being exercised, the option price of the
option being exercised and such other information as the Committee shall
determine. The Committee may prescribe in the option agreement a minimum
number of Shares of Common Stock with respect to which an option may be
exercised, in whole or in part. Except as provided in Section 6(a)(ii) of
----------------
this Plan, payment in full of the purchase price of the Shares of Common
Stock for which the option is being exercised shall be made either (i) in
cash or in cash equivalents; (ii) through the tender to the Company of
Shares of Common Stock or the withholding of Shares of Common Stock subject
to the option, which Shares of Common Stock shall be valued, for purposes
of determining the extent to which the purchase price has been paid, at
their fair market value on the date of exercise as determined under Section
-------
6(c) of this Plan; or (iii) by a combination of the methods prescribed in
----
(i) and (ii); provided, however, that the Committee may in its discretion
-------- -------
impose and set forth in the option agreement pertaining to an option such
limitations or prohibitions on the use of Shares of Common Stock to
exercise options as it deems appropriate. Any attempt to exercise an
option granted under the Plan other than as set forth in this Section 6(a)
------------
shall be invalid and of no force and effect.
(ii) Use of Brokers. The Committee may provide, by
--------------
inclusion of appropriate language in an option agreement, that payment in
full of the purchase price need not accompany the written notice of
exercise and subscription agreement provided the notice of exercise and
subscription agreement direct that the certificate or certificates for such
Shares of Common Stock for which the option is exercised be delivered to a
licensed broker acceptable to the Company as the agent for the individual
exercising the option and, at the time such certificate or certificates are
delivered, the broker tenders to the Company cash or cash equivalents
acceptable to the Company equal to the purchase price for such Shares of
Common Stock purchased pursuant to the exercise of the option plus the
amount (if any) of federal and other taxes which the Company may, in its
sole judgment, be required to withhold with respect to the exercise of the
option.
(iii) Issuance of Certificates. Promptly after the exercise
------------------------
of an option and the payment in full of the purchase price of the Shares of
Common Stock subject to the option, the individual exercising the option
shall be entitled to the issuance of a certificate or certificates
evidencing ownership of such Shares of Common Stock. The Company may issue
separate certificates for any Shares of Common Stock purchased pursuant to
the exercise of an option which is an incentive stock option and for Shares
of Common Stock purchased pursuant to the exercise of an option which is
not an incentive stock option.
(b) NUMBER OF SHARES. Each option agreement shall state the total
----------------
number of Shares of Common Stock which may be purchased pursuant to the
option agreement.
- 4 -
<PAGE>
(c) OPTION PRICE. The purchase price of each Share of Common Stock
------------
subject to an option shall be fixed by the Committee at an amount which is
not less than the fair market value per Share of Common Stock on the date
of grant of the option. In the case of options granted pursuant to Section
-------
3(b)(ii) of this Plan to a key employee who is a 10% Shareholder, the
--------
purchase price of each Share of Common Stock subject to an option shall be
an amount which is not less than 110% of the fair market value per Share of
Common Stock on the date of grant of the option. The fair market value of
the Shares of Common Stock subject to an option shall be determined by the
Committee in good faith in accordance with such procedures as the Committee
shall prescribe from time to time. The Committee shall consider those
factors which the Committee reasonably believes to be relevant in
determining the fair market value of the Shares of Common Stock. The
option agreement shall state the purchase price of the Shares of Common
Stock subject to the option.
(d) TERM OF OPTIONS. Each option granted under the Plan shall expire
---------------
within the period prescribed in the option agreement relating to the
option, which shall not be more than ten years from the date the option is
granted; provided, however, if an option is granted pursuant to Section
-------- ------- -------
3(b)(ii) of this Plan to a key employee who is a 10% Shareholder, such
--------
period shall not be more than five years from the date the option is
granted. The option agreement shall state the date of the grant of the
option.
(e) TIME OF EXERCISE. The Committee may, in its discretion, provide
----------------
in an option agreement that an option granted under the Plan may not be
exercised in whole or in part until the expiration of such period or
periods of time as may be specified by the Committee; provided, however,
-------- -------
that any such limitation on the exercise of an option contained in an
option agreement may be rescinded, modified, or waived by the Committee, in
its sole discretion, at any time and from time to time after the date of
grant of such option so as to accelerate the time in which the option may
be exercised. Except as specifically restricted by the provisions of this
Section 6(e) or by the Committee in administering the Plan, any option may
------------
be exercised in whole or in part at any time and from time to time during
the period commencing with the date of grant and ending upon the expiration
or termination of the option. Notwithstanding the preceding sentence, any
person subject to Section 16 of the Exchange Act, who is granted an option
shall not exercise the option in whole or in part within the six-month
period immediately following the date of grant, unless the person agrees to
hold the securities acquired upon exercise until at least six months have
elapsed from the date of grant.
(f) TERMINATION OF EMPLOYMENT.
-------------------------
(i) In General. Without limiting the applicability of Section
---------- -------
6(h) of this Plan, in the event an optionee shall cease to be employed by
----
the Employer, a parent corporation of the Employer, or a corporation or a
parent corporation or a subsidiary corporation of such corporation issuing
or assuming an option in a transaction to which
- 5 -
<PAGE>
Code Section 424(a) applies, all options outstanding in the hands of the
optionee shall terminate as to any unexercised portion thereof on the date
which is three months after the effective date of the cessation of the
optionee's employment; provided, however, that the Committee, in its
-------- -------
discretion, subject to the provisions of Section 6(d) and Section 6(e) of
------------ ------------
this Plan, may permit an option holder who ceases to be so employed to
exercise, at any time within three months after the effective date of the
cessation of the optionee's employment any unexercised options which become
exercisable during the three-month period following such effective date;
and provided further, that if any cessation of employment is due to
-------- -------
retirement with the consent of the Employer or permanent and total
disability (as defined in Code Section 22(e)(3)), the optionee shall have
the right, subject to the provisions of Section 6(d) and Section 6(e) of
------------ ------------
this Plan, to exercise the option with respect to the Shares of Common
Stock for which it could have been exercised on the effective date of
cessation of employment, at any time within three months after such
cessation of employment due to retirement with the consent of the Employer
or at any time within twelve months after such cessation of employment due
to permanent and total disability.
(ii) Death. In the event of the death of an employee while
-----
in the employ of the Employer or within the period following cessation of
employment during which the option remains exercisable under this Section
-------
6(f), the employee's personal representative shall have the right, subject
----
to the provisions of Section 6(d) and Section 6(e) of this Plan, to
------------ ------------
exercise the option with respect to the Shares of Common Stock for which it
could have been exercised on the date of death, at any time within twelve
months from the date of death.
(iii) Determinations. For purposes of the Plan, whether a
--------------
cessation of employment is to be considered a retirement with the consent
of the Employer or due to permanent and total disability, and whether an
authorized leave of absence or absence on military or government service
shall be deemed to constitute termination of employment shall be determined
by the Committee. For purposes of the Plan, a cessation of employment with
the Company or a subsidiary corporation shall not be deemed to occur if the
optionee is immediately thereafter employed with the Company or any
subsidiary corporation.
(g) RECAPITALIZATION. The aggregate number of Shares of Common Stock
----------------
as to which options may be granted under the Plan, the number of Shares of
Common Stock covered by each outstanding option, and the option price per
Share of Common Stock with respect to each such option, all shall be
proportionately adjusted for any increase or decrease in the number of
issued Shares of Common Stock resulting from a subdivision or consolidation
of shares or any other capital adjustment, the payment of a share dividend,
or other increase or decrease in the number of issued Shares of Common
Stock effected without receipt of consideration by the Company. In the
event that, prior to the delivery by the Company of Shares of Common Stock
remaining under any outstanding option under the Plan, there shall be a
reorganization or reclassification
- 6 -
<PAGE>
of the capital of the Company resulting in a substitution of other shares
for the Shares of Common Stock, there shall be substituted the number of
substitute shares which would have been issued in exchange for the Shares
of Common Stock then remaining under the option if such Shares of Common
Stock had been then issued and outstanding.
(h) CHANGE OF CONTROL, DISSOLUTION, AND LIQUIDATION.
-----------------------------------------------
(i) Change of Control. For purposes of the Plan, "change of
-----------------
control event" shall be deemed to have occurred if:
(A) The Company shall become a party to an agreement of
merger, consolidation, or other reorganization pursuant to which the
Company will be a constituent corporation and the Company will not be the
surviving or resulting corporation, or which will result in less than 50%
of the outstanding voting securities of the surviving or resulting entity
being owned by the former shareholders of the Company;
(B) The Company shall become a party to an agreement
providing for the sale by the Company of all or substantially all of the
Company's assets to any individual, partnership, joint venture,
association, trust, corporation, or other entity ("Person") which is not a
wholly-owned subsidiary of the Company;
(C) The Company determines in its sole discretion that any
Person has become or is anticipated to become the beneficial owner,
directly or indirectly, of securities of the Company representing 50% or
more of the combined voting power of the Company's then outstanding
securities, the effect of which (as determined by the Company in its sole
discretion) is to take over control of the Company; or
(D) The Company determines that during any period of two
consecutive years, individuals who, at the beginning of such period,
constituted the Board of Directors of the Company, cease, for any reason,
to constitute at least a majority thereof, unless the election or
nomination for election for each new director was approved by the vote of
at least two-thirds of the directors then still in office who were
directors at the beginning of the period.
(ii) Effect of a Change of Control Event. Upon the occurrence of
-----------------------------------
a change of control event, the Company shall provide written notice thereof
(the "Change of Control Notice") to the optionees. All unvested options
shall vest immediately upon delivery of the Change of Control Notice to the
optionees. The Company shall have the right, but not the obligation, to
terminate all outstanding options as of the 30th day immediately following
the date of the sending of the Change of Control Notice by including a
statement to such effect in the Change of Control Notice. Upon delivery of
the Change of Control Notice and regardless of whether the Company elects
to terminate
- 7 -
<PAGE>
the outstanding options, and subject to Section 6(d) and Section 6(e) of
------------ ------------
this Plan, the optionees shall have the right to immediately exercise all
outstanding options in full during the 30-day period notwithstanding the
other terms and conditions otherwise set forth in the Plan or in any option
agreement.
(iii) Dissolution and Liquidation. In the event the Company
---------------------------
adopts all necessary resolutions approving a plan to dissolve or liquidate
the Company, the Company shall provide written notice thereof (the
"Dissolution Notice") to the optionees. All unvested options shall vest
immediately upon delivery of the Dissolution Notice to the optionees. Upon
delivery of the Dissolution Notice, and subject to Section 6(d) and Section
------------ -------
6(e) of this Plan, the optionees shall have the right to immediately
----
exercise all outstanding options in full during the 30-day period
immediately following the date of the sending of the Dissolution Notice
notwithstanding the other terms and conditions otherwise set forth in the
Plan or in any option agreement. All unexercised options outstanding as of
the 30th day immediately following the date of the sending of the
Dissolution Notice shall terminate.
(i) ASSIGNABILITY. No option shall be assignable or transferable,
-------------
except to the extent provided in Section 6(f) of this Plan in the event of
------------
the death of an optionee. During the lifetime of an optionee, the option
shall be exercisable only by the optionee to whom the option was granted
(or, in the event of the legal incapacity or incompetency of the optionee,
the optionee's legal guardian or legal representative on behalf of the
optionee).
(j) ISSUANCE OF SHARES AND COMPLIANCE WITH SECURITIES LAWS.
------------------------------------------------------
(i) Conformity With Law. The Company shall not be required to
-------------------
sell or issue any Shares of Common Stock in connection with any option
granted under the Plan and may postpone the issuance and delivery of
certificates representing Shares of Common Stock until (a) the admission of
such Shares of Common Stock to listing on any stock exchange on which
Shares of Common Stock of the Company of the same class are then listed or,
if not so listed, qualification of such Shares of Common Stock for
inclusion in the Nasdaq National Market or such other trading market or
quotation system on which the Common Stock of the Company is then traded or
quoted; and (b) the completion of such registration or other qualification
of such Shares of Common Stock under any state or federal law, rule, or
regulation as the Company shall determine to be necessary or advisable,
which registration or other qualification the Company shall use reasonable
efforts to complete. Any person purchasing Shares of Common Stock pursuant
to the Plan may be required to make such representations and furnish such
information as may, in the opinion of counsel for the Company, be
appropriate to permit the Company to determine the necessity of
registration of the Shares of Common Stock under the Securities Act of
1933, as amended, or any similar state statute.
- 8 -
<PAGE>
(ii) Compliance with Rule 16b-3. The Plan is intended to
--------------------------
qualify for the exemption from the short-swing profits liability imposed by
Section 16(b) under the Exchange Act provided by Rule 16b-3. To the extent
any provision of the Plan or any action by the Committee does not comply
with the requirements of Rule 16b-3, it shall be deemed inoperative to the
extent permitted by law and deemed advisable by the Committee. In the
event Rule 16b-3 is revised or replaced, the Committee may exercise its
discretion to modify the Plan in any respect necessary to satisfy the
requirements of the revised exemption or its replacement provided such
modification is made in accordance with Section 8.
---------
(k) RIGHTS AS A SHAREHOLDER. An optionee shall have no rights as a
-----------------------
shareholder with respect to Shares of Common Stock covered by an option
until the date of issuance of a certificate or certificates to the optionee
and only after the purchase price of such Shares of Common Stock is fully
paid. No adjustment will be made for dividends or other rights for which
the record date is prior to the date such certificate or certificates are
issued.
(l) OTHER PROVISIONS. The option agreements entered into under the
----------------
Plan shall contain such other provisions as the Committee shall deem
advisable, provided that such provisions are not inconsistent with the
terms of the Plan and Code Section 422.
7. TERM OF PLAN. The Plan shall become effective upon or in accordance
------------
with the terms of the approval by the holders of a majority of the issued and
outstanding Shares of Common Stock of the Company voting in person or by proxy
at a duly held shareholders' meeting or upon or in accordance with the terms of
the approval by the written consent of the holders of a majority of the issued
and outstanding Shares of Common Stock of the Company in accordance with
applicable law; provided, however, that the Plan shall become effective only if
-------- -------
approved by such shareholders within twelve months before or after the date the
Plan is adopted by the Board of Directors of the Company. The Plan shall
terminate ten years after the earlier of the date the Plan is adopted by the
Board of Directors or the date the Plan is approved by the shareholders, or on
such earlier date as the Board of Directors may determine.1 No option may be
granted under the Plan thereafter.
8. AMENDMENT OF THE PLAN. The Board of Directors of the Company, except
---------------------
any members participating in the Plan, may from time to time, alter, amend,
suspend, or discontinue the Plan with respect to any Shares of Common Stock as
to which options have not been granted; provided, however, that the Board of
-------- -------
Directors may not, without further approval by the holders of a majority of the
issued and outstanding Shares of Common Stock of the Company voting in person or
by proxy at a duly held shareholders' meeting or further
--------------------
1In accordance with this provision, the expiration date of
the Plan is May 27, 2006, pursuant to the Plan as adopted on
May 28, 1996.
- 9 -
<PAGE>
approval by the written consent of the holders of a majority of the issued and
outstanding Shares of Common Stock of the Company in accordance with applicable
law:
(a) increase the maximum number of Shares of Common Stock as to which
options may be granted under the Plan (other than as provided in Section
-------
6(g) of this Plan);
----
(b) change the class of shares for which options may be granted under
the Plan;
(c) change the designation of the employees or class of employees
eligible to receive options under the Plan;
(d) change the provisions of Section 6(c) of this Plan concerning the
------------
option price;
(e) increase the maximum period during which options may be
exercised;
(f) extend the term of the Plan;
(g) permit the granting of options to members of the Committee; or
(h) make any other change to the Plan that is required to be approved
by the shareholders of the Company under Rule 16b-3.
9. APPLICATION OF FUNDS. The proceeds received by the Company from the
--------------------
sale of Shares of Common Stock pursuant to options granted under the Plan will
be used for general corporate purposes.
10. NO OBLIGATION TO EXERCISE OPTION. The granting of an option under the
--------------------------------
Plan shall impose no obligation upon the optionee to exercise any such option.
11. NO OBLIGATION TO CONTINUE EMPLOYMENT. Neither the adoption of the
------------------------------------
Plan nor the granting of an option under the Plan shall impose any obligation on
the Employer to provide any specified amount of compensation to, or to continue
the employment of, any optionee.
12. APPLICABILITY OF AMENDMENTS. Without the express written consent of
---------------------------
the Company and the optionee, no amendment, suspension, or termination of the
Plan shall alter, impair, or otherwise affect any rights or obligations of the
Company or an optionee with respect to any option previously granted to such
optionee.
13. WITHHOLDINGS. The Company shall have the right to require optionees
------------
or their agents to remit to the Company amounts sufficient to satisfy any
federal, state or local income, employment, or other tax withholding
requirements (or make other arrangements satisfactory to the Company with regard
to such taxes) at such times as the Company deems necessary or appropriate for
compliance with such laws. Payment in full of any such
- 10 -
<PAGE>
withholdings shall be made either (i) in cash or in cash equivalents; (ii)
through the tender to the Company of Shares of Common Stock or the withholding
of Shares of Common Stock subject to the option, which Shares of Common Stock
shall be valued, for purposes of determining the extent to which the purchase
price has been paid, at their fair market value on the date of exercise as
determined under Section 6(c) of this Plan; or (iii) by a combination of the
------------
methods prescribed in (i) and (ii); provided, however, that the Committee may in
-------- -------
its discretion impose and set forth in the option agreement pertaining to an
option such limitations or prohibitions on the use of Shares of Common Stock to
pay withholdings as it deems appropriate.
- 11 -
EXHIBIT 23.1
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 Corp. We also consent to the reference to our
firm under the caption "Experts."
/s/ COOPERS & LYBRAND L.L.P.
Fort Wayne, Indiana
June 5, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
HAYNES INTERNATIONAL, 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 International, Inc. and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> SEP-30-1995 MAR-31-1996
<PERIOD-END> SEP-30-1995 MAR-31-1996
<CASH> 5,035 3,550
<SECURITIES> 0 0
<RECEIVABLES> 39,068 44,217
<ALLOWANCES> (979) (1,019)
<INVENTORY> 60,234 64,500
<CURRENT-ASSETS> 103,358 111,248
<PP&E> 84,158 84,246
<DEPRECIATION> (47,295) (50,982)
<TOTAL-ASSETS> 151,316 154,986
<CURRENT-LIABILITIES> 40,742 44,950
<BONDS> 140,000 140,000
0 0
0 0
<COMMON> 0 0
<OTHER-SE> (121,909) (122,375)
<TOTAL-LIABILITY-AND-EQUITY> 151,316 154,986
<SALES> 201,933 109,985
<TOTAL-REVENUES> 201,933 109,985
<CGS> 167,196 88,406
<TOTAL-COSTS> 207,391 108,971
<OTHER-EXPENSES> 1,767 377
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 20,233 10,266
<INCOME-PRETAX> (5,458) 1,014
<INCOME-TAX> 1,313 758
<INCOME-CONTINUING> (6,771) 256
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (6,771) 256
<EPS-PRIMARY> (67,710) 2,560
<EPS-DILUTED> (67,710) 2,560
</TABLE>
