AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 2, 1996
REGISTRATION NO. 333-5203
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
HAYNES HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 3356 13-3527598
(State or other jurisdiction (Primary S.I.C. Code Number) (I.R.S. Employer
of incorporation or Identification No.)
organization)
</TABLE>
-------------------
1020 WEST PARK AVENUE
KOKOMO, INDIANA 46904-9013
(317) 456-6000
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
-------------------
MICHAEL D. AUSTIN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
HAYNES HOLDINGS, INC.
1020 WEST PARK AVENUE
KOKOMO, INDIANA 46904-9013
(317) 456-6000
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
-------------------
COPIES TO:
<TABLE>
<S> <C>
STEPHEN J. HACKMAN, ESQ. WINTHROP B. CONRAD, JR., ESQ.
ICE MILLER DONADIO & RYAN DAVIS POLK & WARDWELL
ONE AMERICAN SQUARE, BOX 82001 450 LEXINGTON AVENUE
INDIANAPOLIS, INDIANA 46282-0002 NEW YORK, NEW YORK 10017
(317) 236-2100 (212) 450-4000
</TABLE>
-------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable
after this Registration Statement becomes effective.
If any of the securities registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: / / ______
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: / / ______
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: / /
-------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
PROPOSED PROPOSED
TITLE OF EACH CLASS AMOUNT MAXIMUM MAXIMUM AMOUNT OF
OF SECURITIES TO BE TO BE OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED REGISTERED(1) PER SHARE OFFERING PRICE(2) FEE(3)
<S> <C> <C> <C> <C>
Common Stock, $.01 par value 2,783,446 $23.00 $64,019,258 $22,076
</TABLE>
(1) Includes 345,000 shares that may be sold if the over-allotment option
granted to the Underwriters is exercised in full. See "Underwriting."
(2) Estimated solely for the purpose of calculating the registration fee.
(3) Previously paid.
-------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE
The current name of the registrant for the common stock offering described
in this Registration Statement is Haynes Holdings, Inc. The name of the
registrant will be changed to Haynes International, Inc. prior to the
effectiveness of this Registration Statement. Approximately thirty days after
the closing of the Offering, the registrant's wholly-owned subsidiary, Haynes
International, Inc. (whose name will be changed to Haynes Corp. prior to the
name change of the registrant and the effectiveness of the Registration
Statement), will be merged with and into the registrant and the name of the
surviving entity will be "Haynes International, Inc."
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED AUGUST 2, 1996
2,438,446 SHARES
COMMON STOCK
-------------------
Of the 2,438,446 shares of Common Stock being offered hereby (the
"Offering"), 2,300,000 shares are being sold by Haynes International, Inc. (the
"Company") and 138,446 shares are being sold by certain stockholders of the
Company (the "Selling Stockholders"). See "Principal and Selling Stockholders."
The Company will not receive any of the proceeds from the sale of shares by the
Selling Stockholders. There is presently no public market for the Common Stock
of the Company. It is currently estimated that the initial public offering price
will be between $21.00 and $23.00 per share. See "Underwriting" for a discussion
of the factors considered in determining the initial public offering price.
The Common Stock has been approved for quotation on the Nasdaq National
Market under the symbol "HAYN."
Concurrently with the Offering, Haynes Corp., a wholly-owned subsidiary of
the Company, is offering, by means of a separate prospectus, $100.0 million
aggregate principal amount of % Senior Notes due 2004 (the "Notes," such
offering referred to as the "Notes Offering"). Consummation of the Offering and
the Notes Offering (collectively, the "Offerings") are conditioned upon each
other and are also conditioned upon the prior or concurrent consummation of
certain other transactions described under "The Recapitalization." See "The
Recapitalization" and "Use of Proceeds." Approximately 30 days after the
consummation of the Offerings, Haynes Corp. will be merged with and into the
Company, and the name of the surviving corporation will be "Haynes
International, Inc."
SEE "RISK FACTORS," PAGE 10, FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD
BE CONSIDERED BY PROSPECTIVE INVESTORS.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Underwriting Proceeds to
Price to Discounts and Proceeds to Selling
Public Commissions(1) Company(2) Stockholders
<S> <C> <C> <C> <C>
Per Share.................... $ $ $ $
Total........................ $ $ $ $
Total Assuming Full Exercise
of
Over-Allotment Option(3)... $ $ $ $
</TABLE>
(1) See "Underwriting."
(2) Before deducting expenses estimated at $900,000, which are payable by the
Company.
(3) Assuming exercise in full of the 30-day option granted by the Company to the
Underwriters to purchase up to 345,000 additional shares, on the same terms,
solely to cover over-allotments. See "Underwriting."
-------------------
The shares of Common Stock are offered by the Underwriters, subject to prior
sale, when, as and if delivered to and accepted by the Underwriters, and subject
to their right to reject orders in whole or in part. It is expected that
delivery of the Common Stock will be made in New York City on or about ,
1996.
-------------------
PAINEWEBBER INCORPORATED MERRILL LYNCH & CO.
-------------------
THE DATE OF THIS PROSPECTUS IS , 1996.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
Picture of a commercial aircraft with inset diagram showing a jet engine.
Picture of reactor vessel, made with Hastelloy B-2, producing acetic acid.
Picture of flue gas desulfurization unit lined with Hastelloy C-22.
Picture of industrial gas turbine using a variety of the Company's alloy
products.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
-------------------
"HAYNES," "HASTELLOY," "ULTIMET," "HR-160," "G-50," "G-30" AND "C-22" ARE
ALL REGISTERED TRADEMARKS OF THE COMPANY, AND "HR-120," "D-205," "214," "242"
AND "230" ARE TRADEMARKS OF THE COMPANY.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus. All references to fiscal years in this Prospectus refer to the
Company's fiscal years which, for all periods presented, ended on September 30.
As used in this Prospectus, the term the "Company" includes, when the context so
requires, Haynes International, Inc. and its consolidated subsidiaries. Unless
otherwise indicated, all information in this Prospectus (i) assumes that the
Underwriters' over-allotment option will not be exercised and (ii) has been
adjusted to reflect a 1-for-1.77 reverse split of the Company's Common Stock, to
be effected prior to the consummation of the Offering. Investors should
carefully consider the information set forth under the heading "Risk Factors."
THE COMPANY
Haynes International, Inc. develops, manufactures and markets
technologically advanced, high performance alloys primarily for use in the
aerospace and chemical processing industries. The Company's products are high
temperature alloys ("HTA") and corrosion resistant alloys ("CRA"). The Company's
HTA products are used by manufacturers of equipment that is subjected to
extremely high temperatures, such as jet engines for the aerospace industry, gas
turbine engines used for power generation, and waste incineration and industrial
heating equipment. The Company's CRA products are used in applications that
require resistance to extreme corrosion, such as chemical processing, power
plant emissions control and hazardous waste treatment. Based on available
industry data, the Company believes that it is one of three leading worldwide
producers of high performance alloy products in sheet, coil and plate forms,
which in the aggregate represented approximately 64% of the Company's net
revenues in fiscal 1995. In addition, the Company produces its alloy products as
seamless and welded tubulars, and in bar, billet and wire forms.
High performance alloys are characterized by highly engineered, often
proprietary, metallurgical formulations primarily of nickel, cobalt and other
metals with complex physical properties. The complexity of the manufacturing
process for high performance alloys is reflected in the Company's relatively
high average selling price of approximately $12.18 per pound for fiscal 1995,
compared to the average selling price of other metals such as carbon steel
sheet, stainless steel sheet and aluminum, which currently range from $0.17 to
$1.25 per pound. Demanding end-user specifications, a multi-stage manufacturing
process and the technical sales, marketing and manufacturing expertise required
to develop new applications combine to create significant barriers to entry in
the high performance alloy industry. The Company derived approximately 30% of
its fiscal 1995 net revenues from products that are protected by United States
patents and derived an additional approximately 15% of its fiscal 1995 net
revenues from sales of products that are not patented, but for which the Company
has limited or no competition.
Core Competencies
Based upon its customer relationships in the aerospace and chemical
processing industries, the Company believes it has a leadership position in the
high performance alloy industry and has a strong reputation for quality and
reliability. The Company's core competencies include the following:
. Metallurgical expertise. With over 50 years of product research and
development in the high performance alloy industry, the Company believes
it is a leader in the development and manufacturing technology of nickel-
and cobalt-based alloys. Over the last seven years, the Company's
technical programs have yielded seven new proprietary alloys, five of
which are protected by United States patents. Three additional United
States patents regarding the new proprietary alloys are pending. The
Company currently maintains a total of 43 United States patents and
approximately 180 foreign counterpart patents targeted at countries with
significant existing or potential markets for the patented products. As a
result of the Company's research and development efforts, Chemical
Processing magazine recognized the Company's products five
3
<PAGE>
times in the last twelve years as having made significant contributions to
the chemical processing industry.
. Technical marketing support. Through the combined efforts of the Company's
direct sales organization, including its four domestic Company-owned
service centers and its research and development group, the Company works
closely with its customers in order to identify, develop and support
diverse applications for its alloys and to anticipate customers' future
materials requirements. The Company believes this integrated approach is
unique in the high performance alloy industry.
. Flexible manufacturing capabilities. The Company's four-high Steckel mill,
in conjunction with its sophisticated, multi-stage, melting and refining
operation, produces a broad array of sheet, coil and plate products made
to exacting specifications. The Company also operates a three-high mill
and a two-high mill that enable the Company to produce small batch orders
that generally are not practical or economical for competitors to
manufacture.
Business Strategy
The Company intends to capitalize on its core competencies to implement its
business strategy, which includes the following principal elements:
Develop new applications for existing alloys. The Company actively seeks to
develop new applications and new market segments for its existing products. The
sales force, in coordination with the research and development staff, works
closely with end-users to identify applications for the Company's existing
products that address its customers' specialized needs. Management believes that
new product applications represent a significant opportunity for revenue growth.
The Company has identified and is pursuing new applications for its alloys,
including applications for the automotive, medical and instrumentation
industries.
Continue customer-driven new product development. The Company emphasizes
customer contact and an awareness of customer needs in its product development
process. The Company believes that new opportunities in end-markets are best
identified through close contact with customers. This approach allows the
Company to focus its research and development efforts and enables the Company's
products to be specified for use in the production of customers' products.
Expand export sales. The Company believes there are significant
opportunities to increase its sales in international markets. In fiscal 1995,
approximately 39% of the Company's net revenues were outside the United States,
primarily in European markets where the Company has established sales and
manufacturing facilities. In addition, the Company is pursuing significant
growth opportunities in other regions, particularly the Pacific Rim.
Increase productivity through strategic equipment investment. The Company
believes that future investment in plant and equipment will allow it to increase
capacity and produce higher quality products at reduced costs. The
Recapitalization described herein, combined with improved market conditions,
will enable the Company to increase its investment in plant and equipment above
the amounts expended in recent years. See "The Recapitalization." During fiscal
1996 through 1998, the Company anticipates investing approximately $19.5 million
in new plant and equipment and approximately $3.2 million in new integrated
information systems. The principal benefits of these investments are expected to
be (i) the expansion of annual production capacity by 25% from approximately
20.0 million pounds to approximately 25.0 million pounds, based on the current
product mix, (ii) improved production quality resulting in lower internal
rejection rates and rework costs and (iii) improved coordination among sales,
marketing and manufacturing personnel resulting in more efficient pricing
practices.
4
<PAGE>
The Company experienced a significant decline in demand for its products
from fiscal 1992 through fiscal 1994. This decline resulted from a confluence of
major economic events, including a decline in military aerospace procurement in
the aftermath of the Persian Gulf War and the collapse of the Soviet Union, a
major inventory correction by jet engine manufacturers following cancellations
and deferrals of orders for new commercial aircraft as a consequence of the 1990
to 1991 recession and a delay in spending on maintenance and repair in the
chemical processing industry. From fiscal 1991 to fiscal 1994, the Company's
shipments declined by 21% from approximately 16.9 million pounds to
approximately 13.3 million pounds, while net revenues decreased 33% from
approximately $225.4 million in fiscal 1991 to approximately $150.6 million in
fiscal 1994. During the same period, the Company's net loss increased from
approximately $0.7 million in 1991 to approximately $140.5 million in 1994;
fiscal 1994 included non-cash charges of approximately $79.6 million and
approximately $37.1 million relating to an accounting change for post-retirement
benefits and a write-off of goodwill, respectively. For the same period,
earnings before interest, taxes, depreciation and amortization decreased from
approximately $39.0 million in fiscal 1991 to approximately $10.7 million in
fiscal 1994.
Since fiscal 1994, demand for the Company's products has increased in its
primary end markets, aerospace and chemical processing, reflecting improved
market conditions. The Company's shipments to the aerospace industry, which
represented 33% of net revenues in fiscal 1995, increased 42% from 3.3 million
pounds in fiscal 1994 to 4.7 million pounds in fiscal 1995, and 23% in the first
nine months of fiscal 1996 to approximately 4.3 million pounds from
approximately 3.5 million pounds in the corresponding period of fiscal 1995. The
Company's shipments to the chemical processing industry, which represented 36%
of net revenues in fiscal 1995, increased 22% in fiscal 1995 over fiscal 1994
from approximately 5.0 million pounds to approximately 6.1 million pounds and
increased 2.8% in the first nine months of fiscal 1996 over the corresponding
period in fiscal 1995. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations".
The Company owns and operates manufacturing facilities in Kokomo, Indiana;
Arcadia, Louisiana; and Openshaw, England. The Kokomo plant is the main
production facility for all HTA and CRA products and most product forms,
including sheet, coil, plate, bar, billet and wire. The Arcadia plant is the
primary facility for the production of welded and seamless tubing and piping
using nickel- and cobalt-based alloys and seamless titanium tubing. The Openshaw
plant produces HTA and CRA products in bar and billet form for the European
market.
THE RECAPITALIZATION
Concurrently with this Offering, Haynes Corp., the Company's wholly-owned
subsidiary, is offering, by means of a separate prospectus, $100.0 million
aggregate principal amount of Senior Notes due 2004 (the "Notes"). The
consummation of this Offering is conditioned upon and is a condition to the
consummation of the Notes Offering and certain other transactions described
under "The Recapitalization." In addition, the Company will replace its existing
revolving credit facility, which has a maximum commitment of $25.0 million (the
"Existing Credit Facility"), with a new revolving credit facility which will
have a maximum commitment of $50.0 million, to be secured by a first priority
security interest in the Company's accounts receivable and inventories (the "New
Credit Facility"). Borrowings under the New Credit Facility will bear interest
at the lower of the prime rate plus 0.25% or LIBOR plus 2.25%, which would have
resulted in a borrowing rate of approximately 7.8% per annum at July 1, 1996.
Amounts outstanding under the New Credit Facility will be due at maturity, which
will be three years after the date of closing unless extended or terminated. The
Company will use the net proceeds from the Offerings and borrowings under the
New Credit Facility to refinance its existing indebtedness consisting of $50.0
million of 11 1/4% Senior Secured Notes due 1998 (the "Existing Senior Notes"),
$90.0 million of 13 1/2% Senior Subordinated Notes due 1999 (the "Existing
Subordinated Notes" and, with the Existing Senior Notes, the "Existing Notes")
and the indebtedness outstanding under the Existing Credit Facility
(collectively, the "Existing Indebtedness"). As of June 30, 1996, there were
outstanding revolving borrowings under the Existing Credit Facility of
approximately $16.1 million. The Company will repay the amounts outstanding
under the Existing Credit Facility immediately following the closing of the
Offerings. The redemption of the Existing Notes (the "Redemption")
5
<PAGE>
will occur approximately thirty days after the closing of the Offerings. As soon
as practicable after the Redemption, Haynes Corp. will be merged with and into
the Company (the "Merger"). The Offerings, the establishment of the New Credit
Facility, the repayment of amounts outstanding under the Existing Credit
Facility, the Redemption and the Merger are collectively referred to herein as
the "Recapitalization." See "The Recapitalization," "Use of Proceeds" and
"Capitalization."
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the Company................... 2,300,000 shares
Common Stock Offered by the Selling Stockholders...... 138,446 shares
Common Stock to be Outstanding after the Offering..... 6,004,519 shares(1)
Use of Proceeds....................................... The Company will use the net
proceeds from this Offering,
together with proceeds from the
Notes Offering and borrowings
under the New Credit Facility, to
repay the Existing Indebtedness
pursuant to the Recapitalization.
Proposed Nasdaq National Market Symbol................ HAYN
</TABLE>
- ------------
(1) Excludes 331,143 shares of Common Stock subject to options granted pursuant
to the Haynes International, Inc. Employee Stock Option Plan (the "Existing
Stock Option Plan") and 400,000 shares of Common Stock reserved for issuance
under the Haynes International, Inc. 1996 Employee Stock Option Plan (the
"New Stock Option Plan").
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered by prospective investors in connection with an investment in the
Common Stock offered hereby.
6
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE, RATIO AND OPERATING DATA)
The following summary financial, operating and pro forma data were derived
from the Consolidated Financial Statements of the Company, including the notes
thereto, as well as the selected financial, operating and pro forma information
included elsewhere in this Prospectus. The information set forth below should be
read in conjunction with the Consolidated Financial Statements included
elsewhere herein, "Selected Consolidated Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED SEPTEMBER 30, ENDED JUNE 30,
----------------------------------------------------------------- -----------------------
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenues............ $ 225,386 $ 169,344 $ 162,454 $ 150,578 $ 201,933 $ 149,973 $ 170,386
Cost of sales (1)....... 175,176 152,911(2) 137,102 171,957(3) 167,196 125,305 136,711
Selling and
administrative
expenses................ 20,762 19,641(2) 14,569 15,039 15,475 11,604 12,966
Research and technical
expenses................ 4,578 3,894 3,603 3,630 3,049 2,286 2,529
Operating income
(loss).................. 24,870 (7,102) 7,180 (40,048) 16,213 10,778 18,180
Other cost, net......... 324 882(2) 400 816 1,767 578 413
Interest expense, net... 23,167 20,107 18,497 19,582 19,904 14,938 15,138
Income (loss) before
cumulative effect of
change in accounting
principle............... (675) (16,771) (8,275) (60,866) (6,771) (5,353) 1,600
Cumulative effect of
change in accounting
principle (net of tax
benefit)................ -- -- -- (79,630)(4) -- -- --
Net income (loss)....... (675) (16,771) (8,275) (140,496) (6,771) (5,353) 1,600
Income (loss) per share
before cumulative
effect of change in
accounting principle.... $ (0.29) $ (6.78) $ (2.30) $ (16.93) $ (1.89) $ (1.49) $ 0.45
Net income (loss) per
share................... $ (0.29) $ (6.78) $ (2.30) $ (39.07) $ (1.89) $ (1.49) $ 0.45
Weighted average common
shares and
equivalents............. 2,312,080 2,473,005 3,599,102 3,595,976 3,591,117 3,591,337 3,590,457
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
------------------------------
ACTUAL AS ADJUSTED(5)
--------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital (6).............................................. $ 69,312 $ 66,412
Property, plant and equipment, net............................... 31,779 31,779
Total assets..................................................... 164,669 165,256
Total debt....................................................... 156,131 119,031
Accrued post-retirement benefits................................. 95,291 95,291
Stockholders' equity (deficit)................................... (121,453) (82,339)
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED SEPTEMBER 30, ENDED JUNE 30,
------------------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
-------- -------- -------- --------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
Depreciation and
amortization (7)........... $ 14,458 $ 16,484 $ 13,766 $ 51,555(3) $ 9,000 $ 6,168 $ 6,534
Capital expenditures....... 4,567 821 56 771 1,934 1,465 801
EBITDA (8)................. 39,004 8,500 20,546 10,691 23,446 16,368 24,301
Ratio of EBITDA to interest
expense.................... 1.68x 0.42x 1.11x 0.55x 1.18x 1.10x 1.61x
Ratio of earnings before
fixed charges to fixed
charges (9)................ 1.06x -- -- -- -- -- 1.17x
Net cash provided from
(used in)
operations................ $ 22,270 $ 19,850 $ 5,711 $ (12,801) $ (2,883) $(1,522) $ (2,983)
Net cash provided from
(used in) investment
activities................. (4,521) (757) 318 746 (1,895) (1,438) (744)
Net cash provided from
(used in) financing
activities................. (18,640) (16,440) (2,014) 7,102 3,912 1,609 3,654
</TABLE>
(Footnotes on following page)
7
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
SEPTEMBER 30, ENDED JUNE 30,
------------- -----------------------
1995 1995 1996
------------- ---------- ----------
<S> <C> <C> <C>
PRO FORMA DATA (10):
Interest expense............................................... $ 11,861 $ 8,879 $ 9,052
Net income (loss).............................................. 1,601 944 7,943
Net income per share........................................... 0.27 0.16 1.35
Weighted average common shares and equivalents................. 5,891,117 5,891,337 5,890,457
Ratio of earnings before fixed charges to fixed charges........ 1.25x 1.18x 1.99x
EBITDA......................................................... $ 23,446 $ 16,368 $ 24,301
Ratio of EBITDA to interest expense............................ 1.98x 1.84x 2.68x
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED SEPTEMBER 30, ENDED JUNE 30,
-------------------------------------------------- -----------------
OPERATING DATA: 1991 1992 1993 1994 1995 1995 1996
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Shipments by markets (millions of
pounds):
Aerospace............................. 5.7 3.4 3.3 3.3 4.7 3.5 4.3
Chemical processing................... 5.3 4.6 5.2 5.0 6.1 4.6 4.7
Other markets......................... 5.9 5.9 6.8 5.0 5.5 4.5 3.3
------ ------ ------ ------ ------ ------ ------
Total............................... 16.9 13.9 15.3 13.3 16.3 12.6 12.3
------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------
Average selling price per pound........ $13.26 $12.04 $10.48 $11.17 $12.18 $11.73 $13.63
Employees (end of period).............. 1,074 898 896 854 872 860 925
</TABLE>
- ------------
(1) The Company was acquired by Morgan Lewis Githens & Ahn and its affiliates
("MLGA") and the management of the Company in August 1989 (the "1989
Acquisition"). For financial statement purposes, the 1989 Acquisition was
accounted for as a purchase transaction effective September 1, 1989;
accordingly, inventories were adjusted to reflect estimated fair market
values at that date. This adjustment to inventories was amortized to cost
of sales as inventories were reduced from the base layer. Non-cash charges
for this adjustment included in cost of sales were $3,361, $5,210, $3,686
and $488 for fiscal 1991, 1992, 1993 and 1994, respectively; no charges
have been recognized since fiscal 1994.
(2) Includes costs related to the implementation of cost reduction measures,
the implementation of a just-in-time and total quality management program
and the renegotiation of the terms of the 1989 Acquisition credit
agreement. In fiscal 1992, these charges were reflected in cost of sales,
selling and administrative expenses, and other cost, net in the amounts of
$6,937, $1,156 and $603, respectively.
(3) Reflects the write-off of $37,117 of goodwill created in connection with
the 1989 Acquisition remaining at September 30, 1994. See Note 10 of the
Notes to Consolidated Financial Statements.
(4) During fiscal 1994, the Company adopted Statement of Financial Accounting
Standards No. 106, "Employers' Accounting for Postretirement Benefits Other
Than Pensions" ("SFAS 106"). The Company elected to immediately recognize
the transition obligation for benefits earned as of October 1, 1993,
resulting in a non-cash charge of $79,630, net of a $10,580 tax benefit,
representing the cumulative effect of the change in accounting principles.
The tax benefit recognized was limited to then existing net deferred tax
liabilities. See Note 8 of the Notes to Consolidated Financial Statements.
(5) Assumes an initial public offering price of $22.00 per share, the mid-point
of the price range set forth on the cover page of this Prospectus. Adjusted
to reflect the consummation of the Offerings, anticipated borrowings under
the New Credit Facility, the application of the net proceeds of the
Offerings and such borrowings as described under "Use of Proceeds" and the
consummation of the other transactions described under "The
Recapitalization."
(6) Reflects the excess of current assets over current liabilities as set forth
in the Consolidated Financial Statements. Historical and adjusted current
liabilities include amounts outstanding under the Existing Credit Facility
and amounts to be outstanding under the New Credit Facility, respectively.
(7) Reflects (i) depreciation and amortization as presented in the Company's
Consolidated Statement of Cash Flows and set forth in note (8) below, plus
(ii) other non-cash charges, including the amortization of prepaid pension
costs (which is included in the change in other asset category) and the
amortization of inventory costs as described in note (1) above, minus
amortization of debt issuance costs, all as set forth in note (8) below.
(8) Represents for the relevant period net income plus expenses recognized for
interest, taxes, depreciation, amortization and other non-cash charges
(excluding any non-cash charges which require accrual or reserve for cash
charges for any future period), as such amounts are calculated in
accordance with the terms of the indenture for the Notes. In addition to
those items specifically listed in the table, the following charges are
added to net income to calculate EBITDA:
(Footnotes continued on following page)
8
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<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED SEPTEMBER 30, ENDED JUNE 30,
--------------------------------------------------------- ------------------
1991 1992 1993 1994 1995 1995 1996
------- -------- ------- -------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Provision for (benefit
from) income taxes...... $ 2,054 $(11,320) $(3,442) $ 420 $ 1,313 $ 615 $ 1,029
Depreciation............. 8,710 8,752 8,650 8,208 8,188 6,127 5,844
Amortization
Debt issuance costs..... 1,401 1,333 2,120 1,680 1,444 1,086 1,035
Goodwill................ 1,434 1,490 1,487 38,607 -- -- --
Inventory (see note (1)
above)................... 3,361 5,210 3,686 488 -- -- --
Prepaid pension costs... 953 1,032 (57) 314 130 188 229
------- -------- ------- -------- ------- ------ -------
7,149 9,065 7,236 41,089 1,574 1,274 1,264
SFAS
106--Post-retirement..... -- -- -- 3,938 682 (147) 461
Amortization of debt
issuance costs.......... (1,401) (1,333) (2,120) (1,680) (1,444) (1,086) (1,035)
------- -------- ------- -------- ------- ------ -------
Total.................... $16,512 $ 5,164 $10,324 $ 51,975 $10,313 $6,783 $ 7,563
------- -------- ------- -------- ------- ------ -------
------- -------- ------- -------- ------- ------ -------
</TABLE>
EBITDA should not be construed as a substitute for income from operations, net
earnings (loss) or cash flows from operating activities determined in accordance
with Generally Accepted Accounting Principles ("GAAP"). The Company has
included EBITDA because it believes it is commonly used by certain investors
and analysts to analyze and compare companies on the basis of operating
performance, leverage and liquidity and to determine a company's ability to
service debt. Because EBITDA is not calculated in the same manner by all
entities, EBITDA as calculated by the Company may not necessarily be
comparable to that of the Company's competitors or of other entities.
(9) For purposes of these computations, earnings before fixed charges consist
of income (loss) before provision for (benefit from) income taxes and
cumulative effect of change in accounting principle plus fixed charges.
Fixed charges consist of interest on debt and amortization of debt issuance
costs. Earnings were insufficient to cover fixed charges by $28,091,
$11,717, $60,446 and $5,458 for fiscal 1992, 1993, 1994 and 1995,
respectively, and by $4,738 for the first nine months of fiscal 1995.
(10) Assumes an initial public offering price of $22.00 per share, the mid-point
of the price range set forth on the cover page of this Prospectus, and that
the transactions described under "The Recapitalization" were effected as of
October 1, 1994, resulting in approximately 1,955,000 shares of newly
issued Common Stock being used to retire $40,000 of Existing Indebtedness
and a corresponding reduction in interest expense of $8,043, $6,059 and
$6,086 for the fiscal year ended September 30, 1995, the nine months ended
June 30, 1995 and the nine months ended June 30, 1996, respectively. Actual
interest savings may differ from pro forma amounts due to differences in
interest rates and borrowing levels.
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<PAGE>
RISK FACTORS
Prospective investors in the securities offered hereby should consider the
specific Risk Factors set forth below as well as the other information contained
in this Prospectus. This Prospectus contains statements that constitute forward
looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995. Those statements appear in a number of places in this
Prospectus and may include statements regarding the intent, belief or current
expectations of the Company or its officers with respect to (i) the Company's
strategic plans, (ii) the policies of the Company regarding capital
expenditures, financing or other matters, and (iii) industry trends affecting
the Company's financial condition or results of operations. Prospective
investors are cautioned that any such forward looking statements are not
guarantees of future performance and involve risks and uncertainties and that
actual results may differ materially from those in the forward looking
statements as a result of various factors including the Risk Factors set forth
below.
INDUSTRY CYCLICALITY; FLUCTUATIONS IN OPERATING RESULTS. The Company's
principal customers are manufacturers and fabricators of machinery, parts and
equipment for highly specialized applications. In many instances, the Company's
products pass through a series of fabricators prior to sale to the manufacturer
of the end product. Demand for the Company's products is dependent upon and
derived from the level of demand for the machinery, parts and equipment produced
by these customers, which in turn is often dependent upon and derived from the
demand for the products of the Company's customers. Over the past several years,
certain of the markets in which the Company competes, particularly the
aerospace, flue gas desulfurization ("FGD") and oil and gas industries, have
experienced wide demand fluctuations. Because of the comparatively high level of
fixed costs associated with the Company's manufacturing processes, in recent
years significant declines in those markets have resulted in disproportionately
adverse impacts on the Company's operating results. In 1992, the Company
suffered significant downturns in its two largest markets. Although the
Recapitalization should enable the Company to better respond to and withstand
future downturns, if similar downturns were to occur in the future and continue
for a significant period of time, the Company's operations would be materially
adversely affected. Furthermore, the Company's operations may in the future be
subject to substantial period-to-period fluctuations as a consequence of
industry cyclicality, domestic and foreign economic conditions and other
factors. There can be no assurance that such factors will not have a material
adverse effect on the Company's business, operating results or financial
condition. See "--Leverage and Debt Service Obligations; Restrictive Debt
Covenants; Ability to Meet Fixed Charges."
LEVERAGE AND DEBT SERVICE OBLIGATIONS; RESTRICTIVE DEBT COVENANTS; ABILITY
TO MEET FIXED CHARGES. The Company is highly leveraged and will continue to be
highly leveraged following the Recapitalization. For the past three years, the
Company's earnings have been inadequate to cover fixed charges. See "--Net
Losses in Recent Years; Stockholders' Deficit." As of June 30, 1996, the Company
had approximately $156.1 million of consolidated indebtedness. On a pro forma
basis, giving effect to the Recapitalization as of June 30, 1996, the Company
would have had approximately $119.0 million of consolidated indebtedness. The
degree to which the Company is leveraged could affect its ability to make debt
service payments and restrict the Company's activities, including its ability to
make capital expenditures, to respond efficiently to market conditions, to take
advantage of business opportunities and to obtain additional financing and could
force the Company to restructure or refinance its indebtedness or seek
additional equity capital. Over the past several years, the Company's financial
condition and liquidity constraints have limited its ability to make capital
expenditures. Additional capital expenditures will be necessary in the future to
maintain and increase production capacity, improve quality and productivity and
meet anticipated competitive requirements. Failure of the Company to generate
sufficient internal funds to meet its capital expenditure needs or to obtain
financing for these expenditures on acceptable terms could have a material
adverse effect on the Company.
Unexpected declines in demand for the Company's products, fluctuations in
raw material prices, increases in costs or the inability to borrow additional
funds to cover shortfalls could impair the
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<PAGE>
Company's ability to meet its debt service obligations and, therefore, could
have a material adverse effect on the Company's financial condition and future
prospects. No assurance can be given that additional debt or equity financing
will be available when needed to cover shortfalls, or, if available, will be
obtainable on terms that are acceptable to the Company. In addition, borrowings
under the New Credit Facility will bear interest at variable rates. Increases in
interest rates on such borrowings could materially adversely affect the
Company's financial condition and results of operations and the Company's
ability to meet its debt service obligations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources."
The Company's earnings were inadequate to cover fixed charges in fiscal
1993, 1994 and 1995 by approximately $11.7 million, $60.4 million and $5.5
million, respectively. The failure by the Company to cover fixed charges in the
future could result in a failure to meet the Company's debt service obligations,
restrictions on the Company's activities or other material adverse effects on
the Company's financial condition and results of operations.
The indenture under which the Notes will be issued (the "Indenture") and the
New Credit Facility will contain a number of covenants, including covenants that
restrict the ability of the Company and its subsidiaries to (i) incur additional
indebtedness, (ii) make certain restricted payments, (iii) engage in
transactions with affiliates, (iv) create liens on assets, (v) sell assets, (vi)
issue and sell preferred stock of subsidiaries, (vii) make dividend payments and
(viii) engage in consolidations, mergers and transfers. In addition, under the
terms of the New Credit Facility, the Company will be required to maintain its
net worth (as defined in the New Credit Facility) above a specified level. The
covenants described in the two foregoing sentences represent all the covenants
which are material to investors to be contained in the Indenture and the New
Credit Facility. The Company's ability to continue to comply with the covenants
and restrictions in the agreements governing its indebtedness, and to otherwise
meet the obligations under its indebtedness generally, will be dependent upon
future performance, which will be subject to demand for the Company's products,
prevailing economic and competitive conditions and other factors, including
factors beyond the control of the Company. See "Description of Indebtedness."
The breach of any covenants or restrictions under any of the Company's
indebtedness could result in a default under the existing agreements and
indentures and the new agreements and/or the Indenture, which would permit the
lenders or noteholders, as the case may be, to declare all amounts borrowed
thereunder to be due and payable together with accrued and unpaid interest, and
the commitments of bank and other lenders to make further loans under the new
agreements could be terminated. If the Company were unable to repay its
indebtedness to bank and other lenders or noteholders, those lenders or
noteholders could proceed against the collateral securing that indebtedness, if
any, which includes the Company's inventories, accounts receivable and certain
other assets. A default under either the Indenture or the New Credit Facility
will cause a default under both agreements. Any default under the agreements
with the Company's bank and other lenders or noteholders or under the Indenture
could have a material adverse effect on the market value and the marketability
of the Common Stock.
NET LOSSES IN RECENT YEARS; STOCKHOLDERS' DEFICIT. The Company has incurred
substantial net losses in recent years, resulting from high interest expenses
incurred due to significant leverage, certain special charges and declines in
demand and prices for products in certain of the Company's principal markets
through fiscal 1994. The Company's net losses for fiscal 1993, 1994 and 1995
were $8.3 million, $140.5 million and $6.8 million, respectively. Over the same
three-year period, stockholders' equity decreased from approximately $22.9
million in fiscal 1993 to a deficit of approximately $116.0 million in fiscal
1994 and to a deficit of approximately $121.9 million in fiscal 1995. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." Assuming the completion of this Offering and the Recapitalization
had occurred on June 30, 1996, the Company would have had a stockholders'
deficit of approximately $82.3 million at that date. See "Use of Proceeds" and
"The Recapitalization."
11
<PAGE>
Although the Company has taken steps over the past several years to increase
revenues, reduce costs and improve efficiency, resulting in the Company
recognizing net income for the first nine months of fiscal 1996, there can be no
assurance that the Company will be able to sustain profitability. The Company's
ability to sustain profitability is dependent upon a number of factors,
including the continued successful implementation of its product development,
manufacturing improvement and cost reduction efforts, as well as various factors
beyond the Company's control, such as the impact of raw material price
fluctuations and the demand for high performance alloys. The failure of the
Company to sustain profitability could hinder its ability to make debt service
payments, to respond efficiently to market conditions, to make capital
expenditures and to take advantage of business opportunities, the failure to
perform any one of which could have a material adverse effect on the Company's
financial condition and results of operations. Future sustained losses by the
Company could have a material adverse effect on the Company's operations.
SIGNIFICANT FLUCTUATIONS IN QUARTERLY RESULTS. The Company's quarterly
revenues and operating results have varied significantly in the past and may
continue to do so in the future. Quarterly revenues and operating results may
fluctuate as a result of significant fluctuations in the cost of raw materials,
changes in demand for the Company's products, changes in the level of operating
expenses, timing of inventory adjustments, competitive conditions and general
economic conditions. In addition, the results of any quarterly period may not be
indicative of the results to be expected for a full fiscal year. It is possible
that the Company's operating results in certain future quarters may be below the
expectations of market analysts and investors, which would likely have a
material adverse effect on the price of the Company's Common Stock.
DEPENDENCE ON KOKOMO FACILITY. The Company's principal assets are located at
its primary integrated production facility in Kokomo, Indiana and at its
production facilities in Arcadia, Louisiana and Openshaw, England. The Arcadia
and Openshaw plants rely to a significant extent upon feedstock produced at the
Kokomo facility. Any production failures, shutdowns or other significant
problems at the Kokomo facility could have a material adverse effect on the
Company's financial condition and results of operations. The Company believes
that it maintains adequate property damage insurance to provide for
reconstruction of damaged equipment, as well as business interruption insurance
to mitigate losses resulting from any production shutdown caused by an insured
loss; however, there can be no assurance that such insurance will be adequate to
cover such losses. See "Business--Properties."
Although the Company believes that its facilities are generally in good
operating condition, the Company expects that significant maintenance and repair
of its facilities will be required on a continuing basis. Maintenance and repair
of the Company's facilities will require shutdowns of specific pieces of
equipment. Extended interruptions in the Company's production capabilities could
adversely affect the Company's results of operations.
GROWTH DEPENDENT UPON NEW APPLICATIONS AND NEW PRODUCTS. The Company's
performance depends materially on its ability to offer products that have equal
or better performance characteristics than competing products at competitive
prices. The Company's future growth will depend, in large part, on its ability
to address the increasingly demanding needs of its customers by enhancing the
properties of its existing alloys, by timely developing new applications for its
existing products, and by timely developing and introducing new products. There
can be no assurance that the Company will be successful in these efforts or that
the Company will not experience difficulties that could delay or prevent the
successful development, introduction and sale of these products, or that its new
products and product enhancements will adequately meet the requirements of the
marketplace and achieve market acceptance. See "Business--Research and Technical
Development."
COMPETITION. The high performance alloy market is a highly competitive
market in which eight to ten producers participate in various product forms. The
Company faces strong competition from domestic and foreign manufacturers of both
the Company's high performance alloys and other competing metals. Some of the
Company's current competitors have and future competitors may have greater
financial resources than the Company. Prior to fiscal 1994, this competition,
coupled with
12
<PAGE>
declining demand in several of the Company's key markets, had led to significant
erosion in the price for certain of the Company's products. The Company may face
additional competition in the future to the extent new materials are developed,
such as plastics or ceramics, that may be substituted for the Company's
products. There can be no assurance that the Company will be able to compete
effectively in the future or that competition will not significantly depress the
price of the Company's products in the future. See "Business--Competition."
RAW MATERIAL PRICE FLUCTUATIONS. The raw materials used by the Company,
primarily nickel, cobalt and molybdenum, all have experienced significant
fluctuations in price. In fiscal 1995, average prices per pound for nickel,
cobalt and molybdenum increased 44%, 37% and 202%, respectively, over the
averages for fiscal 1994. Raw material costs account for approximately one-half
of the total cost of sales. Approximately one-half of the raw material costs is
for nickel. The Company attempts to mitigate the effects of fluctuations in the
price of nickel by purchasing forward contracts with respect to approximately
one-half of its uncovered future commitments. However, there can be no assurance
that such hedging transactions will adequately protect the Company in the event
of significant fluctuations in the price of nickel or that the Company will not
incur a loss on such transactions. Generally, the Company has passed significant
raw material price increases through to its customers, but there can be no
assurance it will be able to do so in the future. Furthermore, the Company
maintains a policy of pricing its products at the time of order shipment. As a
result, rapidly escalating raw material costs during the period between the time
the Company receives an order and the time the Company purchases the raw
materials used to fill such order, which has averaged approximately 30 days in
recent months, can negatively affect profitability. In addition, the Company
obtains certain raw materials from only one or two sources, some of which are
located in foreign countries. Although to date the Company has been able to
obtain an adequate supply of these materials, there can be no assurance that the
Company will be able to obtain adequate supplies of these raw materials in the
future. In the event that the Company is unable to obtain adequate supplies of
raw materials in a timely fashion or that raw material price increases occur
that the Company is unable to pass on to its customers, the Company's business,
financial condition and operating results will be materially adversely affected.
See "Business-- Raw Materials."
POTENTIAL COSTS OF ENVIRONMENTAL COMPLIANCE. The Company's facilities are
subject to certain foreign, federal, state and local laws, regulations, permits
and consent agreements relating to the protection of human health and the
environment, and the Company has made, and will continue to make, expenditures
to comply with such provisions. Expenses and capital expenditures related to
environmental compliance are expected to be approximately $3.9 million for
fiscal 1996 through fiscal 1998. There can be no assurance that these planned
expenditures will be adequate to ensure compliance with environmental laws and
regulations. Pursuant to certain environmental laws, if a release of hazardous
substances occurs on or from the Company's properties or any associated off-site
disposal location, the Company may be held liable, and there can be no assurance
that the amount of such liability will not be material. The Company is currently
conducting groundwater monitoring and post-closure maintenance in connection
with certain disposal areas, and the Company is aware of certain contaminants in
the groundwater. In addition, the Company has completed an investigation of
eight specifically identified solid waste management units located at the Kokomo
facility. The Company is aware of elevated levels of certain contaminants in the
groundwater, some of which contaminants may have migrated from a nearby
superfund site. If corrective action is required in connection with these
disposal areas or solid waste management units, there can be no assurance that
the costs of such corrective action will not have a material adverse effect on
the Company's financial condition, results of operations or liquidity. In
addition, the Company has been named as one of many potentially responsible
parties ("PRPs") at two waste disposal sites. The Comprehensive Environmental
Response, Compensation and Liability Act, as amended ("CERCLA"), imposes strict,
joint and several liability for investigatory and cleanup costs upon all PRPs.
To date, the Company has contributed approximately $212,000 toward investigatory
and cleanup costs for the two sites at which it has been named as a PRP. PRPs
are jointly and severally liable for required remediation costs, which as of
June 30, 1996
13
<PAGE>
aggregated approximately $78.6 million at these two sites. Since environmental
laws are becoming increasingly stringent, the Company's environmental capital
expenditures and costs for environmental compliance may increase in the future.
In addition, due to the possibility of unanticipated regulatory or other
developments and the possibility that regulators may pursue enforcement of
applicable environmental laws and regulations more vigorously, the amount and
timing of future environmental expenditures may vary substantially from those
currently anticipated. See "Business--Environmental Matters."
DILUTION. Based upon an initial public offering price per share of $22.00,
the midpoint of the estimated price range set forth on the cover page of this
Prospectus, the purchasers of Common Stock in the Offering would suffer an
immediate $36.42 per share dilution in net tangible book value on a pro forma
basis based on the Company's June 30, 1996 financial statements and giving
effect to the Recapitalization. See "Dilution" and "Capitalization."
INCOME TAX AUDIT. On October 19, 1995, at the conclusion of an audit by the
Internal Revenue Service (the "IRS") of the Company's tax returns for the five
taxable years ending September 30, 1993 (the "Years in Issue"), the IRS proposed
to disallow approximately $5.5 million in deductions claimed by the Company
during the Years in Issue. These deductions represent the amortization of a
portion of certain loan fees in the original amount of approximately $10.4
million incurred in connection with the 1989 Acquisition. The Company claimed
similar deductions for such amortization in its 1994 and 1995 tax years, and
will deduct the remaining balance upon consummation of the Redemption. The
Company filed a formal protest to the IRS' proposed disallowance with the IRS
Appeals Office on March 25, 1996, and intends to challenge the IRS with respect
to the proposed disallowance. Until the issue is finally resolved, there can be
no assurance that the Company's position will ultimately be sustained. If the
Company's position is not sustained, the Company's available NOLs would be
reduced by up to approximately $10.4 million (the total amount of loan fees
which could otherwise be deducted by the Company). Reductions in the amount of
the Company's available NOLs may accelerate the date on which the Company is
required to pay federal income tax and may increase the Company's federal income
tax liability for its current tax year and any future tax years in which NOLs
resulting from the disallowed deductions are used to offset taxable income.
Depending upon the timing of the final resolution of this issue, it is possible
that the entire increased tax liability, including interest thereon, would be
payable in the fiscal quarter in which the issue is finally resolved.
RESTRICTIONS ON DIVIDENDS. The Company does not anticipate paying dividends
in the foreseeable future. In addition, the Indenture for the Notes will contain
affirmative and negative covenants restricting payments of dividends. See
"Dividends" and "Description of Indebtedness--The Notes."
VOTING CONTROL. Prior to the Offering, MLGA Fund II, L.P., an investment
limited partnership ("Fund II"), and its affiliates owned approximately 93.7% of
the outstanding Common Stock of the Company on a fully-diluted basis. Assuming
the exercise of all outstanding options, following completion of this Offering,
Fund II and its affiliates will own approximately 56.0% of the outstanding
Common Stock of the Company. As a result, Fund II and its affiliates will
continue to be able to control the outcome of the vote on all matters submitted
to a vote of the stockholders of the Company. An affiliate of MLGA is the
general partner of Fund II. See "The Company" and "Principal and Selling
Stockholders."
DEPENDENCE ON KEY MANAGEMENT. The Company's ability to maintain its
competitive position is dependent upon the management and leadership skills of
Michael D. Austin, the Company's President and Chief Executive Officer, and
other members of the Company's senior management team. The loss of any of these
individuals or an inability to attract and retain additional qualified personnel
could adversely affect the Company. There can be no assurance that the Company
will be able to retain its existing senior management personnel or to attract
additional qualified personnel. See "Management."
ADVERSE EFFECTS OF FOREIGN CURRENCY FLUCTUATIONS. In fiscal 1995,
international sales represented approximately 39% of the Company's net revenues,
and the Company expects that international sales will continue to account for a
significant portion of its net revenues in the future. The Company's policy
14
<PAGE>
is to denominate all export shipments from the United States, including those to
its foreign operations, in U.S. dollars. The foreign operations generally sell
products in local or other foreign currencies, creating the risk that currency
exchange rate fluctuations could adversely affect their earnings. The managers
of each of the foreign operations are responsible for assessing this risk and
for hedging against possible foreign currency fluctuations as they deem
appropriate, subject to a Company policy requiring any foreign affiliate that
desires to enter into a hedging contract that would cause it to have aggregate
open currency hedging positions in excess of $500,000 to first obtain the
approval of the Company's Chief Executive Officer or Chief Accounting Officer.
The maximum aggregate notional amount of hedged positions at any time during the
past three fiscal years was approximately $3.2 million. As of September 30,
1995, there were foreign currency exchange contracts outstanding in the amount
of approximately $1.7 million with no unrealized gain or loss. During fiscal
1995, sales by the Company's foreign operations totaled approximately $41.3
million, or 53% of total international sales, and the foreign operations
recorded expenses of approximately $200,000 due to currency exchange
fluctuations.
Since the Company's foreign operations also have assets and liabilities
denominated in foreign currencies, there is a risk that fluctuations in exchange
rates could adversely affect the Company's equity balance. Exchange gains or
losses on balance sheet items are taken directly to equity as a separate
component of stockholders' deficit. The Company has not historically engaged in
activities to mitigate the effects foreign currency fluctuations may have on
these items. At both September 30, 1995 and June 30, 1996, the foreign
operations had approximately $7.5 million in assets net of liabilities
denominated in foreign currencies and the Company's balance sheet at September
30, 1995 and June 30, 1996 reflected accumulated foreign currency translation
gains of approximately $4.1 million and $2.9 million, respectively, in the
stockholders' deficit section.
There can be no assurance that any current or future efforts to mitigate the
possible adverse effects of foreign currency fluctuations on the Company's
foreign operations and on the Company's overall results of operations will be
successful. Furthermore, in addition to the risk of currency exchange
fluctuations, the complexity of futures contracts and hedging programs also
generally creates the risk of loss in such hedging transactions. The Company's
foreign operations may also be subject to certain economic and market risks,
including longer payment cycles, greater difficulties in accounts receivable
collection, the necessity of paying import and export duties and the requirement
of complying with a wide variety of foreign laws. In addition, the Company's
foreign operations are affected by general economic conditions in the
international markets in which the Company does business. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business-- Sales and Marketing."
ABSENCE OF PUBLIC MARKET AND POSSIBLE VOLATILITY OF STOCK PRICES. Prior to
the Offering, there has been no public market for the Common Stock. The initial
public offering price of the Common Stock has been determined by negotiations
between the Company and the Underwriters and may not be indicative of the market
price for the Common Stock after this Offering. The market price of the Common
Stock may be highly volatile depending on a number of factors. For a discussion
of the factors considered in determining the initial public offering price, see
"Underwriting."
SHARES ELIGIBLE FOR FUTURE SALE. Future sales of shares of Common Stock by
the Company or its existing stockholders could adversely affect the prevailing
market price of the Common Stock. The Company, each of its directors and
executive officers and certain of its existing stockholders have entered into
lock-up agreements with the Underwriters, whereby such entities and persons have
agreed not to sell any Common Stock or securities convertible into or
exchangeable or exercisable for Common Stock (except for issuances of shares by
the Company in connection with the exercise of options granted under the
Existing Stock Option Plan and the New Stock Option Plan) for 180 days following
the date of this Prospectus without the written consent of the Underwriters.
After such time, or earlier with the written consent of the Underwriters,
approximately 3,566,073 shares of Common Stock will be eligible for sale by
existing stockholders of the Company, subject to Rule 144 promulgated under the
Securities Act. Sales of substantial amounts of Common Stock in the public
market, or the perception that such sales may occur, could have a material
adverse effect on the market price of the Common Stock. See "Description of
Capital Stock--Shares Eligible for Future Sale."
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<PAGE>
THE COMPANY
The Company develops, manufactures and markets technologically advanced,
high performance alloys primarily for use in the aerospace and chemical
processing industries. The Company's products are high temperature alloys and
corrosion resistant alloys. The Company's HTA products are used by manufacturers
of equipment that is subjected to extremely high temperatures, such as jet
engines for the aerospace industry, gas turbine engines used for power
generation, and waste incineration and industrial heating equipment. The
Company's CRA products are used in applications that require resistance to
extreme corrosion, such as chemical processing, power plant emissions control
and hazardous waste treatment. Based on available industry data, the Company
believes that it is one of three leading worldwide producers of high performance
alloy products in sheet, coil and plate forms, which in the aggregate
represented approximately 64% of the Company's net revenues in fiscal 1995. In
addition, the Company produces its alloy products as seamless and welded
tubulars, and in bar, billet and wire forms.
The business of the Company was founded in 1912 as Haynes Stellite Works.
Haynes Stellite Works was acquired by Union Carbide Corp. in 1920, and sold to
Cabot Corporation ("Cabot") in 1970. Cabot incorporated the business in 1986 and
continued as its principal owner until August 1989. Control of the Company was
acquired in August 1989 by certain affiliates of MLGA and management of the
Company in a leveraged buyout for an aggregate purchase price of approximately
$223.0 million. In connection with the 1989 Acquisition, Haynes Corp. (then
called Haynes International, Inc.) issued $100.0 million principal amount of
Existing Subordinated Notes and became a wholly-owned subsidiary of the Company.
See "Principal and Selling Stockholders." In February 1990, Haynes Corp. became
a reporting company under section 15(d) of the Exchange Act of 1934, as amended
(the "Exchange Act"). In 1993, Haynes Corp. issued $50.0 million aggregate
principal amount of Existing Senior Notes and used a portion of the proceeds
therefrom to redeem $10.0 million of the Existing Subordinated Notes. Haynes
Corp.'s Exchange Act reporting obligations extended to the Existing Senior
Notes. The Company unconditionally guaranteed the Existing Senior Notes.
Registration of the Company's guarantee of the Existing Senior Notes caused the
Company to become a reporting company under section 15(d) of the Exchange Act.
In 1994, Haynes Corp.'s and the Company's reporting obligations under the
Exchange Act terminated.
Haynes Corp. will be merged with and into the Company as soon as practicable
following the redemption of the Existing Notes, which is expected to occur
approximately 30 days after the consummation of the Offerings. See "The
Recapitalization--The Merger."
The Company was incorporated under the laws of Delaware on June 14, 1989.
The Company's executive offices are located at 1020 West Park Avenue, Kokomo,
Indiana 46904-9013, and its telephone number is (317) 456-6000.
THE RECAPITALIZATION
The Offering is part of a recapitalization plan that the Company is
implementing to reduce its indebtedness, improve its financial flexibility and
enhance its competitive position. The components of the Recapitalization are (i)
the Offering, (ii) the Notes Offering, (iii) the establishment of the New Credit
Facility, (iv) the redemption of the Existing Notes and repayment of amounts
outstanding under the Existing Credit Facility and (v) the merger of Haynes
Corp. with and into the Company. On a pro forma basis, giving effect to the
Recapitalization as of October 1, 1994, for the fiscal year ended September 30,
1995, (a) the Company's net income (loss) would have increased from
approximately $(6.8) million to approximately $1.6 million, (b) the Company's
interest expense would have decreased from approximately $20.2 million to
approximately $11.9 million, (c) the Company's ratio of EBITDA to interest
expense would have improved from 1.18x to 1.98x and (d) the Company's ratio of
earnings before fixed charges to fixed charges would have improved from 0.73x (a
deficiency of approximately $5.5 million) to 1.25x. On a pro forma basis, giving
effect to the Recapitalization as of October 1, 1994, for the nine months ended
June 30, 1996 (a) the Company's net income would have increased from
16
<PAGE>
approximately $1.6 million to approximately $7.9 million, (b) the Company's
interest expense would have decreased from approximately $15.4 million to
approximately $9.1 million, (c) the Company's ratio of EBITDA to interest
expense would have improved from 1.61x to 2.68x and (d) the Company's ratio of
earnings before fixed charges to fixed charges would have improved from 1.17x to
1.99x. See "Selected Consolidated Financial Data."
The Notes Offering. Concurrently with this Offering, Haynes Corp. is
offering, by means of a separate prospectus, $100.0 million aggregate principal
amount of Notes. Consummation of the Notes Offering is conditioned upon the
consummation of this Offering and the establishment of the New Credit Facility.
The New Credit Facility. In connection with the Offering, Haynes Corp. will
enter into an agreement with Congress Financial Corporation (Central) as agent
for itself and CoreStates Bank, N.A. as lenders (the "Lenders") to provide the
New Credit Facility in the amount of $50.0 million. Borrowings under the New
Credit Facility will bear interest at the lower of the prime rate plus 0.25% or
LIBOR plus 2.25%, which would have resulted in a borrowing rate of approximately
7.8% per annum at July 1, 1996, and will be secured by a first priority security
interest in the Company's accounts receivable and inventories. Amounts
outstanding under the New Credit Facility will be due at maturity, which will be
three years after the date of closing unless extended or terminated. The New
Credit Facility will contain several covenants that, among other things, require
the Company to maintain a specified level of net worth (as defined therein). See
"Description of Indebtedness--The New Credit Facility." The Lender's obligation
to enter into the New Credit Facility will be conditioned upon, among other
things, consummation of the Offerings. Consummation of the Offerings is
conditioned upon the establishment of the New Credit Facility.
Redemption of the Existing Notes and Repayment of the Existing Credit
Facility. The Company will use the net proceeds of the Offerings and borrowings
under the New Credit Facility to redeem the Existing Notes (the "Redemption")
and repay amounts outstanding under the Existing Credit Facility. The Existing
Senior Notes and the Existing Subordinated Notes bear interest at 11 1/4% and 13
1/2% per annum, respectively, and borrowings under the Existing Credit Facility
bear interest at a fluctuating per annum rate equal to 1.75% plus the prime
rate. The Redemption will require the Company to pay a prepayment premium to the
holders of the Existing Subordinated Notes of approximately $1.5 million. The
Company will also be required to pay a prepayment premium to the holders of the
Existing Senior Notes to the extent that (i) the present value of all remaining
principal and interest payments on the Existing Senior Notes, determined using a
discount rate equal to the yield on U.S. Government Obligations (as defined in
the governing indenture) having a term approximately equal to the remaining term
of the Existing Senior Notes, plus 2.0%, is greater than (ii) the principal
amount of the Existing Senior Notes, plus accrued interest thereon to the date
of redemption. Assuming the Redemption had occurred on July 31, 1996, the
prepayment premium on the Existing Senior Notes would have been approximately
$2.8 million. The Company will mail redemption notices to the holders of the
Existing Notes immediately after the close of the Offerings, and the Existing
Notes will be redeemed approximately thirty days thereafter. In the quarter in
which the Redemption occurs, the Company will record a charge against earnings,
reflecting the prepayment premiums and a non-cash charge for accelerated
amortization of the cost of issuing the Existing Notes. Assuming the Redemption
had occurred as of July 31, 1996, those amounts would have been approximately
$4.3 million and $3.6 million, respectively. The Company will also incur charges
of approximately $400,000 in connection with the termination of and repayment of
amounts outstanding under the Existing Credit Facility. During the period
following the consummation of the Offerings and prior to the date of the
Redemption, the Company will incur interest expense on the Existing Notes and
the Notes, which will exceed the interest income earned on the proceeds from the
Offerings designated for the Redemption by approximately $900,000.
The Merger. Immediately after the Existing Notes are redeemed, Haynes Corp.
will be merged with and into the Company, and the surviving corporation will
continue its operations under the name "Haynes International, Inc." Following
the Merger, purchasers of Common Stock in this Offering will be stockholders of
the surviving corporation, and the surviving corporation will assume all
obligations of Haynes Corp. under the Indenture and the New Credit Facility.
17
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby are estimated to be approximately $46.2 million, assuming an
initial public offering price of $22.00 per share, the mid-point of the range
set forth on the cover page of this Prospectus. The Company intends to use the
net proceeds from this Offering, together with the net proceeds from the Notes
Offering and amounts available under the New Credit Facility, to redeem the
Existing Notes and to repay amounts outstanding under the Existing Credit
Facility. See "The Recapitalization." The Company will not receive any proceeds
from the shares of Common Stock to be sold by the Selling Stockholders.
The following is a description of sources and uses of proceeds, giving
effect to the Recapitalization as of June 30, 1996 (in thousands):
<TABLE>
<S> <C>
SOURCES:
New Credit Facility (1)(2).................................... $ 19,031
Notes Offering................................................ 100,000
Common Stock Offering (2)..................................... 50,600
--------
$169,631
--------
--------
USES:
Repayment of Existing Credit Facility......................... $ 16,131
Redemption of Existing Senior Notes........................... 50,000
Redemption of Existing Subordinated Notes..................... 90,000
Estimated redemption and repayment premiums on Existing
Indebtedness (3)................................................ 4,700
Estimated fees and expenses related to the Recapitalization
(4)............................................................. 8,800
--------
$169,631
--------
--------
</TABLE>
- ------------
(1) The New Credit Facility will have a maximum availability of $50.0 million.
(2) If the Underwriters' over-allotment option is exercised in full, the net
proceeds to the Company from the Offering will be approximately $53.2
million and borrowings under the New Credit Facility will be approximately
$11.4 million.
(3) Represents an estimated prepayment premium of $2.8 million related to the
redemption of the Existing Senior Notes, a prepayment premium of $1.5
million related to the redemption of the Existing Subordinated Notes, and a
payment of approximately $400,000 in connection with the termination of and
repayment of amounts outstanding under the Existing Credit Facility. The
maturity date of the Existing Senior Notes, which bear interest at 11 1/4%,
is June 15, 1998. The maturity date of the Existing Subordinated Notes,
which bear interest at 13 1/2%, is August 15, 1999, subject to partial
mandatory redemption on each of August 15, 1997 and August 15, 1998 in the
amounts of $23.3 million and $33.3 million, respectively, of the principal
amount of the Existing Subordinated Notes. See "The Recapitalization."
(4) Includes underwriting discounts and commissions related to the Offerings and
expenses payable by the Company in connection with the Recapitalization.
18
<PAGE>
CAPITALIZATION
The following table sets forth the actual consolidated capitalization of the
Company as of June 30, 1996 and as adjusted to give effect to the
Recapitalization. See "Use of Proceeds."
<TABLE>
<CAPTION>
JUNE 30, 1996
------------------------
ACTUAL AS ADJUSTED
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt (1):
Existing Credit Facility............................................ $ 16,131 $ --
New Credit Facility................................................. -- 19,031
--------- -----------
Total short-term debt........................................... 16,131 19,031
Long-term debt:
Existing Senior Notes............................................... 50,000 --
Existing Subordinated Notes......................................... 90,000 --
Notes offered concurrently.......................................... -- 100,000
--------- -----------
Total long-term debt............................................ 140,000 100,000
--------- -----------
Total debt...................................................... 156,131 119,031
Redeemable common stock (2)........................................... 1,427 --
Stockholders' deficit:
Preferred Stock, no shares authorized or issued (3).................
Common Stock, $.01 par value; 10,000,000 shares authorized and
20,000,000 shares authorized as adjusted; 3,590,434 shares issued
and 6,004,519 shares issued as adjusted
(excludes 9,774 treasury shares) (3).............................. 36 60
Additional paid-in capital.......................................... 46,443 93,816
Accumulated deficit (4)............................................. (170,685) (178,968)
Foreign currency translation adjustment............................. 2,926 2,926
Less: Treasury stock at cost, 9,774 shares.......................... (173) (173)
--------- -----------
Total stockholders' deficit..................................... (121,453) (82,339)
--------- -----------
Total capitalization............................................ $ 36,105 $ 36,612
--------- -----------
--------- -----------
</TABLE>
- ------------
(1) Amounts outstanding under the Existing Credit Facility are, and amounts to
be outstanding under the New Credit Facility will be, treated for accounting
purposes as short-term debt. However, because of the longer term of the
facilities under which this debt is issued (three years with respect to the
New Credit Facility), the Company considers debt under these credit
facilities to be part of its total capitalization and, accordingly, has
included them in this table.
(2) Represents the estimated liability of the Company in connection with the put
and call rights provided for in the Stock Subscription Agreement among the
Company and the investors specified therein (the "Stock Subscription
Agreement") with respect to certain options granted pursuant to the Existing
Stock Option Plan. The Stock Subscription Agreement and the related put and
call rights will be terminated upon consummation of the Offering. See
"Management--Stock Option Plans" and Note 11 of the Notes to Consolidated
Financial Statements.
(3) The Company's Certificate of Incorporation was amended on July 15, 1996 to
authorize 2,000,000 shares of Preferred Stock, with terms of individual
classes of the Preferred Stock to be determined in the discretion of the
board of directors, and to increase the number of authorized shares of
Common Stock from 10,000,000 to 20,000,000.
(4) The increase in the accumulated deficit as adjusted to give effect to the
Recapitalization is due to the write-off of deferred debt issuance costs of
approximately $3.6 million and the recognition of prepayment premiums
related to the redemption of the Existing Indebtedness of approximately $4.7
million.
19
<PAGE>
DIVIDENDS
The Company has not previously paid dividends and does not intend to pay
dividends in the foreseeable future. The payment of any future dividends will
generally be at the discretion of the Board of Directors of the Company, and
will depend upon, among other factors, future earnings, capital requirements,
the general financial condition of the Company and general business conditions.
In addition, the Indenture for the Notes will include (and future credit
facilities may include) financial covenants that restrict the Company's ability
to pay dividends. See "Risk Factors" and "Description of Indebtedness--The
Notes."
DILUTION
As of June 30, 1996, the Company had a deficit in net tangible book value
per share (book value of the Company's tangible assets less the amount of its
liabilities, divided by the number of shares of Common Stock outstanding) of
$(34.82). Without taking into account any changes in such book value per share,
other than to give effect to the Recapitalization, the pro forma deficit in net
tangible book value per share as of June 30, 1996 would have been $(14.42). This
amount represents an immediate increase in net tangible book value per share of
$20.40 to existing Company stockholders and an immediate dilution of $36.42 per
share to new investors. The following table illustrates the calculation
described above:
<TABLE>
<CAPTION>
<S> <C> <C>
Assumed initial offering price per share......................... $ 22.00
Deficit in net tangible book value per share before the
Offering......................................................... $(34.82)
Increase in net tangible book value per share attributable to
purchase of shares in the Offering............................. 20.40
Pro forma deficit in net tangible book value per share after the
Offering......................................................... $(14.42)
-------
Dilution per share to purchasers in the Offering................. $ 36.42
-------
-------
</TABLE>
To the extent the Underwriters' over-allotment option is exercised in full,
the pro forma deficit in net tangible book value of the Company at June 30, 1996
would have been $(79,450), or $(12.52) per share, representing an immediate
increase in such pro forma net tangible book value of $22.30 per share to
existing stockholders and an immediate dilution of $34.52 per share to
purchasers in this Offering.
The following table sets forth, as of June 30, 1996, the number of shares of
Common Stock purchased or to be purchased from the Company, the total
consideration paid or to be paid to the Company and the average price per share
paid or to be paid to the Company by the existing stockholders and new investors
purchasing shares in the Offering.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders (1)............ 3,700,000 61.7% $46,791,000 48.0% $ 12.65
New investors........................ 2,300,000 38.3% 50,600,000 52.0% 22.00
---------- ------- ----------- ------- -------------
Total (2)........................ 6,000,000 100.0% $97,391,000 100.0% $ 16.23
---------- ------- ----------- ------- -------------
---------- ------- ----------- ------- -------------
</TABLE>
- ------------
(1) Assumes the exercise of options to purchase 109,566 shares of Common Stock,
which will be exercised in connection with the Offering.
(2) Excludes 4,519 shares purchased pursuant to the exercise of an option at an
exercise price of $4.43 per share in July 1996.
20
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE, RATIO AND OPERATING DATA)
The following table sets forth selected consolidated financial, operating and
pro forma data of the Company. The selected consolidated financial data as of
and for the years ended September 30, 1991, 1992, 1993, 1994 and 1995 are
derived from the audited consolidated financial statements of the Company. The
selected consolidated financial data as of and for the nine months ended June
30, 1995 and 1996 have been derived from financial statements that are not
audited, but, in the opinion of management, such financial statements include
all adjustments, consisting only of normal recurring adjustments, necessary for
a fair presentation of the financial position and results of operations as of
such dates and for such periods. Results of operations for the nine months ended
June 30, 1996 are not necessarily indicative of results for the full fiscal
year. Pro forma data may not be indicative of future results.
These selected financial data are qualified in their entirety by reference
to, and should be read in conjunction with, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Consolidated
Financial Statements of the Company and the related notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED SEPTEMBER 30, ENDED JUNE 30,
------------------------------------------------------------------ -----------------------
1991 1992 1993 1994 1995 1995 1996
---------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenues........... $ 225,386 $ 169,344 $ 162,454 $ 150,578 $ 201,933 $ 149,973 $ 170,386
Cost of sales (1)...... 175,176 152,911(2) 137,102 171,957(3) 167,196 125,305 136,711
Selling and
administrative
expenses............... 20,762 19,641(2) 14,569 15,039 15,475 11,604 12,966
Research and technical
expenses............... 4,578 3,894 3,603 3,630 3,049 2,286 2,529
Operating income
(loss)................. 24,870 (7,102) 7,180 (40,048) 16,213 10,778 18,180
Other cost, net........ 324 882(2) 400 816 1,767 578 413
Interest expense,
net.................... 23,167 20,107 18,497 19,582 19,904 14,938 15,138
Income (loss) before
cumulative effect of
change in accounting
principle.............. (675) (16,771) (8,275) (60,866) (6,771) (5,353) 1,600
Cumulative effect of
change in accounting
principle (net of tax
benefit)............... -- -- -- (79,630)(4) -- -- --
Net income (loss)...... (675) (16,771) (8,275) (140,496) (6,771) (5,353) 1,600
Income (loss) per share
before cumulative
effect of change in
accounting
principle.............. $ (0.29) $ (6.78) $ (2.30) $ (16.93) $ (1.89) $ (1.49) $ 0.45
Net income (loss) per
share.................. $ (0.29) $ (6.78) $ (2.30) $ (39.07) $ (1.89) $ (1.49) $ 0.45
Weighted average common
shares and
equivalents............ 2,312,080 2,473,005 3,599,102 3,595,976 3,591,117 3,591,337 3,590,457
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30, 1996
-------------------------------------------------------- ---------------------------
1991 1992 1993 1994 1995 ACTUAL AS ADJUSTED (5)
-------- -------- -------- -------- -------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (6)...... $ 97,805 $ 39,344 $ 72,131 $ 60,182 $ 62,616 $ 69,312 $ 66,412
Property, plant and
equipment, net.......... 68,792 60,700 51,676 43,119 36,863 31,779 31,779
Total assets............. 256,142 214,585 194,200 145,723 151,316 164,669 165,256
Total debt............... 169,000 142,194 140,180 148,141 152,477 156,131 119,031
Accrued postretirement
benefits................. -- -- -- 94,148 94,830 95,291 95,291
Stockholders' equity
(deficit)................ 37,630 35,162 22,938 (116,029) (121,909) (121,453) (82,339)
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED SEPTEMBER 30, ENDED JUNE 30,
------------------------------------------------------------------ -----------------------
1991 1992 1993 1994 1995 1995 1996
---------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
Depreciation and
amortization (7)....... $ 14,458 $ 16,484 $ 13,766 $ 51,555(3) $ 9,000 $ 6,168 $ 6,534
Capital expenditures... 4,567 821 56 771 1,934 1,465 801
EBITDA (8)............. 39,004 8,500 20,546 10,691 23,446 16,368 24,301
Ratio of EBITDA to
interest expense...... 1.68x 0.42x 1.11x 0.55x 1.18x 1.10x 1.61x
Ratio of earnings
before fixed charges
to fixed charges
(9).................... 1.06x -- -- -- -- -- 1.17x
Net cash provided from
(used in)
operations............. $ 22,270 $ 19,850 $ 5,711 $ (12,801) $ (2,883) $ (1,522) $ (2,983)
Net cash provided from
(used in) investment
activities............. (4,521) (757) 318 746 (1,895) (1,438) (744)
Net cash provided from
(used in) financing
activities............. (18,640) (16,440) (2,014) 7,102 3,912 1,609 3,654
PRO FORMA DATA (10):
Interest expense....... $ 11,861 $ 8,879 $ 9,052
Net income (loss)...... 1,601 944 7,943
Net income per share... 0.27 0.16 1.35
Weighted average common
shares and
equivalents............ 5,891,117 5,891,337 5,890,457
Ratio of earnings
before fixed charges
to fixed charges....... 1.25x 1.18x 1.99x
EBITDA................. $ 23,446 $ 16,368 $ 24,301
Ratio of EBITDA to
interest expense...... 1.98x 1.84x 2.68x
<CAPTION>
NINE MONTHS
YEAR ENDED SEPTEMBER 30, ENDED JUNE 30,
------------------------------------------------------------------ -----------------------
1991 1992 1993 1994 1995 1995 1996
---------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Shipments by markets
(millions of pounds):
Aerospace............. 5.7 3.4 3.3 3.3 4.7 3.5 4.3
Chemical processing... 5.3 4.6 5.2 5.0 6.1 4.6 4.7
Other markets......... 5.9 5.9 6.8 5.0 5.5 4.5 3.3
---------- --------- --------- --------- --------- --------- ---------
Total............... 16.9 13.9 15.3 13.3 16.3 12.6 12.3
---------- --------- --------- --------- --------- --------- ---------
---------- --------- --------- --------- --------- --------- ---------
Average selling price
per pound............. $ 13.26 $ 12.04 $ 10.48 $ 11.17 $ 12.18 $ 11.73 $ 13.63
Employees (end of
period)................ 1,074 898 896 854 872 860 925
</TABLE>
- ------------
(1) The Company was acquired by MLGA and the management of the Company in
August 1989. For financial statement purposes, the 1989 Acquisition was
accounted for as a purchase transaction effective September 1, 1989;
accordingly, inventories were adjusted to reflect estimated fair values at
that date. This adjustment to inventories was amortized to cost of sales as
inventories were reduced from the base layer. Non-cash charges for this
adjustment included in cost of sales were $3,361, $5,210, $3,686 and $488
for fiscal 1991, 1992, 1993 and 1994, respectively; no charges have been
recognized since fiscal 1994.
(2) Includes costs related to the implementation of certain cost reduction
measures, the implementation of a just-in-time and total quality management
program and the renegotiation of the terms of the 1989 Acquisition credit
agreement. In fiscal 1992, these charges were reflected in cost of sales,
selling and administrative expenses, and other cost, net in the amounts of
$6,937, $1,156 and $603, respectively.
(3) Reflects the write-off of $37,117 of goodwill created in connection with
the 1989 Acquisition remaining at September 30, 1994. See Note 10 of the
Notes to Consolidated Financial Statements.
(4) During fiscal 1994, the Company adopted SFAS 106. The Company elected to
immediately recognize the transition obligation for benefits earned as of
October 1, 1993, resulting in a non-cash charge of $79,630, net of a
$10,580 tax benefit, representing the cumulative effect of the change in
accounting principles. The tax benefit recognized was limited to then
existing net deferred tax liabilities. See Note 8 of the Notes to
Consolidated Financial Statements.
(5) Assumes an initial public offering price of $22.00 per share, the mid-point
of the price range set forth on the cover page of this Prospectus. Adjusted
to reflect the consummation of the Offerings, anticipated borrowings under
the New Credit Facility, the application of the net proceeds of the
Offerings and such borrowings as described under "Use of Proceeds" and the
consummation of the other transactions described under "The
Recapitalization."
(Footnotes continued on following page)
22
<PAGE>
(6) Reflects the excess of current assets over current liabilities as set forth
in the Consolidated Financial Statements. Historical and as adjusted
current liabilities include amounts outstanding under the Existing Credit
Facility and amounts to be outstanding under the New Credit Facility,
respectively.
(7) Reflects (i) depreciation and amortization as presented in the Company's
Consolidated Statement of Cash Flows and set forth in note (8) below, plus
(ii) other non-cash charges including the amortization of prepaid pension
costs (which is included in the change in other asset category) and the
amortization of inventory costs as described in note (1) above, minus
amortization of debt issuance costs, all as set forth in note (8) below.
(8) Represents for the relevant period net income plus expenses recognized for
interest, taxes, depreciation, amortization and other non-cash charges
(excluding any non-cash charges which require accrual or reserve for cash
charges for any future period), as such amounts are calculated in
accordance with the terms of the Indenture. In addition to net interest
expense as listed in the table, the following charges are added to net
income to calculate EBITDA:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED SEPTEMBER 30, ENDED JUNE 30,
------------------------------------------------ ----------------
1991 1992 1993 1994 1995 1995 1996
------- -------- ------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Provision for (benefit from) income
taxes.................................. $ 2,054 $(11,320) $(3,442) $ 420 $ 1,313 $ 615 $1,029
Depreciation........................... 8,710 8,752 8,650 8,208 8,188 6,127 5,844
Amortization
Debt issuance costs................... 1,401 1,333 2,120 1,680 1,444 1,086 1,035
Goodwill.............................. 1,434 1,490 1,487 38,607 -- -- --
Inventory (see note (1) above)........ 3,361 5,210 3,686 488 -- -- --
Prepaid pension costs................. 953 1,032 (57) 314 130 188 229
------- -------- ------- ------- ------- ------ ------
7,149 9,065 7,236 41,089 1,574 1,274 1,264
SFAS 106--Post-retirement.............. -- -- -- 3,938 682 (147) 461
Amortization of debt issuance costs.... (1,401) (1,333) (2,120) (1,680) (1,444) (1,086) (1,035)
------- -------- ------- ------- ------- ------ ------
$16,512 $ 5,164 $10,324 $51,975 $10,313 $6,783 $7,563
------- -------- ------- ------- ------- ------ ------
------- -------- ------- ------- ------- ------ ------
</TABLE>
EBITDA should not be construed as a substitute for income from operations,
net earnings (loss) or cash flows from operating activities determined in
accordance with GAAP. The Company has included EBITDA because it believes
it is commonly used by certain investors and analysts to analyze and
compare companies on the basis of operating performance, leverage and
liquidity and to determine a company's ability to service debt. Because
EBITDA is not calculated in the same manner by all entities, EBITDA as
calculated by the Company may not necessarily be comparable to that of the
Company's competitors or of other entities.
(9) For purposes of these computations, earnings before fixed charges consist
of income (loss) before provision for (benefit from) income taxes and
cumulative effect of change in accounting principle plus fixed charges.
Fixed charges consist of interest on debt and amortization of debt issuance
costs. Earnings were insufficient to cover fixed charges by $28,091,
$11,717, $60,446, and $5,458 for fiscal 1992, 1993, 1994 and 1995,
respectively, and by $4,738 for the first nine months of fiscal 1995.
(10) Assumes an initial public offering price of $22.00 per share, the mid-point
of the price range set forth on the cover page of this Prospectus, and that
the transactions described under "The Recapitalization" were effected as of
October 1, 1994, resulting in approximately 1,955,000 shares of newly
issued Common Stock being used to retire $40,000 of Existing Indebtedness
and corresponding reduction in interest expense of $8,043, $6,059 and
$6,086 for the year ended September 30, 1995, the nine months ended June
30, 1995 and the nine months ended June 30, 1996, respectively. Actual
interest savings may differ from pro forma amounts due to differences in
interest rates and borrowing levels.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
COMPANY BACKGROUND
The Company sells high temperature alloys and corrosion resistant alloys,
which accounted for 55% and 45%, respectively, of the Company's net revenues in
fiscal 1995. The Company is one of three leading worldwide producers of high
performance alloys in flat product form, which includes sheet, coil and plate
forms, and also produces its alloys in round and tubular forms. In fiscal 1995,
flat products accounted for 70% of shipments and 64% of net revenues.
The Company's annual production capacity varies depending upon the mix of
alloys, forms, product sizes, gauges and order sizes. Based on the current
product mix, the Company estimates that its annual production capacity, which
has been unchanged for the past five years, is approximately 20.0 million
pounds. As a result of changes in the Company's primary markets, sales volume
has ranged from a high of 16.9 million pounds in fiscal 1991, to a low of 13.3
million pounds in fiscal 1994. The Company is not currently capacity
constrained, but has planned capital expenditures of approximately $19.5 million
from fiscal 1996 through fiscal 1998, one of the principal benefits of which
will be to increase annual capacity by approximately 25% to approximately 25.0
million pounds. See "--Liquidity and Capital Resources."
The Company sells its products primarily through its direct sales
organization, which includes four domestic Company-owned service centers, three
wholly-owned European subsidiaries and sales agents serving the Pacific Rim who
operate on a commission basis. Approximately 73% of the Company's net revenues
in fiscal 1995 was generated by the Company's direct sales organization. The
remaining 27% of the Company's fiscal 1995 net revenues was generated by
independent distributors and licensees in the United States, Europe and Japan,
some of whom have been associated with the Company for over 25 years.
The proximity of production facilities to export customers is not a
significant competitive factor, since freight and duty costs per pound are minor
in comparison to the selling price per pound of high performance alloy products.
In fiscal 1995, sales to customers outside the United States accounted for
approximately 39% of the Company's net revenues. Sales of domestically-produced
products accounted for approximately 47% of the Company's foreign sales in
fiscal 1995, and the balance of foreign sales was derived from sales of products
produced overseas.
Virtually all export sales are denominated in U.S. dollars. The Company's
foreign subsidiaries generally sell products in local or other foreign
currencies, creating the risk that currency exchange rate fluctuations could
adversely affect earnings. Because the Company believes the managers of the
foreign operations are better able to monitor their respective operation's
exposure to currency fluctuations and assess the risk of currency exchange loss,
each of the foreign operations is responsible for hedging as its managers deem
appropriate. If a foreign operation desires to enter into a hedging contract
that would cause it to have open positions exceeding $500,000, Company policy
requires its manager to first obtain the consent of the Chief Financial Officer
or the Chief Accounting Officer of the Company. During fiscal 1995, sales by the
foreign operations totaled approximately $41.4 million, or 53% of total
international sales. As of the end of fiscal 1995, there were foreign currency
exchange contracts outstanding of approximately $1.7 million, with no unrealized
gain or loss. During fiscal 1995, the foreign operations recorded expenses of
approximately $200,000 due to currency exchange fluctuations. The maximum
aggregate notional amount of hedged positions at any time during the past three
fiscal years was approximately $3.2 million. See "Risk Factors--Adverse Effects
of Foreign Currency Fluctuations."
The high performance alloy industry is characterized by high capital
investment and high fixed costs, and profitability is therefore very sensitive
to changes in volume. The cost of raw materials is the
24
<PAGE>
primary variable cost in the high performance alloy manufacturing process and
represents approximately one-half of total manufacturing costs. Other
manufacturing costs, such as labor, energy, maintenance and supplies, often
thought of as variable, have a significant fixed element. Accordingly,
relatively small changes in volume can result in significant variations in
earnings. The Company's results in fiscal 1994 reflect this sensitivity. While
volume declined by 13% from fiscal 1993 to fiscal 1994, primarily due to
declines in demand for the Company's products in the oil and gas and FGD
markets, EBITDA, calculated as described in Note (8) to Selected Consolidated
Financial Data declined 48%, despite a 7% increase in the average selling price
per pound of the Company's products.
The Company strives to achieve premium pricing and margins in those alloys
where the opportunities exist. In fiscal 1995, proprietary products represented
approximately 30% of the Company's net revenues and 33% of gross margin. In
addition to these patent-protected alloys, nine other alloys manufactured by the
Company have little or no direct competition because they are difficult to
produce and require relatively small production runs to satisfy demand. In
fiscal 1995, these nine alloys represented approximately 15% of the Company's
net revenues and 23% of gross margin.
Order to shipment lead times can be a competitive factor as well as an
indication of the strength of the demand for high performance alloys. The
Company's current average manufacturing lead time for flat products is
approximately 10 to 12 weeks, although due to current backlog levels, lead times
from order to shipment are approximately 14 to 18 weeks. The Company believes
its lead times are consistent with those offered by its competitors.
25
<PAGE>
OVERVIEW OF MARKETS
A breakdown of sales, shipments and average selling prices to the markets
served by the Company for the last five fiscal years is shown in the following
table:
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995
-------------- -------------- -------------- -------------- --------------
% OF % OF % OF % OF % OF
SALES (DOLLARS IN MILLIONS) AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Aerospace................... $83.6 37.1% $45.7 27.0% $46.7 28.7% $46.4 30.8% $66.4 32.9%
Chemical processing......... 64.5 28.6 52.8 31.2 52.2 32.1 50.1 33.3 72.2 35.8
Land-based gas turbines..... 8.6 3.8 10.7 6.3 12.6 7.8 17.0 11.3 14.3 7.1
Flue gas desulfurization.... 8.6 3.8 11.4 6.7 17.4 10.7 10.2 6.7 6.6 3.3
Oil and gas................. 30.9 13.7 18.8 11.1 11.0 6.8 4.2 2.8 4.5 2.2
Other markets............... 27.9 12.4 28.0 16.6 20.5 12.6 20.6 13.7 34.6 17.1
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Total product............... 224.1 99.4 167.4 98.9 160.4 98.7 148.5 98.6 198.6 98.4
Other revenue (1)........... 1.3 0.6 1.9 1.1 2.1 1.3 2.1 1.4 3.3 1.6
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Net revenues................ $225.4 100.0% $169.3 100.0% $162.5 100.0% $150.6 100.0% $201.9 100.0%
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
U.S........................ $147.7 $116.4 $109.1 $94.8 $122.3
Foreign.................... $77.7 $52.9 $53.4 $55.8 $79.6
SHIPMENTS BY MARKET
(MILLIONS OF POUNDS)
Aerospace................... 5.7 33.7% 3.4 24.5% 3.3 21.6% 3.3 24.8% 4.7 28.8%
Chemical processing......... 5.3 31.4 4.6 33.1 5.2 34.0 5.0 37.6 6.1 37.4
Land-based gas turbines..... 0.7 4.2 1.3 9.4 1.2 7.8 1.6 12.0 1.3 8.0
Flue gas desulfurization.... 0.9 5.3 1.6 11.4 2.9 19.0 1.5 11.3 0.9 5.5
Oil and gas................. 2.3 13.6 1.3 9.4 1.1 7.2 0.4 3.0 0.5 3.1
Other markets............... 2.0 11.8 1.7 12.2 1.6 10.4 1.5 11.3 2.8 17.2
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Total shipments............ 16.9 100.0% 13.9 100.0% 15.3 100.0% 13.3 100.0% 16.3 100.0%
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
AVERAGE SELLING PRICE PER
POUND
Aerospace................... $14.67 $13.44 $14.15 $14.06 $14.13
Chemical processing......... 12.17 11.48 10.04 10.02 11.84
Land-based gas turbines..... 12.29 8.23 10.50 10.63 11.00
Flue gas desulfurization.... 9.56 7.13 6.00 6.80 7.33
Oil and gas................. 13.43 14.46 10.00 10.50 9.00
Other markets............... 13.95 16.47 12.81 13.73 12.36
All markets................ 13.26 12.04 10.48 11.17 12.18
</TABLE>
- ------------
(1) Includes toll conversion and royalty income.
Fluctuations in net revenues and volume from fiscal 1991 through fiscal 1995
are a direct result of significant changes in each of the Company's major
markets.
Aerospace. Demand for the Company's products in the aerospace industry is
driven by orders for new jet engines as well as requirements for spare parts and
replacement parts for jet engines. Demand for the Company's aerospace products
declined significantly from fiscal 1991 to fiscal 1992, as order rates for
commercial aircraft fell below delivery rates due to cancellations and deferrals
of previously placed orders. The Company believes that, as a result of these
cancellations and deferrals, engine manufacturers and their fabricators and
suppliers were caught with excess inventories. The draw down of these
inventories, and the implementation of just-in-time delivery requirements by
many jet engine manufacturers, exacerbated the decline experienced by suppliers
to these manufacturers, including the Company. Demand for products used in
manufacturing military aircraft and engines also dropped during this period as
domestic defense spending declined following the Persian Gulf War. These
conditions persisted through fiscal 1994.
The Company began to see a recovery in the demand for its aerospace products
at the beginning of fiscal 1995. Reports prepared by The Boeing Co. and
McDonnell Douglas Corp. project that commercial aircraft production will remain
strong through 1998. The firm order backlog of The Boeing Co., McDonnell Douglas
Corp. and Airbus Industrie, as reported by The Airline Monitor, increased to
1,869
26
<PAGE>
planes at December 31, 1995 from 1,742 planes at December 31, 1994.
Additionally, passenger miles
flown world-wide, which increased from approximately 1,500 billion in 1994 to
1,576 billion in 1995, are expected to reach approximately 1,961 billion in
1999. Federal Aviation Administration regulations mandate maintenance of
aircraft engines based in part on the number of miles flown and the number of
takeoffs and landings. Increased air travel therefore requires additional
maintenance and repair of aircraft engines, which in turn increases demand for
HTA products. Reflecting increased aircraft production and maintenance, the
Company's net revenues to the aerospace industry in the first nine months of
fiscal 1996 increased 33.9% over the comparable period in fiscal 1995.
Chemical Processing. Demand for the Company's products in the chemical
processing industry is driven primarily by maintenance requirements of chemical
processing facilities, and tends to track overall economic activity due to the
diverse nature of chemical products and their applications. Major projects
involving the expansion of existing chemical processing facilities or the
construction of new facilities periodically increase demand for CRA products in
the industry. Demand for the Company's products used in the chemical processing
industry declined in fiscal 1991 and fiscal 1992, but began to increase in late
fiscal 1993. In fiscal 1995, sales of the Company's products to the chemical
processing industry reached a five-year high, and the Company believes that the
outlook for sales of the Company's products to the chemical processing industry
continues to improve. Concerns regarding the reliability of chemical processing
facilities, their potential impact on the environment and the safety of their
personnel as well as the need for higher throughput should support demand for
more sophisticated alloys, such as the Company's CRA products.
The Company expects that growth in the chemical processing industry will
result from volume increases and selective price increases as a result of
increased demand. In addition, the Company's key proprietary CRA products, the
recently introduced Hastelloy C-2000, which the Company believes provides better
overall corrosion resistance and versatility than any other readily available
CRA product, and Hastelloy C-22, are expected to contribute substantially to the
Company's growth in this market, although there can be no assurance that this
will be the case.
Land-Based Gas Turbines. The Company leveraged its metallurgical expertise
to develop LBGT applications for alloys it had historically sold to the
aerospace industry. Electric generating facilities powered by land-based gas
turbines are less expensive to construct and operate and produce fewer sulfur
dioxide ("SO2") emissions than traditional fossil fuel-fired facilities. The
Company believes these factors are primarily responsible for creating demand for
its products in the LBGT industry. Prior to the enactment of the Clean Air Act
of 1990, as amended (the "Clean Air Act"), land based gas turbines were used
primarily to satisfy peak power requirements. However, legislated standards for
lowering emissions from fossil fuel-fired electric utilities and cogeneration
facilities, such as the Clean Air Act, together with self-imposed standards,
contributed to increased demand for some of the Company's products in the early
1990s, when Phase I of the Clean Air Act was being implemented. The Company
believes that the outlook appears favorable for land-based gas turbines, since
they are gaining acceptance as a clean, low-cost alternative to fossil
fuel-fired electric generating facilities. The Company believes that compliance
with Phase II of the Clean Air Act, which begins in 2000, will further
contribute to demand for its products.
Flue Gas Desulfurization. The Clean Air Act is the primary factor
determining the demand for high performance alloys in the FGD industry. FGD
projects have been undertaken by electric utilities and cogeneration facilities
powered by fossil fuels in the United States, Europe and the Pacific Rim in
response to concerns over emissions. FGD projects are generally highly visible
and as a result are highly price competitive, especially when demand for high
performance alloys in other major markets is weak. 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
27
<PAGE>
driven by the rate of development of sour gas fields, which in turn is driven by
the price of natural gas and the need to commence production in order to protect
leases. This market was very active in fiscal 1991, especially in the offshore
sour gas fields in the Gulf of Mexico, but demand for the Company's sour gas
tubular products has declined significantly since that time. Due to the
volatility of the oil and gas industry, the Company has chosen not to invest in
certain manufacturing equipment necessary to perform certain intermediate steps
of the manufacturing process for these tubular products. However, the Company
can outsource the necessary processing steps in the manufacture of these
tubulars when prices rise to attractive levels. The Company intends to
selectively take advantage of future opportunities as they arise, but plans no
capital expenditures to increase its internal capabilities in this area.
Other Markets. In addition to the industries described above, the Company
also targets a variety of other markets. Representative industries served in
fiscal 1995 include waste incineration, industrial heat treating, automotive,
medical and instrumentation. Many of the Company's lower volume proprietary
alloys are experiencing growing demand in these other markets. Markets capable
of providing growth are being driven by increasing performance, reliability and
service life requirements for products used in these markets, which could
provide further applications for the Company's products.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, consolidated
statements of operations data as a percentage of net revenues:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED SEPTEMBER 30, ENDED JUNE 30,
---------------------------- ----------------
1993 1994 1995 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net revenues................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales (1)............................ 84.4 89.6 82.8 83.6 80.2
Selling and administrative expenses.......... 9.0 10.0 7.7 7.7 7.6
Research and technical expenses.............. 2.2 2.4 1.5 1.5 1.5
Other cost, net.............................. 0.3 0.5 0.9 0.4 0.2
Interest expense............................. 11.6 13.2 10.0 10.1 9.0
Interest income.............................. (0.3) (0.2) (0.2) (0.2) (0.2)
Goodwill write-off........................... -- 24.6(2) -- -- --
----- ----- ----- ----- -----
Income (loss) before provision for income
taxes and effect of change in accounting
principle.................................... (7.2) (40.1) (2.7) (3.1) 1.7
Provision for (benefit from) income taxes.... (2.1) 0.3 0.6 0.4 0.6
Cumulative effect of change in accounting
principle (net of tax benefit)............. -- (52.9)(3) -- -- --
----- ----- ----- ----- -----
Net income (loss)............................ (5.1)% (93.3)% (3.3)% (3.5)% 1.1%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>
- ------------
(1) For financial statement purposes, the 1989 Acquisition was accounted for as
a purchase transaction effective September 1, 1989; accordingly, inventories
were adjusted to reflect estimated fair values at that date. This adjustment
to inventories was amortized to cost of sales as inventories were reduced
from the base layer. Non-cash charges for this adjustment included in cost
of sales were approximately $3.7 million and $488,000 for fiscal 1993 and
1994, respectively; no charges have been recognized since fiscal 1994.
(2) Reflects the write-off of $37.1 million of goodwill created in connection
with the 1989 Acquisition remaining at September 30, 1994. See Note 10 of
the Notes to Consolidated Financial Statements.
(3) During fiscal 1994, the Company adopted SFAS 106. The Company elected to
immediately recognize the transition obligation for benefits earned as of
October 1, 1993, resulting in a non-cash charge of approximately $79.6
million net of an approximately $10.6 million tax benefit, representing the
cumulative effect of the change in accounting principle. The tax benefit
recognized was limited to then existing net deferred tax liabilities. See
Note 8 of the Notes to Consolidated Financial Statements.
NINE MONTHS ENDED JUNE 30, 1996 COMPARED TO NINE MONTHS ENDED JUNE 30, 1995
Net revenues increased approximately $20.4 million, or 13.6%, to
approximately $170.4 million for the first nine months of fiscal 1996 from
approximately $150.0 million for the same period in fiscal
28
<PAGE>
1995, as a result of a 16.2% increase in the average selling price per pound,
from $11.73 to $13.63. The increase in average selling price was partially
offset by a 2.4% decrease in volume to 12.3 million pounds from 12.6 million
pounds, as volume increases in the aerospace, chemical processing and LBGT
markets were more than offset by lower volume in the FGD and other markets.
Sales to the aerospace market increased by 33.9% to approximately $64.0
million in the first nine months of fiscal 1996 from approximately $47.8 million
for the same period in fiscal 1995. Volume increased 20.7% and the average
selling price per pound increased 11.0%. Increased demand for the Company's
products in fiscal 1996 from the aerospace market was generated primarily by
domestic engine producers, as demand in Europe remained relatively flat.
Sales to the chemical processing industry, which achieved a five-year high
in fiscal 1995, increased 18.1% to approximately $61.6 million in the first nine
months of fiscal 1996 from approximately $52.2 million for the same period in
fiscal 1995. Volume increased 2.8% despite lower exports to the Pacific Rim. In
addition, the average selling price per pound increased 14.9% as a result of
higher demand from both the domestic and European markets.
Sales to the LBGT market increased 26.7% to approximately $13.4 million in
the first nine months of fiscal 1996 from approximately $10.5 million for the
corresponding period in fiscal 1995 as a result of a 22.7% increase in volume
and a 3.2% increase in the average selling price per pound. This reflected
strong demand for cleaner burning power generation from gas turbines. In
addition, the Company has been favorably impacted by its success in marketing
Haynes 230 to European turbine manufacturers as a replacement for competing
alloys.
Sales to the FGD market were unchanged at approximately $6.1 million in the
first nine months of fiscal 1996 and 1995. Volume decreased 20.0% as a result of
the absence of major orders from the Pacific Rim and Europe that were
experienced in the first half of fiscal 1995, but average selling price per
pound increased by 24.4%.
Sales to the oil and gas industry increased 57.6% to approximately $4.3
million in the first nine months of fiscal 1996 from approximately $2.8
million for the first nine months of fiscal 1995. Sales to this market occurred
primarily in the third quarter for both fiscal years due to sour gas projects in
Mobile Bay off the coast of Alabama. Volume increased 14.8%, while average
selling price per pound increased 37.3% due primarily to a favorable product
mix.
Sales to other markets decreased by 35.1% to approximately $18.4 million for
the first nine months of fiscal 1996 from approximately $28.4 million in the
first nine months of fiscal 1995, as a result of a 53.1% decrease in volume,
which was only partially offset by a 38.3% increase in average selling price per
pound. The Company benefitted from a one-time order of approximately $3.5
million for a major waste treatment facility in Eastern Europe and a $6.1
million one-time order for defense-related recuperators on M-1 tanks in the
first nine months of fiscal 1995. Sales to the waste incineration market
increased as a result of greater use of the Company's products in high
temperature corrosion applications. In addition, increased use of Haynes HR-120
as a substitute for competing products (including stainless steels) in the
industrial heating market led to higher sales in that segment.
Cost of sales increased by approximately $11.4 million, or 9.1%, to
approximately $136.7 million for the first nine months of fiscal 1996 from
approximately $125.3 million in the same period in fiscal 1995. However, cost of
sales as a percent of net revenues decreased to 80.2% from 83.6% in the
respective periods as a result of higher average selling prices and a favorable
change in product mix. Although total volume declined in the first nine months
of fiscal 1996, volume in the higher-margin, high value-added product forms such
as sheet, wire and seamless tubulars increased in fiscal 1996 over fiscal 1995
levels. Increased capacity utilization in the higher-cost operations used to
manufacture these forms led to efficiencies that lowered the per unit cost.
Also, during the first nine months of fiscal 1995 raw material costs escalated,
thereby temporarily reducing margins until price increases could be fully
implemented. In the first nine months of fiscal 1996, these increased costs had
been fully passed through as reflected in higher selling prices.
29
<PAGE>
Selling and administrative expenses increased approximately $1.4 million, or
11.7%, to approximately $13.0 million for the first nine months of fiscal 1996
from approximately $11.6 million for the same period in fiscal 1995. However,
selling and administrative expenses declined as a percentage of net revenues
from 7.7% to 7.6%. The increase in absolute dollars was primarily a result of
salary increases and the payment of performance-based management bonuses of
approximately $439,000 awarded for fiscal 1995 performance but paid in January
1996 and the accrual of 1996 bonuses for which a similar accrual was not made
in fiscal 1995. In addition, sales and marketing personnel were hired as part
of the Company's effort to increase market coverage and customer contact.
Research and technical expenses increased approximately $243,000, or 10.6%,
to approximately $2.5 million for the first nine months of fiscal 1996 from
approximately $2.3 million for the same period in fiscal 1995, primarily as a
result of salary increases. Headcount increased as part of the Company's ongoing
commitment to technological leadership.
As a result of the above factors, the Company recognized operating income
for the first nine months of fiscal 1996 of approximately $18.2 million,
approximately $3.9 million of which was contributed by the Company's foreign
subsidiaries. For the first nine months of fiscal 1995, operating income was
approximately $10.8 million, of which approximately $3.2 million was contributed
by the Company's foreign subsidiaries.
Other costs, net decreased approximately $165,000, or 28.5%, to
approximately $413,000 for the first nine months of fiscal 1996 from
approximately $578,000 in the same period in fiscal 1995, primarily as a result
of foreign exchange gains in fiscal 1996 compared to foreign exchange losses in
fiscal 1995.
Interest expense increased approximately $219,000, or 1.4%, to approximately
$15.4 million for the first nine months of fiscal 1996 from approximately $15.2
million for the same period in fiscal 1995, due primarily to higher average
borrowings under the Existing Credit Facility.
The provision for income taxes of approximately $1.0 million for the first
nine months of fiscal 1996 increased by approximately $414,000 from
approximately $615,000 for the first nine months of fiscal 1995, due primarily
to taxes on foreign earnings against which the Company was unable to utilize its
U.S. federal income tax net operating loss carryforwards ("NOLs"). U.S.
operations generated taxable income of approximately $6.7 million during the
first nine months of fiscal 1996 which was offset by NOLs.
As a result of the above factors, the Company recognized net income for the
first nine months of fiscal 1996 of approximately $1.6 million, compared to a
net loss of approximately $5.4 million for the same period in fiscal 1995.
YEAR ENDED SEPTEMBER 30, 1995 COMPARED TO YEAR ENDED SEPTEMBER 30, 1994
Net revenues increased approximately $51.3 million, or 34.1%, to
approximately $201.9 million in fiscal 1995 from approximately $150.6 million in
fiscal 1994, as a result of a 22.6% increase in volume to 16.3 million pounds
from approximately 13.3 million pounds and a 9.0% increase in average selling
price to $12.18 per pound from $11.17 per pound. Volume increases were due to
higher demand in the aerospace, chemical processing, waste incineration and
industrial heating industries. Alloy price increases were implemented in fiscal
1995 in response to rising raw material costs, which resulted in higher average
selling prices.
Sales to the aerospace market increased 43.0% to approximately $66.4 million
in fiscal 1995 from approximately $46.4 million in fiscal 1994 due to a 42.4%
increase in volume as reflected by the increased order backlog for commercial
aircraft and jet engines in fiscal 1995. In addition, the Company greatly
increased its sales to distributors serving the aerospace market by meeting
competitive prices for
30
<PAGE>
certain higher volume HTA products. Due to changes in product mix, the average
selling price per pound to the aerospace market in fiscal 1995 remained flat as
compared to fiscal 1994 despite generally higher alloy prices.
Sales to the chemical processing industry increased 44.1% to approximately
$72.2 million in fiscal 1995 from approximately $50.1 million in fiscal 1994 as
a result of higher spending in the United States and Europe for smaller
maintenance and improvement projects, as well as along the Pacific Rim for
certain large capacity expansion projects. Volume increased 22.0% and average
selling price per pound increased 18.2%. The large Pacific Rim projects were
very competitively bid upon, resulting in lower average selling prices per pound
for these projects as compared to other projects. The lower average selling
prices for these products were more than offset, however, by higher prices in
smaller projects. In addition, the Company was favorably impacted in fiscal 1995
by its shift from production of a low-priced duplex stainless steel that it had
manufactured for several years to other higher-priced, higher-margin products as
a result of stronger market demand for such products.
Sales to the LBGT market decreased 15.9% to approximately $14.3 million in
fiscal 1995 from approximately $17.0 million in fiscal 1994. During fiscal 1995,
a few of the larger LBGT manufacturers decreased purchases of alloys as they
reduced their inventories; as a result, the Company's volume decreased 18.8%.
Although Haynes 230 was gaining acceptance, especially in Europe, the Company
experienced temporary disruptions in sales of this product due to production and
delivery problems, and as a result the Company's fiscal 1995 average selling
price per pound was unchanged as compared to fiscal 1994.
Sales to the FGD market declined 35.3% to approximately $6.6 million in
fiscal 1995 from approximately $10.2 million in fiscal 1994 as a result of a
40.0% decrease in volume and a 7.7% increase in average selling price per pound.
Sharply lower domestic sales were partially offset by increased sales in Europe
and along the Pacific Rim. The weakness in domestic markets reflected lower
demand for wet scrubbing facilities for fossel fuel-fired electric generating
plants.
Demand in the oil and gas market has been weak and orders have been only
sporadic since fiscal 1992, when a major sour gas production project in the Gulf
of Mexico was completed. Sales increased 7.1% in fiscal 1995 as compared to
fiscal 1994 as a result of a 25.0% increase in volume, which was partially
offset by a 14.3% decrease in average selling price per pound.
Sales to other markets increased 69.4% to approximately $34.9 million in
fiscal 1995 from approximately $20.6 million in fiscal 1994 due primarily to a
shipment in fiscal 1995 to a large waste treatment project destined for
installation in Eastern Europe and the completion of a short-term contract in
support of the U.S. Army's M-1 tank program. These projects resulted in an 86.7%
increase in volume in fiscal 1995 as compared to fiscal 1994 and a 9.2% decrease
in average selling price per pound for the same periods.
Cost of sales decreased approximately $4.8 million, or 2.8%, to
approximately $167.2 million in fiscal 1995 from approximately $172.0 million in
fiscal 1994. Fiscal 1994 cost of sales included the write-off of goodwill as
discussed in Note 10 of the Notes to Consolidated Financial Statements. Cost of
sales as a percent of the Company's net revenues decreased to 82.8% from 89.6%
in the respective years, excluding the effect of the write-off of goodwill in
fiscal 1994 as discussed above. This was due primarily to increased capacity
utilization and increased profitability in the European subsidiaries. During the
first half of fiscal 1995, raw material costs escalated rapidly, resulting in
lower margins. As a result, the spread between average selling price and
material cost per pound was lower in fiscal 1995 than in fiscal 1994. This was
partially offset in the second half of fiscal 1995 as price increases for the
Company's alloys became effective. Higher volume reduced unit fixed costs and
led to improved operating efficiencies. In addition, the European subsidiaries
experienced improved volume and margins in fiscal 1995, reflecting improved
business conditions which further improved the Company's cost of sales as a
percent of net revenues.
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Selling and administrative expenses increased approximately $436,000, or
2.9%, to approximately $15.5 million in fiscal 1995 from approximately $15.0
million in fiscal 1994 primarily as a result of expenses which previously had
been reported as research and technology expenses in fiscal 1994 being
reclassified as selling and administrative expenses in fiscal 1995.
Research and technical expenses decreased approximately $581,000, or 16.0%,
to approximately $3.0 million in fiscal 1995 from approximately $3.6 million in
fiscal 1994 due in part to the reclassification of expenses noted above. In
addition, certain costs associated with engineering functions recorded as
manufacturing costs in fiscal 1995 were reported as research and technical
expenses in fiscal 1994.
As a result of the above factors, the Company recognized operating income in
fiscal 1995 of approximately $16.2 million as compared to an operating loss of
approximately $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.
YEAR ENDED SEPTEMBER 30, 1994 COMPARED TO YEAR ENDED SEPTEMBER 30, 1993
Net revenues decreased approximately $11.9 million, or 7.3%, to
approximately $150.6 million in fiscal 1994 from approximately $162.5 million in
fiscal 1993 as a result of a 13.1% decrease in volume partially offset by a 6.6%
increase in average selling price per pound.
Sales to the aerospace market decreased 0.6% to approximately $46.4 million
in fiscal 1994 from approximately $46.7 million in fiscal 1993 despite slightly
higher domestic demand for jet engines. The Company did not benefit from the
higher domestic demand because of lost orders for generic alloys due to
uncompetitive pricing, as reflected by flat volume and average selling price per
pound. Sales to the European aerospace industry increased slightly in fiscal
1994 as a result of improved demand for jet engines in that market.
Sales to the chemical processing industry declined 4.0% to approximately
$50.1 million in fiscal 1994 from approximately $52.2 million in fiscal 1993.
This decrease was due to lower domestic sales partially offset by higher
European and Pacific Rim sales resulting from increased maintenance and process
improvement expenditures. Although the domestic market for chemical processing
was strong, the Company was negatively affected when one of its significant
distributors to this market outsourced a greater percentage of its purchases to
competing producers based on increased concern about the Company's financial
resources and its ability to maintain an uninterrupted supply of product.
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Sales to the LBGT market increased 34.9% to approximately $17.0 million in
fiscal 1994 from approximately $12.6 million in fiscal 1993 as a result of
higher global demand for this relatively inexpensive and clean source of
electric power and increased use of Haynes 230 as a replacement for other
competing materials in certain hot sections of the turbines. Consequently,
volume increased 33.3% and average selling price per pound increased 1.2%.
Sales for FGD applications decreased 41.4% to approximately $10.2 million in
fiscal 1994 from approximately $17.4 million in fiscal 1993 reflecting the
completion of many of the planned facilities built in response to Phase I Clean
Air Act requirements and a reduction in the number of utilities opting for wet
scrubbing of flue gases. However, increased sales along the Pacific Rim and in
Europe reflected increasing demand in those areas for wet scrubbing as a
response to more stringent environmental standards. Volume decreased 48.3%,
while average selling price per pound increased 13.3%.
Sales to the oil and gas industry decreased 61.8% to approximately $4.2
million in fiscal 1994 from approximately $11.0 million in fiscal 1993. Volume
decreased 63.6% due to reduced activity in sour gas production, while prices
increased 5.0%.
Sales to other markets increased 0.5% to approximately $20.6 million in
fiscal 1994 from approximately $20.5 million in fiscal 1993. Lower demand in
industrial heating applications was offset by increased demand in the waste
incineration market, particularly in Europe, where alloys were sold to a large
waste facility construction project. The average selling price per pound
increased 7.2%.
At September 30, 1994, the Company elected to write off the goodwill balance
from the 1989 Acquisition of approximately $37.1 million, as more fully
discussed in Note 10 to the Notes to Consolidated Financial Statements. Cost of
sales therefore increased approximately $34.9 million, or 25.4%, to
approximately $172.0 million in fiscal 1994 from approximately $137.1 million in
fiscal 1993. Cost of sales as a percent of the Company's net revenues, excluding
the write-off of goodwill, increased to 89.6% in fiscal 1994, compared to 84.4%
in fiscal 1993. Approximately 2.7% of this increase was due to the recognition
of additional non-cash charges pertaining to accrued post-retirement benefits,
with the remaining increase resulting from lower overall capacity utilization
and higher costs. Efforts to raise prices in fiscal 1994 resulted in a slight
improvement in the variable margin per pound of product sold, but the resulting
loss of volume more than offset this benefit.
Selling and administrative expenses increased approximately $470,000, or
3.2%, to approximately $15.0 million in fiscal 1994 from approximately $14.6
million in fiscal 1993, primarily because of higher salaries.
Research and technical expense was essentially flat in fiscal 1994 compared
to fiscal 1993, as a result of increases in salaries, offset by lower personnel
levels.
As a result of the above factors, the Company reported an operating loss in
fiscal 1994 of approximately $40.0 million, but generated an operating loss of
approximately $2.9 million prior to the write-off of goodwill, compared to
approximately $7.2 million of operating income in the prior year. The Company's
foreign subsidiaries contributed approximately $1.6 million and approximately
$2.0 million of operating income in fiscal 1994 and fiscal 1993, respectively.
Other cost, net increased approximately $416,000, or 104.0%, to
approximately $816,000 in fiscal 1994 from approximately $400,000 in fiscal
1993. This increase was primarily due to an increase in the provision for bad
debts.
Interest expenses increased approximately $1.0 million, or 5.3%, to
approximately $19.9 million in fiscal 1994 from approximately $18.9 million in
fiscal 1993 as a result of higher average borrowings under the Existing Credit
Facility and higher average interest rates.
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<PAGE>
The provision for income taxes for fiscal 1994 was approximately $420,000
compared to a benefit from income tax of approximately $3.4 million in fiscal
1993. The provision for fiscal 1994 represents taxes on earnings generated from
the foreign subsidiaries. In connection with the Company's adoption of SFAS 106
and Statement of Financial Accounting Standards No. 109, "Accounting for Income
Tax" ("SFAS 109") effective October 1, 1993, the Company recognized a tax
benefit that eliminated the domestic deferred tax liabilities as of September
30, 1993. Due to the Company's net operating loss carryforward position as set
forth in the Consolidated Financial Statements, the Company was not able to
recognize any tax benefit resulting from the operating losses from domestic
operations incurred in fiscal 1994.
As a result of the above factors, the Company reported a net loss in fiscal
1994 before the effect of a change in accounting principle of approximately
$60.9 million (approximately $23.8 million before the goodwill write-off)
compared to a net loss of approximately $8.3 million in fiscal 1993.
LIQUIDITY AND CAPITAL RESOURCES
In connection with the Recapitalization, the Company will redeem the
Existing Notes, repay amounts outstanding under the Existing Credit Facility and
pay the related fees and expenses. The funds required to consummate the
Recapitalization will be provided by the net proceeds to the Company from the
Offerings and borrowings under the New Credit Facility. See "Use of Proceeds."
The Company expects to consummate the Recapitalization during the fourth quarter
of fiscal 1996. On a pro forma basis, giving effect to the Recapitalization as
of June 30, 1996, total indebtedness would have been approximately $119.0
million and stockholders' deficit would have been approximately $82.3 million.
The New Credit Facility expires in 1999 if not renewed or extended. The Company
will have no other scheduled debt amortization payments until the Notes mature
in 2004. Following consummation of the Offerings, the Company's principal source
of liquidity, other than funds generated from operations, will be the commitment
of up to $50.0 million available for revolving credit loans and letters of
credit under the New Credit Facility.
The Company's near-term future cash needs will be driven by working capital
requirements, which are likely to increase, and planned capital expenditures.
Capital expenditures were approximately $801,000 in the first nine months of
fiscal 1996 and are expected to be approximately $1.5 million for all of fiscal
1996, approximately $10.1 million in fiscal 1997 and approximately $10.4 million
in fiscal 1998. Capital expenditures were approximately $56,000, $772,000 and
$1.9 million for fiscal 1993, 1994 and 1995, respectively. The increased capital
investments for fiscal 1997 and 1998 are designated for significant new
equipment additions and expenditures of approximately $3.2 million for new
integrated information systems. The primary benefits of this spending are
expected to be (i) the expansion of annual production capacity by 25% from
approximately 20.0 million pounds to approximately 25.0 million pounds, based on
the current product mix, (ii) improved production quality resulting in lower
internal rejection rates and rework costs and (iii) improved coordination among
sales, marketing and manufacturing personnel resulting in more efficient pricing
practices. The Company does not expect such capital expenditures to have a
material adverse effect on its long term liquidity. Moreover, the Company does
not currently have any significant capital expenditure commitments. The Company
expects to fund its working capital needs and capital expenditures with cash
provided from operations, supplemented by borrowings under the New Credit
Facility. The Company believes these sources of capital will be sufficient to
fund these capital expenditures and working capital requirements, although there
can be no assurance that this will be the case. See "The Recapitalization" and
"Description of Indebtedness--The New Credit Facility."
Net cash used in operations in the first nine months of fiscal 1996 was
approximately $3.0 million, as compared to approximately $1.5 million for the
same period in fiscal 1995. The negative cash flow from operations for the first
nine months of fiscal 1996 was primarily a result of increases of approximately
$14.1million in inventories and approximately $5.8 million in accounts
receivable, which
34
<PAGE>
were offset by non-cash depreciation and amortization expenses of approximately
$6.9 million, positive net income of approximately $1.6 million, an increase in
the accounts payable and accrued expenses balance of approximately $9.3 million
and other adjustments. Cash used for investment activities declined from
approximately $1.4 million in the first nine months of fiscal 1995 to
approximately $744,000 in the first nine months of fiscal 1996, primarily as a
result of lower capital expenditures. Cash provided by financing activities for
the first nine months of fiscal 1996 was approximately $3.7 million due to
increased borrowings under the Existing Credit Facility. Cash for the first nine
months of fiscal 1996 decreased approximately $200,000, resulting in a June 30,
1996 cash balance of approximately $4.8 million. Cash in the first nine months
of fiscal 1995 decreased approximately $1.2 million, resulting in a cash balance
of approximately $4.5 million at June 30, 1995.
Net cash used in operations in fiscal 1995 was approximately $2.9 million,
as compared to approximately $12.8 million in fiscal 1994. Cash used in
operations in fiscal 1995 was primarily a result of a net loss of approximately
$6.8 million, an increase in accounts receivable of approximately $7.4 million
and an increase in inventories of approximately $6.5 million, offset by
depreciation and amortization of approximately $9.6 million, an increase in
accounts payable and accrued expenses of approximately $6.3 million and other
changes in working capital. The ending cash balance at September 30, 1995 was
approximately $5.0 million as compared to approximately $5.7 million at
September 30, 1994.
At June 30, 1996, the Company had net working capital of approximately $69.3
million as compared to approximately $62.6 million at September 30, 1995 and
approximately $60.2 million at September 30, 1994. The increase in working
capital of approximately $6.7 million in the first nine months of fiscal 1996
was a result of increases in accounts receivable and inventories of
approximately $5.8 million and $14.1 million, respectively, offset by an
increase of approximately $9.3 million in accounts payable and accrued expenses,
an increase of approximately $3.7 million in borrowings under the Existing
Credit Facility and a decrease of approximately $78,000 in income taxes payable.
The increase in working capital of approximately $2.4 million in fiscal 1995 is
a result of increases in accounts receivable and inventories of approximately
$7.6 million and $6.7 million, respectively, offset by an increase of
approximately $6.1 million in accounts payable and accrued expenses, an increase
of approximately $4.3 million in borrowings under the Existing Credit Facility
and an increase of approximately $752,000 in income taxes payable.
The Indenture and the New Credit Facility will contain a number of covenants
limiting the Company's access to capital, including covenants that restrict the
ability of the Company and its subsidiaries to (i) incur additional
indebtedness, (ii) make certain restricted payments, (iii) engage in
transactions with affiliates, (iv) create liens on assets, (v) sell assets, (vi)
issue and sell preferred stock of subsidiaries, and (vii) engage in
consolidations, mergers and transfers.
The Company is currently conducting groundwater monitoring and post-closure
monitoring in connection with certain disposal areas, and has completed an
investigation of eight specifically identified solid waste management units, at
the Kokomo facility. The results of the investigation have been filed with the
U.S. Environmental Protection Agency ("EPA"). If the EPA or the Indiana
Department of Environmental Management ("IDEM") were to require corrective
action in connection with such disposal areas or solid waste management units,
there can be no assurance that the costs of such corrective action will not have
a material adverse effect on the Company's financial condition, results of
operations or liquidity. In addition, the Company has been named as a
potentially responsible party at two waste disposal sites. Although there can be
no assurance, based on current information, the Company believes that its
involvement at these two sites will not have a material adverse effect on the
Company's financial condition, results of operations or liquidity. Expenses and
capital expenditures related to environmental compliance are expected to be
approximately $3.9 million for fiscal 1996 through fiscal 1998. See
"Business--Environmental Matters." Based on information currently available to
the Company, the Company is not aware of any information which would indicate
that litigation
35
<PAGE>
pending against the Company is reasonably likely to have a material adverse
effect on the Company's operations or liquidity. See "Business--Legal
Proceedings."
INFLATION
The Company believes that inflation has not had a material impact on its
operations.
INCOME TAX CONSIDERATIONS
Section 382 Limitation. At September 30, 1995, the Company had, in addition
to other tax loss attributes, NOLs of approximately $36.8 million available to
reduce regular federal taxable income, which NOLs expire in 2005 through 2010.
For a discussion of a possible reduction of these NOLs as a result of an ongoing
IRS audit, see "Risk Factors--Income Tax Audit" and "Business--Legal
Proceedings."
If the Company were to undergo an "ownership change" within the meaning of
Section 382 of the Internal Revenue Code of 1986, as amended (the "Code"), the
utilization of NOLs by the Company would be subject to an annual limitation.
Generally, an "ownership change" occurs with respect to a corporation when the
percentage of stock (determined on the basis of value) owned by one or more
holders of at least 5% of such stock ("5% stockholders") has increased by more
than 50 percentage points from the lowest percentage of stock that was owned by
such 5% stockholders at any time during a statutorily prescribed "testing
period." Regulations under Section 382 provide that, in general, investors who
buy stock in a public offering and who each own less than 5% of the issuer's
stock after the offering are treated in the aggregate as a single 5% stockholder
for purposes of determining whether an ownership change has occurred as a result
of the Offering. The Company believes that the sale of the shares of Common
Stock offered hereby will not result in an ownership change, as defined by
Section 382 and the regulations thereunder, that would cause the annual
limitation to apply. However, an ownership change could result from other equity
transactions following the Offering, including transactions such as purchases or
sales of Common Stock by certain stockholders and other issuances of Common
Stock by the Company. If the annual limitation on utilizing NOLs were to apply
to the Company, the amount of the limitation would generally equal the product
of (i) the fair market value of the Company's equity immediately prior to the
ownership change, with certain adjustments, including a possible adjustment to
exclude certain capital contributions made in the two years preceding the date
of the ownership change and (ii) a federal long-term tax exempt rate of return
published monthly by the IRS. The annual limitation on utilizing other tax loss
attributes is dependent upon the annual limitation on utilizing the NOLs. Should
the annual limitation apply, the Company believes that it would not materially
affect the potential use of the NOLs to reduce any future income tax liabilities
for the foreseeable future; however, it is possible that the Company's taxable
income in a particular year could exceed the annual limitation, in which case
such excess would not be reduced by the NOLs and the Company's tax liability
would be correspondingly higher. The foregoing discussion, including with
respect to the Company's beliefs expressed above, has been prepared with the
advice of Coopers & Lybrand L.L.P., which has acted as special tax advisor to
the Company in connection with this matter.
The Merger. Based on the tax advice of Coopers & Lybrand, L.L.P., the
Company believes that the Merger will qualify as a tax-free transaction under
Sections 332 and 368(a)(1)(A) of the Code and therefore, not generate any
adverse tax consequences.
Financial Report--Accounting for Income Taxes. For financial reporting
purposes the Company recognizes deferred tax assets and liabilities for the
expected future tax consequences of events that have been recognized in the
Company's financial statements or tax returns. SFAS 109 requires a valuation
allowance when it is more likely than not that some portion or all of a deferred
tax asset will not be realized. It further states that forming a conclusion that
a valuation allowance is not needed is difficult when there is negative evidence
such as cumulative losses in recent years. The ultimate
36
<PAGE>
realization of all or part of the Company's deferred tax assets depends upon the
Company's ability to generate sufficient taxable income in the future.
At September 30, 1995, the Company had a net deferred tax asset
approximating $33.2 million consisting principally of temporary differences
relating to available NOLs and postretirement benefits other than pensions
offset by depreciation. Because of unfavorable operating results in recent
years, the Company has established a 100% valuation allowance to eliminate the
net deferred tax asset, resulting in a charge to operations and thereby reducing
equity. The Company will periodically evaluate its strategic business plans in
light of evolving business conditions and actual operating results, and the
valuation allowance may be adjusted for future income expectations resulting
from that process.
As a result, the application of the SFAS 109 valuation allowance
determination process could result in recognition of significant income tax
provisions or benefits in a single interim or annual period due to actual
operating results and changes in future income expectations over several years.
Such tax provision or benefit effect could be material in the context of the
specific interim or annual financial reporting period in which changes in
judgment about extended future periods are reported. The SFAS 109 valuation
allowance determination process is a balance sheet oriented model and does not
have as its objective the periodic matching of pre-tax income or loss with the
related actual income tax effects.
The Section 382 limitation described above could, if applicable, limit the
income tax provision or benefit in a particular year as a result of the
application of the SFAS 109 valuation allowance determination process; however,
it is not expected to have an adverse impact over time.
If the Company's principal markets continue to exhibit improvement, and such
improvement is manifested in positive trends in the value and profitability of
customer orders and backlog, additional tax benefits may be reported in future
periods as the valuation allowance is reduced. Alternatively, to the extent that
the Company's future profit expectations remain static or are diminished, tax
provisions may be charged against pretax income. In either event, such valuation
allowance-related tax provisions or benefits should not necessarily be viewed as
recurring. Further, subject to the effects, if any, of the Section 382
limitation described above, the amount of current taxes that the Company expects
to pay for the foreseeable future is minimal, and the Company's carryforward tax
attributes are viewed by management as a significant competitive advantage to
the extent that profits can be sheltered effectively from tax and re-employed in
the growth of the business.
ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," is
effective for the year ending September 30, 1996. In the opinion of management,
this statement will not impact the Company's financial position or results of
operations.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock
Based Compensation," is effective for the year ending September 30, 1997. The
Company has not decided how it intends to apply the accounting and disclosure
provisions of this statement.
37
<PAGE>
BUSINESS
GENERAL
The Company develops, manufactures and markets technologically advanced,
high performance alloys primarily for use in the aerospace and chemical
processing industries. The Company's products are high temperature alloys and
corrosion resistant alloys. The Company's HTA products are used by manufacturers
of equipment that is subjected to extremely high temperatures, such as jet
engines for the aerospace industry, gas turbine engines used for power
generation, and waste incineration and industrial heating equipment. The
Company's CRA products are used in applications that require resistance to
extreme corrosion, such as chemical processing, power plant emissions control
and hazardous waste treatment. Based on available industry data, the Company
believes that it is one of three leading worldwide producers of high performance
alloy products in sheet, coil and plate forms, which in the aggregate
represented approximately 64% of the Company's net revenues in fiscal 1995. In
addition, the Company produces its alloy products as seamless and welded
tubulars, and in bar, billet and wire forms.
High performance alloys are characterized by highly engineered, often
proprietary, metallurgical formulations primarily of nickel, cobalt and other
metals with complex physical properties. The complexity of the manufacturing
process for high performance alloys is reflected in the Company's relatively
high average selling price of approximately $12.18 per pound for fiscal 1995,
compared to the average selling price of other metals such as carbon steel
sheet, stainless steel sheet and aluminum, which currently range from $0.17 to
$1.25 per pound. Demanding end-user specifications, a multi-stage manufacturing
process and the technical sales, marketing and manufacturing expertise required
to develop new applications combine to create significant barriers to entry in
the high performance alloy industry. The Company derived approximately 30% of
its fiscal 1995 net revenues from products that are protected by United States
patents and derived an additional approximately 15% of its fiscal 1995 net
revenues from sales of products that are not patented, but for which the Company
has limited or no competition.
CORE COMPETENCIES
Based upon its customer relationships in the aerospace and chemical
processing industries, the Company believes it has a leadership position in the
high performance alloy industry and has a strong reputation for quality and
reliability. The Company's core competencies include the following:
. Metallurgical expertise. With over 50 years of product research and
development in the high performance alloy industry, the Company believes
it is a leader in the development and manufacturing technology of nickel-
and cobalt-based alloys. Over the last seven years, the Company's
technical programs have yielded seven new proprietary alloys, five of
which are protected by United States patents. Three additional United
States patents regarding the new proprietary alloys are pending. The
Company currently maintains a total of 43 United States patents and
approximately 180 foreign counterpart patents targeted at countries with
significant existing or potential markets for the patented products. As a
result of the Company's research and development efforts, Chemical
Processing magazine recognized the Company's products five times in the
last twelve years as having made significant contributions to the chemical
processing industry.
. Technical marketing support. Through the combined efforts of the Company's
direct sales organization, including its four domestic Company-owned
service centers and its research and development group, the Company works
closely with its customers in order to identify, develop and support
diverse applications for its alloys and to anticipate customers' future
materials requirements. The Company believes this integrated approach is
unique in the high performance alloy industry.
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. Flexible manufacturing capabilities. The Company's four-high Steckel mill,
in conjunction with its sophisticated, multi-stage, melting and refining
operation, produces a broad array of sheet, coil and plate products made
to exacting specifications. The Company also operates a three-high mill
and a two-high mill that enable the Company to produce small batch orders
that generally are not practical or economical for competitors to
manufacture.
BUSINESS STRATEGY
The Company intends to capitalize on its core competencies to implement its
business strategy, which includes the following principal elements:
Develop new applications for existing alloys. The Company actively seeks to
develop new applications and new market segments for its existing products. The
sales force, in coordination with the research and development staff, works
closely with end-users to identify applications for the Company's existing
products that address its customers' specialized needs. Management believes that
new product applications represent a significant opportunity for revenue growth.
The Company has identified and is pursuing new applications for its alloys,
including applications for the automotive, medical and instrumentation
industries.
Continue customer-driven new product development. The Company emphasizes
customer contact and an awareness of customer needs in its product development
process. The Company believes that new opportunities in end-markets are best
identified through close contact with customers. This approach allows the
Company to focus its research and development efforts and enables the Company's
products to be specified for use in the production of customers' products.
Expand export sales. The Company believes there are significant
opportunities to increase its sales in international markets. In fiscal 1995,
approximately 39% of the Company's net revenues were outside the United States,
primarily in European markets where the Company has established sales and
manufacturing facilities. In addition, the Company is pursuing significant
growth opportunities in other regions, particularly the Pacific Rim.
Increase productivity through strategic equipment investment. The Company
believes that future investment in plant and equipment will allow it to increase
capacity and produce higher quality products at reduced costs. The
Recapitalization described herein, combined with improved market conditions,
will enable the Company to increase its investment in plant and equipment above
the amounts expended in recent years. See "The Recapitalization." During fiscal
1996 through 1998, the Company anticipates investing approximately $19.5 million
in new plant and equipment and approximately $3.2 million in new integrated
information systems. The principal benefits of these investments are expected to
be (i) the expansion of annual production capacity by 25% from approximately
20.0 million pounds to approximately 25.0 million pounds, based on the current
product mix, (ii) improved production quality resulting in lower internal
rejection rates and rework costs and (iii) improved coordination among sales,
marketing and manufacturing personnel resulting in more efficient pricing
practices.
PRODUCTS
The alloy market consists of four primary segments: stainless steel, super
stainless steel, nickel alloys and high performance alloys. The Company competes
exclusively in the high performance alloy segment, which includes HTA and CRA
products. The Company believes that the high performance alloy segment
represents less than 10% of the total alloy market. In fiscal 1995, HTA products
and CRA products accounted for 55% and 45%, respectively, of the Company's net
revenues.
HTA products are used primarily in manufacturing components used in the hot
sections of jet engines. Stringent safety and performance standards in the
aerospace industry result in development lead times typically as long as eight
to ten years in the introduction of new aerospace-related market
39
<PAGE>
applications for HTA products. However, once a particular new alloy is shown to
possess the properties required for a specific application in the aerospace
industry, it tends to remain in use for extended periods. HTA products are also
used in gas turbine engines produced for use in applications such as naval and
commercial vessels, electric power generators, power sources for offshore
drilling platforms, gas pipeline booster stations and emergency standby power
stations.
CRA products are used in a variety of applications, such as chemical
processing, power plant emissions control, hazardous waste treatment and sour
gas production. Historically, the chemical processing industry has represented
the largest end user segment for CRA products. Due to maintenance, safety and
environmental considerations, management of the Company believes this industry
represents an area of potential long-term growth for the Company. Unlike
aerospace applications within the HTA product market, the development of new
market applications for CRA products generally does not require long lead times.
High Temperature Alloys. The following table sets forth information with
respect to certain of the Company's significant high temperature alloys:
<TABLE>
<CAPTION>
END MARKETS AND APPLICATIONS
ALLOY AND YEAR INTRODUCED (1) FEATURES
- ----------------------------- ----------------------------- -----------------------------
<S> <C> <C>
Haynes HR-160 (1990) (2) Waste incineration/CPI-boiler Good resistance to
tube shields sulfidation at high
temperatures
Haynes 242 (1990) (2) Aero-seal rings High strength, low expansion
and good fabricability
Haynes HR-120 (1990) (2) Industrial Good strength-to-cost ratio
heating-heat-treating baskets 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, High strength, oxidation
after-burner components resistant cobalt-based alloy
Haynes 625 (1964) Aero/CPI-ducting, tanks, Good fabricability and
vessels, weld overlays general corrosion resistance
Haynes 263 (1960) Aero/LBGT-components for gas Good ductibility and high
turbine hot gas exhaust pan strength at temperatures up
to 1,600 deg. F
Haynes 718 (1955) Aero-ducting, vanes, nozzles Weldable high strength alloy
with good fabricability
Hastelloy X (1954) Aero/LBGT-burner cans, Good high temperature
transition ducts strength at relatively low
cost
Haynes Ti3-2.5 (1950) Aero-aircraft hydraulic and Light weight, high strength
fuel systems components titanium-based alloy
</TABLE>
- ------------
(1) "Aero" refers to aerospace; "LBGT" refers to land-based gas turbines; "CPI"
refers to the chemical processing industry.
(2) Represents a patented product or a product with respect to which the Company
believes it has limited or no competition.
The higher volume HTA products, including Haynes 625, Haynes 718 and
Hastelloy X, are generally considered industry standards, especially in the
manufacture of aircraft and LBGT. These products have been used in such
applications since the 1950s and because of their widespread use have been most
subject to competitive pricing pressures. In fiscal 1995, sales of these HTA
products accounted for 22% of the Company's net revenues.
The Company also produces and sells cobalt-based alloys introduced over the
last three decades, which are more highly specialized and less price competitive
than nickel-based alloys. Haynes 188 and Haynes 263 are the most widely used of
the Company's cobalt-based products and accounted for 8% of the Company's net
revenues in fiscal 1995. Three of the more recently introduced HTA products,
40
<PAGE>
Haynes 242, Haynes 230 and Haynes 214, initially developed for the aerospace and
LBGT markets, are still patent-protected and together accounted for 6% of the
Company's net revenues in fiscal 1995. These newer alloys are gaining acceptance
for applications in industrial heating and waste incineration.
Haynes HR-160 and Haynes HR-120 were introduced in fiscal 1990 and targeted
for sale in industrial heat treating applications. Haynes HR-160 is a higher
priced cobalt-based alloy designed for use when the need for long-term
performance outweighs initial cost considerations. Potential applications for
Haynes HR-160 include use in key components in waste incinerators, chemical
processing equipment, mineral processing kilns and fossil fuel energy plants.
Haynes HR-120 is a lower priced, iron-based alloy and is designed to replace
competitive alloys not manufactured by the Company that may be slightly lower in
price but also less effective. In fiscal 1995, these two alloys accounted for 5%
of the Company's net revenues.
The Company also produces seamless titanium tubing for use as hydraulic
lines in airframes and as bicycle frames. During fiscal 1995, sales of these
products accounted for 4% of the Company's net revenues.
Corrosion Resistant Alloys. The following table sets forth information with
respect to certain of the Company's significant corrosion resistant alloys:
<TABLE>
<CAPTION>
END MARKETS AND APPLICATIONS
ALLOY AND YEAR INTRODUCED (1) FEATURES
- ----------------------------- ----------------------------- -----------------------------
<S> <C> <C>
Hastelloy C-2000 (1995) (2) CPI-tanks, mixers, piping Versatile alloy with good
resistance to uniform
corrosion
Hastelloy B-3 (1994) (2) CPI-acetic acid plants Better fabrication
characteristics compared to
other nickel-molybdenum
alloys
Hastelloy D-205 (1993) (2) CPI-plate heat exchangers Corrosion resistance to hot
sulfuric acid
Ultimet (1990) (2) CPI-pumps, vales Wear and corrosion resistant
nickel-based alloy
Hastelloy G-50 (1989) (2) Oil and gas-sour gas tubulars Good resistance to down hole
corrosive environments
Hastelloy C-22 (1985) (2) CPI/FGD-tanks, mixers, piping Resistance to localized
corrosion and pitting
Hastelloy G-30 (1985) (2) CPI-tanks, mixers, piping Lower cost alloy with good
corrosion resistance in
phosphoric acid
Hastelloy B-2 (1974) CPI-acetic acid Resistance to hydrochloric
acid and other reducing acids
Hastelloy C-4 (1973) CPI-tanks, mixers, piping Good thermal stability
Hastelloy C-276 (1968) CPI/FGD/oil and gas-tanks, Broad resistance to many
mixers, piping environments
</TABLE>
- ------------
(1) "CPI" refers to the chemical processing industry; "FGD" refers to flue gas
desulfurization.
(2) Represents a patented product or a product with respect to which the Company
believes it has limited or no competition.
During fiscal 1995, sales of the CRA alloys Hastelloy C-276, Hastelloy C-22
and Hastelloy C-4 accounted for approximately 31% of the Company's net revenues.
Hastelloy C-276, introduced by the Company in 1968, is widely recognized as a
standard for corrosion protection in the chemical processing industry and is
also used extensively for FGD and oil and gas exploration and production
applications. Hastelloy C-22, a proprietary alloy of the Company, was introduced
in 1985 as an improvement on Hastelloy C-276 and is currently sold to the
chemical processing and FGD markets for essentially the same applications as
Hastelloy C-276. Hastelloy C-22 offers greater and more versatile corrosion
resistance and therefore has gained market share at the expense of the
non-proprietary Hastelloy C-276. Hastelloy C-22's improved corrosion resistance
has led to increased sales in semiconductor gas handling systems, pharmaceutical
manufacturing and waste treatment applications. Hastelloy C-4 is
41
<PAGE>
specified in many chemical processing applications in Germany and is sold almost
exclusively to that market.
The Company also produces alloys for more specialized applications in the
chemical processing industry and other industries. For example, Hastelloy B-2
was introduced in 1970 for use in the manufacture of equipment utilized in the
production of acetic acid and ethyl benzine and is still sold almost exclusively
for those purposes. Due to its limited use and difficult manufacturing process,
there is little competition for sales of this material. Hastelloy B-3 was
developed for the same applications and has superior properties, as well as
greater ease in fabrication. The Company expects Hastelloy B-3 to eventually
replace Hastelloy B-2. Hastelloy G-30 is used primarily in the production of
superphosphoric acid and fluorinated aromatics. Hastelloy G-50 has gained
acceptance as a lower priced alternative to Hastelloy C-276 for production of
tubing for use in sour gas wells. These more specialized products accounted for
approximately 10% of the Company's net revenues in fiscal 1995.
The Company's patented Ultimet is used in a variety of industrial
applications that result in material degradation by "corrosion-wear." Ultimet is
designed for applications where conditions require resistance to corrosion and
wear and is currently being tested in spray nozzles, fan blades, filters, bolts,
rolls, pump and valve parts where these properties are critical. Hastelloy
D-205, introduced in 1993, is designed for use in handling hot concentrated
sulfuric acid and other highly corrosive substances.
The Company believes that its most recently introduced alloy, Hastelloy
C-2000, which is designed to improve upon Hastelloy C-22, provides better
overall corrosion resistance and versatility than any other readily available
CRA. Hastelloy C-2000, which the Company expects will be used extensively in the
chemical processing industry, can be used in both oxidizing and reducing
environments.
END MARKETS
Aerospace. The Company has maintained a leading position in the aerospace
market for HTA products since it entered the market in the late 1930s, as
evidenced by the Company's development of numerous proprietary alloys for and
numerous customers in this market. The Company sold products to approximately
400 customers in this segment in fiscal 1995, and no one customer accounted for
more than 2% of the Company's net revenues. Representative aerospace customers
include General Electric Company, Rolls-Royce plc, Pratt & Whitney and SNECMA
Group.
Customers in the aerospace markets tend to be the most demanding with
respect to meeting specifications within very low tolerances and achieving new
product performance standards. Stringent safety standards and continuous efforts
to reduce equipment weight require close coordination between the Company and
its customers in the selection and development of HTA products. As a result,
sales to aerospace customers tend to be made through the Company's direct sales
force. Unlike the FGD and oil and gas production industries, where large,
competitively bid projects can have a significant impact on demand and prices,
demand for the Company's products in the aerospace industry is based on the new
and replacement market for jet engines and the maintenance needs of operators of
commercial and military aircraft. The hot sections of jet engines are subjected
to substantial wear and tear and accordingly require periodic maintenance and
replacement. This maintenance-based demand, while potentially volatile, is
generally less subject to wide fluctuations than demand in the FGD and sour gas
production industries.
Chemical Processing. The chemical processing industry segment represents a
large base of customers with diverse CRA applications. The Company sells its CRA
products to hundreds of chemical processing customers worldwide and no one
customer in this industry accounted for over 2% of the Company's net revenues in
fiscal 1995. Representative customers include E.I. DuPont de Nemours
42
<PAGE>
and Co. and Alfa Laval Thermal A.B. 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.
Significant customers include Asea Brown Boveri, A.G. (ABB), General Electric
Company and Westinghouse Electric Corporation.
Flue Gas Desulfurization. The FGD industry has been driven by both
legislated and self-imposed standards for lowering emissions from fossil
fuel-fired electric generating facilities. In the United States, the Clean Air
Act mandates a two-phase program aimed at significantly reducing SO2 emissions
from electric generating facilities powered by fossil fuels by 2000. Canada and
its provinces have also set goals to reduce emissions of SO2 over the next
several years. Phase I of the Clean Air Act program affected approximately 100
steam-generating plants representing 261 operating units fueled by fossil fuels,
primarily coal. Of these 261 units, 25 units were retrofitted with FGD systems
while the balance opted mostly for switching to low sulfur coal to achieve
compliance. The market for FGD systems peaked in 1992 at approximately $1.1
billion, and then dropped sharply in 1993 to a level of approximately $174.0
million due to a curtailment of activity associated with Phase I. Phase II
compliance begins in 2000 and affects 785 generating plants with more than 2,100
operating units. Options available under the Clean Air Act to bring the targeted
facilities into compliance with Phase II SO2 emissions requirements include fuel
switching, clean coal technologies, purchase of SO2 allowances, closure of
facilities and off-gas scrubbing utilizing FGD technology. Significant FGD
customers include PSI Energy, Inc., Louisville Gas and Electric Company and
Houston Lighting and Power Company.
Oil and Gas. The Company also sells its products for use in the oil and gas
industry, primarily in connection with sour gas production. Sour gas contains
extremely corrosive materials and is produced under high pressure, necessitating
the use of corrosion resistant materials. The demand for sour gas tubulars is
driven by the rate of development of sour gas fields. The factors influencing
the development of sour gas fields include the price of natural gas and the need
to commence drilling in order to protect leases that have been purchased from
either the federal or state governments. As a result, competing oil companies
often place orders for the Company's products at approximately the same time,
adding volatility to the market. This market was very active in 1991, especially
in the offshore sour gas fields in the Gulf of Mexico, but demand for the
Company's products declined significantly thereafter. More recently there has
been less drilling activity and more use of lower performing alloys, which
together have resulted in intense price competition. Demand for the Company's
products in the oil and gas industry is tied to the global demand for natural
gas.
43
<PAGE>
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.
SALES AND MARKETING
Providing technical assistance to customers is an important part of the
Company's marketing strategy. The Company provides analyses of its products and
those of its competitors for its customers. These analyses enable the Company to
evaluate the performance of its products and to make recommendations as to the
substitution of Company products for other products in appropriate applications,
enabling the Company's products to be specified for use in the production of
customers' products. The market development engineers, six of whom have doctoral
degrees in metallurgy, are assisted by the research and development staff in
directing the sales force to new opportunities. The Company believes its
combination of direct sales, technical marketing and research and development
customer support is unique in the high performance alloy industry. This activity
allows the Company to obtain direct insight into customers' alloy needs and
allows the Company to develop novel proprietary alloys that provide solutions to
customers' problems.
The Company sells its products primarily through its direct sales
organization, which includes four domestic Company-owned service centers, three
wholly-owned European subsidiaries and sales agents serving the Pacific Rim who
operate on a commission basis. Approximately 73% of the Company's net revenues
in fiscal 1995 was generated by the Company's direct sales organization. The
remaining 27% of the Company's fiscal 1995 net revenues was generated by
independent distributors and licensees in the United States, Europe and Japan,
some of whom have been associated with the Company for over 25 years. The
following table sets forth the approximate percentage of the Company's fiscal
1995 net revenues obtained through each of the Company's distribution channels.
<TABLE>
<CAPTION>
DOMESTIC FOREIGN TOTAL
-------- ------- -----
<S> <C> <C> <C>
Company sales office/direct........................... 31% 13% 44%
Company-owned service centers......................... 12 17 29
Independent distributors/sales agents................. 18 9 27
-- --
-----
Total............................................. 61% 39% 100%
-- --
-- --
-----
-----
</TABLE>
A specific field sales person is assigned to maintain contact with each
account. Internal marketing and inside sales personnel support the field sales
organization and also maintain direct contact with customers. Sales management
personnel also retain some direct sales responsibility. Smaller orders that are
maintenance related are usually supplied from either the Company-owned service
centers or independent distributors. Such distributors usually have their own
sales staffs and, although some represent other suppliers, most purchase the
majority of their alloys from the Company. As with major accounts, a specific
sales representative is assigned to each major distributor. The Company believes
its sales force's extensive contact with its customers is more effective than
less direct marketing approaches.
The top twenty customers not affiliated with the Company accounted for
approximately 37% of the Company's net revenues in fiscal 1995. Sales to
Spectrum Metals, Inc. and Rolled Alloys, Inc., which are affiliated with each
other, accounted for 11.7% of the Company's net revenues in fiscal 1995. No
44
<PAGE>
other customer of the Company accounted for more than 10% of the Company's net
revenues in fiscal 1995.
The Company's foreign and export sales were approximately $53.4 million,
$55.7 million and $79.6 million for fiscal 1993, 1994 and 1995, respectively,
and approximately $64.8 million for the first nine months of fiscal 1996.
Additional information concerning foreign operations and export sales is set
forth in Note 12 of the Notes to Consolidated Financial Statements appearing
elsewhere herein.
MANUFACTURING PROCESS
High performance alloys require a lengthier, more complex melting process
and are more difficult to manufacture than lower performance alloys, such as
stainless steels. The alloying elements in high performance alloys must be
highly refined, and the manufacturing process must be tightly controlled to
produce precise chemical properties. The resulting alloyed material is more
difficult to process because, by design, it is more resistant to deformation.
Consequently, high performance alloys require that greater force be applied when
hot or cold working and are less susceptible to reduction or thinning when
rolling or forging, resulting in more cycles of rolling, annealing and pickling
than a lower performance alloy to achieve proper dimensions. Certain alloys may
undergo as many as 40 distinct stages of melting, remelting, annealing, forging,
rolling and pickling over a period of weeks before they achieve the
specifications required by a customer. The Company manufactures products in
sheet, plate, tubular, billet, bar and wire forms, which represented 46%, 24%,
13%, 11%, 4% and 2%, respectively, of total volume sold in fiscal 1995 (after
giving effect to the conversion of billet to bar by the Company's U.K.
subsidiary).
The manufacturing process begins with raw materials being combined, melted
and refined in a precise manner to produce the chemical composition specified
for each alloy. For most alloys, this molten material is cast into electrodes
and additionally refined through electroslag remelting. The resulting ingots are
then forged or rolled to an intermediate shape and size depending upon the
intended final product. Intermediate shapes destined for flat products are then
sent through a series of hot and cold rolling, annealing and pickling operations
before being cut to final size.
The Argon Oxygen Decarburization ("AOD") gas controls in the Company's
primary melt facility remove carbon and other undesirable elements, thereby
allowing more tightly-controlled chemistries which in turn produce more
consistent properties in the alloys. The AOD gas control system also allows for
statistical process control monitoring in real time to improve product quality.
The Company has a four-high Steckel mill for use in hot rolling material.
The four-high mill was installed in 1982 at a cost of approximately $60.0
million and is one of only two such mills in the high performance alloy
industry. The mill is capable of generating approximately 12.0 million pounds of
separating force and rolling plate up to 72 inches wide. The mill includes
integrated computer controls (with automatic gauge control and programmed
rolling schedules), two coiling Steckel furnaces and five heating furnaces.
Computer-controlled rolling schedules for each of the hundreds of combinations
of alloy shapes and sizes the Company produces allow the mill to roll numerous
widths and gauges to exact specifications without stoppages or changeovers.
The Company also operates a three-high rolling mill and a two-high rolling
mill, each of which is capable of custom processing much smaller quantities of
material than the four-high mill. These mills provide the Company with
significant flexibility in running smaller batches of varied products in
response to customer requirements. The Company believes the flexibility provided
by the three-high and two-high mills gives the Company an advantage over its
major competitors in obtaining smaller specialty orders.
45
<PAGE>
BACKLOG
As of June 30, 1996, the Company's backlog orders aggregated approximately
$57.5 million, compared to approximately $49.9 million at September 30, 1995,
and approximately $41.5 million at September 30, 1994. The increase in backlog
orders is primarily due to an increase in orders for chemical processing and
aerospace products worldwide. Substantially all orders in the backlog at June
30, 1996 are expected to be shipped within the twelve months beginning July 1,
1996. Due to the cyclical nature of order entry experienced by the Company,
there can be no assurance that order entry will continue at current levels. See
"Risk Factors--Industry Cyclicality; Fluctuations in Operating Results" and
"Risk Factors--Competition." The historical and current backlog amounts shown in
the following table are also indicative of relative demand over the past few
years.
HAYNES BACKLOG
AT FISCAL QUARTER END
(IN MILLIONS)
The omitted bar graph depicts the approximate amount of backlog orders the
Company had at the end of each quarter in fiscal 1993, 1994, 1995 and the end of
the first three quarters in fiscal 1996.
RAW MATERIALS
Nickel is the primary material used in the Company's alloys. Each pound of
alloy contains, on average, 0.48 pounds of nickel. Other raw materials include
cobalt, chromium, molybdenum and tungsten. Melt materials consist of virgin raw
material, purchased scrap and internally produced scrap. The significant sources
of cobalt are the countries of Zambia, Zaire and Russia; all other raw materials
used by the Company are available from a number of alternative sources.
Since most of the Company's products are produced to specific orders, the
Company purchases materials against known production schedules. Materials are
purchased from several different suppliers, through consignment arrangements,
annual contracts and spot purchases. These arrangements involve a variety of
pricing mechanisms, but the Company generally can establish selling prices with
reference to known costs of materials, thereby reducing the risk associated with
changes in the cost of raw materials. The Company maintains a policy of pricing
its products at the time of order placement. As a result, rapidly escalating raw
material costs during the period between the time the Company receives an order
and the time the Company purchases the raw materials used to fill such order,
which has averaged approximately 30 days in recent months, can negatively affect
profitability even though the high performance alloy industry has generally been
able to pass raw material price increases through to its customers.
Raw material costs account for a significant portion of the Company's cost
of sales. The prices of the Company's products are based in part on the cost of
raw materials, a significant portion of which is
46
<PAGE>
nickel. The Company covers approximately half its open market exposure to nickel
price changes through hedging activities through the London Metals Exchange. See
"Risk Factors--Raw Materials Price Fluctuations." The following table sets forth
the average per pound prices for nickel as reported by the London Metals
Exchange for the fiscal years indicated.
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30, AVERAGE PRICE
- ---------------------------------------------- -------------
<S> <C>
1988....................................... $ 4.12
1989....................................... 5.77
1990....................................... 4.29
1991....................................... 4.21
1992....................................... 3.48
1993....................................... 2.53
1994....................................... 2.54
1995....................................... 3.66
</TABLE>
RESEARCH AND TECHNICAL DEVELOPMENT
The Company believes it is a leader in the development and manufacturing
technology of nickel-and cobalt-based alloys. As of June 30, 1996, the research
and technical development staff consisted of 37 persons, 15 of whom have
engineering or science degrees, including six with doctoral degrees, with the
majority of degrees in the field of metallurgical engineering.
Research and technical development costs relate to efforts to develop new
proprietary alloys, to improve current or develop new manufacturing methods, to
provide technical service to customers, to maintain quality assurance methods
and to provide metallurgical training to engineer and non-engineer employees.
The Company spent approximately $3.6 million, $3.6 million, $3.0 million and
$2.5 million for research and technical development activities for fiscal 1993,
1994 and 1995 and for the first nine months of fiscal 1996, respectively.
In the research area, exploratory alloy development projects are focused on
new CRA products for hydrofluoric and phosphoric acid service. The research and
technical group is also preparing for volume production of a new alloy,
Hastelloy C-2000, to be used as a construction material in the chemical
processing industry. Engineering projects include manufacturing process
development, welding development and application support for two large volume
projects involving the LBGT and steelmaking industries. The Company is also
developing a computerized database management system to better manage its
corrosion, high temperature and mechanical property data.
The Company's research facilities are located at the Company's Kokomo
facility and consist of 90,000 square feet of offices and laboratories, as well
as an additional 90,000 square feet of paved storage area. The Company has ten
fully equipped laboratories, including a mechanical test lab, a metallographic
lab, an electron microscopy lab, a corrosion lab and a high temperature lab,
among others. These facilities also contain a reduced scale, fully equipped melt
shop and process lab.
Over the last seven years, the Company's technical programs have yielded
seven new proprietary alloys and seven United States patents, with an additional
three United States patent applications pending. The Company currently maintains
a total of 43 United States patents and approximately 180 foreign counterpart
patents targeted at countries with significant or potential markets for the
patented products. In fiscal 1995, approximately 30% of the Company's net
revenues was derived from the sale of patented products and an additional 39%
was derived from the sale of products for which patents formerly held by the
Company had expired. While the Company believes its patents are important to its
competitive position, significant barriers to entry continue to exist beyond the
expiration of any patent period. Five of the alloys considered by management to
be of future commercial significance, Ultimet,
47
<PAGE>
Hastelloy C-22, Haynes 230, Hastelloy G-30 and Hastelloy G-50, are protected by
United States patents that continue until the years 2008, 2002, 2001, 2000 and
1996, respectively.
COMPETITION
The high performance alloy market is a highly competitive market in which
eight to ten producers participate in various product forms. The Company faces
strong competition from domestic and foreign manufacturers of both the Company's
high performance alloys and other competing metals. The Company's primary
competitors include Inco Alloys International, Inc., a subsidiary of Inco
Limited, Allegheny Ludlum Corporation and Krupp VDM GmbH. Prior to fiscal 1994,
this competition, coupled with declining demand in several of the Company's key
markets, had led to significant erosion in the price for certain of the
Company's products. The Company may face additional competition in the future to
the extent new materials are developed, such as plastics or ceramics, that may
be substituted for the Company's products. See "Risk Factors--Competition."
EMPLOYEES
As of June 30, 1996, the Company had approximately 925 employees. All
eligible hourly employees at the Kokomo plant are covered by a collective
bargaining agreement with the United Steelworkers of America ("USWA") which was
ratified on June 11, 1996 and which expires on June 11, 1999. As of June 30,
1996, 487 employees at 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.
PROPERTIES
The Company's facilities, each of which is owned by the Company, and the
products provided at each facility, are as follows:
Kokomo, Indiana--all product forms, other than tubular goods.
Arcadia, Louisiana--welded and seamless tubular goods.
Openshaw, England--bar and billet for the European market.
The Kokomo plant, the primary production facility, is located on
approximately 236 acres of industrial property and includes over one million
square feet of building space. There are three sites consisting of a
headquarters and research lab; melting and annealing furnaces, forge press and
several hot mills; and the four-high mill and sheet product cold working
equipment, including two cold strip mills. All alloys and product forms other
than tubular goods are produced in Kokomo.
The Arcadia plant consists of approximately 42 acres of land and over
135,000 square feet of buildings on a single site. Arcadia uses feedstock
produced in Kokomo to fabricate welded and seamless alloy pipe and tubing and
purchases extruded tube hollows to produce seamless titanium tubing.
Manufacturing processes at Arcadia require cold pilger mills, weld mills, draw
benches, annealing furnaces and pickling facilities.
The Openshaw plant, located near Manchester, England, consists of
approximately 15 acres of land and over 200,000 square feet of buildings on a
single site. The plant produces bar and billet using billets produced in Kokomo
as feedstock. Additionally, products not competitive with the Company's products
are processed for third parties. The processes require hot rotary forges, bar
mills and miscellaneous straightening, turning and cutting equipment.
48
<PAGE>
Although capacity can be limited from time to time by certain production
processes, the Company believes that its existing facilities will provide
sufficient capacity for current demand.
LEGAL PROCEEDINGS
In Leslie Baxter, et. al. vs. Haynes International, Inc. and Haynes Group
Insurance Plan, filed July 6, 1995 in the U.S. District Court, Southern District
of Indiana, Indianapolis Division, retirees and the surviving spouse of a
retiree filed suit on behalf of themselves and similarly situated retirees and
surviving spouses for restoration of the retiree health insurance to benefit
levels prevailing before the reduction of those benefit levels on January 1,
1995 and to maintain the restored insurance benefit levels for the lives of the
covered retirees and their surviving spouses. The suit also seeks judgment in
damages for the benefits that have been lost as a result of the January 1, 1995
reductions in benefit levels and for the medical expenses, premiums paid and
other damages incurred, including reasonable attorneys' fees and costs of
maintaining the suit. This lawsuit is in the very early stages of discovery, and
the Company is not able at this time to assess the likelihood that or the extent
to which this lawsuit could have an impact on the Company's financial position
or operations. The Company intends to vigorously defend against the claims.
In addition to the foregoing proceeding, on October 19, 1995 at the
conclusion of an audit by the IRS of the Company's tax returns for the five
taxable years ending September 30, 1993 (the "Years in Issue"), the IRS proposed
to disallow deductions claimed by the Company during the Years in Issue in an
amount aggregating approximately $5.5 million. These deductions represent the
amortization of loan fees in the original aggregate amount of approximately
$10.4 million incurred in connection with the 1989 Acquisition. The loan fees
are being amortized over a 10-year period ending in 1999. In addition to
proposed disallowance of the deductions claimed during the Years in Issue, the
IRS' position, if sustained, would prohibit amortization deductions for the
years following the Years in Issue in an aggregate amount of approximately $4.9
million. The Company filed a formal protest to the IRS' proposed disallowance on
March 25, 1996, and intends to challenge the IRS with respect to the proposed
disallowance. Even if the deductions in question are disallowed, the Company
does not expect it will be required to pay any significant amount of additional
federal income tax with respect to the Years in Issue, although the Company's
NOLs as of September 30, 1995 would be reduced by approximately $7.6 million. In
addition, if the IRS' position with respect to the deductions at issue is
sustained, the Company's taxable income for its current taxable year and future
taxable years might be increased by up to approximately $10.4 million (the total
amount of loan fees which the Company would be prevented from deducting), in
which case the Company's federal income tax liability for those years would be
increased. See "Risk Factors--Income Tax Audit."
The Company also is involved in other routine litigation incidental to the
conduct of its business, none of which is believed by management to be material.
ENVIRONMENTAL MATTERS
The Company's facilities and operations are subject to certain foreign,
federal, state and local laws and regulations relating to the protection of
human health and the environment, including those governing the discharge of
pollutants into the environment and the storage, handling, use, treatment and
disposal of hazardous substances and wastes. Violations of these laws and
regulations can result in the imposition of substantial penalties and can
require facilities improvements. In addition, the Company may be required in the
future to comply with certain regulations pertaining to the emission of
hazardous air pollutants under the Clean Air Act. However, since these
regulations have not been proposed or promulgated, the Company cannot predict
the cost, if any, associated with compliance with such regulations. Capital
expenditures and other expenses related to environmental compliance are expected
to be approximately $3.9 million for fiscal year 1996 through fiscal year 1998.
Although there can be no assurance, based upon current information available to
the Company, the Company does not
49
<PAGE>
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 financial
responsibility and capability to satisfy closure and post-closure requirements,
including possible future corrective action as necessary. On April 30, 1991,
IDEM issued a Notice of Inadequacy relating to the financial assurance
requirements for the former disposal areas. An Agreed Order dated July 2, 1992
was entered into between the Company and the IDEM in resolution of this Notice
of Inadequacy, and IDEM notified the Company on September 1, 1992 that it was in
compliance with the terms of that Agreed Order. The Company paid a civil penalty
of $50,000 provided for by the Agreed Order.
The Company has completed an investigation, pursuant to a work plan approved
by the EPA, of eight specifically identified solid waste management units at the
Kokomo facility. Results of this investigation have been filed with the EPA.
Based on the results of this investigation compared to Indiana's Tier II
clean-up goals, the Company believes that no further actions will be necessary.
Until the EPA reviews the results, the Company is unable to determine whether
further corrective action will be required or, if required, whether it will have
a material adverse effect on the Company's financial condition, results of
operations or liquidity.
The Company may also incur liability for alleged environmental damages
associated with the off-site transportation and disposal of its wastes. The
Company's operations generate hazardous wastes, and while a large percentage of
these wastes are reclaimed or recycled, the Company also accumulates hazardous
wastes at each of its facilities for subsequent transportation and disposal
off-site by third parties. Generators of hazardous waste transported to disposal
sites where environmental problems are alleged to exist are subject to claims
under CERCLA, and state counterparts. CERCLA imposes strict, joint and several
liability for investigatory and cleanup costs upon waste generators, site owners
and operators and other "potentially responsible parties" ("PRPs"). Based on its
prior shipment of waste oil
50
<PAGE>
contaminated with PCBs, the Company is one of approximately 700 PRPs in
connection with the cleanup of PCB contamination at the Rose Chemical site in
Missouri. The Company has contributed over $130,000 towards the private cleanup
currently being implemented by a group of many of these PRPs, approximately
$52,000 of which has been refunded, and does not anticipate that further
significant expenditures by the Company will be required in connection with this
site. Based on its prior shipment of certain hydraulic fluid, the Company is one
of approximately 300 PRPs in connection with the proposed cleanup of the
Fisher-Calo site in Indiana. The PRPs have negotiated a Consent Decree
implementing a remedial design/remedial action plan ("RD/RA") for the site with
the EPA. The Company has paid approximately $138,000 as its share of the total
estimated cost of the RD/RA under the Consent Decree. Based on information
available to the Company concerning the status of the cleanup efforts at the
Rose Chemical and Fisher-Calo sites, the large number of PRPs at each site and
the prior payments made by the Company in connection with these sites,
management does not expect the Company's involvement in these sites to have a
material adverse effect on the financial condition, results of operations or
liquidity of the Company. The Company may have generated hazardous wastes
disposed of at other sites potentially subject to CERCLA or equivalent state law
remedial action. Thus, there can be no assurance that the Company will not be
named as a PRP at additional sites in the future or that the costs associated
with those sites would not have a material adverse effect on the Company's
financial condition, results of operations or liquidity.
In November 1988, the EPA approved startup of a new waste water treatment
plant at the Arcadia, Louisiana facility, which discharges treated industrial
waste water to the municipal sewerage system. Following exceedances of certain
EPA effluent limitations in 1989, the EPA issued an administrative order in 1992
which set new effluent limitations for the facility. The waste water plant is
currently operating under this order and the Company believes it is meeting such
effluent limitations. However, the Company anticipates that in the future
Louisiana will take over waste water permitting authority from the EPA and may
issue a waste water permit, the conditions of which could require modification
to the plant. Reasonably anticipated modifications are not expected to have a
substantial impact on operations.
51
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information concerning the persons
who served as the directors and executive officers of the Company as of June 30,
1996. Except as indicated in the following paragraphs, the principal occupations
of these persons have not changed during the past five years.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ------------------------------------------ --- ------------------------------------------
<S> <C> <C>
Michael D. Austin......................... 56 President and Chief Executive Officer;
Director
Joseph F. Barker.......................... 49 Chief Financial Officer; Vice President,
Finance; Secretary; Treasurer; Director
F. Galen Hodge............................ 58 Vice President, International
Michael F. Rothman........................ 49 Vice President, Engineering & Technology
Charles J. Sponaugle...................... 47 Vice President, Sales and Marketing
Frank J. LaRosa........................... 36 Vice President, Human Resources and
Information Technology
August A. Cijan........................... 40 Vice President, Operations
Theodore T. Brown......................... 37 Controller; Chief Accounting Officer
Robert I. Hanson.......................... 52 General Manager, Arcadia Tubular Products
Perry J. Lewis............................ 58 Director, Chairman of the Board
Robert Egan............................... 65 Director, Vice Chairman of the Board
John A. Morgan............................ 65 Director
Thomas F. Githens......................... 68 Director
Sangwoo Ahn............................... 57 Director
Ira Starr................................. 37 Director
</TABLE>
Mr. Austin was elected President, Chief Executive Officer and a director of
the Company in September 1993. From 1987 to the time he joined the Company, Mr.
Austin was President and Chief Executive Officer of Tuscaloosa Steel
Corporation, a mini hot strip mill owned by British Steel PLC with approximately
$200 million in annual revenue ("Tuscaloosa").
Mr. Barker was elected Vice President, Finance and a director of the Company
in September 1992 and Treasurer and Secretary in September 1993. Mr. Barker was
also elected Chief Financial Officer in May 1996. He had served as Controller of
the Company and its predecessors since November 1986.
Dr. Hodge was elected Vice President, International in June 1994 after
having served as Vice President of Technology since September 1989. He was
Marketing and Technical Manager for the European Sales and Distribution
operations from 1985 to 1987 and Director of Technology from 1987 to 1989.
Mr. Rothman was elected Vice President, Engineering and Technology in
October 1995 after having served as Marketing Manager since 1994. He previously
served in various marketing and technical positions since joining the Company in
1975.
Mr. Sponaugle was elected Vice President, Sales and Marketing in October
1994 after having served as Quality Control Manager and Total Quality Manager
since September 1992. He previously served as Marketing Manager from 1985 to
1992.
Mr. LaRosa was elected Vice President, Human Resources and Information
Technology in April 1996 after having served as Manager, Human Resources and
Information Technology from June 1994 to April 1996. From September 1993 until
June 1994, Mr. LaRosa served as Manager, Human Resources. From December 1990
until joining the Company in September 1993, he served in various management
capacities at Tuscaloosa.
Mr. Cijan was elected Vice President, Operations in April 1996. He joined
the Company in 1993 as Manufacturing Manager and was Manager, Maintenance and
Engineering for Tuscaloosa from 1987 until he joined the Company in 1993.
52
<PAGE>
Mr. Brown was elected Controller and Chief Accounting Officer of the Company
in May, 1996 after having served as General Accounting Manager since 1992. From
1988 to 1992 he served in various financial capacities with the Company.
Mr. Hanson was named General Manager, Arcadia Tubular Products Facility in
November 1994. He previously served the Company and its predecessors in various
technical, production and engineering capacities since October 1987.
Mr. Lewis has served as a general partner of MLGAL Partners L.P. ("MLGAL"),
a Connecticut limited partnership that is the general partner of Fund II, since
its formation in 1987. He was elected a director of the Company in 1989 and has
served as Chairman of the Board of the Company since October 1993. Mr. Lewis
also serves on the boards of directors of Aon Corporation, Evergreen Media
Corporation, Tyler Corporation, Quaker Fabric Corporation, Stuart Entertainment,
Inc. and ITI Technologies, Inc.
Mr. Egan was elected as a director and Vice Chairman of the Board of the
Company in December 1993. Mr. Egan is retired. He was formerly the Chairman and
Chief Executive Officer of Alloy Rods Corporation from 1985 to 1993. Mr. Egan
also serves on the board of directors of Robroy Inc.
Mr. Morgan has served as a general partner of MLGAL since its formation in
1987. He was elected a director of the Company in 1989. Mr. Morgan also serves
on the boards of directors of TriMas Corporation, Flight Safety International,
Mascotech, Inc., Masco Corp., Allied Digital Technologies, Inc. and McDermott
International Incorporated.
Mr. Githens has been a retired partner of MLGAL since January 1, 1993. From
1982 until his retirement, Mr. Githens was a partner in MLGAL, although he
ceased his active involvement in the operations of MLGAL in December 1991.
Mr. Ahn has served as a general partner of MLGAL since its formation in
1987. He was elected a director of the Company in 1989. Mr. Ahn also serves on
the boards of directors of Kaneb Services, Inc., Kaneb Pipe Line Partners, L.P.,
PAR Technology Corp., Quaker Fabric Corporation, Stuart Entertainment, Inc. and
ITI Technologies, Inc.
Mr. Starr has served as a general partner of MLGAL since 1994. Mr. Starr
served as Vice President of MLGAL from 1988 to 1994. He was elected a director
of the Company in 1989. Mr. Starr also serves on the boards of directors of
Quaker Fabric Corporation and Stuart Entertainment, Inc.
The Company, Haynes Corp., Fund II and the investors in the Company who are
officers or directors of the Company or employees of MLGA or the Company entered
into the Stock Subscription Agreement, which requires certain persons be elected
to the board of directors. The same parties, together with certain institutional
investors, entered into a Stockholders Agreement dated August 31, 1989 (the
"Stockholder Agreement"). Both the Stock Subscription Agreement and the
Stockholders Agreement will terminate upon consummation of the Offering.
Each member of the board of directors is elected for a term of one year.
Except for Messrs. Austin, Barker and Egan, who were elected in September 1993,
September 1992 and October 1993, respectively, each of the directors has served
in that capacity since August 1989. Each of the directors is nominated and
elected pursuant to the terms of the Stock Subscription Agreement, which will
terminate upon the closing of the Offering.
The Company's Certificate of Incorporation (the "Certificate") authorizes
the board of Directors to designate the number of directors. The board currently
has designated eleven directors, and there are three existing vacancies on the
board of directors, which the Company does not intend to fill in the near
future. Directors of the Company serve until their successors are duly elected
and qualified or until their earlier resignation or removal. Officers of the
Company serve at the discretion of the board of directors,
53
<PAGE>
subject, in the case of Mr. Austin, to the terms of his employment contract. See
"--Austin Employment Agreement."
The board has established an Audit Committee and a Compensation Committee.
The Audit Committee consists of Messrs. Egan, Githens and Starr and the
Compensation Committee consists of Messrs. Lewis, Ahn and Egan. The Audit
Committee is responsible for recommending independent auditors, reviewing, in
connection with the independent auditors, the audit plan, the adequacy of
internal controls, the audit report and management letter and undertaking such
other incidental functions as the board may authorize. The Compensation
Committee is responsible for administering the Stock Option Plans, determining
executive compensation policies and administering compensation plans and salary
programs, including performing an annual review of the total compensation and
recommended adjustments for all executive officers. See "--Stock Option Plans."
COMPENSATION
The following tables and notes present the compensation provided by the
Company to its Chief Executive Officer and the Company's four other most highly
compensated executive officers, who served as executive officers as of September
30, 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION (1) LONG-TERM
------------------------------ COMPENSATION
NAME AND PRINCIPAL FISCAL AWARDS/OPTIONS ALL OTHER
POSITION YEAR SALARY BONUS (NUMBER OF SHARES) COMPENSATION (3)
- ------------------------------ ------ -------- -------- ------------------ ----------------
<S> <C> <C> <C> <C> <C>
Michael D. Austin............. 1995 $314,167 -- -- $ 75,631
President and Chief 1994 314,167 $100,000(2) -- 5,520
Executive Officer 1993 27,100 -- 112,995 444
Joseph F. Barker.............. 1995 130,500 -- 16,045 1,808
Vice President, Finance; 1994 130,500 -- -- 2,252
Secretary; Treasurer 1993 114,200 -- -- 1,842
F. Galen Hodge................ 1995 129,033 -- 12,994 3,651
Vice President, 1994 129,033 -- -- 2,580
International 1993 128,100 -- -- 2,096
August A. Cijan............... 1995 117,800 -- 22,599 55,677
Vice President, Operations 1994 106,893 -- -- 295
1993 -- -- -- --
Frank J. LaRosa............... 1995 116,000 -- 22,599 22,478
Vice President, Human 1994 106,466 -- -- 285
Resources and Information 1993 -- -- --
Technology
</TABLE>
- ------------
(1) Additional compensation in the form of perquisites was paid to certain of
the named officers in the periods presented; however, the amount of such
compensation was less than the level required for reporting.
(2) Mr. Austin was elected President and Chief Executive Officer of the Company
on September 2, 1993 and, under the terms of an Executive Employment
Agreement with the Company, Mr. Austin received a $100,000 bonus to cover
deferred compensation forfeited at his former employer. See "--Austin
Employment Agreement."
(3) Premium payments to the group term life insurance plan, gainsharing payments
and relocation reimbursements which were made by the Company.
54
<PAGE>
STOCK OPTION PLANS
Prior Option Plan and Existing Stock Option Plan. In 1986, Haynes Corp., the
Company's wholly-owned subsidiary, adopted a stock incentive plan, which was
amended and restated in 1987, for certain key management employees (the "Prior
Option Plan"). The Prior Option Plan allowed participants to acquire restricted
common stock from the Company by exercising stock options (the "Prior Options")
granted pursuant to the terms and conditions of the Prior Option Plan. In
connection with the 1989 Acquisition, the Company established the Haynes
International, Inc. Employee Stock Option Plan (the "Existing Stock Option
Plan"). The Existing Stock Option Plan authorizes the granting of options to
certain key employees and directors of the Company and its subsidiaries for the
purchase of a maximum of 511,803 shares of the Company's Common Stock. As of
June 30, 1996, options to purchase 445,228 shares were outstanding under the
Existing Stock Option Plan, leaving 66,575 options available for grant. Upon
consummation of the 1989 Acquisition, the holders of the Prior Options exchanged
all of their remaining Prior Options for options pursuant to the Stock Option
Plan (the "Rollover Options"). Except for the Rollover Options, the Compensation
Committee, which administers the Existing Stock Option Plan, is authorized to
determine which eligible employees will receive options and the amount of such
options. Pursuant to the Existing Stock Option Plan, the Compensation Committee
is authorized to grant options to purchase Common Stock at any price in excess
of the lower of Book Value (as defined in the Existing Stock Option Plan) or 50%
of the Fair Market Value (as defined in the Existing Stock Option Plan) per
share of Common Stock on the date of the award. However, actual options
outstanding under the Existing Stock Option Plan have been granted at the
estimated fair market value per share at the date of grant, resulting in no
compensation being charged to operations.
Subject to earlier exercise upon death, disability or normal retirement,
upon a change of control (as defined in the Existing Stock Option Plan) of the
Company, upon the determination of the Compensation Committee in its discretion,
or upon the sale of all or substantially all of the assets of the Company,
options granted under the Existing Stock Option Plan (other than the Rollover
Options and options granted to existing Management Holders (as defined in the
Existing Stock Option Plan) that are immediately exercisable) become exercisable
on the third anniversary thereof unless otherwise provided by the Compensation
Committee and terminate on the earlier of (i) three months after the optionee
ceases to be employed by the Company or any of its subsidiaries or (ii) ten
years and two days after the date of grant. Options granted pursuant to the
Existing Stock Option Plan may not be assigned or transferred by an optionee
other than by last will and testament or by the laws of descent and
distribution, and any attempted transfer of such options may result in
termination thereof. The grant, holding or exercise of options granted pursuant
to the Existing Stock Option Plan may, in the Compensation Committee's
discretion, be conditioned upon the optionee becoming a party to the Stock
Subscription Agreement or the Stockholders Agreement entered into by the
investors in the Company at the time of the 1989 Acquisition; however, both the
Stock Subscription Agreement and the Stockholders Agreement will terminate upon
closing of the Offering.
In fiscal 1995, 182,429 options were granted by the Compensation Committee
pursuant to the Existing Stock Option Plan. No options were granted in the nine
months ended June 30, 1996, and the board of directors of the Company has
determined that no additional options will be granted under the Existing Stock
Option Plan following consummation of the Offering. The following table sets
forth the number of options of Common Stock granted to the persons named in the
Summary Compensation Table in fiscal 1995.
55
<PAGE>
OPTION GRANTS IN FISCAL 1995
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
NUMBER OF % OF TOTAL APPRECIATION FOR
SECURITIES OPTIONS GRANTED OPTION TERM(1)
UNDERLYING TO EMPLOYEES EXERCISE EXPIRATION ----------------
NAME OPTIONS GRANTED IN FISCAL 1995 PRICE ($/SH) DATE 5%($) 10%($)
- ----------------------------- --------------- --------------- --------------- ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Joseph F. Barker............. 16,045 8.8% 4.425 12/07/04 44,651 113,154
F. Galen Hodge............... 12,994 7.1 4.425 12/07/04 36,160 91,638
August A. Cijan.............. 22,599 12.4 4.425 12/07/04 62,890 159,375
Frank J. LaRosa.............. 22,599 12.4 4.425 12/07/04 62,890 159,375
</TABLE>
- ------------
(1) The potential realizable value is calculated based on the term of the option
at the time of grant (ten years). Stock price appreciation of 5% and 10% is
based on the fair values at the time of grant and assumes that the option is
exercised at the exercise price and sold on the last day of its term at the
appreciated price, pursuant to rules promulgated by the Securities and
Exchange Commission. The potential realizable value does not represent the
Company's prediction of its stock price performance. This table does not
take into account any appreciation for the fair value of the Common Stock
from December 7, 1994, the date of grant, to date. There can be no assurance
that the actual stock price appreciation over the ten-year option term will
be at the assumed 5% or 10% level or at any other defined level.
The options listed in the above table were originally granted in December
1994 with an exercise price of $8.85 per share. In order to provide a meaningful
incentive to management, in January 1996 the Company's board of directors
reduced the exercise price for the options listed in the table (and options to
purchase an additional 108,192 shares of Common Stock granted to other members
of the Company's management) to $4.425 per share, which the board of directors
determined was the fair market value at that time. The board of directors'
action was based on several factors. First, at the time of the repricing it was
uncertain whether the Company would be able to make a February 15, 1996 interest
payment of approximately $6.1 million on the Existing Subordinated Notes.
Second, although conditions in some of the major markets to which the Company
sells had begun to improve in the last two fiscal quarters of fiscal 1995, the
extent of the recovery was still unclear. Third, prior to the date of this
prospectus, there has been virtually no market for or trading in the Common
Stock. Finally, efforts to sell the Company, which began in May 1995, were
unsuccessful. The last offer the Company received from a potential acquiror was
received in December 1995 and reflected a price that was lower than the exercise
price of the Common Stock established by the board of directors in January 1996.
The Company believes several factors have contributed to the increase in the
price of the Common Stock from the revised option exercise price to the
estimated initial public offering price. By increasing the borrowing limits
under the Existing Credit Facility, which increase was effective at the end of
January 1996, the Company improved its liquidity and was able to make the
February 1996 interest payment on the Existing Subordinated Notes. In addition,
the Company's results of operations for the second quarter of fiscal 1996
demonstrated that the Company's improved earnings trend was continuing. In early
April, 1996 based on the improved earnings trend, the Company met for the first
time with prospective underwriters to discuss a possible public offering of
Common Stock. Without the improved earnings trend, the Company would not be able
to conduct this Offering and effect the Recapitalization. As a result of the
Recapitalization, the Company will have significantly lower interest expense and
much improved liquidity, thus increasing the value of the Company and the Common
Stock.
New Stock Option Plan. The Company has adopted the Haynes International,
Inc. 1996 Employee Stock Option Plan (the "New Stock Option Plan" and, together
with the Existing Stock Option Plan, the "Stock Option Plans") to be effective
upon the consummation of the Offering. The
56
<PAGE>
New Stock Option Plan will be administered by the Compensation Committee, which
consists of three directors who do not participate in the New Stock Option Plan.
Participants in the New Stock Option Plan will be employees of the Company as
may be selected from time to time by the Compensation Committee. All persons
administering the New Stock Option Plan are deemed "disinterested," as such term
is used in Rule 16b-3, promulgated under the Securities Exchange Act of 1934, as
amended ("Rule 16b-3"). A total of 400,000 shares of Common Stock are reserved
for issuance upon exercise of options granted under the New Stock Option Plan.
The board has adopted and the stockholders have approved the New Stock Option
Plan.
Options granted under the New Stock Option Plan may be incentive stock
options as defined in Section 422 of the Code ("ISOs") or nonqualified stock
options that do not meet the requirements of Section 422 of the Code ("NQSOs").
The per share exercise price of an ISO or an NQSO will not be less than the fair
market value of the Common Stock on the date of the grant, except that the per
share exercise price for ISOs granted to holders of 10% or more of the
outstanding Common Stock ("10% Stockholders") will be not less than 110.0% of
such fair market value. In addition, for each participant, the maximum aggregate
fair market value on the date of grant of all shares subject to ISOs first
exercisable in any one year may not exceed $100,000.
Under the New Stock Option Plan, the exercise price is required to be paid
in full at the time of exercise, in any combination of cash, cash equivalents or
shares of Common Stock. Options granted will expire in not more than ten years
from the date of grant (five years, in the case of ISO's issued to holders of
10.0% Stockholders under the New Stock Option Plan). The New Stock Option Plan
provides for an automatic acceleration of the exercisability of option grants
upon a change in control (as defined in the New Stock Option Plan). A "change in
control" includes: (i) a change in ownership of at least 50.0% of the Company's
outstanding voting stock or (ii) a change in the composition of a majority of
the Board.
Options granted under the New Stock Option Plan generally will expire upon
the earlier of the expiration date of the option or the termination of
employment, unless termination occurs as a result of: (i) retirement with the
Company's consent, in which case such options will expire three months after
such event or (ii) death or permanent disability, in which case such options
will expire one year after such event. In addition, the Compensation Committee
have the discretion to extend the expiration date to a date within three months
following the date of termination of employment. Options are not transferable
other than by will or the laws of descent and distribution. Other terms,
including when and how long an option is exercisable, are determined by the
Committee.
SEVERANCE AGREEMENTS
In connection with the events leading up to the acquisition of the Company
by Morgan Lewis Githens & Ahn and management of the Company in August 1989, the
Company entered into Severance Agreements with certain key employees (the "Prior
Severance Agreements"). In 1995, the Company determined that the provisions of
the Prior Severance Agreements were no longer appropriate for the key employees
who were parties thereto and that several other key employees who were employed
after 1989 should be entitled to severance benefits. Consequently, during and
after July 1995, the Company entered into Severance Agreements (the "Severance
Agreements") with Messrs. Austin, Barker, Cijan, Hodge, LaRosa and Sponaugle and
with certain other key employees of the Company (the "Eligible Employees"). The
Severance Agreements superseded in all respects the Prior Severance Agreements
that were then in effect.
The Severance Agreements provide for an initial term expiring April 30,
1996, subject to one- year automatic extensions (unless terminated by the
Company or the Eligible Employee 60 days prior to May 1 of any year). The
Severance Agreements automatically terminate upon termination of the Eligible
Employee's employment prior to a Change in Control of the Company, as defined in
the Severance Agreements (a "Severance Change in Control"), unless the
termination of employment occurs as a result of action of the Company other than
for Cause (as defined in the Severance
57
<PAGE>
Agreements) within 90 days of a Severance Change in Control. A Severance Change
in Control occurs upon a change in ownership of 50.0% or more of the combined
voting power of the outstanding securities of the Company or upon the merger,
consolidation, sale of all or substantially all of the assets or liquidation of
the Company. A Severance Change in Control will not occur upon the consummation
of the Offering.
The Severance Agreements provide that if an Eligible Employee's employment
with the Company is terminated within six months following a Severance Change in
Control by reason of such Eligible Employee's disability, retirement or death,
the Company will pay the Eligible Employee (or his estate) his Base Salary (as
defined in the Severance Agreements) plus any bonuses or incentive compensation
earned or payable as of the date of termination. In the event that the Eligible
Employee's employment is terminated by the Company for Cause (as defined in the
Severance Agreements) within the six-month period, the Company is obligated only
to pay the Eligible Employee his Base Salary through the date of termination. In
addition, if within the six-month period the Eligible Employee's employment is
terminated by the Eligible Employee or the Company (other than for Cause or due
to disability, retirement or death), the Company must (among other things) (i)
pay to the Eligible Employee such Eligible Employee's full Base Salary and any
bonuses or incentive compensation earned or payable as of the date of
termination; (ii) continue to provide life insurance and medical and hospital
benefits to the Eligible Employee for up to 12 months following the date of
termination (18 months for Messrs. Austin and Barker); (iii) pay to the Eligible
Employee $12,000 for outplacement costs to be incurred, (iv) pay to the Eligible
Employee a lump sum cash payment equal to either (a) 150% of the Eligible
Employee's Base Salary in the case of Messrs. Austin and Barker, or (b) 100% of
the Eligible Employee's Base Salary in the case of the other Eligible Employees,
provided that the Company may elect to make such payments in installments over
an 18 month period in the case of Messrs. Austin or Barker or a 12 month period
in the case of the other Eligible Employees. As a condition to receipt of
severance payments and benefits, the Severance Agreements require that Eligible
Employees execute a release of all claims.
Pursuant to the Severance Agreements, each Eligible Employee agrees that
during his employment with the Company and for an additional one year following
the termination of the Eligible Employee's employment with the Company by reason
of disability or retirement, by the Eligible Employee within six months
following a Severance Change in Control or by the Company for Cause, the
Eligible Employee will not, directly or indirectly, engage in any business in
competition with the business of the Company.
AUSTIN EMPLOYMENT AGREEMENT
On September 2, 1993, the board of directors elected Michael D. Austin
President and Chief Executive Officer of the Company. The Company and Haynes
Corp. 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.
58
<PAGE>
Pursuant to the Executive Employment Agreement, the Company also granted Mr.
Austin the option to purchase 112,995 shares of Common Stock at a purchase price
of $8.8498 per share through the Existing Stock Option Plan. In January 1996 the
purchase price for exercise of the option was reduced to $4.4249 per share.
These options vest at a rate of 22,599 shares September 1 of each year until
fully vested, so long as Mr. Austin continues to be employed by the Company on
such dates and provided that all options would vest upon a "change in control"
as defined in the Existing Stock Option Plan or certain sales of assets as
specified in the Existing Stock Option Plan. Mr. Austin also became a party to
the Stock Subscription Agreement and the Stockholders Agreement. In the event of
a change in control and the termination of Mr. Austin's employment by the
Company thereafter, the Company is also obligated to pay the difference, if any,
between the pension benefit payable to Mr. Austin under the U.S. Pension Plan
(as defined below) at the time of such change in control and the pension benefit
that would be payable under the U.S. Pension Plan if Mr. Austin had completed 10
years of service with the Company.
On July 15, 1996, the Company, Haynes Corp. and Mr. Austin entered into an
amendment of the Executive Employment Agreement which extends its term to August
31, 1999 (with year to year continuation thereafter unless the Company or Mr.
Austin elects otherwise) and requires the Company to reimburse Mr. Austin for up
to $10,000 for estate or financial planning services. The amendment of the
Executive Employment Agreement also requires that in 1996 the Company review and
evaluate the existing bonus plans and consider, among other alternatives, a
deferred compensation plan for the management of the Company.
If Mr. Austin's employment is terminated by the Company prior to August 31,
1999 without "Cause," as defined in the Executive Employment Agreement, as
amended, Mr. Austin is entitled to continuation of his annual base salary until
the later of August 31, 1999 or 24 months following the date of termination.
Also, if the Company terminates Mr. Austin's employment without Cause after
August 31, 1999 or elects not to renew the Executive Employment Agreement on a
one year basis, Mr. Austin is entitled to annual base salary continuation for a
period of 12 months following the date of termination of his employment. In the
event that Mr. Austin is entitled to termination benefits under the Severance
Agreement to which he is a party, he is not entitled to salary continuation or
benefits under the Executive Employment Agreement, as amended.
U.S. PENSION PLAN
The Company maintains for the benefit of eligible domestic employees a
defined benefit pension plan, designated as the Haynes International, Inc.
Pension Plan (the "U.S. Pension Plan"). Under the U.S. Pension Plan, all Company
employees completing at least 1,000 hours of employment in a 12-month period
become eligible to participate in the plan. Employees are eligible to receive an
unreduced pension annuity on reaching age 65, reaching age 62 and completing 10
years of service, or completing 30 years of service. The final option is
available only for union employees hired before July 3, 1988 or for salaried
employees who were plan participants on March 31, 1987.
For salaried employees employed on or after July 3, 1988, the normal monthly
pension benefit provided under the U.S. Pension Plan is the greater of (i) 1.2%
of the employee's average monthly earnings multiplied by years of credited
service, plus an additional 0.5% of the employee's average monthly earnings, if
any, in excess of the monthly Social Security covered compensation for each year
of credited service up to 35 years, or (ii) the employee's accrued benefit as of
March 31, 1987.
There are provisions for delayed retirement benefits, early retirement
benefits, disability and death benefits, optional methods of benefit payments,
payments to an employee who leaves after a certain number of years of service
and payments to an employee's surviving spouse. Employees are vested and
eligible to receive pension benefits after completing five years of service.
Vested benefits are paid beginning at or after age 55. Early retirement benefits
are available after age 55.
59
<PAGE>
The following table sets forth the range of estimated annual benefits
payable upon retirement for graduated levels of average annual earnings and
years of service for employees under the plan, based on retirement at age 65 in
1995. The maximum annual benefit permitted for 1995 under Section 415(b) of the
Code is $120,000.
<TABLE>
<CAPTION>
YEARS OF SERVICE
----------------------------------------------------
AVERAGE ANNUAL
REMUNERATION 15 20 25 30 35
- -------------- -------- ------- ------- ------- -------
<C> <S> <C> <C> <C> <C> <C>
$100,000 ................................ $ 23,800 $31,700 $39,700 $47,600 $55,500
150,000 ................................ 36,500 48,700 60,900 73,100 85,300
200,000 ................................ 49,300 65,700 82,200 98,600 115,000
250,000 ................................ 62,000 82,700 103,400 124,100 144,800
300,000 ................................ 74,800 99,700 124,700 149,600 174,500
350,000 ................................ 87,500 116,700 145,900 175,100 204,300
400,000 ................................ 100,300 133,700 167,200 200,600 234,000
450,000 ................................ 113,000 150,700 188,400 226,100 263,800
</TABLE>
The estimated credited years of service of each of the individuals named in
the Summary Compensation Table as of September 30, 1995 are as follows:
<TABLE>
<CAPTION>
CREDITED
SERVICE
--------
<S> <C>
Michael D. Austin................................................. 2
F. Galen Hodge.................................................... 26
Joseph F. Barker.................................................. 15
Frank J. LaRosa................................................... 2
August A. Cijan................................................... 2
</TABLE>
U.K. PENSION PLAN
The Company maintains a pension plan for its employees in the United Kingdom
(the "U.K. Pension Plan"). The U.K. Pension Plan is a contributory plan under
which eligible employees contribute 3% or 6% of their annual earnings. Normal
retirement age under the U.K. Pension Plan is age 65 for males and age 60 for
females. The annual pension benefit provided at normal retirement age under the
U.K. Pension Plan ranges from 1% to 1 2/3% of the employee's final average
annual earnings for each year of credited service, depending on the level of
employee contributions made each year during the employee's period of service
with the Company. The maximum annual pension benefit for employees with at least
10 years of service is two-thirds of the individual's final average annual
earnings. Similar to the U.S. Pension Plan, the U.K. Pension Plan also includes
provisions for delayed retirement benefits, early retirement benefits,
disability and death benefits, optional methods of benefit payments, payments to
employees who leave after a certain number of years of service, and payments to
an employee's surviving spouse. The U.K. Pension Plan also provides for payments
to an employee's surviving children.
PROFIT SHARING AND SAVINGS PLAN
The Company maintains the Haynes International, Inc. Profit Sharing and
Savings Plan and the Haynes International, Inc. Hourly Profit Sharing and
Savings Plan (the "Profit Sharing Plans") to provide retirement, tax-deferred
savings for eligible employees and their beneficiaries.
The board of directors has sole discretion to determine the amount, if any,
to be contributed by the Company. No Company contributions were made to the
Profit Sharing Plans for the fiscal years ended September 30, 1995, 1994 and
1993.
The Profit Sharing Plans are qualified under Section 401 of the Code,
permitting the Company to deduct for federal income tax purposes all amounts
contributed by it to the Profit Sharing Plans.
60
<PAGE>
In general, all salaried employees completing at least 1,000 hours of
employment in a 12-month period are eligible to participate after completion of
one full year of employment. Each participant's share in the annual allocation,
if any, to the Profit Sharing Plans is represented by the percentage which his
or her plan compensation (up to $260,000) bears to the total plan compensation
of all participants in the plan. Employees may also elect to make elective
salary reduction contributions to the Profit Sharing Plans, in amounts up to 10%
of their plan compensation. Elective salary reduction contributions may be
withdrawn subject to the terms of the Profit Sharing Plans.
Vested individual account balances attributable to Company contributions may
be withdrawn only after the amount to be distributed has been held by the plan
trustee in the profit sharing account for at least 24 consecutive calendar
months. Participants vest in their individual account balances attributable to
Company contributions at age 65, death, disability or on completing five years
of service.
INCENTIVE PLAN
In January 1996, the Company awarded and paid management bonuses of
approximately $439,000 pursuant to its management incentive program. The January
bonuses were calculated based on the Company's fiscal 1995 performance.
Additionally, the Company adopted a management incentive plan effective for
fiscal 1996 pursuant to which senior managers and managers in the level below
senior managers will be paid a bonus based on actual EBITDA compared to budgeted
EBITDA. Based on results for the first half of fiscal 1996, the Company believes
that management will be eligible for bonuses for fiscal 1996 and that it will
accrue additional expenses for management bonuses of approximately $900,000
during fiscal 1996.
HAYNES INTERNATIONAL, LTD PLAN
In fiscal 1995, the Company's affiliate Haynes International, LTD instituted
a gainsharing plan. For fiscal 1995, the Company made gainsharing payments
pursuant to this plan of approximately $269,000.
DIRECTOR COMPENSATION
The directors of the Company other than Thomas F. Githens and Robert Egan
receive no compensation for their services as such. The non-management members
of the Board of Directors are reimbursed by the Company for their out-of-pocket
expenses incurred in attending meetings of the board of directors. Mr. Githens
receives a director's fee of $3,000 per calendar quarter, $1,000 per board
meeting attended and $750 per board committee meeting attended. Mr. Egan
receives a director's fee of $2,000 per month plus an advisory fee of $2,000 per
month.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Sangwoo Ahn, Perry J. Lewis and Robert Egan served on the Compensation
Committee during fiscal 1995. None of the members of the Compensation Committee
are now serving or previously have served as employees or officers of the
Company or any subsidiary, and none of the Company's executive officers serve as
directors of, or in any compensation related capacity for, companies with which
members of the Compensation Committee are affiliated.
CERTAIN TRANSACTIONS
A former officer and director of the Company, Aziz I. Asphahani, left the
Company's employ and resigned as a director of the Company effective January 24,
1994. In satisfaction of certain obligations of the Company under the Stock
Subscription Agreement, on October 11, 1994 the Company paid Dr. Asphahani
$449,894.50 to repurchase all of Dr. Asphahani's options to purchase Common
Stock, representing an aggregate option purchase price of $426,092.24 and
interest from March 10, 1994 to the purchase date totaling $23,802.26.
61
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The only stockholder of record of the Company owning more than five percent
of its outstanding Common Stock at June 30, 1996 was MLGA Fund II, L.P. ("Fund
II"), a Connecticut limited partnership that is controlled by John A. Morgan,
Perry J. Lewis, Sangwoo Ahn, Ira Starr and William C. Ughetta, Jr., all
principals of MLGAL. The following table sets forth the number and percentage of
shares of Common Stock owned by (i) Fund II, (ii) all affiliates of Fund II,
(iii) each of the Selling Stockholders, (iv) each of the directors of the
Company and each of the executive officers named in the Summary Compensation
Table, (v) all affiliates of Fund II as a group, and (vi) all directors and
executive officers of the Company as a group, as of June 30, 1996 and as
adjusted to reflect the sale of shares offered hereby. The address of Fund II,
and of Messrs. Ahn, Lewis, Morgan, Starr and Ughetta, is 2 Greenwich Plaza,
Greenwich, Connecticut 06830. The address of Messrs. Austin and Barker is 1020
West Park Avenue, Kokomo, Indiana 46904-9013. The address of Mr. Githens is 41
Crescent Place, Shorthills, New Jersey 07078. The address of Mr. Egan is 4
Foxwood Drive, Pittsburgh, Pennsylvania 15238.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO NUMBER OF OWNED AFTER
OFFERING(1) SHARES BEING OFFERING(1)
------------------------- OFFERED FOR ------------------------
NAME NUMBER PERCENT SALE NUMBER PERCENT(2)
- ------------------------------------- --------- ------- ------------ --------- -----------
<S> <C> <C> <C> <C> <C>
Fund II.............................. 3,254,217 90.6% -- 3,254,217 54.2%
Sangwoo Ahn.......................... 3,321,981(3)(4) 92.5 -- 3,321,981 55.3
Perry J. Lewis....................... 3,321,981(3)(4) 92.5 -- 3,321,981 55.3
John A. Morgan....................... 3,321,981(3)(4) 92.5 -- 3,321,981 55.3
Ira Starr............................ 3,307,526(3)(4) 92.1 -- 3,307,526 55.1
William C. Ughetta, Jr............... 3,303,289(3)(4) 92.0 -- 3,303,289 55.0
Paul F. Troiano...................... 109,566(5) 3.1 109,566 -- --
Schmidt & Co......................... 15,757 (6) 15,757 -- --
OCM High Yield Trust................. 3,932 (6) 3,932 -- --
Master Pension Trust of Pacific
Telesis Group........................ 2,573 (6) 2,573 -- --
London Life Insurance Company........ 1,537 (6) 1,537 -- --
Nancy S. Milton...................... 1,129 (6) 1,129 -- --
Anne Hollingsworth Milton............ 847 (6) 847 -- --
Robert C. Milton III................. 847 (6) 847 -- --
Howard Hughes Medical Institute...... 768 (6) 768 -- --
Hughes Aircraft Company Master
Retirement Trust.................... 621 (6) 621 -- --
OCM High Yield Limited Partnership... 395 (6) 395 -- --
San Diego County Employees'
Retirement Association.............. 305 (6) 305 -- --
Lawrence G. Kemp and Patricia Flynn
Kemp................................. 169 (6) 169 -- --
Thomas F. Githens.................... 30,954 (6) -- 30,954 (6)
Robert Egan.......................... 0 (6) -- 0 --
Michael D. Austin.................... 45,198(5) 1.3 -- 45,198 (6)
F. Galen Hodge....................... 32,243(5) (6) -- 32,243 (6)
Joseph F. Barker..................... 23,121(5) (6) -- 23,121 (6)
August A. Cijan...................... 4,519(5) (6) -- 4,519 (6)
Frank J. LaRosa...................... 4,519(5) (6) -- 4,519 (6)
All Fund II affiliates as a group.... 3,363,602 93.7 3,363,602 56.0
All directors and executive officers
of the Company as a group........... 3,519,860(3) 94.8 -- 3,519,860 58.5
</TABLE>
- ------------
(1) Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, the persons named in the table have sole
voting and investment power with respect to all shares of Common Stock.
(2) Assumes no exercise of the Underwriters' over-allotment option. Shares
outstanding after the Offering include 109,566 shares to be issued to Paul
F. Troiano at the time of the Offering pursuant to the exercise of stock
options covering such shares and 4,519 shares issued pursuant to the
exercise of a stock option effected on July 31, 1996.
(3) Includes the shares reported in the table as owned by Fund II and 49,072
shares owned by MLGAL.
(4) The named shareholder disclaims beneficial ownership of the shares held by
Fund II and MLGAL, except to the extent of his pecuniary interest therein
arising from his general partnership interest in MLGAL.
(5) Represents shares of Common Stock underlying options exercisable within 60
days of the date of this Prospectus which are deemed to be beneficially
owned by the holders of such options. See "Management--Stock Option Plans."
(6) Less than 1%.
62
<PAGE>
DESCRIPTION OF INDEBTEDNESS
The following descriptions summarize the terms of the Company's indebtedness
assuming consummation of the Recapitalization. Such summaries are or will be
qualified by and subject to the more complete descriptions contained in those
documents relevant to the particular indebtedness described.
THE NEW CREDIT FACILITY
In connection with the Recapitalization, the Company will enter into a loan
agreement with Congress Financial Corporation (Central) as agent for itself and
CoreStates Bank, N.A. as lenders (the "Lenders") to provide the New Credit
Facility, which will provide for a revolving loan facility in the aggregate
principal amount of up to $50.0 million, including a letter of credit facility
subject to a sublimit in the aggregate principal amount of up to $10.0 million.
Amounts outstanding under the New Credit Facility will be due at maturity, which
will be three years after the date of closing unless extended or terminated.
Revolving loans under the New Credit Facility will be limited, in the
aggregate, to the lesser of the $50.0 million commitment amount and a "borrowing
base" amount less, in each case, the principal amount of outstanding letters of
credit. The borrowing base will not exceed the sum of 85% of eligible accounts
receivable (generally, accounts receivable of the Company from domestic
customers that are current or past due 60 or fewer days) plus 60% of eligible
raw materials and finished goods inventories plus 45% of eligible
work-in-process inventory of the Company, such inventories to be calculated at
the lower of cost or current market value.
The New Credit Facility will contain certain covenants, including, without
limitation, maintenance of minimum net worth, and limitations on capital
expenditures, investments, incurrences of additional debt, impositions of liens,
dispositions of assets and payments of dividends and distributions. The New
Credit Facility will be secured by first priority security interests in all
accounts receivable and inventories of the Company (excluding all accounts
receivable and inventories of the Company's foreign subsidiaries) and the
proceeds therefrom.
Interest on revolving loans under the New Credit Facility will be payable
monthly in arrears at a per annum rate equal to 0.25% above the prime rate
announced by CoreStates Bank, N.A. from time to time or, at the Company's
option, 2.25% above LIBOR. In the event of a default, the interest rate will
increase to 2.25% over the then prevailing prime rate of CoreStates Bank, N.A.
The interest rates will be reduced by 0.25% per annum if the Company's EBITDA
exceeds $34.0 million for any period of four consecutive fiscal quarters ending
on or after September 30, 1996 and will remain at that reduced level so long as
the Company's EBITDA continues to be above $34.0 million on a rolling
four-quarter basis thereafter. In addition, the New Credit Facility will provide
for a closing fee of $375,000 and an unused line fee of 0.375% on the amount by
which $40.0 million exceeds the average monthly balance of revolving loans and
letters of credit under the New Credit Facility. The New Credit Facility will
also provide for the payment of early termination fees in certain circumstances
and certain other fees payable by the Company to the Lenders.
The Lenders' obligation to enter into the New Credit Facility will be
conditioned upon, among other things, consummation of the Offerings. In
addition, the Company anticipates that all of the loans and other credit
accomodations provided to the Company (other than the New Credit Facility) will
be required to be used exclusively to redeem or repay existing indebtedness, to
make capital expenditures, and for working capital of the Company.
63
<PAGE>
THE NOTES
Concurrently with the Offering, the Company is offering $100.0 million
aggregate principal amount of its % Senior Notes due 2004. The Offering and
the Notes Offering are conditioned upon each other. The Notes mature on ,
2004. Interest payments are due on and of each year commencing
, 1997.
The Notes are redeemable at the option of the Company, in whole or in part,
at any time on or after , 2000, at the redemption prices set forth herein,
together with accrued and unpaid interest to the date of redemption. In
addition, prior to , 1999, in the event one or more equity offerings are
consummated after the issue date, the Company may redeem in the aggregate up to
a maximum of $25.0 million of the Notes with the net proceeds thereof at a
redemption price equal to % of the principal amount thereof plus accrued and
unpaid interest to the redemption date; provided that, after giving effect
thereto, at least $70.0 million aggregate principal amount of the Notes remains
outstanding.
Upon a Change of Control (as defined in the Indenture), each holder of the
Notes may require the Company to purchase all or a portion of such holder's
Notes at a purchase price in cash equal to 101% of the principal amount thereof,
together with accrued and unpaid interest to the date of repurchase.
The Notes will be unsecured senior obligations of the Company, ranking pari
passu in right of payment with all other existing and future senior indebtedness
of the Company. The Notes will be effectively subordinated to secured
indebtedness, including the Company's indebtedness under the New Credit Facility
and initially to the Existing Senior Notes. As of June 30, 1996, giving effect
to the transactions described under "Recapitalization," approximately $19.0
million of senior indebtedness would have been outstanding under the New Credit
Facility, all of the Company's existing indebtedness (including the Existing
Senior Notes) would have been repaid and the Company would have had no other
senior indebtedness outstanding, other than the Notes. Although the Notes and
the obligations under the New Credit Facility will be senior obligations of the
Company, the Lenders under the New Credit Facility (and any other indebtedness
secured by the assets of the Company) will have a claim ranking prior to that of
the holders of Notes with respect to the distribution of assets and the proceeds
thereof securing the Company's obligations thereunder.
The Indenture will contain certain covenants, including, but not limited to,
covenants with respect to the following matters: (i) limitation on indebtedness;
(ii) limitation on restricted payments; (iii) limitation on transactions with
affiliates; (iv) limitation on liens; (v) limitation on sale of assets; (vi)
limitation on issuance and sale of preferred stock of subsidiaries; (vii)
limitation on dividends and other payment restrictions affecting subsidiaries;
and (viii) restrictions on consolidations, mergers and the transfer of all or
substantially all of the assets of the Company to another person.
64
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company is authorized to issue 20,000,000 shares of Common Stock, $.01
par value ("Common Stock") and 2,000,000 shares of Preferred Stock, $.01 par
value ("Preferred Stock"). Prior to the Offering, the Company had issued and
outstanding 3,704,519 shares of Common Stock (including 109,566 shares of Common
Stock to be issued to a former employee and board member at the time of the
Offering pursuant to the exercise of stock options covering such shares, and
which such shares will then be sold in the Offering), and 797,718 shares are
reserved for issuance pursuant to the Existing Stock Option Plan and the New
Stock Option Plan. Following the Offering, 6,004,519 shares of Common Stock will
be outstanding (6,349,519 shares if the Underwriters' over-allotment option is
exercised in full).
COMMON STOCK
Holders of Common Stock are entitled to receive dividends out of funds
legally available therefor when, as and if declared by the board of directors of
the Company and to receive pro rata the net assets of the Company legally
available for distribution upon liquidation or dissolution. See "Dividends."
Holders of Common Stock are entitled to one vote for each share of Common
Stock held on each matter submitted to a vote of stockholders, including the
election of directors. Holders of Common Stock are not entitled to cumulative
voting, which means that the holders of more than 50% of the outstanding Common
Stock can elect all of the directors if they choose to do so. See "Risk
Factors-- Voting Control." All shares of outstanding Common Stock are, and the
shares to be issued by the Company pursuant to this Prospectus will be, fully
paid and nonassessable.
AUTHORIZED PREFERRED STOCK
Pursuant to the Company's Certificate of Incorporation, the board of
directors has the authority to issue up to 2,000,000 shares of Preferred Stock
in one or more series and to fix the powers, designations, preferences and
relative, participating, optional or other rights thereof, including dividend
rights, conversion rights, voting rights, redemption terms, liquidation
preferences and the number of shares constituting any series, without any
further vote or action by the Company's stockholders. The issuance of Preferred
Stock in certain circumstances may have the effect of delaying, deferring or
preventing a change of control of the Company without further action by the
stockholders, may discourage bids for the Company's Common Stock at a premium
over the market price of the Common Stock and may adversely affect the market
price of, and the voting and other rights of the holders of, Common Stock. The
Company currently has no plans to issue shares of Preferred Stock.
CERTAIN CERTIFICATE OF INCORPORATION AND BY-LAW PROVISIONS
The Certificate provides that the Company's directors are not liable to the
Company or its stockholders for monetary damages for breach of their fiduciary
duties, except under certain circumstances, including breach of the director's
duty of loyalty, acts or omissions not in good faith or involving intentional
misconduct or a knowing violation of law or any transaction from which the
director derived improper personal benefit. The inclusion of this provision in
the Certificate may have the effect of reducing the likelihood of derivative
litigation against directors and may discourage or deter stockholders or
management from bringing a lawsuit against directors for breach of their duty of
care. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors and officers pursuant to the foregoing
provisions, the Company has been informed that in the opinion of the Securities
and Exchange Commission (the "Commission"), such indemnification is against
public policy as expressed in the Securities Act and is therefore unenforceable.
The Company believes that its Certificate of Incorporation provisions are
necessary to attract and retain qualified persons as directors and officers.
65
<PAGE>
The Certificate grants to the Company's board of directors the power to
amend, adopt or repeal the Company's By-laws without stockholder vote. The
Company's By-laws provide that the number of directors shall be as from time to
time fixed by resolution of the board of directors of the Company, not less than
3 nor more than 11. These provisions, in addition to the existence of authorized
but unissued capital stock, may have the effect, either alone or in combination
with each other, of discouraging an acquisition of the Company even if such an
acquisition is desired by certain stockholders of the Company.
CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK
Upon consummation of the Offering, there will be 13,995,481 shares of Common
Stock available for future issuance without stockholder approval. These
additional shares may be utilized for a variety of corporate purposes, including
future public offerings to raise additional capital or to facilitate corporate
acquisitions. The Company does not currently have any plans to issue additional
shares of Common Stock, other than shares of Common Stock that may be issued
upon the exercise of options. See "Management--Stock Option Plans."
DELAWARE ANTITAKEOVER LAW
The Company is a Delaware corporation which after the Offering would be
subject to the provisions of Section 203 of the Delaware General Corporation Law
("Section 203"). However, the board of directors and stockholders of the Company
have elected not to be governed by Section 203.
SHARES ELIGIBLE FOR FUTURE SALE
Upon closing of the Offering, the Company will have 6,004,519 shares of
Common Stock outstanding. Of these shares, the 2,438,446 shares sold in this
Offering, plus any additional shares sold upon exercise of the over-allotment
option, will be freely tradeable without restriction under the Securities Act,
unless purchased by "affiliates" of the Company, as defined in the Securities
Act.
Of the 3,566,073 shares of Common Stock held by existing stockholders which
will not be sold in the Offering, 3,561,554 are "restricted securities" under
the Securities Act and 4,519 were issued pursuant to the exercise of an option
granted under Rule 701 under the Securities Act. The restricted shares may not
be sold unless they are registered under the Securities Act or unless an
exemption from registration, such as the exemption provided by Rule 144, is
available. Beginning 90 days after the consummation of this Offering, subject to
the 180-day lock-up agreement described below, all of these shares will be
eligible for sale in the public market pursuant to Rule 144. Under Rule 144, the
145,482 restricted shares held by non-affiliates will be freely tradeable, and
the remaining restricted shares will be subject to certain volume, minimum
holding period and other resale restrictions.
In general, under Rule 144 as currently in effect, beginning 90 days after
the conclusion of the Offering, a person (or persons whose shares are
aggregated), including an affiliate of the Company, who has beneficially owned
restricted shares for at least two years will be entitled to sell in any
three-month period a number of shares that does not exceed the greater of: (i)
1.0% of the then outstanding shares of the Common Stock (6,004,519 shares upon
closing of the Offering, assuming no exercise of the over-allotment option) or
(ii) the average weekly trading volume of the Common Stock during the four
calendar weeks immediately preceding the date on which notice of the sale is
filed with the Commission. Sales pursuant to Rule 144 are also subject to
certain other requirements relating to manner of sale, notice and availability
of current public information about the Company. A person (or persons whose
shares are aggregated) who is deemed not to have been an affiliate of the
Company, at any time during the three months immediately preceding the sale, is
entitled to sell restricted shares pursuant to Rule 144, without regard to the
limitations described above, provided that three years have expired since the
66
<PAGE>
later of the date on which such restricted shares were first acquired from the
Company or from an affiliate of the Company.
The Company has outstanding options to purchase a total of 331,143 shares of
Common Stock to certain key employees and directors pursuant to the Existing
Stock Option Plan, excluding an option to purchase 109,566 shares which will be
exercised in connection with the Offering. An additional 66,574 shares are
available for future grants of options pursuant to the terms of the Existing
Stock Option Plan, although the board of directors of the Company has determined
not to grant any additional options under the Existing Stock Option Plan pending
consummation of the Offering. Following the closing of this Offering, the
Company intends to file a registration statement on Form S-8 under the
Securities Act to register up to 731,143 shares of Common Stock issuable upon
the exercise of stock options granted under the Stock Option Plans. Any such
shares issued upon the exercise of stock options by non-affiliates will, after
the effective date of such registration statement, generally be eligible for
sale in the open market.
The Company, its directors and certain of its existing stockholders have
agreed with the Underwriters not to sell or otherwise dispose of any shares of
Common Stock for a period of 180 days after the date of this Prospectus, without
the prior consent of the representatives of the Underwriters, subject to certain
limited exceptions.
Prior to the Offering there has been no public market for the Common Stock
and no prediction can be made as to the effect, if any, that market sales of
shares or the availability of shares for sale will have on the market price
prevailing from time to time. Nevertheless, sales of substantial amounts of
Common Stock in the public market could adversely affect the prevailing market
prices.
TRANSFER AGENT AND REGISTRAR
National City Bank, Cleveland, Ohio has been appointed as transfer agent and
registrar for the Company's Common Stock.
67
<PAGE>
UNDERWRITING
The Underwriters named below, for whom PaineWebber Incorporated and Merrill
Lynch, Pierce, Fenner & Smith Incorporated are acting as Representatives (the
"Representatives"), have severally agreed, subject to the terms and conditions
of the Underwriting Agreement among the Company, the Selling Stockholders and
the Representatives (the "Underwriting Agreement"), to purchase from the Company
and the Selling Stockholders, and the Company and the Selling Stockholders have
agreed to sell to the Underwriters, the number of shares of Common Stock set
forth opposite their names below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- ----------------------------------------- -----------------------------------------
<S> <C>
PaineWebber Incorporated
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
-----------------------------------------
Total 2,438,446
-----------------------------------------
-----------------------------------------
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
to purchase the shares of Common Stock listed above are subject to certain
conditions. The Underwriting Agreement also provides that the Underwriters are
committed to purchase all of the shares of Common Stock offered hereby, if any
are purchased (without consideration of any shares that may be purchased through
the Underwriters' over-allotment option).
The Company and the Selling Stockholders have been advised by the
Representatives that the Underwriters propose to offer the shares to the public
at the public offering price set forth on the cover page of this Prospectus, to
certain securities dealers at such price less a concession not in excess of
$ per share, and that the Underwriters and such dealers may reallow to
other dealers, including any Underwriter, a discount not in excess of $ per
share. After commencement of the initial public offering, the concessions to
selected dealers and the discounts to other dealers may be changed by the
Representatives.
The Company has granted to the Underwriters an option, exercisable during
the 30-day period after the date of this Prospectus, under which the
Underwriters may purchase up to an additional 345,000 shares of Common Stock
from the Company at the initial public offering price set forth on the cover
page of this Prospectus, less underwriting discounts and commissions. The
Underwriters may exercise this option only to cover over-allotments, if any. To
the extent such option is exercised, each Underwriter will become obligated,
subject to certain conditions, to purchase approximately the same percentage of
such additional shares as it was obligated to purchase pursuant to the
Underwriting Agreement.
The Company and the Company's directors and executive officers and certain
existing stockholders have agreed not to offer, sell, contract to sell or
otherwise dispose of any shares of Common Stock, or rights to acquire shares of
Common Stock, for a period of 180 days after the date of this Prospectus without
the prior written consent of PaineWebber Incorporated.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments the Underwriters may be required to
make in respect thereof.
Immediately prior to the Offering, there has been no public market for the
Common Stock of the Company. Accordingly, the initial public offering price for
the Common Stock has been determined by
68
<PAGE>
negotiations among the Company and the Representatives. Among the factors
considered in determining the initial public offering price are the prevailing
market and general economic conditions, the history of and the prospects of the
Company's business and its results of operations in recent periods, the market
capitalizations and stages of development of other companies which the Company
and the Representatives believe to be comparable to the Company, estimates of
the business potential of the Company, the present state of the Company's
development and other relevant factors. The initial public offering price set
forth on the cover page of this Prospectus should not be considered an
indication of the actual value of the Common Stock. Such price is subject to
change as a result of market conditions and other factors, and there can be no
assurance that the Common Stock will trade in the public market subsequent to
the Offering at or above the initial public offering price.
The Company's Common Stock has been approved for quotation on the Nasdaq
National Market under the symbol "HAYN."
The Offering is being conducted in accordance with Rule 2720, formerly
Schedule E (the "Rule"), to the By-laws of the National Association of
Securities Dealers, Inc. (the "NASD") which provides that, among other things,
when a NASD member participates in the offering of equity securities of a
company with whom such member has a "conflict of interest" (as defined in the
Rule), the initial public offering price can be no higher than that recommended
by a "qualified independent underwriter" (as defined in the Rule)(a "QIU"). The
NASD requires that a QIU (a) be an NASD member experienced in the securities or
investment banking business, (b) not be an affiliate of the issuer of the
securities and (c) agree to undertake the responsibilities and liabilities of an
underwriter under the Act. In accordance with this requirement, PaineWebber
Incorporated is serving as the QIU in the Offering and has recommended a price
in compliance with the requirements of the Rule. PaineWebber Incorporated has
performed due diligence investigations and reviewed and participated in the
preparation of this Prospectus and the Registration Statement of which this
Prospectus forms a part. PaineWebber Incorporated, in its capacity as QIU, will
receive no additional compensation as such in connection with the Offering.
In addition, the Underwriters will not confirm sales to any discretionary
account without the prior specific written approval of the customer.
LEGAL MATTERS
The valid issuance of the shares of Common Stock offered hereby and certain
other legal matters will be passed upon for the Company by Ice Miller Donadio &
Ryan, Indianapolis, Indiana. Certain matters will be passed upon for the
Underwriters by Davis Polk & Wardwell.
EXPERTS
The consolidated balance sheet as of September 30, 1994 and 1995, and the
consolidated statements of operations and cash flows for each of the three years
in the period ended September 30, 1995 appearing in this Prospectus have been
incorporated herein in reliance on the report, which includes an emphasis of a
matter explanatory paragraph regarding the Company's liquidity, of Coopers &
Lybrand L.L.P., independent accountants, given on the authority of that firm as
experts in accounting and auditing.
69
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement, of which
this Prospectus is a part, under the Securities Act with respect to the Common
Stock offered hereby. This Prospectus does not contain all the information set
forth in the Registration Statement and the exhibits thereto. For further
information with respect to the Company and the Common Stock offered by this
Prospectus, reference is made to such Registration Statement and exhibits which
have been filed with the Commission through the Electronic Data Gathering,
Analysis and Retrieval system. Statements contained herein concerning the
provisions of documents are necessarily summaries of such documents and each
statement is qualified in its entirety by reference to the copy of the
applicable document filed with the Commission. Such information is publicly
available through the Commission's World Wide Web site (http:/www.sec.gov) or
can be inspected and copied at the office of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, and at its regional offices located at
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511 and 7 World Trade Center, New York, New York 10048. Copies
of such material may also be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates.
70
<PAGE>
HAYNES INTERNATIONAL, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants.................................................... F-2
Consolidated Balance Sheet as of September 30, 1994 and 1995......................... F-3
Consolidated Statement of Operations for the years ended September 30, 1993, 1994 and
1995............................................................................... F-4
Consolidated Statement of Cash Flows for the years ended September 30, 1993, 1994 and
1995............................................................................... F-5
Notes to Consolidated Financial Statements........................................... F-6
Condensed Consolidated Balance Sheet as of September 30, 1995 and June 30, 1996
(Unaudited).......................................................................... F-21
Condensed Consolidated Statement of Operations for the nine months ended June 30,
1995 and 1996 (Unaudited).......................................................... F-22
Condensed Consolidated Statement of Cash Flows for the nine months ended June 30,
1995 and 1996 (Unaudited).......................................................... F-23
Notes to Condensed Consolidated Financial Statements (Unaudited)..................... F-24
</TABLE>
The accompanying consolidated financial statements and notes thereto
represent the consolidated financial position, results of operations and cash
flows for the periods indicated therein of Haynes Holdings, Inc. As discussed in
Note 1 of the Notes to Consolidated Financial Statements, the financial
statements (including the Report of Independent Accountants thereon) have been
prepared to reflect the Company's name change to Haynes International, Inc.
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
Haynes International, Inc.
We have audited the accompanying consolidated balance sheet of Haynes
International, Inc. (the Company) as of September 30, 1994 and 1995, and the
related consolidated statements of operations and cash flows for each of the
three years in the period ended September 30, 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
The Company's accumulated deficit at September 30, 1994 and 1995 includes
the effects of adopting SFAS NO. 106 ($79.6 million) and a write-off of goodwill
($37.1 million) in 1994. The accumulated deficit, along with increased working
capital requirements due to higher sales levels in 1995, has resulted in
increased borrowings to fund the Company's operations. Management's plan for
meeting the Company's liquidity needs is summarized in Note 1 to the
consolidated financial statements.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Haynes
International, Inc. as of September 30, 1994 and 1995, and the consolidated
results of its operations and cash flows for each of the three years in the
period ended September 30, 1995, in conformity with generally accepted
accounting principles.
As discussed in Notes 1 and 8 to the consolidated financial statements, the
Company changed its method of accounting for income taxes and postretirement
benefits during 1994.
COOPERS & LYBRAND L.L.P.
Fort Wayne, Indiana,
November 3, 1995
F-2
<PAGE>
HAYNES INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------
1994 1995
--------- ---------
<S> <C> <C>
ASSETS:
Current Assets:
Cash and cash equivalents.......................................... $ 5,690 $ 5,035
Accounts and notes receivable, less allowance for doubtful accounts
of $520 and $979, respectively................................... 30,496 38,089
Inventories........................................................ 53,543 60,234
--------- ---------
Total current assets............................................. 89,729 103,358
--------- ---------
Net property, plant and equipment.................................... 43,119 36,863
Prepayments and deferred charges, net................................ 12,875 11,095
--------- ---------
Total assets..................................................... $ 145,723 $ 151,316
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' DEFICIT:
Current liabilities:
Accounts payable and accrued expenses.............................. $ 16,868 $ 22,975
Accrued postretirement benefits.................................... 4,100 4,100
Revolving credit................................................... 8,141 12,477
Income taxes payable............................................... 438 1,190
--------- ---------
Total current liabilities........................................ 29,547 40,742
--------- ---------
Long-term debt....................................................... 140,000 140,000
Deferred income taxes................................................ 274 326
Accrued postretirement benefits...................................... 90,048 90,730
--------- ---------
Total liabilities................................................ 259,869 271,798
--------- ---------
Commitments and contingencies
Redeemable common stock.............................................. 1,881 1,427
Stockholders' deficit:
Common stock, $.01 par value (10,000,000 shares authorized,
3,600,208 issued)................................................ 36 36
Additional paid-in capital......................................... 46,343 46,443
Accumulated deficit................................................ (165,514) (172,285)
Foreign currency translation adjustment............................ 3,211 4,070
--------- ---------
(115,924) (121,736)
Less: Treasury stock, at cost (5,819 and 9,774 shares,
respectively) (103) (173)
--------- ---------
Total stockholders' deficit...................................... (116,027) (121,909)
--------- ---------
Total liabilities and stockholders' deficit.................... $ 145,723 $ 151,316
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
HAYNES INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------
1993 1994 1995
-------- --------- --------
<S> <C> <C> <C>
Net revenues............................................... $162,454 $ 150,578 $201,933
Costs and expenses:
Cost of sales............................................ 137,102 134,840 167,196
Goodwill write-off....................................... 37,117
Selling and administrative............................... 14,569 15,039 15,475
Research and technical................................... 3,603 3,630 3,049
Other cost, net.......................................... 400 816 1,767
Interest expense......................................... 18,912 19,916 20,233
Interest income.......................................... (415) (334) (329)
-------- --------- --------
Total costs and expenses................................. 174,171 211,024 207,391
-------- --------- --------
Loss before provision for (benefit from) income taxes and
cumulative effect of change in accounting principle........ (11,717) (60,446) (5,458)
Provision for (benefit from) income taxes.................. (3,442) 420 1,313
-------- --------- --------
Loss before cumulative effect of change in accounting
principle.................................................. (8,275) (60,866) (6,771)
Cumulative effect of change in accounting principle, net of
tax benefit.............................................. (79,630)
-------- --------- --------
Net loss................................................. $ (8,275) $(140,496) $ (6,771)
-------- --------- --------
-------- --------- --------
Per share data:
Loss before cumulative effect of change in accounting
principle.................................................. $ (2.30) $ (16.93) $ (1.89)
-------- --------- --------
-------- --------- --------
Net loss................................................. $ (2.30) $ (39.07) $ (1.89)
-------- --------- --------
-------- --------- --------
Weighted average common and common stock equivalents..... 3,599,102 3,595,976 3,591,117
-------- --------- --------
-------- --------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
HAYNES INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------
1993 1994 1995
------- --------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................... $(8,275) $(140,496) $(6,771)
Adjustments to reconcile net loss to net cash provided from
(used in) operations:
Depreciation................................................ 8,650 8,208 8,188
Amortization and goodwill write-off......................... 3,607 40,287 1,444
Deferred income taxes....................................... (4,432) (10,633) 2
(Gain) loss on property disposal............................ 56 (397) (37)
Change in assets and liabilities:
Accounts and notes receivable............................. 3,712 (3,028) (7,354)
Inventories............................................... 8,446 (951) (6,480)
Other assets.............................................. (3,932) (58) 347
Accounts payable and accrued expenses..................... (2,474) 4,291 6,322
Income taxes payable...................................... 353 (234) 774
Accrued postretirement benefits........................... 90,210 682
------- --------- -------
Net cash provided from (used in) operations........... 5,711 (12,801) (2,883)
------- --------- -------
Cash flows from investment activities:
Additions to property, plant and equipment.................. (56) (771) (1,934)
Proceeds from disposals of property, plant, and equipment... 374 1,517 39
------- --------- -------
Net cash provided from (used in) investment
activities.................................................... 318 746 (1,895)
------- --------- -------
Cash flows from financing activities:
Net additions (reductions) of revolving credit.............. (2,014) 7,960 4,337
Retirement of stock options................................. (858) (425)
------- --------- -------
Net cash provided from (used in) financing
activities.................................................... (2,014) 7,102 3,912
------- --------- -------
Effect of exchange rates on cash.............................. (744) 129 211
------- --------- -------
Increase (decrease) in cash and cash equivalents.............. 3,271 (4,824) (655)
Cash and cash equivalents:
Beginning of year........................................... 7,243 10,514 5,690
------- --------- -------
End of year................................................. $10,514 $ 5,690 $ 5,035
------- --------- -------
------- --------- -------
Supplemental disclosures of cash flow information:
Cash paid (received) during period for:
Interest.................................................. $15,672 $ 17,891 $18,840
Income taxes.............................................. (1,805) 848 560
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
HAYNES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Haynes
Holdings, Inc. and its wholly owned subsidiaries (collectively, the "Company").
The financial statements have been prepared to reflect Haynes Holdings, Inc.
changing its name to Haynes International, Inc. which is currently a wholly
owned subsidiary. The name change does not affect the financial position,
results of operations, cash flows or other disclosures of the Company. All
significant intercompany transactions and balances are eliminated.
B. CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investment instruments, including
investments with maturities of three months or less at acquisition, to be cash
equivalents, the carrying value of which approximates fair value due to the
short maturity of these investments. At September 30, 1994, $863 in cash was
restricted for property, plant, and equipment acquisitions.
C. INVENTORIES
Inventories are stated at the lower of cost or market. The cost of domestic
inventories is determined using the last-in, first-out method (LIFO). The cost
of foreign inventories is determined using the first-in, first-out (FIFO) method
and average cost method.
D. PROPERTY, PLANT AND EQUIPMENT
Additions to property, plant and equipment are recorded at cost.
Depreciation of property, plant and equipment is calculated primarily by using
the straight-line method based on estimated economic useful lives. Buildings are
generally depreciated over 40 years, and machinery and equipment are depreciated
over periods ranging from 5 to 14 years.
Expenditures for maintenance and repairs and minor renewals are charged to
expense; major renewals are capitalized. Upon retirement or sale of assets, the
cost of the disposed assets and the related accumulated depreciation are removed
from the accounts and any resulting gain or loss is credited or charged to
operations.
E. FOREIGN CURRENCY TRANSLATION
The Company's foreign operating entities' financial statements are expressed
in their functional currencies, which are their local currencies. Substantially
all assets and liabilities of the Company's foreign operations are translated to
U.S. dollars at year-end exchange rates and revenues and expenses are translated
at the weighted average rate for the year. Foreign currency gains and losses
arising from transactions are reflected in net losses. Balance sheet translation
gains and losses are reflected as a separate component of stockholders' deficit.
F-6
<PAGE>
HAYNES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
F. INCOME TAXES
Effective October 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109--"Accounting for Income Taxes" (SFAS No. 109). SFAS
No. 109 is an asset and liability approach that requires the recognition of
deferred tax assets and liabilities for the expected future tax consequences of
events that have been recognized in the Company's financial statements or tax
returns. If it is more likely than not that some portion or all of a deferred
tax asset will not be realized, a valuation allowance is recognized (see Note
5). Previously, the Company used SFAS No. 96-- "Accounting for Income Taxes."
Financial statements for the prior years have not been restated and the
cumulative effect of the accounting change was not material.
G. DEFERRED CHARGES
Deferred charges include debt issuance costs which are amortized over the
terms of the related debt using the effective interest method. Accumulated
amortization at September 30, 1994 and 1995 was $7,822 and $9,266, respectively.
H. FINANCIAL INSTRUMENTS
The Company enters into forward currency exchange contracts and nickel
futures contracts on a continuing basis for periods consistent with its
contractual exposures. The effect of this practice is to minimize the
variability in the Company's operating results arising from foreign exchange
rate movements and nickel price movements. These contracts are considered
short-term financial instruments, the carrying value of which approximates fair
value due to the relatively short duration of the contracts. The Company does
not engage in foreign currency or nickel futures speculation. Gains and losses
on these contracts are recognized in income in the month the contracts are
settled. At September 30, 1995, the Company had $1,700 of foreign currency
exchange contracts and $4,441 of nickel futures contracts outstanding with a net
unrealized loss of $103. With respect to the Consolidated Statement of Cash
Flows, contracts accounted for as hedges are classified in the same category as
the items being hedged.
I. RECLASSIFICATIONS
Certain amounts in prior year financial statements have been reclassified to
conform with current year presentation.
J. LIQUIDITY
At September 30, 1994 and 1995, the Company has an accumulated deficit of
$165,514 and $172,285 respectively, which includes the effects of adopting SFAS
NO. 106 ($79.6 million--see Note 8) and a write-off of goodwill ($37.1
million--see Note 10) both of which occurred during 1994. The accumulated
deficit, along with increased working capital requirements due to higher sales
levels in 1995, has resulted in increased borrowings to fund the Company's
operations. In response to operating losses in 1993 and 1994, the Company
implemented cost reduction measures which, among other things, included wage and
hiring freezes, reductions in the Company's workforce by approximately
F-7
<PAGE>
HAYNES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
20%, reorganization of the Company's Sales and Marketing function, healthcare
cost containment, and certain measures designed to reduce manufacturing costs
and enhance working capital management.
In 1995, the Company's sales volume and earnings before interest and taxes
improved significantly over prior years. Continued activity at current levels in
the markets served by the Company, along with consistent monitoring of cost
reduction measures as described above, should contribute to improved financial
results.
Due to sales volume increases, the Company has been required to invest in
increased working capital. As of September 30, 1995, $12,477 had been borrowed
pursuant to the Existing Credit Facility (see Note 6) and approximately $2,800
in letter of credit reimbursement obligations under the letter of credit
facility have been incurred by the Company. The Company believes that borrowing
available under the Existing Credit Facility are adequate to meet its
obligations as they come due and working capital requirements through at least
fiscal 1996, although there can be no assurance with respect thereto. The
Company's ability to operate with sufficient liquidity in fiscal 1996 will
depend upon the Company's ability to generate sufficient cash. Current programs
for reducing inventory levels and improving sales volume, if successful, should
improve the Company's liquidity.
K. NET LOSS PER COMMON AND COMMON STOCK EQUIVALENT
Net loss per common and common stock equivalent is computed based upon the
weighted average number of shares of common stock and common stock equivalents
outstanding during the period.
The computation of fully diluted net loss per share was antidilutive in each
of the periods presented; therefore, the amounts reported for primary and fully
diluted loss are the same.
L. ACCOUNTING PRONOUNCEMENTS
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," is effective for the year ending September
30, 1996. In the opinion of management, this statement will not impact the
Company's financial position or results of operations. SFAS No. 123, "Accounting
for Stock Based Compensation," is effective for the year ending September 30,
1997. The Company has not decided how it intends to apply the accounting and
disclosure provisions of this statement.
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.
F-8
<PAGE>
HAYNES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 2: INVENTORIES
The following is a summary of the major classes of inventories:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------
1994 1995
------- -------
<S> <C> <C>
Raw materials........................................... $ 3,395 $ 2,998
Work-in-process......................................... 29,677 38,488
Finished goods.......................................... 17,858 20,616
Other................................................... 961 2,428
Amount necessary to increase (decrease) certain
inventories to the LIFO method........................ 1,652 (4,296)
------- -------
Net inventories......................................... $53,543 $60,234
------- -------
------- -------
</TABLE>
Inventories valued using the LIFO method comprises 77% and 73% of
consolidated inventories before LIFO adjustment at September 30, 1994 and 1995,
respectively.
NOTE 3: PROPERTY, PLANT AND EQUIPMENT
The following is a summary of the major classes of property, plant, and
equipment:
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1994 1995
-------- --------
<S> <C> <C>
Land and land improvements............................ $ 1,920 $ 1,920
Buildings............................................. 6,621 6,623
Machinery and equipment............................... 73,621 74,951
Construction in process............................... 202 664
-------- --------
82,364 84,158
Less accumulated depreciation..................... (39,245) (47,295)
-------- --------
Net property, plant and equipment..................... $ 43,119 $ 36,863
-------- --------
-------- --------
</TABLE>
NOTE 4: ACCOUNTS PAYABLE AND ACCRUED EXPENSES
The following is a summary of the major classes of accounts payable and
accrued expenses:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------
1994 1995
------- -------
<S> <C> <C>
Accounts payable, trade................................. $ 8,853 $14,477
Employee compensation................................... 1,508 1,995
Taxes, other than income taxes.......................... 1,840 2,226
Interest................................................ 3,209 3,160
Landfill closure costs.................................. 37
Other................................................... 1,421 1,117
------- -------
$16,868 $22,975
------- -------
------- -------
</TABLE>
F-9
<PAGE>
HAYNES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 5: INCOME TAXES
The components of income (loss) before provision for (benefit from) income
taxes and cumulative effect of a change in accounting principle consist of the
following:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------
1993 1994 1995
-------- -------- -------
<S> <C> <C> <C>
Income (loss) before provision for (benefit from) income taxes
and cumulative effect of a change in accounting principle
U.S......................................................... $(13,803) $(58,509) $(9,332)
Foreign..................................................... 2,086 (1,937) 3,874
-------- -------- -------
Total..................................................... $(11,717) $(60,446) $(5,458)
-------- -------- -------
-------- -------- -------
Income tax provision (benefit):
Current:
Foreign................................................... $ 951 $ 411 $ 1,284
State..................................................... 39 62 27
-------- -------- -------
Current total........................................... 990 473 1,311
-------- -------- -------
Deferred:
U. S. Federal............................................. (3,945) 2
Foreign................................................... 152 (53)
State..................................................... (639)
-------- -------- -------
Deferred total.......................................... (4,432) (53) 2
-------- -------- -------
Total tax provision (benefit)................................. $ (3,442) $ 420 $ 1,313
-------- -------- -------
-------- -------- -------
</TABLE>
The provision for (benefit from) income taxes applicable to results of
operations before the cumulative effect of a change in accounting principle
differed from the U.S. federal statutory rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------
1993 1994 1995
------- -------- -------
<S> <C> <C> <C>
Statutory federal tax rate..................................... 34% 34% 34%
Tax provision (benefit) at the statutory rate.................. $(3,984) $(20,552) $(1,856)
Foreign tax rate differentials................................. 97 951 (162)
Goodwill amortization and write-off............................ 465 12,054
Provision for (benefit from) state taxes, net of federal tax... (396) 62 27
U.S. tax on distributed and undistributed earnings of foreign
subsidiaries................................................... 491 1,735 980
Increase in valuation allowance related to continuing
operations..................................................... 5,639 2,057
Other.......................................................... (115) 531 267
------- -------- -------
Provision (benefit) at effective tax rate...................... $(3,442) $ 420 $ 1,313
------- -------- -------
------- -------- -------
</TABLE>
F-10
<PAGE>
HAYNES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 5: INCOME TAXES--(CONTINUED)
Deferred income tax assets (liabilities) are comprised of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1994 1995
-------- --------
<S> <C> <C>
Current deferred income tax assets (liabilities):
Inventory capitalization............................................. $ 842 $ 853
Postretirement benefits other than pensions.......................... 1,555 1,590
Vacation accrual..................................................... 356 446
Foreign tax credit carryforward...................................... 287
Other................................................................ 230 606
-------- --------
Gross deferred tax assets.......................................... 3,270 3,495
Less: Valuation allowance........................................ (1,907) (2,132)
-------- --------
1,363 1,363
Inventory purchase accounting........................................ (5,743) (5,637)
-------- --------
Total net current deferred tax liability........................... (4,380) (4,274)
-------- --------
Noncurrent deferred income tax assets (liabilities):
Property, plant and equipment, net................................... (11,904) (9,344)
Prepaid pension costs................................................ (2,198) (2,107)
Investment in subsidiary............................................. (475) (466)
Other foreign related................................................ (274) (390)
Undistributed earnings of foreign subsidiaries....................... (1,739) (2,669)
-------- --------
Gross non-current deferred tax liability........................... (16,590) (14,976)
-------- --------
Other................................................................ 34
Postretirement benefits other than pensions.......................... 35,001 35,182
Executive compensation............................................... 564 553
Investment in subsidiary............................................. 563
Net operating loss carryforwards..................................... 13,633 13,283
Alternative minimum tax credit carryforwards......................... 414 414
-------- --------
Gross non-current deferred tax asset............................... 49,646 49,995
Less: Valuation allowance........................................ (28,950) (31,071)
-------- --------
20,696 18,924
-------- --------
Total net noncurrent deferred tax asset.......................... 4,106 3,948
-------- --------
Total.......................................................... $ (274) $ (326)
-------- --------
-------- --------
The valuation allowance used to offset deferred tax assets is as follows:
Allowance at October 1, 1993......................................... $ 24,422
Increase in allowance................................................ 6,435
--------
Allowance at September 30, 1994...................................... 30,857
Increase in allowance................................................ 2,346
--------
Allowance at September 30, 1995...................................... $ 33,203
--------
--------
</TABLE>
As of September 30, 1995 the Company had net operating loss carryforwards
for regular tax purposes of approximately $36,800 (expiring in fiscal years 2005
to 2010), of which $15,200 are
F-11
<PAGE>
HAYNES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 5: INCOME TAXES--(CONTINUED)
available for alternative minimum tax. The Company has alternative minimum tax
credit carryforwards of approximately $400 which are available to reduce federal
regular income taxes, if any, over an indefinite period.
The Company recently completed an examination by the Internal Revenue
Service (IRS) for the five taxable years ending September 30, 1993. The IRS has
proposed to disallow aggregate deductions in the amount of $5.5 million relative
to the amortization of certain loan fees, totalling $10.4 million, incurred with
the 1989 acquisition of the Company. The Company claimed similar deductions in
1994 and 1995. The Company intends to vigorously protest disallowance of these
deductions. If the Company does not prevail in its defense, then the amount of
available net operating loss carryforwards would be reduced accordingly.
NOTE 6: DEBT
Long-term debt, consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1994 1995
-------- --------
<S> <C> <C>
Existing Subordinated Notes (due 1997-1999, 13.5%).... $ 90,000 $ 90,000
Existing Senior Notes (due 1998, 11.25%).............. 50,000 50,000
-------- --------
$140,000 $140,000
-------- --------
-------- --------
</TABLE>
Bank Financing
The Company has available a $16,000 working capital facility (the "Existing
Credit Facility") with Congress Financial Corporation ("Congress"). The amount
available for revolving credit loans equals the difference between the $16,000
total facility amount less any letter of credit reimbursement obligations
incurred by the Company. The total availability will not exceed the sum of 85%
of eligible accounts receivable (generally, accounts receivable of the Company
from domestic and export customers that are current or less than 60 days
outstanding) plus 60% of eligible inventories (defined to exclude work-in
process and semi-finished goods) calculated at the lower of cost or current
market value minus any availability reserves established by Congress. Loans
based on eligible inventories will be subject to a sublimit of $10,000. Unused
line fees during the revolving credit loan period are .375% of the amount by
which the $16,000 maximum credit exceeds the average daily principal balance of
the outstanding revolving loans and letter of credit accommodations. The
Existing Credit Facility also provides certain other fees payable by the
Company.
The Existing Credit Facility bears interest at a fluctuating per annum rate
equal to 1.75% plus prime rate. At September 30, 1995 the interest rate for
revolving credit loans was 10.50%. As of September 30, 1995, $2,775 in letter of
credit reimbursement obligations have been incurred by the Company. The total
amount available for borrowings at September 30, 1995 was $748.
The credit agreement contains covenants common to such agreements including
working capital and net worth requirements.
F-12
<PAGE>
HAYNES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 6: DEBT--(CONTINUED)
Existing Subordinated Notes
The Senior Subordinated Notes of the Company (the "Existing Subordinated
Notes") are uncollateralized obligations of the Company and are subordinated in
right of payment to obligations under the Existing Senior Notes (as defined
below) and the Existing Credit Facility. The Company must retire $23,333,
$33,333, and $33,334 principal amount of the Existing Subordinated Notes in
1997, 1998, and 1999, respectively. Interest is payable semi-annually on
February 15 and August 15.
The Existing Subordinated Notes are redeemable, in whole or in part, at the
Company's option at any time on or after August 14, 1992 at redemption prices
ranging from 108.4% to 100% plus accrued interest to the date of redemption.
The Existing Subordinated Notes limit the incurrence of additional
indebtedness, restricted payments, mergers, consolidations and asset sales.
Existing Senior Notes
The Senior Secured Notes of the Company (the "Existing Senior Notes") are
collateralized by a first priority lien subject to certain permitted
encumbrances on substantially all of the Company's tangible and intangible
property other than accounts receivables and inventories and the proceeds
thereof. Interest is payable semi-annually on June 15 and December 15.
The Existing Senior Notes are redeemable at the option of the Company, in
whole or in part, and at any time prior to maturity at a price equal to the
greater of (i) the present value of all remaining interest and principal
payments plus 2.0%, or (ii) 100% of principal amount plus accrued interest to
the redemption date. Upon a change of control, each holder of the Existing
Senior Notes has the right to require the Company to purchase its Existing
Senior Notes at a price equal to 101% of principal amount plus accrued interest
to the purchase date. The Existing Senior Notes are not subject to mandatory
redemption prior to maturity.
The Existing Senior Notes rank senior in right of payment to all existing
and future subordinated indebtedness of the Company. The indenture contains
restrictive covenants including limitations on additional indebtedness, mergers,
consolidations, and asset sales.
The estimated fair value, based upon an independent market quotation, of the
Company's long-term debt was approximately $95,950, and $106,750 as of September
30, 1994 and 1995, respectively. The carrying value of the Company's existing
Credit Facility approximates fair value.
Other
In addition, the Company's UK Affiliate (Haynes International, Ltd.) has
recently entered into a revolving credit agreement with Midland Bank that
provides for availability of 1 million pounds sterling collateralized by the
assets of the Affiliate. This revolving credit agreement was available in its
entirety on September 30, 1995 as a means of financing the activities of the
Affiliate including payments to the Company for intercompany purchases.
F-13
<PAGE>
HAYNES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 7: STOCKHOLDER'S EQUITY (DEFICIT)
The following is a summary of changes in stockholder's equity (deficit):
<TABLE>
<CAPTION>
COMMON STOCK
FOREIGN TREASURY STOCK TOTAL
------------ ADDITIONAL CURRENCY -------------- STOCKHOLDER'S
NO. OF AT PAID IN ACCUMULATED TRANSLATION NO. OF AT EQUITY
SHARES PAR CAPITAL DEFICIT ADJUSTMENT SHARES COST (DEFICIT)
------ --- ---------- ----------- ----------- ------ ----- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1992....... 3,600 $36 $ 46,071 $ (16,743) $ 5,818 1 $ (20) $ 35,162
Year ended September 30, 1993:
Net loss........................... (8,275) (8,275)
Foreign exchange................... (3,949) (3,949)
-
------ --- ---------- ----------- ----------- ----- -------------
Balance at September 30, 1993....... 3,600 36 46,071 (25,018) 1,869 1 (20) 22,938
Year ended September 30, 1994:
Net loss........................... (140,496) (140,496)
Purchase of treasury stock......... 5 (83) (83)
Reclassification of redeemable
common stock..................... 272 272
Foreign exchange................... 1,342 1,342
-
------ --- ---------- ----------- ----------- ----- -------------
Balance at September 30, 1994....... 3,600 36 46,343 (165,514) 3,211 6 (103) (116,027)
Year ended September 30, 1995:
Net loss........................... (6,771) (6,771)
Purchase of treasury stock......... 4 (70) (70)
Reclassification of redeemable
common stock..................... 100 100
Foreign exchange................... 859 859
-
------ --- ---------- ----------- ----------- ----- -------------
Balance at September 30, 1995....... 3,600 $36 $ 46,443 $(172,285) $ 4,070 10 $(173) $(121,909)
-
-
------ --- ---------- ----------- ----------- ----- -------------
------ --- ---------- ----------- ----------- ----- -------------
</TABLE>
NOTE 8: PENSION PLAN AND RETIREMENT BENEFITS
The Company has non-contributory defined benefit pension plans which cover
most employees in the United States and certain foreign subsidiaries.
Benefits provided under the Company's domestic defined benefit pension plan
are based on years of service and the employee's final compensation. The
Company's funding policy is to contribute annually an amount deductible for
federal income tax purposes based upon an actuarial cost method and actuarial
and economic assumptions designed to achieve adequate funding of benefit
obligations.
Net periodic pension cost on a consolidated basis was $447, $611, and $458
for the years ended September 30, 1993, 1994 and 1995, respectively.
F-14
<PAGE>
HAYNES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 8: PENSION PLAN AND RETIREMENT BENEFITS--(CONTINUED)
For the domestic pension plan, net periodic pension cost was comprised of
the following elements:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------
1993 1994 1995
-------- ------- --------
<S> <C> <C> <C>
Service cost................................. $ 1,864 $ 2,165 $ 1,713
Interest cost................................ 6,932 6,536 7,060
Actual return on plan assets................. (14,573) (639) (18,727)
Net amortization and deferral................ 5,719 (7,748) 10,084
-------- ------- --------
Net periodic pension cost (benefit).......... $ (58) $ 314 $ 130
-------- ------- --------
-------- ------- --------
</TABLE>
The following table sets forth the domestic pension plan's funded status:
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------
1994 1995
-------- ---------
<S> <C> <C>
Accumulated benefit obligation, including vested
benefits of $76,740 and $86,227, respectively...... $ 80,385 $ 90,285
-------- ---------
-------- ---------
Projected benefit obligation for service rendered to
date................................................. $(91,864) $(103,149)
Plan assets at fair value (primarily debt
securities).......................................... 110,729 122,103
-------- ---------
Plan assets in excess of projected benefit
obligation........................................... 18,865 18,954
Unrecognized net gain from past experience different
from that assumed and effects of changes in
assumptions.......................................... (13,235) (13,459)
Unrecognized prior service costs..................... (66) (62)
-------- ---------
Prepaid pension cost recognized in the consolidated
balance sheet........................................ $ 5,564 $ 5,433
-------- ---------
-------- ---------
Assumptions:
Weighted average discount rate....................... 8.00% 7.00%
-------- ---------
-------- ---------
Average rate of increase in compensation levels...... 5.50% 5.25%
-------- ---------
-------- ---------
Expected rate of return on plan assets during year... 8.50% 7.50%
-------- ---------
-------- ---------
</TABLE>
In addition to providing pension benefits, the Company provides certain
health care and life insurance benefits for retired employees. Substantially all
domestic employees become eligible for these benefits if they reach normal
retirement age while working for the Company. Prior to 1994, the cost of retiree
health care and life insurance benefits was recognized as expense upon payment
of claims or insurance premiums. These costs were $4,298 for the period ended
September 30, 1993.
Effective October 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 106, "Employers Accounting for Postretirement Benefits
Other Than Pensions" (SFAS 106) which requires companies to accrue the cost of
postretirement benefits over the years employees provide services to the date of
their full eligibility for such benefits. The Company's policy is to fund the
cost of benefits on an annual basis. The Company elected to immediately
recognize the transition obligation for benefits earned as of October 1, 1993,
resulting in a pre-tax, non-cash charge of $90,210 representing a
F-15
<PAGE>
HAYNES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 8: PENSION PLAN AND RETIREMENT BENEFITS--(CONTINUED)
cumulative effect of the change in accounting principle. In addition, during
fiscal 1994 and 1995, operations were charged approximately $7,997 and $4,671
for these benefits.
Effective January 1, 1995, the Company amended its health care plan by
requiring retirees and surviving spouses to share in the cost of medical care by
paying a portion of the cost of continuing health care insurance protection. As
a result of this amendment, the accumulated postretirement benefit obligation
was reduced by $13,583 and will be amortized to operations over approximately
12.5 years.
Because of unfavorable operating results in recent years and the Company's
net operating loss carryforward position (see Note 5), the Company is able to
recognize only a partial tax benefit resulting from this charge to operations.
Therefore a valuation reserve has been established to offset the deferred tax
asset created by this charge to operations. If in the future the facts and
circumstances of the Company's financial position and operating performance
change, the valuation reserve will be adjusted accordingly. The effect of SFAS
106 and the establishment of the valuation reserve reduced net worth at
September 30, 1994 by $79,630.
The following sets forth the funded status of the plans in the aggregate
reconciled with amounts reported in the Company's statement of financial
position:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------
1994 1995
------- -------
<S> <C> <C>
Accumulated postretirement benefit obligation (APBO):
Retirees and dependents............................... $59,907 $47,039
Active plan participants eligible to receive
benefits................................................ 8,286 6,941
Active plan participants not yet eligible to receive
benefits............................................ 18,087 15,823
------- -------
Total APBO.......................................... 86,280 69,803
Unrecognized prior service cost....................... 12,674
Unrecognized net gain................................. 7,868 12,353
------- -------
Accrued postretirement liability.................... $94,148 $94,830
------- -------
------- -------
</TABLE>
Net periodic postretirement benefit cost included the following components:
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
----------------
1994 1995
------ ------
<S> <C> <C>
Service cost.............................................. $1,624 $1,036
Interest cost............................................. 6,373 5,126
Amortization of net gain.................................. (582)
Amortization of prior service cost........................ (909)
------ ------
Net periodic postretirement benefit cost.................. $7,997 $4,671
------ ------
------ ------
</TABLE>
An 11.98 percent annual rate of increase for ages under 65 and a 9.66
percent annual rate of increase for ages over 65 in the costs of covered health
care benefits was assumed for 1996, gradually decreasing for both age groups to
5.25 percent by the year 2009. Increasing the assumed health care
F-16
<PAGE>
HAYNES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 8: PENSION PLAN AND RETIREMENT BENEFITS--(CONTINUED)
cost trend rates by one percentage point in each year would increase the
accumulated postretirement benefit obligation as of September 30, 1995 by
$10,257 and increase the net periodic postretirement benefit cost for 1995 by
$1,576. A discount rate of 7.5 percent was used to determine the accumulated
postretirement benefit obligation at September 30, 1995 and 8.0 percent at
September 30, 1994.
The Company sponsors certain profit sharing and performance plans for the
benefit of employees meeting certain eligibility requirements. There were no
contributions for these plans for the three years in the period ended September
30, 1995.
NOTE 9: COMMITMENTS
The Company leases certain transportation vehicles, warehouse facilities,
office space and machinery and equipment under cancelable and non-cancelable
leases, most of which expire within 10 years and may be renewed by the Company.
Rent expense under such arrangements totaled $1,609, $1,567 and $1,431 for the
period ended September 30, 1993, 1994 and 1995, respectively. Future minimum
rental commitments under non-cancelable leases in effect at September 30, 1995
are as follows:
<TABLE>
<S> <C>
1996.............................................................. $1,826
1997.............................................................. 964
1998.............................................................. 718
1999.............................................................. 522
2000 and thereafter............................................... 1,026
------
$5,056
------
------
</TABLE>
NOTE 10: OTHER
Other costs, net consists of net foreign currency transaction losses in the
amounts of $54, $56 and $207 for the periods ended September 30, 1993, 1994 and
1995, respectively, and miscellaneous costs.
At September 30, 1994 the Company elected to write-off the remaining
goodwill balance of $37,117. The reason for the write-off was that excess
industry capacity, aggressive competitive activity, just-in-time inventory
management programs, and weakness in certain economic sectors of the economy
have been adversely affecting the specialty corrosion and high-temperature alloy
industry operating conditions and the Company's operating results since 1992.
Accordingly, the Company revised its projections and determined that its
projected operating results would not support the future amortization of the
Company's remaining goodwill balance.
The methodology employed to assess the recoverability of the Company's
goodwill first involved the projection of operating results forward 25 years,
which approximated the remaining amortization period of goodwill as of September
30, 1994. The Company then evaluated the recoverability of goodwill on the basis
of this forecast of future operations. Based on this forecast, the cumulative
discounted net loss, before goodwill amortization and after interest expense,
was insufficient to recover the remaining goodwill balance and accordingly,
operations were charged for the entire unamortized balance.
The Company, like others in similar businesses, is involved as defendant in
several legal actions and is subject to extensive federal, state and local
environmental laws and regulations. Although Company
F-17
<PAGE>
HAYNES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 10: OTHER--(CONTINUED)
environmental policies and practices are designed to ensure compliance with
these laws and regulations, future developments and increasingly stringent
regulation could require the Company to make additional unforeseen environmental
expenditures.
Although the level of future expenditures for environmental and other legal
matters cannot be determined with any degree of certainty, based on the facts
presently known to it, management does not believe that such costs will have a
material effect on the Company's financial position, results of operations or
liquidity.
NOTE 11: STOCK OPTION PLAN
The Company has a stock option plan (the "Plan"). Under the Plan, options to
purchase up to 511,803 shares of common stock may be granted to certain
employees at a price not less than the lower of book value or 50% of fair market
value, as defined in the Plan. The options must be exercised within ten years
from the date of grant and become exercisable on a pro rata basis over a
five-year period from the date of grant, subject to approval by the Board of
Directors.
All holders of options with exercise prices of $4.04 and $5.73 per share
have the right to redeem such options at a price equal to book value per share,
as defined in the Plan. Further, the Company has the right to call these options
at an amount equal to the greater of $17.70 per share or fair market value per
share, as defined in the Plan. The difference between the fair market value of
the stock on the last measurement date and the exercise price of these options
is classified as redeemable common stock. Due to the redemption of some of these
options, redeemable common stock was reduced by $1,046 and $454 during 1994 and
1995, respectively.
Certain holders of 180,793 options with exercise prices of $8.85 per share
have the right to redeem such options at a price equal to book value per share,
as defined in the Plan. Further, the Company has the right to call these options
at an amount equal to the greater of $8.85 per share (the estimated fair market
value on the last measurement date) or fair market value per share, as defined
in the Plan.
F-18
<PAGE>
HAYNES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 11: STOCK OPTION PLAN--(CONTINUED)
Pertinent information covering the plan is as follows:
<TABLE>
<CAPTION>
NUMBER OF COMMON PRICE FISCAL YEAR SHARES
SHARES PER SHARE OF EXPIRATION EXERCISABLE
--------- ------------ ------------- -----------
<S> <C> <C> <C> <C>
Outstanding of September 30, 1992............ 359,359 $4.04-$8.85 1999-2002 310,794
Granted.................................... 112,996 8.85
Redeemed................................... -- --
Cancelled.................................. -- --
---------
Outstanding of September 30, 1993............ 472,355 $4.04-$8.85 1999-2003 334,511
Granted.................................... 3,955 8.85
Redeemed................................... (78,710) 4.04-5.73
Cancelled.................................. (60,622) 8.85
---------
Outstanding of September 30, 1994............ 336,978 $4.04-$8.85 1999-2004 245,451
Granted.................................... 182,432 8.85
Redeemed................................... (35,480) 4.04-5.73
Cancelled.................................. (20,622) 8.85
---------
Outstanding of September 30, 1995............ 463,308 4.04-8.85 1999-2005 213,079
--------- ------------ -----------
--------- ------------ -----------
Options Outstanding at September30, 1995
consist of:
55,660 $4.04 55,660
55,666 5.73 55,666
351,982 8.85 101,753
--------- -----------
463,308 213,079
--------- -----------
--------- -----------
</TABLE>
NOTE 12: FINANCIAL INFORMATION BY GEOGRAPHIC AREA
The Company develops, manufactures and markets high performance alloys
engineered to withstand hostile environments. During 1994, sales to a single
customer approximated $15,452 or 10% of net revenues. During 1995, sales to one
group of affiliated customers approximated $23,718 or 12% of net revenues.
F-19
<PAGE>
HAYNES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 12: FINANCIAL INFORMATION BY GEOGRAPHIC AREA--(CONTINUED)
Financial information by geographic area is as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Revenues
United States........................................... $109,061 $ 94,830 $122,334
Export sales............................................ 40,634 43,045 63,235
-------- -------- --------
149,695 137,875 185,569
Europe.................................................. 32,934 31,560 42,935
-------- -------- --------
182,629 169,435 228,504
Less: eliminations...................................... 20,175 18,857 26,571
-------- -------- --------
Net revenues............................................ $162,454 $150,578 $201,933
-------- -------- --------
-------- -------- --------
Operating income (loss) and other cost, net
United States........................................... $ 5,047 $(38,636) $ 10,825
Europe.................................................. 2,148 (1,894) 3,950
-------- -------- --------
Total operating income (loss) and other cost, net........... 7,195 (40,530) 14,775
Interest.................................................... 18,912 19,916 20,233
-------- -------- --------
Loss before provision for (benefit from) income taxes and
cumulative effect of a change in accounting principle....... $(11,717) $(60,446) $ (5,458)
-------- -------- --------
-------- -------- --------
Identifiable assets
United States........................................... $159,498 $115,251 $116,428
Europe.................................................. 23,758 24,490 29,649
General corporate assets*............................... 10,514 5,690 5,035
Equity in affiliates.................................... 430 292 204
-------- -------- --------
$194,200 $145,723 $151,316
-------- -------- --------
-------- -------- --------
</TABLE>
- ------------
* General corporate assets include cash, temporary cash investments and income
tax receivables.
NOTE 13: SUBSEQUENT EVENT (UNAUDITED)
The Company is anticipating a 1-for-1.77 reverse split of the Company's
common stock to be effective prior to the consummation of a public offering of
the Company's Common Stock. The Company's historical balance sheet, per share
and stock option plan data have been retroactively adjusted to reflect the new
capital structure.
F-20
<PAGE>
HAYNES INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1995 1996
------------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS:
Current Assets:
Cash and cash equivalents......................................... $ 5,035 $ 4,789
Accounts and notes receivable, less allowance for doubtful
accounts of $979 and $1,030, respectively....................... 38,089 43,886
Inventories....................................................... 60,234 74,294
------------- -----------
Total current assets............................................ 103,358 122,969
------------- -----------
Net property, plant and equipment................................... 36,863 31,779
Prepayments and deferred charges, net............................... 11,095 9,921
------------- -----------
Total assets.................................................... $ 151,316 $ 164,669
------------- -----------
------------- -----------
LIABILITIES AND STOCKHOLDERS' DEFICIT:
Current liabilities:
Accounts payable and accrued expenses............................. $ 22,975 $ 32,314
Accrued postretirement benefits................................... 4,100 4,100
Revolving credit.................................................. 12,477 16,131
Income taxes payable.............................................. 1,190 1,112
------------- -----------
Total current liabilities....................................... 40,742 53,657
------------- -----------
Long-term debt...................................................... 140,000 140,000
Deferred income taxes............................................... 326 (153)
Accrued postretirement benefits..................................... 90,730 91,191
------------- -----------
Total liabilities............................................... 271,798 284,695
------------- -----------
Redeemable common stock............................................. 1,427 1,427
Stockholders' deficit:
Common stock, $.01 par value (10,000,000 shares authorized,
3,600,208 issued)................................................... 36 36
Additional paid-in capital........................................ 46,443 46,443
Accumulated deficit............................................... (172,285) (170,685)
Foreign currency translation adjustment........................... 4,070 2,926
------------- -----------
(121,736) (121,280)
Less: Treasury stock, at cost (9,774 shares)...................... (173) (173)
------------- -----------
Total stockholders' deficit..................................... (121,909) (121,453)
------------- -----------
Total liabilities and stockholders' deficit..................... $ 151,316 $ 164,669
------------- -----------
------------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE>
HAYNES INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JUNE 30,
------------------------
1995 1996
---------- ----------
<S> <C> <C>
Net revenues....................................................... $ 149,973 $ 170,386
Costs and expenses:
Cost of sales.................................................... 125,305 136,711
Selling and administrative....................................... 11,604 12,966
Research and technical........................................... 2,286 2,529
Other cost, net.................................................. 578 413
Interest expense................................................. 15,176 15,395
Interest income.................................................. (238) (257)
---------- ----------
Total costs and expenses........................................... 154,711 167,757
---------- ----------
Income (loss) before provision for income taxes.................. (4,738) 2,629
Provision for income taxes......................................... 615 1,029
---------- ----------
Net income (loss)................................................ $ (5,353) $ 1,600
---------- ----------
---------- ----------
Per share data:
Net income (loss)................................................ $ (1.49) $ 0.45
---------- ----------
---------- ----------
Weighted average common and common stock equivalents............. 3,591,337 3,590,457
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-22
<PAGE>
HAYNES INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JUNE 30,
---------------------
1995 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)................................................... $ (5,353) $ 1,600
Depreciation........................................................ 6,127 5,844
Amortization........................................................ 1,086 1,035
Adjustments (net)................................................... (3,382) (11,462)
-------- --------
Net cash used in operating activities............................... (1,522) (2,983)
-------- --------
Cash flows from investment and other activities:
Additions to property............................................... (1,465) (801)
Other investment activities......................................... 27 57
-------- --------
Net cash used in investment activities.............................. (1,438) (744)
-------- --------
Cash flows from financing activities:
Net additions to revolving credit................................... 2,034 3,654
Other financing activities.......................................... (425) --
-------- --------
Net cash provided from financing activities......................... 1,609 3,654
-------- --------
Effect of exchange rates on cash...................................... 199 (173)
-------- --------
Decrease in cash and cash equivalents................................. (1,152) (246)
Cash and cash equivalents, beginning of period........................ 5,690 5,035
-------- --------
Cash and cash equivalents, end of period.............................. $ 4,538 $ 4,789
-------- --------
-------- --------
Supplemental disclosures of cash flow information:
Cash paid during period for: Interest.............................. $ 12,455 $ 12,729
Income taxes........................................................ 490 1,535
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-23
<PAGE>
HAYNES INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED JUNE 30, 1996
(DOLLARS IN THOUSANDS)
NOTE 1. BASIS OF PRESENTATION
The interim financial statements are unaudited and reflect all adjustments
(consisting solely of normal recurring adjustments) that, in the opinion of
management, are necessary for a fair presentation of results of the interim
periods presented. This report includes information in a condensed form and
should be read in conjunction with the audited consolidated financial statements
for the fiscal year ending September 30, 1995. The results of operations for the
nine months ended June 30, 1996 are not necessarily indicative of the results to
be expected for the full year or any other interim period.
NOTE 2. INVENTORIES
The following is a summary of the major classes of inventories:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995 JUNE 30, 1996
------------------ --------------
(UNAUDITED)
<S> <C> <C>
Raw materials............................... $ 2,998 $ 5,974
Work-in-process............................. 38,488 44,665
Finished goods.............................. 20,616 28,941
Other, net.................................. (1,868) (5,286)
-------- --------------
Net inventories............................. $ 60,234 $ 74,294
-------- --------------
-------- --------------
</TABLE>
NOTE 3. DEBT
During February 1996, the Company increased the maximum amount available on
its Existing Credit Facility from $16,000 to $25,000.
NOTE 4. INCOME TAXES
The provision for income taxes for the nine months ended June 30, 1995 and
1996 differed from the U.S. federal statutory rate of 34% primarily due to taxes
on foreign earnings against which the Company was unable to utilize its U.S.
federal net operating loss carryforwards.
NOTE 5. SUBSEQUENT EVENT
The Company is anticipating a 1-for-1.77 reverse split of the Company's
common stock to be effective prior to the consummation of a public offering of
the Company's common stock. The Company's historical balance sheet and per share
data have been retroactively adjusted to reflect the new capital structure.
F-24
<PAGE>
Picture of four-high, reversing plate/Steckel mill.
Picture of high temperature alloy testing.
Picture of high temperature alloy stress testing.
Picture of computer controlled four-high Steckel process.
<PAGE>
- --------------------------------------------- -------------------------------
- --------------------------------------------- -------------------------------
NO PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE,
SUCH OTHER INFORMATION AND 2,438,446 SHARES
REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE
COMPANY, THE SELLING STOCKHOLDERS OR THE
UNDERWRITERS. NEITHER THE DELIVERY OF HAYNES
THIS PROSPECTUS NOR ANY SALE MADE [LOGO]
HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE COMMON STOCK
HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR -------------------
A SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OTHER THAN THE REGISTERED PROSPECTUS
SECURITIES TO WHICH IT RELATES. THE
PROSPECTUS DOES NOT CONSTITUTE AN OFFER -------------------
TO SELL OR A SOLICITATION OF AN OFFER TO
BUY SUCH SECURITIES IN ANY CIRCUMSTANCES
IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL.
-------------------
TABLE OF CONTENTS
PAGE PAINEWEBBER INCORPORATED
----
Prospectus Summary...................3
Risk Factors........................10 MERRILL LYNCH & CO.
The Company.........................16
The Recapitalization................16
Use of Proceeds.....................18
Capitalization......................19
Dividends...........................20
Dilution............................20 -------------------
Selected Consolidated Financial , 1996
Data............................ 21
Management's Discussion and Analysis
of Financial Condition and
Results of Operations............24
Business............................38 8/1/96 0115
Management..........................52
Certain Transactions................61
Principal and Selling
Stockholders.................... 62
Description of
Indebtedness.................... 63
Description of Capital
Stock............................65
Underwriting........................68
Legal Matters.......................69
Experts.............................69
Additional Information..............70
Index to Consolidated Financial
Statements......................F-1
-------------------
UNTIL , 1996, ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<CAPTION>
EXPENSES AMOUNT
- ---------------------------------------------------------------- --------
<S> <C>
Securities and Exchange Commission registration fee............. $ 22,076
National Association of Securities Dealers, Inc. fee............ 6,700
Nasdaq listing fee.............................................. 33,500
Printing and engraving expenses................................. 137,500
Legal fees and expenses......................................... 425,000
Accounting expenses and fees.................................... 230,000
Transfer Agent and Registrar fees............................... 5,000
Blue Sky fees and expenses (including fees of counsel).......... 20,000
Miscellaneous................................................... 15,224
--------
Total....................................................... $900,000
--------
--------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Certificate of Incorporation of the Registrant provides for the
indemnification by the Registrant of each individual who was or is made a party
or is threatened to be made a party to or is involved in an action, suit or
proceeding by reason of the fact that such individual, or an individual of whom
such individual is the legal representative, (i) is or was a director or officer
of the Registrant, (ii) is or was serving (at such time as such individual is or
was a director or officer of such Registrant) at the request of the Registrant
as a director, officer, partner, trustee, administrator, employee or agent of
another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans to the
fullest extent authorized by the Delaware General Corporations Law. Section 145
of the General Corporation Law of the State of Delaware ("Section 145") provides
that a corporation organized under the laws of Delaware may indemnify directors,
officers, employees, and agents. Section 145 provides in pertinent part as
follows:
(a) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceedings, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
(b) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of the corporation, or is or was serving at
the request of he corporation as a director,
II-1
<PAGE>
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the corporation unless and only to the extent that
the Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the court of Chancery
or such other court shall deem proper.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of Section
145, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
(d) Any indemnification under subsections (a) and (b) of Section 145 (unless
ordered by a court) shall be made by the corporation only as authorized in the
specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in subsections (a) and (b) of Section
145. Such determination shall be made (1) by the board of directors by a
majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding, or (2) if such a quorum is not obtainable, or, even
if obtainable a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (3) by the stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or director
in defending any civil, criminal, administrative, or investigative action, suit
or proceeding may be paid by the corporation in advance of the final disposition
of such action, suit or proceeding upon receipt of an undertaking by or on
behalf of such director or officer to repay such amount if it shall ultimately
be determined that he is not entitled to be indemnified by the corporation as
authorized in Section 145. Such expenses (including attorneys' fees) incurred by
other employees and agents may be so paid upon such terms and conditions, if
any, as the board of directors deems appropriate.
(f) The indemnification and advancement of expenses provided by, or granted
pursuant to, the other subsections of Section 145 shall not be deemed exclusive
of any other rights to which those seeking indemnification or advancement of
expenses may be entitled under any by-law, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding such office.
(g) A corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under this section.
***
(j) The indemnification and advancement of expenses provided by, or granted
pursuant to, this section shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee, or agent and shall inure to the benefit of the heirs, executors and
administrators of such person.
II-2
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Not Applicable.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
The list of exhibits is incorporated herein by reference to the Index to
Exhibits on pages E-1 through E-6.
(b) Financial Statement Schedules:
All other financial statement schedules are omitted since the required
information is not applicable or is not present in amounts sufficient to require
submission of the schedules or because the information is included in the
Financial Statements or the Notes thereto.
ITEM 17. UNDERTAKINGS.
The Registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification for such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liabilities under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
the form of prospectus to be filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this Registration Statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new Registration Statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Kokomo, State of Indiana,
on August 2, 1996.
HAYNES HOLDINGS, INC.
By: /s/ MICHAEL D. AUSTIN
*
..................................
Michael D. Austin, President And
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
CAPACITY DATE
------------------------------------- --------------------
<S> <C> <C>
/s/ MICHAEL D. AUSTIN * President and Chief Executive Officer August 2, 1996
..................................... (Principal Executive Officer) and
Michael D. Austin Director
/s/ PERRY J. LEWIS * Director August 2, 1996
.....................................
Perry J. Lewis
/s/ JOHN A. MORGAN * Director August 2, 1996
.....................................
John A. Morgan
/s/ THOMAS F. GITHENS * Director August 2, 1996
.....................................
Thomas F. Githens
/s/ SANGWOO AHN * Director August 2, 1996
.....................................
Sangwoo Ahn
/s/ IRA STARR * Director August 2, 1996
.....................................
Ira Starr
/s/ ROBERT EGAN * Director August 2, 1996
.....................................
Robert Egan
/s/ JOSEPH F. BARKER Chief Financial Officer; Vice August 2, 1996
..................................... President--Finance; Treasurer;
Joseph F. Barker Secretary; Director (Principal
Financial Officer)
/s/ THEODORE T. BROWN * Controller (Principal Accounting August 2, 1996
..................................... Officer)
Theodore T. Brown
*By: /s/ JOSEPH F. BARKER
................................
Joseph F. Barker,
Attorney-in-Fact
</TABLE>
II-4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIAL
NUMBER NUMBERING
ASSIGNED IN SYSTEM PAGE
REGULATION S-K NUMBER OF
ITEM 601 DESCRIPTION OF EXHIBIT EXHIBIT
- --------------- -------------------------------------------------------------- -----------
<S> <C> <C> <C>
(1) 1.01 Form of Underwriting Agreement, dated August , 1996, by and
among Haynes International, Inc., Haynes Corp., PaineWebber
Incorporated, Merrill Lynch, Pierce, Fenner & Smith
Incorporated and the Selling Stockholders relating to the sale
of the Common Stock, $.01 par value per share, of Haynes
International, Inc..
(2) 2.01 Form of Certificate of Ownership and Merger.
(3) 3.01 Certificate of Incorporation of Registrant. (Incorporated by
reference to Exhibit 3.02 to Registration Statement on Form
S-4, Registration
No. 33-66346.)
3.02 Bylaws of Registrant. (Incorporated by reference to Exhibit
3.04 to Registration Statement on Form S-4, Registration No.
33-66346.)
3.03 Certificate of Amendment of the Certificate of Incorporation
of the Registrant.*
3.04 Certificate of Amendment of the Certificate of Incorporation
of the Registrant filed on August , 1996.**
(4) 4.01 See Exhibits 3.01 and 3.02.
4.02 Indenture, dated as of August 31, 1989, between Haynes
Acquisition Corporation and The Connecticut National Bank,
relating to the 13 1/2% Senior Subordinated Notes Due 1999,
table of contents and cross-reference sheet. (Incorporated by
reference to Exhibit 4.02 to Registration Statement on Form
S-1, Registration No. 33-32617.)
4.03 First Supplement to Indenture, dated as of August 31, 1989,
among Haynes International, Inc., Haynes Acquisition
Corporation and The Connecticut National Bank. (Incorporated
by reference to Exhibit 4.03 to Registration Statement on
Form S-1, Registration No. 33-32617.)
4.04 Second Supplement to Indenture, dated as of February 5, 1990,
between Haynes International, Inc. and The Connecticut
National Bank. (Incorporated by reference to Exhibit 4.09 to
Amendment No. 1 to Registration Statement on Form S-1,
Registration
No. 33-32617.)
</TABLE>
<TABLE>
<S> <C> <C> <C>
4.05 Third Supplement to Indenture, dated as of February 9, 1995,
between Haynes International, Inc. and Shawmut Bank
Connecticut, National Association (formerly known as The
Connecticut National Bank.)*
4.06 Fourth Supplement to Indenture, dated as of January 31, 1996,
between Haynes International, Inc. and Fleet National Bank of
Connecticut (formerly known as Shawmut Bank Connecticut,
National Association, formerly known as The Connecticut
National Bank.)*
</TABLE>
- ------------
* Previously filed.
** To be filed by amendment.
E-1
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
NUMBER NUMBERING
ASSIGNED IN SYSTEM PAGE
REGULATION S-K NUMBER OF
ITEM 601 DESCRIPTION OF EXHIBIT EXHIBIT
- --------------- -------------------------------------------------------------- -----------
<S> <C> <C> <C>
4.07 Indenture, dated as of July 1, 1993, among Haynes
International, Inc., Haynes Holdings, Inc. and Society
National Bank, Indiana, as Trustee, relating to the 11 1/4%
Senior Secured Notes Due 1998, table of contents and
cross-reference sheet. (Incorporated by reference to Exhibit
4.01 to the Registration Statement on
Form S-4, Registration No. 33-66346.)
4.08 Registration Rights Agreement, dated July 1, 1993, by and
among Haynes International, Inc., Haynes Holdings, Inc. and
Prudential Securities Incorporated. (Incorporated by reference
to Exhibit 4.03 to Registration Statement on Form S-4,
Registration No. 33-66346.)
4.09 Form of 11 1/4% Senior Secured Note Due 1998, Series B.
(Included as Appendix B to the Indenture filed as Exhibit
4.07.) (Incorporated by Reference to Exhibit 4.02 to the
Registration Statement on Form S-4, Registration No.
33-66346.)
4.10 Form of Indenture, dated as of August , 1996, among
Haynes International, Inc., Haynes Corp. and National City
Bank, as Trustee, relating to the % Senior Notes Due 2004
of Haynes Corp., table of contents and cross-reference sheet.
(Incorporated by reference to Exhibit 4.10 to Amendment No. 2
to Registration Statement on Form S-1, Registration No.
333-5411.)
4.11 Form of % Senior Note Due 2004 of Haynes Corp.
(Incorporated by reference to Exhibit 4.11 to Amendment No. 2
to Registration Statement on Form S-1, Registration No. 333-
5411.)
4.12 Description of Specimen Stock Certificate for Common Stock.
(5) 5.01 Opinion of Ice Miller Donadio & Ryan as to the legality of the
Common Stock to be registered.
(6) No Exhibit.
(7) No Exhibit.
(8) No Exhibit.
(9) No Exhibit.
</TABLE>
<TABLE>
<S> <C> <C> <C>
(10) 10.01 Form of Severance Agreements, dated as of March 10, 1989,
between Haynes International, Inc. and the employees of Haynes
International, Inc. named in the schedule to the Exhibit.
(Incorporated by reference to Exhibit 10.03 to Registration
Statement on Form S-1, Registration No. 33-32617.)
10.02 Purchase Agreement, dated as of August 31, 1989, among Haynes
</TABLE>
- ------------
* Previously filed.
** To be filed by amendment.
E-2
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
NUMBER NUMBERING
ASSIGNED IN SYSTEM PAGE
REGULATION S-K NUMBER OF
ITEM 601 DESCRIPTION OF EXHIBIT EXHIBIT
- --------------- -------------------------------------------------------------- -----------
Acquisition Corporation, Haynes Holdings, Inc. and Purchasers
named on the signature pages relating to the sale of the 13
1/2% Senior Subordinated Notes Due 1999 and Common Stock of
Haynes Holdings, Inc. (Incorporated by reference to Exhibit
4.01 to Registration Statement on Form S-1, Registration No.
33-32617.)
<S> <C> <C> <C>
10.03 Stock Subscription Agreement, dated as of August 31, 1989,
among Haynes Holdings, Inc., Haynes International, Inc. and
the persons listed on the signature pages thereto (Investors).
(Incorporated by reference to Exhibit 4.07 to Registration
Statement on Form S-1, Registration No. 33-32617.)
</TABLE>
<TABLE>
<S> <C> <C> <C>
10.04 Amendment to the Stock Subscription Agreement To Add a Party,
dated August 14, 1992, among Haynes Holdings, Inc., Haynes
International, Inc., MLGA Fund II, L.P., and the persons
listed on the signature pages thereto. (Incorporated by
reference to Exhibit 10.17 to Registration Statement on Form
S-4, Registration No. 33-66346.)
10.05 Second Amendment to Stock Subscription Agreement, dated March
16, 1993, among Haynes Holdings, Inc., Haynes International,
Inc., MLGA Fund II, L.P., MLGAL Partners, Limited Partnership,
and the persons listed on the signature pages thereto.
(Incorporated by reference to Exhibit 10.21 to Registration
Statement on Form S-4, Registration No. 33-66346.)
10.06 Stockholders Agreement, dated as of August 31, 1989, among
Haynes Holdings, Inc. and the persons listed on the signature
pages thereto (Investors). (Incorporated by reference to
Exhibit 4.08 to Registration Statement on Form S-1,
Registration No. 33-32617.)
10.07 Amendment to the Stockholders Agreement To Add a Party, dated
August 14, 1992, among Haynes Holdings, Inc., MLGA Fund II,
L.P., and the persons listed on the signature pages thereto.
(Incorporated by reference to Exhibit 10.18 to Registration
Statement on Form S-4, Registration No. 33-66346.)
10.08 Investment Agreement, dated August 10, 1992, between MLGA Fund
II, L.P., and Haynes Holdings, Inc. (Incorporated by reference
to Exhibit 10.22 to Registration Statement on Form S-4,
Registration No. 33-66346.)
10.09 Investment Agreement, dated August 10, 1992, between MLGAL
Partners, Limited Partnership and Haynes Holdings, Inc.
(Incorporated by reference to Exhibit 10.23 to Registration
</TABLE>
- ------------
* Previously filed.
** To be filed by amendment.
E-3
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
NUMBER NUMBERING
ASSIGNED IN SYSTEM PAGE
REGULATION S-K NUMBER OF
ITEM 601 DESCRIPTION OF EXHIBIT EXHIBIT
- --------------- -------------------------------------------------------------- -----------
Statement on Form S-4, Registration No. 33-66346.)
<S> <C> <C> <C>
10.10 Investment Agreement, dated August 10, 1992, between Thomas F.
Githens and Haynes Holdings, Inc. (Incorporated by reference
to Exhibit 10.24 to Registration Statement on Form S-4,
Registration No. 33-66346.)
10.11 Consent and Waiver Agreement, dated August 14, 1992, among
Haynes Holdings, Inc., Haynes International, Inc., MLGA Fund
II, L.P., and the persons listed on the signature pages
thereto. (Incorporated by reference to Exhibit 10.19 to
Registration Statement on Form S-4, Registration No.
33-66346.)
</TABLE>
<TABLE>
<S> <C> <C> <C>
10.12 Retirement Agreement, dated as of May 21, 1993, between Haynes
International, Inc. and Paul F. Troiano. (Incorporated by
reference to Exhibit 10.02 to Registration Statement on Form
S- 4, Registration No. 33-66346).
10.13 Purchase Agreement, dated June 30, 1993, by and among Haynes
International, Inc., Haynes Holdings, Inc. and Prudential
Securities Incorporated relating to the sale of 11 1/4% Senior
Secured Notes Due 1998, Series A. (Incorporated by reference
to Exhibit 10.20 to Registration Statement on Form S-4,
Registration No. 33-66346.)
10.14 Executive Employment Agreement, dated as of September 1, 1993,
by and among Haynes International, Inc., Haynes Holdings, Inc.
and Michael D. Austin. (Incorporated by reference to Exhibit
10.26 to the Registration Statement on Form S-4, Registration
No. 33-66346.)
10.15 Amendment to Employment Agreement, dated as of July 15, 1996
by and among Haynes International, Inc., Haynes Holdings, Inc.
and Michael D. Austin.*
10.16 Loan and Security Agreement, dated August 11, 1994, between
Congress Financial Corporation (Central) and Haynes
International, Inc.*
10.17 Amendment No. 1 to Loan and Security Agreement, dated February
9, 1995, by and between Congress Financial Corporation
(Central) and Haynes International, Inc.*
10.18 Amendment No. 2 to Loan and Security Agreement, dated February
12, 1996, by and between Congress Financial Corporation
(Central) and Haynes International, Inc.*
10.19 Haynes Holdings, Inc. Employee Stock Option Plan.
(Incorporated by reference to Exhibit 10.08 to Registration
Statement on Form S-1, Registration No. 33-32617.)
</TABLE>
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* Previously filed.
** To be filed by amendment.
E-4
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
NUMBER NUMBERING
ASSIGNED IN SYSTEM PAGE
REGULATION S-K NUMBER OF
ITEM 601 DESCRIPTION OF EXHIBIT EXHIBIT
- --------------- -------------------------------------------------------------- -----------
<S> <C> <C> <C>
10.20 Form of "New Option" Agreements between Haynes Holdings, Inc.
and the executive officers of Haynes International, Inc. named
in the schedule to the Exhibit. (Incorporated by reference to
Exhibit 10.09 to Registration Statement on Form S-1,
Registration No. 33-32617.)
10.21 Form of "September Option" Agreements between Haynes Holdings,
Inc. and the executive officers of Haynes International, Inc.
named in the schedule to the Exhibit. (Incorporated by
reference to Exhibit 10.10 to Registration Statement on Form
S-1, Registration No. 33-32617.)
</TABLE>
<TABLE>
<S> <C> <C> <C>
10.22 Form of "January 1992 Option" Agreements between Haynes
Holdings, Inc. and the executive officers of Haynes
International, Inc. named in the schedule to the Exhibit.
(Incorporated by reference to Exhibit 10.08 to Registration
Statement on Form S-4, Registration No. 33-66346.)
10.23 Form of "Amendment to Holdings Option Agreements" between
Haynes Holdings, Inc. and the executive officers of Haynes
International, Inc. named in the schedule to the Exhibit.
(Incorporated by reference to Exhibit 10.09 to Registration
Statement on Form S-4, Registration No. 33-66346.)
10.24 Haynes International, Inc. 1996 Employee Stock Option Plan*
10.25 Form of Employee Option Agreement to be used in connection
with the Haynes International, Inc. 1996 Employee Stock Option
Plan.
10.26 Form of Purchase Agreement, dated August , 1996, by and
among Haynes Corp., Haynes International, Inc., Merrill Lynch,
Pierce, Fenner & Smith Incorporated and PaineWebber
Incorporated relating to the sale of the % Senior Notes due
2004 of Haynes Corp. (Incorporated by reference to Exhibit
1.01 to Amendment No. 2 to Registration Statement on Form S-1,
Registration No. 333-5411.)
10.27 Amended and Restated Loan Agreement by and among CoreStates
Bank, N.A. and Congress Financial Corporation (Central), as
Lenders, Congress Financial Corporation (Central), as Agent
for Lenders, and Haynes Corp., as Borrower.**
(11) No Exhibit.
(12) 12.01 Statement re: computation of ratio of earnings to fixed
charges.
(14) No Exhibit.
(15) No Exhibit.
</TABLE>
- ------------
* Previously filed.
** To be filed by amendment.
E-5
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
NUMBER NUMBERING
ASSIGNED IN SYSTEM PAGE
REGULATION S-K NUMBER OF
ITEM 601 DESCRIPTION OF EXHIBIT EXHIBIT
- --------------- -------------------------------------------------------------- -----------
<S> <C> <C> <C>
(16) No Exhibit.
(21) 21.01 Subsidiaries of the Registrant.
(23) 23.01 Consent of Coopers & Lybrand, L.L.P. dated August 2, 1996.
23.02 Consent of Ice Miller Donadio & Ryan. (Included as part of
Exhibit 5.01.)
(24) 24.01 Power of Attorney.*
(25) 25.01 Statement of Eligibility of The Connecticut National Bank, as
Trustee under the Indenture for 13 1/2% Senior Subordinated
Notes, Due 1999. (Incorporated by reference to Exhibit 26.01
to Registration Statement on Form S-1, No. 33-32617.)
25.02 Statement of Eligibility of Society National Bank, Indiana, as
Trustee under the Indenture for the 11 1/4% Senior Secured
Notes, Due 1998. (Incorporated by reference to Exhibit 25.01
to the Registration Statement on Form S-4, Registration No.
33-66346.)
25.03 Statement of Eligibility of National City Bank as Trustee
under the Indenture for % Senior Notes due 2004 of Hayes
Corp. (Incorporated by reference to Exhibit 25.03 to Amendment
No. 2 to Registration Statement on Form S-1, Registration No.
333-5411.)
(26) No Exhibit.
(27) 27.01 Financial Data Schedule.
(28) No Exhibit.
(99) No Exhibit.
</TABLE>
- ------------
* Previously filed.
** To be filed by amendment.
E-6
Exhibit 1.01
HAYNES INTERNATIONAL, INC.
Common Stock
UNDERWRITING AGREEMENT
July __, 1996
PAINEWEBBER INCORPORATED
MERRILL LYNCH, PIERCE, FENNER & SMITH
Incorporated
As Representatives of the
several Underwriters
c/o PaineWebber Incorporated
1285 Avenue of the Americas
New York, New York 10019
Dear Sirs:
Haynes International, Inc., a Delaware corporation (including its
successors, the "Company"), and the persons named in Schedule I (the "Selling
Stockholders") propose to sell an aggregate of 2,438,446 shares (the "Firm
Shares") of the Company's Common Stock, $.01 par value per share (the "Common
Stock"), of which 2,300,000 shares are to be issued and sold by the Company and
138,446 shares are to be sold by the Selling Stockholders in the respective
amounts set forth opposite their respective names in Schedule I, in each case to
you and to the other underwriters named in Schedule II (collectively, the
"Underwriters"), for whom you are acting as representatives (the
"Representatives"). The Company has also agreed to grant to you and the other
Underwriters an option (the "Option") to purchase up to an additional 345,000
shares of Common Stock (the "Option Shares") on the terms and for the purposes
set forth in Section 1(b) hereof. The Firm Shares and the Option Shares are
hereinafter collectively referred to as the "Shares." Approximately 30 days
after the Closing Date (as defined below), Haynes Corp., a Delaware corporation
whose capital stock is wholly owned by the Company (including its successors,
"Haynes Corp."), will be merged with and into the Company (the "Merger").
The initial public offering price per share for the Shares and the purchase
price per share for the Shares to be paid by the several Underwriters shall be
agreed upon by the Company, Haynes Corp., the Selling Stockholders and the
Representatives, acting on behalf of the several Underwriters, and such
agreement shall be set forth in a separate written
<PAGE>
instrument substantially in the form of Exhibit A hereto (the "Price
Determination Agreement"). The Price Determination Agreement may take the form
of an exchange of any standard form of written telecommunication among the
Company, Haynes Corp., the Selling Stockholders and the Representatives and
shall specify such applicable information as is indicated in Exhibit A hereto.
The offering of the Shares will be governed by this Agreement, as supplemented
by the Price Determination Agreement. From and after the date of the execution
and delivery of the Price Determination Agreement, this Agreement shall be
deemed to incorporate, and, unless the context otherwise indicates, all
references contained herein to "this Agreement" and to the phrase "herein" shall
be deemed to include the Price Determination Agreement.
Each Selling Stockholder has executed and delivered a Custody Agreement and
a Power of Attorney in the form attached hereto as Exhibit B (collectively, the
"Agreement and Power of Attorney") pursuant to which each Selling Stockholder
has placed his Firm Shares in custody and appointed the persons designated
therein as a committee (the "Committee") with authority to execute and deliver
this Agreement on behalf of such Selling Stockholder and to take certain other
actions with respect thereto and hereto.
Concurrently with the offering of the Firm Shares, pursuant to the certain
Purchase Agreement dated as of the date hereof between Haynes Corp., the
Company, Merrill Lynch, Pierce, Fenner & Smith Incorporated and PaineWebber
Incorporated, as the underwriters referred to therein, relating to the sale of
debt securities of Haynes Corp. (the "Debt Purchase Agreement"), Haynes Corp.
proposes to offer $100,000,000 in aggregate principal amount of __% Senior Notes
due 2004 to the public (the "Debt Offering"). Consummation of the offering
contemplated by this Agreement and the Debt Offering are conditioned upon each
other and the Offering contemplated by this Agreement is also conditioned upon
certain conditions to the obligations of the Underwriters set forth in Section 6
hereof.
The Company, Haynes Corp. and the Selling Stockholders confirm as follows
their respective agreements with the Representatives and the several other
Underwriters.
1. Agreement to Sell and Purchase.
(a) On the basis of the respective representations, warranties and
agreements of the Company, Haynes Corp. and the Selling Stockholders herein
contained and subject to all the terms and conditions of this Agreement, (i) the
Company and each of the Selling Stockholders, severally and not jointly, agree
to sell to the several Underwriters and (ii) each of the Underwriters, severally
and not jointly, agrees to purchase from the Company and the Selling
Stockholders, at the purchase price per share for the Firm Shares to be agreed
upon by the Representatives, the Company and the Selling Stockholders in
accordance with Section 1(c) hereof (which purchase price shall not be higher
than the maximum price recommended by PaineWebber Incorporated acting as
"qualified independent underwriter" within the meaning of Rule 2720 (formerly
Schedule E) to the By-Laws of the National Association of Securities Dealers,
Inc.) and set forth in the Price Determination Agreement, the number of Firm
Shares set forth opposite the name of such Underwriter in Schedule II,
2
<PAGE>
plus such additional number of Firm Shares which such Underwriter may become
obligated to purchase pursuant to Section 9 hereof. Schedule II may be attached
to the Price Determination Agreement.
(b) Subject to all the terms and conditions of this Agreement, the
Company grants the Option to the several Underwriters to purchase, severally and
not jointly, the Option Shares from the Company at the same price per share as
the Underwriters shall pay for the Firm Shares. The Option may be exercised only
to cover over-allotments in the sale of the Firm Shares by the Underwriters and
may be exercised in whole or in part at any time (but not more than once) on or
before the 30th day after the date of this Agreement (or, if the Company has
elected to rely on Rule 430A of the rules and regulations of the Securities and
Exchange Commission (the "Commission"), on or before the 30th day after the date
of the Price Determination Agreement), upon written or telegraphic notice (the
"Option Shares Notice") by the Representatives to the Company no later than
12:00 noon, New York City time, at least two and no more than five business days
before the date specified for closing in the Option Shares Notice (the "Option
Closing Date") setting forth the aggregate number of Option Shares to be
purchased and the time and date for such purchase. On the Option Closing Date,
the Company will issue and sell to the Underwriters the number of Option Shares
set forth in the Option Shares Notice, and each Underwriter will purchase such
percentage of the Option Shares as is equal to the percentage of Firm Shares
that such Underwriter is purchasing, as adjusted by the Representatives in such
manner as they deem advisable to avoid fractional shares.
(c) The initial public offering price per share for the Firm Shares
and the purchase price per share for the Firm Shares to be paid by the several
Underwriters shall be agreed upon and set forth in the Price Determination
Agreement. In the event such price has not been agreed upon and the Price
Determination Agreement has not been executed by the close of business on the
fourteenth business day following the date on which the Registration Statement
becomes effective, this Agreement shall terminate forthwith, without liability
of any party to any other party except that Section 7 shall remain in effect.
2. Delivery and Payment. Delivery of the Firm Shares shall be made to the
Representatives for the accounts of the Underwriters against payment of the
purchase price by wire transfer or federal reserve funds check(s) in immediately
available funds to the order of each of the Company and the Committee at the
office of Davis Polk & Wardwell, 450 Lexington Avenue, New York, New York 10017.
Such payment shall be made at 10:00 a.m., New York City time, on the third (or
fourth, if the pricing shall occur after 4:30 p.m.) business day following the
date of the execution of the Price Determination Agreement or at such time on
such other date, not later than ten business days after such date, as may be
agreed upon by the Company and the Representatives (such date is hereinafter
referred to as the "Closing Date").
To the extent the Option is exercised, delivery of the Option Shares
against payment by the Underwriters (in the manner specified above) will take
place at the offices
3
<PAGE>
specified above for the Closing Date at the time and date (which may be the
Closing Date) specified in the Option Shares Notice.
Certificates evidencing the Shares shall be in definitive form and shall be
registered in such names and in such denominations as the Representatives shall
request at least two business days prior to the Closing Date or the Option
Closing Date, as the case may be, by written notice to the Company. For the
purpose of expediting the checking and packaging of certificates for the Shares,
the Company agrees to make such certificates available for inspection at least
24 hours prior to the Closing Date or the Option Closing Date, as the case may
be.
The cost of original issue tax stamps, if any, in connection with the
issuance and delivery of the Firm Shares and Option Shares by the Company to the
respective Underwriters shall be borne by the Company. The cost of tax stamps,
if any, in connection with the sale of the Firm Shares by the Selling
Stockholders shall be borne by the Selling Stockholders. The Company and each of
the Selling Stockholders, severally and not jointly, will pay and save each
Underwriter and any subsequent holder of the Shares harmless from any and all
liabilities with respect to or resulting from any failure or delay by it in
paying Federal and state stamp and other transfer taxes, if any, which may be
payable or determined to be payable by it in connection with the original
issuance or sale to such Underwriter of the Firm Shares and Option Shares.
3. Representations and Warranties of the Company and Haynes Corp. Each of
the Company and Haynes Corp. represents, warrants and covenants to each
Underwriter that:
(a) A registration statement (Registration No.333-5203) on Form S-1
relating to the Shares, including a preliminary prospectus and such amendments
to such registration statement as may have been required to the date of this
Agreement, has been prepared by the Company under the provisions of the
Securities Act of 1933, as amended (the "Act"), and the rules and regulations
(collectively referred to as the "Rules and Regulations") of the Commission
thereunder, and has been filed with the Commission. The term "preliminary
prospectus" as used herein means a preliminary prospectus as contemplated by
Rule 430 or Rule 430A ("Rule 430A") of the Rules and Regulations (as defined
herein) included at any time as part of the registration statement. Copies of
such registration statement and amendments and of each related preliminary
prospectus have been delivered to the Representatives. The term "Registration
Statement" means the registration statement as amended at the time it becomes or
became effective (the "Effective Date"), including financial statements and all
exhibits and any information deemed to be included by Rule 430A or Rule 434 of
the Rules and Regulations. If the Company files a registration statement to
register a portion of the Shares and relies on Rule 462(b) of the Rules and
Regulations for such registration statement to become effective upon filing with
the Commission (the "Rule 462 Registration Statement"), then any reference to
the "Registration Statement" shall be deemed to include the Rule 462
Registration Statement, as amended from time to time. The term "Prospectus"
means the prospectus as first filed with the
4
<PAGE>
Commission pursuant to Rule 424(b) of the Rules and Regulations or, if no such
filing is required, the form of final prospectus included in the Registration
Statement at the Effective Date.
(b) On the Effective Date and the date the Prospectus is first filed
with the Commission pursuant to Rule 424(b) (if required), and at all times
subsequent thereto to and including the Closing Date and, if later, the Option
Closing Date, and on the date when any post-effective amendment to the
Registration Statement becomes effective or any amendment or supplement to the
Prospectus is filed with the Commission, the Registration Statement and the
Prospectus (as amended or as supplemented if the Company shall have filed with
the Commission any amendment or supplement thereto), including the financial
statements included in the Prospectus, did or will comply in all material
respects with all applicable provisions of the Act and the Rules and Regulations
and will contain all material statements required to be stated therein in
accordance with the Act and the Rules and Regulations. On the Effective Date and
when any post-effective amendment to the Registration Statement becomes
effective, no part of the Registration Statement or any such amendment did or
will contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the statements
therein not misleading. At the Effective Date, the date the Prospectus or any
amendment or supplement to the Prospectus is filed with the Commission and at
the Closing Date and, if later, the Option Closing Date, the Prospectus did not
or will not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The foregoing
representations and warranties in this Section 3(b) do not apply to any
statements or omissions made in reliance on and in conformity with information
relating to any Underwriter furnished in writing to the Company by the
Representatives specifically for inclusion in the Registration Statement or
Prospectus or any amendment or supplement thereto. For all purposes of this
Agreement, the information contained in the Prospectus in the third and last
paragraphs under the caption "Underwriting" constitutes the only information
relating to any Underwriter furnished in writing to the Company by the
Representatives specifically for inclusion in the preliminary prospectus, the
Registration Statement or the Prospectus. Neither the Company nor Haynes Corp.
has distributed any offering material in connection with the offering or sale of
the Shares other than the Registration Statement, the preliminary prospectus,
the Prospectus or any other materials, if any, permitted by the Act.
(c) The only subsidiaries (as defined in the Rules and Regulations) of
the Company are the subsidiaries listed on Exhibit 21 to the Registration
Statement. Each of the Company and Haynes Corp. and each of their subsidiaries
(the "Subsidiaries") other than CabVal, a New York general partnership
("CabVal") is, and at the Closing Date will be, a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation. CabVal is validly existing as a general partnership under the
laws of the state of New York. Each of the Company and Haynes Corp. and each of
the Subsidiaries has, and at the Closing Date will have, full power and
authority to conduct all the activities conducted by it, to own or lease all the
assets owned or leased by it and to
5
<PAGE>
conduct its business as described in the Registration Statement and the
Prospectus. Each of the Company and Haynes Corp. and each of the Subsidiaries
is, and at the Closing Date will be, duly licensed or qualified to do business
and in good standing to conduct business in all jurisdictions in which the
nature of the activities conducted by it or the character of the assets owned or
leased by it makes such licensing or qualification necessary, except where the
failure to so qualify would not have a material adverse effect on the condition
(financial or otherwise), assets, earnings, liabilities (contingent or
otherwise) of the Company and the Subsidiaries considered as a singe enterprise.
All of the outstanding shares of capital stock of the Subsidiaries other than
CabVal have been duly authorized and validly issued, and are fully paid and
non-assessable and, except for qualifying shares, if any, are owned by the
Company, directly or through subsidiaries, free and clear of all liens,
encumbrances and claims whatsoever, except for pledges to secure the Existing
Indebtedness (as defined in the Prospectus). Except for the stock of the
Subsidiaries and a partnership interest in CabVal and as disclosed in the
Registration Statement, the Company does not own, and at the Closing Date will
not own, directly or indirectly, any shares of stock or any other equity or
long-term debt securities of any corporation or have any equity interest in any
firm, partnership, joint venture, association or other entity. Complete and
correct copies of the certificate of incorporation and of the by-laws of the
Company and each of its Subsidiaries and all amendments thereto have been
delivered to the Representatives, and no changes therein will be made subsequent
to the date hereof and prior to the Closing Date or, if later, the Option
Closing Date.
(d) The outstanding shares of Common Stock have been, and the Shares
to be issued and sold by the Company upon such issuance will be, duly
authorized, validly issued, fully paid and nonassessable and will not be subject
to any preemptive or similar right. The description of the Common Stock in the
Registration Statement and the Prospectus is, and at the Closing Date will be,
complete and accurate in all material respects. Except as set forth in the
Prospectus, the Company does not have outstanding, and at the Closing Date will
not have outstanding, any options to purchase, or any rights or warrants to
subscribe for, or any securities or obligations convertible into, or any
contracts or commitments to issue or sell, any shares of Common Stock, any
shares of capital stock of any Subsidiary or any such warrants, convertible
securities or obligations.
(e) The financial statements and schedules included in the
Registration Statement or the Prospectus present fairly in all material respects
the consolidated financial condition of the Company as of the respective dates
thereof and the consolidated results of operations and cash flows of the Company
for the respective periods covered thereby, all in conformity with generally
accepted accounting principles applied on a consistent basis throughout the
entire period involved, except as otherwise disclosed in the Prospectus. The pro
forma financial information included in the Registration Statement or the
Prospectus (i) presents fairly in all material respects the information shown
therein, (ii) has been prepared in all material respects in accordance with the
Commission's rules and guidelines with respect to pro forma financial statements
and (iii) has been properly computed on the bases described therein. The
assumptions used in the preparation of the pro forma financial statements and
other pro forma financial information included in the
6
<PAGE>
Registration Statement or the Prospectus are reasonable and the adjustments used
therein are appropriate to give effect to the transactions or circumstances
referred to therein. No other financial statements or schedules of the Company
are required by the Act or the Rules and Regulations to be included in the
Registration Statement or the Prospectus. Coopers & Lybrand L.L.P. (the
"Accountants"), who have reported on such financial statements and schedules,
are independent accountants with respect to the Company as required by the Act
and the Rules and Regulations. The statements included in the Registration
Statement with respect to the Accountants pursuant to Rule 509 of Regulation S-K
of the Rules and Regulations are true and correct in all material respects.
(f) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are executed in
accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to cash and cash equivalents is
permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(g) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus and prior to the Closing
Date, except as set forth in or contemplated by the Registration Statement and
the Prospectus, (i) there has not been and will not have been any change in the
capitalization of the Company or Haynes Corp. (other than resulting from
ordinary course increases or decreases in the amount of the New Credit Facility
(as defined in the Prospectus) or from the reverse stock split described in the
preliminary prospectus), or any material adverse change in the business,
properties, business prospects, condition (financial or otherwise) or results of
operations of the Company and its Subsidiaries, arising for any reason
whatsoever, (ii) neither the Company nor any of its Subsidiaries has incurred
nor will it incur any material liabilities or obligations, direct or contingent,
nor has it entered into nor will it enter into any material transactions other
than pursuant to this Agreement and the transactions referred to herein and
(iii) the Company and Haynes Corp. have not and will not have paid or declared
any dividends or other distributions of any kind on any class of their capital
stock, except for payments with respect to fractional shares.
(h) Neither the Company nor Haynes Corp. is an "investment company" or
an "affiliated person" of, or "promoter" or "principal underwriter" for, an
"investment company," as such terms are defined in the Investment Company Act of
1940, as amended.
(i) Except as set forth in the Registration Statement and the
Prospectus, there are no actions, suits or proceedings pending or, to the
Company's knowledge, threatened against or affecting the Company or any of its
Subsidiaries or any of their respective officers in their capacity as such,
before or by any Federal or state court, commission, regulatory body,
administrative agency or other governmental body, domestic or
7
<PAGE>
foreign, wherein an unfavorable ruling, decision or finding might materially and
adversely affect the business, properties, business prospects, condition
(financial or otherwise) or results of operation of the Company and its
Subsidiaries, considered as a single enterprise.
(j) The Company and each of its Subsidiaries has, and at the Closing
Date will have, (i) all governmental licenses, permits, consents, orders,
approvals and other authorizations that are material to the conduct of its
business as contemplated in the Prospectus, (ii) complied in all material
respects with all laws, regulations and orders applicable to it or its business
and (iii) performed all its obligations required to be performed by it, and is
not, and at the Closing Date will not be, in default, under any indenture,
mortgage, deed of trust, voting trust agreement, loan agreement, bond,
debenture, note agreement, lease, contract or other agreement or instrument
(collectively, a "contract or other agreement") to which it is a party or by
which its property is bound or affected, including without limitation any
contract or other agreement relating to the Existing Indebtedness (as defined in
the Prospectus) and New Credit Facility (as defined below), except in each case
where such non-performance or default would not have a material adverse effect
on the business, properties, business prospects, condition (financial or
otherwise) or results of operations of the Company and its subsidiaries,
considered as a single enterprise. To the best knowledge of the Company and each
of its Subsidiaries, no other party under any material contract or other
agreement to which it is a party is in default in any material respect
thereunder. Neither the Company nor any of its Subsidiaries is, nor at the
Closing Date will any of them be, in violation of any provision of its
certificate of incorporation or by-laws.
(k) No consent, approval, authorization or order of, or any filing or
declaration with, any court or governmental agency or body is required in
connection with the authorization, issuance, transfer, sale or delivery of the
Shares by the Company, in connection with the execution, delivery and
performance of this Agreement, the Debt Purchase Agreement or the Indenture (as
defined in the Prospectus) by the Company or Haynes Corp., as the case may be,
or in connection with the taking by the Company or Haynes Corp. of any action
contemplated hereby or thereby, except such as have been obtained under the Act
or the Rules and Regulations and such as may be required under state securities
or Blue Sky laws or the by-laws and rules of the National Association of
Securities Dealers, Inc. (the "NASD") in connection with the purchase and
distribution by the Underwriters of the Shares to be sold by the Company.
(l) Each of the Company and Haynes Corp. has full corporate power and
authority to enter into this Agreement. This Agreement has been duly authorized,
executed and delivered by each of the Company and Haynes Corp. and constitutes a
valid and binding agreement of each of the Company and Haynes Corp. and is
enforceable against each of the Company and Haynes Corp. in accordance with the
terms hereof, except as the enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally or by general equitable principles. The
performance of this Agreement, the Debt Purchase Agreement and the Indenture and
the consummation of the transactions contemplated hereby and thereby and
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the application of the net proceeds from the offering and sale of the Shares to
be sold by the Company in the manner set forth in the Prospectus under "Use of
Proceeds" will not result in the creation or imposition of any lien, charge or
encumbrance upon any of the assets of the Company or any of its Subsidiaries
pursuant to the terms or provisions of, or result in a breach or violation of
any of the terms or provisions of, or constitute a default under, or give any
other party a right to terminate any of its obligations under, or result in the
acceleration of any obligation under, the certificate of incorporation or
by-laws of the Company or any of its Subsidiaries, any material contract or
other material agreement to which the Company or any of its Subsidiaries is a
party or by which the Company or any of its Subsidiaries or any of its
properties is bound or affected, including without limitation any contract or
other agreement relating to the Existing Indebtedness and the New Credit
Facility, or violate or conflict with any judgment, ruling, decree, order,
statute, rule or regulation of any court or other governmental agency or body
applicable to the business or properties of the Company or any of its
Subsidiaries.
(m) The Company and each of its Subsidiaries has good and marketable
title to all properties and assets described in the Prospectus as owned by it,
free and clear of all liens, charges, encumbrances or restrictions, except for
encumbrances securing the obligations of Haynes Corp. under the Existing Senior
Notes and the Existing Credit Facility and except such as are described in the
Prospectus or are not material to the business of the Company and its
Subsidiaries taken as a whole. The Company and each of its Subsidiaries has
valid, subsisting and enforceable leases for the properties described in the
Prospectus as leased by it, except as the enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally or by general equitable
principles, with such exceptions as are not material and do not materially
interfere with the use made and proposed to be made of such properties by the
Company and such Subsidiaries.
(n) There is no document or contract of a character required to be
described in the Registration Statement or the Prospectus or to be filed as an
exhibit to the Registration Statement which is not described or filed as
required. All such contracts to which the Company or any Subsidiary is a party
have been duly authorized, executed and delivered by the Company or such
Subsidiary, constitute valid and binding agreements of the Company or such
Subsidiary and are enforceable against the Company or such Subsidiary in
accordance with the terms thereof, except as the enforcement thereof may be
limited by bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting creditors' rights generally or by general
equitable principles.
(o) No statement, representation, warranty or covenant made by the
Company or Haynes Corp. in this Agreement or made in any certificate or document
required by this Agreement to be delivered to the Representatives was or will
be, when made, inaccurate, untrue or incorrect in any material respect.
(p) None of the Company, Haynes Corp. or any of their directors,
officers or controlling persons has taken, directly or indirectly, any action
intended, or which
9
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might reasonably be expected, to cause or result, under the Act or otherwise,
in, or which has constituted, stabilization or manipulation of the price of any
security of the Company or Haynes Corp. to facilitate the sale or resale of the
Shares.
(q) No holder of securities of the Company or Haynes Corp. has rights
to the registration of any securities of the Company or Haynes Corp. because of
the filing of the Registration Statement that have not been exercised or that
have not expired by reason of lapse of time following notification of the
Company's intent to file the Registration Statement.
(r) The Shares are duly authorized for quotation by and upon the
Nasdaq National Market System upon official notice of issuance.
(s) The Company has entered into a labor contract with the United
Steelworkers of America (the "USWA") that expires on June 11, 1999, which
contract replaces the contract with the USWA that expired on June 11, 1996.
Neither the Company nor Haynes Corp. is a party to any other collective
bargaining agreement. Neither the Company nor any of its Subsidiaries is
involved in any material labor dispute nor, to the knowledge of the Company and
Haynes Corp., is any such dispute threatened.
(t) Except as disclosed in the Registration Statement, Haynes and its
subsidiaries own or possess, or can acquire on reasonable terms, the material
patents, patent rights, licenses, inventions, copyrights, know-how (including
trade secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures), trademarks, service marks and
trade names (collectively, "patent and proprietary rights") presently employed
by them in connection with the business now operated by them, and neither Haynes
nor any of its subsidiaries has received any written notice or otherwise has
actual knowledge of any infringement of or conflict with asserted rights of
others with respect to any patent or proprietary rights, or of any basis for
rendering any patent and proprietary rights invalid or inadequate to protect the
interest of the Issuer or any of its subsidiaries therein.
(u) Neither the Company nor any of its Subsidiaries nor, to the
knowledge of the Company and Haynes Corp., any employee or agent of the Company
or any Subsidiary has made any payment of funds of the Company or any Subsidiary
or received or retained any funds in violation of any law, rule or regulation or
of a character required to be disclosed in the Prospectus.
(v) The Company has complied, and until the completion of the
distribution of the Shares, will comply with all of the provisions of
(including, without limitation, filing all forms required by) Section 517.075 of
the Florida Securities and Investor Protection Act and regulation 3E-900.001
issued thereunder with respect to the offering and sale of the Shares.
(w) The Company and its Subsidiaries (i) are in compliance with any
and all applicable foreign, Federal, state and local laws and regulations
relating to the
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<PAGE>
protection of human health and safety, the environment or hazardous or toxic
substances or wastes, pollutants or contaminants ("Environmental Laws"), (ii)
have received all permits, licenses or other approvals required of them under
applicable Environmental Laws to conduct their respective businesses and (iii)
are in compliance with all terms and conditions of any such permit, license or
approval, except where such noncompliance with Environmental Laws, failure to
receive required permits, licenses or other approvals or failure to comply with
the terms and conditions of such permits, licenses or approvals would not,
individually or in the aggregate, result in a material adverse effect on the
condition, financial or otherwise, or on the earnings, business, prospects or
operations of the Company and its Subsidiaries, taken as a whole, and except as
described in the Registration Statement or Prospectus. There are no costs and
liabilities associated with or arising in connection with Environmental Laws as
currently in effect (including, without limitation, costs of compliance
therewith) which would, singly or in the aggregate, have a material adverse
effect on the condition (financial or otherwise) or operations of the Company
and its Subsidiaries, taken as a whole, except as described in the Registration
Statement or Prospectus.
(x) Concurrently herewith, the Company has entered into a definitive
agreement with Congress Financial Corporation, as agent for itself and for
CoreStates Bank, N.A. (the "Lenders") whereby the Lenders will provide the
Company with a credit facility in the maximum amount of $50.0 million (the "New
Credit Facility").
4. Representations and Warranties of the Selling Stockholders. Each Selling
Stockholder, severally and not jointly, represents, warrants and covenants to
each Underwriter that:
(a) Such Selling Stockholder has full power and authority to enter
into this Agreement and the Agreement and Power of Attorney. All authorizations
and consents necessary for the execution and delivery by such Selling
Stockholder of the Agreement and Power of Attorney, and for the execution of
this Agreement on behalf of such Selling Stockholder, have been given. Each of
the Agreement and Power of Attorney and this Agreement has been duly authorized,
executed and delivered by or on behalf of such Selling Stockholder and
constitutes a valid and binding agreement of such Selling Stockholder and is
enforceable against such Selling Stockholders in accordance with the terms
thereof and hereof, except as the enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally or by general equitable
principles.
(b) Such Selling Stockholder (except Paul F. Troiano) now has, and at
the time of delivery thereof hereunder will have, (i) good and marketable title
to the Shares to be sold by such Selling Stockholder hereunder, free and clear
of all liens, encumbrances and claims whatsoever (other than pursuant to this
Agreement and the Agreement and Power of Attorney), and (ii) full legal right
and power, and all authorizations and approvals required by law, to sell,
transfer and deliver such Shares to the Underwriters hereunder and to make the
representations, warranties and agreements made by such Selling Stockholder
herein. Upon the delivery of and payment for such Shares hereunder, such
11
<PAGE>
Selling Stockholder will deliver good and marketable title thereto, free and
clear of all liens, encumbrances and claims whatsoever.
(c) Paul F. Troiano holds good title to an option to purchase the
shares of Common Stock to be sold for his account in the Offering, and at the
time of delivery thereof hereunder Mr. Troiano will have, (i) good and
marketable title to the Shares to be sold by him hereunder, free and clear of
all liens, encumbrances and claims whatsoever (other than pursuant to this
Agreement and the Agreement and Power of Attorney), and (ii) full legal right
and power, and all authorizations and approvals required by law, to sell,
transfer and deliver such Shares to the Underwriters hereunder and to make the
representations, warranties and agreements made by him herein. Upon the delivery
of and payment for such Shares hereunder, he will deliver good and marketable
title thereto, free and clear of all liens, encumbrances and claims whatsoever.
(d) On the Closing Date, all stock transfer or other taxes (other than
income taxes) which are required to be paid in connection with the sale and
transfer of the Shares to be sold by such Selling Stockholder to the several
Underwriters hereunder will have been fully paid or provided for by such Selling
Stockholder and all laws imposing such taxes will have been fully complied with.
(e) The performance of this Agreement and the consummation of the
transactions contemplated hereby will not result in the creation or imposition
of any lien, charge or encumbrance upon any of the assets of such Selling
Stockholder pursuant to the terms or provisions of, or result in a breach or
violation of any of the terms or provisions of, or constitute a default under,
or result in the acceleration of any obligation under, if such Selling
Stockholder is a corporation or partnership, the organizational documents of
such Selling Stockholder, or, as to all such Selling Stockholders, any material
contract or other agreement to which such Selling Stockholder is a party or by
which such Selling Stockholder or any of its property is bound or affected, or,
to such Selling Stockholder's knowledge, under any ruling, decree, judgment,
order, statute, rule or regulation of any court or other governmental agency or
body having jurisdiction over such Selling Stockholder or the property of such
Selling Stockholder.
(f) No consent, approval, authorization or order of, or any filing or
declaration with, any court or governmental agency or body is required for the
consummation by such Selling Stockholder of the transactions on its part
contemplated herein and in the Agreement and Power of Attorney, except such as
have been obtained under the Act or the Rules and Regulations and such as may be
required under state securities or Blue Sky laws or the by-laws and rules of the
NASD in connection with the purchase and distribution by the Underwriters of the
Shares to be sold by such Selling Stockholder.
(g) All information with respect to such Selling Stockholder contained
in the Registration Statement and the Prospectus is true and correct.
(h) Other than as permitted by the Act and the Rules and Regulations,
such Selling Stockholder has not distributed and will not distribute any
12
<PAGE>
preliminary prospectus, the Prospectus or any other offering material in
connection with the offering and sale of the Shares. Such Selling Stockholder
has not taken, directly or indirectly, any action intended, or which might
reasonably be expected, to cause or result in, under the Act or otherwise, or
which has caused or resulted in, stabilization or manipulation of the price of
any security of the Company or Haynes Corp. to facilitate the sale or resale of
the Shares.
(i) Certificates in negotiable form for the Firm Shares to be sold
hereunder by such Selling Stockholder have been placed in custody, for the
purpose of making delivery of such Firm Shares under this Agreement, under the
Agreement and Power of Attorney which appoints National City Bank as custodian
(the "Custodian") for each Selling Stockholder. Such Selling Stockholder agrees
that the Shares represented by the certificates held in custody for him or it
under the Agreement and Power of Attorney are for the benefit of and coupled
with and subject to the interest hereunder of the Custodian, the Committee, the
Underwriters, each other Selling Stockholder and the Company, that the
arrangements made by such Selling Stockholder for such custody and the
appointment of the Custodian and the Committee by such Selling Stockholder are
irrevocable, and that the obligations of such Selling Stockholder hereunder
shall not be terminated by operation of law, whether by the death, disability,
incapacity or liquidation of any Selling Stockholder or the occurrence of any
other event. If any Selling Stockholder should die, become disabled or
incapacitated or be liquidated or if any other such event should occur before
the delivery of the Shares hereunder, certificates for the Shares shall be
delivered by the Custodian in accordance with the terms and conditions of this
Agreement and actions taken by the Committee and the Custodian pursuant to the
Agreement and Power of Attorney shall be as valid as if such death, liquidation,
incapacity or other event had not occurred, regardless of whether or not the
Custodian or the Committee, or either of them, shall have received notice
thereof.
5. Agreements of the Company, Haynes Corp. and the Selling Stockholders.
The Company or Haynes Corp., as the case may be (other than as to Section 5 (o),
(p), (q) and (r)), and the Selling Stockholders (but only as to Sections 5(i),
(j), (o), (p), (q), and (r)) agree, severally and not jointly, with the several
Underwriters as follows:
(a) The Company will not, either prior to the Effective Date or
thereafter during such period as the Prospectus is required by law to be
delivered in connection with sales of the Shares by an Underwriter or dealer,
file any amendment or supplement to the Registration Statement or the
Prospectus, unless a copy thereof shall first have been submitted to the
Representatives within a reasonable period of time prior to the filing thereof
and the Representatives shall not have objected thereto in good faith.
(b) The Company will use its best efforts to cause the Registration
Statement to become effective, and will notify the Representatives promptly, and
will confirm such advice in writing, (1) when the Registration Statement has
become effective and when any post-effective amendment thereto becomes
effective, (2) of any request by the Commission for amendments or supplements to
the Registration Statement or the Prospectus
13
<PAGE>
or for additional information, (3) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose or the threat thereof, (4) of the
happening of any event during the period mentioned in the second sentence of
Section 5(e) that in the judgment of the Company makes any statement made in the
Registration Statement or the Prospectus untrue or that requires the making of
any changes in the Registration Statement or the Prospectus in order to make the
statements therein, in light of the circumstances in which they are made, not
misleading and (5) of receipt by the Company or any representative of the
Company of any other communication from the Commission relating to the Company,
Haynes Corp., the Registration Statement, any preliminary prospectus or the
Prospectus. If at any time the Commission shall issue any order suspending the
effectiveness of the Registration Statement, the Company will use reasonable
efforts to obtain the withdrawal of such order at the earliest possible moment.
The Company will use its best efforts to comply with the provisions of and make
all requisite filings with the Commission pursuant to Rule 430A and to notify
the Representatives promptly of all such filings.
(c) The Company will furnish to the Representatives, without charge,
three copies of the Registration Statement and of any post-effective amendment
thereto, including financial statements and schedules, and all exhibits thereto
and will furnish to the Representatives, without charge, for transmittal to each
of the other Underwriters, a copy of the Registration Statement and any
post-effective amendment thereto, including financial statements and schedules
but without exhibits.
(d) The Company will comply with all the provisions of any
undertakings contained in the Registration Statement.
(e) On the Effective Date, and thereafter from time to time, the
Company will deliver to each of the Underwriters, without charge, as many copies
of the Prospectus or any amendment or supplement thereto as the Representatives
may reasonably request. The Company consents to the use of the Prospectus or any
amendment or supplement thereto by the several Underwriters and by all dealers
to whom the Shares may be sold, both in connection with the offering or sale of
the Shares and for any period of time thereafter during which the Prospectus is
required by law to be delivered in connection therewith. If during such period
of time any event shall occur which in the judgment of the Company or counsel to
the Underwriters should be set forth in the Prospectus in order to make any
statement therein, in the light of the circumstances under which it was made,
not misleading, or if it is necessary to supplement or amend the Prospectus to
comply with law, the Company will forthwith prepare and duly file with the
Commission an appropriate supplement or amendment thereto, and will deliver to
each of the Underwriters, without charge, such number of copies thereof as the
Representatives may reasonably request.
(f) Prior to any public offering of the Shares by the Underwriters,
the Company will cooperate with the Representatives and counsel to the
Underwriters in connection with the registration or qualification of the Shares
for offer and sale under the securities or Blue Sky laws of such jurisdictions
as the Representatives may request;
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<PAGE>
provided, that in no event shall the Company be obligated to qualify to do
business in any jurisdiction where it is not now so qualified or to take any
action which would subject it to general service of process in any jurisdiction
where it is not now so subject.
(g) During the period of three years commencing on the Effective Date,
the Company will furnish to the Representatives and each other Underwriter who
may so request copies of such financial statements and other periodic and
special reports as the Company may from time to time distribute generally to the
holders of any class of its capital stock, and will furnish to the
Representatives and each other Underwriter who may so request a copy of each
annual or other report it shall be required to file with the Commission.
(h) The Company will make generally available to holders of its
securities as soon as may be practicable but in no event later than the last day
of the fifteenth full calendar month following the calendar quarter in which the
Effective Date falls, an earnings statement (which need not be audited but shall
be in reasonable detail) for a period of 12 months commencing after the
Effective Date, and satisfying the provisions of Section 11(a) of the Act
(including Rule 158 of the Rules and Regulations).
(i) Whether or not the transactions contemplated by this Agreement are
consummated or this Agreement is terminated, the Company will pay, or reimburse
if paid by the Representatives, all costs and expenses incident to the
performance of the obligations of the Company and the Selling Stockholders under
this Agreement, including but not limited to costs and expenses of or relating
to (1) the preparation, printing and filing of the Registration Statement and
exhibits to it, each preliminary prospectus, the Prospectus and any amendment or
supplement to the Registration Statement or the Prospectus, (2) the preparation
and delivery of certificates representing the Shares, (3) the printing of this
Agreement, the Agreement Among Underwriters, any Dealer Agreements, any
Underwriters' Questionnaire and the Agreement and Power of Attorney, (4)
furnishing (including costs of shipping, mailing and courier) such copies of the
Registration Statement, the Prospectus and any preliminary prospectus, and all
amendments and supplements thereto, as may be requested for use in connection
with the offering and sale of the Shares by the Underwriters or by dealers to
whom Shares may be sold, (5) the quotation of the Shares by and upon the Nasdaq
National Market System, (6) any filings required to be made by the Underwriters
with the NASD, and the fees, disbursements and other charges of counsel for the
Underwriters in connection therewith, (7) the registration or qualification of
the Shares for offer and sale under the securities or Blue Sky laws of such
jurisdictions designated pursuant to Section 5(f), including the fees,
disbursements and other charges of counsel to the Underwriters in connection
therewith, and the preparation and printing of preliminary, supplemental and
final Blue Sky memoranda, (8) counsel to the Company and counsel to the Selling
Stockholders, (9) the transfer agent for the Shares and (10) the Accountants.
(j) If this Agreement shall be terminated by the Company or the
Selling Stockholders pursuant to any of the provisions hereof (otherwise than
pursuant to Section 9) or if for any reason the Company or any Selling
Stockholder shall be unable to
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<PAGE>
perform its obligations hereunder and as a result the Offering does not close,
the Company will reimburse the several Underwriters for all out-of-pocket
expenses (including the fees, disbursements and other charges of counsel to the
Underwriters) reasonably incurred by them in connection herewith.
(k) The Company will not at any time, directly or indirectly,
take any action intended, or which might reasonably be expected, to cause or
result in, or which will constitute, stabilization of the price of the shares of
Common Stock to facilitate the sale or resale of any of the Shares.
(l) The Company will apply the net proceeds from the offering
and sale of the Shares to be sold by the Company in the manner set forth in the
Prospectus under "Use of Proceeds" and shall file such reports with the
Commission with respect to the sale of the Shares and the application of the
proceeds therefrom as may be required in accordance with Rule 463 under the Act.
The net proceeds from the offering to be used for refinancing the Existing
Indebtedness (as defined in the Prospectus) shall be set aside and held in an
escrow account until any redemption payments or repayment payments in connection
with such refinancing are made.
(m) During the period of 180 days commencing at the Closing
Date, the Company will not, without the prior written consent of the
Representatives, grant options to purchase shares of Common Stock with an
exercise price less than the initial public offering price.
(n) The Company will not, and will use its best efforts to
cause each of its executive officers, directors and each beneficial owner of
more than 5% of the outstanding shares of Common Stock (as of the date hereof)
to enter into agreements with the Representatives in the form set forth in
Exhibit C to the effect that they will not, for a period of 180 days after the
commencement of the public offering of the Shares, without the prior written
consent of the Representatives, sell, contract to sell or otherwise dispose of
any shares of Common Stock or rights to acquire such shares (other than shares
acquired pursuant to employee stock option plans or in connection with other
employee incentive compensation arrangements).
(o) Other than shares of Common Stock sold in the Offering,
the Selling Stockholders will not, for a period of 180 days after the
commencement of the public offering of the Shares, without the prior written
consent of the Representatives, sell, contract to sell or otherwise dispose of
any shares of Common Stock, other than pursuant to bona fide gifts to persons
who agree in writing with the Representatives to be bound by the provisions of
this Section 5(o).
[(p) The Selling Stockholders will not, without the prior
written consent of the Representatives, make any bid for or purchase any shares
of Common Stock during the 120-day period following the date hereof.]
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<PAGE>
(q) As soon as any Selling Stockholder is advised thereof, such
Selling Stockholder will advise the Representatives and confirm such advice in
writing, (1) of receipt by such Selling Stockholder, or by any representative of
such Selling Stockholder, of any communication from the Commission relating to
the Registration Statement, the Prospectus or any preliminary prospectus, or any
notice or order of the Commission relating to the Company or any of the Selling
Stockholders in connection with the transactions contemplated by this Agreement
and (2) of the happening of any event during the period from and after the
Effective Date that in the judgment of such Selling Stockholder makes any
statement made in the Registration Statement or the Prospectus untrue or that
requires the making of any changes in the Registration Statement or the
Prospectus in order to make the statements therein, in light of the
circumstances in which they were made, not misleading.
(r) Each Selling Stockholder will deliver to the Representatives prior
to or on the Effective Date a properly completed and executed United States
Treasury Department Form W-9 (or other applicable form or statement specified by
Treasury Department regulations in lieu thereof).
(s) Each of the Company and Haynes Corp. will use its best efforts to
cause the transactions described in the Prospectus under the heading "The
Recapitalization" to be consummated on or prior to the Closing Date, except with
respect to the Merger and the refinancing of the indebtedness of the Company and
Haynes Corp., which transactions each of the Company and Haynes Corp. will use
its best efforts to consummate as soon as practicable thereafter but in no event
later than 35 days after the Closing Date.
6. Conditions of the Obligations of the Underwriters. In addition to the
execution and delivery of the Price Determination Agreement, the obligations of
each Underwriter hereunder are subject to the following conditions:
(a) Notification that the Registration Statement has become effective
shall be received by the Representatives not later than 5:00 p.m., New York City
time, on the date of this Agreement or at such later date and time as shall be
consented to in writing by the Representatives and all filings required by Rule
424 of the Rules and Regulations and Rule 430A shall have been made.
(b) (i) No stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceedings for that purpose shall be
pending or, to the knowledge of the Company, threatened by the Commission, (ii)
no order suspending the effectiveness of the Registration Statement or the
qualification or registration of the Shares under the securities or Blue Sky
laws of any jurisdiction shall be in effect and no proceeding for such purpose
shall be pending before or, to the Company's knowledge, threatened or
contemplated by the Commission or the authorities of any such jurisdiction,
(iii) any request for additional information on the part of the staff of the
Commission or any such authorities shall have been complied with to the
satisfaction of the staff of the Commission or such authorities and (iv) after
the date hereof no amendment or supplement to the Registration Statement or the
Prospectus shall have been filed unless a copy thereof was first submitted to
the Representatives and the Representatives did not object thereto in good
17
<PAGE>
faith, and the Representatives shall have received certificates, dated the
Closing Date and the Option Closing Date and signed by the Chief Executive
Officer or the Chairman of the Board of Directors of the Company and the Chief
Financial Officer of the Company (who may, as to proceedings threatened, rely
upon the best of their information and belief), to the effect of clauses (i),
(ii) and (iii) hereof.
(c) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, (i) there shall not have been a
material adverse change in the general affairs, business, business prospects,
properties, management, condition (financial or otherwise) or results of
operations of the Company and its Subsidiaries, taken as a whole, whether or not
arising from transactions in the ordinary course of business, in each case other
than as set forth in or contemplated by the Registration Statement and the
Prospectus and (ii) neither the Company nor any of its Subsidiaries shall have
sustained any material loss or interference with its business or properties from
fire, explosion, flood or other casualty, whether or not covered by insurance,
or from any labor dispute or any court or legislative or other governmental
action, order or decree, which is not set forth in the Registration Statement
and the Prospectus, if in the sole judgment of the Representatives any such
development makes it impracticable or inadvisable to consummate the sale and
delivery of the Shares by the Underwriters at the initial public offering price.
(d) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, there shall have been no litigation
or other proceeding instituted against the Company or any of its Subsidiaries or
any of their respective officers or directors in their capacities as such,
before or by any Federal, state or local court, commission, regulatory body,
administrative agency or other governmental body, domestic or foreign, in which
litigation or proceeding an unfavorable ruling, decision or finding would
materially and adversely affect the business, properties, business prospects,
condition (financial or otherwise) or results of operations of the Company and
its Subsidiaries taken as a whole.
(e) Each of the representations and warranties of each of the Company
and Haynes Corp. and the Selling Stockholders contained herein shall be true and
correct in all material respects at the Closing Date and, with respect to the
Option Shares, at the Option Closing Date, as if made at the Closing Date and,
with respect to the Option Shares, at the Option Closing Date, and all covenants
and agreements herein contained to be performed on the part of each of the
Company and Haynes Corp. and the Selling Stockholders and all conditions herein
contained to be fulfilled or complied with by each of the Company and Haynes
Corp. and the Selling Stockholders at or prior to the Closing Date and, with
respect to the Option Shares, at or prior to the Option Closing Date, shall have
been duly performed, fulfilled or complied with.
(f) The Representatives shall have received an opinion, dated the
Closing Date and, with respect to the Option Shares, the Option Closing Date,
and satisfactory in form and substance to counsel for the Underwriters, from Ice
Miller Donadio & Ryan, counsel to the Company, to the effect set forth in
Exhibit D and from Ice Miller
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Donadio & Ryan, counsel to the Selling Stockholders who are natural persons, to
the effect set forth in Exhibit E.
(g) The Representatives shall have received an opinion, dated the
Closing Date and the Option Closing Date, from Davis Polk & Wardwell, counsel to
the Underwriters, with respect to the Registration Statement, the Prospectus and
this Agreement, which opinion shall be satisfactory in all respects to the
Representatives.
(h) On the date of the Prospectus, the Accountants shall have
furnished to the Representatives a letter, dated the date of its delivery,
addressed to the Representatives and in form and substance satisfactory to the
Representatives, confirming that they are independent accountants with respect
to the Company as required by the Act and the Rules and Regulations and with
respect to the financial and other statistical and numerical information
contained in the Registration Statement. At the Closing Date and, as to the
Option Shares, the Option Closing Date, the Accountants shall have furnished to
the Representatives a letter, dated the date of its delivery, which shall
confirm, on the basis of a review in accordance with the procedures set forth in
the letter from the Accountants, that nothing has come to their attention during
the period from the date of the letter referred to in the prior sentence to a
date (specified in the letter) not more than five days prior to the Closing Date
and the Option Closing Date which would require any change in their letter dated
the date of the Prospectus, if it were required to be dated and delivered at the
Closing Date and the Option Closing Date.
(i) At the Closing Date and, as to the Option Shares, the Option
Closing Date, there shall be furnished to the Representatives accurate
certificates, dated the date of its delivery, signed by each of the Chief
Executive Officer and the Chief Financial Officer of the Company and Haynes
Corp., in form and substance satisfactory to the Representatives, to the effect
that:
(i) Each signer of such certificate has carefully examined the
Registration Statement and the Prospectus and (A) as of the date of such
certificate, such documents are true and correct in all material respects
and do not omit to state a material fact required to be stated therein or
necessary in order to make the statements therein not misleading and (B)
since the Effective Date, no event has occurred as a result of which it is
necessary to amend or supplement the Prospectus in order to make the
statements therein not misleading in any material respect.
(ii) Each of the representations and warranties of the Company and
Haynes Corp. contained in this Agreement were, when originally made, and
are, at the time such certificate is delivered, true and correct in all
material respects.
(iii) Each of the covenants required herein to be performed by the
Company and Haynes Corp. on or prior to the date of such certificate has
been duly, timely and fully performed and each condition herein required to
be complied
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<PAGE>
with by the Company and Haynes Corp. on or prior to the delivery of such
certificate has been duly, timely and fully complied with.
(j) At the Closing Date, there shall have been furnished to the
Representatives an accurate certificate, dated the date of its delivery, signed
by the Committee on behalf of each of the Selling Stockholders, in form and
substance satisfactory to the Representatives, to the effect that the
representations and warranties of each of the Selling Stockholders contained
herein are true and correct in all material respects on and as of the date of
such certificate as if made on and as of the date of such certificate, and each
of the covenants and conditions required herein to be performed or complied with
by the Selling Stockholders on or prior to the date of such certificate has been
duly, timely and fully performed or complied with.
(k) On or prior to the Closing Date, the Representatives shall have
received the executed agreements referred to in Section 5(n).
(l) The Shares shall be qualified for sale in such states as the
Representatives may reasonably request, and each such qualification shall be in
effect and not subject to any stop order or other proceeding on the Closing Date
and the Option Closing Date.
(m) Prior to the Closing Date, the Shares shall have been duly
authorized for quotation on the Nasdaq National Market System upon official
notice of issuance, and the National Association of Securities Dealers, Inc.
shall have approved in writing the Underwriters' participation in the
distribution of the Shares and such approval shall not have been withdrawn or
limited.
(n) Each of the Company, Haynes Corp. and the Selling Stockholders
shall have furnished to the Representatives such certificates, in addition to
those specifically mentioned herein, as the Representatives may have reasonably
requested as to the accuracy and completeness in all material respects at the
Closing Date and the Option Closing Date of any statement in the Registration
Statement or the Prospectus, as to the accuracy in all material respects at the
Closing Date and, with respect to the Company and Haynes Corp., the Option
Closing Date of the representations and warranties of the Company, Haynes Corp.
and the Selling Stockholders herein, as to the performance by the Company,
Haynes Corp. and the Selling Stockholders of its and their respective
obligations hereunder, or as to the fulfillment of the conditions concurrent and
precedent to the obligations hereunder of the Representatives.
(o) Haynes Corp. shall have closed the Debt Offering in accordance
with the Debt Purchase Agreement simultaneously with or prior to the closing of
this Offering.
(p) Haynes Corp. shall have entered into the New Credit Facility on
substantially the terms described in the Prospectus.
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<PAGE>
(q) Haynes Corp. shall have prepared notices for the redemption of its
11 1/4% Senior Secured Notes Due 1998 and its 13 1/2% Senior Subordinated Notes
Due 1999, which notices shall be sent or mailed to the holders of such notes no
later than two business days following the Closing Date.
7. Indemnification.
(a) Each of the Company and Haynes Corp., jointly and severally, will
indemnify and hold harmless each Underwriter, the directors, officers, employees
and agents of each Underwriter and each person, if any, who controls each
Underwriter within the meaning of Section 15 of the Act or Section 20 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") from and
against any and all losses, claims, liabilities, expenses and damages (including
any and all investigative, legal and other expenses reasonably incurred in
connection with, and any amount paid in settlement of, any action, suit or
proceeding between any of the indemnified parties and any indemnifying parties
or between any indemnified party and any third party, or otherwise, or any claim
asserted), to which they, or any of them, may become subject under the Act, the
Exchange Act or other Federal or state statutory law or regulation, at common
law or otherwise, insofar as such losses, claims, liabilities, expenses or
damages arise out of or are based on (i) any untrue statement or alleged untrue
statement of a material fact contained in any preliminary prospectus, the
Registration Statement or the Prospectus or any amendment or supplement to the
Registration Statement or the Prospectus, (ii) the omission or alleged omission
to state in such document a material fact required to be stated in it or
necessary to make the statements in it not misleading or (iii) any act or
failure to act or any alleged act or failure to act by any Underwriter in
connection with, or relating in any manner to, the Shares or the offering
contemplated hereby, and which is included as part of or referred to in any
loss, claim, damage, liability or action arising out of or based upon matters
covered by clause (i) or (ii) above (provided that the Company shall not be
liable under this clause (iii) to the extent that it is determined in a final
judgment by a court of competent jurisdiction that such loss, claim, damage,
liability or action resulted directly from any such acts or failures to act
undertaken or omitted to be taken by such Underwriter through its gross
negligence or willful misconduct); provided, however, that each of the Company
and Haynes Corp. will not be liable to the extent that such loss, claim,
liability, expense or damage arises from the sale of the Shares in the public
offering to any person by an Underwriter and is based on an untrue statement or
omission or alleged untrue statement or omission made in reliance on and in
conformity with information relating to any Underwriter furnished in writing to
the Company by any Representative on behalf of any Underwriter expressly for
inclusion in the Registration Statement, any preliminary prospectus or the
Prospectus. This indemnity agreement will be in addition to any liability that
the Company or Haynes Corp. might otherwise have.
(b) Each of the Company and Haynes Corp. also jointly and severally
agrees to indemnify and hold harmless PaineWebber Incorporated acting as
qualified Independent Underwriter (the "Independent Underwriter") and each
person, if any, who controls the Independent Underwriter within the meaning of
Section 15 of the Act or Section
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20 of the Exchange Act, against any losses, claims, damages or liabilities
incurred as a result of the Independent Underwriter's participation as a
"qualified independent underwriter" within the meaning of Rules 2720(b)(15)(A)
through (b)(15)(G) of the Conduct Rules of the NASD in connection with the
offering of the Notes, except for any losses, claims, damages, liabilities and
judgments resulting from the Independent Underwriter's or such controlling
person's willful misconduct or gross negligence.
(c) Each of the Selling Stockholders, severally and not jointly, will
indemnify and hold harmless each Underwriter, the directors, officers, employees
and agents of each Underwriter and each person, if any, who controls each
Underwriter within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act from and against any and all losses, claims, liabilities, expenses
and damages (including any and all investigative, legal and other expenses
reasonably incurred in connection with, and any amount paid in settlement of,
any action, suit or proceeding between any of the indemnified parties and any
indemnifying parties or between any indemnified party and any third party, or
otherwise, or any claim asserted), to which they, or any of them may become
subject under the Act, the Exchange Act or other Federal or state statutory law
or regulation, at common law or otherwise, insofar as such losses, claims,
liabilities, expenses or damages arise out of or are based on (i) any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary prospectus, the Registration Statement or the Prospectus or any
amendment or supplement to the Registration Statement or the Prospectus, (ii)
the omission or alleged omission to state in such document a material fact
required to be stated in it or necessary to make the statements in it not
misleading or (iii) any act or failure to act or any alleged act or failure to
act by any Underwriter in connection with, or relating in any manner to, the
Shares or the offering contemplated hereby, and which is included as part of or
referred to in any loss, claim, damage, liability or action arising out of or
based upon matters covered by clause (i) or (ii) above (provided that the
Company shall not be liable under this clause (iii) to the extent that it is
determined in a final judgment by a court of competent jurisdiction that such
loss, claim, damage, liability or action resulted directly from any such acts or
failures to act undertaken or omitted to be taken by such Underwriter through
its gross negligence or willful misconduct); but only with reference to
information relating to such Selling Stockholder furnished in writing by or on
behalf of such Selling Stockholder expressly for use therein; provided, however,
that the aggregate liability of any Selling Stockholder pursuant to the
provisions of this paragraph shall be limited to an amount equal to the
aggregate purchase price received by such Selling Stockholder from the sale of
such Stockholder's Shares hereunder.
(d) The Selling Stockholders also severally but not jointly agree to
indemnify and hold harmless PaineWebber Incorporated acting as Independent
Underwriter and each person, if any, who controls the Independent Underwriter
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act,
against any losses, claims, damages or liabilities incurred as a result of the
Independent Underwriter's participation as a "qualified independent underwriter"
within the meaning of Rules 2720(b)(15)(A) through (b)(15)(G) of the Conduct
Rules of the NASD in connection with the offering of the Notes, except for any
losses, claims, damages, liabilities and judgments resulting from the
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<PAGE>
Independent Underwriter's or such controlling person's willful misconduct or
gross negligence.
(e) Each Underwriter will indemnify and hold harmless the Company,
Haynes Corp., the Selling Stockholders, the directors, officers, employees and
agents of the Company, Haynes Corp. or any Selling Stockholder, and each person,
if any, who controls the Company, Haynes Corp. or the Selling Stockholders
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act,
each director of the Company and each officer of the Company who signs the
Registration Statement to the same extent as the foregoing indemnity from the
Company and Haynes Corp. to each Underwriter, but only insofar as losses,
claims, liabilities, expenses or damages arise out of or are based on (i) any
untrue statement or omission or alleged untrue statement or omission made in
reliance on and in conformity with information relating to any Underwriter
furnished in writing to the Company, by any Representative on behalf of such
Underwriter expressly for use in the Registration Statement, any preliminary
prospectus or the Prospectus or (ii) to the extent that any such loss, claims,
damage or liability of such indemnified party results solely from an untrue
statement of a material fact contained in, or the omission of a material fact
from, such preliminary prospectus, which untrue statement or omission was
completely corrected in the Prospectus (as then amended or supplemented) if the
Company shall sustain the burden of proving that the Underwriters sold Shares to
the person alleging such loss, claim, damage or liability without sending or
giving, at or prior to the written confirmation of such sale, a copy of the
Prospectus (as then amended or supplemented) if the Company had previously
furnished copies thereof to the Underwriters within a reasonable amount of time
prior to such sale or such confirmation, and the Underwriters failed to deliver
the corrected Prospectus, if required by law to have so delivered it. This
indemnity will be in addition to any liability that each Underwriter might
otherwise have.
(f) Any party that proposes to assert the right to be indemnified
under this Section 7 will, promptly after receipt of notice of commencement of
any action against such party in respect of which a claim is to be made against
an indemnifying party or parties under this Section 7, notify each such
indemnifying party of the commencement of such action, enclosing a copy of all
papers served, but the omission so to notify such indemnifying party will not
relieve it from any liability that it may have to any indemnified party under
the foregoing provisions of this Section 7 unless, and only to the extent that,
such omission results in the forfeiture of substantive rights or defenses by the
indemnifying party. If any such action is brought against any indemnified party
and the indemnified party notifies the indemnifying party of its commencement,
the indemnifying party will be entitled to participate in and, to the extent
that it elects by delivering written notice to the indemnified party promptly
after receiving notice of the commencement of the action from the indemnified
party, jointly with any other indemnifying party similarly notified, to assume
the defense of the action, with counsel satisfactory to the indemnified party,
and after notice from the indemnifying party to the indemnified party of its
election to assume the defense, the indemnifying party will not be liable to the
indemnified party for any legal or other expenses except as provided below and
except for the reasonable costs of investigation subsequently incurred by the
indemnified party in connection with the defense. The
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<PAGE>
indemnified party will have the right to employ its own counsel in any such
action, but the fees, expenses and other charges of such counsel will be at the
expense of such indemnified party unless (1) the employment of counsel by the
indemnified party has been authorized in writing by the indemnifying party, (2)
the indemnified party has reasonably concluded (based on advice of counsel) that
there may be legal defenses available to it or other indemnified parties that
are different from or in addition to those available to the indemnifying party,
(3) a conflict or potential conflict exists (based on advice of counsel to the
indemnified party) between the indemnified party and the indemnifying party (in
which case the indemnifying party will not have the right to direct the defense
of such action on behalf of the indemnified party) or (4) the indemnifying party
has not in fact employed counsel to assume the defense of such action within a
reasonable time after receiving notice of the commencement of the action, in
each of which cases the reasonable fees, disbursements and other charges of
counsel will be at the expense of the indemnifying party or parties. It is
understood that the indemnifying party or parties shall not, in connection with
any proceeding or related proceedings in the same jurisdiction, be liable for
the reasonable fees, disbursements and other charges of more than one separate
firm admitted to practice in such jurisdiction at any one time for all such
indemnified parties. All such fees, disbursements and other charges will be
reimbursed by the indemnifying party promptly as they are incurred. An
indemnifying party will not be liable for any settlement of any action or claim
effected without its written consent (which consent will not be unreasonably
withheld). No indemnifying party shall, without the prior written consent of
each indemnified party, settle or compromise or consent to the entry of any
judgment in any pending or threatened claim, action or proceeding relating to
the matters contemplated by this Section 7 (whether or not any indemnified party
is a party thereto), unless such settlement, compromise or consent includes an
unconditional release of each indemnified party from all liability arising or
that may arise out of such claim, action or proceeding. If indemnity is sought
pursuant to paragraph (e) of this Section 7, then in addition to such counsel
for the indemnified parties, the indemnifying party shall be liable for the
reasonable fees and expenses of not more than one separate counsel (in addition
to any necessary local counsel) for the Independent Underwriter in its capacity
as a "qualified independent underwriter" and all persons, if any, who control
the Independent Underwriter within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act if, in the reasonable judgment of the Independent
Underwriter, there may exist a conflict of interest between the Independent
Underwriter and such control persons of the Independent Underwriter, such
counsel, which shall be reasonably acceptable to the Company, shall be
designated in writing by the Independent Underwriter.
(g)(i) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in the foregoing
paragraphs of this Section 7 is applicable in accordance with its terms but for
any reason is held to be unavailable to any indemnified party, each indemnifying
party will contribute to the total losses, claims, liabilities, expenses and
damages (including any investigative, legal and other expenses reasonably
incurred in connection with, and any amount paid in settlement of, any action,
suit or proceeding or any claim asserted, but after deducting any contribution
received by the Company, Haynes Corp., or the Selling Stockholders from persons
other
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<PAGE>
than the Underwriters, such as persons who control the Company or the Selling
Stockholders within the meaning of the Act, officers of the Company who signed
the Registration Statement and directors of the Company, who also may be liable
for contribution) to which such indemnified party may be subject in such
proportion as shall be appropriate to reflect the relative benefits received by
the indemnifying party or parties on the one hand and the indemnified party or
parties on the other hand from the offering of the Shares. The relative benefits
received by the Company and Haynes Corp., each of the Selling Stockholders or
the Underwriters shall be deemed to be in the same proportion as the total net
proceeds from the offering (before deducting expenses) received by the Company
and Haynes Corp. or each of the Selling Stockholders or the total underwriting
discounts and commissions received by the Underwriters, as the case may be, in
each case as set forth in the table on the cover page of the Prospectus. If, but
only if, the allocation provided by the foregoing sentence is not permitted by
applicable law, the allocation of contribution shall be made in such proportion
as is appropriate to reflect not only the relative benefits referred to in the
foregoing sentence but also the relative fault of the indemnifying party or
parties, on the one hand, and the indemnified party or parties, on the other
hand, with respect to the statements or omissions which resulted in such loss,
claim, liability, expense or damage, or action in respect thereof, as well as
any other relevant equitable considerations with respect to such offering. Such
relative fault shall be determined by reference to whether the untrue or alleged
untrue statement of a material fact or omission or alleged omission to state a
material fact relates to information supplied by the Company, Haynes Corp., the
Selling Stockholders or the Representatives on behalf of the Underwriters, the
intent of the parties and their relative knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Issuer, the
Selling Stockholders and the Underwriters agree that PaineWebber Incorporated
will not receive any additional benefits hereunder for serving as the
Independent Underwriter in connection with the offering. The Company, Haynes
Corp., the Selling Stockholders and the Underwriters agree that it would not be
just and equitable if contributions pursuant to this Section 7(g) were to be
determined by pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take into account the equitable considerations referred to herein. The amount
paid or payable by an indemnified party as a result of the loss, claim,
liability, expense or damage, or action in respect thereof, referred to above in
this Section 7(g) shall be deemed to include, for purpose of this Section 7(g),
any legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 7(g), no Underwriter shall be
required to contribute any amount in excess of the underwriting discounts
received by it, and no Selling Stockholder shall be required to contribute any
amount in excess of the aggregate purchase price received by such Selling
Stockholder from the sale of such Stockholder's Shares hereunder. In addition,
no person found guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) will be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation. The Underwriters'
obligations to contribute as provided in this Section 7(g) are several in
proportion to their respective underwriting obligations and not joint. The
Selling Stockholders' obligations to contribute as provided in this Section 7(g)
are several and not joint.
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(ii) For purposes of this Section 7(g), any person who controls a
party to this Agreement within the meaning of the Act will have the same rights
to contribution as that party, and each officer of the Company who signed the
Registration Statement will have the same rights to contribution as the Company,
subject in each case to the provisions hereof. Any party entitled to
contribution, promptly after receipt of notice of commencement of any action
against such party in respect of which a claim for contribution may be made
under this Section 7(g), will notify any such party or parties from whom
contribution may be sought, but the omission so to notify will not relieve the
party or parties from whom contribution may be sought from any other obligation
it or they may have under this Section 7(g). No party will be liable for
contribution with respect to any action or claim settled without its written
consent (which consent will not be unreasonably withheld).
(h) The indemnity and contribution agreements contained in this
Section 7 and the representations and warranties of the Company, Haynes Corp.
and the Selling Stockholders contained in this Agreement shall remain operative
and in full force and effect regardless of (i) any investigation made by or on
behalf of the Underwriters, (ii) acceptance of any of the Shares and payment
therefor or (iii) any termination of this Agreement.
8. Termination. The obligations of the several Underwriters under this
Agreement may be terminated at any time prior to the Closing Date (or, with
respect to the Option Shares, on or prior to the Option Closing Date), by notice
to the Company and Haynes Corp. from the Representatives, without liability on
the part of any Underwriter to the Company, Haynes Corp. or any Selling
Stockholder, if, prior to delivery and payment for the Shares (or the Option
Shares, as the case may be), in the sole judgment of the Representatives, (i)
trading in any of the equity securities of the Company or Haynes Corp. shall
have been suspended by the Commission, by an exchange that lists the Shares or
by the Nasdaq National Market System, (ii) trading in securities generally on
the New York Stock Exchange shall have been suspended or limited or minimum or
maximum prices shall have been generally established on such exchange, or
additional material governmental restrictions, not in force on the date of this
Agreement, shall have been imposed upon trading in securities generally by such
exchange or by order of the Commission or any court or other governmental
authority, (iii) a general banking moratorium shall have been declared by either
Federal or New York State authorities or (iv) any material adverse change in the
financial or securities markets in the United States or in political, financial
or economic conditions in the United States or any outbreak or material
escalation of hostilities or declaration by the United States of a national
emergency or war or other calamity or crisis shall have occurred, the effect of
any of which is such as to make it, in the sole judgment of the Representatives,
impracticable or inadvisable to market the Shares on the terms and in the manner
contemplated by the Prospectus.
9. Substitution of Underwriters. If any one or more of the Underwriters
shall fail or refuse to purchase any of the Firm Shares which it or they have
agreed to purchase hereunder, and the aggregate number of Firm Shares which such
defaulting Underwriter or Underwriters agreed but failed or refused to purchase
is not more than one-
26
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tenth of the aggregate number of Firm Shares, the other Underwriters shall be
obligated, severally, to purchase the Firm Shares which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase, in the
proportions which the number of Firm Shares which they have respectively agreed
to purchase pursuant to Section 1 bears to the aggregate number of Firm Shares
which all such non-defaulting Underwriters have so agreed to purchase, or in
such other proportions as the Representatives may specify; provided that in no
event shall the maximum number of Firm Shares which any Underwriter has become
obligated to purchase pursuant to Section 1 be increased pursuant to this
Section 9 by more than one-ninth of the number of Firm Shares agreed to be
purchased by such Underwriter without the prior written consent of such
Underwriter. If any Underwriter or Underwriters shall fail or refuse to purchase
any Firm Shares and the aggregate number of Firm Shares which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase exceeds
one-tenth of the aggregate number of the Firm Shares and arrangements
satisfactory to the Representatives, the Company and the Committee for the
purchase of such Firm Shares are not made within 48 hours after such default,
this Agreement will terminate without liability on the part of any
non-defaulting Underwriter, or the Company, Haynes Corp. or any Selling
Stockholder for the purchase or sale of any Shares under this Agreement. In any
such case either the Representatives or the Company and the Committee shall have
the right to postpone the Closing Date, but in no event for longer than seven
days, in order that the required changes, if any, in the Registration Statement
and in the Prospectus or in any other documents or arrangements may be effected.
Any action taken pursuant to this Section 9 shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
10. Miscellaneous. Notice given pursuant to any of the provisions of this
Agreement shall be in writing and, unless otherwise specified, shall be mailed
or delivered (a) if to the Company or Haynes Corp., at the office of the
Company, 1020 West Park Avenue, P.O. Box 9013, Kokomo, Indiana 46904-9013,
Attention: Treasury Department, (b) if to any Selling Stockholder,
_______________________, or (c) if to the Underwriters, to the Representatives
c/o PaineWebber Incorporated at the offices of PaineWebber Incorporated, 1285
Avenue of the Americas, New York, New York 10019, Attention: Corporate Finance
Department. Any such notice shall be effective only upon receipt. Any notice
under Section 8 or 9 may be made by facsimile or telephone, but if so made shall
be subsequently confirmed in writing.
This Agreement has been and is made solely for the benefit of the several
Underwriters, the Company, Haynes Corp. and the Selling Stockholders and of the
controlling persons, directors and officers referred to in Section 7, and their
respective successors and assigns, and no other person shall acquire or have any
right under or by virtue of this Agreement. The term "successors and assigns" as
used in this Agreement shall not include a purchaser, as such purchaser, of
Shares from any of the several Underwriters.
With respect to any obligation of the Company, Haynes Corp. and the Selling
Stockholders hereunder to make any payment, to indemnify for any liability or to
reimburse for any expense, notwithstanding the fact that such obligation is a
joint and several obligation
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of the Company and Haynes Corp., the Underwriters (or any other person to whom
such payment, indemnification or reimbursement is owed) may pursue the Company
or Haynes Corp. with respect thereto prior to pursuing any Selling Stockholder.
All representations, warranties and agreements of the Company, Haynes Corp.
and the Selling Stockholders contained herein or in certificates or other
instruments delivered pursuant hereto, shall remain operative and in full force
and effect regardless of any investigation made by or on behalf of any
Underwriter or any of their controlling persons and shall survive delivery of
and payment for the Shares hereunder.
Any action required or permitted to be taken by the Representatives under
this Agreement may be taken by them jointly or by PaineWebber Incorporated.
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE CONFLICT OF LAWS PRINCIPLES
OF SUCH STATE. This Agreement may be signed in two or more counterparts with the
same effect as if the signatures thereto and hereto were upon the same
instrument.
In case any provision in this Agreement 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.
The Company, Haynes Corp., the Selling Stockholders and the Underwriters
each hereby irrevocably waive any right they may have to a trial by jury in
respect of any claim based upon or arising out of this Agreement or the
transactions contemplated hereby.
This Agreement may not be amended or otherwise modified or any provision
hereof waived except by an instrument in writing signed by the Representatives,
the Company, Haynes Corp. and the Selling Stockholders.
Please confirm that the foregoing correctly sets forth the agreement among
the Company, Haynes Corp., the Selling Stockholders and the several
Underwriters.
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Very truly yours,
HAYNES INTERNATIONAL, INC.
By: ________________________
Title:
HAYNES CORP.
By:_________________________
Title:
THE SELLING STOCKHOLDERS NAMED
IN SCHEDULE I ATTACHED HERETO
By: The Committee
By: _________________________
Confirmed as of the date first
above mentioned:
PAINEWEBBER INCORPORATED
MERRILL LYNCH, PIERCE, FENNER & SMITH
Incorporated
Acting on behalf of itself
themselves and as the
Representatives of the
other several Underwriters
named in Schedule II hereof.
By: PAINEWEBBER INCORPORATED
By: ________________________
Title:
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SCHEDULE I
SELLING STOCKHOLDERS
Total
Name of Number of
Selling Firm Shares
Stockholder to be Sold
- ----------- ----------
Paul F. Troiano 109,566
Schmidt & Co. 17,757
OCM High Yield Trust 3,932
Master Pension Trust of
Pacific Telesis Group 2,573
London Life Insurance Company 1,537
Nancy S. Milton 1,129
Anne Hollingsworth Milton 847
Robert C. Milton III 847
Howard Hughes Medical Institute 768
Hughes Aircraft Company Master
Retirement Trust 621
OCM High Yield Limited Partnership 395
San Diego County Employees'
Retirement Association 305
Lawrence G. Kemp and Patricia
Flynn Kemp 169
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SCHEDULE II
UNDERWRITERS
Number of
Names of Firm Shares
Underwriters to be Purchased
- ------------ ---------------
PaineWebber Incorporated
Merrill Lynch, Pierce Fenner & Smith
Incorporated
Total . . . . . . . . . . . . . . . . . ____________________
_____________
_____________
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EXHIBIT A
HAYNES INTERNATIONAL, INC.
- ---------------------
PRICE DETERMINATION AGREEMENT
July __, 1996
PAINEWEBBER INCORPORATED
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
As Representatives of the several Underwriters
c/o PaineWebber Incorporated
1285 Avenue of the Americas
New York, New York 10019
Dear Sirs:
Reference is made to the Underwriting Agreement, dated July __, 1996 (the
"Underwriting Agreement"), among Haynes International, Inc., a Delaware
corporation (the "Company"), Haynes Corp., a Delaware corporation whose capital
stock is wholly owned by the Company ("Haynes Corp."), the Selling Stockholders
named in Schedule I thereto or hereto (the "Selling Stockholders") and the
several Underwriters named in Schedule II thereto or hereto (the
"Underwriters"), for whom PaineWebber Incorporated and Merrill Lynch, Pierce,
Fenner & Smith Incorporated are acting as representatives (the
"Representatives"). The Underwriting Agreement provides for the purchase by the
Underwriters from the Company and the Selling Stockholders, subject to the terms
and conditions set forth therein, of an aggregate of ______ shares (the "Firm
Shares") of the Company's common stock, par value $.01 per share. This Agreement
is the Price Determination Agreement referred to in the Underwriting Agreement.
Pursuant to Section 1 of the Underwriting Agreement, the undersigned agree
with the Representatives as follows:
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The initial public offering price per share for the ______ Shares shall be
$_______.
The purchase price per share for the Firm Shares to be paid by the several
Underwriters shall be $_______ representing an amount equal to the initial
public offering price set forth above, less $______ per share.
Each of the Company and Haynes Corp. represents and warrants to each of the
Underwriters that the representations and warranties of each of the Company and
Haynes Corp. set forth in Section 3 of the Underwriting Agreement are accurate
as though expressly made at and as of the date hereof.
The Selling Stockholders represent and warrant to each of the Underwriters
that the representations and warranties of the Selling Stockholders set forth in
Section 4 of the Underwriting Agreement are accurate as though expressly made at
and as of the date hereof.
This Agreement shall be governed by the law of the State of New York
without regard to the conflict of laws principles of such State.
If the foregoing is in accordance with your understanding of the agreement
among the Underwriters, the Company, Haynes Corp. and the Selling Stockholders,
please sign and return to the Company a counterpart hereof, whereupon this
instrument along with all counterparts and together with the Underwriting
Agreement shall be a binding agreement among the Underwriters, the Company,
Haynes Corp. and the Selling Stockholders in accordance with its terms and the
terms of the Underwriting Agreement.
Very truly yours,
HAYNES INTERNATIONAL, INC.
By:_________________________
Title:
HAYNES CORP.
By:_________________________
Title:
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<PAGE>
THE SELLING STOCKHOLDERS
NAMED IN SCHEDULE I TO THE
UNDERWRITING AGREEMENT
By: The Committee
By:______________________
Confirmed as of the date
first above mentioned:
PAINEWEBBER INCORPORATED
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
Acting on behalf of themselves
and as the Representatives
of the other several Underwriters
named in Schedule II hereof.
By: PAINEWEBBER INCORPORATED
By: ________________________
Title:
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<PAGE>
EXHIBIT B
POWER OF ATTORNEY
HAYNES INTERNATIONAL, INC.
Common Stock
Michael D. Austin
Joseph F. Barker
c/o Haynes International, Inc.
1020 West Park Avenue
Kokomo, Indiana 46904-9013
Dear Sirs:
The undersigned understands that Haynes International, Inc., a Delaware
corporation (the "Company"), has filed a registration statement (the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Act"), in connection with the proposed public offering and sale by the Company,
the undersigned (the "Selling Stockholder") and certain other selling
stockholders of the Company's Common Stock, par value $.01 per share (the
"Common Stock").
The Selling Stockholder desires to sell certain shares of Common Stock and
to include such shares among the shares covered by the Registration Statement.
The number of shares of Common Stock which the undersigned desires to sell (the
"Shares") are set forth beneath the signature of the Selling Stockholder below.
Concurrently with the execution and delivery of this Power of Attorney, the
undersigned is delivering to you, or requesting the Company to deliver to you,
certificates for the Shares, which you are authorized to deposit with
____________, as custodian (the "Custodian"), pursuant to a custody agreement in
the form attached as Attachment A hereto (the "Custody Agreement").
1. In connection with the foregoing, the Selling Stockholder hereby makes,
constitutes and appoints you collectively, and each of you, individually (a
"Member") and each of your respective substitutes under Section 3 hereof, the
true and lawful attorneys-in-fact of the undersigned (the Members or any of them
or their
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respective substitutes, being herein referred to collectively as the
"Committee"), with full power and authority, in the name and on behalf of the
Selling Stockholder:
(a) To enter into the Custody Agreement and deposit with the Custodian
pursuant thereto the certificates for the Shares delivered to the Committee
concurrently herewith;
(b) For the purpose of effecting the sale of the Shares, to execute
and deliver (i) an Underwriting Agreement (the "Underwriting Agreement"), by and
among the Company, Haynes Corp., the other Selling Stockholders and the
representatives (the "Representatives") of the several Underwriters (the
"Underwriters") and (ii) a Price Determination Agreement (as defined in the
Underwriting Agreement), by and among the Company, Haynes Corp., the other
selling stockholders and the Representatives;
(c) To endorse, transfer and deliver certificates for the Shares to or
on the order of the Representatives or to their nominee or nominees, and to give
such orders and instructions to the Custodian as the Committee may in its sole
discretion determine with respect to (i) the transfer on the books of the
Company of the Shares in order to effect such sale (including the names in which
new certificates for such Shares are to be issued and the denominations
thereof); (ii) the delivery to or for the account of the Representatives of the
certificates for the Shares against receipt by the Custodian of the full
purchase price to be paid therefor; (iii) the remittance to the Selling
Stockholder of the Selling Stockholder's share of the proceeds, after payment of
expenses described in the Underwriting Agreement, from any sale of Shares; and
(iv) the return to the Selling Stockholder of certificates representing the
number of Shares (if any) deposited with the Custodian but not sold by the
Selling Stockholder under the Registration Statement for any reason;
(d) To retain Ice Miller Donadio & Ryan (who are also counsel to the
Company) as legal counsel for the Selling Stockholders in connection with any
and all matters referred to herein;
(e) To take for the Selling Stockholder all steps deemed necessary or
advisable by the Committee in connection with the registration of the Shares
under the Act, including without limitation filing amendments to the
Registration Statement, requesting acceleration of effectiveness of the
Registration Statement, advising the Securities and Exchange Commission that the
reason the Selling Stockholder is offering the Shares for sale is to diversify
the Selling Stockholder's investments and to assist the Company in creating the
public market for the Common Stock, informing said Commission that the Selling
Stockholder has no knowledge of any material adverse information with regard to
the current and prospective operations of the Company which is not stated in the
Registration Statement, and such other steps as the Committee may in its
absolute discretion deem necessary or advisable;
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<PAGE>
(f) To make, acknowledge, verify and file on behalf of the Selling
Stockholder applications, consents to service of process and such other
undertakings or reports as may be required by law with state commissioners or
officers administering state securities or Blue Sky laws and to take any other
action required to facilitate the qualification of the Shares under the
securities or Blue Sky laws of the jurisdictions in which the Shares are to be
offered;
(g) If necessary, to endorse (in blank or otherwise) on behalf of the
Selling Stockholder the certificate or certificates representing the Shares, or
a stock power or powers attached to such certificate or certificates; and
(h) To make, execute, acknowledge and deliver all such other
contracts, orders, receipts, notices, requests, instructions, certificates,
letters and other writings and, in general, to do all things and to take all
action which the Committee in its sole discretion may consider necessary or
proper in connection with or to carry out the aforesaid sale of Shares, as fully
as could the Selling Stockholder if personally present and acting.
2. This Power of Attorney and all authority conferred hereby is granted and
conferred subject to and in consideration of the interests of the Company, the
Representatives, the Underwriters and the other selling stockholders and, for
the purpose of completing the transactions contemplated by this Power of
Attorney, this Power of Attorney and all authority conferred hereby shall be
irrevocable and shall not be terminated by any act of the Selling Stockholder or
by operation of law, whether by the death, disability, incapacity or liquidation
of the Selling Stockholder or by the occurrence of any other event or events
(including without limitation the termination of any trust or estate for which
the Selling Stockholder is acting as a fiduciary or fiduciaries), and if, after
the execution hereof, the Selling Stockholder shall die or become disabled or
incapacitated or is liquidated, or if any other such event or events shall occur
before the completion of the transactions contemplated by this Power of
Attorney, the Committee shall nevertheless be authorized and directed to
complete all such transactions as if such death, disability, incapacity,
liquidation or other event or events had not occurred and regardless of notice
thereof.
3. Each Member shall have full power to make and substitute any person in
the place and stead of such Member, and the Selling Stockholder hereby ratifies
and confirms all that each Member or substitute or substitutes shall do by
virtue of these presents. All actions hereunder may be taken by any one Member
or his substitute. In the event of the death, disability or incapacity of any
Member, the remaining Member or Members shall appoint a substitute therefor.
4. The Selling Stockholder hereby represents, warrants and covenants that:
(a) All information furnished to the Company by or on behalf of the
Selling Stockholder for use in connection with the preparation of the
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<PAGE>
Registration Statement is and will be true and correct in all material respects
and does not and will not omit any material fact necessary to make such
information not misleading;
(b) The Selling Stockholder, having full right, power and authority to
do so, has duly executed and delivered this Power of Attorney;
(c) The Selling Stockholder has carefully reviewed the Registration
Statement and will carefully review each amendment thereto immediately upon
receipt thereof from the Company and will promptly advise the Company in writing
if:
(i) The name and address of the Selling Stockholder is not properly
set forth in each preliminary prospectus (collectively, the "Preliminary
Prospectus") contained in the Registration Statement and the prospectuses
(collectively, the "Prospectus") contained in the Registration Statement at
the time it becomes effective;
(ii) The Selling Stockholder has reason to believe that (A) any
information furnished to the Company by or on behalf of the Selling
Stockholder for use in connection with the Registration Statement or the
Prospectus or any Preliminary Prospectus is not true and complete; and (B)
any Preliminary Prospectus, the Prospectus and any supplements thereto
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading;
(iii) The Selling Stockholder knows of any material adverse
information with regard to the current or prospective operations of the
Company or any of its Subsidiaries which is not disclosed in any
Preliminary Prospectus, the Prospectus or the Registration Statement; or
(iv) Except as indicated in the Prospectus, the Selling Stockholder
knows of any arrangements made or to be made by any person, or of any
transaction already effected, (A) to limit or restrict the sale of shares
of the Common Stock during the period of the public distribution, (B) to
stabilize the market for the Common Stock or (C) for withholding
commissions, or otherwise to hold any other person responsible for the
distribution of the Selling Stockholder's participation;
(d) In connection with the offering of the Shares, the Selling
Stockholder has not taken and will not take, directly or indirectly, any action
intended to, or which might reasonably be expected to, cause or result in
stabilization or manipulation of the price of the Shares to facilitate the sale
or resale of the Shares;
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<PAGE>
(e) The Selling Stockholder has not distributed and will not
distribute any prospectus or other offering material in connection with the
offering and sale of the Shares other than a Preliminary Prospectus, a
Prospectus or other material permitted by the Act;
(f) The Selling Stockholder will notify the Company in writing
immediately of any changes in the foregoing information which should be made as
a result of developments occurring after the date hereof and prior to the
Closing Date under the Underwriting Agreement, and the Committee may consider
that there has not been any such development unless advised to the contrary;
(g) The Selling Stockholder has, and at the time of delivery of the
Shares to the Representatives it will have, full power and authority to enter
into this Power of Attorney, to carry out the terms and provisions hereof and to
make all the representations, warranties and covenants contained herein; and
(h) This Power of Attorney is the valid and binding agreement of the
Selling Stockholder and is enforceable against the Selling Stockholder in
accordance with its terms, except as the enforcement thereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting creditors' rights generally, or by general equitable principals.
5. The representations, warranties and covenants of the Selling Stockholder
in this Power of Attorney are made for the benefit of, and may be relied upon
by, the other selling stockholders, the Committee, the Company and its counsel,
and their representatives, agents and counsel, the Custodian, the Underwriters
and the Representatives.
6. The Committee shall be entitled to act and rely upon any statement,
request, notice or instructions respecting this Power of Attorney given to it by
the Selling Stockholder, not only as to the authorization, validity and
effectiveness thereof, but also as to the truth and acceptability of any
information therein contained.
It is understood that the Committee assumes no responsibility or liability
to any person other than to deal with the Shares deposited with it and the
proceeds from the sale of the Shares in accordance with the provisions hereof.
The Committee makes no representations with respect to and shall have no
responsibility for the Registration Statement, the Prospectus or any Preliminary
Prospectus nor, except as herein expressly provided, for any aspect of the
offering of Common Stock, and it shall not be liable for any error of judgment
or for any act done or omitted or for any mistake of fact or law except for its
own gross negligence or bad faith. The Selling Stockholder agrees to indemnify
the Committee for and to hold the Committee harmless against any loss, claim,
damage or liability incurred on its part arising out of or in connection with it
acting as the Committee under this Power of Attorney, as well as the reasonable
cost and expense of investigating and defending against any such loss, claim,
damage or liability, except to the extent such loss, claim, damage or
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<PAGE>
liability is due to the gross negligence or bad faith of the Member seeking
indemnification. The Selling Stockholder agrees that the Committee may consult
with counsel of its own choice (who may be counsel for the Company) and it shall
have full and complete authorization and protection for any action taken or
suffered by it hereunder in good faith and in accordance with the opinion of
such counsel.
It is understood that the Committee may, without breaching any express or
implied obligation to the Selling Stockholder hereunder, release, amend or
modify any other Power of Attorney granted by any other selling stockholder.
7. It is understood that the Committee shall serve entirely without
compensation.
8. This Power of Attorney shall be governed by the laws of the State of New
York without regard to the conflict of laws principles of such State.
This Power of Attorney may be signed in two or more counterparts with the
same effect as if the signature thereto and hereto were upon the same
instrument.
In case any provision in this Power of Attorney 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.
This Power of Attorney shall be binding upon the Committee and the Selling
Stockholder and the heirs, legal representatives, distributees, successors and
assigns of the Selling Stockholder.
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<PAGE>
Dated: July __, 1996
Very truly yours,
_____________________________*/
_____________________________*/
Signature(s) of Selling Stockholder(s)
_____________________________
(Address)
SHARES TO BE SOLD:
_____ shares of Common Stock
_______________________
*/ To be signed in exactly the same manner as the shares are registered.
7
<PAGE>
ACKNOWLEDGED AND ACCEPTED:
THE COMMITTEE:
______________________________
Michael D. Austin
______________________________
Joseph F. Barker
8
<PAGE>
ATTACHMENT A
CUSTODY AGREEMENT
CUSTODY AGREEMENT, dated July __, 1996, among National City Bank, as
Custodian (the "Custodian"), and the persons listed on Annex I hereto (each a
"Selling Stockholder" and collectively the "Selling Stockholders").
Haynes Holdings, Inc., a Delaware corporation (together with its
successors, the "Company"), has filed a Registration Statement (the
"Registration Statement") with the Securities and Exchange Commission to
register for sale to the public under the Securities Act of 1933, as amended
(the "Act"), shares of the Company's common stock, $.01 par value per share (the
"Common Stock").
The shares to be covered by the Registration Statement shall consist of (a)
up to 2,300,000 shares of Common Stock to be sold by the Company and (b) up to
138,446 shares of Common Stock (the "Shares") to be sold by the Selling
Stockholders.
Each of the Selling Stockholders has executed and delivered a Power of
Attorney (the "Power of Attorney") naming Michael D. Austin and Joseph F.
Barker, and each of them, as his attorney-in-fact (the "Committee"), for certain
purposes, including the execution, delivery and performance of this Agreement in
his name, place and stead, in connection with the proposed sale by each Selling
Stockholder of the number of Shares set forth opposite such Selling
Stockholder's name in Annex I.
1. A custody arrangement is hereby established by the Selling Stockholders
with the Custodian with respect to the Shares, and the Custodian is hereby
instructed to act in accordance with this Agreement and any amendments or
supplements hereto authorized by the Committee.
2. There are herewith delivered to the Custodian, and the Custodian hereby
acknowledges receipt of, certificates representing the Shares, which
certificates have been endorsed in blank or are accompanied by duly executed
stock powers, in each case with all signatures guaranteed by a commercial bank
or trust company or by a member firm of the New York Stock Exchange, Inc., the
American Stock Exchange, Inc. or a member of the National Association of
Securities Dealers, Inc. Such certificates are to be held by the Custodian for
the account of the Selling Stockholders and are to be disposed of by the
Custodian in accordance with this Agreement.
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3. The Custodian is authorized and directed by the Selling Stockholders:
(a) To hold the certificates representing the Shares delivered by the
Selling Stockholders in its custody;
(b) On or immediately prior to the settlement date for any Shares sold
pursuant to the Registration Statement (the "Closing Date"), to cause such
Shares to be transferred on the books of the Company into such names as the
Custodian shall have been instructed by the representatives (the
"Representatives") of the several Underwriters (the "Underwriters"); to cause to
be issued, against surrender of the certificates for the Shares, a new
certificate or certificates for such Shares, free of any restrictive legend,
registered in such name or names; to deliver such new certificates representing
such Shares to the Representatives, as instructed by the Representatives on the
Closing Date for their account or accounts against full payment therefor; and to
give receipt for such payment; and
(c) To disburse such payments in the following manner: (i) to itself,
as agent for the Selling Stockholders, a reserve amount to be designated in
writing by the Committee from which amount the Custodian shall pay, as soon as
reasonably practicable, (A) the Selling Stockholders' proportionate share of all
amounts payable by them pursuant to the terms of the Underwriting Agreement by
and among the Company, the Selling Stockholders and the Representatives or any
agreement among the Company and the Selling Stockholders, and (B) any applicable
stock transfer taxes; and (ii) to each Selling Stockholder, pursuant to the
written instructions of the Committee, (A) on the Closing Date, a sum equal to
the share of the proceeds to which such Selling Stockholder is entitled, as
determined by the Committee, less the reserve amount designated by any
Committee, and (B) promptly after all proper charges, disbursements, costs and
expenses shall have been paid, any remaining balance of the amount reserved
under clause (i) above. Before making any payment from the amount reserved under
clause (i) above, except payments made pursuant to subclause (B) of clause (ii)
above, the Custodian shall request and receive the written approval of the
Committee. To the extent the expenses referred to in subclause (A) of clause (i)
above exceed the amount reserved, the Selling Stockholders shall remain liable
for their proportionate share of such expenses.
The Custodian shall return to such Selling Stockholder certificates
representing the number of Shares (if any) deposited with the Custodian but not
sold for any reason by the Selling Stockholder under the Registration Statement
as soon as practicable after the termination of the offering of the Shares but
in any event no later than December 31, 1996. Certificates returned to any
Selling Stockholder shall be returned with any related stock powers, and any new
certificates issued to the Selling Stockholders with respect to such Shares
shall bear any appropriate legend reflecting the unregistered status thereof
under the Act.
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<PAGE>
4. This Agreement is for the express benefit of the Company and the Selling
Stockholders, the Underwriters and the Representatives. The obligations and
authorizations of the Selling Stockholders hereunder are irrevocable and shall
not be terminated by any act of any Selling Stockholder or by operation of law,
whether by the death, disability, incapacity or liquidation of any Selling
Stockholder or by the occurrence of any other event or events (including without
limitation the termination of any trust or estate for which any Selling
Stockholder is acting as a fiduciary or fiduciaries), and if after the execution
hereof any Selling Stockholder shall die or become disabled or incapacitated or
is liquidated, or if any other event or events shall occur before the delivery
of such Selling Stockholder's Shares hereunder to the Representatives, such
Shares shall be delivered to the Representatives in accordance with the terms
and conditions of this Agreement, as if such event had not occurred, regardless
of whether or not the Custodian shall have received notice of such event.
5. Until payment of the purchase price for the Shares has been made to the
Selling Stockholders or to the Custodian, the Selling Stockholders shall remain
the owner of (and shall retain the right to receive dividends and distributions
on, and to vote) the number of Shares delivered by each of them to the Custodian
hereunder. Until such payment in full has been made or until the offering of
Shares has been terminated, each Selling Stockholder agrees that it will not
give, sell, pledge, hypothecate, grant any lien on, transfer, deal with or
contract with respect to the Shares and any interests therein.
6. The Custodian shall assume no responsibility to any person other than to
deal with the certificates for the Shares and the proceeds from the sale of the
Shares represented thereby in accordance with the provisions hereof, and the
Selling Stockholders, severally and not jointly, hereby agree to indemnify the
Custodian for and to hold the Custodian harmless against any and all losses,
claims, damages or liabilities incurred on its part arising out of or in
connection with it acting as the Custodian pursuant hereto, as well as the cost
and expenses of investigating and defending any such losses, claims, damages or
liabilities, except to the extent such losses, claims, damages or liabilities
are due to the negligence or bad faith of the Custodian. The Selling
Stockholders agree that the Custodian may consult with counsel of its own choice
(who may be counsel for the Company), and the Custodian shall have full and
complete authorization and protection for any action taken or suffered by the
Custodian hereunder in good faith and in accordance with the opinion of such
counsel.
7. Each of the Selling Stockholders, jointly and not severally, hereby
represents and warrants that: (a) it has, and at the time of delivery of its
Shares to the Representatives it will have, full power and authority to enter
into this Agreement and the Power of Attorney, to carry out the terms and
provisions hereof and thereof and to make all of the representations, warranties
and agreements contained herein and therein; and (b) this Agreement and the
Power of Attorney are the valid and binding agreements of such Selling
Stockholder and are enforceable
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against such Selling Stockholder in accordance with their respective terms,
except as the enforcement thereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
creditors' rights generally, or by general equitable principals.
8. The Custodian's acceptance of this Agreement by the execution hereof
shall constitute an acknowledgment by the Custodian of the authorization herein
conferred and shall evidence the Custodian's agreement to carry out and perform
this Agreement in accordance with its terms.
9. The Custodian shall be entitled to act and rely upon any statement,
request, notice or instruction with respect to this Agreement given to it on
behalf of each of the Selling Stockholders if the same shall be made or given to
the Custodian by the Committee, not only as to the authorization, validity and
effectiveness thereof, but also as to the truth and acceptability of any
information therein contained.
10. This Agreement may be executed in two or more counterparts with the
same effect as if the signatures thereto and hereto were upon the same
instrument. Execution by the Custodian of one counterpart hereof and its
delivery thereof to the Committee shall constitute the valid execution of this
Agreement by the Custodian.
11. This Agreement shall be binding upon the Custodian, each of the Selling
Stockholders and the respective heirs, legal representatives, distributees,
successors and assigns of the Selling Stockholders.
12. This Agreement shall be governed by the laws of the State of New York
without regard to the conflict of laws principles of such State.
13. Any notice given pursuant to this Agreement shall be deemed given if in
writing and delivered in person, or if given by telephone or telegraph if
subsequently confirmed by letter: (i) if to a Selling Stockholder, to his
address set forth in Annex I; and (ii) if to the Custodian, to it at
___________________.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
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________________________
_______________________,
as Custodian
THE SELLING STOCKHOLDERS
LISTED IN ANNEX I HERETO:
By: The Committee
By:_____________________
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Annex I
Names and Addresses of
Selling Stockholders Shares to be Sold
-------------------- -----------------
__________________
Total.........................................
______________
______________
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EXHIBIT C
July____, 1996
PAINEWEBBER INCORPORATED
MERRILL LYNCH, PIERCE, FENNER & SMITH,
Incorporated
As Representatives of the
several Underwriters
c/o PaineWebber Incorporated
1285 Avenue of the Americas
New York, New York 10019
Dear Sirs:
In consideration of the agreement of the several Underwriters, for which
PaineWebber Incorporated and Merrill Lynch, Pierce, Fenner & Smith, Incorporated
(the "Representatives") intend to act as Representatives, to underwrite a
proposed public offering (the "Offering") of 2,438,446 shares of Common Stock,
par value $.01 per share (the "Common Stock") of Haynes International, Inc., a
Delaware corporation, as contemplated by a registration statement with respect
to such shares filed with the Securities and Exchange Commission on Form S-1
(Registration No. 333-5203), the undersigned hereby agrees that the undersigned
will not, for a period of 180 days after the commencement of the public offering
of such shares, without the prior written consent of PaineWebber Incorporated
for the Representatives, offer to sell, sell, contract to sell, grant any option
to sell, pledge, sell any contract or option to purchase, purchase any option or
contract to sell, grant any option, right, or warrant to purchase or otherwise
transfer or dispose of, directly or indirectly, any shares of Common Stock or
any securities convertible into or exchangeable or exercisable for Common Stock,
or require the Company to file with the Securities and Exchange Commission a
registration statement under the Securities Act of 1933 to register, any shares
of Common Stock or securities convertible into or exchangeable for Common Stock
or warrants or other rights to acquire shares of Common Stock of which the
undersigned is now, or may in the future become, the beneficial owner (within
the meaning of Rule 13d-3 under the Securities Exchange Act of 1934) (other than
shares of Common Stock acquired pursuant to employee stock option plans or in
connection with other employee incentive compensation arrangements).
Very truly yours,
By:________________________
Print Name: ________________________
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EXHIBIT D
Form of Opinion of
Counsel to the Company
Each of Company and its subsidiaries incorporated in the United States is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation and has full corporate power and
authority to conduct all the activities conducted by it, to own or lease all the
assets owned or leased by it and to conduct its business as described in the
Registration Statement and the Prospectus. The Company or Haynes Corp. is the
sole record owner and, to our knowledge, the sole beneficial owner of all of the
capital stock of each of its subsidiaries.
All of the outstanding shares of Common Stock have been, and the Shares,
when paid for by the Underwriters in accordance with the terms of the Agreement,
will be, duly authorized, validly issued, fully paid and nonassessable and will
not be subject to any preemptive or similar right that has not been exercised or
waived under (i) the statutes, judicial and administrative decisions and the
rules and regulations of the governmental agencies of the State of Delaware,
(ii) the Company's amended certificate of incorporation or by-laws or (iii) any
instrument, document, contract or other agreement referred to in the
Registration Statement or any instrument, document, contract or agreement filed
as an exhibit to the Registration Statement. Except as described in the
Registration Statement or the Prospectus, to the best of our knowledge, there is
no commitment or arrangement to issue, and there are no outstanding options,
warrants or other rights calling for the issuance of, any share of capital stock
of the Company or any subsidiary to any person or any security or other
instrument that by its terms is convertible into, exercisable for or
exchangeable for capital stock of the Company.
No consent, approval, authorization or order of, or any filing or
declaration with, any court or governmental agency or body is required in
connection with the authorization, issuance, transfer, sale or delivery of the
Shares by the Company, in connection with the execution, delivery and
performance by the Company and Haynes Corp. of the Underwriting Agreement among
the Company, Haynes Corp., the Selling Stockholders and the Representatives
dated July , 1996 (together with the related Price Determination Agreement of
same date, the "Agreement") or in connection with the taking by the Company or
Haynes Corp. of any action contemplated thereby, except such as have been
obtained under the Act and the Rules and Regulations and such as may be required
under state securities or "Blue
1
<PAGE>
Sky" laws or by the by-laws and rules of the NASD in connection with the
purchase and distribution by the Underwriters of the Shares to be sold by the
Company.
The authorized, issued and outstanding capital stock of the Company is as
set forth in the Registration Statement and the Prospectus under the caption
"Capitalization." The terms and conditions of the Common Stock conform in all
material respects to the description thereof contained in the Prospectus. The
form of certificate used to evidence the Common Stock is in due and proper form
and complies with the Delaware General Corporation Law.
The Registration Statement and the Prospectus as of the Effective Date and
the Closing Date complied in all material respects as to form with the
requirements of the Act and the Rules and Regulations (except that we express no
opinion as to financial statements, schedules and other financial data contained
in the Registration Statement or the Prospectus).
To our knowledge, any instrument, document, lease, license, contract or
other agreement (collectively, "Documents") required to be described or referred
to in the Registration Statement or the Prospectus has been properly described
or referred to therein and any Document required to be filed as an exhibit to
the Registration Statement has been filed as an exhibit thereto or has been
incorporated as an exhibit by reference in the Registration Statement, and to
our knowledge no material default exists in the due performance or observance of
any material obligation, agreement, covenant or condition contained in any
Document filed or required to be filed as an exhibit to the Registration
Statement.
To our knowledge, except as disclosed in the Registration Statement or the
Prospectus, no person or entity has the right to require the registration under
the Act of shares of Common Stock or other securities of the Company by reason
of the filing or effectiveness of the Registration Statement.
To our knowledge, neither the Company nor Haynes Corp. is in violation of,
or in default with respect to, any law, rule, regulation, order, judgment or
decree, except as may be described in the Prospectus or such as in the aggregate
do not now have a material adverse effect upon the operations, business or
assets of the Company and its subsidiaries, taken as a whole.
All descriptions in the Prospectus of statutes, regulations or legal or
governmental proceedings are accurate and fairly present the information
required to be shown by the Act or the Rules and Regulations.
Each of the Company and Haynes Corp. has full corporate power and authority
to enter into the Agreement, and the Agreement has been duly authorized,
executed and delivered by the each of the Company and Haynes Corp. To the extent
governed by Indiana law or the Delaware General Corporation Law, the Agreement
is a valid and binding agreement of each of the Company and Haynes Corp. and,
except
2
<PAGE>
for the indemnification and contribution provisions thereof, as to which we
express no opinion, is enforceable against each of the Company and Haynes Corp.
in accordance with the terms thereof, except as the enforcement thereof may be
limited by bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting creditors' rights generally or by general
equitable principles.
The execution and delivery by each of the Company and Haynes Corp. of, and
the performance by each of the Company and Haynes Corp. of its agreements in,
the Agreement, the Debt Purchase Agreement (as defined in the Agreement) and,
with respect to Haynes Corp. only, the Indenture (as defined in the Prospectus)
do not and will not (i) violate the certificate of incorporation or by-laws of
either the Company or Haynes Corp., (ii) to our knowledge breach or result in a
default under, cause the time for performance of any obligation to be
accelerated under, or result in the creation or imposition of any lien, charge
or encumbrance upon any of the assets of the Company or any of its subsidiaries
pursuant to the terms of, (x) any indenture, mortgage, deed of trust, loan
agreement, bond, debenture, note agreement, capital lease or other evidence of
indebtedness of which we have knowledge, including without limitation any
contract or other agreement relating to the Existing Indebtedness and the New
Credit Facility, (y) any voting trust arrangement or any contract or other
agreement that restricts the ability of the Company or any of its subsidiaries
to issue securities and of which we have knowledge or (z) any Document filed as
an exhibit to the Registration Statement, (iii) to our knowledge breach or
otherwise violate any existing obligation of either the Company or Haynes Corp.
under any court or administrative order, judgment or decree of which we have
knowledge or (iv) violate applicable provisions of the Delaware General
Corporation Law or any statute or regulation in the State of Indiana or of the
United States, which violation, breach or default would have a material adverse
affect on the general affairs, business, properties, management, condition
(financial or otherwise) or results of operations of the Company and its
subsidiaries, taken as a whole.
Delivery of certificates for the Shares will transfer valid and marketable
title thereto to each Underwriter that has purchased such Shares in good faith
and without any notice of any adverse claim with respect thereto.
Neither the Company nor Haynes Corp. is an "investment company" or an
"affiliated person" of, or "promoter" or "principal underwriter" for, an
"investment company," as such terms are defined in the Investment Company Act of
1940, as amended.
Nothing has come to our attention in the course of our representation of
the Company that would cause us to conclude that the information contained in
the Registration Statement under the caption "Risk Factors--Potential Costs of
Environmental Compliance," the last paragraph under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources" and the caption "Business--Environmental
Matters" includes any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements therein not misleading.
3
<PAGE>
We hereby confirm to you that we have been advised by the Commission that
the Registration Statement has become effective under the Act and that, to our
knowledge, no order suspending the effectiveness of the Registration Statement
has been issued and no proceeding for that purpose has been instituted or is
threatened, pending or contemplated.
We hereby further confirm to you that to our knowledge there are no
actions, suits, proceedings or investigations pending or overtly threatened in
writing against either the Company or Haynes Corp. or any of their respective
officers or directors in their capacities as such, before or by any court,
governmental agency or arbitrator which (i) seek to challenge the legality or
enforceability of the Agreement, the Debt Purchase Agreement or the Indenture,
(ii) seek to challenge the legality or enforceability of any of the Documents
filed, or required to be filed, as exhibits to the Registration Statement,
(iii) seek damages or other remedies with respect to any of the Documents filed,
or required to be filed, as exhibits to the Registration Statement, (iv) except
for litigation described in the Registration Statement, seek money damages in
excess of $1 million or seek to impose criminal penalties upon the Company or
any of its subsidiaries or any of their respective officers or directors in
their capacities as such and of which we have knowledge or (v) seek to enjoin
any of the business activities of the Company or any of its subsidiaries or the
transactions described in the Prospectus and of which we have knowledge.
4
<PAGE>
We have participated in the preparation of the Registration Statement and
the Prospectus and, without assuming any responsibility for the accuracy,
completeness or fairness of the statements contained in the Registration
Statement or the Prospectus or in any amendment or supplement thereto, nothing
has come to our attention that causes us to believe that, both as of the
Effective Date and as of the Closing Date and the Option Closing Date, the
Registration Statement, or any amendment thereto, contained or contains any
untrue statement of a material fact or omitted or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading or that any Prospectus or any amendment or supplement thereto at the
time such Prospectus was issued, at the time any such amended or supplemented
Prospectus was issued, at the Closing Date and the Option Closing Date,
contained or contains any untrue statement of a material fact or omitted or
omits to state a material fact necessary in order to make the statements
therein, in the light of the circumstances in which they were made, not
misleading (except that we express no opinion as to financial statements,
schedules and other financial data contained in the Registration Statement or
the Prospectus).
The foregoing opinion is subject to the qualification that the
enforceability of the Agreement, the Debt Purchase Agreement and the Indenture
may be: (i) subject to bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditors' rights generally; and (ii) subject to general
principles of equity (regardless of whether such enforceability is considered in
a proceeding at law or in equity), including principles of commercial
reasonableness or conscionability and an implied covenant of good faith and fair
dealing.
This opinion is furnished by us solely for your benefit in connection with
the transactions referred to in the Agreement and may not be circulated to, or
relied upon by, any other person.
In rendering the foregoing opinion, counsel may rely, to the extent they
deem such reliance proper, on the opinions (in form and substance reasonably
satisfactory to Underwriters' counsel) of other counsel reasonably acceptable to
Underwriters' counsel as to matters governed by the laws of jurisdictions other
than the United States, the State of Delaware and the State of Indiana, and as
to matters of fact, upon certificates of officers of the Company or Haynes Corp.
and of government officials; provided that such counsel shall state that the
opinion of any other counsel is in form satisfactory to such counsel. Copies of
all such opinions and certificates shall be furnished to counsel to the
Underwriters on the Closing Date.
5
<PAGE>
EXHIBIT E
Form of Opinion
of Counsel to the
Selling Stockholders
Each of the Selling Stockholders has full power and authority to enter into
the Underwriting Agreement dated July _____, 1996 among the Company, Haynes
Corp. and the Representatives (together with the Price Determination Agreement
of the same date, the "Agreement") and the Agreement and Power of Attorney and
to sell, transfer and deliver such Shares pursuant to the Agreement and the
Agreement and Power of Attorney. All authorizations and consents necessary for
the execution and delivery of the Agreement and the Agreement and Power of
Attorney on behalf of each of the Selling Stockholders has been given. The
delivery of the Shares on behalf of the Selling Stockholders pursuant to the
terms of the Agreement and payment therefor by the Underwriters will transfer
good and marketable title to the Shares to the several Underwriters purchasing
the Shares, free and clear of all liens, encumbrance and claims whatsoever.
Each of the Agreement and the Agreement and Power of Attorney has been duly
authorized, executed and delivered by or on behalf of each of the Selling
Stockholders, is a valid and binding agreement of each Selling Stockholder and,
except for the indemnification and contribution provisions of the Agreement, the
Agreement and the Agreement and Power of Attorney are enforceable against the
Selling Stockholders in accordance with the terms thereof.
No consent, approval, authorization or order of, or any filing or
declaration with, any court or governmental agency or body is required in
connection with the authorization, issuance, transfer, sale or delivery of the
Shares by or on behalf of the Selling Stockholders, in connection with the
execution, delivery and performance of the Agreement and the Agreement and Power
of Attorney by or on behalf of the Selling Stockholders or in connection with
the taking by or on behalf of the Selling Stockholders of any action
contemplated thereby have been obtained and are in full force and effect, except
such as have been obtained under the Act or the Rules and Regulations and such
as may be required under state securities or "Blue Sky" laws or by the by-laws
and rules of the NASD in connection with the purchase and distribution by the
Underwriters of the Shares to be sold by the Selling Stockholders.
The execution and delivery by the Selling Stockholders of, and the
performance by the Selling Stockholders of their agreements in, the Agreement
and the Agreement and Power of Attorney, do not and will not (i) violate the
certificate of incorporation or by-laws of any corporate Selling Stockholder,
(ii) breach or result in a
1
<PAGE>
default under, cause the time for performance of any obligation to be
accelerated under, or result in the creation or imposition of any lien, charge
or encumbrance upon any of the assets of any Selling Stockholder pursuant to the
terms of, (x) any indenture, mortgage, deed of trust, loan agreement, bond,
debenture, note agreement, capital lease or other evidence of indebtedness of
which we have knowledge, (y) any voting trust arrangement or any contract or
other agreement to which any Selling Stockholder is a party that restricts the
ability of any such Selling Stockholder to issue securities and of which we have
knowledge or (2) any other contract or other agreement of which we have
knowledge, (iii) breach or otherwise violate any existing obligation of any
Selling Stockholder under any court or administrative order, judgment or decree
of which we have knowledge or (iv) violate applicable provisions of any statute
or regulation in the States of Delaware, Indiana or Louisiana or of the United
States.
There are no transfer or similar taxes payable in connection with the sale
and delivery of the Shares by the Selling Stockholders to the several
Underwriters, except as specified in such opinion.
The foregoing opinion is subject to the qualification that the
enforceability of the Agreement and the Agreement and Power of Attorney may be:
(i) subject to bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting creditors' rights generally; and (ii) subject to general
principles of equity (regardless of whether such enforceability is considered in
a proceeding at law or in equity), including principles of commercial
reasonableness or conscionability and an implied covenant of good faith and fair
dealing.
This letter is furnished by us solely for your benefit in connection with
the transactions referred to in the Agreement and may not be circulated to, or
relied upon by, any other person[, except that this letter may be relied upon by
your counsel in connection with the opinion letter to be delivered to you
pursuant to Section 6(g) of the Agreement.]
In rendering the foregoing opinion, counsel may rely, to the extent they
deem such reliance proper, on the opinions (in form and substance reasonably
satisfactory to Underwriters' counsel) of other counsel reasonably acceptable to
Underwriters' counsel as to matters governed by the laws of jurisdictions other
than the United States, the General Corporation Law of the State of Delaware and
the laws of the State of Indiana, and as to matters of fact, upon certificates
of the Selling Stockholders and of government officials; provided that such
counsel shall state that the opinion of any other counsel is in form
satisfactory to such counsel. Copies of all such opinions and certificates shall
be furnished to counsel to the Underwriters on the Closing Date.
2
EXHIBIT 2.01
Form of
CERTIFICATE OF OWNERSHIP AND MERGER
merging
HAYNES CORP.
into
HAYNES INTERNATIONAL, INC.
Pursuant to Section 253 of the General Corporation
Law of the State of Delaware
HAYNES INTERNATIONAL, INC. ("Haynes International"), a corporation
organized and existing under the General Corporation Law of the State of
Delaware (the "General Corporation Law"), does hereby certify that:
FIRST: HAYNES CORP. ("Haynes Corp.") is a corporation organized and
existing under the General Corporation Law.
SECOND: Haynes International owns of record and beneficially one
hundred percent (100%) of the outstanding shares (the "Shares") of Common
Stock, par value $.01 per share, of Haynes Corp., the Shares being the only
class of stock of Haynes Corp. outstanding.
THIRD: By unanimous written consent dated August ___, 1996, the Board
of Directors of Haynes International adopted the following resolutions
providing for the merger (the "Merger") of Haynes Corp. with and into
Haynes International, which resolutions have not been amended or rescinded
and are in full force and effect:
RESOLVED, that, pursuant to Section 253 of the Delaware General
Corporation Law, Haynes Corp., a wholly owned subsidiary of Haynes
International, Inc. ("Haynes International"), shall be merged with and
into Haynes International (the "Merger"), whereupon the separate existence
of Haynes Corp. shall cease and Haynes International shall be the surviving
corporation (the "Surviving Corporation"). The Merger shall be effective
at the time
<PAGE>
a Certificate of Ownership and Merger dated August ___, 1996 and in the
form attached hereto as Exhibit I (the "Certificate of Merger") for the
---------
Merger is filed with the Secretary of State of the State of Delaware (the
"Effective Time");
RESOLVED FURTHER, that Haynes International shall not pay any
consideration for the shares of Common Stock of Haynes Corp. and that
immediately after the Effective Time such shares of Common Stock shall be
cancelled;
RESOLVED FURTHER, that the Certificate of Merger be, and hereby is,
approved and that the officers of Haynes International be and hereby are,
authorized to execute the Certificate of Merger on behalf of Haynes
International and cause the Certificate of Merger to be filed with the
State of Delaware in substantially the form attached hereto, with such
changes as the officers approving the same may approve, their approval to
be conclusively evidenced by their signatures thereon; and
RESOLVED FURTHER, that the officers and directors of Haynes
International be, and each of them hereby is, authorized to take any and
all action in the name and on behalf of Haynes International to execute and
deliver any and all instruments and other documents, in such form as the
persons executing or delivering the same shall approve, such execution and
delivery to constitute conclusive evidence of such approval and to do or
cause to be done all acts or things necessary or desirable to carry out the
purpose and intent of the foregoing resolutions.
FOURTH: Pursuant to Section 253 of the General Corporation Law, the
approval of the Merger by the stockholders of Haynes International or by the
stockholders of Haynes Corp. is not required.
<PAGE>
IN WITNESS WHEREOF, Haynes International has caused this Certificate
of Ownership and Merger to be executed in its corporate name by its
President and attested to by its Secretary, this ______ day of August,
1996.
HAYNES INTERNATIONAL, INC.
By:
-----------------------
Michael D. Austin
President
ATTEST:
- ---------------------------
Joseph F. Barker, Secretary
EXHIBIT 4.12
Description of Specimen
Stock Certificate
The logo of Haynes International, Inc. (the "Corporation") is centered at
the top of the specimen stock certificate. The Corporation's name appears
centered under the logo with the following text centered below it: "Incorporated
under the laws of the State of Delaware."
Below such language on the right side of the certificate is the CUSIP
number for the Common Stock, which is 420877 10 2, and on the left side of the
certificate the following statement appears: "SEE REVERSE SIDE FOR CERTAIN
DEFINITIONS."
Below the aforementioned information is the following language "This
certifies that _______ is the owner of ___________." After such text is the
following language:
"FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, $.01 PAR VALUE
PER SHARE, OF HAYNES INTERNATIONAL, INC. transferable only on the books of
the Corporation in person or by duly authorized attorney upon surrender of
this Certificate properly endorsed. This Certificate and the shares
represented hereby are issued and shall be held subject to the provisions
of the Certificate of Incorporation of the Corporation, as may be amended
from time to time. This Certificate is not valid unless countersigned and
registered by the Transfer Agent and Registrar. Witness the facsimile seal
of the Corporation and the facsimile signatures of its duly authorized
officers."
At the bottom, the certificate is dated and is signed under the
Corporation's seal by Joseph F. Barker, Secretary of the Corporation, and
Michael D. Austin, President of the Corporation.
The name of the transfer agent and registrar, National City Bank, is
identified on the right side of the certificate.
On the back of the specimen stock certificate, which is turned lengthwise,
the name of the Corporation appears in the center at the top. The following text
appears below the Corporation's name:
"The Certificate of Incorporation, as amended, of the Corporation provides
for the issuance of shares of preferred stock with such rights as may be
determined, in whole or in part, by the Board of Directors prior to the
issuance thereof. The Corporation will furnish without charge to each
stockholder who so requests, a statement of the powers, designations,
preferences and relative, participating, optional, or other special rights
of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights."
Below such language is an explanation of the abbreviations used on the face
of the certificate followed by a standard endorsement block.
Exhibit 5.01
August 2, 1996
Board of Directors
Haynes Holdings, Inc.
1020 West Park Avenue
Kokomo, Indiana 46904-9013
Gentlemen:
We have acted as counsel to Haynes Holdings, Inc., a Delaware corporation
(the "Company"), in connection with the filing of a Registration Statement on
Form S-1, Registration No. 333-5203 (the "Registration Statement"), with the
Securities and Exchange Commission (the "Commission") for the purposes of
registering under the Securities Act of 1933, as amended (the "Securities Act"),
an aggregate of 2,300,000 shares of the Company's authorized but unissued Common
Stock, par value $.01 per share, which are to be offered to the public (the
"Shares"). Prior to the effectiveness of the Registration Statement, the name of
the Company will be changed to Haynes International, Inc.
In connection therewith, we have investigated those questions of law we
have deemed necessary or appropriate for purposes of this opinion. We have also
examined originals, or copies certified or otherwise identified to our
satisfaction, of those documents, corporate or other records, certificates and
other papers that we deemed necessary to examine for the purpose of this
opinion, including:
1. The Company's Certificate of Incorporation, together with all amendments
thereto;
2. A copy of the By-laws of the Company;
3. Resolutions relating to the offering of the Shares and the filing of the
Registration Statement adopted by the Company's Board of Directors on
May 28, 1996 (the "Resolutions");
4. A specimen certificate representing the Shares; and
5. The Registration Statement.
<PAGE>
Board of Directors
Haynes Holdings, Inc.
August 2, 1996
Page 2
We have also relied, without investigation as to the accuracy thereof, on other
certificates of, and oral and written communication from, public officials and
officers of the Company.
For purposes of this opinion, we have assumed (i) the genuineness of all
signatures of all parties other than the Company; (ii) the authenticity of all
documents submitted to us as originals and the conformity to authentic originals
of all documents submitted to us as certified or photostatic copies; (iii) that
the Resolutions will not be amended, altered or superseded prior to the issuance
of the Shares; and (iv) that no changes will occur in the applicable law or the
pertinent facts prior to the issuance of the Shares.
Based upon the foregoing and subject to the qualifications set forth in
this letter, we are of the opinion that the Shares are validly authorized and,
when (a) the pertinent provisions of the Securities Act and all relevant state
securities laws have been complied with and (b) the Shares have been delivered
against payment therefor as contemplated by the Registration Statement, the
Shares will be legally issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the prospectus included as a part of the Registration
Statement. In giving this consent, we do not admit that we are within the
category of persons whose consent is required under Section 7 of the Securities
Act or under the rules and regulations of the Commission relating thereto.
Very truly yours,
/s/ ICE MILLER DONADIO & RYAN
Exhibit 10.25
Form of
HAYNES INTERNATIONAL, INC.
EMPLOYEE STOCK OPTION AGREEMENT
-------------------------------
THIS AGREEMENT is made this _____ day of _________________, 1996, by
and between Haynes International, Inc., a Delaware corporation with its
principal offices at 1020 West Park Avenue, Kokomo, Indiana 46904-9013 (the
-----------------------
___________________________________ (the "Optionee").
Preliminary Statement
---------------------
The Compensation Committee of the Board of Directors of the Company
(the "Committee") has determined that it is in the Company's best interest
to issue to the Optionee an option to purchase shares of the Company's
Common Stock, $.01 par value (the "Shares"), pursuant to the terms and
conditions of the Haynes International, Inc. 1996 Employee Stock Option
Plan (the "Plan") and this Agreement. The Optionee desires to accept such
option to purchase the Shares upon the terms and conditions set forth in
the Plan and this Agreement.
Terms and Conditions
--------------------
In consideration of the mutual agreements and covenants set forth in
this Agreement, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows.
Section 1. Grant of Option. The Company hereby grants to the
--------- ---------------
Optionee the right, privilege and option to purchase an aggregate of ______
Shares at a purchase price of $______________ per share (the "Option
Price"), exercisable pursuant to the terms and conditions contained in the
Plan and this Agreement (the "Option"). The date of the grant of the
Option shall be the date first above written (the "Grant Date"). The
Option shall terminate to the extent unexercised on __________________,
19_____, subject, however, to the earlier termination provisions provided
in the Plan and this Agreement (the "Expiration Date").
Section 2. Nature of Option. The Option is:
--------- ----------------
(a) ___________ an incentive stock option as defined in Section
422 of the Internal Revenue Code of 1986, as amended; or
(b) _____________ a non-statutory stock option governed by
Section 83 of the Internal Revenue Code of 1980, as amended.
Section 3. Right to Exercise Option. The option may be exercised
--------- ------------------------
in whole or part at any time and from time to time commencing on the Grant
Date and ending upon the Expiration Date, subject to the following vesting
schedule _______.
Section 4. Manner of Exercise. The Optionee may exercise the
--------- ------------------
Option by delivering to the Secretary of the Company the following (a) a
written notice of exercise in the form
<PAGE>
prescribed by the Committee (the "Exercise Notice"); (ii) a subscription
agreement in the form prescribed by the Committee (the "Subscription
Agreement"), and (iii) payment in full of the Option Price.
(a) Exercise Notice. The Exercise Notice shall specify (i) the Grant
---------------
Date; (ii) the number of Shares with respect to which the Option
is being exercised; (iii) the Option Price; and (iv) such other
information as requested by the Committee.
(b) Payment. Payment of the Option Price shall be made (i) in cash
-------
or in cash equivalents; (ii) through the tender to the Company of
Shares or the withholding of Shares subject to the Option, which
shall be valued, for the purposes of determining the extent to
which the Option Price has been paid, at the fair market value on
the date of exercise as determined by the Committee in accordance
with Section 6(c) of the Plan; or (iii) by a combination of the
------------
methods prescribed in (i) and (ii) above.
(c) Use of Brokers. Notwithstanding any other provision of this
--------------
Agreement, the Committee, in its sole discretion, may not require
the Optionee to deliver the full Option Price with the Exercise
Notice, provided that the Exercise Notice directs the Company to
deliver the certificates for the Shares issued upon the exercise
of the Option to a licensed broker acceptable to the Company, in
its sole discretion, who shall immediately upon receipt of the
certificate(s) tender to the Company cash or cash equivalents
acceptable to the Company equal to the Option Price plus the
amount of federal, state or local income, employment or other
taxes which the Company may, in its sole judgment, be required to
withhold with respect to the exercise of the Option.
Section 5. Share Certificates. Promptly after receiving the
--------- ------------------
Notice, the Subscription Agreement, payment in full of the Option Price and
any other document described above, the Company shall cause to be issued
and delivered to the Optionee, a certificate or certificates evidencing
ownership of the Shares purchased.
Section 6. Nontransferability of Option. The Option shall not be
--------- ----------------------------
assignable or transferable by the Optionee, except to the extent provided
in Section 6(f) of the Plan in the event of the death of the Optionee.
------------
During the Optionee's lifetime, the Option shall be exercisable only by the
Optionee or, in the event of the legal incapacity or incompetency of the
Optionee, by the Optionee's legal guardian or representative on behalf of
the Optionee. The Option shall not be pledged or hypothecated in any way
and shall not be subject to execution, attachment, or similar process. Any
attempted transfer, assignment, pledge, hypothecation, or other disposition
of the Option contrary to the provisions hereof, or the levy of any process
upon the Option, shall be null, void, and without effect.
- 2 -
<PAGE>
Section 7. Restrictions on Issuing Shares.
--------- ------------------------------
(a) Conformity With Law. The Company shall not be required to issue
-------------------
any Shares pursuant to the exercise of this Option and may
postpone the issuance and delivery of certificates representing
Shares until (i) the Shares are qualified for inclusion in the
Nasdaq National Market or such other trading exchange, market or
quotation system on which the common stock of the Company is then
traded or quoted; and (ii) a registration or other qualification
of such Shares under any applicable state or federal law, rule,
or regulation, as the Company shall determine to be necessary or
advisable, is completed. Any person purchasing Shares pursuant
to the Plan may be required to make such representations and
furnish such information as may, in the opinion of counsel for
the Company, be appropriate to permit the Company to determine
the necessity of registration of the Shares under the Securities
Act of 1933, as amended or any similar state statute.
(b) Withholding of Taxes. Shares shall not be issued upon exercise
--------------------
of the Option unless and until the Optionee remits to the Company
amounts sufficient to satisfy any federal, state, or local
income, employment, or other withholding taxes. Payment of such
taxes shall be made pursuant to any method set forth in Section
-------
4 of this Agreement for payment of the Shares.
-
(c) No Rights Voted as a Shareholder. The Optionee shall have no
--------------------------------
rights as a shareholder with respect to the Shares by reason of
the grant of this Option, unless and until a certificate or
certificates representing the Optionee's interest in the Shares
has been issued. No adjustment will be made for dividends or
other rights for which the record date is prior to the date such
certificate or certificates are issued.
Section 8. Dissolution, Liquidation and Change of Control. In the
--------- ----------------------------------------------
event the Company adopts all necessary resolutions approving a plan to
dissolve or liquidate the Company or an occurrence of a Change of Control
Event (as defined in Section 6(h) of the Plan), the Company shall provide
------------
written notice thereof (the "Termination Notice") to the Optionee. The
Optionee shall have the right to immediately exercise pursuant to the terms
and conditions of the Plan and this Agreement this Option as to all or any
part of the Shares covered hereby for a period of 30 days beginning on the
date the Termination Notice is sent to the Optionee. Such acceleration of
the exercise date shall be deemed to occur automatically upon receipt by
the Optionee of Termination Notice and shall not be deemed a modification
under Section 424(h) of the Internal Revenue Code. In the case of an event
of liquidation or dissolution, any portion of this Option which is
unexercised as of the 30th day immediately following the date the
Termination Notice was sent to the Optionee shall automatically terminate.
In the case of a Change of Control, the Company shall have the right, but
not the obligation, to terminate any portion of this Option which is
unexercised as of the 30th day following the date the Termination
- 3 -
<PAGE>
Notice was sent to the Optionee, provided that the Termination Notice
included a statement to that effect.
Section 9. Adjustments. The aggregate number of Shares covered by
--------- -----------
this Option and the Option Price specified in Section 1 of this Agreement
---------
shall each be proportionately adjusted for any increase or decrease in the
number of Shares issued resulting from a subdivision or consolidation of
Shares or any other capital adjustment, the payment of a share dividend, or
any other increase or decrease in the number of common shares of the
Company issued effected without receipt of consideration by the Company.
In the event that prior to the delivery by the Company of Shares remaining
under this Option, there shall be a reorganization or reclassification of
the capital of the Company resulting in a substitution of other shares for
the Shares, this Agreement shall be modified so that the Optionee shall
have the right to purchase the number of substitute shares which would have
been issued in exchange for the Shares then remaining under this Option, if
such Shares had been then issued and outstanding.
Section 10. Option Subject to Plan. This Agreement incorporates by
---------- ----------------------
reference all of the provisions of the Plan, and all rights and privileges
contained in this Agreement are subject to all limitations and restrictions
imposed or required to be imposed thereon under the Plan. The terms of the
Option and this Agreement shall be interpreted in accordance with the
purposes and intentions of the Plan, as stated therein and as construed by
the Committee. Any determination of the Committee with respect to the
Option, any provision of this Agreement or the Plan shall be final,
conclusive and binding on the Optionee.
Section 11. Choice of Law. This Agreement and all rights and
---------- -------------
obligations under this Agreement shall be governed by and construed in
accordance with the laws of the State of Indiana.
The Company, by its duly authorized representative, and the Optionee
hereby execute this Agreement as of the day and year first above written.
"OPTIONEE" "COMPANY"
Haynes International, Inc.
- ---------------------------
By:
-----------------------------
Printed: Printed:
------------------- ------------------------
Title:
--------------------------
- 4 -
<PAGE>
EXHIBIT A
---------
NOTICE OF EXERCISE OF EMPLOYEE STOCK
OPTION AND SUBSCRIPTION AGREEMENT
---------------------------------
The undersigned hereby gives notice to Haynes International, Inc., a
Delaware corporation (the "Company") of [his][her] exercise of the option
to purchase ______ common shares of the Company granted under the Haynes
International, Inc. Employee Stock Option Agreement, by and between the
Company and the undersigned dated __________________, 19____ (the
"Agreement"). This notice is provided pursuant to the terms and conditions
of the Agreement and the Haynes International, Inc. 1996 Employee Stock
Option Plan. As full payment of the exercise price of the option, the
undersigned is providing with this notice [a certified check in the amount
of $______________ and/or ________ certificate(s), duly endorsed for
transfer to the Company, representing common shares of the Company, having
a fair market value as determined by the Committee pursuant to the
Agreement, [OR - THE UNDERSIGNED DIRECTS THE COMPANY TO DELIVER THE
CERTIFICATE(S) FOR THE SHARES ISSUED PURSUANT TO THIS OPTION TO
________________________, WHO SHALL IMMEDIATELY TENDER TO THE COMPANY A
CERTIFIED CHECK IN THE AMOUNT OF ____________, WHICH AMOUNT SHALL BE EQUAL
TO THE OPTION PRICE PLUS THE AMOUNT OF ALL FEDERAL, STATE OR LOCAL INCOME,
EMPLOYMENT OR OTHER TAXES WHICH THE COMPANY MAY BE REQUIRED TO WITHHOLD.]
All capitalized terms used but not defined herein shall have the meaning
specified in the Agreement.
Dated:___________________, 19____.
---------------------------------
, Optionee
- 5 -
Exhibit 12.01
Haynes Holdings, Inc.
Ratio of Earnings Before Fixed Charges to Fixed Charges
<TABLE>
<CAPTION>
1991 1992 1993
---- ---- ----
<S> <C> <C> <C>
Line 1 Income (loss) before income taxes and cumulative effect of change in
accounting principle $ 1,379 ($28,091) ($11,717)
Line 2 Interest on indebtedness 22,120 19,211 16,792
Line 3 Amortization of debt issuance costs 1,401 1,333 2,120
------- -------- ---------
Line 4 Total earnings before fixed charges (Line 1 plus Line 2 plus Line 3) $24,900 ($ 7,547) $ 7,195
----------------------------------------------------------------------
Line 5 Interest on indebtedness $22,120 $19,211 $16,792
Line 6 Amortization of debt issuance costs 1,401 1,333 2,120
------- ------- --------
Line 7 Total fixed charges (Line 5 plus Line 6) $23,521 $20,544 $18,912
Ratio of earnings before fixed charges to fixed charges (Line 4
divided by Line 7) 1.06 N/A* N/A*
<CAPTION>
9 months
1994 1995 1995
---- ---- ----
<S> <C> <C> <C>
Line 1 Income (loss) before income taxes and cumulative effect of change in
accounting principle ($60,446) ($ 5,458) ($ 4,738)
Line 2 Interest on indebtedness 18,236 18,789 14,090
Line 3 Amortization of debt issuance costs 1,680 1,444 1,086
--------- -------- --------
Line 4 Total earnings before fixed charges (Line 1 plus Line 2 plus Line 3) ($40,530) $14,775 $10,438
----------------------------------------------------------------------
Line 5 Interest on indebtedness $18,236 $18,789 $14,090
Line 6 Amortization of debt issuance costs 1,680 1,444 1,086
-------- ------- -------
Line 7 Total fixed charges (Line 5 plus Line 6) $19,916 $20,233 $15,176
Ratio of earnings before fixed charges to fixed charges (Line 4
divided by Line 7) N/A* N/A* N/A*
<CAPTION>
Proforma Proforma Proforma
9 months Year 9 months 9 months
1996 1995 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Line 1 Income (loss) before income taxes and cumulative effect of change in
accounting principle $ 2,629 $ 2,914 $ 1,559 $ 8,972
Line 2 Interest on indebtedness 14,360 11,245 8,417 8,590
Line 3 Amortization of debt issuance costs 1,035 616 462 462
------- ------- ------- -------
Line 4 Total earnings before fixed charges (Line 1 plus Line 2 plus Line 3) $18,024 $14,775 $10,438 $18,024
----------------------------------------------------------------------
Line 5 Interest on indebtedness $14,360 $11,245 $ 8,417 $ 8,590
Line 6 Amortization of debt issuance costs 1,035 616 462 462
------- ------- ------- -------
Line 7 Total fixed charges (Line 5 plus Line 6) $15,395 $11,861 $ 8,879 $ 9,052
Ratio of earnings before fixed charges to fixed charges (Line 4
divided by Line 7) 1.17 1.25 1.18 1.99
* Earnings before fixed charges were insufficient to cover fixed charges.
</TABLE>
Exhibit 21.01
SUBSIDIARIES OF THE REGISTRANT
------------------------------
Haynes Holdings, Inc. a Delaware corporation, has one wholly-
owned subsidiary, Haynes International, Inc., a Delaware corporation. The
subsidiaries of Haynes International are as follows:
SUBSIDIARY JURISDICTION
---------- ------------
Haynes Sour Gas Tubulars, Inc. Delaware
Haynes International S.A.R.L. France
Haynes International Ltd. United Kingdom
Nickel-Contor AG Switzerland
CABVAL (a partnership) New York
EXHIBIT 23.01
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement on Form S-1 of
our report, which includes an emphasis of a matter explanatory paragraph
regarding the Company's liquidity, dated November 3, 1995 on our audits of the
financial statements of Haynes Holdings, Inc. We also consent to the references
to our firm under the captions "Experts," "Income Tax Considerations--Section
382 Limitation" and "Income Tax Considerations--The Merger."
/S/ COOPERS & LYBRAND L.L.P.
Fort Wayne, Indiana
August 2, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
HAYNES HOLDINGS, INC.
FINANCIAL DATA SCHEDULE
(dollars in thousands, except per share data)
The schedule contains summary financial information extracted from the
consolidated financial statements of Haynes Holdings, Inc. and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> SEP-30-1995 JUN-30-1996
<PERIOD-END> SEP-30-1995 JUN-30-1996
<CASH> 5,035 4,789
<SECURITIES> 0 0
<RECEIVABLES> 39,068 44,916
<ALLOWANCES> (979) (1,030)
<INVENTORY> 60,234 74,294
<CURRENT-ASSETS> 103,358 122,969
<PP&E> 84,158 84,756
<DEPRECIATION> (47,295) (52,977)
<TOTAL-ASSETS> 151,316 164,669
<CURRENT-LIABILITIES> 40,742 53,657
<BONDS> 140,000 140,000
0 0
0 0
<COMMON> 36 36
<OTHER-SE> (121,945) (121,489)
<TOTAL-LIABILITY-AND-EQUITY> 151,316 164,669
<SALES> 201,933 170,386
<TOTAL-REVENUES> 201,933 170,386
<CGS> 167,196 136,711
<TOTAL-COSTS> 207,391 167,757
<OTHER-EXPENSES> 1,767 413
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 20,233 15,395
<INCOME-PRETAX> (5,458) 2,629
<INCOME-TAX> 1,313 1,029
<INCOME-CONTINUING> (6,771) 1,600
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (6,771) 1,600
<EPS-PRIMARY> (1.89) 0.45
<EPS-DILUTED> (1.89) 0.45
</TABLE>
