UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended September 30, 1996. (Fee
Required)
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (No Fee Required)
Commission File Number: 333-5411
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HAYNES INTERNATIONAL, INC.
- ----------------------------
(Exact name of registrant as specified in its charter)
Delaware 06-1185400
- ------------------ ------------------------------
(State or other jurisdiction of (IRS Employer
Identification No.)
incorporation or organization)
1020 West Park Avenue, Kokomo, Indiana 46904-9013
- ------------------------------------------- -------------------------
(Address of principal executive offices) (Zip Code)
(317) 456-6000
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
-----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
by Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any Amendment to
this Form 10-K. X
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The registrant is a privately held corporation. As such, there is no
practicable method to determine the aggregate market value of the voting stock
held by non-affiliates of the registrant.
The number of shares of Common Stock, $.01 par value, of Haynes International,
Inc. outstanding as of December 20, 1996 was 100.
Documents Incorporated by Reference: None
The Index to Exhibits begins on page 79 in the sequential numbering system.
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Total pages: 83
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<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C> <C>
PART I Page
----
Item 1. Business 3
Item 2. Properties 17
Item 3. Legal Proceedings 18
Item 4. Submission of Matters to a Vote of Security Holders 19
PART II
Item 5. Market for Registrant's Common Equity and Related 20
Stockholder Matters
Item 6. Selected Financial Data 21
Item 7. Management's Discussion and Analysis of Financial 23
Condition and Results of Operations
Item 8. Financial Statements and Supplementary Data 36
Item 9. Changes in and Disagreements with Accountants on 62
Accounting and Financial Disclosure
PART III
Item 10. Directors and Executive Officers of the Registrant 63
Item 11. Executive Compensation 66
Item 12. Security of Ownership of Certain Beneficial Owners and 76
Management
Item 13. Certain Relationships and Related Transactions 79
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports 80
on Form 8-K
</TABLE>
<PAGE>
PART I
ITEM 1. 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
("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 produces
its high performance alloy products primarily in sheet, coil and plate forms,
which in the aggregate represented approximately 65% of the Company's net
revenues in fiscal 1996. 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 per pound, compared to the average selling price of
other metals such as carbon steel sheet, stainless steel sheet and aluminum.
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 25% of its
fiscal 1996 net revenues from products that are protected by United States
patents and derived an additional approximately 19% of its fiscal 1996 net
revenues from sales of products that are not patented, but for which the
Company has limited or no competition.
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. The percentages of the
Company's total product revenue and volume presented in this section are based
on data which include revenue and volume associated with sales by the Company
to its foreign subsidiaries, but exclude revenue and volume associated with
sales by such foreign subsidiaries to their customers. Management believes,
however, that the effect of including revenue and volume data associated with
sales by its foreign subsidiaries would not materially change the percentages
presented in this section. In fiscal 1996, HTA and CRA products accounted for
approximately 61% and 39%, 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 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, 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.
<PAGE>
HIGH TEMPERATURE ALLOYS. The following table sets forth information with
respect to certain of the Company's significant high temperature alloys:
<TABLE>
<CAPTION>
<S> <C> <C>
Alloy and Year Introduced End Markets and Applications (1) Features
- -------------------------- ------------------------------------------------ -------------------------------
Haynes HR-160 (1990) (2) Waste incineration/CPI-boiler tube shields Good resistance to sulfidation
high temperatures
Haynes 242 (1990) (2) Aero-seal rings High strength, low expansion
and good fabricability
Haynes HR-120 (1990) (2) Industrial heating-heat-treating baskets Good strength-to-cost ratio as
compared to competing 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, after-burner components High strength, oxidation
resistant cobalt-based alloys
Haynes 625 (1964) Aero/CPI-ducting, tanks, vessels, weld overlays Good fabricability and general
corrosion resistance
Haynes 263 (1960) Aero/LBGT-components for gas turbine hot gas Good ductility and high
exhaust pan strength at temperatures up to
1600EF
Haynes 718 (1955) Aero-ducting, vanes, nozzles Weldable high strength alloy
with good fabricability
Hastelloy X (1954) Aero/LBGT-burner cans, transition ducts Good high temperature
strength at relatively low cost
Haynes Ti 3-2.5 (1950) Aero-aircraft hydraulic and fuel systems Light weight, high strength
components titanium-based alloy
<FN>
- -------------
(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.
</TABLE>
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 1950's and because of their widespread use have been
most subject to competitive pricing pressures. In fiscal 1996, sales of these
HTA products accounted for approximately 25% of the Company's net revenues.
<PAGE>
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
approximately 10% of the Company's net revenues in fiscal 1996. Three of the
more recently introduced HTA products, Haynes 242, Haynes 230 and Haynes 214,
initially developed for the aerospace and LBGT markets, are still
patent-protected and together accounted for approximately 6% of the Company's
net revenues in fiscal 1996. 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 1996, these two alloys accounted
for approximately 1% 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 1996, sales of these
products accounted for approximately 4% of the Company's net revenues.
[Remainder of page intentionally left blank.]
<PAGE>
CORROSION RESISTANT ALLOYS. The following table sets forth information
with respect to certain of the Company's significant corrosion resistant
alloys:
<TABLE>
<CAPTION>
<S> <C> <C>
Alloy and Year Introduced End Markets and Applications (1) Features
- --------------------------- ------------------------------------------ -----------------------------------------
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, valves 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, mixers, piping Broad resistance to many environments
<FN>
- -------------
(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.
</TABLE>
[Remainder of page intentionally left blank.]
<PAGE>
During fiscal 1996, 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 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 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 complex
manufacturing process, there is little competition for sales of this material.
Hastelloy B-3 was developed for the same applications and has 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 super phosphoric
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
7% of the Company's net revenues in fiscal 1996.
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, improves upon Hastelloy C-22. 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 manufactured HTA products for the aerospace
market since it entered the market in the late 1930s, and has developed
numerous proprietary alloys for this market. The Company sold products to
approximately 500 customers in this segment in fiscal 1996, and no one
customer accounted for more than 2% of the Company's net revenues.
<PAGE>
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 1996. CRA products supplied by the Company have been used in the
chemical processing industry since the early 1930s.
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.
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 off facilities and off-gas scrubbing utilizing FGD technology.
<PAGE>
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.
[Remainder of page intentionally left blank.]
<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, five 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 provides an advantage
over other manufacturers in the high performance industry. This activity
allows the Company to obtain direct insight into customers' alloy needs and
allows the Company to develop 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 Asia
Pacific Rim. Approximately 75% of the Company's net revenues in fiscal 1996
was generated by the Company's direct sales organization. The remaining 25% of
the Company's fiscal 1996 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 1996 net
revenues generated through each of the Company's distribution channels.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
DOMESTIC FOREIGN TOTAL
--------------- ------------- ----------
Company sales office/direct . . . . . 34% 8% 42%
Company-owned service centers . . . . 13 20 33
Independent distributors/sales agents 17 8 25
---------------- -------------- -----------
Total . . . . . . . . . . . . . . 64% 36% 100%
================ ============== ===========
</TABLE>
The top twenty customers not affiliated with the Company accounted for
approximately 41% of the Company's net revenues in fiscal 1996. Sales to
Spectrum Metals, Inc. and Rolled Alloys, Inc., which are affiliated with each
other, accounted for an aggregate of 12% of the Company's net revenues in
fiscal 1996. No other customer of the Company accounted for more than 10% of
the Company's net revenues in fiscal 1996.
The Company's foreign and export sales were approximately $55.7
million,$79.6 million and $84.3 million for fiscal 1994, 1995 and 1996,
respectively. Additional information concerning foreign operations and export
sales is set forth in Note 12 of the Notes to Consolidated Financial
Statements appearing elsewhere herein.
<PAGE>
MANUFACTURING PROCESS
High performance alloys require a lengthier, more complex melting process
and are more difficult to manufacture than lower performance alloys, such as
stainless steels. The alloying elements in high performance alloys must be
highly refined, and the manufacturing process must be tightly controlled to
produce precise chemical properties. The resulting alloyed material is more
difficult to process because, by design, it is more resistant to deformation.
Consequently, high performance alloys require that greater force be applied
when hot or cold working and are less susceptible to reduction or thinning
when rolling or forging, resulting in more cycles of rolling, annealing and
pickling than a lower performance alloy to achieve proper dimensions. Certain
alloys may undergo as many as 40 distinct stages of melting, remelting,
annealing, forging, rolling and pickling before they achieve the
specifications required by a customer. The Company manufactures products in
sheet, plate, tubular, billet, bar and wire forms, which represented 48%, 23%,
12%, 12%, 3% and 2%, respectively, of total volume sold in fiscal 1996 (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 provides the Company an
advantage over its major competitors in obtaining smaller specialty orders.
<PAGE>
BACKLOG
As of September 30, 1996, the Company's backlog orders aggregated
approximately $53.7 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 during fiscal 1996.
Substantially all orders in the backlog at September 30, 1996 are expected to
be shipped within the twelve months beginning October 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. The historical
and current backlog amounts shown in the following table are also indicative
of relative demand over the past few years.
<TABLE>
<CAPTION>
HAYNES BACKLOG
AT FISCAL QUARTER END
(IN MILLIONS)
<S> <C> <C> <C> <C>
1993 1994 1995 1996
----- ----- ----- -----
1st $41.5 $29.5 $49.7 $61.2
- --- ----- ----- ----- -----
2nd $38.9 $35.5 $64.8 $61.9
----- ----- ----- -----
3rd $31.5 $38.0 $55.8 $57.5
----- ----- ----- -----
4th $31.1 $41.5 $49.9 $53.7
- --- ----- ----- ----- -----
</TABLE>
RAW MATERIALS
Nickel is the primary material used in the Company's alloys. Each pound of
alloy contains, on average, 0.48 pounds of nickel. Other raw materials include
cobalt, chromium, molybdenum and tungsten. Melt materials consist of virgin
raw material, purchased scrap and internally produced scrap. The significant
sources of cobalt are the countries of Zambia, Zaire and Russia; all other raw
materials used by the Company are available from a number of alternative
sources.
Since most of the Company's products are produced to specific orders, the
Company purchases materials against known production schedules. Materials are
purchased from several different suppliers, through consignment arrangements,
annual contracts and spot purchases. These arrangements involve a variety of
pricing mechanisms, but the Company generally can establish selling prices
with reference to known costs of materials, thereby reducing the risk
associated with changes in the cost of raw materials. The Company maintains a
policy of pricing its products at the time of order placement. As a result,
rapidly escalating raw material costs during the period between the time the
Company receives an order and the time the Company purchases the raw materials
used to fill such order, which has averaged approximately 30 days in recent
months, can negatively affect profitability even though the high performance
alloy industry has generally been able to pass raw material price increases
through to its customers.
<PAGE>
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. The following table
sets forth the average per pound prices for nickel as reported by the London
Metals Exchange for the fiscal years indicated.
<TABLE>
<CAPTION>
<S> <C>
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
1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.56
</TABLE>
RESEARCH AND TECHNICAL DEVELOPMENT
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. As of September 30, 1996, the
research and technical development staff consisted of 37 persons, 15 of whom
have engineering or science degrees, including six with doctoral degrees, with
the majority of degrees in the field of metallurgical engineering.
Research and technical development costs relate to efforts to develop new
proprietary alloys, to improve current or develop new manufacturing methods,
to provide technical service to customers, to maintain quality assurance
methods and to provide metallurgical training to engineer and non-engineer
employees. The Company spent approximately $3.6 million, $3.0 million and
$3.4 million for research and technical development activities for fiscal
1994, 1995 and 1996, respectively.
During fiscal 1996, exploratory alloy development projects were focused
on new CRA products for hydrofluoric and phosphoric acid service. Engineering
projects include manufacturing process development, welding development and
application support for two large volume projects involving the LBGT and steel
making industries. The Company is also developing a computerized database
management system to better manage its corrosion, high temperature and
mechanical property data.
<PAGE>
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 42 United States patents and approximately 147
foreign counterpart patents targeted at countries with significant or
potential markets for the patented products. In fiscal 1996, approximately 25%
of the Company's net revenues was derived from the sale of patented products
and an additional approximately 46% 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 2009, 2008, 2002, 2001 and 1998, respectively.
COMPETITION
The high performance alloy market is a highly competitive market in which
eight to ten producers participate in various product forms. The Company faces
strong competition from domestic and foreign manufacturers of both the
Company's high performance alloys and other competing metals. The Company's
primary competitors include Inco Alloys International, Inc., a subsidiary of
Inco Limited, Allegheny Ludlum Corporation and Krupp VDM GmbH. Prior to fiscal
1994,this competition, coupled with declining demand in several of the
Company's key markets, 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.
EMPLOYEES
As of September 30, 1996, the Company had approximately 931 employees. All
eligible hourly employees at the Kokomo plant are covered by a collective
bargaining agreement with the United Steelworkers of America ("USWA") which
was ratified on June 11, 1996 and which expires on June 11, 1999. As of
September 30, 1996, 474 employees of the Kokomo facility were covered by the
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.
[Remainder of page intentionally left blank.]
<PAGE>
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. Expenses
related to environmental compliance were $1.3 million for fiscal 1996 and are
expected to be approximately $3.2 million for fiscal year 1997 through fiscal
year 1998. Although there can be no assurance, based upon current information
available to the Company, the Company does not expect that costs of
environmental contingencies, individually or in the aggregate, will have a
material adverse effect on the Company's financial condition, results of
operations or liquidity.
The Company's facilities are subject to periodic inspection by various
regulatory authorities, who from time to time have issued findings of
violations of governing laws, regulations and permits. In the past five years,
the Company has paid administrative fines, none of which has exceeded $50,000,
for alleged violations relating to environmental matters, including the
handling and storage of hazardous wastes, and record keeping requirements
relating to, and handling of, polychlorinated biphenyls ("PCBs"). Although the
Company does not believe that similar regulatory or enforcement actions would
have a material impact on its operations, there can be no assurance that
violations will not be alleged or will not result in the assessment of
additional penalties in the future.
The Company has received permits from IDEM and EPA to close and to provide
post-closure monitoring and care for certain areas at the Kokomo facility used
for the storage and disposal of wastes, some of which are classified as
hazardous under applicable regulations. The closure project, essentially
complete, entailed installation of a clay liner under the disposal areas, a
leachate collection system and a clay cap and revegetation of the site.
Construction was completed in May 1994 and a closure certification has been
filed with IDEM. Thereafter, the Company will be required to monitor
groundwater and to continue post-closure maintenance of the former disposal
areas. The Company is aware of elevated levels of certain contaminants in the
groundwater. The Company believes that some or all of these contaminants may
have migrated from a nearby superfund site. If it is determined that the
disposal areas have impacted the groundwater underlying the Kokomo facility,
additional corrective action by the Company could be required. The Company is
unable to estimate the costs of such action, if any. There can be no
assurance, however, that the costs of future corrective action would not have
a material effect on the Company's financial condition, results of operations
or liquidity. Additionally, it is possible that the Company could be required
to obtain permits and undertake other closure projects and post-closure
commitments for any other waste management unit determined to exist at the
facility.
As a condition of these closure and post-closure permits, the Company must
provide and maintain assurances to IDEM and EPA of the Company's capability to
satisfy closure and post-closure ground water monitoring requirements,
including possible future corrective action as necessary. On April 8, 1996,
IDEM issued a Notice of Violation relating to the requirements for the former
disposal areas. An Agreed Order dated July 2, 1996 was entered into between
the Company and the IDEM in resolution of this Notice of Violation. The
Company paid a civil penalty of $15,000 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.
<PAGE>
The Company may also incur liability for alleged environmental damages
associated with the off-site transportation and disposal of its wastes. The
Company's operations generate hazardous wastes, and, while a large percentage
of these wastes are reclaimed or recycled, the Company also accumulates
hazardous wastes at each of its facilities for subsequent transportation and
disposal off-site by third parties. Generators of hazardous waste transported
to disposal sites where environmental problems are alleged to exist are
subject to claims under CERCLA, and state counterparts. CERCLA imposes strict,
joint and several liability for investigatory and cleanup costs upon waste
generators, site owners and operators and other "potentially responsible
parties" ("PRPs"). Based on its prior shipment of waste oil contaminated with
PCBs, the Company is one of approximately 700 PRPs in connection with the
cleanup of PCB contamination at the Rose Chemical site in Missouri. The
Company has contributed over $130,000 toward the private cleanup currently
being implemented by a group of many of these PRPs, approximately $52,000 of
which has been refunded, and does not anticipate that further significant
expenditures by the Company will be required in connection with this site.
Based on its prior shipment of certain hydraulic fluid, the Company is one of
approximately 300 PRPs in connection with the proposed cleanup of the
Fisher-Calo site in Indiana. The PRPs have negotiated a Consent Decree
implementing a remedial design/remedial action plan ("RD/RA") for the site
with the EPA. The Company has paid approximately $138,000 as its share of the
total estimated cost of the RD/RA under the Consent Decree. Based on
information available to the Company concerning the status of the cleanup
efforts at the Rose Chemical and Fisher-Calo sites, the large number of PRPs
at each site and the prior payments made by the Company in connection with
these sites, management does not expect the Company's involvement in these
sites to have a material adverse effect on the financial condition, results of
operations or liquidity of the Company. The Company may have generated
hazardous wastes disposed of at other sites potentially subject to CERCLA or
equivalent state law remedial action. Thus, there can be no assurance that the
Company will not be named as a PRP at additional sites in the future or that
the costs associated with those sites would not have a material adverse effect
on the Company's financial condition, results of operations or liquidity.
In November 1988, the EPA approved start-up of a new waste water treatment
plant at the Arcadia, Louisiana facility, which discharges treated industrial
waste water to the municipal sewage system. After the Company exceeded certain
EPA effluent limitations in 1989, the EPA issued an administrative order in
1992 which set new effluent limitations for the facility. The waste water
plant is currently operating under this order and the Company believes it is
meeting such effluent limitations. However, the Company anticipates that in
the future Louisiana will take over waste water permitting authority from the
EPA and may issue a waste water permit, the conditions of which could require
modification to the plant. Reasonably anticipated modifications are not
expected to have a substantial impact on operations.
<PAGE>
ITEM 2. PROPERTIES
The Company's owned facilities, 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 ahead
quarters 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,
drawbenches, annealing furnaces and pickling facilities.
The United States facilities are subject to a mortgage which secures the
Company's obligations under the Company's Revolving Credit Facility. See Note
6 of Notes to Consolidated Financial Statements.
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 conducted at the
facility 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.
[Remainder of page intentionally left blank.]
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
In Leslie Baxter, et. al. vs. Haynes International, Inc. and Haynes Group
Insurance Plan, filed July 6, 1995 in the U.S. District Court, Southern
District of Indiana, Indianapolis Division, retirees and the surviving spouse
of a retiree filed suit on behalf of themselves and similarly situated
retirees and surviving spouses for restoration of the retiree health insurance
to benefit levels prevailing before the reduction of those benefit levels on
January 1, 1995 and to maintain the restored insurance benefit levels for the
lives of the covered retirees and their surviving spouses. The suit also seeks
judgment in damages for the benefits that have been lost as a result of the
January 1, 1995 reductions in benefit levels and for the medical expenses,
premiums paid and other damages incurred, including reasonable attorneys' fees
and costs of maintaining the suit. This lawsuit is in the very early stages of
discovery, and the Company is not able at this time to assess the likelihood
that or the extent to which this lawsuit could have an impact on the Company's
financial position or operations. The Company intends to vigorously defend
against the claims.
The Company recently completed an examination by the Internal Revenue
Service ("IRS") for the five taxable years ended September 30, 1993 (the
"Years in Issue"). The IRS has proposed to disallow aggregate deductions
claimed by the Company during the Years in Issue in an amount aggregating
approximately $5.5 million, relating to the amortization of certain loan fees
totaling $10.4 million incurred in connection with the acquisition of the
Company by Morgan, Lewis, Githens & Ahn ("MLGA") and the management of the
Company in August 1989 ("1989 Acquisition"). The Company claimed similar
deductions in 1994 through 1996. The loan fees are being amortized over a
10-year period ending in 1999. In addition to proposed disallowance of
deductions claimed during the Years in Issue, the IRS' position, if sustained,
would prohibit amortization deductions for the years following the Years in
Issue in an aggregate amount of approximately $4.9 million, and the amount of
available net operating loss carryforwards would be reduced accordingly. The
Company has formally protested the disallowance of these deductions. On
August 28, 1996, the Company met with officials from the IRS Appeals Office
and received a favorable verbal confirmation that the deductions would be
allowed as a result of the recent passage of the Small Business Job Protection
Act of 1996. The Company is awaiting written confirmation of the IRS'
position.
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.
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<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
There is no established trading market for the common stock of the
Company.
As of December 26, 1996 there was one holder of the common stock of the
Company.
There have been no cash dividends declared on the common stock for the
two fiscal years ended September 30, 1996.
The payment of dividends is limited by terms of certain debt agreements
to which the Company is a party. See Note 6 to the Consolidated Financial
Statements of the Company included in this Annual Report in response to Item
8.
[Remainder of page intentionally left blank.]
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT RATIO AND OPERATING DATA)
The following table sets forth selected consolidated financial data of
the Company. The selected consolidated financial data as of and for the years
ended September 30, 1992, 1993, 1994, 1995 and 1996 are derived from the
audited consolidated financial statements of the Company.
These selected financial data are not covered by the auditor's report and
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 Form 10-K.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Year Ended September 30,
Statement of Operations Data:
1992 1993 1994 1995 1996
------------ ----------- ------------ --------- -----------
Net revenues $ 169,344 $ 162,454 $ 150,578 $201,933 $ 226,402
Cost of sales 152,911(2) 137,102 171,957(3) 167,196 181,173
Selling and administrative expenses 19,641(2) 14,569 15,039 15,475 19,966
Research and technical expenses 3,894 3,603 3,630 3,049 3,411
Operating income (loss) (7,102) 7,180 (40,048) 16,213 21,852
Other cost, net 882(2) 400 816 1,767 590
Interest expense, net 20,107 18,497 19,582 19,904 21,102
Income (loss) before extraordinary item and
cumulative effect of change in accounting
principle (16,771) (8,275) (60,866) (6,771) 160
Extraordinary item, net of tax benefit (7,256)(9)
Cumulative effect of change in accounting
principle (net of tax benefit) -- -- (79,630)(4) -- --
------------ ----------- ------------ --------- -----------
Net loss (16,771) (8,275) (140,496) (6,771) (9,036)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Year Ended September 30,
Balance Sheet Data: 1992 1993 1994 1995 1996
----------- ---------- ---------- ---------- ----------
Working capital (5) $ 39,344 $ 72,131 $ 60,182 $ 62,616 $ 57,307
Property, plant and equipment, net 60,700 51,676 43,119 36,863 31,157
Total assets 214,585 194,200 145,723 151,316 161,489
Total debt 142,194 140,180 148,141 152,477 168,238
Accrued post-retirement benefits -- -- 94,148 94,830 95,813
Stockholder's equity (Capital deficit) 35,162 22,938 (116,029) (121,909) (130,341)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
September 30,
Other Financial Data: 1992 1993 1994 1995 1996
--------- ----------- --------- -------- --------
Depreciation and amortization (6) $ 16,484 $ 13,766 $ 51,555 $ 9,000 $ 9,042
Capital expenditures 821 56 771 1,934 2,092
EBITDA (7) 8,500 20,546 10,691 23,446 32,141
Ratio of EBITDA to interest expense 0.42x 1.11x 0.55x 1.18x 1.52x
Ratio of earnings before fixed
charges to fixed charges (8) -- -- -- -- 1.01x
Net cash provided from (used in) operations $ 19,850 $ 5,711 $(12,801) $(2,883) $(5,343)
Net cash provided from (used in) investment activities (757) 318 746 (1,895) (2,025)
Net cash provided from (used in) financing
activities (16,440) (2,014) 7,102 3,912 7,116
<FN>
(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 $5,210, $3,686 and $488 for fiscal 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) Reflects the excess of current assets over historical and adjusted current liabilities as set forth in
the Consolidated Financial Statements.
(6) Reflects (i) depreciation and amortization as presented in the Company's Consolidated Statement of
Cash Flows and set forth in note (7) below, plus (ii) other non-cash charges, including the amortization of
prepaid pension costs (which is included in the change in other asset category) and the amortization of
inventory costs as described in note (1) above, minus amortization of debt issuance costs, all as set forth in
note (7) below.
(7) 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 and excluding the refinancing costs set forth in Note 9, part
(a) and (b) below for fiscal 1996). In addition to net interest expense as listed in the table, the following
charges are added to net income to calculate EBITDA:
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
1992 1993 1994 1995 1996
--------- -------- -------- -------- --------
Provision for (benefit from) income taxes $(11,320) $(3,442) $ 420 $ 1,313 $ 1,940
Depreciation 8,752 8,650 8,208 8,188 7,751
Amortization:
Debt issuance costs 1,333 2,120 1,680 1,444 4,698
Goodwill 1,490 1,487 38,607 -- --
Inventory (see note (1) above) 5,210 3,686 488 -- --
Prepaid pension costs 1,032 (57) 314 130 308
--------- -------- -------- -------- --------
9,065 7,236 41,089 1,574 5,006
SFAS 106-Post-retirement -- -- 3,938 682 983
Amortization of debt issuance costs (1,333) (2,120) (1,680) (1,444) (4,698)
--------- -------- -------- -------- --------
Total $ 5,164 $10,324 $51,975 $10,313 $10,982
- ------------------------------------------ ========= ======== ======== ======== ========
<FN>
EBITDA should not be construed as a substitute for income from operations, net earnings
(loss) or cash flows from operating activities determined in accordance with Generally
Accepted Accounting Principles ("GAAP"). The Company has included EBITDA because it believes
it is commonly used by certain investors and analysts to analyze and compare companies on the
basis of operating performance, leverage and liquidity and to determine a company's ability
to service debt. Because EBITDA is not calculated in the same manner by all entities, EBITDA
as calculated by the Company may not necessarily be comparable to that of the Company's
competitors or of other entities.
(8) For purposes of these computations, earnings before fixed charges consist of income
(loss) before provision for (benefit from) income taxes and cumulative effect of change in
accounting principle plus fixed charges. Fixed charges consist of interest on debt and
amortization of debt issuance costs. Earnings were insufficient to cover fixed charges by
$28,091, $11,717, $60,446, and $5,458 for fiscal 1992, 1993, 1994 and 1995, respectively.
(9) During fiscal 1996, the Company successfully refinanced its debt with the issuance of
$140,000 Senior Notes due 2004 and an amendment to its Revolving Credit Facility with
Congress Financial Corporation ("Congress"). As a result of this refinancing effort, certain
non-recurring charges were recorded as follows: (a) $7,256 was recorded as the aggregate of
extraordinary items which represents the extraordinary loss on the redemption of the
Company's 113% Senior Secured Notes due 1998 and 132% Senior Subordinated Notes due 1999
(collectively, the "Old Notes") and is comprised of $3,911 of prepayment penalties incurred
in connection with the redemption and $3,345 of deferred debt issuance costs which were
written off upon consummation of the redemption; (b) $1,837 of Selling and Administrative
Expense which represents costs incurred with a postponed initial public offering of the
Company's common stock; and (c) $924 of Interest Expense which represents the net interest
expense (approximately $1,500 interest expense, less approximately $600 interest income)
incurred during the period between the issuance of the Senior Notes and the redemption of the
Old Notes.
</TABLE>
<PAGE>
ITEM 7. 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 61% and 39%, respectively, of the Company's net revenues
in fiscal 1996. Based on available industry data, the Company believes that it
is one of three principal 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 1996, flat products accounted for 72% of
shipments and 65% 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 16.4 million pounds in fiscal 1996, 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 $17.6
million from fiscal 1997 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 75% of the Company's net
revenues in fiscal 1996 was generated by the Company's direct sales
organization. The remaining 25% of the Company's fiscal 1996 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 1996, sales to customers outside the United States
accounted for approximately 36% of the Company's net revenues. Sales of
domestically-produced products accounted for approximately 38% of the
Company's foreign sales in fiscal 1996, and the balance of foreign sales was
derived from sales of products produced overseas.
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 markets, EBITDA
calculated as described in Note (7) to Selected Consolidated Financial Data,
declined 48%, despite a 7% increase in the average selling price per pound of
the Company's products.
In fiscal 1996, proprietary products represented approximately 25% of the
Company's net revenues. In addition to these patent-protected alloys, several
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 1996, these other alloys represented
approximately 19% of the Company's net revenues.
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.
<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>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1992 1992 1993 1993 1994 1994 1995 1995 1996
SALES (DOLLARS % of % of % of Total % of Total
IN MILLIONS) Amount Total Amount Total Amount Amount Amount
--------- ------- --------- ------- --------- ------- --------- ------- ---------
Aerospace. . . . . . $ 45.7 27.0% $ 46.7 28.7% $ 46.4 30.8% $ 66.4 32.9% $ 87.1
Chemical processing 52.8 31.2 52.2 32.1 50.1 33.3 72.2 35.8 83.0
Land-based gas 10.7 6.3 12.6 7.8 17.0 11.3 14.3 7.1 16.4
turbines
Flue gas 11.4 6.7 17.4 10.7 10.2 6.7 6.6 3.3 8.2
desulfurization
Oil and gas 18.8 11.1 11.0 6.8 4.2 2.8 4.5 2.2 4.3
Other markets 28.0 16.6 20.5 12.6 20.6 13.7 34.6 17.1 23.8
------ ------ ------ ------ ------ ------ ------ ------ ------
Total product 167.4 98.9 160.4 98.7 148.5 98.6 198.6 98.4 222.8
Other revenue(1) 1.9 1.1 2.1 1.3 2.1 1.4 3.3 1.6 3.6
Net revenues $ 169.3 100.0% $ 162.5 100.0% $ 150.6 100.0% $ 201.9 100.0% $ 226.4
U.S. $ 116.4 $ 109.1 $ 94.8 $ 122.3 $ 142.0
Foreign $ 52.9 $ 53.4 $ 55.8 $ 79.6 $ 84.4
SHIPMENTS BY OF
MARKET (MILLIONS
POUNDS)
Aerospace 3.4 24.5% 3.3 21.6% 3.3 24.8% 4.7 28.8% 5.8
Chemical processing 4.6 33.1 5.2 34.0 5.0 37.6 6.1 37.4 6.6
Land-based gas
turbines 1.3 9.4 1.2 7.8 1.6 12.0 1.3 8.0 1.4
Flue gas
desulfurization 1.6 11.4 2.9 19.0 1.5 11.3 0.9 5.5 0.9
Oil and gas 1.3 9.4 1.1 7.2 0.4 3.0 0.5 3.1 0.3
Other markets 1.7 12.2 1.6 10.4 1.5 11.3 2.8 17.2 1.4
------ ------ ------ ------ ------ ------ ------ ------ ------
Total shipments 13.9 100.0% 15.3 100.0% 13.3 100.0% 16.3 100.0% 16.4
AVERAGE SELLING
PRICE PER POUND
Aerospace. . . . . . $ 13.44 $ 14.15 $ 14.06 $ 14.13 $ 15.02
Chemical processing 11.48 10.04 10.02 11.84 12.58
Land-based gas
turbines 8.23 10.50 10.63 11.00 11.71
Flue gas
desulfurization 7.13 6.00 6.80 7.33 9.11
Oil and gas 14.46 10.00 10.50 9.00 14.33
Other markets 16.47 12.81 13.73 12.36 17.00
All markets 12.04 10.48 11.17 12.18 13.59
<S> <C>
1996
SALES (DOLLARS % of
IN MILLIONS) Total
-------
Aerospace. . . . . . 38.5%
Chemical processing 36.7
Land-based gas 7.2
turbines
Flue gas 3.6
desulfurization
Oil and gas 1.9
Other markets 10.5
------
Total product 98.4
Other revenue(1) 1.6
Net revenues 100.0%
U.S.
Foreign
SHIPMENTS BY OF
MARKET (MILLIONS
POUNDS)
Aerospace 35.4%
Chemical processing 40.2
Land-based gas
turbines 8.5
Flue gas
desulfurization 5.5
Oil and gas 1.8
Other markets 8.6
------
Total shipments 100.0%
AVERAGE SELLING
PRICE PER POUND
Aerospace
Chemical processing
Land-based gas
turbines
Flue gas
desulfurization
Oil and gas
Other markets
All markets
<FN>
- --------------------
(1) Includes toll conversion and royalty income.
</TABLE>
<PAGE>
Fluctuations in net revenues and volume from fiscal 1992 through fiscal
1996 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.
The Company began to see a recovery in the demand for its aerospace
products at the beginning of fiscal 1995. Reflecting increased aircraft
production and maintenance, the Company's net revenues from sales to the
aerospace industry in 1996 increased 31.2% 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 1996, 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 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 land-based gas turbines 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. 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 1996 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.
[Remainder of page intentionally left blank.]
<PAGE>
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>
YEAR ENDED September 30,
----------- ---------- --------
<S> <C> <C> <C>
1994 1995 1996
----------- ---------- --------
Net revenues 100.0% 100.0% 100.0%
Cost of sales 89.6(1) 82.8 80.0
Selling and administrative expenses 10.0 7.7 8.8(4)
Research and technical expenses 2.4 1.5 1.5
Other cost, net 0.5 0.9 0.3
Interest expense 13.2 10.0 9.7(4)
Interest income (0.2) (0.2) (0.4)(4)
Goodwill write-off 24.6(2) -- --
Income (loss) before provision for income taxes, extraordinary
items, and cumulative effect of change in accounting principle (40.1) (2.7) 0.1
Provision for (benefit from) income taxes 0.3 0.6 0.9
Extraordinary item, net of tax benefit (3.2)(4)
Cumulative effect of change in accounting principle, (net of tax
benefit) (52.9)(3) -- --
Net loss (93.3)% (3.3)% (4.0)%
- ----------------------------------------------------------------- =========== ========== ========
<FN>
- -----------------------------
(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 $488,000 for fiscal 1994 and 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.
(4) During 1996, the Company refinanced its debt and certain non-recurring charges were recorded
as a result of this refinancing effort as follows: (a) approximately $7.3 million was recorded as
the aggregate of extraordinary items which represents the extraordinary loss on the redemption of
the Senior Secured Notes and Senior Subordinated Notes and is comprised of approximately $3.9
million of prepayment penalties incurred in connection with the redemption and approximately $3.3
million of deferred debt issuance costs which were written off upon consummation of the redemption;
(b) approximately $1.8 million of Selling and Administrative Expense which represents costs incurred
with a postponed initial public offering of the Company's common stock; and (c) $924,000 of Interest
Expense which represents the net interest expense (approximately $1.5 million interest expense less
approximately $600,000 interest income) incurred during the period between the issuance of the
Senior Notes and the redemption of the Senior Secured and Senior Subordinated Notes.
</TABLE>
<PAGE>
YEAR ENDED SEPTEMBER 30, 1996 COMPARED TO YEAR ENDED SEPTEMBER 30, 1995
Net revenues increased approximately $24.5 million, or 12.1%, to
approximately $226.4 million in fiscal 1996 from approximately $201.9 million
in fiscal 1995, primarily as a result of an 11.6% increase in the average
selling price per pound, from $12.18 to $13.59. Shipments increased by 0.6%
to 16.4 million pounds in fiscal 1996 from 16.3 million pounds in fiscal 1995,
as volume increases in the aerospace, chemical processing and LBGT markets
offset lower volumes in the oil and gas and other markets.
Sales to the aerospace market increased by 31.2% to approximately $87.1
millon in fiscal 1996 from approximately $66.4 million in fiscal 1995. Volume
increased 23.4% and the average selling price per pound increased 6.3%.
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 increased 15.0% to
approximately $83.0 million in fiscal 1996 from approximately $72.2 million in
fiscal 1995. Volume increased 8.2% despite lower exports to the Asia Pacific
Rim. In addition, the average selling price per pound increased 6.3% as a
result of higher demand from both the domestic and European markets.
Sales to the LBGT market increased 14.7% to approximately $16.4 million
in fiscal 1996 from approximately $14.3 million in fiscal 1995 as a result of
an 7.7% increase in volume and a 6.5% increase in the average selling price
per pound. This reflected strong demand for cleaner burning power generation
from gas turbines. In addition, the Company's sales to this market have 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 increased 24.2% to approximately $8.2 million in
fiscal 1996 from approximately $6.6 million in fiscal 1995. Volume was
essentially unchanged; however, average selling price per pound increased by
24.3%.
Sales to the oil and gas industry decreased 4.4% to approximately $4.3
million in fiscal 1996 from sales of approximately $4.5 million in fiscal
1995. Sales to this market occurred primarily in the third quarter for both
fiscal years due to sour gas projects in Mobile Bay off the coast of Alabama.
Volume decreased 40.0%, while average selling price per pound increased 59.2%
due primarily to a favorable product mix.
Sales to other markets decreased by 31.8% to approximately $23.8 million
for fiscal 1996 from approximately $34.9 million in fiscal 1995, as a result
of a 50.0% decrease in volume which was only partially offset by a 37.5%
increase in average selling price per pound. The Company benefitted from a
one-time order of approximately $3.5 million for a major waste treatment
facility in Eastern Europe and a $5.1 million one-time order for
defense-related recuperators on M-1 tanks in the first nine months of fiscal
1995. Sales to the waste incineration market increased as a result of greater
use of the Company's products in high temperature corrosion applications. In
addition, increased use of Haynes HR-120 as a substitute for competing
products (including stainless steel) in the industrial heating market led to
higher sales in that segment.
Cost of sales increased by approximately $14.0 million, or 8.4% to
approximately $181.2 million in fiscal 1996 from approximately $167.2 million
in fiscal 1995. However, cost of sales as a percent of net revenues decreased
to 80.0% from 82.3% in the respective periods as a result of higher average
selling prices and a favorable change in product mix. Volume in the
higher-market 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 fiscal 1995 raw
material costs escalated thereby temporarily reducing margins until price
increases could be fully implemented. In fiscal 1996, these increased costs
had been fully passed through to a greater extent as reflected in higher
selling prices.
<PAGE>
Selling and administrative expenses increased approximately $4.5 million,
or 29.0% to approximately $20.0 million for fiscal 1996 from approximately
$15.5 million in fiscal 1995. The increase was primarily a result of salary
increases and the payment and accrual of management and employee bonuses of
approximately $1.9 million which were awarded for fiscal 1995 and fiscal 1996
performance. Selling and administrative expenses also include approximately
$1.8 million of costs incurred in connection with a postponed initial public
offering of the Company's common stock. In addition, sales and marketing
personnel were hired as a part of the Company's efforts to increase market
coverage and customer contact.
Research and technical expenses increased approximately $362,000 or
11.9%, to approximately $3.4 million in fiscal 1996 from approximately $3.0
million 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 fiscal 1996 of approximately $21.9 million, approximately $4.9 million of
which was contributed by the Company's foreign subsidiaries. For fiscal 1995,
operating income was approximately $16.2 million, of which approximately $5.3
million was contributed by the Company's foreign subsidiaries.
Other costs, net decreased approximately $1.2 million or 66.6% to
approximately $590,000 for fiscal 1996 from approximately $1.8 million in the
same period in fiscal 1995, primarily as a result of foreign exchange gains in
fiscal 1996 compared to foreign exchange losses in fiscal 1995 and a $582,000
reduction in other costs associated with the fiscal 1995 purchase of options
to acquire the then outstanding Subordinated Notes.
Interest expense increased approximately $1.8 million or 8.7% to
approximately $22.0 million or fiscal 1996 from approximately $20.2 million
for the same period in fiscal 1995, due primarily to higher average borrowings
under the Existing Credit Facility and an additional $1.5 million of interest
expense incurred during the period between the issuance of the Senior Notes
and the redemption of the Senior Secured Notes and Senior Subordinated Notes.
The provision for income taxes of approximately $1.9 million for fiscal
1996 increased by approximately $672,000 from approximately $1.3 million for
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.
Extraordinary items, net of tax benefit of approximately $7.3 million,
were recorded in fiscal 1996 representing the extraordinary loss on the
redemption of the Senior Secured Notes and Senior Subordinated Notes and is
comprised of approximately $3.9 million of prepayment penalties incurred as a
result of the redemption and approximately $3.3 million of deferred debt
issuance costs which were written off upon redemption. No tax benefit was
recognized due to the valuation reserve established for tax reporting
purposes.
As a result of the above factors, the Company recognized a net loss for
fiscal 1996 of approximately $9.0 mllion, compared to a net loss of
approximately $6.8 million for fiscal 1995.
[Remainder of page intentionally left blank.]
<PAGE>
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 43.1% 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 pound to the aerospace
market in fiscal 1995 remained essentially 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 7.8% 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 fossil 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 68.0% to approximately $34.6 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 10.0%
decrease in average selling price per pound for the same periods.
<PAGE>
Cost of sales decreased approximately $4.8 million, or 2.8%, to
approximately $167.2 million in fiscal 1995 from approximately $172.0 million
in fiscal 1994. Fiscal 1994 cost of sales included the write-off of goodwill
as discussed in Note 10 of the Notes to Consolidated Financial Statements.
Cost of sales as a percent of the Company's net revenues decreased to 82.8%
from 89.6% in the respective years, excluding the effect of the write-off of
goodwill in fiscal 1994 as discussed above. This was due primarily to
increased capacity utilization and increased profitability in the European
subsidiaries. During the first half of fiscal 1995, raw material costs
escalated rapidly, resulting in lower margins. As a result, the spread between
average selling price and material cost per pound was lower in fiscal 1995
than in fiscal 1994. This was partially offset in the second half of fiscal
1995 as price increases for the Company's alloys became effective. Higher
volume reduced unit fixed costs and led to improved operating efficiencies. In
addition, the European subsidiaries experienced improved volume and margins in
fiscal 1995, reflecting improved business conditions which further improved
the Company's cost of sales as a percent of net revenues.
Selling and administrative expenses increased approximately $436,000, or
2.9%, to approximately $15.5 million in fiscal 1995 from approximately $15.0
million in fiscal 1994 primarily as a result of expenses which previously had
been reported as research and technology expenses in fiscal 1994 being
reclassified as selling and administrative expenses in fiscal 1995.
Research and technical expenses decreased approximately $581,000, or
16.0%, to approximately $3.0 million in fiscal 1995 from approximately $3.6
million in fiscal 1994 due in part to the reclassification of expenses noted
above. In addition, certain costs associated with engineering functions
recorded as manufacturing costs in fiscal 1995 were reported as research and
technical expenses in fiscal 1994.
As a result of the above factors, the Company recognized operating income
in fiscal 1995 of approximately $16.2 million as compared to an operating loss
of approximately $40.0 million in fiscal 1994. Operating loss in fiscal 1994
was approximately $2.9 million prior to the write off of approximately $37.1
million of goodwill as described in Note 10 of the Notes to Consolidated
Financial Statements. Operating income contributed by the Company's foreign
subsidiaries was approximately $5.3 million in fiscal 1995 and approximately
$1.6 million in fiscal 1994.
Other costs, net increased approximately $951,000, or 116.5%, to
approximately $1.8 million in fiscal 1995 from approximately $816,000 in
fiscal 1994, primarily as a result of fluctuations in foreign exchange rates,
which accounted for approximately $150,000 of the increase, and approximately
$478,000 in costs incurred associated with obtaining options to purchase
certain of the Company's Existing Subordinated Notes. The options expired in
October 1995.
Interest expense increased approximately $317,000, or 1.6%, to
approximately $20.2 million in fiscal 1995 from approximately $19.9 million in
fiscal 1994, primarily as a result of higher average borrowings under the
Existing Credit Facility.
The provision for income taxes for fiscal 1995 was approximately $1.3
million compared to approximately $420,000 in fiscal 1994, due primarily to
taxes on foreign earnings against which the Company was unable to utilize its
NOLs.
As a result of the above factors, the Company reported a net loss of
approximately $6.8 million in fiscal 1995 compared to a net loss of
approximately $140.5 million in fiscal 1994, including SFAS 106 expense of
approximately $79.6 million.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's near-term future cash needs will be driven by working
capital requirements, which are likely to increase, and planned capital
expenditures. Capital expenditures were approximately $2.1 million in fiscal
1996 and are expected to be approximately $8.0 million in fiscal 1997 and
approximately $9.6 million in fiscal 1998. Capital expenditures were
approximately $772,000 and $1.9 million for fiscal 1994 and 1995,
respectively. The increased capital investments for fiscal 1997 and 1998 are
designated for significant new equipment additions and expenditures of
approximately $3.1 million for new integrated information systems. The primary
benefits of this spending are expected to be (i) the expansion of annual
production capacity by 25% from approximately 20.0 million pounds to
approximately 25.0 million pounds, based on the current product mix, (ii)
improved production quality resulting in lower internal rejection rates and
rework costs and (iii) improved coordination among sales, marketing and
manufacturing personnel resulting in more efficient pricing practices. The
Company does not expect such capital expenditures to have a material adverse
effect on its long-term liquidity. Moreover, the Company does not currently
have any significant capital expenditure commitments. The Company expects to
fund its working capital needs and capital expenditures with cash provided
from operations, supplemented by borrowings under its Revolving Credit
Facility. The Company believes these sources of capital will be sufficient to
fund these capital expenditures and working capital requirements over the next
12 months and on a long-term basis, although there can be no assurance that
this will be the case.
Net cash used in operations in fiscal 1996 was approximately $5.3 million,
as compared to approximately $2.9 million for fiscal 1995. The negative cash
flow from operations for fiscal 1996 was primarily a result of increases of
approximately $15.1 million in inventories and approximately $1.6 million in
accounts receivable, which were offset by non-cash depreciation and
amortization expenses of approximately $9.1 million, extraordinary item of
$7.3 million, an increase in the accounts payable and accrued expenses balance
of approximately $2.5 million and other adjustments. Cash used for investing
activities increased from approximately $1.9 million in fiscal 1995 to
approximately $2.0 million in fiscal 1996, primarily as a result of higher
capital expenditures. Cash provided by financing activities for fiscal 1996
was approximately $7.1 million due primarily to $18.4 million increased
borrowings under the Revolving Credit Facility offset by a net payment on
refinancing of long-term debt of $12.0 million. Cash for fiscal 1996 decreased
approximately $347,000, resulting in a September 30, 1996 cash balance of
approximately $4.7 million. Cash in fiscal 1995 decreased approximately
$655,000, resulting in a cash balance of approximately $5.0 million at
September 30, 1995.
On August 23, 1996, the Company issued $140.0 million of its 11 5/8%
Senior Notes due 2004 and amended its Revolving Credit Facility with Congress
Financial Corporation ("Congress") to increase the maximum amount available
under the Revolving Line of Credit to $50.0 million. With the proceeds from
the issuance of the Senior Notes and borrowings under the Revolving Credit
Facility, the Company redeemed all of its outstanding Senior Secured Notes and
Senior Subordinated Notes on September 23, 1996. See Note 6 of the Notes to
Consolidated Financial Statements for a description of the terms of the
Senior Notes and the Revolving Credit Facility.
The Senior Notes and the Revolving Credit Facility contain a number of
covenants limiting the Company's access to capital, including covenants that
restrict the ability of the Company and its subsidiaries to (i) incur
additional Indebtedness, (ii) make certain restricted payments, (iii) engage
in transactions with affiliates, (iv) create liens on assets, (v) sell assets,
(vi) issue and sell preferred stock of subsidiaries, and (vii) engage in
consolidations, mergers and transfers.
The Company is currently conducting groundwater monitoring and
post-closure monitoring in connection with certain disposal areas, and has
completed an investigation of eight specifically identified solid waste
management units at the Kokomo facility. The results of the investigation have
been filed with the U.S. Environmental Protection Agency ("EPA"). If the EPA
or the Indiana Department of Environmental Management ("IDEM") were to require
corrective action in connection with such disposal areas or solid waste
management units, there can be no assurance that the costs of such corrective
action will not have a material adverse effect on the Company's financial
condition, results of operations or liquidity. In addition, the Company has
been named as a potentially responsible party at two waste disposal sites.
Although there can be no assurance, based on current information, the Company
believes that its involvement at these two sites will not have a material
adverse effect on the Company's financial condition, results of operations or
liquidity. Expenses related to environmental compliance were $1.3 million for
fiscal 1996 and
<PAGE>
are expected to be approximately $3.2 million for fiscal 1997 through fiscal
1998. See "Business-- Environmental Matters." Based on information currently
available to the Company, the Company is not aware of any information which
would indicate that litigation pending against the Company is reasonably
likely to have a material adverse effect on the Company's operations or
liquidity. See "Business--Legal Proceedings."
INFLATION
The Company believes that inflation has not had a material impact on its
operations.
INCOME TAX CONSIDERATIONS
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.
Statement of Financial Accounting Standards ("SFAS") No. 109 requires the
recording of a valuation allowance when it is more likely than not that some
portion or all of a deferred tax asset will not be realized. This statement
further states that forming a conclusion that a valuation allowance is not
needed may be difficult, especially 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, 1996, the Company had a net deferred tax asset
approximating $36.4 million consisting principally of temporary differences
relating to available Net Operating Losses ("NOL's") and accruals for
postretirement benefits other than pensions partially offset by depreciation.
Because of unfavorable operating results in recent years, the Company has
established a 100% valuation allowance to offset the net deferred tax asset,
resulting in a charge to operations and a corresponding reduction of 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 valuation allowance determination
process could result in recognition of significant income tax provisions or
benefits in a single interim or annual period due to actual operating results
and changes in future income expectations over several years. Such tax
provision or benefit effect could likely be material in the context of the
specific interim or annual financial reporting period in which changes in
judgment about extended future periods are reported. The valuation allowance
determination process is a balance sheet approach and does not have as its
objective the periodic matching of pre-tax income or loss with the related
actual income tax effects.
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, 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.
See "Legal Proceedings" with respect to certain other tax matters.
ACCOUNTING PRONOUNCEMENTS
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," and SFAS No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities" are effective for the year ending September 30, 1997. In the
opinion of management, these statements will not impact the Company's
financial position or results of operations.
SFAS No. 123, "Accounting for Stock Based Compensation," was issued and is
also 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.
<PAGE>
ITEM 8. Financial Statements and Supplementary Data
Board of Directors
Haynes International, Inc.
We have audited the consolidated financial statements and the financial
statement schedule of Haynes International, Inc. (the Company), a wholly owned
subsidiary of Haynes Holdings, Inc., listed in Item 14(a) of this Form 10-K.
These financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and financial statement schedules
based on our audits.
We conducted our audits in accordance with generally accepted 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.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Haynes International, Inc. as of September 30, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended September 30, 1996 in conformity with
generally accepted accounting principles. In addition, in our opinion, the
financial statement schedule referred to above, when considered in relation to
the basic financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included therein.
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 6, 1996
<PAGE>
<TABLE>
<CAPTION>
HAYNES INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<S> <C> <C>
September 30, September 30,
ASSETS 1995 1996
- ---------------------------------------------------------- --------------- ---------------
Current Assets:
Cash and cash equivalents $ 5,035 $ 4,688
Accounts and notes receivable, less allowance for
doubtful accounts of $979 and $900, respectively 38,089 39,624
Inventories 60,234 74,755
--------------- ---------------
Total current assets 103,358 119,067
--------------- ---------------
Net property, plant and equipment 36,863 31,157
Prepayments and deferred charges, net 11,095 11,265
--------------- ---------------
Total assets $ 151,316 $ 161,489
=============== ===============
LIABILITIES AND CAPITAL DEFICIENCY
Current liabilities:
Accounts payable and accrued expenses $ 22,975 $ 24,814
Accrued postretirement benefits 4,100 4,000
Revolving credit 12,477 30,888
Note payable 859
Income taxes payable 1,190 1,199
--------------- ---------------
Total current liabilities 40,742 61,760
--------------- ---------------
Long-term debt, net of unamortized discount 140,000 137,350
Deferred income taxes 326 485
Accrued postretirement benefits 90,730 91,813
--------------- ---------------
Total liabilities 271,798 291,408
--------------- ---------------
Redeemable common stock of parent company 1,427 422
Capital deficiency:
Common stock, $.01 par value (100 shares authorized,
issued and outstanding)
Additional paid-in capital 46,306 47,985
Accumulated deficit (172,285) (181,321)
Foreign currency translation adjustment 4,070 2,995
--------------- ---------------
Total capital deficiency (121,909) (130,341)
--------------- ---------------
Total liabilities and capital deficiency $ 151,316 $ 161,489
- ---------------------------------------------------------- =============== ===============
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HAYNES INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Year Ended Year Ended Year Ended
September 30, September 30, September 30,
1994 1995 1996
--------------- --------------- ---------------
Net revenues $ 150,578 $ 201,933 $ 226,402
Costs and expenses:
Cost of sales 134,840 167,196 181,173
Goodwill write-off 37,117
Selling and administrative 15,039 15,475 19,966
Research and technical 3,630 3,049 3,411
Other costs, net 816 1,767 590
Interest expense 19,916 20,233 21,991
Interest income (334) (329) (889)
--------------- --------------- ---------------
Total costs and expenses 211,024 207,391 226,242
--------------- --------------- ---------------
Income (loss) before provision for income taxes,
extraordinary item and cumulative effect of change in
accounting principle (60,446) (5,458) 160
Provision for income taxes 420 1,313 1,940
--------------- --------------- ---------------
Loss before extraordinary item and cumulative effect
of change in accounting principle (60,866) (6,771) (1,780)
Extraordinary item, net of tax benefit (7,256)
Cumulative effect of change in accounting principle,
net of tax benefit (79,630)
---------------
Net loss $ (140,496) $ (6,771) $ (9,036)
- ----------------------------------------------------- =============== =============== ===============
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HAYNES INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Year Ended Year Ended Year Ended
September 30, September 30, September 30,
1994 1995 1996
--------------- --------------- ---------------
Cash flows from operating activities:
Net loss $ (140,496) $ (6,771) $ (9,036)
Adjustments to reconcile net loss to
net cash used in operations:
Extraordinary item 7,256
Depreciation 8,208 8,188 7,751
Amortization and goodwill write-off 40,287 1,444 1,353
Deferred income taxes (10,633) 2 213
Gain on disposition of property and equipment (397) (37) (20)
Change in assets and liabilities:
Accounts and notes receivable (3,028) (7,354) (1,599)
Inventories (951) (6,480) (15,132)
Other assets (58) 347 (335)
Accounts payable and accrued expenses 4,291 6,322 2,543
Income taxes payable (234) 774 10
Accrued postretirement benefits 90,210 682 983
--------------- --------------- ---------------
Net cash used in operating activities (12,801) (2,883) (5,343)
--------------- --------------- ---------------
Cash flows from investing activities:
Additions to property, plant and equipment (771) (1,934) (2,092)
Proceeds from disposals of property, plant,
and equipment 1,517 39 67
--------------- --------------- ---------------
Net cash provided from (used in) investing
activities 746 (1,895) (2,025)
--------------- --------------- ---------------
Cash flows from financing activities:
Net additions of revolving credit 7,960 4,337 18,411
Borrowings of long-term debt 137,350
Repayments of long-term debt (140,000)
Payment of debt issuance costs (5,408)
Prepayment penalties on debt retirement (3,911)
Dividend from parent company on exercise of
stock options 674
Retirement of stock options (858) (425)
--------------- ---------------
Net cash provided from financing activities 7,102 3,912 7,116
--------------- --------------- ---------------
Effect of exchange rates on cash 129 211 (95)
--------------- --------------- ---------------
Decrease in cash and cash equivalents (4,824) (655) (347)
Cash and cash equivalents:
Beginning of year 10,514 5,690 5,035
--------------- --------------- ---------------
End of year $ 5,690 $ 5,035 $ 4,688
=============== =============== ===============
Supplemental disclosures of cash flow information:
Cash paid during period for:
Interest $ 17,891 $ 18,840 $ 22,076
=============== =============== ===============
Income taxes $ 848 $ 560 $ 1,717
- --------------------------------------------------- =============== =============== ===============
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
HAYNES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. PRINCIPLES OF CONSOLIDATION AND NATURE OF OPERATIONS
The consolidated financial statements include the accounts of Haynes
International, Inc. and its wholly-owned subsidiaries (collectively, the
"Company"). All significant intercompany transactions and balances are
eliminated. The Company develops, manufactures and markets technologically
advanced, high performance alloys primarily for use in the aerospace and
chemical processing industries worldwide.
B.CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investment instruments, including
investments with maturities of three months or less at acquisition, to be cash
equivalents, the carrying value of which approximates fair value due to the
short maturity of these investments.
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 with
depreciation calculated primarily by using the straight-line method based on
estimated economic useful lives. Buildings are generally depreciated over 40
years and machinery and equipment are depreciated over periods ranging from 5
to 14 years.
Expenditures for maintenance and repairs and minor renewals are charged to
expense; major renewals are capitalized. Upon retirement or sale of assets,
the cost of the disposed assets and the related accumulated depreciation are
removed from the accounts and any resulting gain or loss is credited or
charged to operations.
E.FOREIGN CURRENCY TRANSLATION
The Company's foreign operating entities' financial statements are stated in
the functional currencies of each respective country, which are the local
currencies. Substantially all assets and liabilities are translated to U.S.
dollars using exchange rates in effect at the end of the year and revenues and
expenses are translated at the weighted average rate for the year.
Translation gains or losses are recorded as a separate component of capital
deficiency and transaction gains and losses are reflected in net losses.
<PAGE>
HAYNES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
F. INCOME TAXES
Effective October 1, 1993, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes". This
statement applies 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 accounted for income taxes
under the provisions of SFAS No. 96, "Accounting for Income Taxes". Financial
statements for the prior years have not been restated and the cumulative
effect of the change in accounting principle was not material.
G. DEFERRED CHARGES
Deferred charges consist primarily of debt issuance costs which are amortized
over the terms of the related debt using the effective interest method.
Accumulated amortization at September 30, 1995 and 1996 was $9,266 and $63,
respectively. During 1996, the Company wrote off approximately $3,345 of
deferred debt issuance costs and capitalized approximately $5,408 of costs
incurred in connection with the refinancing of the Company's debt.
H. FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF RISK
The Company enters into forward currency exchange contracts and nickel futures
contracts on a continuing basis for periods consistent with contractual
exposures. The effect of this practice is to minimize the variability in the
Company's operating results arising from foreign exchange rate and nickel
price movements. These contracts are considered short-term financial
instruments, the carrying value of which approximates fair value due to the
relatively short duration of the contracts. The Company does not engage in
foreign currency or nickel futures speculation. Gains and losses on these
contracts are reflected in the statement of operations in the month the
contracts are settled. At September 30, 1995 and 1996, the Company had $1,700
and $1,360 of foreign currency exchange contracts, respectively, and $4,441
and $3,512 of nickel futures contracts, respectively, outstanding with a
combined net unrealized loss of $103 and $192, respectively. 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.
Financial instruments which potentially subject the Company to concentrations
of credit risk consist of cash and cash equivalents. At September 30, 1996
and periodically throughout the year the Company has maintained cash balances
in excess of federally insured limits.
During 1995 and 1996, sales to one group of affiliated customers approximated
$23,718 and $26,937, respectively, or 12% of net revenues for both years. At
September 30, 1995 and 1996, receivables from the customers approximated
$3,338 and $5,034, respectively. During 1994, sales to a single customer
approximated $15,452 or 10% of net revenues. The Company does not believe it
is significantly vulnerable to certain business concentrations with respect to
customers, suppliers, products, markets or geographic areas that make the
Company vulnerable to the risk of a near-term severe impact.
<PAGE>
HAYNES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
I. RECLASSIFICATIONS
Certain amounts in prior year financial statements have been reclassified to
conform with current year presentation.
J. ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. The Company does not
believe that it has assets, liabilities or contingencies that are particularly
sensitive to changes in estimates in the near term.
K. ACCOUNTING PRONOUNCEMENTS
SFAS No. 121, "Accounting for the Impairment of Long-Lived assets and for
Long-Lived assets to Be Disposed Of" and SFAS No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities" are effective for the year ending September 30, 1997. In the
opinion of management, these statements will not impact the Company's
financial position or results of operations. The Company currently accounts
for stock options under the provisions of Accounting Principles Board Opinion
(APB) No. 25. Recently, SFAS No. 123, "Accounting for Stock Based
Compensation", was issued and is also 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.
[Remainder of page intentionally left blank.]
<PAGE>
<TABLE>
<CAPTION>
HAYNES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 2: INVENTORIES
The following is a summary of the major classes of inventories:
<S> <C> <C>
September 30, September 30,
1995 1996
--------------- ---------------
Raw materials $ 2,998 $ 4,296
Work-in-process 38,488 37,643
Finished goods 20,616 32,046
Other 2,428 861
Amount necessary to decrease certain inventories to the LIFO method
(4,296) (91)
--------------- ---------------
Net inventories $ 60,234 $ 74,755
- ------------------------------------------------------------------- =============== ===============
<FN>
Inventories valued using the LIFO method comprise 73% and 74% of consolidated FIFO inventories at
September 30, 1995 and 1996, respectively.
</TABLE>
<TABLE>
<CAPTION>
NOTE 3: PROPERTY, PLANT AND EQUIPMENT
The following is a summary of the major classes of property, plant, and
equipment:
<S> <C> <C>
September 30, September 30,
1995 1996
---------------- ---------------
Land and land improvements $ 1,920 $ 1,918
Buildings 6,623 6,623
Machinery and equipment 74,951 76,336
Construction in process 664 900
---------------- ---------------
84,158 85,777
Less accumulated depreciation (47,295) (54,620)
---------------- ---------------
Net property, plant and equipment $ 36,863 $ 31,157
- ---------------------------------- ================ ===============
</TABLE>
<PAGE>
HAYNES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
<TABLE>
<CAPTION>
NOTE 4: ACCOUNTS PAYABLE AND ACCRUED EXPENSES
The following is a summary of the major classes of accounts payable and
accrued expenses:
<S> <C> <C>
September 30, September 30,
1995 1996
-------------- --------------
Accounts payable, trade $ 14,477 $ 15,285
Employee compensation 1,995 4,214
Taxes, other than income taxes 2,226 1,977
Interest 3,160 1,718
Other 1,117 1,620
-------------- --------------
Total $ 22,975 $ 24,814
- ------------------------------ ============== ==============
</TABLE>
(Remainder of page intentionally left blank.)
<PAGE>
HAYNES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
<TABLE>
<CAPTION>
NOTE 5: INCOME TAXES
The components of income (loss) before provision for income taxes, extraordinary item and cumulative
effect of change in accounting principle consist of the following:
<S> <C> <C> <C>
Year Ended Year Ended Year Ended
September 30, September 30, September 30,
1994 1995 1996
--------------- --------------- ---------------
Income (loss) before provision for income taxes,
extraordinary item and cumulative effect of change
in accounting principle
U.S. $ (58,509) $ (9,332) $ (4,558)
Foreign (1,937) 3,874 4,718
--------------- --------------- ---------------
Total $ (60,446) $ (5,458) $ 160
=============== =============== ===============
Income tax provision (benefit):
Current:
U.S. Federal $ 187
Foreign $ 411 $ 1,284 1,509
State 62 27 31
--------------- --------------- ---------------
Current total 473 1,311 1,727
--------------- --------------- ---------------
Deferred:
U. S. Federal 2 131
Foreign (53) 82
--------------- ---------------
Deferred total (53) 2 213
--------------- --------------- ---------------
Total provision for income taxes $ 420 $ 1,313 $ 1,940
- -------------------------------------------------- =============== =============== ===============
</TABLE>
<PAGE>
HAYNES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
<TABLE>
<CAPTION>
The provision for income taxes applicable to results of operations before extraordinary item and
cumulative effect of change in accounting principle differed from the U.S. federal statutory
rate as follows:
<S> <C> <C> <C>
Year Ended Year Ended Year Ended
September 30, September 30, September 30,
1994 1995 1996
--------------- --------------- ---------------
Statutory federal tax rate 34% 34% 34%
Tax provision (benefit) at the statutory rate $ (20,552) $ (1,856) $ 54
Foreign tax rate differentials 951 (162) (24)
Goodwill amortization and write-off 12,054
Withholding tax on undistributed earnings of
foreign subsidiaries 131
Provision for state taxes, net of federal tax 62 27 31
Exercise of stock options of parent company 400
U.S. tax on distributed and undistributed
earnings of foreign subsidiaries 1,735 980 760
Increase in valuation allowance 5,639 2,057 363
Other 531 267 225
--------------- --------------- ---------------
Provision at effective tax rate $ 420 $ 1,313 $ 1,940
- --------------------------------------------- =============== =============== ===============
</TABLE>
<PAGE>
HAYNES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
<TABLE>
<CAPTION>
Deferred income tax assets (liabilities) are comprised of the following:
<S> <C> <C>
Current defferred income tax assets September 30, September 30,
(liabilities): 1995 1996
--------------- ---------------
Inventory capitalization $ 853 $ 962
Postretirement benefits other than pensions 1,590 1,553
Accrued expenses for vacation 446 470
Other 606 700
--------------- ---------------
Gross deferred tax assets 3,495 3,685
Less: Valuation allowance (2,132) (2,434)
--------------- ---------------
1,363 1,251
Inventory purchase accounting adjustment (5,637) (5,646)
--------------- ---------------
Total net current deferred tax liability (4,274) (4,395)
--------------- ---------------
Noncurrent deferred income tax assets
(liabilities):
Property, plant and equipment, net (9,344) (7,069)
Prepaid pension costs (2,107) (1,990)
Investment in subsidiary (466) (466)
Other foreign related (390) (475)
Undistributed earnings of foreign subsidiaries (2,669) (3,420)
--------------- ---------------
Gross noncurrent deferred tax liability (14,976) (13,420)
--------------- ---------------
Postretirement benefits other than pensions 35,182 35,656
Executive compensation 553 164
Investment in subsidiary 563 563
Net operating loss carryforwards 13,283 14,406
Alternative minimum tax credit carryforwards 414 538
--------------- ---------------
Gross noncurrent deferred tax asset 49,995 51,327
Less: Valuation allowance (31,071) (33,997)
--------------- ---------------
18,924 17,330
--------------- ---------------
Total net noncurrent deferred tax asset 3,948 3,910
--------------- ---------------
Total $ (326) $ (485)
- ---------------------------------------------- =============== ===============
</TABLE>
<TABLE>
<CAPTION>
The valuation allowance used to offset deferred tax assets is as follows:
<S> <C>
Allowance at October 1, 1993 $24,422
- ------------------------------- -------
Increase in allowance 6,435
-------
Allowance at October 1, 1994 30,857
Increase in allowance 2,346
-------
Allowance at October 1, 1995 33,203
Increase in allowance 3,228
-------
Allowance at September 30, 1996 $36,431
- ------------------------------- =======
</TABLE>
<PAGE>
HAYNES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
As of September 30, 1996 the Company had net operating loss carryforwards
for regular tax purposes of approximately $39,700 (expiring in fiscal years
2005 to 2011), of which $19,800 are available for alternative minimum tax.
The Company has alternative minimum tax credit carryforwards of approximately
$500 which are available to reduce federal regular income taxes, if any, over
an indefinite period.
Because of unfavorable operating results in recent years and the Company's
net operating loss carryforward position, the Company has established a
valuation allowance to offset certain deferred tax assets created by
operations. If in the future the facts and circumstances of the Company's
financial position and operating performance consistently improve over a
period of time, the valuation allowance will be adjusted accordingly.
The Company recently completed an examination by the Internal Revenue
Service (IRS) for the five taxable years ended September 30, 1993. The IRS
has proposed to disallow aggregate deductions in the amount of $5,500 relative
to the amortization of certain loan fees, totaling $10,400, incurred in
connection with the 1989 acquisition of the Company. The Company claimed
similar deductions in 1994 through 1996. The Company has formally protested
the disallowance of these deductions. On August 28, 1996, the Company met
with officials from the IRS Appeals Office and received a favorable verbal
confirmation that the deductions would be allowed as a result of the recent
passage of the Small Business Job Protection Act of 1996. The Company is
presently awaiting a written confirmation from the IRS. If the Company does
not prevail in its defense, the amount of available net operating loss
carryforwards will be reduced accordingly.
(Remainder of page intentionally left blank.)
<PAGE>
HAYNES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
<TABLE>
<CAPTION>
NOTE 6: DEBT
Long-term debt, consists of the following:
<S> <C> <C>
September 30, September 30,
1995 1996
-------------- --------------
Senior Notes (due 2004, 11.625%) net of $2,650
unamortized discount (effective rate of 12.0%) $ 137,350
Senior Subordinated Notes (due 1997-1999, 13.5%) $ 90,000
Senior Secured Notes (due 1998, 11.25%) 50,000
--------------
$ 140,000 $ 137,350
============== ==============
</TABLE>
On August 23, 1996, the Company successfully refinanced its debt with the
issuance of $140,000 Senior Notes due 2004 and an amendment to its then
existing revolving credit facility with Congress Financial Corporation
("Congress").
Certain non recurring charges were recorded as a result of this
refinancing effort as follows:
@ $7,256 of extraordinary losses were incurred resulting from the
redemption of the Senior Secured and Senior Subordinated Notes. The losses
are comprised of $3,911 in prepayment penalties incurred with the redemption
and $3,345 of deferred debt issuance costs which were written off upon
redemption of the related debt;
@ $1,837 of Selling and Administrative Expense which represents costs
incurred from a deferred initial public offering of the Company's common
stock; and
@ $924 of net Interest Expense incurred during the period between the
issuance of the Senior Notes and the redemption of the Senior Secured and
Senior Subordinated Notes.
The Company now has available a $50,000 working capital facility (the
"Revolving Credit Facility") with Congress. The amount available for
revolving credit loans equals the difference between the $50,000 total
facility amount less any letter of credit reimbursement obligations incurred
by the Company, which are subject to a sublimit of $10,000. The total
availability may not exceed the sum of 85% of eligible accounts receivable
(generally, accounts receivable of the Company from domestic and export
customers that are less than 60 days outstanding) plus 60% of eligible
inventories consisting of finished goods and raw materials plus 45% of
eligible inventories consisting of work-in-process and semi-finished goods
calculated at the lower of cost or current market value minus any availability
reserves established by Congress. Unused line of credit fees during the
revolving credit loan period are .375% of the amount by which the $50,000
million maximum credit exceeds the average daily principal balance of the
outstanding revolving loans and letter of credit accommodations.
<PAGE>
HAYNES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The Revolving Credit Facility bears interest at a fluctuating per annum
rate equal to a combination of prime rate plus 0.75% and London Interbank
Offered Rates ("LIBOR") plus 2.75%. At September 30, 1996 the effective
interest rates for revolving credit loans were 8.238% for $24,000 of the
Revolving Credit Facility and 9.0% for $6,900 of the Revolving Credit
Facility. As of September 30, 1996, $3,025 in letter of credit reimbursement
obligations have been incurred by the Company. The availability for revolving
credit loans at September 30, 1996 was $16,075.
The Revolving Credit Facility contains covenants common to such agreements
including the maintenance of certain net worth levels and limitations on
capital expenditures, investments, incurrences of debt, impositions of liens,
dispositions of assets and payments of dividends and distributions. The
Revolving Credit Facility is collateralized by first priority security
interests in all accounts receivable and inventories (excluding all accounts
receivable and inventories of the Company's foreign subsidiaries) and fixed
assets of the Company and the sales proceeds therefrom.
The estimated fair value, based upon an independent market quotation, of
the Company's long-term debt was approximately $106,750 and $145,600 at
September 30, 1995 and 1996, respectively. The carrying value of the
Company's Revolving Credit Facility approximates fair value.
(Remainder of page intentionally left blank.)
<PAGE>
HAYNES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
SENIOR NOTES DUE 2004
- ------------------------
The Senior Notes are uncollateralized obligations of the Company and are
effectively subordinated in right of payment to obligations under the
Revolving Credit Facility. Interest is payable semi-annually on March 1 and
September 1.
The notes are redeemable, in whole or in part, at the Company's option at
any time on or after September 1, 2000 at redemption prices ranging from
105.813% to 100% plus accrued interest to the date of redemption. In
addition, prior to September 1, 1999, in the event one or more public equity
offerings of the Company are consummated, the Company may redeem in the
aggregate up to a maximum of 35% of the initial aggregate principal amount of
the Notes with the net proceeds thereof at a redemption price equal to
111.625% of the principal amount thereof plus accrued and unpaid interest to
the date of redemption; provided that, after giving effect thereto, at least
$85,000 aggregate principal amount of Notes remains outstanding.
The Senior Notes limit the incurrence of additional indebtedness,
restricted payments, mergers, consolidations and asset sales.
OTHER
- -----
In addition, the Company's UK affiliate (Haynes International, Ltd.) has 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, 1996
as a means of financing the activities of the affiliate including payments to
the Company for intercompany purchases. The Company's French affiliate
(Haynes International, SARL) has an overdraft banking facility of 7.0 million
French francs ($1,400) and utilized 4.4 million French francs ($896) of the
facility as of September 30, 1996.
(Remainder of page intentionally left blank.)
<PAGE>
HAYNES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
<TABLE>
<CAPTION>
NOTE 7: STOCKHOLDER'S EQUITY (CAPITAL DEFICIENCY)
The following is a summary of changes in stockholder's equity (capital deficiency):
<S> <C> <C> <C> <C> <C>
Common Stock
Foreign
Additional Currency
No. of At Paid in (Accumulated Translation
Shares Par Capital Deficit) Adjustment
----------------- ------- ----------------- ------------------- -------------------
Balance at
September 30, 1993 100 $ 0 $ 46,087 $ (25,018) $ 1,869
- ------------------------------
Year ended
September 30, 1994:
Net loss (140,496)
Dividend to parent
company to repurchase
stock (83)
Reclassification of re-
deemable common stock 272
Foreign exchange 1,342
----------------- ------ --------------- ----------------- -----------------
Balance at
September 30, 1994 100 0 46,276 (165,514) 3,211
- ------------------------------
Year ended
September 30, 1995:
Net Loss (6,771)
Dividend to parent company
to repurchase stock (70)
Reclassification of
redeemable common stock 100
Foreign Exchange 859
----------------- ------ --------------- ----------------- -----------------
Balance at
September 30, 1995 100 0 46,306 (172,285) 4,070
- ------------------------------
Year ended
September 30, 1996:
Net Loss (9,036)
Dividend from parent
company on exercise of
stock option 674
Reclassification of
redeemable common stock 1,005
Foreign Exchange (1,075)
----------------- ------ --------------- ----------------- -----------------
Balance at
September 30, 1996 100 $ 0 $ 47,985 $ (181,321) $ 2,995
- ------------------------------ ================= ======= ================= =================== ===================
<S> <C>
Total
Stockholder's
Equity
(Capital
Deficiency)
---------------------
Balance at
September 30, 1993 $ 22,938
- ------------------------------
Year ended
September 30, 1994:
Net loss (140,496)
Dividend to parent
company to repurchase
stock (83)
Reclassification of re-
deemable common stock 272
Foreign exchange 1,342
-------------------
Balance at
September 30, 1994 (116,027)
- ------------------------------
Year ended
September 30, 1995:
Net Loss (6,771)
Dividend to parent company
to repurchase stock (70)
Reclassification of
redeemable common stock 100
Foreign Exchange 859
-------------------
Balance at
September 30, 1995 (121,909)
- ------------------------------
Year ended
September 30, 1996:
Net Loss (9,036)
Dividend from parent
company on exercise of
stock option 674
Reclassification of
redeemable common stock 1,005
Foreign Exchange (1,075)
-------------------
Balance at
September 30, 1996 $ (130,341)
- ------------------------------ =====================
</TABLE>
<PAGE>
HAYNES INTERNATIONAL, INC.
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 using
actuarial and economic assumptions designed to achieve adequate funding of
benefit obligations.
Net periodic pension cost on a consolidated basis was $611, $458, and $720
for the years ended September 30, 1994, 1995 and 1996, respectively.
For the domestic pension plan, net periodic pension cost was comprised of
the following elements:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Year Ended Year Ended Year Ended
September 30, September 30, September 30,
1994 1995 1996
--------------- --------------- ---------------
Service cost $ 2,165 $ 1,713 $ 2,042
Interest cost 6,536 7,060 7,027
Actual return on plan assets (639) (18,727) (13,431)
Net amortization and deferral (7,748) 10,084 4,670
--------------- --------------- ---------------
Net periodic pension cost $ 314 $ 130 $ 308
- ----------------------------- =============== =============== ===============
</TABLE>
<PAGE>
HAYNES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The following table sets forth the domestic pension plan's funded status:
<TABLE>
<CAPTION>
<S> <C> <C>
September 30, September 30,
1995 1996
--------------- ---------------
Accumulated benefit obligation, including vested
benefits of $86,227 and $83,516, respectively $ 90,285 $ 87,469
=============== ===============
Projected benefit obligation for
service rendered to date $ (103,149) $ (101,922)
Plan assets at fair value
(primarily debt securities) 122,103 128,264
--------------- ---------------
Plan assets in excess of projected
benefit obligation 18,954 26,342
Unrecognized net gain from past experience different from that
assumed and effects of changes in assumptions (13,459) (24,364)
Unrecognized prior service costs (62) 3,146
--------------- ---------------
Prepaid pension cost recognized in the consolidated balance sheet $ 5,433 $ 5,124
=============== ===============
Assumptions:
Weighted average discount rate 7.00% 7.50%
=============== ===============
Average rate of increase in
compensation levels 5.25% 5.75%
=============== ===============
Expected rate of return on plan
assets during year 7.50% 7.75%
- ------------------------------------------------------------------ =============== ===============
</TABLE>
<PAGE>
HAYNES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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
retiree health care and life insurance benefits was recognized as expense upon
payment of claims or insurance premiums.
Effective October 1, 1993, the Company adopted SFAS No. 106, "Employers
Accounting for Postretirement Benefits Other Than Pensions" which requires the
cost of postretirement benefits to be accrued 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 these 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 the cumulative effect of the change in accounting
principle, which along with the establishment of a deferred tax valuation
allowance, reduced net worth at September 30, 1994 by $79,630. Operations
were charged approximately $7,997, $4,671 and $4,823 for these benefits during
fiscal 1994, 1995 and 1996, respectively.
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.
(Remainder of page intentionally left blank.)
<PAGE>
HAYNES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The following sets forth the funded status of the plans in the aggregate
reconciled with amounts reported in the Company's balance sheet:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
September 30, September 30, September 30,
1994 1995 1996
-------------- -------------- --------------
Accumulated postretirement benefit
obligation (APBO):
Retirees and dependents $ 59,907 $ 47,039 $ 48,380
Active plan participants eligible to
receive benefits 8,286 6,941 7,813
Active plan participants not yet
eligible to receive benefits 18,087 15,823 16,043
-------------- -------------- --------------
Total APBO 86,280 69,803 72,236
Unrecognized prior service cost 12,674 11,582
Unrecognized net gain 7,868 12,353 11,995
-------------- -------------- --------------
Accrued postretirement liability $ 94,148 $ 94,830 $ 95,813
- ----------------------------------------- ============== ============== ==============
</TABLE>
Net periodic postretirement benefit cost included the following components:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Year Ended Year Ended Year Ended
September 30, September 30, September 30,
1994 1995 1996
---------------------- ----------------------- -----------------------
Service cost $ 1,624 $ 1,036 $ 1,131
Interest cost 6,373 5,126 5,089
Amortization of net gain (582) (306)
Amortization of prior service cost (909) (1,091)
--------------------- --------------------- ---------------------
---------------------- ----------------------- -----------------------
Net periodic postretirement
benefit cost $ 7,997 $ 4,671 $ 4,823
- ---------------------------------- ====================== ======================= =======================
</TABLE>
An 11.46% annual rate of increase for ages under 65 and a 9.32% 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% by the
year 2010. 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, 1996 by $9,903 and increase the net
periodic postretirement benefit cost for 1996 by $973. A discount rate of
8.0% was used to determine the accumulated postretirement benefit obligation
at September 30, 1994 and a discount rate of 7.5% was used to determine the
accumulated postretirement benefit obligation at September 30, 1995 and 1996.
The Company sponsors certain profit sharing 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, 1996.
<PAGE>
HAYNES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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 $1,567, $1,431 and
$1,392 for the periods ended September 30, 1994, 1995 and 1996, respectively.
Future minimum rental commitments under non-cancelable leases in effect at
September 30, 1996 are as follows:
<TABLE>
<CAPTION>
<S> <C>
1997 $1,234
- ------------------- ------
1998 1,086
1999 806
2000 563
2001 and thereafter 928
------
$4,617
======
</TABLE>
HAYNES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 10: OTHER
Other costs, net consists of net foreign currency transaction (gains) and
losses in the amounts of $56, $207, and $(185) for the periods ended September
30, 1994, 1995 and 1996, 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
adversely affected the specialty corrosion and high-temperature alloy industry
operating conditions and the Company's operating results since 1992.
Accordingly, the Company revised its projections and determined that its
projected operating results would not support the future amortization of the
Company's remaining goodwill balance.
The methodology employed to assess the recoverability of the Company's
goodwill first involved the projection of operating results forward 25 years,
which approximated the remaining amortization period of goodwill as of
September 30, 1994. The Company then evaluated the recoverability of goodwill
on the basis of this forecast of future operations. Based on this forecast,
the cumulative discounted net loss, before goodwill amortization and after
interest expense, was insufficient to recover the remaining goodwill balance
and accordingly, operations were charged for the entire unamortized balance.
The Company, like others in similar businesses, is involved as the
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, management does not believe that such costs will have a
material effect on the Company's financial position, results of operations or
liquidity.
<PAGE>
HAYNES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 11: STOCK OPTION PLAN
The Company's parent has a stock option plan (the "Plan") which allows for
the granting of options to certain key employees and directors of the Company.
Under the Plan, options to purchase up to 905,880 shares of common stock may
be granted 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 $10.00 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
exercise and/or redemption of some of these options, redeemable common stock
was reduced by $454 and $1,005 during 1995 and 1996, 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.
In January 1996, a majority of the options with exercise prices of $5.00
per share were re-priced to $2.50 per share (the estimated fair market value
on that date).
On October 22, 1996, 133,000 options were granted to certain key
management personnel at an exercise price of $8.00 per share.
(Remainder of page intentionally left blank.)
<PAGE>
HAYNES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Pertinent information covering the Plan is as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Number of Option Price Fiscal Year Shares
Shares Per Share of Expiration Exercisable
---------- ------------- -------------- -----------
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
Canceled (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
Canceled (36,500) 5.00
----------
Outstanding at September 30, 1995 820,045 2.28-5.00 1999-2005 377,145
Granted --- ---
Exercised (201,931) 2.28-5.00
Canceled (32,000) 2.50
----------
Outstanding at September 30, 1996 586,114 $ 2.28-2.50 1999-2005 279,794
========== ============= ===========
Options Outstanding at
September 30, 1996 consist of: 23,644 $ 2.28 23,644
35,470 3.24 35,470
527,000 2.50 220,680
---------- -----------
586,114 279,794
========== ===========
</TABLE>
<PAGE>
HAYNES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 12: FINANCIAL INFORMATION BY GEOGRAPHIC AREA
Financial information by geographic area is as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Year Ended Year Ended Year Ended
September 30, September 30, September 30,
1994 1995 1996
--------------- --------------- --------------
Sales
United States $ 94,830 $ 122,334 $ 142,132
Export Sales 43,045 63,235 66,777
--------------- --------------- --------------
137,875 185,569 208,909
Europe 31,560 42,935 54,173
--------------- --------------- --------------
169,435 228,504 263,082
Less: Eliminations 18,857 26,571 36,680
--------------- --------------- --------------
Net revenues $ 150,578 $ 201,933 $ 226,402
=============== =============== ==============
Operating income (loss) and other cost, net
United States $ (38,636) $ 10,825 $ 17,345
Europe (1,894) 3,950 4,806
--------------- --------------- --------------
Total operating income (loss) and other cost, net
(40,530) 14,775 22,151
Interest 19,916 20,233 21,991
--------------- --------------- --------------
Income (loss) before provision for income taxes,
extraordinary item and cumulative effect of
change in accounting principle $ (60,446) $ (5,458) $ 160
=============== =============== ==============
Identifiable assets
United States $ 115,251 $ 116,428 $ 122,400
Europe 24,490 29,649 34,314
General corporate assets* 5,690 5,035 4,688
Equity in affiliates 292 204 87
--------------- --------------- --------------
$ 145,723 $ 151,316 $ 161,489
=============== =============== ==============
<FN>
- - General corporate assets include cash and cash equivalents.
</TABLE>
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
<PAGE>
PART III
ITEM 10. DIRECTORS & EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information concerning the persons
who served as the directors and executive officers of the Company as of
September 30, 1996. Except as indicated in the following paragraphs, the
principal occupations of these persons have not changed during the past five
years.
<TABLE>
<CAPTION>
<S> <C> <C>
NAME AGE POSITION WITH THE COMPANY
- ----------------------------- --------- ---------------------------------------------------------------------
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. . . . . 48 Vice President, Sales and Marketing
Frank J. LaRosa . . . . . . . 37 Vice President, Human Resources and Information Technology
August A. Cijan . . . . . . . 41 Vice President, Operations
Theodore T. Brown . . . . . . 38 Controller; Chief Accounting Officer
Robert I. Hanson. . . . . . . 52 General Manager, Arcadia Tubular Products
Perry J. Lewis. . . . . . . . 58 Director, Chairman of the Board
Robert Egan . . . . . . . . . 65 Director, Vice Chairman of the Board
John A. Morgan. . . . . . . . 66 Director
Thomas F. Githens . . . . . . 69 Director
Sangwoo Ahn . . . . . . . . . 58 Director
Ira Starr . . . . . . . . . . 37 Director
</TABLE>
Mr. Austin was elected President, Chief Executive Officer and a director
of the Company in September 1993. From 1987 to the time he joined the Company,
Mr. Austin was President and Chief Executive Officer of Tuscaloosa Steel
Corporation, a mini hot strip mill owned by British Steel PLC with
approximately $200 million in annual revenue ("Tuscaloosa"). Mr. Austin also
serves on the board of directors of Chicago Metallic Corporation.
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.
<PAGE>
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.
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. See Item 12 for a
summary of these agreements.
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, Holdings, 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"). See Item 12 for a summary of these
agreements.
<PAGE>
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.
The Company's Certificate of Incorporation (the "Certificate") authorizes
the board of directors to designate the number of directors. The board
currently has designated eleven directors, and there are three existing
vacancies on the board of directors, which the Company does not intend to fill
in the near future. Directors of the Company serve until their successors are
duly elected and qualified or until their earlier resignation or removal.
Officers of the Company serve at the discretion of the board of directors,
subject, in the case of Mr. Austin, to the terms of his employment contract.
See "--Austin Employment Agreement."
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 Item
11.
[Remainder of page intentionally left blank.]
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following tables and notes present the compensation provided by the
Company to its Chief Executive Officer and the Company's four most highly
compensated executive officers, who served as executive officers as of
September 30, 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
ANNUAL COMPENSATION
----------- -------------
LONG-TERM
COMPENSATION
AWARDS/OPTIONS
NAME AND PRINCIPAL POSITION FISCAL (NUMBER OF ALL OTHER
YEAR SALARY BONUS SHARES COMPENSATION(3)
- ---------------------------- ----------- ----------- ----------- ------------------------ ------------------------
Michael D. Austin 1996 $ 351,250 $ 67,000 -- $ 104,519
President and Chief 1995 314,167 -- -- 75,631
Executive Officer 1994 314,167 100,000(2) -- 5,520
Joseph F. Barker 1996 150,000 27,000 -- 2,073
Vice President, Finance; 1995 130,500 -- 28,400 1,808
Secretary; Treasurer 1994 130,500 -- -- 2,252
F. Galen Hodge 1996 136,750 26,700 -- 3,236
Vice President, 1995 129,033 -- 23,00 3,651
International 1994 129,033 -- -- 2,580
August A. Cijan 1996 139,350 25,100 -- 743
Vice President, Operations 1995 117,800 -- 40,000 55,677
1994 106,893 -- -- 295
Charles J. Sponaugle 1996 134,042 23,100 -- 1,191
Vice President, Sales 1995 109,908 -- 40,00 1,555
and Marketing 1994 83,733 -- -- 682
<FN>
- --------------------------
(1) Additional compensation in the form of perquisites was paid to certain of the named officers in the perids 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" below.
(3) Premium payments to the group term life insurance plan, gainsharing payments and relocation reimbursements which
were made by the Company.
</TABLE>
<PAGE>
STOCK OPTION PLANS
In 1986, the Company 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, Holdings established the Haynes
Holdings, 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 Holdings and its subsidiaries (including the
Company) for the purchase of a maximum of 905,880 shares of Holdings' Common
Stock. As of September 30, 1996, options to purchase 820,045 shares were
outstanding under the Existing Stock Option Plan, leaving 85,835 options
available for grant. Upon consummation of the 1989 Acquisition, the holders of
the Prior Options exchanged all of their remaining Prior Options for options
pursuant to the Stock Option Plan (the "Rollover Options"). Except for the
Rollover Options, the Compensation Committee, which administers the Existing
Stock Option Plan, is authorized to determine which eligible employees will
receive options and the amount of such options. Pursuant to the Existing Stock
Option Plan, the Compensation Committee is authorized to grant options to
purchase Common Stock at any price in excess of the lower of Book Value (as
defined in the Existing Stock Option Plan) or 50% of the Fair Market Value (as
defined in the Existing Stock Option Plan) per share of Common Stock on the
date of the award. However, actual options outstanding under the Existing
Stock Option Plan have been granted at the estimated fair market value per
share at the date of grant, resulting is no compensation being charged to
operations.
Subject to earlier exercise upon death, disability or normal retirement,
upon a change of control (as defined in the Existing Stock Option Plan) of
Holdings, 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. See
"Principal Stockholders."
In fiscal 1995, 322,900 options were granted by the Compensation Committee
pursuant to the Existing Stock Option Plan. No options were granted in fiscal
1996. On October 22, 1996, 133,000 options were granted to certain key
management personnel with exercise prices of $8.00 per share.
Certain options were originally granted in December 1994 with an exercise
price of $5.00 per share. In order to provide a meaningful incentive to
management, in January 1996 the Company's board of directors reduced the
exercise price for the options listed in the table (and options to purchase an
additional 191,500 shares of Common Stock granted to other members of the
Company's management) to $2.50 per share, which the board of directors
determined was the fair market value at that time.
<PAGE>
<TABLE>
<CAPTION>
The following table sets forth the number of shares of Holdings common stock covered by exercisable
and unexercisable options held by the persons named in the Summary Compensation Table.
Fiscal Year End Option Values
Number of Unexercised Options Value of Unexercised In-the-Money
at September 30, 1996 (#) Options at September 30, 1996 ($)(1)
------------ -------------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Name Exercisable Unexercisable Exercisable Unexercisable
------------ -------------------- ------------- ------------- --------------
Michael D. Austin 120,000 80,000 660,000 440,000
F. Galen Hodge 57,070 18,400 287,637 101,200
Joseph F. Barker 40,924 22,720 230,284 124,960
August A. Cijan 8,000 32,000 44,000 176,000
Charles J. Sponaugle 14,800 25,200 81,400 138,600
------------ -------- ------------ --------- -----------
<FN>
(1) Because there is no market for Holdings common stock, the value of unexercised "In-the Money"
options is based on the most recent value of Holdings common stock as determined by the Holdings Board
of Directors.
</TABLE>
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.
The Severance Agreements provide that if an Eligible Employee's employment
with the Company is terminated within six months following a Severance Change
in Control by reason of such Eligible Employee's disability, retirement or
death, the Company will pay the Eligible Employee (or his estate) his Base
Salary (as defined in the Severance Agreements) plus any bonuses or incentive
compensation earned or payable as of the date of termination. In the event
that the Eligible Employee's employment is terminated by the Company for Cause
(as defined in the Severance Agreements) within the six-month period, the
Company is obligated only to pay the Eligible Employee his Base Salary through
the date of termination. In addition, if within the six-month period the
Eligible Employee's employment is terminated by the Eligible Employee or the
Company (other than for Cause or due to disability, retirement or death), the
Company must (among other things) (i) pay to the Eligible Employee such
Eligible Employee's full Base Salary and any bonuses or incentive compensation
earned or payable as of the date of termination; (ii) continue to provide life
insurance and medical and hospital benefits to the Eligible Employee for up to
12 months following the date of termination (18 months for Messrs. Austin and
Barker); (iii) pay to the Eligible Employee $12,000 for outplacement costs to
be incurred, (iv) pay to the Eligible Employee a lump sum cash payment equal
to either (a) 150% of the Eligible Employee's Base Salary in the case of
Messrs. Austin and Barker, or (b) 100% of the Eligible Employee's Base Salary
in the case of the other Eligible Employees, provided that the Company may
elect to make such payments in installments over an 18 month period in the
case of Messrs. Austin or Barker or a 12 month period in the case of the other
Eligible Employees. As a condition to receipt of severance payments and
benefits, the Severance Agreements require that Eligible Employees execute a
release of all claims.
Pursuant to the Severance Agreements, each Eligible Employee agrees that
during his employment with the Company and for an additional one year
following the termination of the Eligible Employee's employment with the
Company by reason of disability or retirement, by the Eligible Employee within
six months following a Severance Change in Control or by the Company for
Cause, the Eligible Employee will not, directly or indirectly, engage in any
business in competition with the business of the Company.
AUSTIN EMPLOYMENT AGREEMENT
On September 2, 1993, the board of directors elected Michael D. Austin
President and Chief Executive Officer of the Company. The Company and Holdings
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, Holdings also granted Mr.
Austin the option to purchase 200,000 shares of Common Stock of Holdings at a
purchase price of $5.00 per share under the Existing Stock Option Plan. In
January 1996, the purchase price for exercise of the option was reduced to
$2.50 per share. These options vest at a rate of 40,000 shares on September 1
of each year commencing September 1, 1994 until fully vested, so long as Mr.
Austin continues to be employed by the Company on such dates and provided that
all options would vest upon a "change in control" as defined in the Existing
Stock Option Plan or certain sales of assets as specified in the Existing
Stock Option Plan. Mr. Austin also became a party to the Stock Subscription
Agreement and the Stockholders Agreement. In the event of a change in control
and the termination of Mr. Austin's employment by the Company thereafter, the
Company is also obligated to pay the difference, if any, between the pension
benefit payable to Mr. Austin under the U.S. Pension Plan (as defined below)
at the time of such change in control and the pension benefit that would be
payable under the U.S. Pension Plan if Mr. Austin had completed 10 years of
service with the Company.
On July 15, 1996, the Company, Holdings and Mr. Austin entered into an
amendment of the Executive Employment Agreement which extends its term to
August 31, 1999 (with year to year continuation thereafter unless the Company
or Mr. Austin elects otherwise) and requires the Company to reimburse Mr.
Austin for up to $10,000 for estate or financial planning services. The
amendment of the Executive Employment Agreement also requires that in 1996 the
Company review and evaluate the existing bonus plans and consider, among other
alternatives, a deferred compensation plan for the management of the Company.
If Mr. Austin's employment is terminated by the Company prior to August
31, 1999 without "Cause," as defined in the Executive Employment Agreement, as
amended, Mr. Austin is entitled to continuation of his annual base salary
until the later of August 31, 1999 or 24 months following the date of
termination. Also, if the Company terminates Mr. Austin's employment without
Cause after August 31, 1999 or elects not to renew the Executive Employment
Agreement on a one-year basis, Mr. Austin is entitled to annual base salary
continuation for a period of 12 months following the date of termination of
his employment. In the event that Mr. Austin is entitled to termination
benefits under the Severance Agreement to which he is a party, he is not
entitled to salary continuation or benefits under the Executive Employment
Agreement, as amended.
<PAGE>
U.S. PENSION PLAN
The Company maintains for the benefit of eligible domestic employees a
defined benefit pension plan, designated as the Haynes International, Inc.
Pension Plan (the "U.S. Pension Plan"). Under the U.S. Pension Plan, all
Company employees completing at least 1,000 hours of employment in a 12-month
period become eligible to participate in the plan. Employees are eligible to
receive an unreduced pension annuity on reaching age 65, reaching age 62 and
completing 10 years of service, or completing 30 years of service. The final
option is available only for union employees hired before July 3, 1988 or for
salaried employees who were plan participants on March 31, 1987.
For salaried employees employed on or after July 3, 1988, the normal
monthly pension benefit provided under the U.S. Pension Plan is the greater of
(i) 1.31% of the employee's average monthly earnings multiplied by years of
credited service, plus an additional 0.5% of the employee's average monthly
earnings, if any, in excess of Social Security covered compensation
multiplied by years 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 five or more 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 generally paid beginning at or after age 55;
however, benefits maybe paid earlier in the event of disability, death, or
completion of 30 years service prior to 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 1996. The maximum annual benefit permitted for 1996 under Section 415(b) of
the Code is $120,000.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEARS OF
---------
SERVICE
---------
AVERAGE ANNUAL
REMUNERATION 15 20 25 30 35
-------- -------- --------- -------- --------
100,000 $ 23,800 $ 31,700 $ 39,700 $ 47,600 $ 55,500
150,000 36,500 48,700 60,900 73,100 85,300
200,000 49,300 65,700 82,200 98,600 115,000
250,000 62,000 82,700 103,400 124,100 144,800
300,000 74,800 99,700 124,700 149,600 174,500
350,000 87,500 116,700 145,900 175,100 204,300
400,000 100,300 133,700 167,200 200,600 234,000
450,000 113,000 150,700 188,400 226,100 263,800
</TABLE>
The estimated credited years of service of each of the individuals named
in the Summary Compensation Table as of September 30, 1996 are as follows:
<TABLE>
<CAPTION>
<S> <C>
CREDITED
SERVICE
--------
Michael D. Austin 2
F. Galen Hodge 26
Joseph F. Barker 15
Charles J. Sponaugle 15
August A. Cijan 2
- -------------------- --------
</TABLE>
<PAGE>
U.K. PENSION PLAN
The Company maintains a pension plan for its employees in the United
Kingdom (the "U.K. Pension Plan"). The U.K. Pension Plan is a contributory
plan under which eligible employees contribute 3% or 6% of their annual
earnings. Normal retirement age under the U.K. Pension Plan is age 65 for
males and age 60 for females. The annual pension benefit provided at normal
retirement age under the U.K. Pension Plan ranges from 1% to 1 2/3% of the
employee's final average annual earnings for each year of credited service,
depending on the level of employee contributions made each year during the
employee's period of service with the Company. The maximum annual pension
benefit for employees with at least 10 years of service is two-thirds of the
individual's final average annual earnings. Similar to the U.S. Pension Plan,
the U.K. Pension Plan also includes provisions for delayed retirement
benefits, early retirement benefits, disability and death benefits, optional
methods of benefit payments, payments to employees who leave after a certain
number of years of service, and payments to an employee's surviving spouse.
The U.K. Pension Plan also provides for payments to an employee's surviving
children.
PROFIT SHARING AND SAVINGS PLAN
The Company maintains the Haynes International, Inc. Profit Sharing and
Savings Plan and the Haynes International, Inc. Hourly Profit Sharing and
Savings Plan (the "Profit Sharing Plans") to provide retirement, tax-deferred
savings for eligible employees and their beneficiaries.
The board of directors has sole discretion to determine the amount, if
any, to be contributed by the Company. No Company contributions were made to
the Profit Sharing Plans for the fiscal years ended September 30, 1994, 1995
and 1996.
The Profit Sharing Plans are qualified under Section 401 of the Code,
permitting the Company to deduct for federal income tax purposes all amounts
contributed by it to the Profit Sharing Plans.
In general, all salaried employees completing at least 1,000 hours of
employment in a 12-month period are eligible to participate after completion
of one full year of employment. Each participant's share in the annual
allocation, if any, to the Profit Sharing Plans is represented by the
percentage which his or her plan compensation (up to $260,000) bears to the
total plan compensation of all participants in the plan. Employees may also
elect to make elective salary reduction contributions to the Profit Sharing
Plans, in amounts up to 10% of their plan compensation. Elective salary
reduction contributions may be withdrawn subject to the terms of the Profit
Sharing Plans.
Vested individual account balances attributable to Company contributions
may be withdrawn only after the amount to be distributed has been held by the
plan trustee in the profit sharing account for at least 24 consecutive
calendar months. Participants vest in their individual account balances
attributable to Company contributions at age 65, death, disability or on
completing five years of service.
INCENTIVE PLAN
In January 1996, the Company awarded and paid management bonuses of
approximately $439,000 pursuant to its management incentive program. The
January bonuses were calculated based on the Company's fiscal 1995
performance. Additionally, the Company adopted a management incentive plan
effective for fiscal 1996 pursuant to which senior managers and managers in
the level below senior managers will be paid a bonus based on actual EBITDA
compared to budgeted EBITDA. Based on results for fiscal 1996, the Company
accrued approximately $1.5 million for fiscal 1996 which was paid to all
domestic employees meeting certain service requirements on November 15, 1996.
HAYNES INTERNATIONAL, LTD. PLAN
In fiscal 1995, the Company's affiliate Haynes International, LTD
instituted a gainsharing plan. For fiscal 1995 and 1996, the Company made
gainsharing payments pursuant to this plan of approximately $269,000 and
$266,000, respectively.
<PAGE>
DIRECTOR COMPENSATION
The directors of the Company other than Thomas F. Githens and Robert Egan
receive no compensation for their services as such. The non-management members
of the board of directors are reimbursed by the Company for their
out-of-pocket expenses incurred in attending meetings of the board of
directors. Mr. Githens receives a director's fee of $3,000 per calendar
quarter, $1,000 per board meeting attended and $750 per board committee
meeting attended. Mr. Egan receives a director's fee of $2,000 per month plus
an advisory fee of $2,000 per month.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Sangwoo Ahn, Perry J. Lewis and Robert Egan served on the Compensation
Committee during fiscal 1996. 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.
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors is responsible for
administering the Existing Stock Option Plan, determining executive
compensation policies and administering compensation plans and salary
programs. The Committee is currently comprised solely of non-employee
directors. The Committee is chaired by Mr. Perry J. Lewis. The other
Committee members are Mr. Sangwoo Ahn and Mr. Robert Egan. The following
report is submitted by the members of the Compensation Committee.
* * *
The Company's executive compensation program is designed to align
executive compensation with the financial performance, business strategies and
objectives of the Company. The Company's compensation philosophy is to ensure
that the delivery of compensation, both in the short- and long-term, is
consistent with the sustained progress, growth and profitability of the
Company and acts as an inducement to attract and retain qualified individuals.
Under the guidance of the Company's Compensation Committee, the Company has
developed and implemented an executive compensation program to achieve these
objectives while providing executives with compensation opportunities that are
competitive with companies of comparable size in related industries.
The Company's executive compensation program has been designed to
implement the objectives described above and is comprised of the following
fundamental three elements:
C a base salary that is determined by individual contributions and
sustained performance within an established competitive salary range. Pay for
performance recognizes the achievement of financial goals and accomplishment
of corporate and functional objectives of the Company.
C an annual cash bonus, based upon corporate and individual performance
during the fiscal year.
C grants of stock options, also based upon corporate and individual
performance during the fiscal year, which focus executives on managing the
Company from the perspective of an owner with an equity position in the
business.
Base Salary. The salary, and any periodic increase thereof, of the
President and Chief Executive Officer was and is determined by the Board of
Directors of the Company based on recommendations made by the Compensation
Committee. The salaries, and any periodic increases thereof, of the Vice
President, Finance, Secretary and Treasurer, the Vice President,
International, the Vice President, Operations, and the Vice President,
Marketing, were and are determined by the Board of Directors based on
recommendations made by the President and Chief Executive Officer and approved
by the Committee.
The Company, in establishing base salaries, levels of incidental and/or
supplemental compensation, and incentive compensation programs for its
officers and key executives, assesses periodic compensation surveys and
published data covering the industry in which the Company operates and
industry in general. The level of base salary compensation for officers and
key executives is determined by both their scope and responsibility and the
established salary ranges for officers and key executives of the Company.
Periodic increases in base salary are dependent on the executive's proficiency
of performance in the individual's position for a given period, and on the
executive's competency, skill and experience.
Compensation levels for fiscal 1996 for the President and Chief Executive
Officer, and for the other executive officers of the Company, reflected the
accomplishment of corporate and functional objectives in fiscal 1995.
Bonus Payments. Bonus awards are determined by the Board of Directors of
the Company based on recommendations made by the Compensation Committee.
Bonus awards for fiscal 1996 reflected the accomplishment of corporate and
functional objectives in fiscal 1996, including the successful refinancing of
the Company's debt.
Stock Option Grants. Stock options under the Existing Option Plan are
granted to key executives and officers based upon individual and corporate
performance and are determined by the Board of Directors of the Company based
on recommendations made by the Compensation Committee. No stock options were
granted in fiscal 1996.
SUBMITTED BY THE COMPENSATION COMMITTEE
Mr. Perry J. Lewis
Mr. Sangwoo Ahn
Mr. Robert Egan
[Remainder of page intentionally left blank.]
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All of the outstanding capital stock of the Company is owned by Holdings.
The only stockholder of record of Holdings owning more than five percent of
its outstanding Common Stock at September 30, 1996 was MLGA Fund II, L.P.
("Fund II"), a Connecticut limited partnership that is controlled by John A.
Morgan, Perry J. Lewis, Sangwoo Ahn, Ira Starr and William C. Ughetta, Jr.,
all principals of MLGAL. The following table sets forth the number and
percentage of shares of Common Stock of Holdings owned by (i) Fund II, (ii)
all affiliates of Fund II, (iii) each of the directors of the Company and each
of the executive officers named in the Summary Compensation Table, (iv) all
affiliates of Fund II as a group and (v) all directors and executive officers
of the Company as a group, as of September 30, 1996. 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, Hodge, Barker,
Cijan, and Sponaugle is 1020 West Park Avenue, Kokomo, Indiana 46904-9013. The
address of Mr. Githens is 41 Crescent Place, Short Hills, New Jersey 07078.
The address of Mr. Egan is 4 Foxwood Drive, Pittsburgh, Pennsylvania 15238.
<TABLE>
<CAPTION>
<S> <C> <C>
Shares Beneficially Owned(1)
Name Number Percent
- ------------------------------------ ---------------------------- --------
Fund II 5,759,894 87.6%
Sangwoo Ann 5,879,836(2)(3) 89.4
Perry J. Lewis 5,879,836(2)(3) 89.4
John A. Morgan 5,879,836(2)(3) 89.4
Ira Starr 5,854,251(2)(3) 89.0
William C. Ughetta, Jr. 5,846,751(2)(3) 88.9
Thomas F. Githens 54,799 (6)
Robert Egan 0 --
Michael D. Austin 120,000(4) 1.8
F. Galen Hodge 57,070(6) (6)
Joseph F. Barker 40,924(6) (6)
August A. Cijan 8,000(6) (6)
Charles J. Sponaugle 19,800(5) (6)
All Fund II affiliates as a group 5,953,506 90.6
All directors and executive officers
of the Company as a group 6,270,099(2) 91.8
- ------------------------------------ ---------------------------- --------
<FN>
- ----------------------------
(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) Includes the shares reported in the table as owned by Fund II and
86,857 shares owned by MLGAL.
(3) The named stockholder 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.
(4) Represents shares of Common Stock underlying options exercisable
within 60 days of September 30, 1996 which are deemed to be beneficially owned
by the holders of such options. See Item 11 - "Executive Compensation - Stock
Option Plans."
(5) Includes 14,800 shares of Common Stock underlying options exercisable
within 60 days of September 30, 1996 which are deemed to be beneficially owned
by Mr. Sponaugle. See Item 11 - "Executive Compensation - Stock Option
Plans."
(6) Less than 1%.
</TABLE>
<PAGE>
AGREEMENTS AMONG STOCKHOLDERS
Holdings, the Company, MLGA Fund II and the investors in Holdings who were
officers or directors of the Company or affiliates of MLGA Fund II or the
Company at the time of the 1989 Acquisition have entered into the Stock
Subscription Agreement and Holdings and all of the investors in Holdings have
entered into the Stockholder Agreement, both dated August 31, 1989 and amended
as of August 14, 1992 to add MLGAL as a party. The Stock Subscription
Agreement was further amended on March 16, 1993 to reduce the Company's
purchase price for Holdings common stock and stock options described below.
The Stock Subscription Agreement provides that each of the investors who
is a party to the agreement shall have a right of first refusal with respect
to any transfer by an investor of Holdings common stock unless the transfer
complies with all applicable securities laws and all other agreements made by
the investors who are parties to the agreement, or the transferee is Holdings
or a person specified in the Stock Subscription Agreement as a "Permitted
Transferee", or the transfer is made pursuant to a public offering of Holdings
common stock. Investors who are management employees of the Company or their
Permitted Transferees (the "Management Holders") have the right to sell their
Holdings common stock or their options to purchase Holdings common stock, in
whole or in part, to Holdings at a price equal to (i) 6.3 multiplied by the
Company's EBITDA (as defined in the Stock Subscription Agreement) for the
immediately preceding four fiscal quarters less the average indebtedness of
Holdings, the Company and its subsidiaries for the immediately preceding four
fiscal quarters, all to be determined on a consolidated basis, divided by (ii)
the total number of fully diluted shares of Holdings common stock outstanding
(the "Fair Market Value") net of the applicable exercise price, if any, within
five years after termination of employment because of disability, retirement
or death, after which time the Holdings common stock and options to purchase
Holdings common stock may be called by Holdings for redemption at the Fair
Market Value. Additionally, upon the termination of employment of any
Management Holder other than for disability, retirement or death, the Stock
Subscription Agreement contains provisions for the purchase and sale of
Holdings common stock and options to purchase Holdings common stock at prices
based on formulas which take into account the reason for the termination.
The Stock Subscription Agreement contains voting requirements which
provide for the election as directors of Holdings and of the Company of six
persons (including the Chairman of the Board) designated by the Founding
Investors (as defined in the Stock Subscription Agreement) and of five persons
designated by the Management Holders. A change in the number of directors
requires the approval of a majority of all the investors who are parties to
the agreement and a majority of the Management Holders. The Board of Directors
must approve all capital expenditures over $500,000, mergers, adjustments to
management's compensation, promotions of officers, incurrence of debt, loans,
sales of shares, and any disposal of substantially all the assets of the
Company. The Stock Subscription Agreement also requires that the investors who
are parties to the agreement vote to amend the Certificate of Incorporation of
Holdings if necessary to accommodate a public offering; however, newly issued
shares must be approved by a majority of the Management Holders if the
issuance price is below certain specified minimum prices. The Stock
Subscription Agreement terminates upon the earlier of an initial public
offering, the consent of a majority of all the investors who are parties to
the agreement and of a majority of the Management Holders, or the tenth
anniversary of the 1989 Acquisition.
The Stockholder Agreement imposes certain transfer restrictions on the
Holdings common stock, including provisions that (i) Holdings common stock may
be transferred only to those persons agreeing to be bound by the Stockholder
Agreement, and the Stock Subscription Agreement if the transferor is a party
thereto, except if such transfer is pursuant to a public offering or made
following a public offering in compliance with Rule 144 under the Securities
Act; (ii) the investors may not grant any proxy or enter into or agree to be
bound by any voting trust with respect to the Holdings common stock; (iii) if
the Founding Investors, the Management Holders or their permitted transferees
propose to sell any of their Holdings common stock, the other investors shall
in most instances have the right to participate ratably in the proposed sale
or, under certain circumstances, to sell all of their Holdings common stock in
the proposed sale; (iv) if a majority in interest of the investors propose to
sell a majority of the Holdings common stock or substantially all of the
assets of Holdings or the Company to a third party, the Management Holders
shall have a right to bid for such stock or assets; and (v) a majority in
interest of the investors may compel all other such investors to sell their
shares under certain circumstances. The Stockholder Agreement also contains a
commitment on the part of Holdings to register the shares under the Securities
Act upon request by investors holding at least 25% of the fully diluted shares
of Holdings common stock outstanding, or if Holdings otherwise proposes to
register shares, subject to certain conditions and limitations. The
Stockholder Agreement terminates on the earlier of the sale of 15% or more of
the fully diluted stock pursuant to a public offering and the qualification of
the common stock for listing on the New York Stock Exchange, the American
Stock Exchange or Nasdaq, or upon the tenth anniversary of the Acquisition.
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this Report.
---------------------------------------------
1. Financial Statements:
----------------------
Included as outlined in Item 8 of Part II of this report:
Report of Independent Accountants.
Consolidated Balance Sheet as of September 30, 1995 and September 30, 1996.
Consolidated Statement of Operations for the Years Ended September 30, 1994,
1995 and 1996.
Consolidated Statement of Cash Flows for the Years Ended September 30, 1994,
1995 and 1996.
Notes to Consolidated Financial Statements.
2. Financial Statement Schedules:
-------------------------------
Included as outlined in Item 8 of Part II of this report:
Schedule VIII - Valuation and Qualifying Accounts and Reserves
Schedules other than those listed above are omitted as they are not required,
are not applicable, or the information is shown in the Notes to the
Consolidated Financial Statements.
(b) Reports on Form 8-K. None.
----------------------
(c) Exhibits. See Index to Exhibits.
--------
[Remainder of page intentionally left blank.]
<PAGE>
<TABLE>
<CAPTION>
HAYNES INTERNATIONAL, INC.
SCHEDULE VIII
EVALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN THOUSANDS)
<S> <C> <C> <C>
Year Ended Year Ended Year Ended
Sept. 30, 1994 Sept. 30, 1995 Sept. 30, 1996
---------------- ---------------- ----------------
Balance at beginning of period $ 450 $ 520 $ 979
Provisions 863 553 26
Write-Offs (805) (151) (152)
Recoveries 12 57 47
---------------- ---------------- ----------------
Balance at end of period $ 520 $ 979 $ 900
================ ================ ================
</TABLE>
[Remainder of page intentionally left blank.]
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
HAYNES INTERNATIONAL, INC.
----------------------------
(Registrant)
By:/s/ Michael D. Austin
---------------------------------
Michael D. Austin, President
Date: December 20, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
Signature Capacity Date
- --------------------- ------------------------------ -----------------
/s/ Michael D. Austin President and Director December 20, 1996
- ---------------------
Michael D. Austin (Principle Executive Officer)
/s/ Joseph F. Barker Vice President, Finance; December 20, 1996
- ---------------------
Joseph F. Barker Treasurer and Director
Principle Financial Officer
/s/ Theodore T. Brown Controller December 20, 1996
- ---------------------
Theodore T. Brown (Principal Accounting Officer)
/s/ John A. Morgan Director December 20, 1996
- ---------------------
John A. Morgan
/s/ Perry J. Lewis Director December 20, 1996
- ---------------------
Perry J. Lewis
/s/ Thomas F. Githens Director December 20, 1996
- ---------------------
Thomas F. Githens
/s/ Sangwoo Ahn Director December 20, 1996
- ---------------------
Sangwoo Ahn
/s/ Ira Starr Director December 20, 1996
- ---------------------
Ira Starr
/s/ Robert Egan Director December 20, 1996
- ---------------------
Robert Egan
</TABLE>
<TABLE>
<CAPTION>
INDEX TO EXHIBITS
<S> <C> <C> <C>
Sequential
Number Numbering
Assigned In System Page
Regulation S-K Number of
Item 601 Description of Exhibit Exhibit
- ---------------- ------------------------------------------------------------------------- -----------
(2) No Exhibit.
(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 Indenture, dated as of August 23, 1996, between Haynes
International, Inc., and National City Bank, as
Trustee, relating to the 11-5/8% Senior Notes Due 2004, table of
contents and cross-reference sheet
4.02 Form of 11 5/8% Senior Note Due 2004.
(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 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.)
10.03 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.)
10.04 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.)
10.05 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.)
10.06 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.)
10.07 Investment Agreement, dated August 10, 1992, between MLGA Fund
II, L.P., and Haynes Holdings, Inc. (Incorporated by reference to
Exhibit 10.22 to Registration Statement on Form S-4, Registration
No. 33-66346.)
10.08 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.)
10.09 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.)
10.10 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.)
10.11 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.)
10.12 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.)
10.13 Amendment to Employment Agreement, dated as of July 15, 1996 by
and among Haynes International, Inc., Haynes Holdings, Inc. and
Michael D. Austin. (Incorporated by reference to Exhibit 10.15 to
Registration Statement on Form S-1, Registration No. 333-05411.)
10.14 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.)
10.15 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.)
10.16 Form of "September Option" Agreements between Haynes Holdings,
Inc. and the executive officers of Haynes International, Inc. named in
the schedule to the Exhibit. (Incorporated by reference to Exhibit 10.10
to Registration Statement on Form S-1, Registration No. 33-66346.)
10.17 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.)
10.18 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.)
10.19 Amended and Restated Loan Agreement by and among CoreStates
Bank, N.A. and Congress Financial Corporation (Central), as Lenders,
Congress Financial Corporation (Central), as Agent of Lenders, and
Haynes International, Inc., as Borrower.
(11) No Exhibit.
(12) 12.01 Statement re: computation of ratio of earnings to fixed charges.
(13) No Exhibit.
(16) No Exhibit.
(18) No Exhibit.
(21) 21.01 Subsidiaries of the Registrant. (Incorporated by Reference to
Exhibit 21.01 to Registration Statement on Form S-1, Registration
No. 333-05411.)
(22) No Exhibit.
(23) No Exhibit.
(24) No Exhibit.
(27) 27.01 Financial Data Schedule
(28) No Exhibit.
(99) No Exhibit.
- ---------------- -------------------------------------------------------------------------
</TABLE>
Form of Indenture, dated as of August 20, 1996, among Haynes
International, Inc., Haynes Holdings, Inc. and National City Bank, as
Trustee, relating to the 11.625% Senior Notes Due 2004, table of
contents and cross-reference sheet
HAYNES INTERNATIONAL, INC.
and
NATIONAL CITY BANK, AS TRUSTEE
INDENTURE
Dated as of August 23, 1996
$140,000,000
11e% Senior Notes due 2004
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-------------------
<S> <C>
PAGE
PARTIES 1
RECITALS 1
</TABLE>
<TABLE>
<CAPTION>
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
<S> <C>
Section 1.1. Definitions 1
Section 1.2. Other Definitions 20
Section 1.3. Compliance Certificates and Opinions 21
Section 1.4. Form of Documents Delivered to Trustee 21
Section 1.5. Acts of Holders 22
Section 1.6. Notices, etc., to Trustee and the Company 23
Section 1.7. Notice to Holders; Waiver 24
Section 1.8. Conflict with Trust Indenture Act 24
Section 1.9. Effect of Headings and Table of Contents. 24
Section 1.10. Successors and Assigns 24
Section 1.11. Separability Clause 25
Section 1.12. Benefits of Indenture 25
Section 1.13. GOVERNING LAW 25
Section 1.14. Legal Holidays 25
Section 1.15. Schedules 25
Section 1.16. Counterparts 25
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ARTICLE II
SECURITY FORMS
<S> <C>
Section 2.1. Forms Generally 26
Section 2.2. Form of Face of Security 27
Section 2.3. Form of Reverse of Security 28
Section 2.4. Form of Trustee's Certificate of Authentication 33
</TABLE>
<TABLE>
<CAPTION>
ARTICLE III
THE SECURITIES
<S> <C>
Section 3.1. Title and Terms 34
Section 3.2. Denominations 34
Section 3.3. Execution, Authentication, Delivery and Dating 34
Section 3.4. Temporary Securities 36
Section 3.5. Registration, Registration of Transfer and Exchange 36
Section 3.6. Mutilated, Destroyed, Lost and Stolen Securities 37
Section 3.7. Payment of Interest; Interest Rights Preserved 38
Section 3.8. Persons Deemed Owners 39
Section 3.9. Cancellation 40
Section 3.10. Computation of Interest 40
Section 3.11. Depositary Procedures. 40
Section 3.12. Book-Entry. 41
Section 3.13. Same-Day Settlement and Payment. 41
Section 3.14. Legends. 41
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ARTICLE IV
DEFEASANCE AND COVENANT DEFEASANCE
<S> <C>
Section 4.1. Company's Option to Effect Defeasance or Covenant Defeasance 42
Section 4.2. Defeasance and Discharge 42
Section 4.3. Covenant Defeasance 42
Section 4.4. Conditions to Defeasance or Covenant Defeasance 43
Section 4.5. Deposited Money and U.S. Government Obligations to Be Held in Trust; Other Miscellaneous Provisions 45
Section 4.6. Reinstatement 46
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ARTICLE V
REMEDIES
<S> <C>
Section 5.1. Events of Default 46
Section 5.2. Acceleration of Maturity; Rescission and Annulment 48
Section 5.3. Collection of Indebtedness and Suits for Enforcement by Trustee 49
Section 5.4. Trustee May File Proofs of Claim 50
Section 5.5. Trustee May Enforce Claims Without Possession of Securities 51
Section 5.6. Application of Money Collected 51
Section 5.7. Limitation on Suits 52
Section 5.8. Unconditional Right of Holders to Receive Principal, Premium and Interest 52
Section 5.9. Restoration of Rights and Remedies 52
Section 5.10. Rights and Remedies Cumulative 53
Section 5.11. Delay or Omission Not Waiver 53
Section 5.12. Control by Holders 53
Section 5.13. Waiver of Past Defaults 53
Section 5.14. Undertaking for Costs 54
Section 5.15. Waiver of Stay, Extension or Usury Laws 54
Section 5.16. Remedies Subject to Applicable Law 55
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ARTICLE VI
THE TRUSTEE
<S> <C>
Section 6.1. Notice of Defaults 55
Section 6.2. Certain Rights of Trustee 55
Section 6.3. Trustee Not Responsible for Recitals, Dispositions of Securities or Application of Proceeds Thereof. 57
Section 6.4. Trustee and Agents May Hold Securities; Collections; etc. 57
Section 6.5. Money Held in Trust 57
Section 6.6. Compensation and Indemnification of Trustee and Its Prior Claim. 57
Section 6.7. Conflicting Interests. 58
Section 6.8. Corporate Trustee Required; Eligibility. 58
Section 6.9. Resignation and Removal; Appointment of Successor Trustee. 58
Section 6.10. Acceptance of Appointment by Successor. 60
Section 6.11. Merger, Conversion, Consolidation or Succession to Business. 61
Section 6.12. Preferential Collection of Claims Against Company. 61
</TABLE>
<TABLE>
<CAPTION>
ARTICLE VII
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
<S> <C>
Section 7.1. Company to Furnish Trustee Names and Addresses of Holders. 62
Section 7.2. Disclosure of Names and Addresses of Holders. 62
Section 7.3. Reports by Trustee. 62
Section 7.4. Reports by Company. 63
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ARTICLE VIII
CONSOLIDATION, MERGER, SALE OF ASSETS
<S> <C>
Section 8.1. Company May Merge, Consolidate etc., Only on Certain Terms 64
Section 8.2. Successor Substituted 65
</TABLE>
<TABLE>
<CAPTION>
ARTICLE IX
SUPPLEMENTAL INDENTURES
<S> <C>
Section 9.1. Supplemental Indentures and Agreements without Consent of Holders. 65
Section 9.2. Supplemental Indentures and Agreements with Consent of Holders. 66
Section 9.3. Execution of Supplemental Indentures and Agreements 68
Section 9.4. Effect of Supplemental Indentures 68
Section 9.5. Conformity with Trust Indenture Act 68
Section 9.6. Reference in Securities to Supplemental Indentures 68
Section 9.7. Record Date 68
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ARTICLE X
COVENANTS
<S> <C>
Section 10.1. Payment of Principal, Premium and Interest 69
Section 10.2. Maintenance of Office or Agency 69
Section 10.3. Money for Security Payments to be Held in Trust 70
Section 10.4. Corporate Existence 71
Section 10.5. Payment of Taxes and Other Claims 71
Section 10.6. Maintenance of Properties 71
Section 10.7. Insurance 72
Section 10.8. Limitation on Indebtedness 72
Section 10.9. Limitation on Restricted Payments 73
Section 10.10. Limitation on Transactions with Affiliates 76
Section 10.11. Limitation on Liens 76
Section 10.12. Limitation on Sale of Assets 78
Section 10.13. Purchase of Securities upon a Change of Control 82
Section 10.14. Optional Redemption Upon Change of Control 85
Section 10.15. Limitation on Issuance and Sale of Preferred Stock of Subsidiaries 86
Section 10.16. Limitation on Dividends and Other Payment Restrictions Affecting Subsidiaries 86
Section 10.17. Provision of Financial Statements 87
Section 10.18. Statement by Officers as to Default 87
Section 10.19. Waiver of Certain Covenants 88
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ARTICLE XI
REDEMPTION OF SECURITIES
<S> <C>
Section 11.1. Right of Redemption 88
Section 11.2. Applicability of Article 89
Section 11.3. Election to Redeem; Notice to Trustee 89
Section 11.4. Selection by Trustee of Securities to Be Redeemed 89
Section 11.5. Notice of Redemption 89
Section 11.6. Deposit of Redemption Price 90
Section 11.7. Securities Payable on Redemption Date 91
Section 11.8. Securities Redeemed or Purchased in Part 91
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ARTICLE XII
SATISFACTION AND DISCHARGE
<S> <C>
Section 12.1. Satisfaction and Discharge of Indenture 92
Section 12.2. Application of Trust Money 93
</TABLE>
<PAGE>
<PAGE>
SIGNATURES AND SEALS
ACKNOWLEDGMENTS
SCHEDULE I. Restrictions on Dividends of Subsidiaries
INDENTURE, dated as of August 23, 1996, between HAYNES
INTERNATIONAl, INC., a Delaware corporation (as more fully defined below, the
"Company"), and National City Bank, a national banking association, as trustee
(the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the creation of an issue of 11e%
Senior Notes due 2004 (the "Securities"), of substantially the tenor and
amount hereinafter set forth, and to provide therefor, the Company has duly
authorized the execution and delivery of this Indenture;
This Indenture is subject to, and shall be governed by, the
provisions of the Trust Indenture Act that are required to be part of and to
govern indentures qualified under the Trust Indenture Act; and
All acts and things necessary have been done to make (i) the
Securities, when executed by the Company and authenticated and delivered
hereunder and duly issued by the Company, the valid obligations of the Company
and (ii) this Indenture a valid agreement of the Company in accordance with
the terms of this Indenture.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Securities by the Holders thereof, it is mutually covenanted and agreed, for
the equal and proportionate benefit of all Holders of the Securities, as
follows:
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 1.1. Definitions.
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings
assigned to them in this Article, and include the plural as well as the
singular;
(b) all other terms used herein which are defined in the
Trust Indenture Act, either directly or by reference therein, have the
meanings assigned to them therein;
(c) all accounting terms not otherwise defined herein have
the meanings assigned to them in accordance with GAAP;
(d) the words "herein", "hereof" and "hereunder" and other
words of similar import refer to this Indenture as a whole and not to any
particular Article, Section or other subdivision; and
(e) all references to $, US$, dollars or United States
dollars shall refer to the lawful currency of the United States of America.
The following terms shall have the meanings set forth in this
Section.
"Acquired Indebtedness" means Indebtedness of a Person (i) existing
at the time such Person becomes a Subsidiary or (ii) assumed in connection
with the acquisition of assets from such Person, in each case, other than
Indebtedness incurred in connection with, or in contemplation of, such Person
becoming a Subsidiary or such acquisition. Acquired Indebtedness shall be
deemed to be incurred on the date of the related acquisition of assets from
any Person or the date the acquired Person becomes a Subsidiary.
"Adjusted Consolidated Interest Expense" of any Person means,
without duplication, for any period, as applied to any Person, the sum of (a)
the interest expense of such Person and its Consolidated Subsidiaries for such
period, on a Consolidated basis, including without limitation, (i)
amortization of debt discount, (ii) the net cost under interest rate contracts
(including amortization of discounts), (iii) the interest portion of any
deferred payment obligation and (iv) accrued interest, plus (b)(i) the
interest component of the Capital Lease Obligations paid, accrued and/or
scheduled to be paid, or accrued by such Person during such period, and (ii)
all capitalized interest of such Person and its Consolidated Subsidiaries, in
each case as determined in accordance with GAAP consistently applied.
"Affiliate" means, (i) with respect to any specified Person, (A) any
other Person directly or indirectly controlling or controlled by or under
direct or indirect common control with such specified Person or (B) any other
Person that owns, directly or indirectly, 5% or more of such Person's Capital
Stock or any officer or director of any such specified Person or other Person
described in clauses (A) or (B), or (ii) with respect to any natural Person,
any person having a relationship with such Person by blood, marriage or
adoption not more remote than first cousin. For the purposes of this
definition, "control" when used with respect to any specified Person means the
power to direct the management and policies of such Person directly or
indirectly, whether through ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Asset Sale" means any sale, issuance, conveyance, transfer, lease
or other disposition (including, without limitation, by way of merger,
consolidation or Sale and Leaseback Transaction)(collectively, a "transfer"),
directly or indirectly, in one or a series of related transactions, of (a) any
Capital Stock of any Subsidiary; (b) all or substantially all of the
properties and assets of any division or line of business of the Company or
its Subsidiaries; or (c) any other properties or assets of the Company or any
Subsidiary, other than in the ordinary course of business; provided that the
sale of any material portion of the Company's facilities in Kokomo, Indiana,
Arcadia, Louisiana or Openshaw, England shall be deemed to be not in the
ordinary course of business. For the purposes of this definition, the term
"Asset Sale" shall not include any transfer of properties and assets (A) that
is governed by the provisions described under "Consolidation, Merger, Sale of
Assets," (B) that is of the Company to any Wholly- Owned
Subsidiary, or of any Subsidiary to the Company or any Wholly-Owned Subsidiary
in accordance with the terms hereof or (C) for which the Fair Market Value of
any transferred properties or assets is less than $1 million.
"Average Life to Stated Maturity" means, as of the date of
determination with respect to any Indebtedness, the quotient obtained by
dividing (i) the sum of the products of (a) the number of years from the date
of determination to the date or dates of each successive scheduled principal
payment of such Indebtedness multiplied by (b) the amount of each such
principal payment; by (ii) the sum of all such principal payments.
"Bankruptcy Law" means Title 11, United States Bankruptcy Code of
1978, as amended, or any similar United States Federal or State law relating
to bankruptcy, insolvency, receivership, winding-up, liquidation,
reorganization or relief of debtors or any amendment to, succession to or
change in any such law.
"Board of Directors" means the board of directors of the Company or
any duly authorized committee of such board.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted
by such Board of Directors and to be in full force and effect on the date of
such certification, and delivered to the Trustee.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in The City of New
York or the city in which the principal office of the Trustee is located are
authorized or obligated by law or executive order to close.
"Capital Lease Obligation" of any Person means any obligations of
such Person and its Subsidiaries on a Consolidated basis under any capital
lease of real or personal property which, in accordance with GAAP, has been
recorded as a capitalized lease obligation.
"Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents (however designated) of such Person's
capital stock.
"Change of Control" means the occurrence of any of the following
events: (i) any "person" or "group" (as such terms are used in Sections 13(d)
and 14(d) of the Exchange Act), other than Permitted Holders, is or becomes
the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange
Act, except that a Person shall be deemed to have "beneficial ownership" of
all shares that such Person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of more than 50% of the total outstanding Voting Stock of the
Company, (ii) during any period of two consecutive years, individuals who at
the beginning of such period constituted the Board of Directors of the Company
(together with any new directors whose election to such Board or whose
nomination for election by the stockholders of the Company, was approved by a
vote of 66 2/3% of the directors then still in office who were either
directors at the beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason to constitute a
majority of such Board of Directors then in office; (iii) the Company
consolidates with, or merges with or into, another Person or sells, assigns,
conveys, transfers, leases or otherwise disposes of all or substantially all
of its assets to any Person, or any Person consolidates with, or merges with
or into, the Company, in any such event pursuant to a transaction in which the
outstanding Voting Stock of the Company is converted into or exchanged for
cash, securities or other property, other than any such transaction where (a)
the outstanding Voting Stock of the Company is converted into or exchanged for
(1) Voting Stock (other than Redeemable Capital Stock) of the surviving or
transferee corporation or (2) cash, securities and other property in an amount
which could be paid by the Company as a Restricted Payment as described under
Section 10.9 (and such amount shall be treated as a Restricted Payment as
described under Section 10.9) and (b) immediately after such transaction no
"person" or "group" (as such terms are used in Section 13(d) and 14(d) of the
Exchange Act), other than Permitted Holders, is the "beneficial owner" (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a person
shall be deemed to have "beneficial ownership" of all securities that such
person has the right to acquire, whether such right is exercisable immediately
or only after the passage of time), directly or indirectly, of more than 50%
of the total outstanding Voting Stock of the surviving or transferee
corporation; or (iv) the Company is liquidated or dissolved or adopts a plan
of liquidation or dissolution other than in a transaction which complies with
the provisions described under Article VIII.
"Commission" means the Securities and Exchange Commission, as from
time to time constituted, created under the Exchange Act, or if at any time
after the execution of this Indenture such Commission is not existing and
performing the duties now assigned to it under the Trust Indenture Act of
1939, then the body performing such duties at such time.
"Common Stock" means the common stock, par value $.01 per share, of
the Company.
"Company" means Haynes International, Inc., 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.
"Company Request" or "Company Order" means a written request or
order signed in the name of the Company by any one if its Chairman of the
Board, its Vice Chairman, its President or a Vice President (regardless of
Vice Presidential designation), and by any one of its Treasurer, an Assistant
Treasurer, its Secretary or an Assistant Secretary, and delivered to the
Trustee.
"Consolidated Fixed Charge Coverage Ratio" of any Person means, for
any period, the ratio of EBITDA to the sum of Adjusted Consolidated Interest
Expense for such period and cash and non-cash dividends paid on any Preferred
Stock of such Person during such period; provided that (i) in making such
computation, the Adjusted Consolidated Interest Expense attributable to
interest on any Indebtedness shall be computed on a pro forma basis
(calculated as described under Article X) and (A) where such Indebtedness was
outstanding during the period and bore a floating interest rate, interest
shall be computed as if the rate in effect on the date of computation had been
the applicable rate for the entire period and (B) where such indebtedness was
not outstanding during the period for which the computation is being made but
which bears, at the option of the Company, a fixed or floating rate of
interest, shall be computed by applying at the option of the Company, either
the fixed or floating rate and (ii) in making such computation, the Adjusted
Consolidated Interest Expense of such Person attributable to interest on any
Indebtedness under a revolving credit facility computed on a pro forma basis
shall be computed based upon the average daily balance of such Indebtedness
during the applicable period.
"Consolidated Income Tax Expense" means for any period, as applied
to any Person, the provision for federal, state, local and foreign income
taxes of such Person and its Consolidated Subsidiaries for such period as
determined in accordance with GAAP consistently applied.
"Consolidated Net Income" of any Person means, for any period, the
consolidated net income (or loss) of such Person and its Consolidated
Subsidiaries for such period as determined in accordance with GAAP
consistently applied, adjusted, to the extent included in calculating such net
income (loss), by excluding, without duplication, (i) all extraordinary gains
or losses (less all fees and expenses relating thereto), (ii) the portion of
net income (or loss) of such Person and its Consolidated Subsidiaries
allocable to minority interests in unconsolidated Persons to the extent that
cash dividends or distributions have not actually been received by such Person
or one of its Consolidated Subsidiaries, (iii) net income (or loss) of any
Person combined with the Company or any of its Subsidiaries on a "pooling of
interests" basis attributable to any period prior to the date of combination,
(iv) any gain or loss, net of taxes, realized upon the termination of any
employee pension benefit plan, (v) net gains or losses (less all fees and
expenses relating thereto) in respect of dispositions of assets other than in
the ordinary course of business, (vi) the expenses recognized in connection
with the payment of the prepayment premiums related to the Redemption, (vii)
the expenses recognized in connection with the termination of and repayment of
amounts outstanding under the Existing Credit Facility, (viii) the expenses
recognized related to amortization of fees and other charges in connection
with the 1989 Acquisition, (ix) an amount equal to the excess of (A) the
interest expense incurred on the Existing Notes and the Securities during the
period following the consummation of the offering of the Securities and prior
to the date of the Redemption, over (B) the interest income earned on the
proceeds from the offering of the Securities designated for the Redemption
during the same period, or (x) the net income of any Subsidiary to the extent
that the declaration of dividends or similar distributions by that Subsidiary
of that income is not at the time permitted, directly or indirectly, by
operation of the terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to that
Subsidiary or its stockholders.
"Consolidated Net Worth" of any Person means the Consolidated
stockholders' equity (excluding Redeemable Capital Stock) of such Person and
its Subsidiaries, as determined in accordance with GAAP consistently applied.
"Consolidated Non-Cash Charges" of any Person means, for any period,
the aggregate depreciation, amortization and other non-cash charges of such
Person and its Consolidated Subsidiaries for such period, as determined in
accordance with GAAP (excluding any non-cash charge that requires an accrual
or reserve for cash charges for any future period and all non-cash charges
incurred in connection with the valuation of inventory on a LIFO basis).
"Consolidation" means, with respect to the accounts of any Person,
the consolidation of such Person and each of its subsidiaries if and to the
extent the accounts of such Person and each of its subsidiaries would normally
be consolidated with those of such Person, all in accordance with GAAP
consistently applied. The term "Consolidated" shall have a similar meaning.
"Corporate Trust Office" means the office of the Trustee or an
affiliate or agent thereof at which at any particular time the corporate trust
business for the purposes of this Indenture shall be principally administered,
which office at the date of execution of this Indenture is located at 101 West
Washington Street, Suite 655 South, Indianapolis, Indiana 46255.
"Default" means any event which is, or after notice or passage of
time or both would be, an Event of Default.
"Disinterested Director" means, with respect to any transaction or
series of related transactions, a member of the Board of Directors who does
not have any material direct or indirect financial interest in or with respect
to such transaction or series of related transactions.
"EBITDA" means the sum of Consolidated Net Income, Adjusted
Consolidated Interest Expense, Consolidated Income Tax Expense and
Consolidated Non-Cash Charges deducted in computing Consolidated Net Income,
in each case, for such period, of the Company and its Subsidiaries on a
Consolidated basis, all determined in accordance with GAAP consistently
applied.
"Eligible Inventory" means Inventory consisting of finished goods
held for resale in the ordinary course of business of the Company, raw
materials for such finished goods and work-in-process and semi-finished goods
which satisfy and continue to satisfy the criteria as set forth below as
determined by the agent under the New Credit Facility 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 the Company's business;
(e) Inventory at premises other than those owned and controlled by the
Company, except if the agent under the New Credit Facility 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
such agent, acknowledging the first priority security interest in the
Inventory of such agent, for itself and the ratable benefit of the creditors
under the New Credit Facility, waiving security interests and claims by such
person against the Inventory and permitting such agent access to, and the
right to remain on, the premises so as to exercise the rights and remedies of
such agent for itself and the ratable benefit of the creditors under the New
Credit Facility, and otherwise deal with the collateral; (f) Inventory subject
to a security interest or lien in favor of any person other than the agent
under the New Credit Facility (except those permitted under the New Credit
Facility); (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 the agent under the New Credit Facility; (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 the agent under the New Credit
Facility in good faith based on events, conditions, circumstances or risks
which such agent in good faith determines are reasonably likely to affect the
Inventory, the value of the Inventory or the security interests and other
rights in the Inventory of such agent, for itself and the ratable benefit of
the creditors under the New Credit Facility, and for which no availability
reserve has been established.
"Event of Default" has the meaning specified in Article V.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Existing Credit Facility" means the revolving credit facility
established pursuant to a Loan and Security Agreement between the Company and
Congress Financial Corporation (Central) dated August 11, 1994, as amended.
"Existing Notes" means the Company's 11 % Senior Secured Notes due
1998 and 13 % Senior Subordinated Notes due 1999.
"Fair Market Value" means, with respect to any asset or property,
the sale value that would be obtained in an arm's-length transaction between
an informed and willing seller under no compulsion to sell and an informed and
willing buyer.
"Generally Accepted Accounting Principles" or "GAAP" means generally
accepted accounting principles in the United States, consistently applied,
which are in effect on the date of this Indenture.
"Guaranteed Debt" of any Person means, without duplication, all
Indebtedness of any other Person (debtor) referred to in the definition of
"Indebtedness" contained in this Section guaranteed directly or indirectly in
any manner by such Person, or in effect guaranteed directly or indirectly by
such Person through an agreement (i) to pay or purchase such Indebtedness or
to advance or supply funds for the payment or purchase of such Indebtedness,
(ii) to purchase, sell or lease (as lessee or lessor) property, or to purchase
or sell services, primarily for the purpose of enabling the debtor to make
payment of such Indebtedness or to assure the holder of such Indebtedness
against loss, (iii) to supply funds to, or in any other manner invest in, the
debtor (including any agreement to pay for property or services without
requiring that such property be received or such services be rendered), (iv)
to maintain working capital or equity capital of the debtor, or otherwise to
maintain the net worth, solvency or other financial condition of the debtor or
(v) otherwise to assure a creditor against loss; provided that the term
"guarantee" shall not include endorsements for collection or deposit, in
either case in the ordinary course of business.
"Holder" means a Person in whose name a Security is registered in
the Security Register.
"Indebtedness" means, with respect to any Person, without
duplication, (i) all indebtedness of such Person for borrowed money or for the
deferred purchase price of property or services, excluding any trade payables
and other accrued current liabilities arising in the ordinary course of
business, but including, without limitation, all obligations, contingent or
otherwise, of such Person in connection with any letters of credit issued
under letter of credit facilities, acceptance facilities or other similar
facilities and in connection with any agreement to purchase, redeem, exchange,
convert or otherwise acquire for value any Capital Stock of such Person, or
any warrants, rights or options to acquire such Capital Stock, now or
hereafter outstanding, (ii) all obligations of such Person evidenced by bonds,
notes, debentures or other similar instruments, (iii) all indebtedness created
or arising under any conditional sale or other title retention agreement with
respect to property acquired by such Person (even if the rights and remedies
of the seller or lender under such agreement in the event of default are
limited to repossession or sale of such property), but excluding trade
payables arising in the ordinary course of business, (iv) all obligations
under Interest Rate Agreements of such Person, (v) all Capital Lease
Obligations of such Person, (vi) all Indebtedness referred to in clauses (i)
through (v) above of other Persons and all dividends of other Persons, the
payment of which is secured by (or for which the holder of such Indebtedness
has an existing right, contingent or otherwise, to be secured by) any Lien,
upon or with respect to property (including, without limitation, accounts and
contract rights) owned by such Person, even though such Person has not assumed
or become liable for the payment of such Indebtedness, (vii) all Guaranteed
Debt of such Person, (viii) all Redeemable Capital Stock valued at the greater
of its voluntary or involuntary maximum fixed repurchase price plus accrued
and unpaid dividends, and (ix) any amendment, supplement, modification,
deferral, renewal, extension, refunding or refinancing of any liability of the
types referred to in clauses (i) through (viii) above. For purposes hereof,
the "maximum fixed repurchase price" of any Redeemable Capital Stock which
does not have a fixed repurchase price shall be calculated in accordance with
the terms of such Redeemable Capital Stock as if such Redeemable Capital Stock
were purchased on any date on which Indebtedness shall be required to be
determined pursuant to the Indenture, and if such price is based upon, or
measured by, the fair market value of such Redeemable Capital Stock, such fair
market value to be determined in good faith by the Board of Directors of the
issuer of such Redeemable Capital Stock.
"Indenture" means this instrument as originally executed (including
all exhibits and schedules thereto) and as it may from time to time be
supplemented or amended by one or more indentures supplemental hereto entered
into pursuant to the applicable provisions hereof.
"Indenture Obligations" means the obligations of the Company and any
other obligor under the Indenture or under the Securities to pay principal of,
premium, if any, and interest when due and payable, and all other amounts due
or to become due under or in connection with the Indenture, the Securities and
the performance of all other obligations to the Trustee and the holders under
the Indenture and the Securities, according to the terms thereof.
"Independent Financial Advisor" means a nationally recognized
investment banking firm (i) which does not, and whose directors, officers and
employees or Affiliates do not, have a direct or indirect financial interest
in the Company and (ii) which, in the judgment of the board of directors of
the Company, is otherwise independent and qualified to perform the task for
which it is to be engaged.
"Interest Payment Date" means the Stated Maturity of a regular
installment of interest on the Securities or the Special Payment Date with
respect to Defaulted Interest.
"Interest Rate Agreements" means one or more of the following
agreements which shall be entered into by one or more financial institutions:
interest rate protection agreements (including, without limitation, interest
rate swaps, caps, floors, collars and similar agreements) and/or other types
of interest rate hedging agreements from time to time.
"Inventory" means all of the Company'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 the Company's business
or used in connection with the manufacture, packing, shipping, advertising,
selling or finishing of such inventory, goods, merchandise and other personal
property, and all documents of title or other documents representing them.
"Investment Grade" means BBB- or higher by S&P or Baa3 or higher by
Moody's or the equivalent of such ratings by S&P or Moody's or in the event
Moody's or S&P shall cease rating the Securities and the Company shall select
any Rating Agency, the equivalent of such ratings by another Rating Agency.
"Investments" means, with respect to any Person, directly or
indirectly, any advance, loan, or other extension of credit or capital
contribution to (by means of any transfer of cash or other property to others
or any payment for property or services for the account or use of others), or
any purchase, acquisition or ownership by such Person of any Capital Stock,
bonds, notes, debentures or other securities issued or owned by any other
Person.
"Lien" means any mortgage, charge, pledge, lien (statutory or
otherwise), privilege, security interest, hypothecation or other encumbrance
upon or with respect to any property of any kind, real or personal, movable or
immovable, now owned or hereafter acquired.
"Material Subsidiary" means a Subsidiary that is a "significant
subsidiary" of the Company as defined in Rule 1-02 of Regulation S-X under the
Securities Act and the Exchange Act.
"Maturity" when used with respect to any Security means the date on
which the principal of such Security becomes due and payable as therein
provided or as provided in the Indenture, whether at Stated Maturity, the
Offer Date, the Change of Control Purchase Date or the redemption date and
whether by declaration of acceleration, Offer in respect of Excess Proceeds,
Change of Control, call for redemption or otherwise.
"MLGA" means Morgan, Lewis, Githens, & Ahn, an investment
partnership.
"MLGA Fund II, L.P." means MLGA Fund II, L.P., a Connecticut limited
partnership controlled by certain principals of MLGA.
"Moody's" means Moody's Investors Service, Inc. or any successor
rating agency.
"Net Cash Proceeds" means (a) with respect to any Asset Sale by any
Person, the proceeds thereof in the form of cash or cash equivalents including
payments in respect of deferred payment obligations when received in the form
of, or stock or other assets when disposed for, cash or cash equivalents
(except to the extent that such obligations are financed or sold with recourse
to the Company or any Subsidiary) net of (i) brokerage commissions and other
reasonable fees and expenses (including fees and expenses of counsel and
investment bankers) related to such Asset Sale, (ii) provisions for all taxes
payable as a result of such Asset Sale, (iii) payments made to retire
Indebtedness where payment of such Indebtedness is secured by the assets or
properties the subject of such Asset Sale, (iv) amounts required to be paid to
any Person (other than the Company or any Subsidiary) owning a beneficial
interest in the assets subject to the Asset Sale and (v) appropriate amounts
to be provided by the Company or any Subsidiary, as the case may be, as a
reserve, in accordance with GAAP, against any liabilities associated with such
Asset Sale and retained by the Company or any Subsidiary, as the case may be,
after such Asset Sale, including, without limitation, pension and other
post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated with
such Asset Sale, all as reflected in an officers' certificate delivered to the
Trustee and (b) with respect to any issuance or sale of Capital Stock or
options, warrants or rights to purchase Capital Stock, or debt securities or
Capital Stock that have been converted into or exchanged for Capital Stock, as
referred to under Section 10.9 the proceeds of such issuance or sale in the
form of cash or cash equivalents, including payments in respect of deferred
payment obligations when received in the form of, or stock or other assets
when disposed for, cash or cash equivalents (except to the extent that such
obligations are financed or sold with recourse to the Company or any
Subsidiary), net of attorney's fees, accountant's fees and brokerage,
consultation, underwriting and other fees and expenses actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"New Credit Facility" means the Loan and Security Agreement, dated
on or before the Closing Date, among the Company, Congress Financial
Corporation (Central) ("Congress"), as agent, and Congress and CoreStates
Bank, N.A., as lenders, as such agreement may be amended, renewed, extended,
substituted, refinanced, restructured, replaced, supplemented or otherwise
modified from time to time, whether by the same or any other lender or group
of lenders (including, without limitation, any successive renewals,
extensions, substitutions, refinancings, restructurings, replacements,
supplementations or other modifications of the foregoing), so long as the
collateral therein consists only of accounts receivable, inventory and fixed
assets or any combination thereof.
"Officers' Certificate" means a certificate signed by the Chairman
of the Board, Vice Chairman, President or a Vice President (regardless of Vice
Presidential designation), and by the Treasurer, Secretary or an Assistant
Secretary, of the Company, and delivered to the Trustee.
"Opinion of Counsel" means a written opinion of counsel, who may be
counsel for the Company or the Trustee, and who shall be reasonably acceptable
to the Trustee, including but not limited to an Opinion of Independent
Counsel.
"Opinion of Independent Counsel" means a written opinion by someone
who is not an employee or consultant of the Company and who shall be
reasonably acceptable to the Trustee.
"Outstanding" when used with respect to Securities means, as of the
date of determination, all Securities theretofore authenticated and delivered
under this Indenture, except:
(a) Securities theretofore canceled by the Trustee or
delivered to the Trustee for cancellation;
(b) Securities, or portions thereof, for whose payment or
redemption money in the necessary amount has been theretofore deposited with
the Trustee or any Paying Agent (other than the Company) in trust or set aside
and segregated in trust by the Company (if the Company shall act as its own
Paying Agent) for the Holders of such Securities; provided, that if such
Securities are to be redeemed, notice of such redemption has been duly given
pursuant to this Indenture or provision therefor reasonably satisfactory to
the Trustee has been made;
(c) Securities, except to the extent provided in Sections
4.2 and 4.3, with respect to which the Company has effected defeasance or
covenant defeasance as provided in Article IV; and
(d) Securities in exchange for or in lieu of which other
Securities have been authenticated and delivered pursuant to this Indenture,
other than any such Securities in respect of which there shall have been
presented to the Trustee and Company proof reasonably satisfactory to each of
them that such Securities are held by a bona fide purchaser in whose hands the
Securities are valid obligations of the Company; provided, however, that in
determining whether the Holders of the requisite principal amount of
Outstanding Securities have given any request, demand, authorization,
direction, notice, consent or waiver hereunder, Securities owned by the
Company or any other obligor upon the Securities or any Affiliate of the
Company or such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be
protected in relying upon any such request, demand, authorization, direction,
notice, consent or waiver, only Securities which the Trustee knows to be so
owned shall be so disregarded. Securities so owned which have been pledged in
good faith may be regarded as Outstanding if the pledgee establishes to the
reasonable satisfaction of the Trustee the pledgee's right so as to act with
respect to such Securities and that the pledgee is not the Company or any
other obligor upon the Securities or any Affiliate of the Company or such
other obligor.
"Pari Passu Indebtedness" means any Indebtedness of the Company that
is paripassu in right of payment to this Securities.
"Participants" means Persons for whom the Depositary holds
Securities.
"Paying Agent" means any Person authorized by the Company to pay the
principal, premium, if any, or interest on any Securities on behalf of the
Company.
"Permitted Holders" means MLGA Fund II, L.P. and any Affiliates
thereof.
"Permitted Indebtedness" means the following:
(i) Indebtedness of the Company under the New Credit
Facility under which the sum of (a) the aggregate principal amount of
revolving loan advances and (b) the aggregate stated amount of letters of
credit issued pursuant thereto, at any one time outstanding does not exceed
the greater of (x) $50.0 million and (y) an amount equal to (i) 60% of
Eligible Inventory consisting of finished goods and raw materials for such
finished goods, plus (ii) 45% of Eligible Inventory consisting of
work-in-process and semi-processed goods plus (iii) 85% percent of the Net
Amount of Eligible Accounts minus (iv) any Availability Reserves, as each of
the capitalized terms in this clause (y) is defined in the New Credit
Facility;
(ii) Indebtedness of the Company pursuant to the
Securities;
(iii) Indebtedness of the Company evidenced by the Existing
Notes to be redeemed pursuant to a notice of redemption given on the date
hereof;
(iv) Indebtedness of the Company owing to a Subsidiary;
provided that any Indebtedness of the Company owing to a Subsidiary is made
pursuant to an intercompany note and is subordinated in right of payment from
and after such time as the Securities shall become due and payable (whether at
Stated Maturity, acceleration or otherwise) to the payment and performance of
the Company's obligations under the Securities; provided, further, that any
disposition, pledge or transfer of any such Indebtedness to a Person (other
than the Company or another Subsidiary) shall be deemed to be an incurrence of
such Indebtedness by the Company not permitted by this clause (iv);
(v) obligations of the Company entered into in the ordinary
course of business pursuant to Interest Rate Agreements designed to protect
the Company or any Subsidiary against fluctuations in interest rates in
respect of Indebtedness of the Company or any of its Subsidiaries, which
obligations do not exceed the aggregate principal amount of such Indebtedness
and hedging arrangements that the Company enters into in the ordinary course
of business for the purpose of protecting its production against fluctuations
in commodity prices;
(vi) Indebtedness of the Company incurred (a) as a Purchase
Money Obligation, (b) under any Capital Lease Obligation, or (c) with respect
to letters of credit not otherwise permitted pursuant to clause (i) of this
definition of "Permitted Indebtedness" in a principal amount for clauses (a),
(b) and (c) in the aggregate not to exceed $10.0 million in any fiscal year of
the Company;
(vii) Indebtedness of the Company in addition to that
described in clauses (i) through (vi) of this definition of "Permitted
Indebtedness," not to exceed $10.0 million at any time outstanding in the
aggregate; provided that such amount shall be reduced by the amount, if any,
of Permitted Subsidiary Indebtedness then outstanding under clause (iii) of
the definition of "Permitted Subsidiary Indebtedness";
(viii) any renewals, extensions, substitutions, refundings,
refinancings or replacements (collectively, a "renewal/refinancing") of any
Indebtedness described in clauses (ii) and (vi) of this definition of
"Permitted Indebtedness," including any successive renewal/refinancings so
long as the aggregate principal amount of Indebtedness represented thereby is
not increased by such renewal/refinancing plus the lesser of (I) the stated
amount of any premium or other payment required to be paid in connection with
such renewal/refinancing pursuant to the terms of such Indebtedness or (II)
the amount of premium or other payment actually paid at such time to refinance
the Indebtedness, plus, in either case, the amount of expenses of the Company
incurred in connection with such renewal/refinancing and, in the case of Pari
Passu Indebtedness or Subordinated Indebtedness, such renewal/refinancing does
not reduce the Average Life to Stated Maturity or the Stated Maturity of such
Indebtedness;
(ix) Permitted Subsidiary Indebtedness that is permitted to
be incurred by a Subsidiary pursuant to clauses (ii) and (iii) under the
definition of "Permitted Subsidiary Indebtedness"; and
(x) Acquired Indebtedness that, after giving pro forma effect
thereto, and to the related acquisition as provided in Section 10.8(a),
results in (x) the Consolidated Fixed Coverage Ratio being less than the
Applicable Coverage Ratio (as defined in Section 10.8 hereof) but greater than
or equal to 1.75 to 1.00 and (y) the Consolidated Fixed Coverage Ratio
increasing as a consequence of such incurrence.
"Permitted Investment" means (i) Investments in any Wholly-Owned
Subsidiary; (ii) Indebtedness of a Subsidiary described under clause (ii) of
the definition of "Permitted Subsidiary Indebtedness" or Indebtedness of the
Company described under clauses (iv) of the definition of "Permitted
Indebtedness;" (iii) Temporary Cash Investments; (iv) Investments acquired by
the Company or any Subsidiary in connection with an Asset Sale permitted under
Section 10.12 to the extent such Investments are non-cash proceeds as
permitted under such covenant; and (v) other Investments in the aggregate not
to exceed $5.0 million.
"Permitted Subsidiary Indebtedness" means:
(i) Acquired Indebtedness of any Subsidiary whose
incurrence would be permitted under the test set forth in paragraph (x) of the
definition of "Permitted Indebtedness" as if calculated for such Subsidiary;
(ii) Indebtedness of a Wholly-Owned Subsidiary owing to the
Company or another Wholly-Owned Subsidiary; provided that any such
Indebtedness is made pursuant to an intercompany note in the form attached as
an exhibit to the Indenture; provided, further, that (x) any disposition,
pledge or transfer of any such Indebtedness to a Person (other than the
Company or a Wholly-Owned Subsidiary and other than any pledge as security for
the New Credit Facility) shall be deemed to be an incurrence of such
Indebtedness by the obligor not permitted by this clause (ii) and (y) any
transaction pursuant to which any Wholly-Owned Subsidiary, which has
Indebtedness owing to the Company or any other Wholly-Owned Subsidiary, ceases
to be a Wholly-Owned Subsidiary shall be deemed to be the incurrence of
Indebtedness by the Company or such other Wholly-Owned Subsidiary that is not
permitted under this clause (ii);
(iii) Indebtedness of a Subsidiary in addition to that
described in clauses (i) and (ii) of this definition of "Permitted Subsidiary
Indebtedness," not to exceed $10.0 million at any time outstanding in the
aggregate; provided, that such amount shall be reduced by the amount, if any,
of Permitted Indebtedness then outstanding under clause (vii) of the
definition of "Permitted Indebtedness"; and
(iv) any renewals, extensions, substitutions, refinancings
or replacements (collectively, a "debt refinancing") of any Indebtedness
described in clause (i) of this definition of "Permitted Subsidiary
Indebtedness," including any successive debt refinancings thereof, so long as
any such new Indebtedness shall be in a principal amount that does not exceed
the principal amount so refinanced, plus an amount equal to the lesser of (x)
the stated amount of any premium required to be paid in connection with any
such debt refinancing and (y) the amount of premium actually paid in
connection with any such debt refinancing plus the amount of expenses of such
Subsidiary incurred in connection therewith.
"Person" means any individual, corporation, limited liability
company, partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political
subdivision thereof.
"Predecessor Security" of any particular Security means every
previous Security evidencing all or a portion of the same debt as that
evidenced by such particular Security; and, for the purposes of this
definition, any Security authenticated and delivered under Section 3.6 in
exchange for a mutilated Security or in lieu of a lost, destroyed or stolen
Security shall be deemed to evidence the same debt as the mutilated, lost,
destroyed, or stolen Security.
"Preferred Stock" means, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated) of
such Person's preferred stock whether now outstanding, or issued after the
date of the Indenture, and including, without limitation, all classes and
series of preferred or preference stock.
"Public Equity Offering" means any underwritten public offering of
common stock of the Company pursuant to a registration statement filed
pursuant to the Securities Act which offering is consummated after the date of
the offering of Securities.
"Purchase Money Obligation" means any Indebtedness secured by a Lien
on assets related to the business of the Company or its Subsidiaries, and any
additions and accessions thereto, which are purchased by the Company or any
Subsidiary at any time after the Securities are issued; provided that (i) the
security agreement or conditional sales or other title retention contract
pursuant to which the Lien on such assets described above is created
(collectively a "Purchase Money Security Agreement") shall be entered into
within 90 days after the purchase or substantial completion of the
construction of such assets and shall at all times be confined solely to the
assets so purchased or acquired, any additions and accessions thereto and any
proceeds therefrom, (ii) at no time shall the aggregate principal amount of
the outstanding Indebtedness secured thereby be increased, except in
connection with the purchase of additions and accessions thereto and except in
respect of fees and other obligations in respect of such Indebtedness and
(iii) (A) the aggregate outstanding principal amount of Indebtedness secured
thereby (determined on a per asset basis in the case of any additions and
accessions) shall not at the time such Purchase Money Security Agreement is
entered into exceed 100% of the purchase price to the Company or any
Subsidiary of the assets subject thereto or (B) the Indebtedness secured
thereby shall be with recourse solely to the assets so purchased or acquired,
any additions and accessions thereto and any proceeds therefrom.
"Qualified Capital Stock" of any Person means any and all Capital
Stock of such Person other than Redeemable Capital Stock.
"Redeemable Capital Stock" means any Capital Stock that, either by
its terms or by the terms of any security into which it is convertible or
exchangeable or otherwise, is or upon the happening of any event or passage of
time would be, required to be redeemed prior to any Stated Maturity of the
principal of the Securities or is redeemable at the option of the holder
thereof at any time prior to any such Stated Maturity, or is convertible into
or exchangeable for debt securities at any time prior to any such Stated
Maturity at the option of the holder thereof.
"Redemption" means the redemption of the Existing Notes.
"Redemption Date" when used with respect to any Security to be
redeemed pursuant to any provision in this Indenture means the date fixed for
such redemption by or pursuant to this Indenture.
"Redemption Price" when used with respect to any Security to be
redeemed pursuant to any provision in this Indenture means the price at which
it is to be redeemed pursuant to this Indenture.
"Regular Record Date" for the interest payable on any Interest
Payment Date means February 15 or August 15, as the case may be (whether or
not a Business Day), next preceding such Interest Payment Date.
"Responsible Officer" when used with respect to the Trustee means
any officer assigned to the Corporate Trust Office of the Trustee or any agent
of the Trustee appointed hereunder, including the chairman or vice chairman of
the board of directors or the executive committee of the board of directors,
the president, any vice president, any assistant vice president, the
secretary, any assistant secretary, the treasurer, any assistant treasurer,
the cashier, any assistant cashier, any trust officer or assistant trust
officer, the controller or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above-
designated officers or any other officer appointed hereunder to whom any
corporate trust matter is referred because of his or her knowledge of and
familiarity with the particular subject.
"S&P" means Standard and Poor's Corporation or any successor rating
agency.
"Sale and Leaseback Transaction" means any transaction or series of
related transactions pursuant to which the Company or a Subsidiary sells or
transfers any property or asset in connection with the leasing, or the resale
against installment payments, of such property or asset to the Company or such
Subsidiary.
"Securities" has the meaning specified in the first recital of this
Indenture.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Indebtedness" means Indebtedness of the Company other than
Subordinated Indebtedness.
"Special Record Date" for the payment of any Defaulted Interest
means a date fixed by the Trustee pursuant to Section 3.7.
"Stated Maturity" when used with respect to any Indebtedness or any
installment of interest thereon, means the dates specified in such
Indebtedness as the fixed date on which the principal of such Indebtedness or
such installment of interest is due and payable.
"Subordinated Indebtedness" means Indebtedness of the Company which
is by its terms expressly subordinated in right of payment to the Securities.
"Subsidiary" means any Person a majority of the equity ownership or
the Voting Stock of which is at the time owned, directly or indirectly, by the
Company or by one or more other Subsidiaries, or by the Company and one or
more other Subsidiaries; provided that an Unrestricted Subsidiary shall not be
deemed a Subsidiary for purposes of the Indenture.
"Temporary Cash Investments" means (i) any evidence of Indebtedness,
maturing not more than two years after the date of acquisition, issued by the
United States of America, or an instrumentality or agency thereof and
guaranteed fully as to principal, premium, if any, and interest by the United
States of America; (ii) any certificate of deposit, maturing not more than two
years after the date of acquisition, issued by, or time deposit of, a
commercial banking institution that is a member of the Federal Reserve System
and that has combined capital and surplus and undivided profits of not less
than $500.0 million, whose debt has a rating, at the time as of which any
investment therein is made, of "P-1" (or higher) according to Moody's or "A-1"
(or higher) according to S&P, (iii) commercial paper, maturing not more than
one year after the date of acquisition, issued by a corporation (other than
Affiliate or Subsidiary of the Company) organized and existing under the laws
of the United States of America with a rating, at the time as of which any
investment therein is made, of "P-1" (or higher) according to Moody's or "A-1"
(or higher) according to S&P; (iv) any money market deposit accounts issued or
offered by (a) a domestic commercial bank having capital and surplus in excess
of $500.0 million or (b) a nationally recognized investment bank having
capital and surplus and undivided profits in excess of $150.0 million; (v)
repurchase obligations for underlying securities of the type described in
clause (i) above entered into with any financial institution designated as a
"Primary Dealer" by the Federal Reserve Bank of New York or any commercial
banking institution that satisfies the criteria set forth in clause (ii) of
this definition of "Temporary Cash Investments" as a counterparty; and (vi)
Eurodollar certificates of deposit maturing not more than two years after the
date of acquisition issued by, or any time deposit of, a commercial banking
institution outside the United States having equity capital and surplus and
undivided profits of not less than $250.0 million and foreign denominated
money market deposit accounts issued by a commercial banking institution
outside the United States having equity capital and surplus and undivided
profits of not less than $250.0 million.
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this Indenture, until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as
amended.
"Unrestricted Subsidiary" means any Subsidiary as to which all of
the following conditions apply: (a) neither the Company nor any of its
Subsidiaries provides credit support for any Indebtedness of such Subsidiary
(including any undertaking, agreement or instrument evidencing such
Indebtedness); (b) such subsidiary is not liable, directly or indirectly, with
respect to any Indebtedness other than Unrestricted Subsidiary Indebtedness;
(c) neither the Company nor any of its Subsidiaries has made an Investment in
such Unrestricted Subsidiary unless such Investment was not prohibited by the
provisions described under Section 10.9 hereunder; and (d) the Board of
Directors of the Company, as provided below, shall have designated such
Subsidiary to be an Unrestricted Subsidiary. Any such designation by the
Board of Directors shall be evidenced to the Trustee by filing with the
Trustee a Board Resolution giving effect to such designation and an Officers'
Certificate certifying that such designation complies with the foregoing
conditions. The Board of Directors may designate any Unrestricted Subsidiary
as a Subsidiary; provided, that (i) immediately after giving effect to such
designation, the Company could incur $1.00 of additional Indebtedness (other
than Permitted Indebtedness) pursuant to the restrictions under Section 10.8
hereunder; and (ii) all Indebtedness of such Unrestricted Subsidiary shall be
deemed to be incurred on the date such Unrestricted Subsidiary becomes a
Subsidiary.
"Unrestricted Subsidiary Indebtedness" of any Unrestricted
Subsidiary means Indebtedness of such Unrestricted Subsidiary (a) as to which
neither the Company nor any Subsidiary is directly or indirectly liable (by
virtue of the Company or any such Subsidiary being the primary obligor on,
guarantor of, or otherwise liable in any respect to, such Indebtedness), and
(b) which, upon the occurrence of a default with respect thereto, does not
result in, or permit any holder of any Indebtedness of the Company or any
Subsidiary to declare, a default on such Indebtedness of the Company or any
Subsidiary or cause the payment thereof to be accelerated or payable prior to
its stated maturity.
"Voting Stock" means stock of the class or classes pursuant to which
the holders thereof have the general voting power under ordinary circumstances
to elect at least a majority of the board of directors, managers or trustees
of a corporation (irrespective of whether or not at the time stock of any
other class or classes shall have or might have voting power by reason of the
happening of any contingency).
"Wholly-Owned Subsidiary" means a Subsidiary all the Capital Stock
(other than directors' qualifying shares) of which is owned by the Company or
another Wholly-Owned Subsidiary.
"1989 Acquisition" means the acquisition in 1989 of the Company by
MLGA and its Affiliates, together with management of the Company, in a
leveraged buy-out.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Section 1.2. Other Definitions.
<S> <C>
Term Defined in Section
- ----------------------------------- ------------------
"Act" 1.5
"Applicable Coverage Ratio" 10.8
"Applicable Premium 10.14
"Applicable Spread 10.14
"Certificated Notes 3.1
"Change of Control Offer" 10.13
"Change of Control Purchase Date" 10.13
"Change of Control Purchase Notice" 10.13
"Change of Control Purchase Price" 10.13
"Closing Date" 3.1
"covenant defeasance" 4.3
"Defaulted Interest" 3.7
"defeasance" 4.2
"Defeasance Redemption Date" 4.4
"Defeased Securities" 4.1
"Deficiency" 10.12
"Depositary" 2.1
"event of default" 10.9
"Excess Proceeds" 10.12
"Global Note" 3.1
"Global Note Holder" 3.1
"Holdings" 8.1
"incur" 10.8
"Offer" 10.12
"Offer Date" 10.12
"Offered Price" 10.12
"refinancing" 10.9
"Required Filing Dates" 10.17
"Security Amount" 10.12
"Security Register" 3.5
"Security Registrar" 3.5
"Special Payment Date" 3.7
"Surviving Entity" 8.1
"Treasury Rate" 10.14
"U.S. Government Obligations" 4.4
</TABLE>
<PAGE>
Section 1.3. Compliance Certificates and Opinions.
Upon any application or request by the Company to the Trustee to
take any action under any provision of this Indenture, the Company and each
other obligor of the Securities shall furnish to the Trustee an Officers'
Certificate to the effect that all conditions precedent, if any, provided for
in this Indenture (including any covenant compliance which constitutes a
condition precedent) relating to the proposed action have been complied with
and an Opinion of Counsel to the effect that
in the opinion of such counsel all such conditions precedent, if any, have
been complied with, except that, in the case of any such application or
request as to which the furnishing of any certificates and/or opinions is
specifically required by any provision of this Indenture, relating to such
particular application or request, no additional certificate or opinion need
be furnished.
Every certificate or Opinion of Counsel with respect to compliance
with a condition or covenant provided for in this Indenture (other than
certificates provided pursuant to Section 10.18 of this Indenture) shall
include:
(a) a statement to the effect that each individual or firm
signing such certificate or opinion has read such covenant or condition and
the definitions herein relating thereto;
(b) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions contained
in such certificate or opinion are based;
(c) a statement to the effect that, in the opinion of each
such individual or such firm, he has made such examination or investigation as
is necessary to enable him or them to express an informed opinion as to
whether or not such covenant or condition has been complied with; and
(d) a statement as to whether, in the opinion of each such
individual or such firm, such condition or covenant has been complied with.
Section 1.4. Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified by,
or covered by an opinion of, any specified Person, it is not necessary that
all such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and
one or more other such Persons as to other matters, and any such Person may
certify or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company or other
obligor of the Securities may be based, insofar as it relates to legal
matters, upon a certificate or opinion of, or representations by, counsel,
unless such officer knows, or in the exercise of reasonable care should know,
that the certificate or opinion or representations with respect to the matters
upon which his certificate or opinion is based are erroneous. Any certificate
or opinion of such an officer or of counsel may be based, insofar as it
relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company or other obligor of
the Securities with respect to such factual matters and which contains a
statement to the effect that the information with respect to such factual
matters is in the possession of the Company or other obligor of the
Securities, unless such officer or counsel knows that the certificate or
opinion or representations with respect to such matters are erroneous.
Opinions of Counsel required to be delivered to the Trustee may have
qualifications customary for opinions of the type required and counsel
delivering such Opinions of Counsel may rely on certificates of the Company or
government or other officials customary for opinions of the type required,
including certificates certifying as to matters of fact, including that
various financial covenants have been complied with.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Section 1.5. Acts of Holders.
(a) Any request, demand, authorization, direction, notice,
consent, waiver or other action provided by this Indenture to be given or
taken by Holders may be embodied in and evidenced by one or more instruments
of substantially similar tenor signed by such Holders in person or by an agent
duly appointed in writing; and, except as herein otherwise expressly provided,
such action shall become effective when such instrument or instruments are
delivered to the Trustee and, where it is hereby expressly required, to the
Company. Such instrument or instruments (and the action embodied therein and
evidenced thereby) are herein sometimes referred to as the "Act" of the
Holders signing such instrument or instruments. Proof of execution of any
such instrument or of a writing appointing any such agent shall be sufficient
for any purpose of this Indenture and conclusive in favor of the Trustee and
the Company, if made in the manner provided in this Section.
(b) The ownership of Securities shall be proved by the Security
Register.
(c) Any request, demand, authorization, direction, notice,
consent, waiver or other Act by the Holder of any Security shall bind every
future Holder of the same Security or the Holder of every Security issued upon
the transfer thereof or in exchange therefor or in lieu thereof, in respect of
anything done, suffered or omitted to be done by the Trustee, any Paying Agent
or the Company or any other obligor in reliance thereon, whether or not
notation of such action is made upon such Security.
(d) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized
by law to take acknowledgments of deeds, certifying that the individual
signing such instrument or writing acknowledged to him the execution thereof.
Where such execution is by a signer acting in a capacity other than his
individual capacity, such certificate or affidavit shall also constitute
sufficient proof of his authority. The fact and date of the execution of any
such instrument or writing, or the authority of the Person executing the same,
may also be proved in any other manner which the Trustee deems sufficient.
Section 1.6. Notices, etc., to Trustee and the Company.
Any request, demand, authorization, direction, notice, consent,
waiver or Act of Holders or other document provided or permitted by this
Indenture to be made upon, given or furnished to, or filed with:
(a) the Trustee by any Holder or by the Company or any
other obligor of the Securities shall be sufficient for every purpose
hereunder if made, given, furnished or filed, in writing, by first-class mail
postage prepaid (return receipt requested) or delivered in person or by
recognized overnight courier to or with the Trustee at 101 West Washington
Street, Suite 655 South, Indianapolis, Indiana 46255, Attention: Corporate
Trust Administration or at any other address furnished in writing prior
thereto to the Holders, the Company or any other obligor of the Securities by
the Trustee, or delivered by facsimile transmission to (317) 267- 7658,
Attention: Corporate Trust Administration or at any other facsimile number
furnished in writing prior thereto to the Holders, the Company or any other
obligor of the Securities by the Trustee, provided that a copy of any
facsimile delivery is delivered by mail or courier in the manner and to the
address described above not later than five Business Days after the delivery
by facsimile; or
(b) the Company shall be sufficient for every purpose
(except as provided in Section 5.1(c)) hereunder if in writing and mailed,
first-class postage prepaid or delivered by recognized overnight courier, to
the Company addressed to it at 1020 West Park Avenue, Kokomo, Indiana
46904-9013, Attention: Chief Financial Officer, or at any other address
previously furnished in writing to the Trustee by the Company or delivered by
facsimile transmission to (317) 456-6985, Attention: Chief Financial Officer,
or at any other facsimile number furnished in writing prior thereto to the
Holders, the Trustee or any other obligor of the Securities by the Company,
provided that a copy of any facsimile delivery is delivered by mail or courier
in the manner and to the address described above not later than five Business
Days after the delivery by facsimile, with a copy to Ice Miller Donadio &
Ryan, One American Square, Box 82001, Indianapolis, Indiana 46282-0002,
Attention: Stephen J. Hackman, or delivered by facsimile transmission to (317)
236-2219, Attention: Stephen J. Hackman or at any other facsimile number
furnished in writing prior thereto to the Holders, the Trustee, the Company or
any other obligor of the Securities by Ice Miller, Donadio & Ryan, provided
that a copy of any facsimile delivery is delivered by mail or courier in the
manner and to the address described above not later than five Business Days
after the delivery by facsimile.
Section 1.7. Notice to Holders; Waiver.
Where this Indenture provides for notice to Holders of any event,
such notice shall be sufficiently given (unless otherwise herein expressly
provided) if in writing and mailed, first-class postage prepaid, to each
Holder affected by such event, at such Holder's address as it appears in the
Security Register, not later than the latest date, and not earlier than the
earliest date, prescribed for the giving of such notice. In any case where
notice to Holders is given by mail, neither the failure to mail such notice,
nor any defect in any notice so mailed, to any particular Holder shall affect
the sufficiency of such notice with respect to other Holders. Any notice when
mailed to a Holder in the aforesaid manner shall be conclusively deemed to
have been received by such Holder whether or not actually received by such
Holder. Where this Indenture provides for notice in any manner, such notice
may be waived in writing by the Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by Holders shall be filed with the Trustee, but
such filing shall not be a condition precedent to the validity of any action
taken in reliance upon such waiver.
In case by reason of the suspension of regular mail service or by
reason of any other cause, it shall be impracticable to mail notice of any
event as required by any provision of this Indenture, then any method of
giving such notice as shall be reasonably satisfactory to the Trustee shall be
deemed to be a sufficient giving of such notice.
Section 1.8. Conflict with Trust Indenture Act.
If any provision hereof limits, qualifies or conflicts with any
provision of the Trust Indenture Act or another provision which is required or
deemed to be included in this Indenture by any of the provisions of the Trust
Indenture Act, the provision or requirement of the Trust Indenture Act shall
control. If any provision of this Indenture modifies or excludes any
provision of the Trust Indenture Act that may be so modified or excluded, such
provision of the Trust Indenture Act shall be deemed to apply to this
Indenture as so modified or to be excluded, as the case may be.
Section 1.9. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents
are for convenience only and shall not affect the construction hereof.
Section 1.10. Successors and Assigns.
All covenants and agreements in this Indenture by the Company and
any other obligor of the Securities shall bind their successors and assigns,
whether so expressed or not.
Section 1.11. Separability Clause.
In case any provision in this Indenture or in the Securities shall
be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
Section 1.12. Benefits of Indenture.
Nothing in this Indenture or in the Securities, express or implied,
shall give to any Person (other than the parties hereto and their successors
hereunder, any Paying Agent and the Holders) any benefit or any legal or
equitable right, remedy or claim under this Indenture.
Section 1.13. GOVERNING LAW.
THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (WITHOUT
GIVING EFFECT TO THE CONFLICT OF LAWS PRINCIPLES THEREOF).
Section 1.14. Legal Holidays.
In any case where any Interest Payment Date, Redemption Date,
Maturity or Stated Maturity of any Security shall not be a Business Day, then
(notwithstanding any other provision of this Indenture or of the Securities)
payment of interest or principal or premium, if any, need not be made on such
date, but may be made on the next succeeding Business Day with the same force
and effect as if made on the Interest Payment Date or Redemption Date, or at
Maturity or the Stated Maturity, and no interest shall accrue with respect to
such payment for the period from and after such Interest Payment Date,
Redemption Date, Maturity or Stated Maturity, as the case may be, to the next
succeeding Business Day.
Section 1.15. Schedules.
All schedules attached hereto are by this reference made a part with
the same effect as if herein set forth in full.
Section 1.16. Counterparts.
This Indenture may be executed in any number of counterparts, each
of which shall be an original; but such counterparts shall together constitute
but one and the same instrument.
ARTICLE II
SECURITY FORMS
Section 2.1. Forms Generally.
(a) The Securities will initially be issued in the form of one
or more global notes (the "Global Note"). The Global Note will be deposited
on the date of the closing of the sale of the Securities offered hereby (the
"Closing Date") with, or on behalf of, The Depository Trust Company or its
successors and assigns (the "Depositary") and registered in the name of Cede &
Co., as nominee of the Depositary (such nominee being referred to herein as
the "Global Note Holder").
(b) Notwithstanding Section 2.1(a), Securities that are issued
in accordance with Section 2.1(c) will be issued in the form of registered
definitive certificates (the "Certificated Notes"). Such Certificated Notes
may, unless the Global Note has previously been exchanged for Certificated
Notes, be exchanged for an interest in the Global Note representing the
principal amount of Securities being transferred.
(c) Any person owning a beneficial interest in the Global Note
may, upon request to the Trustee, exchange such beneficial interest for
Securities in the form of Certificated Notes. Upon any such issuance, the
Trustee is required to register such Certificated Notes in the name of, and
cause the same to be delivered to, such Person or Persons (or the nominee of
any thereof). In addition, if (i) the Company notifies the Trustee in writing
that the Depositary is no longer willing or able to act as a depositary and
the Company is unable to locate a qualified successor within 90 days, or (ii)
the Company, at its option, notifies the Trustee in writing that it elects to
cause the issuance of Securities in the form of Certificated Notes under the
Indenture, then, upon surrender by the Global Note Holder of its Global Note,
Certificated Notes will be issued to each Person that the Global Note Holder
and the Depositary identify as being the beneficial owner of the related
Securities. If the Company determines to replace the Depositary with another
qualified securities depository, the Company shall prepare or cause to be
prepared a new fully-registered Global Note, registered in the name of such
successor or substitute securities depositary or its nominee, or make such
other arrangements as are acceptable to the Company, the Trustee and the
securities depository and not inconsistent with the terms of this Indenture.
(d) Neither the Company nor the Trustee will be liable for any
delay by the Global Note Holder or the Depositary in identifying the
beneficial owners of the Securities, and the Company and the Trustee may
conclusively rely on, and will be protected in relying on, instructions from
the Global Note Holder or the Depositary for all purposes.
(e) Securities and the Trustee's certificates of authentication
thereof shall be in substantially the forms set forth in this Article II, with
such appropriate insertions, omissions, substitutions and other variations as
are required or permitted by this Indenture and may have such letters, numbers
or other marks of identification and such legends or endorsements placed
thereon as may be required to comply with the rules of any securities
exchange, any organizational document or governing instrument or applicable
law or as may, consistently herewith, be determined by the officers executing
such Securities, as evidenced by their execution of the Securities. Any
portion of the text of any Security may be set forth on the reverse thereof,
with an appropriate reference thereto on the face of the Security.
(f) The Certificated Notes shall be printed, lithographed or
engraved or produced by any combination of these methods or may be produced in
any other manner permitted by the rules of any securities exchange on which
the Securities may be listed, all as determined by the officers executing such
Securities, as evidenced by their execution of such Securities.
Section 2.2. Form of Face of Security.
The form of the face of the Securities shall be substantially as
follows:
HAYNES INTERNATIONAL, INC.
11e% Senior Notes due 2004
CUSIP No. 420877 AD4 $140,000,000
HAYNES International, Inc., a Delaware corporation (herein called
the "Company," which term includes any successor), for value received, hereby
promises to pay to or registered assigns, the principal sum of
$140,000,000 United States dollars on September 1, 2004, at the office or
agency of the Company referred to below, and to pay interest thereon from
August 23, 1997 or from the most recent Interest Payment Date to which
interest has been paid or duly provided for, as the case may be, semiannually
on March 1 and September 1 of each year commencing March 1, 1997 at the rate
of 11e% per annum, in United States dollars, until the principal hereof is
paid or duly provided for.
The interest so payable, and punctually paid or duly provided for,
on any Interest Payment Date will, as provided in the Indenture, be paid to
the Person in whose name this Security (or one or more Predecessor Securities)
is registered at the close of business on the Regular Record Date for such
interest, which shall be February 15 or August 15 (whether or not a Business
Day), as the case may be, next preceding such Interest Payment Date. Any such
interest not so paid, or duly provided for, and interest on such defaulted
interest at the interest rate borne by the Securities, to the extent lawful,
shall forthwith cease to be payable to the Holder in whose name such Security
is registered as of such Regular Record Date, and may be paid on the Special
Payment Date to the Person in whose name this Security (or one or more
Predecessor Securities) is registered at the close of business on a Special
Record Date to be fixed by the Trustee (and for which notice shall be given to
Holders of Securities not less than 10 days prior to such Special Record Date)
or may be paid at any time in any other lawful manner not inconsistent with
the requirements of any securities exchange on which the Securities may be
listed, and upon such notice as may be required by such exchange, all as more
fully provided in said Indenture.
Payment of the principal of, premium, if any, and interest on this
Security will be made at the office or agency of the Company maintained for
that purpose, or at such other office or agency of the Company as may be
maintained for such purpose, in such coin or currency of the United States of
America as at the time of payment is legal tender for payment of public and
private debts; provided, however, that payment of interest may be made at the
-------- -------
option of the Company by check mailed to the address of the Person entitled
thereto as such address shall appear on the Security Register. Interest shall
be computed on the basis of a 360-day year of twelve 30-day months.
Reference is hereby made to the further provisions of this Security
set forth on the reverse hereof, which further provisions shall for all
purposes have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been duly
executed by the Trustee referred to on the reverse hereof or by the
authenticating agent appointed as provided in the Indenture by manual
signature, this Security shall not be entitled to any benefit under the
Indenture, or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be
duly executed by the manual or facsimile signature of its authorized officers
and its corporate seal to be affixed or reproduced hereon.
Dated: August 23, 1996 HAYNES INTERNATIONAL, INC.
By:
Attest: [SEAL]
Secretary
Section 2.3. Form of Reverse of Security.
The form of the reverse of the Securities shall be substantially as
follows:
This Security is one of the duly authorized issue of Securities of
the Company designated as its 11 % Senior Notes due 2004 (herein called the
"Securities"), limited (except as otherwise provided in the Indenture referred
to below) in aggregate principal amount to $140.0 million which may be issued
under and are subject to the terms of an indenture (herein called the
"Indenture") dated as of August 23, 1996 between the Company and National City
Bank, as trustee (together with any successor trustee under the Indenture, the
"Trustee"), to which Indenture and all indentures supplemental thereto
reference is hereby made for a statement of the respective rights, limitations
of rights, duties, obligations and immunities thereunder of the Company, the
Trustee and the Holders, and of the terms upon which the Securities are, and
are to be, authenticated and delivered.
The Indenture contains provisions for defeasance at any time of (a)
the entire Indebtedness on this Security and (b) certain covenants and related
Defaults and Events of Default thereunder, in each case upon compliance with
certain conditions set forth therein.
The Securities are subject to redemption at any time on or after
September 1, 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 September 1 of the years indicated below:
<TABLE>
<CAPTION>
<S> <C>
Redemption
Year Price
- ---- -----------
2000 105.813%
2001 102.906%
</TABLE>
and thereafter at 100% of the principal amount, in each case together with
accrued and unpaid interest, if any, to the redemption date (subject to the
right of holders of record on relevant record dates to receive interest due on
an interest payment date).
In addition, prior to September 1, 1999, in the event one or more
Public Equity Offerings of the Company are consummated, the Company may redeem
in the aggregate up to a maximum of 35% of the initial aggregate principal
amount of the Securities with the net proceeds thereof at a Redemption Price
equal to 111.625% of the principal amount thereof plus accrued and unpaid
interest to the Redemption Date; provided that, after giving effect thereto,
--------
at least $85.0 million aggregate principal amount of Securities remains
outstanding.
If less than all of the Securities are to be redeemed, the Trustee
shall select the Securities or portions thereof to be redeemed pro rata, by
lot or by any other method the Trustee shall deem fair and reasonable,
provided that, any redemption pursuant to the provisions relating to a sale of
-
the Common Stock of the Company pursuant to one or more Public Equity
Offerings shall be made on a pro rata basis or on as nearly a pro rata basis
as practicable (subject to any procedures of the Depositary).
If a Change of Control shall occur at any time, then each holder of
Securities shall have the right to require that the Company purchase such
holder's Securities in whole or in part in integral multiples of $1,000, at a
purchase price in cash in an amount equal to 101% of the principal amount of
such Securities, plus accrued and unpaid interest, if any, to the date of
purchase pursuant to the offer procedures set forth in the Indenture.
In addition, if a Change of Control shall occur at any time, then
the Company shall, within 180 days after a Change of Control and upon not less
than 30 nor more than 60 days' prior notice to each holder of Securities, have
the right to purchase the Securities, in whole or in part, at a redemption
price equal to the sum of (i) the then outstanding principal amount plus (ii)
accrued and unpaid interest, if any, to the Redemption Date, plus (iii) a
premium defined as the greater of (a) 1.0% of the then outstanding principal
amount of the Securities and (b) the excess of (1) the present value of the
required payments on the Securities, computed using a discount rate equal to
the Treasury Rate plus 75 basis points, over (2) the then outstanding
principal amount of the Securities.
Under certain circumstances, in the event the Net Cash Proceeds that
are received by the Company from any Asset Sale, and that are not applied
within the time periods set forth in the Indenture to repay or prepay
permanently any Indebtedness under the New Credit Facility then outstanding or
invested in properties or assets that replace the assets sold or that are used
in the businesses of the Company or its Subsidiaries, equal or exceed $5.0
million, the Company will be required to offer, pursuant to the offer
procedures set forth in the Indenture, to apply such proceeds to the repayment
of the Securities at 100% of the principal amount of such Securities, plus
accrued and unpaid interest, if any, to the date of purchase and to the
repayment of certain Indebtedness ranking pari passu with the Securities.
---- -----
In the case of any redemption of Securities, interest installments
whose Stated Maturity is on or prior to the Redemption Date will be payable to
the Holders of such Securities of record as of the close of business on the
relevant Regular Record Date or Special Record Date referred to on the face
hereof. Securities (or portions thereof) for whose redemption and payment
provision is made in accordance with the Indenture shall cease to bear
interest from and after the Redemption Date.
In the event of redemption of this Security in part only, a new
Security or Securities for the unredeemed portion hereof shall be issued in
the name of the Holder hereof upon the cancellation hereof.
If an Event of Default shall occur and be continuing, the principal
amount of all the Securities may be declared due and payable in the manner and
with the effect provided in the Indenture.
The Indenture permits, with certain exceptions (including certain
amendments permitted without the consent of any Holders) as therein provided,
the amendment thereof and the modification of the rights and obligations of
the Company and the rights of the Holders under the Indenture and the
Securities at any time with the consent of the Holders of not less than a
majority in aggregate principal amount of the Securities at the time
Outstanding. The Indenture also contains provisions permitting the Holders of
not less than a majority in aggregate principal amount of the Securities at
the time Outstanding, on behalf of the Holders of all the Securities, to waive
compliance by the Company with certain provisions of the Indenture and the
Securities and certain past Defaults under the Indenture and their
consequences. Any such consent or waiver by or on behalf of the Holder of
this Security shall be conclusive and binding upon such Holder and upon all
future Holders of this Security and of any Security issued upon the
registration of transfer hereof or in exchange herefor or in lieu hereof
whether or not notation of such consent or waiver is made upon this Security.
No reference herein to the Indenture and no provision of this
Security or of the Indenture shall alter or impair the obligation of the
Company or any other obligor under the Securities (in the event such other
obligor is obligated to make payments in respect of the Securities), which is
absolute and unconditional, to pay the principal of, premium, if any, and
interest on this Security at the times, place, and rate, and in the coin or
currency, herein prescribed.
As set forth in, and subject to, the provisions of the Indenture, no
Holder of any Security will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless (a) such Holder
shall have previously given to the Trustee written notice of a continuing
Event of Default, (b) the Holders of not less than 25% in principal amount of
the Outstanding Securities shall have made written request, and offered
reasonable indemnity, to the Trustee to institute such proceeding as trustee,
(c) the Trustee shall not have received from the Holders of a majority in
principal amount of the Outstanding Securities a direction inconsistent with
such request and (d) the Trustee shall have failed to institute such
proceeding within 60 days; provided, however, that such limitations do not
-------- -------
apply to a suit instituted by the Holder hereof for the enforcement of payment
of the principal of (and premium, if any) or any interest on this Security on
or after the respective due dates expressed herein.
As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of this Security is registrable on the
Security Register of the Company, upon surrender of this Security for
registration of transfer at the office or agency of the Company maintained for
such purpose or at such other office or agency of the Company as may be
maintained for such purpose, duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Company and the Security
Registrar duly executed by, the Holder hereof or his attorney duly authorized
in writing, and thereupon one or more new Securities, of authorized
denominations and for the same aggregate principal amount, will be issued to
the designated transferee or transferees.
The Securities are issuable only in registered form without coupons
in denominations of $1,000 and any integral multiple thereof. As provided in
the Indenture and subject to certain limitations therein set forth, the
Securities are exchangeable for a like aggregate principal amount of
Securities of a different authorized denomination, as requested by the Holder
surrendering the same.
No service charge shall be made for any registration of transfer or
exchange or redemption of Securities, but the Company may require payment of a
sum sufficient to cover any tax or other governmental charge payable in
connection therewith.
Prior to due presentment of this Security for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name this Security is registered as the owner
hereof for all purposes, whether or not this Security is overdue, and none of
the Company, the Trustee nor any agent shall be affected by notice to the
contrary.
Upon any consolidation or merger, or any sale, assignment,
conveyance, transfer or disposition (other than pursuant to a lease) of all or
substantially all of the properties and assets of the Company in accordance
with the Indenture, subject to the terms and conditions of the Indenture, the
successor Person to such transaction shall become the obligor on this
Security, and the Company shall be discharged from all obligations and
covenants under this Security and the Indenture.
All terms used in this Security which are defined in the Indenture
and not otherwise defined herein shall have the meanings assigned to them in
the Indenture.
The Company will furnish to any holders of the Securities upon
written request and without charge a copy of the Indenture. All requests may
be made to Haynes International, Inc., 1020 West Park Avenue, Kokomo, Indiana
46904-9013.
Section 2.4. Form of Trustee's Certificate of Authentication.
The Trustee's certificate of authentication shall be included on the
form of the face of the Securities substantially in the following form:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION.
This is one of the Securities referred to in the within-mentioned
Indenture.
National City Bank,
as Trustee
By:
Authorized Signatory
<PAGE>
ARTICLE III
THE SECURITIES
Section 3.1. Title and Terms.
The aggregate principal amount of Securities which may be
authenticated and delivered under this Indenture is limited to $140,000,000 in
principal amount of Securities, except for Securities authenticated and
delivered upon registration of transfer of, or in exchange for, or in lieu of,
other Securities pursuant to Section 3.3, 3.4, 3.5, 3.6, 9.6, 10.12, 10.13,
10.14 or 11.8.
The Securities shall be known and designated as the "11 % Senior
Notes due 2004" of the Company. The Stated Maturity of the Securities shall
be September 1, 2004, and the Securities shall bear interest at the rate of 11
% per annum from August 23, 1996 or from the most recent Interest Payment Date
to which interest has been paid or duly provided for, as the case may be,
payable commencing on March 1, 1997 and semiannually thereafter on March 1 and
September 1 in each year, until the principal thereof is paid or duly provided
for. Interest on any overdue principal, interest (to the extent lawful) or
premium, if any, shall be payable as provided in Section 3.7.
The principal of, premium, if any, and interest on the Securities
shall be payable at the office or agency of the Company maintained for such
purpose, or at such other office or agency of the Company as may be maintained
for such purpose; provided, however, that at the option of the Company
interest may be paid by check mailed to addresses of the Persons entitled
thereto as such addresses as shall appear on the Security Register.
The Securities shall be redeemable as provided in Article XI.
At the election of the Company, the entire indebtedness on the
Securities or certain of the Company's obligations and covenants and certain
Defaults and Events of Default thereunder may be defeased as provided in
Article IV.
Section 3.2. Denominations.
The Securities shall be issuable only in registered form without
coupons and only in denominations of $1,000 and any integral multiple thereof.
Section 3.3. Execution, Authentication, Delivery and Dating.
The Securities shall be executed on behalf of the Company by one of
its Chairman of the Board, Vice-Chairman, President or one of its Vice
Presidents under its corporate seal reproduced thereon attested by its
Secretary or one of its Assistant Secretaries. The signature of any of these
officers on the Securities may be manual or facsimile.
Securities bearing the manual or facsimile signatures of individuals
who were at any time the proper officers of the Company shall bind the
Company, notwithstanding that such individuals or any of them have ceased to
hold such offices prior to the authentication and delivery of such Securities
or did not hold such offices on the date of such Securities.
At any time and from time to time after the execution and delivery
of this Indenture, the Company may deliver Securities executed by the Company
to the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Securities; and the Trustee in accordance
with such Company Order shall authenticate and deliver such Securities as
provided in this Indenture and not otherwise.
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this Indenture or
be valid or obligatory for any purpose unless there appears on such Security a
certificate of authentication, substantially in the form provided for herein,
duly executed by the Trustee by manual signature of an authorized signatory,
and such certificate upon any Security shall be conclusive evidence, and the
only evidence, that such Security has been duly authenticated and delivered
hereunder and is entitled to the benefits of this Indenture.
In case the Company or any of its Subsidiaries, pursuant to Article
VIII, shall be consolidated or merged with or into any other Person or shall
sell, convey, assign, transfer, lease or otherwise dispose of all or
substantially all of its properties and assets to any Person or group of
affiliated Persons, and the successor Person resulting from such
consolidation, or surviving such consolidation or merger, or into which the
Company shall have been merged or consolidated, or the successor Person which
shall have received a conveyance, transfer, lease or other disposition as
aforesaid, shall have executed an indenture supplemental hereto with the
Trustee pursuant to Article VIII, any of the Securities authenticated or
delivered prior to such consolidation, merger, conveyance, transfer, lease or
other disposition may, from time to time, at the request of the successor
Person, be exchanged for other Securities executed in the name of the
successor Person with such changes in phraseology and form as may be
appropriate, but otherwise in substance of like tenor as the Securities
surrendered for such exchange and of like principal amount; and the Trustee,
upon Company Request of the successor Person, shall authenticate and deliver
Securities as specified in such request for the purpose of such exchange. If
Securities shall at any time be authenticated and delivered in any new name of
a successor Person pursuant to this Section in exchange or substitution for or
upon registration of transfer of any Securities, such successor Person, at the
option of a Holder but without expense to such Holder, shall provide for the
exchange of all Securities at the time Outstanding held by such Holder for
Securities authenticated and delivered in such new name.
The Trustee may appoint an authenticating agent reasonably
acceptable to the Company to authenticate Securities on behalf of the Trustee.
Unless limited by the terms of such appointment, an authenticating agent may
authenticate Securities whenever the Trustee may do so. Each reference in
this Indenture to authentication by the Trustee includes authentication by
such agent. An authenticating agent has the same rights as any Security
Registrar or Paying Agent to deal with the Company and its Affiliates.
Section 3.4. Temporary Securities.
Pending the preparation of definitive Securities, the Company may
execute, and upon Company Order the Trustee shall authenticate and deliver,
temporary Securities which are printed, lithographed, typewritten or otherwise
produced, in any authorized denomination, substantially of the tenor of the
definitive Securities in lieu of which they are issued and with such
appropriate insertions, omissions, substitutions and other variations as the
officers executing such Securities may determine, as conclusively evidenced by
their execution of such Securities.
If temporary Securities are issued, the Company will cause
definitive Securities to be prepared without unreasonable delay. After the
preparation of definitive Securities, the temporary Securities shall be
exchangeable for definitive Securities upon surrender of the temporary
Securities at the office or agency of the Company designated for such purpose
pursuant to Section 10.2 (or in accordance with Section 3.3, in the case of
the initial Securities), without charge to the Holders thereof. Upon
surrender for cancellation of any one or more temporary Securities, the
Company shall execute and the Trustee shall authenticate and deliver in
exchange therefor a like principal amount of definitive Securities of
authorized denominations. Until so exchanged, the temporary Securities shall
in all respects be entitled to the same benefits under this Indenture as
definitive Securities.
Section 3.5. Registration, Registration of Transfer and Exchange.
The Company shall cause to be kept at the Corporate Trust Office of
the Trustee, or such other office as the Trustee may designate, a register
(the register maintained in such office being herein sometimes referred to as
the "Security Register") in which, subject to such reasonable regulations as
the Security Registrar may prescribe, the Company shall provide for the
registration of Securities and of transfers of Securities. The Trustee or an
agent thereof or of the Company shall initially be the "Security Registrar"
for the purpose of registering Securities and transfers of Securities as
herein provided. The Company may appoint one or more co- registrars.
Subject to the requirements of applicable law, upon surrender for
registration of transfer of any Security at the office or agency of the
Company designated pursuant to Section 10.2, the Company shall execute, and
the Trustee shall authenticate and deliver, in the name of the designated
transferee or transferees, one or more new Securities of any authorized
denomination or denominations, of a like aggregate principal amount.
At the option of the Holder, Securities may be exchanged for other
Securities of any authorized denomination or denominations, of a like
aggregate principal amount, upon surrender of the Securities to be exchanged
at such office or agency. Whenever any Securities are so surrendered for
exchange, the Company shall execute, and the Trustee shall authenticate and
deliver, the Securities which the Holder making the exchange is entitled to
receive.
All Securities issued upon any registration of transfer or exchange
of Securities shall be the valid obligations of the Company, evidencing the
same Indebtedness, and entitled to the same benefits under this Indenture, as
the Securities surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration of
transfer, or for exchange or redemption, shall (if so required by the Company
or the Trustee) be duly endorsed, or be accompanied by a written instrument of
transfer in form satisfactory to the Company and the Security Registrar, duly
executed by the Holder thereof or such Holder's attorney duly authorized in
writing.
No service charge shall be made to a Holder for any registration of
transfer, exchange or redemption of Securities, but the Company may require
payment of a sum sufficient to pay all documentary, stamp or similar issue or
transfer taxes or other governmental charges that may be imposed in connection
with any registration of, transfer, exchange or redemption of Securities,
other than exchanges pursuant to Section 3.3, 3.4, 3.6, 9.6, 10.12, 10.13,
10.14 or 11.8 not involving any transfer.
The Company shall not be required (a) to issue, register the
transfer of or exchange any Security during a period beginning at the opening
of business (i) 15 days before the mailing of a notice of redemption of the
Securities selected for redemption under Section 11.4 and ending at the close
of business on the day of such mailing or (ii) 15 days before an Interest
Payment Date and ending on the close of business on the Interest Payment Date,
or (b) to register the transfer of or exchange any Security selected for
redemption in whole or in part, except the unredeemed portion of Securities
being redeemed in part.
Section 3.6. Mutilated, Destroyed, Lost and Stolen Securities.
If (a) any mutilated Security is surrendered to the Trustee, or (b)
the Trustee receives evidence to its satisfaction of the destruction, loss or
theft of any Security, and there is delivered to the Company, any other
obligor under the Securities and the Trustee, such security and/or indemnity,
in each case as may be required by them to save each of them harmless, then,
in the absence of notice to the Company, any other obligor under the
Securities or the Trustee that such Security has been acquired by a bona fide
purchaser, the Company shall execute and upon its written request the Trustee
shall authenticate and deliver, in exchange for any such mutilated Security or
in lieu of any such destroyed, lost or stolen Security, a replacement Security
of like tenor and principal amount, bearing a number not contemporaneously
outstanding.
In case any such mutilated, destroyed, lost or stolen Security has
become or is about to become due and payable, the Company in its discretion
may, instead of issuing a replacement Security, pay such Security.
Upon the issuance of any replacement Securities under this Section,
the Company may require the payment of a sum sufficient to pay all
documentary, stamp or similar issue or transfer taxes or other governmental
charge that may be imposed in relation thereto and any other expenses
(including the fees and expenses of the Trustee) connected therewith.
Every replacement Security issued pursuant to this Section in lieu
of any destroyed, lost or stolen Security shall constitute an original
additional contractual obligation of the Company and any other obligor of the
Securities, whether or not the destroyed, lost or stolen Security shall be at
any time enforceable by anyone, and shall be entitled to all benefits of this
Indenture equally and proportionately with any and all other Securities duly
issued hereunder.
The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Securities.
Section 3.7. Payment of Interest; Interest Rights Preserved.
Interest on any Security which is payable, and is punctually paid or
duly provided for, on the Stated Maturity of such interest shall be paid to
the Person in whose name that Security is registered at the close of business
on the Regular Record Date for such interest payment.
Any interest on any Security which is payable, but is not paid or
duly provided for on the Stated Maturity of such interest (or within 15 days
after the Stated Maturity of such interest) and interest on such defaulted
interest at the then applicable interest rate borne by the Securities, to the
extent lawful (such defaulted interest and interest thereon herein
collectively called "Defaulted Interest") shall forthwith cease to be payable
to the Holder in whose name such Security is registered as of the Regular
Record Date; and such Defaulted Interest may be paid by the Company, at its
election in each case, as provided in Subsection (a) or (b) below:
(a) The Company may elect to make payment of any Defaulted
Interest to the Persons in whose names the Securities are registered at the
close of business on a Special Record Date for the payment of such Defaulted
Interest, which shall be fixed in the following manner.
The Company shall notify the Trustee in writing of the amount of
Defaulted Interest proposed to be paid on each Security and the date of the
proposed payment (the "Special Payment Date"), and at the same time the
Company shall deposit with the Trustee an amount of money equal to the
aggregate amount proposed to be paid in respect of such Defaulted Interest or
shall make arrangements satisfactory to the Trustee for such deposit at least
one Business Day prior to the Special Payment Date, such money when deposited
to be held in trust for the benefit of the Persons entitled to such Defaulted
Interest as in this Subsection provided. Such notice shall be received by the
Trustee no less than 30 days prior to the Special Payment Date. Thereupon the
Trustee shall fix a Special Record Date for the payment of such Defaulted
Interest which Special Record Date shall be not more than 15 days and not less
than 10 days prior to the Special Payment Date and not less than 10 days after
the receipt by the Trustee of the notice of the proposed payment. The Trustee
shall promptly notify the Company in writing of such Special Record Date and
Special Payment Date. In the name and at the expense of the Company, the
Trustee shall cause notice of the proposed payment of such Defaulted Interest
and the Special Record Date and Special Payment Date therefor to be mailed,
certified or registered (return receipt requested) first-class postage
prepaid, to each Holder at his address as it appears in the Security Register,
not less than 10 days prior to such Special Record Date. Notice of the
proposed payment of such Defaulted Interest and the Special Record Date
therefor having been so mailed, such Defaulted Interest shall be paid to the
Persons in whose names the Securities are registered on such Special Record
Date and shall no longer be payable pursuant to the following Subsection (b).
(b) The Company may make payment to the Persons in whose
name the Securities are registered at the close of business on the Special
Record Date and Special Payment Date of any Defaulted Interest in any other
lawful manner not inconsistent with the requirements of any securities
exchange on which the Securities may be listed, and upon such notice as may be
required by such exchange, unless, after written notice given by the Company
to the Trustee of the proposed payment pursuant to this Subsection, such
manner of payment shall not be deemed practicable by the Trustee (acting
reasonably). The Trustee shall give prompt written notice to the Company of
any such determination.
Subject to the foregoing provisions of this Section 3.7, each
Security delivered under this Indenture upon registration of transfer of or in
exchange for or in lieu of any other Security shall carry the rights to
interest accrued and unpaid, and to accrue, which were carried by such other
Security.
Section 3.8. Persons Deemed Owners.
Prior to due presentment of a Security for registration of transfer,
the Company, the Trustee and any agent of the Company or the Trustee may treat
the Person in whose name any Security is registered as the owner of such
Security for the purpose of receiving payment of principal of, premium, if
any, and (subject to Section 3.7) interest on such Security and for all other
purposes whatsoever, whether or not such Security is overdue, and none of the
Company, the Trustee or any agent of the Company or the Trustee shall be
affected by notice to the contrary.
Section 3.9. Cancellation.
All Securities surrendered for payment, purchase, redemption,
registration of transfer or exchange shall be delivered to the Trustee and, if
not already canceled, shall be promptly canceled by it. The Company or any
Subsidiary may at any time deliver to the Trustee for cancellation any
Securities previously authenticated and delivered hereunder which the Company
or any such Subsidiary may have acquired in any manner whatsoever, and all
Securities so delivered shall be promptly canceled by the Trustee. No
Securities shall be authenticated in lieu of or in exchange for any Securities
canceled as provided in this Section, except as expressly permitted by this
Indenture. All canceled Securities held by the Trustee shall be destroyed in
accordance with its customary procedures and certification of their
destruction delivered to the Company unless by a Company Order received by the
Trustee prior to such destruction the Company shall direct that the canceled
Securities be returned to it. The Trustee shall provide the Company a list of
all Securities that have been canceled from time to time as requested by the
Company.
Section 3.10. Computation of Interest.
Interest on the Securities shall be computed on the basis of a
360-day year of twelve 30-day months.
Section 3.11. Depositary Procedures.
(a) The following procedures will be established: (i) upon
deposit of the Global Note, the Depositary will credit the accounts of
Participants designated by the underwriters of the Securities with portions of
the principal amount of the Global Note, and (ii) ownership of the Securities
evidenced by the Global Note will be shown on, and the transfer of ownership
thereof will be effected only through, records maintained by the Depositary
(with respect to the interests in the Depositary's Participants), the
Depositary's Participants and the Depositary's indirect Participants.
(b) So long as the Global Note Holder is the registered holder
of the Global Note, the Global Note Holder will be considered for all purposes
under the Indenture as the sole and absolute owner of the Securities evidenced
by the Global Note. Beneficial owners of Securities evidenced by the Global
Note will not be considered the owners or holders thereof under the Indenture
for any purpose. Without limiting the foregoing sentence, neither the Company
nor the Trustee will have any responsibility or liability for (i) any aspect
of the records of the Depositary, (ii) maintaining, supervising, or reviewing
any records of the Depositary relating to the Securities, (iii) the selection
by the Depositary of beneficial interests in the Securities to be redeemed in
part or (iv) the payment to any beneficial owner or other Person, other than
the Depositary, of any amount with respect to principal of, premium, if any,
or interest with respect to the Securities.
Section 3.12. Book-Entry.
Payments in respect of the principal of, premium, if any, and
interest on any Securities registered in the name of the Global Note Holder on
the applicable record date will be payable by an office or agency established
by the Company under the Indenture for such purpose to or at the direction of
the Global Note Holder in its capacity as the holder of the Global Note. The
Company and the Trustee may treat the Persons in whose name Securities,
including the Global Note, are registered as the owners thereof for the
purpose of receiving such payments. Consequently, neither the Company nor the
Trustee has or will have any responsibility or liability for the payment of
such amounts to beneficial owners of Securities. Payments by the Participants
to the beneficial owners of Securities will be governed by standing
instructions and customary practice and will be the responsibility of the
Depositary's Participants.
Section 3.13. Same-Day Settlement and Payment.
Payments in respect of the Securities represented by the Global Note
(including principal, premium, if any, interest and liquidated damages, if
any) shall be made in immediately available funds to the accounts specified by
the Global Note Holder. With respect to Certificated Notes, the Paying Agent
will make all payments of principal, premium, if any, interest, and liquidated
damages, if any, in immediately available funds to the accounts specified by
the Holders thereof, either at the office or agency of a Paying Agent or by
mailing a check to each such Holder's registered address. The Securities
represented by the Global Note are expected to trade in the Depositary's
Same-Day Funds Settlement System, and secondary market trading activity in
such Securities will, therefore, be required by the Depositary to be settled
in immediately available funds.
Section 3.14. Legends.
All Global Notes shall bear the following legend:
Unless this certificate is presented by an authorized representative
of the Depository Trust Company (together with its successors and assigns, the
"Depositary") to the Company or its agent for registration of transfer,
exchange, or payment and any certificate issued is registered in the name of
Cede & Co. or to such other entity as is requested by an authorized
representative of the Depositary (and any payment is made to Cede & Co. or to
such other entity as is requested by an authorized representative of the
Depositary), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE
BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede
& Co., has an interest herein.
ARTICLE IV
DEFEASANCE AND COVENANT DEFEASANCE
Section 4.1. Company's Option to Effect Defeasance or Covenant
Defeasance.
The Company may, at its option by Board Resolution, at any time,
with respect to the Securities, elect to have either Section 4.2 or Section
4.3 be applied to all of the Outstanding Securities (the "Defeased
Securities"), upon compliance with the conditions set forth below in this
Article IV.
Section 4.2. Defeasance and Discharge.
Upon the Company's exercise under Section 4.1 of the option
applicable to this Section 4.2, both the Company and any other obligor on the
Securities shall be deemed to have been discharged from their obligations with
respect to the Defeased Securities on the date the conditions set forth below
are satisfied (hereinafter, "defeasance"). For this purpose, such defeasance
means that the Company and any other obligor of the Securities shall be deemed
to have paid and discharged the entire indebtedness represented by the
Defeased Securities, which shall thereafter be deemed to be "Outstanding" only
for the purposes of Section 4.5 and the other Sections of this Indenture
referred to in (a) and (b) below, and to have satisfied all its other
obligations under such Securities and this Indenture insofar as such
Securities are concerned (and the Trustee, at the expense of the Company and
upon written request, shall execute proper instruments acknowledging the
same), except for the following which shall survive until otherwise terminated
or discharged hereunder: (a) the rights of Holders of Defeased Securities to
receive, solely from the trust fund described in Section 4.4 and as more fully
set forth in such Section, payments in respect of the principal of, premium,
if any, and interest on such Securities when such payments are due, (b) the
Company's obligations with respect to such Defeased Securities under Section
3.4, 3.5, 3.6, 10.2 and 10.3, (c) the rights, powers, trusts, duties,
indemnities and immunities of the Trustee hereunder, and (d) this Article IV.
Subject to compliance with this Article IV, the Company may exercise its
option under this Section 4.2 notwithstanding the prior exercise of its option
under Section 4.3 with respect to the Securities.
Section 4.3. Covenant Defeasance.
Upon the Company's exercise under Section 4.1 of the option
applicable to this Section 4.3, both the Company and any other obligor on the
Securities shall be released from their obligations under any covenant or
provision contained in Sections 10.5 through 10.17, inclusive with respect to
the Defeased Securities on and after the date the conditions set forth below
are satisfied (hereinafter, "covenant defeasance"), and the Defeased
Securities shall thereafter be deemed to be not "Outstanding" for the purposes
of any direction, waiver, consent or declaration or Act of Holders (and the
consequences of any thereof) in connection with such covenants and provisions,
but shall continue to be deemed "Outstanding" for all other purposes
hereunder. For this purpose, such covenant defeasance means that, with
respect to the Defeased Securities, the Company and any other obligor of the
Securities may omit to comply with and shall have no liability in respect of
any term, condition or limitation set forth in any such Section or Article,
whether directly or indirectly, by reason of any reference elsewhere herein or
in such Defeased Securities to any such Section or Article or by reason of any
reference in any such Section or Article to any other provision herein or in
any other document and such omission to comply shall not constitute a Default
or an Event of Default under Section 5.1(c), (d) or (e), but, except as
specified above, the remainder of this Indenture and such Defeased Securities
shall be unaffected thereby.
Section 4.4. Conditions to Defeasance or Covenant Defeasance.
The following shall be the conditions to application of either
Section 4.2 or Section 4.3 to the Defeased Securities:
(1) The Company shall irrevocably have deposited or caused
to be deposited with the Trustee as trust funds in trust for the purpose of
making the following payments, specifically pledged as security for, and
dedicated solely to, the benefit of the Holders of such Securities, (a) United
States dollars in an amount, (b) U.S. Government Obligations which through the
scheduled payment of principal and interest in respect thereof in accordance
with their terms will provide, not later than one day before the due date of
any payment, money in an amount, or (c) a combination thereof, in such amounts
as will be sufficient, as reflected in the written report of a nationally
recognized firm of independent public accountants or a nationally recognized
investment banking firm delivered to the Trustee, to pay and discharge (and
which shall be applied by the Trustee to pay and discharge) the principal of,
premium, if any, and interest on the Defeased Securities on the Stated
Maturity (or on any date after September 1, 2000 (such date being referred to
as the "Defeasance Redemption Date"), if prior to electing either defeasance
or covenant defeasance, the Company has delivered to the Trustee an
irrevocable notice to redeem all of the outstanding Securities on the
Defeasance Redemption Date) of such principal or installment of interest;
provided that the Trustee (or such qualifying trustee) shall have been
irrevocably instructed to apply such United States dollars or the proceeds of
such U.S. Government Obligations to said payments with respect to the
Securities. For this purpose, "U.S. Government Obligations" means securities
that are (i) direct obligations of the United States of America for the timely
payment of which its full faith and credit is pledged or (ii) obligations of a
Person controlled or supervised by and acting as an agency or instrumentality
of the United States of America the timely payment of which is unconditionally
guaranteed as a full faith and credit obligation by the United States of
America, which, in either case, are not callable or redeemable at the option
of the issuer thereof, and shall also include a depository receipt issued by a
bank (as defined in Section 3(a)(2) of the Securities Act), as custodian with
respect to any such U.S. Government Obligation or a specific payment of
principal of or interest on any such U.S. Government Obligation held by such
custodian for the account of the holder of such depository receipt, provided
that (except as required by law) such custodian is not authorized to make any
deduction from the amount payable to the holder of such depository receipt
from any amount received by the custodian in respect of the U.S. Government
Obligation or the specific payment of principal of or interest on the U.S.
Government Obligation evidenced by such depository receipt.
(2) In the case of an election under Section 4.2, the
Company shall have delivered to the Trustee an Opinion of Independent Counsel
in the United States to the effect that (A) the Company has received from, or
there has been published by, the Internal Revenue Service a ruling or (b)
since the date of this Indenture, there has been a change in the applicable
Federal income tax law, in either case to the effect that the Holders of the
Outstanding Securities will not recognize income, gain or loss for Federal
income tax purposes as a result of such defeasance and will be subject to
Federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such defeasance had not occurred.
(3) In the case of an election under Section 4.3, the
Company shall have delivered to the Trustee an Opinion of Independent Counsel
in the United States to the effect that the Holders of the Outstanding
Securities will not recognize income, gain or loss for Federal income tax
purposes as a result of such covenant defeasance and will be subject to
Federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such covenant defeasance had not
occurred.
(4) No Default or Event of Default shall have occurred and
be continuing on the date of such deposit;
(5) Such defeasance or covenant defeasance shall not cause
the Trustee to have a conflicting interest with respect to any securities of
the Company.
(6) Such defeasance or covenant defeasance shall not result
in a breach or violation of, or constitute a Default under, this Indenture or
any other material agreement or instrument to which the Company is a party or
by which it is bound.
(7) The Company shall have delivered to the Trustee an
Opinion of Independent Counsel in the United States to the effect that (A) the
trust funds will not be subject to any rights of holders of Senior
Indebtedness, including without limitation, those arising under this Indenture
and (B) the defeasance trust does not violate the Investment Company Act of
1940 and after the passage of 123 days following the deposit the trust fund
will not be subject to the effect of sections 547 and 550 of the United States
Bankruptcy Code or section 15 of the New York Debtor and Creditor Law.
(8) The Company shall have delivered to the Trustee an
Officers' Certificate stating that the deposit was not made by the Company
with the intent of preferring the holders of the Securities over the other
creditors of the Company or with the intent of defeating, hindering, delaying
or defrauding creditors of the Company or others.
(9) No event or condition shall exist on the date of such
deposit that would prevent the Company from making payments of the principal
of, premium, if any, and interest on the Securities on the date of such
deposit or at any time ending on the 123rd day after the date of such deposit.
(10) The Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Independent Counsel, each to the
effect that all conditions precedent provided for relating to either the
defeasance under Section 4.2 or the covenant defeasance under Section 4.3 (as
the case may be) have been complied with as contemplated by this Section 4.4.
Opinions of Counsel required to be delivered under this Section may
have qualifications customary for opinions of the type required and counsel
delivering such Opinions of Counsel may rely on certificates of the Company or
government or other officials customary for opinions of the type required,
which certificates shall be limited to matters of fact, including that various
financial covenants have been complied with.
Section 4.5. Deposited Money and U.S. Government Obligations to Be
Held in Trust; Other Miscellaneous Provisions.
Subject to the provisions of the last paragraph of Section 10.3, all
United States dollars and U.S. Government Obligations (including the proceeds
thereof) deposited with the Trustee pursuant to Section 4.4 in respect of the
Defeased Securities shall be held in trust and applied by the Trustee, in
accordance with the provisions of such Securities and this Indenture, to the
payment, either directly or through any Paying Agent as the Trustee may
determine, to the Holders of such Securities of all sums due and to become due
thereon in respect of principal, premium, if any, and interest, but such money
need not be segregated from other funds except to the extent required by law.
The Company shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the U.S. Government Obligations
deposited pursuant to Section 4.4 or the principal and interest received in
respect thereof, other than any such tax, fee or other charge which by law is
for the account of the Holders of the Defeased Securities.
Anything in this Article IV to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon Company
Request any United States dollars or U.S. Government Obligations held by it as
provided in Section 4.4 which, in the opinion of a nationally recognized firm
of independent public accountants or nationally recognized investment banking
firm expressed in a written report delivered to the Trustee, are in excess of
the amount thereof which would then be required to be deposited to effect
defeasance or covenant defeasance. In the event of an error in any
calculation resulting in a withdrawal hereunder, the Company shall deposit an
amount equal to the amount erroneously withdrawn as promptly as practicable
after becoming aware of such error.
Section 4.6. Reinstatement.
If the Trustee or Paying Agent is unable to apply any United States
dollars or U.S. Government Obligations in accordance with Section 4.2 or 4.3,
as the case may be, by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Company's obligations under this Indenture and the
Securities shall be revived and reinstated as though no deposit had occurred
pursuant to Section 4.2 or 4.3, as the case may be, until such time as the
Trustee or Paying Agent is permitted to apply all such United States dollars
or U.S. Government Obligations in accordance with Section 4.2 or 4.3, as the
case may be; provided, however, that (a) if the Company makes any payment to
the Trustee or Paying Agent of principal, premium, if any, or interest on any
Security following the reinstatement of its obligations, the Trustee or Paying
Agent shall promptly pay any such amount to the Holders of the Securities and
the Company shall be subrogated to the rights of the Holders of such
Securities to receive such payment from the United States dollars and U.S.
Government Obligations held by the Trustee or Paying Agent and (b) the Trustee
or Paying Agent shall return all such United States dollars and U.S.
Government Obligations to the Company promptly after receiving a Company
Request therefor at any time, if the Trustee or Paying Agent receives written
notice from the Company that such reinstatement of the Company's obligations
has occurred and continues to be in effect at such time.
ARTICLE V
REMEDIES
Section 5.1. Events of Default.
"Event of Default," wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or
pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body);
(a) there shall be a default in the payment of any interest
on any Security when it becomes due and payable, and such default shall
continue for a period of 30 days;
(b) there shall be a default in the payment of the
principal of or premium, if any, on any Security at its Stated Maturity (upon
acceleration, optional or mandatory redemption, repurchase pursuant to a
Change of Control Offer, an offer in respect of Excess Proceeds or otherwise);
(c) (i) there shall be a default in the performance, or
breach, of any covenant or agreement of the Company under this Indenture
(other than a default in the performance, or breach, of a covenant or
agreement which is specifically dealt with in Section 5.1(a) or (b) or in
clauses (ii), (iii) or (iv) of this Section 5.1(c)) and such default or breach
shall continue for a period of 30 days after written notice of such failure
requiring the Company to remedy the same has been given, by certified mail,
(x) to the Company by the Trustee or (y) to the Company and the Trustee by the
Holders of at least 25% in aggregate principal amount of the Outstanding
Securities; (ii) there shall be a default in the performance or breach of the
provisions of Article VIII; (iii) the Company shall have failed to make or
consummate an Offer in accordance with the provisions of Section 10.12 or (iv)
the Company shall have failed to make or consummate a Change of Control Offer
in accordance with the provisions of Section 10.13;
(d) (i) any default in the payment of the principal,
premium, if any, or interest on any Indebtedness shall have occurred under any
agreements, indentures or instruments under which the Company or any
Subsidiary then has outstanding Indebtedness in excess of $5 million when the
same shall become due and payable and continuation of such default after any
applicable grace period and, if not already matured at its final maturity in
accordance with its terms, the holder of such Indebtedness shall have no right
to accelerate such Indebtedness or (ii) an event of default as defined in any
of the agreements, indentures or instruments described in clause (i) of this
Section 5.1(d) shall have occurred and the Indebtedness thereunder, if not
already matured at its final maturity in accordance with its terms, shall have
been accelerated;
(e) one or more judgments, orders or decrees for the
payment of money in excess of $2.5 million, either individually or in the
aggregate (net of amounts for which an insurance company has agreed that it is
liable) shall be entered against the Company or any Subsidiary or any of their
respective properties and shall not be discharged and either (i) any creditor
shall have commenced an enforcement proceeding upon such judgment, order or
decree or (ii) there shall have been a period of 90 consecutive days during
which a stay of enforcement of such judgment or order, by reason of an appeal
or otherwise, shall not be in effect;
(f) there shall have been the entry by a court of competent
jurisdiction of (i) a decree or order for relief in respect of the Company or
any Material Subsidiary in an involuntary case or proceeding under any
applicable Bankruptcy Law or (ii) a decree or order adjudging the Company or
any Material Subsidiary bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment or composition of or in respect of the Company or any
Material Subsidiary under any applicable Federal or state law, or appointing a
custodian, receiver, liquidator, assignee, trustee, sequestrator (or other
similar official) of the Company or any Material Subsidiary or of any
substantial part of its property, or ordering the winding up or liquidation of
its affairs, and any such decree or order for relief shall continue to be in
effect, or any such other decree or order shall be unstayed and in effect, for
a period of 90 consecutive days;
(g) (i) the Company or any Material Subsidiary commences a
voluntary case or proceeding under any applicable Bankruptcy Law or any other
case or proceeding to be adjudicated bankrupt or insolvent, (ii) the Company
or any Material Subsidiary consents to the entry of a decree or order for
relief in respect of the Company or such Material Subsidiary in an involuntary
case or proceeding under any applicable Bankruptcy Law or to the commencement
of any bankruptcy or insolvency case or proceeding against it, (iii) the
Company or any Material Subsidiary files a petition or answer or consent
seeking reorganization or relief under any applicable Federal or state law,
(iv) the Company or any Material Subsidiary (A) consents to the filing of such
petition or the appointment of, or taking possession by, a custodian,
receiver, liquidator, assignee, trustee, sequestrator, or similar official of
the Company or such Material Subsidiary or of any substantial part of its
property, (B) makes an assignment for the benefit of creditors or (C) admits
in writing its inability to pay its debts generally as they become due or (v)
the Company or any Material Subsidiary takes any corporate action in
furtherance of any such actions in this Section 5.1(g);
(h) any holder or holders of at least $5 million in
aggregate principal amount of Indebtedness of the Company or any Subsidiary
after a default under such Indebtedness shall notify the Trustee of the
intended sale or disposition of any assets of the Company or any Subsidiary
that have been pledged to or for the benefit of such holder or holders to
secure such Indebtedness or shall commence proceedings, or take any action
(including by way of set-off), to retain in satisfaction of such Indebtedness
or to collect on, seize, dispose of or supply in satisfaction of Indebtedness,
assets of the Company or any Subsidiary (including funds on deposit or held
pursuant to lock-box and other similar arrangements); or
(i) the Company shall fail to redeem the Existing Notes
within 45 days after the date of the original issuance of the Securities.
Section 5.2. Acceleration of Maturity; Rescission and Annulment.
If an Event of Default (other than an Event of Default specified in
Sections 5.1(f) and (g)) occurs and is continuing, the Trustee or the Holders
of not less than 25% in aggregate principal amount of the Outstanding
Securities may declare all the Securities to be due and payable immediately in
an amount equal to the principal amount of the Outstanding Securities,
together with accrued and unpaid interest, if any, to the date the Securities
shall have become due and payable, by a notice in writing to the Company (and
to the Trustee, if given by Holders) and thereupon the Trustee may, at its
discretion, proceed to protect and enforce the rights of the Holder of the
Securities by appropriate judicial proceeding. If an Event of Default
specified in Section 5.1(f) or (g) occurs and is continuing, then all the
Securities shall ipso facto become and be immediately due and payable, in an
amount equal to the principal amount of the Securities, together with accrued
and unpaid interest, if any, to the date the Securities become due and
payable, without any declaration or other act on the part of the Trustee or
any Holder.
At any time after such declaration of acceleration has been made and
before a judgment or decree for payment of the money due has been obtained by
the Trustee as provided hereinafter in this Article, the Holders of at least a
majority in aggregate principal amount of the Outstanding Securities, by
written notice to the Company and the Trustee, may rescind and annul such
declaration and its consequences if:
(a) the Company has paid or deposited with the Trustee a
sum sufficient to pay:
(i) all sums paid or advanced by the Trustee under
Section 6.6 and the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel,
(ii) all overdue interest on all Securities, and
(iii) to the extent that payment of such interest is
lawful, interest upon overdue interest at the rate borne by the Securities;
and
(b) all Events of Default, other than the non-payment of
principal of the Securities which have become due solely by such declaration
of acceleration, have been cured or waived as provided in Section 5.13.
No such rescission shall affect any subsequent Default or impair any right
consequent thereon.
Section 5.3. Collection of Indebtedness and Suits for Enforcement
by Trustee.
The Company covenants that if:
(a) default is made in the payment of any interest on any
Security when such interest becomes due and payable and such default continues
for a period of 30 days, or
(b) default is made in the payment of the principal of or
premium, if any, on any Security at the Stated Maturity (upon acceleration,
optional or mandatory redemption, required repurchase or otherwise) thereof,
the Company will, upon demand of the Trustee, pay to it, for the benefit of
the Holders of such Securities the whole amount then due and payable on such
Securities for principal and premium, if any, and interest, with interest upon
the overdue principal and premium, if any, and, to the extent that payment of
such interest shall be legally enforceable, upon overdue installments of
interest, at the rate borne by the Securities.
If the Company fails to pay such amounts forthwith upon such demand,
the Trustee, in its own name and as trustee of an express trust, may institute
a judicial proceeding for the collection of the sums so due and unpaid and may
prosecute such proceeding to judgment or final decree, and may enforce the
same against the Company or any other obligor upon the Securities and collect
the moneys adjudged or decreed to be payable in the manner provided by law out
of the property of the Company or any other obligor upon the Securities,
wherever situated.
If an Event of Default occurs and is continuing, the Trustee may in
its discretion proceed to protect and enforce its rights and the rights of the
Holders under this Indenture by such appropriate private or judicial
proceedings as the Trustee shall deem most effectual to protect and enforce
such rights, and may enforce any other proper remedy, subject however to
Section 5.12.
The rights and remedies under this Section 5.3 are in addition to
the other rights and remedies under this Article V.
Section 5.4. Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency,
liquidation, bankruptcy, reorganization, arrangement, adjustment, composition
or other similar judicial proceeding relative to the Company or any other
obligor upon the Securities or the property of the Company or of such other
obligor or their creditors, the Trustee (irrespective of whether the principal
of the Securities shall then be due and payable as therein expressed or by
declaration or otherwise and irrespective of whether the Trustee shall have
made any demand on the Company for the payment of overdue principal or
interest) shall be entitled and empowered, by intervention in such proceeding
or otherwise:
(a) to file and prove a claim for the whole amount of
principal, and premium, if any, and interest owing and unpaid in respect of
the Securities and to file such other papers or documents as may be necessary
or advisable in order to have the claims of the Trustee (including any claim
for the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel) and of the Holders allowed in such judicial
proceeding; and
(b) to collect and receive any moneys or other property
payable or deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
similar official in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay
the Trustee any amount due if for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any
other amounts due the Trustee under Section 6.6.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment, composition or other similar
arrangement affecting the Securities or the rights of any Holder thereof, or
to authorize the Trustee to vote in respect of the claim of any Holder in any
such proceeding.
Section 5.5. Trustee May Enforce Claims Without Possession of
Securities.
All rights of action and claims under this Indenture or the
Securities may be prosecuted and enforced by the Trustee without the
possession of any of the Securities or the production thereof in any
proceeding relating thereto, and any such proceeding instituted by the Trustee
shall be brought in its own name and as trustee of an express trust, and any
recovery of judgment shall, after provision for the payment of the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, be for the ratable benefit of the Holders of the Securities in
respect of which judgment has been recovered.
Section 5.6. Application of Money Collected.
Any money collected by the Trustee pursuant to this Article or
otherwise on behalf of the Holders or the Trustee pursuant to this Article or
through any proceeding or any arrangement or restructuring in anticipation or
in lieu of any proceeding contemplated by this Article shall be applied,
subject to the applicable law, in the following order, at the date or dates
fixed by the Trustee and, in case of the distribution of such money on account
of principal, premium, if any, or interest, upon presentation of the
Securities and the notation thereon of the payment if only partially paid and
upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under
Section 6.6;
SECOND: To the payment in full of the amounts then due and
unpaid upon the Securities for principal, premium, if any, and interest, in
respect of which or for the benefit of which such money has been collected,
ratably, without preference or priority of any kind, according to the amounts
due and payable on such Securities for principal, premium, if any, and
interest; and
THIRD: The balance, if any, to the Person or Persons entitled
thereto as a court of competent jurisdiction shall direct, or to the Company,
provided that all sums due and owing to the Holders and the Trustee have been
paid in full as required by this Indenture.
Section 5.7. Limitation on Suits.
No Holder of any Securities shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture or the
Securities, or for the appointment of a receiver or trustee, or for any remedy
hereunder, unless:
(a) such Holder has previously given written notice to the
Trustee of a continuing Event of Default;
(b) the Holders of not less than 25% in principal amount of
the Outstanding Securities shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default in its own name as
Trustee hereunder;
(c) such Holder or Holders have offered, and if requested
have provided, to the Trustee an indemnity satisfactory to the Trustee in its
sole discretion against the costs, expenses and liabilities to be incurred in
compliance with such request,
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other
Holders, or to obtain or seek to obtain priority or preference over any other
Holders or to enforce any right under this Indenture, except in the manner
provided in this Indenture and for the equal and ratable benefit of all the
Holders.
Section 5.8. Unconditional Right of Holders to Receive Principal,
Premium and Interest.
Notwithstanding any other provision in this Indenture, the Holder of
any Security shall have the right on the terms stated herein, which is
absolute and unconditional, to receive payment of the principal of, premium,
if any, and (subject to Section 3.7) interest on such Security on the
respective Stated Maturities expressed in such Security (or, in the case of
redemption, on the Redemption Date) and to institute suit for the enforcement
of any such payment, and such rights shall not be impaired without the consent
of such Holder.
Section 5.9. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to
enforce any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case, subject to any
determination in such proceeding, (a) the Company and any other obligor under
the Securities, the Trustee and the Holders shall be restored severally and
respectively to their former positions hereunder, and (b) thereafter all
rights and remedies of the Trustee and the Holders shall continue as though no
such proceeding had been instituted.
Section 5.10. Rights and Remedies Cumulative.
Except as provided in Section 3.6, no right or remedy herein
conferred upon or reserved to the Trustee or to the Holders is intended to be
exclusive of any other right or remedy, and every right and remedy shall, to
the extent permitted by law, be cumulative and in addition to every other
right and remedy given hereunder or now or hereafter existing at law or in
equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
Section 5.11. Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any Security
to exercise any right or remedy accruing upon any Event of Default shall
impair any such right or remedy or constitute a waiver of any such Event of
Default or an acquiescence therein. Every right and remedy given by this
Article or by law to the Trustee or to the Holders may be exercised from time
to time, and as often as may be deemed expedient, by the Trustee or by the
Holders, as the case may be.
Section 5.12. Control by Holders.
The Holders of not less than a majority in aggregate principal
amount of the Outstanding Securities shall have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Trustee, or exercising any trust or power conferred on the Trustee, provided
that:
(a) such direction shall not be in conflict with any rule
of law or with this Indenture (including, without limitation, Section 5.7) or
expose the Trustee to personal liability; and
(b) subject to the provisions of Section 315 of the Trust
Indenture Act, the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction.
Section 5.13. Waiver of Past Defaults.
The Holders of not less than a majority in aggregate principal
amount of the Outstanding Securities may, on behalf of the Holders of all the
Securities, waive any past Default hereunder and its consequences, except a
Default:
(a) in the payment of the principal of, premium, if any, or
interest on any Security, or
(b) in respect of a covenant or provision hereof which
under Article IX cannot be modified or amended without the consent of the
Holder of each Outstanding Security affected by such modification or
amendment.
Upon any such waiver, such Default shall cease to exist, and any
Event of Default arising therefrom shall be deemed to have been cured, for
every purpose of this Indenture; but no such waiver shall extend to any
subsequent or other Default or impair any right consequent thereon.
Section 5.14. Undertaking for Costs.
All parties to this Indenture agree, and each Holder of any Security
by his acceptance thereof shall be deemed to have agreed, that any court may
in its discretion require, in any suit for the enforcement of any right or
remedy under this Indenture, or in any suit against the Trustee for any action
taken, suffered or omitted by it as Trustee, the filing by any party litigant
in such suit of an undertaking to pay the costs of such suit, and that such
court may in its discretion assess reasonable costs, including reasonable
attorney's fees, against any party litigant in such suit, having due regard to
the merits and good faith of the claims or defenses made by such party
litigant; but the provisions of this Section shall not apply to any suit
instituted by the Trustee, to any suit instituted by any Holder, or group of
Holders, holding in the aggregate more than 10% in principal amount of the
Outstanding Securities, or to any suit instituted by any Holder for the
enforcement of the payment of the principal of, premium, if any, or interest
on any Security on or after the respective Stated Maturities expressed in such
Security (or, in the case of redemption, on or after the Redemption Date).
Section 5.15. Waiver of Stay, Extension or Usury Laws.
Each of the Company and any other obligor under the Securities
covenants (to the extent enforceable under law) that it will not at any time
insist upon, or plead, or in any manner whatsoever claim or take the benefit
or advantage of, the automatic stay under section 362 of the United States
Bankruptcy Code or any other stay or extension law or any usury or other
similar law wherever enacted, now or at any time hereafter in force, which
would prohibit or forgive the Company or any other obligor under the
Securities from paying all or any portion of the principal of, premium, if
any, or interest on the Securities contemplated herein or in the Securities or
which may affect the covenants or the performance of this Indenture; and each
of the Company and any other obligor under the Securities (to the extent that
it may lawfully do so) hereby expressly waives all benefit or advantage of any
such law, and covenants that it will not hinder, delay or impede the execution
of any power herein granted to the Trustee, but will suffer and permit the
execution of every such power as though no such law had been enacted.
Section 5.16. Remedies Subject to Applicable Law.
All rights, remedies and powers provided by this Article may be
exercised only to the extent that the exercise thereof does not violate any
applicable provision of law in the premises, and all the provisions of this
Indenture are intended to be subject to applicable mandatory provisions of law
which may be controlling in the premises and to be limited to the extent
necessary so that they will not render this Indenture invalid, unenforceable
or not entitled to be recorded, registered or filed under the provisions of
any applicable law.
ARTICLE VI
THE TRUSTEE
Section 6.1. Notice of Defaults.
Within 30 days after a Responsible Officer of the Trustee receives
notice of the occurrence of any Default, the Trustee shall transmit by mail to
all Holders or any other persons entitled to receive reports pursuant to Trust
Indenture Act Section 313(c) notice of such Default, unless such Default shall
have been cured or waived. Except in the case of a Default or Event of
Default in payment of the principal of, premium, if any, or interest on any
Security, the Trustee may withhold and shall be protected in withholding such
notice if and so long as the board of directors of the Trustee, the executive
committee of the board of directors of the Trustee or a committee of
Responsible Officers of the Trustee in good faith determines that withholding
the notice is in the interests of the Holders; provided that the Trustee shall
have no obligation to present such question for determination by its board of
directors or any such committee.
Section 6.2. Certain Rights of Trustee.
Subject to the provisions of Trust Indenture Act Section 315(a)
through 315(d):
(a) the Trustee, in the absence of willful misconduct or
negligence on its part, may rely conclusively on, and shall be protected in
acting or refraining from acting upon, any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order, bond,
debenture, security, other evidence of indebtedness or other paper or document
believed by it to be genuine and to have been signed or presented by the
proper party or parties;
(b) any request or direction of the Company mentioned
herein shall be sufficiently evidenced by a Company Request or Company Order
and any resolution of the Board of Directors may be sufficiently evidenced by
a Board Resolution;
(c) wherever in the administration of this Indenture the
Trustee shall deem it desirable that a matter be proved or established prior
to the taking, suffering or omitting of any action hereunder, the Trustee
(unless other evidence be herein specifically prescribed) in the absence of
bad faith or negligence on its part, may rely conclusively upon an Officers'
Certificate and/or an Opinion of Counsel that conforms to the requirements of
this Indenture;
(d) the Trustee may consult with counsel and any written
advice of such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted by it hereunder in good faith without negligence and in reliance
thereon in accordance with such advice or Opinion of Counsel;
(e) the Trustee shall be under no obligation to exercise
any of the rights or powers vested in it by this Indenture at the request or
direction of any of the Holders pursuant to this Indenture, unless such
Holders shall have offered to the Trustee security or indemnity satisfactory
to the Trustee in its sole discretion against the costs, expenses and
liabilities which might be incurred therein or thereby in compliance with such
request or direction;
(f) the Trustee shall not be liable for any action taken or
omitted by it in good faith and believed by it to be authorized or within the
discretion, rights or powers conferred upon it by this Indenture other than
any liabilities arising out of the negligence or willful misconduct of the
Trustee;
(g) the Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction, consent,
order, approval, appraisal, bond, debenture, security, coupon, security or
other paper or document; but the Trustee in its discretion may make such
further inquiry or investigation in accordance with any of the provisions of
this Indenture into such facts or matters as it may see fit, and, if the
Trustee shall determine to make such further inquiry or investigation, it
shall be entitled to examine such relevant books, records and premises of the
Company as may be reasonable, personally or by agent or attorney;
(h) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
agents or attorneys and the Trustee shall not be responsible for any
misconduct or negligence on the part of any agent (other than an agent who is
an employee of the Trustee) or attorney appointed with due care by it
hereunder; and
(i) no provision of this Indenture shall require the
Trustee to expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder, or in the
exercise of any of its rights and powers if it shall have reasonable grounds
for believing that repayment of such funds or adequate indemnity against such
risk or liability is not reasonably assured to it.
Section 6.3. Trustee Not Responsible for Recitals, Dispositions of
Securities or Application of Proceeds Thereof.
The recitals contained herein and in the Securities, except the
Trustee's certificates of authentication, shall be taken as the statements of
the Company, and the Trustee assumes no responsibility for their correctness.
The Trustee makes no representations as to the validity or sufficiency of this
Indenture or the Securities, except that the Trustee represents that it is
duly authorized to execute and deliver this Indenture, authenticate the
Securities and perform its obligations hereunder and that the statements made
by it in a Statement of Eligibility and Qualification on Form T-1 supplied to
the Company are true and accurate subject to the qualifications set forth
therein. The Trustee shall not be accountable for the use or application by
the Company of Securities or the proceeds thereof.
Section 6.4. Trustee and Agents May Hold Securities; Collections;
etc.
The Trustee, any Paying Agent, Security Registrar or any other agent
of the company, in its individual or any other capacity, may become the owner
or pledgee of Securities, with the same rights it would have if it were not
the Trustee, Paying Agent, Security Registrar or such other agent and, subject
to Trust Indenture Act Sections 310 and 311, may otherwise deal with the
Company and receive, collect, hold and retain collections from the Company
with the same rights it would have if it were not the Trustee, Paying Agent,
Security Registrar or such other agent.
Section 6.5. Money Held in Trust.
All moneys received by the Trustee shall, until used or applied as
herein provided, be held in trust for the purposes for which they were
received, but need not be segregated from other funds except to the extent
required by mandatory provisions of law. Except for funds or securities
deposited with the Trustee pursuant to Article IV, the Trustee shall only be
required to invest moneys received by the Trustee, until used with the
directions of the Company.
Section 6.6. Compensation and Indemnification of Trustee and Its
Prior Claim.
The Company covenants and agrees to pay to the Trustee promptly upon
request, and the Trustee shall be entitled to, reasonable compensation for all
services rendered by it hereunder (which, to the extent lawful, shall not be
limited by any provision of law in regard to the compensation of a trustee of
an express trust) and the Company covenants and agrees to reimburse the
Trustee and each predecessor Trustee upon its request for all reasonable
expenses, disbursements and advances incurred or made by or on behalf of it in
accordance with any of the provisions of this Indenture (including the
reasonable compensation and the expenses and disbursements of its counsel and
of all agents and other persons not regularly in its employ) except any such
expense, disbursement or advance as may arise from its negligence, bad faith
or willful misconduct. When the Trustee incurs expenses and renders services
in connection with an Event of Default specified in Section 5.1(f) or Section
5.1(g), the expenses (including the reasonable compensation and the expenses
and disbursements of its counsel) and the compensation for the services are
intended to constitute expenses of administration under any applicable Federal
or state bankruptcy, insolvency or other similar law. The Company also
covenants to indemnify the Trustee and each predecessor Trustee, and their
respective officers, agents and employees for, and to hold them harmless
against, any claim, loss, liability, tax, assessment or other governmental
charge (other than taxes applicable to the Trustee's compensation hereunder)
or expense incurred without negligence, bad faith or willful misconduct on its
part, arising out of or in connection with the acceptance or administration of
this Indenture or the trusts hereunder and its duties hereunder, including
enforcement of this Section 6.6 and also including any liability which the
Trustee may incur as a result of the Company's failure to withhold, pay or
report any tax, assessment or other governmental charge, and the costs and
expenses of defending itself against or investigating any claim of liability
in the premises. The obligations of the Company under this Section to
compensate and indemnify the Trustee and each predecessor Trustee and to pay
or reimburse the Trustee and each predecessor Trustee for expenses,
disbursements and advances shall constitute an additional obligation hereunder
and shall survive the satisfaction and discharge of this Indenture and the
resignation or removal of the Trustee and each predecessor Trustee.
Section 6.7. Conflicting Interests.
The Trustee shall comply with the provisions of Section 310(b) of
the Trust Indenture Act.
Section 6.8. Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee hereunder which shall be
eligible to act as Trustee under Trust Indenture Act Section 310(a) and which
shall have a combined capital and surplus of at least $100.0 million. If the
Trustee publishes reports of condition at least annually, pursuant to law or
to the requirements of Federal, state, territorial or District of Columbia
supervising or examining authority, then for the purposes of this Section, the
combined capital and surplus of the Trustee shall be deemed to be its combined
capital and surplus as set forth in its most recent report of condition so
published. If at any time the Trustee shall cease to be eligible in
accordance with the provisions of this Section, the Trustee shall resign
immediately in the manner and with the effect hereinafter specified in this
Article.
Section 6.9. Resignation and Removal; Appointment of Successor
Trustee.
(a) No resignation or removal of the Trustee and no appointment
of a successor Trustee pursuant to this Article shall become effective until
the acceptance of appointment by the successor Trustee under Section 6.10.
(b) The Trustee, or any trustee or trustees hereafter appointed,
may at any time resign by giving written notice thereof to the Company. Upon
receiving such notice of resignation, the Company shall use its best efforts
to promptly appoint a successor Trustee by Board Resolution or written
instrument executed by authority of the Board of Directors of the Company, a
copy of which shall be delivered to the resigning Trustee and a copy to the
successor Trustee. If an instrument of acceptance by a successor Trustee
shall not have been delivered to the Trustee within 30 days after the giving
of such notice of resignation, the resigning Trustee may, or any Holder who
has been a bona fide Holder of a Security for at least six months may, on
behalf of himself and all others similarly situated, petition any court of
competent jurisdiction for the appointment of a successor Trustee. Such court
may thereupon, after such notice, if any, as it may deem proper, appoint a
successor Trustee.
(c) The Trustee may be removed at any time by an Act of the
Holders of not less than a majority in aggregate principal amount of the
Outstanding Securities, delivered to the Trustee and to the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with the provisions of
Trust Indenture Act Section 310(b) after written request therefor by the
Company or by any Holder who has been a bona fide Holder of the Security for
at least six months, or
(2) the Trustee shall cease to be eligible under Section
6.9 and shall fail to resign after written request therefor by the Company or
by any such Holder, or
(3) the Trustee shall become incapable of acting or shall
be adjudged a bankrupt or insolvent, or a receiver of the Trustee or of its
property shall be appointed or any public officer shall take charge or control
of the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation; then, in any case, (i) the
Company by a Board Resolution may remove the Trustee, or (ii) subject to
Section 5.14, any Holder of any security who has been a bona fide Holder of a
Security for at least six months may, on behalf of himself and all others
similarly situated, petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee. Such court
may thereupon, after such notice, if any, as it may deem proper and prescribe,
remove the Trustee and appoint a successor Trustee.
(e) If the Trustee shall resign, be removed or become incapable
of acting, or if a vacancy shall occur in the office of the Trustee for any
cause, the Company, by a Board Resolution or written instrument executed by
authority of the Board of Directors of the Company, shall use its best efforts
to promptly appoint a successor Trustee and shall comply with the applicable
requirements of Section 6.11. If, within one year after such resignation,
removal or incapability, or the occurrence of such vacancy, the Company or a
court of competent jurisdiction has not appointed a successor Trustee, a
successor Trustee shall be appointed by Act of the Holders of a majority in
principal amount of the Outstanding Securities delivered to the Company and
the retiring Trustee, and the successor Trustee so appointed shall, forthwith
upon its acceptance of such appointment, become the successor Trustee and
supersede the successor Trustee appointed by the Company. If no successor
Trustee shall have been so appointed by the Company or the Holders of the
Securities and accepted appointment in the manner hereinafter provided, any
Holder of a Security who has been a bona fide Holder for at least six months
may, subject to Section 5.14, on behalf of himself and all others similarly
situated, petition any court of competent jurisdiction for the appointment of
a successor Trustee.
(f) The Company shall give notice of each resignation and each
removal of the Trustee and each appointment of a successor Trustee by mailing
written notice of such event by first-class mail, postage prepaid, to the
Holders of Securities as their names and addresses appear in the Security
Register. Each notice shall include the name of the successor Trustee and the
address of its Corporate Trust Office or agent hereunder.
Section 6.10. Acceptance of Appointment by Successor.
In case of the appointment hereunder of a successor Trustee with
respect to the Securities, every such successor Trustee so appointed shall
execute, acknowledge and deliver to the Company and to the retiring Trustee an
instrument accepting such appointment, and thereupon the resignation or
removal of the retiring Trustee shall become effective and such successor
Trustee, without any further act, deed or conveyance, shall become vested with
all rights, powers, trusts and duties of the retiring Trustee under this
Indenture; but, nevertheless, on the written request of the Company or the
successor Trustee, upon payment of its charges then unpaid, such retiring
Trustee shall pay over to the successor Trustee all moneys at the time held by
it hereunder and shall execute and deliver an instrument transferring to such
successor Trustee all such rights, powers, duties and obligations.
Upon request of any such successor Trustee, the Company shall
execute any and all instruments for more fully and certainly vesting in and
confirming to such successor Trustee all such rights and powers. Any Trustee
ceasing to act shall, nevertheless, retain a prior claim upon all property or
funds held or collected by such Trustee or such successor Trustee to secure
any amounts then due such Trustee pursuant to the provisions of Section 6.6.
No successor Trustee with respect to the Securities shall accept
appointment as provided in this Section 6.10 unless at the time of such
acceptance such successor Trustee shall be eligible to act as Trustee under
the provisions of Trust Indenture Act Section 310(a) and this Article VI and
shall have a combined capital and surplus of at least $100.0 million.
Upon acceptance of appointment by any successor Trustee as provided
in this Section 6.10, the Company shall give notice thereof to the Holders of
the Securities, by mailing such notice to such Holders at their addresses as
they shall appear on the Security Register. If the acceptance of appointment
is substantially contemporaneous with the resignation, then the notice called
for by the preceding sentence may be combined with the notice called for by
Section 6.10. If the Company fails to give such notice within 10 days after
acceptance of appointment by the successor Trustee, the successor Trustee
shall cause such notice to be given at the expense of the Company.
Section 6.11. Merger, Conversion, Consolidation or Succession to
Business.
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any
merger, conversion or consolidation to which the Trustee shall be a party, or
any corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto; provided that such corporation shall be eligible
under Trust Indenture Act Section 310(a) and this Article VI and shall have a
combined capital and surplus of at least $100,000,000.
In case at the time such successor to the Trustee shall succeed to
the Trusts created by this Indenture any of the Securities shall have been
authenticated but not delivered, any such successor to the Trustee may adopt
the certificate of authentication of any predecessor Trustee and deliver such
Securities so authenticated; and, in case at that time any of the Securities
shall not have been authenticated, any successor to the Trustee may
authenticate such Securities either in the name of any predecessor hereunder
or in the name of the successor Trustee; and in all such cases such
certificate shall have the full force which it is anywhere in the Securities
or in this Indenture provided that the certificate of the Trustee shall have;
provided that the right to adopt the certificate of authentication of any
predecessor Trustee or to authenticate Securities in the name of any
predecessor Trustee shall apply only to its successor or successors by merger,
amalgamation, conversion or consolidation.
Section 6.12. Preferential Collection of Claims Against Company.
If and when the Trustee shall be or become a creditor of the Company
(or other obligor under the Securities), the Trustee shall be subject to the
provisions of the Trust Indenture Act regarding the collection of claims
against the Company (or any such other obligor). In particular, the Trustee
shall comply with the Trust Indenture Act Section 311(a), excluding any
creditor relationship listed in Trust Indenture Act Section 311(b). A Trustee
who has resigned or been removed shall be subject to Trust Indenture Act
Section 311(a) to the extent indicated therein.
ARTICLE VII
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
Section 7.1. Company to Furnish Trustee Names and Addresses of
Holders.
The Company will furnish or cause to be furnished to the Trustee:
(a) semiannually, not more than 10 days after each Regular
Record Date, a list, in such form as the Trustee may reasonably require, of
the names and addresses of the Holders as of such Regular Record Date; and
(b) at such other times as the Trustee may reasonably
request in writing, within 30 days after receipt by the Company of any such
request, a list of similar form and content to that in Subsection (a) hereof
as of a date not more than 15 days prior to the time such list is furnished;
provided, however, that if and so long as the Trustee shall be the Security
Registrar, no such list need be furnished.
Section 7.2. Disclosure of Names and Addresses of Holders.
Holders may communicate pursuant to Trust Indenture Act Section
312(b) with other Holders with respect to their rights under this Indenture or
the Securities, and the Trustee shall comply with Trust Indenture Act Section
312(b). The Company, the Trustee, the Registrar and any other Person shall
have the protection of Trust Indenture Act Section 312(c). Further, every
Holder of Securities, by receiving and holding the same, agrees with the
Company and the Trustee that neither the Company nor the Trustee nor any agent
of either of them shall be held accountable by reason of the disclosure of any
information as to the names and addresses of the Holders in accordance with
Trust Indenture Act Section 312, regardless of the source from which such
information was derived, and that the Trustee shall not be held accountable by
reason of mailing any material pursuant to a request made under Trust
Indenture Action Section 312.
Section 7.3. Reports by Trustee.
(a) Within 60 days after May 15 of each year commencing with the
first May 15 after the issuance of Securities, the Trustee, if so required
under the Trust Indenture Act shall transmit by mail to all Holders in the
manner and to the extent provided in Trust Indenture Act Section 313(c), a
brief report dated as of such May 15 in accordance with and with respect to
the matters required by Trust Indenture Act Section 313(a). The Trustee shall
also transmit by mail to the Holders, in the manner and to the extent provided
in Trust Indenture Act Section 313(c), a brief report in accordance with and
with respect to the matters required by Trust Indenture Act Section 313(b)(2).
(b) A copy of each report transmitted to Holders pursuant to
this Section 7.3 shall, at the time of such transmission, be mailed to the
Company and filed with each stock exchange, if any, upon which the Securities
are listed and also with the Commission.
Section 7.4. Reports by Company.
The Company shall:
(a) file with the Trustee, in accordance with Section 10.17
hereof, and in any event within 30 days after the Company is required to file
the same with the Commission, copies of the annual reports and of the
information, documents and other reports (or copies of such portions of any of
the foregoing as the Commission may from time to time by rules and regulations
prescribe) which the Company is required to file with the Commission pursuant
to Section 13 or Section 15(d) of the Exchange Act; or, if the Company is not
required to file information, documents or reports pursuant to either of said
Sections, then it shall (i) deliver to the Trustee annual audited financial
statements of the Company and its Subsidiaries, prepared on a consolidated
basis in conformity with GAAP, within 120 days after the end of each fiscal
year of the Company, and (ii) file with the Trustee and the Commission, in
accordance with, and so long as not prohibited by, the rules and regulations
prescribed from time to time by the Commission, such of the supplementary and
periodic information, documents and reports which may be required pursuant to
Section 13 of the Exchange Act in respect of a security listed and registered
on a national securities exchange as may be prescribed from time to time in
such rules and regulations;
(b) file with the Trustee and the Commission, in accordance
with the rules and regulations prescribed from time to time by the Commission,
such additional information, documents and reports with respect to compliance
by the Company with the conditions and covenants for this Indenture as is
required from time to time by such rules and regulations (including such
information, documents and reports referred to in Trust Indenture Act Section
314(a)); and
(c) within 30 days after the filing thereof with the
Trustee, transmit by mail to all Holders in the manner and to the extent
provided in Trust Indenture Act Section 313(c), such summaries of any
information, documents and reports required to be filed by the Company
pursuant to Section 10.18 hereunder and subsections (a) and (b) of this
Section as is required and not prohibited by rules and regulations prescribed
from time to time by the Commission.
ARTICLE VIII
CONSOLIDATION, MERGER, SALE OF ASSETS
Section 8.1. Company May Merge, Consolidate etc., Only on Certain
Terms.
The Company shall not, in a single transaction or a series of
related transactions, consolidate with or merge with or into any other Person
or sell, assign, convey, transfer, lease or otherwise dispose of all or
substantially all of its properties and assets to any Person or group of
affiliated Persons, or permit any of its Subsidiaries to enter into any such
transaction or transactions if such transaction or transactions, in the
aggregate, would result in a sale, assignment, conveyance, transfer, lease or
disposition of all or substantially all of the properties and assets of the
Company and its Subsidiaries on a Consolidated basis to any other Person or
group of affiliated Persons, unless: (i) either (a) the Company shall be the
continuing corporation or (b) the Person (if other than the Company) formed by
such consolidation or into which the Company is merged or the Person which
acquires by sale, assignment, conveyance, transfer, lease or disposition of
all or substantially all of the properties and assets of the Company and its
Subsidiaries on a Consolidated basis (the "Surviving Entity") shall be a
corporation duly organized and validly existing under the laws of the United
States of America, any state thereof or the District of Columbia and such
Person assumes by a supplemental indenture in a form reasonably satisfactory
to the Trustee all the obligations of the Company under the Securities and
this Indenture, and this Indenture shall remain in full force and effect; (ii)
immediately before and immediately after giving effect to such transaction, no
Default or Event of Default shall have occurred and be continuing; (iii)
immediately after giving effect to such transaction, the Consolidated Net
Worth of the Company (or the Surviving Entity if the Company is not the
continuing obligor under the Indenture) is equal to or greater than the
Consolidated Net Worth of the Company immediately prior to such transaction;
(iv) immediately before and immediately after giving effect to such
transaction on a pro forma basis (on the assumption that the transaction
occurred on the first day of the four-quarter period immediately prior to the
consummation of such transaction with the appropriate adjustments with respect
to the transaction being included in such pro forma calculation), the Company
(or the Surviving Entity if the Company is not the continuing obligor under
the Indenture) could incur $1.00 of additional Indebtedness under the
provisions of Section 10.8 (other than Permitted Indebtedness); and (v) the
Company shall have delivered, or caused to be delivered, to the Trustee, in
form and substance reasonably satisfactory to the Trustee, an Officers'
Certificate and an Opinion of counsel, each to the effect that such
consolidation, merger, transfer, lease or other transaction and the
supplemental indenture in respect thereto comply with the provisions described
in this Section 8.1 and that all conditions precedent herein provided for in
this Section 8.1 relating to such transaction have been complied with.
Notwithstanding any provision to the contrary contained in this Indenture,
including without limitation the agreements and restrictions contained in this
Article VIII and the agreements and covenants elsewhere contained herein, the
Company shall not be prevented, restricted or limited in any way from merging
with and into Haynes Holdings, Inc. ("Holdings").
Section 8.2. Successor Substituted.
Upon any consolidation or merger, or any sale, assignment,
conveyance, transfer, lease or disposition of all or substantially all of the
properties and assets on a Consolidated basis of the Company in accordance
with Section 8.1 with respect to which the Company is not the continuing
corporation, the successor Person formed by such consolidation or into which
the Company is merged or the successor Person to which such sale, assignment,
conveyance, transfer, lease or disposition is made shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under
this Indenture, with the same effect as if such successor had been named as
the Company herein. When a successor assumes all the obligations of its
predecessor under this Indenture or the Securities, the predecessor shall be
released from those obligations; provided that, in the case of a transfer by
lease, the predecessor shall not be released from the payment of principal and
interest on the Securities.
Any successor to the Company described in the foregoing paragraph
may cause to be signed, and may issue either in its own name or in the name of
the Company, any or all of the Securities issuable hereunder which theretofore
shall not have been signed by the Company and delivered to the Trustee; and,
upon the order of such successor, instead of the Company, and subject to the
terms, conditions and limitations in this Indenture prescribed, the Trustee
shall authenticate and shall delivered any Securities which previously shall
have been signed and delivered by the officers of the Company to the Trustee
for authentication, and any Securities which such successor thereafter shall
cause to be signed and delivered to the Trustee for that purpose. All the
Securities so issued shall in all respects have the same legal rank and
benefit under this Indenture as the Securities theretofore or thereafter
issued in accordance with the terms of this Indenture as though all of such
Securities had been issued at the date of the execution of this Indenture.
ARTICLE IX
SUPPLEMENTAL INDENTURES
Section 9.1. Supplemental Indentures and Agreements without Consent
of Holders.
Without the consent of any Holders, the Company and the Trustee, at
any time and from time to time, may enter into one or more indentures
supplemental hereto in form and substance reasonably satisfactory to the
Trustee, for any of the following purposes:
(a) to evidence the succession of another Person to the
Company and the assumption by any such successor of the covenants of the
Company herein and in the Securities;
(b) to add to the covenants of the Company for the benefit
of the Holders, or to surrender any right or power conferred upon the Company
in this Indenture or the Securities;
(c) to cure any ambiguity or to correct or supplement any
provision in this Indenture or the Securities which may be defective or
inconsistent with any other provision in this Indenture or the Securities;
(d) to comply with the requirements of the Commission in
order to effect or maintain the qualification of this Indenture under the
Trust Indenture Act, as contemplated by Section 9.5 or otherwise;
(e) to add a guarantor of the Indenture Obligations;
(f) to evidence and provide the acceptance of the
appointment of a successor Trustee hereunder;
(g) to mortgage, pledge, hypothecate or grant a security
interest in favor of the Trustee for the benefit of the Holders as additional
security, for the payment and performance of the Indenture Obligations, in any
property or assets, including any which are required to be mortgaged, pledged
or hypothecated, or in which a security interest is required to be granted, to
the Trustee pursuant to this Indenture or otherwise; and
(h) to clarify any other provisions with respect to matters
or questions arising under this Indenture or the Securities; provided that, in
each case, such clarification or provision thus made shall not adversely
affect the interests of the Holders.
Section 9.2. Supplemental Indentures and Agreements with Consent of
Holders.
Except as permitted by Section 9.1, with the consent of the Holders
of not less than a majority in aggregate principal amount of the Outstanding
Securities, by Act of said Holders delivered to the Company and the Trustee,
the Company and the Trustee may (i) enter into an indenture or indentures
supplemental hereto in form and substance reasonably satisfactory to the
Trustee, for the purpose of adding any provisions to or amending, modifying or
changing in any manner or eliminating any of the provisions of this Indenture
or the Securities (including, but not limited to, for the purpose of modifying
in any manner the rights of the Holders under this Indenture or the
Securities) or (ii) waive compliance with any provision in this Indenture or
the Securities (other than waivers of past Defaults covered by Section 5.13
and waivers of covenants which are covered by Section 10.19); provided,
however, that no such supplemental indenture, agreement or instrument shall,
without the consent of the Holder of each Outstanding Security affected
thereby:
(a) change the Stated Maturity of the principal of, or any
installment of interest on, any Security or waive a default in the payment of
the principal or interest on any Security or reduce the principal amount
thereof or the rate of interest thereon or any premium payable upon the
redemption thereof, or change the coin or currency in which the principal of
any Security or any premium or the interest thereon is payable, or impair the
right to institute suit for the enforcement of any such payment after the
Stated Maturity thereof;
(b) amend, change or modify the obligation of the Company
to make and consummate an offer in accordance with Section 10.12, including
amending, changing or modifying any of the provisions or definitions with
respect thereto;
(c) amend, change or modify the obligation of the Company
to make and consummate an offer in accordance with Section 10.13, including
amending, changing or modifying any of the provisions or definitions with
respect thereto;
(d) amend, change or modify the ability of the Company to
make and consummate an offer in accordance with Section 10.14, including
amending, changing or modifying any of the provisions or definitions with
respect thereto;
(e) reduce the percentage in principal amount of the
Outstanding Securities, the consent of whose Holders is required for any such
supplemental indenture or the consent of whose Holders is required for any
waiver of compliance with certain provisions of this Indenture or certain
Defaults hereunder and their consequences provided for in this Indenture;
(f) modify any of the provisions of this Section or Section
5.13 or 10.18, except to increase the percentage of Outstanding Securities
required for such actions or to provide that certain other provisions of this
Indenture cannot be modified or waived without the consent of the Holder of
each Security affected thereby;
(g) except as otherwise permitted under Article VIII,
consent to the assignment or transfer by the Company of any of its rights and
obligations under this Indenture; or
(h) amend or modify any of the provisions of this Indenture
in any manner which subordinates the Securities in right of payment to other
Indebtedness of the Company.
Upon the written request of the Company, accompanied by a copy of a
Board Resolution authorizing the execution of any such supplemental indenture,
and upon the filing with the Trustee of evidence of the consent of Holders as
aforesaid, the Trustee shall join with the Company in the execution of such
supplemental indenture.
It shall not be necessary for any Act of Holders under this Section
to approve the particular form of any proposed supplemental indenture, but it
shall be sufficient if such Act shall approve the substance thereof.
Section 9.3. Execution of Supplemental Indentures and Agreements.
In executing, or accepting the additional trusts created by, any
supplemental indenture, agreement or instrument permitted by this Article or
the modifications thereby of the trusts created by this Indenture, the Trustee
shall be entitled to receive, and (subject to Trust Indenture Act Section
315(a) through 315(d) and Section 6.3 hereof) shall be fully protected in
relying upon, an Opinion of Counsel and an Officers' Certificate to the effect
that the execution of such supplemental indenture, agreement or instrument is
authorized or permitted by this Indenture. The Trustee may, but shall not be
obligated to, enter into any such supplemental indenture, agreement or
instrument which affects the Trustee's own rights, duties or immunities under
this Indenture or otherwise.
Section 9.4. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, and such
supplemental indenture shall form a part of this Indenture for all purposes;
and every Holder of Securities theretofore or thereafter authenticated and
delivered hereunder shall be bound thereby.
Section 9.5. Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to this Article shall
conform to the requirements of the Trust Indenture Act as then in effect.
Section 9.6. Reference in Securities to Supplemental Indentures.
Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article IX may, and shall if required
by the Trustee, bear a notation in form approved by the Trustee as to any
matter provided for in such supplemental indenture. If the Company shall so
determine, new Securities modified so as to conform to any such supplemental
indenture, in the opinion of the Trustee and the Board of Directors, may be
prepared and executed by the Company and authenticated and delivered by the
Trustee in exchange for Outstanding Securities.
Section 9.7. Record Date.
If the Company shall solicit from the Holders any request, demand,
authorization, direction, notice, consent, waiver or other Act, the Company
may, but shall not be obligated to, fix a record date for the purpose of
determining the Holders entitled to consent to any supplemental indenture,
agreement or instrument or any waiver, and shall promptly notify the Trustee
of any such record date. If a record date is fixed, those Persons who were
Holders at such record date (or their duly designated proxies), and only those
Persons, shall be entitled to consent to such supplemental indenture,
agreement or instrument or waiver or to revoke any consent previously given,
whether or not such Persons continue to be Holders after such record date.
The record date shall be a date no more than 30 days prior to the first
solicitation of Holders generally in connection therewith and no later than
the date such solicitation is completed. No such consent shall be valid or
effective for more than six months after such record date. Subject to
applicable law, until any supplemental indenture, agreement, instrument or
waiver becomes effective, or a consent to it by a Holder of a Security shall
cease to be valid and effective as set forth in the preceding sentence, such
consent is a continuing consent by the Holder and every subsequent Holder of a
Security or portion of a Security that evidences the same debt as the
consenting Holder's Security.
ARTICLE X
COVENANTS
Section 10.1. Payment of Principal, Premium and Interest.
The Company will duly and punctually pay the principal of, premium,
if any, and interest on the Securities in accordance with the terms of the
Securities and this Indenture.
Section 10.2. Maintenance of Office or Agency.
The Company will maintain an office or agency where Securities may
be presented or surrendered for payment, where Securities may be surrendered
for registration of transfer or exchange and where notices and demands to or
upon the Company in respect of the Securities and this Indenture may be
served. The office of the Trustee at 101 West Washington Street, Suite 655
South, Indianapolis, Indiana 46255, shall be such office or agency of the
Company, unless the Company shall designate and maintain some other office or
agency for one or more of such purposes. The Company will give prompt written
notice to the Trustee of any change in the location of any such office or
agency. If at any time the Company shall fail to maintain any such required
office or agency or shall fail to furnish the Trustee with the address
thereof, such presentations, surrenders, notices and demands may be made or
served at the Corporate Trust Office, and the Company hereby appoints the
Trustee as its agent to receive all such presentations, surrenders, notices
and demands.
The Company may from time to time designate one or more other
offices or agencies where the Securities may be presented or surrendered for
any or all such purposes, and may from time to time rescind such designation.
The Company will give prompt written notice to the Trustee of any such
designation or rescission and any change in the location of any such office or
agency.
Section 10.3. Money for Security Payments to be Held in Trust.
The Company will, at least one Business Day prior to each due date
of the principal of, premium, if any, or interest on, any Securities, deposit
with a Paying Agent (which shall not be the Company) a sum in same day funds
sufficient to pay the principal, premium, if any, or interest so becoming due,
such sum to be held in trust for the benefit of the Persons entitled to such
principal, premium or interest, and (unless such Paying Agent is the Trustee)
the Company will promptly notify the Trustee of such action or any failure so
to act.
The Company will cause each Paying Agent other than the Trustee to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will:
(a) hold all sums held by it for the payment of the
principal of, premium, if any, or interest on Securities in trust for the
benefit of the Persons entitled thereto until such sums shall be paid to such
Persons or otherwise disposed of as herein provided;
(b) give the Trustee notice of any Default by the Company
(or any other obligor upon the Securities) in the making of any payment of
principal, premium, if any, or interest;
(c) at any time during the continuance of any such Default,
upon the written request of the Trustee, forthwith pay to the Trustee all sums
so held in trust by such Paying Agent and account for any funds disbursed; and
(d) acknowledge, accept and agree to comply in all aspects
with the provisions of this Indenture relating to the duties, rights and
disabilities of such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, by
Company Order direct any Paying Agent to pay to the Trustee all sums held in
trust by such Paying Agent, such sums to be held by the Trustee upon the same
trusts as those upon which such sums were held by such Paying Agent; and upon
such payment by any Paying Agent to the Trustee, such Paying Agent shall be
released from all further liability with respect to such money.
Any money deposited with the Trustee or any Paying Agent in trust
for the payment of the principal of, premium, if any, or interest on any
Security and remaining unclaimed for two years after such principal and
premium, if any, or interest has become due and payable shall promptly be paid
to the Company upon Company Request; and the Holders of such Security shall
thereafter, as an unsecured general creditor, look only to the Company for
payment thereof, and all liability of the Trustee or such Paying Agent with
respect to such trust money, and all liability of the Company as trustee
thereof, shall thereupon cease; provided, however, that the Trustee or such
Paying Agent, before being required to make any such payment to the Company,
may at the expense of the Company cause to be published once, in The New York
Times and The Wall Street Journal (national edition), notice that such money
remains unclaimed and that, after a date specified therein, which shall not be
less than 30 days from the date of such notification or publication, any
unclaimed balance of such money then remaining will promptly be repaid to the
Company.
Section 10.4. Corporate Existence.
Subject to Article VIII, the Company will do or cause to be done all
things necessary to preserve and keep in full force and effect its corporate
existence and related rights and franchises (charter and statutory) of the
Company and each Subsidiary; provided, however, that the Company shall not be
required to preserve any such right or franchise or the corporate existence of
any such Subsidiary if the Board of Directors of the Company shall determine
that the preservation thereof is no longer desirable in the conduct of the
business of the Company and its Subsidiaries as a whole and that the loss
thereof would not reasonably be expected to have a material adverse effect on
the ability of the Company to perform its obligations hereunder; and provided,
further, however, that the foregoing shall not prohibit a sale, transfer or
conveyance of a Subsidiary or any of its assets in compliance with the terms
of this Indenture.
Section 10.5. Payment of Taxes and Other Claims.
The Company will pay or discharge or cause to be paid or discharged,
on or before the date the same shall become due and payable, (a) all material
taxes, assessments and governmental charges levied or imposed upon the Company
or any Subsidiary shown to be due on any return of the Company or any
Subsidiary or otherwise assessed or upon the income, profits or property of
the Company or any Security and (b) all material lawful claims for labor,
materials and supplies, which, if unpaid, would by law become a Lien upon the
property of the Company or any Subsidiary, except for any Lien permitted to be
incurred under Section 10.11; provided, however, that the Company shall not be
required to pay or discharge or cause to be paid or discharged any such tax,
assessment, charge or claim whose amount, applicability or validity is being
contested in good faith by appropriate proceedings properly instituted and
diligently conducted and in respect of which appropriate reserves (in the good
faith judgment of management of the Company) are being maintained in
accordance with GAAP consistently applied.
Section 10.6. Maintenance of Properties.
The Company will cause all material properties owned by the Company
or any Subsidiary or used or held for use in the conduct of its business or
the business of any Subsidiary to be maintained and kept in good condition,
repair and working order (ordinary wear and tear excepted) and supplied with
all necessary equipment and will cause to be made all necessary repairs,
renewals, replacements, betterments and improvements thereof, all as in the
judgment of the Company may be consistent with sound business practice and
reasonably necessary so that the business carried on in connection therewith
may be properly conducted at all times; provided, however, that nothing in
this Section 10.6 shall prevent the Company from discontinuing the maintenance
of any of such properties if such discontinuance is, in the judgment of the
Company, desirable in the conduct of the business of the Company and its
Subsidiaries and not reasonably expected to have a material adverse effect on
the ability of the Company to perform its obligations hereunder.
Section 10.7. Insurance.
The Company will at all times keep all of its and its Subsidiaries'
properties which are of an insurable nature reasonably self-insured or insured
with insurers, believed by the Company to be responsible, against loss or
damage to the extent that property of similar character is usually so insured
by corporations similarly situated and owning like properties in the same
general geographic areas in which the Company and its Subsidiaries operate,
except where the failure to do so would not reasonably be expected to have a
material adverse effect on the condition (financial or otherwise), earnings or
business affairs of the Company and its Subsidiaries, taken as a whole.
Section 10.8. Limitation on Indebtedness.
(a) The Company will not, and will not permit any of its
Subsidiaries to, create, issue, assume, guarantee, or otherwise in any manner
become directly or indirectly liable for or with respect to or otherwise incur
(collectively, "incur") any Indebtedness, including any Acquired Indebtedness
(other than Permitted Indebtedness); provided, however, and subject to
paragraph (b) below in the case of Indebtedness of any Subsidiary, the Company
and its Subsidiaries will be permitted to incur Indebtedness if the
Consolidated Fixed Charge Coverage Ratio for the Company for the four full
fiscal quarters immediately preceding the incurrence of such Indebtedness
taken as one period (and after giving pro forma effect to (i) the incurrence
of such Indebtedness and (if applicable) the application of the net proceeds
therefrom, including to refinance other Indebtedness, as if such Indebtedness
was incurred, and the application of such proceeds occurred, at the beginning
of such four-quarter period; (ii) the incurrence, repayment or retirement of
any other Indebtedness by the Company and its Subsidiaries since the first day
of such four-quarter period as if such Indebtedness was incurred, repaid or
retired at the beginning of such four-quarter period (except that, in making
such computation, the amount of Indebtedness under any revolving credit
facility shall be computed based upon the average daily balance of such
Indebtedness during such four-quarter period); (iii) in the case of Acquired
Indebtedness, the related acquisition; and (iv) any acquisition or disposition
by the Company and its Subsidiaries of any company or any business or any
assets out of the ordinary course of business, or any related repayment of
Indebtedness, in each case since the first day of such four- quarter period,
assuming such acquisition or disposition and any such related prepayment had
been consummated on the first day of such four-quarter period) is at least
equal to 2.00 to 1.00 during the period from the date hereof to the second
anniversary of the date hereof, and 2.25 to 1.00 thereafter (each such ratio
defined herein as the "Applicable Coverage Ratio").
(b) The Company will not permit any of its Subsidiaries to incur
any Indebtedness other than Permitted Subsidiary Indebtedness.
Section 10.9. Limitation on Restricted Payments.
(a) The Company will not, and will not permit any Subsidiary to,
directly or indirectly:
(i) declare or pay any dividend on, or make any
distribution to holders of, any shares of the Company's Capital Stock (other
than dividends or distributions payable solely in shares of its Qualified
Capital Stock or in options, warrants or other rights to acquire such
Qualified Capital Stock;
(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 described under
Section 10.8; and (3) the aggregate amount of all such Restricted Payments
declared or made after the date of the Indenture does not exceed the sum of:
(A) 50% of the aggregate cumulative Consolidated Net Income
of the Company accrued on a cumulative basis during the period beginning on
the first day of the Company's fiscal quarter commencing prior to the date of
the Indenture and ending on the last day of the Company's last fiscal quarter
ending prior to the date of the Restricted Payment (or, if such aggregate
cumulative Consolidated Net Income shall be a loss, minus 100% of such loss);
plus
(B) the aggregate Net Cash Proceeds received after the date
of the Indenture by the Company as capital contributions to the Company (other
than from any of its Subsidiaries); plus
(C) the aggregate Net Cash Proceeds received after the date
of the Indenture by the Company from the issuance or sale (other than to any
of its Subsidiaries) of its shares of Qualified Capital Stock or any options,
warrants or rights to purchase such shares of Qualified Capital Stock of the
Company (except, in each case, to the extent such proceeds are used to
purchase, redeem or otherwise retire Capital Stock or Pari Passu or
Subordinated Indebtedness as set forth below); plus
(D) the aggregate Net Cash Proceeds received after the date
of the Indenture by the Company (other than from any of its Subsidiaries) upon
the exercise of any options or warrants to purchase shares of Qualified
Capital Stock of the Company; plus
(E) the aggregate Net Cash Proceeds received after the date
of the Indenture by the Company from debt securities or Redeemable Capital
Stock that have been converted into or exchanged for Qualified Capital Stock
of the Company, to the extent such debt securities or Redeemable Capital Stock
are originally sold for cash, plus the aggregate Net Cash Proceeds received by
the Company at the time of such conversion or exchange.
(b) Notwithstanding the foregoing, and in the case of clauses
(ii), (iii) and (iv) below, as long as no Default shall have occurred and be
continuing, the foregoing provisions shall not prohibit:
(i) the payment of any dividend within 60 days after the
date of declaration thereof, if at such date of declaration such payment would
be permitted by the provisions of paragraph (a) of this Section or paragraph
(vi) below and such payment shall be deemed to have been paid on such date of
declaration for purposes of the calculation required by paragraph (a) of this
Section;
(ii) the repurchase, redemption, or other acquisition or
retirement of any shares of any class of Capital Stock of the Company in
exchange for (including any such exchange pursuant to the exercise of a
conversion right or privilege in connection with which cash is paid in lieu of
the issuance of fractional shares or scrip), or out of the Net Cash Proceeds
of, a substantially concurrent issuance and sale for cash (other than to a
Subsidiary) of other shares of Qualified Capital Stock of the Company;
provided that the Net Cash Proceeds from the issuance of such shares of
Qualified Capital Stock are excluded from the calculation pursuant to clause
(3)(C) of paragraph (a) of this Section;
(iii) any repurchase, redemption, defeasance, retirement or
acquisition for value or payment of principal of any Subordinated Indebtedness
in exchange for, or out of the net proceeds of, a substantially concurrent
issuance and sale for cash (other than to any Subsidiary of the Company) of
any Qualified Capital Stock of the Company provided that the Net Cash Proceeds
from the issuance of such shares of Qualified Capital Stock are excluded from
clause (3)(C) of paragraph (a) of this Section;
(iv) the repurchase, redemption, defeasance, retirement,
refinancing, acquisition for value or payment of principal of any Subordinated
Indebtedness (other than Redeemable Capital Stock) (a "refinancing") through
the issuance of new Subordinated Indebtedness provided that any such new
Subordinated Indebtedness (1) shall be in a principal amount that does not
exceed the principal amount so refinanced (or, if such Subordinated
Indebtedness provides for an amount less than the principal amount thereof to
be due and payable upon a declaration or acceleration thereof, then such
lesser amount as of the date of determination), plus the lesser of (I) the
stated amount of any premium or other payment required to be paid in
connection with such a refinancing pursuant to the terms of the Subordinated
Indebtedness being refinanced or (II) the amount of premium or other payment
actually paid at such time to refinance the Subordinated Indebtedness, plus,
in either case, the amount of expenses of the Company incurred in connection
with such refinancing; (2) has an Average Life to Stated Maturity greater than
the remaining Average Life to Stated Maturity of the Securities; (3) has a
Stated Maturity for its final scheduled principal payment later than the
Stated Maturity for the final scheduled principal payment of the Securities;
and (4) is expressly subordinated in right of payment to the Securities at
least to the same extent as the Subordinated Indebtedness to be refinanced;
(v) the redemption by the Company of its 13 % Senior
Subordinated Notes due 1999 within 45 days after the date of the Indenture;
(vi) the declaration and payment of dividends on the
Capital Stock of the Company 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 such Capital Stock; and
(vii) distributions to Holdings to enable Holdings to
repurchase Capital Stock or options to purchase Capital Stock of Holdings from
current or former directors, officers and employees (or their respective
estates and beneficiaries) pursuant to put rights held by them as a result of
death, disability, retirement or termination of employment (including, without
limitation, any interest and other expenses related thereto) up to an amount
not to exceed an aggregate of $500,000 in any fiscal year of the Company.
Section 10.10. Limitation on Transactions with Affiliates.
The Company will not, and will not permit any of its Subsidiaries
to, directly or indirectly, enter into or suffer to exist any transaction or
series of related transactions (including, without limitation, the sale,
purchase, exchange or lease of assets, property or services) with any
Affiliate of the Company (other than the Company or a Wholly-Owned Subsidiary)
unless (i) such transaction or series of transactions is in writing on terms
that are no less favorable to the Company or such Subsidiary, as the case may
be, than would be available in a comparable transaction in arm's-length
dealings with an unrelated third party and (ii) with respect to any
transaction or series of transactions involving aggregate payments or value in
excess of $1,000,000, the Company delivers an Officers' Certificate to the
Trustee certifying that such transaction or series of related transactions
complies with clause (i) above and such transaction or series of related
transactions has been approved by a majority of the Disinterested Directors of
the Board of Directors of the Company. In addition to the foregoing, with
respect to a transaction or series of related transactions involving aggregate
payments or value equal to or greater than $2.5 million, the Company must
deliver to the Trustee a written opinion from an Independent Financial Advisor
stating that such transaction or series of transactions are fair from a
financial point of view. This covenant will not restrict the Company from (a)
redeeming or paying dividends in respect of its Capital Stock permitted under
Section 10.9 hereunder, (b) making loans or advances to officers of the
Company for bona fide business purposes of the Company not in excess of $1.0
million in the aggregate at any one time outstanding, and (c) paying advisory
and transaction fees to MLGA in amounts that are in accordance with past
practices and in the ordinary course of business for the rendering of
financial advice and services in connection with acquisitions, dispositions,
and financings by the Company.
Section 10.11. Limitation on Liens.
The Company will not, and will not permit any Subsidiary to,
directly or indirectly, create, incur, affirm or suffer to exist any Lien of
any kind upon any of its property or assets (including any intercompany
notes), now owned or acquired after the date of this Indenture, or any income
or profits therefrom, except if the Securities are directly secured equally
and ratably with (or prior to in the case of Liens with respect to
Subordinated Indebtedness) the obligation or liability secured by such Lien,
excluding, however, from the operation of the foregoing any of the following:
(a) any Lien existing as of the date of this Indenture;
(b) any Lien arising by reason of (1) any judgment, decree
or order of any court, so long as such Lien is adequately bonded and any
appropriate legal proceedings which may have been duly initiated for the
review of such judgment, decree or order shall not have been finally
terminated or the period within which such proceedings may be initiated shall
not have expired; (2) taxes not yet delinquent or which are being contested in
good faith; (3) security for payment of workers' compensation or other
insurance; (4) good faith deposits in connection with tenders, leases,
contracts (other than contracts for the payment of money); (5) zoning
restrictions, easements, licenses, reservations, title defects, rights of
others for rights of way, utilities, sewers, electric lines, telephone or
telegraph lines, and other similar purposes, provisions, covenants,
conditions, waivers, restrictions on the use of property or minor
irregularities of title (and with respect to leasehold interests, mortgages,
obligations, liens and other encumbrances incurred, created, assumed or
permitted to exist and arising by, through or under a landlord or owner of the
leased property, with or without consent of the lessee), none of which
materially impairs the use of any parcel of property material to the operation
of the business of the Company or any Subsidiary or the value of such property
for the purpose of such business; (6) deposits to secure public or statutory
obligations, or in lieu of surety or appeal bonds, or (7) operation of law in
favor of mechanics, materialmen, laborers, employees or suppliers, incurred in
the ordinary course of business for sums which are not yet delinquent or are
being contested in good faith by negotiations or by appropriate proceedings
which suspend the collection thereof;
(c) any Lien on property of the Company or any Subsidiary
securing the New Credit Facility;
(d) any Lien securing Acquired Indebtedness created prior
to (and not created in connection with, or in contemplation of) the incurrence
of such Indebtedness by the Company or any Subsidiary;
(e) any Lien to secure the performance of bids, trade
contracts, leases (including, without limitation, statutory and common law
landlord's liens), statutory obligations, surety and appeal bonds, letters of
credit and other obligations of a like nature and incurred in the ordinary
course of business of the Company or any Subsidiary;
(f) any Lien securing Indebtedness permitted to be incurred
pursuant to clause (vi) of the definition of "Permitted Indebtedness" and
which is not prohibited to be incurred under Section 10.8;
(g) any Lien securing obligations under hedging agreements
that the Company enters into in the ordinary course of business for the
purpose of protecting its production against fluctuations in commodity prices;
(h) any Lien securing Indebtedness permitted to be incurred
under Interest Rate Agreements or otherwise incurred to hedge interest rate
risk;
(i) any extension, renewal, refinancing or replacement, in
whole or in part, of any Lien described in the foregoing clauses (a) through
(h) so long as no additional collateral is granted as security thereby.
Section 10.12. Limitation on Sale of Assets.
(a) The Company will not, and will not permit any of its
Subsidiaries to, directly or indirectly, consummate an Asset Sale unless (i)
at least 85% of the proceeds from such Asset Sale are received in cash and
(ii) the Company or such Subsidiary receives consideration at the time of such
Asset Sale at least equal to the Fair Market Value of the shares or assets
sold (as determined by the Board of Directors of the Company and evidenced in
a board resolution).
(b) If all or a portion of the Net Cash Proceeds of any Asset
Sale are not required to be applied to repay permanently any Indebtedness
under the New Credit Facility then outstanding, the Company determines not to
apply such Net Cash Proceeds to the permanent prepayment of such Indebtedness
under the New Credit Facility or if no such Indebtedness under the New Credit
Facility is then outstanding, then the Company may within 6 months of the
Asset Sale, invest the Net Cash Proceeds in properties and assets that (as
determined by the Board of Directors) replace the properties and assets that
were the subject of the Asset Sale or in properties and assets that will be
used in the businesses of the Company or its Subsidiaries existing on the date
of the Indenture or reasonably related thereto. The amount of such Net Cash
Proceeds neither used to permanently repay or prepay Indebtedness under the
New Credit Facility nor used or invested as set forth in this paragraph
constitutes "Excess Proceeds."
(c) When the aggregate amount of Excess Proceeds equals $5.0
million or more, the Company shall within 20 business days apply the Excess
Proceeds to the repayment of the Securities and any Pari Passu Indebtedness
required to be repurchased under the instrument governing such Pari Passu
Indebtedness as follows: (a) the Company shall make an offer to purchase (an
"Offer") from all holders of the Securities in accordance with the procedures
set forth in this Indenture the maximum principal amount (expressed as a
multiple of $1,000) of Securities that may be purchased out of an amount (the
"Security Amount") equal to the product of such Excess Proceeds multiplied by
a fraction, the numerator of which is the outstanding principal amount of the
Securities, and the denominator of which is the sum of the outstanding
principal amount of the Securities and such Pari Passu Indebtedness (subject
to proration in the event such amount is less than the aggregate Offered Price
(as defined herein) of all Securities tendered) and (b) to the extent required
by such Pari Passu Indebtedness to reduce permanently the principal amount of
such Pari Passu Indebtedness, the Company shall make an offer to purchase or
otherwise repurchase or redeem Pari Passu Indebtedness (a "Pari Passu Offer")
in an amount (the "Pari Passu Debt Amount") equal to the excess of the Excess
Proceeds over the Security Amount; provided that in no event shall the Pari
Passu Debt Amount exceed the principal amount of such Pari Passu Indebtedness
plus the amount of any premium required to be paid to repurchase such Pari
Passu Indebtedness. The offer price shall be payable in cash in an amount
equal to 100% of the principal amount of the Securities plus accrued and
unpaid interest, if any, to the date (the "Offer Date") such Offer is
consummated (the "Offered Price"), in accordance with the procedures set forth
in this Indenture. To the extent that the aggregate Offered Price of the
Securities tendered pursuant to the Offer is less than the Security Amount
relating thereto or the aggregate amount of Pari Passu Indebtedness that is
purchased is less than the Pari Passu Debt Amount (the amount of such
shortfall, if any, constituting a "Deficiency"), the Company shall use such
Deficiency in the business of the Company and its Subsidiaries. Upon
completion of the purchase of all the Securities tendered pursuant to an Offer
and repurchase of the Pari Passu Indebtedness pursuant to a Pari Passu Offer,
the amount of Excess Proceeds, if any, shall be reset at zero.
(d) Whenever the Excess Proceeds received by the Company exceed
$5.0 million, such Excess Proceeds shall, prior to the purchase of Securities
or any Pari Passu Indebtedness described in paragraph (c) above, be set aside
by the Company in a separate account pending (i) deposit with the depository
or a paying agent of the amount required to purchase the Securities or Pari
Passu Indebtedness tendered in an Offer or a Pari Passu Offer, (ii) delivery
by the Company of the Offered Price to the holders of the Securities or Pari
Passu Indebtedness tendered in an Offer or a Pari Passu Offer and (iii)
application, as set forth above, of Excess Proceeds in the business of the
Company and its Subsidiaries. Such Excess Proceeds may be invested in
Temporary Cash Investments, provided that the maturity date of any such
investment made after the amount of Excess Proceeds exceeds $5.0 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 Securities shall be purchased by the Company, at the
option of the holders thereof, in whole or in part in integral multiples of
$1,000, on a date that is not earlier than 45 days and not later than 60 days
from the date the notice is given to holders, or such later date as may be
necessary for the Company to comply with the requirements under the Exchange
Act, subject to proration in the event that the Security Amount is less than
the aggregate Offered Price of all Securities tendered.
(f) The Company shall comply with the applicable tender offer
rules, including Rule 14e-1 under the Exchange Act, and any other applicable
securities laws or regulations in connection with an Offer.
(g) The Company will not, and will not permit any Subsidiary to,
create or permit to exist or become effective any restriction (other than
restrictions existing under Indebtedness as in effect on the date of the
Indenture as such Indebtedness may be refinanced from time to time) that would
materially impair the ability of the Company to make an Offer to purchase the
Securities or, if such Offer is made, to pay for the Securities tendered for
purchase.
(h) Within 20 business days after the date on which the amount
of Excess Proceeds equals or exceeds $5.0 million the Company shall send by
first-class mail, post prepaid, to the Trustee and to each Holder of the
Securities, at such Holder's address appearing in the Security Register, a
notice stating or including:
(A) that the Holder has the right to require the Company to
repurchase, subject to proration, part or all of such Holder's Securities at
the Offered Price;
(B) the Offer Date;
(C) the instructions a Holder must follow in order to have
its Securities purchased in accordance with paragraph (c) of this Section; and
(D) (i) the most recently filed Annual Report on Form 10-K
(including audited consolidated financial statements) of the Company, the most
recent subsequently filed Quarterly Report on Form 10-Q, as applicable, and
any Current Report on Form 8-K of the Company filed subsequent to such
Quarterly Report, other than Current Reports describing Asset Sales otherwise
described in the offering materials (or corresponding successor reports) (or
in the event the Company is not required to prepare any of the foregoing
Forms, the comparable information required pursuant to Section 10.17), (ii) a
description of material developments in the Company's business subsequent to
the date of the latest of such Reports, (iii) if material, appropriate pro
forma financial information, and (iv) such other information, if any,
concerning the business of the Company and its Subsidiaries which the Company
in good faith believes will enable such Holders to make an informed investment
decision regarding the Offer;
(E) the Offered Price;
(F) the names and addresses of the Paying Agent and the
offices or agencies referred to in Section 10.2;
(G) that Securities must be surrendered at least three
Business Days prior to the Purchase Date to the Paying Agent or to an office
or agency referred to in Section 10.2 to collect payment;
(H) that any Securities not tendered will continue to
accrue interest and that unless the Company defaults in the payment of the
Offered Price, any Security accepted for payment pursuant to the Offer shall
cease to accrue interest on and after the Offer Date; and
(I) the procedures for withdrawing a tender.
(i) Holders electing to have Securities purchased hereunder will
be required to surrender such Securities at the address specified in the
notice at least three Business Days prior to the Offer Date. Holders will be
entitled to withdraw their election to have their Securities purchased
pursuant to this Section 10.12 if the Company receives, not later than three
Business Days prior to the Offer Date, a telegram, telex, facsimile
transmission or letter setting forth (1) the name of the Holder, (2) the
certificate number of the Security in respect of which such notice of
withdrawal is being submitted, (3) the principal amount of the Security (which
shall be $1,000 or an integral multiple thereof) delivered for purchase by the
Holder as to which his election is to be withdrawn, (4) a statement that such
Holder is withdrawing such Holder's election to have such principal amount of
such Security purchased, and (5) the principal amount, if any, of such
Security (which shall be $1,000 or an integral multiple thereof) that remains
subject to the original notice of the Offer and that has been or will be
delivered for purchase by the Company.
(j) The Company shall (i) not later than the Offer Date, accept
for payment Securities or portions thereof tendered pursuant to the Offer,
(ii) not later than 10:00 a.m. (New York time) on the Offer Date, deposit with
the Trustee or with a Paying Agent an amount of money in same day funds (or
New York Clearing House funds if such deposit is made prior to the Offer Date)
the lesser of the Security Amount and an amount sufficient to pay the
aggregate Offered Price of all the Securities or portions thereof which are to
be purchased on that date and (iii) not later than 10:00 a.m. (New York Time)
on the Offer Date, deliver to the Paying Agent an Officers' Certificate
stating the Securities or portions thereof accepted for payment by the
Company.
The Trustee and the Paying Agent shall return to the Company any
cash that remains unclaimed after the Business Day following the Offer Date,
together with interest, if any, thereon, held by them for the payment of the
Offered Price; provided, however, that, (x) to the extent that the aggregate
amount of cash deposited by the Company with the Trustee in respect of an
Offer exceeds the aggregate Offered Price of the Securities or portions
thereof to be purchased, then the Trustee shall hold such excess for the
Company and (y) unless otherwise directed by the Company in writing, promptly
after the Business Day following the Offer Date the Trustee shall return any
such excess to the Company together with interest or dividends, if any,
thereon.
(k) Securities to be purchased shall, on the Offer Date, become
due and payable at the Offered Price and from and after such date (unless the
Company shall default in the payment of the Offered Price) such Securities
shall cease to bear interest. The Offered Price shall be paid to such Holder
promptly following the later of the Offer Date and the time of delivery of
such Security to the relevant Paying Agent at the office of such Paying Agent
by the Holder thereof in the manner required. Upon surrender of any such
Security for purchase in accordance with the foregoing provisions, such
Security shall be paid by the Company at the Offered Price; provided, however,
that installments of interest whose Stated Maturity is on or prior to the
Offer Date shall be payable to the Holders of such Securities, or one or more
Predecessor Securities, registered as such on the relevant Regular Record
Dates according to the terms and the provisions of Section 3.7; provided,
further, that Securities to be purchased are subject to proration in the event
the Security Amount is less than the aggregate Offered Price of all Securities
tendered for purchase, with such adjustments as may be appropriate by the
Trustee so that only Securities in denominations of $1,000 or integral
multiples thereof shall be purchased. If any Security tendered for purchase
in accordance with the terms of this Section shall not be so paid upon
surrender thereof by deposit of funds with the Trustee or a Paying Agent in
accordance with paragraph (j) above, the principal thereof (and premium, if
any, thereon) shall, until paid, bear interest from the Offer Date at the rate
borne by such Security. Any Security that is to be purchased only in part
shall be surrendered to a Paying Agent in accordance with the terms of this
Section at the office of such Paying Agent (with, if the Company or the
Trustee so requires, due endorsement by, or a written instrument of transfer
in form satisfactory to the Company and the Trustee duly executed by, the
Holder thereof or such Holder's attorney duly authorized in writing), and the
Company shall execute and the trustee shall authenticate and deliver to the
Holder of such Security, without service charge, one or more new Securities of
any authorized denomination as requested by such Holder in an aggregate
principal amount equal to, and in exchange for, the portion of the principal
amount of the Security so surrendered that is not purchased.
Section 10.13. Purchase of Securities upon a Change of Control.
(a) If a Change of Control shall occur at any time, then each
Holder shall have the right to require that the Company purchase such Holder's
Securities, pursuant to an offer described in subsection (b) of this Section
(a "Change of Control Offer"), in whole or in part in integral multiples of
$1,000, at a purchase price (the "Change of Control Purchase Price") in cash
in an amount equal to 101% of the principal amount of such Securities, plus
accrued and unpaid interest, if any, to the date of purchase (the "Change of
Control Purchase Date"), in accordance with the procedures set forth in
paragraphs (b), (c), (d) and (e) of this Section.
(b) Within 30 days following any Change of Control, the Company
shall notify the Trustee thereof and give written notice (a "Change of Control
Purchase Notice") of such Change of Control to each Holder by first-class
mail, postage prepaid, to the Trustee and to each Holder, at his address
appearing in the Security Register stating or including:
(A) that a Change of Control has occurred, the date of such
event, and that such Holder has the right to require the Company to repurchase
such Holder's Securities at the Change of Control Purchase Price;
(B) the circumstances and relevant facts regarding such
Change of Control (including but not limited to information with respect to
pro forma historical income, cash flow and capitalization after giving effect
to such Change of Control, if any);
(C) that the Change of Control Offer is being made pursuant
to Section 10.13(a) and that all Securities properly tendered pursuant to the
Change of Control Offer will be accepted for payment at the Change of Control
Offer Purchase Price;
(D) the Change of Control Purchase Date which shall be a
Business Day no earlier than 30 days nor later than 60 days from the date such
notice is mailed or such later date as may be necessary for the Company to
comply with the requirements under the Exchange Act;
(E) (i) the most recently filed Annual Report on Form 10-K
(including audited consolidated financial statements) of the Company, the most
recent subsequently filed Quarterly Report on Form 10-Q, as applicable, and
any Current Report on Form 8-K of the Company filed subsequent to such
Quarterly Report (or in the event the Company is not required to prepare any
of the foregoing Forms, the comparable information required to be prepared by
the Company pursuant to Section 10.17), (ii) a description of material
developments in the Company's business subsequent to the date of the latest of
such reports and (iii) such other information, if any, concerning the business
of the Company and its Subsidiaries which the Company in good faith believes
will enable such Holders to make an informed investment decision regarding the
Change of Control Offer;
(F) the Change of Control Purchase Price;
(G) the names and addresses of the Paying Agent and the
offices or agencies referred to in Section 10.2;
(H) that Securities must be surrendered at least three
Business Days prior to the Change of Control Purchase Date to the Paying Agent
at the office of the Paying Agent or to an office or agency referred to in
Section 10.2 to collect payment;
(I) that the Change of Control Purchase Price for any
Security which has been properly tendered and not withdrawn will be paid
promptly following the Change of Control Purchase Date;
(J) the procedures for withdrawing a tender of Securities
and Change of Control Purchase Notice;
(K) that any Security not tendered will continue to accrue
interest; and
(L) that, unless the Company defaults in the payment of the
Change of Control Purchase Price, any Security accepted for payment pursuant
to the Change of Control Offer shall cease to accrue interest on and after the
Change of Control Purchase Date.
(c) Upon receipt by the Company of the proper tender of
Securities, each Holder of a Security in respect of which such proper tender
was made shall (unless the tender of such Security is properly withdrawn)
thereafter be entitled to receive solely the Change of Control Purchase Price
with respect to such Security. Upon surrender of any such Security for
purchase in accordance with the foregoing provisions, such Security shall be
paid by the Company at the Change of Control Purchase Price; provided,
however, that installments of interest whose Stated Maturity is on or prior to
the Change of Control Purchase Date shall be payable to the Holders of such
Securities, or one or more Predecessor Securities, registered as such on the
relevant Regular Record Dates according to the terms and the provisions of
Section 3.7. If any Security tendered for purchase in accordance with the
provisions of this Section shall not be so paid upon surrender thereof by
deposit of funds with the Paying Agent in accordance with paragraph (d) below,
the principal thereof (and premium, if any, thereon) shall, until paid, bear
interest from the Change of Control Purchase Date at the rate borne by such
Security. Holders electing to have Securities purchased will be required to
surrender such Securities to the Paying Agent at the address specified in the
notice at least three Business Days prior to the Change of Control Purchase
Date. Any Security that is to be purchased only in part shall be surrendered
to a Paying Agent in accordance with the provisions of this Section at the
office of such Paying Agent (with, if the Company or the Trustee so requires,
due endorsement by, or a written instrument of transfer in form satisfactory
to the Company and the Trustee duly executed by, the Holder thereof or such
Holder's attorney duly authorized in writing), and the Company shall execute
and the Trustee shall authenticate and deliver to the Holder of such Security,
without service charge, one or more new Securities of any authorized
denomination as requested by such Holder in an aggregate principal amount
equal to, and in exchange for, the portion of the principal amount of the
Security so surrendered that is not purchased.
(d) The Company shall (i) not later than the Change of Control
Purchase Date, accept for payment Securities or portions thereof tendered
pursuant to the Change of Control Offer, (ii) not later than 10:00 a.m. (New
York time) on the Change of Control Purchase Date, deposit with Paying Agent
an amount of cash sufficient to pay the aggregate Change of Control Purchase
Price of all the Securities or portions thereof which are to be purchased as
of the Change of Control Purchase Date and (iii) not later than 10:00 a.m.
(New York time) on the Change of Control Purchase Date, deliver to the Paying
Agent an Officers' Certificate stating the Securities or portions thereof
accepted for payment by the Company. The Paying Agent shall promptly mail or
deliver to Holders of Securities so accepted payment in an amount equal to the
Change of Control Purchase Price of the Securities purchased from each such
Holder. Any Securities not so accepted shall be promptly mailed or delivered
by the Paying Agent at the Company's expense to the Holder thereof. The
Company will publicly announce the results of the Change of Control Offer on
the Change of Control Purchase Date. For purposes of this Section 10.13 the
Company shall choose a Paying Agent which shall not be the Company.
(e) A tender made in response to a Change of Control Purchase
Notice may be withdrawn before or after delivery by the Holder to the Paying
Agent at the office of the Paying Agent of the Security to which such Change
of Control Purchase Notice relates, by means of a written notice of withdrawal
delivered by the Holder to the Paying Agent at the office of the Paying Agent
or to the office or agency referred to in Section 10.2 to which the related
Change of Control Purchase Notice was delivered not later than three Business
Days prior to the Change of Control Purchase Date specifying, as applicable:
(1) the name of the Holder;
(2) the certificate number of the Security in respect of
which such notice of withdrawal is being submitted;
(3) the principal amount of the Security (which shall be
$1,000 or an integral multiple thereof) delivered for purchase by the Holder
as to which such notice of withdrawal is being submitted;
(4) a statement that such Holder is withdrawing such
Holder's election to have such principal amount of such Security purchased;
and
(5) the principal amount, if any, of such Security (which
shall be $1,000 or an integral multiple thereof) that remains subject to the
original Change of Control Purchase Notice and that has been or will be
delivered for purchase by the Company.
(f) The Trustee and the Paying Agent shall return to the Company
any cash that remains unclaimed, together with interest or dividends, if any,
thereon, held by them for the payment of the Change of Control Purchase Price;
provided, however, that (x) to the extent that the aggregate amount of cash
deposited by the Company pursuant to clause (ii) of paragraph (d) above
exceeds the aggregate Change of Control Purchase Price of the Securities or
portions thereof to be purchased, then the Trustee shall hold such excess for
the Company and (y) unless otherwise directed by the Company in writing,
promptly after the Business Day following the Change of Control Purchase Date,
the Trustee shall return any such excess to the Company together with
interest, if any, thereon.
(g) The Company shall comply with the applicable tender offer
rules, including Rule 14e-1 under the Exchange Act, and any other applicable
securities laws or regulations in connection with a Change of Control Offer.
(h) Notwithstanding the occurrence of a Change of Control, the
Company shall not be obligated to repurchase the Securities pursuant to a
Change of Control Offer, or otherwise comply with this Section 10.13, if the
Company has elected to redeem all of the Securities in accordance with Article
XI.
Section 10.14. Optional Redemption Upon Change of Control.
The Securities will be redeemable, at the option of the Company, in
whole or in part at any time within 180 days after a Change of Control upon
not less than 30 nor more than 60 days' prior notice to each holder of the
Securities to be redeemed, at a redemption price equal to the sum of (i) the
then outstanding principal amount thereof plus (ii) accrued and unpaid
interest, if any, to the redemption date plus (iii) the Applicable Premium.
Any optional redemption by the Company upon a Change of Control shall be
effected in accordance with the redemption procedures set forth in Article XI
hereof.
"Applicable Premium" with respect to the Securities is defined as
the greater of (i) 1.0% of the then outstanding principal amount of such
Securities and (ii) the excess of (A) the present value of the required
interest and principal payments due on such Securities, computed using a
discount rate equal to the Treasury Rate plus the Applicable Spread, over (B)
the then outstanding principal amount of such Securities.
"Applicable Spread" is defined as 75 basis points.
"Treasury Rate" is defined as the yield to maturity at the time of
computation of United States Treasury securities with a constant maturity (as
compiled by and published in the most recent Federal Reserve Statistical
Release H.15(519) which has become publicly available at least two business
days prior to the date fixed for prepayment (or, if such Statistical Release
is no longer published, any publicly available source of similar market data))
most nearly equal to the then remaining Average Life of the Securities;
provided, that if the Average Life of the Securities is not equal to the
constant maturity of a United States Treasury security for which a weekly
average yield is given, the Treasury Rate shall be obtained by linear
interpolation (calculated to the nearest one-twelfth of a year) from the
weekly average yields of United States Treasury securities for which such
yields are given, except that if the Average Life of the Securities is less
than one year, the weekly average yield on actually traded United States
Treasury securities adjusted to a constant maturity of one year shall be used.
Section 10.15. Limitation on Issuance and Sale of Preferred Stock
of Subsidiaries.
The Company will not permit (a) any Subsidiary of the Company to
issue any Preferred Stock (other than to the Company or any Wholly-Owned
Subsidiary) or (b) any Person (other than the Company or any Wholly-Owned
Subsidiary) to own any Preferred Stock of any Subsidiary.
Section 10.16. Limitation on Dividends and Other Payment
Restrictions Affecting Subsidiaries.
The Company will not, and will not permit any of its Subsidiaries
to, directly or indirectly, create or otherwise cause or suffer to exist or
become effective any encumbrance or restriction on the ability of any
Subsidiary of the Company to (i) pay dividends, in cash or otherwise, or make
any other distribution on its Capital Stock, (ii) pay any Indebtedness owed to
the Company or a Subsidiary of the Company, (iii) make any Investment in the
Company or a Subsidiary of the Company or (iv) transfer any of its properties
or assets to the Company or any Subsidiary, except (a) any encumbrance or
restriction pursuant to an agreement in effect on the date of the Indenture
and listed on Schedule I hereto; (b) any encumbrance or restriction, with
respect to a Subsidiary that is not a Subsidiary of the Company on the date of
the Indenture, in existence at the time such Person becomes a Subsidiary of
the Company and, in the case of clauses (a) and (b), not incurred in
connection with, or in contemplation of, such Person becoming a Subsidiary;
and (c) any encumbrance or restriction existing under any agreement that
extends, renews, refinances or replaces the agreements containing the
encumbrances or restrictions in the foregoing clauses (a) and (b), or in this
clause (c); provided that the terms and conditions of any such encumbrances or
restrictions are not materially less favorable to the holders of the
Securities than those under or pursuant to the agreement evidencing the
Indebtedness so extended, renewed, refinanced or replaced.
Section 10.17. Provision of Financial Statements.
Whether or not the Company is subject to Section 13(a) or 15(d) of
the Exchange Act, the Company will, to the extent permitted under the Exchange
Act, file with the Commission the annual reports, quarterly reports and other
documents which the Company would have been required to file with the
Commission pursuant to such Section 13(a) or 15(d) if the Company were so
subject, such documents to be filed with the Commission on or prior to the
respective dates (the "Required Filing Dates") by which the Company would have
been required so to file such documents if the Company were so subject. The
Company will also in any event (x) within 15 days of each Required Filing Date
(i) transmit by mail to all Holders, as their names and addresses appear in
the Security Register, without cost to such Holders and (ii) file with the
Trustee copies of the annual reports, quarterly reports and other documents
which the Company would have been required to file with the Commission
pursuant to Section 13(a) or 15(d) of the Exchange Act if the Company were
subject to such Sections and (y) if filing such documents by the Company with
the Commission is not permitted under the Exchange Act, promptly upon written
request and payment of the reasonable cost of duplication and delivery, supply
copies of such documents to any prospective holder of Securities.
Section 10.18. Statement by Officers as to Default.
(a) The Company will deliver to the Trustee, on or before a date
not more than 45 days after the end of each fiscal quarter and not more than
90 days after the end of each fiscal year of the Company ending after the date
hereof, a written statement signed by two executive officers of the Company,
one of whom shall be the principal executive officer, principal financial
offer or principal accounting officer of the Company, stating whether or not,
after a review of the activities of the Company during such year or such
quarter and of the Company's performance under this Indenture, to the best
knowledge, based on such review, of the signers thereof, the Company has
fulfilled all its obligations and is in compliance with all conditions and
covenants under this Indenture throughout such year or quarter, as the case
may be, and, if there has been a Default, specifying each Default and the
nature and status thereof.
(b) When any Default or Event of Default has occurred and is
continuing, or if the Trustee or any Holder or the trustee for or the holder
of any other evidence of Indebtedness of the Company or any Subsidiary gives
any notice or takes any other action with respect to a claimed default, the
Company shall deliver to the Trustee by registered or certified mail or by
telegram, telex or facsimile transmission followed by hard copy an Officers'
Certificate specifying such Default, Event of Default, notice or other action,
the status thereof and what action the Company is taking or proposes to take
with respect thereto, within five Business Days of its occurrence.
Section 10.19. Waiver of Certain Covenants.
The Company may omit in any particular instance to comply with any
covenant or condition set forth in Sections 10.5 through 10.11 and Section
10.15 through 10.17 if, before or after the time for such compliance, the
Holders of not less than a majority in aggregate principal amount of the
Securities at the time Outstanding waive such compliance in such instance with
such covenant or condition, but no such waiver shall extend to or affect such
covenant or condition except to the extent so expressly waived, and, until
such waiver shall become effective, the obligations of the Company and the
duties of the Trustee in respect of any such covenant or condition shall
remain in full force and effect.
ARTICLE XI
REDEMPTION OF SECURITIES
Section 11.1. Right of Redemption.
The Securities may be redeemed, at the election of the Company, as a
whole at any time or from time to time in part, on or after September 1, 2000,
subject to the conditions and at the Redemption Prices specified in the form
of Security, together with accrued and unpaid interest, if any, to the
Redemption Date (subject to the right of Holders of record on relevant Regular
Record Dates and Special Record Dates to receive interest due on relevant
Interest Payment Dates). In addition, prior to September 1, 1999, in the
event one or more Public Equity Offerings of the Company are consummated, the
Company may redeem in the aggregate up to a maximum of 35% of the initial
aggregate principal amount of the Securities with the net proceeds thereof at
a Redemption Price equal to 111.625% of the principal amount thereof plus
accrued and unpaid interest to the Redemption Date; provided that, after
giving effect thereto, at least $85.0 million aggregate principal amount of
the Securities remain outstanding.
Section 11.2. Applicability of Article.
Redemption of Securities at the election of the Company or
otherwise, as permitted or required by any provision of this Indenture, shall
be made in accordance with such provision and this Article.
Section 11.3. Election to Redeem; Notice to Trustee.
The election of the Company to redeem any Securities pursuant to
Section 11.1 shall be evidenced by a Company Order and an Officers'
Certificate. In case of any redemption at the election of the Company, the
Company shall, not less than 45 nor more than 60 days prior to the Redemption
date fixed by the Company (unless a shorter notice period shall be
satisfactory to the Trustee), notify the Trustee in writing of such Redemption
Date and of the principal amount of Securities to be redeemed.
Section 11.4. Selection by Trustee of Securities to Be Redeemed.
If less than all the Securities are to be redeemed, the particular
Securities or portions thereof to be redeemed shall be selected not more than
60 days prior to the Redemption Date by the Trustee (or such shorter period as
the Trustee may agree upon), from the Outstanding Securities not previously
called for redemption, by lot or such other method as the Trustee shall deem
fair and reasonable, and the amounts to be redeemed may be equal to $1,000 or
any integral multiple thereof.
The Trustee shall promptly notify the Company and each Security
Registrar in writing of the Securities selected for redemption and, in the
case of any Securities selected for partial redemption, the principal amount
thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to redemption of Securities shall relate, in
the case of any Security redeemed or to be redeemed only in part, to the
portion of the principal amount of such Security which has been or is to be
redeemed.
Notwithstanding anything else in this Section, any redemption
pursuant to the provisions relating to one or more Public Equity Offerings
shall be made on a pro rata basis or on as nearly a pro rata basis as
practicable (subject to any procedures of the Depositary).
Section 11.5. Notice of Redemption.
Notice of redemption shall be given by first-class mail, postage
prepaid, mailed not less than 30 nor more than 60 days prior to the Redemption
Date, to each Holder of Securities to be redeemed, at the address appearing in
the Security Register.
All notices of redemption shall state:
(a) the Redemption Date;
(b) the Redemption Price;
(c) if less than all Outstanding Securities are to be
redeemed, the identification of the particular Securities to be redeemed;
(d) in the case of a Security to be redeemed in part, the
principal amount of such Security to be redeemed and that after the Redemption
Date upon surrender of such Security, a new Security or Securities in the
aggregate principal amount equal to the unredeemed portion thereof will be
issued;
(e) that Securities called for redemption must be
surrendered to the Paying Agent to collect the Redemption Price;
(f) that on the Redemption Date the Redemption Price will
become due and payable upon each such Security or portion thereof to be
redeemed, and that (unless the Company shall default in payment of the
Redemption Price) interest thereon shall cease to accrue on and after said
date;
(g) the place or places where such Securities are to be
surrendered for payment of the Redemption Price; and
(h) the CUSIP number, if any, relating to such Securities.
Notice of redemption of Securities to be redeemed at the election of
the Company shall be given by the Company or, at the Company's written
request, by the Trustee in the name and at the expense of the Company. If the
Company elects to give notice of redemption, it shall provide the Trustee with
a certificate stating that such notice has been given in compliance with the
requirements of this Section 11.5.
Such notice if mailed in the manner herein provided shall be
conclusively presumed to have been given, whether or not the Holder receives
such notice. In any case, failure to give such notice by mail or any defect
in the notice to the Holder of any Security designated for redemption as a
whole or in part shall not affect the validity of the proceedings for the
redemption of any other Security.
Section 11.6. Deposit of Redemption Price.
On or prior to 10:00 a.m. (New York time) on the Business Day
preceding any Redemption Date, the Company shall deposit with the Trustee or
with a Paying Agent an amount of money in same day funds sufficient to pay the
Redemption Price of, and, except if the Redemption Date shall be an Interest
Payment Date, accrued interest on, all the Securities or portions thereof
which are to be redeemed on that date. The Trustee or the Paying Agent shall
hold in trust for, and return to, the Company promptly after the Business Day
following the Redemption Date all interest or dividends, if any, earned on
amounts deposited with the Trustee or the Paying Agent remaining after the
payment of the aggregate Redemption Price for all securities to be redeemed.
Section 11.7. Securities Payable on Redemption Date.
Notice of redemption having been given as aforesaid, the Securities
so to be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified and from and after such date (unless the
Company shall not have deposited funds in accordance with Section 11.6 in
respect of the payment of the Redemption Price and accrued interest) such
Securities shall cease to bear interest. Upon surrender of any such Security
for redemption in accordance with said notice, such Security shall be paid by
the Company at the Redemption Price together with accrued interest to the
Redemption Date; provided, however, that installments of interest whose Stated
Maturity is on or prior to the Redemption Date shall be payable to the Holders
of such Securities, or one or more Predecessor Securities, registered as such
on the relevant Regular Record Dates according to the terms and the provisions
of Section 3.7.
If any Security called for redemption shall not be so paid upon
surrender thereof for redemption, by deposit or segregation of funds in
accordance with Section 11.6, the principal and premium, if any, shall, until
paid, bear interest from the Redemption Date at the rate borne by such
Security.
Section 11.8. Securities Redeemed or Purchased in Part.
Any Security which is to be redeemed or purchased only in part shall
be surrendered to the Paying Agent at the office or agency maintained for such
purpose pursuant to Section 10.2 (with, if the Company, the Security Registrar
or the Trustee so requires, due endorsement by, or a written instrument of
transfer in form satisfactory to the Company, the Security Registrar or the
Trustee, as the case may be, duly executed by the Holder thereof or such
Holder's attorney duly authorized in writing), and the Company shall execute,
and the Trustee shall authenticate and deliver to the Holder of such Security
without service charge, a new Security or Securities, of any authorized
denomination as requested by such Holder in aggregate principal amount equal
to, and in exchange for, the unredeemed portion of the principal of the
Security so surrendered that is not redeemed or purchased.
ARTICLE XII
SATISFACTION AND DISCHARGE
Section 12.1. Satisfaction and Discharge of Indenture.
This Indenture shall cease to be of further effect (except as to
surviving rights of registration of transfer or exchange of the Securities
herein expressly provided for) and the Trustee, on demand of and at the
expense of the Company, shall execute proper instruments acknowledging
satisfaction and discharge of this Indenture, when:
(a) either:
(1) all the Securities theretofore authenticated and
delivered (other than (i) lost, stolen or destroyed Securities which have been
replaced or paid as provided in Section 3.6 and (ii) Securities for whose
payment United States dollars have theretofore been deposited in trust by the
Company and thereafter repaid to the Company or discharged from such trust, as
provided in Section 10.3) have been delivered to the Trustee for cancellation;
or
(2) all Securities not theretofore delivered to the Trustee
for cancellation:
(i) have become due and payable, or
(ii) will become due and payable at their Stated
Maturity within one year, or
(iii) are to be called for redemption within one year
under arrangements satisfactory to the Trustee for the giving of notice of
redemption by the Trustee in the name, and at the expense, of the Company,
and the Company has irrevocably deposited or caused to be
deposited with the Trustee as trust funds in trust an amount sufficient (as
confirmed in a written report of a nationally recognized firm of independent
public accountants or a nationally recognized investment banking firm) to pay
and discharge the entire indebtedness on the Securities not theretofore
delivered to the Trustee for cancellation, including principal of, premium, if
any, and accrued interest on such Securities at such Maturity, Stated Maturity
or Redemption Date;
(b) the Company has paid all other sums payable hereunder by the
Company; and
(c) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel each to the effect that all conditions
precedent herein provided for relating to the satisfaction and discharge of
this Indenture have been complied with and that such satisfaction and
discharge will not result in a breach or violation of, or constitute a default
under, this Indenture or any other material agreement to which the Company is
a party or by which the Company is bound.
Notwithstanding the satisfaction and discharge of this Indenture,
the obligations of the Company to the Trustee under Section 6.6 and, if United
States dollars shall have been deposited with the Trustee pursuant to
subclause (2) of Subsection (a) of this Section, the obligations of the
Trustee under Section 12.2 and the last paragraph of Section 10.3 shall
survive.
Section 12.2. Application of Trust Money.
Subject to the provisions of the last paragraph of Section 10.3, all
United States dollars deposited with the Trustee pursuant to Section 12.1
shall be held in trust and applied by it, in accordance with the provisions of
the Securities and this Indenture, to the payment, either directly or through
any Paying Agent as the Trustee may determine, to the Persons entitled
thereto, of the principal of, premium, if any, and interest on the Securities
for whose payment such United States dollars have been deposited with the
Trustee.
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed, and their respective corporate seals to be hereunto affixed
and attested, all as of the day and year first above written.
HAYNES INTERNATIONAL, INC.
By: /s/ Michael D. Austin
------------------------
Name: Michael D. Austin
Title: President, CEO
Attest: /s/ Joseph F. Barker
-----------------------
Name: Joseph F. Barker
Title: V.P. - Finance
NATIONAL CITY BANK,
as Trustee
By: /s/ Faith Berning
-------------------
Name: Faith Berning
Title: Vice President
Attest: /s/ Karen Franklin
--------------------
Name: Karen Franklin
Title: Trust Officer
<PAGE>
03382/096/INDEN/inden
2
STATE OF )
) ss.:
COUNTY OF )
On the day of August 1996, before me personally came
, to me known, who, being by me duly sworn, did depose and say that he resides
at ; that he is of Haynes International,
Inc., one of the corporations described in and which executed the foregoing
instrument; that he knows the corporate seal of such corporation; that the
seal affixed to said instrument is such corporate seal; that it was so affixed
pursuant to authority of the Board of Directors of such corporation; and that
he signed his name thereto pursuant to like authority.
(NOTARIAL SEAL)
<PAGE>
STATE OF )
) ss.:
COUNTY OF )
On the day of August 1996, before me personally came
, to me known, who, being by me duly sworn, did depose and say that he resides
at ; that he is an authorized officer of National City Bank, one
of the corporations described in and which executed the foregoing instrument;
that he knows the corporate seal of such corporation; that the seal affixed to
said instrument is such corporate seal; that it was so affixed pursuant to
authority of the Board of Directors of such corporation; and that he signed
his name thereto pursuant to like authority.
(NOTARIAL SEAL)
<PAGE>
SCHEDULE I
Restrictions on Dividends of Subsidiaries
---------------------------------------------
<PAGE>
Exhibit 4.02 Form of 11 5/8% Senior Note Due 2004.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY OR ITS SUCCESSORS AND ASSIGNS (THE "DEPOSITARY") TO
THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT
AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR TO SUCH
OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY
(AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED
BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY), ANY TRANSFER, PLEDGE, OR
OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL
INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
HAYNES INTERNATIONAL, INC.
11e% Senior Notes due 2004
No. 420877 AD 4 $ 140,000,000
HAYNES INTERNATIONAL, INC., a Delaware corporation (herein called
the "Company," which term includes any successor), for value received, hereby
promises to pay to CEDE & Co. or registered assigns, the principal sum of
$140,000,000 United States dollars on September 1, 2004, at the office or
agency of the Company referred to below, and to pay interest thereon from
August 23, 1996 or from the most recent Interest Payment Date to which
interest has been paid or duly provided for, as the case may be, semiannually
on March 1 and September 1 of each year commencing March 1, 1997 at the rate
of 11e% per annum, in United States dollars, until the principal hereof is
paid or duly provided for.
The interest so payable, and punctually paid or duly provided for,
on any Interest Payment Date will, as provided in the Indenture, be paid to
the Person in whose name this Security (or one or more Predecessor Securities)
is registered at the close of business on the Regular Record Date for such
interest, which shall be February 15 or August 15 (whether or not a Business
Day), as the case may be, next preceding such Interest Payment Date. Any such
interest not so paid, or duly provided for, and interest on such defaulted
interest at the interest rate borne by the Securities, to the extent lawful,
shall forthwith cease to be payable to the Holder in whose name such Security
is registered as of such Regular Record Date, and may be paid on the Special
Payment Date to the Person in whose name this Security (or one or more
Predecessor Securities) is registered at the close of business on a Special
Record Date to be fixed by the Trustee (and for which notice shall be given to
Holders of Securities not less than 10 days prior to such Special Record Date)
or may be paid at any time in any other lawful manner not inconsistent with
the requirements of any securities exchange on which the Securities may be
listed, and upon such notice as may be required by such exchange, all as more
fully provided in said Indenture.
Payment of the principal of, premium, if any, and interest on this
Security will be made at the office or agency of the Company maintained for
that purpose, or at such other office or agency of the Company as may be
maintained for such purpose, in such coin or currency of the United States of
America as at the time of payment is legal tender for payment of public and
private debts; provided, however, that payment of interest may be made at the
-------- -------
option of the Company by check mailed to the address of the Person entitled
thereto as such address shall appear on the Security Register. Interest shall
be computed on the basis of a 360-day year of twelve 30-day months.
Reference is hereby made to the further provisions of this Security
set forth on the reverse hereof, which further provisions shall for all
purposes have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been duly
executed by the Trustee referred to on the reverse hereof or by the
authenticating agent appointed as provided in the Indenture by manual
signature, this Security shall not be entitled to any benefit under the
Indenture, or be valid or obligatory for any purpose.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be
duly executed by the manual or facsimile signature of its authorized officers
and its corporate seal to be affixed or reproduced hereon.
Dated: August 23, 1996
HAYNES INTERNATIONAL, INC.
By:
Attest:
Secretary
<PAGE>
This Security is one of the duly authorized issue of Securities of
the Company designated as its 11e% Senior Notes due 2004 (herein called the
"Securities"), limited (except as otherwise provided in the Indenture referred
to below) in aggregate principal amount to $140.0 million, which may be issued
under and are subject to the terms of an indenture (herein called the
"Indenture") dated as of August 23, 1996 between the Company and National City
Bank, as trustee (together with any successor trustee under the Indenture, the
"Trustee"), to which Indenture and all indentures supplemental thereto
reference is hereby made for a statement of the respective rights, limitations
of rights, duties, obligations and immunities thereunder of the Company, the
Trustee and the Holders, and of the terms upon which the Securities are, and
are to be, authenticated and delivered.
The Indenture contains provisions for defeasance at any time of (a)
the entire Indebtedness on this Security and (b) certain covenants and related
Defaults and Events of Default thereunder, in each case upon compliance with
certain conditions set forth therein.
The Securities are subject to redemption at any time on or after
September 1, 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 September 1 of the years indicated below:
<TABLE>
<CAPTION>
<S> <C>
Redemption
Year Price
- ---- -----------
2000 105.813%
2001 102.906%
</TABLE>
and thereafter at 100% of the principal amount, in each case together with
accrued and unpaid interest, if any, to the redemption date (subject to the
right of holders of record on relevant record dates to receive interest due on
an interest payment date).
In addition, prior to September 1, 1999, in the event one or more
Public Equity Offerings of the Company are consummated, the Company may redeem
in the aggregate up to a maximum of 35% of the initial aggregate principal
amount of the Securities with the net proceeds thereof at a Redemption Price
equal to 111.625% of the principal amount thereof plus accrued and unpaid
interest to the Redemption Date; provided that, after giving effect thereto,
--------
at least $85.0 million aggregate principal amount of Securities remains
outstanding.
If less than all of the Securities are to be redeemed, the Trustee
shall select the Securities or portions thereof to be redeemed pro rata, by
lot or by any other method the Trustee shall deem fair and reasonable,
provided that, any redemption pursuant to the provisions relating to a sale of
-
the Common Stock of the Company pursuant to one or more Public Equity
Offerings shall be made on a pro rata basis or on as nearly a pro rata basis
as practicable (subject to any procedures of the Depositary).
If a Change of Control shall occur at any time, then each holder of
Securities shall have the right to require that the Company purchase such
holder's Securities in whole or in part in integral multiples of $1,000, at a
purchase price in cash in an amount equal to 101% of the principal amount of
such Securities, plus accrued and unpaid interest, if any, to the date of
purchase pursuant to the offer procedures set forth in the Indenture.
In addition, if a Change of Control shall occur at any time, then
the Company shall, within 180 days after a Change of Control and upon not less
than 30 nor more than 60 days' prior notice to each holder of Securities, have
the right to purchase the Securities, in whole or in part, at a redemption
price equal to the sum of (i) the then outstanding principal amount plus (ii)
accrued and unpaid interest, if any, to the Redemption Date, plus (iii) a
premium defined as the greater of (a) 1.0% of the then outstanding principal
amount of the Securities and (b) the excess of (1) the present value of the
required payments on the Securities, computed using a discount rate equal to
the Treasury Rate plus 75 basis points, over (2) the then outstanding
principal amount of the Securities.
Under certain circumstances, in the event the Net Cash Proceeds that
are received by the Company from any Asset Sale, and that are not applied
within the time periods set forth in the Indenture to repay or prepay
permanently any Indebtedness under the New Credit Facility then outstanding or
invested in properties or assets that replace the assets sold or that are used
in the businesses of the Company or its Subsidiaries, equal or exceed $5.0
million, the Company will be required to offer, pursuant to the offer
procedures set forth in the Indenture, to apply such proceeds to the repayment
of the Securities at 100% of the principal amount of such Securities, plus
accrued and unpaid interest, if any, to the date of purchase and to the
repayment of certain Indebtedness ranking pari passu with the Securities.
---- -----
In the case of any redemption of Securities, interest installments
whose Stated Maturity is on or prior to the Redemption Date will be payable to
the Holders of such Securities of record as of the close of business on the
relevant Regular Record Date or Special Record Date referred to on the face
hereof. Securities (or portions thereof) for whose redemption and payment
provision is made in accordance with the Indenture shall cease to bear
interest from and after the Redemption Date.
In the event of redemption of this Security in part only, a new
Security or Securities for the unredeemed portion hereof shall be issued in
the name of the Holder hereof upon the cancellation hereof.
If an Event of Default shall occur and be continuing, the principal
amount of all the Securities may be declared due and payable in the manner and
with the effect provided in the Indenture.
The Indenture permits, with certain exceptions (including certain
amendments permitted without the consent of any Holders) as therein provided,
the amendment thereof and the modification of the rights and obligations of
the Company and the rights of the Holders under the Indenture and the
Securities at any time with the consent of the Holders of not less than a
majority in aggregate principal amount of the Securities at the time
Outstanding. The Indenture also contains provisions permitting the Holders of
not less than a majority in aggregate principal amount of the Securities at
the time Outstanding, on behalf of the Holders of all the Securities, to waive
compliance by the Company with certain provisions of the Indenture and the
Securities and certain past Defaults under the Indenture and their
consequences. Any such consent or waiver by or on behalf of the Holder of
this Security shall be conclusive and binding upon such Holder and upon all
future Holders of this Security and of any Security issued upon the
registration of transfer hereof or in exchange herefor or in lieu hereof
whether or not notation of such consent or waiver is made upon this Security.
No reference herein to the Indenture and no provision of this
Security or of the Indenture shall alter or impair the obligation of the
Company or any other obligor under the Securities (in the event such other
obligor is obligated to make payments in respect of the Securities), which is
absolute and unconditional, to pay the principal of, premium, if any, and
interest on this Security at the times, place, and rate, and in the coin or
currency, herein prescribed.
As set forth in, and subject to, the provisions of the Indenture, no
Holder of any Security will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless (a) such Holder
shall have previously given to the Trustee written notice of a continuing
Event of Default, (b) the Holders of not less than 25% in principal amount of
the Outstanding Securities shall have made written request, and offered
reasonable indemnity, to the Trustee to institute such proceeding as trustee,
(c) the Trustee shall not have received from the Holders of a majority in
principal amount of the Outstanding Securities a direction inconsistent with
such request and (d) the Trustee shall have failed to institute such
proceeding within 60 days; provided, however, that such limitations do not
-------- -------
apply to a suit instituted by the Holder hereof for the enforcement of payment
of the principal of (and premium, if any) or any interest on this Security on
or after the respective due dates expressed herein.
As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of this Security is registrable on the
Security Register of the Company, upon surrender of this Security for
registration of transfer at the office or agency of the Company maintained for
such purpose or at such other office or agency of the Company as may be
maintained for such purpose, duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Company and the Security
Registrar duly executed by, the Holder hereof or his attorney duly authorized
in writing, and thereupon one or more new Securities, of authorized
denominations and for the same aggregate principal amount, will be issued to
the designated transferee or transferees.
The Securities are issuable only in registered form without coupons
in denominations of $1,000 and any integral multiple thereof. As provided in
the Indenture and subject to certain limitations therein set forth, the
Securities are exchangeable for a like aggregate principal amount of
Securities of a different authorized denomination, as requested by the Holder
surrendering the same.
No service charge shall be made for any registration of transfer or
exchange or redemption of Securities, but the Company may require payment of a
sum sufficient to cover any tax or other governmental charge payable in
connection therewith.
Prior to due presentment of this Security for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name this Security is registered as the owner
hereof for all purposes, whether or not this Security is overdue, and none of
the Company, the Trustee nor any agent shall be affected by notice to the
contrary.
Upon any consolidation or merger, or any sale, assignment,
conveyance, transfer or disposition (other than pursuant to a lease) of all or
substantially all of the properties and assets of the Company in accordance
with the Indenture, subject to the terms and conditions of the Indenture, the
successor Person to such transaction shall become the obligor on this
Security, and the Company shall be discharged from all obligations and
covenants under this Security and the Indenture.
All terms used in this Security which are defined in the Indenture
and not otherwise defined herein shall have the meanings assigned to them in
the Indenture.
The Company will furnish to any holders of the Securities upon
written request and without charge a copy of the Indenture. All requests may
be made to Haynes International, Inc., 1020 West Park Avenue, Kokomo, Indiana
46904-9013.
TRUSTEE'S CERTIFICATE OF AUTHENTICATION.
This is one of the Securities referred to in the within-mentioned Indenture.
National City Bank,
as Trustee
By:
Authorized Signatory
EXHIBIT 10.19
Amended and Restated Loan Agreement by and among CoreStates
Bank, N.A. and Congress Financial Corporation (Central), as Lenders,
Congress Financial Corporation (Central), as Agent of Lenders, and
Haynes International, Inc., as Borrower.
[Execution Copy]
AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
BY AND AMONG
CORESTATES BANK, N.A.
CONGRESS FINANCIAL CORPORATION (CENTRAL)
AS LENDERS
CONGRESS FINANCIAL CORPORATION (CENTRAL)
AS AGENT FOR LENDERS
AND
HAYNES INTERNATIONAL, INC.
AS BORROWER
DATED: AUGUST 23, 1996
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-------------------
<S> <C>
Page
SECTION 1. DEFINITIONS 1
SECTION 2. ACKNOWLEDGEMENT AND
RESTATEMENT
2.1 Existing Obligations 16
2.2 Acknowledgement of Security Interest 16
2.3 Existing Congress Agreement 17
2.4 Restatement 17
SECTION 3. CREDIT FACILITIES
3.1 Loans 17
3.2 Letter of Credit Accommodations 18
3.3 Increase in Maximum Credit 20
3.4 Availability Reserves 21
3.5 Commitments 21
SECTION 4. INTEREST AND FEES
4.1 Interest 22
4.2 Closing Fee 23
4.3 Servicing Fee 23
4.4 Unused Line Fee 24
4.5 Changes in Laws and Increased Costs of Loans 24
SECTION 5. CONDITIONS PRECEDENT
5.1 Conditions Precedent to Initial Loans and Letter of Credit Accommodations 25
5.2 Conditions Precedent to All Loans and Letter of Credit Accommodations 26
SECTION 6. GRANT OF SECURITY 26
INTEREST
SECTION 7. COLLECTION AND
ADMINISTRATION
7.1 Borrower's Loan Account 27
7.2 Statements 27
7.3 Collection of Accounts 28
7.4 Payments 28
7.5 Sharing of Payments, Etc. 29
7.6 Authorization to Make Loans 30
7.7 Settlement Procedures 30
7.8 Use of Proceeds 32
SECTION 8. COLLATERAL REPORTING
AND COVENANTS
8.1 Collateral Reporting 32
8.2 Accounts Covenants 32
8.3 Inventory Covenants 34
8.4 Equipment Covenants 34
8.5 Power of Attorney 35
8.6 Right to Cure 35
8.7 Access to Premises 36
SECTION 9. REPRESENTATIONS AND
WARRANTIES
9.1 Corporate Existence, Power and Authority; Subsidiaries 36
9.2 Financial Statements; No Material Adverse Change. 36
9.3 Chief Executive Office; Collateral Locations. 36
9.4 Priority of Liens; Title to Properties 37
9.5 Tax Returns 37
9.6 Litigation 37
9.7 Compliance with Other Agreements and Applicable Laws 37
9.8 Employee Benefits. 37
9.9 Environmental Compliance 38
9.10 Capitalization; Senior Notes 39
9.11 Redemption of Existing Notes 40
9.12 Accuracy and Completeness of Information. 41
9.13 Survival of Warranties; Cumulative 41
SECTION 10. AFFIRMATIVE AND
NEGATIVE COVENANTS
10.1 Maintenance of Existence 41
10.2 New Collateral Locations 41
10.3 Compliance with Laws, Regulations, Etc. 42
10.4 Payment of Taxes and Claims 43
10.5 Insurance 43
10.6 Financial Statements and Other Information 44
10.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc 45
10.8 Encumbrances 45
10.9 Indebtedness 46
10.10 Loans, Investments, Guarantees, Etc 50
10.11 Dividends and Redemptions 52
10.12 Transactions with Affiliates 54
10.13 Proceeds of Borrower Debt Offering; Redemption of Existing Notes. 54
10.14 Compliance with ERISA 55
10.15 Adjusted Net Worth 56
10.16 Excess Availability 56
10.17 Costs and Expenses 56
10.18 Further Assurances 57
SECTION 11. EVENTS OF DEFAULT AND
REMEDIES
11.1 Events of Default 57
11.2 Remedies 58
SECTION 12.
JURY TRIAL WAIVER; OTHER WAIVERS
AND CONSENTS; GOVERNING LAW
12.1 Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver 61
12.2 Waiver of Notices 62
12.3 Amendments and Waivers 62
12.4 Waiver of Counterclaims 63
12.5 Indemnification 63
SECTION 13. THE AGENT
13.1 Appointment, Powers and Immunities 63
13.2 Reliance by Agent 63
13.3 Events of Default 64
13.4 Rights as a Lender 64
13.5 Indemnification 64
13.6 Non-Reliance on Agent and Other Lenders 65
13.7 Failure to Act 65
13.8 Resignation of Agent 65
13.9 Consents and Releases of Collateral under Financing Agreements 66
13.10 Collateral Matters 66
SECTION 14. TERM OF AGREEMENT;
MISCELLANEOUS
14.1 Term 66
14.2 Senior Indebtedness 68
14.3 Notices 68
14.4 Partial Invalidity 68
14.5 Successors and Assigns 68
14.6 Assignments and Participations 68
14.7 Confidentialy 70
14.8 Modification of Agreement 71
14.9 Entire Agreement 71
</TABLE>
<TABLE>
<CAPTION>
INDEX TO
EXHIBITS AND SCHEDULES
- ------------------------
<S> <C>
Exhibit A Information Certificate
Schedule 1.43 Existing Senior Note Collateral
Schedule 1.85 Redemption Escrow Accounts
Schedule 3.3 Fixed Asset Collateral
Schedule 9.4 Existing Liens
Schedule 9.8 Pension Plans
Schedule 9.9 Environmental Matters
</TABLE>
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
This Amended and Restated Loan and Security Agreement dated August 23,
1996 is entered into by and among CoreStates Bank, N.A., a national banking
association ("CoreStates"), Congress Financial Corporation (Central), an
Illinois corporation ("Congress", and together with CoreStates, each
individually, a "Lender" and, collectively, "Lenders"), Congress as agent for
Lenders (in such capacity, "Agent") and Haynes International, Inc., a Delaware
corporation ("Borrower").
W I T N E S S E T H :
WHEREAS, Borrower and Congress entered into certain financing
arrangements pursuant to which Congress made loans and advances and provided
other financial accommodations to Borrower as set forth in the Loan and
Security Agreement, dated August 11, 1994, between Borrower and Congress and
the other agreements, documents and instruments executed and/or delivered in
connection therewith;
WHEREAS, each Lender is willing to agree (severally and not jointly) to
make loans and provide financial accommodations to Borrower on a pro rata
basis according to its Commitment (as defined below) and, in connection
therewith, Congress has assigned or is about to assign all of its right, title
and interest in and to the financing arrangements with Borrower to Agent and
Lenders as set forth in the Assignment and Assumption Agreement, dated of even
date herewith, between Congress, as assignor, and Agent and Lenders, as
assignees, and Borrower has acknowledged and consented to such assignment
pursuant to the Acknowledgment of Assignment, dated of even date herewith, by
Borrower to Congress, Agent and Lenders;
WHEREAS, Borrower has requested that the financing arrangements be
amended to increase the Maximum Credit, decrease the interest rate payable by
Borrower to Lenders, extend the term of the arrangements and be amended in
other respects and Agent and Lenders are willing to agree to increase the
Maximum Credit, decrease the interest rate, extend the term of the
arrangements and agree to such other amendments, subject to the terms and
conditions contained 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, Agent and Lenders 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.
The words "ratable" or "ratably" or words of similar import when used in this
Agreement shall refer to a sharing or allocation based on the respective Pro
Rata Shares (as defined below) of Lenders. An Event of Default shall exist or
continue or be continuing until such Event of Default is waived in accordance
with Section 12.3 or cured in a manner satisfactory to Agent as acknowledged
by Agent to Borrower in writing. Any accounting term used herein unless
otherwise defined in this Agreement shall have the meaning 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 Consolidated Interest Expense" shall mean, 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, amortization
of debt discount, the net cost under interest rate contracts (including
amortization of discounts), the interest portion of any deferred payment
obligation and accrued interest, plus (b) the interest component of
obligations under Capital Leases paid, accrued and/or scheduled to be paid or
accrued by such person during such period, and all capitalized interest of
such person and its consolidated Subsidiaries, in each case as determined in
accordance with GAAP.
1.3 "Adjusted Eurodollar Rate" shall mean, with respect to each Interest
Period for any Eurodollar Rate Loan, the rate per annum (rounded upwards, if
necessary, to the next one-sixteenth (1/16) of one (1%) percent) determined by
dividing (a) the Eurodollar Rate for such Interest Period by (b) a percentage
equal to: (i) one (1) minus (ii) the Reserve Percentage. For purposes hereof,
"Reserve Percentage" shall mean the reserve percentage, expressed as a
decimal, prescribed by any United States or foreign banking authority for
determining the reserve requirement which is or would be applicable to
deposits of United States dollars in a non-United States or an international
banking office of Reference Bank used to fund a Eurodollar Rate Loan or any
Eurodollar Rate Loan made with the proceeds of such deposit, whether or not
the Reference Bank actually holds or has made any such deposits or loans. The
Adjusted Eurodollar Rate shall be adjusted on and as of the effective day of
any change in the Reserve Percentage.
1.4 "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 sum of: (a) difference between: (i) the aggregate
net book value of all assets of such Person and its Subsidiaries, calculating
the book value of inventory for this 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 (ii) the aggregate amount of the
indebtedness and other liabilities of such Person and its Subsidiaries,
including tax and other proper accruals plus (b) the principal amount of the
indebtedness then outstanding evidenced by the Senior Notes.
1.5 "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.
1.6 "Agent" shall mean Congress in its capacity as agent on behalf of
Lenders pursuant to the terms hereof and any replacement or successor agent
hereunder.
1.7 "Annual Cash Amount" shall mean $1,000,000.
1.8 "Asset Sale" shall mean any sale, issuance, conveyance, transfer,
lease or other disposition (including, without limitation, by way of merger,
consolidation or Sale and Leaseback Transaction), directly or indirectly, in
one or a series of related transactions, of (a) any Capital Stock of any
Subsidiary of Borrower; (b) all or substantially all of the properties or
assets of any division or line of business of Borrower or any of its
Subsidiaries; or (c) any other properties or assets of Borrower or any of its
Subsidiaries, other than in the ordinary course of business; provided, that,
the sale of any material portion of the facilities of Borrower 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 that
is governed by the provisions described under "Consolidation, Merger, Sale of
Assets" of the Senior Note Indenture (as in effect on the date hereof) or that
is of Borrower to any wholly-owned Subsidiary of Borrower, or of any
Subsidiary of Borrower to Borrower or to any wholly-owned Subsidiary of
Borrower or for which the fair market value of any transferred properties or
assets is less than $1,000,000.
1.9 "Assignee" shall have the meaning set forth in Section 14.6 hereof.
1.10 "Assignment Agreement" shall mean the Assignment and Assumption
Agreement, dated of even date herewith, by and among Congress as assignor and
Agent and Lenders as assignees, as the same now exists or may hereafter be
amended, modified, supplemented, extended, renewed, restated or replaced.
1.11 "Availability Reserves" shall mean, as of any date of
determination, such amounts as Agent 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 Agent 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 in the Collateral of Agent held for itself and the
ratable benefit of Lenders (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 Agent's
good faith belief that any collateral report or financial information
furnished by or on behalf of Borrower or any Obligor to Agent is or may have
been incomplete, inaccurate or misleading in any material respect or (c) in
respect of any state of facts which Agent determines in good faith constitutes
an Event of Default or Agent determines in good faith has a reasonable
likelihood of constituting an Event of Default, with notice or passage of time
or both.
1.12 "Borrower Debt Offering" shall mean the initial offering by
Borrower to the public of the Senior Notes pursuant to the effective
registration statements under the Securities Act originally filed by Borrower
with the Securities and Exchange Commission on June 7, 1996, and on August 20,
1996, in each case as amended to the time of effectiveness.
1.13 "Blocked Accounts" shall have the meaning set forth in Section 6.3
hereof.
1.14 "Business Day" shall mean any day other than a Saturday, Sunday or
other day on which commercial banks are authorized or required to close under
the laws of the State of New York or the Commonwealth of Pennsylvania, and a
day on which the Reference Bank and Agent are open for the transaction of
business, except that if a determination of a Business Day shall relate to any
Eurodollar Rate Loans, the term Business Day shall also exclude any day on
which banks are closed for dealings in dollar deposits in the London interbank
market or other applicable Eurodollar Rate market.
1.15 "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.
1.16 "Capital Stock" shall mean any and all shares, interests,
participations or other equivalents (however designated) of corporate stock or
partnership interests and any options or warrants with respect to any of the
foregoing.
1.17 "Change of Control" shall mean the occurrence of any of the
following events: (a) 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 fifty (50%) percent of
the total outstanding Voting Stock of Borrower; (b) during any period of two
(2) consecutive years, individuals who at the beginning of such period
constituted the board of directors of Borrower (together with any new
directors whose election to such board or whose nomination for election by the
shareholders of the Borrower, was approved by a vote of sixty-six and
two-thirds (66 2/3%) percent 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; (c) Borrower
consolidates with, or merges with or into, another person (other than Parent)
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, Borrower, in any such event pursuant to a
transaction in which the outstanding Voting Stock of Borrower is converted
into or exchanged for cash, securities or other property, except for any such
transaction where (i) the outstanding Voting Stock of Borrower is converted
into or exchanged for (A) Voting Stock of the surviving or transferee
corporation (other than Capital Stock which by its terms or by the terms of
any instrument related thereto is or upon the occurrence of any event or
passage of time would be required to be redeemed prior to the stated maturity
of the Senior Notes or is redeemable at the option of the holder thereof at
any time prior to 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) or (B) cash, securities and other property in an
amount which could be paid by Borrower as a dividend or other distribution to
holders of any shares of Capital Stock of Borrower or payments on subordinated
indebtedness or any investment permitted under the Senior Note Indenture and
(ii) immediately after which 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 fifty (50%) percent of the total Voting Stock of the
surviving or transferee corporation; or (d) Borrower is liquidated or
dissolved or adopts a plan of liquidation or dissolution (other than in a
transaction which complies with the provisions of Article VIII of the Senior
Note Indenture as in effect on the date hereof).
1.18 "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.
1.19 "Collateral" shall have the meaning set forth in Section 6 hereof.
1.20 "Commitment" shall have the meaning set forth in Section 3.5
hereof.
1.21 "Commitment Percentage" shall mean, as to each Lender, the
percentage of the Maximum Credit provided for hereunder represented by such
Lender's Commitment. The Commitment Percentage of each Lender signing this
Agreement is set forth on the signature pages hereto below each Lender's
respective signature (provided, that, prior to the Redemption Date, each
Lender's Commitment shall be fifty (50%) percent of the amount of such
Lender's Commitment set forth on the signature pages hereto below such
Lender's signature).
1.22 "Congress" shall mean Congress Financial Corporation (Central), an
Illinois corporation, in its individual capacity and its successors and
assigns.
1.23 "Consolidated Income Tax Expense" shall mean, 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.
1.24 "Consolidated Net Income" shall mean, for any period, as applied to
any person, the consolidated net income (or loss) of such person and its
consolidated Subsidiaries for such period as determined in accordance with
GAAP, adjusted, to the extent included in calculating such net income (loss),
by excluding, without duplication, (a) all extraordinary gains or losses (less
all fees and expenses relating thereto); (b) 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; (c) net income (or loss) of any person combined
with Borrower or any of its Subsidiaries on a "pooling of interests" basis
attributable to any period prior to the date of combination; (d) any gain or
loss, net of taxes, realized upon the termination of any employee pension
benefit plan; (e) 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; (f) the expenses recognized in connection with the payment
of the prepayment premiums related to the redemption of the Existing Notes as
required hereunder; (g) the expenses recognized in connection with the
termination of and repayment of amounts outstanding under the Existing
Congress Agreement; (h) the expenses recognized related to amortization of
fees and other charges in connection with the acquisition of the Capital Stock
of Borrower by MLGA Fund II, L.P. on August 31, 1989; (i) an amount equal to
the excess of (A) the interest expense incurred on the Existing Notes during
the period following the consummation of the Borrower Debt Offering and prior
to the Redemption Date over (B) the interest income earned on the proceeds
from the Borrower Debt Offering designated for the redemption of the Existing
Notes during the same period; or (j) the net income of any Subsidiary to the
extent that the declaration of dividends or similar distributions by such
Subsidiary of such 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 such Subsidiary or its shareholders.
1.25 "Consolidated Non-Cash Charges" shall mean, for any period, as
applied to any person, 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 last-in-first-out basis).
1.26 "CoreStates" shall mean CoreStates Bank, N.A., a national banking
association, and its successors and assigns.
1.27 "Credit Facility" shall mean, collectively, the secured Loans and
Letter of Credit Accommodations provided for hereunder or under the other
Financing Agreements.
1.28 "EBITDA" shall mean, for any period, as applied to Borrower, the
sum of the Consolidated Net Income, Adjusted Consolidated Interest Expense,
Consolidated Income Tax Expense and Consolidated Non-Cash Charges deducted in
computing Consolidated Net Income, in each case, for such period, of Borrower
and its Subsidiaries on a consolidated basis, all determined in accordance
with GAAP.
1.29 "Eligible Accounts" shall mean Accounts created by Borrower which
are and continue to satisfy the criteria set forth below as determined by
Agent 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 sixty (60) days after
the original due date thereof;
(c) such Accounts are not unpaid more than ninety (90) days after
the date of the original invoice for them;
(d) such Accounts comply with the terms and conditions contained in
Section 8.2(c) of this Agreement;
(e) 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;
(f) the chief executive office of the account debtor with respect
to such Accounts is located in the United States of America, or, at Agent'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 Agent,
sufficient to cover such Account, in form and substance satisfactory to Lender
and, if required by Agent, the original of such letter of credit has been
delivered to Agent or Agent's agent and the issuer thereof notified of the
assignment of the proceeds of such letter of credit to Agent, or (ii) such
Account is subject to credit insurance payable to Agent, for itself and the
ratable benefit of Lenders, issued by an insurer and on terms and in an amount
acceptable to Agent or (iii) such Account is otherwise acceptable in all
respects to Agent (subject to such lending formula with respect thereto as
Agent may determine);
(g) such Accounts do not consist of progress billings, bill and
hold invoices or retainage invoices, except as to bill and hold invoices, if
Agent shall have received an agreement in writing from the account debtor, in
form and substance satisfactory to Agent confirming the unconditional
obligation of the account debtor to take the goods related thereto and pay
such invoice;
(h) 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);
(i) 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;
(j) such Accounts are subject to the first priority, valid and
perfected security interest of Agent, for itself and the ratable benefit of
Lenders 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;
(k) 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;
(l) 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 Agent'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 Agent in good faith to be satisfactory;
(m) 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;
(n) 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);
(o) such Accounts are not owed by an account debtor who has
Accounts unpaid more than sixty (60) days after the original due date of the
invoice for them which constitute more than fifty (50%) percent of the total
Accounts of such account debtor;
(p) 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 Agent from time to time based
on the good faith determination by Agent 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
(q) such Accounts are owed by account debtors deemed creditworthy
at all times by Agent, as determined by Agent in good faith.
General criteria for Eligible Accounts may be established and revised from
time to time by Agent in good faith based on events, conditions, circumstances
or risks which Agent in good faith determines are reasonably likely to affect
the Accounts, the value of the Accounts or the security interests and other
rights in the Accounts of Agent, for itself and the ratable benefit of
Lenders, and for which no Availability Reserve has been established. Any
Accounts which are not Eligible Accounts shall nevertheless be part of the
Collateral.
1.30 "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 Agent 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 Agent 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
Agent, acknowledging the first priority security interest in the Inventory of
Agent, for itself and the ratable benefit of Lenders, waiving security
interests and claims by such person against the Inventory and permitting Agent
access to, and the right to remain on, the premises so as to exercise the
rights and remedies of Agent, for itself and the ratable benefit of Lenders,
and otherwise deal with the Collateral; (f) Inventory subject to a security
interest or lien in favor of any person other than Agent, for itself and the
ratable benefit of Lenders, 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 Agent, for itself and the ratable benefit of Lenders; (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 Agent in good faith based on
events, conditions, circumstances or risks which Agent in good faith
determines are reasonably likely to affect the Inventory, the value of the
Inventory or the security interests and other rights in the Inventory of
Agent, for itself and the ratable benefit of Lenders, and for which no
Availability Reserve has been established. Any Inventory which is not
Eligible Inventory shall nevertheless be part of the Collateral.
1.31 "Employee Notes" shall mean, collectively, promissory notes issued
by Borrower payable to Parent from time to time to fund all or a portion of
the purchase price to be paid by Parent for Parent Common Stock, or options to
purchase Parent Common Stock, owned by 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 14.1(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.
1.32 "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.
1.33 "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.
1.34 "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.
1.35 "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.
1.36 "Eurodollar Rate Loans" shall mean any Loans or portion thereof on
which interest is payable based on the Adjusted Eurodollar Rate in accordance
with the terms hereof.
1.37 "Eurodollar Rate" shall mean with respect to the Interest Period
for a Eurodollar Rate Loan, the interest rate per annum equal to the
arithmetic average of the rates of interest per annum (rounded upwards, if
necessary, to the next one-sixteenth (1/16) of one (1%) percent) at which
Reference Bank is offered deposits of United States dollars in the London
interbank market (or other Eurodollar Rate market selected by Borrower and
approved by Agent) on or about 9:00 a.m. (New York City time) two (2) Business
Days prior to the commencement of such Interest Period in amounts
substantially equal to the principal amount of the Eurodollar Rate Loans
requested by and available to Borrower in accordance with this Agreement, with
a maturity of comparable duration to the Interest Period selected by Borrower.
1.38 "Excess Availability" shall mean the amount, as determined by Agent
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 thirty (30) days past due as of such time.
1.39 "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
10.10(b) hereof.
1.40 "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.
1.41 "Existing Congress Agreement" shall mean the Loan and Security
Agreement, dated August 11, 1994, between Congress and Borrower and all
amendments thereto, including, without limitation, Amendment No. 1 to Loan and
Security Agreement, dated February 9, 1995, between Borrower and Congress and
Amendment No. 2 to Loan and Security Agreement, dated February 12, 1996,
between Borrower and Congress.
1.42 "Existing Notes" shall mean collectively, the Existing Senior Notes
and the Existing Subordinated Notes.
1.43 "Existing Senior Note Collateral" shall mean, collectively, all of
the property and assets pledged to the Existing Senior Note Trustee by the
Borrower pursuant to the "Collateral Documents" (as defined in the Existing
Senior Note Indenture as in effect on the date hereof) as set forth in
Schedule 1.43 hereto.
1.44 "Existing Senior Note Collateral Account" means account no.
92200803 maintained by Borrower with Key Bank, National Association, formerly
known as Society National Bank, Indiana.
1.45 "Existing Senior Note Indenture" shall mean the Indenture, dated as
of July 1, 1993, by and between the Existing Senior Note Trustee and Borrower,
as the same now exists or may hereafter be amended, modified, supplemented,
extended, renewed, restated or replaced.
1.46 "Existing Senior Note Trustee" shall mean Mellon Bank, F.S.B., a
federal savings bank, in its capacity as trustee under the Existing Senior
Note Indenture, and any successor trustee appointed pursuant to the terms of
the Existing Senior Note Indenture.
1.47 "Existing 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 Existing Senior Note
Indenture, as the same now exist or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced.
1.48 "Existing Subordinated Note Indenture" shall mean the Indenture,
dated as of August 31, 1989, among the Existing Subordinated Note Trustee and
Haynes Acquisition Corporation, a Delaware corporation, as supplemented by a
First Supplement to Indenture, dated August 31, 1989, a Second Supplement to
Indenture, dated February 2, 1990, a Third Supplement to Indenture, dated
February 9, 1995 and a Fourth Supplement to Indenture, dated January 31, 1996,
in each case between the Existing 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.
1.49 "Existing 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 Existing Subordinated Note
Indenture, as the same now exist or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced.
1.50 "Existing Subordinated Note Trustee" shall mean Fleet National Bank
of Connecticut, as successor to Shawmut Bank, Connecticut, National
Association, as successor to The Connecticut National Bank, a national banking
association, in its capacity as trustee under the Existing Subordinated Note
Indenture, and any successor trustee appointed pursuant to the terms of the
Existing Subordinated Note Indenture.
1.51 "Event of Default" shall mean the occurrence or existence of any
event or condition described in Section 11.1 hereof.
1.52 "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.
1.53 "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.
1.54 "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 Section 10.15 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 Agent prior to the date hereof.
1.55 "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).
1.56 "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 Agent and Lenders in connection with the preparation of this
Agreement and the other Financing Agreements and the financing arrangements
provided for herein.
1.57 "Interest Period" shall mean for any Eurodollar Rate Loan, a period
of thirty (30) days, sixty (60) days, or ninety (90) days duration as Borrower
may elect, the exact duration to be determined in accordance with the
customary practice in the applicable Eurodollar Rate market; provided, that,
Borrower may not elect an Interest Period which will end after the last day of
the then-current term of this Agreement.
1.58 "Interest Rate" shall mean, subject to Section 4.1 hereof, as to
Prime Rate Loans, a rate of three-quarters of one (3/4%) percent per annum in
excess of the Prime Rate and, as to Eurodollar Rate Loans, a rate of two and
three-quarters (2 3/4%) percent per annum in excess of the Adjusted Eurodollar
Rate (based on the Eurodollar Rate applicable for the Interest Period selected
by Borrower as in effect three (3) Business Days after the date of receipt by
Agent of the request of Borrower for such Eurodollar Rate Loans in accordance
with the terms hereof, whether such rate is higher or lower than any rate
previously quoted to Borrower); provided, that, the Interest Rate shall mean
the rate of two and three- quarters (2 3/4%) percent per annum in excess of
the Prime Rate as to Prime Rate Loans and the rate of four and three-quarters
(4 3/4%) percent per annum in excess of the Adjusted Eurodollar Rate as to
Eurodollar Rate Loans, at Agent's option, without notice, (a) for the period
(i) on and after the date of termination or non-renewal hereof and until such
time as all Obligations are indefeasibly paid in full (notwithstanding entry
of any judgment against Borrower), or (ii) the date of the occurrence of any
Event of Default and for so long as such Event of Default is continuing as
determined by Agent and (b) on the Loans at any time outstanding in excess of
the amounts available to Borrower under Section 3 (whether or not such
excess(es), arise or are made with or without Agent's or any Lender's
knowledge or consent and whether made before or after an Event of Default).
1.59 "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, merchandise and such other
personal property, and all documents of title or other documents representing
them.
1.60 "LC Limit" shall mean (a) at all times prior to the Redemption
Date, the amount equal to: (i) $10,000,000 minus (ii) 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)
and (b) at all times on and after the Redemption Date, the amount equal to
$10,000,000.
1.61 "LC Loans" shall mean the loans now or hereafter made by Agent or
any Lender to or for the benefit of Borrower at any time prior to the
Redemption Date arising pursuant to payment made by Agent or any Lender to any
beneficiary or issuer of any of the Letter of Credit Accommodations as set
forth in Section 3.2 hereof.
1.62 "Letter of Credit Accommodations" shall mean, with respect to the
Credit Facility, the letters of credit or other guarantees which are from
time to time either (a) issued or opened by Agent or any Lender for the
account of Borrower or any Obligor or (b) with respect to which Agent or any
Lender has agreed to indemnify the issuer or guaranteed to the issuer the
performance by Borrower of its obligations to such issuer.
1.63 "Loans" shall mean the Revolving Loans and the LC Loans.
1.64 "Maximum Credit" shall mean the amount of $50,000,000, except,
that, at all times prior to the Redemption Date, the term "Maximum Credit"
shall mean $25,000,000.
1.65 "Mortgage Documents" shall mean, individually and collectively,
each of the following (as the same may hereafter exist and may thereafter be
amended, modified, supplemented, extended, renewed, restated or replaced):
(a) the Mortgage, Security Agreement, Assignment of Leases and Rents and
Financing Statement by Borrower in favor of Lender with respect to the Real
Property and related assets of Borrower in Kokomo, Howard County, Indiana and
the Environmental Disclosure Document for Transfer of Real Property prepared
by Borrower in connection with such Real Property, and (b) the Collateral
Mortgage Note in the amount of $50,000,000 issued by Borrower, the Act of
Collateral Pledge Agreement by Borrower in favor of Lender and the Act of
Collateral Mortgage by Borrower in favor of Lender with respect to the Real
Property and related assets of Borrower in Arcadia, Bienville Parish,
Louisiana.
1.66 "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.
1.67 "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 Agent or any Lender
and/or any of their 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 Agent or any
Lender.
1.68 "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.
1.69 "Parent" shall mean Haynes Holdings, Inc., a Delaware corporation,
and its successors and assigns.
1.70 "Parent Common Stock" shall mean the Capital Stock of Parent,
consisting of its common stock, par value $0.01 per share.
1.71 "Participant" shall have the meaning set forth in Section 14.6
hereof.
1.72 "Payment Account" shall have the meaning set forth in Section 7.3
hereof.
1.73 "Permitted Holders" shall mean MLGA Fund II, L.P., a Delaware
limited partnership and its Affiliates.
1.74 "Person" or "person" shall mean any individual, sole
proprietorship, partnership, corporation (including, without limitation, any
corporation which elects subchapter S status under the Code), limited
liability company, limited liability partnership, 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.
1.75 "Prime Rate" shall mean the rate from time to time publicly
announced by CoreStates, 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.
1.76 "Prime Rate Loans" shall mean any Loans or portion thereof on which
interest is payable based on the Prime Rate in accordance with the terms
thereof.
1.77 "Pro Rata Share" shall mean, with respect to each Lender, its
proportionate share of the Loans and the risk under Letter of Credit
Accommodations, based on its Commitment Percentage.
1.78 "Public Equity Offering" shall mean any underwritten public
offering of common stock of Borrower or Parent pursuant to a registration
statement filed pursuant to the Securities Act which offering is consummated
after the date hereof.
1.79 "Qualified Capital Stock" of any Person means any and all Capital
Stock of such Person other than Redeemable Capital Stock.
1.80 "Real Property" shall mean all now owned and hereafter acquired
real property of Borrower, including leasehold interests, together with all
buildings, structures and other improvements located thereon and all licenses,
easements and appurtenances and all leases and rents and condemnation awards
relating thereto, all as more particularly described in the Mortgage
Documents, located in Kokomo, Howard County, Indiana and Arcadia, Bienville
Parish, Louisiana.
1.81 "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.
1.82 "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
6.1(a), 6.1(b), 6.1(c), 6.1(d) and Section 6.1(f) hereof.
1.83 "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 the date specified in the
Senior Note Indenture as the fixed date on which the principal of the Senior
Notes is due and payable or is redeemable at the option of the holder thereof
at any time prior to any such date specified in the Senior Note Indenture, or
is convertible into or exchangeable for debt securities at any time prior to
any such date specified in the Senior Note Indenture at the option of the
holder thereof.
1.84 "Redemption Date" shall have the meaning set forth in Section 3.3
hereof.
1.85 "Redemption Escrow Accounts" shall mean the deposit accounts
described on Schedule 1.85 hereto in which the proceeds of the Borrower Debt
Offering shall be held prior to the Redemption Date.
1.86 "Reference Bank" shall mean CoreStates, or such other bank as Agent
may from time to time designate.
1.87 "Required Lenders" shall mean, as of any date of determination
thereof, Lenders holding more than fifty (50%) percent of the aggregate
outstanding principal amount of Loans and outstanding Letter of Credit
Accommodations, or, if there are no Loans or Letter of Credit Accommodations
outstanding, then such term shall mean Lenders having aggregate Commitment
Percentages of more than fifty (50%) percent.
1.88 "Revolving Loan Limit" shall mean $20,000,000.
1.89 "Revolving Loans" shall mean the loans now or hereafter made to or
for the benefit of Borrower by Lenders or, at Agent's option, by Agent for the
ratable account of Lenders, on a revolving basis pursuant to the Credit
Facility (involving advances, repayments and readvances) as set forth in
Section 3.1 hereof.
1.90 "Sale and Leaseback Transaction" shall mean any transaction or
series of related transactions pursuant to which Borrower or a Subsidiary of
Borrower sells or transfers any property or asset in connection with the
leasing, or the resale against installment payments, of such property or asset
to Borrower or such Subsidiary.
1.91 "Securities Act" shall mean the Securities Act of 1933, 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 related thereto.
1.92 "Senior Note Indenture" shall mean the Indenture, dated of even
date herewith, by and between the Senior Note Trustee and Borrower, as the
same now exists or may hereafter be amended, modified, supplemented, extended,
renewed, restated or replaced.
1.93 "Senior Notes" shall mean, collectively, the 11 5/8% Senior Notes
due 2004, issued by Borrower in the aggregate principal amount of $140,000,000
pursuant to the Senior Note Indenture, as the same now exist or may hereafter
be amended, modified, supplemented, extended, renewed, restated or replaced.
1.94 "Senior Note Trustee" shall mean National City Bank, 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.
1.95 "Subscription Agreement" shall mean the Stock Subscription
Agreement, dated as of August 31, 1989, by and among Borrower, Parent 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.
1.96 "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.
1.97 "Total Availability" shall mean (a) at all times prior to the
Redemption Date, the amount equal to: (i) the sum of (A) sixty (60%) percent
of the Value of Eligible Inventory consisting of finished goods and raw
materials for such finished goods plus (B) forty-five (45%) percent of the
Value of Eligible Inventory consisting of work-in-process and semi-finished
goods (the "WIP Amount") plus (C) eighty-five (85%) percent of the Net Amount
of Eligible Accounts minus (ii) any Availability Reserves; provided, that, for
purposes of determining Total Availability at all times prior to the
Redemption Date, at no time shall the WIP Amount exceed $10,000,000 and (b) at
all times on and after the Redemption Date, the amount equal to: (i) the sum
of (A) eighty-five (85%) percent of the Net Amount of Eligible Accounts, plus
(B) sixty (60%) percent of the Value of Eligible Inventory consisting of
finished goods and raw materials for such finished goods, plus (C) forty-five
(45%) percent of the Value of Eligible Inventory consisting of work-in-process
and semi-finished goods, minus (ii) any Availability Reserves.
1.98 "Value" shall mean, as determined by Agent 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.
1.99 "Voting Stock" shall mean Capital 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.)
SECTION 2. ACKNOWLEDGEMENT AND RESTATEMENT
2.1 Existing Obligations. Borrower hereby acknowledges, confirms and
agrees that Borrower is indebted to Lenders (as assignees of Congress pursuant
to the Assignment Agreement) for Loans to Borrower under the Existing Congress
Agreement, as of the close of business on August 22, 1996, in the aggregate
principal amount of $13,562,147 and the aggregate amount of $2,774,553 in
respect of Letter of Credit Accommodations, together with all interest accrued
and accruing thereon (to the extent applicable), and all costs, expenses and
other charges relating thereto, all of which are unconditionally owing by
Borrower to Lenders, without offset, defense or counterclaim of any kind,
nature or description whatsoever.
2.2 Acknowledgement of Security Interest. Borrower hereby
acknowledges, confirms and agrees that (a) Agent, for itself and the ratable
benefit of Lenders, has and shall continue to have a security interest in and
lien upon the Collateral heretofore granted to Agent as assignee of Congress
under the Assignment Agreement pursuant to the Existing Congress Agreement, as
well as any Collateral granted hereunder or under the other Financing
Agreements or otherwise granted to or held by Agent or any Lender, and (b) the
liens and security interests of Agent in the Collateral shall be deemed to be
continuously granted and perfected from the earliest date of the granting and
perfection of such liens and security interests, whether directly to Agent or
to Agent as assignee of Congress under the Assignment Agreement or otherwise.
2.3 Existing Congress Agreement. Borrower hereby acknowledges,
confirms and agrees that: (a) the Existing Congress Agreement has been duly
executed and delivered by Borrower and is in full force and effect as of the
date hereof; (b) the agreements and obligations of Borrower contained in the
Existing Congress Agreement constitute the legal, valid and binding
obligations of Borrower enforceable against it in accordance with its terms
and Borrower has no valid defense to the enforcement of such obligations; and
(c) Agent and Lenders are entitled to all of the rights, remedies and benefits
provided for in or arising pursuant to the Existing Congress Agreement.
2.4 Restatement.
(a) Except as otherwise stated in Section 2.2 hereof and this
Section 2.4, as of the date hereof, the terms, conditions, agreements,
covenants, representations and warranties set forth in the Existing Congress
Agreement are hereby amended and restated in their entirety, and as so amended
and restated, replaced and superseded, by the terms, conditions, agreements,
covenants, representations and warranties set forth in this Agreement, except
that nothing herein or in the other Financing Agreements shall impair or
adversely affect the continuation of the liability of Borrower for the
Obligations heretofore incurred and the security interests, liens and other
interests in the Collateral heretofore granted, pledged and/or assigned by
Borrower to Agent (whether directly to Agent or to Agent as assignee of
Congress under the Assignment Agreement or otherwise).
(b) The amendment and restatement contained herein shall not, in
any manner, be construed to constitute payment of, or impair, limit, cancel or
extinguish, or constitute a novation in respect of any of the obligations,
liabilities and indebtedness of Borrower evidenced by or arising under the
Existing Congress Agreement, and the liens and security interests securing
such other obligations, liabilities and indebtedness, which shall not in any
manner be impaired, limited, terminated, waived or released.
(c) All loans, advances and other financial accommodations under
the Existing Congress Agreement and all other Obligations of Borrower to
Congress outstanding and unpaid as of the date hereof pursuant to the Existing
Congress Agreement or otherwise shall be deemed Obligations of Borrower
pursuant to the terms hereof, and shall constitute and be deemed either
Revolving Loans, Letter of Credit Accommodations or LC Loans to Borrower to
the same extent and in the same amount as such Obligations were deemed to be
under the Existing Congress Agreement.
SECTION 3. CREDIT FACILITIES
3.1 Loans.
(a) Subject to, and upon the terms and conditions contained herein,
each of Lenders severally (and not jointly) agrees to fund its Pro Rata Share
of Revolving Loans to Borrower from time to time under the Credit Facility in
amounts requested by Borrower up to:
(i) at all times prior to the Redemption Date, the lesser
of: (A) the amount equal to (1) the Total Availability minus (2) the
outstanding Letter of Credit Accommodations and LC Loans or (B) the Revolving
Loan Limit, and
(ii) at all times on and after the Redemption Date, the
lesser of: (A) the Total Availability or (B) the Maximum Credit.
(b) Agent 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 Agent 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 Agent 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), Agent 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 Agent'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 as then in effect and (ii) at all times prior to
the Redemption Date, 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, exceeds 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 Agent and Lenders in that circumstance or on any future
occasions and Borrower shall, upon demand by Agent, which may be made at any
time or from time to time, immediately repay to Agent, for the ratable benefit
of Lenders, the entire amount of any such excess(es) for which payment is
demanded.
3.2 Letter of Credit Accommodations.
(a) Subject to, and upon the terms and conditions contained herein,
at the request of Borrower, pursuant to the Credit Facility, Agent agrees, for
the ratable risk of each Lender according to its Pro Rata Share, 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 Agent and the issuer thereof up to: (i) at all times
prior to the Redemption Date, the lesser of: (A) the amount equal to (1) the
Total Availability minus (2) the outstanding Revolving Loans and (B) the LC
Limit as then in effect, and (ii) at all times on and after the Redemption
Date, the LC Limit as then in effect. 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 Agent
or Lenders to any issuer thereof and/or related parties in connection with the
Letter of Credit Accommodations prior to the Redemption Date shall constitute
LC Loans to Borrower pursuant to this Section 3.
(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 Agent, for the benefit of Lenders, a letter of credit
fee at a rate equal to one and three-quarters (1-3/4%) 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 Agent or any Lender with respect thereto. Effective on the
issuance of each Letter of Credit Accommodation, an Availability Reserve shall
be established in an amount equal to one hundred (100%) percent of the face
amount of such Letter of Credit Accommodation and all other commitments and
obligations made or incurred by Agent or any Lender with respect thereto.
(d) Except in Agent's discretion, the aggregate amount of all
outstanding Letter of Credit Accommodations and all other commitments and
obligations made or incurred by Agent and Lenders 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, Agent may require Borrower to 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 Agent, for itself and the ratable benefit of Lenders, for the
Letter of Credit Accommodations, and in either case, the Loans otherwise
available to Borrower shall not be reduced as provided in Section 3.2(c) to
the extent of such cash collateral.
(e) Borrower shall indemnify and hold Agent and Lenders harmless
from and against any and all losses, claims, damages, liabilities, costs and
expenses which Agent or any 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 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 Agent and Lenders 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 3.2(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 Agent or any Lender in
any manner. Agent and Lenders shall have no liability of any kind with
respect to any Letter of Credit Accommodation provided by an issuer other than
Agent unless Agent 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 Agent, or any other issuer or any 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. Agent 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. Agent 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 Agent and Lenders.
Any duties or obligations undertaken by Agent and Lenders to any issuer or
correspondent in any application for any Letter of Credit Accommodation, or
any other agreement by Agent or any 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 Agent or the applicable Lender(s) and
to apply in all respects to Borrower.
3.3 Increase in Maximum Credit. The Maximum Credit shall increase from
$25,000,000 to $50,000,000 on the date of the redemption by Borrower of the
Existing Notes (the "Redemption Date"), provided, that, each of the following
conditions is satisfied in a manner reasonably satisfactory to Agent:
(a) the Existing Notes shall be redeemed on the date set forth in
the written notices of redemption given on the date hereof to the holders of
the Existing Notes in accordance with the applicable provisions of the
Existing Senior Note Indenture and the Existing Subordinated Note Indenture;
(b) the initial Loans to Borrower on the Redemption Date shall be
used to pay the amount required to be paid by Borrower to redeem the Existing
Notes as provided for herein, after all of the net cash proceeds received by
Borrower from the Borrower Debt Offering have been used to redeem the Existing
Notes;
(c) Agent shall have received evidence, in form and substance
reasonably satisfactory to Agent, that on the Redemption Date, the sum of (i)
the then remaining proceeds of the net cash proceeds received by Borrower from
the Borrower Debt Offering together with any interest or dividends thereon
(all of which shall be available without restriction or condition for payment
to the holders of the Existing Notes) plus (ii) the amount equal to (A) the
Excess Availability as of such date minus (B) $5,000,000, is equal to or
greater than the amount required to pay in full all principal, interest,
premiums and any other amounts required to be paid to redeem the Existing
Notes in accordance with the applicable provisions of the Existing Senior Note
Indenture and the Existing Subordinated Note Indenture; and
(d) Agent shall have received evidence, in form and substance
reasonably satisfactory to Agent, that Agent has valid perfected and first
priority security interests in and mortgages and liens upon the Real Property,
the Equipment and the related assets as described on Schedule 3.3 hereto,
subject only to the security interests and liens permitted herein or in the
other Financing Agreements;
(e) all requisite corporate action and proceedings in connection
with the grant to Agent of a security interest in and mortgage and lien upon
the Real Property, the Equipment and the related assets described on Schedule
3.3 hereto, shall be reasonably satisfactory in form and substance to Agent,
and Agent shall have received all information and copies of all documents,
including, without limitation, records of requisite corporate actions and
proceeds which Agent may have reasonably requested in connection therewith,
such documents where requested by Agent or its counsel to be certified by
appropriate corporate officers or governmental authorities;
(f) Agent shall have received, in form and substance reasonably
satisfactory to Agent, a valid and effective title insurance policy issued by
a company and agent acceptable to Agent (i) insuring the priority, amount and
sufficiency of the appropriate Mortgage Documents, (ii) insuring against
matters that would be disclosed by surveys and (iii) containing any legally
available endorsements, assurances or affirmative coverage requested by Agent
for protection of its interests;
(g) Agent shall have received, in form and substance reasonably
satisfactory to Agent, an amendment to this Agreement to amend the definition
of Collateral to include the Real Property, the Equipment and the related
assets described on Schedule 3.3 hereto and such other matters as Agent may
reasonably request, duly authorized, executed and delivered by Borrower;
(h) Agent shall have received, in form and substance reasonably
satisfactory to Agent, an equipment security agreement granting to Agent, for
the ratable benefit of Lenders, a security interest in and lien upon the
Equipment and related assets described on Schedule 3.3 hereto, and containing
such other terms and provisions with respect thereto as Agent may reasonably
require, related Uniform Commercial Code financing statements, the Mortgage
Documents and such other agreements, documents and instruments as Agent may
reasonably require in connection therewith, in each case duly authorized,
executed and delivered by Borrower;
(i) Agent shall have received, in form and substance reasonably
satisfactory to Agent, such opinion letters of counsel to Borrower with
respect to the agreements delivered to Lender pursuant to Section 3.3(h) above
and such other matters related thereto as Agent may reasonably request; and
(j) 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.
3.4 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 Agent's continuing right to
establish and revise Availability Reserves as provided in this Agreement.
3.5 Commitments. The aggregate amount of each Lender's share of the
Loans and Letter of Credit Accommodations shall not exceed the amount set
forth below such Lender's signature on the signature pages hereto, as the same
may from time to time be amended with the written acknowledgment of Agent.
Such amount for each Lender is referred to herein as such Lender's
"Commitment", provided, that, prior to the Redemption Date, (a) each Lender's
Commitment shall be fifty (50%) percent of such amount and (b) the aggregate
amount of each Lender's share of the Loans and Letter of Credit Accommodations
shall not exceed fifty (50%) percent of the amount set forth below such
Lender's signature on the siganture pages hereto.
SECTION 4. INTEREST AND FEES
4.1 Interest.
(a) Borrower shall pay to Agent, for the ratable benefit of
Lenders, interest on the outstanding principal amount of the non-contingent
Obligations at the Interest Rate. All interest accruing hereunder on and
after the date of any Event of Default or termination or non-renewal hereof
shall be payable on demand.
(b) Borrower may from time to time request that Prime Rate Loans be
converted to Eurodollar Rate Loans or that any existing Eurodollar Rate Loans
continue for an additional Interest Period. Such request from Borrower shall
specify the amount of the Prime Rate Loans which will constitute Eurodollar
Rate Loans (subject to the limits set forth below) and the Interest Period to
be applicable to such Eurodollar Rate Loans. Subject to the terms and
conditions contained herein, three (3) Business Days after receipt by Agent of
such a request from Borrower, such Prime Rate Loans shall be converted to
Eurodollar Rate Loans or such Eurodollar Rate Loans shall continue, as the
case may be, 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 exists or has occurred and is continuing, (ii) no party hereto
shall have sent any notice of termination or non-renewal of this Agreement,
(iii) Borrower shall have complied with such customary procedures as are
established by Agent and specified by Agent to Borrower from time to time for
requests by Borrower for Eurodollar Rate Loans, (iv) no more than four (4)
Interest Periods may be in effect at any one time, (v) the aggregate amount of
the Eurodollar Rate Loans must be in an amount not less than $5,000,000 or an
integral multiple of $1,000,000 in excess thereof, (vi) the maximum amount of
the Eurodollar Rate Loans at any time requested by Borrower shall not exceed
the amount equal to seventy-five (75%) percent of the lowest principal amount
of the Loans which it is anticipated will be outstanding during the applicable
Interest Period, in each case as determined by Agent (but with no obligation
of Agent and Lenders to make such Revolving Loans) and (vii) Agent shall have
determined that the Interest Period or Adjusted Eurodollar Rate is available
to Agent through the Reference Bank and can be readily determined as of the
date of the request for such Eurodollar Rate Loan by Borrower. Any request by
Borrower to convert Prime Rate Loans to Eurodollar Rate Loans or to continue
any existing Eurodollar Rate Loans shall be irrevocable. Notwithstanding
anything to the contrary contained herein, Agent, Lenders and Reference Bank
shall not be required to purchase United States Dollar deposits in the London
interbank market or other applicable Eurodollar Rate market to fund any
Eurodollar Rate Loans, but the provisions hereof shall be deemed to apply as
if Agent, Lenders and Reference Bank had purchased such deposits to fund the
Eurodollar Rate Loans.
(c) Any Eurodollar Rate Loans shall automatically convert to Prime
Rate Loans upon the last day of the applicable Interest Period, unless Agent
has received and approved a request to continue such Eurodollar Rate Loan at
least three (3) Business Days prior to such last day in accordance with the
terms hereof. Any Eurodollar Rate Loans shall, at Agent's option, upon notice
by Agent to Borrower, convert to Prime Rate Loans in the event that (i) an
Event of Default or an act, condition or event which with the notice or
passage of time or both would constitute an Event of Default, shall exist,
(ii) this Agreement shall terminate or not be renewed, or (iii) the aggregate
principal amount of the Prime Rate Loans which have previously been converted
to Eurodollar Rate Loans or existing Eurodollar Rate Loans continued, as the
case may be, at the beginning of an Interest Period shall at any time during
such Interest Period exceed either (A) the aggregate principal amount of the
Loans then outstanding, or (B) Loans then available to Borrower under Section
3 hereof. Borrower shall pay to Agent, for itself and the ratable benefit of
Lenders, upon demand by Agent (or Agent may, at its option, charge any loan
account of Borrower) any amounts required to compensate Agent, Lenders, the
Reference Bank or any Participant for any loss (including loss of anticipated
profits), cost or expense incurred by such person, as a result of the
conversion of Eurodollar Rate Loans to Prime Rate Loans pursuant to any of the
foregoing.
(d) Interest shall be payable by Borrower to Agent, for itself and
the ratable benefit of Lenders, 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 on
non- contingent Obligations (other than Eurodollar Rate Loans) 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 Agent, for itself and the ratable benefit of Lenders
exceed the maximum amount or the rate permitted under any applicable law or
regulation, and if any such 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.
(e) In the event that the EBITDA of Borrower for any four (4)
consecutive fiscal quarters (treated as a single accounting period) ending on
or after September 30, 1996 calculated based on the financial statements of
Borrower for such period which are delivered to Agent in accordance with
Section 9.6 hereof is greater than $34,000,000 (which as to the four (4)
consecutive fiscal quarters ending September 30, 1996 shall be calculated
based on the drafts of the audited financial statements to be provided by
Borrower to Agent), then effective as of the first day of the month after the
date of the receipt by Agent of such financial statements the Interest Rate
based on the Prime Rate and the Adjusted Eurodollar Rate shall each be reduced
by one-quarter of one (1/4%) percent per annum (except such reduction shall be
effective as of the end of the applicable Interest Period as to any then
outstanding Eurodollar Rate Loans) and for so long thereafter as the EBITDA of
Borrower shall be greater than $34,000,000 for the immediately preceding four
(4) consecutive quarters (treated as a single accounting period). In the
event that the EBITDA of Borrower for any four (4) consecutive fiscal quarters
of Borrower shall thereafter be less than or equal to $34,000,000, the
Interest Rate shall increase to the percentages set forth in Section 1.58
hereof effective as of the first day of the month after the date of receipt by
Agent of the financial statements of Borrower as described above until such
time (if ever) as the EBITDA of Borrower for any four (4) consecutive fiscal
quarters (treated as a single accounting period) again exceeds $34,000,000
calculated based on the financial statements of Borrower for such period.
4.2 Closing Fee. Borrower shall pay to Agent, for the benefit of
Lenders, as a closing fee the amount of $375,000, which shall be fully earned
as of and payable on the date hereof.
4.3 Servicing Fee. Borrower shall pay to Agent, for its own account,
monthly a servicing fee in an amount equal to $3,000 in respect of Agent's
services for each month (or part thereof) during the term of the Credit
Facility 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.
4.4 Unused Line Fee. Borrower shall pay to Agent, for the benefit of
Lenders, monthly an unused line fee at all times prior to the Redemption Date,
at a rate equal to three-eighths of one (3/8%) percent per annum calculated
upon the amount by which the Maximum Credit (as then in effect) exceeds the
average daily principal balance of the outstanding Loans and Letter of Credit
Accommodations during the immediately preceding month (or part thereof) and at
all times on and after the Redemption Date, at a rate equal to three-eighths
of one (3/8%) percent per annum calculated on the amount by which $40,000,000
exceeds the average daily principal balance of the outstanding Loans and
Letter of Credit Accommodations during the immediately preceding month (or
part thereof), in each case 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.
4.5 Changes in Laws and Increased Costs of Loans.
(a) Notwithstanding anything to the contrary contained herein, all
Eurodollar Rate Loans shall, upon notice by Agent to Borrower, convert to
Prime Rate Loans in the event that (i) any change in applicable law or
regulation (or the interpretation or administration thereof) shall either (A)
make it unlawful for Agent, any Lender, Reference Bank or any Participant to
make or maintain Eurodollar Rate Loans or to comply with the terms hereof in
connection with the Eurodollar Rate Loans, or (B) shall result in the increase
in the costs to Agent, any Lender, Reference Bank or any Participant of making
or maintaining any Eurodollar Rate Loans by an amount deemed by Agent to be
material, or (C) reduce the amounts received or receivable by Agent in respect
thereof, by an amount deemed by Agent to be material or (ii) the cost to
Agent, any Lender, Reference Bank or any Participant of making or maintaining
any Eurodollar Rate Loans shall otherwise increase by an amount deemed by
Agent to be material. Borrower shall pay to Agent, for itself and the ratable
benefit of Lenders, upon demand by Agent (or Agent may, at its option, charge
any loan account of Borrower) any amounts required to compensate Agent, any
Lender, the Reference Bank or any Participant for any loss (including loss of
anticipated profits), cost or expense incurred by such person as a result of
the foregoing, including, without limitation, any such loss, cost or expense
incurred by reason of the liquidation or reemployment of deposits or other
funds acquired by such person to make or maintain the Eurodollar Rate Loans or
any portion thereof. A certificate of Agent setting forth the basis for the
determination of such amount necessary to compensate Agent as aforesaid shall
be delivered to Borrower and shall be conclusive, absent manifest error.
(b) If any payments or prepayments in respect of the Eurodollar
Rate Loans are received by Agent, other than on the last day of the applicable
Interest Period (whether pursuant to acceleration, upon maturity or
otherwise), including any payments pursuant to the application of collections
under Section 7.3 or any other payments made with the proceeds of Collateral,
Borrower shall pay to Agent upon demand by Agent (or Agent may, at its option,
charge any loan account of Borrower) any amounts required to compensate Agent,
any Lender, the Reference Bank or any Participant for any additional loss
(including loss of anticipated profits), cost or expense incurred by such
person as a result of such prepayment or payment, including, without
limitation, any loss, cost or expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by such person to make or
maintain such Eurodollar Rate Loans or any portion thereof.
SECTION 5. CONDITIONS PRECEDENT
5.1 Conditions Precedent to Initial Loans and Letter of Credit
Accommodations. Each of the following is a condition precedent to Lenders (or
Agent on behalf of Lenders) making the initial Loans and providing the initial
Letter of Credit Accommodations hereunder:
(a) Agent shall have received evidence, in form and substance
satisfactory to Agent, that (i) Borrower has validly issued and sold the
Senior Notes pursuant to the Borrower Debt Offering and the transactions
contemplated in connection with such offering have been consummated in
compliance with all applicable laws and regulations and all necessary consents
and approvals in connection therewith have been obtained and are in full force
and effect, (ii) the Senior Notes and all agreements, documents and
instruments relating thereto have been duly authorized, executed and delivered
by the parties thereto and (iii) Borrower has received from or on behalf of
the holders of the Senior Notes cash or other immediately available funds in
the aggregate amount of not less than approximately $132,000,000 constituting
the net cash proceeds after transaction costs paid on the date hereof of the
issuance of the Senior Notes pursuant to the Borrower Debt Offering, and (iv)
such net cash proceeds have been deposited in the Redemption Escrow Accounts
and such amounts are held in such accounts free and clear of any right of
setoff, lien, claim, security interest or other encumbrance and there are no
restrictions, limitations or conditions on the right of Borrower to withdraw
or use such funds, except as otherwise provided herein;
(b) Agent shall have received the Assignment Agreement, duly
authorized, executed and delivered by the parties thereto;
(c) all requisite corporate action and proceedings in connection
with this Agreement and the other Financing Agreements shall be satisfactory
in form and substance to Agent, and Agent shall have received all information
and copies of all documents, including, without limitation, records of
requisite corporate action and proceedings which Agent may have requested in
connection therewith, such documents where requested by Agent or its counsel
to be certified by appropriate corporate officers or governmental authorities;
(d) no material adverse change shall have occurred in the assets,
business or prospects of Borrower since the date of Agent'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 Agent or Lenders to enforce the Obligations or realize
upon the Collateral;
(e) Agent shall have completed a field review of the Records and
such other information with respect to the Collateral as Agent may require to
determine the amount of Loans available to Borrower, the results of which
shall be satisfactory to Agent, not more than three (3) Business Days prior to
the date hereof;
(f) Agent shall have received, in form and substance satisfactory
to Agent and Lenders, all consents, waivers, acknowledgments and other
agreements from third persons which Agent 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, processors, mortgagees and warehousemen of the
security interests of Agent in the Collateral, waivers by such persons of any
security interests, liens or other claims by such persons to the Collateral
and agreements permitting Agent access to, and the right to remain on, the
premises to exercise the rights and remedies of Agent and Lenders and
otherwise deal with the Collateral;
(g) Agent shall have received evidence of insurance and loss payee
endorsements required hereunder and under the other Financing Agreements, in
form and substance satisfactory to Agent and Lenders, and certificates of
insurance policies and/or endorsements naming Agent, for itself and the
ratable benefit of Lenders, as loss payee;
(h) Agent shall have received, in form and substance satisfactory
to Agent, such opinion letters of counsel to Borrower with respect to the
redemption of the Existing Notes, the Borrower Debt Offering, the Financing
Agreements and such other matters related thereto as Agent may reasonably
request; and
(i) the other Financing Agreements and all instruments and
documents hereunder and thereunder shall have been duly executed and delivered
to Agent and Lenders in form and substance satisfactory to Agent.
5.2 Conditions Precedent to All Loans and Letter of Credit
Accommodations. Each of the following is an additional condition precedent to
Lenders (or Agent on behalf of Lenders) 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 act, condition or event 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 6. GRANT OF SECURITY INTEREST
6.1 To secure payment and performance of all Obligations, Borrower
hereby grants to Agent, for itself and the ratable benefit of Lenders, a
continuing security interest in, a lien upon, and a right of set off against,
and hereby assigns to Agent, for itself and the ratable benefit of Lenders,
and also confirms, reaffirms and restates its prior grant to Agent, for itself
and the ratable benefit of Lenders, as assignee of Congress under the
Assignment Agreement, of a continuing security interest in, a lien upon, and a
right of setoff against, in each case 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;
(b) all Inventory;
(c) all monies, securities and other personal property, now or
hereafter held or received by, or in transit to, Agent, any Lender or any of
their Affiliates or a bailee of Agent, any Lender or any of their Affiliates
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 Agent, any Lender or any of their
Affiliates at any time existing;
(d) all of Borrower's deposit accounts (other than the Senior Note
Collateral Account and the Excess Refinancing Proceeds Account prior to the
Redemption Date and at all times the Redemption Escrow Accounts) with any
financial institutions with which Borrower maintains deposits;
(e) all Records; and
(f) 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.
6.2 Notwithstanding anything contained herein to the contrary, the
Collateral shall not include the following: (a) prior to the Redemption Date,
the Senior Note Collateral Account, (b) prior to the Redemption Date, 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 10.10(b) hereof, and (c) the Redemption Escrow
Accounts and the amounts on deposit therein on the date hereof to the extent
constituting proceeds of the Borrower Debt Offering and interest and dividends
thereon.
SECTION 7. COLLECTION AND ADMINISTRATION
7.1 Borrower's Loan Account. Agent 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 Agent's customary practices as in
effect from time to time.
7.2 Statements. Agent shall render to Borrower each month a statement
setting forth the balance in Borrower's loan account(s) maintained by Agent
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 Agent 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 Agent 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 Agent. Until such time as Agent 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 Agent
by Borrower to Agent and Lenders.
7.3 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 Agent may specify, with such banks as are acceptable to Agent
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 Agent, providing that all items received or
deposited in the Blocked Accounts are the property of Agent and Lenders
according to their interests hereunder, 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 Agent as Agent may from time to time
designate for such purpose ("Payment Account"). Borrower agrees that all
payments made to such Blocked Accounts or other funds received and collected
by Agent, whether on the Accounts or as proceeds of Inventory or other
Collateral shall be the property of Agent and Lenders according to their
interests hereunder.
(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 Agent 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 Agent in the Payment Account, if
such payments are received within sufficient time (in accordance with Agent'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 shareholders, directors, employees,
agents, subsidiaries and other Affiliates shall, acting as trustee for Agent,
receive, as the property of Agent and Lenders according to their interests
hereunder, 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 Agent. In no event
shall the same be commingled with Borrower's own funds. Borrower agrees to
reimburse Agent and Lenders 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 Agent
or Lenders' payments to or indemnification of such bank or person. The
obligation of Borrower to reimburse Agent and Lenders for such amounts
pursuant to this Section 7.3 shall survive the termination or non-renewal of
this Agreement.
7.4 Payments.
(a) All Obligations shall be payable to the Payment Account as
provided in Section 7.3 or such other place as Agent may designate from time
to time. Agent 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 Agent
determines. Borrower shall make all payments in respect of the Obligations as
set forth in Section 10.9(f)(v)(A)(1) hereof. At Agent'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 Agent 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.
(b) In addition, and not in limitation of the obligations of
Borrower to make any other payments hereunder or under the other Financing
Agreements, on or before the Redemption Date, Borrower shall pay to Lender for
application to the Obligations all amounts held in the Excess Refinancing
Proceeds Account. Borrower shall not use any of the funds held in such
account as of the date hereof for any other purpose.
(c) If after receipt of any payment of, or proceeds of Collateral
applied to the payment of, any of the Obligations, Agent or any 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
Agent or such Lender. Borrower shall be liable to pay to Agent and each
Lender, and does hereby indemnify and hold Agent and each Lender harmless for
the amount of any payments or proceeds surrendered or returned. This Section
7.4 shall remain effective notwithstanding any contrary action which may be
taken by Agent in reliance upon such payment or proceeds.
(d) This Section 7.4 shall survive the payment of the Obligations
and the termination or non-renewal of this Agreement.
7.5 Sharing of Payments, Etc.
(a) Borrower agrees that, in addition to (and without limitation
of) any right of setoff, banker's lien or counterclaim Agent or a Lender may
otherwise have, each Lender shall be entitled, at its option (but subject, as
among Agent and Lenders, to the provisions of Section 13.3(b) hereof), to
offset balances held by it for the account of Borrower at any of its offices,
in dollars or in any other currency, against any principal of or interest on
any Loans owed to such Lender or any other amount payable to such Lender
hereunder, that is not paid when due (regardless of whether such balances are
then due to Borrower), in which case it shall promptly notify Borrower and
Agent thereof; provided, that, such Lender's failure to give such notice shall
not affect the validity thereof.
(b) If any Lender (including Agent) shall obtain from Borrower
payment of any principal of or interest on any Loan owing to it or payment of
any other amount under this Agreement or any other Financing Agreement through
the exercise of any right of setoff, banker's lien or counterclaim or similar
right or otherwise (other than from Agent as provided herein), and, as a
result of such payment, such Lender shall have received more of its Pro Rata
Share of the principal of or interest on the Loans or such other amounts then
due hereunder or thereunder by Borrower to such Lender than the percentage
thereof received by any other Lender, it shall promptly pay to Agent, for the
benefit of Lenders, the amount of such excess and simultaneously purchase from
such other Lenders a participation in the Loans or such other amounts,
respectively, owing to such other Lenders (or such interest due thereon, as
the case may be) in such amounts, and make such other adjustments from time to
time as shall be equitable, to the end that all Lenders shall share the
benefit of such excess payment (net of any expenses that may be incurred by
such Lender in obtaining or preserving such excess payment) in accordance with
their respective Pro Rata Shares. Amounts received by Agent under this
Section 7.5(b) hereof shall be treated as a payment received from Borrower
under Section 7.5(b) hereof. To such end all Lenders shall make appropriate
adjustments among themselves (by the resale of participation sold or
otherwise) if such payment is rescinded or must otherwise be restored.
(c) Borrower agrees that any Lender so purchasing such a
participation (or direct interest) may exercise, in a manner consistent with
this Section 7.5, all rights of setoff, banker's lien, counterclaim or similar
rights with respect to such participation as fully as if such Lender were a
direct holder of Loans or other amounts (as the case may be) owing to such
Lender in the amount of such participation.
(d) Nothing contained herein shall require any Lender to exercise
any such right or shall affect the right of any Lender to exercise, and retain
the benefits of exercising, any such right with respect to any other
indebtedness or obligation of Borrower. If, under any applicable bankruptcy,
insolvency or other similar law, any Lender receives a secured claim in lieu
of a setoff to which this Section 7.5 applies, such Lender shall, to the
extent practicable, assign such rights to Agent for the benefit of Lenders
and, in any event, exercise its rights in respect of such secured claim in a
manner consistent with the rights of Lenders entitled under this Section 7.5
to share in the benefits of any recovery on such secured claim.
7.6 Authorization to Make Loans. Agent is authorized to make the Loans
and provide the Letter of Credit Accommodations, for the account and risk of
Lenders, 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 Agent, if such Loans are necessary to satisfy any Obligations.
If a beneficiary draws under any of the Letter of Credit Accommodations,
Agent, for the account and risk of Lenders, 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 Loan to be made or Letter of Credit Accommodations
established (which day shall be a Business Day) and the amount of the
requested Loan or Letter of Credit Accommodation, as the case may be.
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.
7.7 Settlement Procedures.
(a) In order to administer the Credit Facility in an efficient
manner and to minimize the transfer of funds between Agent and Lenders, Agent
shall, subject to the terms of Section 7.7 below, make available, on behalf of
Lenders, the full amount of the Loans requested or charged to Borrower's loan
account(s) or otherwise to be advanced by Lenders pursuant to the terms
hereof, without any requirement of prior notice to Lenders of the proposed
Loans.
(b) With respect to all Loans made by Agent on behalf of Lenders as
provided in this Section 7.7, the amount of each Lender's Pro Rata Share of
the outstanding Loans shall be computed weekly, and shall be adjusted upward
or downward on the basis of the amount of the outstanding Loans as of 5:00
P.M. (Chicago time) on the Business Day immediately preceding the date of each
settlement computation; provided, that, Agent retains the absolute right at
any time or from time to time to make the above described adjustments at
intervals more frequent than weekly. Agent shall deliver to each of the
Lenders after the end of each week, or at such lesser period or periods as
Agent shall determine, a summary statement of the amount of outstanding Loans
for such period (such week or lesser period or periods being hereinafter
referred to as a "Settlement Period"). If the summary statement is sent by
Agent and received by a Lender prior to 12:00 Noon (Chicago time) then such
Lender shall make the settlement transfer described in this Section by no
later than 2:00 P.M. (Chicago time) on the day such summary statement was
sent, and if such summary statement is sent by Agent and received by a Lender
after 12:00 Noon (Chicago time), such Lender shall make such settlement
transfer by no later than 2:00 P.M. (Chicago time) on the next Business Day
following the date of receipt. If, as of the end of any Settlement Period,
the amount of a Lender's Pro Rata Share of the outstanding Loans is more than
such Lender's Pro Rata Share of the outstanding Loans as of the end of the
previous Settlement Period, then such Lender shall forthwith (but in no event
later than the time set forth in the preceding sentence) transfer to Agent by
wire transfer in immediately available funds the amount of the increase;
alternatively, if the amount of a Lender's Pro Rata Share of the outstanding
Loans in any Settlement Period is less than the amount of such Lender's Pro
Rata Share of the outstanding Loans for the previous Settlement Period, Agent
shall forthwith transfer to such Lender by wire transfer in immediately
available funds the amount of the decrease. The obligation of each of the
Lenders to transfer such funds and effect such settlement shall be irrevocable
and unconditional and without recourse to or warranty by Agent. Each of Agent
and Lenders agrees to mark its books and records at the end of each Settlement
Period to show at all times the dollar amount of its Pro Rata Share of the
outstanding Loans and Letter of Credit Accommodations.
(c) To the extent that Agent has made any such amounts available
and the settlement described above shall not yet have occurred, upon repayment
of any Loans by Borrower, Agent may apply such amounts repaid directly to any
amounts made available by Agent pursuant to this Section 7.7. In lieu of
weekly or more frequent settlements, Agent may at any time require each Lender
to provide Agent with immediately available funds representing its Pro Rata
Share of each Loan, prior to Agent's disbursement of such Loan to Borrower.
(d) Because Agent, on behalf of Lenders, may be advancing or may be
repaid Loans prior to the time when Lenders will actually advance or be repaid
Loans, interest and fees with respect to the outstanding Loans shall be
allocated by Agent to each Lender (including Agent), and the amount of each
Lender's (including Agent's) Pro Rata Share shall be computed daily, in
accordance with the amount of the outstanding Loans actually advances by and
repaid to each Lender (including Agent) on each day during each Settlement
Period and shall accrue from and including the date such Loans are advanced by
Agent to but excluding the date such Loans are repaid by Borrower in
accordance with the terms of this Agreement or actually settled by the
applicable Lender as described in this Section 7.7. Provided that such Lender
has made all payments required to be made by it under this Agreement and the
other Financing Agreements, Agent will pay to such Lender, by wire transfer to
such Lender not later than 12:00 noon (Chicago time) on or about the tenth
(10th) day of each month, such Lender's Pro Rata Share of interest and fees
actually received and collected from Borrower for the benefit of Lenders.
(e) Nothing in this Section 7.7 or elsewhere in this Agreement or
the other Financing Agreements shall be deemed to require Agent to advance
funds on behalf of any Lender or to relieve any Lender from its obligation to
fulfill its Commitment hereunder or to prejudice any rights that Borrower may
have against any Lender as a result of any default by any Lender hereunder in
fulfilling its Commitment.
7.8 Use of Proceeds. The initial Loans hereunder shall arise pursuant
to the assignment by Congress to Agent and Lenders of the loans outstanding
under the existing financing arrangements of Borrower with Congress as set
forth in the Assignment Agreement. All other Loans made or Letter of Credit
Accommodations provided by Agent or Lenders 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, except, that, on the Redemption Date, after
all of the net cash proceeds received by Borrower from the Borrower Debt
Offering have been used to redeem the Existing Notes as provided for herein,
certain of the proceeds of the Loans may be used to pay the amounts required
to be paid by Borrower to redeem the Existing Notes as provided for herein not
to exceed $17,500,000. 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 8. COLLATERAL REPORTING AND COVENANTS
8.1 Collateral Reporting. Borrower shall provide Agent with the
following documents in a form satisfactory to Agent: (a) on a regular basis as
required by Agent, a schedule of Accounts; (b) on a monthly basis or more
frequently as Agent may request, (i) perpetual inventory reports, (ii)
inventory reports by category and (iii) agings of accounts payable, (c) upon
Agent'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 Agent may request; and (e) such other reports as to the
Collateral as Agent 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 Agent and to follow Agent's
instructions with respect to further services at any time that an Event of
Default exists or has occurred and is continuing.
8.2 Accounts Covenants.
(a) Borrower shall notify Agent 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 Agent's
consent, except in the ordinary course of Borrower's business in accordance
with practices and policies previously disclosed in writing to Agent. 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, Agent 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 Agent 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 Agent's request, (i)
hold the returned Inventory in trust for Agent, (ii) segregate all returned
Inventory from all of its other property, (iii) dispose of the returned
Inventory solely according to Agent's instructions, and (iv) not issue any
credits, discounts or allowances with respect thereto without Agent's prior
written consent.
(c) With respect to each Account: (i) the amounts shown on any
invoice delivered to Agent or schedule thereof delivered to Agent shall be
true and complete, (ii) no payments shall be made thereon except payments
immediately delivered to Agent 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 Agent
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
Agent, (iv) there shall be no setoffs, deductions, contras, defenses,
counterclaims or disputes existing or asserted with respect thereto except as
reported to Agent 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) Agent shall have the right at any time or times, in Agent's
name or in the name of a nominee of Agent, 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 Agent, 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 Agent may otherwise agree.
(f) Agent 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 Agent and that Agent has a security
interest therein, for itself and the ratable benefit of Lenders, and Agent may
direct any or all accounts debtors to make payment of Accounts directly to
Agent, for itself and the ratable benefit of Lenders, (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 neither Agent nor any Lender shall 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 Agent may deem necessary or desirable for the protection
of its and Lenders' 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 Agent, for itself and the ratable
benefit of Lenders, and are payable directly and only to Agent, for itself and
the ratable benefit of Lenders, and Borrower shall deliver to Agent such
originals of documents evidencing the sale and delivery of goods or the
performance of services giving rise to any Accounts as Agent may require.
8.3 Inventory Covenants. With respect to the Inventory: (a) Borrower
shall at all times maintain inventory records reasonably satisfactory to
Agent, 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 Agent may request on or after an Event of Default, and promptly
following such physical inventory shall supply Agent with a report in the form
and with such specificity as may be reasonably satisfactory to Agent
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 Agent, 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 Agent's
request, Borrower shall, at its expense, no more than once in any twelve (12)
month period, but at any time or times as Agent may request on or after an
Event of Default, deliver or cause to be delivered to Agent written reports or
appraisals as to the Inventory in form, scope and methodology acceptable to
Agent and by an appraiser acceptable to Agent, addressed to Agent or upon
which Agent 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 Agent, 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 Agent 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 segregated areas of Borrower's
facilities used solely for the purpose of storing such consigned Inventory.
8.4 Equipment Covenants. With respect to the Equipment: (a) upon
Agent's request, Borrower shall, at its expense, at any time or times as Agent
may request on or after an Event of Default, deliver or cause to be delivered
to Agent written reports or appraisals as to the Equipment in form, scope and
methodology acceptable to Agent by an appraiser acceptable to Agent; (b)
Borrower shall keep the Equipment in good order, repair, running and
marketable condition (ordinary wear and tear excepted); (c) 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; (d) the Equipment is and shall be used in Borrower's business and not
for personal, family, household or farming use; (e) Borrower shall not remove
any Equipment from the locations set forth or permitted herein except to
another such location and except for the movement of motor vehicles used by or
for the benefit of Borrower in the ordinary course of business; (f) the
Equipment is now and shall remain personal property and Borrower shall not
permit any of the Equipment to be or become a part of or affixed to real
property; and (g) Borrower assumes all responsibility and liability arising
from the use of the Equipment.
8.5 Power of Attorney. Borrower hereby irrevocably designates and
appoints Agent (and all persons designated by Agent) as Borrower's true and
lawful attorney-in-fact, and authorizes Agent, in Borrower's or Agent'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 Agent 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 Agent (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 Agent'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 Agent (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 Agent'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 Agent and each Lender and their 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 Agent's or any Lender's own gross negligence or wilful misconduct as
determined pursuant to a final non-appealable order of a court of competent
jurisdiction.
8.6 Right to Cure. Agent 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 Agent's judgment, is necessary or appropriate to preserve, protect,
insure or maintain the Collateral and the rights of Agent and Lenders with
respect thereto. Agent may add any amounts so expended to the Obligations and
charge Borrower's account therefor, such amounts to be repayable by Borrower
on demand. Agent 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 Agent
under this Section shall be without prejudice to any right to assert an Event
of Default hereunder and to proceed accordingly.
8.7 Access to Premises. From time to time as requested by Agent, at
the cost and expense of Borrower, (a) Agent 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 Agent such copies of such books and records or
extracts therefrom as Agent 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 9. REPRESENTATIONS AND WARRANTIES
Borrower hereby represents and warrants to Agent and Lenders 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 to Borrower hereunder:
9.1 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 Agent or any
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.
9.2 Financial Statements; No Material Adverse Change. All financial
statements relating to Borrower which have been or may hereafter be delivered
by Borrower to Agent or Lenders 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 Agent and Lenders 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 Agent and Lenders
prior to the date of this Agreement.
9.3 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 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 10.2 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.
9.4 Priority of Liens; Title to Properties. The security interests and
liens granted to Agent, for itself and the ratable benefit of Lenders, 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 9.4 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 Agent, for itself and the ratable benefit of Lenders,
and such others as are specifically listed on Schedule 9.4 hereto or permitted
under Section 10.8 hereof.
9.5 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 Agent). 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.
9.6 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 Agent to enforce any Obligations or realize upon any
Collateral.
9.7 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.
9.8 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 9.8(c) hereof and any deficiency with respect to vested
accrued benefits described in Section 9.8(d) hereof.
(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 9.8(a) hereof and any deficiency with respect to vested accrued
benefits described in Section 9.8(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 9.8(a)
hereof and any accumulated funding deficiency described in Section 9.8(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 9.8 hereof.
9.9 Environmental Compliance.
(a) Except as set forth on Schedule 9.9 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 9.9 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 in
any material respect or its business, operations or assets or any properties
at which Borrower has transported, stored or disposed of any Hazardous
Materials in any material respect.
(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 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.
9.10 Capitalization; Senior Notes.
(a) All of the issued and outstanding shares of Capital Stock of
Borrower are directly and beneficially owned and held as of the date hereof by
Parent and have been duly authorized and are fully paid and non-assessable,
free and clear of all claims, liens, pledges and encumbrances of any kind
(other than, prior to the Redemption Date, the lien in favor of the Existing
Senior Note Trustee for the benefit of the holders of the Existing Senior
Notes under the Existing Senior Note Indenture). As of the date hereof,
ninety and six-tenths (90.6%) percent of all of the issued and outstanding
shares of Capital Stock of Parent are directly and beneficially owned and held
by MLGA Fund II, L.P.
(b) The Senior Notes have been duly authorized, issued and
delivered by Borrower and all agreements, documents and instruments related
thereto, including, but not limited to, the Senior Note Indenture, have been
duly authorized, executed and delivered and the transactions contemplated
thereunder performed in accordance with their terms by the respective parties
thereto in all material respects, including the fulfillment (not merely the
waiver except as disclosed in writing to Agent) of all conditions precedent
set forth therein. All actions and proceedings required by the Senior Notes
and the agreements, documents and instruments related thereto, applicable law
or regulation have been taken and the transactions required thereunder have
been duly and validly taken and consummated.
(c) The execution and delivery of the Senior Notes, the Senior Note
Indenture and any of the instruments and documents to be delivered pursuant
thereto, and the consummation of the transactions therein contemplated, and
compliance with the provisions thereof, does not violate and will not violate
any law or regulation or any order or decree of any court or governmental
instrumentality in any material respect or does or will conflict with or
result in the breach of, or constitute a default in any material respect
under, any indenture, mortgage, deed of trust, agreement or instrument to
which Borrower or any of its Affiliates is a party or may be bound, or result
in the creation or imposition of any lien, charge or encumbrance upon any of
the property of Borrower (except as specifically contemplated or permitted
hereunder or under the other Financing Agreements) or violate any provision of
the Certificate of Incorporation or By-Laws of Borrower or any of its
Affiliates.
(d) No court of competent jurisdiction has issued any injunction,
restraining order or other order which prohibits consummation of the issuance
of the Senior Notes and the transactions described therein and no governmental
or other action or proceeding has been threatened or commenced, seeking any
injunction, restraining order or other order which seeks to void or otherwise
modify the Senior Notes, the Senior Note Indenture or the transactions
described therein. Borrower has delivered, or caused to be delivered, to
Agent, true, correct and complete copies of the Senior Note Indenture, the
Senior Notes and all other agreements, documents and instruments existing as
of the date hereof relating thereto.
(e) All net cash proceeds from the Borrower Debt Offering are held
in the Redemption Escrow Accounts free and clear of all claims, liens, pledges
and encumbrances of any kind, nature or description whatsoever. The proceeds
from the Borrower Debt Offering are not subject to any restrictions or
conditions relative to the transfer or use thereof (except as provided for
herein) and Borrower has the right to transfer and deliver the proceeds from
the Borrower Debt Offering, free and clear of any liens, encumbrances,
restrictions or conditions. The proceeds from the Borrower Debt Offering are
not subject to setoff, counterclaim, defense, allowance or adjustment or to
dispute, objection or complaint.
(f) Borrower is solvent and will continue to be solvent after the
creation of the Obligations, the security interests of Agent and the other
transactions contemplated hereunder, is able to pay its debts as they mature
and has (and has reason to believe it will continue to have) sufficient
capital (and not unreasonably small capital) to carry on its business and all
businesses in which it is about to engage. The assets and properties of
Borrower at a fair valuation and at their present fair salable value are, and
will be, greater than the indebtedness of Borrower, including subordinated and
contingent liabilities computed at the amount which, to the best of Borrower's
knowledge, represents an amount which can reasonably be expected to become an
actual or matured liability.
9.11 Redemption of Existing Notes.
(a) As of the date hereof, Borrower has notified the Existing
Senior Note Trustee and the Existing Subordinated Note Trustee of the
redemption date for each of the Existing Senior Notes and the Existing
Subordinated Notes, respectively, and that all of the principal amount of the
Existing Notes are to be redeemed and such notice has been given in the form
of the officer's certificate and as otherwise required under the terms of the
Existing Senior Note Indenture and Existing Subordinated Note Indenture,
respectively. The Existing Senior Note Trustee and the Existing Subordinated
Note Trustee have each agreed that the receipt of such notice by each of them
as of the date hereof is satisfactory notice to have the Existing Notes
redeemed on the date which is thirty (30) days after the date hereof.
(b) As of the date hereof, Borrower has mailed or cause to be
mailed a notice of redemption to each holder of the Existing Notes, which
notice identifies the notes to be redeemed, the redemption date and otherwise
complies with the requirements of Section 3.03 of the Existing Senior Notes
Indenture and Section 3.03 of the Existing Subordinated Note Indenture. The
redemption date set forth in such notice is September 23, 1996. As of the
date hereof, Borrower has segregated and holds in trust money which when added
to the Loans anticipated by Borrower to be available hereunder to be used for
such purpose (not to exceed $17,500,000) will be sufficient to pay the
redemption price of and accrued interest and premiums on all of the Existing
Notes on the Redemption Date. The portion of such money which will not be
borrowed hereunder is held in the Redemption Escrow Accounts until such time
as it shall be paid to each holder of the Existing Notes.
(c) The redemption of the Existing Notes has been duly authorized
by Borrower. All actions and proceedings required by the Existing Senior Note
Indenture and the Existing Subordinated Note Indenture and the agreements,
documents and instruments related thereto, and applicable law or regulation,
for the redemption of the Existing Notes on the date which is thirty (30) days
after the date hereof in accordance with the terms thereof have been taken.
(d) The issuance of the redemption notices with respect to the
Existing Notes and the redemption of the Existing Notes does not violate and
will not violate any law or regulation or order or decree of any court or
governmental instrumentality and does not and will not conflict with or result
in the breach of, or constitute a default in any respect under any indenture,
mortgage, deed of trust, agreement or instrument to which Borrower or any of
its Affiliates is a party or may be bound. Borrower has taken, or caused to
be taken, all actions and proceedings required to redeem and repay all
obligations, liabilities and indebtedness of Borrower evidenced by or arising
under or in connection with the Existing Notes, including, but not limited to,
appropriate shareholder and board approvals and notices to trustees or other
representatives of the holders of the Existing Notes, in accordance with the
terms and conditions of the Existing Senior Note Indenture and Existing
Subordinated Note Indenture and any related agreements, documents and
instruments and all applicable laws and regulations. No court of competent
jurisdiction has issued any injunction, restraining order or other order which
prohibits the redemption of the Existing Notes or repayment of the
obligations, liabilities and indebtedness of Borrower evidenced by or arising
under or in connection with the Existing Notes, and no governmental action or
proceeding has been threatened or commenced, seeking to prevent or in any way
limit the redemption or repayment thereof. Borrower has delivered, or caused
to be delivered, to Agent, true, correct and complete copies of all notices,
documents and agreements relating to the redemption and repayment of such
obligations, liabilities and indebtedness.
9.12 Accuracy and Completeness of Information. All information
furnished by or on behalf of Borrower in writing to Agent or Lenders 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 Agent and Lenders in writing.
9.13 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 Agent and Lenders on the date of
each additional borrowing or other credit accommodation hereunder and shall be
conclusively presumed to have been relied on by Agent and Lenders regardless
of any investigation made or information possessed by Agent and Lenders. 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 Agent and Lenders.
SECTION 10. AFFIRMATIVE AND NEGATIVE COVENANTS
10.1 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
(provided, that, Borrower may merge with and into Parent to the extent
permitted in Section 10.7(a) hereof) 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 Agent 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 Agent 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.
10.2 New Collateral Locations. Borrower may open any new location
within the continental United States provided Borrower (a) gives Agent 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 Agent such agreements, documents, and instruments as Agent may
deem reasonably necessary or desirable to protect its interests in the
Collateral at such location, including, without limitation, UCC financing
statements.
10.3 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 in all material respects all requirements of
any Federal, State or local governmental authority, including, without
limitation, ERISA, the Occupational Safety and Health 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 Agent. Borrower shall take prompt and appropriate action to
respond to any non-compliance with any of the Environmental Laws and shall
regularly report to Agent on such response.
(c) Borrower shall give both oral and written notice to Agent
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 directly 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
Agent 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 Agent's request
Borrower shall at Borrower's expense: (i) cause an independent environmental
engineer acceptable to Agent 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 Agent 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 Agent 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 Agent's request, Agent may take any of the actions described in
this Section 10.3(d) at Borrower's expense.
(e) Borrower shall indemnify and hold harmless Agent and Lenders,
their respective 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 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 Agent and Lenders in
connection with such indemnification by Borrower of Agent and Lenders and the
other persons as provided herein, including, but not limited to, promptly
delivering or causing to be delivered to Agent and Lenders such information as
Agent and Lenders may, in good faith, request, and allowing Agent and Lenders
or their 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 Agent and Lenders may require, at Borrower's expense.
All covenants and indemnifications in this Section 10.3(e) shall survive the
payment of the Obligations and the termination or non-renewal of this
Agreement.
10.4 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 Agent
or any Lender as a result of the financing arrangements provided for herein
and Borrower agrees to indemnify and hold Agent and each Lender harmless with
respect to the foregoing, and to repay to Agent and each 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 Agent or any Lender from any
amounts charged or paid hereunder to Agent or any Lender. The foregoing
indemnity shall survive the payment of the Obligations and the termination or
non-renewal of this Agreement.
10.5 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 Agent as to
form, amount and insurer. Borrower shall furnish certificates, policies or
endorsements to Agent as Agent shall require as proof of such insurance, and,
if Borrower fails to do so, Agent 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 Agent of any
cancellation or reduction of coverage and that Agent 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 Agent and each 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 Agent. Such lender's loss payable endorsements
shall specify that the proceeds of such insurance shall be payable to Agent,
for itself and the ratable benefit of Lenders, as their interests may appear
and further specify that Agent, for itself and the ratable benefit of Lenders,
shall be paid regardless of any act or omission by Borrower or any of its
affiliates. At its option, Agent may apply any insurance proceeds received by
Agent 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 Agent may determine or hold such proceeds as cash collateral
for the Obligations.
10.6 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 furnished to
Agent: (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 Agent 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 Agent in writing of the details
of (i) any material loss or damage to any of the Collateral not otherwise
reported by Agent 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 act, condition 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 Agent 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 Agent and
Lenders such budgets, forecasts, projections and other information respecting
the Collateral and the business of Borrower, as Agent may, from time to time,
reasonably request. Agent and Lenders are 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, subject to Section
14.7 hereof, to any Participant or Assignee or prospective Participant or
Assignee. Borrower hereby irrevocably authorizes and directs all accountants
or auditors to deliver to Agent and Lenders, 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 Agent and Lenders may be destroyed or otherwise
disposed of by Agent and Lenders one (1) year after the same are delivered to
Agent and Lenders except as otherwise designated by Borrower to Agent and
Lenders in writing.
10.7 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 Borrower may merge with and into Parent, provided, that, (i) as of the
effective date of the merger and after giving effect thereto, 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)
Agent 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, (iii) 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 Agent, all of the Obligations and the Financing
Agreements and execute and deliver such other agreements, documents and
instruments as Agent may request in connection therewith, (iv) the surviving
entity shall, immediately before and immediately after giving effect to such
transaction or series of transactions, have a Adjusted 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 Adjusted Net Worth of Borrower immediately prior
to such transaction or series of transactions and (v) the surviving entity
shall not become obligated with respect to any indebtedness, nor any of its
property become subject to any lien, unless Borrower 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 100 acres of
undeveloped farm land in Kokomo, Indiana, (iii) the disposition of worn-out or
obsolete Equipment or Equipment no longer used in the business of Borrower,
and (iv) the sale by Borrower and its Subsidiaries of fixed assets (other than
sales of fixed assets as permitted in Sections 10.7(b)(ii) and (iii) 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.
10.8 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 Agent, for itself and the
ratable benefit of Lenders;
(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 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) prior to the Redemption Date, the security interests and liens
in favor of the Existing Senior Note Trustee on the Existing Senior Note
Collateral to secure the indebtedness permitted under Section 10.9(d) below,
provided, that, as of the Redemption Date such security interests and liens
shall be released and terminated in a manner satisfactory to Lender;
(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; and
(i) the security interests and liens set forth on Schedule 9.4
hereto.
10.9 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) prior to the Redemption Date, indebtedness of Borrower
evidenced by the Existing Senior Notes issued by Borrower pursuant to the
Existing 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 Existing Senior Notes (as in effect on the date hereof) and
prepayment or redemption premiums with respect thereto as set forth in the
Existing Senior Notes (as in effect on the date hereof),
(ii) Borrower shall not make any payments in respect of such
indebtedness, except, that, by no later than September 23, 1996, Borrower
shall redeem all of the Existing Senior Notes in accordance with the terms of
the Existing Senior Note Indenture and repay all of such indebtedness with a
portion of the proceeds received by Borrower from the issuance of the Senior
Notes pursuant to the Borrower Debt Offering and after the application of such
proceeds from the issuance of the Senior Notes, with proceeds of Loans
hereunder, and on and after the Redemption Date, Borrower shall have no
further obligations, liabilities and indebtedness under or in connection with
the Existing Senior Notes, the Existing Senior Note Indenture or any related
agreements, documents or instruments, all of which shall be cancelled and
terminated and of no further force and effect,
(iii) Borrower shall not, directly or indirectly,
(A) amend, modify, alter or change the terms of the Existing
Senior Notes, the Existing Senior Note Indenture or any related agreement,
document or instrument,
(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 the redemption and repayment of all of such indebtedness
in accordance with the terms set forth in Section 10.9(d)(ii) above,
(iv) Borrower has sent a notice of redemption as required under and
in accordance with the terms of the Existing Senior Note Indenture and
Borrower shall not revoke, rescind, modify or terminate such notice or take
any other action which would adversely affect the ability or the right of
Borrower to redeem the Existing Senior Notes or repay such indebtedness in
accordance with the terms set forth in Section 10.9(d)(ii) above, and
(v) Borrower shall furnish to Agent 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) prior to the Redemption Date, indebtedness of Borrower
evidenced by the Existing Subordinated Notes issued by Borrower pursuant to
the Existing 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 Existing 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 Existing
Subordinated Notes (as in effect on the date hereof) and prepayment or
redemption premiums with respect thereto as set forth in the Existing
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 Agent and Lenders to receive the prior payment in
full of all of the Obligations to the extent set forth in Section 10.02 of the
Existing Subordinated Note Indenture (as in effect on the date hereof),
(v) Borrower shall not make any payments in respect of such
indebtedness, except, that, by no later than September 23, 1996, Borrower
shall redeem all of the Existing Subordinated Notes in accordance with the
terms of the Existing Subordinated Note Indenture and repay all of such
indebtedness with a portion of the proceeds received by Borrower from the
issuance of the Senior Notes pursuant to the Borrower Debt Offering and after
the application of such proceeds from the issuance of the Senior Notes, with
proceeds of Loans hereunder, and on and after the Redemption Date, Borrower
shall have no further obligations, liabilities and indebtedness under or in
connection with the Existing Subordinated Notes, the Existing Subordinated
Note Indenture or any related agreements, documents and instruments, all of
which shall be cancelled and terminated and of no further force and effect,
(vi) Borrower shall not, directly or indirectly,
(A) amend, modify, alter or change any terms of the Existing
Subordinated Notes, the Existing Subordinated Note Indenture or any related
agreement, document or instrument, 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 the redemption and repayment of all of such indebtedness
in accordance with the terms set forth in Section 10.9(e)(v) above,
(vii) Borrower has sent a notice of redemption as required under and
in accordance with the terms of the Existing Subordinated Note Indenture and
Borrower shall not revoke, rescind, modify or terminate such notice or take
any other action which would adversely affect the ability or the right of
Borrower to redeem the Existing Subordinated Notes or repay such indebtedness
in accordance with the terms set forth in Section 10.9(e)(v) above,
(viii) Borrower shall furnish to Agent 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 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 $140,000,000 (less the aggregate amount of all repayments or
purchases of principal in respect thereof) plus interest thereon at the rate
set forth in the Senior Notes (as in effect on the date hereof or as hereafter
amended to reduce such rate) and prepayment and redemption premiums with
respect thereto as set forth in the Senior Notes (as in effect on the date
hereof or as amended to reduce such prepayment or redemption premiums or defer
or extend the due date of any payment thereunder),
(ii) Lender shall have received true, correct and complete copies of
the Senior Note Indenture and all related agreements, documents and
instruments,
(iii) Borrower shall only make regularly scheduled payments of
principal and interest, or to the extent permitted under Section 10.9(f)(v)
below, other 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, amend, modify,
alter or change the terms of the Senior Notes, the Senior Note Indenture or
any related agreements, documents or instruments, 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: (A) either (1) 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 (2) Lender has consented in writing to such amendment
or modification, and (B) 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,
(v) Borrower shall not, directly or indirectly, redeem, retire,
defease, purchase or otherwise acquire such indebtedness, or set aside or
otherwise deposit or invest any sums for such purpose, or make any other
payments in respect thereof, except:
(A) 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 from an Asset Sale and
including any Sale and Leaseback Transaction, 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, (2) as a result of a Change in Control or (3) to the extent of net
cash proceeds received by Borrower from a Public Equity Offering up to the
maximum of thirty-five (35%) percent of the initial aggregate principal amount
of the Senior Notes at a redemption price equal to one hundred eleven and six
hundred twenty-five thousandths (111.625%) percent of the principal amount
thereof plus accrued and unpaid interest to the redemption date, provided,
that, after giving effect thereto, at least $85,000,000 aggregate principal
amount of Senior Notes remain outstanding,
(B) purchases of Senior Notes at the option of Borrower in
open market transactions, provided, that, each of the following conditions is
satisfied as determined by Agent as of the date of each such purchase and
after giving effect thereto: (1) 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, (2) either: (aa) the amounts used to
pay for the purchase of the Senior Notes consist only of the net cash proceeds
received by Borrower from a Public Equity Offering or (bb) there are no Loans
outstanding, (3) Excess Availability shall be not less than $5,000,000, (4)
Lender shall have received not less than two (2) Business Days prior written
notice of the intent of Borrower to make any such purchases,
(vi) 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;
(g) 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 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;
(h) indebtedness arising after the date hereof evidenced by the
Employee Notes; provided, that, Borrower should deliver to Agent true, correct
and complete copies of any Employee Notes promptly upon the execution thereof
by Borrower;
(i) indebtedness of Borrower to its Subsidiaries arising pursuant
to loans by such Subsidiaries to Borrower permitted pursuant to Section 10.10
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.
10.10 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 Agent to perfect the security interest of
Agent, for itself and ratably on behalf of Lenders 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) prior to the Redemption Date, the investments of Borrower in
the Existing Senior Note Collateral Account and the Existing 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 Existing
Excess Refinancing Proceeds Account, (ii) 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 Existing Senior Note
Collateral Account except as required under the terms of the Existing Senior
Note Indenture as in effect on the date hereof and (iii) as of the Redemption
Date, all such investments shall not be subject to any security interest, lien
or other claim in connection with the Existing Senior Notes or the Existing
Senior Note Indenture;
(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 Agent);
(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 Agent, upon Agent's
request, together with such stock power, assignment or endorsement by Borrower
as Agent 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 Agent, for itself and ratably on behalf of
Lenders, by Borrower and promptly delivered to Agent 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 Agent, for itself and the ratable benefit of Lenders; and
(j) the guarantees set forth in the Information Certificate.
10.11 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:
(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; and
(b) 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, provided, that, each of the following conditions is satisfied, as
determined in good faith by Agent:
(i) no Event of Default shall have occurred and be continuing
and such declaration and payment of dividends or other distribution to its
shareholders 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
Borrower or its Subsidiaries,
(ii) immediately before and immediately after giving effect to
such transaction on a pro forma basis, Borrower could incur $1.00 of
additional indebtedness (other than Permitted Indebtedness as such term is
defined in the Senior Note Indenture) under the terms of Section 10.8 of the
Senior Note Indenture,
(iii) on the date of any such payment and after giving effect
thereto, Excess Availability shall be not less than $5,000,000, and
(iv) the aggregate amount of all such dividends or other such
distributions to its shareholders declared or made after the date hereof shall
not exceed the sum of: (A) fifty (50%) percent of the aggregate cumulative
Consolidated Net Income of Borrower accrued on a cumulative basis during the
period beginning on the first day of Borrower's fiscal quarter commencing
prior to the date hereof and ending on the last day of Borrower's last fiscal
quarter ending prior to the date of the payment of the dividends or other such
distributions to its shareholders (or, if such aggregate cumulative
Consolidated Net Income shall be a loss, minus one hundred (100%) percent of
such loss), plus (B) the aggregate net cash proceeds received after the date
hereof by Borrower as capital contributions to Borrower (other than from any
of its Subsidiaries), plus (C) the aggregate net cash proceeds received after
the date hereof by Borrower 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
Borrower (except, in each case, to the extent such proceeds are used to
purchase, redeem or otherwise retire Capital Stock or other indebtedness),
plus (D) the aggregate net cash proceeds received after the date hereof by
Borrower (other than from any of its Subsidiaries) upon the exercise of any
options or warrants to purchase shares of Qualified Capital Stock of Borrower,
plus (E) the aggregate net cash proceeds received after the date hereof by
Borrower from debt securities or Redeemable Capital Stock that have been
converted into or exchanged for Qualified Capital Stock of Borrower, to the
extent such debt securities or Redeemable Capital Stock are originally sold
for cash, plus the aggregate net cash proceeds received by Borrower at the
time of such conversion or exchange, provided, that, any such aggregate cash
proceeds used by Borrower to redeem or repurchase Senior Notes shall not be
included in the amounts provided for herein;
(c) Borrower may declare and pay dividends or make other
distributions to Parent in respect of the shares of Capital Stock of Borrower
owned by Parent to permit Parent 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 Parent 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 Parent to pay such taxes within five (5)
business days after the receipt of such proceeds by Parent;
(d) Borrower may declare and pay dividends or make other
distributions to Parent in respect of the shares of Capital Stock of Borrower
owned by Parent 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 Parent to pay such taxes and expenses within
five (5) business days after the receipt of such proceeds by Parent;
(e) Borrower may declare and pay dividends or make other
distributions to Parent in respect of the shares of Capital Stock of Borrower
owned by Parent to permit the repurchase of Parent Common Stock or options to
purchase Parent Common Stock from employees of Borrower (other than employees
who are Affiliates or employees of MLGAL Partners L.P. (the sole general
partner of MLGA Fund II, L.P.) or any successor partnership into which it is
reorganized and its Affiliates); 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 Parent Common Stock or options to purchase Parent 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 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 Parent Common Stock or
options to purchase Parent 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 Parent pursuant to this Section
10.11(e) may be used 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 Parent to repurchase
Parent Common Stock or options to purchase Parent Common Stock as provided
above within five (5) Business Days after the receipt of such proceeds by
Parent.
10.12 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.
10.13 Proceeds of Borrower Debt Offering; Redemption of Existing
Notes.
(a) All net cash proceeds from the issuance and sale by Borrower of
the Senior Notes pursuant to the Borrower Debt Offering shall be segregated
from all other funds of Borrower and held in trust in the Redemption Escrow
Accounts, which accounts have been established and shall be used solely for
the purpose of holding such funds. In no event shall the funds held in such
accounts be commingled with Borrower's own funds. Borrower shall not, and
shall not permit any of its Subsidiaries or Affiliates to, withdraw any
amounts held in the Redemption Escrow Accounts, except for the purpose solely
of the redemption or repayment in full of all obligations, liabilities and
indebtedness of Borrower evidenced or arising under or in connection with
Existing Notes in accordance with the terms thereof and in accordance with the
terms of the Existing Senior Note Indenture, the Existing Subordinated Note
Indenture and all related agreements, documents and instruments. No consent
or approval of any governmental or regulatory authority, nor any consent or
approval of any other third party is or shall be necessary for the payment of
the amounts held in such account to the holders of the Existing Notes for the
payment and satisfaction in full of such indebtedness. Borrower shall give
the Existing Senior Note Trustee and Existing Subordinated Note Trustee the
irrevocable and express right and authorization to withdraw the amounts on
deposit in the account for the purpose of the redemption or repayment of all
such obligations. Borrower shall not create, incur, assume or suffer to exist
any right of setoff, pledge, lien, security interest, charge or other
encumbrance or claim of any nature whatsoever on or with respect to any of the
amounts on deposit in such account or any restriction, limitation or condition
relative to the transfer thereof other than as set forth herein.
(b) By no later than September 23, 1996, Borrower shall redeem or
cause the redemption of the Existing Notes and the payment and unconditional
satisfaction in full of all obligations, liabilities and indebtedness of
Borrower evidenced by or arising under or in connection with the Existing
Notes, the Existing Senior Note Indenture and the Existing Subordinated Note
Indenture and all related agreements, documents and instruments as required
under the terms hereof. All amounts required to be paid to so redeem the
Existing Notes (excluding expenses) shall not exceed $148,500,000 and shall be
paid from the funds held in the Redemption Escrow Accounts which constitute
the proceeds received by Borrower from the issuance of the Senior Notes
pursuant to the Borrower Debt Offering and from proceeds of certain Loans
hereunder on the terms and conditions provided for herein.
(c) On the Redemption Date, Agent shall receive evidence, in form
and substance reasonably satisfactory to Agent, that (i) all of the Existing
Senior Notes shall have been redeemed in accordance with the terms of the
Existing Senior Note Indenture and all obligations, liabilities and
indebtedness of Borrower evidenced by or arising under or in connection with
the Existing Senior Notes, the Existing Senior Note Indenture and all related
agreements, documents and instruments have been paid and satisfied in full in
an amount not to exceed $55,500,000, (ii) all of the Existing Senior Notes
have been redeemed with a portion of the net cash proceeds received by
Borrower from the Borrower Debt Offering, together with interest or dividends
thereon, and together with the proceeds of the initial Loans on the Redemption
Date in accordance with the terms and conditions contained herein, (iii) the
Existing Senior Notes and the Existing Senior Note Indenture have been
cancelled and terminated and are of no further force and effect and Borrower
and its Affiliates have no further obligations, liabilities or indebtedness in
connection therewith, and (iv) the Existing Senior Note Trustee and the
holders of the Existing Senior Notes have terminated and released any and all
of their respective security interests or other interests pursuant to such
arrangements in and to any assets and properties of Borrower and any Obligor,
and shall have delivered termination and release documents to effectuate the
same, including, but not limited to, UCC-3 termination statements for all
financing statements previously filed by or on behalf of any of them and
satisfactions and releases of mortgages, deed to secure debt and deeds of
trust for all mortgages, deeds to secure debt and deeds of trust previously
filed by or on behalf of any of them.
(d) On the Redemption Date, Agent shall receive evidence, in form
and substance reasonably satisfactory to Agent, that (i) all of the Existing
Subordinated Notes have been redeemed in accordance with the terms of the
Existing Subordinated Note Indenture and all obligations, liabilities and
indebtedness of Borrower evidenced by or arising under or in connection with
the Existing Subordinated Notes have been paid and satisfied in full in an
amount not to exceed $93,000,000, (ii) all of the Existing Subordinated Notes
have been redeemed with a portion of the net cash proceeds received by
Borrower from the Borrower Debt Offering, together with any interest or
dividends thereon, and together with the proceeds of the initial Loans on the
Redemption Date in accordance with the terms and conditions contained herein
and (iii) the Existing Subordinated Notes and the Existing Subordinated Note
Indenture have been cancelled and terminated and are of no further force and
effect and Borrower and its Affiliates have no further obligations,
liabilities or indebtedness in connection therewith.
10.14 Compliance with ERISA.
(a) Borrower shall not with respect to any "employee pension
benefit plans" maintained by Borrower or any of its ERISA Affiliates: (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 10.14, 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.
10.15 Adjusted Net Worth. Borrower shall, at all times, maintain
Adjusted Net Worth of not less than $1,000,000.
10.16 Excess Availability. At all times prior to the Redemption Date,
the Excess Availability shall be, after giving effect to any Loans and Letter
of Credit Accommodations requested by Borrower, not less than the amount equal
to: (a) the aggregate redemption price and all other amounts required to
redeem the Existing Notes, and pay and satisfy in full all of the obligations,
liabilities and indebtedness of Borrower evidenced by or arising under or in
connection with the Existing Notes minus (b) the amounts held in the
Redemption Escrow Accounts constituting proceeds received by Borrower from the
issuance of the Senior Notes pursuant to the Borrower Debt Offering which
shall be available to pay the redemption price and all other amounts required
to redeem the Existing Notes and pay and satisfy in full all of the
obligations, liabilities and indebtedness of Borrower evidenced by or arising
under or in connection with the Existing Notes. For purposes of this Section
10.16, the Maximum Credit used in the calculation of Excess Availability shall
be $50,000,000.
10.17 Costs and Expenses. Borrower shall pay to Agent on demand all
costs, expenses, filing fees and taxes paid or payable in connection with the
preparation, negotiation, execution, delivery, recording, administration,
collection, liquidation, enforcement and defense of the Obligations, Agent's
rights of Agent, for itself and the ratable benefit of Lenders, 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 Agent'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 Agent, for itself and the ratable benefit of Lenders, 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 Agent and/or Lenders 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 Agent during the course of periodic field examinations of the
Collateral and Borrower's operations, plus a per diem charge at the rate of
$600 per person per day for Agent's examiners in the field and office; and (h)
the fees and disbursements of counsel (including legal assistants) to Agent
and Lenders in connection with any of the foregoing.
10.18 Further Assurances. At the request of Agent 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, of Agent, for itself and the ratable
benefit of Lenders, in the Collateral and to otherwise effectuate the
provisions or purposes of this Agreement or any of the other Financing
Agreements. Agent 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 Agent, each Lender may, at its
option, cease to make any further Loans or provide any further Letter of
Credit Accommodations until Agent has received such certificate and, in
addition, Agent has determined that such conditions are satisfied. Where
permitted by law, Borrower hereby authorizes Agent and Lenders to execute and
file one or more UCC financing statements signed only by Agent or any of
Lenders.
SECTION 11. EVENTS OF DEFAULT AND REMEDIES
11.1 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;
(b) any representation, warranty or statement of fact made by
Borrower to Agent and Lenders 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 Agent and any or all of Lenders;
(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 Agent or any of Lenders, 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 Agent or any of Lenders (including, without limitation, the
Existing Senior Note Indenture, the Existing Subordinated Note Indenture and
the Senior Note Indenture), 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;
(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 11.1(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 Agent'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.
11.2 Remedies.
(a) At any time an Event of Default exists or has occurred and is
continuing, Agent and Lenders 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 Agent and Lenders hereunder, under
any of the other Financing Agreements, the Uniform Commercial Code or other
applicable law, are cumulative, not exclusive and enforceable, in Agent'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. Agent
and Lenders may, at any time or times, proceed directly against Borrower or
any Obligor to collect the Obligations without prior recourse to the
Collateral. Agent, for itself and the ratable benefit of Lenders, 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, Agent may, in its discretion (i)
accelerate the payment of all Obligations and demand immediate payment thereof
to Agent (provided, that, upon the occurrence of any Event of Default
described in Sections 11.1(g) and 11.1(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 Agent any part or all of the Collateral at any place and
time designated by Agent, (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 Agent or elsewhere) at such prices or terms
as Agent may deem reasonable, for cash, upon credit or for future delivery,
with Agent or any Lender having the right to purchase the whole or any part 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 Agent
upon credit terms or for future delivery, the Obligations shall not be reduced
as a result thereof until payment therefor is finally collected by Agent, for
itself and the ratable benefit of Lenders. If notice of disposition of
Collateral is required by law, five (5) days prior notice by Agent 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 Agent 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) Agent and Lenders 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 Agent, for itself and the ratable benefit of Lenders, 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 Agent 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 Agent or any employee, agent, or other person named by Agent at the
time of seizure to serve as keeper, pending judicial sale, of any Collateral
of which seizure is effected by Agent under the laws of the 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, Agent and Lenders may proceed by summary process against Borrower to
obtain possession of any instruments and documents included in the Collateral
to exercise Agent's and 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. Agent and Lenders 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 Agent's or
any Lender's possession or that have been voluntarily delivered or surrendered
to Agent or any 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 Agent and Lender arising out of the repossession,
retention, or sale of the Collateral, except those resulting from actions
taken or not taken by Agent and Lenders 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, Agent 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 Agent may see
fit.
(viii) Agent and Lenders 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 Agent may determine, to the highest bidder for cash.
(d) Agent may apply the cash proceeds of Collateral actually
received by Agent 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 Agent may elect, whether or not then due. Borrower shall remain
liable to Agent 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, Agent and Lenders may, at their 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 Agent or Lenders to Borrower.
SECTION 12. JURY TRIAL WAIVER; OTHER WAIVERS
AND CONSENTS; GOVERNING LAW
12.1 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, Agent and Lenders 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 Agent
shall have the right to bring any action or proceeding against Borrower or its
property in the courts of any other jurisdiction which Agent 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 Agent'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 Agent against Borrower for the amount of the claim and other relief
requested.
(d) BORROWER, AGENT AND LENDERS 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, AGENT AND LENDERS 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, AGENT OR ANY OF LENDERS 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) Neither Agent nor any Lender shall 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 event occurring in connection herewith, unless it is determined by
a final and non-appealable judgment or court order binding on Agent, that the
losses were the result of acts or omissions constituting gross negligence or
willful misconduct. In any such litigation, Agent and each of Lenders 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.
12.2 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 Agent may elect to give
shall entitle Borrower to any other or further notice or demand in the same,
similar or other circumstances.
12.3 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
Agent. Agent 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
Agent. Any such waiver shall be enforceable only to the extent specifically
set forth therein. A waiver by Agent 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 Agent or any Lender would otherwise have on any
future occasion, whether similar in kind or otherwise.
12.4 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.
12.5 Indemnification. Borrower shall indemnify and hold Agent, Lenders
and their 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
Agent and/or the affected Lender(s) 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.
SECTION 13. THE AGENT
13.1 Appointment, Powers and Immunities. Each Lender hereby irrevocably
appoints and authorizes Agent to act as its agent hereunder and under the
other Financing Agreements with such powers as are specifically delegated to
Agent by the terms of this Agreement and of the other Financing Agreements,
together with such other powers as are reasonably incidental thereto. Agent
(a) shall have no duties or responsibilities except those expressly set forth
in this Agreement and in the other Financing Agreements, and shall not by
reason of this Agreement or any other Financing Agreement be a trustee or
fiduciary for any Lender; (b) shall not be responsible to Lenders for any
recitals, statements, representations or warranties contained in this
Agreement or in any other Financing Agreement, or in any certificate or other
document referred to or provided for in, or received by any of them under,
this Agreement or any other Financing Agreement, or for the value, validity,
effectiveness, genuineness, enforceability or sufficiency of this Agreement or
any other Financing Agreement or any other document referred to or provided
for herein or therein or for any failure by Borrower or any Obligor or any
other Person to perform any of its obligations hereunder or thereunder; and
(c) shall not be responsible to Lenders for any action taken or omitted to be
taken by it hereunder or under any other Financing Agreement or under any
other document or instrument referred to or provided for herein or therein or
in connection herewith or therewith, except for its own gross negligence or
willful misconduct as determined by a final non-appealable judgment of a court
of competent jurisdiction. Agent may employ agents and attorneys-in-fact and
shall not be responsible for the negligence or misconduct of any such agents
or attorneys-in-fact selected by it in good faith. Agent may deem and treat
the payee of any note as the holder thereof for all purposes hereof unless and
until the assignment thereof pursuant to an agreement (if and to the extent
permitted herein) in form and substance satisfactory to Agent shall have been
delivered to and acknowledged by Agent.
13.2 Reliance by Agent. Agent shall be entitled to rely upon any
certification, notice or other communication (including any thereof by
telephone, telecopy, telex, telegram or cable) believed by it to be genuine
and correct and to have been signed or sent by or on behalf of the proper
Person or Persons, and upon advice and statements of legal counsel,
independent accountants and other experts selected by Agent. As to any
matters not expressly provided for by this Agreement or any other Financing
Agreement, Agent shall in all cases be fully protected in acting, or in
refraining from acting, hereunder or thereunder in accordance with
instructions given by Required Lenders or all of Lenders as is required in
such circumstance, and such instructions of such Lenders and any action taken
or failure to act pursuant thereto shall be binding on all Lenders.
13.3 Events of Default.
(a) Agent shall not be deemed to have knowledge or notice of the
occurrence of an Event of Default or other failure of a condition precedent to
the Loans and Letter of Credit Accommodations hereunder, unless and until
Agent has received written notice from a Lender or Borrower specifying such
Event of Default or any unfulfilled condition precedent, and stating that such
notice is a "Notice of Default or Failure of Condition". In the event that
Agent receives such a Notice of Default or Failure of Condition, Agent shall
give prompt notice thereof to Lenders. Agent shall (subject to Section 13.7)
take such action with respect to any such Event of Default or failure of
condition precedent as shall be directed by Required Lenders; provided that,
unless and until Agent shall have received such directions, Agent may (but
shall not be obligated to) take such action, or refrain from taking such
action, with respect to or by reason of such Event of Default or failure of
condition precedent, as it shall deem advisable in the best interest of
Lenders. Without limiting the foregoing, and notwithstanding the existence or
occurrence and continuance of an Event of Default or any other failure to
satisfy any of the conditions precedent set forth in Section 5 of this
Agreement to the contrary, the Agent may, but shall have no obligation to,
continue to make Loans and issue or cause to be issued Letter of Credit
Accommodations for the ratable account and risk of Lenders from time to time
if Agent believes making such Loans or issuing or causing to be issued such
Letter of Credit Accommodations is in the best interests of Lenders.
(b) Except with the prior written consent of Agent, no Lender may
assert or exercise any enforcement right or remedy in respect of the Loans,
Letter of Credit Accommodations or other Obligations, as against Borrower or
any Obligor or any of the Collateral or other property of Borrower or any
Obligor.
13.4 Rights as a Lender. With respect to its Commitment and the Loans
made and Letter of Credit Accommodations issued or caused to be issued by it
(and any successor acting as Agent), so long as the Agent shall be a Lender
hereunder, it shall have the same rights and powers hereunder as any other
Lender and may exercise the same as though it were not acting as Agent, and
the term "Lender" or "Lenders" shall, unless the context otherwise indicates,
include Agent in its individual capacity as Lender hereunder. Congress (and
any successor acting as Agent) and its Affiliates may (without having to
account therefor to any Lender) lend money to, make investments in and
generally engage in any kind of business with Borrower and Obligors (and any
of their Subsidiaries or Affiliates) as if it were not acting as Agent, and
Congress and its Affiliates may accept fees and other consideration from
Borrower and Obligors for services in connection with this Agreement or
otherwise without having to account for the same to Lenders.
13.5 Indemnification. Lenders agree to indemnify Agent (to the extent
not reimbursed by Borrower hereunder and without limiting the Obligations of
Borrower hereunder) ratably, in accordance with their Pro Rata Shares, for any
and all claims of any kind and nature whatsoever that may be imposed on,
incurred by or asserted against Agent (including by any Lender) arising out of
or by reason of any investigation in or in any way relating to or arising out
of this Agreement or any other Financing Agreement or any other documents
contemplated by or referred to herein or therein or the transactions
contemplated hereby or thereby (including the costs and expenses that Agent
is obligated to pay hereunder) or the enforcement of any of the terms hereof
or thereof or of any such other documents, provided, that, no Lender shall be
liable for any of the foregoing to the extent it arises from the gross
negligence or willful misconduct of the party to be indemnified as determined
by a final non-appealable judgment of a court of competent jurisdiction.
13.6 Non-Reliance on Agent and Other Lenders. Each Lender agrees that
it has, independently and without reliance on Agent or any other Lender, and
based on such documents and information as it has deemed appropriate, made its
own credit analysis of Borrower and any Obligors and has made its own decision
to enter into this Agreement and that it will, independently and without
reliance upon Agent or any other Lender, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
analysis and decisions in taking or not taking action under this Agreement or
any of the other Financing Agreements. Agent shall not be required to keep
itself informed as to the performance or observance by Borrower or any Obligor
of any term or provision of this Agreement or any of the other Financing
Agreements or any other document referred to or provided for herein or therein
or to inspect the properties or books of Borrower or any Obligor. Agent will
use reasonable efforts to provide Lenders with any information received by
Agent from Borrower which is required to be provided to Lenders hereunder,
with a copy of any Notice of Default or Failure of Condition received by Agent
from Borrower or any Lender and with a copy of any notice of an Event of
Default delivered by Agent to Borrower; provided, that, Agent shall not be
liable to any Lender for any failure to do so, except to the extent that such
failure is attributable to Agent's own gross negligence or willful misconduct
as determined by a final non-appealable judgment of a court of competent
jurisdiction. Except for notices, reports and other documents expressly
required to be furnished to Lenders by Agent hereunder, Agent shall not have
any duty or responsibility to provide any Lender with any other credit or
other information concerning the affairs, financial condition or business of
Borrower or any of its Subsidiaries (or any of their affiliates) that may come
into the possession of Agent or any of its Affiliates.
13.7 Failure to Act. Except for action expressly required of Agent
hereunder and under the other Financing Agreements, Agent shall in all cases
be fully justified in failing or refusing to act hereunder and thereunder
unless it shall receive further assurances to its satisfaction from Lenders of
their indemnification obligations under Section 13.5 hereof against any and
all liability and expense that may be incurred by it by reason of taking or
continuing to take any such action.
13.8 Resignation of Agent. Subject to the appointment and acceptance of
a successor Agent as provided below, Agent may resign at any time by giving
notice thereof to Lenders and Borrower. Upon any such resignation, the
Required Lenders shall have the right to appoint a successor Agent with the
consent of Borrower, which consent shall not be unreasonably withheld,
conditioned or delayed. If no successor Agent shall have been so appointed by
the Required Lenders, and/or so consented to by Borrower and the appointment
accepted by such successor Agent within thirty (30) days after the retiring
Agent's giving of notice of resignation, then the retiring Agent may, on
behalf of Lenders, appoint (without the consent of Borrower) a successor Agent
that shall be a bank, commercial finance company or other financial
institution. Upon the acceptance of any appointment as Agent hereunder by a
successor Agent in accordance with the terms hereof, such successor Agent
shall thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Agent, and the retiring Agent shall be
discharged from its duties and obligations hereunder. After any retiring
Agent's resignation hereunder as Agent, the provisions of this Section 13
shall continue in effect for its benefit in respect of any actions taken or
omitted to be taken by it while it was acting as Agent.
13.9 Consents and Releases of Collateral under Financing Agreements.
Except as otherwise provided in Section 14.9 hereof with respect to certain
amendments or modifications to this Agreement, Agent may consent to any
modification, supplement or waiver under any of the Financing Agreements;
provided, that, without the prior consent of each Lender, Agent shall not
release any Collateral or otherwise terminate any security interest in or lien
upon any of the Collateral under any of the Financing Agreements, except that
no such consent shall be required, and Agent is hereby authorized (i) to
release any security interest in or lien upon any of the Collateral which is
the subject of a disposition permitted hereunder or under the other Financing
Agreements, or (ii) to release, in any fiscal year of Borrower, any security
interest in or lien upon any of the Collateral the value of which does not
exceed $5,000,000.
13.10 Collateral Matters.
(a) Except as otherwise expressly provided for in this Agreement,
Agent shall have no obligation whatsoever to any Lender or any other Person to
investigate, confirm or assure that the Collateral exists or is owned by
Borrower or any Obligor or is cared for, protected or insured or has been
encumbered, or that any particular items of Collateral meet the eligibility
criteria applicable in respect of the Loans or Letter of Credit Accommodations
hereunder, or whether any particular Availability Reserves are appropriate, or
that the liens and security interests granted to Agent herein or pursuant
hereto or otherwise have been properly or sufficiently or lawfully created,
perfected, protected or enforced or are entitled to any particular priority,
or to exercise at all or in any particular manner or under any duty of care,
disclosure or fidelity, or to continue exercising, any of the rights,
authorities and powers granted or available to Agent in this Agreement or in
any of the other Financing Agreements, it being understood and agreed that in
respect of the Collateral, or any act, omission or event related thereto,
Agent may act in any manner it may deem appropriate, in its discretion, given
Agent's own interest in the Collateral as a Lender and that Agent shall have
no duty or liability whatsoever to any other Lender, other than liability for
its own gross negligence or willful misconduct as determined by a final non-
appealable judgment of a court of competent jurisdiction.
(b) Each Lender hereby appoints each other Lender as agent for the
purpose of perfecting the security interest of Agent in assets which, in
accordance with Article 9 of the Uniform Commercial Code can be perfected only
by possession. Should any Lender (other than Agent) obtain possession of any
such Collateral, such Lender shall notify Agent thereof and, promptly upon
Agent's request therefor, shall deliver such Collateral to Agent or in
accordance with Agent's instructions.
SECTION 14. TERM OF AGREEMENT; MISCELLANEOUS
14.1 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 the date which is the third
anniversary of the date of this Agreement (the "Renewal Date"), and from year
to year thereafter, unless sooner terminated pursuant to the terms hereof.
Agent 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. Upon the effective date of
termination or non-renewal of the Financing Agreements, Borrower shall pay to
Agent, for itself, and the ratable benefit of Lenders, in full, all
outstanding and unpaid Obligations and shall furnish cash collateral to Agent
for itself and the ratable benefit of Lenders, in such amounts as Agent
determines are reasonably necessary to secure Agent and Lenders 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 Agent and Lenders have not yet
received final and indefeasible payment. Such cash collateral shall be
remitted by wire transfer in Federal funds to such bank account of Agent, as
Agent 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 Agent 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 Agent's continuing security interest in the Collateral, for itself
and the ratable benefit of Lenders, and the rights and remedies of Agent
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 Agent for the
benefit of Lenders 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:
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C>
Amounts Periods
(i) Three (3%) percent of the From the date hereof to and including
Maximum Credit August 23, 1997
(ii) Two (2%) percent of the From August 24, 1997 to and
Maximum Credit including August 23, 1998
(iii) One (1%) percent of the From August 24, 1998 to and
Maximum Credit including August 22, 1999
</TABLE>
Such early termination fee shall be presumed to be the amount of damages
sustained by Lenders 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 14.1 shall be deemed included in
the Obligations. In the event of the termination of this Agreement and the
other Financing Agreements prior to the Renewal Date and the full and final
repayment of all of the Obligations and the delivery of cash collateral for
contingent obligations, the early termination fee payable by Borrower to
Agent, for the benefit of Lenders, shall be reduced to an amount equal to
fifty (50%) percent of the early termination fee otherwise payable if each of
the following conditions is satisfied: (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) Agent shall
have received not less than thirty (30) days prior written notice of the
intention of Borrower to so terminate this Agreement and the other Financing
Agreements and (iii) the full repayment of the Obligations is received upon
the consummation of the sale by Borrower of all of its assets or the sale by
the owners of Borrower of all of the Capital Stock of Borrower or pursuant to
a merger after giving effect to which the current owners of Borrower no longer
own or hold any Capital Stock of Borrower, in any case, in a bona fide arm's
length transaction and commercially reasonable prices and terms with a person
other than an Affiliate.
14.2 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 Existing Subordinated Note Indenture) and the Obligations are
and shall be "Senior Indebtedness" (as such term is defined in the Existing
Subordinated Note Indenture).
14.3 Notices. All notices, requests and demands hereunder shall be in
writing and (a) made to Agent and Lenders at their addresses set forth below
and to Borrower at its chief executive office set forth below, or to such
other address as any such 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.
14.4 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.
14.5 Successors and Assigns. This Agreement and the other Financing
Agreements shall be binding on and shall inure to the benefit of Borrower,
Agent, Lenders, and their respective successors and assigns, except as
otherwise provided herein or therein. Borrower may not assign, delegate,
transfer, hypothecate or otherwise convey its rights, benefits, obligations or
duties hereunder or under any of the Financing Agreements without the prior
express written consent of Agent and all Lenders. Any such purported
assignment, transfer, hypothecation or other conveyance by Borrower without
such prior express written consent shall be void. No Lender may assign its
rights and obligations under this Agreement (or any part thereof) without the
prior written consent of all Lenders and Agent, except as permitted under
Section 14.6(b) hereof. Any purported assignment by a Lender without such
prior express consent or compliance with Section 14.6(b) where applicable,
shall be void. The terms and provisions of this Agreement and the other
Financing Agreements are for the purpose of defining the relative rights and
obligations of Borrower, Agent and Lenders with respect to the transactions
contemplated hereby and there shall be no third party beneficiaries of any of
the terms and provisions of this Agreement or any of the other Financing
Agreements.
14.6 Assignments and Participations.
(a) Any Lender may, in the ordinary course of its commercial
banking or finance business and in accordance with applicable law, at any time
sell to one or more banks, commercial finance companies or other financial
institutions ("Participants"), participating interests in all or a portion of
its rights and obligations under this Agreement and the other Financing
Agreements (including all or a part of its interest in the Obligations). In
the event of any such sale by a Lender of a participating interest to a
Participant, such Lender's obligations under this Agreement to the other
parties to this Agreement shall remain unchanged, such Lender shall remain
solely responsible for the performance thereof, such Lender shall remain the
holder of any such obligations for all purposes under this Agreement and the
other Financing Agreements, and Borrower and Agent shall continue to deal
solely and directly with such Lender in connection with such Lender's rights
and obligations under this Agreement and the other Financing Agreements.
Borrower agrees that if amounts outstanding under this Agreement are due or
unpaid, or shall have been declared or shall have become due and payable upon
the occurrence of an Event of Default, each Participant shall, to the maximum
extent permitted by applicable law, be deemed to have the right of setoff in
respect of its participating interest in amounts owing under this Agreement to
the same extent as if the amount of its participating interest were owing
directly to it as a Lender under this Agreement; provided that, in purchasing
such participating interest, such Participant shall be deemed to have agreed
to share with Lenders the proceeds thereof as provided in Section 7.5 hereof.
Notwithstanding anything to the contrary contained herein, no Lender shall
grant any participation under which the Participant shall have rights to
approve any amendment to or waiver of or consent under this Agreement or the
other Financing Agreements, except with the consent of Agent.
(b) Any Lender may, in accordance with applicable law, at any time
and from time to time assign to any Lender or any of its Affiliates, or in
connection with the sale of its business or all or substantially all of its
loan portfolio, with the written consent of Agent to a bank, commercial
finance company or other financial institution (an "Assignee") all (or, with
the consent of Agent, less than all), of its Commitment, rights and
obligations under this Agreement and the other Financing Agreements, pursuant
to an assignment agreement, in form and substance satisfactory to Agent,
executed by such Assignee and such assigning Lender and delivered to Agent for
its acceptance and recording in its records. Upon such execution, delivery,
acceptance and recording, from and after the effective date determined
pursuant to such assignment agreement, the Assignee thereunder shall be a
party hereto and, to the extent provided in such assignment agreement, (i)
have the rights and obligations of a Lender hereunder with a Commitment and
Commitment Percentage as set forth therein, and (ii) the assigning Lender
thereunder shall, to the extent provided in such assignment agreement, be
released from its obligations under this Agreement (and, in the case of an
assignment agreement covering all or the remaining portion of an assigning
Lender's rights and obligations under this Agreement, such assigning Lender
shall cease to be a party hereto).
(c) Agent, on behalf of the Borrower, shall maintain at the address
of Agent referred to on the signature page of this Agreement, a copy of each
such assignment agreement delivered to it and a record of the names and
addresses of the Lenders and the Commitments of each Lender from time to time.
Such records maintained by Agent shall be conclusive, in the absence of
manifest error, and Borrower, Agent and Lenders may treat each Person whose
name appears in such records as the owner of a Loan or other Obligations
hereunder as the owner thereof for all purposes of this Agreement and the
other Financing Agreements, notwithstanding any notice to the contrary. The
Agent's records under this Section 14.6 shall be available for inspection by
Borrower or any Lender at any reasonable time and from time to time upon
reasonable prior notice.
(d) Upon its receipt of an assignment agreement executed by an
assigning Lender and an Assignee, Agent shall (i) promptly accept such
assignment agreement and (ii) on the effective date determined pursuant
thereto record the information contained therein in Agent's records and give
notice of such acceptance and recordation to Lenders and Borrower. On or
prior to such effective date, Borrower, at its own expense, shall execute and
deliver to Agent (in exchange for notes of the assigning Lender) new notes to
the order of such Assignee corresponding to the Commitment assumed by it
pursuant to such assignment agreement and, if the assigning Lender has
retained a Commitment hereunder, a new note to the order of the assigning
Lender in an amount equal to the Commitment retained by it hereunder. Such
new notes shall be dated the date hereof and shall otherwise be in the form of
the notes replaced thereby. The notes surrendered to Agent shall be returned
by Agent to Borrower marked "cancelled".
(e) Except as otherwise provided in this Section 14.6, no Lender
shall, as between Borrower and that Lender, be relieved of any of its
obligations hereunder as a result of any sale, assignment, transfer or
negotiation of, or granting of participation in, all or any part of the
Obligations owed to such Lender. Any Lender permitted to sell assignments and
participations under this Section 14.6 may furnish any information concerning
Borrower and its Subsidiaries and Affiliates in the possession of that Lender
from time to time to Assignees and Participants (including, prospective
Assignees and Participants).
(f) Borrower shall assist any Lender permitted to sell assignments
or participations under this Section 14.6 in whatever manner reasonably
necessary in order to enable or effect any such assignment or participation,
including (but not limited to) the execution and delivery of any and all
agreements, notes and other documents and instruments as shall be requested
and the delivery of informational materials, appraisals or other documents
for, and the participation of relevant management in meetings and conference
calls with, potential Assignees or Participants. Borrower shall certify the
correctness, completeness and accuracy of all descriptions of Borrower and its
affairs provided, prepared or reviewed by Borrower that are contained in any
selling materials and all other information provided by it and included in
such materials.
14.7 Confidentiality.
(a) Agent and each Lender shall use all reasonable efforts to keep
confidential, in accordance with its customary procedures for handling
confidential information and safe and sound lending practices, any non-public
information supplied to it by Borrower pursuant to this Agreement which is
clearly and conspicuously marked as confidential at the time such information
is furnished by Borrower to Agent or such Lender, provided, that, nothing
contained herein shall limit the disclosure of any such information: (i) to
the extent required by statute, rule, regulation, subpoena or court order,
(ii) to bank examiners and other regulators, auditors and/or accountants,
(iii) in connection with any litigation to which Agent or such Lender is a
party, (iv) to any Assignee or Participant (or prospective Assignee or
Participant) so long as such Assignee or Participant (or prospective Assignee
or Participant) shall have first agreed in writing to treat such information
as confidential in accordance with this Section 14.7, or (v) to counsel for
Agent or such Lender or any Participant or Assignee (or prospective
Participant or Assignee).
(b) In no event shall this Section 14.7 or any other provision of
this Agreement or applicable law be deemed: (i) to apply to or restrict
disclosure of information that has been or is made public by Borrower or any
third party without breach of this Section 14.7 or otherwise become generally
available to the public other than as a result of a disclosure in violation
hereof, (ii) to apply to or restrict disclosure of information that was or
becomes available to Agent or any Lender on a non-confidential basis from a
person other than Borrower, (iii) require Agent or any Lender to return any
materials furnished by Borrower to Agent or any Lender or (iv) prevent Agent
or any Lender from responding to routine informational requests in accordance
with the Code of Ethics for the Exchange of Credit Information promulgated by
The Robert Morris Associates or other applicable industry standards relating
to the exchange of credit information. The obligations of Agent and Lenders
under this Section 14.7 shall supersede and replace the obligations of Agent
or any Lender under any confidentiality letter signed prior to the date
hereof.
14.8 Modification of Agreement. Neither this Agreement nor any other
Financing Agreement nor any terms hereof or thereof may be changed, waived,
discharged or terminated unless such change, waiver, discharge or termination
is in writing signed by Agent and the Required Lenders; except, that, any
change, waiver, discharge or termination with respect to the following shall
require the consent of all Lenders: (a) the extension of the scheduled final
maturity of any Loan, or any portion thereof, or reduction in the rate or
extension of the time of payment of interest thereon or fees (other than as a
result of waiving or not requiring the applicability of any post-default
increase in interest rates or fees for outstanding Letter of Credit
Accommodations or increased interest rates on Loans in excess of the amounts
then available to Borrower), or reduction in the principal amount thereof, or
increase in the Commitment of any Lender over the amount thereof then in
effect or provided hereunder (it being understood that a waiver of any Event
of Default shall not constitute a change in the terms of any Commitment of any
Lender); (b) the release of a material amount of the Collateral (except as
expressly required by the Financing Agreements and except as permitted under
Section 13.9 hereof), (c) the amendment, modification or waiver of any
provision of this Section 14.8; (d) the reduction of any percentage specified
in the definition of Required Lenders; (e) the consent to the assignment or
transfer by Borrower of any of its rights and obligations under this
Agreement; or (f) the increase in the stated advance percentage under the
lending formulas contained in the definition of Total Availability. Any
Lender who does not consent to a proposed amendment, consent or waiver
requiring each Lender's approval, as contemplated by clauses (a) through (f)
above, agrees that, if such amendment, waiver or consent has been approved by
the Required Lenders, then, with the consent of the Agent, any other Lender or
Lenders shall have the right to purchase, in accordance with the terms
otherwise applicable to permitted assignment under Section 14.6, all of such
non-consenting Lender's Commitment and interests in the Loans (and in the
Collateral and the Financing Agreements) at their par value. No provision of
Section 13 may be amended without the prior written consent of Agent.
14.9 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 the event of any conflict between the
terms of this Agreement and any schedule or exhibit hereto, the terms of this
Agreement shall govern.
[INTENTIONALLY LEFT BLANK]
<PAGE>
<TABLE>
<CAPTION>
IN WITNESS WHEREOF, Agent, Lenders and Borrower have caused these presents to
be duly executed as of the day and year first above written.
<S> <C>
BORROWER
- ----------------------------------------------
HAYNES INTERNATIONAL, INC.
By: /s/ J. F. Barker
Title:Vice President of Finance
- ----------------------------------------------
1020 West Park Avenue
Kokomo, Indiana 46904-9013
Attention: Chief Financial Officer
Telecopier No.: 317-456-6905
LENDERS
- ----------------------------------------------
CONGRESS FINANCIAL CORPORATION CORESTATES BANK, N.A.
(CENTRAL), in its individual capacity and
as Agent
By: /s/ Kenneth Sands By:/s/ Myron Landau
Title:Senior Vice President Title:Vice President
Address: Address:
- ---------------------------------------------- ----------------------------------
100 South Wacker Drive 1339 Chestnut Street
Chicago, Illinois 60606 Philadelphia, Pennsylvania 19107
Attention: Mr. William H. Bloom Attention: Mr. Myron Landau
Telecopier No.: 312-332-0424 Telecopier No.: (215) 973-2633
Commitment: Commitment:
- ---------------------------------------------- ----------------------------------
30,000,000 $ 20,000,000
Commitment Percentage:Commitment Percentage:
- ----------------------------------------------
</TABLE>
Exhibit 12.01 Statement re: computation of ratio of
earnings to fixed charges.
<TABLE>
<CAPTION>
Haynes International, Inc.
Ratio of Earnings Before Fixed Charges to Fixed Charges
<S> <C> <C> <C> <C>
1992 1993 1994
-------------- -------------- --------------
Line 1 Income (loss) before income ($28,091) ($11,717) ($60,446)
taxes, extraordinary item and
cumulative effect of change in
accounting principle
Line 2 Interest on indebtedness 19,211 16,792 18,236
Line 3 Amortization of debt issuance 1,333 2,120 1,680
costs
-------------- -------------- --------------
Line 4 Total earnings before fixed ($7,547) $ 7,195 ($40,530)
charges (Line 1 plus Line 2 plus
Line 3)
-----------------------------------------
Line 5 Interest on indebtedness $ 19,211 $ 16,792 $ 18,236
Line 6 Amortization of debt issuance 1,333 2,120 1,680
costs
-------------- -------------- --------------
Line 7 Total fixed charges (Line 5 $ 20,544 $ 18,912 $ 19,916
plus Line 6)
Ratio of earnings before
fixed charges to fixed
charges (Line 4 divided by
Line 7) N/A * N/A * N/A *
<S> <C> <C>
1995 1996
-------------- --------------
Line 1 ($5,458) $ 160
Line 2 18,789 20,638
Line 3 1,444 1,353
-------------- --------------
Line 4 $ 14,775 $ 22,151
Line 5 $ 18,789 $ 20,638
Line 6 1,444 1,353
-------------- --------------
Line 7 $ 20,233 $ 21,991
Ratio of earnings before
fixed charges to fixed
charges (Line 4 divided by
Line 7) N/A * 1.01
<FN>
* Earnings before fixed charges were insufficient to cover fixed charges.
</TABLE>
<PAGE>
<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 YEAR
<FISCAL-YEAR-END> SEP-30-1995 SEP-30-1996
<PERIOD-END> SEP-30-1995 SEP-30-1996
<CASH> 5035 4688
<SECURITIES> 0 0
<RECEIVABLES> 39068 40524
<ALLOWANCES> (979) (900)
<INVENTORY> 60234 74755
<CURRENT-ASSETS> 103358 119067
<PP&E> 84158 85777
<DEPRECIATION> (47295) (54620)
<TOTAL-ASSETS> 151316 161489
<CURRENT-LIABILITIES> 40742 61760
<BONDS> 140000 137350
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 121909 130341
<TOTAL-LIABILITY-AND-EQUITY> 151316 161489
<SALES> 201933 226402
<TOTAL-REVENUES> 201933 226402
<CGS> 167196 181173
<TOTAL-COSTS> 207391 226242
<OTHER-EXPENSES> 1767 590
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 20233 21991
<INCOME-PRETAX> (5458) 160
<INCOME-TAX> 1313 1940
<INCOME-CONTINUING> (6771) (1780)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 (7256)
<CHANGES> 0 0
<NET-INCOME> (6771) (9036)
<EPS-PRIMARY> (67.71) (90.36)
<EPS-DILUTED> (67.71) (90.36)
</TABLE>
