As filed with the Securities and Exchange Commission on January 25, 2007
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549.
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
HAYNES INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware |
3310 |
06-1185400 |
(State or other
jurisdiction of
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(Primary Standard
Industrial
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(IRS Employer Identification No.) |
1020 West Park Avenue
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Francis J.
Petro
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(Address, including zip
code, and telephone number,
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(Name and address,
including zip code, and telephone number,
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Copies To:
Stephen J. Hackman, Esq.
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Joseph A.
Hall, Esq.
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Approximate date of commencement of proposed sale of the common stock to the public: From time to time after this Registration Statement becomes effective.
If any of the securities being 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: o
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: o
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: o
If this Form is a post-effective amendment filed pursuant to Rule 462(d) 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: o
CALCULATION OF REGISTRATION FEE
Title of Each Class of Securities to be Registered |
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Amount to
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Proposed
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Proposed
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Amount of
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Common Stock, par value $0.001 per share |
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2,300,000 shares |
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$ |
52.00 |
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$ |
119,600,000 |
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$ |
12,798 |
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Preferred Share Purchase Rights (3) |
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2,300,000 rights |
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$ |
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$ |
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$ |
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(1) Includes shares and rights the underwriters have the option to purchase to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(c) under the Securities Act of 1933, as amended, based on the last sale price of the registrants common stock reported through the pink sheets on January 23, 2007.
(3) Rights initially will trade together with the common stock. The value attributable to the rights, if any, will be reflected in the market price of the common stock.
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.
Subject to completion, dated January 25, 2007
The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities, and we are not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
Prospectus
2,000,000 shares
Haynes International, Inc.
Common stock
This is a public offering of common stock by Haynes International, Inc. and the selling stockholders identified in this prospectus. Haynes is selling 1,000,000 shares and the selling stockholders are selling 1,000,000 shares. Haynes will not receive any proceeds from the sale of shares by the selling stockholders. The estimated public offering price is between $ and $ per share.
We have applied to list our common stock on The NASDAQ Global Market under the symbol HAYN.
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Per share |
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Total |
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Initial public offering price |
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$ |
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$ |
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Underwriting discounts and commissions |
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$ |
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$ |
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Proceeds to Haynes, before expenses |
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$ |
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$ |
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Proceeds to selling stockholders, before expenses |
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$ |
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$ |
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The selling stockholders have granted the underwriters an option for a period of 30 days to purchase up to 300,000 additional shares of common stock. If the underwriters exercise this option in full, total underwriting discounts and commissions will be $ and total proceeds to the selling stockholders, before expenses, will be $ .
Investing in our common stock involves a high degree of risk. See Risk factors beginning on page 12.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed on the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.
The underwriters expect to deliver the shares of common stock to investors on or about , 2007.
JPMorgan |
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Bear, Stearns & Co. Inc. |
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KeyBanc Capital Markets |
, 2007
[INSIDE FRONT COVER]
[Pictures of products in which Haynes alloys are used]
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Managements discussion and analysis of financial condition and results of operations |
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F-1 |
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You should rely only on the information contained in this prospectus. We have not authorized any person to provide you with different or additional information. If anyone provides you with different or additional information, you should not rely on it. Haynes and the selling stockholders are offering to sell, and seeking offers to buy, shares of our common stock only in jurisdictions where such offers and sales are permitted. The information in this prospectus is accurate only as of the date on the front cover, regardless of the time of delivery of this prospectus or of any sale of shares of our common stock. Our business, financial condition, results of operations and prospects may have changed since that date and may change again.
The following summary highlights information about us and is qualified in its entirety by the more detailed information and consolidated financial statements and notes thereto included elsewhere in this prospectus. You should carefully read and consider this entire prospectus, including the information set forth under the heading Risk Factors. All references to fiscal years in this prospectus refer to our fiscal years which, for all periods presented, ended on September 30. As used in this prospectus, the terms our company, we, our, and us include, when the context so requires, Haynes International, Inc. and its consolidated subsidiaries.
Haynes International, Inc. is one of the worlds largest producers of high-performance nickel- and cobalt-based alloys. We are focused on developing, manufacturing, marketing and distributing technologically advanced, high-performance alloys, which are used primarily in the aerospace, chemical processing and land-based gas turbine industries. Our products consist of high temperature resistant alloys, or HTA products, and corrosion resistant alloys, or CRA products. 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. CRA products are used in applications that require resistance to corrosive environments found in chemical processing, power plant emissions control and hazardous waste treatment. We believe we are one of four principal producers of high-performance alloys in sheet, coil and plate forms, and sales of these forms, in the aggregate, represented approximately 64% of our net revenues in fiscal 2006. We also produce our products as seamless and welded tubulars, and in bar, billet and wire forms.
We have achieved our growth through a combination of capitalizing on the growth of our end markets, increasing value-added services provided to our customers, increasing our presence in international markets and, to a lesser extent, selected strategic initiatives such as our November 2004 acquisition of assets of The Branford Wire and Manufacturing Company, or Branford Wire. For fiscal 2006, our net revenue was $434.4 million, a 33.7% increase over fiscal 2005s net revenue of $325.0 million. As of September 30, 2006, our backlog orders were approximately $206.9 million, compared to approximately $188.4 million as of September 30, 2005 and approximately $93.5 million as of September 30, 2004. See BusinessBacklog for a description of how we calculate backlog.
We have manufacturing facilities in Kokomo, Indiana; Arcadia, Louisiana; and Mountain Home, North Carolina. The Kokomo and Arcadia facilities specialize in flat and tubular products, respectively, and the Mountain Home facility manufactures stainless steel and high-performance alloy wire. We sell our products primarily through our direct sales organization, which includes 11 service and/or sales centers in the United States, Europe, Asia and India. All of these centers are company-operated. In fiscal 2006, approximately 82% of our net revenues was generated by our direct sales organization, and the remaining 18% was generated by a network of independent distributors and sales agents who supplement our direct sales efforts in the United States, Europe and Asia, some of whom have been associated with our company for over 30 years.
1
The breadth and quality of our products, combined with our superior customer service delivered through our service and sales center network, have resulted in long-standing relationships with many of our customers. We have supplied high-performance alloy products to our top 10 customers, based on fiscal 2006 sales, for an average of 20 years. We supply high-performance alloys that are used by a broad range of end use customers, including General Electric Co.; Pratt & Whitney; Rolls Royce plc; The Boeing Co.; SNECMA; E.I. DuPont de Nemours & Co.; The Dow Chemical Co.; Siemens Westinghouse; Solar Turbines, Inc.; British Petroleum p.l.c.; Celanese AG; and Eli Lilly and Co. None of these customers, or any of our other customers, accounted for more than 10% of our sales in fiscal 2006. Our top 20 customers accounted for approximately 38% of sales in fiscal 2006.
We estimate that the global specialty alloy market, including stainless steels, general purpose nickel alloys and high-performance nickel- and cobalt-based alloys, represents total production volume of approximately 38.5 billion pounds per annum. Of this total market, we compete primarily in the high-performance nickel- and cobalt-based alloy sector which we estimate to represent approximately 200 million pounds of production per annum. Given the technologically advanced nature of the products, strict requirements of the end users and higher-growth end markets, we believe the high-performance alloy sector provides greater growth potential, higher profit margins and greater means for service, product and price differentiation than stainless steels and general purpose nickel alloys. We expect growth in worldwide demand for high-performance alloys to increase significantly over the next ten years based upon increasing demand in the aerospace, chemical processing and land-based gas turbine markets. While stainless steel and general purpose nickel alloy is generally sold in bulk through third-party distributors, our products are sold in smaller-sized orders which are customized and typically handled on a direct-to-customer basis. The high-performance alloy market demands diverse, specialty alloys suitable for use in precision manufacturing. We estimate that, due in part to the above factors, the average selling price per pound of high-performance alloys in 2006 was approximately $17.00, compared to approximately $2.50 for stainless steels and approximately $12.00 for general purpose nickel alloys.
Our primary end markets include the aerospace market, the chemical processing market and the land-based gas turbine market. Demand for our products in the aerospace market is primarily driven by the need for new and replacement parts for jet engines and other maintenance, repair and overhaul needs of operators of commercial and military aircraft. Demand for our products in the chemical processing market is driven by demand in pharmaceuticals, agriculture and the building of new chemical processing facilities as well as the maintenance, repair and overhaul of existing chemical processing facilities. Demand for our products in the land-based gas turbine market is driven by the construction of power generation facilities such as base load for electric utilities or backup sources to fossil fuel-fired utilities during times of peak demand. Our other markets include flue gas desulphurization (or FGD), waste incineration, industrial heat-treating, automotive, medical, and oil and gas.
2
Our goal is to grow our business and increase revenues and profitability while continuing to be our customers provider of choice for high-performance alloys. Our primary end markets have experienced significant expansion and we believe that they will continue to demonstrate attractive fundamentals with demand increasing for aerospace, chemical plants and land-based gas turbines. We intend to penetrate and capitalize on the growth in these end markets by taking advantage of our diverse product offerings and service capabilities and to increase our capacity and lower our costs through strategic investment in our manufacturing facilities. In order to accomplish these goals, we intend to pursue the following:
· Increase productivity through strategic equipment investment . We expect to continue to improve operating efficiencies through ongoing capital investment in our manufacturing facilities and equipment. Recent investment in our equipment has significantly improved our operating efficiency by increasing capacity, reducing downtime and manufacturing costs and improving working capital management and product quality. Because we are one of the few manufacturers with the expertise and facilities to produce high-performance alloys, we believe that our investments will enable us to continue to satisfy increased customer demand for value-added products that meet precise specifications.
· Increase sales by providing value-added processing services . We believe that our network of service and sales centers throughout North America, Europe and Asia distinguishes us from our competitors. Our service and sales centers enable us to develop close customer relationships through direct interaction and to respond to customer orders quickly while providing value-added services such as laser and water jet processing. These services allow our customers to minimize their processing costs and outsource non-core activities. In addition, our rapid response time and enhanced processing services have allowed us to institute value-added pricing resulting in higher-margin sales and enhanced profitability.
· Increase worldwide sales through international service and sales center locations . We intend to continue our efforts to increase our sales to non-U.S. customers and strategically position our service and sales centers in key international locations. We recently opened a service and sales center in China, the first service and sales center operated by any manufacturer of nickel- or cobalt-based alloys in China, and sales centers in Singapore and India. We intend to expand our sales center in India to include service as well as sales.
· Continue to expand our maintenance, repair and overhaul business . We believe that our maintenance, repair and overhaul, or MRO, business serves a growing market and represents both an expanding and recurring revenue stream. Products used in our end markets require periodic replacement due to the extreme environments in which they are used, which drives demand for recurring MRO work. We intend to continue to leverage the capabilities of our service and sales centers to respond quickly to our customers time-sensitive MRO needs to develop new and retain existing business opportunities.
· Increase revenue by developing new products and new applications for existing alloys . We believe that we are the industry leader in developing new alloys designed to meet our customers specialized and demanding requirements. We continue to work closely with customers and end users of our products to identify, develop, manufacture and test new high-performance alloys. Over the last five years, our technical programs have yielded five
3
new proprietary alloys, an accomplishment that we believe distinguishes us from our competitors. We expect our continued emphasis on product innovation to yield similar future results, and we expect to focus our development efforts on specialized automotive products, the biopharmaceutical industry, the energy market for fuel cells and the market for turbine components for higher temperature operations.
· Expand product capability through strategic acquisitions and alliances . We will continue to examine opportunities that enable us to offer customers an enhanced and more competitive product line to complement our core flat products. These opportunities may include product line enhancement, such as that provided by our acquisition of certain assets from Branford Wire in November 2004. We will continue to look for opportunities that will enhance the portfolio of products provided to customers such as wire, tubing, fittings and bar. We will also continue to evaluate strategic relationships with third parties in the industry in order to enhance our competitive position and relationships with customers, including distribution agreements and agreements similar to our 20-year conversion agreement we entered into with Titanium Metals Corporation in November 2006.
Risks associated with our business
The success of our business strategy will be affected by our ability to overcome certain risks. Some of these risks include:
· any significant decrease in customer demand for our products or in demand for our customers products;
· our dependence on production levels at our Kokomo facility and our ability to make capital improvements at that facility;
· rapid increases in the cost of nickel, energy and other raw materials;
· our ability to continue to develop new commercially viable applications and products;
· our ability to recruit and retain key employees;
· our ability to comply, and the costs of compliance, with applicable environmental laws and regulations; and
· economic and market risks associated with foreign operations and U.S. and world economic and political conditions.
More information about these and other risks can be found in Risk Factors.
4
Our operations began in 1912 as Haynes Stellite Works, which was purchased by Union Carbide and Carbon Corporation in 1920. In 1970, the operations were sold to Cabot Corporation. In 1987, we were incorporated as a stand-alone corporation in Delaware, and in 1989 we were sold by Cabot Corporation to Morgan Lewis Githens & Ahn Inc., a private investment firm. The Blackstone Group, a private investment firm, purchased our company from Morgan Lewis Githens & Ahn Inc. in 1997.
On March 29, 2004, we and our U.S. subsidiaries and U.S. affiliates as of that date filed voluntary petitions for reorganization relief under Chapter 11 of the U.S. Bankruptcy Code. Our plan of reorganization was confirmed on August 16, 2004, and became effective when we emerged from bankruptcy on August 31, 2004. Because of our emergence from bankruptcy and adoption of fresh start reporting, our historical financial information for periods prior to August 31, 2004 is not comparable to our financial information for periods after August 31, 2004. More detailed information about our reorganization can be found in The reorganization.
Our principal executive offices are located at 1020 West Park Avenue, Kokomo, Indiana 46904, and our telephone number is (765) 456-6000. Our website address is http://www.haynesintl.com . The information contained in, or that can be accessed through, our website is not part of this prospectus.
5
Shares of common stock
offered by Haynes
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1,000,000 shares |
Shares of common stock offered by the selling stockholders |
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1,000,000 shares |
Over-allotment option |
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300,000 shares, provided by the selling stockholders. See Underwriting. |
Common stock to be outstanding after this offering |
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Selling stockholders |
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The selling stockholders include certain officers and directors of Haynes who are exercising options and stockholders that purchased shares of our common stock from a seller who was an affiliate of Haynes at the time of sale. See Principal and selling stockholders. |
Dividend policy |
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We have not declared cash dividends on our common stock in the last five fiscal years. We currently do not anticipate paying any cash dividends or making any other distributions on shares of our common stock in the foreseeable future. See Dividend policy. |
Use of proceeds |
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We intend to use our net proceeds to repay amounts outstanding under our revolving credit facility. We expect to use the amounts available under our U.S. revolving credit facility to make strategic investments in our manufacturing facilities and equipment, to opportunistically make strategic acquisitions and for general corporate purposes. We will not receive any proceeds from the sale of common stock by the selling stockholders. See Use of proceeds. |
Unless we specifically state otherwise, all information in this prospectus assumes that the underwriters do not exercise their over-allotment option.
Common stock to be outstanding after this offering includes 300,000 shares to be issued upon the exercise of existing options and sold by certain of the selling stockholders, or 450,000 such shares if the underwriters exercise their over-allotment option in full.
The aggregate number of shares of our common stock to be outstanding after this offering excludes 680,000 shares issuable pursuant to existing options under our stock option plans that will remain outstanding after this offering, or 530,000 already incorporated shares if the underwriters exercise their over-allotment option in full.
6
Summary consolidated financial and other data
Set forth below is summary consolidated financial and other data. This data should be read in conjunction with the consolidated financial statements and related notes thereto and Managements discussion and analysis of financial condition and results of operations included elsewhere in this prospectus.
On March 29, 2004, Haynes and certain of our U.S. subsidiaries and U.S. affiliates as of that date filed for bankruptcy protection. Our plan of reorganization was confirmed by order of the Bankruptcy Court on August 16, 2004 and became effective on August 31, 2004. Our historical consolidated financial statements included elsewhere in this prospectus have been prepared on a going concern basis, which assumes continuity of operations and realization of assets and satisfaction of liabilities in the ordinary course of business, and, for periods subsequent to March 29, 2004, in accordance with the American Institute of Certified Public Accountants Statement of Position 90-7, Financial Reporting by Entities in Reorganization Under the Bankruptcy Code . As of August 31, 2004, the effective date of our plan of reorganization, we began operating our business under a new capital structure, and we adopted fresh start reporting for our financial statements. Because of the emergence from bankruptcy and adoption of fresh start reporting, our historical financial information for periods prior to August 31, 2004 is not comparable to our financial information for periods after August 31, 2004. For more information see The reorganization.
7
The summary historical consolidated financial data as of and for the years ended September 30, 2005 and 2006, as of September 30, 2004 and for the period September 1, 2004 through September 30, 2004 is derived from the audited consolidated financial statements of our company after giving effect to the adoption of fresh start reporting (successor Haynes International, Inc.). The summary historical consolidated financial data for the period October 1, 2003 through August 31, 2004, and as of and for the years ended September 30, 2002 and 2003 is derived from the audited consolidated financial statements of our company prior to the adoption of fresh start reporting (predecessor Haynes International, Inc.).
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Predecessor |
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Successor |
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(in thousands, except
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Year ended September 30, |
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Eleven
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One
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Year ended September 30, |
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2002(1) |
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2003(1) |
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2004 |
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2004(2) |
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2005(2) |
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2006(2) |
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Statement of operations data: |
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Net revenues |
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$ |
225,942 |
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$ |
178,129 |
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$ |
209,103 |
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$ |
24,391 |
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$ |
324,989 |
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$ |
434,405 |
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Cost of sales(3) |
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175,572 |
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150,478 |
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171,652 |
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26,136 |
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288,669 |
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325,573 |
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Selling, general and administrative expense(4) |
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24,628 |
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24,411 |
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24,038 |
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2,658 |
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32,963 |
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40,296 |
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Research and technical expense |
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3,697 |
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2,747 |
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2,286 |
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226 |
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2,621 |
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2,659 |
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Restructuring and other charges(5) |
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4,027 |
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429 |
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628 |
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Operating income (loss) |
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22,045 |
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493 |
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7,100 |
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(5,058 |
) |
108 |
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65,877 |
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Interest expense, net |
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20,441 |
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19,661 |
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13,929 |
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348 |
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6,353 |
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8,024 |
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Reorganization items(6) |
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(177,653 |
) |
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Net income (loss)(7) |
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$ |
927 |
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$ |
(72,255 |
) |
$ |
170,734 |
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$ |
(3,646 |
) |
$ |
(4,134 |
) |
$ |
35,540 |
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Net income (loss) per share: |
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Basic |
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$ |
9,270 |
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$ |
(722,550 |
) |
$ |
1,707,340 |
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$ |
(0.36 |
) |
$ |
(0.41 |
) |
$ |
3.55 |
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Diluted |
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$ |
9,270 |
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$ |
(722,550 |
) |
$ |
1,707,340 |
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$ |
(0.36 |
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$ |
(0.41 |
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$ |
3.46 |
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Weighted average shares outstanding: |
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Basic |
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100 |
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100 |
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100 |
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10,000,000 |
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10,000,000 |
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10,000,000 |
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Diluted |
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100 |
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100 |
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100 |
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10,000,000 |
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10,000,000 |
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10,270,642 |
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Other data: |
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Capital expenditures |
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$ |
6,032 |
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$ |
3,638 |
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$ |
4,782 |
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$ |
637 |
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$ |
9,029 |
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$ |
10,668 |
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EBITDA(8) |
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$ |
28,121 |
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$ |
3,311 |
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$ |
192,527 |
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$ |
(4,400 |
) |
$ |
8,134 |
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$ |
74,767 |
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Adjusted EBITDA(8) |
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$ |
37,129 |
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$ |
6,512 |
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$ |
21,521 |
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$ |
1,258 |
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$ |
38,460 |
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$ |
80,886 |
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Average nickel price per pound (end of period)(9) |
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$ |
3.02 |
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$ |
4.52 |
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$ |
6.21 |
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$ |
6.02 |
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$ |
6.45 |
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$ |
13.67 |
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8
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Predecessor |
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Successor |
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At September 30,
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2002(1) |
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2003(1) |
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2004(2) |
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2005(2) |
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2006(2) |
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Balance sheet data: |
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Working capital (deficit) |
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$ |
49,424 |
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$ |
(99,901 |
) |
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$ |
61,826 |
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$ |
59,494 |
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$ |
101,864 |
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Property, plant and equipment, net |
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42,721 |
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40,229 |
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80,035 |
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85,125 |
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88,921 |
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Total assets |
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230,513 |
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180,115 |
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360,758 |
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387,122 |
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445,860 |
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Total debt |
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189,685 |
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201,007 |
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85,993 |
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106,383 |
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120,043 |
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Accrued pension and postretirement benefits(10) |
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121,717 |
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127,767 |
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120,019 |
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122,976 |
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126,488 |
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Stockholders equity (deficiency) |
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(101,973 |
) |
(172,858 |
) |
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115,576 |
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111,869 |
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151,548 |
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(in millions) |
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2002 |
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2003 |
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2004 |
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2005 |
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2006 |
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|||||
Backlog at fiscal quarter ended (11) : |
|
|
|
|
|
|
|
|
|
|
|
|||||
December 31 |
|
$ |
88.0 |
|
$ |
49.0 |
|
$ |
54.7 |
|
$ |
110.9 |
|
$ |
203.5 |
|
March 31 |
|
77.2 |
|
53.6 |
|
69.6 |
|
134.8 |
|
207.4 |
|
|||||
June 30 |
|
63.9 |
|
54.5 |
|
82.6 |
|
159.2 |
|
200.8 |
|
|||||
September 30 |
|
52.5 |
|
50.6 |
|
93.5 |
|
188.4 |
|
206.9 |
|
|||||
(1) Restated. Effective October 1, 2003, Haynes changed its inventory costing method from the last-in, first-out (LIFO) method to the first-in, first-out (FIFO) method. In accordance with generally accepted accounting principles, the change has been applied by restating the 2002 and 2003 consolidated financial data.
(2) As of August 31, 2004, the effective date of our plan of reorganization, Haynes adopted fresh start reporting for its consolidated financial statements. Because of the emergence from bankruptcy and adoption of fresh start reporting, the historical financial information for periods after August 31, 2004 is not comparable to periods before September 1, 2004. For more information see The reorganization and Managements discussion and analysis of financial condition and results of operationsPro forma financial information.
(3) As part of fresh start reporting, inventory was increased by approximately $30,497 to reflect its fair value at August 31, 2004. The fair value adjustment was recognized ratably in cost of sales as inventory was sold and was fully recognized by the end of the second quarter of fiscal 2005. Cost of sales for the one month ended September 30, 2004 and the year ended September 30, 2005 include non-cash charges of $5,083 and $25,414, respectively, for this fair value adjustment. Also, as part of fresh start reporting, machinery and equipment, buildings and patents were increased by $49,436 to reflect fair value at August 31, 2004. These values will be recognized in cost of sales over periods ranging from 2 to 14 years. Cost of sales for the one month ended September 30, 2004 and the years ended September 30, 2005 and 2006 include $403, $4,788 and $4,802, respectively, for this fair value adjustment.
(4) In fiscal 2003, $676 of terminated acquisition costs were accounted for as selling, general and administrative expense related to a potential acquisition that we did not pursue.
(5) Consists primarily of professional fees and credit facility fees related to the restructuring and refinancing activities.
(6) During fiscal 2004, Haynes recognized approximately $177,653 in reorganization items of which approximately $7,298 were expenses relating to professional fees, amendment fees, travel expenses, directors fees, write offs of bond discount and debt issuance costs, and other expenses, and approximately $184,951 was income relating to the gain on cancellation of 11 ⅝ % senior notes due September 1, 2004 and fresh start reporting adjustments as a result of the reorganization. See Note 8 to the consolidated financial statements included elsewhere in this prospectus for more information.
(7) Reflects a valuation allowance of approximately $60,307 recorded at September 30, 2003 on our U.S. net deferred tax assets as a result of our determination that, as of that date, it was more likely than not that certain future tax benefits would not be realized. See Note 6 to the consolidated financial statements included elsewhere in this prospectus for more information.
(8) EBITDA and adjusted EBITDA are measures used by management to measure operating performance. EBITDA is defined as net income plus net interest, taxes, depreciation, and amortization. Adjusted EBITDA excludes certain non-cash items, restructuring and reorganization items, expense recognition of fresh start accounting adjustments and other items that management does not utilize in assessing our operating performance. Management believes that it is useful to eliminate these items (as well as net interest, taxes, depreciation, and amortization, as noted above) because it allows management to focus on what it deems to be a more reliable indicator of ongoing operating performance. As a result, internal management reports used during monthly operating reviews feature the EBITDA and adjusted EBITDA metrics. However, management uses these metrics in conjunction with traditional operating performance measures determined in accordance with generally
9
accepted accounting principles, or GAAP, as part of its overall assessment of company performance and therefore does not place undue reliance on these non-GAAP measures of operating performance.
Neither EBITDA nor adjusted EBITDA is a recognized term under GAAP and neither purports to be an alternative to net income as an indicator of operating performance or any other GAAP measure. Because not all companies use identical calculations, this presentation of EBITDA and adjusted EBITDA may not be comparable to other similarly titled measures of other companies. EBITDA and adjusted EBITDA are not intended to be measures of free cash flow for managements discretionary use since they do not consider certain cash requirements, such as interest payments, tax payments, debt service requirements and capital expenditures. However, these measures can still be useful in evaluating our performance against our peer companies because management believes the measures provide users with valuable insight into key components of GAAP amounts. For example, eliminating the effects of interest income and expense reduces the impact of a companys capital structure on its performance. In addition, removing the provision for income taxes for EBITDA presentation purposes allows users to assess returns on a pre-tax basis.
All of the items included in the reconciliation from net income to adjusted EBITDA are either (i) non-cash items (e.g., depreciation, amortization, non-cash pension expense, expense recognized from fresh start accounting adjustments and stock-based compensation) or (ii) items that management does not consider to be useful in assessing our ongoing operating performance (e.g., income taxes, restructuring and other charges). In the case of the non-cash items, management believes that investors can better assess our operating performance if the measures are presented without such items because, unlike cash expenses, these adjustments do not affect our ability to generate free cash flow or invest in our business. For example, by eliminating depreciation and amortization from EBITDA, users can compare operating performance without regard to different accounting determinations such as useful life. In the case of the other items, management believes that investors can better assess our operating performance if the measures are presented without these items because their financial impact does not reflect ongoing operating performance.
The table below provides a reconciliation of net income to EBITDA and adjusted EBITDA for the periods indicated.
|
|
Predecessor |
|
|
|
Successor |
|
|||||||||||||||
|
|
Year ended
|
|
Eleven
|
|
|
|
One month
|
|
Year ended
|
|
|||||||||||
|
|
2002 |
|
2003 |
|
2004 |
|
|
|
2004 |
|
2005 |
|
2006 |
|
|||||||
Net income |
|
$ |
927 |
|
$ |
(72,255 |
) |
$ |
170,734 |
|
|
|
|
$ |
(3,646 |
) |
$ |
(4,134 |
) |
$ |
35,540 |
|
Interest expense |
|
20,585 |
|
19,724 |
|
13,964 |
|
|
|
|
354 |
|
6,385 |
|
8,121 |
|
||||||
Interest income |
|
(144 |
) |
(63 |
) |
(35 |
) |
|
|
|
(6 |
) |
(32 |
) |
(97 |
) |
||||||
Provision for income taxes |
|
677 |
|
49,281 |
|
90 |
|
|
|
|
(1,760 |
) |
(2,111 |
) |
22,313 |
|
||||||
Depreciation and amortization |
|
6,076 |
|
6,624 |
|
7,774 |
|
|
|
|
658 |
|
8,026 |
|
8,890 |
|
||||||
EBITDA |
|
28,121 |
|
3,311 |
|
192,527 |
|
|
|
|
(4,400 |
) |
8,134 |
|
74,767 |
|
||||||
Pension/OPEB non-cash portion (a) |
|
9,008 |
|
3,201 |
|
2,620 |
|
|
|
|
23 |
|
2,982 |
|
3,021 |
|
||||||
Stock based compensation expense (b) |
|
|
|
|
|
|
|
|
|
|
123 |
|
1,302 |
|
2,786 |
|
||||||
Restructuring Items (c) |
|
|
|
|
|
4,027 |
|
|
|
|
429 |
|
628 |
|
|
|
||||||
Reorganization items (d) |
|
|
|
|
|
(177,653 |
) |
|
|
|
|
|
|
|
|
|
||||||
Fresh start accounting-inventory (e) |
|
|
|
|
|
|
|
|
|
|
5,083 |
|
25,414 |
|
|
|
||||||
Adjusted EBITDA |
|
$ |
37,129 |
|
$ |
6,512 |
|
$ |
21,521 |
|
|
|
|
$ |
1,258 |
|
$ |
38,460 |
|
$ |
80,574 |
|
(a) Represents difference between pension expense and cash paid for pension and other post-retirement benefits.
(b) Represents non-cash, stock-based compensation expense.
(c) Represents restructuring items, primarily pre-petition professional fees and credit facility fees related to our Chapter 11 filing.
(d) Represents reorganization items resulting from the bankruptcy petition including gain on cancellation of debt, fresh-start adjustments and professional fees.
(e) Represents expense recognized for fresh-start inventory adjustments.
10
(9) Represents the average price for a cash buyer as reported by the London Metals Exchange for the 30 days ending on the last day of the period presented.
(10) During March 2006, Haynes communicated to employees and plan participants a negative plan amendment that caps our liability related to total retiree health care costs at $5,000 annually effective January 1, 2007. An updated actuarial valuation was performed at March 31, 2006, which reduced the accumulated post-retirement benefit liability due to this plan amendment by $46,300, that will be amortized as a reduction to expense over an eight-year period. This amortization period began in April 2006, reducing the amount of expense recognized for the second half of fiscal 2006 and the respective future periods.
(11) We define backlog to include firm commitments from customers for delivery of product at established prices. Approximately 30% of the orders in our backlog at any given time include prices that are subject to adjustment based on changes in raw material costs. Historically, approximately 75% of our backlog orders have shipped within six months and approximately 90% have shipped within 12 months. The backlog figures do not reflect the portion of our business conducted at our service and sales centers on a spot or just-in-time basis.
11
You should carefully consider the risks described below and all other information contained in this prospectus before making an investment decision. If any of the following risks, as well as other risks and uncertainties that are not yet identified or that we currently think are immaterial, actually occur, our business, financial condition and results of operations could be materially and adversely affected. In that event, the trading price of our shares could decline, and you may lose part or all of your investment.
Our revenues may fluctuate widely based upon changes in demand for our customers products.
Demand for our products is dependent upon and derived from the level of demand for the machinery, parts and equipment produced by our customers, which are principally manufacturers and fabricators of machinery, parts and equipment for highly specialized applications. Historically, certain of the markets in which we compete have experienced unpredictable, wide demand fluctuations. Because of the comparatively high level of fixed costs associated with our manufacturing processes, significant declines in those markets have had a disproportionately adverse impact on our operating results. For example, due in part to these factors, we encountered liquidity difficulties throughout fiscal 2003 and the first half of fiscal 2004, and could not generate sufficient cash to both satisfy our debt obligations and fund our operations. These liquidity difficulties contributed to our decision to file for reorganization relief under Chapter 11 of the U.S. Bankruptcy Code on March 29, 2004.
Since we became an independent company in 1987, we have, in several instances, experienced substantial year-to-year declines in net revenues, primarily as a result of decreases in demand in the industries to which our products are sold. In fiscal 1992, 1999, 2002 and 2003, our net revenues, when compared to the immediately preceding year, declined by approximately 24.9%, 15.4%, 10.3% and 21.2%, respectively. We may experience similar fluctuations in our net revenues in the future. Additionally, demand is likely to continue to be subject to substantial year-to-year fluctuations as a consequence of industry cyclicality, as well as other factors, and such fluctuations may have a material adverse effect on our financial condition or results of operation.
Profitability in the high-performance alloy industry is highly sensitive to changes in sales volumes.
The high-performance alloy industry is characterized by high capital investment and high fixed costs. Profitability is, therefore, very sensitive to changes in volume, and relatively small changes in volume can result in significant variations in earnings. The cost of raw materials is the primary variable cost in the manufacture of high-performance alloys and represents approximately 58% of our total cost of sales. Other manufacturing costs, such as labor, energy, maintenance and supplies, often thought of as variable, have a significant fixed element.
12
Our operations are dependent on production levels at our Kokomo facility.
Our principal assets are located at our primary integrated production facility in Kokomo, Indiana and at our production facilities in Arcadia, Louisiana and in Mountain Home, North Carolina. The Arcadia and Mountain Home 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 our financial condition and results of operations. We believe that we maintain 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, we may not be able to obtain such insurance that will adequately cover such losses.
Capital expenditures are required to continue to improve operating efficiencies.
Prior to fiscal 2005, we experienced periods of liquidity shortages which resulted in a lack of funds for capital improvements at the Kokomo facility. Although we believe that our facilities are generally in good operating condition, in fiscal 2005 and 2006 we started the process of making significant upgrades to our equipment in order to improve operating efficiencies through increased capacity, improved quality capability and reduced operating costs. In addition, we also expect that these upgrades will enable us to improve working capital management. We anticipate continuing to make these upgrades, spending approximately $30.0 million in fiscal 2007 and 2008, as compared to the $5.4 million we spent in fiscal 2004, $11.6 million spent in fiscal 2005 (including the Branford Wire acquisition) and the $10.7 million spent in fiscal 2006. An inability to make these upgrades could have a material adverse impact on the efficiency with which we will be able to manufacture our products and adversely affect our competitive standing within the industry. As we proceed with our capital upgrade program, we will experience some planned equipment downtime, which could affect our financial results in future periods.
Rapid increases in the price of nickel may materially adversely affect our operating results.
To the extent that the price of nickel or other raw material cost rises rapidly, there may be a negative effect on our gross profit margins. Nickel, a major component of many of our products, accounts for approximately 51% of our raw material costs, or approximately 30% of our total costs of sales. We enter into several different types of sales contracts with our customers, some of which allow us to pass on increases in nickel prices. In other cases, we price our products at the time of order, which allows us to establish prices with reference to known costs of materials, but which does not allow us to offset an unexpected rise in the price of nickel. We may not be able to successfully offset rapid increases in the price of nickel or other raw materials in the future. In the event that raw material price increases occur that we are unable to pass on to our customers, our cash flows or results of operations would be materially adversely affected.
Increases in energy costs and raw material costs may have a negative impact on our performance and financial condition.
Since fiscal 2003, we have experienced rising raw material and energy costs. Nickel, cobalt and molybdenum, the primary raw materials used to manufacture our products, all have experienced significant fluctuations in price. Continued industrial growth in China and other developing economies has contributed to increased demand for many of the raw materials used in our manufacturing processes, which has led to increased prices for these raw materials. Haynes uses
13
natural gas in the manufacturing process to reheat material for purposes of annealing and forming. Continuing increases in raw material and energy costs could have a material adverse effect on our cash flows or results of operation.
Failure to successfully develop, commercialize, market and sell new applications and new products could adversely affect our business.
We believe that our proprietary alloys and metallurgical manufacturing expertise provide us with a competitive advantage over other high-performance alloy producers. Our ability to maintain this competitive advantage depends on our ability to continue to offer products that have equal or better performance characteristics than competing products at competitive prices. Our future growth will depend, in part, on our ability to address the increasingly demanding needs of our customers by enhancing the properties of our existing alloys, by timely developing new applications for our existing products, and by timely developing, commercializing, marketing and selling new products. If we are not successful in these efforts, if we experience difficulties that delay or prevent the successful development, commercialization, marketing or selling of these products, or if our new products and product enhancements do not adequately meet the requirements of the marketplace and achieve market acceptance, our revenues, cash flows and results of operations could be negatively affected.
We may be adversely affected by environmental, health and safety laws, regulations, costs and other liabilities.
We are subject to various foreign, federal, state and local environmental, health and safety laws and regulations, including those governing the discharge of pollutants into the environment, the storage, handling, use, treatment and disposal of hazardous substances and wastes and the health and safety of our employees. In addition, some of these laws and regulations require our facilities to operate under permits that are subject to renewal or modification. These laws, regulations and permits can require expensive pollution control equipment or operational changes to limit actual or potential impacts to the environment. Violations of these laws, regulations or permits can also result in the imposition of substantial penalties, permit revocations and/or facility shutdowns. We cannot assure you that we have been or will at all times be in complete compliance with these laws, regulations or permits. In addition, our facilities are subject to periodic inspection by various regulatory authorities, who from time to time have issued notices of violations of laws, regulations and permits. For example, in the past five years, we have paid administrative fines for alleged violations of requirements relating to the handling and storage of hazardous wastes, requirements relating to the Kokomo facilitys Title V Air Permit, requirements relating to the handling of polychlorinated biphenyls and record keeping and notification requirements relating to industrial waste water discharge. Although none of these violations has had a material effect on our financial condition, alone or in the aggregate, future violations may result in material fines, require additional capital expenditures, or both. In addition, we 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, we cannot predict the cost, if any, associated with compliance with such regulations.
Pursuant to certain environmental laws including the Comprehensive Environmental Response, Compensation and Liability Act of 1980, or CERCLA, if a release of hazardous substances occurs
14
on, under or from any of our current or former properties or any off-site location to which we sent or arranged to be sent wastes for disposal or treatment, we may be held liable for all costs arising therefrom, and there can be no assurance that the amount of such liability will not be material. We could also be held liable for any and all consequences arising out of human exposure to such substances or other hazardous substances that may be attributable to our products or other environmental damage. We have received permits from the Indiana Department of Environmental Management, or IDEM, and the U.S. Environmental Protection Agency, or EPA, to close and to provide post-closure monitoring and care for certain areas at our Kokomo facility that were used for the storage and disposal of wastes, some of which are classified as hazardous under applicable regulations. We are currently evaluating known groundwater contamination identified at our Kokomo site and are developing a plan to address it. Accordingly, additional corrective action may be required. We also have an application with IDEM pending for approval of closure and post-closure care for another area of the Kokomo site, which may also require corrective action. We have also received permits from the North Carolina Department of Environment and Natural Resources, or NCDENR, and the EPA to close and provide post-closure monitoring and care for a former waste disposal lagoon at our Mountain Home, North Carolina facility. We are required to monitor groundwater and to continue post-closure maintenance of the former disposal areas at this site. Further, if it is determined that site conditions have impacted the groundwater, additional corrective action by us could be required. We are currently unable to estimate the costs of any further corrective action at either site, if required. Accordingly, we cannot assure you that the costs of future corrective action would not have a material effect on our financial condition, results of operations or liquidity. Additionally, it is possible that we could be required to undertake other corrective action for any other solid waste management unit existing or determined to exist at any of our facilities.
We may also incur liability for alleged environmental damages associated with the off-site transportation and disposal of hazardous substances. Our operations generate hazardous substances, much of which we accumulate at our facilities for subsequent transportation and disposal off-site or recycling by third parties. Generators of hazardous substances which are transported to disposal sites where environmental problems are alleged to exist are subject to liability under CERCLA, and state counterparts. In addition, we may have generated hazardous substances disposed of at sites which are subject to CERCLA or equivalent state law remedial action. CERCLA imposes strict, joint and several liability for investigatory and cleanup costs upon hazardous substance generators, site owners and operators and other potentially responsible parties regardless of fault. We cannot assure you that we will not be named as a potentially responsible party at sites in the future or that the costs associated with current or future additional sites would not have a material adverse effect on our financial condition, results of operations or liquidity.
Environmental laws are complex, change frequently and have tended to become increasingly stringent over time. While we have budgeted for future capital and operating expenditures to comply with environmental laws, we cannot assure you that environmental laws will not change or become more stringent in the future. Therefore, we cannot assure you that our costs of complying with current and future environmental, health and safety laws, and our liabilities arising from past or future releases of, or exposure to, hazardous substances will not adversely affect our business, results of operations or financial condition. See BusinessEnvironmental Matters.
15
Although a collective bargaining agreement is in place for certain employees, union or labor disputes could still disrupt our manufacturing process.
All eligible hourly employees at the Kokomo plant and the Lebanon, Indiana service center (approximately 516 in the aggregate as of September 30, 2006) are covered by a collective bargaining agreement. As part of negotiations with the United Steelworkers of America related to our emergence from bankruptcy, the collective bargaining agreement was extended until June 2007. Even though a collective bargaining agreement is in place, it is still possible that union or labor disputes could disrupt our manufacturing process. We expect to renegotiate the collective bargaining agreement prior to the expiration of the agreement currently in place. We believe that current relations with the union are satisfactory. We cannot assure you, however, that the renegotiation of the collective bargaining agreement will not lead to a labor stoppage and negative effect on earnings. For example, there was a brief labor stoppage in connection with renegotiation of the collective bargaining agreement in fiscal 2002, although there was no such stoppage in connection with the renegotiation in fiscal 2004 as part of our emergence from bankruptcy.
If we are unable to recruit, hire and retain skilled and experienced personnel, our ability to effectively manage and expand our business will be harmed.
Our success largely depends on the skills, experience and efforts of our officers and other key employees who may terminate their employment at any time. The loss of any of our senior management team could harm our business. The announcement of the loss of one of our key employees could negatively affect our stock price. Our ability to retain our skilled workforce and our success in attracting and hiring new skilled employees will be a critical factor in determining whether we will be successful in the future. We face challenges in hiring, training, managing and retaining employees in certain areas including metallurgical researchers, equipment technicians, and sales and marketing staff. This could delay new product and alloy development and commercialization, and hinder our marketing and sales efforts, which would adversely impact our competitiveness and financial results.
U.S. and world economic and political conditions, including acts or threats of terrorism and/or war, could adversely affect our business.
National and international political developments, instability and uncertainties could result in continued economic weakness in the United States and in international markets. These uncertainties include ongoing military activity in Afghanistan and Iraq, threatened hostilities with other countries, political unrest and instability around the world and continuing threats of terrorist attacks. Any actual armed hostilities, and any future terrorist attacks in the United States or abroad, could also have an adverse impact on the U.S. economy, global financial markets and our business. The effects may include, among other things, a decrease in demand in the aerospace industry due to reduced air travel, as well as reduced demand in the other industries we serve. Depending upon the severity, scope and duration of these effects, the impact on our financial position, results of operations and cash flows could be material.
16
The risks inherent in our international operations may adversely impact our revenues, results of operations and financial condition.
We anticipate we will continue to derive a significant portion of our revenues from operations in international markets. As we continue to expand internationally, we will need to hire, train and retain qualified personnel for our direct sales efforts and retain distributors and train their personnel in countries where language, cultural or regulatory impediments may exist. We cannot ensure that distributors, regulators or other government agencies will continue to accept our products, services and business practices. In addition, we purchase raw materials on the international market. The sale and shipment of our products and services across international borders, as well as the purchase of raw materials from international sources, subject us to the different trade regulations of the various countries involved. Compliance with such regulations is costly. Any failure to comply with applicable legal and regulatory obligations could impact us in a variety of ways that include, but are not limited to, significant criminal, civil and administrative penalties, including imprisonment of individuals, fines and penalties, denial of export privileges, seizure of shipments and restrictions on certain business activities. Failure to comply with applicable legal and regulatory obligations could result in the disruption of our shipping, sales and service activities. Our international sales operations expose us and our representatives, agents and distributors to risks inherent in operating in foreign jurisdictions, including:
· our ability to obtain, and the costs associated with obtaining, U.S. export licenses and other required export or import licenses or approvals;
· changes in duties and tariffs, taxes, trade restrictions, license obligations and other non-tariff barriers to trade;
· burdens of complying with a wide variety of foreign laws and regulations;
· business practices or laws favoring local companies;
· fluctuations in foreign currencies;
· restrictive trade policies of foreign governments;
· longer payment cycles and difficulties collecting receivables through foreign legal systems;
· difficulties in enforcing or defending agreements and intellectual property rights; and
· foreign political or economic conditions.
We cannot ensure that one or more of these factors will not harm our business. Any material decrease in our international revenues or inability to expand our international operations would adversely impact our revenues, results of operations and financial condition.
Risks related to our common stock
Our common stock has not been traded on a securities exchange prior to this offering, and the market price of our common stock could be extremely volatile and could decline following this offering, resulting in a substantial loss on, or total loss of, your investment.
17
Prior to this offering, our common stock was not listed on any national securities exchange and was quoted in the pink sheets. Although we intend to list the common stock on The NASDAQ Global Market in connection with this offering, an active trading market for our common stock may never develop or be sustained, which could adversely affect your ability to sell your shares and could depress the market price of your shares. In addition, the public offering price will be determined through negotiations among us, the selling stockholders and the representative of the underwriters, and may bear no relationship to the price at which the common stock will trade upon completion of this offering.
The stock market in general has been highly volatile. As a result, the market price of our common stock is likely to be similarly volatile, and investors in our common stock may experience a decrease in the value of their stock, including decreases unrelated to our operating performance or prospects. The price of our common stock could be subject to wide fluctuations in response to a number of factors, including those listed elsewhere in this Risk factors section and others such as:
· our operating performance and the performance of other similar companies and companies deemed to be similar;
· fluctuations in the market price of nickel, raw materials or energy;
· market conditions in the end markets into which our customers sell their products, principally aerospace, power generation and chemical processing;
· announcements of technological innovations or new products and services by us or our competitors;
· the operating and stock price performance of other companies that investors may deem comparable to us;
· announcements by us of acquisitions, alliances, joint development efforts or corporate partnerships in the high temperature resistant alloy and corrosion resistant alloy markets;
· market conditions in the technology, manufacturing or other growth sectors; and
· rumors relating to us or our competitors.
You may not receive a return on investment through dividend payments nor upon the sale of your shares of our common stock.
The terms of our current U.S. revolving credit facility restrict us from paying cash dividends, and we do not anticipate paying cash dividends or making any other distributions on shares of our common stock in the foreseeable future. Instead, we intend to retain future earnings for use in the operation and expansion of our business. Therefore, you should not expect to receive a return on your investment in shares of our common stock through the payment of cash dividends. You also may not realize a return on your investment upon selling your shares of our common stock.
18
Provisions of our certificate of incorporation, by-laws and Rights Agreement could discourage potential acquisition proposals and could deter or prevent a change in control.
Some provisions in our certificate of incorporation and by-laws, as well as Delaware statutes, may have the effect of delaying, deferring or preventing a change in control. These provisions, including those providing for the possible issuance of shares of our preferred stock and regulating the nomination of directors, may make it more difficult for other persons, without the approval of our Board of Directors, to make a tender offer or otherwise acquire a substantial number of shares of our common stock or to launch other takeover attempts that a stockholder might consider to be in his or her best interest. These provisions could limit the price that some investors might be willing to pay in the future for shares of our common stock.
On August 13, 2006, we entered into a Rights Agreement with Wells Fargo Bank, N.A., pursuant to which we declared a dividend of a preferred share purchase right for each outstanding share of our common stock. The preferred share purchase rights have certain anti-takeover effects. The preferred share purchase rights will cause substantial dilution to a person or group who attempts to acquire us on terms not approved by our board, except pursuant to an offer conditioned on a substantial number of preferred share purchase rights being acquired. This may deter third parties from seeking to acquire us, and thus potentially prevent common stockholders from receiving an acquisition premium for their shares. At our annual meeting of stockholders to be held on February 20, 2007, our stockholders will vote upon a proposal to ratify and continue the Rights Agreement. If not ratified by our stockholders, the Rights Agreement will terminate.
Our historical financial information is not comparable to our current financial information.
As a result of our emergence from bankruptcy, we are operating our business with a new capital structure, and are subject to fresh start reporting requirements prescribed by generally accepted accounting principles. As required by fresh start reporting, assets and liabilities as of August 31, 2004 were recorded at fair value, with the enterprise value being determined in connection with our emergence from bankruptcy. Accordingly, our historical financial information for periods prior to August 31, 2004 is not comparable to our financial information for periods after August 31, 2004.
19
This prospectus contains statements that constitute forward-looking statements as defined by federal securities laws. Those statements appear in a number of places and may include, but are not limited to, statements regarding our intent, belief or current expectations or those of our management with respect to our strategic plans; trends in the demand for our products; trends in the industries that consume our products; our ability to develop new products; and our ability to make capital expenditures and finance operations. You are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of various factors, many of which are beyond our control.
In addition, we have based these forward-looking statements on our current expectations and projections about future events. Although we believe that the assumptions on which the forward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate. As a result, the forward-looking statements based upon those assumptions also could be incorrect. Risks and uncertainties which may affect the accuracy of forward-looking statements include, but are not limited to the following:
· wide fluctuations in revenues based upon changes in demand for our customers products;
· decreases in demand in the aerospace, land-based gas turbine or chemical processing industries;
· our ability to make capital expenditures to upgrade our primary production facility;
· rapid increases in the price of nickel, our primary raw material;
· increases in the cost of energy or other raw materials;
· unplanned shut-downs or other production problems at our manufacturing facilities;
· changes in and compliance with environmental and safety laws and policies;
· our ability to develop, commercialize, market and sell new applications and new products that meet the needs of our customers;
· foreign currency fluctuations;
· our inability to recruit or retain key personnel;
· war and acts of terrorism; or
· the other factors that we describe under Risk Factors.
We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
20
Our net proceeds from the sale of 1,000,000 shares of common stock in this offering are estimated to be approximately $ million, assuming a public offering price of $ per share, which is the mid-point of the estimated offering price range shown on the cover of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. We will not receive any proceeds from the sale of the shares of common stock by the selling stockholders.
We intend to use all of our net proceeds to repay amounts outstanding under our U.S. revolving credit facility. Availability under the U.S. revolving credit facility will be increased by the amount of the offering proceeds used to repay amounts outstanding. Reducing the amount outstanding under our U.S. revolving credit facility will better position us to execute our strategy. In particular, we intend to use a portion of the available amounts to make strategic investments in our manufacturing facilities and equipment and to opportunistically pursue strategic acquisitions and alliances. The remaining availability under our U.S. revolving credit facility will also be used for general corporate purposes. At January 18, 2007, the amount available under our U.S. and U.K. revolving credit facilities was $61.7 million. Borrowings under the U.S. credit facility as of that date were $76.3 million, and bore interest at 7.32% per annum. There were no borrowings outstanding under our U.K. credit facility as of that date.
The amount and timing of our expenditures will depend upon several factors, including cash flows from our operations and the anticipated growth of our business. Accordingly, our management will have broad discretion in the application of the proceeds of our borrowings under the revolving credit facility and investors will be relying on the judgment of our management regarding the application of these proceeds.
We have not declared cash dividends on our common stock in the last five fiscal years. We intend to retain all future earnings for the operation and expansion of our business, and therefore, we do not anticipate paying cash dividends or making any other distributions on our common stock in the foreseeable future. The payment of dividends will be at the sole discretion of our Board of Directors and will depend on our results of operations, capital requirements, financial condition, prospects, contractual arrangements, any limitations on the payment of dividends present in any current and future credit agreements and other factors that our Board of Directors may deem relevant. We are subject to covenants under our current U.S. revolving credit facility that restrict us from paying cash dividends.
21
Our common stock is not currently listed on any national securities exchange and there is no established trading market for our securities. Our common stock is currently quoted in the pink sheets under the symbol HYNI.PK. Over-the-counter market quotations reflect inter-dealer prices without retail mark-up, mark-down or commission and may not necessarily represent actual transactions. You are advised to obtain current market quotations for our common stock. No assurance can be given as to the market prices of our common stock at any time after the date of this prospectus.
The following table sets forth the range of high and low closing prices by fiscal quarter for the common stock as reported through Bloomberg L.P.
Fiscal quarter ended: |
|
High |
|
Low |
|
||
March 31, 2007 (through January 23, 2007) |
|
$ |
53.00 |
|
$ |
52.00 |
|
December 31, 2006 |
|
$ |
54.00 |
|
$ |
36.00 |
|
September 30, 2006 |
|
$ |
39.00 |
|
$ |
35.60 |
|
June 30, 2006 |
|
$ |
39.00 |
|
$ |
31.00 |
|
March 31, 2006 |
|
$ |
31.00 |
|
$ |
24.00 |
|
December 31, 2005 |
|
$ |
25.00 |
|
$ |
21.00 |
|
September 30, 2005 |
|
$ |
25.00 |
|
$ |
18.00 |
|
June 30, 2005 |
|
$ |
19.50 |
|
$ |
16.50 |
|
March 31, 2005 |
|
$ |
20.50 |
|
$ |
15.00 |
|
December 31, 2004 (from October 29, 2004) |
|
$ |
15.00 |
|
$ |
9.90 |
|
The last reported sale price of our common stock on January 23, 2007 was $52.00 per share. As of January 12, 2007, there were approximately 14 record holders of our common stock.
22
The following table sets forth our cash and cash equivalents, short-term debt and capitalization as of September 30, 2006:
· on an actual basis; and
· on an adjusted basis to reflect our sale of 1,000,000 shares of common stock at an assumed public offering price of $ per share (the midpoint of the range set forth on the cover page of this prospectus), and application of the net proceeds, after deducting estimated underwriting discounts and commissions and estimated offering expenses, to repay amounts outstanding under our U.S. revolving credit facility, as described under Use of proceeds. Each $1.00 increase (decrease) in the public offering price per share would increase (decrease) the as adjusted figure shown below for additional paid-in capital, total stockholders equity and total capitalization by $ million, after deducting estimated underwriting discounts and commissions and the as adjusted amount for revolving credit facility and total short-term debt would decrease (increase) by $ . The adjustments also reflect the sale of 300,000 shares of common stock by the selling stockholders in this offering who are exercising options.
This table should be read in conjunction with Selected consolidated financial and other data, Managements discussion and analysis of financial condition and results of operations and our consolidated financial statements and notes thereto appearing elsewhere in this prospectus.
September 30, 2006
|
|
Actual |
|
As adjusted |
|
|||
Cash and cash equivalents |
|
$ |
6,182 |
|
|
$ |
6,182 |
|
Short-term debt: |
|
|
|
|
|
|
||
Revolving credit facility(1) |
|
$ |
116,836 |
|
|
|
|
|
Current maturities of long-term obligations |
|
110 |
|
|
110 |
|
||
Total short-term debt |
|
$ |
116,946 |
|
|
|
|
|
Long-term obligations (less current portion) |
|
$ |
3,097 |
|
|
$ |
3,097 |
|
Stockholders equity: |
|
|
|
|
|
|
||
Common stock, $0.001 par value (20,000,000 shares authorized, 10,000,000 shares issued and outstanding actual, 11,300,000 shares issued and outstanding as adjusted)(2) |
|
10 |
|
|
11 |
|
||
Preferred stock, $0.001 par value (20,000,000 shares authorized, no shares issued and outstanding) |
|
|
|
|
|
|
||
Additional paid-in capital |
|
122,937 |
|
|
|
|
||
Accumulated earnings |
|
27,760 |
|
|
27,760 |
|
||
Accumulated other comprehensive income |
|
841 |
|
|
841 |
|
||
Total stockholders equity |
|
151,548 |
|
|
|
|
||
Total capitalization (including short-term debt) |
|
$ |
271,591 |
|
|
$ |
|
|
(1) The actual amounts shown for the revolving credit facility and total short-term debt do not reflect a repayment of $48.1 million on the outstanding balance of the U.S. revolving credit facility in the first quarter of fiscal 2007.
(2) Common stock to be outstanding after this offering includes 300,000 shares to be issued upon the exercise of existing options and sold by certain of the selling stockholders, or 450,000 shares if the underwriters exercise their over-allotment option in full. If the underwriters exercise their over-allotment option in full, as adjusted amounts for additional paid-in capital, total stockholders equity and total capitalization would increase by $ and the as adjusted amount for revolving credit facility and total short-term debt would decrease by $ , to reflect our receipt of the option exercise price on common stock issued pursuant to these options and the application of the amounts received as described above.
23
Our pro forma net tangible book value as of December 31, 2006, was $ million, or $ per share of common stock. Net tangible book value per share represents the amount of stockholders equity divided by shares of common stock outstanding after giving effect to the conversion of all outstanding options into shares of common stock.
Net tangible book value dilution per share to new investors represents the difference between the amount per share paid by purchasers of shares of common stock in this offering and the pro forma net tangible book value per share of common stock immediately after the completion of this offering. After giving effect to our sale of 1,000,000 shares of common stock in this offering at an assumed public offering price of $ per share (the midpoint of the range set forth on the cover page of this prospectus), after deducting estimated underwriting discounts and commissions and estimated offering expenses, our pro forma net tangible book value as of December 31, 2006 would have been, $ million, or $ per share. This represents an immediate increase in net tangible book value of $ per share to existing stockholders and an immediate dilution in net tangible book value of $ per share to investors purchasing common stock in this offering, as illustrated in the following table:
|
|
|
|
|
|
Initial public offering price per share |
|
|
|
$ |
|
Pro forma net tangible book value per share as of December 31, 2006 |
|
$ |
|
|
|
Increase per share attributable to new investors |
|
|
|
|
|
Pro forma net tangible book value per share after this offering |
|
|
|
|
|
Dilution per share to new investors |
|
|
|
$ |
|
The following table presents on a pro forma basis as of December 31, 2006, after giving effect to our sale of 1,000,000 shares, the differences between the existing stockholders and purchasers of shares in this offering with respect to the number of shares purchased from us, the total consideration paid and the average price paid per share:
|
|
Shares purchased |
|
Total consideration |
|
Average
|
|
||||||||
|
|
Number |
|
Percent |
|
Amount |
|
Percent |
|
share |
|
||||
Existing stockholders |
|
|
|
|
|
% |
|
|
|
|
|
% |
|
|
|
New investors |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total . |
|
|
|
|
100.0 |
% |
|
|
|
|
100.0 |
% |
|
|
|
24
Haynes encountered liquidity difficulties throughout fiscal 2003 and the first half of fiscal 2004 due to concurrent down cycles in our largest markets, rising raw material and energy costs, and debt service obligations. We could not generate sufficient cash to both satisfy our debt service obligations and fund our operations. On March 29, 2004, Haynes and certain of its U.S. affiliates and subsidiaries as of that date filed voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code (11 U.S.C. § 101 et seq .). From March 29, 2004 through August 31, 2004, Haynes continued to operate as debtor-in-possession subject to the supervision of the bankruptcy court. On August 31, 2004, Haynes emerged from bankruptcy pursuant to a court-approved plan of reorganization.
Prior to the reorganization, all of the outstanding shares of our common stock were owned by Haynes Holdings, Inc., a Delaware corporation. In connection with the reorganization, Haynes Holdings, Inc. and Haynes International, Inc. were merged, and Haynes was the surviving corporation of the merger. Pursuant to the plan of reorganization, all of the shares of our common stock were cancelled, and 10.0 million new shares of our common stock, were issued in connection with our emergence from bankruptcy. Under the terms of the plan of reorganization, each former holder of our 11 5 ¤ 8 % senior notes due September 1, 2004 received its pro rata share of 9.6 million shares of our new common stock in full satisfaction of all of our obligations under the senior notes. Additionally, each former holder of the shares of common stock of Haynes Holdings, Inc. received its pro rata share of the remaining 400,000 shares of our new common stock in exchange for its outstanding shares of Haynes Holdings, Inc. common stock.
The plan of reorganization also provided for the payment or satisfaction of all secured and unsecured claims against Haynes, except as reinstated under the plan of reorganization and except with respect to the 11 5 ¤ 8 % senior notes due September 1, 2004, which were exchanged for equity as described above. Further detail concerning the treatment of claims under the plan of reorganization may be obtained through a review of the terms of the plan of reorganization which is filed as an exhibit to the registration statement of which this prospectus is a part.
Accounting impact of the reorganization
Upon implementation of the plan of reorganization, Haynes adopted fresh start reporting in accordance with AICPA Statement of Position 90-7, or SOP 90-7, Financial Reporting by Entities in Reorganization under the Bankruptcy Code , because holders of shares of the common stock of Haynes Holdings, Inc., the former parent of Haynes, immediately prior to confirmation of the plan of reorganization received less than 50% of the shares of our new common stock issued upon emergence from bankruptcy and the reorganization value upon emergence was less than our post-petition liabilities and allowed claims. Under fresh start reporting, the reorganization value was allocated to our net assets based on their relative fair values in a manner similar to the accounting provisions applied to business combinations under Statement of Financial Accounting Standards No. 141, Business Combinations . Our reorganization value was determined based on consideration of numerous factors and various valuation methodologies, including discounted cash flows, believed by management and our financial advisors to be representative of our business and industry. Information regarding the determination of the reorganization value and application of fresh start reporting is included in Note 1 to the consolidated financial statements included elsewhere in this prospectus. As a result of the plan of reorganization and adoption of fresh start reporting, our consolidated balance sheet as of September 30, 2004 is not comparable to our historical balance sheets as of any date prior to September 1, 2004 and our results of operations after August 31, 2004 are not comparable to our results of operations for periods prior to September 1, 2004. For more information see Managements discussion and analysis of financial condition and results of operationPro forma financial information.
25
Selected consolidated financial and other data
Set forth below is selected consolidated financial and other data. This data should be read in conjunction with the consolidated financial statements and related notes thereto and Managements discussion and analysis of financial condition and results of operations included elsewhere in this prospectus.
On March 29, 2004, we and certain of our U.S. subsidiaries and U.S. affiliates as of that date filed for bankruptcy protection. Our plan of reorganization was confirmed by order of the Bankruptcy Court on August 16, 2004 and became effective on August 31, 2004. Our historical consolidated financial statements included elsewhere in this prospectus have been prepared on a going concern basis, which assumes continuity of operations and realization of assets and satisfaction of liabilities in the ordinary course of business, and, for periods subsequent to March 29, 2004, in accordance with the American Institute of Certified Public Accountants Statement of Position 90-7, Financial Reporting by Entities in Reorganization Under the Bankruptcy Code . As of August 31, 2004, the effective date of our plan of reorganization, we began operating our business under a new capital structure, and we adopted fresh start reporting for our financial statements. Because of the emergence from bankruptcy and adoption of fresh start reporting, our historical financial information for periods prior to August 31, 2004 is not comparable to our financial information for periods after August 31, 2004. See The reorganization.
The selected historical consolidated financial data as of and for the years ended September 30, 2005 and 2006, as of September 30, 2004 and for the period September 1, 2004 through September 30, 2004 is derived from the audited consolidated financial statements of our company after giving effect to the adoption of fresh start reporting (successor Haynes International, Inc.). The selected historical consolidated financial data for the period October 1, 2003 through August 31, 2004, and as of and for the years ended September 30, 2002 and 2003 is derived from the audited consolidated financial statements of our company prior to the adoption of fresh start reporting (predecessor Haynes International, Inc.).
26
|
|
Predecessor |
|
|
|
Successor |
|
|||||||||||||||
(in thousands, except average
|
|
Year ended
|
|
Eleven
|
|
|
|
One month
|
|
Year ended September 30, |
|
|||||||||||
per share information) |
|
2002(1) |
|
2003(1) |
|
2004 |
|
|
|
2004(2) |
|
2005(2) |
|
2006(2) |
|
|||||||
Statement of operations data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net revenues |
|
$ |
225,942 |
|
$ |
178,129 |
|
$ |
209,103 |
|
|
|
|
$ |
24,391 |
|
$ |
324,989 |
|
$ |
434,405 |
|
Cost of sales(3) |
|
175,572 |
|
150,478 |
|
171,652 |
|
|
|
|
26,136 |
|
288,669 |
|
325,573 |
|
||||||
Selling, general and administrative expense(4) |
|
24,628 |
|
24,411 |
|
24,038 |
|
|
|
|
2,658 |
|
32,963 |
|
40,296 |
|
||||||
Research and technical expense |
|
3,697 |
|
2,747 |
|
2,286 |
|
|
|
|
226 |
|
2,621 |
|
2,659 |
|
||||||
Restructuring and other charges(5) |
|
|
|
|
|
4,027 |
|
|
|
|
429 |
|
628 |
|
|
|
||||||
Operating income (loss) |
|
22,045 |
|
493 |
|
7,100 |
|
|
|
|
(5,058 |
) |
108 |
|
65,877 |
|
||||||
Interest expense, net |
|
20,441 |
|
19,661 |
|
13,929 |
|
|
|
|
348 |
|
6,353 |
|
8,024 |
|
||||||
Reorganization items(6) |
|
|
|
|
|
(177,653 |
) |
|
|
|
|
|
|
|
|
|
||||||
Net income (loss)(7) |
|
927 |
|
(72,255 |
) |
170,734 |
|
|
|
|
(3,646 |
) |
(4,134 |
) |
35,540 |
|
||||||
Net income (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Basic |
|
$ |
9,270 |
|
$ |
(722,550 |
) |
$ |
1,707,340 |
|
|
|
|
$ |
(0.36 |
) |
$ |
(0.41 |
) |
$ |
3.55 |
|
Diluted |
|
$ |
9,270 |
|
$ |
(722,550 |
) |
$ |
1,707,340 |
|
|
|
|
$ |
(0.36 |
) |
$ |
(0.41 |
) |
$ |
3.46 |
|
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Basic |
|
100 |
|
100 |
|
100 |
|
|
|
|
10,000,000 |
|
10,000,000 |
|
10,000,000 |
|
||||||
Diluted |
|
100 |
|
100 |
|
100 |
|
|
|
|
10,000,000 |
|
10,000,000 |
|
10,270,642 |
|
||||||
Other data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Capital expenditures |
|
$ |
6,032 |
|
$ |
3,638 |
|
$ |
4,782 |
|
|
|
|
$ |
637 |
|
$ |
9,029 |
|
$ |
10,668 |
|
Average nickel price per pound (end of period)(8) |
|
$ |
3.02 |
|
$ |
4.52 |
|
$ |
6.21 |
|
|
|
|
$ |
6.02 |
|
$ |
6.45 |
|
$ |
13.67 |
|
At September 30, |
|
Predecessor |
|
|
|
Successor |
|
|||||||||||
(in thousands) |
|
2002(1) |
|
2003(1) |
|
|
|
2004(2) |
|
2005(2) |
|
2006(2) |
|
|||||
Balance sheet data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Working capital (deficit) |
|
$ |
49,424 |
|
$ |
(99,901 |
) |
|
|
$ |
61,826 |
|
$ |
59,494 |
|
$ |
101,864 |
|
Property, plant and equipment, net |
|
42,721 |
|
40,229 |
|
|
|
80,035 |
|
85,125 |
|
88,921 |
|
|||||
Total assets |
|
230,513 |
|
180,115 |
|
|
|
360,758 |
|
387,122 |
|
445,860 |
|
|||||
Total debt |
|
189,685 |
|
201,007 |
|
|
|
85,993 |
|
106,383 |
|
120,043 |
|
|||||
Accrued pension and postretirement benefits(9) |
|
121,717 |
|
127,767 |
|
|
|
120,019 |
|
122,976 |
|
126,488 |
|
|||||
Stockholders equity (deficiency) |
|
(101,973 |
) |
(172,858 |
) |
|
|
115,576 |
|
111,869 |
|
151,548 |
|
|||||
(in millions) |
|
2002 |
|
2003 |
|
2004 |
|
2005 |
|
2006 |
|
|||||
Backlog at fiscal quarter ended(10): |
|
|
|
|
|
|
|
|
|
|
|
|||||
December 31 |
|
$ |
88.0 |
|
$ |
49.0 |
|
$ |
54.7 |
|
$ |
110.9 |
|
$ |
203.5 |
|
March 31 |
|
77.2 |
|
53.6 |
|
69.6 |
|
134.8 |
|
207.4 |
|
|||||
June 30 |
|
63.9 |
|
54.5 |
|
82.6 |
|
159.2 |
|
200.8 |
|
|||||
September 30 |
|
52.5 |
|
50.6 |
|
93.5 |
|
188.4 |
|
206.9 |
|
|||||
(1) Restated . Effective October 1, 2003, Haynes changed its inventory costing method from the last-in, first-out (LIFO) method to the first-in, first-out (FIFO) method. In accordance with generally accepted accounting principles, the change has been applied by restating the 2002 and 2003 consolidated financial data.
(2) As of August 31, 2004, the effective date of our plan of reorganization, Haynes adopted fresh start reporting for its consolidated financial statements. Because of the emergence from bankruptcy and adoption of fresh start reporting, the historical financial information for periods after August 31, 2004 is not comparable to periods before September 1, 2004.
27
See The reorganization and Managements discussion and analysis of financial condition and results of operationsPro forma financial information.
(3) As part of fresh start reporting, inventory was increased by approximately $30,497 to reflect its fair value at August 31, 2004. The fair value adjustment was recognized ratably in cost of sales as inventory was sold and was fully recognized by the end of the second quarter of fiscal 2005. Cost of sales for the one month ended September 30, 2004 and the years ended September 30, 2005 and 2006 include non-cash charges of $5,083, $25,414 and $0, respectively, for this fair value adjustment. Also, as part of fresh start reporting, machinery and equipment, buildings and patents were increased by $49,436 to reflect fair value at August 31, 2004. The majority of these values have been recognized, commencing in 2004 and will continue to be recognized in costs of sales over periods ranging from 2 to 14 years. Cost of sales for the one month ended September 30, 2004 and the years ended September 30, 2005 and 2006 include $403, $4,788 and $4,802, respectively, for this fair value adjustment.
(4) In fiscal 2003, $676 of terminated acquisition costs were accounted for as selling, general and administrative expense related to a potential acquisition that we did not pursue.
(5) Consists primarily of professional fees and credit facility fees related to the restructuring and refinancing activities.
(6) During fiscal 2004, Haynes recognized approximately $177,653 in reorganization items of which approximately $7,298 were expenses relating to professional fees, amendment fees, travel expenses, directors fees, write offs of bond discount and debt issuance costs, and other expenses, and approximately $184,951 was income relating to the gain on cancellation of 11 5 ¤ 8 % senior notes due September 1, 2004 and fresh start reporting adjustments as a result of the reorganization. See Note 8 to the consolidated financial statements included elsewhere in this prospectus for more information.
(7) Reflects a valuation allowance of approximately $60,307 recorded at September 30, 2003 on our U.S. net deferred tax assets as a result of our determination that, as of that date, it was more likely than not that certain future tax benefits would not be realized. See Note 6 to the consolidated financial statements included elsewhere in this prospectus for more information.
(8) Represents the average price for a cash buyer as reported by the London Metals Exchange for the 30 days ending on the last day of the period presented.
(9) During March 2006, Haynes communicated to employees and plan participants a negative plan amendment that caps our liability related to total retiree health care costs at $5,000 annually effective January 1, 2007. An updated actuarial valuation was performed at March 31, 2006, which reduced the accumulated post-retirement benefit liability due to this plan amendment by $46,300, that will be amortized as a reduction to expense over an eight-year period. This amortization period began in April 2006, reducing the amount of expense recognized for the second half of fiscal 2006 and the respective future periods.
(10) We define backlog to include firm commitments from customers for delivery of product at established prices. Approximately 30% of the orders in our backlog at any given time include prices that are subject to adjustment based on changes in raw material costs. Historically, approximately 75% of our backlog orders have shipped within six months and approximately 90% have shipped within 12 months. The backlog figures do not reflect that portion of our business conducted at our service and sales centers on a spot or just-in-time basis.
28
Managements discussion and analysis of financial condition and results of operations
Reorganization and presentation of financial results
On March 29, 2004, Haynes and its U.S. subsidiaries and U.S. affiliates as of that date filed voluntary petitions for reorganization relief under Chapter 11 of the U.S. Bankruptcy Code. Haynes emerged from bankruptcy on August 31, 2004 pursuant to a plan of reorganization. Our historical results for the period from October 1, 2003 through August 31, 2004 (the predecessor company) are being presented along with our financial results from September 1, 2004 through September 30, 2004, and full years of fiscal 2005 and fiscal 2006 (the successor company). As of August 31, 2004, the effective date of the plan of reorganization, the successor company began operating under a new capital structure and adopted fresh start reporting for its financial statements. Because of our emergence from bankruptcy and adoption of fresh start reporting, the predecessor companys historical financial information for periods prior to August 31, 2004 is not comparable to the successor companys financial information for periods after August 31, 2004. For more information see The reorganization and Impact of fresh start reporting on cost of sales.
Pro forma financial information
The following unaudited pro forma consolidated statement of operations for the year ended September 30, 2004 is derived from the application of pro forma adjustments to the historical statement of operations of the predecessor Haynes International, Inc. for the period October 1, 2003 to August 31, 2004 as if the effective date of the plan of reorganization were October 1, 2003. The pro forma combined statement of operations for the year ended September 30, 2004 includes the historical results of operations of the successor Haynes International, Inc. for the period September 1, 2004 to September 30, 2004, combined with the pro forma results of operations of the predecessor Haynes International, Inc. for the period October 1, 2003 to August 31, 2004. The pro forma statement of operations should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this prospectus.
29
The pro forma adjustments are described in the notes to the pro forma statement of operations and are based on available information and assumptions that we believe are reasonable. The pro forma statement of operations is not necessarily indicative of the future results of operations of the successor Haynes International, Inc. or results of operations of the successor Haynes International, Inc. that would have actually occurred had the plan of reorganization been consummated as of October 1, 2003.
|
|
Predecessor |
|
|
|
Successor |
|
|
|
Successor |
|
|||||
(in thousands, except share
|
|
Period
|
|
|
|
Period
|
|
Pro forma
|
|
Pro forma
|
|
|||||
Statement of operations: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net revenues |
|
$ |
209,103 |
|
|
|
$ |
24,391 |
|
|
$ |
|
|
$ |
233,494 |
|
Cost of sales(2) |
|
171,652 |
|
|
|
26,136 |
|
|
4,433 |
|
202,221 |
|
||||
Selling, general and administrative expense(3) |
|
24,038 |
|
|
|
2,658 |
|
|
1,356 |
|
28,052 |
|
||||
Research and technical expense |
|
2,286 |
|
|
|
226 |
|
|
|
|
2,512 |
|
||||
Restructuring and other charges |
|
4,027 |
|
|
|
429 |
|
|
|
|
4,456 |
|
||||
Operating income (loss) |
|
7,100 |
|
|
|
(5,058 |
) |
|
(5,789 |
) |
(3,747 |
) |
||||
Interest expense(4) |
|
13,964 |
|
|
|
354 |
|
|
(9,363 |
) |
4,955 |
|
||||
Interest income |
|
(35 |
) |
|
|
(6 |
) |
|
|
|
(41 |
) |
||||
Income (loss) before reorganization items and income taxes |
|
(6,829 |
) |
|
|
(5,406 |
) |
|
3,574 |
|
(8,661 |
) |
||||
Reorganization items(5) |
|
177,653 |
|
|
|
|
|
|
(177,653 |
) |
|
|
||||
Income (loss) before income taxes |
|
170,824 |
|
|
|
(5,406 |
) |
|
(174,079 |
) |
(8,661 |
) |
||||
Provision for (benefit from) income taxes(6) |
|
90 |
|
|
|
(1,760 |
) |
|
(1,621 |
) |
(3,291 |
) |
||||
Net income (loss) |
|
$ |
170,734 |
|
|
|
$ |
(3,646 |
) |
|
$ |
(172,458 |
) |
$ |
(5,370 |
) |
Net income (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
$ |
1,707,340 |
|
|
|
$ |
(0.36 |
) |
|
|
|
$ |
(0.54 |
) |
|
Diluted |
|
$ |
1,707,340 |
|
|
|
$ |
(0.36 |
) |
|
|
|
$ |
(0.54 |
) |
|
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
100 |
|
|
|
10,000,000 |
|
|
|
|
10,000,000 |
|
||||
Diluted |
|
100 |
|
|
|
10,000,000 |
|
|
|
|
10,000,000 |
|
(1) The pro forma adjustments do not include the non-recurring charge to expense of the flow through fair value adjustment to inventory of $25,415. The effect of this adjustment was included in cost of sales during the first five months of fiscal 2005.
(2) To reflect the net change in historical cost of sales of the predecessor company resulting from the application of fresh start reporting. Change is due to an increase in historical depreciation expense of $239 per month for a period of eleven months and the addition of patent amortization expense of $164 per month for a period of eleven months. Each of these adjustments was calculated using the new basis of accounting result from the adoption of fresh start reporting.
(3) To reflect compensation expense for the stock options granted by the successor company of $123 per month for a period of eleven months.
(4) To reflect the elimination of interest expense on the $140,000 11 ⅝ % senior notes due September 1, 2004 of $9,363.
(5) To eliminate reorganization items.
(6) To reflect the net change between the historical income tax benefit and the expected income tax benefit on the pro forma operations in order to achieve our expected effective tax rate of 38%.
30
The global specialty alloy market consists of three primary sectors: stainless steel, general purpose nickel alloys and high-performance alloys. Except for its stainless steel wire products, Haynes competes exclusively in the high-performance nickel- and cobalt-based alloy sector, which includes high temperature resistant alloys, or HTA products, and corrosion resistant alloys, or CRA products. HTA and CRA products accounted for 75% and 25%, respectively, of our net revenues in fiscal 2005, and 68% and 32%, respectively, of our net revenues in fiscal 2006 (in each case excluding stainless steel wire). Based on available industry data, we believe that we are one of four principal producers of high-performance alloys in flat product form, which includes sheet, coil and plate forms. Flat products accounted for 72% of shipment pounds and 69% of net revenues in fiscal 2005, and 69% of shipment pounds and 67% of net revenues in fiscal 2006. We also produce our alloys as seamless and welded tubulars, and in bar, billet and wire forms. On an historical basis, flat products have accounted for a majority of our net revenues, and are anticipated to continue to do so on a prospective basis.
We sell our products primarily through our direct sales organization, which includes 11 service and/or sales centers in the United States, Europe, Asia and India. All of these centers are company-operated. During fiscal 2005, we opened our service and sales center in China and our sales center in India. Our direct sales organization generated approximately 81% and 82% of our net revenues in fiscal 2005 and fiscal 2006, respectively. The remaining 19% and 18% of our net revenues in fiscal 2005 and fiscal 2006, respectively, were generated by a network of independent distributors and sales agents who supplement our direct sales efforts in all markets, some of whom have been associated with Haynes for over 30 years. We are currently in the process of evaluating the efficiency of some of our overseas distribution channels, including the appropriate number of distributors, the types of products sold through third party distributors and the distribution partners. On a prospective basis, we expect our direct sales force to continue to generate approximately 80% of total sales. This percentage may increase, however, as we open new service and sales centers.
Sales to customers outside the United States represented approximately 39% of our net revenues in both fiscal 2005 and fiscal 2006. It is anticipated that sales to customers outside of the United States will continue to grow with our addition of foreign service and sales centers. Although no data is available, we believe a portion of the material that is sold to domestic distributors and fabricators is resold and shipped overseas.
The high-performance alloy industry is characterized by high capital investment and high fixed costs. Profitability is, therefore, very sensitive to changes in volume, and relatively small changes in volume can result in significant variations in earnings. The cost of raw materials is the primary variable cost in the manufacture of high-performance alloys and represents approximately 58% of our total cost of sales. Other manufacturing costs, such as labor, energy, maintenance and supplies, often thought of as variable, have a significant fixed element within a certain relevant range of production.
Lead times from order to shipment can be a competitive factor, as well as an indication of the strength of the demand for high-performance alloys. Our current average lead times from order to shipment for mill-produced products, depending on product form, are approximately 10 to 30
31
weeks. An order from a service and sales center can be filled in less than one week, depending upon the availability of materials in stock.
The following table includes a breakdown of net revenues, shipments and average selling prices to the markets served by Haynes for the periods shown.
|
|
2002 |
|
2003 |
|
2004(1) |
|
2005 |
|
2006 |
|
||||||||||||||||||||
Year ended September 30,
|
|
Amount |
|
Percent
|
|
Amount |
|
Percent
|
|
Amount |
|
Percent
|
|
Amount |
|
Percent
|
|
Amount |
|
Percent
|
|
||||||||||
Net revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aerospace |
|
|
$ |
92.8 |
|
|
41.1 |
% |
|
$ |
80.3 |
|
|
45.1 |
% |
|
$ |
98.1 |
|
|
42.0 |
% |
|
$ |
126.1 |
|
|
38.8 |
% |
|
$ |
165.8 |
|
|
38.2 |
% |
Chemical processing |
|
|
45.8 |
|
|
20.3 |
|
|
44.6 |
|
|
25.0 |
|
|
61.4 |
|
|
26.3 |
|
|
76.2 |
|
|
23.5 |
|
|
129.4 |
|
|
29.8 |
|
|||||
Land-based gas turbines |
|
|
52.6 |
|
|
23.3 |
|
|
26.7 |
|
|
15.0 |
|
|
41.1 |
|
|
17.6 |
|
|
67.1 |
|
|
20.6 |
|
|
77.9 |
|
|
17.9 |
|
|||||
Other markets |
|
|
32.1 |
|
|
14.1 |
|
|
25.5 |
|
|
14.3 |
|
|
31.1 |
|
|
13.3 |
|
|
53.2 |
|
|
16.4 |
|
|
56.4 |
|
|
13.0 |
|
|||||
Total product |
|
|
223.3 |
|
|
98.8 |
|
|
177.1 |
|
|
99.4 |
|
|
231.7 |
|
|
99.2 |
|
|
322.6 |
|
|
99.3 |
|
|
429.5 |
|
|
98.9 |
|
|||||
Other revenue (2) |
|
|
2.6 |
|
|
1.2 |
|
|
1.0 |
|
|
0.6 |
|
|
1.8 |
|
|
0.8 |
|
|
2.4 |
|
|
0.7 |
|
|
4.9 |
|
|
1.1 |
|
|||||
Net revenues |
|
|
$ |
225.9 |
|
|
100.0 |
% |
|
$ |
178.1 |
|
|
100.0 |
% |
|
$ |
233.5 |
|
|
100.0 |
% |
|
$ |
325.0 |
|
|
100.0 |
% |
|
$ |
434.4 |
|
|
100.0 |
% |
U.S. |
|
|
$ |
142.4 |
|
|
63.0 |
% |
|
$ |
103.6 |
|
|
58.2 |
% |
|
$ |
143.3 |
|
|
61.4 |
% |
|
$ |
196.5 |
|
|
60.5 |
% |
|
$ |
265.1 |
|
|
61.0 |
% |
Foreign |
|
|
$ |
83.5 |
|
|
37.0 |
% |
|
$ |
74.5 |
|
|
41.8 |
% |
|
$ |
90.2 |
|
|
38.6 |
% |
|
$ |
128.5 |
|
|
39.5 |
% |
|
$ |
169.3 |
|
|
39.0 |
% |
Shipments
by market
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Aerospace |
|
|
5.4 |
|
|
32.9 |
% |
|
4.7 |
|
|
37.6 |
% |
|
5.5 |
|
|
36.7 |
% |
|
6.1 |
|
|
29.2 |
% |
|
7.1 |
|
|
32.9 |
% |
|||||
Chemical processing |
|
|
3.8 |
|
|
23.2 |
|
|
3.9 |
|
|
31.2 |
|
|
4.2 |
|
|
28.0 |
|
|
3.8 |
|
|
18.2 |
|
|
5.0 |
|
|
23.1 |
|
|||||
Land-based gas turbines |
|
|
5.0 |
|
|
30.5 |
|
|
2.3 |
|
|
18.4 |
|
|
3.5 |
|
|
23.3 |
|
|
4.7 |
|
|
22.5 |
|
|
4.8 |
|
|
22.2 |
|
|||||
Other markets |
|
|
2.2 |
|
|
13.4 |
|
|
1.6 |
|
|
12.8 |
|
|
1.8 |
|
|
12.0 |
|
|
6.3 |
|
|
30.1 |
|
|
4.7 |
|
|
21.8 |
|
|||||
Total shipments |
|
|
16.4 |
|
|
100.0 |
% |
|
12.5 |
|
|
100.0 |
% |
|
15.0 |
|
|
100.0 |
% |
|
20.9 |
|
|
100.0 |
% |
|
21.6 |
|
|
100.0 |
% |
|||||
Average selling price per pound: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Aerospace |
|
|
$ |
17.19 |
|
|
|
|
|
$ |
17.09 |
|
|
|
|
|
$ |
17.84 |
|
|
|
|
|
$ |
20.63 |
|
|
|
|
|
$ |
23.28 |
|
|
|
|
Chemical processing |
|
|
12.05 |
|
|
|
|
|
11.44 |
|
|
|
|
|
14.62 |
|
|
|
|
|
19.84 |
|
|
|
|
|
25.97 |
|
|
|
|
|||||
Land-based gas turbines |
|
|
10.52 |
|
|
|
|
|
11.61 |
|
|
|
|
|
11.74 |
|
|
|
|
|
14.25 |
|
|
|
|
|
16.27 |
|
|
|
|
|||||
Other markets(3) |
|
|
14.59 |
|
|
|
|
|
15.94 |
|
|
|
|
|
17.28 |
|
|
|
|
|
8.50 |
|
|
|
|
|
11.87 |
|
|
|
|
|||||
All markets(4) |
|
|
13.62 |
|
|
|
|
|
14.17 |
|
|
|
|
|
15.45 |
|
|
|
|
|
15.42 |
|
|
|
|
|
19.84 |
|
|
|
|
(1) This information was derived from and should be read in conjunction with the information under Pro forma financial information.
(2) Other revenue consists of toll conversion, royalty income, and scrap sales.
(3) During fiscal 2005 and 2006, the Other markets category includes $15.8 million and $15.1 million in revenue, respectively, and 4.8 million pounds and 3.2 million pounds, respectively, of stainless steel wire as a result of our November 2004 acquisition of assets of Branford Wire.
(4) Average selling price per pound excludes Other revenue. If Other revenue were included, the total average selling price per pound for all markets would be $15.53 for fiscal 2005 and $20.07 for fiscal 2006.
Aerospace . Demand for our products in the aerospace market is largely driven by orders for new jet engines, as well as requirements for spare parts and replacement parts for jet engines. Haynes experienced strong growth in the late 1990s through fiscal 2001 due to the aerospace
32
demand cycle. As a result of increased new aircraft production during this cycle and maintenance requirements, our net revenues from sales to the aerospace supply chain peaked in fiscal 2001. Our sales to the aerospace market declined throughout fiscal 2002 and fiscal 2003, but started to improve with the turn-around of the aerospace cycle in late fiscal 2003. The improvement continued through fiscal 2006. Excluding any catastrophic economic or political events, based on forecasted engine and airframe build schedules, we believe that the aerospace market should remain strong through fiscal 2007. We view the maintenance, repair and overhaul (or MRO) business as an area of future growth, and expect the number of engines in service to increase in the next ten to twenty years.
Net revenues to the aerospace market in fiscal 2006 increased by 31.5% from fiscal 2005 as commercial aircraft production by the major manufacturers continued to increase from the prior year, resulting in improvements in aircraft orders and aircraft maintenance requirements. Due to these improved market conditions there was a 16.6% increase in the number of pounds shipped in this market and a 12.8% increase in the average selling price per pound, which also reflects generally improved product pricing as a result of changes in product mix and higher raw material costs.
Chemical processing. Growth in the chemical processing market tends to track overall economic activity. Demand for our products in this market is driven by the level of maintenance, repair and expansion requirements of existing chemical processing facilities, as well as the construction of new facilities. We believe that the basic elements that drive the use of our products in the chemical processing market are still present, but the focus for new plant construction will be in Asia, while maintenance and debottlenecking projects to avoid capital expansion will be the trend in Europe and North America. 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 chemical throughput, should support future demand for more sophisticated alloys, such as our specialty and proprietary CRA products. Our key proprietary CRA products, including HASTELLOY C-2000, which we believe provides better overall corrosion resistance and versatility than any other readily available CRA product, HASTELLOY B-3, HASTELLOY G-35 and HASTELLOY C-22, are expected to contribute to improving activity in this market.
Net revenues from the chemical processing market in fiscal 2003 represented our lowest levels in the previous five fiscal years. Net revenues from this market have increased steadily since fiscal 2003. In fiscal 2006, our net revenues in the chemical processing market increased by 69.7% from those in fiscal 2005. In fiscal 2006, the number of pounds shipped to customers in the chemical processing market increased 29.7% as compared to fiscal 2005, primarily as a result of improved market conditions. Average selling price per pound in this market increased 30.9% compared to fiscal 2005, due primarily to an improved product mix which included a higher percentage of proprietary alloys and the effect of higher raw material costs.
Land-based gas turbines. We have leveraged our metallurgical expertise to develop land-based gas turbine applications for alloys we have historically sold to the aerospace market. Land-based gas turbines are favored in electric generating facilities due to low capital cost at installation, low cycle installation time, flexibility in use of alternative fuels, and fewer SO2 emissions than traditional fossil fuel-fired facilities. In addition to power generation, land-based gas turbines are required as mechanical drivers primarily for production and transportation of oil and gas, as well as emerging applications in commercial marine propulsion and micro turbines for standby or
33
emergency power systems. We believe these factors have historically been primarily responsible for creating demand for our products in the land-based gas turbine market.
We believe growth in this market will continue as long as global demand for increase in power generation capacity remains strong. With the opening of sales centers in China and India in fiscal 2005, we believe we are well-positioned to take advantage of the growth in those areas of demand for power generation.
Prior to the enactment of the Clean Air Act, land-based gas turbines were used primarily to satisfy peak power requirements. We believe that land-based gas turbines are a clean, low-cost alternative to fossil fuel-fired electric generating facilities. In the early 1990s when Phase I of the Clean Air Act was being implemented, selection of land-based gas turbines to satisfy electric utilities demand helped to establish this power source. We believe that the mandated Phase II of the Clean Air Act and certain advantages of land-based gas turbines compared to coal-fired generating plants will further contribute to demand for our products over the next three to five years.
Beginning in fiscal 2002, there was a decline in the land-based gas turbine market as a result of both the general economic slowdown and the energy crisis precipitated by the Enron bankruptcy. In that year, land-based gas turbine projects which were in progress were completed; however, projects not yet started were put on hold and new projects were not initiated. Since that time, there has been a significant improvement in the market. Specifically, starting in the last half of fiscal 2003, several projects put on hold were restarted and new projects were initiated, which contributed to the significantly improved performance in this market beginning in fiscal 2004. In fiscal 2006, shipments of our products to the land-based gas turbine market increased from those in fiscal 2005 due to a continued increase in demand for maintenance and repair parts for gas turbines. Net revenues from products sold to the land-based gas turbine market increased 16.2% in fiscal 2006 as compared to fiscal 2005, due to a 1.8% increase in the number of pounds shipped and a 14.2% increase in average selling price per pound which reflects generally improved product pricing as a result of market demand, increasing levels of maintenance and repair business and higher raw material costs.
Other markets and other revenues. In addition to the markets described above, we also target a variety of other markets. Representative markets served in fiscal 2006 include flue gas desulphurization (FGD), waste incineration, industrial heat-treating, automotive, medical, and oil and gas. The Clean Air Act and comparable legislation in Europe and Asia, which create regulatory imperatives requiring the reduction of sulfur emissions, are the primary factor in determining the demand for high-performance alloys in the FGD market. The automotive and industrial heat-treating markets are highly cyclical and very competitive. Opportunities continue to exist, however, in the automotive market due to new safety-related technology, higher operating temperatures, engine control systems, and emission control systems. Also, increasing requirements for improved materials performance in industrial heating are expected to increase demand for our products. Our participation in the oil and gas market consists primarily of providing tubular goods for sour gas production.
Waste incineration presents opportunities for the use of our alloys to reduce the use of landfill space and to respond to government concerns over land disposal of waste, pollution, chemical weapon stockpiles, and chemical and nuclear waste handling. Markets capable of providing
34
growth are being driven by increasing performance, reliability and service life requirements for products used in these markets, which could provide further applications of our products.
In connection with our acquisition of assets of Branford Wire in the first quarter of fiscal 2005, we acquired a facility that manufactured both stainless steel wire and high-performance alloy wire. We continue to produce stainless steel wire at the Branford facility. The high-performance alloy wire produced is reflected within the appropriate category where the wire is sold. For example, high-performance alloy wire produced for use in the chemical processing market is reflected in that category. The stainless steel wire is reflected in the Other Markets category and reduced the average selling price per pound within that category on a comparative basis. Our strategy is to reduce production of stainless steel wire and increase production of high-performance alloy wire due to higher margins obtained from high-performance alloy wire. During fiscal 2006, this category included $15.1 million of net revenue, which represented 3.2 million pounds of stainless steel wire product, as a result of the Branford Wire acquisition, as compared to $15.8 million of net revenue and 4.7 million pounds of stainless steel wire product in fiscal 2005.
In fiscal 2006, net revenues from products sold in the Other Markets category increased by 5.9% when compared to fiscal 2005, primarily as a result of improving market demand and passing through higher raw material and energy costs.
In fiscal 2006, net revenues from our products in the Other Revenues category increased by 104.2% when compared to those in fiscal 2005 primarily due to toll conversion income and scrap sales.
Impact of fresh start reporting on cost of sales
Upon implementation of the plan of reorganization, we adopted fresh start reporting in accordance with SOP 90-7. Under fresh start reporting, the reorganization value is allocated to our net assets based on their relative fair values in a manner similar to the accounting provisions applied to business combinations under Statement of Financial Standards No. 141, Business Combinations (SFAS No. 141).
Our operating income was reduced by the recognition of the fair market value adjustments to our assets required by the adoption of fresh start reporting. Cost of sales included $5.5 million, $30.2 million and $4.8 million of these costs in the one month period ended September 30, 2004 and the years ended September 30, 2005 and 2006, respectively. See Notes 1 and 2 to the consolidated financial statements included elsewhere in this prospectus for more information.
35
The fair market value adjustments to the historical basis of assets are being recognized as follows (dollars in thousands):
|
|
Fair value
|
|
Recognition
|
|
Expense
|
|
Expense
|
|
Expense
|
|
||||||||
Goodwill(2)(3) |
|
|
$ |
42,265 |
|
N/A |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Inventory(4) |
|
|
30,497 |
|
6 months |
|
|
5,083 |
|
|
25,414 |
|
|
|
|
||||
Machinery and equipment |
|
|
41,628 |
|
14 years |
|
|
245 |
|
|
2,974 |
|
|
3,124 |
|
||||
Buildings |
|
|
(859 |
) |
12 years |
|
|
(6 |
) |
|
(72 |
) |
|
(72 |
) |
||||
Land |
|
|
41 |
|
N/A |
|
|
|
|
|
|
|
|
|
|
||||
Trademarks(3) |
|
|
3,800 |
|
N/A |
|
|
|
|
|
|
|
|
|
|
||||
Patents |
|
|
8,667 |
|
2 to 14 years |
|
|
164 |
|
|
1,886 |
|
|
1,750 |
|
||||
|
|
|
|
|
|
|
|
$ |
5,486 |
|
|
$ |
30,202 |
|
|
$ |
4,802 |
|
|
(1) Non-cash expenses for inventory, machinery and equipment, buildings and patents are reflected in cost of goods sold.
(2) Goodwill increased by $1,912 due to the finalization of pre-emergence tax returns, which affected net operating loss carry forwards.
(3) Under applicable accounting rules, goodwill and trademarks are not amortized but are assessed to determine impairment at least annually.
(4) Recognition period represents estimated length of time for one complete inventory turn.
36
The following table is presented for comparative purposes.
|
|
Predecessor |
|
|
|
Successor |
|
|||||||||||
(in thousands, except share and |
|
|
|
|
|
One month
|
|
Pro forma
|
|
Year ended September 30, |
|
|||||||
per share information) |
|
2004 |
|
|
|
2004(1) |
|
2004(2) |
|
2005 |
|
2006(1) |
|
|||||
Statement of operations data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net revenues |
|
$ |
209,103 |
|
|
|
$ |
24,391 |
|
$ |
233,494 |
|
$ |
324,989 |
|
$ |
434,405 |
|
Cost of sales(3) |
|
171,652 |
|
|
|
26,136 |
|
202,221 |
|
288,669 |
|
325,573 |
|
|||||
Selling, general and administrative expense |
|
24,038 |
|
|
|
2,658 |
|
28,052 |
|
32,963 |
|
40,296 |
|
|||||
Research and technical expense |
|
2,286 |
|
|
|
226 |
|
2,512 |
|
2,621 |
|
2,659 |
|
|||||
Restructuring and other charges(4) |
|
4,027 |
|
|
|
429 |
|
4,456 |
|
628 |
|
|
|
|||||
Operating income (loss) |
|
7,100 |
|
|
|
(5,058 |
) |
(3,747 |
) |
108 |
|
65,877 |
|
|||||
Interest expense, net |
|
13,929 |
|
|
|
348 |
|
4,914 |
|
6,353 |
|
8,024 |
|
|||||
Reorganization items(5) |
|
(177,653 |
) |
|
|
|
|
|
|
|
|
|
|
|||||
Provision (benefit) for income taxes |
|
90 |
|
|
|
(1,760 |
) |
(3,291 |
) |
(2,111 |
) |
22,313 |
|
|||||
Net income (loss) |
|
$ |
170,734 |
|
|
|
$ |
(3,646 |
) |
$ |
(5,370 |
) |
$ |
(4,134 |
) |
$ |
35,540 |
|
Net income (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Basic |
|
$ |
1,707,340 |
|
|
|
$ |
(0.36 |
) |
$ |
(0.54 |
) |
$ |
(0.41 |
) |
$ |
3.55 |
|
Diluted |
|
$ |
1,707,340 |
|
|
|
$ |
(0.36 |
) |
$ |
(0.54 |
) |
$ |
(0.41 |
) |
$ |
3.46 |
|
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Basic |
|
100 |
|
|
|
10,000,000 |
|
10,000,000 |
|
10,000,000 |
|
10,000,000 |
|
|||||
Diluted |
|
100 |
|
|
|
10,000,000 |
|
10,000,000 |
|
10,000,000 |
|
10,270,642 |
|
(1) As of August 31, 2004, the effective date of the plan of reorganization, Haynes adopted fresh start reporting for its financial statements. Because of the emergence from bankruptcy and adoption of fresh start reporting, the historical financial information for periods after August 31, 2004 is not comparable to periods before September 1, 2004. For more information see The reorganization and Pro forma financial information.
(2) This information was derived from and should be read in conjunction with Pro forma financial information.
(3) As part of fresh start accounting, inventory was increased by approximately $30.5 million to reflect its fair value at August 31, 2004. The fair value adjustment was recognized ratably in cost of sales as inventory was sold and was fully recognized by the end of the second quarter of fiscal 2005. Cost of sales for the one-month period ended September 30, 2004 and the year ended September 30, 2005 include non-cash charges of $5.1 million and $25.4 million, respectively, for this fair value adjustment.
(4) Consists primarily of professional fees and credit facility fees related to the restructuring and refinancing activities.
(5) During fiscal 2004, Haynes recognized approximately $177.7 million in reorganization items of which approximately $7.3 million were expenses relating to professional fees, amendment fees, travel expenses, directors fees, write offs of bond discount and debt issuance costs, and other expenses, and approximately $185.0 million was income relating to the gain on cancellation of 11 ⅝ % senior notes due September 1, 2004 and fresh start reporting adjustments as a result of the reorganization. See Note 8 to the consolidated financial statements included elsewhere in this prospectus for more information.
37
The following table sets forth, for the periods indicated, consolidated statement of operations data as a percentage of net revenues:
|
|
Predecessor |
|
|
|
Successor |
|
|||||||||||
|
|
Eleven months
|
|
|
|
|
|
Pro forma
|
|
Year ended September 30, |
||||||||
|
|
2004 |
|
|
|
2004(1) |
|
2004(2) |
|
2005(1) |
|
2006(1) |
|
|||||
Statement of operations data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
|
100.0 |
% |
|
|
|
100.0 |
% |
|
100.0 |
% |
|
100.0 |
% |
|
100.0 |
% |
Cost of sales |
|
|
82.1 |
|
|
|
|
107.2 |
|
|
86.6 |
|
|
88.8 |
|
|
74.9 |
|
Selling, general and administrative expense |
|
|
11.5 |
|
|
|
|
10.9 |
|
|
12.0 |
|
|
10.1 |
|
|
9.3 |
|
Research and technical expense |
|
|
1.1 |
|
|
|
|
0.9 |
|
|
1.1 |
|
|
0.8 |
|
|
0.6 |
|
Restructuring and other charges |
|
|
1.9 |
|
|
|
|
1.7 |
|
|
1.9 |
|
|
0.2 |
|
|
|
|
Operating income (loss) |
|
|
3.4 |
|
|
|
|
(20.7 |
) |
|
(1.6 |
) |
|
0.1 |
|
|
15.2 |
|
Interest expense, net |
|
|
6.7 |
|
|
|
|
1.5 |
|
|
2.1 |
|
|
2.0 |
|
|
1.8 |
|
Reorganization items |
|
|
(85.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision (benefit) for income taxes |
|
|
|
|
|
|
|
(7.2 |
) |
|
(1.4 |
) |
|
(0.6 |
) |
|
5.1 |
|
Net income (loss) |
|
|
81.7 |
% |
|
|
|
(15.0 |
)% |
|
(2.3 |
)% |
|
(1.3 |
)% |
|
8.3 |
% |
(1) As of August 31, 2004, the effective date of the plan of reorganization, Haynes adopted fresh start reporting for its financial statements. Because of the emergence from bankruptcy and adoption of fresh start reporting, the historical financial information for periods after August 31, 2004 is not comparable to periods before September 1, 2004. For more information see The reorganization and Pro forma financial information.
(2) This information was derived from and should be read in conjunction with Pro forma financial information.
Year ended September 30, 2006 compared to year ended September 30, 2005
Net revenues. Net revenues increased by $109.4 million, or 33.7%, to $434.4 million in fiscal 2006 from $325.0 million in fiscal 2005. Volume increased by 3.4% to 21.6 million pounds in fiscal 2006 from 20.9 million pounds in fiscal 2005. Volume of high-performance alloys increased by 12.9% to 18.4 million pounds in fiscal 2006 as compared to 16.3 million pounds in fiscal 2005. Volume of stainless steel wire decreased by 31.9% to 3.2 million pounds in fiscal 2006 as compared to 4.7 million pounds in fiscal 2005 as a result of our strategy to reduce production of stainless steel wire and increase production of high-performance alloy wire due to higher margins obtained from high-performance alloy wire. The average selling price per pound increased by 29.2% to $20.07 per pound in fiscal 2006 from $15.53 per pound in fiscal 2005 due primarily to improved market demand and passing through higher raw material prices. Our backlog increased by $18.5 million, or 9.8%, to $206.9 million at September 30, 2006 from $188.4 million at September 30, 2005. We expect the demand for high-performance alloys to be positively driven by the continuation of favorable trends in the aerospace markets, chemical processing facility construction and maintenance and the energy construction business. These favorable market trends reflect the anticipated growth in the emerging economies of Asia.
Sales to the aerospace market increased by 31.5% to $165.8 million in fiscal 2006 from $126.1 million in fiscal 2005, due to a 12.8% increase in the average selling price per pound
38
combined with a 16.6% increase in volume. The increase in the average selling price per pound is due to improved market demand, a product mix that includes a higher percentage of specialty alloy products and forms with a higher value and average selling price when compared to the product mix sold in fiscal 2005, and the effect of passing through higher raw material and energy costs. In addition, as a result of our recent capital improvements, we has been able to increase production of these higher valued alloys, allowing us to take advantage of the increased demand and step up marketing efforts related to these alloys. We believe sales have also increased as a result of a shift in demand by major aerospace fabricators away from large, mill-direct orders toward smaller, more frequent orders from value-added service centers, such as we can provide.
Sales to the chemical processing market increased by 69.7% to $129.4 million in fiscal 2006 from $76.2 million in fiscal 2005, due to a 30.9% increase in the average selling price per pound combined with a 29.7% increase in volume. The increase in the average selling price per pound is due to improved market demand, a change in product mix to higher valued specialty alloys and forms, and the effect of passing through higher raw material and energy costs. We believe that construction of new chemical processing facilities in China has contributed to volume improvement in this market. We believe that product mix has improved as a result of the generally improved economy which has increased the willingness of our customers to invest in products that are more expensive initially, but that are longer-lived and require less maintenance and replacement expense in the future. In addition, as a result of our recent capital improvements, we have been able to increase production of these higher-valued alloys, allowing us to take advantage of the increased demand and step up marketing efforts related to these alloys.
Sales to the land-based gas turbine market increased by 16.2% to $77.9 million for fiscal 2006 from $67.1 million in fiscal 2005, due to an increase of 16.3% in the average selling price per pound. The volume for the land-based gas turbine market on a year-to-year basis is essentially flat, increasing by 1.8%. However, starting with the third quarter of fiscal 2005, volume has increased every quarter, with volume in the fourth quarter of fiscal 2006 reaching almost 1.5 million pounds. Both total volume and ingot volume for this market can fluctuate due, at least in part, to ingot sales, which are influenced based on original equipment manufacturing (or OEM) projects. The overall volume in this market between fiscal 2005 and fiscal 2006 reflects ingot pounds which increased by approximately 34% and an equivalent decrease in the aggregate sheet and plate volumes. This change in product mix from year-to-year is representative of increased OEM business. The average selling price increased for all forms within this market on a year-to-year basis. However, the ingot product form comprised a larger percentage of the total mix in fiscal 2006 versus fiscal 2005 and, because ingots sell at a lower average selling price than the other forms, the effect is to mute the increase in average selling price. The other forms average selling price for this market increased almost 24% between periods. We believe sales have increased due to higher demand from power generation, oil and gas production, and alternative power systems applications.
Sales to other markets increased by 5.9% to $56.4 million in fiscal 2006 from $53.2 million in fiscal 2005, due to a 39.6% increase in average selling price per pound, which was partially offset by a 24.2% decrease in volume. The selling price increase is related to improving market demand and passing through higher raw material and energy costs compared to fiscal 2005. The primary reason for the overall reduction in volume was a decrease in the volume of stainless steel wire in fiscal 2006 compared to fiscal 2005 as a result of our strategy to reduce production of stainless steel wire.
39
Other revenue. Other revenue increased by 106.6% to $4.9 million in fiscal 2006 from $2.4 million for fiscal 2005. The increase is due to higher activity in toll conversion revenue, scrap sales and miscellaneous sales.
Cost of sales. Cost of sales as a percentage of net revenues decreased to 74.9% in fiscal 2006 from 88.8% in fiscal 2005. This decrease can be attributed to a combination of the following factors:
· a $25.4 million decrease of non-cash amortization of fresh start fair value adjustment to $4.8 million in fiscal 2006 from $30.2 million in fiscal 2005,
· improved product pricing,
· overall improvement in volume, resulting in the increased absorption of fixed manufacturing costs, and
· reductions in manufacturing cost gained from the capital improvements program.
These positive factors were partially offset by higher raw material and energy costs. Our energy costs increased by $5.1 million in fiscal 2006 compared to fiscal 2005, primarily due to rising natural gas prices and higher usage. Higher raw material costs as represented by the significant increase year-to-year in the cost of nickel, which makes up approximately 51% of our raw material costs. As reported by the London Metals Exchange, the average price per pound for 30-day cash buyers for nickel at September 30, 2006 was $13.67 compared to $6.45 at September 30, 2005.
Selling, general and administrative expense. Selling, general and administrative expense increased by $7.3 million to approximately $40.3 million in fiscal 2006 from $33.0 million in fiscal 2005. In fiscal 2005, gross selling, general and administrative expense was reduced by a one-time gain of $2.1 million recognized from the sale of land and building at our Openshaw, England facility. The remaining $5.2 million increase in selling, general and administrative expenses was due to a combination of the following factors:
· increased cost of $3.0 million from growth in foreign operations and higher overall business activity,
· an increase of $1.5 million from higher employee compensation cost for stock options,
· an increase of $1.0 million for payments made under the management incentive plan, and
· an increase of $1.1 million related to our evaluation of strategic alternatives.
These increases were partially offset by a decrease from fiscal 2005 of $0.6 million of consulting costs related to compliance with the provisions of the Sarbanes-Oxley Act of 2002 and a decrease of $0.8 million for the preparation and filing of a registration statement with the Securities and Exchange Commission. Selling, general and administrative expense as a percentage of net revenues decreased to 9.3% in fiscal 2006 compared to 10.1% for fiscal 2005 due primarily to the increased level of net revenues.
Research and technical expense. Research and technical expense remained relatively flat at $2.7 million, or 0.6% of net revenues, in fiscal 2006 compared to $2.6 million, or 0.8% of net revenues, in fiscal 2005.
40
Restructuring and other charges. During fiscal 2005, Haynes incurred $0.6 million of professional fees in connection with the completion of the U.S. operations filing for reorganization relief under Chapter 11 of the U.S. Bankruptcy Code. There was no corresponding expense for fiscal 2006.
Operating income. As a result of the above factors, operating income in fiscal 2006 was $65.9 million compared to $0.1 million in fiscal 2005.
Interest expense. Interest expense increased by $1.7 million to $8.1 million in fiscal 2006 from $6.4 million for fiscal 2005. The increase is due to higher aggregate borrowings on our revolving credit facility and higher interest rates partially offset by interest capitalized on long-term capital projects.
Income taxes. Income taxes increased to an expense of $22.3 million in fiscal 2006 from a benefit of $2.1 million in fiscal 2005. The effective tax rate for fiscal 2006 was 38.6% compared to a tax benefit of 33.8% in fiscal 2005. The increase in effective tax rate is primarily attributable to more taxable income in the United States at a higher tax rate as compared to foreign taxable income at the lower tax rate.
Net income. As a result of the above factors, net income increased by $39.6 million to $35.5 million in fiscal 2006 compared to net loss of $(4.1) million in fiscal 2005.
Year ended September 30, 2005 compared to year ended September 30, 2004 pro forma
The following discussion provides a comparison of the results of operations for the year ended September 30, 2005 and that of the year ended September 30, 2004 on a pro forma basis. The discussion is provided for comparative purposes only, but the value of such comparison may be limited. For more information see The reorganization, Pro forma financial information and Impact of fresh start reporting on cost of sales.
Net revenues. Net revenues increased by approximately $91.5 million or 39.2% to approximately $325.0 million in fiscal 2005 from approximately $233.5 million in fiscal 2004 on a pro forma basis. Volume increased 39.3% to approximately 20.9 million pounds in fiscal 2005 from approximately 15.0 million pounds in fiscal 2004 on a pro forma basis. The average selling price per pound decreased 0.2% to $15.42 per pound in fiscal 2005 from $15.45 per pound in fiscal 2004 on a pro forma basis. Raw material increases resulted in increases to average selling price, but were more than fully offset by the inclusion of stainless steel wire. As discussed under Overview of markets, the reduction in average selling price is due to the inclusion of stainless steel wire of $15.8 million in net revenue and 4.8 million pounds that is not included in the comparable period in fiscal 2004 on a pro forma basis. High-performance alloy volume increased 1.2 million pounds or 8.0%. Our backlog increased by approximately $94.9 million or 101.5% to approximately $188.4 million at September 30, 2005 from approximately $93.5 million at September 30, 2004. Order entry increased by $128.8 million or 46.8% for fiscal 2005, as compared to fiscal 2004 on a pro forma basis.
Sales to the aerospace market increased by 28.5% to approximately $126.1 million in fiscal 2005 from approximately $98.1 million on a pro forma basis for the same period a year earlier. The improvement can be attributed to an increase in the average selling price per pound, which is
41
due to a generally improved market pricing structure, reflecting the higher raw material costs and improved market demand. Additionally, a greater proportion of the volume sold was higher-priced specialty alloys and titanium tubulars as compared to the lower-priced nickel-base alloy product forms sold in the same period a year earlier.
Sales to the chemical processing market increased by 24.1% to approximately $76.2 million in fiscal 2005 from approximately $61.4 million on a pro forma basis for the same period a year earlier due to the combined effects of a 35.7% increase in the average selling price per pound, which was partly offset by a 9.5% decrease in volume. The volume decrease is attributable to our emphasis on more specialty higher-margin product, versus large-project lower-margin commodity grades. The significant increase in the average selling price is due to improved market prices as a result of generally higher raw material costs, and to improving demand in the marketplace for high-end specialty products and improved product mix.
Sales to the land-based gas turbine market increased by 63.3% to approximately $67.1 million in fiscal 2005 from approximately $41.1 million on a pro forma basis for the same period a year earlier, due to an increase in volume of 34.3% and a 21.4% increase in the average selling price per pound. The increase in volume was mainly due to improved global sales of proprietary alloy round products and specialty alloy flat products to domestic fabricators to support the growing demand of the gas turbine manufacturers. The increase in the average selling price is attributed to improved market prices as a result of generally higher raw material costs and improving market demand.
Sales to other markets increased by 71.1% to approximately $53.2 million in fiscal 2005 from approximately $31.1 million on a pro forma basis for the same period a year earlier. The volume and revenue in this category increased during this time period as compared to the same period a year earlier due to the inclusion of the stainless steel wire business and higher selling prices due to increased raw material costs. For fiscal 2005, the Other Markets category includes $15.8 million in net revenue and 4.7 million pounds of stainless steel wire as a result of the Branford Wire acquisition, which were not included in the same period of the prior year.
Cost of sales. Cost of sales as a percent of net revenues increased to 88.8% in fiscal 2005 from 86.6% in fiscal 2004 on a pro forma basis. The increasing percentage of cost of sales as compared to net revenue can be attributed primarily to the non-cash amortization of fresh start fair value adjustments. Improved product pricing and greatly improved volume (which improved absorption of fixed manufacturing costs) were partially offset by unplanned equipment downtime and higher raw material and energy costs between comparable periods. Specifically, the fourth quarter of fiscal 2005 was impacted by unplanned equipment outages costing approximately $3.0 million, which increased cost of sales by approximately 1% for the fiscal year.
Selling, general and administrative expense. Selling, general and administrative expense increased by approximately $4.9 million to approximately $33.0 million for fiscal 2005 from approximately $28.1 million for fiscal 2004 on a pro forma basis. The increase in selling, general and administrative expense was due to higher non-recurring professional fees of $1.2 million for preparation and filing of a registration statement with the Securities and Exchange Commission; $1.1 million related to professional and consulting fees for readiness compliance with the Sarbanes Oxley Act of 2002; $1.1 million in higher sales commission expense due to increased sales levels; $1.2 million in selling, general and administrative expense related to the Branford
42
Wire acquisition and $2.4 million in higher costs associated with a higher level of business activity, increased head count required for restoration to proper service levels previously eliminated in market downturns and growth in foreign entities. These increases were partially offset by the gain on sale of land and buildings at our Openshaw, England facility of $2.1 million. Selling, general and administrative expenses as a percentage of net revenues decreased to 10.1% in fiscal 2005 compared to 12.0% in fiscal 2004 on a pro forma basis.
Research and technical expense. Research and technical expense remained relatively flat at $2.6 million or 0.8% of net revenues in fiscal 2005 compared to 1.1% of net revenues in fiscal 2004 on a pro forma basis.
Restructuring and other charges. During fiscal 2005, Haynes incurred approximately $0.6 million of professional fees in connection with the completion of the U.S. operations filing for reorganization relief under Chapter 11 of the U.S. Bankruptcy Code. Corresponding expense for fiscal 2004 on a pro forma basis was $4.5 million.
Operating income (loss). As a result of the above factors, operating income for fiscal 2005 was approximately $0.1 million compared to an operating loss of approximately $(3.7) million for fiscal 2004 on a pro forma basis.
Interest expense. Interest expense increased by approximately $1.5 million to approximately $6.4 million for fiscal 2005 from approximately $4.9 million for fiscal 2004 on a pro forma basis. The $4.9 million of interest expense in fiscal 2004 on a pro forma basis consisted of $1.1 million in non-recurring fees and expenses related to the revolving credit facility put in place upon our emergence from bankruptcy and $3.8 million in interest expense related to our outstanding balances under our credit agreement. Our interest expense increase for fiscal 2005 was due to a higher outstanding balance on our revolving credit facility primarily resulting from high sales growth and increasing raw material cost. Interest expense of approximately $16.3 million in prior years does not exist in fiscal 2005 as the 11 5 ¤ 8 % senior notes were discharged in connection with our emergence from bankruptcy. This discussion does not reflect the elimination of interest on the notes when comparing fiscal 2004 on a pro forma basis to fiscal 2005.
Income taxes. The income tax benefit decreased by approximately $1.2 million to approximately $2.1 million for fiscal 2005 from approximately $3.3 million for fiscal 2004 on a pro forma basis. The effective tax rate was 33.8% for fiscal 2005 compared to 38.0% for fiscal 2004 on a pro forma basis. This decrease is primarily attributable to foreign rate differentials and non deductible restructuring and SEC filing costs.
Net loss. As a result of the above factors, the net loss was approximately $(4.1) million for fiscal 2005 compared to the net loss of approximately $(5.4) million for fiscal 2004 on a pro forma basis.
Eleven months ended August 31, 2004 and one month ended September 30, 2004
Other items impacting the predecessor eleven months ended August 31, 2004 or the successor one month period ended September 30, 2004 are discussed below.
43
Reorganization items. During the eleven months ended August 31, 2004, Haynes incurred approximately $177.7 million in reorganization items, of which $7.3 million was expense relating to professional fees, contract amendment fees, travel expenses, directors fees, and write offs of bond discount and debt issuance costs, and $185.0 million was income relating to the gain on cancellation of the 11 5 ¤ 8 % senior notes due September 1, 2004, fresh start accounting adjustments, and fair value adjustments required as a result of the filing of a petition for reorganization relief pursuant to the Chapter 11 of the U.S. Bankruptcy Code and related emergence from bankruptcy.
Interest expense. Haynes recorded $14.0 million of interest expense during the eleven months ended August 31, 2004. Pursuant to SOP 90-7, $6.9 million of interest expense on the 11 5 ¤ 8 % senior notes due September 1, 2004 was not recorded because payment was not expected to occur.
Income taxes. The income tax expense for the eleven months ended August 31, 2004, was minimal due to the tax treatment for the various items related to our emergence from bankruptcy and the application of fresh start reporting. Haynes recorded income tax expense based upon the U.S. statutory rate adjusted for forgiveness of debt income, fresh start accounting adjustments, non-deductible restructuring costs, foreign tax rate differentials, and state income taxes.
Liquidity and capital resources
Comparative cash flow analysis
The following analysis provides a comparison of cash flow for the years ended September 30, 2006, 2005 and 2004 (on a combined basis for the predecessor company and the successor company).
During fiscal 2006 and fiscal 2005, our primary sources of cash were borrowings under our revolving credit facility with a group of lenders led by Wachovia Capital Finance Corporation (Central) (described below) and cash from operations. Historically issuing debt securities was a source of cash. At September 30, 2006, Haynes had cash and cash equivalents of approximately $6.2 million compared to cash and cash equivalents of approximately $2.9 million at September 30, 2005.
Net cash provided in operating activities was $0.3 million in fiscal 2006, as compared to cash used of $4.8 million in fiscal 2005. At September 30, 2006, inventory balances were approximately $30.1 million higher than fiscal 2005 year end balances, as a result of the continued increase in the costs of the raw materials (nickel, molybdenum and cobalt), and a higher level of inventory required to be maintained to support the increased level of sales. The increased level of sales also resulted in increased accounts receivable of $18.1 million at September 30, 2006 compared to September 30, 2005. Net cash used in investing activities was $10.6 million in 2006, primarily as a result of our continuing capital expenditure program. Net cash used in operating and investing activities in fiscal 2006 was funded by cash from financing activities, primarily borrowings of $12.4 million on our revolving credit facility.
Net cash used in operating activities was $4.8 million in fiscal 2005, as compared to $23.9 million in fiscal 2004. At September 30, 2005, inventory balances, including the effects of the Branford
44
Wire acquisition, were approximately $14.2 million higher than fiscal 2004 year end balances, as a result of our $42.5 million net cash investment in inventory during the period, which was offset by $25.4 million of non-cash fresh start accounting adjustments to inventory required by SOP 90-7 upon our emergence from bankruptcy recognized as expense during the period. The amount of our net cash investment in inventory was affected by rising costs of the raw materials nickel, molybdenum and cobalt, and a higher level of inventory required to be maintained to support the increased level of sales. The increase in cash used in operating activities was partially offset by an increase in accounts payable of approximately $10.4 million due to the increasing cost of raw materials and the rising level of sales activity. Net cash used in investing activities in fiscal 2005 was $14.7 million, which includes capital expenditures of $9.0 million and $8.3 million for the Branford Wire acquisition (which includes $2.6 million for property, plant and equipment), partially offset by proceeds from sales of property of $2.3 million. In fiscal 2005, net cash used in operating and investing activities was funded by cash from financing activities, primarily borrowings of $22.0 million on our revolving credit facility.
Net cash used in operating activities in fiscal 2004 was approximately $23.9 million, as compared to net cash used in operating activities of approximately $8.0 million in fiscal 2003. The increase in net cash used in operating activities in fiscal 2004 was the result of increased sales activity which resulted in increased accounts receivable balances and increased investments in inventory to support the higher sales levels. Accounts receivable increased from $35.3 million at September 30, 2003 to $54.4 million at September 30, 2004, and inventories increased from $85.8 million at September 30, 2003 to $130.8 million at September 30, 2004. Approximately $25.4 million of the inventory increase is attributable to the non-cash fresh start accounting adjustments required by SOP 90-7 upon emergence from bankruptcy. Higher inventory requirements at higher raw material costs, particularly the cost of nickel, were responsible for the remainder of the increase in inventory balances. The increase in accounts receivable and inventories was partially offset by an increase in accounts payable from $23.2 million at September 30, 2003 to $34.2 million at September 30, 2004 due primarily to rising costs of raw materials and a higher level of inventory due to increasing levels of business.
Our sources of cash in fiscal 2007 are expected to consist primarily of cash generated from operations and cash on hand, borrowings under both the U.S. revolving credit facility and the U.K. revolving credit facility (described below), the after-tax proceeds, net of expenses, of the $50.0 million up-front payment received from Titanium Metals Corporation, or TIMET, in the first quarter of fiscal 2007 (for more information see BusinessAgreement with Titanium Metals Corporation), and the net proceeds of this offering. The U.S. revolving credit facility and the U.K. revolving credit facility combine to provide borrowings in a maximum amount of $145.0 million, subject to a borrowing base formula and certain reserves. At September 30, 2006, Haynes had access to a total of approximately $29.5 million ($21.3 million in the United States and $8.2 million in the U.K.) under both revolving credit facilities (subject to borrowing base and certain reserves) and cash of approximately $6.2 million. We believe that the resources described above will be sufficient to fund planned capital expenditures and working capital requirements over the next twelve months, although there can be no assurance that this will be the case.
U.S. revolving credit facility. The U.S. revolving credit facility provides for revolving loans in a maximum amount of $130.0 million. Borrowings under this revolving credit facility bear interest
45
at either Wachovia Bank, National Associations prime rate, plus up to 1.5% per annum, or the adjusted Eurodollar rate used by the lender, plus up to 3.0% per annum, at our option. As of September 30, 2006, the revolving credit facility had an outstanding balance of $112.8 million and bore interest at a weighted average interest rate of 7.32%. In addition, Haynes must pay monthly in arrears a commitment fee of 0.375% per annum on the unused amount of the U.S. revolving credit facility total commitment. For letters of credit, Haynes must pay 2.5% per annum on the daily outstanding balance of all issued letters of credit, plus customary fees for issuance, amendments, and processing. We are subject to certain covenants as to EBITDA and fixed charge coverage ratios and other customary covenants, including covenants restricting the incurrence of indebtedness, the granting of liens, the sale of assets and the declaration of dividends and other distributions on our capital stock. As of September 30, 2006, the most recent required measurement date under the agreement documentation, we were in compliance with these covenants. The U.S. revolving credit facility matures on April 12, 2009. Borrowings under this revolving credit facility are collateralized by a pledge of substantially all of the U.S. assets of Haynes, with the exception of the four-high Steckel rolling mill and related assets, which are pledged to TIMET.
U.K. revolving credit facility. Our U.K. subsidiary, Haynes U.K., has entered into an agreement with a U.K.-based lender providing for a $15.0 million revolving credit facility maturing on April 2, 2007. We are expecting to renew this facility or replace the facility with one of similar availability. Haynes U.K. is required to pay interest on loans made under the revolving credit facility in an amount equal to LIBOR (as calculated in accordance with the terms of the revolving credit facility), plus 3% per annum. As of September 30, 2006, the revolving credit facility had an outstanding balance of $4.0 million and bore interest at a weighted average interest rate of 8.34%. Availability under this revolving credit facility is limited by the receivables available for sale to the lender, the net of stock and inventory and certain reserves established by the lender in accordance with the terms of the revolving credit facility. Haynes U.K. must meet certain financial covenants relating to tangible net worth and cash flow. As of September 30, 2006, the most recent measurement date required under the revolving credit facility, Haynes U.K. was in compliance with these covenants. The revolving credit facility is secured by a pledge of substantially all of the assets of Haynes U.K.
Our primary uses of cash over the next twelve months are expected to consist of expenditures related to:
· increasing levels of working capital due to increased levels of operations and rising raw material cost;
· capital spending to improve reliability and performance of the equipment;
· reduction of debt;
· pension plan funding;
· income tax payments, including obligations associated with the TIMET conversion agreement; and
· interest payments on outstanding indebtedness.
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Planned fiscal 2007 capital spending is targeted at $13.0 million. The main projects for fiscal 2007 include the completion of the projects already started related to the electroslag remelt equipment, rolling mills and the upgrade of the annealing equipment at the Kokomo, Indiana facility. We believe that the completion of these capital projects and the related improvement in the reliability and performance of the equipment will have a positive effect on our profitability and working capital management. Planned downtime is scheduled for fiscal 2007 to implement these capital improvements.
We are also evaluating the desirability of possible additional capital expansion projects to capitalize on current market opportunities. Additionally, acceleration of future capital spending beyond what is currently planned may occur in order to accelerate the realization of the benefits such as improved working capital management, reduced manufacturing cost and increased capacity. Consideration will also be given to potential acquisitions similar to the Branford Wire acquisition which complement our product line, reduce production costs and increase capacity.
The following table sets forth our contractual obligations for the periods indicated, as of September 30, 2006:
|
|
Payments due by period |
|
|||||||||||||||
(in thousands) |
|
Total |
|
Less than
|
|
1-3 years |
|
3-5 years |
|
More than
|
|
|||||||
Debt obligations (including interest)(1) |
|
$ |
141,253 |
|
$ |
9,082 |
|
$ |
132,171 |
|
$ |
|
|
|
$ |
|
|
|
Operating lease obligations |
|
9,201 |
|
3,201 |
|
4,890 |
|
1,110 |
|
|
|
|
|
|||||
Raw material contracts |
|
173,094 |
|
94,018 |
|
79,076 |
|
|
|
|
|
|
|
|||||
Mill supplies contracts |
|
473 |
|
473 |
|
|
|
|
|
|
|
|
|
|||||
Capital projects |
|
12,986 |
|
10,000 |
|
2,986 |
|
|
|
|
|
|
|
|||||
Pension plan(2) |
|
3,134 |
|
3,134 |
|
|
|
|
|
|
|
|
|
|||||
Other postretirement benefits(3) |
|
50,000 |
|
5,000 |
|
10,000 |
|
10,000 |
|
|
25,000 |
|
|
|||||
Non-compete obligations(4) |
|
550 |
|
110 |
|
220 |
|
220 |
|
|
|
|
|
|||||
Total |
|
$ |
390,691 |
|
$ |
125,018 |
|
$ |
229,343 |
|
$ |
11,330 |
|
|
$ |
25,000 |
|
|
(1) Interest is calculated annually using the principal balance and interest rates as of September 30, 2006.
(2) Haynes has a current funding obligation to contribute $2.0 million to the domestic pension plan and all benefit payments under the domestic pension plan will come from the plan and not Haynes. Haynes expects its U.K. subsidiary to contribute $1.1 million in fiscal 2007 to the U.K. pension plan arising from an obligation in the U.K. revolving credit facility.
(3) Represents expected postretirement benefits only.
(4) Pursuant to an escrow agreement, as of April 11, 2005, Haynes established an escrow account to satisfy its obligation to make payments under a non compete agreement entered into as part of the Branford Wire acquisition. This amount is reported as restricted cash.
At September 30, 2006, Haynes also had $0.3 million outstanding under letters of credit. The letters of credit are outstanding primarily in connection with post-closure environmental assurance and building lease obligations.
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Historically, Haynes has had the ability to pass on to customers both increases in consumable costs and material costs because of the value-added contribution the material makes to the final product. However, there is no guarantee that Haynes will continue to be able to achieve this in the future.
Critical accounting policies and estimates
Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those related to bad debts, inventories, income taxes, assets, impairments and retirement benefits. The process of determining significant estimates is fact specific and takes into account factors such as historical experience, current and expected economic conditions, product mix and, in some cases, actuarial techniques, and various other factors that are believed to be reasonable under the circumstances. The results of this process form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Haynes constantly reevaluates these significant factors and makes adjustments where facts and circumstances dictate. Actual results may differ from these estimates under different assumptions or conditions.
Our accounting policies are more fully described in Note 2 to the consolidated financial statements included elsewhere in this prospectus. Haynes has identified certain critical accounting policies, which are described below. The following listing of policies is not intended to be a comprehensive list of all of our accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by generally accepted accounting principles, with no need for managements judgment in their application. There are also areas in which managements judgment in selecting any available alternative would not produce a materially different result.
Revenue is recognized when title passes to the customer which is generally at the time of shipment (F.O.B. shipping point or at a foreign port for certain export customers). Allowances for sales returns are recorded as a component of net revenues in the periods in which the related sales are recognized. Management determines this allowance based on historical experience and we have not had any history of returns that have exceeded our recorded allowances.
Pension and post-retirement benefits
Haynes has defined benefit pension and postretirement plans covering most of its current and former employees. Significant elements in determining the assets or liabilities and related income or expense for these plans are the expected return on plan assets (if any), the discount rate used
48
to value future payment streams, expected trends in health care costs, and other actuarial assumptions. Annually, Haynes evaluates the significant assumptions to be used to value its pension and postretirement plan assets and liabilities based on current market conditions and expectations of future costs. If actual results are less favorable than those projected by management, additional expense may be required in future periods. There were no changes to the terms of these benefits in connection with our emergence from bankruptcy.
We believe the expected rate of return on plan assets of 8.5% is a reasonable assumption based on our asset allocation of 65% equity, 32% fixed income and 3% real estate/other. Our assumption for expected rate of return for plan assets for equity, fixed income, and real estate/other are 10.25%, 5.5% and 8.5%, respectively. This position is supported through a review of investment criteria, and consideration of historical returns over a several year period.
Salaried employees hired after December 31, 2005 are not covered by the pension plan; however, they are eligible for an enhanced matching program of the defined contribution plan (401(k)).
Impairment of long-lived assets, goodwill and other intangible assets
Haynes reviews long-lived assets for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets to be held and used is measured by a comparison of the carrying amount of the asset to the undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount exceeds the fair value of the asset. Haynes reviews goodwill for impairment annually or more frequently if events or circumstances indicate that the carrying amount of goodwill may be impaired. Recoverability of goodwill is measured by a comparison of the carrying value to the fair value of a reporting unit in which the goodwill resides. If the carrying amount of a reporting unit exceeds its fair value, an impairment charge is recognized to the extent that the implied fair value of the reporting units goodwill exceeds its carrying value. The implied fair value of goodwill is the residual fair value, if any, after allocating the fair value of the reporting unit to all of the assets (recognized and unrecognized) and all of the liabilities of the reporting unit. The fair value of reporting units is generally determined using a discounted cash flow approach. Assumptions and estimates with respect to estimated future cash flows used in the evaluation of long-lived assets and goodwill impairment are subject to a high degree of judgment and complexity. Haynes reviewed goodwill and trademarks for impairment as of August 31, 2006, and concluded no impairment adjustment was necessary. No events or circumstances have occurred that would indicate the carrying value of goodwill or trademarks may be impaired since its testing date.
Haynes had previously adopted the disclosure only provisions of SFAS No. 123, Accounting for Stock Based Compensation . In connection with the plan of reorganization, the successor company has adopted a stock option plan for certain key management employees and non-employee directors pursuant to the terms set forth in the First Amended Joint Plan of Reorganization. Our stock option plans authorize the granting of non-qualified stock options to certain key employees and non-employee directors of Haynes to purchase up to 1,500,000 shares of our common stock.
49
In December 2004, SFAS No. 123(R), Share Based Payment, a replacement of SFAS No. 123, Accounting for Stock Based Compensation , and a rescission of APB Opinion No. 25, Accounting for Stock Issued to Employees , was issued. This statement requires compensation costs related to share based payment transactions to be recognized in the financial statements. The amount of compensation cost is measured based upon the grant date fair value. The fair value of the option grants is estimated on the date of grant using the Black Scholes option pricing model with assumptions on dividend yield, risk-free interest rate, expected volatilities, and expected lives of the options. Haynes implemented SFAS No. 123(R) on October 1, 2005 for all unvested options using the modified prospective method of adoption.
Haynes accounts for income taxes in accordance with SFAS No. 109, Accounting for Income Taxes (SFAS No. 109), which requires deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between book and tax bases of recorded assets and liabilities. SFAS No. 109 also requires deferred tax assets be reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax assets will not be realized. The determination of whether or not a valuation allowance is needed is based upon an evaluation of both positive and negative evidence and the expected reversal date of temporary differences to be deducted on future income tax returns. In its evaluation of the need for a valuation allowance, Haynes assesses prudent and feasible tax planning strategies and expected reversal dates. The ultimate amount of deferred tax assets realized could be different from those recorded, as influenced by potential changes in enacted tax laws and the availability of future taxable income.
Recently issued accounting pronouncements
In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxesan Interpretation of FASB Statement No. 109 (FIN 48). FIN 48 seeks to reduce the diversity in practice associated with certain aspects of measuring and recognition in accounting for income taxes. In addition, FIN 48 requires expanded disclosure with respect to the uncertainty in income taxes and is effective as of the beginning of our 2008 fiscal year. We are currently evaluating the impact, if any, that FIN 48 will have on our financial statements.
In September 2006, the FASB issued FASB Statement No. 157, Fair Value Measurement (SFAS 157). SFAS 157 addresses standardizing the measurement of fair value for companies who are required to use a fair value measure of recognition for recognition or disclosure purposes. The FASB defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measure date. The statement is effective for fiscal years beginning after November 15, 2007 and for interim periods within those fiscal years. We are required to adopt SFAS 157 beginning on October 1, 2008. We are currently evaluating the impact, if any, of SFAS 157 on our financial position, results of operations and cash flows.
In September 2006, the FASB issued FASB Statement No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans (SFAS 158). SFAS 158 requires companies to recognize the funded status of defined benefit pension and other postretirement plans as a net
50
asset or liability in its financial statements. In addition, disclosure requirements related to such plans are affected by SFAS 158. If SFAS 158 had been implemented in fiscal 2006, the estimated impact on our financial position would have been a reduction in pension and postretirement benefits liability of $5.2 million, an increase in stockholders equity accumulated other comprehensive income of $3.2 million, and a reduction of deferred tax asset of $2.0 million. Haynes will begin recognition of the funded status of its defined benefit pension and postretirement plans and will include the required disclosures under the provisions of SFAS 158 at the end of fiscal 2007. The adoption of SFAS 158 is not expected to impact our debt covenants or cash position or significantly affect the results of operations.
In June 2006, the EITF reached consensus on EITF 06-3, Disclosure Requirements for Taxes Assessed by a Government Authority on Revenue-Producing Transactions . EITF 06-3 requires disclosure of a companys accounting policy with respect to presentation of taxes collected on a revenue producing transaction between a seller and a customer. For taxes that are reported on a gross basis (included in revenues and costs), EITF 06-3 also requires disclosure of the amount of taxes included in the financial statements. EITF 06-3 is effective for interim and annual reporting periods beginning after December 15, 2006. Haynes does not expect the adoption of EITF 06-3 to have a material impact on our consolidated financial statements.
In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 108 (SAB 108), which provides interpretive guidance on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a current year misstatement. SAB 108 is effective for the first fiscal year ending after November 15, 2006, which will be our fiscal year ending September 30, 2007. The adoption of this statement is not expected to have a material impact on our financial position or results of operations.
In February 2006, the FASB issued FASB Statement No. 155, Accounting for Certain Hybrid Financial Instrumentsan amendment of FASB Statements No. 133 and 140 (SFAS 155), that allows a preparer to elect fair value measurement at acquisition, at issuance, or when a previously recognized financial instrument is subject to a re-measurement (new basis) event, on an instrument-by-instrument basis, in cases in which a derivative would otherwise have to be bifurcated. It also eliminates the exemption from applying Statement 133 to interests in securitized financial assets so that similar instruments are accounted for similarly regardless of the form of the instruments. This Statement is effective for all financial instruments acquired or issued after the beginning of an entitys first fiscal year that begins after September 15, 2006. Haynes does not anticipate that the adoption of SFAS 155 will have an impact on our overall results of operations or financial position.
In March 2006, the FASB issued FASB Statement No. 156, Accounting for Servicing of Financial Assetsan amendment of FASB Statement No. 140 (SFAS 156), that applies to the accounting for separately recognized servicing assets and servicing liabilities. This Statement requires that all separately recognized servicing assets and servicing liabilities be initially measured at fair value, if practicable. An entity should adopt this Statement as of the beginning of its first fiscal year that begins after September 15, 2006. Haynes does not anticipate that the adoption of SFAS 156 will have an impact on our overall results of operations or financial position.
51
Internal control over financial reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined by Exchange Act rules 13a-15(f) and 15d-15(f)) for Haynes. With the participation of the Chief Executive Officer and Chief Financial Officer, our management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework and criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations (COSO) of The Treadway Commission. Based on our assessment, management has concluded that, as of September 30, 2006, our internal control over financial reporting is effective based on those criteria.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective may not prevent or detect misstatements and can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Managements assessment of the effectiveness of internal control over financial reporting as of September 30, 2006 has been audited by Deloitte and Touche LLP, our independent registered public accounting firm, and Deloitte & Touche has issued a report on our managements assessment of our internal control over financial reporting.
52
Haynes International, Inc. is one of the worlds largest producers of high-performance nickel- and cobalt-based alloys in sheet, coil and plate forms. We are focused on developing, manufacturing, marketing and distributing technologically advanced, high-performance alloys, which are used primarily in the aerospace, chemical processing and land-based gas turbine industries. Our products consist of high temperature resistant alloys, or HTA products, and corrosion resistant alloys, or CRA products. 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. CRA products are used in applications that require resistance to very corrosive media found in chemical processing, power plant emissions control and hazardous waste treatment. We believe we are one of four principal producers of high-performance alloy products in sheet, coil and plate forms, and sales of these forms, in the aggregate, represented approximately 64% of our net revenues in fiscal 2006. We also produce our products as seamless and welded tubulars, and in bar, billet and wire forms.
We have achieved our growth through a combination of capitalizing on the growth of our end markets, increasing value-added services provided to our customers, increasing our presence in international markets and, to a lesser extent, selected strategic initiatives such as our November 2004 acquisition of assets of Branford Wire. For fiscal 2006, our net revenue was $434.4 million, a 33.7% increase over fiscal 2005s net revenue of $325.0 million. As of September 30, 2006, our backlog orders were approximately $206.9 million, compared to approximately $188.4 million as of September 30, 2005 and approximately $93.5 million as of September 30, 2004. See BusinessBacklog for a description of how we calculate backlog.
We have manufacturing facilities in Kokomo, Indiana; Arcadia, Louisiana; and Mountain Home, North Carolina. The Kokomo and Arcadia facilities specialize in flat and tubular products, respectively, and the Mountain Home facility manufactures stainless steel and high-performance alloy wire. We sell our products primarily through our direct sales organization, which includes 11 service and/or sales centers in the United States, Europe, Asia and India. All of these centers are company-operated. In fiscal 2006, approximately 82% of our net revenues was generated by our direct sales organization, and the remaining 18% was generated by a network of independent distributors and sales agents who supplement our direct sales efforts in the United States, Europe and Asia, some of whom have been associated with our company for over 30 years.
The breadth and quality of our products, combined with our superior customer service delivered through our service and sales center network, have resulted in long-standing relationships with many of our customers. We have supplied high-performance alloys to our top 10 customers, based on fiscal 2006 sales, for an average of 20 years. We supply high-performance alloys that are used by a broad range of end use customers, including General Electric Co.; Pratt & Whitney; Rolls Royce plc; The Boeing Co.; SNECMA; E.I. DuPont de Nemours & Co.; The Dow Chemical Co.; Siemens Westinghouse; Solar Turbines, Inc.; British Petroleum p.l.c.; Celanese AG; and Eli Lilly and Co. None of these customers, or any of our other customers, accounted for more than 10% of our sales in fiscal 2006. Our top 20 customers accounted for approximately 38% of sales in fiscal 2006.
53
We estimate that the global specialty alloy market, including stainless steels, general purpose nickel alloys and high-performance nickel- and cobalt-based alloys, represents total production volume of approximately 38.5 billion pounds per annum. Of this total market, we compete in the high-performance nickel- and cobalt-based alloy sector which we estimate to represent approximately 200 million pounds of production per annum. Given the technologically advanced nature of the products, strict requirements of the end users and higher-growth end markets, we believe the high-performance alloy sector provides greater growth potential, higher profit margins and greater means for service, product and price differentiation than stainless steels and general purpose nickel alloys. We expect growth in worldwide demand for high-performance alloys to increase significantly over the next ten years based upon increasing demand in the aerospace, chemical processing and land-based gas turbine markets. While stainless steel and general purpose nickel alloy is generally sold in bulk through third-party distributors our products are sold in smaller-sized orders which are customized and typically handled on a direct-to-customer basis. The high-performance alloy market demands diverse, specialty alloys suitable for use in precision manufacturing. We estimate that, due in part to the above factors, the average selling price per pound of high-performance alloy in 2006 was approximately $17.00, compared to approximately $2.50 for stainless steel and approximately $12.00 for general purpose nickel alloys.
Aerospace . Haynes has manufactured HTA products for the aerospace market since the late 1930s, and has developed numerous proprietary alloys for this market. Customers in the aerospace market 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 Haynes and its customers in the selection and development of HTA products. As a result, sales to aerospace customers tend to be made through our direct sales force. Demand for our 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, replacement and overhaul. Haynes views the maintenance, replacement and overhaul business as an area of continuing growth, and expects the number of engines in service to increase significantly in the next ten to twenty years.
Chemical processing . The chemical processing market represents a large base of customers with diverse CRA applications driven by demand for key end use industries such as automobiles, housing, health care, agriculture and metals production. CRA products supplied by Haynes have been used in the chemical processing market since the early 1930s. Demand for our products in this market is driven by the level of maintenance, repair and expansion requirements of existing chemical processing facilities, as well as the construction of new facilities. We believe our extensive worldwide network of company-operated service and sales centers, as well as our network of independent distributors and sales agents who supplement our direct sales efforts in Europe and Asia, is a competitive advantage in marketing our CRA products in the chemical processing market.
Land-based gas turbines. Demand for our products in this market is driven by the construction of cogeneration facilities such as base load for electric utilities or as backup sources to fossil fuel-
54
fired utilities during times of peak demand. Demand for our alloys in the land-based gas turbine market has also been driven by concerns regarding lowering emissions from generating facilities powered by fossil fuels. Land-based gas turbine generating facilities have gained acceptance as clean, low-cost alternatives to fossil fuel-fired electric generating facilities. Land-based gas turbines are also used in power barges with mobility and as temporary base-load-generating units for countries that have numerous islands and a large coastline. Further demand is generated in mechanical drive units used for oil and gas production and pipeline transportation, as well as microturbines that are used as back up sources of power generation for hospitals and shopping malls. We believe this will continue to be an area of growth for us as long as global demand for power generation capacity remains strong. In addition, with the opening of a service and sales center in China and a sales center in India in fiscal 2005, we are well-positioned to take advantage of the growth in those areas in demand for power generation.
Prior to the enactment of the Clean Air Act, land-based gas turbines were used primarily to satisfy peak power requirements. Haynes believes that land-based gas turbines are a clean, low-cost alternative to fossil fuel-fired electric generating facilities. In the early 1990s when Phase I of the Clean Air Act was being implemented, selection of land-based gas turbines to satisfy electric utilities demand firmly established this power source. Haynes believes that the mandated Phase II of the Clean Air Act and certain advantages of land-based gas turbines compared to coal-fired generating plants will further contribute to demand for its products over the next three to five years.
Other markets. Other industries to which Haynes sells its HTA products and CRA products include flue gas desulphurization (or FGD), waste incineration, industrial heat-treating, automotive, medical and oil and gas. The FGD industry has been driven by both legislated and self-imposed standards for lowering emissions from fossil fuel-fired electric generating facilities. With the completion of our currently active capital projects over the next 18 months, Haynes anticipates participating in the growth in the FGD industry due to the increased production capacity and the improved cost structure which will result from the completion of the capital projects. In addition, incineration of municipal, biological, industrial and hazardous waste products typically produces very corrosive conditions that demand high-performance alloys. Haynes also sells its products for use in the oil and gas industry, primarily in connection with sour gas production. 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 our products. As part of the Branford Wire acquisition, we also began selling stainless steel wire, but our strategy is to reduce production of lower margin stainless steel wire and increase production of higher margin high-performance alloy wire.
Our goal is to grow our business and increase revenues and profitability while continuing to be our customers provider of choice for high-performance alloys. Our primary end markets have experienced significant expansion and we believe that they will continue to demonstrate attractive fundamentals with demand increasing for aerospace, chemical plants and land-based gas turbines. We intend to penetrate and capitalize on the growth in these end markets by taking advantage of our diverse product offerings and service capabilities and to increase our
55
capacity and lower our costs through strategic investment in our manufacturing facilities. In order to accomplish these goals, we intend to pursue the following:
· Increase productivity through strategic equipment investment . We expect to continue to improve operating efficiencies through ongoing capital investment in our manufacturing facilities and equipment. Recent investment in our equipment has significantly improved our operating efficiency by increasing capacity, reducing downtime and manufacturing costs and improving working capital management and product quality. Our four-high Steckel mill, one of only two of its kind used to roll high-performance alloys, in conjunction with our sophisticated, multi-stage, melting and refining operation, produces a broad array of sheet, coil and plate products made to exacting specifications. At the same time, our smaller mills enable us to produce customized batch orders, which are generally more profitable, and which often are not practical or economical for our competitors to manufacture. Because we are one of the few manufacturers with the expertise and facilities to produce high-performance alloys, we believe that our investments will enable us to continue to satisfy increased customer demand for value-added products that meet precise specifications. We expect ongoing investment in fiscal 2007 and 2008 to capitalize on and continue to improve our operating efficiencies.
· Increase sales by providing value-added processing services . We believe that our network of service and sales centers throughout North America, Europe and Asia distinguishes us from our competitors. Our service and sales centers enable us to develop close customer relationships through direct interaction and to respond to customer orders quickly. Furthermore, unlike our competitors, who focus on broader markets and non-customized products, our service and sales centers give us the ability to provide precision laser and water jet processing services to cut and shape our products to our customers precise specifications. These services allow our customers to minimize their processing costs and outsource non-core activities. In addition, our rapid response time and enhanced processing services have allowed us to institute value-added pricing resulting in higher-margin sales and enhanced profitability. The value-added processing performed at our service and sales centers also allows us to capture our customers MRO business. Sales through our service and sales centers accounted for approximately 55.0% of our total revenue in fiscal 2006.
· Increase worldwide sales through international service and sales center locations . We intend to continue our efforts to increase our sales to non-U.S. customers and strategically position our service and sales centers in key international locations. We recently opened a service and sales center in China, the first service and sales center operated by any manufacturer of nickel- or cobalt-based alloys in China, and sales centers in Singapore and India. We intend to expand our sales center in India to include service as well as sales.
· Continue to expand our maintenance, repair and overhaul business . We believe that our MRO business serves a growing market and represents both an expanding and recurring revenue stream. Products used in hot section components for the aerospace industry require periodic replacement due to the intense stress of repetitive heating and cooling cycles, which drives a demand for recurring MRO work. In addition, products used in the land-based gas turbine business require significant overhaul approximately every three years, which we expect will further drive the growth of our MRO business. We expect the
56
MRO business to drive our growth in the chemical processing industries in North America and Western Europe as a result of the ongoing need for maintenance of installed capacity in those markets. Over time, we expect that the MRO business will support our growth in the chemical processing industries in China and India, due to the widespread building of chemical plants in those markets. We intend to continue to leverage the capabilities of our service and sales centers to respond quickly to our customers time-sensitive MRO needs to develop new and retain existing business opportunities.
· Increase revenue by developing new products and new applications for existing alloys . We believe that we are the industry leader in developing new alloys designed to meet our customers specialized and demanding requirements. We continue to work closely with customers and end users of our products to identify, develop, manufacture and test new high-performance alloys. Our engineering and technological group is continually developing new products and new applications for existing products and refining our manufacturing processes. The group, comprised of personnel with extensive industry and technological experience, operates from seven separate, fully equipped laboratories, including a process laboratory with a full spectrum of pilot scale melting/remelting equipment and hot and cold working equipment. Over the last five years, our technical programs have yielded five new proprietary alloys, an accomplishment that we believe distinguishes us from our competitors. Four of these new alloys are protected by U.S. patents, and one has a patent pending. We expect our continued emphasis on product innovation to yield similar future results, and we expect to focus our development efforts on specialized automotive products, the biopharmaceutical industry, the energy market for fuel cells and the market for turbine components for higher temperature operations.
· Expand product capability through strategic acquisitions and alliances . We will continue to examine opportunities that enable us to offer customers an enhanced and more competitive product line to complement our core flat products. These opportunities may include product line enhancement, such as that provided by our acquisition of certain assets from Branford Wire in November 2004. The Branford Wire acquisition has enabled us to provide a broader product line to customers, expand our markets, increase our production capacity in the high-margin business of high-performance alloy wire and reduce our cost structure for wire production. We will continue to look for opportunities that enhance the portfolio of products provided to customers such as wire, tubing, fittings and bar. We will also continue to evaluate strategic relationships with third parties in the industry in order to enhance our competitive position and relationships with customers. Such relationships could be similar to our 20-year conversion agreement we entered into with Titanium Metals Corporation in November 2006, which allowed us to monetize a portion of our excess production capacity on our four-high Steckel mill. Other potential strategic relationships could include new or enhanced relationships with long-term distribution sources.
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Agreement with Titanium Metals Corporation
On November 17, 2006, we entered into a 20-year agreement to provide conversion services to Titanium Metals Corporation, or TIMET, for up to ten million pounds of titanium metal annually at prices established by the terms of the agreement. The transaction is documented by an Access and Security Agreement and a Conversion Services Agreement, both dated November 17, 2006. TIMET paid us a $50.0 million up-front fee and will also pay us for its processing services during the term of the agreement at prices established by the terms of the agreement. In addition to the volume commitment, we have granted TIMET a security interest in our four-high Steckel rolling mill, along with certain rights of access. TIMET may exercise an option to have ten million additional pounds of titanium converted annually, provided that it offers to loan up to $12.0 million to us for certain capital expenditures which would be required to expand capacity. We have the option to purchase titanium sheet and plate products from TIMET and have agreed not to produce our own titanium products (other than cold reduced titanium tubing). We have also agreed not to provide titanium conversion services to any entity other than TIMET for the term of the Conversion Services Agreement. The cash received of $50.0 million (up-front fee) will be recognized in income on a straight-line basis over the 20-year term of the agreement. The portion not recognized in income will be shown as deferred revenue on our consolidated balance sheet. Income taxes associated with the up-front fee will be primarily paid in fiscal 2008. We used the net proceeds of the $50.0 million payment to reduce the balance of our U.S. revolving credit facility. Upon certain instances of a change in control, a violation of the non-compete provisions or a performance default or upon the occurrence of an event of a force majeure which results in a performance default, we are required to return the unearned portion of the up-front fee.
On November 5, 2004, Haynes Wire Company, a wholly owned subsidiary of Haynes, acquired certain assets of The Branford Wire and Manufacturing Company and certain of its affiliates for a purchase price of $8.3 million, which was paid in cash. As part of the transaction, Haynes Wire acquired a wire manufacturing plant in Mountain Home, North Carolina, manufacturing equipment, accounts receivable and inventory.
The Branford Wire acquisition has increased our wire manufacturing capacity. Prior to the acquisition, our high-performance alloy wire production capacity was approximately 500,000 pounds per year. Haynes Wires two-shift manufacturing capacity is estimated to be approximately 2.2 million pounds of finished stainless wire per year, with the capability to expand to approximately 3.0 million pounds per year. The Branford Wire acquisition allowed Haynes to reduce its cost of wire production and improve the quality of the wire it produces. Haynes Wires manufacturing facilities and equipment are designed to produce wire products efficiently and cost-effectively. In addition, the employees at the Mountain Home, North Carolina facility are experienced at producing wire products and are able to maintain high quality standards.
This acquisition provides opportunities for increasing wire sales through improvements in quality and manufacturing processes in the high-performance alloy wires we produce, and by offering the expanded wire product line through our service and sales centers worldwide. Our expertise in producing high quality wire products is enabling us to expand our product offerings and increase our participation in the nickel- and cobalt-based alloy welding market.
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The breadth and quality of our products, combined with our network of service centers which enhance customer service, have resulted in long-standing relationships with many of our customers. We have supplied high-performance alloy products to our top 10 customers, based on fiscal 2006 sales, for an average of 20 years. We supply high-performance alloys to a broad range of end use customers, including General Electric Co.; Pratt & Whitney; Rolls Royce plc; The Boeing Co.; SNECMA; E.I. DuPont de Nemours & Co.; The Dow Chemical Co.; Siemens Westinghouse; Solar Turbines, Inc.; British Petroleum p.l.c.; Celanese AG; and Eli Lilly and Co. None of these customers, or any of our other customers, accounted for more than 10% of our sales in fiscal 2006. Our top 20 customers accounted for approximately 38% of sales in fiscal 2006.
The global specialty alloy market consists of three primary sectors: stainless steel general purpose nickel alloys and high-performance nickel- and cobalt-based alloys. Except for its stainless steel wire products, Haynes competes exclusively in the high-performance alloy sector, which includes HTA products and CRA products. We believe that the high-performance alloy sector represents 200 million pounds of production volume per annum out of a total specialty alloy market of 38.5 billion pounds of production volume per annum. In fiscal 2004, 2005 and 2006, HTA products accounted for approximately 73%, 75% and 68%, respectively, of our net revenues (excluding stainless steel wire). In fiscal 2003, 2004, and 2005, CRA products accounted for approximately 27%, 25% and 32%, respectively, of our net revenues (excluding stainless steel wire). These percentages of our total product revenue and volume are based on data which include revenue and volume associated with sales by us to our foreign subsidiaries, but exclude revenue and volume associated with sales by foreign subsidiaries to their customers. We believe, however, that the effect of including revenue and volume data associated with sales by our foreign subsidiaries would not materially change the percentages presented in this section.
High temperature resistant alloys . HTA products are used primarily in manufacturing components for the hot sections of gas turbine engines. Stringent safety and performance standards in the aerospace industry result in development lead times typically as long as eight to ten years in the introduction of new aerospace-related market applications for HTA products. However, once a particular new alloy is shown to possess the properties required for a specific application in the aerospace market, it tends to remain in use for extended periods. HTA
59
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. The following table sets forth information with respect to our significant high temperature resistant alloys, applications and features:
Alloy |
|
Year introduced |
|
End markets and applications(1) |
|
Features |
HAYNES HR-160 Alloy(2) |
|
1990 |
|
Waste incineration/CPI-boiler tube shields |
|
Good resistance to sulfidation at high temperatures |
HAYNES 242 Alloy(2) |
|
1990 |
|
Aero-seal rings |
|
High strength, low expansion and good fabricability |
HAYNES HR-120 Alloy(2) |
|
1990 |
|
LBGT-cooling shrouds |
|
Good strength-to-cost ratio as compared to competing alloys |
HAYNES 230 Alloy(2) |
|
1984 |
|
Aero/LBGT-ducting, combustors |
|
Good combination of strength, stability, oxidation resistance and fabricability |
HAYNES 214 Alloy(2) |
|
1981 |
|
Aero-honeycomb seals |
|
Good combination of oxidation resistance and fabricating among nickel-based alloys |
HAYNES 188 Alloy(2) |
|
1968 |
|
Aero-burner cans, after-burner components |
|
High strength, oxidation resistant cobalt-based alloys |
HAYNES 625 Alloy |
|
1964 |
|
Aero/CPI-ducting, tanks, vessels, weld overlays |
|
Good fabricability and general corrosion resistance |
HAYNES 263 Alloy |
|
1960 |
|
Aero/LBGT-components for gas turbine hot gas exhaust pan |
|
Good ductility and high strength at temperatures up to 1600 ° F |
HAYNES 718 Alloy |
|
1955 |
|
Aero-ducting, vanes, nozzles |
|
Weldable high strength alloy with good fabricability |
HASTELLOY X Alloy |
|
1954 |
|
Aero/LBGT-burner cans, transition ducts |
|
Good high temperature strength at relatively low cost |
HAYNES Ti 3A1-2.5 Alloy |
|
1950 |
|
Aero-aircraft hydraulic and fuel systems components |
|
Light weight, high strength titanium-based alloy |
HAYNES 25 Alloy(2) |
|
1950 |
|
Aero-gas turbine parts, bearings, and various industrial applications |
|
Excellent strength, good oxidation, resistance to 1800 ° F |
(1) Aero refers to the aerospace market; LBGT refers to the land-based gas turbine market; CPI refers to the chemical processing market.
(2) Represents a patented product or a product that we believe has limited or no significant competition.
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Corrosion resistant alloys . CRA products are used in a variety of applications, such as chemical processing, power plant emissions control, hazardous waste treatment, sour gas production and pharmaceutical vessels. Historically, the chemical processing market has represented the largest end-user sector for CRA products. Due to maintenance, safety and environmental considerations, we believe this market continues to represent an area of potential long-term growth. Unlike aerospace applications within the HTA product market, the development of new market applications for CRA products generally does not require long lead times. The following table sets forth information with respect to certain of our significant corrosion resistant alloys, applications and features:
Alloy |
|
Year introduced |
|
End markets and applications(1) |
|
Features |
|
|
|
|
|
|
|
HASTELLOY Alloy C-2000(2) |
|
1995 |
|
CPI-tanks, mixers, piping |
|
Versatile alloy with good resistance to uniform corrosion |
HASTELLOY Alloy B-3(2) |
|
1994 |
|
CPI-acetic acid plants |
|
Better fabrication characteristics compared to other nickel-molybdenum alloys |
HASTELLOY Alloy D-205(2) |
|
1993 |
|
CPI-plate heat exchangers |
|
Corrosion resistance to hot sulfuric acid |
ULTIMET Alloy(2) |
|
1990 |
|
CPI-pumps, valves |
|
Wear and corrosion resistant nickel-based alloy |
HASTELLOY Alloy C-22 |
|
1985 |
|
CPI/FGD-tanks, mixers, piping |
|
Resistance to localized corrosion and pitting |
HASTELLOY Alloy G-30(2) |
|
1985 |
|
CPI-tanks, mixers, piping |
|
Lower cost alloy with good corrosion resistance in phosphoric acid |
HASTELLOY Alloy C-4 |
|
1973 |
|
CPI-tanks, mixers, piping |
|
Good thermal stability |
HASTELLOY Alloy C-276 |
|
1968 |
|
CPI/FGD/oil land gas-tanks, mixers, piping |
|
Broad resistance to many environments |
(1) CPI refers to the chemical processing market; FGD refers to the flue gas desulfurization market.
(2) Represents a patented product or a product that we believe has limited or no significant competition.
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We currently maintain a total of approximately 20 U.S. patents and approximately 200 foreign counterpart patents and applications targeted at countries with significant or potential markets for the patented products and continues to develop, manufacture and test high-performance nickel- and cobalt-based alloys. Over the last six years, our technical programs have yielded six new proprietary alloys, three of which are currently commercially available and three of which are being prepared to be brought to market. HAYNES 282 alloy, which we believe has very significant commercial potential, is the subject of a patent application filed in fiscal 2004, which, if granted, will provide protection until 2024. Also, U.S. patent applications were filed in 2006 for a new HYBRID Corrosion-resistant Alloy and a new high-temperature resistant alloy strengthened by a novel technique. Both of these new materials have significant, medium to long-term commercial potential and will be protected until 2026, if these patents are granted. In addition, three additional new proprietary alloys are at the laboratory stages of development. However, while we believe our patents are important to our competitive position, significant barriers to entry continue to exist beyond the expiration of any patent period. These barriers to entry and production include the unique equipment required to produce this material and the exacting process required to achieve the desired metallurgical properties. These processing requirements include such items as specific annealing temperature, processing speeds and reduction per rolling pass. We believe that the current alloy development program and these noted barriers to entry reduce the potential impact of patent expirations on us.
Trademarks on the names of many of our alloys have also been applied for or granted in certain foreign countries. Patents or other proprietary rights are an essential element of our business. Our strategy is to file patent applications in the United States and any other country that represents an important potential commercial market to us. In addition, we seek to protect our technology which is important to the development of our business. We also rely upon trade secret rights to protect our technologies and our development of new applications and alloys. We protect our trade secrets in part through confidentiality and proprietary information agreements with our customers.
For additional information see Research and Technical Development.
Sales and marketing and distribution
We sell our products primarily through our direct sales organization, which operates from 13 total locations in the United States, Europe, Asia and India, 11 of which are service and sales centers. All of our service and sales centers are operated either directly by us or though our wholly-owned subsidiaries. Approximately 82% of our net revenues in fiscal 2006 was generated by our direct sales organization. The remaining 18% of our fiscal 2006 net revenues was generated by a network of independent distributors and sales agents who supplement our direct sales in the United States, Europe and Asia, some of whom have been associated with Haynes for over 30 years. We are currently in the process of evaluating the efficiency of some of our overseas distribution channels, including the appropriate number of distributors, the types of products sold through third party distributors and our distribution partners. On a prospective basis, we expect our direct sales force to continue to generate approximately 82% of total sales. This percentage may increase, however, as we open new service and sales centers.
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Providing technical assistance to customers is an important part of our marketing strategy. We provide performance analyses of our products and those of our competitors for our customers. These analyses enable us to evaluate the performance of our products and to make recommendations as to the use of our products in appropriate applications, enabling our products to be included as part of the technical specifications used on the production of customers products. Our market development professionals are assisted by our engineering and technology staff in directing the sales force to new opportunities. We believe our combination of direct sales, technical marketing, engineering and customer support provides an advantage over other manufacturers in the high-performance alloy industry. This activity allows us to obtain direct insight into customers alloy needs and allows us to develop proprietary alloys that provide solutions to our customers problems.
Although there is a concentrated effort to expand foreign sales, the effort to grow domestic business also continues. The majority of revenue and profits continue to be provided by sales to U.S. customers and we continue to pursue opportunities to expand this market. This includes, but is not limited to, continued expansion of ancillary product forms, such as wire through the acquisition of The Branford Wire and Manufacturing Company, the continued development of new high-performance alloys, the utilization of external conversion resources to expand and improve the product form quality of mill produced product, the addition of equipment in U.S. service and sales centers to improve our ability to provide a product closer to the form required by the customer and the continued effort through our technical expertise to find solutions to customer challenges.
The following table sets forth the approximate percentage of our fiscal 2006 net revenues generated through each of our distribution channels.
|
|
Domestic |
|
Foreign |
|
Total |
|
||||||
Haynes mill direct/service and sales centers |
|
|
50 |
% |
|
|
32 |
% |
|
|
82 |
% |
|
Independent distributors/sales agents |
|
|
11 |
% |
|
|
7 |
% |
|
|
18 |
% |
|
Total |
|
|
61 |
% |
|
|
39 |
% |
|
|
100 |
% |
|
Our top twenty customers accounted for approximately 34% and 38% of our net revenues in fiscal 2005 and 2006, respectively. No customer or group of affiliated customers accounted for more than 10% of our net revenues in fiscal 2004, 2005 or 2006.
Our foreign and export sales were approximately $90.2 million, $128.5 million and $169.3 million for fiscal 2004, 2005 and 2006, respectively. Additional information concerning foreign operations and export sales is set forth in Note 16 to the consolidated financial statements included elsewhere in this prospectus.
High-performance alloys require a lengthier, more complex production process and are more difficult to manufacture than lower performance alloys, such as stainless steel alloys. The alloying elements in high-performance alloys must be highly refined during melting 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 a greater force be applied
63
when hot or cold working and are less susceptible to reduction or thinning when rolling or forging. This results in more cycles of rolling, annealing and pickling compared to a lower performance alloy to achieve proper dimensions. Certain alloys may undergo as many as 40 distinct stages of melting, remelting, annealing, forging, rolling and pickling before they achieve the specifications required by a customer. We manufacture our high-performance alloy in various forms, including sheet, plate, billet/ingot, tubular, wire and other forms.
The manufacturing process begins with raw materials being combined, melted and refined in a precise manner to produce the chemical composition specified for each high-performance alloy. For most high-performance 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 form. 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 gas controls in our primary melt facility remove carbon and other undesirable elements, thereby allowing more tightly controlled chemistries, which in turn produce more consistent properties in the high-performance alloys. The Argon Oxygen Decarburization gas control system also allows for statistical process control monitoring in real time to improve product quality.
We have a four-high Steckel mill for use in hot rolling material. Our four-high mill was installed in 1982 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 a 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 product shapes and sizes we produce allow the mill to roll numerous widths and gauges to exact specifications without stoppages or changeovers.
We also operate 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 us with significant flexibility in running smaller batches of varied products in response to customer requirements. We believe the flexibility provided by the three-high and two-high mills provides us an advantage over our major competitors in obtaining smaller specialty orders.
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We define backlog to include firm commitments from customers for delivery of product at established prices. Approximately 30% of the orders in our backlog at any given time include prices that are subject to adjustment based on changes in raw material costs. Historically, approximately 75% of our backlog orders have shipped within six months and approximately 90% have shipped within 12 months. The backlog figures do not reflect that portion of our business conducted at our service and sales centers on a spot or just-in-time basis.
(in millions) |
|
2004 |
|
2005 |
|
2006 |
|
|||
|
|
|
|
|
|
|
|
|||
Backlog at fiscal quarter ended: |
|
|
|
|
|
|
|
|||
December 31 |
|
$ |
54.7 |
|
$ |
110.9 |
|
$ |
203.5 |
|
March 31 |
|
69.6 |
|
134.8 |
|
207.4 |
|
|||
June 30 |
|
82.6 |
|
159.2 |
|
200.8 |
|
|||
September 30 |
|
93.5 |
|
188.4 |
|
206.9 |
|
|||
Due to the increase in the cost of raw materials during fiscal 2006, raw material rose as a percentage of cost of sales to 58% from 50% in the prior year. Nickel, a major component of many of our products, accounts for approximately 51% of our raw material costs, or approximately 30% of our total cost of sales. Each pound of high-performance alloy contains, on average, 48% nickel. Other raw materials include cobalt, chromium, molybdenum and tungsten. Melt materials consist of virgin raw material, purchased scrap and internally produced scrap.
The average price for cash buyers for the 30 day period ended on the last day of the period presented, as reported by the London Metals Exchange for fiscal 2004, 2005 and 2006, was $6.02, $6.45 and $13.67, respectively.
Since most of our products are produced pursuant to specific orders, we purchase materials against known production schedules. The materials are purchased from several different suppliers through various arrangements including annual contracts and spot purchases, and involve a variety of pricing mechanisms. Because we maintain a policy of pricing our products at the time of order placement, we attempt to establish selling prices with reference to known costs of materials, thereby reducing the risk associated with changes in the cost of raw materials. However, to the extent that the price of nickel rises rapidly, there may be a negative effect on our gross profit margins. We are considering forward purchase opportunities with certain suppliers. See Risk Factors.
Effective October 1, 2003, we changed our inventory costing method for domestic inventories from the LIFO method to the FIFO method. We believe that the FIFO method is preferable to LIFO because:
· FIFO inventory values presented in our balance sheet will more closely approximate the current value of inventory,
· costs of sales are still appropriately charged in the period of the related sales, and
65
· the change to FIFO method for domestic inventories results in our using a uniform method of inventory valuation globally.
Although we believe that FIFO is preferable to LIFO for the reasons stated, the use of FIFO during a period of rapidly rising or falling commodity prices can result in an imprecise matching of revenues and expenses in the short term.
Research and technical support
Our technology facilities, located at our Kokomo headquarters, consist of 19,000 square feet of offices and laboratories, as well as an additional 90,000 square feet of paved storage area. We have seven fully equipped technology testing laboratories, including a mechanical test lab, a metallographic lab, an electron microscopy lab, a corrosion lab, a high temperature lab and a welding lab. These facilities also contain a reduced scale, fully equipped melt shop and process lab. As of September 30, 2006, the technology, engineering and technological testing staff consisted of 27 persons, 17 of whom have engineering or science degrees, including five with doctoral degrees, with the majority of degrees in the field of metallurgical engineering.
Research and technical support costs primarily relate to efforts to develop new proprietary alloys and in the development of new applications for already existing alloys. Haynes spent approximately $2.5 million, $2.6 million and $2.7 million for research and technical support activities for fiscal 2004, 2005, and 2006 respectively.
During fiscal 2006, research and development projects were focused on new alloy development, new product form development, and new alloy concept validation, all relating to products for the aerospace, land-based gas turbine, chemical processing, and oil and gas industries. In addition, significant projects were conducted to generate technical data in support of major market application opportunities in areas such as solid oxide fuel cells, biotechnology (including waste incineration of toxic properties and manufacturing of pharmaceuticals), chemical processing and power generation.
For additional information see Patents and Trademarks.
The high-performance alloy market is a highly competitive market in which eight to ten producers participate in various product forms. Our primary competitors include Special Metals Corporation which is now a part of Precision Cast Parts, Allegheny Technologies, Inc., and Krupp VDM GmbH, a subsidiary of Thyssen Krupp Stainless. We face strong competition from domestic and foreign manufacturers of both high-performance alloys (similar to those we produce) and other competing metals. We may face additional competition in the future to the extent new materials are developed, such as plastics or ceramics, that may be substituted for our products. We also believe that we will face increased competition from non-U.S. entities in the next five to ten years, especially from competitors located in Eastern Europe and Asia. Additionally, in recent years we have benefited from a weak United States dollar, which makes the goods of foreign competitors more expensive to import into the United States. In the event that the United States dollar strengthens, we may face increased competition in the United States from foreign competitors.
66
As of September 30, 2006, we employed approximately 1,072 full-time employees worldwide. All eligible hourly employees at the Kokomo plant and the Lebanon, Indiana service and sales center (approximately 516 in the aggregate) are covered by a collective bargaining agreement. As part of negotiations with the United Steelworkers of America related to our emergence from bankruptcy, the collective bargaining agreement was extended until June 2007. We will renegotiate the collective bargaining agreement in fiscal 2007 prior to the expiration of the agreement currently in place. We believe that current relations with the union are satisfactory. There can be no assurance, however, that the renegotiation of the collective bargaining agreement will not lead to a labor stoppage, which could have a negative effect on earnings. For example, there was a brief labor stoppage in connection with renegotiation of the collective bargaining agreement in fiscal 2002, although there was no such stoppage in connection with the renegotiation in fiscal 2004 as part of our emergence from bankruptcy. None of the employees of our Arcadia, Louisiana, Mountain Home, North Carolina, European or Asian operations are represented by a labor union. We consider our employee relations in each of those facilities to be satisfactory.
We are subject to various 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, the storage, handling, use, treatment and disposal of hazardous substances and wastes and the health and safety of our employees. In addition, some of these laws and regulations require our facilities to operate under permits that are subject to renewal and modification. Violations of these laws, regulations and permits can result in the imposition of substantial penalties, permit revocations, and facility shutdowns and can require facilities improvements. In addition, we may be required in the future to comply with additional regulations pertaining to the emission of hazardous air pollutants under the Clean Air Act. However, since these regulations have not been proposed or promulgated, we cannot predict the cost, if any, associated with compliance with such regulations. Expenses related to environmental compliance (including air pollution control improvements, as discussed below) were approximately $1.3 million for fiscal 2005, $1.5 million for fiscal 2006 and are expected to be at a similar level for fiscal 2007.
Our facilities are subject to periodic inspection by various regulatory authorities, who from time to time have issued violations of governing laws, regulations and permits. In the past five years, we have paid administrative fines, none of which has had a material effect on our financial condition, for alleged violations relating to environmental matters, including the handling and storage of hazardous wastes, requirements relating to the Kokomo facilitys Title V Air Permit, requirements relating to the handling of polychlorinated biphenyls and violations of record keeping and notification requirements relating to industrial waste water discharge. Capital expenditures of approximately $542,000 and $140,000 were made for pollution control improvements during fiscal 2005 and 2006 respectively, with additional expenditures of $150,000 planned for fiscal 2007.
We are conducting remedial activities at our Kokomo, Indiana and our Mountain Home, North Carolina facilities. We have received permits from the Indiana Department of Environmental
67
Management, or IDEM, and the U.S. Environmental Protection Agency, or EPA, to close and to provide post closure monitoring and care for certain areas at the Kokomo facility previously used for the storage and disposal of wastes, some of which are classified as hazardous under applicable regulations. Construction of the South Landfill was completed in May 1994 and closure certification was received in fiscal 1999 for one area at the Kokomo facility and post-closure care is ongoing there. We have an application with IDEM pending for approval of closure and post-closure care for another area of our Kokomo facility. In addition, we are currently evaluating known groundwater contamination at our Kokomo site and are developing a plan to address it. Accordingly, additional corrective action may be necessary. We have also received permits from the North Carolina Department of Environmental Natural Resources, or NC DENR, and the EPA to close and provide post-closing monitoring and care for the lagoon at our Mountain Home, North Carolina facility. The lagoon area has been closed and is currently undergoing post-closure monitoring. We are required to monitor groundwater and to continue post closure maintenance of the former disposal areas at this site. As a result, we are aware of elevated levels of certain contaminants in the groundwater and additional corrective action could be required. We are currently unable to estimate the costs of any further corrective action at either site if required. Accordingly, we cannot assure you that the costs of any future corrective action at these or any other current or former sites would not have a material effect on our financial condition, results of operations or liquidity. Additionally, it is possible that we could be required to undertake other corrective action commitments for any other solid waste management unit existing or determined to exist at any of our facilities.
As a condition of the Kokomo and Mountain Home post closure permits, we must provide and maintain assurances to IDEM and EPA of our capability to satisfy closure and post closure groundwater monitoring requirements, including possible future corrective action as necessary. We currently provide these required assurances through a statutory financial assurance test as provided by Indiana law. Additionally, we are also required to provide assurances to the NCDENR and the EPA of our ability to satisfy closure and post closure monitoring requirements, including possible future corrective actions for the closed lagoon at the Mountain Home, North Carolina facility. These assurances are currently provided through letters of credit. The amount of accrued liabilities for these obligations is $1.5 million as of September 30, 2006.
We may also incur liability for alleged environmental damages associated with the off site transportation and disposal of hazardous substances. Our operations generate hazardous substances, much of which we accumulate at our facilities for subsequent transportation and disposal off site or recycling by third parties. Generators of hazardous substances which are transported to disposal sites where environmental problems are alleged to exist are subject to liability under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, or CERCLA, and state counterparts. CERCLA imposes strict, joint and several liability for investigatory and cleanup costs upon hazardous substance generators, site owners and operators and other potentially responsible parties. We may have generated hazardous substances disposed of at sites subject to CERCLA or equivalent state law remedial action. Thus, we cannot assure you that we will not be named as a potentially responsible party at sites in the future or that the costs associated with those sites would not have a material adverse effect on our financial condition, results of operations of liquidity.
68
Manufacturing facilities. We own manufacturing facilities in the following locations:
· Kokomo, Indianamanufactures and sells all product forms, other than tubular and wire goods;
· Arcadia, Louisianamanufactures and sells welded and seamless tubular goods; and
· Mountain Home, North Carolinamanufactures and sells stainless and nickel alloy wire.
Our Kokomo plant, our primary production facility, is located on approximately 180 acres of industrial property and includes over 1.0 million square feet of building space. There are three sites consisting of (1) a headquarters and research laboratory; (2) primary and secondary melting, annealing furnaces, forge press and several smaller hot mills; and (3) our four-high Steckel mill and sheet product cold working equipment, including two cold strip mills. All alloys and product forms other than tubular and wire goods and drawn wire, are produced in Kokomo.
Our Arcadia plant is located on approximately 42 acres of land, and includes 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.
Our Mountain Home plant is located on approximately 29 acres of land, and includes approximately 100,000 square feet of building space. The Mountain Home facility is primarily used to manufacture finished specialty stainless, nickel and a limited amount of cobalt alloy wire products. A limited amount of warehousing is also done at this facility.
Our owned facilities located in the United States are subject to a mortgage which secures our obligations under our U.S. revolving credit facility with a group of lenders led by Wachovia Capital Finance Corporation. For more information see Managements discussion and analysis of financial condition and results of operations and Note 9 to the consolidated financial statements included elsewhere in this prospectus.
Service and sales centers. Our service and sales centers contain equipment capable of precision laser and water jet processing services to cut and shape products to customers precise specifications. We own service and sales centers in the following locations:
· Openshaw, Englandstocks and sells all product forms; and
· Lenzburg, Switzerlandstocks and sells all product forms.
The Openshaw plant, located near Manchester, England, consisted of approximately seven acres of land and over 200,000 square feet of buildings on a single site. Haynes has closed the manufacturing portion of the Openshaw plant and is sourcing the required bar product for customers from external vendors. This closure did not have a material effect on the overall revenue of the U.K. operation or our overall operations or financial position. In April 2005, Haynes sold eight acres of the Openshaw site for a profit of $2.1 million, but retained ownership of the buildings. It is anticipated that Haynes will continue to own and operate the balance of the land, totaling 7 acres, and the buildings.
69
In addition, we lease service and sales centers in the following locations:
· La Mirada, Californiastocks and sells all product forms;
· Houston, Texasstocks and sells all product forms;
· Lebanon, Indianastocks and sells all product forms;
· Paris, Francestocks and sells all product forms;
· Shanghai, Chinastocks and sells all product forms; and
· Windsor, Connecticutstocks and sells all product forms.
Sales centers. We lease sales centers in the following locations:
· Singaporesells all product forms; and
· Chennai, Indiasells all product forms.
All owned and leased service and sales centers not described in detail above are single site locations and are less than 100,000 square feet. The service centers contain equipment capable of precision laser and water jet processing services to cut and shape products to customers precise specifications. We believe that our existing facilities are suitable for our current business needs.
On March 29, 2004, Haynes and its U.S. subsidiaries and U.S. affiliates as of that date filed voluntary petitions for reorganization relief under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Indiana (the Bankruptcy Court). Haynes filed for relief under Chapter 11 for a variety of reasons. On August 16, 2004, the Bankruptcy Court entered its Findings of Fact, Conclusions of Law, and Order Under 11 U.S.C. 1129(a) and (b) and Fed. R. Bankr. P. 3020 Confirming the First Amended Joint Plan of Reorganization of Haynes International, Inc. and its Affiliated Debtors and Debtors in Possession as Further Modified (the Confirmation Order). The Confirmation Order and related Chapter 11 Plan, among other things, provide for the release and discharge of pre-petition claims and causes of action. The Confirmation Order further provides for an injunction against the commencement of any actions with respect to claims held prior to the Effective Date of the Plan. The Effective Date occurred on August 31, 2004. When appropriate, Haynes pursues the dismissal lawsuits premised upon claims or causes of action discharged in the Confirmation Order and related Chapter 11 Plan. For more information see The reorganization.
We are subject to extensive federal, state and local laws and regulations. Future developments and increasingly stringent regulations could require us to make additional unforeseen expenditures for these matters. We are regularly involved in litigation, both as a plaintiff and as a defendant, relating to our business and operations. Such litigation includes federal and state EEOC administrative actions and litigation and administrative actions relating to environmental matters. For more information see Environmental Matters.
Litigation may result in substantial costs and may divert managements attention and resources, and the level of future expenditures for legal matters cannot be determined with any degree of
70
certainty. Nonetheless, based on the facts presently known, management does not believe that expenditures for legal proceedings will have a material effect on our financial position, results of operations or liquidity.
We are currently, and have in the past, been subject to claims involving personal injuries allegedly relating to our products. For example, we are presently involved in two actions involving welding rod-related injuries. One lawsuit was filed in California state court against numerous manufacturers, including our company, in May 2006, alleging that the welding-related products of the defendant manufacturers harmed the users of such products through the inhalation of welding fumes containing manganese. A second case with similar allegations is pending in Texas. We believe that we have defenses to these allegations and, that if we were found liable, the cases would not have a material effect on our financial position, results of operations or liquidity. In addition to these cases, we have in the past been named a defendant in several other lawsuits, including 52 filed in the state of California, alleging that our welding-related products harmed the users of such products through the inhalation of welding fumes containing manganese. We have since been voluntarily dismissed from all of these lawsuits on the basis of the release and discharge of claims contained in the Confirmation Order. While we contest such lawsuits vigorously, and may have applicable insurance, there are several risks and uncertainties that may affect our liability for claims relating to exposure to welding fumes and manganese. It is possible, however, that we will be named in additional suits alleging welding-rod injuries. Should such litigation occur, it is possible that the aggregate claims for damages, if we are found liable, could have a material adverse effect on our financial condition, results of operations or liquidity.
71
Directors and executive officers
The following table sets forth certain information concerning the persons who served as our directors and executive officers as of the date of this prospectus. Except as indicated in the following paragraphs, the principal occupations of these persons have not changed during the past five years.
Name |
|
Age |
|
Position with Haynes International, Inc. |
|
|
|
|
|
Francis J. Petro |
|
67 |
|
President and Chief Executive Officer; Director |
John C. Corey |
|
59 |
|
Chairman of the Board; Director |
Paul J. Bohan |
|
61 |
|
Director |
Donald C. Campion |
|
58 |
|
Director |
Robert H. Getz |
|
44 |
|
Director |
Timothy J. McCarthy |
|
66 |
|
Director |
William P. Wall |
|
44 |
|
Director |
Ronald W. Zabel |
|
63 |
|
Director |
August A. Cijan |
|
51 |
|
Vice President, Operations |
Michael Douglas |
|
54 |
|
Vice President, Arcadia Tubular Products |
Anastacia S. Kilian |
|
32 |
|
Vice President, General Counsel, Corporate Secretary |
James A. Laird |
|
54 |
|
Vice President, Research and European Sales & Marketing |
Marlin C. Losch |
|
46 |
|
Vice President, SalesNorth America |
Marcel Martin |
|
57 |
|
Vice President, Finance; Chief Financial Officer; Treasurer |
Daniel W. Maudlin |
|
40 |
|
Controller, Chief Accounting Officer |
Jean C. Neel |
|
47 |
|
Vice President, Corporate Affairs |
Scott R. Pinkham |
|
39 |
|
Vice President, Manufacturing Planning |
Gregory M. Spalding |
|
51 |
|
Vice President, Haynes Wire, Chief Operating Officer |
Charles J. Sponaugle |
|
58 |
|
Vice President, Business Planning |
Jeffrey L. Young |
|
49 |
|
Vice President, Chief Information Officer |
Mr. Petro was elected President and Chief Executive Officer and a director of Haynes in January 1999. From 1995 to the time he joined Haynes, Mr. Petro was President and Chief Executive Officer of Inco Alloys International, a company owned by The International Nickel Company of Canada. Mr. Petro is also a director of Algoma Steel, Inc.
Mr. Corey has been a director and the Chairman of the Board since our emergence from bankruptcy on August 31, 2004. Mr. Corey also serves as a member of the Corporate Governance Committee of the Board. In January 2006, he became the President, Chief Executive Officer and a
72
director of Stoneridge, Inc., a manufacturer of electrical and electronic components, modules and systems for the automotive, medium- and heavy-duty thick, agricultural and off-highway vehicle markets. From October 2000 through December 2005, Mr. Corey served as the President, Chief Executive Officer and a director of Safety Component International, Inc., a manufacturer of automotive airbags. Before becoming President and Chief Executive Officer of Safety Components International in October 2000, he served as President and Chief Operating Officer.
Mr. Bohan has been a director since our emergence from bankruptcy on August 31, 2004. Mr. Bohan also serves as the Chairman of the Corporate Governance Committee of the Board. He retired as a Managing Director of Citigroup in February 2001. Mr. Bohan currently serves on the Board of Directors of Arena Brands, Inc.; Revlon, Inc.; and the New York Police and Fire Widows and Childrens Benefit Fund.
Mr. Campion has been a director since our emergence from bankruptcy on August 31, 2004. Mr. Campion also serves as the Chairman of the Audit Committee and as a member of the Compensation Committee of the Board. From January 2003 until July 2004, Mr. Campion served as Chief Financial Officer of Verifone, Inc. Mr. Campion previously served as Chief Financial Officer of several companies, including Special Devices, Inc., Cambridge, Inc., Oxford Automotive, Inc., and Delco Electronics Corporation. He has had experience with implementation of internal controls and Sarbanes-Oxley 404 compliance. Mr. Campion also currently serves on the Board of Directors of Catuity, Inc. and McLeod USA, Incorporated.
Mr. Getz has been a director since March 2006. Mr. Getz also serves as a member of the Audit Committee of the Board. Mr. Getz is a private investor and since December 1996 has served as a Managing Director and Partner of Cornerstone Equity Investors, LLC, a New York-based private equity investment firm. Prior to the formation of Cornerstone in 1996, Mr. Getz spent nine years at Prudential Equity Investors, Inc. in several roles, most recently serving as a Managing Director. Mr. Getz also serves as a director for Novatel Wireless, Inc. and Sitel Corporation.
Mr. McCarthy has been a director since our emergence from bankruptcy on August 31, 2004. Mr. McCarthy also serves as the Chairman of the Compensation Committee and as a member of the Audit Committee of the Board. Since 1985 he has served as the President and Chief Executive Officer of C.E. Minerals, an industrial mineral business.
Mr. Wall has been a director since our emergence from bankruptcy on August 31, 2004. Mr. Wall also serves on the Audit and Corporate Governance Committees of the Board. Mr. Wall joined Abrams Capital, LLC, a value-oriented investment firm headquartered in Boston, in February 2006, where he serves as general counsel and a director of Abrams Capital International, Ltd. From July 2003 through April 2005, Mr. Wall was a partner in Andover Capital, a hedge fund focused on leveraged companies. Prior to that, he spent seven years at Fidelity Investments in several roles, most recently serving as a Managing Director of Fidelity Capital Investors, a private equity group funded by Fidelity.
Mr. Zabel has been a director since our emergence from bankruptcy on August 31, 2004. Mr. Zabel also serves as a member of the Compensation Committee of the Board. Since November 2005, he has served as the Chief Executive Officer of Springs Industries, and prior to that time served as the President of Springs Window Fashions, LLC starting in 1999. Mr. Zabel also sits on the Board of Directors of Springs Industries.
73
Mr. Cijan has served as Vice President, Operations of Haynes since April 1996. Prior to this, Mr. Cijan served as Manufacturing Manager since joining Haynes in 1993.
Mr. Douglas has served as Vice President, Tubular Products, and is accountable for the operations of the Arcadia Tubular Products Facility since joining Haynes in May 2005. From 1994 to 2005, Mr. Douglas was Executive Vice President and Managing Director of Interactive Resource Management. Mr. Douglas has over twenty years of prior executive management experience in the metals industry.
Ms. Kilian has served as Vice President, General Counsel and Corporate Secretary since July 2006. Prior to joining Haynes, beginning in 2000, Ms. Kilian was a lawyer in private practice with the law firm Ice Miller LLP in Indianapolis, Indiana.
Mr. Laird has served as Vice President, Research and European Sales of Haynes since July 2000, after having served in various sales and marketing positions with Haynes since 1983.
Mr. Losch has served as Vice President, North American Sales since February 2006. Mr. Losch was Midwest Regional Manager prior to this and has served in various marketing, quality, engineering and production positions since joining Haynes in February 1988.
Mr. Martin was elected Vice President, Finance, Chief Financial Officer and Treasurer on July 1, 2004, after having served as Controller and Chief Accounting Officer of Haynes since October 2000. From 1996 to 2000 Mr. Martin was Vice President of Finance and Chief Financial Officer of Duferco Farrell Corporation.
Mr. Maudlin has served as Controller and Chief Accounting Officer effective as of September 20, 2004. Prior to his employment with Haynes, Mr. Maudlin was corporate controller at Jordan Specialty Plastics, Inc. from April, 2001. Prior to that he served as Group Controller for Heritage Environmental Services, Inc. from May 1991 through April 2001. Mr. Maudlin is a licensed CPA in the state of Indiana.
Ms. Neel has served as Vice President, Corporate Affairs of Haynes since April 2000, after having served as Director, Corporate Affairs since joining Haynes in July 1999.
Mr. Pinkham has served as Vice President, Manufacturing Planning since March 2004, after having served in various manufacturing and production capacities since joining Haynes in August 1999.
Mr. Spalding has served as Vice President, Haynes Wire and Chief Operating Officer since February 2006. Prior to this he served as Vice President, North American Sales since he joined Haynes in July 1999.
Mr. Sponaugle has served as Vice President, Business Planning of Haynes since 2000, after having served as Vice President, Sales since June 1998 and in various sales, marketing and manufacturing positions since 1981.
Mr. Young has served as Vice President and Chief Information Officer since November 2005, after having served in various Information Technology positions since joining Haynes in November 1984.
74
Our by-laws authorize the Board of Directors to designate the number of directors to be not less than three nor more than nine. The Board of Directors has set the number of directors at eight. Directors of Haynes serve until their successors are duly elected and qualified or until their earlier resignation or removal. Officers of Haynes serve at the discretion of the Board of Directors, subject, in the case of Mr. Petro, to the terms of his employment contract.
The Board of Directors has established an Audit Committee, a Compensation Committee and a Corporate Governance Committee. The Audit Committee is responsible for retaining, reviewing and dismissing the 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 Audit Committee is also responsible for reviewing and approving conflict of interest transactions for Haynes. The Board of Directors has determined that Mr. Campion is an audit committee financial expert (as defined by Item 401(h) of Regulation S-K). 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. The Corporate Governance Committee is responsible for assisting the board by overseeing the performance and composition of the board to ensure effective governance. Except for Mr. Petro, all of the members of the Board of Directors, including all of the members of the Audit Committee, the Compensation Committee and the Corporate Governance Committee, meet the criteria for independence set forth in Rule 10A-3(b)(1) of the Securities Exchange Act of 1934, as amended.
75
The following summary compensation table sets forth certain information concerning total compensation paid by us during our last three completed fiscal years to (i) our Chief Executive Officer and (ii) each of our four other most highly compensated executive officers, who served as executive officers as of September 30, 2006 (collectively referred to as the Named Executive Officers).
|
|
|
|
Annual compensation(1) |
|
Long-term
|
|
|
|
|||||||||
Name and principal position |
|
Fiscal
|
|
|
|
Bonus
|
|
Securities
|
|
All other
|
|
|||||||
Francis J. Petro(4) |
|
2006 |
|
$ |
480,000 |
|
$ |
288,000 |
|
|
|
|
|
|
$ |
269,749 |
|
|
President & Chief Executive |
|
2005 |
|
$ |
480,000 |
|
$ |
460,000 |
|
|
|
|
|
|
$ |
343,526 |
|
|
Officer |
|
2004 |
|
$ |
473,077 |
|
$ |
0 |
|
|
200,000 |
|
|
|
$ |
317,084 |
|
|
Marcel Martin |
|
2006 |
|
$ |
196,923 |
|
$ |
85,500 |
|
|
|
|
|
|
$ |
6,543 |
|
|
Vice President, Finance & Chief |
|
2005 |
|
$ |
190,000 |
|
$ |
140,000 |
|
|
|
|
|
|
$ |
8,021 |
|
|
Financial Officer, Treasurer |
|
2004 |
|
$ |
163,992 |
|
$ |
0 |
|
|
100,000 |
|
|
|
$ |
3,678 |
|
|
August A. Cijan |
|
2006 |
|
$ |
192,308 |
|
$ |
85,500 |
|
|
|
|
|
|
$ |
6,471 |
|
|
Vice President, Operations |
|
2005 |
|
$ |
190,000 |
|
$ |
106,000 |
|
|
|
|
|
|
$ |
8,167 |
|
|
|
|
2004 |
|
$ |
178,051 |
|
$ |
0 |
|
|
100,000 |
|
|
|
$ |
4,171 |
|
|
James A. Laird |
|
2006 |
|
$ |
192,308 |
|
$ |
85,500 |
|
|
|
|
|
|
$ |
5,798 |
|
|
Vice President, Marketing, |
|
2005 |
|
$ |
190,000 |
|
$ |
106,000 |
|
|
|
|
|
|
$ |
6,903 |
|
|
Research & European Sales |
|
2004 |
|
$ |
157,115 |
|
$ |
0 |
|
|
100,000 |
|
|
|
$ |
5,388 |
|
|
Gregory M. Spalding |
|
2006 |
|
$ |
162,308 |
|
$ |
40,000 |
|
|
|
|
|
|
$ |
5,561 |
|
|
Vice President, Haynes Wire & |
|
2005 |
|
$ |
160,000 |
|
$ |
65,000 |
|
|
|
|
|
|
$ |
5,555 |
|
|
Chief Operating Officer |
|
2004 |
|
$ |
149,335 |
|
$ |
0 |
|
|
50,000 |
|
|
|
$ |
2,925 |
|
|
(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) The options set forth in the table were granted on August 31, 2004 pursuant to the plan of reorganization.
(3) Premium payments to the group term life insurance plan, gain sharing payments and relocation reimbursements which were made by Haynes, 401(k) match, executive disability, and 401(m) match.
(4) Includes $289,000, $314,000 and $246,000 for fiscal 2004, 2005 and 2006, respectively which accrued pursuant to our Supplemental Executive Retirement Plan and which is payable upon Mr. Petros retirement. For more information, see Pension PlansSupplemental Executive Retirement Plan.
76
The Chief Executive Officer and each of the Named Executive Officers received a cash bonus payment in the first quarter of fiscal 2007 in connection with our fiscal 2006 management incentive plan. The following table shows the amounts of those payments, which were recommended by the Compensation Committee and approved by the Board based upon certain financial indicators of our performance, including EBITDA and revolver availability, as of and for the year ended September 30, 2006:
Named executive officers |
|
Bonus
|
|
|
Francis J. Petro. |
|
$ |
432,000 |
|
Marcel Martin. |
|
$ |
148,500 |
|
August A. Cijan |
|
$ |
135,000 |
|
James A. Laird. |
|
$ |
135,000 |
|
Gregory M. Spalding |
|
$ |
63,750 |
|
As of January 23, 2007, the non-management members of the Board of Directors of Haynes received a $40,000 per year stipend related to their Board of Directors duties and responsibilities, and $2,000 per meeting. Additionally, there is a $20,000 annual stipend for serving as Chairman of the Board, a $15,000 annual stipend for serving as the chairman of the Audit Committee, and a $10,000 annual stipend for serving as chairman of any other committee of the Board. Directors are reimbursed by Haynes for their out-of-pocket expenses incurred in attending meetings of the Board of Directors. In addition, each non-employee director (other than Mr. Getz) was granted a non-qualified stock option to purchase 15,000 shares of our common stock at a price of $12.80 per share under the Stock Option Plan. Mr. Getz received 15,000 stock options granted on March 31, 2006 at a price of $31.00 per share. Members of the Offering and Pricing Committee will receive $10,000 for their services in such capacity, plus $2,000 for each substantive in-person meeting attended.
Compensation committee interlocks and insider participation
The members of the Compensation Committee as of September 30, 2006 were Timothy J. McCarthy, Ronald W. Zabel and Donald C. Campion. None of the members of the Compensation Committee are now serving or previously have served as employees or officers of Haynes or any subsidiary, and none of our executive officers serve as directors of, or in any compensation related capacity for, companies with which members of the Compensation Committee are affiliated.
77
We have two stock option plans that authorize the granting of non-qualified stock options to certain of our key employees and non-employee directors for the purchase of a maximum of 1,500,000 shares of our common stock. Our original option plan was adopted in 2004 pursuant to our plan of reorganization and provides for the grant of options to purchase up to 1,000,000 shares of our common stock. In January 2007, our Board of Directors adopted a new option plan that provides for options to purchase up to 500,000 shares or our common stock. Unless the Compensation Committee determines otherwise, options granted under the option plans are exercisable for a period of ten years from the date of grant and vest 33 ⅓ % per year over three years from the grant date. Upon our emergence from bankruptcy, options were granted to certain of our executive officers and non-employee directors at that time at $12.80 per share. Options granted thereafter are granted at fair market value on the date of grant. As of January 23, 2007, options to purchase 980,000 shares of our common stock were outstanding under the option plans and options covering 520,000 shares of our common stock were available for future grants.
Unvested options will become fully vested upon the occurrence of certain acceleration events, including the death or disability (as defined in the Option Plan) of the participant and certain events constituting a Change in Control (as defined in the option plans). The option plans also authorize the Board of Directors to accelerate the vesting of options upon certain Change in Control events in its discretion or to terminate the options and provide for the purchase of options from the option holders for a price equal to the amount that would have been attained by the holder if the option were fully vested. If an employee participant in the option plan ceases to be an employee of Haynes due to a termination for cause (as defined in the option plan), or if such participant terminates his or her employment with Haynes without good reason (as defined in the option plan), all stock options previously granted to such participant, whether or not vested, will be cancelled and will not be exercisable. If an employee participant ceases to be an employee of Haynes for any reason other than for cause or for good reason, the vested portion of all options granted to such participant under the original option plan will remain exercisable for a period of six months and the remaining options will be forfeited. The 2007 option plan includes similar provisions if the employee participant is terminated for cause, but does not provide for vesting of options if the employee participant terminates employment for good reason.
78
Option grants in last fiscal year and fiscal year end option values
None of the executive officers named in the summary compensation table were granted or exercised stock options in fiscal 2006. The following table provides the total number of securities underlying unexercised stock options held by the executive officers named in the summary compensation table as of September 30, 2006:
Termination benefits agreements
Haynes has entered into Termination Benefits Agreements with certain executive officers (including the named executive officers) of Haynes, other than Mr. Petro, the Chief Executive Officer. The Termination Benefits Agreements provide for an initial term expiring September 30, 2007, subject to two-year automatic extensions (unless terminated by Haynes or the eligible employee at least 60 days prior to the renewal date).
The Termination Benefits Agreement provides that if an eligible employees employment with Haynes is terminated by Haynes without Cause (as defined in the Termination Benefits Agreement), by the employee for Good Reason (as defined in the Termination Benefits Agreements) or by reason of such eligible employees disability or death, Haynes will pay the eligible employee (or his estate) his accrued but unpaid Base Salary (as defined in the Termination Benefits Agreement) plus any bonus or incentive compensation earned or payable as of the Date of Termination (as defined in the Termination Benefits Agreement), and a bonus equal to the eligible employees total annual target bonus in the fiscal year of the termination pro rated for the number of days the employee worked in the fiscal year. In the event that the eligible employees employment is terminated by Haynes for Cause, by the employee without Good Reason or due to the employees retirement, Haynes is obligated only to pay the eligible employee his accrued but unpaid Base Salary and any other accrued but unpaid compensation through the Date of Termination. In addition, if within 12 months following a Change in Control (as defined in the Termination Benefits Agreement) the eligible employees employment is terminated by the eligible employee with Good Reason or by Haynes without Cause, Haynes must (among other things):
· pay the eligible employee such eligible employees accrued but unpaid Base Salary and any bonus or incentive compensation earned or payable as of the Date of Termination;
· pay the eligible employee such eligible employees Base Salary that would be payable over the 12 months following the Date of Termination;
79
· pay the eligible employee a bonus equal to the eligible employees total annual target bonus in the fiscal year of the termination; and
· continue to provide life insurance and medical and hospital benefits to the eligible employee for up to 12 months following the Date of Termination.
As a condition to receipt of severance payments and benefits, the Termination Benefits Agreement requires that eligible employees execute a release of all claims.
Pursuant to the Termination Benefits Agreement, each eligible employee agrees that during his employment with Haynes and for an additional one year following the Date of Termination of the eligible employees employment with Haynes, the eligible employee will not, directly or indirectly, engage in any business in competition with the business of Haynes, solicit any customer or employee of Haynes, or disclose any Confidential Information (as defined in the Termination Benefits Agreement).
Employment agreement with our President and Chief Executive Officer
Haynes has entered into an Employment Agreement with its President and Chief Executive Officer, Francis J. Petro, which was entered into August 31, 2004, in connection with our emergence from bankruptcy, and will terminate on September 30, 2007, unless renewed by a subsequent agreement of the parties. Pursuant to this Employment Agreement, Mr. Petros base salary is $480,000 per year, with bonus targets to be determined by the Board of Directors annually prior to or at the commencement of the applicable fiscal year. This compensation is identical to the compensation being paid to Mr. Petro prior to the emergence from bankruptcy.
If Mr. Petros employment is terminated by reason of the expiration of the employment term, Mr. Petro will be entitled to (i) any earned but unpaid base salary and bonuses and reimbursement of business expenses; and (ii) the benefits that he has been granted under our Supplemental Executive Retirement Plan. In addition, any unvested stock options held by Mr. Petro at the time of the expiration of his employment term will terminate immediately and any vested options will remain exercisable for 90 days following termination or until the option expires, whichever is less.
If Mr. Petros employment is terminated by Haynes for cause or he resigns without good reason, Mr. Petro will be entitled to (i) any earned but unpaid base salary and bonuses and reimbursement of business expenses; and (ii) the benefits that he has been granted under the Supplemental Executive Retirement Plan of Haynes. In addition, (i) if Mr. Petros termination is for cause, any vested and unvested stock options will terminate immediately; and (ii) if his termination is for good reason, any unvested stock options will terminate immediately and any vested options will remain exercisable for 30 days following termination or until the option expires, whichever is less.
If Mr. Petros employment is terminated by Haynes without cause or by Mr. Petro without good reason, Mr. Petro will be entitled to (i) any earned but unpaid base salary and bonuses and reimbursement of business expenses; (ii) two times his annual base salary; (iii) two times his average bonus for the two fiscal years preceding his termination; (iv) continuation of certain health and welfare benefits for two years following termination or until comparable benefits are obtained from a new employer, whichever is less; and (v) the benefits that he has been granted
80
under our Supplemental Executive Retirement Plan. In addition, any unvested stock options will vest immediately and all options held by Mr. Petro will remain exercisable for one year following termination or until the option expires, whichever is less.
If Mr. Petros employment is terminated by reason of his death, disability or retirement, Mr. Petro or his heirs, estate, personal representative or legal guardian, as appropriate will be entitled to (i) any earned but unpaid base salary and bonuses and reimbursement of business expenses; and (ii) the benefits that he has been granted under the Supplemental Executive Retirement Plan of Haynes. In addition, any unvested stock options will vest immediately and all options held by Mr. Petro will remain exercisable for one year in the event of death or disability and six months in the event of retirement or until the option expires, whichever is less.
Mr. Petro is subject to a confidentiality restriction during his employment and thereafter, and to non-compete and non-solicitation restrictions during his employment and for two years following termination.
Supplemental executive retirement plan
Effective as of January 1, 2002, Haynes adopted its Supplemental Executive Retirement Plan, which provides benefits to a select group of management and highly compensated employees as selected by our Compensation Committee upon the termination of employment or death of such employee. The benefits to be received by each participant are defined in plan agreements between Haynes and the individual participants. Currently, Francis J. Petro, our President and Chief Executive Officer, is the only participant in the Supplemental Executive Retirement Plan. Pursuant to Mr. Petros Plan Agreement, Mr. Petros benefit under the Supplemental Executive Retirement Plan is equal to 3% of the product of his years of service and his average compensation, reduced by the value of benefits to which Mr. Petro may be entitled under the Companys Pension Plan. The benefit will be paid in an actuarial equivalent lump sum payment upon the termination of employment or death as previously elected by Mr. Petro.
Haynes maintains a defined benefit pension plan for the benefit of eligible domestic employees designated as the Haynes International, Inc. Pension Plan. The pension plan is qualified under Section 401 of the Internal Revenue Code, permitting Haynes to deduct for federal income tax purposes all amounts contributed by it to the pension plan pursuant to funding requirements. Our reorganization did not change the terms of the pension plan.
Under the pension plan, all company employees (except those employed pursuant to a written agreement which provides that the employee shall not be eligible to participate, temporary or seasonal employees, or any employees employed in a job category that includes no pension benefits) are eligible to participate in the plan. Participants are eligible to receive an unreduced pension annuity upon the first to occur of (i) reaching age 65, (ii) reaching age 62 and completing ten years of benefit service, or (iii) completing 30 years of benefit service. The final option is available only for union employees hired before June 11, 1999 or for salaried employees who were plan participants in the pension plan on March 31, 1987.
81
For salaried employees who retire on or after July 2, 2002 under option (i) or (ii) above, and for union employees hired on or after July 3, 1988 who retire on or after July 2, 2002 under option (i), (ii), or (iii) above, the normal monthly pension benefit provided under the pension plan is the greater of (i) 1.4% of the employees average monthly earnings multiplied by years of benefit service, plus an additional 0.5% of the employees average monthly earnings, if any, in excess of Social Security covered compensation multiplied by years of benefit service up to 35 years, or (ii) the employees accrued benefits as of September 30, 2002. For salaried employees who retire on or after July 2, 2002 under option (iii) above (with 30 years of benefit service), the normal monthly pension provided under the pension plan is equal to one of the following as elected by the participant: (i) the accrued benefit as of March 31, 1987 plus any supplemental retirement benefit payable to age 62, (ii) the accrued benefit as of March 31, 1987 plus any supplemental retirement benefit payable to any age elected by the participant (prior to 62) and thereafter the actuarial equivalent of the benefit payable for retirement under options (i) and (ii) above, or (iii) if the participant is at least age 55, the actuarial equivalent of the benefit payable for retirement under options (i) and (ii) above. Salaried employees who commenced employment with Haynes after December 31, 2005 are not eligible to participate in the plan.
There are provisions for delayed retirement, early retirement benefits, disability retirement, death benefits, optional methods of benefits payments, payments to an employee who leaves after five or more years of service, and payments to an employees surviving spouse. Participants interests are vested and they are eligible to receive pension benefits after completing five years of service. However, all participants as of October 1, 2001, became 100% vested in their benefits on that date. Vested benefits are generally paid beginning at or after age 55.
The following table sets forth the range of estimated annual benefits payable upon retirement for graduated levels of average annual earnings and years of service for employees under the plan, based on retirement at age 65 on or after October 1, 2006. The maximum annual salary permitted for 2006 under Section 401(a)(17) of the Code is $220,000. The maximum annual benefit permitted for 2006 under Section 415(b) of the Code is $175,000.
|
|
Years of service |
|
|||||||||||||
Average annual remuneration |
|
15 |
|
20 |
|
25 |
|
30 |
|
35 |
|
|||||
$100,000 |
|
$ |
24,656 |
|
$ |
32,875 |
|
$ |
41,094 |
|
$ |
49,312 |
|
$ |
57,531 |
|
$150,000 |
|
38,906 |
|
51,875 |
|
64,844 |
|
77,812 |
|
90,781 |
|
|||||
$200,000 |
|
53,156 |
|
70,875 |
|
88,594 |
|
106,312 |
|
124,031 |
|
|||||
$250,000 |
|
58,856 |
|
78,475 |
|
98,094 |
|
117,712 |
|
137,331 |
|
|||||
$300,000 |
|
58,856 |
|
78,475 |
|
98,094 |
|
117,712 |
|
137,331 |
|
|||||
$350,000 |
|
58,856 |
|
78,475 |
|
98,094 |
|
117,712 |
|
137,331 |
|
|||||
$400,000 |
|
58,856 |
|
78,475 |
|
98,094 |
|
117,712 |
|
137,331 |
|
|||||
$450,000 |
|
58,856 |
|
78,475 |
|
98,094 |
|
117,712 |
|
137,331 |
|
|||||
82
The estimated credited years of service of each of the named executive officers as of September 30, 2006 are as follows:
Named executive officer |
|
|
|
Francis J. Petro |
|
7 |
|
Marcel Martin |
|
20 |
|
August A. Cijan |
|
13 |
|
James A. Laird |
|
23 |
|
Gregory M. Spalding |
|
7 |
|
Haynes maintains a pension plan for its employees of Haynes International, Ltd., our U.K. subsidiary. The U.K. pension plan is a contributory plan under which eligible employees contribute 3.5% or 6% of their annual earnings. Normal retirement age under the U.K. pension plan is age 65. The annual pension benefit provided at normal retirement age under the U.K. pension plan ranges from 1% to 1 2/3% of the employees final average annual earnings for each year of credited service, depending on the level of employee contributions made each year during the employees period of service with Haynes. The maximum annual pension benefit for employees with at least 10 years of service is two-thirds of the individuals 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 employees surviving spouse. The U.K. pension plan also provides for payments to an employees surviving children. Our reorganization did not change the terms of the U.K. pension plan.
Profit sharing and savings plan
We maintain the Haynes International, Inc. Combined Profit Sharing and Savings Plan to provide retirement, tax-deferred savings for eligible domestic employees and their beneficiaries. The profit sharing and savings plan consists of Cabot profit sharing and Cabot PAYSOP accounts attributable to matching made by us under prior plans and profit sharing contributions based on our profits and savings accounts attributable to employee pre-tax deferrals and after-tax contributions. The profit sharing and savings plan is qualified under Section 401 of the Internal Revenue Code, permitting us to deduct for federal income tax purposes all amounts contributed by it to the profit sharing and savings plan. We regularly makes matching contributions based on participant elective pre-tax contributions; however, no profit sharing contributions were made to the profit sharing and savings plan for the fiscal years 2004, 2005, or 2006. Our reorganization did not change the terms of the profit sharing and savings plan.
Under the profit sharing and savings plan, all of our employees (except those employed pursuant to a written agreement which provides that the employee shall not be eligible to participate, those who are classified as an independent contractor even if later determined to be an employee, leased employees, and employees of an affiliated employer who has not adopted the
83
plan in writing) are eligible to participate in the plan. Employees completing a one-month period of employment are eligible to participate in the elective pre-tax, after-tax voluntary, and our matching portions of the plan. Employees completing a 12-month period of employment are eligible to participate in our profit sharing contribution portion of the plan.
Participants may choose to make elective pre-tax contributions to the plan in amounts up to 50% of their plan compensation. Participants may also choose to make after-tax contributions to the plan in amounts up to 20% of their plan compensation. Eligible employees may make a rollover contribution to the plan if accepted by the plan administrator pursuant to the terms of the plan.
Effective June 14, 1999, we agreed to match 50% of a participants elective pre-tax and after-tax contributions to the plan up to a maximum contribution of 3% of the participants plan compensation. Each participants share in our profit sharing allocation, if any, is represented by the percentage, which his or her plan compensation (up to $225,000 in 2007) bears to the total plan compensation of all participants in the profit sharing and savings plan. Salaried employees hired after December 31, 2005 are not covered by the pension plan, but are eligible for an enhanced matching program in the combined profit sharing and savings plan under which Haynes matches 60% of a participants contributions up to a maximum of 6% of the participants compensation.
Participants who elect to make elective pre-tax and/or after-tax contributions to the plan and receive our match are immediately vested in their accounts attributable to those contributions. For plan years starting before January 1, 2007, participants become 100% vested in any of our profit sharing contributions made on their behalf after completing five years of service. For plan years starting on or after January 1, 2007 participants become 100% vested in any of our profit sharing contributions made on their behalf after completing three years of service.
Participants may make withdrawals from their vested accounts while still employed under certain circumstances pursuant to the terms of the profit sharing and savings plan. Under the profit sharing portion of the plan, vested individuals account balances attributable to our contributions may be withdrawn only after the amount to be distributed has been held by the plan trustee in the account for at least 24 consecutive calendar months.
Limitation on liability and indemnification agreements
Effective August 13, 2006, Haynes agreed to indemnify Francis J. Petro, John C. Corey, Timothy J. McCarthy, Donald C. Campion, Paul J. Bohan, Ronald W. Zabel, William P. Wall and Robert H. Getz, each of whom is a member of the Board of Directors, against loss or expense arising from such individuals service to Haynes and its subsidiaries and affiliates, and to advance attorneys fees and other costs of defense to such individuals in respect of claims that may be eligible for indemnification under certain circumstances.
84
August 2004 registration rights agreement
The following is a summary of certain provisions of the registration rights agreement that we entered into in August 2004 for the benefit of stockholders who were issued shares of our common stock pursuant to our plan of reorganization. Readers are encouraged to review the complete registration rights agreement, which is included as an exhibit to the registration statement of which this prospectus is a part.
In connection with the registration rights agreement, we filed a registration statement with the Securities and Exchange Commission on May 16, 2005 and have maintained the effectiveness of such registration statement. We are permitted to suspend the right of a holder to sell pursuant to this registration statement under certain circumstances relating to pending corporate developments and similar events.
Parties to the registration rights agreement are entitled to piggyback registration rights relating to this offering, and the selling stockholders in this offering (other than our directors and officers) are exercising these rights.
We have entered into agreements to indemnify our Board of Directors in addition to the indemnification provided for in our amended and restated certificate of incorporation and by-laws. For more information regarding indemnification matters, see ManagementLimitations on liability and indemnification.
Since August 2004, we have granted options to purchase an aggregate of 980,000 shares of our common stock to our current directors and executive officers, including each of our executive officers named in the Summary Compensation Table, at a weighted-average exercise price of $14.49. For more information see ManagementStock option plan.
We have entered into a formal executive employment agreement with Francis Petro, our President and Chief Executive Officer. For more information see ManagementEmployment agreement with our President and Chief Executive Officer.
85
Principal and selling stockholders
The following table provides, as of the date of this prospectus, information regarding the beneficial ownership of the shares of our common stock by:
· each of our named executive officers and directors,
· all of our directors and executive officers as a group,
· each person known to Haynes to be the beneficial owner of more than five percent of any class of our voting securities as calculated in accordance with Rule 13d-3 under the Securities Exchange Act of 1934 and
· each other selling stockholder.
The information below assumes no exercise of the underwriters over-allotment option.
|
|
Amount
|
|
Percentage
|
|
Amount
|
|
Percentage
|
|
|
||
Named executive officers and directors(1)(2): |
|
|
|
|
|
|
|
|
|
|
|
|
Francis J. Petro |
|
138,040 |
|
|
1.4 |
% |
|
|
|
|
|
|
John C. Corey |
|
10,000 |
|
|
* |
|
|
|
|
|
|
|
Paul J. Bohan |
|
10,000 |
|
|
* |
|
|
|
|
|
|
|
Donald C. Campion |
|
10,000 |
|
|
* |
|
|
|
|
|
|
|
Robert H. Getz |
|
5,000 |
|
|
* |
|
|
|
|
|
|
|
Timothy J. McCarthy |
|
10,000 |
|
|
* |
|
|
|
|
|
|
|
William P. Wall |
|
10,000 |
|
|
* |
|
|
|
|
|
|
|
Ronald W. Zabel |
|
10,000 |
|
|
* |
|
|
|
|
|
|
|
August A. Cijan |
|
66,667 |
|
|
* |
|
|
|
|
|
|
|
James A. Laird |
|
66,667 |
|
|
* |
|
|
|
|
|
|
|
Marcel Martin |
|
66,667 |
|
|
* |
|
|
|
|
|
|
|
Gregory Spalding |
|
33,333 |
|
|
* |
|
|
|
|
|
|
|
All directors and
executive officers as a group
|
|
628,328 |
|
|
6.28 |
% |
|
|
|
|
|
|
Principal stockholders: |
|
|
|
|
|
|
|
|
|
|
|
|
JANA Partners LLC(4)
|
|
1,501,900 |
|
|
15.0 |
% |
|
|
|
|
|
|
Jefferies
Group, Inc.(5)
|
|
649,991 |
|
|
6.5 |
% |
|
|
|
|
|
|
86
Harbinger Capital
Partners Master Fund I, Ltd.(6)
|
|
2,500,000 |
|
|
25.0 |
% |
|
|
|
|
|
|
Harbinger Capital
Partners Offshore Manager, L.L.C.(7)
|
|
2,500,000 |
|
|
25.0 |
% |
|
|
|
|
|
|
HMC Investors, L.L.C.(8)
|
|
2,500,000 |
|
|
25.0 |
% |
|
|
|
|
|
|
Harbert Management
Corporation(9)
|
|
2,800,000 |
|
|
28.0 |
% |
|
|
|
|
|
|
Philip Falcone(10)
|
|
2,800,000 |
|
|
28.0 |
% |
|
|
|
|
|
|
Raymond J. Harbert(11)
|
|
2,800,000 |
|
|
28.0 |
% |
|
|
|
|
|
|
Michael D. Luce(12)
|
|
2,800,000 |
|
|
28.0 |
% |
|
|
|
|
|
|
Other selling stockholders(1)(13): |
|
|
|
|
|
|
|
|
|
|
|
|
Charles J. Sponaugle, Vice President Business Planning |
|
33,623 |
|
|
* |
|
|
|
|
|
|
|
Jean C. Neel, Vice President Corporate Affairs |
|
33,333 |
|
|
* |
|
|
|
|
|
|
|
Michael Douglas, Vice President Tubular Products |
|
16,666 |
|
|
* |
|
|
|
|
|
|
|
Scott Pinkham, Vice President Manufacturing Planning |
|
33,333 |
|
|
* |
|
|
|
|
|
|
|
Jeff Young, Vice President & Chief Information Officer |
|
33,333 |
|
|
* |
|
|
|
|
|
|
|
Daniel E. Maudlin, Controller and Chief Accounting Officer |
|
33,333 |
|
|
* |
|
|
|
|
|
|
|
87
* Represents beneficial ownership of less than one percent of the outstanding common stock.
(1) The business address of each person indicated is c/o Haynes International, Inc., 1020 West Park Avenue, Kokomo, Indiana 46904-9013.
(2) Shares beneficially owned before this offering include shares issuable pursuant to options exercisable within 60 days after the date of this prospectus as follows: for Mr. Petro, options to purchase 133,333 shares; for Mr. Corey, options to purchase 10,000 shares; for Mr. Bohan, options to purchase 10,000 shares; for Mr. Campion, options to purchase 10,000 shares; for Mr. Getz, options to purchase 5,000 shares; for Mr. McCarthy, options to purchase 10,000 shares; for Mr. Wall, options to purchase 10,000 shares; for Mr. Zabel, options to purchase 10,000 shares; for Mr. Cijan, options to purchase 66,666 shares; for Mr. Laird, options to purchase 66,666 shares; for Mr. Martin, options to purchase 66,666 shares; and for Mr. Spalding, options to purchase 33,333 shares.
(3) Includes shares subject to options exercisable within 60 days of the date of this prospectus.
(4) Based solely upon Form 13F filed with the Securities and Exchange Commission on November 14, 2006. JANA Partners LLC, a Delaware limited liability company, is a private money management firm which holds our common stock in various accounts under its management and control. The principals of JANA Partners LLC are Barry Rosenstein and Gary Claar.
(5) Based solely upon Schedule 13G filed with the Securities and Exchange Commission on October 27, 2006.
(6) Based solely upon Schedule 13D filed with the Securities and Exchange Commission on August 4, 2006. Harbinger Capital Partners Master Fund I, Ltd. (the Master Fund) may be deemed to be the beneficial owner of 2,500,000 shares, constituting 25.0% of our shares, based upon 10,000,000 shares outstanding. The Master Fund has the sole power to vote or direct the vote of 0 shares; has the shared power to vote or direct the vote of 2,500,000 shares; has the sole power to dispose or direct the disposition of 0 shares; and has shared power to dispose or direct the disposition of 2,500,000 shares.
(7) Based solely upon Schedule 13D filed with the Securities and Exchange Commission on August 4, 2006. Harbinger Capital Partners Offshore Manager, L.L.C. (Harbinger Management) is the investment manager of the Master Fund. Harbinger Management may be deemed to be the beneficial owner of 2,500,000 shares, constituting 25.0% of our shares, based upon 10,000,000 shares outstanding. Harbinger Management has the sole power to vote or direct the vote of 0 shares; has the shared power to vote or direct the vote of 2,500,000 shares; has sole power to dispose or direct the disposition of 0 shares; and has shared power to dispose or direct the disposition of 2,500,000 shares. Harbinger Management specifically disclaims beneficial ownership in the shares reported herein except to the extent of its pecuniary interest therein.
(8) Based solely upon Schedule 13D filed with the Securities and Exchange Commission on August 4, 2006. HMC Investors, L.L.C. (HMC Investors) is the managing member of the Master Fund. HMC Investors may be deemed to be the beneficial owner of 2,500,000 shares, constituting 25.0% of our shares, based upon 10,000,000 shares outstanding. HMC Investors has the sole power to vote or direct the vote of 0 shares; has the shared power to vote or direct the vote of 2,500,000 shares; has sole power to dispose or direct the disposition of 0 shares; and has shared power to dispose or direct the disposition of 2,500,000 shares. HMC Investors specifically disclaims beneficial ownership in the shares reported herein except to the extent of its pecuniary interest therein.
(9) Based solely upon Schedule 13D filed with the Securities and Exchange Commission on August 4, 2006. Harbert Management Corporation (HMC) is the managing member of HMC Investors. HMC may be deemed to be the beneficial owner of 2,800,000 shares, constituting 28.0% of our shares, based upon 10,000,000 shares outstanding. HMC has the sole power to vote or direct the vote of 0 shares; has the shared power to vote or direct the vote of 2,800,000 shares; has sole power to dispose or direct the disposition of 0 shares; and has shared power to dispose or direct the disposition of 2,800,000 shares. HMC specifically disclaims beneficial ownership in the shares reported herein except to the extent of its pecuniary interest therein.
(10) Based solely upon Schedule 13D filed with the Securities and Exchange Commission on August 4, 2006. Philip Falcone is a shareholder of HMC and the portfolio manager of the Master Fund and the Harbinger Capital Partners Special Situations Fund, L.P. (Special Situations Fund). Mr. Falcone may be deemed to be the beneficial owner of 2,800,000 shares, constituting 28.0% of our shares, based upon 10,000,000 shares outstanding. Mr. Falcone has the sole power to vote or direct the vote of 0 shares; has the shared power to vote or direct the vote of 2,800,000 shares; has sole power to dispose or direct the disposition of 0 shares; and has shared power to dispose or direct the disposition of 2,800,000 shares. Mr. Falcone specifically disclaims beneficial ownership in the shares reported herein except to the extent of his pecuniary interest therein.
(11) Based solely upon Schedule 13D filed with the Securities and Exchange Commission on August 4, 2006. Raymond J. Harbert is a shareholder of HMC. Mr. Harbert may be deemed to be the beneficial owner of 2,800,000 shares, constituting 28.0% of our shares, based upon 10,000,000 shares outstanding. Mr. Harbert has the sole power to vote or direct the vote of 0 shares; has the shared power to vote or direct the vote of 2,800,000 shares; has sole power to dispose or direct the disposition of 0 shares; and has shared power to dispose or direct the disposition of 2,800,000 shares. Mr. Harbert specifically disclaims beneficial ownership in the shares reported herein except to the extent of his pecuniary interest therein.
(12) Based solely upon Schedule 13D filed with the Securities and Exchange Commission on August 4, 2006. Michael D. Luce is a shareholder of HMC. Mr. Luce may be deemed to be the beneficial owner of 2,800,000 shares, constituting 28.0% of our shares, based upon 10,000,000 shares outstanding. Mr. Luce has the sole power to vote or direct the vote of 0 shares; has the shared power to vote or direct the vote of 2,800,000 shares; has sole power to dispose or direct the disposition of 0 shares; and has shared power to dispose or direct the disposition of 2,800,000 shares. Mr. Luce specifically disclaims beneficial ownership in the shares reported herein except to the extent of his pecuniary interest therein.
(13) Shares beneficially owned before this offering include shares issuable pursuant to options exercisable within 60 days after the date of this prospectus as follows: for Messrs. Sponaugle, Pinkham, Young and Maudlin and Ms. Neel, options to purchase 33,333 shares; for Mr. Douglas, options to purchase 16,666 shares; and for Mr. Losch, options to purchase 8,333 shares.
88
The following information describes our common stock and preferred stock and certain provisions of our second restated certificate of incorporation and by-laws. This description is a summary. You can obtain more information about our capital stock by reviewing our by-laws and certificate of incorporation, which were filed as exhibits to the registration statement of which this prospectus forms a part.
Our authorized capital stock consists of 20.0 million shares of common stock, par value $0.001 per share, and 20.0 million shares of preferred stock, par value $0.001 per share. At our annual meeting of stockholders to be held on February 20, 2007, our stockholders will vote upon a proposal to increase the number of authorized shares of common stock to 40.0 million.
As of the date of this prospectus, 10.0 million shares of our common stock were issued and outstanding. After giving effect to the sale of common stock offered by us in this offering, there will be 11.3 million shares of common stock outstanding, or 11.45 million shares if the underwriters exercise their over-allotment option in full. For more information see Underwriting.
The holders of shares of our common stock are entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders. Our common stockholders have no preemptive, redemption, cumulative voting or conversion rights. Our common stockholders are entitled to receive dividends out of funds legally available for distribution when and if declared by our Board of Directors, in its sole discretion. For more information see Dividend policy.
The holders of shares of our common stock shall share ratably in our assets legally available for distribution to our stockholders in the event of our liquidation, dissolution or winding up, after the payment in full of all debts and distributions and after the holders of all series of outstanding preferred stock have received their liquidation preferences in full.
The transfer agent and registrar for the shares of our common stock is Wells Fargo Bank, N.A. located at 161 North Concord Exchange South, St. Paul, Minnesota 55075 and can be contacted by telephone at (651) 552-6948.
As of the date of this prospectus, there are no shares of preferred stock issued and outstanding, and, except in connection with the preferred share purchase rights described below, we have no current plans to issue any shares of our preferred stock. It is not possible to state the actual effect of the issuance of any shares of our preferred stock not currently authorized on the rights of holders of shares of our common stock until the Board of Directors determines the specific rights attached to the shares of any such class of preferred stock. The effects of an issuance by us of preferred stock not currently authorized could include one or more of the following: restricting dividends on shares of our common stock, diluting the voting power of shares of our common stock, impairing the liquidation rights of shares of our common stock, or delaying or preventing a change of control.
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Our Board of Directors has the authority under our certificate of incorporation, without action by stockholders, to classify or reclassify any unissued shares of our preferred stock from time to time by setting or changing the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications or terms or conditions of redemption of the shares of such preferred stock.
Preferred share purchase rights
On August 13, 2006, Haynes entered into a Rights Agreement with Wells Fargo Bank, N.A., as rights agent. In connection with the adoption of the Rights Agreement, the Board of Directors of Haynes declared a dividend of one preferred share purchase right for each outstanding share of our common stock, par value $.001 per share. The dividend was payable on August 25, 2006 to stockholders of record as of the close of business on such date. In addition, one preferred share purchase right automatically attached to each share of common stock issued between August 25, 2006 and the date on which the rights become exercisable. Once exercisable, each preferred share purchase right will allow its holder to purchase from Haynes one one-thousandth of a share of Series A Junior Participating Preferred Stock, par value $0.001 per share, for $135.00, subject to adjustment under certain conditions.
The preferred share purchase rights have certain anti-takeover effects. The preferred share purchase rights will cause substantial dilution to a person or group who attempts to acquire Haynes on terms not approved by the Board, except pursuant to an offer conditioned on a substantial number of preferred share purchase rights being acquired. The preferred share purchase rights should not interfere with any merger or other business combination approved by the Board prior to any person or group becoming an Acquiring Person since the Board may redeem the preferred share purchase rights at $0.01 per Right at any time until the date on which a person or group has become an Acquiring Person.
The preferred share purchase rights will not be exercisable until:
· 10 days after the public announcement that a person or group has (subject to certain exceptions) become an Acquiring Person by obtaining beneficial ownership of 15% or more of our outstanding common stock (or with respect to any person or group beneficially owning 15% or more of the outstanding common stock at the time of adoption of the Rights Agreement or at any time thereafter and prior to the first public announcement of the adoption of the Rights Agreement, by acquiring beneficial ownership of any additional shares of common stock after the first public announcement of the adoption of the Rights Agreement if after giving effect to such acquisition such person or group owns 15% or more of the outstanding common stock); or
· 10 business days (or a later date determined by the Board before any person or group becomes an Acquiring Person) after a person or group begins a tender or exchange offer which, if completed, would result in that person or group becoming an Acquiring Person.
The date when the preferred share purchase rights become exercisable is referred to as the Distribution Date. Until that date, the common stock certificates will also evidence the preferred share purchase rights, any transfer of shares of common stock will constitute a transfer of preferred share purchase rights, and new common stock certificates issued after the record date will contain a notation referencing the Rights Agreement. After the Distribution Date, the
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preferred share purchase rights will separate from the common stock and be evidenced by preferred share purchase rights certificates that Haynes will mail to all eligible holders of common stock. Any preferred share purchase rights held by an Acquiring Person will be void and may not be exercised.
If a person or group becomes an Acquiring Person, all holders of preferred share purchase rights (except the Acquiring Person) may exercise the rights and purchase for the $135.00 purchase price shares of common stock with a market value of two times $135.00, based on the market price of the common stock prior to such acquisition. In the event Haynes does not have a sufficient number of common shares available, Haynes may under certain circumstances substitute preferred shares for the common shares into which the preferred share purchase rights would have otherwise been exercisable.
If we are acquired in a merger or similar transaction after an Acquiring Person becomes such, all holders of preferred share purchase rights (except the Acquiring Person) may exercise the rights and purchase shares of the acquiring company, for $135.00, with a market value of two times $135.00, based on the market price of the acquiring companys stock prior to such merger.
Each share of Series A Junior Participating Preferred Stock, if issued:
· will not be redeemable;
· will entitle holders to quarterly dividend payments of $10.00, or an amount equal to 1,000 times the dividend paid on one share of common stock, whichever is greater;
· will entitle holders upon liquidation either to receive $1,000.00 or an amount equal to 1,000 times the payment made on one share of common stock, whichever is greater;
· will have 1,000 votes and vote together with the common stock, except as required by law; and
· if shares of common stock are exchanged via merger, consolidation, or a similar transaction, will entitle holders to 1,000 times the payment made on one share of common stock.
Because of the nature of the dividend, liquidation and voting rights of the Series A Junior Participating Preferred Stock, the value of one one-thousandth interest in a Series A Junior Participating Preferred Stock should approximate the value of one share of common stock.
The Board may redeem the preferred share purchase rights, in whole but not in part, for $.01 per preferred share purchase right at any time before any person or group becomes an Acquiring Person. If the Board redeems any preferred share purchase rights, it must redeem all of the preferred share purchase rights. Once the preferred share purchase rights are redeemed, the only right of the holders of preferred share purchase rights will be to receive the redemption price of $.01 per preferred share purchase rights. The redemption price will be adjusted if in the event of a stock split or stock dividends of the common stock.
After a person or group becomes an Acquiring Person, but before an Acquiring Person owns 50% or more of the outstanding common stock, the Board may extinguish the preferred share purchase rights by exchanging one share of common stock or an equivalent security for each preferred share purchase rights, other than preferred share purchase rights held by the Acquiring Person.
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The preferred share purchase rights will expire at 5:00 P.M., Minneapolis, Minnesota time, on the earlier of (a) August 13, 2016 or (b) the thirtieth (30th) day following the date of the 2007 Annual Meeting of Stockholders of Haynes if at such meeting the stockholders, by the affirmative vote of a majority of stockholders present, in person or by proxy, and entitled to vote on such matter, vote to terminate the Rights Agreement. The Board may amend the Rights Agreement at any time, including to shorten or lengthen any time period; provided, that, the Rights Agreement may not be amended in any manner which would negatively affect the holders of preferred share purchase rights at any time after a person or group becomes an Acquiring Person. The preferred share purchase rights may be redeemed or exchanged prior to the expiration date by the Board.
At our annual meeting of stockholders to be held on February 20, 2007, our stockholders will vote upon a proposal to ratify and continue the Rights Agreement.
Indemnification of directors and officers
We are a corporation organized under the laws of the State of Delaware. Section 145 of the Delaware General Corporation Law (the DGCL) permits a Delaware corporation to 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 or she 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 or enterprise. A corporation may indemnify against expenses (including attorneys fees), judgments, fines and amounts paid in settlement actually and reasonably incurred in connection with such action, suit or proceeding if the person indemnified acted in good faith and in a manner he or she 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 no reasonable cause to believe his or her conduct was unlawful. In the case of an action or suit by or in the right of the corporation to procure a judgment in its favor, no indemnification may be made in respect to 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 of the State of Delaware, or the court in which such action or suit was brought, shall determine upon application that, despite the adjudication of liability, such person is fairly and reasonably entitled to indemnity for such expenses which the court shall deem proper. Section 145 provides that, to the extent a present or former director or officer of a corporation has been successful in the defense of any action, suit or proceeding referred to above or in the defense of any claim, issue or matter therein, he or she shall be indemnified against expenses (including attorneys fees) actually and reasonably incurred by him or her in connection therewith.
Pursuant to authority conferred by Delaware law, our certificate of incorporation contains provisions providing that no director shall be liable to us or our stockholders for monetary damages for breach of fiduciary duty as a director, except to the extent that such exemption from liability or limitation thereof is not permitted under Delaware law as then in effect or as it may be amended. This provision is intended to eliminate the risk that a director might incur personal liability to us or our stockholders for breach of the duty of care.
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Our certificate of incorporation and by-laws contain provisions requiring us to indemnify and advance expenses to our directors and officers to the fullest extent permitted by law. Among other things, these provisions generally provide indemnification for our directors and officers against liabilities for judgments in and settlements of lawsuits and other proceedings and for the advancement and payment of fees and expenses reasonably incurred by the director or officer in defense of any such lawsuit or proceeding if the director or officer acted in good faith and in a manner he or she reasonably believed to be in or not opposed to our best interests, and in certain cases only if the director or officer is not adjudged to be liable to us.
Delaware anti-takeover law and certain charter and by-law provisions
We are subject to Section 203 of the DGCL, an anti-takeover law. In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a business combination with an interested stockholder for a period of three years following the date that the person became an interested stockholder, unless the business combination or the transaction in which the person became an interested stockholder is approved in a prescribed manner. Generally, a business combination includes a merger, asset or stock sale or other transaction resulting in a financial benefit to the interested stockholder. Generally, an interested stockholder is a person who, together with affiliates and associates, owns or, within three years prior to the determination of interested stockholder status, did own 15% or more of a corporations voting stock. The existence of this provision may have an anti-takeover effect with respect to transactions not approved in advance by our Board of Directors, including discouraging attempts that might result in a premium over the market price for the shares of common stock held by stockholders.
Our certificate of incorporation and by-laws provide that vacancies on our Board of Directors during the interim between our annual stockholder meetings or special meetings of our stockholders called for the election of directors may be filled by a vote of a majority of the directors then in office. Furthermore, any director may be removed only for cause by a vote of a majority of the voting power of the shares of our common stock entitled to vote for the election of directors. These provisions of our certificate of incorporation and by-laws could make it more difficult for a third party to acquire, or discourage a third party from attempting to acquire, control of us and therefore may limit the price that certain investors might be willing to pay in the future for shares of our common stock.
Our certificate of incorporation and by-laws do not permit action by our stockholders by written consent. These provisions could have the effect of delaying stockholder actions that are favored by the holders of a majority of our outstanding voting securities until the next annual stockholders meeting, particularly because special meetings of the stockholders may only be called by a resolution adopted by a majority of the Board of Directors, the Chairman of the Board of Directors or the President of Haynes. The ability of the stockholders to call a special meeting of the stockholders is specifically denied. These provisions may also discourage another person or entity from making a tender offer for our stock, because such person or entity, even if it acquired a majority of our outstanding voting securities, would be able to take action as a stockholder (such as election of new directors or approving a merger) only at a duly called stockholders meeting.
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Shares eligible for future sale
Prior to this offering, our common stock was not listed on any national securities exchange and was not actively traded. Future sales of substantial amounts of our common stock in the public market could adversely affect market prices prevailing from time to time. Upon completion of this offering, we will have shares of common stock outstanding, assuming the exercise of the underwriters over-allotment option and no exercise of any options and warrants outstanding. Of these shares, shares, or shares if the underwriters exercise their over-allotment option in full, will be freely transferable without restriction or registration under the Securities Act. The remaining shares of common stock existing are restricted shares as defined in Rule 144. Restricted shares may be sold in the public market only if registered or if they qualify for an exemption from registration under Securities Act.
In general, under Rule 144 as currently in effect, a person, or persons whose shares are aggregated, who owns shares that were purchased from us, or any affiliate, at least one year previously, is entitled to sell within any three-month period a number of shares that does not exceed the greater of 1% of our then-outstanding shares of common stock, or the average weekly trading volume of our common stock during the four calendar weeks preceding the filing of a notice of the sale on Form 144. Sales under Rule 144 are also subject to manner of sale provisions, notice requirements and the availability of current public information about us. We are unable to estimate the number of shares that will be sold under Rule 144 since this will depend on the market price for our common stock, the personal circumstances of the stockholder and other factors.
Under Rule 144(k), a person who is not deemed to have been one of our affiliates at any time during the three months preceding a sale, and who owns shares within the definition of restricted securities under Rule 144 that were purchased from us, or any affiliate, at least two years previously, would be entitled to sell shares under Rule 144(k) without regard to these volume limitations, manner of sale provisions, public information requirements or notice requirements.
Upon completion of this offering, the holders of shares of common stock will be entitled to various rights with respect to the registration of these shares under the Securities Act. See Certain transactions. Registration of these shares under the Securities Act would result in these shares becoming freely tradable without restriction under the Securities Act immediately upon the effectiveness of the registration, except for shares purchased by affiliates.
As of January 23, 2007, options to purchase a total of 980,000 shares of common stock were outstanding. An additional 520,000 shares of common stock were available for future option grants under our stock option plans.
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Our executive officers and directors and the selling stockholders who will hold an aggregate of approximately shares of our common stock after completion of this offering (assuming no exercise of the underwriters over-allotment option), have agreed, subject to limited exceptions, not to offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, shares of common stock for a period of 90 days after the date of this prospectus, without the prior written consent of J.P. Morgan Securities Inc. For further information, see Underwriting.
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We and the selling stockholders are offering the shares of common stock described in this prospectus through a number of underwriters. J.P. Morgan Securities Inc. is acting as sole book-running manager and representative of the underwriters for this offering. We and the selling stockholders have entered into an underwriting agreement with the underwriters. Subject to the terms and conditions of the underwriting agreement, we and each selling stockholder have severally agreed to sell to each underwriter, and each underwriter has severally agreed to purchase, at the public offering price less the underwriting discounts and commissions set forth on the cover page of this prospectus, the number of shares of our common stock listed next to such underwriters name in the following table:
Name |
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Number of shares |
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J.P. Morgan Securities Inc. |
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Bear, Stearns & Co. Inc. |
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KeyBanc Capital Markets, a division of McDonald Investments Inc. |
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||
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||
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|
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||
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|
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|
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||
|
|
|
|
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Total |
|
|
2,000,000 |
|
||
The underwriters are committed to purchase all the shares of common stock offered by us and the selling stockholders if they purchase any shares. The underwriting agreement also provides that if an underwriter defaults, the purchase commitments of non-defaulting underwriters may be increased or the offering may be terminated.
The underwriters propose to offer the shares of common stock directly to the public at the public offering price set forth on the cover page of this prospectus and to certain dealers at that price less a concession not in excess of $ per share. Any such dealers may resell shares to certain other brokers or dealers at a discount of up to $ per share from the public offering price. After the public offering of the shares, the offering price and other selling terms may be changed by the underwriters. Sales of shares made outside of the United States may be made by affiliates of the underwriters. The representative has advised us that the underwriters do not intend to confirm discretionary sales in excess of 5% of the common shares offered in this offering.
The underwriters have an option to buy up to 300,000 additional shares of our common stock from the selling stockholders to cover sales of shares by the underwriters that exceed the number of shares specified in the table above. The underwriters have 30 days from the date of this prospectus to exercise this over-allotment option. If any shares are purchased with this over-allotment option, the underwriters will purchase shares in approximately the same proportion as shown in the table above. If any additional shares of our common stock are purchased, the underwriters will offer the additional shares on the same terms as those on which the shares are being offered.
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The underwriting fee is equal to the public offering price per share of common stock less the amount paid by the underwriters per share of common stock. The underwriting fee is $ per share. The following table shows the per share and total underwriting discounts and commissions to be paid to the underwriters assuming both no exercise and full exercise of the underwriters option to purchase additional shares.
|
|
Without over-allotment
|
|
With full over-allotment
|
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||
Per share |
|
$ |
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|
$ |
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Total |
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$ |
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|
$ |
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We estimate that the total expenses of this offering, including registration, filing and listing fees, printing fees and legal and accounting expenses, but excluding the underwriting discounts and commissions, will be approximately $ , $ of which will be paid by us and $ of which will be paid by the selling stockholders.
A prospectus and accompanying prospectus in electronic format may be made available on the websites maintained by one or more underwriters, or selling group members, if any, participating in this offering. The underwriters may agree to allocate a number of shares to underwriters and selling group members for sale to their online brokerage account holders. Internet distributions will be allocated by the representative to underwriters and selling group members that may make internet distributions on the same basis as other allocations.
We have agreed that we will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, or file with the Securities and Exchange Commission a registration statement relating to, any shares of our common stock or securities convertible into or exchangeable or exercisable for any shares of our common stock, or publicly disclose the intention to make any offer, sale, pledge, disposition or filing, without the prior written consent of J.P. Morgan Securities Inc. for a period of 90 days after the date of this prospectus. In addition, our directors, our executive officers and the selling stockholders entered into lock-up agreements with the underwriters prior to the commencement of this offering pursuant to which each of these persons, with limited exceptions, for the same 90-day restricted period, may not, without the prior written consent of J.P. Morgan Securities Inc.:
· offer, pledge, announce the intention to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any shares of our common stock (including, without limitation, common stock which may be deemed to be beneficially owned by any such person in accordance with the rules and regulations of the Securities and Exchange Commission and securities which may be issued upon exercise of a stock option or warrant) or
· enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of the common stock,
whether any such transaction described above is to be settled by delivery of common stock or such other securities, in cash or otherwise.
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The 90-day restricted period described above is subject to extension under certain circumstances. If:
· during the last 17 days of the 90-day restricted period, we issue an earnings release or material news or a material event relating to our company occurs or
· prior to the expiration of the 90-day restricted period, we announce that we will release earnings results during the 16-day period beginning on the last day of the 90-day period,
the restrictions described above shall continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event.
We and the selling stockholders, jointly and severally, have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act of 1933.
We have applied to list our common stock on The NASDAQ Global Market under the symbol HAYN.
In connection with this offering, the underwriters may engage in stabilizing transactions, which involves making bids for, purchasing and selling shares of common stock in the open market for the purpose of preventing or retarding a decline in the market price of the common stock while this offering is in progress. These stabilizing transactions may include making short sales of the common stock, which involves the sale by the underwriters of a greater number of shares of common stock than they are required to purchase in this offering, and purchasing shares of common stock on the open market to cover positions created by short sales. Short sales may be covered shorts, which are short positions in an amount not greater than the underwriters over-allotment option referred to above, or may be naked shorts, which are short positions in excess of that amount. The underwriters may close out any covered short position either by exercising their over-allotment option, in whole or in part, or by purchasing shares in the open market. In making this determination, the underwriters will consider, among other things, the price of shares available for purchase in the open market compared to the price at which the underwriters may purchase shares through the over-allotment option. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the common stock in the open market that could adversely affect investors who purchase in this offering. To the extent that the underwriters create a naked short position, they will purchase shares in the open market to cover the position.
The underwriters have advised us that, pursuant to Regulation M promulgated by the Securities and Exchange Commission, they may also engage in other activities that stabilize, maintain or otherwise affect the price of the common stock, including the imposition of penalty bids. This means that if the representative of the underwriters purchases common stock in the open market in stabilizing transactions or to cover short sales, the representative can require the underwriters that sold those shares as part of this offering to repay the underwriting discount received by them.
These activities may have the effect of raising or maintaining the market price of the common stock or preventing or retarding a decline in the market price of the common stock, and, as a result, the price of the common stock may be higher than the price that otherwise might exist in the open market. If the underwriters commence these activities, they may discontinue them at
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any time. The underwriters may carry out these transactions on The NASDAQ Global Market, in the over-the-counter market or otherwise.
Determination of offering price
Prior to this offering, our common stock was not listed on any national securities exchange, and was quoted in the pink sheets under the symbol HYNI.PK. The initial public offering price of the common stock being offered by this prospectus will be determined by negotiation by us, the selling stockholders and the representative of the underwriters. In determining the initial public offering price, we, the selling stockholders and the representative of the underwriters expect to consider a number of factors including:
· the information set forth in this prospectus and otherwise available to the representative;
· our prospects and the history and prospects for the industry in which we compete;
· an assessment of our management;
· our prospects for future earnings;
· the general condition of the securities markets at the time of this offering;
· the recent market prices of, and demand for, publicly traded common stock of generally comparable companies;
· the historical trading prices of our common stock in the pink sheets, which may not be indicative of prices that will prevail in the trading market for our common stock on The NASDAQ Global Market; and
· other factors deemed relevant by the representative, us and the selling stockholders.
Neither we nor the underwriters can assure investors that an active trading market will develop for our common stock, or that the shares will trade in the public market at or above the initial public offering price.
Certain of the underwriters and their affiliates have provided in the past to us and our affiliates and may provide from time to time in the future certain commercial banking, financial advisory, investment banking and other services for us and such affiliates in the ordinary course of their business, for which they have received and may continue to receive customary fees and commissions. In addition, from time to time, certain of the underwriters and their affiliates may effect transactions for their own account or the account of customers, and hold on behalf of themselves or their customers, long or short positions in our debt or equity securities or loans, and may do so in the future.
An affiliate of J.P. Morgan Securities Inc. is a lender under the U.S. revolving credit facility that we intend to repay with our net proceeds from this offering. As a result, because more than 10% of the net proceeds of this offering may be received by the underwriters or their affiliates, this offering is being conducted in compliance with Rule 2710(h) of the Conduct Rules of the National Association of Securities Dealers, Inc. Rule 2710(h) requires that the price at which an equity issue is to be distributed to the public be established at a price no higher than that recommended by a qualified independent underwriter, as defined by the National Association of Securities
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Dealers. Bear, Stearns & Co. Inc. is serving in that capacity and has performed due diligence investigations and reviewed and participated in the preparation of the registration statement of which this prospectus forms a part. We have agreed to indemnify Bear, Stearns & Co. Inc. in its capacity as a qualified independent underwriter, and its controlling persons, against certain liabilities, including certain liabilities under the Securities Act of 1933.
Certain sales outside the United States
Each underwriter has agreed that (i) it has only communicated or caused to be communicated and will only communicate or cause to be communicated any invitation or inducement to engage in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act 2000 (the FSMA)) received by it in connection with the issue or sale of any of our common stock in circumstances in which Section 21(1) of the FSMA does not apply to us and (ii) it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the shares in, from or otherwise involving the United Kingdom.
In relation to each Member State of the European Economic Area (the European Union, Iceland, Norway and Liechtenstein) which has implemented the Prospectus Directive (each, a Relevant Member State), each underwriter has agreed that with effect from and including the date on which the European Union Prospectus Directive (the EU Prospectus Directive) is implemented in that Relevant Member State (the Relevant Implementation Date) it has not made and will not make an offer of our common stock to the public in that Relevant Member State prior to the publication of a prospectus in relation to our common stock which has been approved by the competent authority in that Relevant Member State or, where appropriate, approved in another Relevant Member State and notified to the competent authority in that Relevant Member State, all in accordance with the EU Prospectus Directive, except that it may, with effect from and including the Relevant Implementation Date, make an offer of our common stock to the public in that Relevant Member State at any time:
· to legal entities which are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities;
· to any legal entity which has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than 43,000,000 and (3) an annual net turnover of more than 50,000,000, as shown in its last annual or consolidated accounts; or
· in any other circumstances which do not require the publication by us of a prospectus pursuant to Article 3 of the Prospectus Directive.
For the purposes of this provision, the expression an offer of our common stock to the public in relation to any shares of our common stock in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the shares of our common stock to be offered so as to enable an investor to decide to purchase or subscribe the shares of our common stock, as the same may be varied in that Member State by any measure implementing the EU Prospectus Directive in that Member State and the expression EU Prospectus Directive means Directive 2003/71/EC and includes any relevant implementing measure in each Relevant Member State.
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The validity of the shares of common stock being offered hereby and certain other matters are being passed upon for us by Ice Miller LLP, Indianapolis, Indiana. Certain legal matters relating to the offering are being passed upon for the underwriters by Davis Polk & Wardwell, New York, New York.
The consolidated financial statements as of September 30, 2006 and 2005, and for the fiscal years ended September 30, 2006 and September 30, 2005, the period September 1, 2004 (inception) to September 30, 2004 (collectively, successor Haynes International, Inc.), the period October 1, 2003 to August 31, 2004, and the fiscal year ended September 30, 2003 (collectively, predecessor Haynes International, Inc.) and managements report on the effectiveness of internal control over financial reporting as of September 30, 2006 included in this prospectus, have been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their reports appearing herein (which reports (1) express an unqualified opinion on the consolidated financial statements and includes an explanatory paragraph referring to our application of AICPA Statement of Position 90-7, Financial Reporting by Entities in Reorganization under the Bankruptcy Code , and an explanatory paragraph regarding our change of accounting for share-based payments as required by Statement of Financial Accounting Standards No. 123 (R), Share-Based Payment, (2) express an unqualified opinion on managements assessment regarding the effectiveness of internal control over financial reporting, and (3) express an unqualified opinion on the effectiveness of internal control over financial reporting), and have been so included in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing.
Where you can find more information
Haynes has filed with the Securities and Exchange Commission a registration statement on Form S-1 under the Securities Act of 1933 with respect to the shares of common stock offered hereby. This prospectus does not contain all of the information set forth in the registration statement and the exhibits and schedules filed therewith. For further information with respect to Haynes and the common stock offered hereby, please refer to the registration statement. You may read and copy any document Haynes files, including the registration statement, at the SECs public reference rooms at 100 F Street, N.E., Room 1850, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. You may also obtain copies of the registration statement by mail from the Public Reference Section of the SEC, 100 F Street, N.E., Room 1850, Washington, D.C. 20549, at prescribed rates. The SEC also maintains an Internet World Wide Web site that contains reports, information statements and other information about issuers, including Haynes, who file electronically with the SEC. The address of that site is http://www.sec.gov.
We also maintain a website at http://www.haynesintl.com, at which you may access these materials free of charge as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. The information contained in, or that can be accessed through, our website is not part of this prospectus.
101
Haynes International, Inc.
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Audited Consolidated Financial Statements of Haynes International, Inc. (Haynessuccessor) as of September 30, 2006 and 2005 and for the years ended September 30, 2006 and September 30, 2005 and for the period September 1, 2004 to September 30, 2004 and Haynes International, Inc. (Haynespredecessor) for the period October 1, 2003 to August 31, 2004 |
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F-2 |
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F-4 |
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F-5 |
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F-6 |
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Consolidated statements of stockholders equity (deficiency) |
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F-7 |
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F-8 |
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F-9 |
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F-1
Report of independent registered public
accounting
firm
To The Board of Directors and Stockholders of
Haynes International, Inc.
We have audited the accompanying consolidated balance sheets of Haynes International, Inc. and subsidiaries (Haynessuccessor) as of September 30, 2005 and 2006, and the related consolidated statements of operations, comprehensive income (loss), stockholders equity and cash flows for the period September 1, 2004 (inception) to September 30, 2004 and for the years ended September 30, 2005 and 2006. We have also audited the Haynes International, Inc. and subsidiaries (Haynespredecessor) consolidated statements of operations, comprehensive income (loss), stockholders equity (deficiency) and cash flows for the period October 1, 2003 to August 31, 2004. These financial statements are the responsibility of management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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.
As discussed in Note 1 to the consolidated financial statements, on August 16, 2004, the bankruptcy court entered an order confirming the plan of reorganization of Haynespredecessor which became effective after the close of business on August 31, 2004. Accordingly, the accompanying consolidated balance sheets as of September 30, 2005 and 2006 and the related consolidated statements of operations, comprehensive income (loss), stockholders equity and cash flows of Haynessuccessor for the period September 1, 2004 (inception) to September 30, 2004 and for the years ended September 30, 2005 and 2006, have been prepared in conformity with AICPA Statement of Position 90-7, Financial Reporting by Entities in Reorganization under the Bankruptcy Code , as a new entity with assets, liabilities and capital structure having carrying values not comparable with prior periods.
In our opinion, the consolidated financial statements referred to above of Haynessuccessor present fairly, in all material respects, the financial position of Haynessuccessor as of September 30, 2005 and 2006, and the results of their operations and their cash flows for the period September 1, 2004 (inception) to September 30, 2004 and for the years ended September 30, 2005 and 2006, in conformity with accounting principles generally accepted in the United States of America. Further, in our opinion, the consolidated financial statements referred to above for Haynespredecessor present fairly, in all material respects, the results of their operations and their cash flows for the period October 1, 2003 to August 31, 2004 in conformity with accounting principles generally accepted in the United States of America.
As discussed in Note 2 to the consolidated financial statements, effective October 1, 2005, Haynessuccessor changed its method of accounting for share-based payments as required by Statement of Financial Accounting Standards No. 123(R), Share-Based Payment .
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Companys internal control over financial reporting as of September 30, 2006, based on the criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated December 7, 2006 expressed an unqualified opinion on managements assessment of the effectiveness of the Companys internal control over financial reporting and an unqualified opinion on the effectiveness of the Companys internal control over financial reporting.
/s/ DELOITTE & TOUCHE LLP
Indianapolis, Indiana
December 7, 2006
F- 2
Attestation report of independent registered public accounting firm
To the Board of Directors and Stockholders of
Haynes International, Inc.
We have audited managements assessment, included in the accompanying Managements Annual Report on Internal Control Over Financial Reporting, that Haynes International, Inc. and subsidiaries (the Company) maintained effective internal control over financial reporting as of September 30, 2006, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Companys management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on managements assessment and an opinion on the effectiveness of the Companys internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating managements assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.
A companys internal control over financial reporting is a process designed by, or under the supervision of, the companys principal executive and principal financial officers, or persons performing similar functions, and effected by the companys board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A companys internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, managements assessment that the Company maintained effective internal control over financial reporting as of September 30, 2006, is fairly stated, in all material respects, based on the criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2006, based on the criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended September 30, 2006 of the Company and our report dated December 7, 2006 expressed an unqualified opinion on those financial statements and included an explanatory paragraph regarding the Companys change of accounting for share-based payments as required by Statement of Financial Accounting Standards No. 123(R), Share-Based Payment .
/s/ DELOITTE & TOUCHE LLP
Indianapolis, Indiana
December 7, 2006
F-3
Haynes International, Inc. and
subsidiaries
consolidated balance sheet
At September 30,
|
|
2005 |
|
2006 |
|
||
Assets |
|
|
|
|
|
||
Current assets: |
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
2,886 |
|
$ |
6,182 |
|
Restricted cashcurrent portion |
|
110 |
|
110 |
|
||
Accounts receivable, less allowance for doubtful accounts of $1,514 and $1,751, respectively |
|
58,730 |
|
77,962 |
|
||
Inventories, net |
|
147,860 |
|
179,712 |
|
||
Deferred income taxes |
|
7,298 |
|
10,759 |
|
||
Total current assets |
|
216,884 |
|
274,725 |
|
||
Property, plant and equipment, net |
|
85,125 |
|
88,921 |
|
||
Deferred income taxeslong term portion |
|
27,665 |
|
27,368 |
|
||
Prepayments and deferred charges, net |
|
2,457 |
|
2,719 |
|
||
Restricted cashlong term portion |
|
550 |
|
440 |
|
||
Goodwill |
|
43,055 |
|
42,265 |
|
||
Other intangible assets |
|
11,386 |
|
9,422 |
|
||
Total assets |
|
$ |
387,122 |
|
$ |
445,860 |
|
Liabilities and stockholders equity |
|
|
|
|
|
||
Current liabilities: |
|
|
|
|
|
||
Accounts payable and accrued expenses |
|
$ |
45,495 |
|
$ |
45,487 |
|
Income taxes payable |
|
399 |
|
2,294 |
|
||
Accrued pension and postretirement benefits |
|
5,527 |
|
8,134 |
|
||
Revolving credit facilities |
|
104,468 |
|
116,836 |
|
||
Current maturities of long term obligations |
|
1,501 |
|
110 |
|
||
Total current liabilities |
|
157,390 |
|
172,861 |
|
||
Long-term obligations (less current portion) |
|
414 |
|
3,097 |
|
||
Accrued pension and postretirement benefits |
|
117,449 |
|
118,354 |
|
||
Total liabilities |
|
275,253 |
|
294,312 |
|
||
Stockholders equity: |
|
|
|
|
|
||
Common stock, $0.001 par value (20,000,000 shares authorized, 10,000,000 shares issued and outstanding) |
|
10 |
|
10 |
|
||
Preferred stock, $0.001 par value (20,000,000 shares authorized, 0 shares issued and outstanding) |
|
|
|
|
|
||
Additional paid-in capital |
|
120,972 |
|
122,937 |
|
||
Accumulated earnings (deficit) |
|
(7,780 |
) |
27,760 |
|
||
Accumulated other comprehensive income (loss) |
|
(512 |
) |
841 |
|
||
Deferred stock compensation |
|
(821 |
) |
|
|
||
Total stockholders equity |
|
111,869 |
|
151,548 |
|
||
Total liabilities and stockholders equity |
|
$ |
387,122 |
|
$ |
445,860 |
|
See notes to consolidated financial statements.
F- 4
Haynes International, Inc. and
subsidiaries
consolidated statements of operations
(in thousands, except per |
|
Predecessor |
|
|
|
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Successor |
|
|||||||
share data) |
|
Period
|
|
|
|
Period
|
|
Year Ended September 30, |
|
|||||||
|
|
2004 |
|
|
|
2004 |
|
2005 |
|
2006 |
|
|||||
Net revenues |
|
$ |
209,103 |
|
|
|
|
$ |
24,391 |
|
$ |
324,989 |
|
$ |
434,405 |
|
Cost of sales |
|
171,652 |
|
|
|
|
26,136 |
|
288,669 |
|
325,573 |
|
||||
Selling, general and administrative |
|
24,038 |
|
|
|
|
2,658 |
|
32,963 |
|
40,296 |
|
||||
Research and technical |
|
2,286 |
|
|
|
|
226 |
|
2,621 |
|
2,659 |
|
||||
Restructuring and other charges |
|
4,027 |
|
|
|
|
429 |
|
628 |
|
|
|
||||
Operating income (loss) |
|
7,100 |
|
|
|
|
(5,058 |
) |
108 |
|
65,877 |
|
||||
Interest expense (contractual interest of $20,876 for the period October 1, 2003 to August 31, 2004) |
|
13,964 |
|
|
|
|
354 |
|
6,385 |
|
8,121 |
|
||||
Interest income |
|
(35 |
) |
|
|
|
(6 |
) |
(32 |
) |
(97 |
) |
||||
Income (loss) before reorganization items and income taxes |
|
(6,829 |
) |
|
|
|
(5,406 |
) |
(6,245 |
) |
57,853 |
|
||||
Reorganization items |
|
177,653 |
|
|
|
|
|
|
|
|
|
|
||||
Income (loss) before income taxes |
|
170,824 |
|
|
|
|
(5,406 |
) |
(6,245 |
) |
57,853 |
|
||||
Provision for (benefit from) income taxes |
|
90 |
|
|
|
|
(1,760 |
) |
(2,111 |
) |
22,313 |
|
||||
Net income (loss) |
|
$ |
170,734 |
|
|
|
|
$ |
(3,646 |
) |
$ |
(4,134 |
) |
$ |
35,540 |
|
Net income (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
$ |
1,707,340 |
|
|
|
|
$ |
(0.36 |
) |
$ |
(0.41 |
) |
$ |
3.55 |
|
Diluted |
|
$ |
1,707,340 |
|
|
|
|
$ |
(0.36 |
) |
$ |
(0.41 |
) |
$ |
3.46 |
|
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
100 |
|
|
|
|
10,000,000 |
|
10,000,000 |
|
10,000,000 |
|
||||
Diluted |
|
100 |
|
|
|
|
10,000,000 |
|
10,000,000 |
|
10,270,642 |
|
See notes to consolidated financial statements.
F- 5
Haynes International, Inc. and
subsidiaries
consolidated statements of comprehensive income (loss)
|
|
Predecessor |
|
|
|
Successor |
|
|||||||||||
(in thousands) |
|
Period
|
|
|
|
Period
|
|
Year Ended September 30, |
|
|||||||||
|
|
2004 |
|
|
|
2004 |
|
2005 |
|
2006 |
|
|||||||
Net income (loss) |
|
|
$ |
170,734 |
|
|
|
|
$ |
(3,646 |
) |
|
$ |
(4,134 |
) |
$ |
35,540 |
|
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Minimum pension adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
(217 |
) |
||||
Foreign currency translation adjustment |
|
|
2,124 |
|
|
|
|
363 |
|
|
(875 |
) |
1,570 |
|
||||
Other comprehensive income (loss) |
|
|
2,124 |
|
|
|
|
363 |
|
|
(875 |
) |
1,353 |
|
||||
Comprehensive income (loss) |
|
|
$ |
172,858 |
|
|
|
|
$ |
(3,283 |
) |
|
$ |
(5,009 |
) |
$ |
36,893 |
|
See notes to consolidated financial statements .
F- 6
Haynes International, Inc. and
subsidiaries
consolidated statements of stockholders equity
(in thousands, except
|
|
Common Stock |
|
Additional
|
|
Retained
|
|
Deferred
|
|
Accumulated
|
|
Total
|
|
|||||||||||||
|
|
Shares |
|
Par |
|
Capital |
|
Deficit) |
|
Compensation |
|
Income (Loss) |
|
(Deficiency) |
|
|||||||||||
Predecessor |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Balance October 1, 2003 |
|
100 |
|
$ |
|
|
|
$ |
51,381 |
|
|
$ |
(222,232 |
) |
|
$ |
|
|
|
$ |
(2,007 |
) |
|
$ |
(172,858 |
) |
Net income |
|
|
|
|
|
|
|
|
|
170,734 |
|
|
|
|
|
|
|
|
170,734 |
|
||||||
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,124 |
|
|
2,124 |
|
||||||
Plan of reorganization and fresh-start: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Elimination of accumulated deficit |
|
|
|
|
|
|
|
|
|
51,498 |
|
|
|
|
|
(117 |
) |
|
51,381 |
|
||||||
Cancellation of predecessor company shares |
|
(100 |
) |
|
|
|
(51,381 |
) |
|
|
|
|
|
|
|
|
|
|
(51,381 |
) |
||||||
Issuance of stock under plan of reorganization |
|
10,000,000 |
|
10 |
|
|
118,726 |
|
|
|
|
|
|
|
|
|
|
|
118,736 |
|
||||||
Balance August 31, 2004 |
|
10,000,000 |
|
$ |
10 |
|
|
$ |
118,726 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
118,736 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Successor |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Balance September 1, 2004 |
|
10,000,000 |
|
$ |
10 |
|
|
$ |
118,726 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
118,736 |
|
Net loss |
|
|
|
|
|
|
|
|
|
(3,646 |
) |
|
|
|
|
|
|
|
(3,646 |
) |
||||||
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
363 |
|
|
363 |
|
||||||
Grant of stock options |
|
|
|
|
|
|
2,419 |
|
|
|
|
|
(2,419 |
) |
|
|
|
|
|
|
||||||
Amortization of deferred stock compensation |
|
|
|
|
|
|
|
|
|
|
|
|
123 |
|
|
|
|
|
123 |
|
||||||
Balance September 30, 2004 |
|
10,000,000 |
|
$ |
10 |
|
|
$ |
121,145 |
|
|
$ |
(3,646 |
) |
|
$ |
(2,296 |
) |
|
$ |
363 |
|
|
$ |
115,576 |
|
Net loss |
|
|
|
|
|
|
|
|
|
(4,134 |
) |
|
|
|
|
|
|
|
(4,134 |
) |
||||||
Other comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(875 |
) |
|
(875 |
) |
||||||
Forfeiture of stock options |
|
|
|
|
|
|
(173 |
) |
|
|
|
|
173 |
|
|
|
|
|
|
|
||||||
Amortization of deferred stock compensation |
|
|
|
|
|
|
|
|
|
|
|
|
1,302 |
|
|
|
|
|
1,302 |
|
||||||
Balance September 30, 2005 |
|
10,000,000 |
|
$ |
10 |
|
|
$ |
120,972 |
|
|
$ |
(7,780 |
) |
|
$ |
(821 |
) |
|
$ |
(512 |
) |
|
$ |
111,869 |
|
Net income |
|
|
|
|
|
|
|
|
|
35,540 |
|
|
|
|
|
|
|
|
35,540 |
|
||||||
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,353 |
|
|
1,353 |
|
||||||
Reclass reporting of deferred stock compensation |
|
|
|
|
|
|
(821 |
) |
|
|
|
|
821 |
|
|
|
|
|
|
|
||||||
Stock compensation |
|
|
|
|
|
|
2,786 |
|
|
|
|
|
|
|
|
|
|
|
2,786 |
|
||||||
Balance September 30, 2006 |
|
10,000,000 |
|
$ |
10 |
|
|
$ |
122,937 |
|
|
$ |
27,760 |
|
|
$ |
|
|
|
$ |
841 |
|
|
$ |
151,548 |
|
See notes to consolidated financial statements.
F- 7
Haynes International, Inc. and
subsidiaries
consolidated statements of cash flow
(in thousands) |
|
Predecessor |
|
|
|
Successor |
|
|||||||||||
|
|
Period
|
|
|
|
Period
|
|
Year Ended September 30, |
|
|||||||||
|
|
2004 |
|
|
|
2004 |
|
2005 |
|
2006 |
|
|||||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income (loss) |
|
|
$ |
170,734 |
|
|
|
|
$ |
(3,646 |
) |
|
$ |
(4,134 |
) |
$ |
35,540 |
|
Depreciation |
|
|
5,035 |
|
|
|
|
494 |
|
|
6,131 |
|
6,926 |
|
||||
Amortization |
|
|
2,739 |
|
|
|
|
164 |
|
|
1,895 |
|
1,964 |
|
||||
Stock compensation expense |
|
|
|
|
|
|
|
|
|
|
1,302 |
|
2,786 |
|
||||
Deferred income taxes |
|
|
0 |
|
|
|
|
(1,648 |
) |
|
(5,655 |
) |
(2,644 |
) |
||||
Loss (gain) on disposition of property |
|
|
(437 |
) |
|
|
|
(13 |
) |
|
(1,937 |
) |
140 |
|
||||
Reorganization items |
|
|
(177,653 |
) |
|
|
|
|
|
|
|
|
|
|
||||
Change in assets and liabilities (net of effects of acquisition): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Accounts receivable |
|
|
(15,281 |
) |
|
|
|
(4,241 |
) |
|
(2,211 |
) |
(18,125 |
) |
||||
Inventories |
|
|
(15,254 |
) |
|
|
|
853 |
|
|
(14,244 |
) |
(30,122 |
) |
||||
Other assets and reorganization items |
|
|
(521 |
) |
|
|
|
503 |
|
|
(374 |
) |
(216 |
) |
||||
Accounts payable and accrued expenses |
|
|
12,864 |
|
|
|
|
6,604 |
|
|
10,364 |
|
(925 |
) |
||||
Income taxes payable |
|
|
(96 |
) |
|
|
|
(88 |
) |
|
1,124 |
|
1,901 |
|
||||
Accrued pension and postretirement benefits |
|
|
480 |
|
|
|
|
312 |
|
|
2,957 |
|
3,043 |
|
||||
Net cash provided (used) in operating activities before reorganization costs |
|
|
(17,390 |
) |
|
|
|
(706 |
) |
|
(4,782 |
) |
268 |
|
||||
Reorganization items paid |
|
|
(5,799 |
) |
|
|
|
|
|
|
|
|
|
|
||||
Net cash provided (used) in operating activities |
|
|
(23,189 |
) |
|
|
|
(706 |
) |
|
(4,782 |
) |
268 |
|
||||
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Additions to property, plant and equipment |
|
|
(4,782 |
) |
|
|
|
(637 |
) |
|
(9,029 |
) |
(10,668 |
) |
||||
Proceeds from sale of property, plant and equipment |
|
|
1,270 |
|
|
|
|
15 |
|
|
2,326 |
|
|
|
||||
Acquisition of The Branford Wire and Manufacturing Company, net of cash acquired |
|
|
|
|
|
|
|
|
|
|
(8,300 |
) |
|
|
||||
Change in restricted cash |
|
|
1,009 |
|
|
|
|
(12 |
) |
|
337 |
|
110 |
|
||||
Net cash used in investing activities |
|
|
(2,503 |
) |
|
|
|
(634 |
) |
|
(14,666 |
) |
(10,558 |
) |
||||
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net repayment of short term borrowings |
|
|
(56,815 |
) |
|
|
|
|
|
|
|
|
|
|
||||
Net increase in revolving credit |
|
|
80,296 |
|
|
|
|
1,060 |
|
|
21,986 |
|
12,368 |
|
||||
Changes in long-term obligations |
|
|
|
|
|
|
|
|
|
|
(1,596 |
) |
1,009 |
|
||||
Payment of debt issuance cost |
|
|
|
|
|
|
|
|
|
|
(465 |
) |
|
|
||||
Net cash provided by financing activities |
|
|
23,481 |
|
|
|
|
1,060 |
|
|
19,925 |
|
13,377 |
|
||||
Effect of exchange rates on cash |
|
|
80 |
|
|
|
|
97 |
|
|
(68 |
) |
209 |
|
||||
Increase (decrease) in cash and cash equivalents |
|
|
(2,131 |
) |
|
|
|
(183 |
) |
|
409 |
|
3,296 |
|
||||
Cash and cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Beginning of period |
|
|
4,791 |
|
|
|
|
2,660 |
|
|
2,477 |
|
2,886 |
|
||||
End of period |
|
|
$ |
2,660 |
|
|
|
|
$ |
2,477 |
|
|
$ |
2,886 |
|
$ |
6,182 |
|
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash paid during period for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest (net of capitalized interest) |
|
|
$ |
3,426 |
|
|
|
|
$ |
354 |
|
|
$ |
6,377 |
|
$ |
7,992 |
|
Income Taxes |
|
|
$ |
161 |
|
|
|
|
|
|
|
$ |
2,681 |
|
$ |
23,148 |
|
Supplemental disclosures of non-cash activities:
During the period October 1, 2003 to August 31, 2004, the minimum pension liability was eliminated as a result of the adoption of fresh start accounting in accordance with SOP 90-7 Financial Reporting by Entities in Reorganization under the Bankruptcy Code.
During 2006, goodwill decreased and deferred income tax asset increased by $790 due to the finalization of pre-emergence tax returns which affected net operating loss carryforwards.
During 2006 a $310 minimum pension liability was recorded in accumulated other comprehensive income.
See notes to consolidated financial statements.
F- 8
Haynes International, Inc. and subsidiaries
notes to consolidated financial statements
(in thousands, except per share data and otherwise noted)
Note 1 Background and organization
Description of business
Haynes International, Inc. and its subsidiaries (the Company or Haynes) develops, manufactures, markets and distributes technologically advanced, high-performance alloys primarily for use in the aerospace, land based gas turbine and chemical processing industries. The Companys products are high-temperature resistant alloys (HTA) and corrosion resistant alloys (CRA). The Companys 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 for power generation, waste incineration, and industrial heating equipment. The Companys CRA products are used in applications that require resistance to extreme corrosion, such as chemical processing, power plant emissions control and hazardous waste treatment. The Company produces its high-performance alloys primarily in sheet, coil and plate forms. In addition, the Company produces its products as seamless and welded tubulars, and in bar, billets 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 Companys relatively high average selling price per pound, compared to the average selling price of other metals, such as carbon steel sheet, stainless steel sheet and aluminum. The high-performance alloy industry has significant barriers to entry such as the combination of (i) demanding end-user specifications, (ii) a multi-stage manufacturing process, and (iii) the technical sales, marketing and manufacturing expertise required to develop new applications.
Basis of presentation
On March 29, 2004 (the Petition Date), the Company and its U.S. subsidiaries and U.S. affiliates filed voluntary petitions for reorganization relief under Chapter 11 of the United States Bankruptcy Code (the Bankruptcy Code) in the United States Bankruptcy Court for the Southern District of Indiana (the Bankruptcy Court). The bankruptcy cases thus commenced were jointly administered under the caption in re Haynes International, Inc., et al., Case No.: 04-5364-AJM-11 (the Bankruptcy Cases). Throughout the Bankruptcy Cases, the Company and its U.S. subsidiaries and U.S. affiliates managed their properties and operated their businesses as debtors-in-possession under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code. The Companys European and Singapore operations were not included in the Bankruptcy Cases.
Prior to August 31, 2004, the Company, Haynespredecessor, was a wholly-owned subsidiary of Haynes Holdings, Inc. (Holdings). Effective August 31, 2004 the Company and Holdings were merged as part of the plan of reorganization with the Company emerging as the successor entity (Haynessuccessor). As a result of the Companys emergence from bankruptcy and the Companys implementation of fresh start reporting as described below, the consolidated financial
F- 9
statements of the Company for periods subsequent to August 31, 2004 reflect a new basis of accounting and are not comparable to the historical consolidated financial statements for periods prior to the effective date of the plan of reorganization.
The Company and its U.S. operations filed for reorganization relief because liquidity shortfalls hampered their ability to meet interest and principal obligations on long-term debt obligations. These shortfalls were primarily a result of reduced customer demand caused by a weak economic environment for its products and higher raw material and energy costs.
In connection with the Bankruptcy Cases, motions necessary for the Company and its U.S. subsidiaries and U.S. affiliates operations to conduct normal business activities were filed with and approved by the Bankruptcy Court, including (i) approval of a $100 million debtor-in-possession credit facility for working capital needs and other general corporate purposes, (ii) authorization to pay pre-petition liabilities related to certain essential trade creditors, (iii) authorization to pay most pre-petition payroll and employee related obligations and (iv) authorization to pay certain pre-petition shipping and import/export related obligations.
On April 28, 2004, the Company and its U.S. subsidiaries and U.S. affiliates filed schedules and statements of financial affairs with the Bankruptcy Court setting forth, among other things, the assets and liabilities of the Company and its U.S. subsidiaries and U.S. affiliates. All of the schedules were subject to further amendment or modification. Differences between amounts scheduled by the Company and its U.S. subsidiaries and U.S. affiliates and claims submitted by creditors were investigated and resolved in accordance with an established claims resolution process.
On May 25, 2004, the Company and its U.S. subsidiaries and U.S. affiliates filed a plan of reorganization and related disclosure statement with the Bankruptcy Court. The plan was amended on June 29, 2004, and the Bankruptcy Court entered an order confirming the Company and its U.S. subsidiaries and U.S. affiliates plan of reorganization, as amended, on August 16, 2004. As part of the consummation of the confirmed plan of reorganization, holders of the Companys 11 5 ¤ 8 % Senior Notes due September, 2004 (the Senior Notes) exchanged the $140 million of the Senior Notes outstanding and accrued interest for 96% of the equity in the reorganized Haynessuccessor. The pre-petition majority equity holder of the Companys former parent, Holdings, agreed to cancel its equity interests in exchange for 4% of the equity in Haynessuccessor.
The Company and its U.S. subsidiaries and U.S. affiliates emerged from bankruptcy on August 31, 2004. The Company has determined that it qualified for fresh start accounting under AICPA Statement of Position 90-7, Financial Reporting by Entities in Reorganization under the Bankruptcy Code (SOP 90-7) and applied fresh start accounting on the date of emergence, August 31, 2004. The reorganization value was determined to be $200 million.
The plan of reorganization provided for the following to occur as of the effective date of the plan (or as soon thereafter as practicable):
· The cancellation of all existing stock authorized and outstanding (Old Common Stock) and all existing stock options, warrants, and related rights.
· The authorization for the issuance of ten million shares of new common stock, $0.001 par value per share.
F- 10
· The authorization for the future issuance of an additional ten million shares of new common stock, $0.001 par value per share. Future issuance upon terms to be designated from time to time by the board of directors.
· The authorization of twenty million shares of new preferred stock. Future issuance upon terms to be designated from time to time by the board of directors.
· Senior Note Holders to receive its pro rata share of 96% of the shares of the new common stock in full satisfaction of the debt obligation under the Senior Notes.
· Holders of the Old Common Stock interests to receive their pro rate share of 4% of the new common stock.
· The approval of new collective bargaining agreement with the United Steelworkers of America that contains certain modifications and extends the agreement through June 2007.
· Congress Financial Corporation (Central) to provide exit financing of $100 million for working capital financing subject to reserves and borrowing base restrictions.
· The payment of all pre-petition general unsecured claims at 100%.
· The implementation of a stock option plan for certain key management employees and non-employee directors of the Company.
Fresh start reporting
Upon implementation of the plan of reorganization, fresh start reporting was adopted in accordance with SOP 90-7, since holders of Haynes International, Inc.s common stock immediately prior to confirmation of the plan of reorganization received less than 50% of the voting shares of the successor entity and its reorganization value was less than its post-petition liabilities and allowed claims. Under fresh start reporting, the reorganization value was allocated to the Companys net assets based on their relative fair values in a manner similar to the accounting provisions applied to business combinations under Statement of Financial Standards No. 141, Business Combinations (SFAS No. 141). The Companys reorganization value exceeded the fair value of the Companys net assets acquired pursuant to the plan of reorganization. In accordance with SFAS No. 141, the excess of the reorganization value over the fair value of the net assets was recorded as goodwill. Liabilities existing at the effective date of the plan of reorganization are stated at the present value of amounts to be paid discounted at appropriate current rates.
In connection with its development of the plan of reorganization, a valuation analysis of Haynes business and the securities to be registered under the plan of reorganization was performed in March 2004. In preparing this analysis, the Company, among other things, (a) reviewed the recent financial and operating results, (b) considered current operations and prospects, (c) reviewed certain operating and financial forecasts including the financial projections contained in Haynes Disclosure Statement, (d) evaluated key assumptions related to the financial projections, (e) evaluated a three year discounted cash flow analysis based on the financial projections, utilizing various discount rates ranging from 10.5% to 14.5% based on a weighted cost of capital analysis and EBITDA terminal multiples of 5.5x to 7.5x based on relevant comparable company
F- 11
projected multiples and trading multiples during recent business cycles, (f) considered the market value of certain publicly traded companies in businesses reasonably comparable to the operating business of Haynes and (g) conducted such other analyses as deemed necessary under the circumstances. The financial projections reflected a significant reduction in interest expense as a result of the reorganization and a post restructuring effective tax rate of 40%.
As a result of such analyses, review, discussions, considerations and assumptions, the total enterprise value of Haynes was within a range of $160 million to $240 million with a mid-point value of $200 million. The Company used the mid-point valuation of $200 million as the basis for its reorganization value for purposes of applying fresh-start reporting. The total enterprise value of $200 million and its derivation was a key element in negotiations with Haynes creditors and equity holders in developing the plan of reorganization which was ultimately approved by Haynes creditors and the Bankruptcy Court. Differences between actual cash flows, interest rates, the effective tax rate and the assumptions used would have a material effect on the reorganization value.
The allocation of the reorganization value as of the effective date of the plan of reorganization is summarized as follows and shown to be less than the Companys post-petition liabilities and allowed claims:
Common equity value |
|
$ |
118,736 |
|
Revolver debt, European debt, and capital leases, less cash |
|
81,264 |
|
|
Reorganization value |
|
$ |
200,000 |
|
Post-petition liabilities and allowed claims |
|
|
|
|
Current liabilities |
|
$ |
116,137 |
|
Pension and postretirement benefits and other long term debt |
|
124,775 |
|
|
Liabilities subject to compromise: |
|
|
|
|
Senior notes |
|
140,000 |
|
|
Accrued interest on senior notes |
|
9,363 |
|
|
Accrued fees to an affiliate of Holdings |
|
1,612 |
|
|
Total liabilities and allowed claims |
|
391,887 |
|
|
Reorganized value |
|
200,000 |
|
|
Excess of liabilities over reorganized value |
|
$ |
191,887 |
|
F- 12
The following table reflects adjustment to the consolidated balance sheet resulting from implementation of the plan of reorganization and application of fresh start reporting on August 31, 2004, the effective date of the reorganization.
|
|
Predecessor |
|
|
|
|
|
Successor |
|
||||||||
|
|
Haynes
|
|
Plan of
|
|
Fresh Start |
|
Haynes
|
|
||||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash and cash equivalents |
|
|
$ |
2,660 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
2,660 |
|
Restricted cash |
|
|
1,009 |
|
|
|
|
|
|
|
|
1,009 |
|
||||
Accounts receivable |
|
|
50,087 |
|
|
|
|
|
|
|
|
50,087 |
|
||||
Inventories, net |
|
|
100,603 |
|
|
|
|
|
30,982 |
(b) |
|
131,585 |
|
||||
Refundable income taxes |
|
|
656 |
|
|
|
|
|
|
|
|
656 |
|
||||
Total current assets |
|
|
155,015 |
|
|
|
|
|
30,982 |
|
|
185,997 |
|
||||
Property, plant and equipment, net |
|
|
38,998 |
|
|
|
|
|
40,810 |
(b) |
|
79,808 |
|
||||
Deferred income taxes |
|
|
547 |
|
|
|
|
|
36,143 |
(d) |
|
36,690 |
|
||||
Prepayments and deferred charges, net |
|
|
12,376 |
|
|
|
|
|
(9,891 |
)(b) |
|
2,485 |
|
||||
Goodwill |
|
|
|
|
|
|
|
|
40,353 |
(c) |
|
40,353 |
|
||||
Other intangible assets |
|
|
|
|
|
|
|
|
12,467 |
(b) |
|
12,467 |
|
||||
Total assets |
|
|
$ |
206,936 |
|
|
$ |
|
|
|
$ |
150,864 |
|
|
$ |
357,800 |
|
Liabilities and stockholders equity (deficiency) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Accounts payable and accrued expenses |
|
|
$ |
27,732 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
27,732 |
|
Accrued postretirement benefits |
|
|
4,890 |
|
|
|
|
|
|
|
|
4,890 |
|
||||
Revolving credit facility |
|
|
82,466 |
|
|
|
|
|
|
|
|
82,466 |
|
||||
Deferred income taxes |
|
|
|
|
|
|
|
|
6,692 |
(d) |
|
6,692 |
|
||||
Current maturities of long term debt |
|
|
1,049 |
|
|
|
|
|
|
|
|
1,049 |
|
||||
Total current liabilities |
|
|
116,137 |
|
|
|
|
|
6,692 |
|
|
122,829 |
|
||||
Long term debt |
|
|
1,418 |
|
|
|
|
|
|
|
|
1,418 |
|
||||
Accrued pension and postretirement benefits |
|
|
123,357 |
|
|
|
|
|
(8,540 |
)(b) |
|
114,817 |
|
||||
Liabilities subject to compromise |
|
|
150,975 |
|
|
(150,975 |
) (a) |
|
|
|
|
|
|
||||
Total liabilities |
|
|
391,887 |
|
|
(150,975 |
) |
|
(1,848 |
) |
|
239,064 |
|
||||
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Stockholders equity (deficiency): |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Old common stock, $0.01 par value (100 shares authorized, issued and outstanding) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
New common stock, $0.001 par value (20,000,000 shares authorized, 10,000,000 shares issued and outstanding) |
|
|
|
|
|
10 |
|
|
|
|
|
10 |
|
||||
Preferred stock, $0.001 par value (20,000,000 shares authorized, 0 shares issued and outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Old additional paid-in capital |
|
|
51,381 |
|
|
|
|
|
(51,381 |
) |
|
|
|
||||
New additional paid-in capital |
|
|
|
|
|
118,726 |
(a) |
|
|
|
|
118,726 |
|
||||
Accumulated deficit |
|
|
(236,449 |
) |
|
32,239 |
(a) |
|
204,210 |
|
|
|
|
||||
Accumulated other comprehensive income |
|
|
117 |
|
|
|
|
|
(117 |
) |
|
|
|
||||
Deferred stock compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total stockholders equity (deficiency) |
|
|
(184,951 |
)(c) |
|
150,975 |
(c) |
|
152,712 |
(c) |
|
118,736 |
(c) |
||||
Total liabilities and stockholders equity (deficiency) |
|
|
$ |
206,936 |
|
|
$ |
|
|
|
$ |
150,864 |
|
|
$ |
357,800 |
|
(a) To reflect the cancellation of debt related to the settlement of the pre-petition liabilities subject to compromise:
Liabilities subject to compromise |
|
$ |
150,975 |
|
New common stock and additional paid-in capital |
|
(118,736 |
) |
|
Gain on cancellation of debt |
|
$ |
32,239 |
|
F- 13
(b) To reflect fresh start accounting adjustments related to the revaluation of certain assets and liabilities to fair market value:
Inventories |
|
|
|
|
Fair value adjustments |
|
$ |
30,982 |
|
Property, Plant and Equipment |
|
|
|
|
Fair value adjustmentsMachinery and equipment |
|
$ |
41,628 |
|
Fair value adjustmentsBuildings |
|
(859 |
) |
|
Fair value adjustmentsLand |
|
41 |
|
|
|
|
$ |
40,810 |
|
Prepayments and Deferred Charges |
|
|
|
|
Europe debt issuance cost write-off |
|
$ |
(245 |
) |
Adjust pension assets |
|
(9,646 |
) |
|
|
|
$ |
(9,891 |
) |
Other Intangibles |
|
|
|
|
Fair value adjustmentsPatents |
|
$ |
8,667 |
|
Fair value adjustmentsTrademarks |
|
3,800 |
|
|
|
|
$ |
12,467 |
|
Accrued Pension and Postretirement Benefits |
|
|
|
|
Adjust pension liabilities |
|
$ |
(8,540 |
) |
(c) To reflect the calculation of goodwill:
Predecessor stockholders deficiency at August 31, 2004 |
|
$ |
(184,951 |
) |
Cancellation of debt |
|
150,975 |
|
|
Successor equity at August 31, 2004 |
|
(118,736 |
) |
|
Fresh start reporting and fair value adjustments |
|
(152,712 |
) |
|
Fair value adjustments |
|
84,259 |
|
|
Deferred income tax adjustments |
|
29,451 |
|
|
Debt issuance cost write-off |
|
(245 |
) |
|
Pension adjustments |
|
(1,106 |
) |
|
Goodwill at August 31, 2004 |
|
$ |
(40,353 |
) |
(d) Deferred income tax accounts were adjusted to give effect to temporary differences between the new accounting and carryover tax bases.
Note 2. Summary of significant accounting policies
A. Principles of consolidation and nature of operations
The consolidated financial statements include the accounts of Haynes International, Inc. and its wholly-owned subsidiaries. All significant intercompany transactions and balances are eliminated. The Company develops, manufactures, markets and distributes technologically advanced, high-performance alloys primarily for use in the aerospace and chemical processing industries worldwide. The Company has manufacturing facilities in Kokomo, Indiana; Mountain Home, North Carolina; and Arcadia, Louisiana with distribution service centers in Lebanon, Indiana; LaMirada, California; Houston, Texas; Windsor, Connecticut; Paris, France; Openshaw, England; Zurich, Switzerland; and Shanghi, China; and a sales office in Singapore and Chennai, India. In October 2003, management decided to close its manufacturing operations in Openshaw, England and operate only as a distribution service center. In April 2005, the Company sold eight acres of the Openshaw site and recorded a gain of $2.1 million which is reflected as a reduction of selling, general and administrative expense.
F- 14
Branford Wire acquisition
On November 5, 2004, Haynes Wire Company (Haynes Wire), a wholly owned subsidiary of the Company, acquired certain assets of The Branford Wire and Manufacturing Company and certain of its affiliates for a purchase price of $8.3 million, which was paid in cash. As part of the transaction, Haynes Wire acquired a wire manufacturing facility in Mountain Home, North Carolina, which includes plant and equipment, accounts receivable and inventory with fair values of $2,615, $2,190, and $3,620, respectively. Because the effect of the acquisition is not material to the consolidated results of operations, supplemental pro forma results of operations information have been omitted. Haynes Wire also entered into a non-compete agreement with the former president and owner, restricting his ability to compete with Haynes Wires operations for a period of seven years following the closing date. The non-compete agreement requires Haynes Wire to make total payments of $770, with $110 paid at closing and the remaining $660 paid in equal installments on the next six anniversaries of the closing date. On April 11, 2005 pursuant to the terms of the non-compete agreement, the Company deposited the remaining $660 of installments to be paid pursuant to the non-compete agreement into an escrow account. Non-compete amortization expense was $84 for fiscal 2006 and $77 for fiscal 2005.
B. Cash and cash equivalents
The Company considers all highly liquid investment instruments, including investments with original maturities of three months or less at acquisition, to be cash equivalents, the carrying value of which approximates fair value due to the short maturity of these investments.
C. Accounts receivable
The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. The Company markets its products to a diverse customer base, both in the United States of America and overseas. Trade credit is extended based upon evaluation of each customers ability to perform its obligation, which is updated periodically. The Company purchases credit insurance for certain foreign trade receivables.
D. Revenue recognition
The Company recognizes revenue when title passes to the customer which is generally at the time of shipment with freight terms of FOB shipping point or at a foreign port for certain export customers. Allowances for sales returns are recorded as a component of net sales in the periods in which the related sales are recognized. The Company determines this allowance based on historical experience and has not had a history of returns that have exceeded recorded allowances.
E. Inventories
Inventories are stated at the lower of cost or market. The cost of inventories is determined using the first-in, first-out (FIFO) method. The Company writes down its inventory for estimated obsolescence or unmarketable inventory in an amount equal to the difference between the cost of inventory and the estimated market or scrap value, if applicable, based upon assumptions about future demand and market conditions. Cost of goods sold for the years ended
F- 15
September 30, 2006 and 2005 and the one month ended September 30, 2004 includes $0, $25,414 and $5,083 respectively of additional costs resulting from fresh start write-up adjustments.
F. Intangible assets and goodwill
Goodwill was created as a result of the Companys reorganization pursuant to Chapter 11 of the U.S. Bankruptcy Code and fresh start accounting. The Company adopted SFAS No. 142, Goodwill and Other Intangible Assets. Pursuant to SFAS No. 142 goodwill is not amortized and the value of goodwill be reviewed annually for impairment. If the carrying value exceeds the fair value (determined on a discounted cash flow basis or other fair value method), impairment of goodwill may exist resulting in a charge to earnings to the extent of goodwill impairment.
The Company also has patents, trademarks and other intangibles. As the patents have a definite life, they are amortized over lives ranging from two to fourteen years. As the trademarks have an indefinite life, the Company tests them for impairment annually. If the carrying value exceeds the fair value (determined by calculating a fair value based upon a discounted cash flow of an assumed royalty rate), impairment of the trademark may exist resulting in a change to earnings to the extent of impairment. Amortization of the patents and other intangibles was $1,964 for the year ended September 30, 2006; $1,972 for the year ended September 30, 2005 and $164 for the one month period ended September 30, 2004.
Goodwill and trademarks were tested for impairment on August 31, 2006 with no impairment recognized because the fair values exceeded the carrying values. Goodwill decreased during year ended September 30, 2006 by $790 and increased during the year September 30, 2005 by $2,702 due to the finalization of pre-emergence tax returns, which affected net operating loss carryforwards.
The following represents a summary of intangible assets and goodwill at September 30, 2005 and 2006:
September 30, 2005 |
|
Gross Amount |
|
Accumulated
|
|
Adjustments |
|
Carrying
|
|
|||||||
Goodwill |
|
|
$ |
40,353 |
|
|
$ |
|
|
|
$ |
2,702 |
|
$ |
43,055 |
|
Patents |
|
|
8,667 |
|
|
(2,048 |
) |
|
|
|
6,619 |
|
||||
Trademarks |
|
|
3,800 |
|
|
|
|
|
|
|
3,800 |
|
||||
Non-compete |
|
|
590 |
|
|
(77 |
) |
|
|
|
513 |
|
||||
Other |
|
|
465 |
|
|
(11 |
) |
|
|
|
454 |
|
||||
|
|
|
$ |
53,875 |
|
|
$ |
(2,136 |
) |
|
$ |
2,702 |
|
$ |
54,441 |
|
September 30, 2006 |
|
Gross Amount |
|
Accumulated
|
|
Adjustments |
|
Carrying
|
|
|||||||
Goodwill |
|
|
$ |
43,055 |
|
|
$ |
|
|
|
$ |
(790 |
) |
$ |
42,265 |
|
Patents |
|
|
8,667 |
|
|
(3,800 |
) |
|
|
|
4,867 |
|
||||
Trademarks |
|
|
3,800 |
|
|
|
|
|
|
|
3,800 |
|
||||
Non-compete |
|
|
590 |
|
|
(161 |
) |
|
|
|
429 |
|
||||
Other |
|
|
465 |
|
|
(139 |
) |
|
|
|
326 |
|
||||
|
|
|
$ |
56,577 |
|
|
$ |
(4,100 |
) |
|
$ |
(790 |
) |
$ |
51,687 |
|
F- 16
Estimate of Aggregate Amortization Expense: |
|
|
|
|
Year Ending September 30, |
|
|
|
|
2007 |
|
$ |
1,129 |
|
2008 |
|
983 |
|
|
2009 |
|
708 |
|
|
2010 |
|
376 |
|
|
2011 |
|
363 |
|
|
G. Property, plant and equipment
Additions to property, plant and equipment are recorded at cost with depreciation calculated primarily by using the straight-line method based on estimated economic useful lives. Buildings and machinery and equipment for the Company are generally depreciated over estimated useful lives ranging from five to fourteen 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.
The Company records capitalized interest for long-term construction projects to capture the cost of capital committed prior to the placed in service date as a part of the historical cost of acquiring the asset.
The Company reviews long-lived assets for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets to be held and used is measured by a comparison of the carrying amount of the asset to the undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount exceeds the fair value of the asset.
When it is probable that a liability has been incurred or an asset of the Company has been impaired, a loss is recognized assuming the amount of the loss can be reasonably estimated. The measurement of environmental liabilities by the Company is based on currently available facts, present laws and regulations, and current technology. Such estimates take into consideration the expected costs of post-closure monitoring based on historical experience.
I. Pension and postretirement benefits
The Company has defined benefit pension and postretirement plans covering most of its current and former employees. Significant elements in determining the assets or liabilities and related income or expense for these plans are the expected return on plan assets (if any), the discount rate used to value future payment streams, expected trends in health care costs, and other actuarial assumptions. Annually, the Company evaluates the significant assumptions to be used to value its pension and postretirement plan assets and liabilities based on current market conditions and expectations of future costs. As a result of fresh start reporting, the intangible pension asset of $9,646 was written off and the accrued pension and postretirement liabilities were written down by $8,540 in the eleven month period ended August 31, 2004. Salaried employees hired after December 31, 2005 are not covered by the pension plan; however, they are eligible for an enhanced matching program of the defined contribution plan (401(k)).
F- 17
The Companys foreign operating entities financial statements are stated in the functional currencies of each respective country, which are the local currencies. Substantially all assets and liabilities are translated to U.S. dollars using exchange rates in effect at the end of the year, and revenues and expenses are translated at the weighted average rate for the year. Translation gains or losses are recorded as a separate component of comprehensive income (loss) and transaction gains and losses are reflected in the consolidated statements of operations.
K. Research and technical costs
Research and technical costs are expensed as incurred. Research and technical costs for the years ended September 30, 2006 and 2005, one month ended September 30, 2004, and the eleven month period ended August 31, 2004, were $2,659, $2,621, $226, and $2,286, respectively.
Income taxes are accounted for under an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax impact of temporary differences arising from assets and liabilities whose tax bases are different from financial statement amounts. A valuation allowance is established if it is more likely than not that all or a portion of deferred tax assets will not be realized. Realization of the future tax benefits of deferred tax assets is dependent on the Companys ability to generate taxable income within the carryforward period and the periods in which net temporary differences reverse.
The Company regularly reviews its deferred tax assets in accordance with SFAS No. 109, Accounting for Income Taxes. SFAS No. 109 requires the Company to assess all available evidence, both positive and negative, to determine whether a valuation allowance is needed based on the weight of that evidence.
In connection with the plan of reorganization, Haynes-successor has adopted a stock option plan for certain key management employees and non-employee directors pursuant to the terms set forth in the First Amended Joint Plan of Reorganization. The stock option plan authorizes the granting of non-qualified stock options to certain key employees and non-employee directors of the Company to purchase up to 1,000,000 shares of the Companys common stock.
On October 1, 2005, the Company adopted SFAS No. 123 (R), Share-Based Payment, a replacement of SFAS No. 123, Accounting for Stock-Based Compensation, and a rescission of APB Opinion No. 25, Accounting for Stock Issued to Employees. The statement requires compensation costs related to share-based payment transactions to be recognized in the financial statements. This statement applies to all awards granted after the effective date and to modifications, repurchases or cancellations of existing awards. Additionally, under the modified prospective method of adoption, the Company recognizes compensation expense for the portion of outstanding awards on the adoption date for which the requisite service period has not yet been rendered based on the grant-date fair value of those awards calculated under SFAS No. 123 and 148 for pro forma disclosures. Therefore prior periods have not been restated. Compensation expense in prior periods related to stock options continues to be disclosed on a pro forma basis
F- 18
only. The amount of compensation cost is measured based upon the grant-date fair value. The fair value of the option grants is estimated on the date of grant using the Black-Scholes option pricing model with assumptions on dividend yield, risk-free interest rate, expected volatilities, and expected lives of the options. See Note 14 to the Consolidated Financial Statements.
N. Financial instruments and concentrations of risk
The Company accounts for derivative instruments in accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. The Company may periodically enter into forward currency exchange contracts to minimize the variability in the Companys operating results arising from foreign exchange rate movements. The Company does not engage in foreign currency speculation. At September 30, 2006 and 2005, the Company had no foreign currency exchange options outstanding.
Financial instruments which potentially subject the Company to concentrations of credit risk consist of cash and cash equivalents and accounts receivable. At September 30, 2006, and periodically throughout the year, the Company has maintained cash balances in excess of federally insured limits. The carrying amounts of cash and cash equivalents, accounts receivable, and accounts payable approximate fair value because of the relatively short maturity of these instruments. In addition, the carrying amount of the Companys debt approximates fair value.
During 2006 and 2005, the Company did not have sales to any group of affiliated customers that were greater than 10% of net revenues. The Company generally does not require collateral with the exception of letters of credit with certain foreign sales. Credit losses have been within managements expectations. In addition, the Company purchases credit insurance for certain foreign trade receivables. The Company does not believe it is significantly vulnerable to the risk of near-term severe impact from business concentrations with respect to customers, suppliers, products, markets or geographic areas.
The Company has approximately 47% of its labor force subject to a collective bargaining agreement that will expire in June 2007. The Company will renegotiate the collective bargaining agreement in fiscal 2007 prior to the expiration of the agreement currently in place. The Company considers its employee relations to be satisfactory. There can be no assurance, however, that the renegotiation of the collective bargaining agreement will not lead to a labor stoppage and negative effect on earnings.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those related to bad debts, inventories, income taxes, retirement benefits, and environmental matters. The process of determining significant estimates is fact specific and takes into account factors such as historical experience, current and expected economic conditions, product or pension asset mix and in some cases, actuarial techniques, and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and
F- 19
liabilities that are not readily apparent from other sources. The Company routinely reevaluates these significant factors and makes adjustments where facts and circumstances dictate. Actual results may differ from these estimates under different assumptions or conditions.
The Company accounts for earnings per share in accordance with SFAS No. 128, Earnings Per Share. SFAS 128 requires two presentations of earnings per sharebasic and diluted. Basic earnings per share is computed by dividing net income available to common stockholders for the period by the weighted average number of common shares outstanding for the period. The computation of diluted earnings per share is similar to basic earnings per share, except the denominator is increased to include the number of additional common shares that would have been outstanding if the potentially dilutive common shares had been issued less any treasury stock purchased. The treasury stock method is used, which assumes that the Company will use the proceeds from the exercise of the options to purchase shares of stock for treasury.
Diluted net loss per share for the one month ended September 30, 2004 and the year ended September 30, 2005 exclude all stock options, because their effect would be anti-dilutive due to the net loss. For the year ended September 30, 2006, weighted average common shares for diluted per share computations were increased by 270,642 shares for the dilutive effect of stock options. Diluted net income per share for the year ended September 30, 2006, excludes 80,000 stock options because their effect would be anti-dilutive. Contingently issuable shares related to stock rights are excluded from the diluted net income per share computation, because the condition under which the stock rights can be exercised has not occurred as of September 30, 2006.
Q. New accounting pronouncements
In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48, Accounting for uncertainty in Income Taxesan interpretation of FASB Statement No. 109 (FIN 48). FIN 48 seeks to reduce the diversity in practice associated with certain aspects of measuring and recognition in accounting for income taxes. In addition, FIN 48 requires expanded disclosure with respect to the uncertainty in income taxes and is effective as of the beginning of our 2008 fiscal year. We are currently evaluating the impact, if any, that FIN 48 will have on our financial statements.
In September 2006, the FASB issued FASB Statement No. 157, Fair Value Measurement (SFAS 157). SFAS 157 addresses standardizing the measurement of fair value for companies who are required to use a fair value measure of recognition for recognition or disclosure purposes. The FASB defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measure date. The statement is effective for fiscal years beginning after November 15, 2007 and for interim periods within those fiscal years. The Company is required to adopt SFAS 157 beginning on October 1, 2008. The Company is currently evaluating the impact, if any, of SFAS 157 on its financial position, results of operations and cash flows.
In September 2006, the FASB issued FASB Statement No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans (SFAS 158). SFAS 158 requires companies to recognize the funded status of defined benefit pension and other postretirement plans as a net
F- 20
asset or liability in its financial statements. In addition, disclosure requirements related to such plans are affected by SFAS 158. The Company will begin recognition of the funded status of its defined benefit pension and postretirement plans and include the required disclosures under the provisions of SFAS 158 at the end of fiscal year 2007. The adoption of SFAS 158 is not expected to impact the Companys debt covenants or cash position. If implemented on September 30, 2006, the estimated impact on the Companys financial position would be a reduction in pension and postretirement benefits liability of $5.2 million, an increase in stockholders equity accumulated other comprehensive income of $3.2 million, and a reduction of deferred tax asset of $2.0 million. Additionally, the Company does not expect the adoption of SFAS 158 to significantly affect the results of operations.
In June 2006, the EITF reached consensus on EITF 06-3, Disclosure Requirements for Taxes Assessed by a Government Authority on Revenue-Producing Transactions. EITF 06-3 requires disclosure of a companys accounting policy with respect to presentation of taxes collected on a revenue producing transaction between a seller and a customer. For taxes that are reported on a gross basis (included in revenues and costs), EITF 06-3 also requires disclosure of the amount of taxes included in the financial statements. EITF 06-3 is effective for interim and annual reporting periods beginning after December 15, 2006. The Company does not expect the adoption of EITF 06-3 to have a material impact on the Companys consolidated financial statements.
In September 2006, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 108 (SAB 108), which provides interpretive guidance on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a current year misstatement. SAB 108 is effective for the first fiscal year ending after November 15, 2006, which will be our fiscal year ending September 30, 2007. The adoption of this statement is not expected to have a material impact on the Companys financial position or results of operations.
In February 2006, the FASB issued FASB Statement No. 155, Accounting for Certain Hybrid Financial Instrumentsan amendment to FASB Statements No. 133 and 140 (SFAS 155), that allows a preparer to elect fair value measurement at acquisition, at issuance, or when a previously recognized financial instrument is subject to a re-measurement (new basis) event, on an instrument-by-instrument basis, in cases in which a derivative would otherwise have to be bifurcated. It also eliminates the exemption from applying Statement 144 to interests in securitized financial assets so that similar instruments are accounted for similarly regardless of the form of the instruments. This Statement is effective for all financial instruments acquired or issued after the beginning of an entitys first fiscal year that begins after September 15, 2006. The Company does not anticipate that the adoption of SFAS 155 will have an impact on the Companys overall results of operations or financial position.
In March 2006, the FASB issued FASB Statement No. 156, Accounting for Servicing of Financial Assetsan amendment of FASB Statement No. 140 (SFAS 156), that applies to the accounting for separately recognized servicing assets and servicing liabilities. This Statement requires that all separately recognized servicing assets and servicing liabilities be initially measured at faire value, if practicable. An entity should adopt this Statement as of the beginning of its first fiscal year that begins after September 15, 2006. The Company does not anticipate that the adoption of SFAS 156 will have an impact on the Companys overall results of operations or financial position.
F- 21
R. Comprehensive income (loss)
Comprehensive income (loss) includes changes in equity that result from transactions and economic events from non-owner sources. Comprehensive income (loss) consists of net income (loss) and other comprehensive income (loss) items, including minimum pension and foreign currency translation adjustments, net of tax when applicable.
The following is a breakdown of accumulated other comprehensive income:
Year ended September 30, |
|
2005 |
|
2006 |
|
||
Minimum Pension Adjustment |
|
$ |
|
|
$ |
(217 |
) |
Foreign Currency Translation Adjusted |
|
(512 |
) |
1,058 |
|
||
|
|
$ |
(512 |
) |
$ |
841 |
|
Tax included in above amounts |
|
$ |
364 |
|
$ |
474 |
|
On August 13, 2006, the Company entered into a Rights Agreement and declared a dividend of one preferred share purchase right for each outstanding share of the Companys common stock, par value $.001 per share. One right will automatically attach to each share of common stock. Each right will allow its holder to purchase from the Company one one-thousandth of a share of Series A Junior Participating Preferred Stock, par value $0.001 per share, for $135.00 (the Purchase Price) once the rights become exercisable. The rights will not be exercisable until a person has become an Acquiring Person by obtaining beneficial ownership of 15% or more of the outstanding common stock. Any rights held by an Acquiring Person will be void and may not be exercised. If a person becomes an Acquiring Person, all holders of rights, except the Acquiring Person may, upon exercise of a right, purchase for the Purchase Price shares of common stock with a market value of two times the Purchase Price, based on the market price of the common stock prior to such acquisition. In the event the Company does not have a sufficient number of Common Shares available, the Company may under certain circumstances substitute Preferred Shares for the Common Shares into which the Rights would have otherwise been exercisable. If the Company is acquired in a merger or similar transaction after an Acquiring Person becomes such, all holders of rights except the Acquiring Person may, upon exercise of a right, purchase for the Purchase Price shares of the acquiring company with a market value of two times the Purchase Price, based on the market price of the acquiring companys stock prior to such merger.
Each Preferred Share, if issued: will not be redeemable; will entitle holders to quarterly dividend payments of $10.00, or an amount equal to 1,000 times the dividend paid on one share of common stock, whichever is greater; will entitle holders upon liquidation either to receive $1,000 or an amount equal to 1,000 times the payment made on one share of common stock, whichever is greater; will have 1,000 votes and vote together with the common stock, except as required by law; and if shares of common stock are exchanged via merger, consolidation, or a similar transaction, will entitle holders to 1,000 times the payment made on one share of common stock. Because of the nature of the dividend, liquidation and voting rights of the Preferred Shares, the value of one one-thousandth interest in a Preferred Share should approximate the value of one share of common stock.
The Rights have certain anti-takeover effects. The Rights will cause substantial dilution to a person or group who attempts to acquire the Company on terms not approved by the Board,
F- 22
except pursuant to an offer conditioned on a substantial number of Rights being acquired. The Rights should not interfere with any merger or other business combination approved by the Board prior to any person or group becoming an Acquiring Person since the Board may redeem the Rights at $0.01 per Right at any time until the date on which a person or group has become an Acquiring Person.
As a part of fresh start reporting described in Note 1, inventory was written-up by $30,497 to fair value as of August 31, 2004 and was expensed as the inventory was sold. Expense of $25,414 and $5,083 was recognized for the year ended September 30, 2005 and the one month ended September 30, 2004, respectively, for this fair value adjustment.
Inventories are stated at the lower of cost or market. The cost of inventories is determined using the first-in, first-out (FIFO) method. The following is a summary of the major classes of inventories:
September 30, |
|
2005 |
|
2006 |
|
||||
Raw materials |
|
|
$ |
6,740 |
|
|
$ |
7,214 |
|
Work-in-process |
|
|
83,232 |
|
|
96,674 |
|
||
Finished goods |
|
|
56,517 |
|
|
74,575 |
|
||
Other, net |
|
|
1,371 |
|
|
1,249 |
|
||
|
|
|
$ |
147,860 |
|
|
$ |
179,712 |
|
Note 4 Property, plant and equipment
As part of fresh start reporting described in Note 1, property, plant and equipment was written-up by $40,810 to fair value as of August 31, 2004 and resulted in additional depreciation expense of $3,052 and $2,902 for the years ended September 30, 2006 and 2005, respectively and $239 for the one month period ended September 30, 2004.
The following is a summary of the major classes of property, plant and equipment:
September 30, |
|
2005 |
|
2006 |
|
||||
Land and land improvements |
|
|
$ |
2,551 |
|
|
$ |
2,842 |
|
Buildings |
|
|
7,076 |
|
|
7,645 |
|
||
Machinery and equipment |
|
|
73,504 |
|
|
82,290 |
|
||
Construction in process |
|
|
5,624 |
|
|
7,596 |
|
||
|
|
|
88,755 |
|
|
100,373 |
|
||
Less accumulated depreciation |
|
|
(3,630 |
) |
|
(11,452 |
) |
||
|
|
|
$ |
85,125 |
|
|
$ |
88,921 |
|
The Company has no assets under capital leases.
F- 23
Note 5 Accounts payable and accrued expenses
The following is a summary of the major classes of accounts payable and accrued expenses:
September 30, |
|
2005 |
|
2006 |
|
||||
Accounts payable, trade |
|
|
$ |
31,673 |
|
|
$ |
33,528 |
|
Employee compensation |
|
|
4,885 |
|
|
6,669 |
|
||
Taxes, other than income taxes |
|
|
1,087 |
|
|
1,015 |
|
||
Other |
|
|
7,850 |
|
|
4,275 |
|
||
|
|
|
$ |
45,495 |
|
|
$ |
45,487 |
|
The components of income (loss) before provision for income taxes are as follows:
|
|
Predecessor |
|
|
|
Successor |
|
||||||||||||
|
|
Eleven
months
|
|
|
|
One month
|
|
Year ended September 30, |
|
||||||||||
|
|
2004 |
|
|
|
2004 |
|
2005 |
|
2006 |
|
||||||||
Income (loss) before provision for income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. |
|
|
$ |
172,906 |
|
|
|
|
$ |
(6,461 |
) |
|
$ |
(9,950 |
) |
|
$ |
55,282 |
|
Foreign |
|
|
(2,082 |
) |
|
|
|
1,055 |
|
|
3,705 |
|
|
2,571 |
|
||||
Total |
|
|
$ |
170,784 |
|
|
|
|
$ |
(5,406 |
) |
|
$ |
(6,245 |
) |
|
$ |
57,853 |
|
Income tax provision (benefit): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. Federal |
|
|
$ |
36 |
|
|
|
|
$ |
13 |
|
|
$ |
1,630 |
|
|
$ |
19,466 |
|
Foreign |
|
|
10 |
|
|
|
|
(51 |
) |
|
391 |
|
|
632 |
|
||||
State |
|
|
44 |
|
|
|
|
15 |
|
|
1,541 |
|
|
5,020 |
|
||||
Total |
|
|
90 |
|
|
|
|
(23 |
) |
|
3,562 |
|
|
25,118 |
|
||||
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. Federal |
|
|
|
|
|
|
|
(1,913 |
) |
|
(4,068 |
) |
|
(2,439 |
) |
||||
Foreign |
|
|
|
|
|
|
|
483 |
|
|
183 |
|
|
282 |
|
||||
State |
|
|
|
|
|
|
|
(307 |
) |
|
(1,788 |
) |
|
(648 |
) |
||||
Total |
|
|
|
|
|
|
|
(1,737 |
) |
|
(5,673 |
) |
|
(2,805 |
) |
||||
Total provision (benefit) for income taxes |
|
|
$ |
90 |
|
|
|
|
$ |
(1,760 |
) |
|
$ |
(2,111 |
) |
|
$ |
22,313 |
|
F- 24
The provision (benefit) for income taxes applicable to results of operations differed from the U.S. federal statutory rate as follows:
|
|
Predecessor |
|
|
|
Successor |
|
||||||||||||
|
|
Eleven months
|
|
|
|
One month
|
|
Year ended September 30, |
|
||||||||||
|
|
2004 |
|
|
|
2004 |
|
2005 |
|
2006 |
|
||||||||
Statutory federal tax rate |
|
|
34% |
|
|
|
|
34% |
|
|
34% |
|
|
35% |
|
||||
Tax provision (benefit) at the statutory rate |
|
|
$ |
58,080 |
|
|
|
|
$ |
(1,838 |
) |
|
$ |
(2,123 |
) |
|
$ |
20,248 |
|
Foreign tax rate differentials |
|
|
718 |
|
|
|
|
85 |
|
|
(685 |
) |
|
13 |
|
||||
Provision (benefit) for state taxes, net of federal taxes |
|
|
29 |
|
|
|
|
(193 |
) |
|
(163 |
) |
|
2,987 |
|
||||
U.S. tax on distributed and undistributed earnings of foreign subsidiaries |
|
|
|
|
|
|
|
|
|
|
121 |
|
|
66 |
|
||||
Manufacturers deduction |
|
|
|
|
|
|
|
|
|
|
|
|
|
(665 |
) |
||||
Forgiveness of debt income, fresh start accounting adjustments |
|
|
(62,883 |
) |
|
|
|
|
|
|
|
|
|
|
|
||||
Non-deductible restructuring costs |
|
|
3,295 |
|
|
|
|
165 |
|
|
628 |
|
|
|
|
||||
Other, net |
|
|
851 |
|
|
|
|
21 |
|
|
111 |
|
|
(336 |
) |
||||
Provision at effective tax rate |
|
|
$ |
90 |
|
|
|
|
$ |
(1,760 |
) |
|
$ |
(2,111 |
) |
|
$ |
22,313 |
|
Upon emergence from bankruptcy, the tax bases of assets and liabilities were carried over to Haynessuccessor. Deferred income tax amounts were recorded in fresh start accounting for temporary differences between the accounting and tax bases of assets and liabilities. Goodwill recorded in fresh start accounting is not tax deductible, and therefore, deferred income taxes were not provided.
F- 25
Deferred tax assets (liabilities) are comprised of the following:
September 30, |
|
2005 |
|
2006 |
|
||||
Current deferred tax assets (liabilities): |
|
|
|
|
|
|
|
||
Inventories |
|
|
$ |
3,344 |
|
|
$ |
5,288 |
|
Pension and Postretirement benefits |
|
|
1,932 |
|
|
2,768 |
|
||
Accrued expenses and other |
|
|
574 |
|
|
626 |
|
||
Environmental accrual |
|
|
538 |
|
|
39 |
|
||
Accrued compensation and benefits |
|
|
1,200 |
|
|
1,440 |
|
||
Other foreign related |
|
|
(290 |
) |
|
598 |
|
||
Total net current deferred tax assets (liabilities) |
|
|
7,298 |
|
|
10,759 |
|
||
Noncurrent deferred tax assets (liabilities): |
|
|
|
|
|
|
|
||
Property, plant and equipment, net |
|
|
(17,400 |
) |
|
(16,901 |
) |
||
Intangible assets |
|
|
(4,015 |
) |
|
(3,303 |
) |
||
Other foreign related |
|
|
368 |
|
|
(17 |
) |
||
Undistributed earnings of foreign subsidiary |
|
|
(49 |
) |
|
(281 |
) |
||
Environmental accrual |
|
|
|
|
|
497 |
|
||
Pension and Postretirement benefits |
|
|
45,065 |
|
|
44,964 |
|
||
Alternative minimum tax credit carryforwards |
|
|
1,601 |
|
|
|
|
||
Accrued compensation and benefits |
|
|
1,444 |
|
|
2,192 |
|
||
Debt issuance costs |
|
|
651 |
|
|
217 |
|
||
Total net noncurrent deferred tax assets |
|
|
27,665 |
|
|
27,368 |
|
||
Net deferred tax assets (liabilities) |
|
|
$ |
34,963 |
|
|
$ |
38,127 |
|
At September 30, 2006, the Company evaluated whether the utilization of net deferred tax assets was more likely than not. Based upon the new capital structure and fiscal 2006 results of operations, management believes realization of net deferred tax assets is more likely than not.
During the years ended September 30, 2006 and 2005 deferred tax assets increased by $790 and decreased by $2,702, respectively, due to the finalization of pre-emergence tax returns, which affected net operating loss carryforwards.
The Company has excluded undistributed earnings of $22,457 of three foreign affiliates from its calculation of deferred tax liabilities because they will be permanently invested for the foreseeable future. Should management decide in the future to repatriate all or a portion of these undistributed earnings, the Company would then be required to provide for taxes on such amounts.
Note 7 Restructuring and other charges
During the eleven months ended August 31, 2004, Haynespredecessor recorded restructuring and other charges of $4,027, related to its filing for reorganization relief under Chapter 11 of U.S. Bankruptcy Code. These costs consisted of pre-petition professional fees and credit facilities fees. During the one month ended September 30, 2004 and the year ended September 30, 2005, Haynessuccessor recorded restructuring and other charges of $429 and $628, respectively. These costs consisted of professional fees related to its filing for reorganization relief under
F- 26
Chapter 11 of U.S. Bankruptcy Code. No corresponding restructuring and other charges occurred in fiscal 2006.
Reorganization items represent income from fresh-start adjustments and costs incurred by the Company as a result of the filing of a petition for reorganization relief under Chapter 11 of U.S. Bankruptcy Code and are summarized as follows:
|
|
Predecessor |
|
||
|
|
Eleven months ended
|
|
||
Consulting fees |
|
|
$ |
3,982 |
|
Employment costs |
|
|
489 |
|
|
Write off Senior Note discount and debt issuance costs |
|
|
481 |
|
|
Revolver debt issue costs |
|
|
1,599 |
|
|
Amendment fees |
|
|
184 |
|
|
Travel and other expenses |
|
|
104 |
|
|
Fees related to an agreement with previous Chairman |
|
|
430 |
|
|
Directors fees |
|
|
29 |
|
|
Gain on cancellation of debt |
|
|
(32,239 |
) |
|
Fresh Start reporting adjustments and fair value adjustments |
|
|
(152,712 |
) |
|
|
|
|
$ |
(177,653 |
) |
As discussed in Note 1, on March 29, 2004, the Company and its U.S. subsidiaries and U.S. affiliates filed voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code. The Companys $140 million of Senior Notes due on September 1, 2004, accrued and unpaid interest of $9.4 million on the Senior Notes, and accrued and unpaid Blackstone Group monitoring fees of $1.6 million were classified as liabilities subject to compromise. Effective March 29, 2004, the Company ceased accruing interest on the Senior Notes and other U.S. subsidiaries and U.S. affiliates pre-petition debt in accordance with SOP 90-7.
The Company and its U.S. operations had a credit agreement, as amended, (the Prepetition Credit Agreement), with Fleet Capital Corporation, which provided the Company and its U.S. subsidiaries and U.S. affiliates with a $72 million revolving facility.
In April 2004, Congress Financial Corporation (Central) (Congress) agreed to provide the Company with two post-petition facilities maturing in April 2007. Haynes UK entered into a credit agreement (the Haynes UK Credit Agreement) which provides Haynes UK with a $15 million credit facility. In addition, the Company entered into a credit agreement (the Postpetition Credit Agreement) which provides the Company with a $100 million credit facility with a sub-limit of $10 million for letters of credit, all subject to a borrowing base formula and certain reserves. The amounts outstanding under the Haynes UK Credit Agreement facility reduce amounts available to be borrowed under the Postpetition Credit Agreement facility on a dollar for dollar basis. Borrowings under the Postpetition Credit Agreement facility were used to repay the outstanding indebtedness under the Prepetition Credit Agreement.
F- 27
Borrowings under the Postpetition Credit Agreement are either prime rate loans or Eurodollar loans and bear interest at either the prime rate plus up to 1.5% or the adjusted Eurodollar rate used by Congress plus up to 3.0%, at the Companys option. In addition, the Company pays monthly in arrears a commitment fee of 3 ¤ 8% per annum on the unused amount of the Postpetition Facility commitment. For letters of credit, the Company pays 2 1 ¤ 2% per annum on the daily outstanding balance of all issued letters of credit ($972 and $321 at September 30, 2005 and 2006, respectively) plus customary fees for issuance, amendments, and processing.
When the Company emerged from bankruptcy on August 31, 2004, the Postpetition Credit Agreement structure and loan limits continued, and a new $10 million multi-draw equipment acquisition term loan sub-facility was added (collectively, the Post-Effective Date Facility). The Post-Effective Date Facility is subject to a borrowing base formula and certain reserves and is secured by substantially all of the assets of the Company. This credit facility is classified as current pursuant to EITF No. 95-22, Balance Sheet Classification of Borrowings Outstanding Under Revolving Credit Arrangements that Include Both Subjective Acceleration Clause and a Lock-Box Arrangement.
The Postpetition Credit Agreement structure was revised, per Amendment No. 4 dated August 31, 2005, by and among the Company and Wachovia Capital Finance Corporation (Central) (Wachovia), formerly known as Congress. The maximum credit amount under this agreement is $130 million with the maturity date of April 12, 2009.
Debt and long-term obligations consist of the following (in thousands):
September 30, |
|
2005 |
|
2006 |
|
||||
Postpetition Revolving Credit Agreement |
|
|
|
|
|
|
|
||
U.S. Facility, 6.19% 2005; 7.32% 2006, expires April 2009 |
|
|
$ |
104,468 |
|
|
$ |
112,763 |
|
U.K. Facility, 6.97% 2005; 8.34% 2006, expires April 2007 |
|
|
|
|
|
4,073 |
|
||
|
|
|
$ |
104,468 |
|
|
$ |
116,836 |
|
Three year mortgage note, 3.1%, due in December 2008 (Swiss Subsidiary) |
|
|
$ |
1,391 |
|
|
$ |
1,360 |
|
Other long-term obligations |
|
|
524 |
|
|
1,847 |
|
||
|
|
|
1,915 |
|
|
3,207 |
|
||
Less amounts due within one year |
|
|
1,501 |
|
|
110 |
|
||
|
|
|
$ |
414 |
|
|
$ |
3,097 |
|
The credit facility requires that the Company comply with certain financial covenants and restricts the payment of dividends. As of September 30, 2006, the most recent required measuring date, the Company was in compliance with these covenants. The carrying amount of debt approximates fair value, because substantially all debt bears interest at variable interest rates.
At September 30, 2006, the Company had access to approximately $29.5 million ($21.3 million U.S. and $8.2 million U.K.) under its credit agreements (subject to borrowing base and certain reserves). The Companys French subsidiary (Haynes International, SARL) has an overdraft banking facility of 2,770 Euro ($3,513) all of which was available on September 30, 2006. The Companys Swiss subsidiary (Nickel-Contor AG) had an overdraft banking facility of 1,000 Swiss Francs ($800) all of which was available on September 30, 2006.
F- 28
Maturities of long-term debt are as follows at September 30, 2006:
Year ending |
|
|
|
|
2007 |
|
$ |
110 |
|
2008 |
|
1,434 |
|
|
2009 |
|
92 |
|
|
2010 |
|
93 |
|
|
2011 |
|
93 |
|
|
2012 and thereafter |
|
1,385 |
|
|
|
|
$ |
3,207 |
|
Note 10 Pension plan and retirement benefits
The Company sponsors a defined contribution plan (401(k)) for substantially all U.S. employees. The Company contributes an amount equal to 50% of an employees contribution to the plan up to a maximum contribution of 3% of the employees salary, except for salaried employees hired after December 31, 2005 that are not eligible for the pension plan. The Company contributes an amount equal to 60% of an employees contribution to the plan up to a maximum contribution of 6% of the employees salary for this group. Expenses associated with this plan for the eleven months ended August 31, 2004 and the years ended September 30, 2005 and 2006 totaled $474, $545 and $586, respectively. The Company did not contribute to this plan for the one month ended September 30, 2004.
The Company sponsors certain profit sharing plans for the benefit of employees meeting certain eligibility requirements. There were no contributions to these plans the eleven months ended August 31, 2004, the one month ended September 30, 2004 and for the years ended September 30, 2005 and 2006.
F- 29
The Company has non-contributory defined benefit pension plans which cover most employees in the United States and certain foreign subsidiaries. Salaried employees hired after December 31, 2005 are not covered by the pension plan; however, they are eligible for an enhanced matching program of the defined contribution plan (401(k)).
Benefits provided under the Companys domestic defined benefit pension plan are based on years of service and the employees final compensation. The Companys funding policy is to contribute annually an amount deductible for federal income tax purposes based upon an actuarial cost method using actuarial and economic assumptions designed to achieve adequate funding of benefit obligations.
The Company has non-qualified pensions for current and former executives of the Company. Non-qualified pension plan expense for the eleven months ended August 31, 2004 and the one-month ended September 30, 2004, and for the years ended September 30, 2005 and 2006 was $1,358, $55, $409 and $297, respectively. Accrued liabilities in the amount of $2,533 and $2,355 for these benefits are included in accrued pension and postretirement benefits at September 30, 2006 and 2005, respectively.
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. During March 2006, the Company communicated to employees and plan participants a negative plan amendment that caps the Companys liability related to total retiree health care costs at $5,000 annually effective January 1, 2007. An updated actuarial valuation was performed at March 31, 2006, which reduced the accumulated postretirement benefit liability due to this plan amendment by $46,313 that will be amortized as a reduction to expense over an eight year period. This amortization period began in April 2006 thus reducing the amount of expense recognized for the second half of fiscal 2006 and the respective future periods.
The Company made no contributions to fund its domestic Company-sponsored pension plan for the year ended September 30, 2005 or the year ended September 30, 2006. The Companys U.K. subsidiary made contributions of $1,058 and $1,123 for the year ended September 30, 2005 and the year ended September 30, 2006, respectively, to the U.K. pension plan.
F- 30
The Company uses a September 30 measurement date for its plans. The status of employee pension benefit plans and other post-retirement benefit plans are summarized below:
|
|
Defined benefit
|
|
|
|
Post-retirement
|
|
||||||||
Year ended September 30 |
|
2005 |
|
2006 |
|
|
|
2005 |
|
2006 |
|
||||
Change in benefit obligation: |
|
|
|
|
|
|
|
|
|
|
|
||||
Projected benefit obligation at beginning of year |
|
$ |
149,601 |
|
$ |
162,701 |
|
|
|
$ |
88,761 |
|
$ |
126,713 |
|
Service cost |
|
3,283 |
|
3,746 |
|
|
|
1,264 |
|
2,152 |
|
||||
Interest cost |
|
8,967 |
|
9,009 |
|
|
|
5,261 |
|
5,904 |
|
||||
Plan amendment |
|
|
|
|
|
|
|
|
|
(46,313 |
) |
||||
Losses (gains) |
|
10,119 |
|
6,002 |
|
|
|
36,747 |
|
(6,486 |
) |
||||
Employee contributions |
|
64 |
|
68 |
|
|
|
|
|
|
|
||||
Benefits paid |
|
(9,333 |
) |
(9,215 |
) |
|
|
(5,320 |
) |
(5,113 |
) |
||||
Projected benefit obligation at end of year |
|
$ |
162,701 |
|
$ |
172,311 |
|
|
|
$ |
126,713 |
|
$ |
76,857 |
|
Change in plan assets: |
|
|
|
|
|
|
|
|
|
|
|
||||
Fair value of plan assets at beginning of year |
|
$ |
121,550 |
|
$ |
128,814 |
|
|
|
$ |
|
|
$ |
|
|
Actual return on assets |
|
15,476 |
|
9,964 |
|
|
|
|
|
|
|
||||
Employer contributions |
|
1,058 |
|
1,123 |
|
|
|
5,320 |
|
5,113 |
|
||||
Employee contributions |
|
63 |
|
67 |
|
|
|
|
|
|
|
||||
Benefits paid |
|
(9,333 |
) |
(9,215 |
) |
|
|
(5,320 |
) |
(5,113 |
) |
||||
Fair value of plan assets at end of year |
|
$ |
128,814 |
|
$ |
130,753 |
|
|
|
$ |
|
|
$ |
|
|
Funded status of plan: |
|
|
|
|
|
|
|
|
|
|
|
||||
Unfunded status |
|
$ |
(33,887 |
) |
$ |
(41,558 |
) |
|
|
$ |
(126,713 |
) |
$ |
(76,857 |
) |
Unrecognized actuarial loss (gain) |
|
3,163 |
|
9,549 |
|
|
|
36,816 |
|
28,640 |
|
||||
Unrecognized prior service cost |
|
|
|
|
|
|
|
|
|
(43,419 |
) |
||||
Net amount recognized |
|
$ |
(30,724 |
) |
$ |
(32,009 |
) |
|
|
$ |
(89,897 |
) |
$ |
(91,636 |
) |
Amounts recognized in the consolidated balance sheets are as follows:
|
|
Defined benefit
|
|
Post-retirement
|
|
Non-qualified
|
|
All plans
|
|
||||||||||||||||
|
|
September 30, |
|
September 30, |
|
September 30, |
|
September 30, |
|
||||||||||||||||
|
|
2005 |
|
2006 |
|
2005 |
|
2006 |
|
2005 |
|
2006 |
|
2005 |
|
2006 |
|
||||||||
Accrued benefit liability |
|
$ |
(30,724 |
) |
$ |
(32,319 |
) |
$ |
(89,897 |
) |
$ |
(91,636 |
) |
$ |
(2,355 |
) |
$ |
(2,533 |
) |
$ |
(122,976 |
) |
$ |
(126,488 |
) |
Accumulated other comprehensive income |
|
|
|
310 |
|
|
|
|
|
|
|
|
|
|
|
310 |
|
||||||||
Net amount
|
|
$ |
(30,724 |
) |
$ |
(32,009 |
) |
$ |
(89,897 |
) |
$ |
(91,636 |
) |
$ |
(2,355 |
) |
$ |
(2,533 |
) |
$ |
(122,976 |
) |
$ |
(126,178 |
) |
The Company follows SFAS No. 106, Employers Accounting for Postretirement Benefits Other Than Pensions, which requires the cost of postretirement benefits to be accrued over the years employees provide service to the date of their full eligibility for such benefits. The Companys policy is to fund the cost of claims on an annual basis.
F- 31
The components of net periodic pension cost and postretirement health care benefit cost are as follows:
|
|
Defined benefit pension plans |
|
|||||||||||||||||
|
|
Predecessor |
|
|
|
Successor |
|
|||||||||||||
|
|
Eleven
|
|
|
|
One month
|
|
Year ended September 30, |
|
|||||||||||
|
|
2004 |
|
|
|
2004 |
|
2005 |
|
2006 |
|
|||||||||
Service cost |
|
|
$ |
2,933 |
|
|
|
|
$ |
265 |
|
|
$ |
3,283 |
|
|
$ |
3,746 |
|
|
Interest cost |
|
|
7,991 |
|
|
|
|
753 |
|
|
8,967 |
|
|
9,009 |
|
|||||
Expected return on assets |
|
|
(9,095 |
) |
|
|
|
(830 |
) |
|
(9,730 |
) |
|
(10,349 |
) |
|||||
Amortization of unrecognized net gain |
|
|
633 |
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Amortization of unrecognized prior service cost |
|
|
763 |
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Amortization of unrecognized transition obligation |
|
|
97 |
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net periodic cost |
|
|
$ |
3,322 |
|
|
|
|
$ |
188 |
|
|
$ |
2,520 |
|
|
$ |
2,406 |
|
|
|
|
Postretirement health care benefits |
|
||||||||||||||||
|
|
Predecessor |
|
|
|
Successor |
|
||||||||||||
|
|
Eleven |
|
|
|
|
|
|
|
|
|
||||||||
|
|
months
|
|
|
|
One month
|
|
Year ended September 30, |
|
||||||||||
|
|
2004 |
|
|
|
2004 |
|
2005 |
|
2006 |
|
||||||||
Service cost |
|
|
$ |
1,524 |
|
|
|
|
$ |
97 |
|
|
$ |
1,264 |
|
|
$ |
2,152 |
|
Interest cost |
|
|
5,774 |
|
|
|
|
451 |
|
|
5,261 |
|
|
5,904 |
|
||||
Amortization of unrecognized net gain |
|
|
313 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Amortization of unrecognized prior service cost |
|
|
(3,096 |
) |
|
|
|
|
|
|
|
|
|
(2,895 |
) |
||||
Recognized actuarial loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
1,690 |
|
||||
Net periodic cost |
|
|
$ |
4,515 |
|
|
|
|
$ |
548 |
|
|
$ |
6,525 |
|
|
$ |
6,851 |
|
A 6.8% (7.2%-2005) annual rate of increase for ages under 65 and an 7.5% (8.1%-2005) annual rate of increase for ages over 65 in the costs of covered health care benefits were assumed for 2006, gradually decreasing for both age groups to 5.0% (5.0%-2005) by the year 2011. Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one percentage-point change in assumed health care cost trend rates would have no effect in 2006, due to the negative plan amendment that caps the Company costs at $5,000 per year.
F- 32
The actuarial present value of the projected pension benefit obligation and postretirement health care benefit obligation for the domestic plans at September 30, 2004, 2005, and 2006 were determined based on the following assumptions:
September 30, |
|
2005 |
|
2006 |
|
Discount rate |
|
5.750% |
|
6.000% |
|
Rate of compensation increase (pension plan only) |
|
4.000% |
|
4.000% |
|
The net periodic pension and postretirement health care benefit costs for the domestic plans were determined using the following assumptions:
|
|
Defined benefit pension and
|
|
||||||||||||
|
|
Predecessor |
|
|
|
Successor |
|
||||||||
|
|
Eleven Months
|
|
|
|
One Month
|
|
Year Ended September 30, |
|||||||
|
|
2004 |
|
|
|
2004 |
|
2005 |
|
2006 |
|
||||
Discount rate |
|
|
6.250% |
|
|
|
|
6.125% |
|
|
6.125% |
|
|
5.750% |
(1) |
Expected return on plan assets |
|
|
9.000% |
|
|
|
|
9.000% |
|
|
8.500% |
|
|
8.500% |
|
Rate of compensation increase (pension plan only) |
|
|
4.000% |
|
|
|
|
4.000% |
|
|
4.000% |
|
|
4.000% |
|
(1) Effective April 1, 2006, the discount rate for the postretirement health care plan was changed to 6.250% due to the actuarial revaluation for the negative plan amendment.
The accumulated benefit obligation for the pension plans was $153,180 and $146,705 at September 30, 2006 and 2005, respectively. There was an increase in the additional minimum liability included in other comprehensive income of $310 for the year ended September 30, 2006.
The projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for the pension plans with accumulated benefit obligations in excess of plan assets were $172,310, $153,180 and $130,753 respectively, as of September 30, 2006, and $162,701, $146,705 and $128,814, respectively, as of September 30, 2005.
Plan Assets and Investment Strategy
The Companys pension plans weighted-average asset allocations by asset category are as follows:
September 30, |
|
2005 |
|
2006 |
|
Equity Securities |
|
63% |
|
65% |
|
Debt Securities |
|
31% |
|
32% |
|
Real Estate |
|
6% |
|
1% |
|
Other |
|
0% |
|
2% |
|
Total |
|
100% |
|
100% |
|
The primary financial objectives of the Plan are to minimize cash contributions over the long-term and preserve capital while maintaining a high degree of liquidity. A secondary financial objective is, where possible, to avoid significant downside risk in the short-run. The objective is based on a long-term investment horizon so that interim fluctuations should be viewed with appropriate perspective.
F- 33
The desired investment objective is a long-term real rate of return on assets that is approximately 7.00% greater than the assumed rate of inflation as measured by the Consumer Price Index, assumed to be 1.50%, equaling a nominal rate of return of 8.50%. The target rate of return for the Plan has been based upon an analysis of historical returns supplemented with an economic and structural review for each asset class. The Company realizes that the market performance varies and that a 7.00% real rate of return may not be meaningful during some periods. The Company also realizes that historical performance is no guarantee of future performance.
It is the policy of the Plan to invest assets with an allocation to equities as shown below. The balance of the assets shall be maintained in fixed income investments, and in cash holdings, to the extent permitted below.
Asset classes as a percent of total assets:
Asset Class |
|
Target(1) |
|
|
Equity |
|
|
60% |
|
Fixed Income |
|
|
35% |
|
Real Estate and Other |
|
|
5% |
|
(1) From time to time the Company may adjust the target allocation by an amount not to exceed 10%.
Contributions and benefit payments
The Company expects to contribute approximately $2,011 to its domestic pension plans, $5,000 to its domestic other post-retirement benefit plans, and $1,123 to the U.K. pension plan in 2007.
Pension and post-retirement health care benefits (which include expected future service) are expected to be paid out of the respective plans as follows:
Fiscal year ending September 30 |
|
Pension |
|
Post-retirement
|
|
|||
2007 |
|
$ |
9,454 |
|
|
$ |
5,000 |
|
2008 |
|
9,572 |
|
|
5,000 |
|
||
2009 |
|
9,687 |
|
|
5,000 |
|
||
2010 |
|
9,823 |
|
|
5,000 |
|
||
2011 |
|
10,110 |
|
|
5,000 |
|
||
2012 - 2016 (in total) |
|
56,502 |
|
|
25,000 |
|
||
F- 34
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 $2,117, $201, $2,957 and $3,042 for the eleven months ended August 31, 2004, the one month ended September 30, 2004 and for the years ended September 30, 2005 and 2006, respectively. Rent expense does not include income from sub-lease rentals totaling $151, $14, $179 and $180 for the eleven months ended August 31, 2004, the one month ended September 30, 2004 and for the years ended September 30, 2005 and 2006, respectively. Future minimum rental commitments under non-cancelable operating leases at September 30, 2006, are as follows:
Year Ended |
|
Operating |
|
||
2007 |
|
|
$ |
3,201 |
|
2008 |
|
|
2,487 |
|
|
2009 |
|
|
2,403 |
|
|
2010 |
|
|
762 |
|
|
2011 |
|
|
348 |
|
|
2012 and thereafter |
|
|
0 |
|
|
|
|
|
$ |
9,201 |
|
Future minimum rental commitments under non-cancelable operating leases have not been reduced by minimum sub-lease rentals of $875 due in the future.
Note 12 Environmental and legal
The Company is periodically involved in litigation, both as a plaintiff and as a defendant, relating to its business and operations, including environmental matters. Future expenditures for environmental and other legal matters cannot be determined with any degree of certainty; however, based on the facts presently known, management does not believe that such costs will have a material effect on the Companys financial position, results of operations or cash flows.
The Company previously reported that it was a defendant in 52 lawsuits filed in the state of California alleging that the Companys welding-related products harmed the users of such products through the inhalation of welding fumes containing manganese. The suits were instituted against the Company starting in fiscal year 2005. On July 3, 2006, the state court in California issued orders dismissing the Company as a plaintiff in 42 of the lawsuits pending in the state of California. The other ten cases originally filed in California were removed to federal court in the U.S. District Court in Cleveland, in what is called a multidistrict litigation, or MDL. On July 30, 2006, the MDL court dismissed the Company as a defendant in these actions.
The Company is presently involved in two actions involving welding rod-related injuries. One new lawsuit was filed in California state court in May 2006, again alleging that the Companys welding-related products harmed the users of such products through the inhalation of welding fumes containing manganese. A second case with similar allegations is also pending in the state of Texas. The estimated claims for damages in these cases, alone or in the aggregate, do not
F-35
exceed 1% of the Companys current assets as of September 30, 2006. Additionally, the Company believes that it has insurance coverage for these cases.
The Company believes that any and all claims arising out of conduct or activities that occurred prior to March 29, 2004 are subject to dismissal. On March 29, 2004, the Company and certain of its subsidiaries and affiliates filed voluntary petitions for reorganization relief under Chapter 11 of Title 11 of the United States Code in the United States Bankruptcy Court for the Southern District of Indiana (the Bankruptcy Court). On August 16, 2004, the Bankruptcy Court entered its Findings of Fact, Conclusions of Law, and Order Under 11 U.S.C. 1129(a) and (b) and Fed. R. Bankr. P. 3020 Confirming the First Amended Joint Plan of Reorganization of Haynes International, Inc. and its Affiliated Debtors and Debtors-in-Possession as Further Modified (the Confirmation Order). The Confirmation Order and related plan of reorganization, among other things, provide for the release and discharge of prepetition claims and causes of action. The Confirmation Order further provides for an injunction against the commencement of any actions with respect to claims held prior to the Effective Date of the plan of reorganization. The Effective Date occurred on August 31, 2004. The Company intends to pursue the dismissal of all pending and any future lawsuits premised upon claims or causes of action discharged in the Confirmation Order and related plan of reorganization. It is possible, however, that the Company will be named in additional suits in welding-rod litigation cases, in which case, the aggregate claims for damages cannot be estimated and, if the Company is found liable, may have a material adverse effect on the Companys financial statements unless such claims are also subject to insurance coverage and/or subject to dismissal, as discussed above.
The Company has received permits from the Indiana Department of Environmental Management, or IDEM, and the US Environmental Protection Agency, or EPA, to close and to provide post-closure monitoring and care for certain areas at the Kokomo facility that were used for the storage and disposal of wastes, some of which are classified as hazardous under applicable regulations. A closure certification was received in fiscal 1999 for one area at the Kokomo facility and post-closure monitoring is ongoing there. The Company also has an application pending for approval of closure and post-closure care for another area at its Kokomo facility. The Company has also received permits from the North Carolina Department of Environment and Natural Resources, or NCDENR, and the EPA to close and provide post-closure monitoring and care for the lagoon at its Mountain Home, North Carolina facility. The lagoon area has been closed and is currently undergoing post-closure monitoring. The Company is required to monitor groundwater and to continue post-closure maintenance of the former disposal areas at each of these sites. The Company is aware of elevated levels of certain contaminants in the groundwater associated with the closed areas in Kokomo and Mountain Home. If it is determined that the disposal areas or other solid waste management units at the Mountain Home facility or in other areas of the Kokomo facility have impacted the groundwater, 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 Companys financial condition results of operations or liquidity. Additional, it is possible that the Company could be required to undertake other corrective action commitments for any other solid waste management unit existing or determined to exist at its facilities.
As of September 30, 2006 and 2005, the Company has accrued $1,483 and $1,363, respectively for post-closure monitoring and maintenance activities. In accordance with SFAS 143, Accounting for Asset Retirement Obligations , accruals for these costs are calculated by estimating the cost to
F-36
monitor and maintain each post-closure site and multiplying that amount by the number of years remaining in the 30 year post-closure monitoring period referred to above. At each fiscal year-end, or earlier if necessary, the Company evaluates the accuracy of the estimates for these monitoring and maintenance costs for the upcoming fiscal year. The accrual was based upon the undiscounted amount of the obligation of $1,871 which was then discounted using an appropriate discount rate. The cost associated with closing the sites has been incurred in financial periods prior to those presented, with the remaining cost to be incurred in future periods related solely to post-closure monitoring and maintenance. Based on historical experience, the Company estimates that the cost of post-closure monitoring and maintenance will approximate $98 per year over the remaining obligation period.
On November 7, 2005, the Compensation Committee of the Board of approved a compensation arrangement whereby members of the Board of Directors who are requested by the Chairman of the Board of Directors to provide services to the Company which are over and above the services that are routinely provided to the Company by its directors are to be compensated in the amount of $1 thousand per day for each day on which such services are provided.
From October 1, 2003 through September 30, 2004, the Company had an agreement with the previous Chairman of the Board to perform services related to implementing various strategic initiatives, including but not limited to financial restructuring. The Company believed that the Chairmans knowledge, skill and experience were essential to achieving the strategic initiatives. Costs relating to this agreement of $430 are included in reorganization items for the eleven months ended August 31, 2004.
Note 14 Stock-based compensation
As discussed in Note 1, the plan of reorganization resulted in the cancellation of all outstanding shares of common stock of Haynes International, Inc., as well as all options to purchase or otherwise receive shares of Haynes-predecessor common stock.
In connection with the plan of reorganization, the Haynessuccessor has adopted a stock option plan for certain key management employees and non-employee directors pursuant to the terms set forth in the First Amended Joint Plan of Reorganization. The stock option plan authorizes the granting of non-qualified stock options to certain key employees and non-employee directors of the Company to purchase up to 1,000,000 shares of the Companys common stock. On August 31, 2004, recipients of the initial grant received 10-year stock options, which will vest at 33 1 ¤ 3 % per year over three years. The exercise price for the initial grant of options was $12.80 per share. The fair value of the Companys common stock on the stock option grant date was $15.37 per share without regard to any adjustment for lack of marketability or minority discount, but based upon a contemporaneous valuation of the enterprise as a whole using the same discounted cash flow method used in determining the reorganization value of the Company as described in Note 1. All grants subsequent to August 31, 2004 had an exercise price equal to or higher than the fair market value of the Companys common stock on the grant date.
On November 7, 2005, the Board of Directors of the Company approved an amendment of the Haynes International, Inc. Stock Option Plan (the Plan), whereby, in the event of a Change in Control (as defined in the Plan) of the Company, all outstanding options to purchase shares of
F-37
the Companys common stock would become and remain exercisable as to all shares covered by such options without regard to any vesting schedule without any action by the Board of Directors or the Compensation Committee. The Plan had previously authorized the Board of Directors to accelerate the vesting of options upon a Change in Control in its discretion. This modification did not result in any incremental compensation. All of the directors and certain executive officers of the Company hold options under the Plan.
Pertinent information covering stock option plans for Haynes-predecessor and Haynes-successor are as follows:
|
|
Number
|
|
Exercise
|
|
Fiscal
|
|
Aggregate
|
|
Weighted
|
|
Weighted
|
|
||||||
Predecessor |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Outstanding at October 1, 2003 |
|
769,632 |
|
$ |
2.00 - 10.15 |
|
2003 - 2010 |
|
|
|
|
|
$ |
3.14 |
|
|
|
|
|
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Exercised |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Canceled |
|
(769,632 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Outstanding at August 31, 2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Successor |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Granted |
|
940,000 |
|
12.80 |
|
|
|
|
|
|
|
|
|
|
|
|
|||
Exercised |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Canceled |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Outstanding at September 30, 2004 |
|
940,000 |
|
12.80 |
|
2014 |
|
|
|
|
|
12.80 |
|
|
|
|
|||
Granted |
|
60, 000 |
|
19. 00 |
|
2015 |
|
|
|
|
|
19.00 |
|
|
|
|
|||
Exercised |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Canceled |
|
(100,000 |
) |
12.80 |
|
|
|
|
|
|
|
12.80 |
|
|
|
|
|||
Outstanding at September 30, 2005 |
|
900,000 |
|
12.80 - 19.00 |
|
2014 - 2015 |
|
|
|
|
|
13.21 |
|
|
|
|
|||
Granted |
|
80,000 |
|
25.50 - 31.00 |
|
2014 - 2015 |
|
|
|
|
|
28.88 |
|
|
|
|
|||
Exercised |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Canceled |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Outstanding at September 30, 2006 |
|
980,000 |
|
$ |
12.80 - 31.00 |
|
|
|
|
$ |
24,018 |
|
|
$ |
14.49 |
|
|
8.07 yrs. |
|
Exercisable at September 30, 2006 |
|
580,000 |
|
$ |
12.80 - 19.00 |
|
|
|
|
$ |
15,072 |
|
|
$ |
13.01 |
|
|
7.94 yrs. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-38
|
|
Outstanding |
|
Exercisable |
|
|||||||||||||
Grant date |
|
Number of
|
|
Exercise price
|
|
Remaining
|
|
Number of
|
|
Exercise price
|
|
|||||||
August 31, 2004 |
|
|
840,000 |
|
|
$ |
12.80 |
|
|
7.92 |
|
|
560,000 |
|
|
$ |
12.80 |
|
May 5, 2005 |
|
|
60,000 |
|
|
19.00 |
|
|
8.58 |
|
|
20,000 |
|
|
19.00 |
|
||
October 1, 2005 |
|
|
15,000 |
|
|
25.50 |
|
|
9.00 |
|
|
|
|
|
|
|
||
February 21, 2006 |
|
|
50,000 |
|
|
29.25 |
|
|
9.42 |
|
|
|
|
|
|
|
||
March 31, 2006 |
|
|
15,000 |
|
|
31.00 |
|
|
9.50 |
|
|
|
|
|
|
|
||
|
|
|
980,000 |
|
|
|
|
|
|
|
|
580,000 |
|
|
|
|
||
Adoption of SFAS 123(R)
Effective October 1, 2005 under the modified prospective method, the Company adopted the provisions of SFAS No. 123 (R), Share-Based Payment, a replacement of SFAS No. 123, Accounting For Stock-Based Compensation, and rescission of APB Opinion No. 25, Accounting for Stock Issued to Employees . This statement applies to all awards granted after the effective date and to modifications, repurchases or cancellations of existing awards. Additionally, under the modified prospective method of adoption, the Company recognizes compensation expense for the portion of outstanding awards on the adoption date for which the requisite service period has not yet been rendered based on the grant-date fair value of those awards calculated under SFAS No. 123 and 148 for pro forma disclosures. Compensation expense in fiscal 2004 and 2005 related to stock options continues to be disclosed on a pro forma basis only. Using the fair value based method the weighted average fair value of shares granted in fiscal 2004, 2005, and 2006 was $ 8.10 per share, $9.08 per share and $14.11 per share, respectively. The fair value of the option grants is estimated as of the date of the grant using the Black-Scholes option pricing model with the following assumptions:
Grant date |
|
Fair
|
|
Dividend
|
|
Risk-free
|
|
Expected
|
|
Expected
|
|
|||||
August 31, 2004 |
|
$ |
8.10 |
|
|
0% |
|
|
2.74% |
|
|
70.00% |
|
|
3 years |
|
May 5, 2005 |
|
9.08 |
|
|
0% |
|
|
2.74% |
|
|
70.00% |
|
|
3 years |
|
|
October 1, 2005 |
|
11.81 |
|
|
0% |
|
|
2.74% |
|
|
70.00% |
|
|
3 years |
|
|
February 21, 2006 |
|
14.43 |
|
|
0% |
|
|
4.68% |
|
|
70.00% |
|
|
3 years |
|
|
March 31, 2006 |
|
15.33 |
|
|
0% |
|
|
4.83% |
|
|
70.00% |
|
|
3 years |
|
|
The stock-based employee compensation expense for year ended September 30, 2006 was $2,786 ($1,699 net of tax) leaving a remaining unrecognized compensation expense at September 30, 2006 of $3,348 to be recognized over a weighted average period of 1.14 years.
F-39
During the first quarter of fiscal 2006, in accordance with the modified prospective transition method, the Company eliminated its balance in stockholders equity of deferred stock compensation, which represented unrecognized compensation cost for non-vested stock options. Financial statements for prior periods have not been restated.
SFAS 123 (R) requires that forfeitures be estimated over the vesting period, rather than being recognized as a reduction of compensation expense when the forfeiture actually occurs. The cumulative effect of the use of the estimated forfeiture method for prior periods upon adoption of SFAS 123 (R) was not material.
Prior to the adoption of SFAS 123(R)
During fiscal 2005 the Company had adopted the disclosure only provisions of SFAS No. 123, Accounting for Stock-Based Compensation . The Company had recorded compensation expense for stock options, since the exercise price of the stock options was less than the fair market value of the underlying common stock at the date of grant. Had compensation cost for the plan been determined based on the fair value at the grant dates for awards under the plan consistent with the fair value method of SFAS No. 123, the effect on the Companys net income (loss) would have been the following:
|
|
Predecessor |
|
|
|
Successor |
|
||||||||
|
|
Eleven months
|
|
|
|
One month
|
|
Year ended
|
|
||||||
|
|
2004 |
|
|
|
2004 |
|
2005 |
|
||||||
Net income (loss) as reported |
|
|
$ |
170,734 |
|
|
|
|
$ |
(3,646 |
) |
|
$ |
(4,134 |
) |
Add: Total stock-based employee compensation expense determined under the intrinsic value based method, net of related tax effect |
|
|
|
|
|
|
|
74 |
|
|
788 |
|
|||
Deduct: Total stock-based employee compensation expense determined under the fair value based method, net of related tax effect |
|
|
(22 |
) |
|
|
|
(128 |
) |
|
(1,475 |
) |
|||
Adjusted net income (loss) |
|
|
$ |
170,712 |
|
|
|
|
$ |
(3,700 |
) |
|
$ |
(4,821 |
) |
As reported net income (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|||
Basic and Diluted |
|
|
$ |
1,707,340 |
|
|
|
|
$ |
(.36 |
) |
|
$ |
(.41 |
) |
Pro forma net income (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|||
Basic and Diluted |
|
|
$ |
1,707,120 |
|
|
|
|
$ |
(.37 |
) |
|
$ |
(.48 |
) |
Note 15 Quarterly data (unaudited)
The unaudited quarterly results of operations of the Company for the years ended September 30, 2006 and the 2005 are as follows:
Quarter ended 2006 |
|
December 31 |
|
March 31 |
|
June 30 |
|
September 30 |
|
||||||
Net revenues |
|
|
$ |
94,407 |
|
$ |
110,981 |
|
$ |
114,932 |
|
|
$ |
114,085 |
|
Gross profit |
|
|
17,312 |
|
28,593 |
|
33,234 |
|
|
29,693 |
|
||||
Net income |
|
|
3,333 |
|
9,959 |
|
11,975 |
|
|
10,273 |
|
||||
Net income per share: |
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
|
$ |
0.33 |
|
$ |
1.00 |
|
$ |
1.20 |
|
|
$ |
1.03 |
|
Diluted |
|
|
$ |
0.33 |
|
$ |
0.97 |
|
$ |
1.16 |
|
|
$ |
1.00 |
|
F-40
Quarter ended 2005 |
|
December 31 |
|
March 31 |
|
June 30 |
|
September 30 |
|
|||||||
Net revenues |
|
|
$ |
66,043 |
|
|
$ |
86,196 |
|
$ |
79,638 |
|
|
$ |
93,112 |
|
Gross profit (loss) |
|
|
(2,577 |
) |
|
7,683 |
|
16,938 |
|
|
14,276 |
|
||||
Net income (loss) |
|
|
(8,584 |
) |
|
(2,931 |
) |
5,555 |
|
|
1,826 |
|
||||
Net income (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
|
$ |
(0.86 |
) |
|
$ |
(0.29 |
) |
$ |
0.56 |
|
|
$ |
0.18 |
|
Diluted |
|
|
$ |
(0.86 |
) |
|
$ |
(0.29 |
) |
$ |
0.55 |
|
|
$ |
0.18 |
|
The Company operates in one business segment: the design, manufacture, marketing and distribution of technologically advanced, high-performance alloys for use in the aerospace, land based gas turbine and chemical processing industries. The Company has operations in the United States and Europe, which are summarized below. Sales between geographic areas are made at negotiated selling prices.
September 30 |
|
2005 |
|
2006 |
|
||
Long-lived Assets by Geography: |
|
|
|
|
|
||
United States |
|
$ |
135,519 |
|
$ |
136,628 |
|
Europe |
|
4,047 |
|
3,980 |
|
||
Total long-lived assets |
|
$ |
139,566 |
|
$ |
140,608 |
|
|
|
Predecessor |
|
|
|
Successor |
|
||||||||||||
|
|
Eleven
|
|
|
|
One month
|
|
Year ended September 30, |
|
||||||||||
|
|
2004 |
|
|
|
2004 |
|
2005 |
|
2006 |
|
||||||||
Net Revenue by Geography: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
United States |
|
|
$ |
128,988 |
|
|
|
|
$ |
14,304 |
|
|
$ |
196,477 |
|
|
$ |
265,133 |
|
Europe |
|
|
58,552 |
|
|
|
|
7,091 |
|
|
88,002 |
|
|
101,448 |
|
||||
Other |
|
|
21,563 |
|
|
|
|
2,996 |
|
|
40,510 |
|
|
67,824 |
|
||||
Net Revenues |
|
|
$ |
209,103 |
|
|
|
|
$ |
24,391 |
|
|
$ |
324,989 |
|
|
$ |
434,405 |
|
Net Revenue by Product Group: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
High temperature resistant alloys |
|
|
$ |
152,645 |
|
|
|
|
$ |
17,805 |
|
|
$ |
243,742 |
|
|
$ |
295,395 |
|
Corrosive resistant alloys |
|
|
56,458 |
|
|
|
|
6,586 |
|
|
81,247 |
|
|
139,010 |
|
||||
Net revenues |
|
|
$ |
209,103 |
|
|
|
|
$ |
24,391 |
|
|
$ |
324,989 |
|
|
$ |
434,405 |
|
Note 17 Valuation and qualifying accounts
|
|
Balance at
|
|
Additions
|
|
Deductions(1) |
|
Balance at
|
|
||||||||
Allowance for doubtful accounts receivables: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
September 30, 2006 |
|
|
$ |
1,514 |
|
|
$ |
373 |
|
|
$ |
(136 |
) |
|
$ |
1,751 |
|
September 30, 2005 |
|
|
1,099 |
|
|
733 |
|
|
(318 |
) |
|
1,514 |
|
||||
September 30, 2004 |
|
|
1,221 |
|
|
23 |
|
|
(145 |
) |
|
1,099 |
|
||||
August 31, 2004 |
|
|
974 |
|
|
568 |
|
|
(321 |
) |
|
1,221 |
|
||||
(1) Uncollectible accounts written off net of recoveries.
On November 17, 2006, the Company entered into a twenty-year agreement to provide conversion services to Titanium Metals Corporation (TIMET) for up to ten million pounds of titanium metal annually at prices established in the agreement. The transaction is documented by an Access and Security Agreement and a Conversion Services Agreement, both dated November 17, 2006. TIMET paid the Company a $50.0 million up-front fee and will also pay the Company for its processing services during the term of the agreement at agreed-upon prices. In addition to the volume commitment, the Company has granted TIMET a security interest on its four-high Steckel rolling mill, along with certain rights of access. TIMET may exercise an option to have ten million additional pounds of titanium converted annually, provided that it offers to loan up to $12.0 million to the Company for certain capital expenditures which would be required to expand capacity. The Company has the option to purchase titanium sheet and plate products from TIMET and has agreed not to produce its own titanium products (other than cold reduced titanium tubing). The Company has also agreed not to provide titanium conversion services to any entity other than TIMET for the term of the Conversion Services Agreement. The cash received of $50.0 million will be recorded as deferred revenue on the consolidated balance sheet. Pending completion of the Companys evaluation of its capital structure, the Company has used the after-tax proceeds, net of expenses, of the $50 million up-front fee paid by TIMET to reduce the balance of its revolving credit facility. Upon certain instances of a change in control, a violation of the non-compete provisions or a performance default or upon the occurrence of a force majeure which results in a performance default, the Company is required to return the unearned portion (as defined) of the up-front fee.
F-41
2,000,000 shares
Common stock
Prospectus
JPMorgan
Bear, Stearns & Co. Inc.
KeyBanc Capital Markets
, 2007
You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus. We are offering to sell, and seeking offers to buy, common shares only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of our common shares.
No action is being taken in any jurisdiction outside the United States to permit a public offering of the common shares or possession or distribution of this prospectus in that jurisdiction. Persons who come into possession of this prospectus in jurisdictions outside the United States are required to inform themselves about and to observe any restrictions as to this offering and the distribution of this prospectus applicable to that jurisdiction.
Until , 2007, all dealers that buy, sell or trade in our common shares, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
Information not required in prospectus
Item 13. Other expenses of issuance and distribution.
The following table sets forth all costs and expenses, other than underwriting discounts and commissions, payable by the Company in connection with the sale and distribution of the common stock being registered. All amounts shown are estimates except for the SEC registration fee, the NASD filing fee and The NASDAQ Global Market listing fee.
* To be completed by amendment.
(1) This amount represents additional expenses that may be incurred by the Company in connection with the offering over and above those specifically listed above, including distribution and mailing costs.
Item 14. Indemnification of directors and officers.
The Company is a corporation organized under the laws of the State of Delaware.
Section 145 of the Delaware General Corporation Law (the DGCL) permits a Delaware corporation to 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 or she 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 or enterprise. A corporation may indemnify against expenses (including attorneys fees), judgments, fines and amounts paid in settlement actually and reasonably incurred in connection with such action, suit or proceeding if the person indemnified acted in good faith and in a manner he or she 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 no reasonable cause to believe his or her conduct was unlawful. In the case of an action or suit by or in the right of the corporation to procure a judgment in its favor, no indemnification may be made in respect to 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 of the State of Delaware, or the court in which such action or suit was brought, shall determine upon application that, despite the adjudication of liability, such person is fairly and reasonably entitled to indemnity for such expenses which the court shall deem proper. Section 145 provides that, to the extent a present or former director or officer of a corporation has been successful in the
II-1
defense of any action, suit or proceeding referred to above or in the defense of any claim, issue or matter therein, he or she shall be indemnified against expenses (including attorneys fees) actually and reasonably incurred by him or her in connection therewith.
Pursuant to authority conferred by Delaware law, the Companys certificate of incorporation contains provisions providing that no director shall be liable to it or its stockholders for monetary damages for breach of fiduciary duty as a director except to the extent that such exemption from liability or limitation thereof is not permitted under Delaware law as then in effect or as it may be amended. This provision is intended to eliminate the risk that a director or member might incur personal liability to the Company or its stockholders for breach of the duty of care.
The Companys certificate of incorporation and by-laws contain provisions requiring it to indemnify and advance expenses to its directors and officers to the fullest extent permitted by law. Among other things, these provisions generally provide indemnification for the Companys directors and officers against liabilities for judgments in and settlements of lawsuits and other proceedings and for the advancement and payment of fees and expenses reasonably incurred by the director or officer in defense of any such lawsuit or proceeding if the director or officer acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the registrant, and in certain cases only if the director or officer is not adjudged to be liable to us.
Effective August 13, 2006, the Company agreed to indemnify Francis J. Petro, John C. Corey, Timothy J. McCarthy, Donald C. Campion, Paul J. Bohan, Ronald W. Zabel, William P. Wall and Robert H. Getz, each of whom is a member of the Companys board of directors, against loss or expense arising from such individuals service to the Company and its subsidiaries and affiliates, and to advance attorneys fees and other costs of defense to such individuals in respect of claims that may be eligible for indemnification under certain circumstances.
Item 15. Recent sales of unregistered securities.
On August 31, 2004, the effective date of the plan of reorganization, the Company issued the following securities:
· Each former holder of our 11 5 ¤ 8 % senior notes due September 1, 2004 received its pro rata share of 9.6 million shares of our common stock in full satisfaction of all of the Companys obligations under the senior notes.
· Each former holder of the shares of common stock of Haynes Holdings, Inc., the former parent of the Company, received its pro rata share of 400,000 shares of our common stock issued in exchange for the outstanding shares of Haynes Holdings, Inc. common stock.
Based upon the exemption provided by Section 1145 of the Bankruptcy Code, we believe that the issuance of these securities was exempt from registration under the Securities Act and state securities laws.
Item 16. Exhibits and financial statements schedules.
(a) Exhibits. Please see Index to Exhibits, which is incorporated herein by reference.
(b) Financial Statements
II-2
All financial statement schedules have been omitted because they are inapplicable or not required or because the information is contained elsewhere in this registration statement.
(a) The undersigned 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.
(b) Insofar as indemnification for liabilities arising under the Securities Act 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 Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against 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 Securities Act and will be governed by the final adjudication of such issue.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus 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 purposes of determining any liability under the Securities Act, 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
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 the 24th day of January, 2007.
|
HAYNES INTERNATIONAL, INC. |
|
|
By: |
/s/ MARCEL MARTIN |
|
|
Marcel
Martin
|
KNOWN ALL BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Francis J. Petro, Stacy Kilian and Marcel Martin, and each of them, as his true and lawful attorneys-in-fact and agents, each with the full power of substitution, for him and in his name, place or stead, in any and all capacities, to sign any and all amendments to this Registration Statement (including post-effective amendments), and to sign any registration statement for the same offering covered by this Registration Statement that is to be effective upon filing pursuant to Rule 462(b) promulgated under the Securities Act, and all post-effective amendments thereto, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their, his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
|
Signature |
|
|
|
Title |
|
|
|
Date |
|
/s/ FRANCIS PETRO |
|
President and Chief Executive Officer; |
|
|
||||||
Francis Petro |
|
Director (Principal Executive Officer) |
|
January 22, 2007 |
||||||
/s/ MARCEL MARTIN |
|
Chief Financial Officer (Principal |
|
|
||||||
Marcel Martin |
|
Financial Officer) |
|
January 24, 2007 |
||||||
/s/ DANIEL W. MAUDLIN |
|
Controller and Chief Accounting Officer |
|
|
||||||
Daniel W. Maudlin |
|
(Principal Accounting Officer) |
|
January 22, 2007 |
||||||
/s/ JOHN C. COREY |
|
|
|
|
||||||
John C. Corey |
|
Chairman of the Board, Director |
|
January 24, 2007 |
II-4
/s/ PAUL J. BOHAN |
|
|
|
|
Paul J. Bohan |
|
Director |
|
January 24, 2007 |
/s/ DONALD C. CAMPION |
|
|
|
|
Donald C. Campion |
|
Director |
|
January 22, 2007 |
/s/ ROBERT H. GETZ |
|
|
|
|
Robert H. Getz |
|
Director |
|
January 24, 2007 |
/s/ TIMOTHY J. MCCARTHY |
|
|
|
|
Timothy J. McCarthy |
|
Director |
|
January 24, 2007 |
/s/ WILLIAM P. WALL |
|
|
|
|
William P. Wall |
|
Director |
|
January 24, 2007 |
/s/ RONALD W. ZABEL |
|
|
|
|
Ronald W. Zabel |
|
Director |
|
January 22, 2007 |
II-5
Exhibit Number |
|
Description |
|
1.1 |
** |
|
Form of Underwriting Agreement. |
2.1 |
|
|
First Amended Joint Plan of Reorganization of Haynes International, Inc. and its Affiliated Debtors and Debtors-In-Possession dated June 29, 2004. |
2.2 |
|
|
Asset Purchase Agreement by and among Haynes Wire Company, The Branford Wire and Manufacturing Company, Carolina Industries, Inc., and Richard Harcke, dated as of October 28, 2004. |
3.1 |
|
|
Second Restated Certificate of Incorporation of Haynes International, Inc. |
3.2 |
|
|
Amended and Restated By-laws of Haynes International, Inc. |
3.3 |
|
|
Certificate of Designations of Series A Junior Participating Preferred Stock of Haynes International, Inc. |
4.1 |
|
|
Specimen Common Stock Certificate. |
4.2 |
|
|
Second Restated Certificate of Incorporation of Haynes International, Inc. (incorporated by reference to Exhibit 3.1 hereof). |
4.3 |
|
|
Amended and Restated By-laws of Haynes International, Inc. (incorporated by reference to Exhibit 3.2 hereof). |
4.4 |
|
|
Rights Agreement dated as of August 13, 2006 between Haynes International, Inc. and Wells Fargo Bank, N.A., as Rights Agent. |
4.5 |
|
|
Form of Right Certificate. |
4.6 |
|
|
Certificate of Designations of Series A Junior Participating Preferred Stock of Haynes International, Inc. (incorporated by reference to Exhibit 3.3 hereof). |
5.1 |
** |
|
Opinion of Ice Miller LLP. |
10.1 |
|
|
Form of Termination Benefits Agreements by and between Haynes International, Inc. and certain of its employees. |
10.2 |
|
|
Haynes International, Inc. Death Benefit Plan, effective January 1, 2003. |
10.3 |
|
|
Amendment No. One to the Haynes International, Inc. Death Benefit Plan, dated August 30, 2004. |
10.4 |
|
|
Haynes International, Inc. Supplemental Executive Retirement Plan, Plan Document effective January 1, 2002. |
10.5 |
|
|
Amendment No. One to the Haynes International, Inc. Supplemental Executive Retirement Plan, dated August 30, 2004. |
10.6 |
|
|
Haynes International Inc. Supplemental Executive Retirement Plan(s), Master Trust Agreement, effective January 1, 2003. |
10.7 |
|
|
Amendment No. One to the Master Trust Agreement, dated August 30, 2004. |
10.8 |
|
|
Plan Agreement by and between Haynes International, Inc. and Francis J. Petro, effective January 1, 2002. |
10.9 |
|
|
Amendment No. One to the Plan Agreement by and between Haynes International, Inc. and Francis J. Petro, dated August 30, 2004. |
10.10 |
|
|
Amended and Restated Executive Employment Agreement by and between Haynes International, Inc. and Francis J. Petro, dated August 31, 2004. |
10.11 |
|
|
Registration Rights Agreement by and among Haynes International, Inc. and the parties specified on the signature pages thereof, dated August 31, 2004. |
10.12 |
|
|
Amended and Restated Loan and Security Agreement by and among Haynes International, Inc., certain affiliates of Haynes International, Inc., the Lenders (as defined therein), Congress Financial Corporation (Central), as agent for the Lenders, and Bank One, N.A., as documentation agent, dated August 31, 2004. |
II-6
10.13 |
|
|
Amendment No. 1 to Amended and Restated Loan and Security Agreement by and among Haynes International, Inc., certain affiliates of Haynes International, Inc., the Lenders (as defined therein), and Congress Financial Corporation (Central), as agent for the Lenders, dated November 5, 2004. |
10.14 |
|
|
Consulting, Non-Competition and Confidentiality Agreement by and between Richard Harcke and Haynes Wire Company, dated November 5, 2004. |
10.15 |
|
|
Facility Agreement by and between Haynes International Limited and Burdale Financial Limited, dated April 2, 2004. |
10.16 |
|
|
Summary of Compensation of Executive Officers and Directors. |
10.17 |
|
|
Amendment No. 2 to Amended and Restated Loan and Security Agreement by and among Haynes International, Inc., certain affiliates of Haynes International, Inc., the Lenders (as defined therein), and Congress Financial Corporation (Central), as agent for the Lenders named therein, dated January 27, 2005. |
10.18 |
|
|
Amendment No. 3 to Amended and Restated Loan and Security Agreement by and among Haynes International, Inc., certain affiliates of Haynes International, Inc., the Lenders (as defined therein), and Wachovia Capital Finance Corporation (Central), as agent for the other Lenders named therein, dated November 5, 2004. |
10.19 |
|
|
Amendment No. 4 to Amended and Restated Loan and Security Agreement by and among Haynes International, Inc., certain affiliates of Haynes International, Inc., the Lenders (as defined therein), and Wachovia Capital Finance Corporation (Central), as agent for the other Lenders named therein, dated August 31, 2005. |
10.20 |
|
|
Amendment No. 5 to Amended and Restated Loan and Security Agreement, by and among the Company, Haynes Wire Company, the Lenders (as defined therein), and Wachovia Capital Finance Corporation (Central), as agent for the Lenders, dated February 2, 2006. |
10.21 |
|
|
Form of Director Indemnification Agreement between Haynes International, Inc. and certain of its directors named in the schedule to the Exhibit. |
10.22 |
* |
|
Conversion Services Agreement by and between the Company and Titanium Metals Corporation, dated November 17, 2006. Portions of this exhibit have been omitted pursuant to a request for confidentail treatment and filed separately with the Securities and Exchange Commission. |
10.23 |
|
|
Amendment No. 6 to Amended and Restated Loan and Security Agreement, by and among the Company, Haynes Wire Company, the Lenders (as defined therein), and Wachovia Capital Finance Corporation (Central), as agent for the Lenders, dated November 17, 2006. |
10.24 |
|
|
Summary of 2007 Management Incentive Plan. |
10.25 |
|
|
Haynes International, Inc. 2007 Stock Option Plan as adopted by the Board of Directors on January 19, 2007. |
10.26 |
|
|
Form of Non-Qualified Stock Option Agreement to be used in conjunction with grants made pursuant to the Haynes International, Inc. 2007 Stock Option Plan. |
10.27 |
|
|
Second Amended and Restated Haynes International, Inc. Stock Option Plan as adopted by the Board of Directors on January 22, 2007. |
II-7
10.28 |
|
|
Form of Non-Qualified Stock Option Agreements between Haynes International, Inc. and certain of its executive officers and directors named in the schedule to the Exhibit pursuant to the Haynes International, Inc. Second Amended and Restated Stock Option Plan. |
10.29 |
|
|
Non-Qualified Stock Option Agreement between Haynes International, Inc. and its President and Chief Executive Officer pursuant to the Haynes International, Inc. Second Amended and Restated Stock Option Plan. |
21.1 |
|
|
Subsidiaries of the Registrant. |
23.1 |
** |
|
Consent of Ice Miller LLP (included in Exhibit 5.1). |
23.2 |
|
|
Consent of Deloitte & Touche LLP. |
24.1 |
|
|
Power of Attorney, pursuant to which amendments to this Form S-1 may be filed, is included on the signature page contained in Part II of this Form S-1. |
* Confidential treatment has been requested for certain portions of these documents, which have been blacked out in the copy of the exhibit filed with the Securities and Exchange Commission. The omitted information has been filed separately with the Securities and Exchange Commission pursuant to the application for confidential treatment.
** To be filed by amendment.
II-8
Exhibit 2.1
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE SOUTHERN DISTRICT OF INDIANA
INDIANAPOLIS DIVISION
In re: |
) |
Chapter 11 |
|
|
) |
|
|
HAYNES INTERNATIONAL, INC., et al. |
) |
Case No. 04-05364 (AJM) |
|
|
) |
|
|
|
Debtors. |
) |
Jointly Administered |
FIRST AMENDED JOINT PLAN OF REORGANIZATION
OF HAYNES INTERNATIONAL, INC. AND ITS AFFILIATED
DEBTORS AND DEBTORS-IN-POSSESSION
John Wm. Butler, Jr. (IL ARDC No. 06209373)
J. Eric Ivester (IL ARDC No. 06215581)
Kristin E. Rooney (IL ARDC No. 06256593)
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
333 West Wacker Drive
Chicago, Illinois 60606-1285
Telephone: (312) 407-0700
Jeffrey A. Hokanson
Ben T. Caughey
ICE MILLER
One American Square
Box 82001
Indianapolis, Indiana 46282-0002
Telephone: (317) 236-2100
Attorneys for Debtors and
Debtors-in-Possession
Dated:
Indianapolis,
Indiana
June 29, 2004
TABLE OF CONTENTS
|
PAGE |
||
|
|
||
INTRODUCTION |
1 |
||
|
|
||
ARTICLE I. DEFINED TERMS AND RULES OF INTERPRETATION |
9 |
||
|
|
||
A. |
SCOPE OF DEFINITIONS; RULES OF CONSTRUCTION |
9 |
|
B. |
DEFINITIONS |
9 |
|
|
1.1. |
503 DEADLINE |
9 |
|
1.2. |
AD HOC NOTEHOLDERS |
9 |
|
1.3. |
ADMINISTRATIVE CLAIM |
9 |
|
1.4. |
AFFILIATE DEBTORS |
9 |
|
1.5. |
AFFILIATES |
10 |
|
1.6. |
ALLOWED |
10 |
|
1.7. |
ALLOWED CLAIM or ALLOWED INTEREST |
10 |
|
1.8. |
AVOIDANCE CLAIMS |
10 |
|
1.9. |
BALLOT |
10 |
|
1.10. |
BANKRUPTCY CODE |
10 |
|
1.11. |
BANKRUPTCY COURT |
10 |
|
1.12. |
BANKRUPTCY RULES |
10 |
|
1.13. |
BAR DATE |
11 |
|
1.14. |
Bar Date Order |
11 |
|
1.15. |
BLACKSTONE |
11 |
|
1.16. |
BUSINESS DAY |
11 |
|
1.17. |
CASH |
11 |
|
1.18. |
CASH COLLATERAL ORDER |
11 |
|
1.19. |
CAUSES OF ACTION |
11 |
|
1.20. |
CERTIFICATE |
11 |
|
1.21. |
CERTIFICATES OF INCORPORATION AND BYLAWS |
11 |
|
1.22. |
CHAPTER 11 CASES |
11 |
|
1.23. |
CLAIM |
11 |
|
1.24. |
CLAIMHOLDER |
11 |
|
1.25. |
CLAIMS AGENT |
11 |
|
1.26. |
CLAIMS/INTERESTS OBJECTION DEADLINE |
12 |
|
1.27. |
CLASS |
12 |
|
1.28. |
CLASS 7 NOTICE |
12 |
|
1.29. |
COLLECTIVE BARGAINING AGREEMENT |
12 |
|
1.30. |
COMMITMENT LETTER |
12 |
|
1.31. |
CONFIRMATION DATE |
12 |
|
1.32. |
CONFIRMATION HEARING |
12 |
|
1.33. |
CONFIRMATION ORDER |
12 |
|
1.34. |
CONGRESS |
12 |
|
1.35. |
CONTINUING INDEMNIFICATION RIGHTS |
12 |
|
1.36. |
CREDITORS COMMITTEE |
12 |
|
1.37. |
CURE |
12 |
i
|
1.38. |
CURE CLAIM |
13 |
|
1.39. |
CURE CLAIM OBJECTION DEADLINE |
13 |
|
1.40. |
CURE CLAIM SUBMISSION DEADLINE |
13 |
|
1.41. |
D&O INSURANCE |
13 |
|
1.42. |
DEBTOR OR DEBTORS |
13 |
|
1.43. |
DISALLOWED CLAIM |
13 |
|
1.44. |
DISALLOWED INTEREST |
13 |
|
1.45. |
DISBURSING AGENT |
13 |
|
1.46. |
DISCLOSURE STATEMENT |
13 |
|
1.47. |
DISPUTED CLAIM |
13 |
|
1.48. |
DISPUTED INTEREST |
14 |
|
1.49. |
DISTRIBUTION DATE |
14 |
|
1.50. |
DISTRIBUTION RESERVE |
14 |
|
1.51. |
EFFECTIVE DATE |
14 |
|
1.52. |
ESTATES |
14 |
|
1.53. |
EXHIBIT |
14 |
|
1.54. |
EXHIBIT FILING DATE |
14 |
|
1.55. |
EXISTING SECURITIES |
14 |
|
1.56. |
FILE, FILED OR FILING |
14 |
|
1.57. |
FINAL ORDER |
14 |
|
1.58. |
GENERAL UNSECURED CLAIM |
15 |
|
1.59. |
HAYNES |
15 |
|
1.60. |
HAYNES HOLDINGS |
15 |
|
1.61. |
HAYNES SOUR GAS |
15 |
|
1.62. |
HAYNES SPECIALTY STEELS |
15 |
|
1.63. |
HOLDBACK AMOUNT |
15 |
|
1.64. |
HOLDBACK ESCROW ACCOUNT |
15 |
|
1.65. |
IMPAIRED |
15 |
|
1.66. |
INDEMNIFICATION RIGHTS |
15 |
|
1.67. |
INDEMNITEE |
15 |
|
1.68. |
INDENTURE |
15 |
|
1.69. |
INSURANCE COVERAGE |
15 |
|
1.70. |
INSURED WORKERS COMPENSATION PROGRAMS |
15 |
|
1.71. |
INTERCOMPANY CLAIM |
16 |
|
1.72. |
INTERESTHOLDER |
16 |
|
1.73. |
INTERESTS |
16 |
|
1.74. |
LONG-TERM INCENTIVE PLAN |
16 |
|
1.75. |
MASTER BALLOT |
16 |
|
1.76. |
NEW BOARD OF REORGANIZED HAYNES |
16 |
|
1.77. |
NEW COMMON STOCK |
16 |
|
1.78. |
NEW PREFERRED STOCK |
16 |
|
1.79. |
OLD COMMON STOCK INTERESTS |
16 |
|
1.80. |
OLD COMMON STOCKHOLDER SHARES |
16 |
|
1.81. |
OTHER OLD EQUITY INTERESTS |
16 |
|
1.82. |
OTHER PRIORITY CLAIM |
16 |
|
1.83. |
PBGC |
16 |
ii
|
1.84. |
PENSION PLAN |
16 |
|
1.85. |
PERIODIC DISTRIBUTION DATE |
17 |
|
1.86. |
PERSON |
17 |
|
1.87. |
PETITION DATE |
17 |
|
1.88. |
PLAN |
17 |
|
1.89. |
POST-EFFECTIVE DATE CREDIT AGREEMENT |
17 |
|
1.90. |
POST-EFFECTIVE DATE FACILITY |
17 |
|
1.91. |
POST-EFFECTIVE DATE LENDERS |
17 |
|
1.92. |
POSTPETITION AGENT |
17 |
|
1.93. |
POSTPETITION CREDIT AGREEMENT |
17 |
|
1.94. |
POSTPETITION FACILITY |
17 |
|
1.95. |
POSTPETITION FACILITY CLAIM |
17 |
|
1.96. |
POSTPETITION FACILITY ORDER |
17 |
|
1.97. |
POSTPETITION INTEREST |
18 |
|
1.98. |
POSTPETITION LENDERS |
18 |
|
1.99. |
PRIORITY TAX CLAIM |
18 |
|
1.100. |
PRO RATA |
18 |
|
1.101. |
PROFESSIONAL |
18 |
|
1.102. |
PROFESSIONAL FEE CLAIM |
18 |
|
1.103. |
PROFESSIONAL FEE ORDER |
18 |
|
1.104. |
REGISTRATION RIGHTS AGREEMENT |
18 |
|
1.105. |
REINSTATED OR REINSTATEMENT |
18 |
|
1.106. |
RELEASED PARTIES |
19 |
|
1.107. |
REORGANIZED |
19 |
|
1.108. |
REORGANIZED DEBTORS |
19 |
|
1.109. |
RESTRUCTURING TRANSACTION(s) |
19 |
|
1.110. |
RETAINED ACTIONS |
19 |
|
1.111. |
RETAINED AVOIDANCE CLAIMS |
20 |
|
1.112. |
RETIREE MEDICAL PROGRAMS |
20 |
|
1.113. |
SCHEDULES |
20 |
|
1.114. |
SECURED CLAIM |
20 |
|
1.115. |
SECURITIES ACT |
20 |
|
1.116. |
SENIOR NOTEHOLDER |
20 |
|
1.117. |
SENIOR NOTEHOLDER SHARES |
20 |
|
1.118. |
SENIOR NOTE CLAIM |
20 |
|
1.119. |
SENIOR NOTES |
20 |
|
1.120. |
SENIOR NOTES TRUSTEE |
20 |
|
1.121. |
SERVICER |
20 |
|
1.122. |
SOLICITATION ORDER |
20 |
|
1.123. |
TENTATIVE AGREEMENT |
20 |
|
1.124. |
UNIMPAIRED CLAIM |
21 |
|
1.125. |
VOTING DEADLINE |
21 |
C. |
RULES OF INTERPRETATION |
21 |
|
D. |
COMPUTATION OF TIME |
21 |
|
E. |
REFERENCES TO MONETARY FIGURES |
21 |
|
F. |
EXHIBITS |
22 |
iii
G. |
GOVERNING LAW |
22 |
|
|
|
|
|
ARTICLE II. ADMINISTRATIVE EXPENSES AND PRIORITY TAX CLAIMS |
22 |
||
|
|
||
|
2.1. |
ADMINISTRATIVE CLAIMS |
22 |
|
2.2. |
PRIORITY TAX CLAIMS |
22 |
|
|
|
|
ARTICLE III. CLASSIFICATION OF CLAIMS AND INTERESTS |
23 |
||
|
|
||
|
3.1. |
CLASS 1 |
23 |
|
3.2. |
CLASS 2 |
23 |
|
3.3. |
CLASS 3 |
23 |
|
3.4. |
CLASS 4 |
23 |
|
3.5. |
CLASS 5 |
23 |
|
3.6. |
CLASS 6 |
23 |
|
3.7. |
CLASS 7 |
23 |
|
|
|
|
ARTICLE IV. IDENTIFICATION OF CLASSES OF CLAIMS AND INTERESTS IMPAIRED AND UNIMPAIRED BY THE PLAN |
24 |
||
|
|
|
|
|
4.1. |
UNIMPAIRED CLASSES OF CLAIMS |
24 |
|
4.2. |
IMPAIRED CLASSES OF CLAIMS AND INTERESTS |
24 |
|
|
|
|
ARTICLE V. PROVISIONS FOR TREATMENT OF CLAIMS AND INTERESTS |
24 |
||
|
|
||
|
5.1. |
CLASS 1: |
24 |
|
5.2. |
CLASS 2: |
25 |
|
5.3. |
CLASS 3: |
25 |
|
5.4. |
CLASS 4: |
25 |
|
5.5. |
CLASS 5: |
25 |
|
5.6. |
CLASS 6: |
26 |
|
5.7. |
CLASS 7: |
26 |
|
5.8. |
RESERVATION OF RIGHTS |
26 |
|
|
|
|
ARTICLE VI. ACCEPTANCE OR REJECTION OF THE PLAN; EFFECT OF REJECTION BY ONE OR MORE IMPAIRED CLASSES OF CLAIMS OR INTERESTS |
26 |
||
|
|
|
|
|
6.1. |
IMPAIRED CLASSES ENTITLED TO VOTE |
26 |
|
6.2. |
ACCEPTANCE BY IMPAIRED CLASSES |
26 |
|
6.3. |
CLASSES DEEMED TO ACCEPT THE PLAN |
27 |
|
6.4. |
CLASSES DEEMED TO REJECT PLAN |
27 |
|
6.5. |
CONFIRMATION PURSUANT TO SECTION 1129(b) OF THE BANKRUPTCY CODE |
27 |
|
6.6. |
CONFIRMABILITY AND SEVERABILITY OF A PLAN |
27 |
iv
ARTICLE VII. MEANS FOR IMPLEMENTATION OF THE PLAN |
27 |
||
|
|
||
|
7.1. |
CONTINUED CORPORATE EXISTENCE |
27 |
|
7.2. |
SUBSTANTIVE CONSOLIDATION |
27 |
|
7.3. |
RESTRUCTURING TRANSACTIONS |
28 |
|
7.4. |
CORPORATE ACTION |
28 |
|
7.5. |
CERTIFICATES OF INCORPORATION AND BYLAWS |
29 |
|
7.6. |
CANCELLATION OF EXISTING SECURITIES AND AGREEMENTS |
29 |
|
7.7. |
REINSTATEMENT OF COMMON STOCK OF AFFILIATE DEBTORS |
30 |
|
7.8. |
DIRECTORS AND OFFICERS |
30 |
|
7.9. |
PENSION PLAN AND RETIREE MEDICAL PROGRAMS |
31 |
|
7.10. |
EMPLOYMENT, INDEMNIFICATION AND OTHER AGREEMENTS |
31 |
|
7.11. |
CONTINUATION OF INSURED WORKERS COMPENSATION PROGRAMS |
32 |
|
7.12. |
IMPLEMENTATION OF THE LONG-TERM INCENTIVE PROGRAM |
32 |
|
7.13. |
ISSUANCE OF NEW COMMON STOCK |
32 |
|
7.14. |
POST-EFFECTIVE DATE FINANCING |
33 |
|
7.15. |
PRESERVATION OF CAUSES OF ACTION |
33 |
|
7.16. |
EFFECTUATING DOCUMENTS AND FURTHER TRANSACTIONS |
34 |
|
7.17. |
EXEMPTION FROM TRANSFER TAXES AND RECORDING FEES |
34 |
|
|
|
|
ARTICLE VIII. TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES |
35 |
||
|
|
||
|
8.1. |
ASSUMED CONTRACTS AND LEASES |
35 |
|
8.2. |
REJECTED CONTRACTS AND LEASES |
35 |
|
8.3. |
PAYMENTS RELATED TO ASSUMPTION OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES |
35 |
|
8.4. |
REJECTION DAMAGES BAR DATE |
36 |
|
8.5. |
COLLECTIVE BARGAINING AGREEMENT; TENTATIVE AGREEMENT |
36 |
|
8.6. |
PRESERVATION OF INSURANCE |
36 |
|
|
|
|
ARTICLE IX. PROVISIONS GOVERNING DISTRIBUTIONS; PROCEDURES FOR RESOLVING DISPUTED, CONTINGENT AND UNLIQUIDATED CLAIMS AND INTERESTS |
36 |
||
|
|
|
|
|
9.1. |
TIME OF DISTRIBUTIONS |
36 |
|
9.2. |
NO INTEREST ON CLAIMS OR INTERESTS |
36 |
|
9.3. |
DISBURSING AGENT |
37 |
|
9.4. |
SURRENDER OF SECURITIES OR INSTRUMENTS |
37 |
|
9.5. |
INSTRUCTIONS TO DISBURSING AGENT |
37 |
|
9.6. |
SERVICES OF INDENTURE TRUSTEES, AGENTS AND SERVICERS |
37 |
|
9.7. |
CLAIMS ADMINISTRATION RESPONSIBILITY |
38 |
|
9.8. |
DELIVERY OF DISTRIBUTIONS |
38 |
|
9.9. |
PROCEDURES FOR TREATING AND RESOLVING DISPUTED AND CONTINGENT CLAIMS AND INTERESTS |
38 |
|
9.10. |
FRACTIONAL SECURITIES; FRACTIONAL DOLLARS |
40 |
|
9.11. |
MEANS OF CASH PAYMENT |
40 |
|
9.12. |
WITHHOLDING AND REPORTING REQUIREMENTS |
40 |
v
|
9.13. |
OBJECTION DEADLINE; PROSECUTION OF OBJECTIONS |
40 |
|
|
|
|
ARTICLE X. ALLOWANCE AND PAYMENT OF CERTAIN ADMINISTRATIVE CLAIMS |
41 |
||
|
|
||
|
10.1. |
POSTPETITION FACILITY CLAIM |
41 |
|
10.2. |
PROFESSIONAL CLAIMS |
41 |
|
10.3. |
SUBSTANTIAL CONTRIBUTION COMPENSATION AND EXPENSES BAR DATE |
42 |
|
10.4. |
OTHER ADMINISTRATIVE CLAIMS |
42 |
|
|
|
|
ARTICLE XI. EFFECT OF THE PLAN ON CLAIMS AND INTERESTS |
42 |
||
|
|
||
|
11.1. |
REVESTING OF ASSETS |
42 |
|
11.2. |
DISCHARGE OF DEBTORS |
43 |
|
11.3. |
COMPROMISES AND SETTLEMENTS |
43 |
|
11.4. |
RELEASE BY DEBTORS OF CERTAIN PARTIES |
43 |
|
11.5. |
RELEASE BY HOLDERS OF CLAIMS AND INTERESTS |
44 |
|
11.6. |
SETOFFS |
44 |
|
11.7. |
EXCULPATION AND LIMITATION OF LIABILITY |
44 |
|
11.8. |
INDEMNIFICATION OBLIGATIONS |
44 |
|
11.9. |
INJUNCTION |
45 |
|
11.10. |
WAIVER OF DISTRIBUTIONS BY NON-EMPLOYEE HOLDERS OF OLD COMMON STOCK INTERESTS AND THEIR AFFILIATES |
45 |
|
|
|
|
ARTICLE XII. CONDITIONS PRECEDENT TO CONFIRMATION AND CONSUMMATION OF THE PLAN |
45 |
||
|
|
||
|
12.1. |
CONDITIONS TO CONFIRMATION |
45 |
|
12.2. |
CONDITIONS TO CONSUMMATION |
46 |
|
12.3. |
WAIVER OF CONDITIONS TO CONFIRMATION OR CONSUMMATION |
47 |
|
|
|
|
ARTICLE XIII. RETENTION OF JURISDICTION |
48 |
||
|
|
||
ARTICLE XIV. MISCELLANEOUS PROVISIONS |
49 |
||
|
|
||
|
14.1. |
BINDING EFFECT |
49 |
|
14.2. |
MODIFICATION AND AMENDMENTS |
49 |
|
14.3. |
ALLOCATION OF PLAN DISTRIBUTIONS BETWEEN PRINCIPAL AND INTEREST |
50 |
|
14.4. |
COMMITTEES |
50 |
|
14.5. |
REVOCATION, WITHDRAWAL, OR NON-CONSUMMATION |
50 |
|
14.6. |
SEVERABILITY OF PLAN PROVISIONS |
50 |
|
14.7. |
NOTICES |
51 |
|
14.8. |
TERM OF INJUNCTIONS OR STAYS |
52 |
|
14.9. |
GOVERNING LAW |
52 |
|
14.10. |
NO WAIVER OR ESTOPPEL |
52 |
|
14.11. |
CONFLICTS |
53 |
vi
INTRODUCTION
Haynes International, Inc. (Haynes) and certain of its subsidiaries and affiliates, as debtors and debtors-in-possession in the above-captioned jointly administered Chapter 11 Cases (collectively, the Debtors), hereby propose the following Joint Plan of Reorganization (the Plan) for the resolution of the outstanding Claims against and Interests in the Debtors. Reference is made to the Disclosure Statement with Respect to the Joint Plan of Reorganization of Haynes International, Inc. and its Affiliated Debtors and Debtors-in-Possession (the Disclosure Statement), distributed contemporaneously herewith, for a discussion of the Debtors history, business, properties and operations, projections for those operations, risk factors, a summary and analysis of the Plan, and certain related matters including, among other things, the securities to be issued under the Plan. The Debtors are the proponents of the Plan within the meaning of section 1129 of the Bankruptcy Code.
The direct and indirect subsidiaries incorporated outside of the United States have not commenced cases under Chapter 11 of the Bankruptcy Code. These subsidiaries continue to operate their businesses outside of bankruptcy.
This Plan contemplates the reorganization of the Debtors and the resolution of the outstanding Claims against and Interests in the Debtors pursuant to sections 1121(a) and 1123 of the Bankruptcy Code. For the purposes of voting and distributions, the Debtors have assumed that General Unsecured Claims are Impaired. Claimholders asserting General Unsecured Claims will receive Cash in an amount equal to one hundred percent (100%) of the Allowed Amount of such claims. Claimholders with respect to Senior Note Claims will receive New Common Stock on account of their Claims. Senior Note Claims are deemed Allowed Claims under the Plan. Holders of Old Common Stock Interests will receive a distribution of New Common Stock under the Plan. The distributions to be made to the claimants in each of the Classes of creditor claims and equity interests are set forth in ARTICLE V herein.
These reorganization cases have been consolidated for procedural purposes and are being jointly administered pursuant to an order of the United States Bankruptcy Court for the Southern District of Indiana, Indianapolis Division. This Plan provides for the substantive consolidation of Haynes Holdings, Inc., Haynes, Haynes Specialty Steels Company and Haynes Sour Gas Tubulars, Inc. for all Plan purposes, including for voting and distribution purposes. This Plan is deemed a motion for substantive consolidation to the extent necessary.
The Plan also provides that Haynes Holdings, Inc. will be merged into Haynes at the Effective Date of the Plan to create Reorganized Haynes.
Under section 1125(b) of the Bankruptcy Code, a vote to accept or reject the Plan may not be solicited from a Claimholder or Interestholder until the Disclosure Statement has been approved by the Bankruptcy Court and distributed to Claimholders and Interestholders. In this case, the Disclosure Statement was approved by the Bankruptcy Court by order entered on June 28, 2004, and has been distributed simultaneously with this Plan to all parties whose votes are being solicited. The Disclosure Statement contains, among other things, a discussion of the Debtors history, business, properties and operations, projections for those operations, risk factors associated with the business and Plan, a summary and analysis of this Plan, and certain related
matters including, among other things, the securities to be issued under this Plan. ALL CLAIMHOLDERS AND INTERESTHOLDERS THAT ARE ELIGIBLE TO VOTE ON THE PLAN ARE ENCOURAGED TO READ THIS PLAN AND THE DISCLOSURE STATEMENT IN THEIR ENTIRETY BEFORE VOTING TO ACCEPT OR REJECT THIS PLAN.
Subject to the restrictions on modifications set forth in section 1127 of the Bankruptcy Code, Bankruptcy Rule 3019, and ARTICLE XIV of this Plan, the Debtors expressly reserve their right to alter, amend or modify this Plan, one or more times, before the Plans substantial consummation; PROVIDED, HOWEVER, that modification to the Plan that materially effects certain Classes of Claims will only be made with the consent of the Creditors Committee.
ARTICLE I.
DEFINED TERMS AND RULES OF INTERPRETATION
A. SCOPE OF DEFINITIONS; RULES OF CONSTRUCTION
For purposes of this Plan, except as expressly provided or unless the context otherwise requires, all capitalized terms not otherwise defined shall have the meanings ascribed to them in ARTICLE I of this Plan. Any term used in this Plan that is not defined herein, but is defined in the Bankruptcy Code or the Bankruptcy Rules, shall have the meaning ascribed to that term in the Bankruptcy Code or the Bankruptcy Rules.
B. DEFINITIONS
1.1. 503 DEADLINE shall have the meaning ascribed to it in Section 10.3 hereof.
1.2. AD HOC NOTEHOLDERS Committee means the ad hoc committee formed by certain holders of the Senior Notes, which such committee disbanded on April 6, 2004.
1.3. ADMINISTRATIVE CLAIM means a Claim for costs and expenses of administration of the Chapter 11 Cases Allowed under section 503(b) or 1114(e)(2) of the Bankruptcy Code and entitled to priority pursuant to section 507(a)(1) of the Bankruptcy Code, including, but not limited to: (a) any actual and necessary costs and expenses incurred after the Petition Date of preserving the Debtors Estates and operating the businesses of the Debtors (such as wages, salaries, commissions for services and payments for inventories, leased equipment and premises) and Claims of governmental units for taxes (including tax audit Claims related to tax years commencing after the Petition Date, but excluding Claims relating to tax periods, or portions thereof, ending on or prior to the Petition Date); (b) compensation for legal, financial, advisory, accounting and other services and reimbursement of expenses Allowed by the Bankruptcy Court under section 328, 330, 331 and/or 503(b) of the Bankruptcy Code to the extent incurred prior to the Effective Date; and (c) all fees and charges assessed against the Estates under section 1930, Chapter 123 of Title 28, United States Code, and all Allowed Claims (including reclamation claims) that are entitled to be treated as Administrative Claims pursuant to Final Order of the Bankruptcy Court under 546(c)(2)(A).
1.4. AFFILIATE DEBTORS means all of the Debtors other than Haynes.
9
1.5. AFFILIATES shall have the meaning ascribed to such term by section 101(2) of the Bankruptcy Code.
1.6. ALLOWED means, when used in reference to a Claim or Interest within a particular Class, an Allowed Claim or Allowed Interest of the type described in such Class.
1.7. ALLOWED CLAIM or ALLOWED INTEREST means a Claim or any portion thereof, or an Interest or any portion thereof, (a) that has been allowed by a Final Order of the Bankruptcy Court (or such other court as the Reorganized Debtors and the holder of such Claim or Interest agrees may adjudicate such Claim or Interest and objections thereto), or (b) as to which, on or by the Effective Date, (i) no proof of claim or interest has been filed with the Bankruptcy Court and (ii) the liquidated and noncontingent amount of which is Scheduled (other than a Claim or Interest that is Scheduled at zero, in an unknown amount, or as disputed), or (c) for which a proof of claim or interest in a liquidated amount has been timely filed with the Bankruptcy Court pursuant to the Bankruptcy Code, any Final Order of the Bankruptcy Court or other applicable bankruptcy law, and as to which either (i) no objection to its allowance has been filed within the periods of limitation fixed by the Plan, the Bankruptcy Code or by any order of the Bankruptcy Court or (ii) any objection to its allowance has been settled, withdrawn, or denied by a Final Order, or (d) that is expressly allowed in a liquidated amount in this Plan (regardless whether such Claim or Interest is Scheduled and whether or not a proof of claim is filed in respect thereof).
1.8. AVOIDANCE CLAIMS means Causes of Action against Persons arising under any of sections 502, 510, 541, 542, 543, 544, 545, 547 through 551 and 553 of the Bankruptcy Code, or under related state or federal statutes and common law, including fraudulent transfer laws, whether or not litigation is commenced to prosecute such Avoidance Claims, but excluding any and all Claims released under the Plan. A nonexclusive list of the Retained Actions and Retained Avoidance Claims is attached hereto as EXHIBIT A.
1.9. BALLOT means each of the ballot forms that are distributed with the Disclosure Statement to Claimholders and Interestholders included in Classes that are Impaired under this Plan and entitled to vote to accept or reject the Plan on which the holder is to indicate acceptance or rejection of this Plan.
1.10. BANKRUPTCY CODE means the Bankruptcy Reform Act of 1978, as codified in Title 11 of the United States Code, 11 U.S.C. Sections 101-1330, as in effect on the date hereof.
1.11. BANKRUPTCY COURT means the United States Bankruptcy Court for the Southern District of Indiana, Indianapolis Division or such other court as may have jurisdiction over the Chapter 11 Cases.
1.12. BANKRUPTCY RULES means, collectively, the Federal Rules of Bankruptcy Procedure and the Official Bankruptcy Forms, as amended, the Federal Rules of Civil Procedure, as amended, as applicable to the Chapter 11 Cases or proceedings therein, and the Local Rules of the Bankruptcy Court, as applicable to the Chapter 11 Cases or proceedings therein, as the case may be.
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1.13. BAR DATE means the deadline established by the Bankruptcy Court pursuant to the Bar Date Order or other Final Order for filing all proofs of Claim or Interest in the Chapter 11 Cases, including Claims of governmental units in accordance with section 502(b)(9) of the Bankruptcy Code.
1.14. Bar Date Order means that order entered by the Bankruptcy Court on April 22, 2004, which, among other things, established the Bar Date for prepetition Claims and Interests as June 3, 2004.
1.15. BLACKSTONE means The Blackstone Group L.P. and its affiliates.
1.16. BUSINESS DAY means any day, other than a Saturday, Sunday or legal holiday (as defined in Bankruptcy Rule 9006(a)).
1.17. CASH means legal tender of the United States of America and equivalents thereof.
1.18. CASH COLLATERAL ORDER means together, (a) the Interim Order (I) Authorizing Use of Cash Collateral Pursuant to 11 U.S.C. Sections 363, (II) Granting Adequate Protection Pursuant to 11 U.S.C. Sections 361 and 363 and (III) Scheduling a Final Hearing Pursuant to Bankruptcy Rule 4001(b) entered by the Bankruptcy Court on March 29, 2004, and (b) the Final Order with respect thereto entered by the Bankruptcy Court on April 22, 2004.
1.19. CAUSES OF ACTION means any and all actions, proceedings, causes of action, suits, accounts, controversies, agreements, promises, rights to legal remedies, rights to equitable remedies, rights to payment and claims, whether known, unknown, reduced to judgment, not reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, secured or unsecured and whether asserted or assertable directly or derivatively, in law, equity or otherwise.
1.20. CERTIFICATE shall have the meaning ascribed to it in Section 9.4 hereof.
1.21. CERTIFICATES OF INCORPORATION AND BYLAWS means the Certificates
of Incorporation and Bylaws (or other similar documents) of the Reorganized Debtors in substantially the forms attached hereto as EXHIBIT B and EXHIBIT C, respectively.
1.22. CHAPTER 11 CASES means the cases under Chapter 11 of the Bankruptcy Code commenced by the Debtors in the Bankruptcy Court.
1.23. CLAIM means a claim against the Debtors (or any of them), whether or not asserted, as defined in section 101(5) of the Bankruptcy Code.
1.24. CLAIMHOLDER means a holder of a Claim.
1.25. CLAIMS AGENT means Kurtzman Carson Consultants LLC, 12910 Culver Boulevard, Suite I, Los Angeles, CA 90066, the Claims, Noticing and Balloting Agent as approved by the Bankruptcy Court on April 22, 2004.
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1.26. CLAIMS/INTERESTS OBJECTION DEADLINE means the first Business Day which is 120 days after the Effective Date as the same may be from time to time extended by the Bankruptcy Court without further notice to parties in interest.
1.27. CLASS means a category of Claimholders or Interestholders, as described in ARTICLE III of this Plan.
1.28. CLASS 7 NOTICE means the notice to members of Class 7 Other Old Equity Interests, after a Final Order of the Bankruptcy Court or other Court of competent jurisdiction, providing that Class 7 Other Old Equity Interests is deemed to have rejected the Plan and members of such Class are not entitled to vote on the Plan.
1.29. COLLECTIVE BARGAINING AGREEMENT means that certain Collective Bargaining Agreement with the United Steelworkers of America, which was ratified on July 2, 2002, and which expires on June 11, 2005, as modified by the Tentative Agreement.
1.30. COMMITMENT LETTER means that certain Commitment Letter dated March 26, 2004 among the Debtors and Congress pursuant to which Congress committed to provide the Debtors with (i) the Postpetition Facility and (ii) the Post-Effective Date Facility.
1.31. CONFIRMATION DATE means the date of entry of the Confirmation Order.
1.32. CONFIRMATION HEARING means the hearing held by the Bankruptcy Court pursuant to section 1128 of the Bankruptcy Code to consider confirmation of this Plan, as such hearing may be adjourned or continued from time to time.
1.33. CONFIRMATION ORDER means the order of the Bankruptcy Court confirming this Plan in accordance with its terms pursuant to section 1129 of the Bankruptcy Code.
1.34. CONGRESS means Congress Financial Corporation (Central).
1.35. CONTINUING INDEMNIFICATION RIGHTS means those Indemnification Rights held by any Indemnitee who is a Released Party and serves as a director, officer or employee (or in any similar capacity) of the Reorganized Debtors immediately following the occurrence of the Effective Date together with any Indemnification Rights held by any Indemnitee on account of events occurring on or after the Petition Date.
1.36. CREDITORS COMMITTEE means the statutory committee appointed in these cases by the Office of the United States Trustee on or about April 2, 2004, as reconstituted from time to time.
1.37. CURE means the distribution of Cash, or such other property as may be agreed upon by the parties or ordered by the Bankruptcy Court, with respect to the assumption (or assumption and assignment) of an executory contract or unexpired lease, pursuant to section 365(b) of the Bankruptcy Code, in an amount equal to all unpaid monetary obligations, without interest, or such other amount as may be agreed upon by the parties, under such executory contract or unexpired lease, to the extent such obligations are enforceable under the Bankruptcy Code and applicable non-bankruptcy law.
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1.38. CURE CLAIM shall have the meaning ascribed to it in Section 8.3 hereof.
1.39. CURE CLAIM OBJECTION DEADLINE shall have the meaning ascribed to it in Section 8.3 hereof.
1.40. CURE CLAIM SUBMISSION DEADLINE shall have the meaning ascribed to it in Section 8.3 hereof.
1.41. D&O INSURANCE means insurance maintained by the Debtors which, among others, covers the Debtors directors and officers.
1.42. DEBTOR OR DEBTORS means, individually, any of Haynes or the Affiliate Debtors and, collectively, all of Haynes and the Affiliate Debtors in the above-captioned jointly administered Chapter 11 Cases.
1.43. DISALLOWED CLAIM means a Claim or any portion thereof that (a) has been disallowed by a Final Order, (b) is Scheduled at zero or as contingent, disputed or unliquidated and as to which a proof of claim bar date has been established but no proof of claim has been timely filed or deemed timely filed with the Bankruptcy Court pursuant to either the Bankruptcy Code or any Final Order of the Bankruptcy Court or otherwise deemed timely filed under applicable law, or (c) is not Scheduled and as to which a proof of claim bar date has been set but no proof of claim has been timely filed or deemed timely filed with the Bankruptcy Court pursuant to either the Bankruptcy Code or any Final Order of the Bankruptcy Court or otherwise deemed timely filed under applicable law.
1.44. DISALLOWED INTEREST means an Interest or any portion thereof that (a) has been disallowed by a Final Order, (b) is Scheduled at zero or as contingent, disputed or unliquidated and as to which a proof of interest bar date has been established but no proof of interest has been timely filed or deemed timely filed with the Bankruptcy Court pursuant to either the Bankruptcy Code or any Final Order of the Bankruptcy Court or otherwise deemed timely filed under applicable law, or (c) is not Scheduled and as to which a proof of interest bar date has been set but no proof of interest has been timely filed or deemed timely filed with the Bankruptcy Court pursuant to either the Bankruptcy Code or any Final Order of the Bankruptcy Court or otherwise deemed timely filed under applicable law.
1.45. DISBURSING AGENT means the Reorganized Debtors, or any party designated by the Reorganized Debtors, to serve as disbursing agent under the Plan.
1.46. DISCLOSURE STATEMENT means the written disclosure statement that relates to the Plan, as amended, supplemented, or modified from time to time, and that is prepared and distributed in accordance with section 1125 of the Bankruptcy Code and Bankruptcy Rule 3018.
1.47. DISPUTED CLAIM means a Claim or any portion thereof, that is neither an Allowed Claim nor a Disallowed Claim and includes, without limitation, Claims that (a) (i) have not been Scheduled by the Debtors or have been Scheduled at zero, as unknown or as contingent, unliquidated, or disputed and (ii) are not the subject of an objection in the Bankruptcy Court, (b) are the subject of a proof of claim that differs in nature, amount or priority from the Schedules,
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or (c) are the subject of an objection filed in the Bankruptcy Court and which objection has not been withdrawn, settled or overruled by a Final Order of the Bankruptcy Court.
1.48. DISPUTED INTEREST means an Interest or any portion thereof, that is neither an Allowed Interest nor a Disallowed Interest and includes, without limitation, Interests that (a) (i) have not been Scheduled by the Debtors or have been Scheduled at zero, as unknown or as contingent, unliquidated, or disputed and (ii) are not the subject of an objection in the Bankruptcy Court, (b) are the subject of a proof of interest that differs in nature, amount or priority from the Schedules, or (c) are the subject of an objection filed in the Bankruptcy Court and which objection has not been withdrawn, settled or overruled by a Final Order of the Bankruptcy Court.
1.49. DISTRIBUTION DATE means, except with respect to Claims Reinstated under the Plan, as to which all distributions shall be timely made in accordance with the terms thereof, the Effective Date or as soon thereafter as is reasonably practicable.
1.50. DISTRIBUTION RESERVE means the shares of New Common Stock for distribution on account of Allowed Class 6 Old Common Stock Interests to be reserved pending allowance of Disputed Interests in accordance with Section 9.9(b) of the Plan.
1.51. EFFECTIVE DATE means the Business Day determined by the Debtors on which all conditions to the consummation of the Plan set forth in Section 12.2 hereof have been either satisfied or waived as provided in Section 12.3 hereof and is the day upon which this Plan is substantially consummated.
1.52. ESTATES means the bankruptcy estates of the Debtors created under section 541 of the Bankruptcy Code.
1.53. EXHIBIT means an exhibit annexed to either this Plan or as an appendix to the Disclosure Statement.
1.54. EXHIBIT FILING DATE means the date on which Exhibits to the Plan shall be filed with the Bankruptcy Court, which date shall be at least seven (7) days prior to the Voting Deadline or such later date as may be approved by the Bankruptcy Court without further notice.
1.55. EXISTING SECURITIES means, collectively, the Senior Notes, the Old Common Stock Interests, the Other Old Equity Interests, and all options, warrants and rights (whether fixed or contingent, matured or unmatured, disputed or undisputed), contractual, legal, equitable or otherwise, to acquire any of the foregoing.
1.56. FILE, FILED OR FILING means file, filed or filing with the Bankruptcy Court or its authorized designee in the Chapter 11 Cases.
1.57. FINAL ORDER means an order or judgment, the operation or effect of which has not been stayed, reversed, or amended and as to which order or judgment (or any revision, modification, or amendment thereof) the time to appeal or seek review or rehearing has expired and as to which no appeal or petition for review or rehearing was filed or, if filed, remains pending.
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1.58. GENERAL UNSECURED CLAIM means a Claim that is not an Administrative Claim, Priority Tax Claim, Secured Claim, Other Priority Claim, Senior Note Claim, Intercompany Claim, or a claim of an employee or former employee of the Debtors that is not being affected by this Plan as contemplated in ARTICLE VII of this Plan.
1.59. HAYNES means Haynes International, Inc., a Delaware corporation.
1.60. HAYNES HOLDINGS means Haynes Holdings, Inc., a Delaware corporation.
1.61. HAYNES SOUR GAS means Haynes Sour Gas Tubulars, Inc., a Delaware corporation.
1.62. HAYNES SPECIALTY STEELS means Haynes Specialty Steels Company, a Delaware corporation.
1.63. HOLDBACK AMOUNT means the amount equal to 20% of fees billed to the Debtors in a given month that was retained by the Debtors as a holdback on payment of Professional Fee Claims pursuant to the Professional Fee Order. The Holdback Amount shall not be considered property of the Debtors, the Reorganized Debtors, or the Estates.
1.64. HOLDBACK ESCROW ACCOUNT means the escrow account established by the Disbursing Agent into which Cash equal to the Holdback Amount shall be deposited on the Effective Date for the payment of Allowed Holdback Amounts to the extent not previously paid or Disallowed.
1.65. IMPAIRED means, when used in reference to a Claim or Interest, a Claim or Interest that is impaired within the meaning of section 1124 of the Bankruptcy Code.
1.66. INDEMNIFICATION RIGHTS means any obligations or rights of the Debtors to indemnify, reimburse, advance or contribute to the losses, liabilities or expenses of an Indemnitee pursuant to the Debtors certificates of incorporation, bylaws, or policy of providing employee indemnification, or other applicable law or specific agreement in respect of any claims, demands, suits, causes of action or proceedings against an Indemnitee based upon any act or omission related to an Indemnitees service with, for or on behalf of the Debtors.
1.67. INDEMNITEE means all present and former directors, officers, employees, agents or representatives of the Debtors who are entitled to assert Indemnification Rights.
1.68. INDENTURE means the Indenture dated as of August 23, 1996, between Haynes, as issuer, and the Senior Notes Trustee, as trustee, relating to the Senior Notes, as amended from time to time.
1.69. INSURANCE COVERAGE shall have the meaning ascribed to it in Section 11.8 hereof.
1.70. INSURED WORKERS COMPENSATION PROGRAMS means, collectively, the Debtors workers compensation programs in all states in which they operate pursuant to which the Debtors provide their employees with workers compensation coverage for claims arising from or related to their employment with the Debtors.
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1.71. INTERCOMPANY CLAIM means a Claim by a Debtor against another Debtor.
1.72. INTERESTHOLDER means a holder of an Interest.
1.73. INTERESTS means (a) the legal, equitable, contractual and other rights (whether fixed or contingent, matured or unmatured, disputed or undisputed) of any Person with respect to the Old Common Stock Interests and any equity securities of the Debtors and (b) the legal, equitable, contractual or other rights of any Person to acquire or receive any of the foregoing.
1.74. LONG-TERM INCENTIVE PLAN means that certain plan by which the Reorganized Debtors shall deliver certain stock options and stock appreciation rights to certain members of management and other employees on or after the Effective Date, all as is more specifically described on EXHIBIT D hereto.
1.75. MASTER BALLOT means the ballot distributed to nominees or holders of record of the Senior Notes and Old Common Stock Interests to record the votes, if any, of the beneficial holders of such instruments.
1.76. NEW BOARD OF REORGANIZED HAYNES shall have the meaning ascribed to it in Section 7.8(b) hereof.
1.77. NEW COMMON STOCK means the shares of new common stock of Reorganized Haynes, par value $.01, authorized under the Certificate of Incorporation of Reorganized Haynes.
1.78. NEW PREFERRED STOCK shall have the meaning ascribed to it in Section 7.5 hereof.
1.79. OLD COMMON STOCK INTERESTS means that certain common stock, par value $.01, authorized by Haynes Holdings prior to the Petition Date.
1.80. OLD COMMON STOCKHOLDER SHARES means 400,000 shares of New Common Stock.
1.81. OTHER OLD EQUITY INTERESTS means all options, warrants, call rights, puts, awards, or other agreements to acquire (a) Old Common Stock Interests or (b) any equity securities of the Debtors outstanding immediately prior to the Petition Date.
1.82. OTHER PRIORITY CLAIM means a Claim, other than an Administrative Claim or Priority Tax Claim, that is entitled to priority in payment pursuant to section 507(a) of the Bankruptcy Code.
1.83. PBGC shall mean the Pension Benefit Guaranty Corporation, a wholly-owned United States government corporation that administers the defined benefit pension plan termination insurance program under Title IV of ERISA.
1.84. PENSION PLAN shall mean the Haynes International, Inc. Pension Plan, a defined benefit pension plan covered by Title IV of ERISA that Haynes sponsors.
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1.85. PERIODIC DISTRIBUTION DATE means (a) the Distribution Date, as to the first distribution made by the Reorganized Debtors, and (b) thereafter, (i) the first Business Day occurring one hundred twenty (120) days after the Distribution Date and (ii) subsequently, the first Business Day occurring one hundred twenty (120) days after the immediately preceding Periodic Distribution Date.
1.86. PERSON means an individual, corporation, partnership, joint venture, association, joint stock company, limited liability company, limited liability partnership, trust, estate, unincorporated organization, governmental unit (as defined in section 101(27) of the Bankruptcy Code), or other entity.
1.87. PETITION DATE means March 29, 2004, the date on which the Debtors filed their petitions for relief commencing these Chapter 11 Cases.
1.88. PLAN means this joint Chapter 11 plan of reorganization for the resolution of outstanding Claims and Interests in the Chapter 11 Cases, as herein proposed by the Debtors, including all supplements, appendices and schedules thereto, either in its present form or as the same may be altered, amended or modified from time to time.
1.89. POST-EFFECTIVE DATE CREDIT AGREEMENT means the Postpetition Credit Agreement, as amended and restated or otherwise replaced, from and after the Effective Date.
1.90. POST-EFFECTIVE DATE FACILITY means the financing facility provided to the Reorganized Debtors by the Post-Effective Date Lenders pursuant to the Post-Effective Date Credit Agreement and agreements related thereto.
1.91. POST-EFFECTIVE DATE LENDERS means the lenders from time to time party to the Post-Effective Date Credit Agreement.
1.92. POSTPETITION AGENT means the administrative agent for the Postpetition Lenders under the Postpetition Credit Agreement.
1.93. POSTPETITION CREDIT AGREEMENT means that Loan and Security Agreement, dated as of April 12, 2004, as amended from time to time thereafter, among Haynes, as borrower, Haynes Holdings, as guarantor, the Postpetition Agent and the Postpetition Lenders, which was executed by the Debtors in connection with the Postpetition Facility.
1.94. POSTPETITION FACILITY means the debtor-in-possession secured financing facility provided to the Debtors by the Postpetition Lenders pursuant to the Postpetition Credit Agreement and agreements related thereto as authorized by the Bankruptcy Court pursuant to the Postpetition Facility Order.
1.95. POSTPETITION FACILITY CLAIM means all super priority administrative claims of the Postpetition Agent and the Postpetition Lenders arising under or pursuant to the Postpetition Facility.
1.96. POSTPETITION FACILITY ORDER means, collectively, the interim order that was entered by the
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Bankruptcy Court on March 29, 2004, the final order that was entered by the Bankruptcy Court on April 22, 2004, authorizing and approving the Postpetition Credit Agreement and the agreements related thereto, and any subsequent orders approving amendments to the Postpetition Credit Agreement.
1.97. POSTPETITION INTEREST means, collectively, such interest, reasonable fees, costs, or charges provided for under the agreements between a Debtor and a Claimholder whose Claim is secured by property of the Estates to the extent such items have accrued and are payable pursuant to the provisions of the Bankruptcy Code including, without limitation, section 506(b) of the Bankruptcy Code.
1.98. POSTPETITION LENDERS means the lenders from time to time party to the Postpetition Credit Agreement.
1.99. PRIORITY TAX CLAIM means a Claim of a governmental unit of the kind specified in sections 502(i) and 507(a)(8) of the Bankruptcy Code.
1.100. PRO RATA means, from time to time, unless the Plan specifically provides otherwise, (i) with respect to Allowed Claims, the same proportion that the Allowed Amount of a Claim of a Creditor in a particular Class of a Debtor bears to the sum of the aggregate Allowed Amounts of all Claims (including Disputed Claims, but excluding Disallowed Claims) of that particular Class of Claims for all Debtors and (ii) with respect to Allowed Interests, the proportion of the number of shares or units held by such Interestholder in relation to the total number of such shares or units outstanding included in such Class (including Disputed Interests, but excluding Disallowed Interests); PROVIDED, HOWEVER, that with respect to Senior Note Claims in Class 4, Pro Rata means the proportion that the principal face amount of the Senior Notes held by the holder of a Claim in Class 4 bears to the aggregate principal face amount of the Senior Notes.
1.101. PROFESSIONAL means (a) any professional employed in the Chapter 11 Cases pursuant to section 327 or 1103 of the Bankruptcy Code or otherwise and (b) any professional or other entity seeking compensation or reimbursement of expenses in connection with the Chapter 11 Cases pursuant to section 503(b)(4) of the Bankruptcy Code.
1.102. PROFESSIONAL FEE CLAIM means an Administrative Claim under section 330(a), 331, 503 or 1103 of the Bankruptcy Code for compensation of a Professional or other entity for services rendered or expenses incurred in the Chapter 11 Cases on or prior to and including the Effective Date.
1.103. PROFESSIONAL FEE ORDER means the order entered by the Bankruptcy Court on April 22, 2004, authorizing the interim payment of Professional Fee Claims subject to the Holdback Amount.
1.104. REGISTRATION RIGHTS AGREEMENT means the agreement, a form of which is attached hereto as EXHIBIT E, whereby Reorganized Haynes will be obligated to register certain shares of New Common Stock pursuant to the terms and conditions of such agreement.
1.105. REINSTATED OR REINSTATEMENT means (i) leaving unaltered the legal, equitable, and contractual rights to which a Claim or Interest entitles the holder of such Claim or Interest so as
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to leave such Claim or Interest unimpaired in accordance with section 1124 of the Bankruptcy Code or (ii) notwithstanding any contractual provision or applicable law that entitles the holder of such Claim or Interest to demand or receive accelerated payment of such Claim or Interest after the occurrence of a default (a) curing any such default that occurred before or after the Petition Date, other than a default of a kind specified in section 365(b)(2) of the Bankruptcy Code; (b) reinstating the maturity of such Claim or Interest as such maturity existed before such default; (c) compensating the holder of such Claim or Interest for any damages incurred as a result of any reasonable reliance by such holder on such contractual provision or such applicable law; and (d) not otherwise altering the legal, equitable, or contractual rights to which such Claim or Interest entitles the holder of such Claim or Interest.
1.106. RELEASED PARTIES means, collectively, (i) all officers of each of the Debtors, all members of the boards of directors of each of the Debtors, and all employees of each of the Debtors, in each case, as of the date of commencement of the hearing on confirmation of the Plan, (ii) the Creditors Committee and all members of the Creditors Committee in their respective capacities as such, (iii) the Ad Hoc Noteholders Committee and all members of the Ad Hoc Noteholders Committee in their capacities as such, (iv) the Postpetition Agent in its capacity as such, (v) the Postpetition Lenders in their capacities as such, (vi) the Senior Notes Trustee in its capacity as such, (vii) Blackstone, (viii) all Professionals, and (ix) with respect to each of the above-named Persons, such Persons affiliates, principals, employees, agents, officers, directors, financial advisors, attorneys and other professionals, in their capacities as such.
1.107. REORGANIZED means the applicable Debtor from and after the Effective Date, subject to the Restructuring Transactions.
1.108. REORGANIZED DEBTORS means collectively, the Debtors, or any successors thereto by merger, consolidation, or otherwise, on or after the Effective Date.
1.109. RESTRUCTURING TRANSACTION(s) means a dissolution or winding up of the corporate existence of a Debtor or the consolidation, merger, contribution of assets, or other transaction in which a Reorganized Debtor merges with or transfers substantially all of its assets and liabilities to a Reorganized Debtor or their Affiliates, on or after the Effective Date in accordance with Section 7.3 of this Plan.
1.110. RETAINED ACTIONS means (a) all claims, rights of action, suits and proceedings, whether in law or in equity, whether known or unknown, which any Debtor or any Debtors estate may hold against any Person, including, without limitation, any Causes of Action brought prior to the Petition Date, and actions against any Persons for failure to pay for products or services provided or rendered by the Debtors, (b) all claims, Causes of Action, suits and proceedings relating to strict enforcement of the Debtors intellectual property rights, including patents, copyrights and trademarks, and (c) all claims or Causes of Action seeking the recovery of the Debtors or the Reorganized Debtors accounts receivable or other receivables or rights to payment created or arising in the ordinary course of the Debtors or the Reorganized Debtors business; PROVIDED THAT any and all claims released under the Plan are excluded from the foregoing. A nonexclusive list of the Retained Actions and Retained Avoidance Claims is set forth in EXHIBIT A attached hereto.
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1.111. RETAINED AVOIDANCE CLAIMS means all Avoidance Claims other than Claims released under the Plan. A nonexclusive list of the Retained Actions and Retained Avoidance Claims is set forth in EXHIBIT A attached hereto.
1.112. RETIREE MEDICAL PROGRAMS means the various programs in effect as of the Petition Date pursuant to which the Debtors provide medical, denta1, life insurance and prescription drug benefits to retired employees, including former union workers, and dependents located in the United States.
1.113. SCHEDULES means the schedules of assets and liabilities and the statements of financial affairs, if any, Filed by the Debtors pursuant to section 521 of the Bankruptcy Code and Bankruptcy Rules, as such schedules or statements have been or may be further modified, amended or supplemented in accordance with Bankruptcy Rule 1009 or orders of the Bankruptcy Court.
1.114. SECURED CLAIM means a Claim that is secured by a lien on property in which the Debtors Estates have an interest or that is subject to setoff under section 553 of the Bankruptcy Code, to the extent of the value of the Claimholders interest in the Estates interest in such property or to the extent of the amount subject to setoff, as applicable, as determined pursuant to section 506(a) of the Bankruptcy Code or, in the case of setoff, pursuant to section 553 of the Bankruptcy Code.
1.115. SECURITIES ACT means the Securities Act of 1933, 15 U.S.C. Sections 77c-77aa, as now in effect or hereafter amended.
1.116. SENIOR NOTEHOLDER means the holders of the Senior Notes.
1.117. SENIOR NOTEHOLDER SHARES means 9,600,000 shares of New Common Stock.
1.118. SENIOR NOTE CLAIM means a Claim for principal or interest on account of the Senior Notes.
1.119. SENIOR NOTES means those certain 11 ?% Senior Notes due September 1, 2004 issued by Haynes under the Indenture.
1.120. SENIOR NOTES TRUSTEE means Wells Fargo Bank, N.A., as successor trustee under the Indenture.
1.121. SERVICER has the meaning ascribed to it in Section 7.6 hereof.
1.122. SOLICITATION ORDER means the order entered by the Bankruptcy Court establishing procedures with respect to the solicitation and tabulation of votes to accept or reject this Plan.
1.123. TENTATIVE AGREEMENT means that certain Tentative Collective Bargaining Agreement between Haynes and the United Steel Workers of America, for itself and on behalf of its Local No. 2958, dated February 5, 2004, ratified by United Steel Workers of America Local No. 2958 on February 13, 2004, which modifies the Collective Bargaining Agreement.
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1.124. UNIMPAIRED CLAIM means a Claim that is not impaired within the meaning of section 1124 of the Bankruptcy Code.
1.125. VOTING DEADLINE means the voting deadline date for voting to accept or reject this Plan, as determined by the Bankruptcy Court and set forth in the Solicitation Order.
C. RULES OF INTERPRETATION
For purposes of this Plan, unless otherwise provided herein, (a) whenever from the context it is appropriate, each term, whether stated in the singular or the plural, will include both the singular and the plural; (b) each pronoun stated in the masculine, feminine or neuter includes the masculine, feminine and neuter; (c) unless otherwise provided in this Plan, any reference in this Plan to a contract, instrument, release or other agreement or document being in a particular form or on particular terms and conditions means that such document will be substantially in such form or substantially on such terms and conditions; (d) any reference in this Plan to an existing document or schedule filed or to be filed means such document or schedule, as it may have been or may be amended, modified or supplemented pursuant to this Plan; (e) any reference to an entity as a holder of a Claim or Interest includes that entitys successors and assigns; (f) all references in this Plan to Sections, Articles and Exhibits are references to Sections, Articles and Exhibits of or to this Plan; (g) the words herein, hereunder and hereto refer to this Plan in its entirety rather than to a particular portion of this Plan; (h) captions and headings to Articles and Sections are inserted for convenience of reference only and are not intended to be a part of or to affect the interpretation of this Plan; (i) subject to the provisions of any contract, certificates of incorporation, by laws, instrument, release or other agreement or document entered into in connection with this Plan, the rights and obligations arising under this Plan shall be governed by, and construed and enforced in accordance with, federal law, including the Bankruptcy Code and Bankruptcy Rules; and (j) the rules of construction set forth in section 102 of the Bankruptcy Code will apply.
This Plan is the product of extensive discussions and negotiations between and among, inter alia, the Debtors, the Creditors Committee, and certain other creditors and constituencies. Each of the foregoing was represented by counsel who either (a) participated in the formulation and documentation of, or (b) was afforded the opportunity to review and provide comments on, the Plan, Disclosure Statement, and the documents ancillary thereto. Accordingly, the general rule of contract construction known as contra preferentem shall not apply to the construction or interpretation of any provision of this Plan, Disclosure Statement, or any contract, instrument, release, indenture, exhibit, or other agreement or document generated in connection herewith.
D. COMPUTATION OF TIME
In computing any period of time prescribed or allowed by the Plan, unless otherwise expressly provided, the provisions of Bankruptcy Rule 9006(a) shall apply.
E. REFERENCES TO MONETARY FIGURES
All references in the Plan to monetary figures shall refer to United States of America currency unless otherwise expressly provided.
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F. EXHIBITS
All Exhibits are incorporated into and are a part of the Plan as if set forth in full herein and, to the extent not annexed hereto, such Exhibits shall be filed with the Bankruptcy Court on or before the Exhibit Filing Date. After the Exhibit Filing Date, copies of Exhibits can be obtained upon written request to Skadden, Arps, Slate, Meagher & Flom LLP, 333 West Wacker Drive, Suite 2100, Chicago, Illinois 60606 (Attn: John Wm. Butler, Jr., Esq. and J. Eric Ivester, Esq.), counsel to the Debtors, by downloading such exhibits from the Courts website at www.insb.uscourts.gov (a PACER account is required), or on the Claims Agents Internet website, www.kccllc.net/haynes. To the extent any Exhibit is inconsistent with the terms of the Plan, unless otherwise ordered by the Bankruptcy Court, the non-Exhibit portion of the Plan shall control.
G. GOVERNING LAW
Unless a rule of law or procedure is supplied by federal law (including the Bankruptcy Code and Bankruptcy Rules), the laws of (i) the State of Indiana shall govern the construction and implementation of the Plan and any agreements, documents, and instruments executed in connection with the Plan (unless such agreement, document or instrument provides otherwise) and (ii) the laws of the state of incorporation of the Debtors shall govern corporate governance matters with respect to the Debtors, in either case without giving effect to the principles of conflicts of law thereof.
ARTICLE II.
ADMINISTRATIVE
EXPENSES
AND PRIORITY TAX CLAIMS
2.1. ADMINISTRATIVE CLAIMS. Subject to the provisions of Articles IX and X of this Plan, on (a) the first Periodic Distribution Date occurring after the date an Administrative Claim becomes an Allowed Administrative Claim or (b) the date an Allowed Administrative Claim becomes payable pursuant to any agreement between a Debtor (or a Reorganized Debtor) and the holder of such Allowed Administrative Claim, provided that such date may not precede the first Periodic Distribution Date, an Allowed Administrative Claimholder in any Debtors Chapter 11 Case, shall receive, in full satisfaction, settlement, release, and discharge of and in exchange for such Administrative Claim, (x) Cash equal to the unpaid portion of such Allowed Administrative Claim or (y) such other treatment as to which the Debtors (or the Reorganized Debtors) and such Claimholder shall have agreed upon in writing; PROVIDED, HOWEVER, that Allowed Administrative Claims with respect to liabilities incurred by the Debtors in the ordinary course of business during the Chapter 11 Cases shall be paid in the ordinary course of business in accordance with the terms and conditions of any agreements relating thereto.
2.2. PRIORITY TAX CLAIMS. Commencing on (a) the first Periodic Distribution Date occurring after the date a Priority Tax Claim becomes an Allowed Priority Tax Claim or (b) the date an Allowed Priority Tax Claim first becomes payable pursuant to any agreement between a Debtor (or a Reorganized Debtor) and the holder of such Allowed Priority Tax Claim, provided that such date may not precede the first Periodic Distribution Date, at the sole option of the
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Debtors (or the Reorganized Debtors after the Effective Date), the Allowed Priority Tax Claimholder shall receive on account of such Priority Tax Claim, in full satisfaction, settlement, release, and discharge of and in exchange for such Allowed Priority Tax Claim, (a) equal Cash payments made on the last Business Day of every three (3) month period following the Effective Date, over a period not exceeding six (6) years after the assessment of the tax on which such Claim is based, totaling the principal amount of such Claim plus simple interest on any outstanding balance from the Effective Date calculated at a fixed rate of five percent (5%) per annum from the Effective Date, or such lesser rate agreed to by a particular taxing authority, (b) such other treatment agreed to by the Allowed Priority Tax Claimholder and the Debtors (or the Reorganized Debtors), provided such treatment is on more favorable terms to the Debtors (or the Reorganized Debtors after the Effective Date) than the treatment set forth in subsection (a) above, or (c) payment in full in Cash.
ARTICLE III.
CLASSIFICATION OF CLAIMS AND INTERESTS
Pursuant to section 1122 of the Bankruptcy Code, set forth below is designation of Classes of Claims against and Interests in the Debtors. A Claim or Interest is placed in a particular Class for purposes of voting on the Plan and of receiving distributions pursuant to the Plan only to the extent that such Claim or Interest is an Allowed Claim or an Allowed Interest in that Class and such Claim or Interest has not been paid, released or otherwise settled prior to the Effective Date. In accordance with section 1123(a)(1) of the Bankruptcy Code, Administrative Claims and Priority Tax Claims of the kinds specified in sections 507(a)(1) and 507(a)(8) of the Bankruptcy Code have not been classified, and their treatment is set forth in ARTICLE II herein.
Because of the request that the Debtors be substantively consolidated for various purposes including for voting and distribution purposes, all of the Claims against and Interests in the Debtors are included in the Classes described below.
3.1. CLASS 1. Class 1 consists of all Secured Claims.
3.2. CLASS 2. Class 2 consists of all Other Priority Claims.
3.3. CLASS 3. Class 3 consists of all General Unsecured Claims.
3.4. CLASS 4. Class 4 consists of all Senior Note Claims.
3.5. CLASS 5. Class 5 consists of all Intercompany Claims.
3.6. CLASS 6. Class 6 consists of all Old Common Stock Interests.
3.7. CLASS 7. Class 7 consists of all Other Old Equity Interests.
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ARTICLE IV.
IDENTIFICATION OF
CLASSES OF CLAIMS
AND INTERESTS IMPAIRED AND UNIMPAIRED BY THE PLAN
4.1. UNIMPAIRED CLASSES OF CLAIMS. The following Classes are Unimpaired by the Plan:
Class 1 (Secured Claims)
Class 2 (Other Priority Claims)
4.2. IMPAIRED CLASSES OF CLAIMS AND INTERESTS. The following Classes are or may be Impaired by the Plan:
Class 3 (General Unsecured Claims)
Class 4 (Senior Note Claims)
Class 5 (Intercompany Claims)
Class 6 (Old Common Stock Interests)
Class 7 (Other Old Equity Interests)
ARTICLE V.
PROVISIONS FOR
TREATMENT
OF CLAIMS AND INTERESTS
5.1. CLASS 1: SECURED CLAIMS. Except as otherwise provided in and subject to Section 9.9 of this Plan, at the option of the Debtors (or the Reorganized Debtors), with the consent of the Creditors Committee, which consent will not be unreasonably withheld, (i) the legal, equitable, and contractual rights of each Allowed Secured Claimholder shall be Reinstated or (ii) each Allowed Secured Claimholder shall receive, in full satisfaction, settlement and release of, and in exchange for, its Allowed Secured Claim (A) Cash in an amount equal to the value of the Secured Claimholders interest in the property of the Estate which constitutes collateral for such Allowed Secured Claim, or (B) the property of the Estate which constitutes collateral for such Allowed Secured Claim, or (C) such other treatment as to which the Debtors (or the Reorganized Debtors), with the consent of the Creditors Committee, which consent will not be unreasonably withheld, and the holder of such Allowed Secured Claim have agreed upon in writing, provided that such treatment is not more favorable than the treatment in clause (A) or clause (B) above. The Debtors (or the Reorganized Debtors), with the consent of the Creditors Committee, which consent will not be unreasonably withheld, shall determine which treatment of those set forth in the preceding sentence will be provided to each Allowed Secured Claim on the later of (i) the Effective Date or (ii) ten days after the date such Claim becomes an Allowed Secured Claim. The Reorganized Debtors shall provide notice of the treatment to be provided to each holder of an Allowed Secured Claim as soon as practicable after the later of (x) the Effective Date or (y) ten days after the date such Claimholders claim becomes an Allowed Secured Claim. In the event the Debtors or the Reorganized Debtors, as the case may be, fail to designate the treatment of an Allowed Secured Claim, the legal, equitable, and contractual rights of the Allowed Secured Claimholder with respect to such Allowed Secured Claim shall be Reinstated. The failure of a
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party in interest to object to such Secured Claims in their Chapter 11 Cases shall be without prejudice to the Reorganized Debtors right to contest or otherwise defend against such Claims in the Bankruptcy Court or other appropriate non-bankruptcy forum (at the option of the Debtors or the Reorganized Debtors) when and if such Claims are sought to be enforced by the Secured Claimholder. Notwithstanding section 1141(c) or any other provision of the Bankruptcy Code, all valid, enforceable and perfected prepetition liens on property of the Debtors held by or on behalf of the Secured Claimholders with respect to such Claims shall survive the Effective Date and continue in accordance with the contractual terms of the underlying agreements with such Claimholders and/or applicable law until, as to each such Claimholder, the Allowed Secured Claims of such Secured Claimholder are satisfied in accordance with the provisions of this Section 5.1.
5.2. CLASS 2: OTHER PRIORITY CLAIMS. Except as otherwise provided in and subject to Section 9.9 of this Plan, on (i) the first Periodic Distribution Date occurring after the date an Other Priority Claim becomes an Allowed Other Priority Claim or (ii) the date an Allowed Other Priority Claim becomes payable pursuant to any agreement between a Debtor (or a Reorganized Debtor) and the holder of such Allowed Other Priority Claim, provided that such date may not precede the first Periodic Distribution Date, at the sole option of the Debtors (or the Reorganized Debtors), the holder of an Allowed Other Priority Claim shall receive, in full satisfaction, settlement, release, and discharge of and in exchange for such Other Priority Claim, (x) Cash equal to the amount of such Allowed Other Priority Claim or (y) such other treatment as to which the applicable Debtor (or Reorganized Debtor) and such Claimholder shall have agreed in writing.
5.3. CLASS 3: GENERAL UNSECURED CLAIMS. The Debtors have assumed that General Unsecured Claims are Impaired by the Plan. Except as otherwise provided in and subject to Section 9.9 of this Plan, on (i) the first Periodic Distribution Date occurring after the date a General Unsecured Claim becomes an Allowed General Unsecured Claim or (ii) the date an Allowed General Unsecured Claim becomes payable pursuant to any agreement between the Debtors (or the Reorganized Debtors) and the holder of such General Unsecured Claim, provided that such date may not precede the first Periodic Distribution Date, each Allowed General Unsecured Claimholder shall receive, in full satisfaction, settlement, release, and discharge of, and in exchange for, such General Unsecured Claim, Cash equal to 100% of the Allowed Amount of the Claim without interest accruing on or after the Petition Date.
5.4. CLASS 4: SENIOR NOTE CLAIMS. Senior Note Claims shall be deemed Allowed Claims in the aggregate amount of $149,476,910.00. On or as soon as reasonably practicable after the Distribution Date, each holder of an Allowed Senior Note Claim shall receive, in full satisfaction, release, and discharge of its Allowed Senior Note Claim, its Pro Rata share of the Senior Noteholder Shares (subject to dilution by the shares of New Common Stock issued pursuant to or on account of any management or employee incentive plan or other similar plan or issued in order to list the New Common Stock on a national securities exchange or for quotation on a national automated interdealer quotation system).
5.5. CLASS 5: INTERCOMPANY CLAIMS. On the Effective Date, all Intercompany Claims will, in the sole discretion of the applicable Debtor or Reorganized Debtor, (a) be preserved and
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Reinstated, (b) be released, waived and discharged as of the Effective Date, or (c) be contributed to the capital of the obligor corporation.
5.6. CLASS 6: OLD COMMON STOCK INTERESTS. On the Effective Date, the Old Common Stock Interests shall be cancelled. On or as soon as reasonably practicable after the Distribution Date, each holder of an Allowed Old Common Stock Interest shall receive in full satisfaction, release, and discharge of its Allowed Old Common Stock Interests and any and all claims and liabilities arising pursuant to or in any way related to the Old Common Stock Interests, such Interestholders Pro Rata share of the Old Common Stockholder Shares (subject to dilution by the shares of New Common Stock issued pursuant to or on account any management or employee incentive plan or other similar plan or issued in order to list the New Common Stock on a national securities exchange or for quotation on a national automated interdealer quotation system).
5.7. CLASS 7: OTHER OLD EQUITY INTERESTS. On the Effective Date, the Other Old Equity Interests will be cancelled and the holders of Other Old Equity Interests shall not receive or retain any distribution of property on account of such Other Old Equity Interests under the Plan.
5.8. RESERVATION OF RIGHTS. Except as otherwise explicitly provided in the Plan, nothing will affect the Debtors or the Reorganized Debtors rights and defenses, both legal and equitable, with respect to any Unimpaired Claims, including, but not limited to, all rights with respect to legal and equitable defenses to alleged rights of setoff or recoupment of Unimpaired Claims. Except to the extent a Reorganized Debtor expressly assumes an obligation or liability of a Debtor or another Reorganized Debtor, the Plan will not operate to impose liability on any Reorganized Debtor for the Claims against any other Debtor or the debts and obligations of any other Debtor or Reorganized Debtor, and from and after the Effective Date, each Reorganized Debtor will be separately liable for its own obligations.
ARTICLE VI.
ACCEPTANCE OR
REJECTION OF THE PLAN;
EFFECT OF REJECTION BY ONE OR MORE
IMPAIRED CLASSES OF CLAIMS OR INTERESTS
6.1. IMPAIRED CLASSES ENTITLED TO VOTE. Except as otherwise provided in any order(s) of the Bankruptcy Court pertaining to solicitation of votes on this Plan and Section 6.4 of the Plan, each Impaired Class of Claims and Interests that will receive or retain property or any interest in property under the Plan shall be entitled to vote to accept or reject the Plan.
6.2. ACCEPTANCE BY IMPAIRED CLASSES.
(a) IMPAIRED CLAIMS. Pursuant to section 1126(c) of the Bankruptcy Code, an Impaired Class of Claims shall have accepted the Plan if (a) the holders (other than any holder designated under section 1126(e) of the Bankruptcy Code) of at least two-thirds (2/3) in amount of the Allowed Claims actually voting in such Class have voted to accept the Plan and (b) the holders (other than any holder designated under section 1126(e) of the Bankruptcy Code) of
26
more than one-half (1/2) in number of the Allowed Claims actually voting in such Class have voted to accept the Plan.
(b) IMPAIRED INTERESTS. Pursuant to section 1126(d) of the Bankruptcy Code, an Impaired Class of Interests shall have accepted the Plan if the holders (other than any holder designated under section 1126(e) of the Bankruptcy Code) of at least two-thirds (2/3) in amount of the Allowed Interests of such Class actually voting on the Plan have voted to accept the Plan.
6.3. CLASSES DEEMED TO ACCEPT THE PLAN. Class 1 Secured Claims and Class 2 Other Priority Claims and are Unimpaired by the Plan. Under section 1126(f) of the Bankruptcy Code, such Claimholders are conclusively presumed to have accepted the Plan, and the votes of such Claimholders will not be solicited. Because all Debtors are proponents of this Plan, Class 5 Intercompany Claims are deemed to have accepted this Plan. The votes of holders of such Claims therefore will not be solicited.
6.4. CLASSES DEEMED TO REJECT PLAN. Since holders of Class 7 Other Old Equity Interests are not receiving a distribution on account of such Interests under the Plan, such Class is conclusively presumed to have rejected the Plan, and the votes of such holders will not be solicited.
6.5. CONFIRMATION PURSUANT TO SECTION 1129(b) OF THE BANKRUPTCY CODE. The Debtors will request confirmation of the Plan, as it may be modified from time to time, under section 1129(b) of the Bankruptcy Code with respect to any Class which rejects, or is deemed to have rejected, the Plan.
6.6. CONFIRMABILITY AND SEVERABILITY OF A PLAN. The Debtors, in consultation with the Creditors Committee, reserve the right to alter, amend, modify, revoke or withdraw the Plan as it applies to any particular Debtor. A determination by the Bankruptcy Court that the Plan, as it applies to any particular Debtor, is not confirmable pursuant to section 1129 of the Bankruptcy Code shall not limit or affect (a) the confirmability of the Plan as it applies to any other Debtor or (b) the Debtors ability to modify the Plan, as it applies to any particular Debtor, to satisfy the confirmation requirements of section 1129 of the Bankruptcy Code.
ARTICLE VII.
MEANS FOR IMPLEMENTATION OF THE PLAN
7.1. CONTINUED CORPORATE EXISTENCE. Subject to the Restructuring Transactions, each of the Debtors shall continue to exist after the Effective Date as a separate corporate entity, with all the powers of a corporation under applicable law in the jurisdiction in which it is incorporated and pursuant to the articles or certificate of incorporation and bylaws in effect prior to the Effective Date, except to the extent such articles or certificate of incorporation and bylaws are amended by this Plan, without prejudice to any right to terminate such existence (whether by merger or otherwise) under applicable law after the Effective Date.
7.2. SUBSTANTIVE CONSOLIDATION. This Plan provides for the substantive consolidation of Haynes Holdings, Haynes, Haynes Specialty Steels and Haynes Sour Gas for Plan purposes, including voting and distribution purposes. This Plan is deemed a motion for substantive
27
consolidation to the extent necessary. For such purposes, on the Effective Date, (a) all guaranties of any Debtor of the payment, performance, or collection of another Debtor with respect to any Class of Claims or Interests shall be deemed eliminated and cancelled; (b) any obligation of any Debtor and all guaranties with respect to any Class of Claims or Interests executed by one or more of the other Debtors and any joint or several liability of any of the Debtors shall be treated as a single obligation, and any obligation of two or more Debtors, and all multiple Impaired Claims against Debtors on account of such joint obligations, shall be treated and Allowed only as a single Claim against the consolidated Debtors; and (c) each Claim filed in the Chapter 11 Cases of any Debtor shall be deemed filed against the consolidated Debtors and shall be deemed a Claim against and an obligation of the consolidated Debtors. Except as set forth in this Article and elsewhere in this Plan, such substantive consolidation will not (other than for purposes related to this Plan) (a) affect the legal and corporate structures of the Debtors or Reorganized Debtors, subject to the right of the Debtors or Reorganized Debtors to effect the Restructuring Transactions contemplated by this Plan, (b) cause any Debtor to be liable for any Claim or Interest under this Plan for which it otherwise is not liable, and the liability of any Debtor for any such Claim or Interest will not be affected by such substantive consolidation, (c) affect Intercompany Claims of Debtors against Debtors, except as otherwise provided in this Plan, or (d) affect the Interests in the Affiliate Debtors, except as otherwise provided in this Plan and as may be required in connection with the Restructuring Transactions contemplated by this Plan.
7.3. RESTRUCTURING TRANSACTIONS. On or prior to the Effective Date, the Debtors and Reorganized Debtors shall take such actions as may be necessary or appropriate to effect the relevant Restructuring Transactions, including, but not limited to, the merger of Haynes Holdings into Haynes, and all of the transactions described in this Plan. Such actions may also include: (a) the execution and delivery of appropriate agreements or other documents of merger, consolidation or reorganization containing terms that are consistent with the terms of this Plan and that satisfy the requirements of applicable law; (b) the execution and delivery of appropriate instruments of transfer, assignment, assumption or delegation of any property, right, liability, duty or obligation on terms consistent with the terms of this Plan; (c) the filing of appropriate certificates of incorporation, merger or consolidation with the appropriate governmental authorities under applicable law; and (d) all other actions that such Debtors and Reorganized Debtors determine are necessary or appropriate, including the making of filings or recordings in connection with the relevant Restructuring Transaction. The form of each Restructuring Transaction shall be determined by the boards of directors of a Debtor or Reorganized Debtor party to any Restructuring Transaction. In the event a Restructuring Transaction is a merger transaction, from and after the consummation of such Restructuring Transaction, the surviving Reorganized Debtor shall assume and perform the obligations under this Plan of each non-surviving Reorganized Debtor. In the event a Reorganized Debtor is liquidated, the Reorganized Debtors (or the Reorganized Debtor which owned the stock of such liquidating Reorganized Debtor prior to such liquidation) shall assume and perform such obligations. Implementation of the Restructuring Transactions shall not affect the distributions under the Plan.
7.4. CORPORATE ACTION. Each of the matters provided for under the Plan involving the corporate structure of the Debtors or corporate action to be taken by or required of the Debtors shall, as of the Effective Date, be deemed to have occurred and be effective as provided herein, and shall be authorized and approved in all respects without any requirement of further action by stockholders, creditors, or directors of the Debtors.
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7.5. CERTIFICATES OF INCORPORATION AND BYLAWS. The certificates of incorporation and bylaws of the Reorganized Debtors shall be amended as necessary to satisfy the provisions of the Plan and the Bankruptcy Code. The Certificate of Incorporation of Reorganized Haynes shall, among other things, (a) authorize the issuance of ten million (10,000,000) shares of New Common Stock, $0.01 par value per share; (b) authorize an additional ten million (10,000,000) shares of New Common Stock, $0.01 par value per share, for future issuance upon terms to be designated from time to time by the board of directors of Reorganized Haynes; (c) authorize twenty million (20,000,000) shares of preferred stock (the New Preferred Stock) upon terms to be designated from time to time by the board of directors of Reorganized Haynes; (d) authorize Reorganized Haynes to dilute the New Common Stock, upon terms to be designated from time to time by the New Board of Reorganized Haynes, but only to the extent necessary to list the New Common Stock on a national securities exchange or to make available for quotation on a national automated interdealer quotation system; and (e) pursuant to section 1123(a)(6) of the Bankruptcy Code, include (x) a provision prohibiting the issuance of non-voting equity securities for a period of two (2) years from the Effective Date, and, if applicable, (y) a provision setting forth an appropriate distribution of voting power among classes of equity securities possessing voting power, including, in the case of any class of equity securities having a preference over another class of equity securities with respect to dividends, adequate provisions for the election of directors representing such preferred class in the event of default in the payment of such dividends. After the Effective Date, the Reorganized Debtors may amend and restate the Certificates of Incorporation and Bylaws as permitted by applicable law. The Certificates of Incorporation and Bylaws of the Reorganized Debtors shall be in substantially the form attached to this Plan as EXHIBIT B and EXHIBIT C, respectively.
7.6. CANCELLATION OF EXISTING SECURITIES AND AGREEMENTS. On the Effective Date, except as otherwise specifically provided for herein, (a) the Existing Securities and any other note, bond, indenture, or other instrument or document evidencing or creating any indebtedness or obligation of or ownership interest in the Debtors, except such notes or other instruments evidencing indebtedness or obligations of the Debtors that are Reinstated under the Plan, shall be cancelled, and (b) the obligations of, Claims against, and/or Interests in the Debtors under, relating, or pertaining to any agreements, indenture, certificates of designation, bylaws, or certificate or articles of incorporation or similar document governing the Existing Securities and any other note, bond, indenture, or other instrument or document evidencing or creating any indebtedness or obligation of the Debtors, except such notes or other instruments evidencing indebtedness or obligations of the Debtors that are Reinstated under the Plan, as the case may be, shall be released and discharged; PROVIDED, HOWEVER, that the Indenture and any other agreement that governs the rights of the Claimholder and that is administered by an indenture trustee, an agent, or a servicer (each hereinafter referred to as a Servicer) shall continue in effect solely for purposes of allowing such Servicer to make the distributions to be made on account of such Claims under the Plan as provided in ARTICLE IX of the Plan. All reasonable compensation, fees, expenses, and disbursements incurred by the Indenture Trustee before, on and after the Petition Date, but before the Effective Date, including the reasonable fees, expenses and disbursements of agents and counsel retained by the Indenture Trustee, shall be paid in Cash on or as soon as practicable after the Effective Date by Reorganized Haynes as an Administrative Expense, without the need for application to, or approval of, any court. The Debtors estimate that payments pursuant to Sections 7.6 and 9.6 of the Plan for compensation, fees, expenses and disbursements incurred prior to the Effective Date do not exceed seventy-five thousand dollars
29
($75,000), the Indenture Trustee estimates that such fees may total one hundred twenty-five thousand dollars ($125,000). Any dispute as to the reasonableness of such fees shall be determined by the Bankruptcy Court in accordance with section 503 of the Bankruptcy Code. To the extent that the Indenture Trustee provides services after the Effective Date related to the distributions pursuant to the Plan, the Indenture Trustee will be paid by Reorganized Haynes, without court approval, reasonable compensation for such services and reimbursement of reasonable expenses incurred in connection therewith. Such payments will be in amounts to be agreed upon by the Indenture Trustee and the Reorganized Debtors.
7.7. REINSTATEMENT OF COMMON STOCK OF AFFILIATE DEBTORS. Subject to the Restructuring Transactions, the common stock in the Affiliate Debtors shall be Reinstated in exchange for Haynes agreement to cause the distribution of New Common Stock and other consideration provided for under this Plan to holders of Allowed Claims and Allowed Interests in accordance with the terms of this Plan.
7.8. DIRECTORS AND OFFICERS.
(a) The existing senior officers of the Debtors shall serve as senior officers of the Reorganized Debtors in their current capacities after the Effective Date, subject to the terms of the applicable employment agreements and the rights of the respective boards of directors.
(b) Upon the Effective Date, the new board of directors of Reorganized Haynes (the New Board of Reorganized Haynes) shall consist of seven (7) directors, including Francis J. Petro (or in the event of his death, incapacity, or resignation, the chief executive officer of Reorganized Haynes) and six representatives designated by the Creditors Committee. The New Board of Reorganized Haynes, including any required committee(s) thereof, shall comply with any other qualification, experience, and independence requirements under applicable law, including the Sarbanes-Oxley Act of 2002. The chairman of the board shall be designated by a majority of the members of the New Board of Reorganized Haynes. Thereafter, unless otherwise provided in the Plan, the selection and the term of the board of directors of Reorganized Haynes shall be subject to the provisions of the certificate of incorporation and bylaws of Reorganized Haynes.
(c) The Persons designating board members shall file with the Bankruptcy Court and give to the Debtors written notice of the identities of such members on a date that is not less than ten (10) days prior to the Confirmation Hearing; PROVIDED, HOWEVER, that if and to the extent that any party fails to file and give such notice, the Debtors shall designate the members of the New Board of Reorganized Haynes by announcing their identities at the Confirmation Hearing.
(d) Board members shall serve an initial term for a period from the Effective Date through the date of the annual meeting that first occurs after a date which is one (1) year after the Effective Date and for one (1) year terms thereafter (with such subsequent terms subject to election by shareholder vote) as provided in the certificates of incorporation and bylaws of the Reorganized Debtors.
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(e) On the Effective Date, the term of the current members of the board of directors of Haynes Holdings, Haynes Sour Gas and Haynes Specialty Steels shall expire. From and after the Effective Date, the initial board of directors of Reorganized Haynes Holdings (if applicable), Reorganized Haynes Sour Gas and Reorganized Haynes Specialty Steels shall be the same directors as those Persons designated as directors of Reorganized Haynes pursuant to the procedures set forth above.
7.9. PENSION PLAN AND RETIREE MEDICAL PROGRAMS.
(a) Upon the occurrence of the Effective Date, the Reorganized Debtors intend to continue the Pension Plan, meet the minimum funding standards under ERISA and the Internal Revenue Code, pay all PBGC insurance premiums if applicable, and administer and operate the Pension Plan in accordance with its terms and ERISA. Nothing in this Plan shall be deemed to discharge, release, or relieve the Debtors, Reorganized Debtors, any member of the Debtors controlled groups (as defined in 29 U.S.C. Section 1301(a)(14)), or any other party, in any capacity, from any current or future liability with respect to the Pension Plan, and the PBGC and the Pension Plan shall not be enjoined or precluded from enforcing such liability as a result of the Plans provisions or consummation.
(b) Upon the occurrence of the Effective Date, the Reorganized Debtors intend to continue to pay benefits under the Retiree Medical Programs if and to the extent the Debtors are otherwise obligated to provide such benefits. Nothing in this Plan shall be deemed to discharge, release, or relieve the Debtors or the Reorganized Debtors from any liability with respect to the Retiree Medical Programs and the beneficiaries of the Retiree Medical Programs or their representatives shall not be enjoined or precluded from enforcing such liability as a result of the Plans provisions or confirmation.
(c) Notwithstanding anything to the contrary in the Plan, the Reorganized Debtors shall maintain all of their existing rights, including, but not limited to, any rights that they may have to amend, modify or terminate those retirement and other agreements discussed in Section 7.9 of the Plan.
7.10. EMPLOYMENT, INDEMNIFICATION AND OTHER AGREEMENTS.
(a) Except as otherwise provided in the Plan, upon the occurrence of the Effective Date pursuant to section 365(b) of the Bankruptcy Code and in accordance with Section 8.1 of the Plan, the Debtors shall assume the employment agreements and/or severance agreements as modified of certain executives and members of senior management. Copies of the modified agreements are attached to the Plan as group EXHIBIT D and shall be filed on or before the Exhibit Filing Date. Except as otherwise provided in the Plan, to the extent that any of the Debtors has in place as of the Effective Date, employment, retirement, indemnification or other agreements with their respective active directors, officers and employees who will continue in such capacities after the Effective Date, or retirement income plans, welfare benefits plans and other plans for such Persons, such agreements, programs and plan will remain in place after the Effective Date, and the Reorganized Debtors intend to continue to honor such agreements programs and plans. Benefits provided under such agreements or plans may include benefits under qualified and non-qualified retirement plans; health and dental coverage; short and long-
31
term disability benefits; death and supplemental accidental death benefits; vacation; leased car; club memberships; financial consulting; tax preparation and estate planning as well as an annual physical examination, each paid or provided commensurate with an employees position in accordance with the Debtors or Reorganized Debtors policies then in effect. Such agreements and plans also may include equity, bonus and other incentive plans in which officers and other employees of the Reorganized Debtors may be eligible to participate; PROVIDED, HOWEVER, that pursuant to the Long-Term Incentive Plan, there shall be reserved for certain members of management and other employees of the Reorganized Debtors a certain number of shares of New Common Stock and other securities all as more fully described in Section 7.12 of the Plan. However, as of the Effective Date, the Reorganized Debtors shall have the authority to terminate, amend or enter into employment, retirement, indemnification and other agreements with its respective active directors, officers and employees and to terminate, amend or implement retirement income plans, welfare benefits plans and other plans for active employees, subject to the existing contractual rights, if any, of the directors, officers and employees affected thereby.
(b) Notwithstanding anything to the contrary herein, the Reorganized Debtors shall maintain all of their existing rights, including, but not limited to, any rights that they may have to amend, modify or terminate those employment, indemnification and other agreements discussed in this Section 7.10.
7.11. CONTINUATION OF INSURED WORKERS COMPENSATION PROGRAMS. Upon occurrence of the Effective Date, the Reorganized Debtors shall continue the Insured Workers Compensation Programs in accordance with applicable state laws. Nothing in the Plan shall be deemed to discharge, release, or relieve the Debtors or Reorganized Debtors from any current or future liability with respect to any of the Insured Workers Compensation Programs. The Reorganized Debtors shall be responsible for all valid claims for benefits and liabilities under the Insured Workers Compensation Programs regardless of when the applicable injuries were incurred. Any and all obligations under the Insured Workers Compensation Programs shall be paid in accordance with the terms and conditions of the Insured Workers Compensation Programs and in accordance with all applicable laws. Notwithstanding anything to the contrary herein, the Reorganized Debtors shall maintain all of their existing rights, including, but not limited to, any rights that they may have to amend, modify or terminate the Insured Workers Compensation Programs.
7.12. IMPLEMENTATION OF THE LONG-TERM INCENTIVE PROGRAM. The Reorganized Debtors shall implement the Long-Term Incentive Plan in order to promote the growth and general prosperity of the Reorganized Debtors by offering incentives to key employees who are primarily responsible for the growth of the Reorganized Debtors, and to attract and retain qualified employees and thereby benefit the shareholders of the Reorganized Debtors based on growth of the Reorganized Debtors. The Long-Term Incentive Plan will be administered by the New Board of Reorganized Haynes. EXHIBIT D hereto includes a description of the Long-Term Incentive Plan.
7.13. ISSUANCE OF NEW COMMON STOCK.
(a) As described in Section 7.5 herein, on the Effective Date, Reorganized Haynes will authorize up to twenty million (20,000,000) shares of New Common Stock. On or
32
as soon as reasonably practicable after the Effective Date, Reorganized Haynes shall issue and exchange, as necessary, for the benefit of holders of Senior Note Claims and Old Common Stock Interests, ten million (10,000,000) shares of the New Common Stock in accordance with the terms of the Plan. The issuance of the New Common Stock is authorized without the need for any further corporate action. The issuance of the New Common Stock and the distribution thereof to Claimholders and Interestholders shall be exempt from registration under applicable securities laws pursuant to section 1145(a) of the Bankruptcy Code. Without limiting the effect of section 1145 of the Bankruptcy Code, Reorganized Haynes will enter into a Registration Rights Agreement with each holder of an Allowed Class 4 Senior Note Claim in the Haynes Chapter 11 Case (i) who by virtue of holding New Common Stock to be distributed under the Plan and/or its relationship with Reorganized Haynes could reasonably be deemed to be an affiliate (as such term is used within the meaning of applicable securities laws) of Reorganized Haynes, and (ii) who requests in writing that Reorganized Haynes execute such agreement, such request to be made within 90 days after the Effective Date. A form Registration Rights Agreement will be filed by the Debtors, as EXHIBIT E hereto, with the Bankruptcy Court no later than the Exhibit Filing Date. The Registration Rights Agreement shall contain certain registration rights for the benefit of the signatories thereto.
(b) Reorganized Haynes shall use commercially reasonable efforts to list the New Common Stock on a national securities exchange or for quotation on a national automated interdealer quotation system within one year of the Effective Date unless the New Board of Reorganized Haynes determines otherwise, with such efforts to commence as soon as reasonably practicable after the Effective Date. Reorganized Haynes shall have no liability if it is unable to list the New Common Stock as described above. Persons receiving distributions of New Common Stock, by accepting such distributions, shall have agreed to cooperate with Reorganized Haynes reasonable requests to assist Reorganized Haynes in its efforts to list the New Common Stock on a securities exchange or quotation system.
7.14. POST-EFFECTIVE DATE FINANCING. The Postpetition Credit Agreement will be amended and restated or otherwise replaced in a manner consistent with the terms of the Commitment Letter and will be the Reorganized Debtors primary source of working capital from and after the Effective Date. Documents evidencing the amendment and restatement or other replacement of the Postpetition Credit Agreement shall be filed by the Debtors with the Bankruptcy Court no later than the Exhibit Filing Date and will be deemed attached hereto as EXHIBIT F. Prior notice of any proposed material modification to the Post-Effective Date Credit Agreement or the Commitment Letter with respect thereto after its filing with the Bankruptcy Court shall be provided to the Creditors Committee. In the Confirmation Order, the Bankruptcy Court shall approve the Post-Effective Date Credit Agreement in substantially the form filed with the Bankruptcy Court and authorize the Debtors to execute such documents as the Post-Effective Date Lenders may require in order to effectuate the treatment afforded to such parties under the Post-Effective Date Credit Agreement (whether effected through an amendment and restatement or other replacement of Postpetition Credit Agreement) as provided in this Section 7.14.
7.15. PRESERVATION OF CAUSES OF ACTION.In accordance with section 1123(b)(3) of the Bankruptcy Code and except as otherwise provided in the Plan and/or the Confirmation Order, the Reorganized Debtors shall retain and may (but are not required to) enforce all Retained
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Actions and all Retained Avoidance Claims, and other similar claims arising under applicable state laws, including, without limitation, fraudulent transfer claims, if any, and all other Causes of Action of a trustee and debtor-in-possession under the Bankruptcy Code. A nonexclusive list of Retained Actions and Retained Avoidance Claims is set forth on EXHIBIT A. The Debtors, in consultation with the Creditors Committee, or the Reorganized Debtors will determine whether to bring, settle, release, compromise, or enforce any such rights (or decline to do any of the foregoing). The Reorganized Debtors or any successors may pursue such litigation claims in accordance with the best interests of the Reorganized Debtors or any successors holding such rights of action. The failure of the Debtors to specifically list any claim, right of action, suit or proceeding in the Debtors Schedules or in EXHIBIT A does not, and will not be deemed to, constitute a waiver or release by the Debtors of such claim, right of action, suit or proceeding, and the Reorganized Debtors will retain the right to pursue such claims, rights of action, suits or proceedings in their sole discretion and, therefore, no preclusion doctrine, collateral estoppel, issue preclusion, claim preclusion, estoppel (judicial, equitable or otherwise) or laches will apply to such claim, right of action, suit or proceeding upon or after the confirmation or consummation of the Plan.
7.16. EFFECTUATING DOCUMENTS AND FURTHER TRANSACTIONS. Each of the chief executive officer, chief financial officer, any other officer of any of the Debtors, or their respective designees shall be authorized to execute, deliver, file, or record such contracts, instruments, releases, indentures, and other agreements or documents, and take such actions as may be necessary or appropriate to effectuate and further evidence the terms and conditions of the Plan. The secretary or assistant secretary of any of the Debtors shall be authorized to certify or attest to any of the foregoing actions.
7.17. EXEMPTION FROM TRANSFER TAXES AND RECORDING FEES. Pursuant to section 1146(c) of the Bankruptcy Code, (a) the issuance, transfer or exchange of notes or equity securities under the Plan; (b) the creation of any mortgage, deed of trust, lien, pledge or other security interest; (c) the making or assignment of any lease or sublease; or (d) the making or delivery of any deed or other instrument of transfer under, in furtherance of, or in connection with, the Plan, including, without limitation, any merger agreements; agreements of consolidation, restructuring, disposition, liquidation or dissolution; deeds; bills of sale; and transfers of tangible property, will not be subject to any stamp tax, recording tax, personal property tax, real estate transfer tax, sales or use tax or other similar tax. Any transfers from the Debtors to the Reorganized Debtors or otherwise pursuant to the Plan shall not be subject to any such taxes, and the Confirmation Order shall direct the appropriate state or local governmental officials or agents to forego the collection of any such tax or governmental assessment and to accept for filing and recordation any of the foregoing instruments or other documents without the payment of any such tax or governmental assessment. Unless the Bankruptcy Court orders otherwise, any and all of the foregoing transactions whether taken on or after the Effective Date shall be deemed to have been in furtherance of, or in connection with, the Plan.
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ARTICLE VIII.
TREATMENT OF
EXECUTORY CONTRACTS
AND UNEXPIRED LEASES
8.1. ASSUMED CONTRACTS AND LEASES.Each executory contract and unexpired lease to which the Debtors are a party shall be deemed automatically assumed and Reinstated as of the Effective Date, unless such executory contract or unexpired lease (a) shall have been previously rejected by the Debtors, (b) is the subject of a motion to reject filed, or a notice of rejection served pursuant to order of the Bankruptcy Court, on or before the Confirmation Date, (c) is listed on the schedule of rejected contracts and leases annexed hereto as EXHIBIT G, or (d) expired prior to the Effective Date and/or is no longer executory on the Effective Date by its own terms. The Confirmation Order shall constitute an order of the Bankruptcy Court approving such assumptions, pursuant to section 365(b)(1) of the Bankruptcy Code and, to the extent applicable, section 365(b)(3) of the Bankruptcy Code, as of the Effective Date.
Each executory contract and unexpired lease that is assumed and relates to the use, ability to acquire, or occupancy of real property shall include (a) all modifications, amendments, supplements, restatements, or other agreements made directly or indirectly by any agreement, instrument, or other document that in any manner affect such executory contract or unexpired lease and (b) all executory contracts or unexpired leases appurtenant to the premises, including all easements, licenses, permits, rights, privileges, immunities, options, rights of first refusal, powers, uses, reciprocal easement agreements, and any other interests in real estate or rights IN REM related to such premises, unless any of the foregoing agreements has been rejected pursuant to a Final Order of the Bankruptcy Court or is otherwise rejected as a part of this Plan.
8.2. REJECTED CONTRACTS AND LEASES. Except with respect to executory contracts and unexpired leases that have previously been rejected or are the subject of a motion to reject filed, or a notice of rejection served pursuant to an order of the Bankruptcy Court, on or before the Confirmation Date, all executory contracts and unexpired leases set forth on EXHIBIT G shall be deemed automatically rejected as of the Effective Date; PROVIDED, HOWEVER, that neither the inclusion by the Debtors of a contract or lease on EXHIBIT G nor anything contained in this Plan shall constitute an admission by the Debtors that such lease or contract is an unexpired lease or executory contract or that any Debtor, or any of the Debtors Affiliates, has any liability thereunder. The Confirmation Order shall constitute an order of the Bankruptcy Court approving such rejections, pursuant to section 365 of the Bankruptcy Code. The Debtors reserve the right to file a motion on or before the Confirmation Date to reject any executory contract or unexpired lease.
8.3. PAYMENTS RELATED TO ASSUMPTION OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES. The provisions (if any) of each executory contract and unexpired lease to be assumed and Reinstated under this Plan which are or may be in default shall be satisfied solely by Cure. Any Person claiming that a monetary cure amount is due in connection with the assumption of any executory contract or unexpired leases as contemplated by section 365(b) of the Bankruptcy Code must file a monetary cure claim with the Bankruptcy Court asserting all alleged amounts accrued through the Effective Date, if any (a Cure Claim), no later than thirty (30) days after the Effective Date (the Cure Claim Submission Deadline). Any party failing to submit a Cure
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Claim by the Cure Claim Submission Deadline shall be forever barred from asserting, collecting, or seeking to collect any amounts relating thereto against the Debtors or the Reorganized Debtors. The Reorganized Debtors shall have thirty (30) days from the Cure Claim Submission Deadline to file an objection to any Cure Claim (the Cure Claim Objection Deadline). Any disputed Cure Claims shall be resolved either consensually by the parties, or by the Bankruptcy Court. Disputed Cure Claims shall be set for status at subsequent hearings following the Cure Claim Submission Deadline with separate evidentiary hearings to be set by the Bankruptcy Court as needed. If the Reorganized Debtors do not dispute a Cure Claim, then the Reorganized Debtors shall pay the Cure Claim, if any, to the claimant within twenty (20) days of the Cure Claim Objection Deadline. Disputed Cure Claims that are resolved by agreement or Final Order shall be paid by the Reorganized Debtors within twenty (20) days of such agreement or Final Order.
8.4. REJECTION DAMAGES BAR DATE. If the rejection by the Debtors (pursuant to the Plan or otherwise) of an executory contract or unexpired lease results in a Claim, then such Claim shall be forever barred and shall not be enforceable against either the Debtors or the Reorganized Debtors or such entities properties unless a proof of claim is filed with the clerk of the Bankruptcy Court and served upon counsel to the Debtors within thirty (30) days after service of the earlier of (a) notice of the Confirmation Order or (b) other notice that the executory contract or unexpired lease has been rejected.
8.5. COLLECTIVE BARGAINING AGREEMENT; TENTATIVE AGREEMENT. The Debtors will assume the Collective Bargaining Agreement as modified by the Tentative Agreement upon the occurrence of the Effective Date in accordance with the provisions and requirements of sections 365 and 1123 of the Bankruptcy Code.
8.6. PRESERVATION OF INSURANCE. The discharge and release of the Debtors as provided herein shall not diminish or impair the enforceability of any insurance policies that may cover claims against the Debtors or any other person or entity. Furthermore, assumption of any insurance policy pursuant to ARTICLE VIII of the Plan does not alter, amend, or otherwise affect either the Debtors or insurers rights pursuant to such insurance policy; PROVIDED, HOWEVER, nothing herein waives any contractual, state or federal rights the Debtors may have including, without limitation, those set forth in Section 365(b)(2) of the Bankruptcy Code.
ARTICLE IX.
PROVISIONS GOVERNING DISTRIBUTIONS;
PROCEDURES FOR RESOLVING DISPUTED, CONTINGENT
AND UNLIQUIDATED CLAIMS AND INTERESTS
9.1. TIME OF DISTRIBUTIONS. Except as otherwise provided for herein or ordered by the Bankruptcy Court, distributions under the Plan shall be made on a Periodic Distribution Date.
9.2. NO INTEREST ON CLAIMS OR INTERESTS. Unless otherwise specifically provided for in the Plan or as otherwise required by section 506(b) of the Bankruptcy Code, the Confirmation Order, the Postpetition Credit Agreement or the Postpetition Facility Order, Postpetition Interest shall not accrue or be paid on Claims, and no Claimholder or Interestholder shall be entitled to interest accruing on or after the Petition Date on any Claim, right, or Interest. Additionally, and
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without limiting the foregoing, interest shall not accrue or be paid on any Disputed Claim or Disputed Interest in respect of the period from the Effective Date to the date a final distribution is made when and if such Disputed Claim or Disputed Interest becomes an Allowed Claim or an Allowed Interest.
9.3. DISBURSING AGENT. The Disbursing Agent shall make all distributions required under this Plan except with respect to a Claimholder or Interestholder whose distribution is governed by the Indenture or other agreement and is administered by a Servicer, which distributions shall be deposited with the appropriate Servicer, who shall deliver such distributions to the Claimholders and Interestholders in accordance with the provisions of this Plan and the terms of the Indenture or other governing agreement; PROVIDED, HOWEVER, that if any such Servicer is unable to make such distributions, the Disbursing Agent, with the cooperation of such Servicer, shall make such distributions.
9.4. SURRENDER OF SECURITIES OR INSTRUMENTS. On or before the Distribution Date, or as soon as practicable thereafter, each holder of an instrument evidencing either a Claim or Interest, including, without limitation, a Claim on account of the Indenture (as to each, a Certificate), shall surrender such Certificate to the Disbursing Agent, or, with respect to indebtedness that is governed by the Indenture or other agreement and administered by a Servicer, the respective Servicer, and such Certificate shall be cancelled solely with respect to the Debtors and such cancellation shall not alter the obligations or rights of any non-Debtor third parties vis-a-vis one another to such instruments. No distribution of property hereunder shall be made to or on behalf of any such holder unless and until such Certificate is received by the Disbursing Agent or the respective Servicer or the unavailability of such Certificate is reasonably established to the satisfaction of the Disbursing Agent or the respective Servicer. Any holder who fails to surrender or cause to be surrendered such Certificate, or fails to execute and deliver an affidavit of loss and indemnity reasonably satisfactory to the Disbursing Agent or the respective Servicer prior to the second anniversary of the Effective Date, shall be deemed to have forfeited all rights and Claims in respect of such Certificate and shall not participate in any distribution hereunder, and all property in respect of such forfeited distribution, including any dividends or interest attributable thereto, shall revert to the Reorganized Debtors notwithstanding any federal or state escheat laws to the contrary.
9.5. INSTRUCTIONS TO DISBURSING AGENT. Prior to any distribution on account of any Claim or Interest pursuant to the Indenture or other agreement, the Servicer with respect to the Indenture or other agreement shall (a) inform the Disbursing Agent as to the amount of properly surrendered claim pursuant thereto and (b) instruct the Disbursing Agent, in a form and manner that the Disbursing Agent reasonably determines to be acceptable, of the names of such Claimholders or Interestholders who have properly surrendered Certificates.
9.6. SERVICES OF INDENTURE TRUSTEES, AGENTS AND SERVICERS. The services, with respect to implementation of the distributions contemplated by the Plan, of Servicers under the Indenture and other agreements that govern the rights of Claimholders or Interestholders shall be as set forth elsewhere in the Plan, and the Reorganized Debtors shall reimburse any Servicer in the ordinary course for reasonable and necessary services performed by it as contemplated by, and in accordance with, this Plan without the need for the filing of an application with, or approval by, the Bankruptcy Court. The Debtors estimate that payments pursuant to Sections 7.6 and 9.6 of
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the Plan for compensation, fees, expenses and disbursements incurred prior to the Effective Date do not exceed seventy-five thousand dollars ($75,000), the Indenture Trustee estimates that such fees may total one hundred twenty-five thousand dollars ($125,000). Any dispute as to the reasonableness of such fees shall be determined by the Bankruptcy Court in accordance with section 503 of the Bankruptcy Code. To the extent that the Indenture Trustee provides services after the Effective Date related to the distributions pursuant to the Plan, the Indenture Trustee will be paid by Reorganized Haynes, without court approval, reasonable compensation for such services and reimbursement of reasonable expenses incurred in connection therewith. Such payments will be in amounts to be agreed upon by the Indenture Trustee and the Reorganized Debtors.
9.7. CLAIMS ADMINISTRATION RESPONSIBILITY. The Reorganized Debtors will retain responsibility for administering, disputing, objecting to, compromising, or otherwise resolving and making distributions (if any) with respect to all Claims against and Interests in the Debtors; PROVIDED, HOWEVER, that the foregoing shall not be deemed to divest the rights, if any, of any party in interest to object to Claims or Interests.
9.8. DELIVERY OF DISTRIBUTIONS. Distributions to Allowed Claimholders and Allowed Interestholders shall be made by the Disbursing Agent or the appropriate Servicer, as the case may be (a) at the addresses set forth on the proofs of claim or interest filed by such Claimholders, Interestholders or Servicers, (b) at the addresses set forth in any written notices of address changes delivered to the Disbursing Agent after the date of any related proof of claim or interest, (c) at the addresses reflected in the Schedules if no proof of claim or interest has been filed and the Disbursing Agent has not received a written notice of a change of address, or (d) in the case of a Claimholder or Interestholder whose Claim or Interest is governed by an Indenture or other agreement and is administered by a Servicer, at the addresses contained in the official records of such Servicer. If any Claimholders or Interestholders distribution is returned as undeliverable, no further distributions to such Claimholder or Interestholder shall be made unless and until the Disbursing Agent or the appropriate Servicer is notified of such Claimholders or Interestholders then current address, at which time all missed distributions shall be made to such Claimholder or Interestholder without interest. Amounts in respect of undeliverable distributions shall be returned to the Reorganized Debtors until such distributions are claimed. All claims for undeliverable distributions shall be made on or before the first anniversary of the Effective Date. After such date, all unclaimed property shall revert to the Reorganized Debtors. Upon such reversion, the claim of any Claimholder or Interestholder, or their successors, with respect to such property shall be discharged and forever barred notwithstanding any federal or state escheat laws to the contrary.
9.9. PROCEDURES FOR TREATING AND RESOLVING DISPUTED AND CONTINGENT CLAIMS AND INTERESTS.
(a) NO DISTRIBUTIONS PENDING ALLOWANCE. No payments or distributions shall be made with respect to all or any portion of a Disputed Claim or Disputed Interest unless and until all objections to such Disputed Claim or Disputed Interest have been settled or withdrawn or have been determined by a Final Order, and the Disputed Claim or Disputed Interest has become an Allowed Claim or an Allowed Interest. All objections to Claims or Interests must be filed on or before the Claims/Interests Objection Deadline.
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(b) DISTRIBUTION RESERVE. The Disbursing Agent shall withhold a separate Distribution Reserve from the property to be distributed to holders of Class 6 Old Common Stock Interests. The amount of New Common Stock withheld as a part of the Distribution Reserve shall be equal to the amount the Reorganized Debtors reasonably determine is necessary to satisfy the distributions required to be made to the Interestholders in such Class when the allowance or disallowance of each Interest is ultimately determined. The Disbursing Agent may request estimation for any Disputed Interest that is contingent or unliquidated (but is not required to do so). The Disbursing Agent will also place in the Distribution Reserve any dividends, payments, or other distributions made on account of, as well as any obligations arising from, the property withheld in the Distribution Reserve, to the extent that such property continues to be withheld in the Distribution Reserve at the time such distributions are made or such obligations arise. The Interestholder shall not be entitled to receive or recover any amount in excess of the amount provided in the Distribution Reserve to pay such Interest. Nothing in the Plan or the Disclosure Statement will be deemed to entitle the Interestholder to interest accruing on or after the Petition Date on any Interest.
(c) DISTRIBUTIONS AFTER ALLOWANCE. Payments and distributions from the Distribution Reserve to each respective Interestholder on account of a Disputed Interest, to the extent that it ultimately becomes an Allowed Interest, will be made in accordance with provisions of the Plan that govern distributions to such Interestholders. On the first Periodic Distribution Date following the date when a Disputed Interest becomes an Allowed Interest, the Disbursing Agent will distribute to the Interestholder any Cash or New Common Stock from the Distribution Reserve that would have been distributed on the dates distributions were previously made to Interestholders had such Allowed Interest been an Allowed Interest on such dates. After a Final Order has been entered, or other final resolution has been reached with respect to all Disputed Interests, any remaining New Common Stock or other property held in the Distribution Reserve will be distributed Pro Rata to Allowed Interestholders in accordance with the other provisions of this Plan. Subject to Section 9.2 hereof, all distributions made under subsection 9.9(c) hereof on account of an Allowed Interest will be made together with any dividends, payments, or other distributions made on account of, as well as any obligations arising from, the distributed property as if such Allowed Interest had been an Allowed Interest on the dates distributions were previously made to Allowed Interestholders included in the applicable class. The Disbursing Agent shall be deemed to have voted any New Common Stock held in the Distribution Reserve in the same proportion as shares previously disbursed by the Disbursing Agent. The Servicers shall be deemed to have voted any New Common Stock held by such Servicers in the same proportion as shares previously disbursed by such Servicers.
(d) DE MINIMIS DISTRIBUTIONS. Neither the Distribution Agent nor any Servicer shall have any obligation to make a distribution on account of an Allowed Claim or an Allowed Interest from any Distribution Reserve or otherwise if (a) the aggregate amount of all distributions authorized to be made from such Distribution Reserve or otherwise on the Periodic Distribution Date in question is or has a value less than $250,000, or (b) if the amount to be distributed to the specific holder of an Allowed Claim or an Allowed Interest on the particular Periodic Distribution Date does not constitute a final distribution to such holder and is or has a value less than $50.
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9.10. FRACTIONAL SECURITIES; FRACTIONAL DOLLARS. No fractional shares of New Common Stock will be issued or distributed under the Plan. Each Person entitled to receive New Common Stock will receive the total whole number of shares of New Common Stock to which such Person is entitled. Whenever any distributions to a Person would otherwise call for distribution of a fraction of a share of New Common Stock, the actual distribution of such New Common Stock will be rounded to the next higher or lower whole number with fractions of less than or equal to one-half (1/2) being rounded to the next lower whole number. No consideration will be provided in lieu of fractional shares of New Common Stock that are rounded down. The total number of shares of New Common Stock to be distributed to each Class of Claims will be adjusted as necessary to account for the rounding provided herein. Any other provision of the Plan notwithstanding, neither the Debtors, the Disbursing Agent nor the Servicer will be required to make distributions or payments of fractions of dollars. Whenever any payment of a fraction of one dollar under the Plan would otherwise be called for, the actual payment made will reflect a rounding of such fraction to the nearest whole dollar (up or down), with one-half (1/2) dollars being rounded down.
9.11. MEANS OF CASH PAYMENT. Payments of Cash made pursuant to the Plan shall be in U.S. dollars and shall be made, at the option and in the sole discretion of the Reorganized Debtors, by (a) checks drawn on or (b) wire transfer from a domestic bank selected by the Reorganized Debtors. Cash payments to foreign creditors may be made, at the option of the Reorganized Debtors, in such funds and by such means as are necessary or customary in a particular foreign jurisdiction.
9.12. WITHHOLDING AND REPORTING REQUIREMENTS. In connection with the Plan and all distributions thereunder, the Reorganized Debtors shall comply with all withholding and reporting requirements imposed by any federal, state, local or foreign taxing authority, and all distributions hereunder shall be subject to any such withholding and reporting requirements. The Reorganized Debtors shall be authorized to take any and all actions that may be necessary or appropriate to comply with such withholding and reporting requirements. Notwithstanding any other provision of the Plan, (i) each holder of an Allowed Claim or Allowed Interest that is to receive a distribution of Cash or New Common Stock shall have sole and exclusive responsibility for the satisfaction and payment of any tax obligations imposed by any governmental unit, including income, withholding and other tax obligations, on account of such distribution, and (ii) no distribution shall be made to or on behalf of such holder pursuant to the Plan unless and until such holder has made arrangements satisfactory to the Reorganized Debtors for the payment and satisfaction of such tax obligations or has, to the Reorganized Debtors satisfaction, established an exemption therefrom. Any Cash or New Common Stock to be distributed pursuant to the Plan shall, pending the implementation of such arrangements, be treated as undeliverable pursuant to Section 9.8 hereof.
9.13. OBJECTION DEADLINE; PROSECUTION OF OBJECTIONS.No later than the Claims/Interests Objection Deadline (unless extended by an order of the Bankruptcy Court), the Debtors or Reorganized Debtors, as the case may be, shall file objections to Claims and Interests with the Bankruptcy Court and serve such objections upon the holders of each of the Claims and Interests to which objections are made, PROVIDED, HOWEVER, that the Debtors and the Reorganized Debtors shall not object to Claims or Interests Allowed pursuant to the Plan. Nothing contained herein, however, shall limit the Reorganized Debtors right to object to Claims or Interests, if
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any, that are not Allowed under the Plan and that are filed or amended after the Claims/Interests Objection Deadline. The Debtors and Reorganized Debtors shall be authorized to, and shall, resolve all Disputed Claims or Disputed Interests by withdrawing or settling such objections thereto, or by litigating to judgment in the Bankruptcy Court or such other court having jurisdiction over the validity, nature and/or amount thereof.
ARTICLE X.
ALLOWANCE AND
PAYMENT OF
CERTAIN ADMINISTRATIVE CLAIMS
10.1. POSTPETITION FACILITY CLAIM. On the Effective Date, the Postpetition Facility Claim shall be allowed in an amount to be agreed upon by the Debtors and the Postpetition Lenders not less than five Business Days prior to the Effective Date. The Creditors Committee shall be notified of the agreed upon amount of the Postpetition Facility Claim upon agreement by the Debtors and the Postpetition Lenders. All obligations (other than contingent indemnity obligations) of the Debtors under the Postpetition Facility shall be satisfied either by payment in full in Cash on the Effective Date or the amendment and restatement of the Postpetition Credit Agreement with the Post-Effective Date Facility on the Effective Date, provided, however, that nothing herein that requires the indefeasible payment in full of all obligations under the Postpetition Facility on the Effective Date shall affect the commitment of the Postpetition Lenders to provide the Post-Effective Date Facility on the terms and conditions set forth in the Commitment Letter. Notwithstanding anything to the contrary in the Plan, all of the rights, liens, claims, protections and priorities granted to the Postpetition Lenders under the Postpetition Facility shall remain in full force and effect until the Postpetition Facility Claim is paid or otherwise satisfied.
10.2. PROFESSIONAL CLAIMS.
(a) FINAL FEE APPLICATIONS. All final requests for payment of Professional Fee Claims must be filed no later than the last day of the second full month after the Effective Date. After notice and a hearing in accordance with the procedures established by the Bankruptcy Code and prior orders of the Bankruptcy Court, the allowed amounts of such Professional Fee Claims shall be determined by the Bankruptcy Court.
(b) PAYMENT OF INTERIM AMounts. Subject to the Holdback Amount, on the Effective Date, the Debtors or the Reorganized Debtors shall pay all amounts owing to Professionals for all outstanding amounts relating to prior periods through the Effective Date. In order to receive payment on the Effective Date for unbilled fees and expenses incurred through such date, the Professionals shall estimate fees and expenses due for periods that have not been billed as of the Effective Date and shall deliver such estimate to counsel for the Debtors and the Creditors Committee. A Professional receiving payment for the estimated period shall submit a detailed invoice covering such period in the manner and providing the detail as set forth in the Professional Fee Order no later than the last day of the first full month after the Effective Date.
(c) HOLDBACK ESCROW ACCOUNT. On the Effective Date, the Debtors or the Reorganized Debtors shall pay to the Disbursing Agent, in order to fund the Holdback Escrow
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Account, Cash equal to the aggregate Holdback Amount for all Professionals. The Disbursing Agent shall maintain the Holdback Escrow Account in trust for the Professionals with respect to whom fees have been held back pursuant to the Professional Fee Order. Such funds shall not be considered property of the Reorganized Debtors. Holdback Amounts owing to the Professionals shall be paid to such Professionals by the Disbursing Agent from the Holdback Escrow Account when such claims are finally allowed by the Bankruptcy Court. When all Professional Claims have been paid in full, amounts remaining in the Holdback Escrow Account, if any, shall be paid to the Reorganized Debtors. The remaining amount of Professional Fee Claims owing to the Professionals as of the Effective Date other than the Holdback Amount shall be paid to such Professionals by the Reorganized Debtors.
(d) POST-EFFECTIVE DATE COMPENSATION. Upon the Effective Date, any requirement that Professionals comply with sections 327 through 331 and 1103 of the Bankruptcy Code in seeking retention or compensation for services rendered after such date will terminate.
10.3. SUBSTANTIAL CONTRIBUTION COMPENSATION AND EXPENSES BAR DATE. Any Person who requests compensation or expense reimbursement for making a substantial contribution in the Chapter 11 Cases pursuant to sections 503(b)(3), 503(b)(4), and 503(b)(5) of the Bankruptcy Code must file an application with the clerk of the Bankruptcy Court, on or before a date which is thirty days after the Effective Date (the 503 Deadline), and serve such application on counsel for the Debtors and the Creditors Committee and as otherwise required by the Bankruptcy Court and the Bankruptcy Code on or before the 503 Deadline, or be forever barred from seeking such compensation or expense reimbursement.
10.4. OTHER ADMINISTRATIVE CLAIMS. All other requests for payment of an Administrative Claim (other than as set forth in Sections 10.1, 10.2 and 10.3 of this Plan) must be filed with the Bankruptcy Court and served on counsel for the Debtors or Reorganized Debtors no later than thirty (30) days after the Effective Date. Unless the Debtors, the Reorganized Debtors or another party-in-interest objects to an Administrative Claim by the Claims/Interests Objection Deadline, such Administrative Claim shall be deemed allowed in the amount requested. In the event that the Debtors or the Reorganized Debtors object to an Administrative Claim, the Bankruptcy Court shall determine the Allowed amount of such Administrative Claim. Notwithstanding the foregoing, no request for payment of an Administrative Claim need be filed with respect to an Administrative Claim which is paid or payable by the Debtors in the ordinary course of business.
ARTICLE XI.
EFFECT OF THE PLAN ON CLAIMS AND INTERESTS
11.1. REVESTING OF ASSETS. Except as otherwise explicitly provided in this Plan, on the Effective Date all property comprising the Estates (including Retained Actions and Retained Avoidance Claims) shall revest in each of the Debtors and, ultimately, in the Reorganized Debtors, free and clear of all Claims, liens, charges, encumbrances, rights and Interests of creditors and equity security holders (other than as expressly provided herein). As of the Effective Date, each of the Reorganized Debtors may operate their businesses and use, acquire,
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and dispose of property and settle and compromise Claims without supervision of the Bankruptcy Court, free of any restrictions of the Bankruptcy Code or Bankruptcy Rules, other than those restrictions expressly imposed by the Plan and Confirmation Order.
11.2. DISCHARGE OF DEBTORS. Pursuant to section 1141(d) of the Bankruptcy Code, except as otherwise specifically provided in this Plan or in the Confirmation Order, the distributions and rights that are provided in this Plan shall be in complete satisfaction, discharge, and release, effective as of the Confirmation Date (but subject to the occurrence of the Effective Date), of Claims and Causes of Action, whether known or unknown, against, liabilities of, liens on, obligations of, rights against, and Interests in the Debtors or any of their assets or properties, regardless of whether any property shall have been distributed or retained pursuant to the Plan on account of such Claims, rights, and Interests, including, but not limited to, demands and liabilities that arose before the Confirmation Date, any liability (including withdrawal liability) to the extent such Claims relate to services performed by employees of the Debtors prior to the Petition Date and that arise from a termination of employment or a termination of any employee or retiree benefit program regardless of whether such termination occurred prior to or after the Confirmation Date, and all debts of the kind specified in sections 502(g), 502(h) or 502(i) of the Bankruptcy Code, in each case whether or not (i) a proof of claim or interest based upon such debt, right, or Interest is filed or deemed filed under section 501 of the Bankruptcy Code, (ii) a Claim or Interest based upon such debt, right, or Interest is allowed under section 502 of the Bankruptcy Code, or (iii) the holder of such a Claim, right, or Interest accepted the Plan. The Confirmation Order shall be a judicial determination of the discharge of all liabilities of and Interests in the Debtors, subject to the Effective Date occurring.
11.3. COMPROMISES AND SETTLEMENTS. Pursuant to Bankruptcy Rule 9019(a), the Debtors may compromise and settle various Claims (a) against them and (b) that they have against other Persons. The Debtors expressly reserve the right (with Bankruptcy Court approval, following appropriate notice and opportunity for a hearing) to compromise and settle Claims against them and claims that they may have against other Persons, up to and including the Effective Date. After the Effective Date, such right shall pass to the Reorganized Debtors as contemplated in Section 11.1 of this Plan, without the need for further approval of the Bankruptcy Court, except as otherwise set forth in the Plan.
11.4. RELEASE BY DEBTORS OF CERTAIN PARTIES. Pursuant to section 1123(b)(3) of the Bankruptcy Code, except as otherwise expressly provided in this Plan, effective as of the Effective Date, each Debtor, in its individual capacity and as a debtor-in-possession for and on behalf of its Estate, shall release and discharge and be deemed to have conclusively, absolutely, unconditionally, irrevocably and forever released and discharged all Released Parties for and from any and all claims or Causes of Action existing as of the Effective Date in any manner arising from, based on or relating to, in whole or in part, the Debtors, the subject matter of, or the transactions or events giving rise to, any Claim or Interest that is treated in this Plan, the business or contractual arrangements between any Debtor or any Released Party, the restructuring of Claims and Interests prior to or in the Chapter 11 Cases, or any act, omission, occurrence or event in any manner related to any such Claims, Interests, restructuring or the Chapter 11 Cases. The Reorganized Debtors shall be bound, to the same extent the Debtors are bound, by all of the releases set forth above.
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11.5. RELEASE BY HOLDERS OF CLAIMS AND INTERESTS. ON THE EFFECTIVE DATE, (a) EACH PERSON THAT VOTES TO ACCEPT THIS PLAN; AND (b) TO THE FULLEST EXTENT PERMISSIBLE UNDER APPLICABLE LAW, AS SUCH LAW MAY BE EXTENDED OR INTERPRETED SUBSEQUENT TO THE EFFECTIVE DATE, EACH ENTITY (OTHER THAN A DEBTOR), THAT HAS HELD, HOLDS OR MAY HOLD A CLAIM OR INTEREST, IN CONSIDERATION FOR THE OBLIGATIONS OF THE DEBTORS AND THE REORGANIZED DEBTORS UNDER THIS PLAN AND THE CASH, NEW COMMON STOCK, AND OTHER CONTRACTS, INSTRUMENTS, RELEASES, AGREEMENTS OR DOCUMENTS TO BE DELIVERED IN CONNECTION WITH THIS PLAN (EACH, A RELEASE OBLIGOR), SHALL HAVE CONCLUSIVELY, ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY AND FOREVER, RELEASED AND DISCHARGED EACH RELEASED PARTY FROM ANY CLAIM OR CAUSE OF ACTION EXISTING AS OF THE EFFECTIVE DATE ARISING FROM, BASED ON OR RELATING TO, IN WHOLE OR IN PART, THE SUBJECT MATTER OF, OR THE TRANSACTION OR EVENT GIVING RISE TO, THE CLAIM OR INTEREST OF SUCH RELEASE OBLIGOR, AND ANY ACT, OMISSION, OCCURRENCE OR EVENT IN ANY MANNER RELATED TO SUCH SUBJECT MATTER, TRANSACTION OR OBLIGATION.
11.6. SETOFFS. The Debtors may, but shall not be required to, set off against any Claim or Interest, and the payments or other distributions to be made pursuant to the Plan in respect of such Claim or Interest, claims of any nature whatsoever that the Debtors may have against such Claimholder or Interestholder; but neither the failure to do so nor the allowance of any Claim or Interest hereunder shall constitute a waiver or release by the Debtors or the Reorganized Debtors of any such claim that the Debtors or the Reorganized Debtors may have against such Claimholder or Interestholder.
11.7. EXCULPATION AND LIMITATION OF LIABILITY. Except as otherwise specifically provided in this Plan, the Debtors, the Reorganized Debtors, the Ad Hoc Noteholders Committee, the members of the Ad Hoc Noteholders Committee in their capacities as members of the Ad Hoc Noteholders Committee, the Creditors Committee, the members of the Creditors Committee in their capacities as such, the Postpetition Lenders in their capacities as such, the Postpetition Agent in its capacity as such, the Senior Notes Trustee in its capacity as such, Blackstone, any of such parties respective present officers, directors (but with respect to such parties related to the Debtors, only those that are Released Parties shall be covered hereby), employees, advisors, attorneys, representatives, financial advisors, investment bankers, or agents and any of such parties successors and assigns, shall not have or incur, and are hereby released from, any claim, obligation, Cause of Action, or liability to one another or to any Claimholder or Interestholder, or any other party in interest, or any of their respective agents, employees, representatives, financial advisors, attorneys or Affiliates, or any of their successors or assigns, for any act or omission in connection with, relating to, or arising out of the filing the Chapter 11 Cases, negotiation and filing of the Plan, the pursuit of confirmation of the Plan, the consummation of the Plan, the administration of the Plan or the property to be distributed under the Plan, except for their willful misconduct, gross negligence or violation of written agreements with the Debtors, if any, and in all respects shall be entitled to reasonably rely upon the advice of counsel with respect to their duties and responsibilities under the Plan.
11.8. INDEMNIFICATION OBLIGATIONS. In satisfaction and compromise of the Indemnitees Indemnification Rights: (a) all Indemnification Rights shall be released and discharged on and as of the Effective Date except for Continuing Indemnification Rights (which shall remain in full force and effect to the fullest extent allowed by law or contract on and after the Effective Date and shall not be modified, reduced, discharged, or otherwise affected in any way by the Chapter
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11 Cases); (b) the Debtors or the Reorganized Debtors, as the case may be, covenant to maintain directors and officers insurance providing coverage for those Indemnitees currently covered by such policies for a period of two years after the Effective Date, shall maintain tail coverage under policies in existence as of the Effective Date, to the fullest extent permitted by such provisions, in each case insuring such parties in respect of any Claims, demands, suits, Causes of Action, or proceedings against such Persons based upon any act or omission related to such Persons service with, for, or on behalf of the Debtors in at least the scope and amount as currently maintained by the Debtors (the Insurance Coverage) and hereby further indemnify such Indemnitees without Continuing Indemnification Rights solely to pay for any deductible or retention amount that may be payable in connection with any claim covered under the foregoing Insurance Coverage; (c) the insurers who issue the Insurance Coverage are authorized to pay any professional fees and expenses incurred in connection with any action relating to any Indemnification Rights and Continuing Indemnification Rights; and (d) the Debtors or the Reorganized Debtors, as the case may be, hereby indemnify Indemnitees with Continuing Indemnification Rights and agree to pay for any deductible or retention amount that may be payable in connection with any claim covered under either the foregoing Insurance Coverage or any prior similar policy.
11.9. INJUNCTION. The Confirmation Order shall provide that satisfaction, release, and discharge pursuant to ARTICLE XI of this Plan shall also act as an injunction against any Person commencing or continuing any action, employment of process, or act to collect, offset, or recover any Claim or Cause of Action satisfied, released, or discharged under this Plan to the fullest extent permissible under applicable law, including, without limitation, to the extent provided for or authorized by sections 524 and 1141 of the Bankruptcy Code.
11.10. WAIVER OF DISTRIBUTIONS BY NON-EMPLOYEE HOLDERS OF OLD COMMON STOCK INTERESTS AND THEIR AFFILIATES. Notwithstanding any other provision of the Plan to the contrary, non-employee holders of Old Common Stock Interests and their affiliates, as well as any assignee(s) or transferee(s) of the Claims of such entities, will not receive any distribution on account of any Claims that they may have against the Debtors other than the distribution of New Common Stock as set forth in this Plan; provided, however, that non-employee holders of Old Common Stock Interests and their affiliates will receive a full and complete release from the Debtors and those parties voting in favor of the Plan as set forth in Article XI of this Plan as a result of their waiver of such distribution rights.
ARTICLE XII.
CONDITIONS
PRECEDENT TO
CONFIRMATION AND CONSUMMATION OF THE PLAN
12.1. CONDITIONS TO CONFIRMATION. The following are conditions precedent to confirmation of the Plan that may be satisfied or waived in accordance with Section 12.3 of the Plan:
(a) The Bankruptcy Court shall have approved a disclosure statement with respect to the Plan in form and substance acceptable to the Debtors, in their discretion, and the Creditors Committee, in its reasonable discretion.
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(b) The Confirmation Order shall be in form and substance acceptable to the Debtors, in their discretion, and the Creditors Committee, the Postpetition Agent and the Postpetition Lenders, in their reasonable discretion.
12.2. CONDITIONS TO CONSUMMATION. The following are conditions precedent to the occurrence of the Effective Date, each of which may be satisfied or waived in accordance with Section 12.3 of the Plan:
(a) The Bankruptcy Court shall have entered one or more orders (which may include the Confirmation Order) authorizing the assumption and rejection of unexpired leases and executory contracts by the Debtors as contemplated by ARTICLE VIII hereof.
(b) The Debtors shall have amended and restated or otherwise replaced the Postpetition Credit Agreement in a manner consistent with the terms of the Commitment Letter and all conditions precedent to the consummation thereof (other than the occurrence of the Effective Date of the Plan) shall have been waived or satisfied in accordance with the terms thereof and the lenders under the Post-Effective Date Facility shall be ready to fund the amounts required by the Debtors upon the Effective Date.
(c) The Confirmation Order in form and substance acceptable to the Debtors, in their discretion, and the Creditors Committee, in its reasonable discretion, shall have been entered by the Bankruptcy Court and shall be a Final Order, and no request for revocation of the Confirmation Order under section 1144 of the Bankruptcy Code shall have been made, or, if made, shall remain pending.
(d) Each Exhibit, document or agreement to be executed in connection with the Plan shall be in form and substance acceptable to the Debtors, in their discretion, and the Creditors Committee, in its reasonable discretion.
(e) The Confirmation Date shall have occurred and the Confirmation Order shall, among other things, provide that:
(1) the provisions of the Confirmation Order and the Plan are nonseverable and mutually dependent;
(2) all executory contracts or unexpired leases assumed by the Debtors during the Chapter 11 Cases or under the Plan shall be assigned and transferred to, and remain in full force and effect for the benefit of, the Reorganized Debtors, notwithstanding any provision in such contract or lease (including those described in sections 365(b)(2) and 365(f) of the Bankruptcy Code) that prohibits such assignment or transfer or that enables or requires termination of such contract or lease;
(3) the transfers of property by the Debtors (A) to the Reorganized Debtors (1) are or shall be legal, valid, and effective transfers of property, (2) vest or shall vest the Reorganized Debtors with good title to such property free and clear of all liens, charges, Claims, encumbrances, or Interests, except as expressly provided in the Plan or Confirmation Order, (3) do not and shall not constitute avoidable transfers under the Bankruptcy Code or under applicable nonbankruptcy law, and (4) do not and shall not
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subject the Reorganized Debtors to any liability by reason of such transfer under the Bankruptcy Code or under applicable nonbankruptcy law, including, without limitation, any laws affecting successor or transferee liability, and (B) to Claimholders and Interestholders under the Plan are for good consideration and value and are in the ordinary course of the Debtors businesses;
(4) except as expressly provided in the Plan or the Confirmation Order, the Reorganized Debtors are discharged effective upon the Effective Date from any debt (as that term is defined in section 101(12) of the Bankruptcy Code), and the Debtors liability in respect thereof is extinguished completely, whether reduced to judgment or not, liquidated or unliquidated, contingent or noncontingent, asserted or unasserted, fixed or unfixed, matured or unmatured, disputed or undisputed, legal or equitable, known or unknown, or that arose from any agreement of the Debtors entered into or obligation of the Debtors incurred before the Effective Date, or from any conduct of the Debtors prior to the Effective Date, or that otherwise arose before the Effective Date, including, without limitation, all interest, if any, on any such debts, whether such interest accrued before or after the Petition Date;
(5) the Plan does not provide for the liquidation of all or substantially all of the property of the Debtors and its confirmation is not likely to be followed by the liquidation of the Reorganized Debtors or the need for further financial reorganization; and
(6) the New Common Stock (including the offer of New Common Stock through any warrant, option, right to subscribe, or conversion privilege or the sale of the New Common Stock upon exercise of such warrant, option, right to subscribe, or conversion privilege) to be issued under the Plan in exchange for Claims against and Interests in the Debtors are exempt from registration under the Securities Act of 1933 pursuant to, and to the extent provided by, section 1145 of the Bankruptcy Code.
12.3. WAIVER OF CONDITIONS TO CONFIRMATION OR CONSUMMATION. The conditions set forth in Sections 12.1 and 12.2 of the Plan may be waived, in whole or in part, by the Debtors (after consultation with the Creditors Committee) without any notice to parties in interest or the Bankruptcy Court and without a hearing, PROVIDED, HOWEVER, that any such waiver(s) shall not affect the rights and remedies of the Postpetition Lenders under the Postpetition Facility Order, Section 10.1 of the Plan or under applicable law. The failure to satisfy or waive any condition to the Confirmation Date or the Effective Date may be asserted by the Debtors in their sole discretion regardless of the circumstances giving rise to the failure of such condition to be satisfied (including any action or inaction by the Debtors in their sole discretion). The failure of the Debtors in their sole discretion to exercise any of the foregoing rights shall not be deemed a waiver of any other rights, and each such right shall be deemed an ongoing right, which may be asserted at any time.
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ARTICLE XIII.
RETENTION OF JURISDICTION
Pursuant to sections 105(a) and 1142 of the Bankruptcy Code, the Bankruptcy Court shall have exclusive jurisdiction of all matters arising out of, and related to, the Chapter 11 Cases and the Plan, including, among others, the following matters:
(a) to hear and determine pending motions for (i) the assumption or rejection or (ii) the assumption and assignment of executory contracts or unexpired leases to which the Debtors are a party or with respect to which the Debtors may be liable, and to hear and determine the allowance of Claims resulting therefrom including the amount of Cure, if any, required to be paid;
(b) to adjudicate any and all adversary proceedings, applications, and contested matters that may be commenced or maintained pursuant to the Chapter 11 Cases or the Plan, or that were the subject of proceedings before the Bankruptcy Court prior to the Effective Date, proceedings to adjudicate the allowance of Disputed Claims and Disputed Interests, and all controversies and issues arising from or relating to any of the foregoing;
(c) to adjudicate any and all disputes arising from the distribution or retention of the New Common Stock or the consideration under this Plan;
(d) to ensure that distributions to Allowed Claimholders and Allowed Interestholders are accomplished as provided herein;
(e) to hear and determine any and all objections to the allowance of Claims and Interests and the estimation of Claims and Interests, both before and after the Confirmation Date, including any objections to the classification of any Claim or Interest, and to allow or disallow any Claim or Interest, in whole or in part;
(f) to enter and implement such orders as may be appropriate if the Confirmation Order is for any reason stayed, revoked, modified, or vacated;
(g) to issue orders in aid of execution, implementation, or consummation of the Plan;
(h) to consider any modifications of the Plan, to cure any defect or omission, or to reconcile any inconsistency in any order of the Bankruptcy Court, including, without limitation, the Confirmation Order;
(i) to hear and determine all applications for compensation and reimbursement of Professional Claims under the Plan or under sections 330, 331, 503(b), 1103, and 1129(a)(4) of the Bankruptcy Code;
(j) to determine requests for the payment of Claims entitled to priority under section 507(a)(1) of the Bankruptcy Code, including compensation of and reimbursement of expenses of parties entitled thereto;
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(k) to hear and determine disputes arising in connection with the interpretation, implementation, or enforcement of the Plan, the Confirmation Order, including disputes arising under agreements, documents, or instruments executed in connection with this Plan;
(l) to hear and determine all suits or adversary proceedings to recover assets of the Debtors and property of their Estates, wherever located;
(m) to hear and determine matters concerning state, local, and federal taxes in accordance with sections 346, 505, and 1146 of the Bankruptcy Code;
(n) to hear any other matter not inconsistent with the Bankruptcy Code;
(o) to hear and determine all disputes involving the existence, nature, or scope of the Debtors discharge, including any dispute relating to any liability arising out of the termination of employment or the termination of any employee or retiree benefit program, regardless of whether such termination occurred prior to or after the Effective Date;
(p) to enter a final decree closing the Chapter 11 Cases; and
(q) to enforce all orders previously entered by the Bankruptcy Court. Unless otherwise specifically provided herein or in a prior order of the Bankruptcy Court, the Bankruptcy Court shall have exclusive jurisdiction to hear and determine disputes concerning Claims, Interests, Retained Actions, Retained Avoidance Claims, and any motions to compromise or settle such disputes. Despite the foregoing, if the Bankruptcy Court is determined not to have jurisdiction with respect to the foregoing, or if the Reorganized Debtors chooses to pursue any Retained Action or Retained Avoidance Claims in another court of competent jurisdiction, the Reorganized Debtors will have authority to bring such action in any other court of competent jurisdiction.
ARTICLE XIV.
MISCELLANEOUS PROVISIONS
14.1. BINDING EFFECT. Upon the Effective Date, the Plan shall be binding upon and inure to the benefit of the Debtors, the Reorganized Debtors, all present and former Claimholders, all present and former Interestholders, other parties in interest and their respective heirs, successors, and assigns.
14.2. MODIFICATION AND AMENDMENTS. The Debtors may alter, amend, or modify the Plan or any Exhibits thereto under section 1127(a) of the Bankruptcy Code at any time prior to the Confirmation Hearing provided that the Debtors shall not make any such alteration, amendment or modification that materially affects treatment, distributions or rights afforded to holders of Class 3 General Unsecured Claims and Class 4 Senior Note Claims without the consent of the Creditors Committee. After the Confirmation Date and prior to substantial consummation of the Plan as defined in section 1101(2) of the Bankruptcy Code, the Debtors may, under section 1127(b) of the Bankruptcy Code, institute proceedings in the Bankruptcy
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Court to remedy any defect or omission or reconcile any inconsistencies in the Plan, the Disclosure Statement, or the Confirmation Order, and such matters as may be necessary to carry out the purposes and effects of the Plan.
14.3. ALLOCATION OF PLAN DISTRIBUTIONS BETWEEN PRINCIPAL AND INTEREST. To the extent that any Allowed Claim entitled to a distribution under the Plan is composed of indebtedness and accrued but unpaid interest thereon, such distribution shall, to the extent permitted by applicable law, be allocated for United States federal income tax purposes to the principal amount of the Claim first and then, to the extent the consideration exceeds the principal amount of the Claim, to the portion of the Claim representing accrued but unpaid interest.
14.4. COMMITTEES. Effective on the Effective Date, the Creditors Committee shall dissolve automatically, whereupon its members, professionals, and agents shall be released from any further duties and responsibilities in the Chapter 11 Cases and under the Bankruptcy Code, except with respect to applications for Professional Claims and except with respect to obligations arising under confidentiality agreements entered by then which shall remain in full force and effect according to their terms.
14.5. REVOCATION, WITHDRAWAL, OR NON-CONSUMMATion.
(a) RIGHT TO REVOKE OR WITHDRAW. Each of the Debtors, in consultation with the Creditors Committee, reserves the right to revoke or withdraw the Plan at any time prior to the Effective Date.
(b) EFFECT OF WITHDRAWAL, REVOCATION, OR NON-CONSUMMATION. If any of the Debtors revokes or withdraws the Plan prior to the Effective Date, or if the Confirmation Date or the Effective Date does not occur, then the Plan, any settlement, or compromise embodied in the Plan (including the fixing or limiting to an amount certain any Claim or Interest or Class of Claims or Interests with respect to such Debtor or Debtors), the assumption or rejection of executory contracts or unexpired leases effected by the Plan, and any document or agreement executed pursuant to the Plan shall be null and void. In such event, nothing contained herein, and no acts taken in preparation for consummation of the Plan, shall be deemed to constitute a waiver or release of any Claims by or against or Interests in the Debtors or any other Person, to prejudice in any manner the rights of the Debtors or any Person in any further proceedings involving the Debtors, or to constitute an admission of any sort by the Debtors or any other Person.
14.6. SEVERABILITY OF PLAN PROVISIONS. If, prior to the Confirmation Date, any term or provision of the Plan is held by the Bankruptcy Court to be illegal, impermissible, invalid, void or unenforceable, or otherwise to constitute grounds for denying confirmation of the Plan, the Bankruptcy Court shall, with the consent of the Debtors (in consultation with the Creditors Committee), have the power to interpret, modify or delete such term or provision (or portions thereof) to make it valid or enforceable to the maximum extent practicable, consistent with the original purpose of the term or provision held to be invalid, void or unenforceable, and such term or provision shall then be operative as interpreted, modified or deleted. Notwithstanding any such interpretation, modification or deletion, the remainder of the terms and provisions of the
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Plan shall in no way be affected, impaired or invalidated by such interpretation, modification or deletion.
14.7. NOTICES. Any notice required or permitted to be provided to the Debtors, Creditors Committee, Postpetition Agent, or under the Plan shall be in writing and served by (a) certified mail, return receipt requested, (b) hand delivery, or (c) overnight delivery service, to be addressed as follows:
If to the Debtors:
HAYNES INTERNATIONAL, INC.
1020 West Park Avenue
Kokomo, Indiana 46904-9013
Attn: Chief Financial Officer
with copies to:
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
333 West Wacker Drive, Suite 2100
Chicago, Illinois 60606-1285
Telephone: (312) 407-0700
Facsimile: (312) 407-0411
Attn: John Wm. Butler, Jr., Esq.
J. Eric Ivester, Esq.
Kristin E. Rooney, Esq.
- and -
ICE MILLER
One American Square
Box 82001
Indianapolis, Indiana 46282-0002
Telephone: (317) 236-2100
Facsimile: (317) 236-2219
Attn: Jeffrey A. Hokanson, Esq.
Ben T. Caughey, Esq.
If to the Creditors Committee:
Akin Gump Strauss Hauer & Feld LLP
590 Madison Avenue
New York, New York 10022
Telephone: (212) 872-1000
Fax: (212) 872-1002
Attn: Michael S. Stamer, Esq.
Phillip C. Dublin, Esq.
51
- and -
Baker & Daniels
300 North Meridian Street
Indianapolis, Indiana 46204
Telephone: (317) 237-1190
Fax: (317) 237-1000
Attn: James M. Carr, Esq.
If to the Postpetition Agent:
Congress Financial Corporation (Central)
150 South Wacker Drive
Chicago, Illinois 60606
Telephone: (312) 332-0420
Fax: (312) 332-0424
Attn: Portfolio Manager
with copies to:
Otterbourg, Steindler, Houston & Rosen, P.C.
230 Park Avenue
New York, New York 10169
Telephone: (212) 661-9100
Fax: (212) 682-6104
Attn: Jonathan N. Helfat, Esq.
14.8. TERM OF INJUNCTIONS OR STAYS. Unless otherwise provided herein or in the Confirmation Order, all injunctions or stays provided for in the Chapter 11 Cases under sections 105 or 362 of the Bankruptcy Code or otherwise, and extant on the Confirmation Date, shall remain in full force and effect until the Effective Date.
14.9. GOVERNING LAW. Except to the extent the Bankruptcy Code, the Bankruptcy Rules or other federal law is applicable, or to the extent an exhibit or schedule to the Plan provides otherwise, (i) the rights and obligations arising under this Plan shall be governed by, and construed and enforced in accordance with, the laws of the State of Indiana, and (ii) the laws of the state of incorporation of the Debtors shall govern corporate governance matters with respect to the Debtors, in either case without giving effect to the principles of conflicts of law thereof.
14.10. NO WAIVER OR ESTOPPEL. Each Claimholder or Interestholder shall be deemed to have waived any right to assert that its Claim or Interest should be Allowed in a certain amount, in a certain priority, secured or not subordinated by virtue of an agreement made with the Debtors and/or their counsel, the Creditors Committee and/or its counsel, or any other Person, if
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such agreement was not disclosed in the Plan, the Disclosure Statement, or papers filed with the Bankruptcy Court prior to the Confirmation Date.
14.11. CONFLICTS. In the event that the provisions of the Disclosure Statement and the provisions of the Plan conflict, the terms of the Plan shall govern.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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Dated: Indianapolis, Indiana
June 29, 2004
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Respectfully submitted, |
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HAYNES INTERNATIONAL, INC. |
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AND THE DEBTOR AFFILIATES |
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By : |
/s/ Francis J. Petro |
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Francis J. Petro |
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President and Chief Executive Officer |
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of Haynes International, Inc. and authorized |
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signatory for each of the other Debtors |
John Wm. Butler, Jr. (IL
ARDC No. 06209373)
J. Eric Ivester (IL ARDC No. 06215581)
Kristin E. Rooney (IL ARDC No. 06256593)
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
333 West Wacker Drive, Suite 2100
Chicago, Illinois 60606-1285
Telephone: (312) 407-0700
Facsimile: (312) 407-0411
- and -
Jeffrey A. Hokanson
Ben T. Caughey
ICE MILLER
One American Square
Box 82001
Indianapolis, Indiana 46282-0002
Telephone: (317) 236-2100
Facsimile: (317) 236-2219
ATTORNEYS FOR HAYNES INTERNATIONAL, INC.
AND THE DEBTOR AFFILIATES
[Exhibit A - Nonexclusive list of the Retained Actions and Retained Avoidance Claims, Exhibit B - Certificate of Incorporation, Exhibit C - Bylaws, Exhibit D - Long-Term Incentive Plan, and Exhibit E - Registration Rights Agreement have been omitted from the Plan of Reorganization as filed with the Securities and Exchange Commission (the SEC). The omitted information is considered immaterial from an investors perspective. The Registrant will furnish supplementally a copy of any of the omitted Exhibits to the SEC upon request from the SEC.]
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Exhibit 2.2
ASSET PURCHASE AGREEMENT
BY AND AMONG
HAYNES WIRE COMPANY,
THE BRANFORD WIRE AND MANUFACTURING COMPANY,
CAROLINA INDUSTRIES, INC.,
AND
RICHARD HARCKE
DATED AS OF OCTOBER 28, 2004
TABLE OF CONTENTS
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PAGE |
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ARTICLE I. |
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DEFINITIONS |
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1 |
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ARTICLE II. |
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SALE AND PURCHASE |
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7 |
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Section 2.01. |
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Transfer of Assets |
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7 |
Section 2.02. |
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Sale Free of Encumbrances |
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7 |
Section 2.03. |
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Certain Excluded Assets |
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7 |
Section 2.04. |
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No Assumption of Liabilities |
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8 |
Section 2.05. |
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Subsequent Documentation |
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8 |
Section 2.06. |
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Post-Closing Adjustments to Purchased Inventory |
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8 |
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ARTICLE III. |
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PURCHASE PRICE |
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9 |
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Section 3.01. |
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Purchase Price and Payment |
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9 |
Section 3.02. |
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Fair Consideration |
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9 |
Section 3.03. |
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Allocation of the Purchase Price |
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9 |
Section 3.04. |
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Taxes |
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10 |
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ARTICLE IV. |
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CLOSING |
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10 |
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Section 4.01. |
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Closing Date |
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10 |
Section 4.02. |
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Deliveries by Sellers |
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10 |
Section 4.03. |
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Deliveries by Buyer |
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11 |
Section 4.04. |
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Possession of Acquired Assets |
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12 |
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ARTICLE V. |
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REPRESENTATIONS AND WARRANTIES OF SELLERS AND HARCKE |
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12 |
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Section 5.01. |
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Organization; Power |
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12 |
Section 5.02. |
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Authorization and Validity of Agreement |
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12 |
Section 5.03. |
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No Conflict or Violation |
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13 |
Section 5.04. |
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Consents and Approvals |
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13 |
Section 5.05. |
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Financial Statements |
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13 |
Section 5.06. |
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Absence of Certain Changes or Events |
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14 |
Section 5.07. |
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Tax Matters |
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14 |
Section 5.08. |
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Absence of Undisclosed Liabilities |
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15 |
Section 5.09. |
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Real Property |
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15 |
Section 5.10. |
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Conformity of the Real Property |
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16 |
Section 5.11. |
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Equipment and Machinery |
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16 |
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Section 5.12. |
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Intellectual Property and Software |
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16 |
Section 5.13. |
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Accounts Receivable |
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17 |
Section 5.14. |
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Employee Benefit Plans |
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17 |
Section 5.15. |
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Labor Relations |
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18 |
Section 5.16. |
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Environmental Compliance |
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18 |
Section 5.17. |
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Licenses and Permits |
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19 |
Section 5.18. |
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Insurance; Bonds |
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Section 5.19. |
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Assigned Contracts |
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Section 5.20. |
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Customers |
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Section 5.21. |
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Compliance with Law |
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Section 5.22. |
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Litigation |
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Section 5.23. |
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Title to the Acquired Assets and Related Matters |
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Section 5.24. |
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Absence of Certain Business Practices |
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Section 5.25. |
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No Other Agreements to Sell Assets |
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Section 5.26. |
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Debts of Branford |
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Section 5.27. |
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Due Diligence |
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Section 5.28. |
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Brokers and Finders Fees |
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Section 5.29. |
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All Material Information |
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Section 5.30. |
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Sellers and Harcke Independently Advised |
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Section 5.31. |
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Condition of Acquired Assets |
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21 |
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ARTICLE VI. |
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REPRESENTATIONS AND WARRANTIES OF BUYER |
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21 |
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Section 6.01. |
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Organization; Power |
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21 |
Section 6.02. |
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Authorization and Validity of Agreement |
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Section 6.03. |
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No Conflict or Violation |
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Section 6.04. |
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Approvals and Consents |
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Section 6.05. |
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Brokers and Finders Fees |
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22 |
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ARTICLE VII. |
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COVENANTS OF SELLERS AND HARCKE |
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22 |
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Section 7.01. |
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Regulatory and Other Approvals |
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22 |
Section 7.02. |
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Fulfillment of Conditions |
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22 |
Section 7.03. |
|
Conduct of Business |
|
23 |
Section 7.04. |
|
Certain Restrictions |
|
23 |
Section 7.05. |
|
No Solicitation |
|
24 |
Section 7.06. |
|
Use of Names |
|
24 |
Section 7.07. |
|
Post-Closing Operations |
|
25 |
Section 7.08. |
|
Notification |
|
25 |
|
|
|
|
|
ARTICLE VIII. |
|
COVENANTS OF BUYER |
|
25 |
|
|
|
|
|
Section 8.01. |
|
Access |
|
25 |
Section 8.02. |
|
Fulfillment of Conditions |
|
25 |
Section 8.03. |
|
Employee Matters |
|
26 |
Section 8.04. |
|
Assumed Liabilities |
|
27 |
ii
ARTICLE IX. |
|
CONDITIONS TO OBLIGATIONS OF BUYER |
|
27 |
|
|
|
|
|
Section 9.01. |
|
Representations and Warranties |
|
27 |
Section 9.02. |
|
Performance |
|
27 |
Section 9.03. |
|
Closing Deliveries |
|
27 |
Section 9.04. |
|
Laws |
|
27 |
Section 9.05. |
|
Regulatory Consents and Approvals |
|
27 |
Section 9.06. |
|
No Material Adverse Change |
|
27 |
Section 9.07. |
|
Balance Sheet |
|
27 |
Section 9.08. |
|
Bulk Sales Compliance |
|
27 |
Section 9.09. |
|
Approval of Board of Directors |
|
28 |
|
|
|
|
|
ARTICLE X. |
|
CONDITIONS TO OBLIGATIONS OF SELLERS AND HARCKE |
|
28 |
|
|
|
|
|
Section 10.01. |
|
Representations and Warranties |
|
28 |
Section 10.02. |
|
Performance |
|
28 |
Section 10.03. |
|
Laws |
|
28 |
Section 10.04. |
|
Regulatory Consents and Approvals |
|
28 |
|
|
|
|
|
ARTICLE XI. |
|
EXCESS INVENTORY |
|
28 |
|
|
|
|
|
Section 11.01. |
|
Procedures for Storage and Disposition of Excess Inventory |
|
28 |
Section 11.02. |
|
Compliance |
|
30 |
Section 11.03. |
|
Sales Efforts |
|
30 |
Section 11.04. |
|
Offset of Returns for Credit |
|
30 |
|
|
|
|
|
ARTICLE XII. |
|
OTHER AGREEMENTS |
|
30 |
|
|
|
|
|
Section 12.01. |
|
Tax Returns; Cooperation on Tax Matters |
|
30 |
Section 12.02. |
|
Files and Records |
|
31 |
Section 12.03. |
|
Certain Costs |
|
31 |
Section 12.04. |
|
Payment of Debts |
|
31 |
Section 12.05. |
|
Collection of Certain Accounts Receivable |
|
31 |
Section 12.06. |
|
Costs of Clean-up of PCP Contamination |
|
32 |
|
|
|
|
|
ARTICLE XIII. |
|
INDEMNIFICATION |
|
32 |
|
|
|
|
|
Section 13.01. |
|
Survival |
|
32 |
Section 13.02. |
|
Indemnification by Sellers |
|
32 |
Section 13.03. |
|
Indemnification by Buyer |
|
33 |
Section 13.04. |
|
Procedure |
|
34 |
Section 13.05. |
|
Buyer Right to Offset |
|
34 |
|
|
|
|
|
ARTICLE XIV. |
|
TERMINATION |
|
34 |
|
|
|
|
|
Section 14.01. |
|
Termination |
|
34 |
Section 14.02. |
|
Effect of Termination |
|
35 |
iii
ARTICLE XV. |
|
MISCELLANEOUS |
|
35 |
|
|
|
|
|
Section 15.01. |
|
Confidential Information |
|
35 |
Section 15.02. |
|
Public Announcements |
|
35 |
Section 15.03. |
|
Expenses |
|
35 |
Section 15.04. |
|
Utilities Proration |
|
35 |
Section 15.05. |
|
Reasonable Efforts; Cooperation |
|
36 |
Section 15.06. |
|
Notices |
|
36 |
Section 15.07. |
|
Headings |
|
36 |
Section 15.08. |
|
Construction |
|
36 |
Section 15.09. |
|
Severability |
|
37 |
Section 15.10. |
|
Entire Agreement |
|
37 |
Section 15.11. |
|
Amendments; Waivers |
|
37 |
Section 15.12. |
|
Parties in Interest |
|
37 |
Section 15.13. |
|
Successors and Assigns |
|
38 |
Section 15.14. |
|
Governing Law; Jurisdiction |
|
38 |
Section 15.15. |
|
Counterparts |
|
38 |
iv
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (AGREEMENT), dated as of October 28, 2004 (the EFFECTIVE DATE), is made and entered into by and among Haynes Wire Company, a Delaware corporation (BUYER), The Branford Wire and Manufacturing Company, a Connecticut corporation (BRANFORD), Carolina Industries, Inc., a Connecticut corporation (CAROLINA INDUSTRIES) (Branford and Carolina Industries, collectively, SELLERS) and Richard Harcke (HARCKE).
WITNESSETH:
WHEREAS, Sellers are engaged in the business of owning and operating a wire manufacturing business (the BUSINESS); and
WHEREAS, Buyer desires to purchase from Sellers, and Sellers desire to sell to Buyer, the Acquired Assets, as hereinafter defined, upon the terms and subject to the conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the foregoing and of the mutual representations, warranties, covenants, and agreements herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, the parties hereto agree as follows:
AGREEMENT
ARTICLE I.
DEFINITIONS
As used in this Agreement, the following terms have the meanings indicated below:
ACCOUNTS RECEIVABLE means all accounts and notes receivable, rights to refunds, and deposits of any kind of Branford other than Excluded Accounts receivable and Uncollectible Accounts Receivable.
ACQUIRED ASSETS means the Accounts Receivable, Assigned Contracts, Equipment and Machinery, Files and Records, Intangible Assets, Intellectual Property, Licenses and Permits, Miscellaneous Assets, Purchased Inventory, Real Property, exclusive use of the names Branford Wire and Manufacturing Company and B&S Wire Rod Sales and all other assets of Branford as of the Closing Date (including all such items shown or reflected in the Closing Balance Sheet of the Seller, with additions thereto, net of dispositions in the ordinary course of the Business, since the Balance Sheet Date), of every kind, nature, character, and description, whether real, personal or mixed, whether accrued, contingent or other, and wherever situated, and whether or not reflected in any financial statement of Branford, used or useful in conducting the Business
1
including, without limitation, those listed on SCHEDULE 1.01 hereto, but excluding all of the Excluded Assets.
ACQUIRED WORKING CAPITAL means, as of any date of determination, an amount equal to the sum of (i) Sellers Accounts Receivable PLUS (ii) Sellers Inventory (other than Excess Inventory), in each case as reflected on Sellers balance sheet prepared in accordance with past practice.
AFFILIATE means any person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, a specified Person or which together with a specified Person is a member of a controlled group (within the meaning of Code Section 1563(a) determined without regard to Sections 1563(a)(4) and 1563(e)(3)(C)) of the Code.
ASSIGNED CONTRACTS means the leases, contracts, agreements and arrangements assigned to Buyer by Seller hereunder and set forth in SCHEDULE 1.02.
ASSUMED LIABILITIES has the meaning specified in SECTION 2.04.
BALANCE SHEET DATE means September 30, 2004 (the date of the Interim Balance Sheet).
BRANFORD has the meaning set forth in the introductory paragraph hereto.
BRANFORDS BENEFIT OBLIGATIONS means all obligations, arrangements or customary practices (other than those contained in or provided under Branfords Plans), whether or not legally enforceable, to provide benefits (other than salary or wages) to present or former directors, employees, or agents of Branford. Branfords Benefit Obligations also includes consulting agreements under which the compensation paid does not depend upon the amount of service rendered, sabbatical policies, severance payment policies and fringe benefits within the meaning of Section 132 of the Code.
BRANFORDS PLANS means each voluntary employees beneficiary association under Section 501(c)(9) of the Code whose members include employees of Branford and all employee benefit plans, as defined in Section 3(3) of ERISA, to which Branford is a plan sponsor, as defined in Section 3(16)(B) of ERISA, or to which Branford otherwise contributes or has contributed, or in which Branford otherwise participates or has participated.
BUSINESS has the meaning set forth in the recitals hereto.
BUSINESS DAY means any day that the banks in Indianapolis, Indiana, U.S.A. are open for business.
BUYER has the meaning set forth in the introductory paragraph hereto.
BUYER BENEFIT PLANS has the meaning specified in SECTION 8.03(b).
CAROLINA INDUSTRIES has the meaning set forth in the introductory paragraph hereto.
CERCLA means the Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended.
CLAIM has the meaning specified in SECTION 13.02.
CLOSING has the meaning specified in SECTION 4.01.
CLOSING BALANCE SHEET has the meaning specified in SECTION 3.02(b).
CLOSING DATE has the meaning specified in SECTION 4.01.
CLOSING DATE A/R REPORT has the meaning specified in SECTION 2.06(b).
CLOSING DATE INVENTORY REPORT has the meaning specified in SECTION 2.06(b).
COBRA means Title X of the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended.
CODE means the Internal Revenue Code of 1986, as amended.
CONTRACTS means any agreement, lease, license, evidence of indebtedness, mortgage, indenture, security agreement or other contract.
EFFECTIVE DATE has the meaning specified in the first paragraph of this Agreement.
ENCUMBRANCES means all liens (statutory or other), leases, mortgages, pledges, security interests, conditional sales agreements, charges, claims, options, easements, rights of way (other than easements of record), rights of third parties and other encumbrances of any kind or nature whatsoever.
ENVIRONMENTAL REQUIREMENTS mean all past, present and future Laws, rules, regulations, ordinances, policies, guidance documents, approvals, plans, authorizations, Licenses and Permits issued by any Governmental Entity of the United States, state or political subdivision thereof, and any foreign governmental body and all judicial, administrative, and regulatory decrees, judgments, and orders relating to human health, pollution, or protection of the environment (including ambient air, surface water, ground water, land surface or surface strata), including (i) Laws relating to emissions, discharges, releases, or threatened releases of Hazardous Materials, (ii) Laws relating to the identification, generation, manufacture, processing, distribution, use, treatment, storage, disposal, recovery, transport or other handling of Hazardous Materials, (iii) CERCLA; the Toxic Substances Control Act, as amended; the Hazardous Materials Transportation Act, as amended; RCRA; the Clean Water Act, as amended; the Safe Drinking Water Act, as amended; the Clean Air Act, as amended; the Atomic Energy Act of 1954, as amended; and the Occupational Safety and Health Act, as amended; and (iv) any similar Law.
EQUIPMENT AND MACHINERY means (i) all equipment, machinery, furniture, fixtures and improvements, tooling, spare parts, supplies, computer hardware and software, and motor vehicles (certificated or uncertificated) owned or leased by Branford in connection with the
Business (including all leases of such property), (ii) any rights of Branford to warranties applicable to the foregoing (to the extent assignable), and licenses received from the manufacturers or sellers of any such item, and (iii) any related claims, credits, and rights of recovery with respect thereto.
ERISA means the Employee Retirement Income Security Act of 1974, as amended.
EXCESS INVENTORY means the Inventory of Sellers that is not Purchased Inventory, ownership of which shall remain in [CAROLINA INDUSTRIES] from and after the Effective Date until purchased by Buyer or otherwise disposed of as provided in SECTION 11.01.
EXCLUDED ACCOUNTS RECEIVABLE means the accounts receivable of Sellers identified on SCHEDULE 1.03.
EXCLUDED ASSETS has the meaning specified in SECTION 2.03.
FILES AND RECORDS mean all files and records of the Seller relating to the Business, whether in hard copy or magnetic or other format including customer and supplier records, equipment maintenance records, equipment warranty information, plant plans, specifications and drawings, sales and advertising material, computer software and records relating to employees to be employed by the Buyer following the Closing.
FINAL A/R REPORT has the meaning specified in SECTION 2.06(b).
FINAL INVENTORY REPORT has the meaning specified in SECTION 2.06(b).
GAAP means generally accepted accounting principles in the United States of America, in effect from time to time, consistently applied.
GOVERNMENTAL ENTITY means any court, government agency, department, commission, board, bureau or instrumentality of the United States, any local, county, state, federal or political subdivision thereof, or any foreign governmental body of any kind.
HARCKE has the meaning set forth in the introductory paragraph hereto.
HAZARDOUS MATERIALS mean (i) any substance that is or becomes defined as a hazardous substance, hazardous waste, hazardous material, pollutant, or contaminant under any Environmental Requirements, including CERCLA; the Superfund Amendments and Reauthorization Act, as amended; the RCRA; and any analogous and applicable Law; (ii) petroleum (including crude oil and any fraction thereof); and (iii) any natural or synthetic gas (whether in liquid or gaseous state).
HIRED EMPLOYEES has the meaning specified in SECTION 8.03(a).
INDEBTEDNESS of any Person means, without duplication, all obligations of such Person (i) for borrowed money, (ii) evidenced by notes, bonds, debentures or similar instruments, (iii) for the deferred purchase price of goods or services (other than trade payables incurred in the
ordinary course of business), (iv) under capital leases and (v) in the nature of guarantees of the obligations described in clauses (i) through (iv) above of any other Person.
INDEMNIFIED PARTY has the meaning specified in SECTION 13.04.
INDEMNIFYING PARTY has the meaning specified in SECTION 13.04.
INTANGIBLE ASSETS mean all intangible personal property rights of the Seller, including goodwill, customer lists and related information, and all contract rights with respect to the Assigned Contracts.
INTELLECTUAL PROPERTY means any and all of the following and all rights in, arising out of, or associated therewith: (i) all United States and foreign patents and applications therefor and all reissues, divisions, renewals, extensions, provisionals, continuations and continuations-in-part thereof; (ii) all inventions (whether patentable or not), invention disclosures, improvements, trade secrets, proprietary information, proprietary processes or formulae, franchises, licenses, know how, technology, technical data and customer lists, and all documentation relating to any of the foregoing; (iii) all copyrights, copyright registrations and applications therefor and all other rights corresponding thereto throughout the world; (iv) all trade names, logos, common law trademarks and service marks; trademark and service mark registrations and applications therefor and all goodwill associated therewith throughout the world; (v) all databases and data collections and all rights therein throughout the world; (vi) all computer software including all source code, object code, algorithms, display screens, layouts, firmware, development tools, files, records and data, all media on which any of the foregoing is recorded, all Web addresses, sites and domain names; (vii) any similar, corresponding or equivalent rights to any of the foregoing; and (viii) all documentation related to any of the foregoing.
INTERIM BALANCE SHEET has the meaning specified in SECTION 5.05.
INVENTORY means all Inventory of Sellers, wherever located, including all finished goods, work in process and raw materials.
LAW or LAWS means any local, county, state, federal or other law, statute, regulation, ordinance, rule, order, decree, judgment, consent decree, settlement agreement or governmental requirement enacted, promulgated, entered into, agreed or imposed by any Governmental Entity.
LICENSES AND PERMITS mean all licenses, permits, franchises, authorizations, and approvals issued by or under the authority of a Governmental Entity that relate directly or indirectly to, or are necessary for, the conduct of the Business, including those described in SCHEDULE 5.17.
MATERIAL ADVERSE EFFECT, when used with respect to Sellers or the Business, means any event, change, occurrence, condition or circumstance which has had or may have a material adverse impact on any of the Acquired Assets, the prospects, operations or financial condition of the Business as conducted by Sellers immediately prior to the date hereof or the Closing, as applicable, or the ability of Sellers to consummate any of the transactions contemplated by this Agreement, and when used with respect to Buyer, means any event, change, occurrence,
condition or circumstance which has had or may have a material adverse impact on the ability of Buyer to consummate any of the transactions contemplated by this Agreement.
MISCELLANEOUS ASSETS means all telephone numbers, web site addresses and post office boxes used by Branford in the Business, all materials and supplies (other than Inventory) to be used or consumed by Sellers in the production of finished goods and all prepaid expenses reflected on the Closing Balance Sheet to the extent such expenses accrue to the benefit of Buyer after the Effective Date.
NONCOMPETITION AGREEMENTS means the Confidentiality and Noncompetition Agreements in the Form attached as EXHIBITS 4.02(g)(i) and 4.02(g)(ii).
PERSON means any individual, corporation, partnership, joint venture, association, limited liability company, joint-stock company, trust, or unincorporated organization, or any Governmental Entity.
PERSONNEL means the current and former officers, employees and/or agents of any Seller.
POLICIES and POLICY have the meanings specified in SECTION 5.18.
PURCHASE PRICE has the meaning specified in SECTION 3.01.
PURCHASED INVENTORY means the Inventory of Sellers consisting of inventory consigned to third parties for sale, work-in-process that is committed to customer orders, work-in-process that is semi-finished goods, raw materials necessary to fulfill Sellers existing order backlog and other raw materials, each as set forth on SCHEDULE 1.04, adjusted as provided in SECTION 2.06.
RCRA means the Resource Conservation and Recovery Act, as amended.
REAL PROPERTY has the meaning specified in SECTION 5.09.
RELATED AGREEMENTS means all agreements, instruments and certificates (other than this Agreement) to be executed by Sellers or Harcke in connection with the transactions contemplated by this Agreement, including without limitation each Bill of Sale, each Assignment and Assumption Agreement and each Noncompetition Agreement.
REPLACEMENT COST has the meaning specified in SECTION 11.01(c).
SALE OF ASSETS means the sale of the Acquired Assets by Sellers to Buyer pursuant to the terms of this Agreement.
SECURITY AGREEMENT has the meaning specified in SECTION 4.02(a).
SELLERS has the meaning specified in the first paragraph of this Agreement.
SITE ASSESSMENT has the meaning specified in SECTION 4.02(n).
STORAGE SITE has the meaning specified in SECTION 11.01(a).
TAX or TAXES mean all federal, state, local and foreign taxes (including excise taxes, value added taxes, occupancy taxes, employment taxes, unemployment taxes, ad valorem taxes, custom duties, transfer taxes, and fees), levies, imposts, fees, impositions, assessments and other governmental charges of any nature imposed upon a Person including all taxes and governmental charges imposed upon any of the personal properties, real properties, tangible or intangible assets, income, receipts, payrolls, transactions, stock transfers, capital stock, net worth or franchises of a Person (including all sales, use, withholding or other taxes which a Person is required to collect and/or pay over to any Governmental Entity), and all related additions to tax, penalties or interest thereon.
TAX RETURNS mean all returns, reports, information returns, and other documents (including all related and supporting information) filed or required to be filed with any Governmental Entity in connection with the determination, assessment, collection, or administration of any Taxes.
TERMINATED EMPLOYEES has the meaning specified in SECTION 8.03(e).
UNCOLLECTIBLE ACCOUNTS RECEIVABLE shall mean any account receivable of Sellers that has been written off as uncollectible prior to the Closing Date and included on the list of such accounts receivable delivered by the Sellers to the Buyer pursuant to SECTION 12.05.
ARTICLE II.
SALE AND PURCHASE
SECTION 2.01. TRANSFER OF ASSETS. Subject to the terms and conditions set forth in this Agreement, at the Closing, Sellers shall sell, convey, transfer, assign and deliver to Buyer, and Buyer shall purchase, acquire and accept from Sellers all of the right, title, and interest of Sellers in and to the Acquired Assets.
SECTION 2.02. SALE FREE OF ENCUMBRANCES. Sellers and Harcke, jointly and severally, represent, warrant and agree that the sale, conveyance, transfer, assignment and delivery by Sellers of the Acquired Assets to Buyer as provided herein is being made free and clear of all Encumbrances.
SECTION 2.03. CERTAIN EXCLUDED ASSETS. Notwithstanding any other provision of this Agreement to the contrary, the Acquired Assets shall not include the following assets of Sellers (collectively, the EXCLUDED ASSETS):
(a) all cash on hand or on deposit;
(b) rights under agreements with suppliers (other than Assigned Contracts);
(c) minute books, stock ledgers and other corporate records of any Seller;
(d) assets held in any employee benefit plan of any Seller;
(e) the Excess Inventory; and
(f) the Excluded Accounts Receivable.
SECTION 2.04. NO ASSUMPTION OF LIABILITIES. Buyer is not assuming, and shall not be responsible for in any manner, any obligations or liabilities of any Seller, direct or indirect, known or unknown, choate or inchoate, absolute, fixed or contingent, except (a) that Buyer agrees to assume and timely pay or perform all obligations of Seller under the Assigned Contracts which (i) initially accrue or arise after the Closing Date and (ii) are not the result of or caused by any breach or default thereunder by any Seller, and (b) as set forth in SCHEDULE 2.04 (such obligations, collectively, the ASSUMED LIABILITIES). Any Excluded Assets that remain on the Real Property, as defined herein, as of the Closing Date remain at Sellers sole risk. Buyer will have no liability for damage to or destruction of Excluded Assets whether caused by Buyers negligence or otherwise.
SECTION 2.05. SUBSEQUENT DOCUMENTATION. At any time and from time to time after the Closing Date, Sellers shall, upon the request of Buyer, and Buyer shall, upon the request of Sellers, promptly execute, acknowledge, and deliver, or cause to be executed, acknowledged, and delivered, such further instruments and other documents, and perform or cause to be performed such further acts, as may be reasonably required to evidence or effectuate (a) the sale, conveyance, transfer, assignment and delivery hereunder of the Acquired Assets, (b) the performance by the parties of any of their other respective obligations under this Agreement, and (c) the purposes and intent of this Agreement.
SECTION 2.06. POST-CLOSING ADJUSTMENTS TO PURCHASED INVENTORY.
(a) The amount of Purchased Inventory shall be increased or decreased by a number of pounds having a value as of the Closing Date equal to (i) the dollar amount by which Branfords Accounts Receivable as shown on the Final A/R Report, is lower or higher, respectively, than Branfords Accounts Receivable as shown on the Closing Date A/R Report; PLUS (ii) the amount by which the net book value of the Equipment and Machinery included in the Acquired Assets is less than $275,000. If the adjustment required by this SECTION 2.06 results in a net decrease in Purchased Inventory, Buyer shall deliver to Sellers a quantity of the Purchased Inventory (in the inverse order specified in SCHEDULE 1.04) equal to the amount of such decrease and the Inventory so delivered shall become Excess Inventory for all purposes of this Agreement. If the adjustment required by this SECTION 2.06 results in a net increase in Purchased Inventory, Sellers shall deliver to Buyer a quantity of Excess Inventory (in the order specified in SCHEDULE 1.04) equal to the amount of such increase and the amount so delivered shall become Purchased Inventory for all purposes of this Agreement. Any transfer of Inventory as a result of the application of this SECTION 2.06 shall be completed within five (5) Business Days of determination of the Closing Balance Sheet, as provided for herein.
(b) On the Closing Date, Sellers shall deliver to Buyer a written report showing all accounts receivable of Sellers outstanding on the Closing Date, excluding Excluded Accounts Receivable (the CLOSING DATE A/R REPORT), and a written report showing all Inventory of Sellers as of the Closing Date divided into the categories identified on SCHEDULE 1.04 (the CLOSING DATE INVENTORY REPORT). Not later than twenty (20) days after the Closing Date, Buyer may disagree with the information set forth in the Closing Date A/R Report or the Closing Date Inventory Report and notify Sellers in writing specifying in reasonable detail the items in
disagreement and the basis therefor. If Buyer so disagrees, Buyer and Sellers shall meet and attempt in good faith to resolve the disagreement on a mutually satisfactory basis. If Buyer and Sellers are unable to resolve the disagreement within 10 days, Sellers and Buyer shall cause their respective accountants to, within 15 days after the end of such 10-day period, agree upon a final Closing Date A/R Report or Closing Date Inventory Report, in which case such agreed-upon report shall be final and binding on the parties. In the event that their respective accountants cannot agree upon such final report within such timeframe, their respective accountants shall, within 2 days, jointly select an independent auditor of recognized national standing to determine, within 10 days, a final report as of the Closing Date, in which case such determined final report shall be final and binding on the parties. The final Closing Date A/R Report and the final Closing Date Inventory Report prepared and finally determined in accordance with this SECTION 2.06(b) are referred to herein respectively as the FINAL A/R REPORT and the FINAL INVENTORY REPORT.
ARTICLE III.
PURCHASE PRICE
SECTION 3.01. PURCHASE PRICE AND PAYMENT. Subject to the terms and conditions set forth in this Agreement, as full consideration for the Acquired Assets, Buyer shall:
(a) pay to Sellers at Closing in cash by wire transfer to an account designated by Sellers at least two (2) Business Days prior to the Closing Date an amount equal to Eight Million Three Hundred Thousand Dollars ($8,300,000); and
(b) assume the Assumed Liabilities.
The amounts set forth in subsections (a) and (b) are referred to collectively as the PURCHASE PRICE.
SECTION 3.02. FAIR CONSIDERATION. All of the parties acknowledge and agree that the consideration provided for in this ARTICLE III represents fair consideration and reasonably equivalent value for the sale and transfer of the Acquired Assets and the transactions, covenants and agreements set forth in this Agreement, which consideration was agreed upon as the result of arms-length, good-faith negotiations between the parties and their respective representatives.
SECTION 3.03. ALLOCATION OF THE PURCHASE PRICE. Buyer and Sellers agree that the Purchase Price shall be allocated to the Acquired Assets sold by Sellers as set forth on SCHEDULE 3.03 subject to adjustment by written consent of both Sellers and the Buyer following a determination of the Closing Balance Sheet and shall file Internal Revenue Service Form 8594 (and/or other appropriate Tax Returns) with the applicable Taxing authorities, and shall not file any amendments or take any action inconsistent with the foregoing in any audit, refund claim, Tax Return, or any other administration or judicial proceeding, pursuant to Section 1060 of the Code and underlying Treasury Regulations promulgated thereunder. Sellers shall make its Tax Returns and amendments thereof available for inspection by Buyer for the purpose of verifying compliance with this SECTION 3.03.
SECTION 3.04. TAXES. Sellers shall timely pay (a) all Taxes arising out of (i) the ownership or use of the Excluded Assets, (ii) the ownership or use of the Acquired Assets on or before the Closing Date, including all real or personal property Taxes and payroll withholding Taxes due and payable (or assessed for periods) on or before the Closing Date; and (b) all Taxes, including gross and net income Taxes, and transfer, recording, sales and use Taxes arising out of the sale or transfer of the Acquired Assets pursuant to this Agreement or the other agreements and instruments contemplated hereby or the recording or filing of any sale or transfer agreements or instruments.
ARTICLE IV.
CLOSING
SECTION 4.01. CLOSING DATE. The closing of the transactions contemplated by this Agreement (the CLOSING) shall take place at a date and time mutually agreed upon by the parties to the Agreement following satisfaction or waiver of all conditions set forth herein at the offices of Ice Miller, One American Square, 34th Floor, Indianapolis, Indiana (the CLOSING DATE).
SECTION 4.02. DELIVERIES BY SELLERS. At the Closing, and simultaneously with delivery of possession of all of the Acquired Assets to Buyer, Sellers have delivered (or caused to be delivered) to Buyer originals or copies, if specified, of the following agreements, documents and other items:
(a) A Security Agreement by and among Sellers and Buyer (the SECURITY AGREEMENT), executed by Buyer, in the form attached hereto as EXHIBIT 4.02(a);
(b) A Bill of Sale, executed by Sellers, in the form attached hereto as EXHIBIT 4.02(b);
(c) Copies of all the resolutions adopted by Sellers Boards of Directors and shareholders authorizing and approving the execution and delivery of this Agreement and all agreements contemplated hereby and the consummation of the transactions contemplated hereby and thereby, certified to be true and complete and in full force and effect by the corporate Secretary of each Seller;
(d) An Assignment and Assumption Agreement, executed by Sellers, in the form attached hereto as EXHIBIT 4.02(d);
(e) Copies of each consent, waiver, authorization and approval required pursuant to SECTION 5.04 of this Agreement or necessary for the sale of the Acquired Assets or the assignment of the Assigned Contracts to Buyer as contemplated hereby;
(f) Certificates of Good Standing of each Seller issued by the Secretary of State of the State of Connecticut or other appropriate Governmental Authority, and Certificates of Authorization for each Seller from the North Carolina Secretary of State, dated within fifteen (15) days of the Closing;
(g) Noncompetition Agreements, executed by each Seller and Harcke;
(h) Certificates of title for the motor vehicles included in the Acquired Assets, duly endorsed, and all other documents necessary to effect transfer of title to any such motor vehicles;
(i) The original of the ALTA title insurance policy with respect to the Real Property, as defined herein, issued by Chicago Title Insurance Company;
(j) A Certificate executed by Sellers acknowledging delivery by Buyer of the items set forth in SECTION 4.03 of this Agreement and certifying that Sellers have performed in all respects all of the covenants, agreements, obligations and conditions required under this Agreement to be performed, complied with or fulfilled by Sellers on or before the Closing Date;
(k) An opinion of counsel to Sellers, dated as of the Closing Date, in substantially the form attached hereto as EXHIBIT 4.02(k);
(l) The Closing Date A/R Report and the Closing Date Inventory Report;
(m) A copy of the ALTA survey certified by Professional Surveying Services for the Real Property, as defined herein;
(n) A copy of the Phase I environmental site assessment (SITE ASSESSMENT) of the Real Property;
(o) Evidence of zoning of the Real Property that is satisfactory to Buyer, in its reasonable discretion;
(p) The list of Uncollectible Accounts Receivable provided for in SECTION 12.05(d);
(q) The evidence of compliance with applicable bulk sales or bulk transfer laws required by SECTION 9.08;
(r) Non-Foreign Affidavit executed by Sellers, in connection with the transfer of the Real Property;
(s) Owners Affidavit executed by Sellers, in connection with the transfer of the Real Property;
(t) General Warranty Deed executed by Sellers, in connection with the transfer of the Real Property; and
(u) Such other documents and certificates, as Buyer shall reasonably request.
SECTION 4.03. DELIVERIES BY BUYER. At the Closing and simultaneously with the payment of the Purchase Price to Sellers, Buyer has delivered (or has caused to be delivered) to Sellers originals, or copies if specified, of the following agreements, documents and other items:
(a) The Purchase Price to be paid at the Closing pursuant to SECTION 3.01 by wire transfer to accounts designated by Sellers;
(b) The Security Agreement, executed by Sellers, in the form attached as EXHIBIT 4.02(a);
(c) Copies of all resolutions adopted by the Board of Directors of Buyer authorizing and approving the execution and delivery of this Agreement and all agreements contemplated hereby and the consummation of the transactions contemplated hereby and thereby, certified to be true and complete and in full force and effect by the corporate Secretary of Buyer;
(d) An Assignment and Assumption Agreement, executed by Buyer, in the form attached hereto as EXHIBIT 4.02(d);
(e) A Certificate executed by Buyer acknowledging delivery by Sellers of the items set forth in SECTION 4.02 of this Agreement and certifying that Buyer has performed in all respects all of the covenants, agreements, obligations and conditions required under this Agreement to be performed, complied with or fulfilled by Buyer on or before the Closing Date;
(f) The Noncompetition Agreements, executed by Buyer;
(g) A Certificate of Good Standing of Buyer issued by the Secretary of State of the State of Delaware, dated within fifteen (15) days of the Closing; and
(h) Such other documents and certificates, as Sellers shall reasonably request.
SECTION 4.04. POSSESSION OF ACQUIRED ASSETS. Immediately following the Closing on the Closing Date, the Seller shall take all actions which are required or requested by the Buyer to put the Buyer in full possession and control of all of the Acquired Assets.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF SELLERS AND HARCKE
As a material inducement to Buyer to enter into this Agreement and to consummate the transactions contemplated hereby, Sellers and Harcke jointly and severally represent and warrant to Buyer as follows:
SECTION 5.01. ORGANIZATION; POWER. Each Seller is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation. Each Seller is qualified as a foreign corporation and is in good standing in each state or jurisdiction where qualification is necessary because of the nature of the assets and properties it owns, leases or operates or because of the nature of the business it conducts.
SECTION 5.02. AUTHORIZATION AND VALIDITY OF AGREEMENT. Each Seller has all requisite corporate power and authority to own, lease and operate the Acquired Assets, to carry on the Business as it is now being conducted, and to enter into, execute and deliver this Agreement and all Related Agreements executed by it, to consummate the transactions contemplated by this Agreement and other Related Agreements and to comply with and fulfill the terms and conditions of this Agreement and such Related Agreements. Harcke has the legal capacity and authority to enter into this Agreement and each of the Related Agreements, to be executed by
Harcke and to carry out his obligations hereunder and thereunder. The execution, delivery and performance of this Agreement and each Related Agreement by each Seller and Harcke and the consummation by each Seller and Harcke of the transactions contemplated by this Agreement and each Related Agreement have been duly authorized by all necessary corporate action by the Board of Directors and shareholders of each Seller, and no other corporate proceedings on the part of any Seller are necessary to authorize such execution, delivery, performance or consummation. This Agreement and each Related Agreement has been duly executed and delivered by each Seller and Harcke, as applicable, and constitutes a legal, valid and binding obligation of each Seller and Harcke, as applicable, enforceable against each Seller and Harcke in accordance with their respective terms and conditions.
SECTION 5.03. NO CONFLICT OR VIOLATION. The execution, delivery and performance of this Agreement by each Seller and Harcke does not and will not: (a) violate or conflict with any provision of the certificate of incorporation, bylaws or other governing document of Sellers, (b) violate any provision of Law of any Governmental Entity applicable to any Seller, Harcke, or the Business; (c) violate or result in a breach of or constitute (with due notice or lapse of time or both) a default under any contract, lease, loan agreement, mortgage, security agreement, trust, indenture, license, consent order or other instrument or obligation to which any Seller or Harcke is a party, or by which any Seller is bound or to which any Sellers or Harckes assets or properties may be bound; or (d) result in the imposition of any Encumbrance or restriction on the Business or any of the Acquired Assets.
SECTION 5.04. CONSENTS AND APPROVALS. SCHEDULE 5.04 sets forth a list of each consent, waiver, authorization or approval of any Governmental Entity or of any other Person, and each declaration to or filing or registration with any Governmental Entity required in connection with the execution and delivery of this Agreement by any Seller or Harcke or the performance by any Seller and Harcke of its or his obligations hereunder.
SECTION 5.05. FINANCIAL STATEMENTS. Attached hereto as SCHEDULE 5.05 are true, correct and complete copies of (i) the balance sheets of Sellers as of April 30, 2003 and 2002 and the related statements of income, changes in stockholders equity and cash flows for each of the fiscal years ended April 30, 2003, 2002 and 2001, together with a true and correct copy of the review letter on such information by Sally Massagee, Sellers independent public accountant, (ii) the balance sheet of Sellers as of April 30, 2004 and the related statement of income, changes in stockholders equity and cash flows for the year then ended, and (iii) the unaudited balance sheet of the Sellers as of July 31, 2004 (the INTERIM BALANCE SHEET), and the related unaudited statements of income, changes in stockholders equity and cash flows for the three (3) months then ended, together with the notes thereto. All financial statements referred to in this SECTION 5.05 have been prepared in a manner consistent with the manner in which Sellers Tax Returns are prepared. All of the financial statements fairly present, in all material respects, the financial position of the Sellers as of the respective dates thereof and the results of the Sellers operations and changes in the stockholders equity and cash flows for the period then ended, subject, in the case of clauses (ii) and (iii) above, to normal recurring adjustments which are not, individually or in the aggregate, material.
SECTION 5.06. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth on SCHEDULE 5.06, since the Balance Sheet Date, Sellers have operated the Business in the ordinary course consistent with past practice and there has not been any:
(a) (i) increase in the compensation payable or to become payable to any Personnel engaged in the Business, (ii) bonus, incentive compensation, service award or other like benefit granted, made or accrued, contingently or otherwise, for or to any Personnel engaged in the Business, (iii) addition to or modification of any of the Branfords Benefit Obligations and Branfords Plans agreed to by any Seller for any Personnel engaged in the Business other than in the ordinary course of the Business consistent with past practice, or (iv) new employment agreement with any Personnel engaged in the Business;
(b) cancellation of any indebtedness or waiver of any rights having a value of $5,000 or greater, whether or not in the ordinary course of the Business, or increase in any obligation or liability of Branford except in the ordinary course of the Business consistent with past practice;
(c) execution and delivery, amendment, cancellation or termination of any contract, license or other instrument material to the Business;
(d) failure to preserve the Business intact, to keep available to Buyer the services of the Personnel and to preserve for Buyer the goodwill of each of the Branfords dealers, suppliers, customers and others having business relations with it;
(e) change in accounting methods or practices;
(f) damage, destruction or loss (whether or not covered by insurance) affecting the Acquired Assets or the Business;
(g) sale, assignment, transfer or encumbering (or subjecting to any Encumbrance) of any of the assets or properties except in the ordinary course of the Business consistent with past practice;
(h) agreement by any Seller to do any of the foregoing; or
(i) other event or condition of any character which in any one case or in the aggregate has had or may have a Material Adverse Effect on any Seller, the Business or any of the Acquired Assets.
SECTION 5.07. TAX MATTERS. Each Seller has duly and timely filed all Tax Returns required to have been filed with any federal, state, local or foreign Taxing authority on or before the Closing Date and has timely paid all Taxes due and payable by it on or before the Closing Date, whether or not shown on such Tax Returns. Branford has set up reserves or accruals on the Agreement Balance Sheet which are adequate for the payment of all Taxes for all periods through the Closing Date. No Taxing authority has asserted any claim against any Seller for the assessment of any additional Tax liability or initiated any action or proceeding which could result in such an assertion. Each Seller has made all withholding of Taxes required to be made under all applicable Laws and regulations, including withholding with respect to sales and use Taxes and compensation paid to employees, and the amounts withheld have been properly paid
over to the appropriate Taxing authorities. The state, federal and local Tax Returns of each Seller have been audited for or through the respective periods set forth on SCHEDULE 5.07 hereof, and there have been no waivers or extensions by such Seller of statutes of limitations with respect to Taxes. Neither Seller is a foreign person within the meaning of Section 1445(f)(3) of the Code. The transactions contemplated by this Agreement are not subject to the Tax withholding provisions of Section 3406 of the Code or of Sub-Chapter A or Chapter 3 of the Code, or of any other comparable provision of Law.
SECTION 5.08. ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth on SCHEDULE 5.08, Branford has no indebtedness or liability which is not shown on the Agreement Balance Sheet or provided for thereon, other than liabilities incurred or accrued in the ordinary course of the Business consistent with past practice since the Balance Sheet Date. The Acquired Assets are being conveyed to Buyer pursuant to this Agreement free and clear of all Encumbrances and Buyer will not incur any liability or obligation as a result of its acquisition of the Acquired Assets (other than the Assumed Liabilities).
SECTION 5.09. REAL PROPERTY. SCHEDULE 5.09 sets forth a list of all real property owned, used or occupied by any Seller (or any of their Affiliates) which is used in the business (the REAL PROPERTY). None of the real property used by any Seller in the Business is leased. All of the following apply to the Real Property:
(a) None of the Real Property is subject to any option to purchase, purchase agreement, lease, sublease, right of first refusal or any other grant to any Person of any right to the purchase, lease, sublease, use, occupancy or enjoyment of such property or any portion thereof by any Seller.
(b) There is no litigation or proceeding pending or, to the knowledge of any Seller, threatened against or relating to the Real Property, including, without limitation, condemnation proceedings relating to any of the Real Property.
(c) There is no pending re-zoning relating to the Real Estate.
(d) All Licenses and Permits and approvals necessary for the occupancy and use of the Real Property for the conduct of the Business have been obtained.
(e) Good, marketable and indefeasible fee simple title to each parcel of the Real Property is owned by Carolina Industries, free and clear of every kind or description of lien, lease or encumbrance except easements, agreements and restrictions of record and current taxes not delinquent.
(f) There are no easements, agreements and restrictions which encumber the Real Property or frustrate Buyers intended use of the Real Property.
(g) There are no unpaid claims for labor done upon or materials furnished for the Real Property in respect of which liens have been or may be filed.
(h) There is no judgment of any court of any State or of the United States that is or may become a lien on the Real Property.
(i) The improvements upon the Real Property are all located entirely within the bounds of the Real Property, and there are no encroachments thereon.
(j) Each parcel of the Real Property is now in possession of Sellers and no other person has a right to possession or claims possession of all or any part of the Real Property. Sellers will deliver possession of the Real Property to Buyer at the Closing, free and clear of any right or claim of any person to the possession of the Real Property except as disclosed in writing to Buyer.
(k) Each parcel of the Real Property has direct access to a publicly-dedicated right-of-way.
(l) Neither Seller is a foreign corporation, foreign partnership, foreign trust or foreign estate (as those terms are defined in the Code and regulations adopted pursuant thereto).
(m) All utilities presently serving the Real Property are operated through public easements or rights-of-way, or through valid private easements or rights-of-way in favor of the applicable owner of the Real Property, and all installation and connection charges relating thereto have been paid in full.
SECTION 5.10. CONFORMITY OF THE REAL PROPERTY. All buildings, structures and improvements located on, fixtures contained in, and appurtenances attached to the Real Property conform in all respects to applicable Laws, including those related to zoning, use or construction, and the Real Property is zoned for the purposes for which it is presently used by Sellers. All such buildings, structures, improvements, fixtures and appurtenances are in good condition and repair, subject to normal wear and tear and obsolescence, and no condition exists which interferes with the economic value or use thereof. The conduct of the Business on the Real Property is in full compliance with applicable Laws, and no portion of the Real Property is operated as a legally existing nonconforming use.
SECTION 5.11. EQUIPMENT AND MACHINERY. Included in SCHEDULE 1.01 is a list of, or SCHEDULE 1.01 otherwise describes, all material items of Equipment and Machinery included in the Acquired Assets. Each item of Equipment and Machinery is in good operating condition and repair (except for ordinary wear and tear) and is in conformity in all respects with all applicable Laws, ordinances, orders, regulations and other requirements.
SECTION 5.12. INTELLECTUAL PROPERTY AND SOFTWARE. All Intellectual Property owned by Sellers and material to the Business is listed on SCHEDULE 5.12. All Intellectual Property material to the Business is owned by Sellers, free and clear of all Encumbrances, and is not known by Sellers to be the subject of any challenge. Sellers have all Intellectual Property necessary to conduct the Business as presently operated. No Seller is aware of any facts that would invalidate or render any Intellectual Property unenforceable. Except as disclosed on SCHEDULE 5.12, (a) there are no licenses now outstanding or other rights granted to third parties under any Intellectual Property, and (b) no Seller is a party to any agreement or understanding with respect to any Intellectual Property. All software used in the Business is assignable to Buyer without the consent or approval of any Person, which has not already been obtained. There are no unresolved claims made, and there has not been communicated to Sellers the threat of any such claim, that
any of the Intellectual Property or activities of Sellers in connection with
the Intellectual Property constitutes unfair competition or is in violation or infringement
of any patent, trademark, trade name, service mark, trade dress, right of
publicity, copyright or registration therefore, of any other Person. The
Intellectual Property does not infringe the patent, trademark, copyright, trade
secret or other proprietary right of any third party. All filings or recordations
necessary or appropriate to protect the interests of Sellers in any Intellectual
Property have been duly made and are in full force and effect.
SECTION 5.13. ACCOUNTS RECEIVABLE. Except for the Uncollectible Accounts Receivable and the Excluded Accounts Receivable, the Accounts Receivable reflected or to be reflected in the Closing Date A/R Report represent or shall represent bona fide claims against debtors for sales, services performed, or other charges arising in the ordinary course of business, and are not subject to dispute or counterclaim. Except for the Uncollectible Accounts Receivable and the Excluded Accounts Receivable, all Accounts Receivable are collectible in the ordinary course of business (without the necessity of legal proceedings) within 90 days after the date of the invoice therefor.
SECTION 5.14. EMPLOYEE BENEFIT PLANS.
(a) SCHEDULE 5.14(a) contains a true and complete list of all of Branfords Plans and Branfords Benefit Obligations. All of Branfords Plans and Branfords Benefit Obligations are in full force and effect and are in compliance in all respects, both as to form and operation, with applicable provisions of ERISA, the Code, and any other applicable Laws, and with any applicable collective bargaining agreement. No event has occurred, and there exists no condition or set of circumstances which has resulted in or which could result in the imposition of any liability on Branford under ERISA, the Code or other applicable Law with respect to Branfords Plans or Branfords Benefit Obligations.
(b) Branford is not part of a controlled group of employers with any other person (as defined in Section 7701(a)(l) of the Code) which is considered a single employer under Sections 414(b), (c), (m), or (o) of the Code, or Section 3(5) or 4001(b)(1) of ERISA, or the regulations promulgated thereunder.
(c) Branford does not sponsor, maintain, contribute to, nor is required to contribute to, any multi-employer plan within the meaning of Section 3(37) or 4001(a)(3) of ERISA, and has no liability of any nature, whether known or unknown, fixed or contingent, with respect to any such multi-employer plan.
(d) Branford does not sponsor, maintain, contribute to, nor is required to contribute to, any medical, health, life or other welfare benefits for present or future terminated or retired employees or their spouses or dependents, other than as required by Part 6 of Subtitle B of Title I of ERISA, COBRA, or any comparable state Law, and has no liability of any nature, whether known or unknown, fixed or contingent, with respect to any such post-termination welfare benefits.
SECTION 5.15. LABOR RELATIONS.
(a) None of the Sellers is a party to or bound by any collective bargaining agreements and there have been no union claims to represent any of Sellers Personnel.
(b) There is no labor strike, lockout, dispute, slowdown or stoppage pending or, to the knowledge of Sellers or Harcke, threatened against or involving any Seller, nor has any such event or labor difficulty occurred within the past five (5) years.
(c) No Seller has entered into any severance or similar arrangement in respect of any Personnel that shall result in any obligation (absolute or contingent) of any Seller or Buyer to make any payment to any Personnel following termination of employment, including the termination of employment effected by the transactions contemplated by this Agreement. The consummation of the transactions contemplated by this Agreement will not trigger any severance or similar arrangement of any Seller payable by Buyer after the Closing.
SECTION 5.16. ENVIRONMENTAL COMPLIANCE.
(a) Except as set forth on SCHEDULE 5.16(a), no Hazardous Material has been disposed of, spilled, leaked or otherwise released on any Real Property nor has any Hazardous Material come to be located in the soil, surface water or groundwater on or below any Real Property. Except as set forth on SCHEDULE 5.16(a), no Hazardous Materials are or have been generated, manufactured, treated, stored, transported, used or otherwise handled by the Seller either on or off of any Real Property and there are no underground storage tanks thereon (whether or not regulated and whether or not out of service, closed or decommissioned). There is no condition affecting any Real Property known to Sellers or Harcke which is in violation of any Environmental Requirement. There are no asbestos-containing materials incorporated into the buildings or interior improvements that are part of any of the Real Property, or into other assets of Sellers. There is no electrical transformer, fluorescent light fixture with ballasts or other equipment containing polychlorinated biphenyls on any of the Real Property. Sellers have not conducted activities on the Real Property involving the treatment, storage or disposal of Hazardous Materials. To the knowledge of Seller or Harcke, no previous owner or tenant of the Real Property has spilled, disposed, discharged, emitted or released any Hazardous Materials into, upon or from any Real Property or into or upon the soil, ground or surface water nor has violated any Environmental Requirements with respect to the Real Property.
(b) Except as set forth on SCHEDULE 5.16(b), each Seller is in compliance and has complied in all material respects with all federal, state and local Environmental Requirements and has not been cited for any violation of any such Environmental Requirements. Except as set forth on SCHEDULE 5.16(b), no capital expenditures will be required for compliance with any applicable Environmental Requirements. Except as set forth on SCHEDULE 5.16(b), there is no pending investigation, civil, criminal or administrative action, notice or demand letter, notice of violation, or other proceeding known to Sellers or Harcke by any Governmental Entity with respect to ground or surface water, soil or air contamination, the storage, treatment, release, transportation or disposal of Hazardous Materials, the use of underground storage tanks by Sellers or the violation of any Environmental Requirement. Except as set forth on SCHEDULE 5.16(b), Sellers have not received any notice or other communication concerning any past,
present or future events, actions or conditions which under present Law may give rise to any liability of Sellers relating to the presence of Hazardous Materials on the Real Property or on the real property of any Person. Except as set forth on SCHEDULE 5.16(b), Sellers do not have any agreement with any Governmental Entity relating to any such environmental matter or any environmental or Hazardous Materials cleanup.
SECTION 5.17. LICENSES AND PERMITS. Sellers have obtained all Licenses and Permits necessary for the conduct of the Business and all Licenses and permits are in full force and effect, including those Licenses and Permits necessary to comply with Environmental Requirements. The Licenses and Permits are described in SCHEDULE 5.17. All of the Licenses and Permits are assignable to Buyer as contemplated by this Agreement. The consummation of the transactions contemplated hereby shall not interrupt or give any Governmental Entity the right to terminate or interrupt the continuation of any of the Licenses and Permits or the conduct of the Business. Sellers are in compliance with all terms, conditions and requirements of all Licenses and Permits and no proceeding is pending or, to the knowledge of Sellers or Harcke, threatened relating to the termination, revocation, limitation or modification of any of the Licenses or Permits.
SECTION 5.18. INSURANCE; BONDS. SCHEDULE 5.18 lists all policies of liability, fire, casualty, business interruption, workers compensation and other forms of insurance (collectively, POLICIES and individually, a POLICY) insuring the properties, assets or operation of the Business, setting forth the carrier, policy number, expiration dates, premiums, description of type of coverage and coverage amounts. Sellers have made true and complete copies of all such policies available to Buyer for inspection. Except as set forth on SCHEDULE 5.18, there are no outstanding bonds or other surety arrangements issued or entered into in connection with the assets and properties of Sellers or the Business. Except as set forth on SCHEDULE 5.18, no bond or other surety arrangement is required to satisfy any contractual, statutory or regulatory requirement applicable to Sellers or the Business or to conduct the Business as currently conducted and all bonds or other surety arrangements of each Seller are in full force and effect.
SECTION 5.19. ASSIGNED CONTRACTS. Each Assigned Contract is in full force and effect. Neither Sellers, nor, to the knowledge of Sellers or Harcke, any other party thereto has breached any provision of, or is in default under, the terms of any of the Assigned Contracts. None of the Assigned Contracts require any consents or approvals to the assignment thereof to Buyer as contemplated hereby, except as set forth on SCHEDULE 5.19.
SECTION 5.20. CUSTOMERS. SCHEDULE 5.20 sets forth a list of the Branfords twenty (20) largest customers by volume (with specification of the volume) in each of the fiscal years ended April 30, 2002, 2003 and 2004. No customer of Branford has terminated or changed in any material respect, or to the knowledge of Sellers or Harcke, intends to terminate or change in any material respect, its customer relationship with Branford.
SECTION 5.21. COMPLIANCE WITH LAW. Sellers and the Business are in compliance with all applicable Laws, including those applicable to discrimination in employment, occupational safety and health, trade practices, competition and pricing, product warranties, zoning, building, sanitation, employment, retirement, labor relations, product advertising and any applicable Environmental Requirements. Sellers are not in default or violation with respect to any order,
writ, judgment, award, injunction or decree of any Governmental Entity or arbitrator applicable to them or the Business, their Personnel or any of the Acquired Assets, or are aware of any factual circumstances which are likely to result in such default or violation.
SECTION 5.22. LITIGATION. Except as set forth on SCHEDULE 5.22, (a) there are no claims, actions, suits, proceedings, arbitral actions, or investigations pending or, to the knowledge of the Sellers or Harcke, threatened against or directly or indirectly involving Sellers, the Business, or any of the Acquired Assets; and (b) there are no unsatisfied judgments of any kind against Sellers, the Business or the Acquired Assets.
SECTION 5.23. TITLE TO THE ACQUIRED ASSETS AND RELATED MATTERS. Sellers have good, marketable and insurable title to all of the Acquired Assets, free and clear of all Encumbrances. Sellers have the complete and unrestricted power and the unqualified right to sell, convey, assign, transfer and deliver the Acquired Assets, and the deeds and other instruments of assignment and transfer executed and delivered by Sellers to Buyer are valid and binding obligations of Sellers, enforceable in accordance with their respective terms, and effectively vest in the Buyer good, marketable and insurable title to the Acquired Assets. All consents necessary to consummate the transactions contemplated by this Agreement have been obtained and are valid and binding upon the persons giving the same. The Acquired Assets include all assets (tangible and intangible, and all leases and other agreements) necessary or desirable to permit the Buyer to carry on the Business subsequent to the Closing as presently conducted by Sellers.
SECTION 5.24. ABSENCE OF CERTAIN BUSINESS PRACTICES. Within the five (5) years immediately preceding the date of this Agreement, neither Sellers, nor any Personnel, nor any other Person acting on behalf of Sellers has given or agreed to give, directly or indirectly, any gift or similar benefit to any dealer, supplier, customer, governmental employee or other Person who is or may be in a position to help or hinder the Business (or assist Sellers in connection with any actual or proposed transaction relating to the Business or the Acquired Assets), which might subject Sellers to any damage or penalty in any civil, criminal or governmental litigation or proceeding.
SECTION 5.25. NO OTHER AGREEMENTS TO SELL ASSETS. No Seller has any obligation, absolute or contingent, to any other Person to sell any of the Acquired Assets, or to effect any merger, consolidation or other reorganization of Sellers, or to enter into any agreement with respect thereto.
SECTION 5.26. DEBTS OF BRANFORD. The sum of the net proceeds received by Branford under this Agreement and the value of the Excluded Assets will be sufficient to permit Branford to pay all debts due and owing by Branford.
SECTION 5.27. DUE DILIGENCE. With respect to all representations and warranties which are qualified to the knowledge of Sellers or Harcke, known to Sellers or Harcke, or words of similar import, Sellers and Harcke have made reasonable investigation of the subject matter of the representation (and in the case of Sellers conferred with appropriate Personnel and other representatives of Sellers) and examined all appropriate records and documents in Sellers or Harckes possession or control.
SECTION 5.28. BROKERS AND FINDERS FEES. No broker, finder or other Person is entitled to any commission or finders fee in connection with this Agreement or the transactions contemplated by this Agreement as a result of any actions or commitments of Sellers or Harcke.
SECTION 5.29. ALL MATERIAL INFORMATION. Neither Sellers nor Harcke has withheld from Buyer any material facts relating to Sellers, the Acquired Assets, the Business or the prospects of the Business. No representation or warranty made herein by Sellers or Harcke and no statement contained in any certificate or other agreement or instrument furnished or to be furnished to Buyer by Sellers or Harcke in connection with the transactions contemplated by this Agreement contains an untrue statement of a material fact or omits to state any material fact necessary in order to make any representation, warranty or other statement of Sellers or Harcke not misleading.
SECTION 5.30. SELLERS AND HARCKE INDEPENDENTLY ADVISED. Sellers and Harcke have been represented and advised by independent legal and tax counsel in connection with this Agreement and the transactions contemplated by this Agreement, and are not relying upon Buyer or any of its employees or professional advisors with respect to such matters.
SECTION 5.31. CONDITION OF ACQUIRED ASSETS. The Acquired Assets are in the same condition as they were on April 30, 2004, reasonable wear and tear excepted.
ARTICLE VI.
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Sellers as follows:
SECTION 6.01. ORGANIZATION; POWER. Buyer is a corporation duly and validly existing under the laws of the State of Delaware, and Buyer has all requisite corporate power and authority to own its properties and assets and to conduct its business as now conducted.
SECTION 6.02. AUTHORIZATION AND VALIDITY OF AGREEMENT. Buyer has all requisite corporate power and authority to enter into this Agreement and to perform its obligations hereunder. The execution and delivery of this Agreement and the performance of the obligations of Buyer hereunder have been duly authorized by all necessary corporate action by the Board of Directors of Buyer, and no other corporate proceedings on the part of Buyer are necessary to authorize the execution, delivery or performance. This Agreement has been duly executed by Buyer and constitutes Buyers valid and binding obligation, enforceable against Buyer in accordance with its terms.
SECTION 6.03. NO CONFLICT OR VIOLATION. The execution, delivery and performance of this Agreement by Buyer does not and shall not: (a) violate or conflict with any provision of its certificate of incorporation, bylaws or other governing document of Buyer, (b) violate any provision of Law of any Governmental Entity, or (c) violate or result in a breach of or constitute (with due notice or lapse of time or both) a default under any contract, lease, loan agreement, mortgage, security agreement, trust, indenture or other agreement or instrument to which Buyer is a party, or by which it is bound or to which any of its properties or assets is subject.
SECTION 6.04. APPROVALS AND CONSENTS. The execution, delivery and performance of this Agreement by Buyer does not require Buyer to obtain the consent or approval of, or to make any filing with, any Governmental Entity or other Person except (a) as may be required to obtain the transfer of any Licenses or Permits, and (b) such consents, approvals and filings, the failure to obtain or make which would not, individually or in the aggregate, have a Material Adverse Effect on Buyer or on the ability of Buyer to perform its obligations hereunder.
SECTION 6.05. BROKERS AND FINDERS FEES. No broker, finder or other Person is entitled to any commission or finders fee in connection with this Agreement or the transactions contemplated by this Agreement as a result of any actions or commitments of Buyer.
ARTICLE VII.
COVENANTS OF SELLERS AND HARCKE
Sellers and Harcke covenant and agree with Buyer that, at all times from and after the date hereof, Sellers and Harcke will comply with all covenants and provisions of this ARTICLE VII to the extent such covenants apply to such party, except to the extent Buyer may otherwise consent in writing.
SECTION 7.01. REGULATORY AND OTHER APPROVALS. Sellers and Harcke will as promptly as reasonably practicable take all commercially reasonable steps necessary to (a) obtain all consents, approvals or actions of, make all filings with and give all notices to Governmental Entity or any other Person required of Sellers or Harcke to transfer the Acquired Assets as contemplated hereby, including, without limitation, any consents or approvals required under any Contracts to which Sellers or Harcke is a party or by which any of their Acquired Assets is bound or under any Licenses or Permits issued to Branford, (b) provide such other information and communications to such Governmental Entity or other Persons as such Governmental Entity or other Persons may reasonably request in connection therewith and (c) provide reasonable cooperation to Buyer in connection with the performance of its obligations under SECTIONS 8.03 and 8.04 below. Branford will provide, or cause to be provided, notification to Buyer when any such consent, approval, action, filing or notice referred to in clause (a) above is obtained, taken, made or given, as applicable, and will advise Buyer of any communications (and, unless precluded by Law, provide copies of any such communications that are in writing) with any Governmental Entity or other Person regarding any of the transactions contemplated by this Agreement.
SECTION 7.02. FULFILLMENT OF CONDITIONS. Sellers and Harcke, as applicable (a) will execute and deliver at the Closing each certificate, document and instrument that Sellers or Harcke, as applicable, is hereby required to execute and deliver as a condition to Closing, (b) will take all commercially reasonable steps necessary and proceed diligently and in good faith (i) to satisfy each condition to the obligations of Buyer contained in this Agreement and (ii) to consummate all of the transactions contemplated by this Agreement, and (c) will not take or fail to take any commercially reasonable action that would reasonably be expected to result in the nonfulfillment of any obligation of Sellers or Harcke contained in this Agreement.
SECTION 7.03. CONDUCT OF BUSINESS. Branford will, from the date hereof until the earlier of the Closing Date or termination of this Agreement, conduct business only in the ordinary course in a manner consistent with past practices. Sellers will not, from the date hereof until the earlier of the Closing date or termination of this Agreement, make any bulk sales of Inventory inconsistent with past practice to any third party without the express prior written consent of Buyer.
SECTION 7.04. CERTAIN RESTRICTIONS. Branford will, from the date hereof until the earlier of the Closing Date or termination of this Agreement, refrain from:
(a) amending its articles of incorporation or bylaws (or other comparable charter documents) or taking any action with respect to any such amendment or any recapitalization, reorganization, liquidation or dissolution, except as specifically contemplated by this Agreement;
(b) except as specifically contemplated by this Agreement, authorizing, issuing, selling or otherwise disposing of any shares of capital stock or other equity security of Branford or any security convertible into or exchangeable or exercisable for any shares of capital stock or other equity security of Branford;
(c) engaging with any Person in any merger or other business combination, or purchase substantially all of the assets of, or otherwise acquire any material assets or business of any corporation, partnership, association or other business organization or division thereof;
(d) making capital expenditures or commitments for additions to property, plant or equipment constituting capital assets which exceed $5,000 in the aggregate;
(e) entering into, modifying in any material respect or terminating any Contract requiring payments to or by Branford in an amount in excess of $5,000, other than such Contracts that are terminable without material cost or penalty to Branford without more than 30 days notice; provided, however, in the event that Branford provides written notice to Buyer requesting Buyers consent to enter into, materially modify or terminate any material Contract for which such execution, modification or termination would otherwise be prohibited by this SECTION 7.04(e) (which notice shall include a copy of the new or amended Contract or otherwise describe the material terms of any requested action by Branford), Buyer shall have three (3) Business Days to notify Branford that Buyer does not consent to such action and, unless such written notice is delivered to Seller on or before the close of business of such third business day, such consent shall be deemed to be granted and it shall not be a breach of this SECTION 7.04(e) for Branford to enter into, modify or terminate such Contract as described, and on the terms specified, in Branfords written notice to Buyer;
(f) making any change in any method of accounting or accounting practice;
(g) mortgaging, pledging or encumbering or selling, assigning, transferring, conveying, leasing or otherwise disposing of any material Acquired Assets except in the ordinary course of business or as contemplated by this Agreement;
(h) except as otherwise required by law, taking any action with respect to the grant of any severance or termination pay (otherwise than pursuant to the terms of Branfords Plans in
effect on the date hereof and made available to Purchaser) which will become due and payable after the Closing Date;
(i) hiring any additional officer or terminating existing officers;
(j) adopting, entering into or amending in any material respect any of Branfords Plans;
(k) making any loans or advances to any Person, except for advances to any employee of Branford with respect to expenses incurred on behalf of Branford in the ordinary course of business or in the usual course of such employees employment;
(l) making any income tax election;
(m) declaring, paying or incurring any obligation to declare or pay any dividend or other distribution on its capital stock or making or incurring any obligation to make any redemption with respect to, or purchase of, any share of its capital stock;
(n) entering into any line of business other than the business of Branford as of the date hereof;
(o) paying the principal amount of any Indebtedness of Branford other than as expressly required by the terms thereof or repayment of working capital borrowings in the ordinary course;
(p) take any action that would have a Material Adverse Effect on the title to or the condition of the Real Property; or
(q) entering into any Contract to do or engage in any of the foregoing; provided, however, that nothing contained in this Agreement shall in any way prohibit or restrict Branford from, to the extent necessary, paying consent, modification or waiver fees in respect thereto or in respect of SECTION 7.01.
SECTION 7.05. NO SOLICITATION. From the date hereof through the Closing Date or earlier termination of this Agreement pursuant to SECTION 14.01, neither Sellers nor Harcke shall, or shall knowingly permit their respective Affiliates, officers, directors, employees, representatives and agents to, directly or indirectly, encourage, solicit, participate in or initiate discussions or negotiations with, encourage the submission of any inquiry, proposal or offer from any Person or entity related to the acquisition of any debt or equity securities, or any substantial portion of the assets of Branford, or provide any information to, any Person or group of Persons (other than Buyer or any of its Affiliates) in furtherance of any merger, sale of assets, sale of shares of capital stock or similar transactions involving Branford. Either Seller or Harcke, as the case may be, will notify Buyer immediately if any person or entity makes any proposal, offer, inquiry, or contact with respect to any of the foregoing.
SECTION 7.06. USE OF NAMES. Sellers shall take any and all actions as may be necessary to transfer exclusive use of the names Branford Wire & Manufacturing Company and B&S Sales to Buyer. On and after the Closing Date, Sellers shall cease any use of the names
Branford Wire & Manufacturing Company and B&S Wire Rod Sales and shall amend their relevant organizational documents to change all relevant names to a name that is not confusingly similar to either.
SECTION 7.07. POST-CLOSING OPERATIONS. For a period of forty-five (45) days following the Closing Date, Sellers hereby irrevocably grant, authorize and license Buyer (as its contractor or otherwise), to the extent Buyer and Sellers are entitled to do so under applicable Laws, at Buyers option, to operate the Business under any or all of Sellers Licenses and Permits and interstate and intrastate operating authorities (and license plates). Sellers shall not take any action to terminate, abandon or revoke any of such Licenses or Permits or operating authorities during such 45-day period, except as may be required by applicable Law.
SECTION 7.08. NOTIFICATION.
(a) Between the date of this Agreement and the Closing Date, Sellers and Harcke will promptly notify Buyer in writing if they or any of them become aware after the date of this Agreement of the occurrence of any event that would (except as expressly contemplated by this Agreement) cause or constitute a breach of any representation or warranty of Sellers or Harcke contained in this Agreement had such representation or warranty been made as of the time of the occurrence of such event.
(b) Between the date of this Agreement and the Closing Date, Sellers and Harcke will promptly notify Buyer of the occurrence of any breach of any covenant of such party in this ARTICLE VII or of the occurrence of any event that may make the satisfaction of the conditions in ARTICLE IX impossible or unlikely.
ARTICLE VIII.
COVENANTS OF BUYER
Buyer covenants and agrees with Seller that, at all times from and after the date hereof, Buyer will comply with all covenants and provisions of this ARTICLE VIII.
SECTION 8.01. ACCESS. After the Closing, Buyer shall permit Sellers and Harcke and their representatives to have access, during regular business hours and upon reasonable advance notice, to all books and records of Sellers for any purpose relating to taxes or regulatory matters, and shall furnish, or cause to be furnished, to Sellers or Harcke such other information that is available as Sellers or Harcke shall from time to time reasonably request. In addition, Buyer shall provide Sellers with reasonable access to Buyers controller to provide accounting support to Sellers for six (6) months following Closing at a mutually agreed upon fee.
SECTION 8.02. FULFILLMENT OF CONDITIONS. Buyer, (a) will execute and deliver at the Closing each certificate, document and instrument that Buyer, as applicable, is hereby required to execute respectively, and deliver as a condition to the Closing, (b) will promptly and affirmatively take all commercially reasonable steps necessary and proceed diligently and in good faith (i) to satisfy each other condition to the obligations of Sellers and Harcke contained in this Agreement and (ii) to consummate all of the transactions contemplated in this Agreement, and (c) will not take or fail to take any commercially reasonable action that would reasonably be
expected to result in the nonfulfillment of any obligation of Buyer, as applicable, contained in this Agreement.
SECTION 8.03. EMPLOYEE MATTERS.
(a) Buyer shall have the right, but not the obligation, to offer employment to all active full-time and part-time employees of Sellers who work in the Business as of the Closing, with all such employees who accept Buyers offer of employment at or immediately following the Closing being the HIRED EMPLOYEES.
(b) Effective on the Closing Date, Buyer shall provide Hired Employees the opportunity to participate in employee benefit plans, programs and arrangements substantially similar to those provided by Sellers prior to Closing (BUYER BENEFIT PLANS). Buyer shall waive any requirements or conditions under the Buyer Benefit Plans that relate to length of service or waiting periods in such Buyer Benefit Plans subject to any requirements under applicable insurance contracts.
(c) Hired Employees shall receive credit for all purposes, including, without limitation, eligibility to participate, vesting, and eligibility to receive benefits, under any employee benefit plan, program or arrangement (including vacation benefits) offered within one (1) year following the Closing Date to such Hired Employees by Buyer for service accrued or deemed accrued prior to the Closing Date with Sellers; provided, however that such crediting of service shall not operate to duplicate any benefit or funding of any such benefit for any period of service.
(d) Branford shall fully vest all employees participating in its Tax-qualified Code Section 401(a) plan as of the Closing. Branford shall terminate its Tax-qualified Code Section 401(a) plan in accordance with its terms, as soon as practicable on or after the Closing Date and, in any event, within sixty (60) days following the Closing Date. Buyers Tax-qualified Code Section 401(a) retirement plan will accept eligible direct rollover distributions from Branfords Tax-qualified Code Section 401(a) plan, with respect to distributions to Hired Employees from such plan, on receipt of a statement from Branford on or about the time such distributions are rolled into Buyers Tax-qualified Code Section 401(a) retirement plan that such plan continues to meet the requirements of Code Section 401(a).
(e) Buyer shall not be responsible for any obligation, whether arising prior to or after the Closing Date, with respect to those employees of any Seller to whom Buyer does not offer employment or who do not accept Buyers offer of employment at the Closing (TERMINATED EMPLOYEES). Sellers shall be solely responsible and liable for providing any and all severance payments or other benefits to Terminated Employees, including, without limitation, any medical and/or health benefits required under COBRA, arising from or with any qualifying event (as defined under COBRA) which occurred on or before the Closing Date.
(f) Sellers shall be responsible for all claims, charges, complaints or suits of any nature whatsoever by Hired Employees, Terminated Employees or former employees that arose out of or in the course of the employment or other relationship, or termination of such employment or other relationship, with Sellers on or prior to the Closing Date.
SECTION 8.04. ASSUMED LIABILITIES. Buyer will timely pay and perform the Assumed Liabilities in accordance with their terms.
ARTICLE IX.
CONDITIONS TO OBLIGATIONS OF BUYER
The obligations of Buyer hereunder are subject to the fulfillment, at or before the Closing, of each of the following conditions (all or any of which may be waived in whole or in part by Buyer in its sole discretion):
SECTION 9.01. REPRESENTATIONS AND WARRANTIES. Each of the representations and warranties made by Sellers and Harcke in this Agreement shall be true and correct as of the Closing.
SECTION 9.02. PERFORMANCE. Sellers and Harcke shall have performed and complied with the agreements, covenants and obligations required by this Agreement to be so performed or complied with by Sellers and Harcke, as the case may be, at or before the Closing.
SECTION 9.03. CLOSING DELIVERIES. All deliveries by Seller pursuant to SECTION 4.02 have been delivered.
SECTION 9.04. LAWS. There shall not be in effect on the Closing Date any Law restraining, enjoining or otherwise prohibiting or making illegal the consummation of any of the transactions contemplated by this Agreement.
SECTION 9.05. REGULATORY CONSENTS AND APPROVALS. All consents, approvals and actions of, filings with and notices to any Governmental or Regulatory Authority necessary to permit Buyer, Sellers and Harcke to perform their respective obligations under this Agreement and to consummate the purchase and sale of the Acquired Assets contemplated hereby as set forth on SCHEDULE 9.05 shall have been duly obtained, made or given and shall be in full force and effect, and all terminations or expirations of waiting periods imposed by any Governmental or Regulatory Authority necessary for the consummation of the transactions contemplated by this Agreement shall have occurred.
SECTION 9.06. NO MATERIAL ADVERSE CHANGE. Prior to the Closing Date, there shall not have occurred any event or circumstance which, individually or in the aggregate, had or would reasonably be expected to have a Material Adverse Effect on Sellers or any of the Acquired Assets.
SECTION 9.07. BALANCE SHEET. There shall be no extraordinary adverse changes in the financial condition of any Seller from that set forth on the Interim Balance Sheet, except for changes resulting from business done in the ordinary course consistent with past practice.
SECTION 9.08. BULK SALES COMPLIANCE. Sellers shall have complied with all applicable bulk sales or bulk transfer laws in a manner that is satisfactory to Buyer and shall have delivered to Buyer on or prior to the Closing Date evidence of such compliance in form and substance satisfactory to Buyer and its counsel.
SECTION 9.09. APPROVAL OF BOARD OF DIRECTORS. The purchase of the Acquired Assets shall have been approved by the Board of Directors of Haynes International, Inc.
ARTICLE X.
CONDITIONS TO OBLIGATIONS OF SELLERS AND HARCKE
The obligations of Sellers and Harcke hereunder are subject to the fulfillment, at or before the Closing, of each of the following conditions (all or any of which may be waived in whole or in part by Sellers and/or Harcke, as the case may be, in its or his sole discretion):
SECTION 10.01. REPRESENTATIONS AND WARRANTIES. Each of the representations and warranties made by Buyer in this Agreement shall be true and correct as of the Closing Date.
SECTION 10.02. PERFORMANCE. Buyer shall have performed and complied with the agreements, covenants and obligations required by this Agreement to be so performed or complied with by Buyer as applicable at or before the Closing.
SECTION 10.03. LAWS. There shall not be in effect on the Closing Date any Law restraining, enjoining or otherwise prohibiting or making illegal the consummation of any of the transactions contemplated by this Agreement.
SECTION 10.04. REGULATORY CONSENTS AND APPROVALS. All consents, approvals and actions of, filings with and notices to any Governmental Entity necessary to permit Sellers, Harcke and Buyer to perform their obligations under this Agreement and to consummate the transactions contemplated hereby, shall have been duly obtained, made or given and shall be in full force and effect and all terminations or expirations of waiting periods imposed by any Governmental or Regulatory Authority necessary for the consummation of the transactions contemplated by this Agreement shall have occurred.
ARTICLE XI.
EXCESS INVENTORY
SECTION 11.01. PROCEDURES FOR STORAGE AND DISPOSITION OF EXCESS INVENTORY. For a period of thirty-six (36) months following the Closing Date, title and risk of loss and/or damage to the Excess Inventory shall remain with Carolina Industries unless and until purchased by Buyer in accordance with this ARTICLE XI. During such time period, the Excess Inventory shall be dealt with according to the following procedures:
(a) The Excess Inventory shall be stored at Buyers facility located at 158 N. Egerton Road, Mountain Home, NC 28758-0677 (the STORAGE SITE) and shall be segregated from Buyers inventory located at the Storage Site.
(b) The Excess Inventory shall be classified by industrial alloy identification and size, and Buyer shall purchase such materials from no party other than Carolina Industries to the extent that there are materials of the same industrial alloy identification and size remaining in
Excess Inventory at the time of such purchase, except for those commitments to purchase such materials that remain open at Closing and are assumed by Buyer.
(c) The purchase price Buyer shall pay to Carolina Industries for any Excess Inventory purchased pursuant to this ARTICLE XI shall be the Replacement Cost of such material. For purposes of this ARTICLE XI, REPLACEMENT COST shall mean the average replacement cost, including material costs and alloy surcharges, quoted by one foreign and one domestic manufacturer of material of the same industrial alloy identification number and size from a reputable provider of such materials. The purchase price for Excess Inventory purchased by Buyer in accordance with this ARTICLE XI shall be payable to Carolina Industries within ten (10) days of the date of any such purchase.
(d) In the event that Buyer removes any Excess Inventory from the Storage Site or destroys or damages any Excess Inventory by any intentional act or by its negligence, Buyer shall be immediately obligated to purchase the portion of the Excess Inventory so removed, damaged or destroyed. Buyer shall not be obligated to purchase any Excess Inventory removed by Carolina Industries or damaged or destroyed by the intentional act or negligence of Carolina Industries.
(e) After the closing and continuing until such time as all Excess Inventory has been sold, Carolina Industries, upon reasonable written request, shall have access to the inventory and sales records of Buyer that are reasonably necessary to determine Buyers compliance with the provisions of this ARTICLE XI.
(f) Carolina Industries shall have the right to sell the Excess Inventory to any third party, whether such third party is related or unrelated to Buyer. In addition, Buyer shall have a right of first refusal to purchase any amounts of Excess Inventory offered to be sold to any such third party on either (in Buyers sole discretion) (i) the terms and conditions set forth in this ARTICLE XI or (ii) the terms upon which Carolina Industries offered such amounts of Excess Inventory to such third party. Prior to any proposed sale of Excess Inventory to a third party, Carolina Industries shall, at least one (1) Business Day prior to the consummation of such proposed sale, report to Buyer in writing the details of such proposed sale, including the amount, industrial alloy identification and size of the Excess Inventory to be sold as well as the proposed terms and conditions of such sale, and shall not consummate any such proposed sale before expiration of such one (1) Business Day period.
(g) Upon reasonable prior written request, Buyer shall load Excess Inventory sold to any third party onto Carolina Industries trucks at no cost to Carolina Industries. Carolina Industries shall make all arrangements for truck and rail transportation of any Excess Inventory sold to a third party from the Storage Site and pay any and all shipping and handling charges incurred FOB the Storage Site.
(h) Until all Excess Inventory has been sold, Carolina Industries shall have the right to conduct periodic physical inventories and audits of the Excess Inventory. Buyer shall cooperate with Carolina Industries in any such inventories and audits, including making available such personnel and equipment as may be reasonably necessary to allow Carolina Industries to access, move and count such Excess Inventory. Buyer shall also allow Carolina
Industries to consult with Buyers personnel regarding the disposition of excess inventory upon reasonable prior request.
(i) At the end of the thirty-six (36) month period following the Closing Date, Buyer shall purchase from Carolina Industries all Excess Inventory then remaining upon the terms and conditions set forth in this SECTION 11.01.
SECTION 11.02. COMPLIANCE. Each of Buyer and Carolina Industries shall perform their obligations under this ARTICLE XI in compliance with good safety practices and all applicable Federal, State of North Carolina and local laws, rules, regulations and safety requirements. Buyer and Carolina Industries shall each be responsible for acquiring at its cost any licenses, permits, franchises, authorizations, or approvals issued by or under the authority of a Governmental Authority that relate directly or indirectly to, or are necessary for, their performance under this ARTICLE XI. Carolina Industries shall also comply with all rules and regulations of Buyer while on Buyers premises. Each of Buyer and Carolina Industries shall be severally liable for its own failure to comply with this SECTION 11.02, but neither Buyer nor Carolina Industries shall be liable for any failure of the other to comply with this SECTION 11.02.
SECTION 11.03. SALES EFFORTS. Buyer shall, after the Closing Date, continue to market and sell, for its own account, raw materials of the same industrial alloy identification and size as those contained in Excess Inventory at prices and on other terms determined by Buyer from time to time, utilizing Buyers employee, Tom Sigler, for so long as Mr. Sigler continues to be employed by Buyer.
SECTION 11.04. OFFSET OF RETURNS FOR CREDIT. In the event that any returns for credit are received and made by Buyer with respect to sales of inventory made by any Seller prior to the Closing Date, Buyer shall be entitled to an offset against any amounts to be paid to Carolina Industries for Excess Inventory purchased by Buyer pursuant to this ARTICLE XI in an amount equal to the amount of the credit given to such customer MINUS any scrap or resale value for such returned inventory which value is received by Buyer.
ARTICLE XII.
OTHER AGREEMENTS
SECTION 12.01. TAX RETURNS; COOPERATION ON TAX MATTERS. Sellers and Harcke shall prepare and file or cause to be prepared and filed with the appropriate Tax authority all Tax Returns required to be filed by Sellers or Harcke with respect to any period ending on or prior to the Closing Date, including without limitation the federal and state corporate and individual Tax Returns for Sellers and Harcke for the calendar year 2004, and shall timely pay all Taxes shown to be due on such Tax Returns. Sellers shall furnish or cause to be furnished to Buyer, as promptly as practicable, whether before or after the Closing Date, such information and assistance relating to the Business as is reasonably necessary for the preparation and filing by the Buyer of any Tax Return, claim for refund, or other required or optional filings relating to Tax matters, for the preparation by Buyer for, and proof of facts during, any Tax audit, for the preparation by Buyer for any Tax protest, for the prosecution or defense by Buyer of any suit or
other proceeding relating to Tax matters, or for the answer by Buyer to any Governmental Entity inquiry relating to Tax matters.
SECTION 12.02. FILES AND RECORDS. Buyer shall retain possession of all Files and Records transferred to Buyer hereunder and coming into existence after the Closing Date which relate to the Business before the Closing Date, for a period up to and not to exceed the time period which is statutorily required by law for such Files and Records.
SECTION 12.03. CERTAIN COSTS. Buyer shall bear the cost of the title insurance policies and surveys and the Site Assessment required to be delivered at Closing under ARTICLE IV.
SECTION 12.04. PAYMENT OF DEBTS. Sellers will pay all debts due and owing and will use the net proceeds from the Sale of Assets hereunder to pay or provide for payment of all debts and obligations of Sellers.
SECTION 12.05. COLLECTION OF CERTAIN ACCOUNTS RECEIVABLE.
(a) For a period of one (1) year after the Closing Date, Buyer agrees to use reasonable commercial efforts to collect Excluded Accounts Receivable in a manner consistent with the manner in which Buyer collects current accounts receivable for its own account, but in no event shall Buyer be obligated to employ a collection agency, engage counsel or institute any other extraordinary collection efforts or litigation to collect any Excluded Accounts Receivable. All amounts received by Buyer from any account debtor who is obligated on any Excluded Accounts Receivable during the one (1) year period following the Closing Date shall be applied to the Excluded Accounts Receivable or to the accounts receivable of Buyer as directed by the account debtor in its transmittal of the applicable payment or otherwise; provided, however, if such account debtor fails to specifically direct the application of its payment in its transmittal, the payment shall be applied to the account receivable of Buyer with respect to such account debtor and then to any Excluded Accounts Receivable of such account debtor.
(b) Ninety-five percent (95%) of any amounts received by Buyer in respect of any Excluded Accounts Receivable during the one-year period following the Closing Date will be remitted to Sellers by Buyer on a monthly basis. From and after the date which is one (1) year after the Closing Date through the date that is three (3) years after the Closing Date, eighty percent (80%) of any amounts received by Buyer in respect of any Excluded Accounts Receivable will be remitted to Sellers by Buyer on a monthly basis. From and after the date that is three (3) years after the Closing Date, Buyer shall be relieved of any and all obligations to remit to Sellers any amount received with respect to any Excluded Accounts Receivable.
(c) Buyer shall not have any obligation to make any efforts to collect any Uncollectible Accounts Receivable. Notwithstanding the foregoing, eighty percent (80%) of any amounts collected by Buyer in respect of any Uncollectible Accounts Receivable during the three (3) year period following the Closing Date will be remitted to Sellers by Buyer on a monthly basis. From and after the date which is three (3) years after the Closing Date, Buyer shall be relieved of any and all obligations to remit to Sellers any amount collected with respect to any Uncollectible Accounts Receivable.
(d) On the Closing Date, Sellers shall deliver to Buyer a written list setting forth all of the Uncollectible Accounts Receivable, including the name and address of the account debtor, the invoice date and the outstanding balance as of the Closing Date of each Uncollectible Accounts Receivable, and such other information as the parties shall otherwise agree.
SECTION 12.06. COSTS OF CLEAN-UP OF PCP CONTAMINATION. Sellers and Buyer are aware of certain pentachlorophenol (PCP) contamination on the Real Property. Buyer shall control and direct any and all investigation, remediation, clean-up, monitoring and all such other actions as may be required by the State of North Carolina to obtain a closure letter or other documentation stating that all Environmental Requirements in any way relating to the PCP contamination have been satisfied and no further obligations exist on the part of Buyer. Sellers shall either pay directly or reimburse Buyer, as the parties shall mutually agree, for any and all costs of the investigation, remediation, clean-up, monitoring and all such other actions as described above up to a maximum of Five Hundred Thousand Dollars ($500,000.00); provided that Buyer agrees to conduct any and all such required actions in a commercially reasonable manner. In order to secure the payment of all amounts due or to become due under this SECTION 12.06, Sellers have agreed to grant a security interest in the Excess Inventory, to be evidenced by the Security Agreement. Sellers agree to pay the first Five Hundred Thousand Dollars ($500,000.00) of proceeds resulting from sales of the Excess Inventory into an escrow account with an escrow agent acceptable to Buyer and Sellers pursuant to an escrow agreement to be executed as of the Closing that is acceptable to Buyer and Seller that shall secure the payment of all amount due or to become due under this SECTION 12.06. Once the principal amount deposited by Sellers into the aforementioned escrow is equal to Five Hundred Thousand Dollars ($500,000.00), the Security Agreement shall terminate.
ARTICLE XIII.
INDEMNIFICATION
SECTION 13.01. SURVIVAL. All representations and warranties contained in this Agreement shall survive the execution, delivery and performance hereof, notwithstanding any investigation conducted at any time with respect thereto, for the longer of (a) December 31, 2007 and until the resolution of the indemnification Claims received by the Indemnifying Party prior to such date, or (b) in the case of the representations and warranties made in any of SECTIONS 5.07, 5.08, 5.14 5.16, 5.17 and 5.21, a period ending sixty (60) days after the expiration of the statutory period of limitations, applicable to any matter subject to the representations and warranties contained in those sections and until the resolution of the indemnification Claims received by the Indemnifying Party prior to the expiration of such period; provided, however, that the representations and warranties set forth in SECTIONS 5.01, 5.02, 5.23 and 5.29, shall survive indefinitely.
SECTION 13.02. INDEMNIFICATION BY SELLERS. Each Seller jointly and severally (but not Harcke), shall indemnify and hold harmless Buyer and its successors and assigns and their respective shareholders, employees, officers, directors, members, representatives, Affiliates and agents from and against any and all damages, losses, obligations, liabilities, claims, encumbrances, penalties, costs and expenses, including reasonable attorneys fees (and costs and reasonable attorneys fees in respect of any suit to enforce this provision) (each a CLAIM),
arising from or relating to (a) any misrepresentation in or breach of any representation or warranty made by Sellers or Harcke in this Agreement or any Related Agreement; (b) nonfulfillment of any of the covenants or agreements of Sellers or Harcke in this Agreement or any Related Agreement; (c) any liability, obligation or commitment of any nature (absolute, accrued, contingent or other) of Sellers or relating to the Acquired Assets or the operation of the Business arising out of transactions entered into or events occurring prior to the Closing, including any successor liability or responsible officer liability asserted against Buyer for Taxes or otherwise relating to events occurring prior to the Closing; (d) any liability, obligation or commitment under any of the Assigned Contracts which Sellers performed or were obligated to perform prior to the Closing; (e) any investigation, civil, criminal or administrative action, notice or demand letter, notice of violation, or other proceeding by any Governmental Entity with respect to ground or surface water, soil or air contamination, the storage, treatment, release, transportation or disposal of Hazardous Materials, or the use of underground storage tanks, aboveground storage tanks, vaults, process tanks, other containment and associated piping and transformers by Sellers to the extent such contamination, storage, treatment, release, transportation, disposal or use occurred relating to any time on or before the Closing Date; (f) any investigation, civil, criminal or administrative action with respect to Branfords Benefit Obligations or the Branfords Plans; (g) any COBRA obligation of Sellers arising from any qualifying event as defined under Code Section 4980B(f)(3) and ERISA Section 603 occurring on or before the Closing Date; (h) any damage to property or injury to Persons resulting from the presence of Excluded Assets on the Real Property past the Closing Date, or in connection with the removal of such Excluded Assets from the Real Property; and (h) any and all actions, suits, investigations, proceedings, demands, assessments, audits and judgments arising out of any of the foregoing.
In addition, each Seller shall jointly and severally indemnify and hold Buyer harmless from and against any loss, claim, expense, damage or liability (including reasonable attorneys fees and expenses) to which Buyer and/or the Acquired Assets may become subject insofar as such loss, claim, damage or liability (or actions in respect thereof) arises out of or is based upon a breach or alleged breach of, or failure to comply with any provision of, or to give any notice or make any filing pursuant to, any bulk sales Law or similar Law of any state or other jurisdiction, whether or not Sellers or Buyer attempt to comply with such bulk sales Law. Nothing in this SECTION 13.02 shall estop or prevent either Sellers or Buyer from asserting as a bar or defense to any action or proceeding brought under any state bulk sales Law that such Law is not applicable to the transactions contemplated by this Agreement.
SECTION 13.03. INDEMNIFICATION BY BUYER. Buyer shall indemnify and hold harmless Sellers and Harcke and their respective successors and assigns and their respective shareholders, officers, directors, representatives, Affiliates and agents from and against any and all Claims resulting from or relating to (a) any misrepresentation in or breach of any representation or warranty made by Buyer in this Agreement or any Related Agreement; (b) nonfulfillment of any of the covenants or agreements of Buyer in this Agreement or any Related Agreement, (c) any liability, obligation or commitment under any of the Assigned Contracts which Buyer assumed and was obligated to perform after the Closing; and (d) any and all suits, actions, investigations, proceedings, demands, assessments, audits and judgments arising out of any of the foregoing.
SECTION 13.04. PROCEDURE. Promptly after acquiring knowledge of any Claim for which one of the parties hereto (the INDEMNIFIED PARTY) may seek indemnification against another party (the INDEMNIFYING PARTY) pursuant to this ARTICLE XIII, the Indemnified Party shall give written notice thereof to the Indemnifying Party. Failure to provide written notice shall not relieve the Indemnifying Party of its obligations under this ARTICLE XIII except to the extent that the Indemnifying Party demonstrates actual damage caused by that failure. The Indemnifying Party shall have the right to assume the defense of any Claim with counsel reasonably acceptable to the Indemnified Party upon delivery of written notice to that effect to the Indemnified Party. If the Indemnifying Party, after written notice from the Indemnified Party, fails to take timely action to defend the action resulting from the Claim, the Indemnified Party shall have the right to defend the action resulting from the Claim by counsel of its own choosing, but at the cost and expense of the Indemnifying Party. The Indemnified Party shall have the right to settle or compromise any Claim against it, and, as the case may be, recover from the Indemnifying Party any amount paid in settlement or compromise thereof, if it has given written notice thereof to the Indemnifying Party and the Indemnifying Party has failed to take timely action to defend the same. The Indemnifying Party shall have the right to settle or compromise any claim against the Indemnified Party without the consent of the Indemnified Party.
SECTION 13.05. BUYER RIGHT TO OFFSET. Buyer shall have the right to offset any amount owing to it under SECTION 12.06 and/or this ARTICLE XIII against any amount to be paid to Branford under ARTICLE XI.
ARTICLE XIV.
TERMINATION
SECTION 14.01. TERMINATION. This Agreement may be terminated, and the transactions contemplated hereby may be abandoned:
(a) at any time before the Closing, by mutual written agreement of Buyer, Sellers and Harcke;
(b) at any time before the Closing without liability to the terminating party, by Buyer, Sellers or Harcke, in the event that any Law becomes effective and no longer subject to appeal or further administrative or judicial reconsideration or review, restraining, enjoining or otherwise prohibiting or making illegal the consummation of any of the transactions contemplated by this Agreement upon notification of the non-terminating party by the terminating party;
(c) at any time before the Closing, by notice given by Buyer, Sellers or Harcke (i) in the event of a breach of this Agreement or any Real Estate Purchase Agreement by the non-terminating party which would reasonably be expected to have a Material Adverse Effect on the terminating party, if such non-terminating party fails to cure such breach within ten (10) Business Days following notification thereof by the terminating party or (ii) upon the satisfaction of any condition to the terminating partys obligations under this Agreement or any Real Estate Purchase Agreement becoming impossible or impracticable with the use of commercially reasonable efforts, if the failure of such condition to be satisfied is not caused by a breach of this Agreement or any Real Estate Purchase Agreement by the terminating party.
SECTION 14.02. EFFECT OF TERMINATION. If this Agreement is validly terminated pursuant to SECTION 14.01 above, this Agreement will forthwith become null and void, and, except as set forth in the next sentence, there will be no liability or obligation on the part of Buyer, Sellers or Harcke (or any of their respective officers, directors, employees, agents or other representatives or Affiliates) in respect to this Agreement, except that the provisions with respect to expenses in SECTION 15.03 below and confidentiality in SECTION 15.01 below will continue to apply following any such termination. Notwithstanding any other provision in this Agreement or any Real Estate Purchase Agreement to the contrary, upon termination of this Agreement pursuant to clauses (c) or (d) of SECTION 14.01 above, Sellers and Harcke will remain liable to Buyer as the case may be, for any breach of this Agreement or any Real Estate Purchase Agreement by any Seller or Harcke, as the case may be, existing at the time of such termination, Buyer will remain liable to Sellers and Harcke, as the case may be, for any breach of this Agreement or any Real Estate Purchase Agreement by Buyer existing at the time of such termination, and Buyer, Sellers or Harcke, as the case may be, may seek such remedies, including damages and attorneys fees, against the other with respect to any such breach as are provided in this Agreement or the Real Estate Purchase Agreement or as are otherwise available at Law or in equity.
ARTICLE XV.
MISCELLANEOUS
SECTION 15.01. CONFIDENTIAL INFORMATION. Each party hereto agrees that it will treat in confidence all documents, materials and other information regarding the other parties which it shall have obtained during the course of the negotiations leading to the consummation of the transactions contemplated by this Agreement and the Related Agreements (whether obtained before or after the date hereof) or the preparation of this Agreement and the Related Agreements. The obligation of each party to treat such documents, materials and other information in confidence shall not apply to any information which (a) such party can demonstrate was already lawfully in its possession prior to the disclosure thereof by the other parties, (b) is known to the public and did not become so known through any violation of a legal obligation, (c) became known to the public through no fault of such party, (d) is later lawfully acquired by such party from other sources, (e) is required to be disclosed under the provisions of any state or United States statute or regulation issued by a duly authorized agency, board or commission thereof, or (f) is required to be disclosed by a rule or order of any court of competent jurisdiction.
SECTION 15.02. PUBLIC ANNOUNCEMENTS. Neither Buyer, Sellers nor Harcke shall make any press release or public announcement concerning the transactions provided for in this Agreement except as expressly mutually agreed upon by Buyer, Sellers and Harcke.
SECTION 15.03. EXPENSES. Except as otherwise provided herein, each of the parties hereto shall pay its own expenses in connection with this Agreement and the transactions contemplated hereby, including any legal and accounting fees.
SECTION 15.04. UTILITIES PRORATION. Buyer shall be solely responsible for all utility charges with respect to the Business on and after the Closing Date. Sellers shall use commercially reasonable efforts to have meters for electricity, telephone, gas and water read as of the close of business on the day before the Closing Date or the opening of business on the
Closing Date and for bills to be rendered to Sellers based upon such readings. To the extent such meter readings are not used as the basis for calculating all such charges, the electricity, telephone, gas and water utility charges shall be pro-rated as of the opening of business on the Closing Date between Sellers and Buyer (based upon the number of days in applicable pre-Closing and post-Closing periods.)
SECTION 15.05. REASONABLE EFFORTS; COOPERATION. Subject to the terms and conditions of this Agreement, each party will use its commercially reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary or desirable under applicable Laws and regulations to consummate the transactions contemplated by this Agreement. The parties each agree to execute and deliver such other documents, certificates, agreements and other writings and to take such other actions as may be necessary or desirable in order to consummate or implement expeditiously the transactions contemplated by this Agreement, and from time to time, upon the request of the other parties to this Agreement and without further consideration, to execute, acknowledge and deliver in proper form any further instruments, and take such other action as the other parties may reasonably require, in order to effectively carry out the intent of this Agreement.
SECTION 15.06. NOTICES. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed to have been duly given (a) on the date of service if served personally on the party to whom notice is to be given, (b) on the day of transmission if sent via facsimile transmission to the facsimile number provided following the parties signatures on the signature pages hereto, provided that telephonic confirmation of receipt is obtained promptly after completion of transmission, (c) on the day after delivery to a nationally recognized overnight courier service or the Express Mail service maintained by the United States Postal Service, or (d) on the fifth (5th) day after mailing, if mailed to the party to whom notice is to be given, by first class mail, registered or certified, postage prepaid and addressed as provided following the parties signatures on the signature pages hereto.
Any party may change its address for the purpose of this SECTION 15.06 by giving the other parties written notice of its new address in the manner set forth above.
SECTION 15.07. HEADINGS. The article, section and paragraph headings in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement.
SECTION 15.08. CONSTRUCTION.
(a) The parties have participated jointly in the negotiation and drafting of this Agreement, and, in the event of an ambiguity or a question of intent or a need for interpretation arises, this Agreement shall be construed as if drafted jointly by the parties and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement.
(b) Except as otherwise specifically provided in this Agreement (such as by sole, absolute discretion, complete discretion, or words of similar import), if any provision of this
Agreement requires or provides for the consent, waiver or approval of a party, such consent, waiver and/or approval shall not be unreasonably withheld or delayed.
(c) Nothing in the schedules and/or exhibits to this Agreement shall be deemed adequate to disclose an exception to a representation or warranty made herein unless the schedule or exhibit identifies the exception with particularity and describes the relevant facts in reasonable detail.
(d) The parties intend that each representation, warranty and covenant herein shall have independent significance. If any party has breached any representation, warranty or covenant contained herein in any respect, the fact that there exists another representation, warranty or covenant relating to the same subject matter (regardless of the relative levels of specificity) which the party has not breached shall not detract from or mitigate the fact that the party is in breach of the first representation, warranty or covenant, as the case may be.
(e) Words of any gender used in this Agreement shall be held and construed to include any other gender; words in the singular shall be held to include the plural; and words in the plural shall be held to include the singular; unless and only to the extent the context indicates otherwise.
(f) Any reference to any Law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context requires otherwise.
(g) The word including means including, without limitation.
SECTION 15.09. SEVERABILITY. If any provision of this Agreement is declared by any Governmental Entity to be null, void or unenforceable, this Agreement shall be construed so that the provision at issue shall survive to the extent it is not so declared and that all of the other provisions of this Agreement shall remain in full force and effect.
SECTION 15.10. ENTIRE AGREEMENT. This Agreement contains the entire understanding among the parties hereto with respect to the transactions contemplated hereby and supersedes and replaces all prior and contemporaneous agreements and understandings, oral or written, with regard to those transactions. All exhibits and schedules hereto are expressly made a part of this Agreement as fully as though completely set forth herein.
SECTION 15.11. AMENDMENTS; WAIVERS. This Agreement may be amended or modified, and any of the terms, covenants, representations, warranties or conditions hereof may be waived, only by a written instrument executed by the parties hereto, or in the case of a waiver, by the party waiving compliance. Any waiver by any party of any condition, or of the breach of any provision, term, covenant, representation or warranty contained in this Agreement, in any one or more instances, shall not be deemed to be or construed as a further or continuing waiver of any condition or of the breach of any other provision, term, covenant, representation or warranty of this Agreement.
SECTION 15.12. PARTIES IN INTEREST. Nothing in this Agreement is intended to confer any rights or remedies under or by reason of this Agreement on any Person other than Buyer, Sellers and Harcke and their respective successors and assigns.
SECTION 15.13. SUCCESSORS AND ASSIGNS. No party hereto shall assign or delegate this Agreement or any rights or obligations hereunder without the prior written consent of the other parties hereto, and any attempted assignment or delegation without prior written consent shall be void and of no force or effect; provided, however, (i) Buyer may without consent assign this Agreement and all of its rights and delegate its obligations hereunder to an Affiliate of Buyer or to any Person who shall acquire all or substantially all of the assets of Buyer, and (ii) Sellers consent to the assignment as security and the grant of a security interest in all right, title and interest of Buyer in, to and under the Agreement and all related agreements to Congress Financial Corporation (Central), as agent, and shall execute such acknowledgement thereof as it may request, provided that in no event shall Buyer be relieved of any obligation hereunder. This Agreement shall inure to the benefit of and shall be binding upon the successors and permitted assigns of the parties hereto.
SECTION 15.14. GOVERNING LAW; JURISDICTION. This Agreement shall be construed and enforced in accordance with, and governed by, the Laws of the State of Indiana (without giving effect to the principles of conflicts of laws thereof). The parties hereto irrevocably agree and consent to the non-exclusive jurisdiction of the courts of the State of Indiana and the federal courts of the United States, sitting in Indianapolis, Indiana for the adjudication of any matters arising under or in connection with this Agreement.
SECTION 15.15. COUNTERPARTS. This Agreement is executed in two or more counterparts, each of which shall be deemed an original, but all of which shall together constitute the same instrument.
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IN WITNESS WHEREOF, the parties hereto have executed, or caused to be executed by their duly authorized representatives, this Agreement as of the date first above written.
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THE BRANFORD WIRE AND |
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158 N. Egerton Rd. |
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Mtn. Home NC, 28758 |
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CAROLINA INDUSTRIES, INC. |
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/s/ Richard A. Harcke |
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Richard Harcke |
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HAYNES WIRE COMPANY, INC. |
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[Exhibits 4.02(g)(i) and 4.02(g)(ii) - Non-Compete Agreements, Exhibit 4.02(a) - Security Agreement, Exhibit 4.02(b) - Bill of Sale, Exhibit 4.02(d) - Assignment and Assumption Agreement, Exhibit 4.02(k) - Form of opinion of counsel to Sellers, and the Disclosure Schedules have been omitted from the Agreement as filed with the Securities and Exchange Commission (the SEC). The omitted information is considered immaterial from an investors perspective. The Registrant will furnish supplementally a copy of any of the omitted exhibits and schedules to the SEC upon request from the SEC.]
Exhibit 3.1
SECOND RESTATED CERTIFICATE OF INCORPORATION
OF
HAYNES INTERNATIONAL, INC.
* * * * *
Pursuant
to Sections 242, 245 and 303 of
the General Corporation Law of the State of Delaware
* * * * *
The undersigned, on behalf of Haynes International, Inc. (the Corporation), a corporation duly organized and existing under and by virtue of the General Corporation Law of the State of Delaware (DGCL), does hereby certify as follows:
(1) The name of the Corporation is Haynes International, Inc. The original Certificate of Incorporation of the Corporation was filed with the Secretary of State of the State of Delaware on December 1, 1986; and a Restated Certificate of Incorporation of the Corporation was filed with the Secretary of State of the State of Delaware on July 10, 1987.
(2) This Second Restated Certificate of Incorporation of the Corporation is being effected pursuant to Sections 242, 245 and 303 of the General Corporation Law of the State of Delaware. The making and filing of this Second Restated Certificate of Incorporation has been authorized pursuant to the First Amended Joint Plan of Reorganization of Haynes International, Inc. and certain of its subsidiaries and affiliates, Case Nos. 04-05364 through 04-05367 under Chapter 11 of the United States Bankruptcy Code (the Bankruptcy Code), as confirmed by the United States Bankruptcy Court for the Southern District of Indiana, Indianapolis Division, at a hearing on August 16, 2004 and the Findings of Fact, Conclusions of Law, and Order Under 11 U.S.C. Sections 1129(a) and (b) and Fed. R. Bankr. P. 3020 Confirming the First Amended Plan of Reorganization of Haynes International, Inc. and its Affiliated Debtors and Debtors-in-Possession, dated August 16, 2004.
(3) The text of the certificate of incorporation is restated in its entirety as follows:
FIRST: The name of the Corporation is Haynes International, Inc.
SECOND: The address of the Corporations registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, City of Wilmington, County of New Castle, Delaware 19801. The name of its registered agent at such address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which corporations may now or hereafter be organized under the DGCL.
FOURTH: CAPITAL STOCK. (a) AUTHORIZED CAPITAL STOCK. The total number of shares of stock which the Corporation shall have authority to issue is Forty Million
(40,000,000), which shall be divided into two classes, one to be designated Common Stock, which shall consist of Twenty Million (20,000,000) authorized shares, par value $0.001 per share, and a second class to be designated as Preferred Stock, which shall consist of Twenty Million (20,000,000) authorized shares, par value $0.001 per share.
(b) PREFERRED STOCK. The Preferred Stock may be issued from time to time in one or more series, each series to be appropriately designated by a distinguishing number, letter or title prior to the issue of any shares thereof. Each series of Preferred Stock shall consist of such number of shares and have such voting powers, full or limited, or no voting powers, and such designations, preferences and relative, participating, optional or other special rights, and the qualifications, limitations or restrictions thereof, as shall be stated in the resolution or resolutions providing for the issuance of such series adopted by the Board of Directors of the Corporation, and the Board of Directors is hereby expressly vested with authority, to the full extent now or hereafter provided by law, to adopt any such resolution or resolutions, provided, however, that the Board of Directors may not decrease the number of shares authorized within a class or series to less than the number of shares within such class or series that are then issued and outstanding and may not increase the number of shares within a series above the total number of authorized shares of the applicable class for which the powers, designations, preferences and rights have not otherwise been set forth herein. The authority of the Board of Directors with respect to each series shall include, but not be limited to, determination of the following:
(1) the number of shares constituting that series and the distinctive designation of that series;
(2) the dividend rate on the shares of that series, whether dividends shall be cumulative, and, if so, from which date or dates, and the relative rights of priority, if any, of payment of dividends on shares of that series;
(3) whether that series shall have voting rights, in addition to the voting rights provided by law, and if so, the terms of such voting rights;
(4) whether that series shall have conversion privileges and, if so, the terms and conditions of such conversion, including provision for adjustment of the conversation rate in such events as the Board of Directors shall determine;
(5) whether the shares of that series shall be redeemable, and, if so, the terms and conditions of such redemption, including the date or dates upon or after which they shall be redeemable, and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates;
(6) whether that series shall have a sinking fund for the redemption or purchase of shares of that series and, if so, the terms and amount of such sinking fund;
(7) the rights of the shares of that series in the event of voluntary or involuntary liquidation, dissolution or winding-up of the Corporation, and the relative rights of priority, if any, of payment of shares of that series; and
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(8) any other relative rights, preferences and limitations of that series.
(c) COMMON STOCK. The powers, preferences and rights, and the qualifications, limitations and restrictions, of the Common Stock are as follows:
(1) (a) VOTING. Except as otherwise expressly required by law or provided in this Second Restated Certificate of Incorporation, the holders of any outstanding shares of Common Stock shall vote together as a single class on all matters with respect to which stockholders are entitled to vote under applicable law, this Second Restated Certificate of Incorporation or the By-Laws of the Corporation, as amended from time to time, or upon which a vote of stockholders is otherwise called for by the Corporation. At each annual or special meeting of stockholders, each holder of record of shares of Common Stock on the record date for such meeting shall be entitled to cast one vote in person or by proxy for each share of the Common Stock standing in such holders name on the stock transfer records of the Corporation on such record date. Notwithstanding the foregoing, unless otherwise required by applicable law, no holder of Common Stock, as such, shall be entitled to vote on or consent to any matter submitted to a vote of any series of preferred stock in which the holders of such series of preferred stock, either separately or together with any other series of preferred stock, are entitled to vote pursuant to this Second Restated Certificate of Incorporation or a certificate of designations of a series of preferred stock, unless otherwise provided herein or in such certificate of designations.
(b) NON-CUMULATIVE. The holders of shares of Common Stock shall not have cumulative voting rights.
(2) DIVIDENDS. Subject to any other provisions of this Second Restated Certificate of Incorporation, holders of shares of Common Stock shall be entitled to receive such dividends and other distributions in cash, stock or property of the Corporation when, as and if declared thereon by the Board of Directors from time to time out of assets or funds of the Corporation legally available therefor.
(3) LIQUIDATION. In the event of any liquidation, dissolution or winding up (either voluntary or involuntary) of the Corporation, the holders of shares of Common Stock shall be entitled to share equally, on a share for share basis, the assets and funds of the Corporation available for distribution, after payments to creditors and to the holders of any preferred stock of the Corporation that may at the time be outstanding. Neither the consolidation nor the merger of the Corporation with or into any other person, nor the sale, transfer or lease of all or substantially all of the assets of the Corporation shall itself be deemed to be a liquidation, dissolution or winding up of the affairs of the Corporation within the meaning of this Section 3.
(4) PREEMPTIVE RIGHTS. No holder of shares of Common Stock shall be entitled to preemptive or subscription rights.
(d) PURCHASE AND SALE OF SHARES. Subject to the requirements of applicable law, the Corporation shall have the power to issue and sell all or any part of any shares of any class of stock herein or hereafter authorized to such persons, and for such
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consideration, as the Board of Directors shall from time to time, in its discretion, determine, whether or not greater consideration could be received upon the issue or sale of the same number of shares of another class, and as otherwise permitted by law. Subject to the requirements of applicable law, the Corporation shall have the power to purchase any shares of any class of stock herein or hereafter authorized from such persons, and for such consideration, as the Board of Directors shall from time to time, in its discretion, determine, whether or not less consideration could be paid upon the purchase of the same number of shares of another class, and as otherwise permitted by law.
FIFTH: The Corporation shall not issue any nonvoting equity securities to the extent prohibited by Section 1123 of the Bankruptcy Code as in effect on the effective date of the Plan of Reorganization of Haynes International, Inc. and its Affiliated Debtors and Debtors in Possession (the Reorganization Plan); provided, however, that this Article FIFTH (a) will have no further force and effect beyond that required under Section 1123 of the Bankruptcy Code, (b) will have such force and effect, if any, only for so long as such section of the Bankruptcy Code is in effect and applicable to the Corporation, and (c) in all events may be amended or eliminated in accordance with such applicable law as from time to time may be in effect.
SIXTH: LIABILITY; INDEMNIFICATION (a) A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except to the extent such exemption from liability or limitation therefor is not permitted under the DGCL as the same exists or may hereafter be amended. If the DGCL is amended hereafter to authorize the further elimination or limitation of the liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent authorized by the DGCL, as so amended. Any repeal or modification of this paragraph shall not adversely affect any right or protection of a director of the Corporation existing hereunder with respect to any act or omission occurring prior to such repeal or modification.
(b) Any person who was or is made 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 (proceeding) by reason of the fact that such person or person for whom such person is a legal representative, is or was a director or officer of the Corporation, or is or was a director or officer of the Corporation serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust, nonprofit entity or other enterprise, including service with respect to employee benefit plans (Covered Person), whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee or agent, or in any other capacity while serving as a director, officer, employee or agent shall be indemnified and held harmless by the Corporation to the fullest extent authorized or permitted by applicable law.
(c) The rights conferred on any Covered Person by this Article SIXTH shall not be exclusive of any other rights which any Covered Person may have or hereafter acquire under law, this Second Restated Certificate of Incorporation, the Amended and Restated By-laws of the Corporation, an agreement, vote of stockholders or disinterested directors, or otherwise.
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(d) Any repeal or amendment of the Article SIXTH by the stockholders of the Corporation or by changes in law, or the adoption of any other provision of this Second Restated Certificate of Incorporation inconsistent with this Article SIXTH, will, unless otherwise required by law, by prospective only (except to the extent such amendment or change in law permits the Corporation to provide broader indemnification rights on a retroactive basis than permitted prior thereto), and will not in any way diminish or adversely affect any right or protection existing at the time of such repeal or amendment or adoption of such inconsistent provision in respect of any act or omission occurring prior to such repeal or amendment or adoption of such inconsistent provision.
(e) This Article SIXTH shall not limit the right of the Corporation, to the extent and in the manner authorized or permitted by law, to indemnify and to advance expenses to persons other than Covered Persons.
SEVENTH: Any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called annual or special meeting of stockholders of the Corporation, and the ability of the stockholders to consent in writing to the taking of any action is hereby specifically denied.
EIGHTH: Meetings of stockholders may be held within or without the State of Delaware, as the By-Laws may provide. The books of the Corporation may be kept (subject to any provision contained in the DGCL) within or without the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the By-Laws of the Corporation.
NINTH: The Corporation reserves the right to amend this Second Restated Certificate of Incorporation in any manner permitted by the DGCL, as amended from time to time, and all rights and powers conferred herein on stockholders, directors and officers, if any, are subject to this reserved power. Notwithstanding any other provision of this Second Restated Certificate of Incorporation (and in addition to any other vote that may be required by law), the affirmative vote of the holders of at least a majority of the voting power of the shares entitled to vote in an election of directors shall be required to amend, alter, change or repeal, or to adopt any provision as part of this Second Restated Certificate of Incorporation.
IN WITNESS WHEREOF, I have hereunto signed my name this 31st day of August, 2004.
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By: |
/s/ Jean C. Neel |
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Name: |
Jean C. Neel |
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Title: |
Vice President, Corporate Affairs and |
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Corporate Secretary |
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Exhibit 3.2
AMENDED AND RESTATED BY-LAWS
OF
HAYNES INTERNATIONAL, INC.
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of Haynes International, Inc. (the Corporation) in the State of Delaware shall be in the City of Wilmington, County of New Castle, and the registered agent in charge thereof shall be The Corporation Trust Company.
SECTION 2. OTHER OFFICES. The Corporation may also have offices at such other places, both within or without the State of Delaware, as the Board of Directors may from time to time determine.
ARTICLE II
MEETINGS OF THE STOCKHOLDERS
SECTION 1. TIME AND PLACE OF MEETINGS. All meetings of the stockholders shall be held at such place, either within or without the State of Delaware, on such date and at such time as may be determined from time to time by the Board of Directors. The Board of Directors may, in its sole discretion, determine that a meeting of the stockholders shall not be held at any place, but may instead be held by means of remote communication in the manner authorized by the General Corporation Law of the State of Delaware (the DGCL).
SECTION 2. ANNUAL MEETINGS. Annual meetings of the stockholders shall be held to elect the directors and transact such other business as may properly be brought before the meeting.
SECTION 3. SPECIAL MEETINGS. Unless otherwise required by law or by the Second Restated Certificate of Incorporation of the Corporation, as amended and/or restated from time to time (the Certificate of Incorporation), special meetings of the stockholders, for any purpose or purposes, may be called by either (a) a resolution adopted by a majority of the Board of Directors, (b) the Chairman of the Board of Directors, if there be one, or (c) the President of the Corporation. The ability of the stockholders to call a special meeting of the stockholders is specifically denied.
SECTION 4. NATURE OF BUSINESS AT MEETINGS OF STOCKHOLDERS. No business may be transacted at an annual meeting of stockholders, other than business that is either (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors (or any duly authorized committee thereof), (b) otherwise properly brought before the annual meeting by or at the direction of the Board of Directors (or any duly authorized committee thereof), or (c) otherwise properly brought before the annual meeting by any
stockholder of the Corporation (i) who is a stockholder of record on the date of the giving of the notice provided for in this SECTION 4 and on the record date for the determination of stockholders entitled to notice of and to vote at such annual meeting and (ii) who complies with the notice procedures set forth in this SECTION 4.
In addition to any other applicable requirements, for business to be properly brought before an annual meeting by a stockholder, such stockholder must have given timely notice thereof in proper written form to the Secretary of the Corporation.
To be timely, a stockholders notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the Corporation not less than ninety (90) days nor more than one hundred twenty (120) days prior to the anniversary date of the immediately preceding annual meeting; provided, however, that in the event that the annual meeting is called for a date that is not within twenty five (25) days before or after such anniversary date, notice by the stockholder in order to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure of the date of the annual meeting was made, whichever first occurs.
To be in proper written form, a stockholders notice to the Secretary must set forth as to each matter such stockholder proposes to bring before the annual meeting (a) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (b) the name and record address of such stockholder, (c) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by such stockholder, (d) a description of all arrangements or understandings between such stockholder and any other person or persons (including their names) in connection with the proposal of such business by such stockholder and any material interest of such stockholder in such business and (e) a representation that such stockholder intends to appear in person or by proxy at the annual meeting to bring such business before the meeting.
No business shall be conducted at an annual meeting except business brought before the annual meeting in accordance with the procedures set forth in this SECTION 4; PROVIDED, HOWEVER, that, once business has been properly brought before the annual meeting in accordance with such procedures, nothing in this SECTION 4 shall be deemed to preclude discussion by any stockholder of any such business. If the chairman of an annual meeting determines that business was not properly brought before the annual meeting in accordance with the foregoing procedures, the chairman shall declare to the meeting that the business was not properly brought before the meeting and such business shall not be transacted.
SECTION 5. NOTICE OF MEETINGS. Whenever the stockholders are required or permitted to take any action at a meeting, a written notice of the meeting shall be given which shall state the place, if any, date and hour of the meeting, the means of remote communication, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Unless otherwise provided by the DGCL, written notice of any meeting shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting to each
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stockholder entitled to vote at such meeting. If mailed, such notice is given when deposited in the United States mail, with postage thereon prepaid, directed to the stockholder at his address as it appears on the record of stockholders. In the event of a change of address, such stockholder shall file with the Secretary of the Corporation a written request that such stockholders address be changed in the records of the Corporation, in which event notices to such stockholder shall be directed to such stockholder at such other address. Any meeting of the stockholders may be adjourned from time to time to reconvene at the same or some other place, and notice need not be given of any such adjourned meeting if the time and place, if any, thereof and the means of remote communications, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such adjourned meeting are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the Corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days, or after the adjournment a new record date is fixed by the Board of Directors for the adjourned meeting, a notice, pursuant to this SECTION 5, of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.
SECTION 6. QUORUM, ADJOURNMENTS. Unless otherwise required by law or the Certificate of Incorporation, the holders of a majority of the issued and outstanding capital stock entitled to vote, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business. When a specified item of business is required to be voted on by a class or classes, a majority of the shares of such class or classes in person or represented by proxy shall constitute a quorum entitled to take action with respect to the transaction of such specified item of business. If a quorum is not present, the Chairman of the Board of Directors, the President or the holders of a majority of the shares present in person or represented by proxy at the meeting, and entitled to vote at the meeting, may adjourn the meeting to another time or place, in the manner provided in SECTION 5 hereof, until a quorum shall be present or represented.
SECTION 7. VOTING. Unless otherwise required by law, the Certificate of Incorporation, these By-Laws or a Certificate of Designation governing the rights and preferences of a series of Preferred Stock, each stockholder at every meeting of the stockholders shall be entitled to one (1) vote for each outstanding share of capital stock of the Corporation held by such stockholder. Unless otherwise required by law, the Certificate of Incorporation, these By-Laws, or a Certificate of Designation governing the rights and preferences of a series of Preferred Stock, so long as a quorum is present at a meeting of the stockholders, the affirmative vote of a majority of the shares of capital stock of the Corporation present, in person or by proxy, at a meeting of the stockholders and entitled to vote on the subject matter shall be the act of the respective stockholders.
SECTION 8. PROXIES. Each stockholder entitled to vote at a meeting of the stockholders may authorize another person or persons to act for such stockholder by proxy, but no such proxy shall be voted or acted upon after three (3) years from its date, unless the proxy provides for a longer period. Without limiting the manner in which a stockholder may authorize another person or persons to act for such stockholder as proxy, the following shall constitute a valid means by which a stockholder may grant such authority:
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(a) A stockholder may execute a writing authorizing another person or persons to act for such stockholder as proxy. Execution may be accomplished by the stockholder or such stockholders authorized officer, director, partner, member, employee or agent signing such writing or causing such persons signature to be affixed to such writing by any reasonable means, including, but not limited to, by facsimile signature.
(b) A stockholder may authorize another person or persons to act for such stockholder as proxy by transmitting or authorizing the transmission of a facsimile, telegram or cablegram to the person who will be the holder of the proxy or to a proxy solicitation firm, proxy support service organization or like agent duly authorized by the person who will be the holder of the proxy to receive such transmission, provided that any such facsimile, telegram or cablegram must either set forth or be submitted with information from which it can be determined that the facsimile, telegram or cablegram was authorized by the stockholder. If it is determined that such facsimiles, telegrams or cablegrams or other transmissions are valid, the inspectors or, if there are no inspectors, such other persons making that determination shall specify the information on which they relied.
Any copy, facsimile telecommunication or other reliable production of the writing or transmission authorizing another person or persons to act as proxy for a stockholder may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used; provided, however, that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or transmission.
SECTION 9. LIST OF THE STOCKHOLDERS ENTITLED TO VOTE. The officer of the Corporation who has charge of the stock ledger of the Corporation shall prepare and make, at least ten (10) days before every meeting of the stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting: (i) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting, or (ii) during ordinary business hours, at the principal place of business of the Corporation. In the event that the Corporation determines to make the list available on an electronic network, the Corporation shall take reasonable steps to ensure that such information is available only to stockholders of the Corporation. If the meeting is to be held at a place, then the list shall be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. If the meeting is to be held solely by means of remote communication, then the list shall also be open to the examination of any stockholder during the whole time of the meeting on a reasonably accessible electronic network, and the information required to access such list shall be provided with the notice of the meeting.
SECTION 10. RECORD DATE. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of the stockholders or any adjournment thereof, the Board of
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Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of the stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of the stockholders of record entitled to notice of or to vote at a meeting of the stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.
SECTION 11. STOCK LEDGER. The stock ledger of the Corporation shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by SECTION 9 of this ARTICLE II or the books of the Corporation, or to vote in person or by proxy at any meeting of the stockholders.
SECTION 12. ORGANIZATION. At each meeting of the stockholders, the Chairman of the Board of Directors, if one shall have been elected, or in his or her absence or if one shall not have been elected, the President) shall act as chairperson of the meeting. The Secretary (or in his or her absence or inability to act, the person whom the chairperson of the meeting shall appoint as secretary of the meeting) shall act as secretary of the meeting.
SECTION 13. INSPECTORS OF ELECTION. In advance of any meeting of the stockholders, the Board of Directors shall appoint one or more inspectors to act at the meeting and make a written report thereof. One or more other persons may be designated as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of the stockholders, the chairman of the meeting shall appoint one or more inspectors to act at the meeting. Unless otherwise required by applicable law, inspectors may be officers, employees or agents of the Corporation. Each inspector, before entering upon the discharge of the duties of inspector, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of such inspectors ability. The inspector shall have the duties prescribed by law and shall take charge of the polls and, when the vote is completed, shall make a certificate of the result of the vote taken and of such other facts as may be required by applicable law. Inspectors need not be stockholders.
ARTICLE III
DIRECTORS
SECTION 1. GENERAL POWERS. Except as otherwise provided in the Certificate of Incorporation, the business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors which may exercise all such powers of the Corporation and do all such lawful acts and things as are not reserved to the stockholders by applicable Law, the Certificate of Incorporation or these By-Laws.
SECTION 2. NUMBER, ELECTION AND TERM OF OFFICE. The number of directors which shall constitute the whole board shall be fixed from time to time by resolution of the Board of Directors but shall not be less than three (3) nor more than nine (9). The directors shall be elected at the annual meeting of the stockholders, except as provided in SECTION 13 of this
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ARTICLE III, and each director so elected shall hold office until such directors successor is elected and qualified or until his earlier death, resignation or removal. Directors need not be stockholders. Election of directors need not be by ballot.
SECTION 3. NOMINATION OF DIRECTORS. Only persons who are nominated in accordance with the following procedures shall be eligible for election as directors of the Corporation. Nominations of persons for election to the Board of Directors may be made at any annual meeting of stockholders, or at any special meeting of stockholders called for the purpose of electing directors, (a) by or at the direction of the Board of Directors (or any duly authorized committee thereof) or (b) by any stockholder of the Corporation (i) who is a stockholder of record on the date of the giving of the notice provided for in this SECTION 3 and on the record date for the determination of stockholders entitled to notice of and to vote at such meeting and (ii) who complies with the notice procedures set forth in this SECTION 3.
In addition to any other applicable requirements, for a nomination to be made by a stockholder, such stockholder must have given timely notice thereof in proper written form to the Secretary of the Corporation.
To be timely, a stockholders notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the Corporation (a) in the case of an annual meeting, not less than ninety (90) days nor more than one hundred twenty (120) days prior to the anniversary date of the immediately preceding annual meeting; PROVIDED, HOWEVER, that in the event that the annual meeting is called for a date that is not within twenty five (25) days before or after such anniversary date, notice by the stockholder in order to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure of the date of the annual meeting was made, whichever first occurs; and (b) in the case of a special meeting of stockholders called for the purpose of electing directors, not later than the close of business on the tenth (10th) day following the day on which notice of the date of the special meeting was mailed or public disclosure of the date of the special meeting was made, whichever first occurs.
If mailed, such notice is given when deposited in the United States mail, with postage thereon prepaid, directed to the stockholder at his address as it appears on the record of stockholders. In the event of a change of address, such stockholder shall file with the Secretary of the Corporation a written request that such stockholders address be changed in the records of the Corporation, in which event notices to such stockholder shall be directed to such stockholder at such other address.
To be in proper written form, a stockholders notice to the Secretary must set forth (a) as to each person whom the stockholder proposes to nominate for election as a director (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by the person, and (iv) any other information relating to the person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Securities Exchange Act of 1934, as amended (the Exchange Act), and the rules and regulations promulgated thereunder; and (b) as to the
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stockholder giving the notice (i) the name and record address of such stockholder, (ii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by such stockholder, (iii) a description of all arrangements or understandings between such stockholder and each proposed nominee and any other person or persons (including their names) pursuant to which the nomination(s) are to be made by such stockholder, (iv) a representation that such stockholder intends to appear in person or by proxy at the meeting to nominate the persons named in its notice, and (v) any other information relating to such stockholder that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder. Such notice must be accompanied by a written consent of each proposed nominee to being named as a nominee and to serve as a director if elected.
No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the procedures set forth in this SECTION 3. If the chairman of the meeting determines that a nomination was not made in accordance with the foregoing procedures, the chairman shall declare to the meeting that the nomination was defective and such defective nomination shall be disregarded.
SECTION 4. QUORUM, MANNER OF ACTING, ADJOURNMENT. Unless the Certificate of Incorporation or these By-Laws require a greater number, a majority of the total number of directors shall constitute a quorum for the transaction of business, and the affirmative vote of a majority of the directors present at any meeting at which a quorum is present shall be the act of the Board of Directors. If a quorum shall not be present at any meeting of the Board of Directors the directors present thereat may adjourn the meeting, from time to time, without notice other than announcement at the meeting, until a quorum shall be present. When a meeting is adjourned to another time or place (whether or not a quorum is present), notice need not be given of the adjourned meeting if the time and place thereof are announced at the original meeting at which the adjournment is taken. At the adjourned meeting, the Board of Directors may transact any business which might have been transacted at the original meeting.
SECTION 5. TIME AND PLACE OF MEETINGS. The Board of Directors shall hold its meetings at such place, either within or without the State of Delaware, and at such time as may be determined from time to time by the Board of Directors (or the Chairman in the absence of a determination by the Board of Directors).
SECTION 6. ANNUAL MEETING. The Board of Directors shall meet for the purpose of organization, the election of officers and the transaction of other business, as soon as practicable after each annual meeting of the stockholders, on the same day and at the same place where such annual meeting shall be held. Notice of such meeting need not be given. In the event such annual meeting is not so held, the annual meeting of the Board of Directors may be held at such place either within or without the State of Delaware, on such date and at such time as shall be specified in a notice thereof given as hereinafter provided in SECTION 8 of this ARTICLE III or in a waiver of notice thereof signed by any director who chooses to waive the requirement of notice.
SECTION 7. REGULAR MEETINGS. After the place and time of regular meetings of the Board of Directors shall have been determined and notice thereof shall have been once given to
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each member of the Board of Directors, regular meetings may be held without further notice being given.
SECTION 8. SPECIAL MEETINGS. Special meetings of the Board of Directors may be called by the Chairman of the Board or the President and shall be called by the Chairman of the Board, President, or Secretary on the written request of three directors. Notice of special meetings of the Board of Directors shall be given to each director in such manner as is determined by the Board of Directors at least three (3) days before the date of the meeting.
SECTION 9. COMMITTEES. The Board of Directors may, by resolution passed by a majority of the whole board, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Any such committee, to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to amending the Certificate of Incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the Corporations property and assets, recommending to the stockholders a dissolution of the Corporation or a revocation of a dissolution, or amending the by-laws of the Corporation; and unless the resolution of the Board of Directors or the Certificate of Incorporation expressly so provide, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required.
SECTION 10. ACTION BY CONSENT. Unless otherwise restricted by the Certificate of Incorporation or these By-Laws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof maybe taken without a meeting, if all members of the board or committee, as the case may be, consent thereto in writing or by electronic transmission, and the writing or writings or electronic transmission or transmissions are filed with the minutes of proceedings of the board or committee.
SECTION 11. TELEPHONIC MEETINGS. Unless otherwise restricted by the Certificate of Incorporation or these By-Laws, members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors, or such committee, as the case may be, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting.
SECTION 12. RESIGNATION. Any director may resign at any time by giving written notice to the Board of Directors or to the secretary of the Corporation. The resignation of any director shall take effect upon receipt of notice thereof or at such later time as shall be specified in such notice; and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.
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SECTION 13. VACANCIES. Unless otherwise provided in the Certificate of Incorporation, vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, though less than a quorum, or by a sole remaining director. Each director so elected shall hold office until his successor is elected and qualified, or until his earlier death, resignation or removal. If there are no directors in office, then an election of directors may be held in accordance with the DGCL. Unless otherwise provided in the Certificate of Incorporation, when one or more directors shall resign from the board, effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have the power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office as provided in the filling of other vacancies.
SECTION 14. REMOVAL. Except as otherwise required by applicable law, any director or the entire Board of Directors may be removed from office at any time, but only for cause, and only by the affirmative vote of the holders of majority of the voting power of the Corporations then outstanding capital stock entitled to vote generally in the election of directors.
SECTION 15. COMPENSATION. Unless otherwise restricted by the Certificate of Incorporation or these By-Laws, the Board of Directors (or a duly authorized committee thereof) shall have authority to fix the compensation of directors, including fees and reimbursement of expenses.
SECTION 16. INTERESTED DIRECTORS. No contract or transaction between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association or other organization in which one or more of its directors or officers are directors or officers or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or committee thereof which authorizes the contract or transaction, or solely because any such directors or officers vote is counted for such purpose if: (a) the material facts as to the directors or officers relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board of Directors or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (b) the material facts as to the directors or officers relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (c) the contract or transaction is fair as to the Corporation as determined on a good faith basis by the Board of Directors as of the time it is authorized, approved or ratified by the Board of Directors, a committee thereof or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction.
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ARTICLE IV
OFFICERS
SECTION 1. GENERAL. The officers of the Corporation shall be chosen by the Board of Directors and shall be a President, a Secretary and a Treasurer. The Board of Directors, in its discretion, also may choose a Chairman of the Board of Directors (who must be a director) and one or more Vice Presidents, Assistant Secretaries, Assistant Treasurers and other officers. Any number of offices may be held by the same person, unless otherwise prohibited by law, the Certificate of Incorporation or these By-Laws. The officers of the Corporation need not be stockholders of the Corporation nor, except in the case of the Chairman of the Board of Directors, need such officers be directors of the Corporation.
SECTION 2. ELECTION. The Board of Directors, at its first meeting held after each annual meeting of stockholders, shall elect the officers of the Corporation who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors; and each officer of the Corporation shall hold office until such officers successor is elected and qualified, or until such officers earlier death, resignation or removal. Any officer elected by the Board of Directors may be removed with or without cause at any time by the Board of Directors. Any vacancy occurring in any office of the Corporation shall be filled by the Board of Directors. The compensation of all officers of the Corporation shall be fixed by the Board of Directors or a duly authorized committee thereof.
SECTION 3. VOTING SECURITIES OWNED BY THE CORPORATION. Powers of attorney, proxies, waivers of notice of meeting, consents and other instruments relating to securities owned by the Corporation may be executed in the name of and on behalf of the Corporation by the President or any Vice President or any other officer authorized to do so by the Board of Directors and any such officer may, in the name of and on behalf of the Corporation, take all such action as any such officer may deem advisable to vote in person or by proxy at any meeting of security holders of any corporation or other entity in which the Corporation may own securities and at any such meeting shall possess and may exercise any and all rights and power incident to the ownership of such securities and which, as the owner thereof, the Corporation might have exercised and possessed if present. The Board of Directors may, by resolution, from time to time confer like powers upon any other person or persons.
SECTION 4. CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the Board of Directors, if there be one, shall preside at all meetings of the stockholders and of the Board of Directors. The Chairman of the Board of Directors shall also perform such other duties and may exercise such other powers as may from time to time be assigned by these By-Laws or by the Board of Directors.
SECTION 5. PRESIDENT. The President shall, subject to the control of the Board of Directors and, if there be one, the Chairman of the Board of Directors, have general supervision of the business of the Corporation, shall see that all orders and resolutions of the Board of Directors are carried into effect and shall be the Chief Executive Officer of the Corporation. The President shall execute all bonds, mortgages, contracts and other instruments of the Corporation
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requiring a seal, under the seal of the Corporation, except where required or permitted by law to be otherwise signed and executed and except that the other officers of the Corporation may sign and execute documents when so authorized by these By-Laws, the Board of Directors or the President. In the absence or disability of the Chairman of the Board of Directors, or if there be none, the President shall preside at all meetings of the stockholders and, provided the President is also a director, the Board of Directors. The President shall also perform such other duties and may exercise such other powers as may from time to time be assigned to such officer by these By-Laws or by the Board of Directors.
SECTION 6. VICE PRESIDENTS. At the request of the President or in the Presidents absence or in the event of the Presidents inability or refusal to act (and if there be no Chairman of the Board of Directors), the Vice President, or the Vice Presidents if there are more than one (in the order designated by the Board of Directors), shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. Each Vice President shall perform such other duties and have such other powers as the Board of Directors from time to time may prescribe. If there be no Chairman of the Board of Directors and no Vice President, the Board of Directors shall designate the officer of the Corporation who, in the absence of the President or in the event of the inability or refusal of the President to act, shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President.
SECTION 7. SECRETARY. The Secretary shall attend all meetings of the Board of Directors and all meetings of the stockholders and record all the proceedings thereat in a book or books to be kept for that purpose; the Secretary shall also perform like duties for committees of the Board of Directors when required. The Secretary shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors, the Chairman of the Board of Directors or the President, under whose supervision the Secretary shall be. If the Secretary shall be unable or shall refuse to cause to be given notice of all meetings of the stockholders and special meetings of the Board of Directors, and if there be no Assistant Secretary, then either the Board of Directors or the President may choose another officer to cause such notice to be given. The Secretary shall have custody of the seal of the Corporation and the Secretary or any Assistant Secretary, if there be one, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by the signature of the Secretary or by the signature of any such Assistant Secretary. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest to the affixing by such officers signature. The Secretary shall see that all books, reports, statements, certificates and other documents and records required by law to be kept or filed are properly kept or filed, as the case may be.
SECTION 8. TREASURER. The Treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. The Treasurer shall disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the President and the Board of Directors, at its regular meetings, or when the Board of Directors so
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requires, an account of all transactions as Treasurer and of the financial condition of the Corporation.
SECTION 9. ASSISTANT SECRETARIES. Assistant Secretaries, if there be any, shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors, the President, any Vice President, if there be one, or the Secretary, and in the absence of the Secretary or in the event of the Secretarys inability or refusal to act, shall perform the duties of the Secretary, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Secretary.
SECTION 10. ASSISTANT TREASURERS. Assistant Treasurers, if there be any, shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors, the President, any Vice President, if there be one, or the Treasurer, and in the absence of the Treasurer or in the event of the Treasurers inability or refusal to act, shall perform the duties of the Treasurer, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Treasurer.
SECTION 11. OTHER OFFICERS. Such other officers as the Board of Directors may choose shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors. The Board of Directors may delegate to any other officer of the Corporation the power to choose such other officers and to prescribe their respective duties and powers.
ARTICLE V
GENERAL PROVISIONS
SECTION 1. CERTIFICATES OF STOCK. Each stockholder is entitled to a certificate signed (manually or in facsimile) by the President or a Vice President and the Secretary or an Assistant Secretary, setting forth (a) the name of the Corporation and that it was organized under Delaware law, (b) the name of the person to whom issued, and (c) the number, class, and, if applicable, series of shares represented. The Board of Directors shall prescribe the form of certificate.
SECTION 2. LOST OR DESTROYED CERTIFICATES. Any person claiming a certificate to be lost or destroyed shall make an affidavit or affirmation of that fact and shall give the Corporation, if the Board of Directors or the President shall so require, and/or the transfer agents and registrars, if they shall so require, a bond of indemnity, in form and with one or more sureties satisfactory to the Board of Directors or the President and/or the transfer agents and registrars, in such amount as the Board of Directors or the President may direct and/or the transfer agents and registrars may require, whereupon a new certificate may be issued of the same tenor and for the same number of shares as the one alleged to be lost or destroyed.
SECTION 3. DIVIDENDS. Subject to limitations contained in the DGCL and the Certificate of Incorporation, the Board of Directors may declare and pay dividends upon the shares of capital stock of the Corporation, which dividends may be paid either in cash, in property, or in shares of the capital stock of the Corporation.
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SECTION 4. FISCAL YEAR. The fiscal year of the Corporation shall commence on October 1 and end on September 30 of each year.
SECTION 5. CORPORATE SEAL. The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization and the words Corporate Seal, Delaware. The seal may be used by causing it or a facsimile thereof to be impressed, affixed or otherwise reproduced.
SECTION 6. TRANSFERS. Stock of the Corporation shall be transferable in the manner prescribed by applicable law and in these By-Laws. Transfers of stock shall be made on the books of the Corporation only by the person named in the certificate or by such persons attorney lawfully constituted in writing and upon the surrender of the certificate therefore, properly endorsed for transfer and payment of all necessary transfer taxes; provided, however, that such surrender and endorsement or payment of taxes shall not be required in any case in which the officers of the Corporation shall determine to waive such requirement. Every certificate exchanged, returned or surrendered to the Corporation shall be marked Cancelled, with the date of cancellation, by the Secretary or Assistant Secretary of the Corporation or the transfer agent thereof. No transfer of stock shall be valid as against the corporation for any purpose until it shall have been entered in the stock records of the Corporation by an entry showing from and to whom transferred.
SECTION 7. RECORD OWNERS. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise required by law.
SECTION 8. TRANSFER AND REGISTRY AGENTS. The Corporation may from time to time maintain one or more transfer offices or agencies and registry offices or agencies at such place or places as may be determined from time to time by the Board of Directors.
ARTICLE VI
INDEMNIFICATION
SECTION 1. POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS OTHER THAN THOSE BY OR IN THE RIGHT OF THE CORPORATION. Subject to SECTION 3 of this ARTICLE VI, the Corporation shall indemnify and hold harmless any person who was or is made 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 such person or a person for whom such person is the legal representative, is or was a director or officer of the Corporation, or is or was a director or officer of the Corporation serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust, nonprofit entity or other enterprise, including service with respect to employee benefit plans, against expenses (including attorneys fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such
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person in connection with such action, suit or proceeding if such person acted in good faith and in a manner such person 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 no reasonable cause to believe such persons 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 such person 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 such persons conduct was unlawful.
SECTION 2. POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS BY OR IN THE RIGHT OF THE CORPORATION. Subject to SECTION 3 of this ARTICLE VI, the Corporation shall indemnify and hold harmless any person who was or is made 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 such person is or was a director or officer of the Corporation, or a person for whom such person is the legal representative, or is or was a director or officer of the Corporation 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 all judgments, penalties (including excise and similar taxes), fines, settlements, expenses and liability suffered or incurred (including attorneys fees and court costs, each of which are actually and reasonably incurred) by such person in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation; 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 of the State of Delaware 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.
SECTION 3. AUTHORIZATION OF INDEMNIFICATION. Any indemnification under this ARTICLE VI (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 present or former director or officer is proper in the circumstances because such person has met the applicable standard of conduct set forth in SECTION 1 or SECTION 2 of this ARTICLE VI, as the case may be. Such determination shall be made, with respect to a person who is a director or officer at the time of such determination, (i) by a majority vote of the directors who are not parties to such action, suit or proceeding, even though less than a quorum, or (ii) by a committee of such directors designated by a majority vote of such directors, even though less than a quorum, or (iii) if there are no such directors, or if such directors so direct, by independent legal counsel in a written opinion or (iv) by the stockholders. Such determination shall be made, with respect to former directors and officers, by any person or persons having the authority to act on the matter on behalf of the Corporation. To the extent, however, that a present or former director or officer of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding described above, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys fees) actually and reasonably incurred by such person in connection therewith, without the necessity of authorization in the specific case.
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SECTION 4. GOOD FAITH DEFINED. For purposes of any determination under SECTION 3 of this ARTICLE VI, a person shall be deemed to have acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation, or, with respect to any criminal action or proceeding, to have had no reasonable cause to believe such persons conduct was unlawful, if such persons action is based on the records or books of account of the Corporation or another enterprise, or on information supplied to such person by the officers of the Corporation or another enterprise in the course of their duties, or on the advice of legal counsel for the Corporation or another enterprise or on information or records given or reports made to the Corporation or another enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Corporation or another enterprise. The provisions of this SECTION 4 shall not be deemed to be exclusive or to limit in any way the circumstances in which a person may be deemed to have met the applicable standard of conduct set forth in SECTION 1 or SECTION 2 of this ARTICLE VI, as the case may be.
SECTION 5. INDEMNIFICATION BY A COURT. Notwithstanding any contrary determination in the specific case under SECTION 3 of this ARTICLE VI, and notwithstanding the absence of any determination thereunder, any director or officer may apply to the Court of Chancery of the State of Delaware or any other court of competent jurisdiction in the State of Delaware for indemnification to the extent otherwise permissible under SECTION 1 or SECTION 2 of this ARTICLE VI. The basis of such indemnification by a court shall be a determination by such court that indemnification of the director or officer is proper in the circumstances because such person has met the applicable standard of conduct set forth in SECTION 1 or SECTION 2 of this ARTICLE VI, as the case may be. Neither a contrary determination in the specific case under SECTION 3 of this ARTICLE VI nor the absence of any determination thereunder shall be a defense to such application or create a presumption that the director or officer seeking indemnification has not met any applicable standard of conduct. Notice of any application for indemnification pursuant to this SECTION 5 shall be given to the Corporation promptly upon the filing of such application. If successful, in whole or in part, the director or officer seeking indemnification shall also be entitled to be paid the expense of prosecuting such application.
SECTION 6. EXPENSES PAYABLE IN ADVANCE. Expenses incurred (including attorneys fees and court costs, each of which are actually and reasonably incurred) by a director or officer in defending any civil, criminal, administrative or investigative action, suit or proceeding shall 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 such person is not entitled to be indemnified by the Corporation as authorized in this ARTICLE VI. Such expenses (including attorneys fees) incurred by former directors and officers or other employees and agents may be so paid upon such terms and conditions, if any, as the Corporation deems appropriate.
SECTION 7. NONEXCLUSIVITY OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES. The indemnification and advancement of expenses provided by, or granted pursuant to, this ARTICLE VI shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under the Certificate of Incorporation, these By-Laws, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such persons official capacity and as to action in another capacity while holding such office, it being the policy of the Corporation that indemnification of the persons specified in SECTION 1 and
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SECTION 2 of this ARTICLE VI shall be made to the fullest extent permitted by law. The provisions of this ARTICLE VI shall not be deemed to preclude the indemnification of any person who is not specified in SECTION 1 or SECTION 2 of this ARTICLE VI but whom the Corporation has the power or obligation to indemnify under the provisions of the DGCL, or otherwise.
SECTION 8. INSURANCE. The Corporation may purchase and maintain insurance on behalf of any person who is or was a director or officer of the Corporation, or is or was a director or officer of the Corporation 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 such person and incurred by such person in any such capacity, or arising out of such persons status as such, whether or not the Corporation would have the power or the obligation to indemnify such person against such liability under the provisions of this ARTICLE VI.
SECTION 9. CERTAIN DEFINITIONS. For purposes of this ARTICLE VI, references to the Corporation shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors or officers, so that any person who is or was a director or officer of such constituent corporation, or is or was a director or officer of such constituent corporation serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this ARTICLE VI with respect to the resulting or surviving corporation as such person would have with respect to such constituent corporation if its separate existence had continued. The term another enterprise as used in this ARTICLE VI shall mean any other corporation or any partnership, joint venture, trust, employee benefit plan or other enterprise of which such person is or was serving at the request of the Corporation as a director, officer, employee or agent. For purposes of this ARTICLE VI, references to fines shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to serving at the request of the Corporation shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such director or officer with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner such person reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner not opposed to the best interests of the Corporation as referred to in this ARTICLE VI.
SECTION 10. SURVIVAL OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES. The indemnification and advancement of expenses provided by, or granted pursuant to, this ARTICLE VI shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director or officer and shall inure to the benefit of the heirs, executors and administrators of such a person.
SECTION 11. LIMITATION ON INDEMNIFICATION. Notwithstanding anything contained in this ARTICLE VI to the contrary, except for proceedings to enforce rights to indemnification (which shall be governed by SECTION 5 of this ARTICLE VI), the Corporation shall not be obligated to indemnify any director or officer (or his or her heirs, executors or personal or legal representatives) or advance expenses in connection with a proceeding (or part thereof) initiated
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by such person unless such proceeding (or part thereof) was authorized or consented to by the Board of Directors of the Corporation.
SECTION 12. INDEMNIFICATION OF EMPLOYEES AND AGENTS. The Corporation may, to the extent authorized from time to time by the Board of Directors, provide rights to indemnification and to the advancement of expenses to employees and agents of the Corporation similar to those conferred in this ARTICLE VI to directors and officers of the Corporation.
ARTICLE VII
AMENDMENTS
SECTION 1. BY THE BOARD OF DIRECTORS. These By-Laws may be altered, amended or repealed or new by-laws may be adopted by the affirmative vote of a majority of the entire Board of Directors.
SECTION 2. BY THE STOCKHOLDERS. These By-Laws may be altered, amended or repealed or new by-laws may be adopted by the affirmative vote of the holders of at least a majority of the voting power of the shares of the capital stock of the Corporation issued and outstanding and entitled to vote in the election of directors at any regular meeting of the stockholders, or at any special meeting of the stockholders, provided notice of such alteration, amendment, repeal or adoption of new by-laws shall have been stated in the notice of such special meeting.
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EXHIBIT 3.3
CERTIFICATE OF DESIGNATIONS
of
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
of
HAYNES INTERNATIONAL, INC.
(Pursuant
to Section 151 of the
Delaware General Corporation Law)
Haynes International, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware (hereinafter called the Corporation ), hereby certifies that the following resolution was adopted by the Board of Directors of the Corporation as required by Section 151 of the General Corporation Law at a meeting duly called and held on August 13, 2006:
RESOLVED , that pursuant to the authority granted to and vested in the Board of Directors of this Corporation (hereinafter called the Board of Directors or the Board ) in accordance with the provisions of the Second Restated Certificate of Incorporation, the Board of Directors hereby creates a Series of Preferred Stock, par value $0.001 per share, of the Corporation (the Preferred Stock ), and hereby states the designation and number of shares, and fixes the relative rights, preferences, and limitations thereof as follows:
Series A Junior Participating Preferred Stock:
Section 1. Designation and Amount . The shares of such Series shall be designated as Series A Junior Participating Preferred Stock (the Series A Preferred Stock ) and the number of shares constituting the Series A Preferred Stock shall be 400,000. Such number of shares may be increased or decreased by resolution of the Board of Directors; provided, that no decrease shall reduce the number of shares of Series A Preferred Stock to a number less than the number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights or warrants or upon the conversion of any outstanding securities issued by the Corporation convertible into Series A Preferred Stock.
Section 2. Dividends and Distributions .
(a) Subject to the rights of the holders of any shares of any Series of Preferred Stock (or any similar stock) ranking prior and superior to the Series A Preferred Stock with respect to dividends, the holders of shares of Series A Preferred Stock, in preference to the holders of Common Stock, par value $0.001 per share (the Common Stock ), of the Corporation, and of any other junior stock, shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the first day of March, June, September and December in each year (each such date being
referred to herein as a Quarterly Dividend Payment Date ), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (i) $10 or (ii) subject to the provision for adjustment hereinafter set forth, 1,000 times the aggregate per share amount of all cash dividends, and 1,000 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions, other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock since the immediately preceding Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Preferred Stock. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event under clause (ii) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.
(b) The Corporation shall declare a dividend or distribution on the Series A Preferred Stock as provided in Section 2(a) immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided that , in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $10 per share on the Series A Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date.
(c) Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest.
(d) Dividends paid on the shares of Series A Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series A Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be not more than 60 days prior to the date fixed for the payment thereof.
Section 3. Voting Rights . The holders of shares of Series A Preferred Stock shall have the following voting rights:
(a) Subject to the provision for adjustment hereinafter set forth, each share of Series A Preferred Stock shall entitle the holder thereof to 1,000 votes on all matters submitted to a vote of the stockholders of the Corporation. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the number of votes per share to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.
(b) Except as otherwise provided herein, in any other Certificate of Designations creating a Series of Preferred Stock or any similar stock, or by law, the holders of shares of Series A Preferred Stock and the holders of shares of Common Stock and any other capital stock of the Corporation having general voting rights shall vote together as one class on all matters submitted to a vote of stockholders of the Corporation.
(c) Except as set forth herein, or as otherwise provided by law, holders of Series A Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action.
Section 4. Certain Restrictions .
(a) Whenever quarterly dividends or other dividends or distributions payable on the Series A Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series A Preferred Stock outstanding shall have been paid in full, the Corporation shall not:
(i) declare or pay dividends, or make any other distributions, on any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock;
(ii) declare or pay dividends, or make any other distributions, on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except dividends paid ratably on the Series A Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock, provided that the Corporation may at any time
redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of any stock of the Corporation ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Series A Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for consideration any shares of Series A Preferred Stock, or any shares of stock ranking on a parity with the Series A Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective Series and classes, shall determine in good faith will result in fair and equitable treatment among the respective Series or classes.
(b) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under Section 4(a) , purchase or otherwise acquire such shares at such time and in such manner.
Section 5. Reacquired Shares . Any shares of Series A Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new Series of Preferred Stock subject to the conditions and restrictions on issuance set forth herein, in the Certificate of Incorporation, or in any other Certificate of Designations creating a Series of Preferred Stock or any similar stock or as otherwise required by law.
Section 6. Liquidation, Dissolution or Winding Up . Upon any liquidation, dissolution or winding up of the Corporation, no distribution shall be made (a) to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock unless, prior thereto, the holders of shares of Series A Preferred Stock shall have received $1,000.00 per share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment, provided that the holders of shares of Series A Preferred Stock shall be entitled to receive an aggregate amount per share, subject to the provision for adjustment hereinafter set forth, equal to 1,000 times the aggregate amount to be distributed per share to holders of shares of Common Stock, or (b) to the holders of shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except distributions made ratably on the Series A Preferred Stock and all such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the aggregate amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event under the proviso in clause (a) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event
and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.
Section 7. Consolidation, Merger, etc . In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case each share of Series A Preferred Stock shall at the same time be similarly exchanged or changed into an amount per share, subject to the provision for adjustment hereinafter set forth, equal to 1,000 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series A Preferred Stock shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.
Section 8. No Redemption . The shares of Series A Preferred Stock shall not be redeemable.
Section 9. Rank . The Series A Preferred Stock shall rank, with respect to the payment of dividends and the distribution of assets, junior to all series of any other class of the Corporations Preferred Stock.
Section 10. Amendment . The Certificate of Incorporation of the Corporation shall not be amended in any manner which would materially alter or change the powers, preferences or special rights of the Series A Preferred Stock so as to affect them adversely without the affirmative vote of the holders of at least two-thirds of the outstanding shares of Series A Preferred Stock, voting together as a single class.
IN WITNESS WHEREOF , this Certificate of Designations is executed on behalf of the Corporation by its Chief Financial Officer and attested by its Secretary this 13 th day of August, 2006.
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/s/ Marcel Martin |
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Chief Financial Officer |
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Attest: |
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/s/ Jean C. Neel |
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Secretary |
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Exhibit 4.1
COMMON STOCK |
HAYNES |
COMMON STOCK |
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NUMBER |
INTERNATIONAL |
SHARES |
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HII |
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INCORPORATED UNDER THE LAWS
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CUSIP 420877 20
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HAYNES INTERNATIONAL, INC. |
THIS CERTIFIES THAT
SPECIMEN
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, PAR VALUE $0.001 PER SHARE OF
HAYNES INTERNATIONAL, INC. (hereinafter, the Corporation) transferable 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 all of the provisions of the Corporations Certificate of Incorporation and By-laws. This Certificate is not valid until 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.
Dated
Countersigned and Registered:
Wells Fargo Bank, N.A.
Transfer Agent and Registrar
By
Authorized Signature
/s/ Jean C. Neel |
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Jean C. Neel |
[SEAL] |
/s/ Francis J. Petro |
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Vice President Corporate Affairs, |
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Francis J. Petro |
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and Corporate Secretary |
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President and Chief Executive Officer |
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HAYNES INTERNATIONAL, INC.
THE CORPORATION WILL FURNISH, WITHOUT CHARGE TO EACH SHAREHOLDER WHO SO REQUESTS, A FULL STATEMENT OF THE DESIGNATION, RELATIVE RIGHTS, PREFERENCES AND LIMITATIONS OF EACH CLASS AUTHORIZED TO BE ISSUED, AND A FULL STATEMENT OF THE DESIGNATION, RELATIVE RIGHTS, PREFERENCES AND LIMITATIONS OF EACH SERIES OF ANY CLASS OF PREFERRED SHARES AUTHORIZED TO BE ISSUED SO FAR AS THE SAME MAY HAVE BEEN FIXED AND THE AUTHORITY OF THE BOARD TO DESIGNATE AND FIX THE RELATIVE RIGHTS, PREFERENCES AND LIMITATIONS OF OTHER SERIES. ANY SUCH REQUEST SHOULD BE ADDRESSED TO THE SECRETARY OF THE COMPANY, OR TO THE TRANSFER AGENT AND REGISTRAR NAMED ON THE FACE OF THIS CERTIFICATE.
The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations:
TEN COM |
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as tenants in common |
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UNIF GIFT MIN ACT Custodian |
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TEN ENT |
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as tenants by the entireties |
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(Cust) |
(Minor) |
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JT TEN |
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as joint tenants with right |
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under Uniform Gifts to Minors |
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of survivorship and not as |
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Act |
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tenants in common |
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(State) |
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Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, HEREBY SELL, ASSIGN AND TRANSFER UNTO
PLEASE
INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER OF
ASSIGNEE
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING ZIP CODE OF ASSIGNEE
SHARES
OF THE STOCK REPRESENTED BY THE WITHIN CERTIFICATE, AND DO HEREBY IRREVOCABLY
CONSTITUTE AND APPOINT
ATTORNEY TO TRANSFER THE SAID STOCK ON THE BOOKS OF THE WITHIN-NAMED CORPORATION WITH FULL POWER OF SUBSTITUTION IN THE PREMISES.
DATED |
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NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. |
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SIGNATURE(S) GUARANTEED: |
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THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 174d-15. |
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EXHIBIT 4.4
Haynes International, Inc.
and
Wells Fargo Bank, N.A.
as Rights Agent
RIGHTS AGREEMENT
Dated as of August 13, 2006
TABLE OF CONTENTS
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Page Number |
Section 1. |
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Definitions |
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2 |
Section 2. |
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Appointment of Rights Agent |
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Section 3. |
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Issue of Right Certificates |
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15 |
Section 4. |
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Form of Right Certificates |
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15 |
Section 5. |
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Countersignature and Registration |
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15 |
Section 6. |
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Transfer, Split Up, Combination and Exchange of Right Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates |
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Section 7. |
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Exercise of Rights; Purchase Price; Expiration Date of Rights. |
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15 |
Section 8. |
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Cancellation and Destruction of Right Certificates |
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Section 9. |
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Availability of Preferred Shares |
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Section 10. |
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Preferred Shares Record Date |
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Section 11. |
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Adjustment of Purchase Price, Number of Shares or Number of Rights |
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Section 12. |
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Certificate of Adjusted Purchase Price or Number of Shares |
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Section 13. |
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Consolidation, Merger or Sale or Transfer of Assets or Earning Power |
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Section 14. |
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Fractional Rights and Fractional Shares |
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Section 15. |
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Rights of Action |
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Section 16. |
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Agreement of Right Holders |
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Section 17. |
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Right Certificate Holder Not Deemed a Stockholder |
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Section 18. |
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Concerning the Rights Agent |
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Section 19. |
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Merger or Consolidation or Change of Name of Rights Agent |
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Section 20. |
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Duties of Rights Agent |
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Section 21. |
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Change of Rights Agent |
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Section 22. |
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Issuance of New Right Certificates |
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Section 23. |
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Redemption |
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Section 24. |
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Exchange |
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Section 25. |
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Notice of Certain Events |
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Section 26. |
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Notices |
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Section 27. |
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Supplements and Amendments |
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Section 28. |
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Successors |
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Section 29. |
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Benefits of this Agreement |
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Section 30. |
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Severability |
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Section 31. |
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Determinations and Actions by the Board of Directors, etc |
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Section 32. |
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Governing Law |
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Section 33. |
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Counterparts |
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Section 34. |
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Descriptive Headings |
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LIST OF EXHIBITS |
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Exhibit A Form of Certificate of Designations |
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Exhibit B Form of Right Certificate |
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Exhibit C Summary of Rights to Purchase Preferred Shares |
ii
RIGHTS AGREEMENT
RIGHTS AGREEMENT , dated as of August 13, 2006 (this Agreement ) between Haynes International, Inc., a Delaware corporation (the Company ), and Wells Fargo Bank, N.A., as rights agent (the Rights Agent ).
R E C I T A L S:
The Board of Directors of the Company has authorized and declared a dividend of one preferred share purchase right (a Right ) for each Common Share (as hereinafter defined) of the Company outstanding on August 25, 2006 (the Record Date ), each Right representing the right to purchase one one-thousandth of a Preferred Share (as hereinafter defined), upon the terms and subject to the conditions herein set forth, and has further authorized and directed the issuance of one Right with respect to each Common Share that shall become outstanding between the Record Date and the earliest of the Distribution Date, the Redemption Date and the Final Expiration Date (as such terms are hereinafter defined); provided, however , that Rights may be issued with respect to Common Shares that shall become outstanding after the Distribution Date and prior to the Final Expiration Date in accordance with Section 22 hereof.
Accordingly, in consideration of the premises and the mutual agreements herein set forth, the parties hereby agree as follows:
Section 1. Definitions . For purposes of this Agreement, the following terms have the meanings indicated:
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(b) Affiliate shall have the meaning ascribed to such term in Rule 12b-2 under the Exchange Act as in effect on the date of this Agreement.
(c) Associate shall have the meaning ascribed to such term in Rule 12b-2 under the Exchange Act as in effect on the date of this Agreement.
(d) A Person shall be deemed the Beneficial Owner of and shall be deemed to beneficially own any securities:
(i) which such Person or any of such Persons Affiliates or Associates beneficially owns, directly or indirectly;
(ii) which such Person or any of such Persons Affiliates or Associates has (A) the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding (other than customary agreements with and between underwriters and selling group members with respect to a bona fide public offering of securities), or upon the exercise of conversion rights, exchange rights, rights (other than these Rights), warrants or options, or otherwise; provided, however , that a Person shall not be deemed the Beneficial Owner of, or to beneficially own, securities tendered pursuant to a tender or exchange offer made by or on behalf of such Person or any of such Persons Affiliates or Associates until such tendered securities are accepted for purchase or exchange; or (B) the right to vote pursuant to any agreement, arrangement or understanding; provided, however , that a Person shall not be deemed the Beneficial Owner of, or to beneficially own, any security if the agreement, arrangement or understanding to vote such security (1) arises solely from a revocable proxy or consent given to such Person in response to a public proxy or consent solicitation made pursuant to, and in accordance with, the applicable rules and regulations promulgated under the Exchange Act and (2) is not also then reportable on Schedule 13D under the Exchange Act (or any comparable or successor report); or
(iii) which are beneficially owned, directly or indirectly, by any other Person with which such Person or any of such Persons Affiliates or Associates has any agreement, arrangement or understanding (other than customary agreements with and between underwriters and selling group members with respect to a bona fide public offering of securities) for the purpose of acquiring, holding, voting (except to the extent
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contemplated by the proviso to Section 1(d)(ii)(B) hereof) or disposing of any securities of the Company;
provided, however , that nothing in this Section 1(d) shall cause a Person engaged in business as an underwriter of securities to be the Beneficial Owner of, or to beneficially own, any securities acquired through such Persons participation in good faith in a firm commitment underwriting until the expiration of forty days after the date of such acquisition, and then only if such securities continue to be owned by such Person at such expiration of forty days.
Notwithstanding anything in this definition of Beneficial Ownership to the contrary, the phrase then outstanding, when used with reference to a Persons Beneficial Ownership of securities of the Company, shall mean the number of such securities then issued and outstanding together with the number of such securities not then actually issued and outstanding which such Person would be deemed to beneficially own hereunder.
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Section 2. Appointment of Rights Agent . The Company hereby appoints the Rights Agent to act as agent for the Company and the holders of the Rights (who, in accordance with Section 3 hereof, shall, prior to the Distribution Date, also be the holders of the Common Shares of the Company) in accordance with the terms and conditions hereof, and the Rights Agent hereby accepts such appointment. The Company may from time to time appoint such co-Rights Agents as it may deem necessary or desirable.
Section 3. Issue of Right Certificates .
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This certificate also evidences and entitles the holder hereof to certain rights as set forth in the Rights Agreement between Haynes International, Inc., a Delaware corporation (the Company ), and Wells Fargo Bank, N.A., dated as of August 13, 2006, as it may be amended from time to time (the Rights Agreement ), the terms of which are hereby incorporated herein by reference and a copy of which is on file at the principal executive offices of the Company. Under certain circumstances, as set forth in the Agreement, such Rights (as defined in the
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Agreement) will be evidenced by separate certificates and will no longer be evidenced by this certificate. The Rights are not exercisable prior to the occurrence of certain events specified in the Rights Agreement. Under certain circumstances, as set forth in the Rights Agreement, the securities or property for which the Rights may be exercised may be adjusted, and the Rights may be redeemed, may be exchanged, may expire, or may be amended. The Company will mail to the holder of this certificate a copy of the Rights Agreement without charge after receipt of a written request therefor. As set forth in the Rights Agreement, Rights beneficially owned by any Person (as defined in the Rights Agreement) who becomes an Acquiring Person or any Affiliate or Associate thereof (as such terms are defined in the Rights Agreement) become null and void.
After the Record Date but prior to the earliest of the Distribution Date, the Redemption Date, or the Final Expiration Date, if new certificate(s) representing Common Shares are issued in connection with the transfer, split up, combination, or exchange of certificate(s) representing Common Shares or if new certificate(s) representing Common Shares are issued to replace any certificate(s) that have been mutilated, destroyed, lost, or stolen, then such new certificate(s) shall bear the foregoing legend. With respect to all certificates containing the foregoing legend, until the Distribution Date, the Rights associated with the Common Shares of the Company represented by such certificates shall be evidenced by such certificates alone, and the surrender for transfer of any such certificate shall also constitute the transfer of the Rights associated with the Common Shares of the Company represented thereby. In the event that the Company purchases or acquires any Common Shares of the Company after the Record Date but prior to the Distribution Date, any Rights associated with such Common Shares of the Company shall be deemed cancelled and retired so that the Company shall not be entitled to exercise any Rights associated with the Common Shares of the Company which are no longer outstanding.
Section 4. Form of Right Certificates . The Right Certificates (and the forms of election to purchase Preferred Shares and of assignment to be printed on the reverse thereof) shall be substantially in the form set forth in Exhibit B hereto, and may have such marks of identification or designation and such legends, summaries or endorsements printed thereon as the Company may deem appropriate and as are not inconsistent with the provisions of this Agreement, or as may be required to comply with any applicable law or with any applicable rule or regulation made pursuant thereto or with any applicable rule or regulation of any stock exchange or the National Association of Securities Dealers, Inc., or to conform to usage. Subject to the provisions of Section 22 hereof, the Right Certificates shall entitle the holders thereof to purchase such number of one one-thousandths of a Preferred Share as shall be set forth therein at the price per one one-thousandth of a Preferred Share set forth therein (the Purchase Price ), but the number of such one one-thousandths of a Preferred Share and the Purchase Price shall be subject to adjustment as provided herein.
Section 5. Countersignature and Registration . The Right Certificates shall be executed on behalf of the Company by its Chairman of the Board, its Chief Executive Officer, its President, any of its Vice Presidents or its Treasurer, either manually or by facsimile signature, shall have affixed thereto the Companys seal or a facsimile thereof, and shall be attested by the Secretary or an Assistant Secretary of the Company, either manually or by facsimile signature.
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The Right Certificates shall be manually countersigned by the Rights Agent and shall not be valid for any purpose unless countersigned. In case any officer of the Company who shall have signed any of the Right Certificates shall cease to be such officer of the Company before countersignature by the Rights Agent and issuance and delivery by the Company, such Right Certificates, nevertheless, may be countersigned by the Rights Agent and issued and delivered by the Company with the same force and effect as though the individual who signed such Right Certificates had not ceased to be such officer of the Company; and any Right Certificate may be signed on behalf of the Company by any individual who, at the actual date of the execution of such Right Certificate, shall be a proper officer of the Company to sign such Right Certificate, although at the date of the execution of this Agreement any such individual was not such an officer.
Following the Distribution Date, the Rights Agent will keep or cause to be kept, at its principal office, books for registration and transfer of the Right Certificates issued hereunder. Such books shall show the names and addresses of the respective holders of the Right Certificates, the number of Rights evidenced on its face by each of the Right Certificates and the date of each of the Right Certificates.
Section 6. Transfer, Split Up, Combination and Exchange of Right Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates . Subject to the provisions of Section 14 hereof, at any time after the close of business on the Distribution Date, and at or prior to the close of business on the earlier of the Redemption Date or the Final Expiration Date, any Right Certificate or Right Certificates (other than Right Certificates representing Rights that have become void pursuant to Section 11(a)(ii) hereof or that have been exchanged pursuant to Section 24 hereof) may be transferred, split up, combined or exchanged for another Right Certificate or Right Certificates entitling the registered holder to purchase a like number of one one-thousandths of a Preferred Share as the Right Certificate or Right Certificates surrendered then entitled such holder to purchase. Any registered holder desiring to transfer, split up, combine or exchange any Right Certificate or Right Certificates shall make such request in writing delivered to the Rights Agent, and shall surrender the Right Certificate or Right Certificates to be transferred, split up, combined or exchanged at the principal office of the Rights Agent. Thereupon the Rights Agent shall countersign and deliver to the Person entitled thereto a Right Certificate or Right Certificates, as the case may be, as so requested. The Company may require payment of a sum sufficient to cover any tax or governmental charge that may be imposed in connection with any transfer, split up, combination or exchange of Right Certificates.
Upon receipt by the Company and the Rights Agent of evidence reasonably satisfactory to them of the loss, theft, destruction or mutilation of a Right Certificate, and, in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to them, and, at the Companys request, reimbursement to the Company and the Rights Agent of all reasonable expenses incidental thereto, and upon surrender to the Rights Agent and cancellation of the Right Certificate if mutilated, the Company will make and deliver a new Right Certificate of like tenor to the Rights Agent for delivery to the registered holder in lieu of the Right Certificate so lost, stolen, destroyed or mutilated.
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Section 8. Cancellation and Destruction of Right Certificates . All Right Certificates surrendered for the purpose of exercise, transfer, split up, combination or exchange shall, if surrendered to the Company or to any of its agents, be delivered to the Rights Agent for cancellation or in cancelled form, or, if surrendered to the Rights Agent, shall be cancelled by it, and no Right Certificates shall be issued in lieu thereof except as expressly permitted by any of the provisions of this Agreement. The Company shall deliver to the Rights Agent for cancellation and retirement, and the Rights Agent shall so cancel and retire, any other Right Certificate purchased or acquired by the Company otherwise than upon the exercise thereof. Subject to applicable law and regulation, the Rights Agent shall maintain in a retrievable database electronic records of all cancelled or destroyed Right Certificates which have been canceled or destroyed by the Rights Agent. The Rights Agent shall maintain such electronic records or physical records for the time period required by applicable law and regulation. Upon written request of the Company (and at the expense of the Company), the Rights Agent shall provide to the Company or its designee copies of such electronic records or physical records relating to Rights Certificates cancelled or destroyed by the Rights Agent.
Section 9. Availability of Preferred Shares .
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Section 10. Preferred Shares Record Date . Each Person in whose name any certificate for Preferred Shares is issued upon the exercise of Rights shall for all purposes be deemed to have become the holder of record of the Preferred Shares represented thereby on, and such certificate shall be dated, the date upon which the Right Certificate evidencing such Rights was duly surrendered and payment of the Purchase Price (and any applicable transfer taxes) was made; provided, however , that, if the date of such surrender and payment is a date upon which the Preferred Shares transfer books of the Company are closed, such Person shall be deemed to have become the record holder of such shares on, and such certificate shall be dated, the next succeeding Business Day on which the Preferred Shares transfer books of the Company are open. Prior to the exercise of the Rights evidenced thereby, the holder of a Right Certificate shall not be entitled to any rights of a holder of Preferred Shares for which the Rights shall be exercisable, including, without limitation, the right to vote, to receive dividends or other distributions or to exercise any preemptive rights, and shall not be entitled to receive any notice of any proceedings of the Company, except as provided herein.
Section 11. Adjustment of Purchase Price, Number of Shares or Number of Rights . The Purchase Price, the number of Preferred Shares covered by each Right and the number of Rights outstanding are subject to adjustment from time to time as provided in this Section 11 .
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Section 12. Certificate of Adjusted Purchase Price or Number of Shares . Whenever an adjustment is made as provided in Section 11 or 13 hereof, the Company shall promptly (a) prepare a certificate setting forth such adjustment and a brief statement of the facts accounting for such adjustment, (b) file with the Rights Agent and with each transfer agent for the Common Shares or the Preferred Shares a copy of such certificate and (c) if such adjustment occurs at any time after the Distribution Date, mail a brief summary thereof to each holder of a Right Certificate in accordance with Section 25 hereof.
Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power . In the event, directly or indirectly, at any time after a Person has become an Acquiring Person, (a) the Company shall consolidate with, or merge with and into, any other Person, (b) any Person shall consolidate with the Company, or merge with and into the Company and the Company shall be the continuing or surviving corporation of such merger and, in connection with such merger, all or part of the Common Shares shall be changed into or exchanged for stock or other securities of any other Person (or the Company) or cash or any other property, or (c) the Company shall sell or otherwise transfer (or one or more of its Subsidiaries shall sell or otherwise transfer), in one or more transactions, assets or earning power aggregating 50% or more of the assets or earning power of the Company and its Subsidiaries (taken as a whole) to any other Person other than the Company or one or more of its wholly-owned Subsidiaries, then, and in each such case, proper provision shall be made so that (i) each holder of a Right (except as otherwise provided herein) shall thereafter have the right to receive, upon the exercise thereof at a price equal to the then current Purchase Price multiplied by the number of one one-thousandths of a Preferred Share for which a Right is then exercisable, in accordance with the terms of this Agreement and
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in lieu of Preferred Shares, such number of duly authorized, validly issued, fully paid and nonassessable Common Shares of such other Person (including the Company as successor thereto or as the surviving corporation) as shall equal the result obtained by (A) multiplying the then current Purchase Price by the number of one one-thousandths of a Preferred Share for which a Right is then exercisable and (B) dividing that product by 50% of the then current per share market price of the Common Shares of such other Person (determined pursuant to Section 11(d) hereof) on the date of consummation of such consolidation, merger, sale or transfer; (ii) the issuer of such Common Shares shall thereafter be liable for, and shall assume, by virtue of such consolidation, merger, sale or transfer, all the obligations and duties of the Company pursuant to this Agreement; (iii) the term Company shall thereafter be deemed to refer to such issuer; and (iv) such issuer shall take such steps (including, but not limited to, the reservation of a sufficient number of its Common Shares in accordance with Section 9 hereof) in connection with such consummation as may be necessary to assure that the provisions hereof shall thereafter be applicable, as nearly as reasonably may be, in relation to its Common Shares thereafter deliverable upon the exercise of the Rights. The Company shall not consummate any such consolidation, merger, sale or transfer unless, prior thereto, the Company and such issuer shall have executed and delivered to the Rights Agent a supplemental agreement so providing.
Section 14. Fractional Rights and Fractional Shares .
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Section 15. Rights of Action . All rights of action in respect of this Agreement, excepting the rights of action given to the Rights Agent under Section 18 hereof, are vested in the respective registered holders of the Right Certificates (and, prior to the Distribution Date, the registered holders of the Common Shares); and any registered holder of any Right Certificate (or, prior to the Distribution Date, of the Common Shares), without the consent of the Rights Agent or of the holder of any other Right Certificate (or, prior to the Distribution Date, of the Common Shares), may, in such holders own behalf and for such holders own benefit, enforce, and may institute and maintain any suit, action or proceeding against the Company to enforce, or otherwise act in respect of, such holders right to exercise the Rights evidenced by such Right Certificate in the manner provided in such Right Certificate and in this Agreement. Without limiting the foregoing or any remedies available to the holders of Rights, it is specifically acknowledged that the holders of Rights would not have an adequate remedy at law for any breach of this Agreement, and will be entitled to specific performance of the obligations under, and injunctive relief against actual or threatened violations of the obligations of any Person subject to, this Agreement.
Section 16. Agreement of Right Holders . Every holder of a Right, by accepting the same, consents and agrees with the Company and the Rights Agent and with every other holder of a Right that:
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Section 17. Right Certificate Holder Not Deemed a Stockholder . No holder, as such, of any Right Certificate shall be entitled to vote, receive dividends or be deemed for any purpose the holder of the Preferred Shares or any other securities of the Company which may at any time be issuable on the exercise of the Rights represented thereby, nor shall anything contained herein or in any Right Certificate be construed to confer upon the holder of any Right Certificate, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting stockholders (except as provided in Section 25 hereof), or to receive dividends or subscription rights, or otherwise, until the Right or Rights evidenced by such Right Certificate shall have been exercised in accordance with the provisions hereof.
Section 18. Concerning the Rights Agent . The Company agrees to pay to the Rights Agent such reasonable compensation as shall be agreed to in writing by the Company and the Rights Agent for all services rendered by it hereunder, and, from time to time, on demand of the Rights Agent, its reasonable expenses and counsel fees and other disbursements incurred in the administration and execution of this Agreement and the exercise and performance of its duties hereunder. The Company also agrees to indemnify the Rights Agent for, and to hold it harmless against, any loss, liability, or expense incurred without negligence, bad faith or willful misconduct on the part of the Rights Agent, for anything done or omitted by the Rights Agent in connection with the acceptance and administration of this Agreement, including the costs and expenses of defending against any claim of liability in the premises.
The Rights Agent shall be protected and shall incur no liability for, or in respect of any action taken, suffered or omitted by it in connection with, its administration of this Agreement in reliance upon any Right Certificate or certificate for the Preferred Shares or Common Shares or for other securities of the Company, instrument of assignment or transfer, power of attorney, endorsement, affidavit, letter, notice, direction, consent, certificate, statement, or other paper or document believed by it to be genuine and to be signed, executed and, where necessary, verified or acknowledged, by the proper Person or Persons.
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Section 19. Merger or Consolidation or Change of Name of Rights Agent . Any corporation into which the Rights Agent or any successor Rights Agent may be merged or with which it may be consolidated, or any corporation resulting from any merger or consolidation to which the Rights Agent or any successor Rights Agent shall be a party, or any corporation succeeding to the stock transfer or corporate trust powers of the Rights Agent or any successor Rights Agent, shall be the successor to the Rights Agent under this Agreement without the execution or filing of any paper or any further act on the part of any of the parties hereto; provided that such corporation would be eligible for appointment as a successor Rights Agent under the provisions of Section 21 hereof. In case at the time such successor Rights Agent shall succeed to the agency created by this Agreement, any of the Right Certificates shall have been countersigned but not delivered, any such successor Rights Agent may adopt the countersignature of the predecessor Rights Agent and deliver such Right Certificates so countersigned; and, in case at that time any of the Right Certificates shall not have been countersigned, any successor Rights Agent may countersign such Right Certificates either in the name of the predecessor Rights Agent or in the name of the successor Rights Agent; and, in all such cases, such Right Certificates shall have the full force provided in the Right Certificates and in this Agreement.
Section 20. Duties of Rights Agent . The Rights Agent undertakes the duties and obligations imposed by this Agreement upon the following terms and conditions, by all of which the Company and the holders of Right Certificates, by their acceptance thereof, shall be bound:
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Section 21. Change of Rights Agent . The Rights Agent or any successor Rights Agent may resign and be discharged from its duties under this Agreement upon 30 days notice in writing mailed to the Company and to each transfer agent of the Common Shares or Preferred Shares by registered or certified mail, and to the holders of the Right Certificates by first-class mail. The Company may remove the Rights Agent or any successor Rights Agent upon 30 days notice in writing, mailed to the Rights Agent or successor Rights Agent, as the case may be, and to each transfer agent of the Common Shares or Preferred Shares by registered or certified mail, and to the holders of the Right Certificates by first-class mail. If the Rights Agent shall resign or be removed or shall otherwise become incapable of acting, the Company shall appoint a successor to the Rights Agent. If the Company shall fail to make such appointment within a period of 30 days after giving notice of such removal or after it has been notified in writing of such resignation or incapacity by the resigning or incapacitated Rights Agent or by the holder of a Right Certificate (which holder shall, with such notice, submit such holders Right Certificate for inspection by the Company), then the registered holder of any Right Certificate may apply to any court of competent jurisdiction for the appointment of a new Rights Agent. Any successor Rights Agent, whether appointed by the Company or by such a court, shall be a corporation organized and doing business under the laws of the United States or of the State of Minnesota (or of any other state of the United States so long as such corporation is authorized to do business as a banking institution in the State of Minnesota ), in good standing, having an office in the State of Minnesota , which is authorized under such laws to exercise corporate trust or stock transfer powers and is subject to supervision or examination by federal or state authority and which has at the time of its appointment as Rights Agent a combined capital and surplus of at least $50 million. After appointment, the successor Rights Agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named as Rights Agent without further act or deed; but the predecessor Rights Agent shall deliver and transfer to the successor Rights Agent any property at the time held by it hereunder, and execute and deliver any further assurance, conveyance, act or deed necessary for the purpose. Not later than the effective date of any such appointment, the Company shall file notice thereof in writing with the predecessor Rights Agent and each transfer agent of the Common Shares or Preferred Shares, and mail a notice thereof in writing to the registered holders of the Right Certificates. Failure to give any notice provided for in this Section 21 , however, or any defect therein, shall not affect the legality or validity of the resignation or removal of the Rights Agent or the appointment of the successor Rights Agent, as the case may be.
Section 22. Issuance of New Right Certificates . Notwithstanding any of the provisions of this Agreement or of the Rights to the contrary, the Company may, at its option, issue new Right Certificates evidencing Rights in such form as may be approved by the Board of Directors of the Company to reflect any adjustment or change in the Purchase Price and the number or kind or class of shares or other securities or property purchasable under the Right Certificates made in accordance with the provisions of this Agreement. In addition, in connection with the issuance or sale of Common Shares following the Distribution Date and prior to the earlier of the Redemption Date and the Final Expiration Date, the Company (i) shall with respect to Common Shares so issued or sold pursuant to the exercise of stock options or under any employee plan or arrangement, granted or awarded prior to the Distribution Date, or upon the exercise, conversion or exchange of securities, notes or debentures issued by the Company prior to the Distribution Date, and (ii) may, in any other case, if deemed necessary or appropriate by the Board of Directors of the Company, issue Right Certificates representing the
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appropriate number of Rights in connection with such issuance or sale; provided, however, that (i) the Company shall not be obligated to issue any such Right Certificates if, and to the extent that, the Company shall be advised by counsel that such issuance would create a significant risk of material adverse tax consequences to the Company or the Person to whom such Right Certificate would be issued, and (ii) no Right Certificate shall be issued if, and to the extent that, appropriate adjustment shall otherwise have been made in lieu of the issuance thereof.
Section 23. Redemption .
Section 24. Exchange .
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Section 25. Notice of Certain Events .
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Section 26. Notices . Notices or demands authorized by this Agreement to be given or made by the Rights Agent or by the holder of any Right Certificate to or on the Company shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed (until another address is filed in writing with the Rights Agent) as follows:
Haynes International, Inc.
1020 West Park Avenue
Kokomo, Indiana 46904-9015
Attention: Corporate Secretary
Subject to the provisions of Section 21 hereof, any notice or demand authorized by this Agreement to be given or made by the Company or by the holder of any Right Certificate to or on the Rights Agent shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed (until another address is filed in writing with the Company) as follows:
Wells Fargo
Bank, N.A.
161 N. Concord Exchange
South St. Paul, MN 55075
Attention: Account Management Department
Notices or demands authorized by this Agreement to be given or made by the Company or the Rights Agent to the holder of any Right Certificate shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed to such holder at the address of such holder as shown on the registry books of the Company.
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Section 27. Supplements and Amendments . The Company, by action of the Board of Directors, may from time to time supplement or amend this Agreement without the approval of any holders of Right Certificates in order to cure any ambiguity, to correct or supplement any provision contained herein which may be defective or inconsistent with any other provisions herein, to shorten or lengthen any time period hereunder, or to make any other provisions with respect to the Rights which the Company may deem necessary or desirable, any such supplement or amendment to be evidenced by a writing signed by the Company and the Rights Agent; provided, however , that, from and after such time as any Person becomes an Acquiring Person, this Agreement shall not be amended in any manner which would adversely affect the interests of the holders of Rights (other than Rights that have become void pursuant to Section 11(a)(ii) hereof).
Section 28. Successors . All the covenants and provisions of this Agreement by or for the benefit of the Company or the Rights Agent shall bind and inure to the benefit of their respective successors and assigns hereunder.
Section 29. Benefits of this Agreement . Nothing in this Agreement shall be construed to give to any Person other than the Company, the Rights Agent and the registered holders of the Right Certificates (and, prior to the Distribution Date, the Common Shares) any legal or equitable right, remedy or claim under this Agreement; but this Agreement shall be for the sole and exclusive benefit of the Company, the Rights Agent and the registered holders of the Right Certificates (and, prior to the Distribution Date, the Common Shares).
Section 30. Severability . If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated.
Section 31. Determinations and Actions by the Board of Directors, etc . For all purposes of this Agreement, any calculation of the number of shares of each class of Common Shares or of any other class of capital stock outstanding at any particular time, including for purposes of determining the particular percentage of the outstanding voting power or such outstanding shares of Common Stock of which any Person is the Beneficial Owner, shall be made in accordance with the last sentence of Rule 13d-3(d)(1)(i) (as in effect on the date of this Agreement) under the Exchange Act. The Board of Directors of the Company shall have the exclusive power and authority to administer this Agreement and to exercise all rights and powers specifically granted to the Board of Directors of the Company or to the Company, or as may be necessary or advisable in the administration of this Agreement, including, without limitation, the right and power to (i) interpret the provisions of this Agreement, and (ii) make all determinations deemed necessary or advisable for the administration of this Agreement (including a determination to redeem or not redeem the Rights or to amend the Agreement). All such actions, calculations, interpretations and determinations (including, for purposes of clause (y) below, all omissions with respect to the foregoing) which are done or made by the Board of Directors of the Company in good faith shall (x) be final, conclusive and binding on the Company, the Rights Agent, the holders of the Rights and all other parties, and (y) not subject the Board of Directors
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of the Company, or any of the directors on the Board of Directors of the Company, to any liability to the holders of the Rights.
Section 32. Governing Law . This Agreement and each Right Certificate issued hereunder shall be deemed to be a contract made under the laws of the State of Delaware and for all purposes shall be governed by and construed in accordance with the laws of such state applicable to contracts to be made and performed entirely within such state.
Section 33. Counterparts . This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument.
Section 34. Descriptive Headings . Descriptive headings of the several Sections of this Agreement are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF , the parties hereto have caused this Agreement to be duly executed and attested, all as of the day and year first above written.
Attest: |
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HAYNES INTERNATIONAL, INC. |
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Stacy S. Kilian |
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Francis Petro |
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President and Chief Executive Officer |
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WELLS FARGO BANK, N.A |
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28
Exhibit A
FORM
of
CERTIFICATE OF DESIGNATIONS
of
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
of
HAYNES INTERNATIONAL, INC.
(Pursuant
to Section 151 of the
Delaware General Corporation Law)
Haynes International, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware (hereinafter called the Corporation ), hereby certifies that the following resolution was adopted by the Board of Directors of the Corporation as required by Section 151 of the General Corporation Law at a meeting duly called and held on August 13, 2006:
RESOLVED , that pursuant to the authority granted to and vested in the Board of Directors of this Corporation (hereinafter called the Board of Directors or the Board ) in accordance with the provisions of the Second Restated Certificate of Incorporation, the Board of Directors hereby creates a Series of Preferred Stock, par value $0.001 per share, of the Corporation (the Preferred Stock ), and hereby states the designation and number of shares, and fixes the relative rights, preferences, and limitations thereof as follows:
Series A Junior Participating Preferred Stock:
Section 1. Designation and Amount . The shares of such Series shall be designated as Series A Junior Participating Preferred Stock (the Series A Preferred Stock ) and the number of shares constituting the Series A Preferred Stock shall be 400,000. Such number of shares may be increased or decreased by resolution of the Board of Directors; provided, that no decrease shall reduce the number of shares of Series A Preferred Stock to a number less than the number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights or warrants or upon the conversion of any outstanding securities issued by the Corporation convertible into Series A Preferred Stock.
Section 2. Dividends and Distributions .
(a) Subject to the rights of the holders of any shares of any Series of Preferred Stock (or any similar stock) ranking prior and superior to the Series A Preferred Stock with respect to dividends, the holders of shares of Series A Preferred Stock, in preference to the holders of
A- 1
Common Stock, par value $0.001 per share (the Common Stock ), of the Corporation, and of any other junior stock, shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the first day of March, June, September and December in each year (each such date being referred to herein as a Quarterly Dividend Payment Date ), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (i) $10 or (ii) subject to the provision for adjustment hereinafter set forth, 1,000 times the aggregate per share amount of all cash dividends, and 1,000 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions, other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock since the immediately preceding Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Preferred Stock. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event under clause (ii) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.
(b) The Corporation shall declare a dividend or distribution on the Series A Preferred Stock as provided in Section 2(a) immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided that , in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $10 per share on the Series A Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date.
(c) Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest.
(d) Dividends paid on the shares of Series A Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The
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Board of Directors may fix a record date for the determination of holders of shares of Series A Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be not more than 60 days prior to the date fixed for the payment thereof.
Section 3. Voting Rights . The holders of shares of Series A Preferred Stock shall have the following voting rights:
(a) Subject to the provision for adjustment hereinafter set forth, each share of Series A Preferred Stock shall entitle the holder thereof to 1,000 votes on all matters submitted to a vote of the stockholders of the Corporation. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the number of votes per share to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.
(b) Except as otherwise provided herein, in any other Certificate of Designations creating a Series of Preferred Stock or any similar stock, or by law, the holders of shares of Series A Preferred Stock and the holders of shares of Common Stock and any other capital stock of the Corporation having general voting rights shall vote together as one class on all matters submitted to a vote of stockholders of the Corporation.
(c) Except as set forth herein, or as otherwise provided by law, holders of Series A Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action.
Section 4. Certain Restrictions .
(a) Whenever quarterly dividends or other dividends or distributions payable on the Series A Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series A Preferred Stock outstanding shall have been paid in full, the Corporation shall not:
(i) declare or pay dividends, or make any other distributions, on any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock;
(ii) declare or pay dividends, or make any other distributions, on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except dividends paid ratably on the Series A Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled;
A- 3
(iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of any stock of the Corporation ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Series A Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for consideration any shares of Series A Preferred Stock, or any shares of stock ranking on a parity with the Series A Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective Series and classes, shall determine in good faith will result in fair and equitable treatment among the respective Series or classes.
(b) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under Section 4(a) , purchase or otherwise acquire such shares at such time and in such manner.
Section 5. Reacquired Shares . Any shares of Series A Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new Series of Preferred Stock subject to the conditions and restrictions on issuance set forth herein, in the Certificate of Incorporation, or in any other Certificate of Designations creating a Series of Preferred Stock or any similar stock or as otherwise required by law.
Section 6. Liquidation, Dissolution or Winding Up . Upon any liquidation, dissolution or winding up of the Corporation, no distribution shall be made (a) to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock unless, prior thereto, the holders of shares of Series A Preferred Stock shall have received $1,000.00 per share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment, provided that the holders of shares of Series A Preferred Stock shall be entitled to receive an aggregate amount per share, subject to the provision for adjustment hereinafter set forth, equal to 1,000 times the aggregate amount to be distributed per share to holders of shares of Common Stock, or (b) to the holders of shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except distributions made ratably on the Series A Preferred Stock and all such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the aggregate amount to which holders of shares of Series A
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Preferred Stock were entitled immediately prior to such event under the proviso in clause (a) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.
Section 7. Consolidation, Merger, etc . In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case each share of Series A Preferred Stock shall at the same time be similarly exchanged or changed into an amount per share, subject to the provision for adjustment hereinafter set forth, equal to 1,000 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series A Preferred Stock shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.
Section 8. No Redemption . The shares of Series A Preferred Stock shall not be redeemable.
Section 9. Rank . The Series A Preferred Stock shall rank, with respect to the payment of dividends and the distribution of assets, junior to all series of any other class of the Corporations Preferred Stock.
Section 10. Amendment . The Certificate of Incorporation of the Corporation shall not be amended in any manner which would materially alter or change the powers, preferences or special rights of the Series A Preferred Stock so as to affect them adversely without the affirmative vote of the holders of at least two-thirds of the outstanding shares of Series A Preferred Stock, voting together as a single class.
IN WITNESS WHEREOF , this Certificate of Designations is executed on behalf of the Corporation by its Chief Financial Officer and attested by its Secretary this 13 th day of August, 2006.
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Chief Financial Officer |
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Attest: |
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Secretary |
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A- 5
Exhibit B
Form of Right Certificate
Certificate No. R- |
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_____ Rights |
NOT EXERCISABLE AFTER AUGUST 13, 2016 OR EARLIER IF REDEMPTION OR EXCHANGE OCCURS. THE RIGHTS ARE SUBJECT TO REDEMPTION AT $.01 PER RIGHT AND TO EXCHANGE ON THE TERMS SET FORTH IN THE AGREEMENT.
Right Certificate
Haynes International, Inc.
This certifies that , or registered assigns, is the registered owner of the number of Rights set forth above, each of which entitles the owner thereof, subject to the terms, provisions and conditions of the Agreement, dated as of August 13, 2006 (the Agreement ), between Haynes International, Inc., a Delaware corporation (the Company ), and Wells Fargo Bank, N.A. (the Rights Agent ), to purchase from the Company at any time after the Distribution Date (as such term is defined in the Agreement) and prior to 5:00 P.M., Minneapolis, Minnesota time, on the earlier of (A) August 13, 2016 or (B) the thirtieth (30 th ) day following the date of the 2007 Annual Meeting of Stockholders of the Company if at such meeting the stockholders, by the affirmative vote of a majority of the shares of capital stock of the Company present, in person or by proxy, at such meeting and entitled to vote on such matter, vote to terminate the Agreement, at the principal office of the Rights Agent, or at the office of its successor as Rights Agent, one one-thousandth of a fully paid non-assessable share of Series A Junior Participating Preferred Stock, par value $0.001 per share, of the Company (the Preferred Shares ), at a purchase price of $135.00 per one one-thousandth of a Preferred Share (the Purchase Price ), upon presentation and surrender of this Right Certificate with the Form of Election to Purchase duly executed. The number of Rights evidenced by this Right Certificate (and the number of one one-thousandths of a Preferred Share which may be purchased upon exercise hereof) set forth above, and the Purchase Price set forth above, are the number and Purchase Price as of August 13, 2006, based on the Preferred Shares as constituted at such date. As provided in the Agreement, the Purchase Price and the number of one one-thousandths of a Preferred Share which may be purchased upon the exercise of the Rights evidenced by this Right Certificate are subject to modification and adjustment upon the happening of certain events.
This Right Certificate is subject to all of the terms, provisions and conditions of the Agreement, which terms, provisions and conditions are hereby incorporated herein by reference and made a part hereof and to which Agreement reference is hereby made for a full description of the rights, limitations of rights, obligations, duties and immunities hereunder of the Rights Agent, the Company and the holders of the Right Certificates. Copies of the Agreement are on file at the principal executive offices of the Company and the offices of the Rights Agent.
This Right Certificate, with or without other Right Certificates, upon surrender at the principal office of the Rights Agent, may be exchanged for another Right Certificate or Right
B- 1
Certificates of like tenor and date evidencing Rights entitling the holder to purchase a like aggregate number of Preferred Shares as the Rights evidenced by the Right Certificate or Right Certificates surrendered shall have entitled such holder to purchase. If this Right Certificate shall be exercised in part, the holder shall be entitled to receive upon surrender hereof another Right Certificate or Right Certificates for the number of whole Rights not exercised.
Subject to the provisions of the Agreement, the Rights evidenced by this Right Certificate (i) may be redeemed by the Company at a redemption price of $.01 per Right or (ii) may be exchanged in whole or in part for Preferred Shares or shares of the Companys Common Stock, par value $0.001 per share. No fractional Preferred Shares will be issued upon the exercise of any Right or Rights evidenced hereby (other than fractions which are integral multiples of one one-thousandth of a Preferred Share, which may, at the election of the Company, be evidenced by depositary receipts), but, in lieu thereof, a cash payment will be made, as provided in the Agreement.
No holder of this Right Certificate shall be entitled to vote or receive dividends or be deemed for any purpose the holder of the Preferred Shares or of any other securities of the Company which may at any time be issuable on the exercise hereof, nor shall anything contained in the Agreement or herein be construed to confer upon the holder hereof, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting stockholders (except as provided in the Agreement), or to receive dividends or subscription rights, or otherwise, until the Right or Rights evidenced by this Right Certificate shall have been exercised as provided in the Agreement.
This Right Certificate shall not be valid or obligatory for any purpose until it shall have been countersigned by the Rights Agent.
WITNESS the facsimile signature of the proper officers of the Company and its corporate seal. Dated as of , .
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WELLS FARGO BANK, N.A. |
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[Form of Reverse Side of Right Certificate]
FORM OF ASSIGNMENT
(To
be executed by the registered holder if such
holder desires to transfer the Right Certificate.)
FOR
VALUE RECEIVED
hereby sells, assigns and transfers unto
(Please print name and address of transferee)
this Right Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint Attorney, to transfer the within Right Certificate on the books of the within-named Company, with full power of substitution.
Dated:
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Signature Medallion Guaranteed: |
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B- 4
CERTIFICATE
The undersigned hereby certifies by checking the appropriate boxes that:
(1) the Rights evidenced by this Rights Certificate [ ] are [ ] are not being assigned and transferred by or on behalf of a Person who is or was an Acquiring Person or an Affiliate or Associate of any such Acquiring Person (as such terms are defined pursuant to the Rights Agreement); and
(2) after due inquiry and to the best knowledge of the undersigned, it [ ] did [ ] did not acquire the Rights evidenced by this Rights Certificate from any Person who is, was or became an Acquiring Person or an Affiliate or Associate of an Acquiring Person.
Dated: , 200
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B- 5
FORM OF ELECTION TO PURCHASE
(To
be executed if holder desires to exercise
Rights represented by the Right Certificate.)
To: Haynes International, Inc.
The undersigned hereby irrevocably elects to exercise Rights represented by this Right Certificate to purchase the Preferred Shares issuable upon the exercise of such Rights and requests that certificates for such Preferred Shares be issued in the name of:
Please
insert social security
or other identifying number
(Please print name and address)
If such number of Rights shall not be all the Rights evidenced by this Right Certificate, a new Right Certificate for the balance remaining of such Rights shall be registered in the name of and delivered to:
Please
insert social security
or other identifying number
(Please print name and address)
Dated: , 200
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B- 6
CERTIFICATE
The undersigned hereby certifies by checking the appropriate boxes that:
(1) the Rights evidenced by this Rights Certificate [ ] are [ ] are not being exercised by or on behalf of a Person who is or was an Acquiring Person or an Affiliate or Associate of any such Acquiring Person (as such terms are defined pursuant to the Rights Agreement); and
(2) after due inquiry and to the best knowledge of the undersigned, it [ ] did [ ] did not acquire the Rights evidenced by this Rights Certificate from any Person who is, was or became an Acquiring Person or an Affiliate or Associate of an Acquiring Person.
Dated: , 200
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B- 7
NOTICE
The signature in the Form of Assignment and Certificate or Form of Election to Purchase and Certificate, as the case may be, must conform to the name as written upon the face of this Right Certificate in every particular, without alteration or enlargement or any change whatsoever.
All Guarantees must be made by a financial institution (such as a bank or broker) which is a participant in the Securities Transfer Agents Medallion Program ( STAMP ), the New York Stock Exchange, Inc. Medallion Signature Program ( MSP ), or the Stock Exchanges Medallion Program ( SEMP ) and must not be dated. Guarantees by a notary public are not acceptable.
In the event the certification set forth above in the Form of Assignment or the Form of Election to Purchase, as the case may be, is not completed, the Company and the Rights Agent may deem the beneficial owner of the Rights evidenced by this Right Certificate to be an Acquiring Person or an Affiliate or Associate thereof (as defined in the Agreement) and not honor such Assignment or Election to Purchase.
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Exhibit C
SUMMARY
OF RIGHTS TO PURCHASE
PREFERRED SHARES
Introduction
The Board of Directors of our Company, Haynes International, Inc., a Delaware corporation, has declared a dividend of one preferred share purchase right (a Right ) for each outstanding share of common stock, par value $0.001 per share. The dividend is payable on August 25, 2006 to the stockholders of record on such date.
Our Board has adopted this Rights Agreement to protect stockholders from coercive or otherwise unfair takeover tactics. In general terms, it works by imposing a significant penalty upon any person or group which acquires 15% or more of our outstanding common stock without the approval of our Board. The Rights Agreement should not interfere with any merger or other business combination approved by our Board. An exception has been included in the Rights Agreement to provide that any person or group who owns 15% or more of our outstanding common stock upon adoption of the Rights Agreement does not become an Acquiring Person unless such owner subsequently acquires additional shares of our common stock and after giving effect to such acquisition owns 15% or more of our outstanding common stock.
For those interested in the specific terms of the Rights Agreement as made between our Company and Wells Fargo Bank, N.A., as the Rights Agent, on August 13, 2006, we provide the following summary description. Please note, however, that this description is only a summary, is not complete, and should be read together with the entire Rights Agreement, which has been filed with the Securities and Exchange Commission as an Exhibit to a Form 8-K dated August 13, 2006. A copy of the Rights Agreement is available free of charge from our Company.
The Rights . Our Board authorized the issuance of a Right with respect to each share of common stock outstanding on August 25, 2006. The Rights will initially trade with, and will be inseparable from, the common stock. The Rights are evidenced only by certificates that represent shares of common stock. New Rights will accompany any new shares of common stock we issue after August 25 , 2006 until the Distribution Date described below.
Exercise Price . Each Right will allow its holder to purchase from our Company one one-thousandth of a share of Series A Junior Participating Preferred Stock (Preferred Share) for $135.00 per Right once the Rights become exercisable.
Exercisability . The Rights will not be exercisable until
· 10 days after the public announcement that a person or group has become an Acquiring Person. A person or group becomes an Acquiring Person by obtaining beneficial ownership of 15% or more of our outstanding common stock (or if a person or group was the beneficial owner of 15% or more of our outstanding common stock at the time of adoption of the Rights Agreement, by obtaining beneficial ownership of any additional shares of our common stock after the first public announcement of the adoption of the Rights Agreement),
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· 10 business days (or a later date determined by our Board before any person or group becomes an Acquiring Person) after a person or group begins a tender or exchange offer which, if completed, would result in that person or group becoming an Acquiring Person.
We refer to the date when the Rights become exercisable as the Distribution Date. Until that date, the common stock certificates will also evidence the Rights, and any transfer of shares of common stock will constitute a transfer of Rights. After that date, the Rights will separate from the common stock and be evidenced by Right certificates that we will mail to all eligible holders of common stock. Any Rights held by an Acquiring Person are void and may not be exercised.
Consequences of a Person or Group Becoming an Acquiring Person .
· Flip In . If a person or group becomes an Acquiring Person, all holders of Rights except the Acquiring Person may, upon exercise of a Right, for $135.00 per Right, purchase shares of our common stock with a market value of $270.00 per Right, based on the market price of the common stock prior to such acquisition.
· Flip Over . If our Company is acquired in a merger or similar transaction after an Acquiring Person becomes such, all holders of Rights except the Acquiring Person may, upon exercise of a Right, for $135.00 per Right, purchase shares of the acquiring corporation with a market value of $270.00 per Right based on the market price of the acquiring corporations stock, prior to such merger.
Preferred Share Provisions .
Each one one-thousandth of a Preferred Share, if issued:
· will not be redeemable.
· will entitle holders to quarterly dividend payments of $.01 per one one-thousandth of a Preferred Share, or an amount equal to the dividend paid on one share of common stock, whichever is greater.
· will entitle holders upon liquidation either to receive $1.00 per one one-thousandth of a Preferred Share or an amount equal to the payment made on one share of common stock, whichever is greater.
· will have the same voting power as one share of common stock.
· if shares of our common stock are exchanged via merger, consolidation, or a similar transaction, will entitle holders to a per share payment equal to the payment made on one share of common stock.
The value of one one-thousandth interest in a Preferred Share should approximate the value of one share of common stock.
Expiration . The Rights will expire at 5:00 P.M., Minneapolis, Minnesota time, on the earlier of (a) August 13, 2016 or (b) the thirtieth (30 th ) day following the date of the 2007 Annual Meeting of Stockholders of the Company if at such meeting the stockholders, by the affirmative vote of a
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majority of the shares of capital stock of the Company present, in person or by proxy, and entitled to vote on such matter, vote to terminate the Rights Agreement. The expiration date for the Rights may be advanced or extended by our Board, and the Rights may be redeemed or exchanged prior to the expiration date by our Board as described below.
Redemption . Our Board may redeem the Rights for $.01 per Right at any time before any person or group becomes an Acquiring Person. If our Board redeems any Rights, it must redeem all of the Rights. Once the Rights are redeemed, the only right of the holders of Rights will be to receive the redemption price of $.01 per Right. The redemption price will be adjusted if we have a stock split or stock dividends of our common stock.
Exchange . After a person or group becomes an Acquiring Person, but before an Acquiring Person owns 50% or more of our outstanding common stock, our Board may extinguish the Rights by exchanging one share of common stock or an equivalent security for each Right, other than Rights held by the Acquiring Person.
Anti-Dilution Provisions . Our Board may adjust the purchase price of the Preferred Shares, the number of Preferred Shares issuable and the number of outstanding Rights to prevent dilution that may occur from a stock dividend, a stock split, or a reclassification of the Preferred Shares or common stock. No adjustments to the Exercise Price of less than 1% will be made.
Amendments . The terms of the Rights Agreement may be amended by our Board without the consent of the holders of the Rights except that after a person or group becomes an Acquiring Person, our Board may not amend the agreement in a way that adversely affects holders of the Rights.
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EXHIBIT 4.5
Form of Right Certificate
Certificate No. R- Rights
NOT EXERCISABLE AFTER AUGUST 13, 2016 OR EARLIER IF REDEMPTION OR EXCHANGE OCCURS. THE RIGHTS ARE SUBJECT TO REDEMPTION AT $.01 PER RIGHT AND TO EXCHANGE ON THE TERMS SET FORTH IN THE AGREEMENT.
Right Certificate
Haynes International, Inc.
This certifies that , or registered assigns, is the registered owner of the number of Rights set forth above, each of which entitles the owner thereof, subject to the terms, provisions and conditions of the Agreement, dated as of August 13, 2006 (the Agreement ), between Haynes International, Inc., a Delaware corporation (the Company ), and Wells Fargo Bank, N.A. (the Rights Agent ), to purchase from the Company at any time after the Distribution Date (as such term is defined in the Agreement) and prior to 5:00 P.M., Minneapolis, Minnesota time, on the earlier of (A) August 13, 2016 or (B) the thirtieth (30 th ) day following the date of the 2007 Annual Meeting of Stockholders of the Company if at such meeting the stockholders, by the affirmative vote of a majority of the shares of capital stock of the Company present, in person or by proxy, at such meeting and entitled to vote on such matter, vote to terminate the Agreement, at the principal office of the Rights Agent, or at the office of its successor as Rights Agent, one one-thousandth of a fully paid non-assessable share of Series A Junior Participating Preferred Stock, par value $0.001 per share, of the Company (the Preferred Shares ), at a purchase price of $135.00 per one one-thousandth of a Preferred Share (the Purchase Price ), upon presentation and surrender of this Right Certificate with the Form of Election to Purchase duly executed. The number of Rights evidenced by this Right Certificate (and the number of one one-thousandths of a Preferred Share which may be purchased upon exercise hereof) set forth above, and the Purchase Price set forth above, are the number and Purchase Price as of August 13, 2006, based on the Preferred Shares as constituted at such date. As provided in the Agreement, the Purchase Price and the number of one one-thousandths of a Preferred Share which may be purchased upon the exercise of the Rights evidenced by this Right Certificate are subject to modification and adjustment upon the happening of certain events.
This Right Certificate is subject to all of the terms, provisions and conditions of the Agreement, which terms, provisions and conditions are hereby incorporated herein by reference and made a part hereof and to which Agreement reference is hereby made for a full description of the rights, limitations of rights, obligations, duties and immunities hereunder of the Rights Agent, the Company and the holders of the Right Certificates. Copies of the Agreement are on file at the principal executive offices of the Company and the offices of the Rights Agent.
This Right Certificate, with or without other Right Certificates, upon surrender at the principal office of the Rights Agent, may be exchanged for another Right Certificate or Right Certificates of like tenor and date evidencing Rights entitling the holder to purchase a like aggregate number of Preferred Shares as the Rights evidenced by the Right Certificate or Right Certificates surrendered shall have entitled such holder to purchase. If this Right Certificate shall be exercised in part, the holder shall be entitled to receive upon surrender hereof another Right Certificate or Right Certificates for the number of whole Rights not exercised.
Subject to the provisions of the Agreement, the Rights evidenced by this Right Certificate (i) may be redeemed by the Company at a redemption price of $.01 per Right or (ii) may be exchanged in whole or in part for Preferred Shares or shares of the Companys Common Stock, par value $0.001 per share. No fractional Preferred Shares will be issued upon the exercise of any Right or Rights evidenced hereby (other than fractions which are integral multiples of one one-thousandth of a Preferred Share, which may, at the election of the Company, be evidenced by depositary receipts), but, in lieu thereof, a cash payment will be made, as provided in the Agreement.
No holder of this Right Certificate shall be entitled to vote or receive dividends or be deemed for any purpose the holder of the Preferred Shares or of any other securities of the Company which may at any time be issuable on the exercise hereof, nor shall anything contained in the Agreement or herein be construed to confer upon the holder hereof, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting stockholders (except as provided in the Agreement), or to receive dividends or subscription rights, or otherwise, until the Right or Rights evidenced by this Right Certificate shall have been exercised as provided in the Agreement.
This Right Certificate shall not be valid or obligatory for any purpose until it shall have been countersigned by the Rights Agent.
WITNESS the facsimile signature of the proper officers of the Company and its corporate seal. Dated as of , .
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WELLS FARGO BANK, N.A. |
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[Form of Reverse Side of Right Certificate]
FORM OF ASSIGNMENT
(To
be executed by the registered holder if such
holder desires to transfer the Right Certificate.)
FOR VALUE RECEIVED
hereby sells, assigns and transfers unto
(Please print name and address of transferee)
this Right Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint Attorney, to transfer the within Right Certificate on the books of the within-named Company, with full power of substitution.
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Signature |
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Signature Medallion Guaranteed: |
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CERTIFICATE
The undersigned hereby certifies by checking the appropriate boxes that:
(1) the Rights evidenced by this Rights Certificate [ ] are [ ] are not being assigned and transferred by or on behalf of a Person who is or was an Acquiring Person or an Affiliate or Associate of any such Acquiring Person (as such terms are defined pursuant to the Rights Agreement); and
(2) after due inquiry and to the best knowledge of the undersigned, it [ ] did [ ] did not acquire the Rights evidenced by this Rights Certificate from any Person who is, was or became an Acquiring Person or an Affiliate or Associate of an Acquiring Person.
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Signature Medallion Guaranteed: |
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FORM OF ELECTION TO PURCHASE
(To
be executed if holder desires to exercise
Rights represented by the Right Certificate.)
To: Haynes International, Inc.
The undersigned hereby irrevocably elects to exercise Rights represented by this Right Certificate to purchase the Preferred Shares issuable upon the exercise of such Rights and requests that certificates for such Preferred Shares be issued in the name of:
Please
insert social security
or other identifying number
(Please print name and address)
If such number of Rights shall not be all the Rights evidenced by this Right Certificate, a new Right Certificate for the balance remaining of such Rights shall be registered in the name of and delivered to:
Please
insert social security
or other identifying number
(Please print name and address)
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CERTIFICATE
The undersigned hereby certifies by checking the appropriate boxes that:
(1) the Rights evidenced by this Rights Certificate [ ] are [ ] are not being exercised by or on behalf of a Person who is or was an Acquiring Person or an Affiliate or Associate of any such Acquiring Person (as such terms are defined pursuant to the Rights Agreement); and
(2) after due inquiry and to the best knowledge of the undersigned, it [ ] did [ ] did not acquire the Rights evidenced by this Rights Certificate from any Person who is, was or became an Acquiring Person or an Affiliate or Associate of an Acquiring Person.
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NOTICE
The signature in the Form of Assignment and Certificate or Form of Election to Purchase and Certificate, as the case may be, must conform to the name as written upon the face of this Right Certificate in every particular, without alteration or enlargement or any change whatsoever.
All Guarantees must be made by a financial institution (such as a bank or broker) which is a participant in the Securities Transfer Agents Medallion Program ( STAMP ), the New York Stock Exchange, Inc. Medallion Signature Program ( MSP ), or the Stock Exchanges Medallion Program ( SEMP ) and must not be dated. Guarantees by a notary public are not acceptable.
In the event the certification set forth above in the Form of Assignment or the Form of Election to Purchase, as the case may be, is not completed, the Company and the Rights Agent may deem the beneficial owner of the Rights evidenced by this Right Certificate to be an Acquiring Person or an Affiliate or Associate thereof (as defined in the Agreement) and not honor such Assignment or Election to Purchase.
EXHIBIT 10.1
FORM OF
TERMINATION BENEFITS AGREEMENT
THIS TERMINATION BENEFITS AGREEMENT (AGREEMENT) is executed as of the date set forth below to be effective as of ___________ (the EFFECTIVE DATE) (defined below) by and between Haynes International, Inc., a Delaware corporation (the COMPANY), and ____________, an individual residing in the State of Indiana (the EMPLOYEE).
WITNESSETH
WHEREAS, the Board of Directors of the Company (the BOARD) has determined that it is in the best interests of the Company and its shareholders for the Company to agree to provide benefits under circumstances described below to the Employee in connection with employment by the Company and due to Employees responsibility for policy-making functions within the Company and in exchange for the Employees agreements in Sections 6 and 7 hereof;
NOW, THEREFORE, in consideration of the mutual covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby recognized, the Company and the Employee agree as follows:
AGREEMENT
1. TERM OF AGREEMENT. This Agreement shall commence as of the Effective Date and shall continue in effect until September 30, 2007; provided, however, that commencing on October 1, 2007 (the RENEWAL DATE) and on each two-year anniversary thereafter, the term of this Agreement shall automatically be extended for two (2) years (until the two-year anniversary of the Renewal Date next following) unless either the Company or the Employee shall have given written notice to the other at least sixty (60) days prior thereto that the term of this Agreement shall not be so extended (the TERM).
2. TERMINATION BENEFITS.
a. If, during the Term of this Agreement, the Employees employment with the Company shall be terminated, the Employee shall be entitled to receive the following compensation and benefits (in addition to any compensation and benefits provided for under any of the Companys employee benefit plans, policies and practices or as required by law):
i. TERMINATION WITHOUT CAUSE, FOR GOOD REASON, OR DUE TO DISABILITY OR DEATH. If the Employees employment with the Company shall be terminated by the
Company without Cause, by the Employee for Good Reason, or by reason of the Employees Disability or death:
1. the Employee or the Employees heirs, estate, personal representative or legal guardian, as appropriate, shall be entitled to receive a lump sum cash payment equal to the sum of:
a. the Employees accrued but unpaid Base Salary through the Date of Termination;
b. any accrued but unpaid compensation, including but not limited to any unpaid bonus compensation and reimbursement, in accordance with the then prevailing reimbursement practices of the Company, for all reasonable and customary business expenses incurred by the Employee in connection with his employment by the Company as of the Date of Termination; and
c. a bonus for the fiscal year in which the Date of Termination occurs in an amount equal to the Employees target bonus for such fiscal year under the bonus or incentive compensation plan maintained by the Company, calculated as if the Employee earned one hundred percent (100%) of such target bonus (the SEVERANCE BONUS), multiplied by a fraction, the numerator of which is the number of days the Employee worked in the fiscal year in which the Date of Termination occurs and the denominator of which is three hundred sixty five (365); and
2 a. on a termination of employment by the Company without Cause or by the Employee for Good Reason, any unvested stock options held by the Employee will terminate immediately and all vested stock options held by the Employee will remain exercisable for six (6) months following the Date of Termination, but in no event later than the expiration date of the stock options as specified in the applicable grant letter, and
b. upon a termination of employment by reason of the Employees Disability or death, any unvested stock options held by the Employee will vest immediately and all options held by the Employee will remain exercisable for six (6) months from the Date of Termination, but in
no event later than the expiration date of such stock options as specified in the applicable grant letter.
ii. TERMINATION FOR CAUSE, WITHOUT GOOD REASON, OR DUE TO RETIREMENT. If the Employees employment with the Company shall be terminated by the Company for Cause, by the Employee without Good Reason, or by reason of the Employees Retirement:
1. the Employee shall be entitled to receive a lump sum cash payment equal to the sum of:
a. the Employees accrued but unpaid Base Salary through the Date of Termination; and
b. any accrued but unpaid compensation, including but not limited to any unpaid bonus compensation and reimbursement, in accordance with the then prevailing reimbursement practices of the Company, for all reasonable and customary business expenses incurred by the Employee in connection with his employment by the Company as of the Date of Termination; and
2.
a. upon a termination of employment by the Company for Cause or by the Employee without Good Reason, all vested and unvested stock options held by the Employee shall terminate immediately, and
b. upon the Employees Retirement, all unvested stock options held by the Employee shall terminate immediately and any vested stock options held by the Employee shall remain exercisable for six (6) months following the Date of Termination but in no event later than the expiration date of such stock options as specified in the applicable grant letter.
iii. TERMINATION WITHOUT CAUSE OR FOR GOOD REASON FOLLOWING A CHANGE IN CONTROL. If the Employees employment with the Company shall be terminated by the Company without Cause or by the Employee for Good Reason within twelve (12) months following a Change in Control and during the Term of this Agreement (including any extensions or deemed extensions thereof as provided in SECTION 1 above):
1. the Employee shall be entitled to receive a lump sum cash payment equal to the sum of:
a. the Employees accrued but unpaid Base Salary through the Date of Termination;
b. the Employees Base Salary that would be payable for the period from the Date of Termination through the first (1st) anniversary thereof (the SEVERANCE PERIOD);
c. any accrued but unpaid compensation, including but not limited to any unpaid bonus compensation and reimbursement, in accordance with the then prevailing reimbursement practices of the Company, for all reasonable and customary business expenses incurred by the Employee in connection with his employment by the Company as of the Date of Termination; and
d. the Severance Bonus;
2. any unvested stock options held by the Employee will vest immediately and all stock options held by the Employee will remain exercisable for one (1) year from the Date of Termination, but in no event later than the expiration date of the stock options as specified in the applicable grant letter; and
3. during the Severance Period, the Company shall provide to the Employee and Employees dependents any medical, hospitalization and life insurance benefits that the Employee received from the Company immediately prior to the Date of Termination; PROVIDED, HOWEVER, that any such benefits coverage shall cease to the extent that the Employee obtains comparable medical, hospitalization or life insurance benefits (as the case may be) from any other employer during such Severance Period.
b. The Employee shall not be required to mitigate the amount of any payment provided for in this SECTION 2 by seeking other employment or otherwise, nor, except as provided in SECTION 2(a)(iii)(3) above, shall the amount of any payment or benefit provided for in SECTION 2 be reduced by any compensation earned by the Employee or benefit made available to the Employee as the result of employment by another employer after the Date of Termination or otherwise.
c. For purposes of this Agreement, the following definitions shall apply:
i. DISABILITY means the Employee is totally and permanently disabled as defined in the Haynes International, Inc. Pension Plan.
ii. RETIREMENT means the voluntary retirement of the Employee after having reached age fifty-five (55) and having completed at least five (5) years of service with the Company, but in no event prior to September 1, 2009.
iii. A termination for CAUSE means a termination by reason of the good faith determination of the Companys Board of Directors (the BOARD) that the Employee (1) continually failed to substantially perform his duties with the Company (other than a failure resulting from the Employees medically documented incapacity due to physical or mental illness), including, without limitation, repeated refusal to follow the reasonable directions of the Companys Chief Executive Officer, knowing violation of the law in the course of performance of the Employees duties with the Company, repeated absences from work without a reasonable excuse, or intoxication with alcohol or illegal drugs while on the Companys premises during regular business hours, (2) engaged in conduct which constituted a material breach of SECTION 6 or SECTION 7 of this Agreement, (3) was indicted (or equivalent under applicable law), convicted of, or entered a plea of nolo contendere to the commission of a felony or crime involving dishonesty or moral turpitude, (4) engaged in conduct which is demonstrably and materially injurious to the financial condition, business reputation, or otherwise of the Company or its subsidiaries or affiliates, or (5) perpetuated a fraud or embezzlement against the Company or its subsidiaries or affiliates, and in each case the particular act or omission was not cured, if curable, in all material respects by the Employee within thirty (30) days after receipt of written notice from the Board which shall set forth in reasonable detail the nature of the facts and circumstances which constitute Cause. Notwithstanding the foregoing, the Employee shall not be deemed to have been terminated for Cause unless there shall have been delivered to the Employee a copy of a resolution duly adopted by the Board. If the Company has reasonable belief that the Employee has committed any of the acts described above, it may suspend the Employee (with or without pay) while it investigates whether it has or could have Cause to terminate the Employee. The Company may terminate the Employee for Cause prior to the completion of its investigation; provided, that, if it is ultimately determined that the Employee has not committed an act which would constitute Cause, the Employee shall be treated as if he were terminated without Cause.
iv. A NOTICE OF TERMINATION means a notice which shall indicate the specific termination provision in this Agreement which is applicable and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Employees employment under the provision so indicated. For purposes of this Agreement, no such purported termination shall be effective without such Notice of Termination. Any purported termination by the Company or by the Employee shall be communicated by written notice of termination to the other party hereto in accordance with SECTION 5 hereof.
v. DATE OF TERMINATION means (i) if the Employees employment is terminated for Disability, thirty (30) days after Notice of Termination is given (provided that the Employee shall not have returned to the performance of his duties on a full-time basis during such thirty (30) day period), and (ii) if the Employees employment is terminated for any other reason, the date specified in the Notice of Termination (which, in the case of a termination without Cause shall not be less than thirty (30) days from the date such Notice of Termination is given); provided that if within thirty (30) days after any such Notice of Termination is given the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties, or by the final judgment, order or decree of a court of competent jurisdiction (the time for appeal therefrom having expired and no appeal having been taken).
vi. BASE SALARY means the annual base salary of the Employee from the Company, but determined without regard to any salary reduction agreement of the Employee under Sections 401(k) and 125 of the Internal Revenue Code of 1986, as amended (the CODE), (or corresponding provisions of subsequent federal income tax laws) or any salary deferral agreement of the Employee under any non-qualified deferred compensation program that may be available to the Employee from time to time, and excludes (i) incentive or additional cash compensation; (ii) any amounts included in income because of Sections 79 or 89 of the Code; and (iii) any amounts paid to the Employee for reimbursement for expenses or discharging tax liabilities.
vii. GOOD REASON shall mean the occurrence, during the Term of this Agreement, of any of the following actions or failures to act, but in each case only if it is not consented to by the Employee in writing: (i) a material adverse change in the Employees duties, reporting responsibilities, titles or elected or appointed offices as in
effect immediately prior to the effective date of such change; or (ii) a material reduction by the Company in the Employees Base Salary or annual bonus opportunity in effect immediately prior to the effective date of such reduction, not including any reduction resulting from changes in the market value of securities or other instruments paid or payable to the Employee. For purposes of this definition, none of the actions described in clauses (i) and (ii) above shall constitute Good Reason with respect to the Employee if it was an isolated and inadvertent action not taken in bad faith by the Company and if it is remedied by the Company within thirty (30) days after receipt of written notice thereof given by the Employee (or, if the matter is not capable of remedy within thirty (30) days, then within a reasonable period of time following such thirty (30) day period, provided that the Company has commenced such remedy within said thirty (30) day period); provided, that GOOD REASON shall cease to exist for any action described in clauses (i) and (ii) above on the sixtieth (60th) day following the later of the occurrence of such action or the Employees knowledge thereof, unless the Employee has given the Company written notice thereof prior to such date.
viii. CHANGE IN CONTROL shall mean the first to occur of the following: (i) any Person becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing a majority of the combined voting power of the Companys then outstanding securities (assuming conversion of all outstanding non-voting securities into voting securities and the exercise of all outstanding options or other convertible securities); (ii) the following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, on the Effective Date, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board or nomination for election by the Companys stockholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the Effective Date or whose appointment, election or nomination for election was previously so approved or recommended; (iii) there is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company with any other corporation other than (x) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent, either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof,
a majority of the combined voting power of the securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (y) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person, is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing a majority of the combined voting power of the Companys then outstanding securities; or (iv) the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Companys assets, or to an entity a majority of the combined voting power of the voting securities of which is owned by substantially all of the stockholders of the Company immediately prior to such sale in substantially the same proportions as their ownership of the Company immediately prior to such sale.
ix. BENEFICIAL OWNER shall have the meaning set forth in Rule 13d-3 under the Securities Exchange Act of 1934, as amended.
x. PERSON shall, except for purposes of SECTION 7 of this Agreement, have the meaning given in Section 3(a)(9) of the Securities Exchange Act of 1934, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (1) the Company or any subsidiary of the Company, (2) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its affiliates, (3) an underwriter temporarily holding securities pursuant to an offering of such securities or (4) a corporation owned, directly or indirectly, by substantially all of the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company.
3. SUCCESSORS; BINDING AGREEMENT.
a. This Agreement shall be binding on the Company and any successor to all or substantially all of its business or assets. Without limiting the effect of the prior sentence, the Company will require any successor or assign (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession or assignment had taken place. As used in this Agreement, the COMPANY shall mean the Company as hereinbefore defined and any successor or assign to its business and/or assets as aforesaid which assumes and agrees to -perform this Agreement
or which is otherwise obligated under this Agreement by the first sentence of this SECTION 3, by operation of law or otherwise.
b. This Agreement shall inure to the benefit of and be enforceable by the Employees personal and legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Employee should die while any amounts would still be payable to him hereunder if he had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Employees devisee, legatee or other designee or if there is no such devisee, legatee or designee, to the Employees estate.
4. TIMING OF PAYMENT AND RELEASE.
a. As a condition of receiving from the Company the payments and benefits provided for hereunder, which the Employee otherwise would not be entitled to receive, the Employee understands and agrees that, on the Date of Termination, he will be required to execute a release of all claims against the Company in substantially the form attached hereto as EXHIBIT 1 (the RELEASE) as may be modified by the Company in good faith to reflect changes in law or its employment practices. The Employee acknowledges that he has been advised in writing to consult with an attorney prior to executing the Release. The Employee agrees that he will consult with his attorney prior to executing the Release. The Employee and the Company agree that the Employee has a period of seven (7) days following the execution of the Release within which to revoke the Release. The parties also acknowledge and agree that the Release shall not be effective or enforceable until the seven (7) day revocation period expires. The date on which this seven (7) day period expires shall be the effective date of the Release (the RELEASE EFFECTIVE DATE).
b. The Company shall make all payments required under this Agreement within five (5) business days following the Release Effective Date.
c. The Employee understands that as used in this SECTION 4, the COMPANY includes its past, present and future officers, directors, trustees, shareholders, employees, agents, subsidiaries, affiliates, distributors, successors, and assigns, any and all employee benefit plans (and any fiduciary of such plans) sponsored by the Company, and any other persons related to the Company.
d. Notwithstanding anything in this Agreement to the contrary, this Agreement shall not affect the Companys right or ability to terminate the employment of the Employee, subject to any other written contract between the Company and the Employee to the contrary.
e. The Employee agrees that execution and delivery to the Company of any release or disclaimer agreement requested by the Company which is consistent with the provisions of this SECTION 4 and the passage of all necessary waiting periods in connection therewith shall be a condition to the receipt of any payment or benefits to be provided by the Company following the termination of the Employees employment with the Company.
5. NOTICES. For the purposes of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or sent by certified mail, return receipt requested, postage prepaid, or by expedited (overnight) courier with established national reputation, shipping prepaid or billed to sender, in either case addressed to the respective addresses last given by each party to the other (provided that all notices to the Company shall be directed to the attention of the Board with a copy to the Secretary of the Company) or to such other address as either party may have furnished to the other in writing in accordance herewith. All notices and communication shall be deemed to have been received on the date of delivery thereof, on the third business day after the mailing thereof, or on the second day after deposit thereof with an expedited courier service, except that notice of change of address shall be effective only upon receipt.
6. CONFIDENTIALITY. For purposes of this SECTION 6, the term COMPANY shall include, in addition to the Company, its affiliates, subsidiaries and any of their respective predecessors, successors and assigns. The term COMPANYS BUSINESS shall mean the business of developing, manufacturing, selling or distributing high-performance alloys for service in severe corrosion and high temperature applications.
a. CONFIDENTIAL INFORMATION. As used in this Agreement, CONFIDENTIAL INFORMATION means any and all confidential, proprietary or other information, whether or not originated by the Employee or the Company, which is in any way related to the past or present Companys Business and is either designated as confidential or not generally known by or available to the public. Confidential Information includes, but is not limited to (whether or not reduced to writing or designated as confidential) (i) information regarding the Companys existing and potential customers and vendors; (ii) any contacts (including the existence and contents thereof and parties thereto) to which the Company is a party or is bound; (iii) information regarding products and services being purchased or leased by or provided to the Company; (iv) information received by the Company from third parties under an obligation of confidentiality, restricted, disclosure or restricted use; (v) personnel and financial information of the Company; (vi) information with respect to the Companys products, services, facilities, business methods, systems, trade secrets, technical know-how, and other intellectual property; (vii) marketing and developmental plans and techniques, price and cost data, forecasts and forecast assumptions, and potential strategies
of the Company; and (viii) any other information relating to Company which was obtained by the Employee in connection with his employment by the Company, whether before, on or after the Effective Date.
b. NON-DISCLOSURE AND NON-USE OF CONFIDENTIAL INFORMATION. The Employee acknowledges that the Confidential Information of the Company is a valuable, unique asset of the Company and the Employees unauthorized use or disclosure thereof could cause irreparable harm to the Company for which no remedy at law could be adequate. Accordingly, the Employee agrees that the Employee shall hold all Confidential Information of the Company in strict confidence and solely for the benefit of the Company, and that he shall not, directly or indirectly, disclose or use or authorize any third party to disclose or use any Confidential Information, except (i) as required for the performance of the Employees duties hereunder, (ii) with the express written consent of the Company, (iii) to the extent that any such information is in or becomes in the public domain other than as a result of the Employees breach of any of his obligations hereunder, or (iv) where required to be disclosed by court order, subpoena or other government process and in such event, the Employee shall cooperate with the Company in attempting to keep such information confidential. The Employee shall follow all Company policies and procedures to protect all Confidential Information and take any additional precautions necessary to preserve and protect the use or disclosure of any Confidential Information at all times.
c. OWNERSHIP OF CONFIDENTIAL INFORMATION. The Employee acknowledges and agrees that all Confidential Information is and shall remain the exclusive property of the Company, whether or not prepared in whole or in part by the Employee and whether or not disclosed to or entrusted to the custody of the Employee. Upon the termination or resignation of his employment by the Company, or at any other time at the request of the Company, the Employee shall promptly deliver to the Company all documents, tapes, disks, or other storage media and any other materials, and all copies thereof in whatever form, in the possession of the Employee pertaining to the Companys Business, including, but not limited to, any containing Confidential Information.
d. SURVIVAL. The Employees obligations set forth in this SECTION 6, and the Companys rights and remedies with respect hereto, shall indefinitely survive the termination of this Agreement and the Employees employment by the Company, regardless of the reason therefor.
7. RESTRICTIVE COVENANTS. For purposes of this SECTION 7, the term COMPANY shall include, in addition to the Company, its affiliates, subsidiaries and any of their respective predecessors, successors and assigns.
a. NON-COMPETITION. During the Restricted Period and within the Restricted Area (each as defined in subsection (c) below), the Employee shall not, directly or indirectly, perform on behalf of any Competitor (as defined in subsection (c) below) the same or similar services as those that the Employee performed for the Company during the Employees employment by the Company or otherwise. In addition, the Employee shall not, during the Restricted Period or within the Restricted Area, directly or indirectly engage in, own, manage, operate, join, control, tend money or other assistance to, or participate in or be connected with (as an officer, director, member, manager, partner, shareholder, consultant, employee, agent, or otherwise), any Competitor.
b. NON-SOLICITATION. During the Restricted Period, the Employee shall not, directly or indirectly, for himself or on behalf of any Person (as defined in subsection (c) below), (i) solicit or attempt to solicit any Customers (as defined in subsection (c) below) or prospective Customers with whom the Employee had contact at any time during the Employees employment by the Company; (ii) divert or attempt to divert any business of the Company to any other Person; (iii) solicit or attempt to solicit for employment, endeavor to entice away from the Company, recruit, hire, or otherwise interfere with the Companys relationship with, any Person who is employed by or otherwise engaged to perform services for the Company (or was employed or otherwise engaged to perform services for the Company, as of any given time, within the immediately preceding twenty-four (24) month period); (iv) cause or assist, or attempt to cause or assist, any employee or other service provider to leave the Company; or (v) otherwise interfere in any manner with the employment or business relationships of the Company or the business or operations then being conducted by the Company.
c. DEFINITIONS. For purposes of this SECTION 7, the following definitions have the following meanings:
i. COMPETITOR means any Person that engages in a business that is the same as, or similar to, the Companys Business.
ii. CUSTOMER means any Person which, as of any given date, used or purchased or contracted to use or purchase any services or products from the Company within the immediately preceding twenty-four (24) month period.
iii. PERSON means any individual, corporation, partnership, joint venture, association, limited liability company, joint-stock company, trust, or unincorporated organization, or any governmental agency, officer, department, commission, board, bureau, or instrumentality thereof,
iv. RESTRICTED AREA means, because the market for the Companys Business is global, or has the potential of being global, and is not dependent upon the physical location or presence of the Company, the Employee, or any individual or entity that may be in violation of this Agreement, the broadest geographic region enforceable by law (excluding any location where this type of restriction is prohibited by law) as follows: (A) everywhere in the world that has access to the Companys Business because of the availability of the Internet; (B) everywhere in the world that the Employee has the ability to compete with the Companys Business through the Internet; (C) each state, commonwealth, territory, province and other political subdivision located in North America; (D) each state, commonwealth, territory and other political subdivision of the United States of America; (E) Indiana and any state in which the Employee has performed any services for the Company; (F) any geographical area in which the Company has performed any services or sold any products; (G) any geographical area in which the Company or any of its subsidiaries have engaged in the Companys Business, which has resulted in aggregate sales revenues of at least $25,000 during any year in the five (5) year period immediately preceding the commencement of the Restricted Period; (H) any state or other jurisdiction where the Company had an office at any time during the Employees employment by the Company; (I) within one hundred (100) miles of any location in which the Company had an office at any time during the Employees employment by the Company; and (J) within one hundred (100) miles of any location in which the Employee provided services for the Company.
v. RESTRICTED PERIOD means the period of time during Employees employment by the Company plus a period of twelve (12) months from the Date of Termination. In the event of a breach of this Agreement by the Employee, the Restricted Period will be extended automatically by the period of the breach.
d. SURVIVAL. The Employees obligations set forth in this SECTION 7, and the Companys rights and remedies with respect thereto, will remain in full force and effect during the Restricted Period and until full resolution of any dispute related to the performance of the Employees obligations during the Restricted Period.
e. PUBLIC COMPANY EXCEPTION. The prohibitions contained in this SECTION 7 do not prohibit the Employees ownership of stock which is publicly traded, provided that (1) the investment is passive, (2) the Employee has no other involvement with the company, (3) the Employees interest is less than five percent (5%) of the shares of the company, and (4)
the Employee makes full disclosure to the Company of the stock at the time that the Employee acquires the shares of stock.
8. ASSIGNMENT OF INVENTIONS. Any and all inventions, improvements, discoveries, designs, works of authorship, concepts or ideas, or expressions whereof, whether or not subject to patents, copyrights, trademarks or service mark protections, and whether or not reduced to practice, that are conceived or developed by the Employee while employed with the Company and which relate to or result from the actual or anticipated business, work, research or investigation of the Company (collectively, INVENTIONS), shall be the sole and exclusive property of the Company. The Employee shall do all things reasonably requested by the Company to assign to and vest in the Company the entire right, title and interest to any such Inventions and to obtain full protection therefor. Notwithstanding the foregoing, the provisions of this Agreement do not apply to an Invention for which no equipment, supplies, facility, or Confidential Information of the Company was used and which was developed entirely on the Employees own time, unless (a) the Invention relates (i) to the Companys Business, or (ii) to the Companys actual or demonstrably anticipated research or development, or (b) the Invention results from any work performed by the Employee for the Company.
9. REASONABLENESS. The Employee has carefully considered the nature, extent and duration of the restrictions and obligations contained in this Agreement, including, without limitation, the geographical coverage contained in SECTION 7 and the time periods contained in SECTION 6 and SECTION 7, and acknowledges and agrees that such restrictions are fair and reasonable in all respects to protect the legitimate interests of the Company and that these restrictions are designed for the reasonable protection of the Companys Business.
10. REMEDIES. The Employee recognizes that any breach of this Agreement shall cause irreparable injury to the Company, inadequately compensable in monetary damages. Accordingly, in addition to any other legal or equitable remedies that may be available to the Company, the Employee agrees that the Company shall be able to seek and obtain injunctive relief in the form of a temporary restraining order, preliminary injunction, or permanent injunction, in each case without notice or bond, against the Employee to enforce this Agreement. The Company shall not be required to demonstrate actual injury or damage to obtain injunctive relief from the courts. To the extent that any damages are calculable resulting from the breach of this Agreement, the Company shall also be entitled to recover damages, including, but not limited to, any lost profits of the Company and/or its affiliates or subsidiaries. For purposes of this Agreement, lost profits of the Company shall be deemed to include all gross revenues resulting from any activity of the Employee in violation of this Agreement and all such revenues shall be held in trust for the benefit of the Company. Any recovery of damages by the Company shall be in addition to and not in lieu of the injunctive relief to which the Company is entitled. In no event will a damage recovery be considered a penalty in liquidated damages. In addition, in any action at law or in equity arising out of this Agreement, the prevailing party shall be entitled to recover, in addition to any damages caused by a breach of this Agreement, all costs and expenses, including, but not limited to, reasonable attorneys fees, expenses, and court costs incurred by such party in connection with such action or
proceeding. Without limiting the Companys rights under this SECTION 10 or any other remedies of the Company, if a court of competent jurisdiction determines that the Employee breached any of the provisions of SECTIONS 6 or 7 of this Agreement, the Company will have the right to cease making any payments or providing any benefits otherwise due to the Employee under the terms and conditions of this Agreement.
11. CLAIMS BY THE EMPLOYEE. The Employee acknowledges and agrees that any claim or cause of action by the Employee against the Company shall not constitute a defense to the enforcement of the restrictions and covenants set forth in this Agreement and shall not be used to prohibit injunctive relief.
12. MISCELLANEOUS. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Employee and such officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreement or representations, oral or otherwise, express or implied, with respect to the subject matter hereof may have been made by either party which are not expressly set forth in this Agreement.
13. APPLICABLE LAW AND FORUM. This Agreement has been entered into in the State of Indiana and shall be governed by and construed in accordance with the laws of the State of Indiana. The parties agree that any action in law or equity brought by either party arising from or in connection with this Agreement or arising from or in connection with the performance by either party of its obligations hereunder shall be brought only in the United States District Court for the Southern District of Indiana, Indianapolis Division or the Circuit Court of Howard County, Indiana, and the parties hereto consent to the jurisdiction of such forums.
14. SEVERABILITY. If a court having proper jurisdiction holds a particular provision of this Agreement unenforceable or invalid for any reason, that provision shall be modified only to the extent necessary in the opinion of such court to make it enforceable and valid and the remainder of this Agreement shall be deemed valid and enforceable and shall be enforced to the greatest extent possible under the then existing law. In the event the court determines such modification is not possible, the provision shall be deemed severable and deleted, and all other provisions of this Agreement shall remain unchanged and in full force and effect.
15. ENFORCEABILITY IN JURISDICTIONS. The parties hereto intend to and hereby confer jurisdiction to enforce the covenants contained in SECTIONS 6 and 7 above upon the courts of any state within the geographical scope of such covenants. If the courts of any one or more of such states shall hold any of the previous covenants unenforceable by reason of the breadth of such scope or otherwise, it is the intention of the parties hereto that such determination not bar or in any way affect the Companys rights to the relief provided above in the courts of any other states within the
geographical scope of such covenants, as to breaches of such covenants in such other respective jurisdictions, the above covenants as they relate to each state being, for this purpose, severable into diverse and independent covenants.
16. FAIR DEALING. The Employee acknowledges that the Company has negotiated this Agreement in good faith and has been fair in its dealing with the Employee. The Employee shall not raise any defense and expressly waives any defense against the Company based upon any alleged breach of good faith or fair dealing by the Company in connection with this Agreement.
17. ENTIRE AGREEMENT; RELEASE. This Agreement constitutes the entire agreement between the parties hereto, and, effective as of the Effective Date, supersedes all prior agreements, understandings and arrangements, oral or written, between the parties hereto, with respect to the subject matter hereof.
18. OPPORTUNITY TO CONSULT COUNSEL. THE EMPLOYEE ACKNOWLEDGES THAT HE HAS CAREFULLY READ THIS AGREEMENT AND HAS BEEN GIVEN ADEQUATE OPPORTUNITY, AND HAS BEEN ENCOURAGED BY THE COMPANY, TO CONSULT WITH LEGAL COUNSEL OF HIS CHOICE CONCERNING THE TERMS HEREOF BEFORE EXECUTING THIS AGREEMENT.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duty authorized officer and the Employee has executed this Agreement, each as of the Effective Date.
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COMPANY |
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HAYNES INTERNATIONAL, INC. |
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By: |
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Printed: Francis J. Petro |
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Title: President and Chief Executive Officer |
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ATTEST: |
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Printed: |
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Title: |
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EMPLOYEE |
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WITNESS |
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SCHEDULE OF EMPLOYEES PARTY TO THE TERMINATION BENEFITS AGREEMENT
Cijan, August A.
Douglas, Michael
Kilian,
Anastacia S.
Laird, James A.
Losch, Marlin C.
Martin, Marcel
Maudlin, Dan W.
Neel, Jean C.
Pinkham, Scott R.
Spalding, Gregory M.
Sponaugle, Charles, J.
Young, Jeffrey L.
Exhibit 10.2
HAYNES
INTERNATIONAL, INC.
DEATH BENEFIT PLAN
MASTER PLAN DOCUMENT
Effective January 1, 2003
ARTICLE 1
ESTABLISHMENT OF THE PLAN
1.1. ESTABLISHMENT OF THE PLAN. Haynes International, Inc. (the Company) hereby establishes a death benefit only plan for eligible employees of the Employer, effective as of January 1, 2003, to be known as the Haynes International, Inc. Death Benefit Plan (the Plan), as set forth in this document.
ARTICLE 2
ELIGIBILITY AND PARTICIPATION
2.1. ELIGIBILITY AND PARTICIPATION. Participation in the Plan shall be limited to only those employees of the Haynes International, Inc. Supplemental Executive Retirement Plan. From that group, the Haynes International, Inc. Retirement Committee shall select, in its sole discretion, employees to participate in the Plan. Any selected employee shall become a participant as of the date specified by the Committee. No employee has a right to be selected as a participant under this Plan, nor to continue as a participant under this Plan indefinitely. The Committee, however, shall comply with the terms of any employment agreement entered into by the Company with a particular employee in determining the eligibility of that employee to participate in this Plan. Subject solely to any individual employment agreement, eligibility and participation in this Plan shall cease automatically when a participant becomes totally and permanently disabled as determined by the Committee, when a participant first begins receiving a retirement benefit under any retirement benefit plan maintained by the Company for executives, or when otherwise determined by the Committee in its sole discretion.
ARTICLE 3
DEATH BENEFITS
3.1. DEATH BENEFITS. If a participant dies while employed by the Company, his or her designated beneficiary shall be entitled to receive a death benefit equal to the amount determined from time to time by the Committee and set forth in Exhibit A to this Plan.
3.2. DESIGNATION OF BENEFICIARY. Upon the commencement of participation in the Plan, each participant shall designate in writing on a form provided by the Committee and set forth in Exhibit B a beneficiary or beneficiaries to receive any death benefits payable under the terms of this Plan. A participant may revoke his or her beneficiary designation at any time and submit a new designation in writing. Upon the death of the participant, the
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Committee shall pay the death benefit due under this Plan in accordance with the last written beneficiary designation received by the Committee prior to the date of the participants death. If no beneficiary is designated, the death benefit shall be paid to the participants spouse, or if none, per stirpes to the participants descendants living at the time of his or her death, or, if none, to the participants estate.
3.3. METHOD OF PAYMENT. Death benefits provided under this Plan shall be paid as set forth in Exhibit A.
ARTICLE 4
GENERAL PROVISIONS
4.1. FUNDING. No funds shall be segregated or earmarked for any participant or beneficiary. However, the Company may use any means to set aside or generate funds necessary to satisfy its obligations under the Plan, including the purchase of insurance or the establishment of one or more grantor trusts of the type referred to as a rabbi trust. Any such assets that are set aside in the discretion of the Company for purposes of this Plan shall at all times be subject to the claims of the Companys general creditors in the event of insolvency, and no participant or beneficiary shall have any right, title or interest in any fund, any specific sum of money, any grantor trust, or any asset that may be acquired by the Company with respect to the Companys obligations under this Plan (other than as a general creditor of the Company with an unsecured claim against the general assets), or in any other assets of the Company by virtue of participation in this Plan.
4.2. EMPLOYMENT RIGHTS. Establishment of this Plan shall not be construed to give any participant the right to be retained by the Company, or to any benefits not specifically provided by the Plan.
4.3. EFFECT ON OTHER BENEFIT PLANS. Amounts paid under this Plan shall not be considered to be compensation for the purposes of any qualified retirement plan maintained by the Company. The treatment of such amounts under other employee benefit plans shall be pursuant to the provisions of each plan.
4.4. APPLICABLE LAW. This Plan shall be construed under the laws of the State of Indiana, and shall be binding upon and inure to the benefit of the participant and the Company and any successor company of the Company by way of merger, reorganization, acquisition, or sale by the Company of substantially all of its assets.
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ARTICLE 5
AMENDMENT AND TERMINATION,
5.1. AMENDMENT AND TERMINATION. The Company reserves the right to amend the Plan or terminate the Plan at any time. However, no such amendment or termination shall adversely affect the rights of a beneficiary already receiving payments under the Plan.
IN WITNESS WHEREOF, the Company has signed this Plan document as of January 1, 2003.
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HAYNES
INTERNATIONAL, INC., a Delaware
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/s/ FRANCIS J. PETRO |
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PRESIDENT & CEO |
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[Exhibit A - Determination of Death Benefit Amount and Exhibit B - Beneficiary Form have been omitted from the Plan as filed with the Securities and Exchange Commission (the SEC). The omitted information is considered immaterial from an investors perspective. The Registrant will furnish supplementally a copy of any of the omitted exhibits to the SEC upon request from the SEC.]
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Exhibit 10.3
AMENDMENT NUMBER
ONE
TO THE
HAYNES INTERNATIONAL, INC. DEATH BENEFIT PLAN
The Haynes International, Inc. Death Benefit Plan (Plan) is hereby amended by Haynes International, Inc. (the Corporation) as hereinafter provided.
BACKGROUND
The Corporation reserved the right to amend the Plan pursuant to SECTION 5.1 of the Plan and now desires to amend the Plan to modify EXHIBIT A attached to the Plan in order to remove restrictions and further qualify certain death benefits payable by the Corporation under the Plan.
AMENDMENT
The Plan is hereby amended, effective as of the dates indicated herein, as follows:
1. The phrase $1,600,000 payable from 10/01/03 to 9/30/04 set forth in EXHIBIT A attached to the Plan is hereby deleted in its entirety and replaced with the following language:
$1,600,000 payable from 10/01/03 until such time as Frances Petro (Petro) shall retire from employment with the Company (Retirement); provided, however, that any death benefits to be provided to Petro under this Plan prior to Retirement shall be reduced by the SERP Benefit (as defined in the SERP Plan) Petro (or his beneficiary) has previously received or has become entitled to receive, whether in cash or otherwise, under the Haynes International, Inc. Supplemental Executive Retirement Plan, effective January 1, 2002 (the SERP Plan).
2. The phrase Agreement terminates 10/01/04 unless continued by mutual consent of the parties set forth in EXHIBIT A attached to the Plan is hereby deleted in its entirety.
3. This Amendment may be executed in multiple counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument. The validity, meaning and effect of this Amendment shall be determined in accordance with the laws of the State of Indiana applicable to contracts made and to be performed in that State.
4. This Amendment amends the Plan to the extent provided herein only and all other provisions thereof shall remain in full force and effect.
The Amendment Number One to the Haynes International, Inc. Death Benefit Plan is executed as of the 30th day of August, 2004.
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/s/ Jean C. Neel |
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Vice President , Corporate Affairs and Corporate Secretary |
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Exhibit 10.4
HAYNES INTERNATIONAL, INC.
Supplemental Executive Retirement Plan
PLAN DOCUMENT
EFFECTIVE JANUARY 1, 2002
TABLE OF CONTENTS
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PURPOSE |
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ARTICLE I. |
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Definitions |
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ARTICLE II. |
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Eligibility |
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Selection by Committee |
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Enrollment Requirements |
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Commencement of Participation |
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ARTICLE III. |
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Benefits |
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Normal Benefit |
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Change in Control Benefit |
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Death Prior to the Commencement of Benefits |
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Death After the Commencement of Benefits |
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Limitation on Benefits |
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Forms of Benefit Payment |
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Normal Forms of Benefit |
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Automatic Lump Sum Benefit |
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Termination, Amendment or Modification of the Plan |
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5.1. |
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Termination |
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5.2. |
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Amendment |
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Plan Agreement |
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Effect of Payment |
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ARTICLE VI. |
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Other Benefits and Agreements |
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Coordination with Other Benefits |
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ARTICLE VII. |
|
Administration of the Plan |
|
11 |
|
|
|
|
|
7.1. |
|
Committee Duties |
|
11 |
7.2. |
|
Agents |
|
11 |
7.3. |
|
Binding Effect of Decisions |
|
11 |
1
7.4 |
|
Indemnity of Committee |
|
11 |
7.5. |
|
Employer Information |
|
11 |
|
|
|
|
|
ARTICLE VIII. |
|
Claims Procedures |
|
11 |
|
|
|
|
|
8.1. |
|
Presentation of Claim |
|
11 |
8.2. |
|
Notification of Decision |
|
12 |
8.3. |
|
Review of a Denied Claim |
|
12 |
8.4. |
|
Decision on Review |
|
13 |
8.5. |
|
Legal Action |
|
13 |
|
|
|
|
|
ARTICLE IX. |
|
Beneficiary Designation |
|
14 |
|
|
|
|
|
9.1. |
|
Beneficiary |
|
14 |
9.2. |
|
Beneficiary Designation; Change |
|
14 |
9.3. |
|
Acknowledgment |
|
14 |
9.4. |
|
No Beneficiary Designation |
|
14 |
9.5. |
|
Doubt as to Beneficiary |
|
14 |
9.6. |
|
Discharge of Obligations |
|
14 |
|
|
|
|
|
ARTICLE X. |
|
Trust |
|
15 |
|
|
|
|
|
10.1. |
|
Establishment of the Trust |
|
15 |
10.2. |
|
Interrelationship of the Plan and the Trust |
|
15 |
10.3. |
|
Distributions From the Trust |
|
15 |
|
|
|
|
|
ARTICLE XI. |
|
Miscellaneous |
|
15 |
|
|
|
|
|
11.1. |
|
Status of the Plan |
|
15 |
11.2. |
|
Unsecured General Creditor |
|
15 |
11.3. |
|
Employers Liability |
|
15 |
11.4. |
|
Nonassignability |
|
15 |
11.5. |
|
Not a Contract of Employment |
|
16 |
11.6. |
|
Furnishing Information |
|
16 |
11.7. |
|
Terms |
|
16 |
11.8. |
|
Captions |
|
16 |
11.9. |
|
Governing Law |
|
16 |
11.10. |
|
Notice |
|
16 |
11.11. |
|
Successors |
|
17 |
11.12. |
|
Spouses Interest |
|
17 |
11.13. |
|
Validity |
|
17 |
11.14. |
|
Incompetent |
|
17 |
11.15. |
|
Court Order |
|
17 |
2
11.16 |
|
Distribution in the Event of Taxation |
|
18 |
3
HAYNES
INTERNATIONAL, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
EFFECTIVE JANUARY 1, 2002
PURPOSE
The purpose of this Plan, as hereinafter defined, is to provide specified benefits to a select group of management and highly compensated employees of Haynes International, Inc., a Delaware corporation, and its subsidiaries, if any, that sponsor this Plan. This Plan shall be unfunded for tax purposes and for purposes of Title I of ERISA.
ARTICLE I.
DEFINITIONS
For purposes hereof, unless otherwise clearly apparent from the context, the following phrases or terms shall have the following indicated meanings:
1.1 Actuarial Equivalent shall mean a benefit or benefits, or a payment or payments, which are of equal value to the benefits for which they are to be substituted. Equivalence of value is determined from actuarial calculations based on certain actuarial assumptions as to mortality, interest and return of assets, which will be determined by the most recent actuarial report of the Haynes International, Inc. Defined Pension Benefit Plan, applied with respect to the particular Form, as hereinafter defined, of payment under this Plan.
1.2 Average Compensation shall mean the average of a Participants, as hereinafter defined, Compensation, as hereinafter defined, for his or her last sixty (60) full calendar months of employment with an Employer, as hereinafter defined, (or, if the Participant has been employed for less than sixty (60) full calendar months, the actual number of the Participants full calendar months of employment) prior to the Determination Date, as hereinafter defined.
1.3 Beneficiary shall mean the individual designated in accordance with Article 9 that is entitled to receive benefits under this Plan upon the death of a Participant.
1.4 Beneficiary Designation Form shall mean the form established from time to time by the Committee that a Participant completes, signs and returns to the Committee to designate one or more Beneficiaries.
1.5 Board shall mean the board of directors of the Company, as hereinafter defined.
1.6 Change in Control shall mean the first to occur of any of the following events:
4
(a) Any person (as that term is used in Section 13 and 14(d)(2) of the Securities Exchange Act of 1934, as amended (Exchange Act)) becomes the beneficial owner (as that term is used in Section 13(d) of the Exchange Act), directly or indirectly, of fifty percent (50%) or more of the Companys capital stock entitled to vote in the election of directors;
(b) During any period of not more than two consecutive years, not including any period prior to the adoption of this Plan, individuals who, at the beginning of such period constitute the Board, and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in clause (a), (c), (d) or (e) of this Section 1.6) whose election by the Board or nomination for election by the Companys stockholders was approved by a vote of at least three-fourths (3/4ths) of the directors then still in office, who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority thereof;
(c) The shareholders of the Company approve any consolidation or merger of the Company, other than a consolidation or merger of the Company in which the holders of the common stock of the Company immediately prior to the consolidation or merger hold more than fifty percent (50%) of the voting rights of the surviving corporation immediately after the consolidation or merger;
(d) The shareholders of the Company approve any plan or proposal for the liquidation or dissolution of the Company; or
(e) The shareholders of the Company approve the sale or transfer of all or substantially all of the assets of the Company to parties that are not within a controlled group of corporations (as defined in Code, as hereinafter defined, Section 1563) in which the Company is a member.
1.7 Change in Control Benefit shall mean the benefits set forth in Section 3.2.
1.8 Claimant shall have the meaning set forth in Section 8.1.
1.9 Code shall mean the Internal Revenue Code of 1986, as amended from time to time.
1.10 Committee shall mean the Committee described in Article 7.
1.11 Company shall mean Haynes International, Inc., a Delaware Corporation, and any successor to all or substantially all of the Companys assets or business.
1.12 Compensation shall mean the annual base salary and bonus paid to a Participant under any Employers annual bonus or cash incentive plans, but excluding commissions,
5
overtime, fringe benefits, stock options, relocation expenses, non-monetary awards, director fees and other fees, and automobile and other allowances (whether or not such allowances are included in the Employees, as hereinafter defined, gross income). Annual base salary and bonus amounts shall be calculated before reduction for compensation deferred pursuant to all qualified, non-qualified and Code Section 125 plans of any Employer; provided, however, that all such amounts will be included in compensation only to the extent that had there been no such plan, the amount would have been payable in cash to the Employee.
1.13 Death Benefit shall mean the benefits due, if any, to the Participants Beneficiary pursuant to Article 3 upon the Participants death.
1.14 Determination Date shall mean, for purposes of calculating the SERP Benefit, as hereinafter defined, the earlier of (i) date on which a Change in Control occurs, (ii) the date on which the Participant dies while employed by an Employer, or (iii) the date on which the Participant experiences a Termination of Employment, as hereinafter defined.
1.15 Election Form shall mean the form established from time to time by the Committee that a Participant completes, signs and returns to the Committee to make an election under the Plan.
1.16 Employee shall mean any individual employed by an Employer.
1.17 Employer(s) shall mean the Company and/or any of its subsidiaries (now in existence or hereafter formed or acquired) that have been selected by the Board to participate in the Plan and have adopted the Plan as a sponsor.
1.18 ERISA shall mean the Employee Retirement Income Security Act of 1974, as it may be amended from time to time.
1.19 Form shall mean form of payment as described in Article 4.
1.20 Life Annuity shall mean a benefit that is payable monthly in the form of an annuity for the life of the Participant and that is equal to the Participants SERP Benefit.
1.21 Lump Sum shall mean a benefit that is payable in a lump sum and that is the Actuarial Equivalent of the Participants SERP Benefit.
1.22 Normal Benefit shall mean the benefits set forth in Section 3.1.
1.23 Participant shall mean any Employee (i) who is selected to participate in the Plan, (ii) who elects to participate in the Plan, (iii) who signs a Plan Agreement and a Beneficiary Designation Form, (iv) whose signed Plan Agreement and Beneficiary Designation Form
6
are accepted by the Committee, (v) who commences participation in the Plan, and (vi) whose Plan Agreement has not terminated.
1.24 Plan shall mean the Companys Supplemental Executive Retirement Plan, which shall be evidenced by this instrument and by each Plan Agreement, as amended from time to time.
1.25 Plan Agreement shall mean a written agreement, as may be amended from time to time, which is entered into by and between an Employer and a Participant. Each Plan Agreement executed by a Participant shall provide for the entire benefit to which such Participant is entitled under the Plan; should there be more than one Plan Agreement, the Plan Agreement bearing the latest date of acceptance by the Employer shall supercede all previous Plan Agreements in their entirety and shall govern such entitlement. The terms of any Plan Agreement may be different for any Participant, and any Plan Agreement may provide additional benefits not set forth in the Plan or limit the benefits otherwise provided under the Plan; provided, however, that any such additional benefits or benefit limitations must be agreed to by both the Employer and the Participant.
1.26 SERP Benefit shall have the meaning set forth in each Participants Plan Agreement.
1.27 Term Certain and Life Annuity shall mean a benefit that is payable monthly in the form of an annuity for the greater of (i) ten (10) years, or (ii) the life of the Participant, and that is the Actuarial Equivalent of the Participants SERP Benefit. If the Participant dies prior to the receipt of the guaranteed monthly payments, then the balance of the guaranteed monthly payments shall be paid to the Participants designated Beneficiary and shall continue until the total guaranteed monthly payments have been made to the Participant and his or her Beneficiary.
1.28 Termination of Employment or Terminates Employment shall mean severance from employment with all Employers, voluntarily or involuntarily, for any reason, including retirement or disability, but excluding death.
1.29 Trust shall mean the trust, if any, established by the Company as set forth in Article 10.
1.30 Year(s) of Service shall mean the total number of full years plus whole calendar months in which a Participant has been employed by one or more Employers, computed as of the Determination Date. For purposes of this definition, a year of employment shall be a 365 day period (or 366 day period in the case of a leap year) that, for the first year of employment, commences on the Employees date of hiring and that, for any subsequent year, commences on an anniversary of that hiring date.
7
ARTICLE II.
ELIGIBILITY
2.1. SELECTION BY COMMITTEE. Participation in the Plan shall be limited to a select group of management and highly compensated Employees of the Employers, as determined by the Committee in its sole discretion. From that group, the Committee shall select, in its sole discretion, Employees to participate in the Plan.
2.2. ENROLLMENT REQUIREMENTS. As a condition to participation, each selected Employee shall complete, execute and return to the Committee a Plan Agreement and a Beneficiary Designation Form, all within the time period specified by the Committee. In addition, the Committee shall establish from time to time such other enrollment requirements as it determines in its sole discretion are necessary.
2.3. COMMENCEMENT OF PARTICIPATION. Provided an Employee selected to participate in the Plan has met all enrollment requirements set forth in this Plan and required by the Committee, including returning all required documents to the Committee within the specified time period, that Employee shall commence participation in the Plan on the date specified by the Committee. If a selected Employee fails to meet all such requirements within the period required, in accordance with Section 2.2 that Employee shall not be eligible to participate in the Plan until the completion of those requirements.
ARTICLE III.
BENEFITS
3.1. NORMAL BENEFIT. A Participant who experiences a Termination of Employment shall receive, as his or her Normal Benefit, a SERP Benefit which shall commence on the first day of the month following the date he or she Terminates Employment. The benefit shall be payable in the form set forth in Article 4.
3.2. CHANGE IN CONTROL BENEFIT. If a Change in Control occurs, the Participant shall receive, as his or her Change in Control Benefit, a SERP Benefit. The Participant will receive his or her Change in Control Benefit in the form of a Lump Sum. The Lump Sum payment will be made on the first day of the month coinciding with or next following the date on which the Change in Control occurs.
3.3. DEATH PRIOR TO THE COMMENCEMENT OF BENEFITS. If a Participant dies prior to the commencement of his or her benefits, then his or her Beneficiary shall receive, as a Death Benefit, a Lump Sum computed as if the Participant experienced a Termination of Employment on the date of his or her death. The Lump Sum payment shall be made to the Participants Beneficiary on the first day of the month coinciding with or next following the date of the Participants death.
8
3.4. DEATH AFTER THE COMMENCEMENT OF BENEFITS. Upon the death of a Participant after his or her SERP Benefits commence, the Form in which such Participants benefit is paid shall determine (i) the amount, if any; and (ii) the Form of the Death Benefit payable, to such Participants Beneficiary.
3.5. LIMITATION ON BENEFITS. Notwithstanding the foregoing provisions of this Article 3, in no event shall a Participant or his or her Beneficiary receive more than one Form of benefit under this Article 3.
3.6. WITHHOLDING AND PAYROLL TAXES. The Participants Employer shall withhold from any and all benefits made under this Article 3, all federal, state and local income, employment and other taxes required to be withheld by such Participants Employer in connection with the benefits hereunder, in amounts to be determined in the sole discretion of the Employer.
ARTICLE IV.
FORMS OF BENEFIT PAYMENT
4.1. NORMAL FORMS OF BENEFIT. A Participant who is entitled to receive a SERP Benefit as a Normal Benefit will receive such benefits in the Form of a Life Annuity.
4.2. OPTIONAL FORMS OF BENEFIT. A Participant may elect to receive his or her Normal Benefit in a form other than a Life Annuity or a Lump Sum, as the case may be. A Participant may elect to receive his or her Normal Benefit in the form of (i) a 10 Year Term Certain and Life Annuity, (ii) a Life Annuity, or (iii) a Lump Sum; provided, however, that if such form is other than a Life Annuity, the Participants SERP Benefit will be increased or decreased, as the case may be, to be a benefit which is the Actuarial Equivalent and which reflects the actual form of benefit payment elected by the Participant pursuant to this Section 4.2. A Participant may make such an election by submitting an Election Form to the Committee; provided, however, that in order for the Election Form to be valid, it must be both submitted to and accepted by the Committee in its sole discretion at least thirteen (13) months prior to the Participants Termination of Employment. The Election Form most recently accepted by the Committee shall govern the payout of the Participants Normal Benefit.
4.3. AUTOMATIC LUMP SUM BENEFIT. If a Participant or his or her Beneficiary becomes eligible to receive a distribution under this Plan or is currently receiving distributions from the Plan, and the value of the remaining unpaid benefit is less than $5,000 when expressed on an Actuarial Equivalent basis as a lump sum, the Committee, in its sole discretion, may pay the remaining unpaid benefit in a lump sum, despite any elections the Participant may have made regarding the form of benefit payments.
9
ARTICLE V.
TERMINATION, AMENDMENT OR MODIFICATION OF THE PLAN
5.1. TERMINATION. Each Employer reserves the right to terminate the Plan at any time with respect to its participating Employees by the actions of its Board. The termination of the Plan shall not adversely affect any Participant or his or her Beneficiary who has become entitled to the payment of any benefits under the Plan as of the date of termination; provided, however, that the Employer shall have the right to accelerate payments by paying the Actuarial Equivalent value of such payments. For all other Participants, upon the termination of the Plan, all Plan Agreements shall terminate and the Actuarial Equivalent of a Participants SERP Benefit shall be paid out in a Lump Sum. For this purpose, each covered Participant shall be deemed to have Terminated Employment on the date of the Plans Termination Date, and his or her SERP benefit shall be calculated as of such Termination Date.
5.2. AMENDMENT. Any Employer may, at any time, amend or modify the Plan in whole or in part with respect to its participating Employees by the actions of its board of directors; provided, however, that no amendment or modification shall be effective to decrease or restrict a Participants then SERP Benefit, determined on an Actuarial Equivalent basis. The amendment or modification of the Plan shall not affect any Participant or his or her Beneficiary who has become entitled to the payment of benefits under the Plan as of the date of the amendment or modification; provided, however, that the Employer shall have the right to accelerate payments by paying the Actuarial Equivalent value of such payments in a Lump Sum.
5.3. PLAN AGREEMENT. Despite the provisions of Sections 5.1 and 5.2 above, if a Participants Plan Agreement contains benefits or limitations that are not in this Plan document, the Employer may only amend or terminate such provisions with the written consent of the Participant.
5.4. EFFECT OF PAYMENT. Absent the earlier termination, modification or amendment of the Plan, the full payment of the applicable benefit as provided under Articles 3 and 4 of the Plan shall completely discharge all obligations to a Participant and his or her designated Beneficiaries under this Plan and the Participants Plan Agreement shall terminate.
ARTICLE VI.
OTHER BENEFITS AND AGREEMENTS
6.1. COORDINATION WITH OTHER BENEFITS. The benefits provided for a Participant under this Plan are in addition to any other benefits available to such Participant under any other plan or program for Employees. The Plan shall supplement and shall not supersede, modify or amend any other such plan or program except as may otherwise be expressly provided.
10
ARTICLE VII.
ADMINISTRATION OF THE PLAN
7.1. COMMITTEE DUTIES. This Plan shall be administered by the Compensation Committee of the Board, or such designees as the Board shall appoint. Members of the Committee may be Participants under this Plan. The Committee shall also have the discretion and authority to (i) make, amend, interpret and enforce all appropriate rules and regulations for the administration of the Plan and (ii) decide or resolve any and all questions including interpretations of the Plan, as may arise in connection with the Plan. Any individual serving on the Committee who is a Participant shall not vote or act on any matter relating solely to himself or herself. When making a determination or calculation, the Committee shall be entitled to rely on information furnished by a Participant or the Company.
7.2. AGENTS. In the administration of this Plan, the Committee may, from time to time, employ agents and delegate to them such administrative duties as it sees fit (including acting through a duly appointed representative) and may from time to time consult with counsel who may be counsel to any Employer.
7.3. BINDING EFFECT OF DECISIONS. The decision or action of the Committee with respect to any question arising out of or in connection with the administration, interpretation and application of the Plan and the rules and regulations promulgated hereunder subject to the review of the Board, which shall then be final and conclusive and binding upon persons having any interest in the Plan.
7.4. INDEMNITY OF COMMITTEE. All Employers shall indemnify and hold harmless the members of the Committee against any and all claims, losses, damages, expenses or liabilities arising from any action or failure to act with respect to this Plan, except in the case of willful misconduct by the Committee or any of its members.
7.5. EMPLOYER INFORMATION. To enable the Committee to perform its functions, each Employer shall supply full and timely information to the Committee on all matters relating to the compensation of its Participants, the date and circumstances of the death or Termination of Employment of its Participants and such other pertinent information as the Committee may reasonably require.
ARTICLE VIII.
CLAIMS PROCEDURES
8.1. PRESENTATION OF CLAIM. Any Participant or the Beneficiary of a deceased Participant (such Participant or Beneficiary being referred to below as a Claimant) may deliver to the Committee a written claim for a determination with respect to the amounts distributable to such Claimant from the Plan. If such a claim relates to the contents of a
11
notice received by the Claimant, the claim must be made within sixty (60) days after such notice was received by the Claimant. All other claims must be made within 180 days of the date on which the event that caused the claim to arise occurred. The claim must state with particularity the determination desired by the Claimant.
8.2. NOTIFICATION OF DECISION. The Committee shall consider a Claimants claim within a reasonable time, but no later than ninety (90) days after receiving the claim. If the Committee determines that special circumstances require an extension of time for processing the claim, written notice of the extension shall be furnished to the Claimant prior to the termination of the initial ninety (90) day period. In no event shall such extension exceed a period of ninety (90) days from the end of the initial period. The extension notice shall indicate the special circumstances requiring an extension of time and the date by which the Committee expects to render a benefit determination. The Committee shall notify the Claimant in writing:
(a) that the Claimants requested determination has been made, and that the claim has been allowed in full; or
(b) that the Committee has reached a conclusion contrary, in whole or in part, to the Claimants requested determination, and such notice must set forth in a manner calculated to be understood by the Claimant:
(i) the specific reason(s) for the denial of the claim, or any part of it;
(ii) specific reference(s) to pertinent provisions of the Plan upon which such denial was based;
(iii) a description of any additional material or information necessary for the Claimant to perfect the claim, and an explanation of why such material or information is necessary;
(iv) an explanation of the claim review procedure set forth in Section 8.3 below; and
(v) a statement of the Claimants right to bring a civil action under ERISA Section 502(a) following an adverse benefit determination on review.
8.3. REVIEW OF A DENIED CLAIM. On or before sixty (60) days after receiving a notice from the Committee that a claim has been denied, in whole or in part, a Claimant (or the Claimants duly authorized representative) may file with the Committee a written request for a review of the denial of the claim. The Claimant (or the Claimants duly authorized representative):
12
(a) may, upon request and free of charge, have reasonable access to, and copies of, all documents, records and other information relevant to the claim for benefits;
(b) may submit written comments or other documents; and/or
(c) may request a hearing, which the Committee, in its sole discretion, may grant.
8.4. DECISION ON REVIEW. The Committee shall render its decision on review promptly, and no later than sixty (60) days after the Committee receives the Claimants written request for a review of the denial of the claim. If the Committee determines that special circumstances require an extension of time for processing the claim, written notice of the extension shall be furnished to the Claimant prior to the termination of the initial sixty (60) day period. In no event shall such extension exceed a period of sixty (60) days from the end of the initial period. The extension notice shall indicate the special circumstances requiring an extension of time and the date by which the Committee expects to render the benefit determination. In rendering its decision, the Committee shall take into account all comments, documents, records and other information submitted by the Claimant relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination. The decision must be written in a manner calculated to be understood by the Claimant, and it must contain:
(a) specific reasons for the decision;
(b) specific reference(s) to the pertinent Plan provisions upon which the decision was based;
(c) a statement that the Claimant is entitled to receive, upon request and free of charge, reasonable access to and copies of, all documents, records and other information relevant (as defined in applicable ERISA regulations) to the Claimants claim for benefits; and
(d) a statement of the Claimants right to bring a civil action under ERISA Section 502(a).
8.5. LEGAL ACTION. A Claimants compliance with the foregoing provisions of this Article 8 is a mandatory prerequisite to a Claimants right to commence any legal action with respect to any claim for benefits under this Plan. In any event, a Participant or his or her Beneficiary must bring a lawsuit within 180 days after final resolution of a claim or forfeit any and all rights with respect to such claim.
13
ARTICLE IX.
BENEFICIARY DESIGNATION
9.1. BENEFICIARY. Each Participant shall have the right, at any time, to designate his or her Beneficiary(ies) (both primary as well as contingent) to receive any Death Benefits payable under the Plan to the Participants Beneficiary upon the death of a Participant. The Beneficiary designated under this Plan may be the same as or different from the Beneficiary designation under any other plan of an Employer in which the Participant has an interest .
9.2. BENEFICIARY DESIGNATION; CHANGE. A Participant shall designate his or her Beneficiary by completing and signing the Beneficiary Designation Form and returning it to the Committee or its designated agent. A Participant shall have the right to change a Beneficiary by completing, signing and otherwise complying with the terms of the Beneficiary Designation Form and the Committees rules and procedures, as in effect from time to time. Upon the acceptance by the Committee of a new Beneficiary Designation Form, all Beneficiary designations previously filed shall be cancelled. The Committee shall be entitled to rely on the last Beneficiary Designation Form filed by the Participant and accepted by the Committee prior to his or her death.
9.3. ACKNOWLEDGMENT. No designation or change in designation of a Beneficiary shall be effective until received, accepted and acknowledged in writing by the Committee or its designated agent.
9.4. NO BENEFICIARY DESIGNATION. If a Participant fails to designate a Beneficiary as provided in Sections 9.1, 9.2, and 9.3 above, or if all designated Beneficiaries predecease the Participant or die prior to complete distribution of the Participants benefits, the benefits remaining under the Plan shall be payable to the executor or personal representative of the Participants estate.
9.5. DOUBT AS TO BENEFICIARY. If the Committee has any doubt as to the proper Beneficiary to receive payments pursuant to this Plan, the Committee shall have the right, exercisable in its discretion, to cause the Participants Employer to withhold such payments until this matter is resolved to the Committees satisfaction.
9.6. DISCHARGE OF OBLIGATIONS. The payment of benefits under the Plan to a Beneficiary shall fully and completely discharge all Employers and the Committee from all further obligations under the Plan with respect to the Participant, and that Participants Plan Agreement shall terminate upon such full payment of benefits.
14
ARTICLE X.
TRUST
10.1. ESTABLISHMENT OF THE TRUST. In order to provide assets from which to fulfill the obligations of the Participants and their Beneficiaries under the Plan, the Company may establish a Trust by a trust agreement with a third party. Each Employer may, in its discretion, contribute cash or other property, including securities issued by the Company, to the Trust in order to provide for the benefit payments under the Plan.
10.2. INTERRELATIONSHIP OF THE PLAN AND THE TRUST. The provisions of the Plan and the Plan Agreement shall govern the rights of a Participant to receive distributions pursuant to the Plan. The provisions of the Trust, if any, shall govern the rights of the Employers, Participants and the creditors of the Employers to the assets transferred to the Trust. Each Employer shall at all times remain liable to carry out its obligations under the Plan.
10.3. DISTRIBUTIONS FROM THE TRUST. Each Employers obligations under the Plan may be satisfied with Trust assets distributed pursuant to the terms of the Trust, if any, and any such distribution shall reduce the Employers obligations under this Agreement.
ARTICLE XI.
MISCELLANEOUS
11.1. STATUS OF THE PLAN. The Plan is intended to be a plan that is not qualified within the meaning of Code Section 401 (a) and that is unfunded and is maintained by an employer primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees within the meaning of ERISA Sections 201(2), 301(a)(3) and 401(a)(1). The Plan shall be administered and interpreted to the extent possible in a manner consistent with that intent.
11.2. UNSECURED GENERAL CREDITOR. Participants, their Beneficiaries, heirs, successors and assigns shall have no legal or equitable rights, interests or claims in any property or assets of an Employer. For purposes of the payment of benefits under this Plan, any and all of an Employers assets shall be, and remain, the general, unpledged unrestricted assets of the Employer. An Employers obligation under the Plan shall be merely that of an unfunded and unsecured promise to pay money in the future.
11.3. EMPLOYERS LIABILITY. An Employers liability for the payment of benefits shall be defined only by the Plan and the Plan Agreement, as entered into between the Employer and a Participant. An Employer shall have no obligation to a Participant under the Plan except as expressly provided in the Plan and his or her Plan Agreement.
11.4. NONASSIGNABILITY. Neither a Participant nor any other person shall have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber,
15
transfer, hypothecate, alienate or convey in advance of actual receipt, the amounts, if any, payable hereunder, or any part thereof, which are, and all rights to which are, expressly declared to be, unassignable and non-transferable. No part of the amounts payable shall, prior to actual payment, be subject to seizure, attachment, garnishment or sequestration for the payment of any debts, judgments, alimony or separate maintenance owed by a Participant or any other person, be transferable by operation of law in the event of a Participants or any other persons bankruptcy or insolvency or be transferable to a spouse as a result of a property settlement or otherwise.
11.5. NOT A CONTRACT OF EMPLOYMENT. The terms and conditions of this Plan shall not be deemed to constitute a contract of employment between any Employer and the Participant. Such employment is hereby acknowledged to be an at will employment relationship that can be terminated at any time for any reason, or no reason, with or without cause, and with or without notice, unless expressly provided in a written employment agreement. Nothing in this Plan shall be deemed to give a Participant the right to be retained in the service of any Employer or to interfere with the right of any Employer to discipline or discharge the Participant at any time.
11.6. FURNISHING INFORMATION. A Participant or his or her Beneficiary will cooperate with the Committee by furnishing any and all information requested by the Committee and take such other actions as may be requested in order to facilitate the administration of the Plan and the payments of benefits hereunder.
11.7. TERMS. Whenever any words are used herein in the masculine, they shall be construed as though they were in the feminine in all cases where they would so apply; and wherever any words are used herein in the singular or in the plural, they shall be construed as though they were used in the plural or the singular, as the case may be, in all cases where they would so apply.
11.8. CAPTIONS. The captions of the articles, sections and paragraphs of this Plan are for convenience only and shall not control or affect the meaning or construction of any of its provisions.
11.9. GOVERNING LAW. Subject to ERISA, the provisions of this Plan shall be construed and interpreted according to the internal laws of the State of Indiana without regard to its conflict of laws principles.
11.10. NOTICE. Any notice or filing required or permitted to be given to the Committee under this Plan shall be sufficient if in writing and hand-delivered, or sent by registered or certified mail, to both of the addresses below:
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Jean Neel |
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WITH A CARBON COPY TO: |
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Vice President, Corporate Affairs |
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Compensation Committee, Board of Directors |
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Haynes International, Inc. |
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Haynes International, Inc. |
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1020 Park Avenue |
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1020 Park Avenue |
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Kokomo, Indiana 46904 |
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Kokomo, Indiana 46904 |
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Such notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification. Any notice or filing required or permitted to be given to a Participant under this Plan shall be sufficient if in writing and hand-delivered, or sent by mail, to the last known address of the Participant.
11.11. SUCCESSORS. The provisions of this Plan shall bind and inure to the benefit of the Participants Employer and its successors and assigns and the Participant and the Participants Beneficiary.
11.12. SPOUSES INTEREST. The interest in the benefits hereunder of a spouse of a Participant who has predeceased the Participant shall automatically pass to the Participant and shall not be transferable by such spouse in any manner, including but not limited to such spouses will, nor shall such interest pass under the laws of intestate succession.
11.13. VALIDITY. In case any provision of this Plan shall be illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining parts hereof, but this Plan shall be construed and enforced as if such illegal and invalid provision had never been inserted herein.
11.14. INCOMPETENT. If the Committee determines in its discretion that a benefit under this Plan is to be paid to a minor, a person declared incompetent or to a person incapable of handling the disposition of that persons property, the Committee may direct payment of such benefit to the guardian, legal representative or person having the care and custody of such minor, incompetent or incapable person. The Committee may require proof of minority, incompetency, incapacity or guardianship as it may deem appropriate prior to distribution of the benefit. Any payment of a benefit shall be a payment for the account of the Participant and the Participants Beneficiary, as the case may be, and shall be a complete discharge of any liability under the Plan for such payment amount.
11.15. COURT ORDER. The Committee is authorized to make any payments directed by court order in any action in which the Plan or Committee has been named as a party. In addition, if a court determines that a spouse or former spouse of a Participant has an interest in the Participants benefits under the Plan in connection with a property settlement or otherwise, the Committee, in its sole discretion, shall have the right, notwithstanding any election made by a Participant, to immediately distribute the spouses or former spouses interest in the Participants benefits under the Plan to that spouse or former spouse.
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11.16. DISTRIBUTION IN THE EVENT OF TAXATION. If, for any reason, all or any portion of a Participants benefit under this Plan becomes taxable to the Participant prior to receipt, a Participant may petition the Committee for a distribution of that portion of his or her benefit that has become taxable. Upon the grant of such a petition, which shall not be unreasonably withheld, a Participants Employer shall distribute to the Participant immediately available funds in an amount equal to the taxable portion of his or her benefit (which amount shall not exceed a Participants unpaid SERP Benefit under the Plan). If the petition is granted, the distribution shall be made within ninety (90) days of the date when the Participants petition is granted. Such a distribution shall affect and reduce the benefits to be paid under this Plan.
IN WITNESS WHEREOF, FRANCIS PETRO has signed this Plan document on December 13, 2002.
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Haynes International, Inc., a Delaware corporation |
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By: |
/s/ FRANCIS J. PETRO |
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Title: |
PRESIDENT & CEO |
18
Exhibit 10.5
AMENDMENT NUMBER ONE
TO THE
HAYNES INTERNATIONAL, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
The Haynes International, Inc. Supplemental Executive Retirement Plan (Plan) is hereby amended by Haynes International, Inc. (the Company) as hereinafter provided.
BACKGROUND
The Company reserved the right to amend the Plan pursuant to SECTION 5.2 of the Plan and now desires to amend the Plan to (i) delete all provisions pertaining to a Change in Control Benefit (as defined in the Plan) such that a Change in Control Benefit shall no longer be available under the Plan, and (ii) modify the definition of Compensation. For the avoidance of doubt, the consummation of a plan of reorganization of the Company and the transactions contemplated thereby as approved by the U.S. Bankruptcy Court for the Southern District of Indiana on August 16, 2004 with respect to the filing of a voluntary petition for bankruptcy by the Company under Chapter 11 of Title 11 of the U.S. Code (11 USC Section 101, ET. SEQ.) in the U.S. Bankruptcy Court for the Southern District of Indiana shall not constitute a Change in Control for purposes of the Plan.
AMENDMENT
The Plan is hereby amended, effective as of August 30, 2004, as follows:
1. SECTION 1.6, SECTION 1.7 and SECTION 3.2 of the Plan are hereby deleted in their entirety.
2. The validity, meaning and effect of this Amendment shall be determined in accordance with the laws of the State of Indiana applicable to contracts made and to be performed in that State.
3. This Amendment amends the Plan to the extent provided herein only and all other provisions thereof shall remain in full force and effect.
This Amendment to the Plan is executed as of the 30th day of August, 2004.
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HAYNES INTERNATIONAL, INC. |
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By: |
/s/ Jean C. Neel |
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Printed: |
Jean C. Neel |
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Title: |
Vice President Corporate Affairs and Corporate Secretary |
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2
Exhibit 10.6
HAYNES INTERNATIONAL, INC.
Supplemental Executive Retirement Plan(s)
MASTER TRUST AGREEMENT
Effective January 1, 2003
TABLE OF CONTENTS
Article |
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Page |
ARTICLE 1 |
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Name, Intentions, Irrevocability, Deposit and Definitions. |
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1 |
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1.1. |
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Name |
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1 |
1.2. |
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Intentions |
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1 |
1.3. |
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Irrevocability; Creditor Claims |
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1 |
1.4. |
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Initial Deposit |
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2 |
1.5. |
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Additional Definitions |
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2 |
1.6. |
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Grantor Trust |
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3 |
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ARTICLE 2 |
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General Administration |
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4 |
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2.1. |
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Committee Directions and Administration Before Change in Control |
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4 |
2.2. |
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Administration Upon Change in Control |
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4 |
2.3. |
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Contributions |
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4 |
2.4. |
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Trust Fund |
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5 |
2.5. |
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Distribution of Excess Trust Fund to Employers |
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5 |
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ARTICLE 3 |
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Powers and Duties of Trustee |
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5 |
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3.1. |
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Investment Directions |
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5 |
3.2. |
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Investment Upon Change in Control |
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5 |
3.3. |
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Management of Investments |
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6 |
3.4. |
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Securities |
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8 |
3.5. |
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Substitution |
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8 |
3.6. |
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Distributions |
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8 |
3.7. |
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Trustee Responsibility Regarding Payments on Insolvency |
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11 |
3.8. |
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Costs of Administration |
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13 |
3.9. |
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Trustee Compensation and Expenses |
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13 |
3.10. |
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Professional Advice |
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13 |
3.11. |
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Payment on Court Order |
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13 |
3.12. |
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Protective Provisions |
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14 |
3.13. |
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Indemnifications |
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14 |
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ARTICLE 4 |
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Insurance Contracts |
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15 |
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4.1. |
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Types of Contracts |
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15 |
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4.2. |
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Ownership |
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15 |
4.3. |
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Restrictions on Trustees Rights |
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15 |
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ARTICLE 5 |
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Trustees Accounts |
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15 |
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5.1. |
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Records |
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15 |
5.2. |
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Annual Accounting; Final Accounting |
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16 |
5.3. |
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Valuation |
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16 |
5.4. |
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Delegation of Duties |
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17 |
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ARTICLE 6 |
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Resignation or Removal of Trustee |
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17 |
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6.1. |
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Resignation; Removal |
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17 |
6.2. |
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Successor Trustee |
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17 |
6.3. |
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Settlement of Accounts |
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17 |
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ARTICLE 7 |
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Controversies, Legal Actions and Counsel |
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18 |
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7.1. |
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Controversy |
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7.2. |
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Joinder of Parties |
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18 |
7.3. |
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Employment of Counsel |
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18 |
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ARTICLE 8 |
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Insurers |
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18 |
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8.1. |
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Insurer Not a Party |
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18 |
8.2. |
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Authority of Trustee |
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18 |
8.3. |
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Contract Ownership |
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18 |
8.4. |
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Limitation of Liability |
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19 |
8.5. |
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Change of Trustee |
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19 |
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ARTICLE 9 |
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Amendment and Termination |
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19 |
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9.1. |
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Amendment |
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19 |
9.2. |
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Final Termination |
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20 |
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ARTICLE 10 |
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Miscellaneous |
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20 |
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10.1. |
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Directions Following Change in Control |
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20 |
10.2. |
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Taxes |
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21 |
10.3. |
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Third Persons |
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21 |
10.4. |
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Nonassignability; Nonalienation |
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21 |
10.5. |
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Applicable Law |
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21 |
10.6. |
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Notices and Directions |
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21 |
10.7. |
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Successors and Assigns |
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21 |
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10.8. |
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Gender and Number |
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22 |
10.9. |
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Headings |
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22 |
10.10. |
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Counterparts |
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22 |
10.11. |
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Beneficial Interest |
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22 |
10.12. |
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The Trust and Plans |
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22 |
10.13. |
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Effective Date |
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22 |
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Exhibit A |
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Plans |
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iii
MASTER TRUST AGREEMENT
FOR
HAYNES INTERNATIONAL, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN(S)
THIS MASTER TRUST AGREEMENT (Master Trust Agreement) is made and entered into as of January 13, 2003, between Haynes International, Inc., a Delaware corporation (the Company), and Legacy Trust Company, Inc., a Florida corporation (the Trustee), to evidence the master trust (the Trust) to be established, pursuant to those executive deferral plans or other arrangements of the Company listed in Exhibit A (the Plans) now or hereafter existing that require the establishment of a trust, for the benefit of a select group of management or highly compensated employees and/or Directors, as hereinafter defined, who contribute materially to the continued growth, development and business success of the Company and those subsidiaries of the Company, if any, that participate in the Plans (collectively, Subsidiaries, or singularly, Subsidiary).
ARTICLE 1
NAME, INTENTIONS, IRREVOCABILITY,
DEPOSIT AND DEFINITIONS
1.1. NAME. The name of the Trust created by this Agreement (the Trust) shall be:
MASTER TRUST AGREEMENT FOR
HAYNES NTERNATIONAL, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN(S)
1.2. INTENTIONS. The Company wishes to establish the Trust and to contribute to the Trust assets that shall be held therein, subject to the claims of the Companys and the Subsidiaries creditors in the event of their Insolvency (as defined below) until paid to Participants, as hereinafter defined, and their Beneficiaries, as hereinafter defined, in such manner and at such times as specified in the Plans, as hereinafter defined. It is the intention of the parties that this Trust shall constitute an unfunded arrangement and shall not affect the status of the Plans as unfunded plans maintained for the purpose of providing supplemental compensation for a select group of management or highly compensated employees and/or Directors for purposes of Title I of ERISA (as defined below). In addition, it is the intention of the Company and the Subsidiaries to make contributions to the Trust to provide themselves with a source of funds to assist them in the meeting of their liabilities under the Plans.
1.3. IRREVOCABILITY; CREDITOR CLAIMS. The Trust hereby established shall be irrevocable. Except as otherwise provided in Sections 2.5 and 9.2, the principal of the Trust, and any earnings thereon,
shall be held separate and apart from other finds of the Company and the Subsidiaries and shall be used exclusively for the uses and purposes of the Participants and the general creditors of the Company and the Subsidiaries as herein set forth. The Participants and their Beneficiaries shall have no preferred claim on, or any beneficial ownership interest in, any assets of the Trust. Any rights created under the Plans and this Master Trust Agreement shall be mere unsecured contractual rights of the Participants and their Beneficiaries against the Company and the Subsidiaries. Any assets held by the Trust will be subject to the claims of the Companys and the Subsidiaries general creditors under federal and state law in the event of Insolvency.
1.4. INITIAL DEPOSIT. The Company hereby deposits with the Trustee in trust $100, which shall become the principal of the Trust to be held, administered and disposed of by the Trustee as provided in this Master Trust Agreement
1.5. ADDITIONAL DEFINITIONS. In addition to the definitions set forth above, for purposes hereof, unless otherwise clearly apparent from the context, the following terms have the following indicated meanings:
(a) Beneficiary shall mean one or more persons, trusts, estates or other entities, designated in accordance with a Plan, that are entitled to receive benefits under a Plan upon the death of a Participant.
(b) Board shall mean the board of directors of the Company.
(c) Change in Control shall be deemed to occur if.
(i) Any person (as that term is used in Section 13 and 14(d)(2) of the Securities Exchange Act of 1934 (Exchange Act)) becomes the beneficial owner (as that term is used in Section 13(d) of the Exchange Act), directly or indirectly, of fifty percent (50%) or more of the Companys capital stock entitled to vote in the election of Directors;
(ii) During any period of not more than two consecutive years, not including any period prior to the adoption of this Plan, individuals who, at the beginning of such period constitute the Board, and any new Director (other than a Director designated by a person, who has entered into an agreement with the Company to effect a transaction described in clause (i), (iii), (iv) or (v) of this Section 1.5(c)) whose election by the board of directors or nomination for election by the Companys stockholders was approved by a vote of at least three-fourths (3/4ths) of the Directors then still in office, who either were Directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority thereof;
(iii) The shareholders of the Company approve any consolidation or merger of the Company, other than a consolidation or merger of the Company in which the holders of the common stock of the Company immediately prior to the
2
consolidation or merger hold more than fifty (50%) of the common stock of the surviving corporation immediately after the consolidation or merger;
(iv) The shareholders of the Company approve any plan or proposal for the liquidation or dissolution of the Company, or
(v) The shareholders of the Company approve the sale or transfer of all or substantially all of the assets of the Company to parties that are not within a controlled group of corporations (as defined in Code Section 1563) in which the Company is a member.
(d) Committee shall mean the Retirement Committee appointed by the Board to administer this Trust.
(e) Director shall mean any member of the Board of Directors of the Company or any Subsidiary.
(f) ERISA shall mean the Employee Retirement Income Security Act of 1974, as it may be amended from time to time.
(g) Insolvent shall have the meaning set forth in Section 3.7(a) below.
(h) Insolvent Entity shall have the meaning set forth in Section 3.7(a) below.
(i) IRS shall mean the Internal Revenue Service.
(j) Participant shall mean a person who is a participant in one or more of the Plans in accordance with their terms and conditions.
(k) Payment Schedule shall have the meaning set forth in Section 3.6(b) below.
(l) Plan(s) shall mean those executive deferral plans or other arrangements of the Company listed in Exhibit A.
(m) Plan Year shall mean the Plan Year chosen for this Master Trust Agreement by the Board.
(n) Trust Fund shall mean the assets held by the Trustee pursuant to the terms of this Master Trust Agreement and for the purposes of the Plans.
1.6. GRANTOR TRUST. The Trust is intended to be a grantor trust, of which the Company and the Subsidiaries are the grantors, within the meaning of subpart E, part I, subchapter J, chapter 1, subtitle A of the Internal Revenue Code of 1986, as amended, and the Trust shall be construed accordingly.
3
ARTICLE 2
GENERAL ADMINISTRATION
2.1. COMMITTEE DIRECTIONS AND ADMINISTRATION BEFORE CHANGE IN CONTROL. Until a Change in Control has occurred, this Section 2.l shall be effective and the Committee shall direct the Trustee as to the administration of the Trust in accordance with the following provisions.
(a) The Committee shall be identified to the Trustee by a copy of the resolution of the Board appointing the Committee. In the absence thereof, the Board shall be the Committee. Persons authorized to give directions to the Trustee on behalf of the Committee shall be identified to the Trustee by written notice from the Committee, and such notice shall contain specimens of the authorized signatures. The Trustee shall be entitled to rely on such written notice as evidence of the identity and authority of the persons appointed until a written cancellation of the appointment, or the written appointment of a successor, is received by the Trustee.
(b) Directions by the Committee, or its delegate, to the Trustee shall be in writing and signed by the Committee or persons authorized by the Committee, or may be made by such other method as is acceptable to the Trustee.
(c) The Trustee may conclusively rely upon directions from the Committee in taking any action with respect to this Master Trust Agreement, including the making of payments from the Trust Fund and the investment of the Trust Fund pursuant to this Master Trust Agreement. The Trustee shall have no liability for actions taken, or for failure to act, on the direction of the Committee. The Trustee shall have no liability for failure to act in the absence of proper written directions.
(d) The Trustee may request instructions from the Committee and shall have no duty to act or liability for failure to act if such instructions are not forthcoming from the Committee. If requested instructions are not received within a reasonable time, the Trustee may, but is under no duty to, act on its own discretion to carry out the provisions of this Master Trust Agreement in accordance with this Master Trust Agreement and the Plans.
2.2. ADMINISTRATION UPON CHANGE IN CONTROL. In the event of a Change in Control, the authority of the Committee to administer the Trust and direct the Trustee, as set forth in Section 2.1 above, shall cease, and the Trustee shall have complete authority to administer the Trust.
2.3. CONTRIBUTIONS. Except as provided in any Plan, the Company and the Subsidiaries, in their sole discretion, may at any time, or from time to time, make additional deposits of cash, marketable securities, annuities or insurance policies in trust with the Trustee to augment the principal to be held, administered and disposed of by the Trustee as provided in this Master Trust Agreement. Neither the Trustee nor any Participant or Beneficiary shall have any right to compel such additional deposits. The Trustee shall have no duty to collect or enforce payment to it of any contributions or to require that any contributions be made, and shall have no duty to compute any
4
amount to be paid to it nor to determine whether amounts paid comply with the terms of the Plans; provided, however, that following a Change in Control, the Trustee shall have the right, in its sole and absolute discretion, to compel a contribution to the Trust from the Company to make up for any shortfall between (i) the anticipated benefit obligations and administrative expenses that are to be paid under the Plans and Trust and (ii) the assets of the Trust Fund.
2.4. TRUST FUND. The contributions received by the Trustee from the Company and the Subsidiaries shall be held and administered pursuant to the terms of this Master Trust Agreement as a single fund without distinction between income and principal and without liability for the payment of interest thereon except as expressly provided in this Master Trust Agreement. During the term of this Trust, all income received by the Trust, net of expenses and taxes, shall be accumulated and reinvested.
2.5. DISTRIBUTION OF EXCESS TRUST FUND TO EMPLOYERS. In the event that the Committee, prior to a Change in Control, or the Trustee in its sole and absolute discretion, after a Change in Control, determines that the Trust Fund exceeds 1125 percent of the anticipated benefit obligations and administrative expenses that are to be paid under the Plans, the Trustee, at the direction of the Committee prior to a Change in Control, or in its sole and absolute discretion after a Change in Control, shall distribute to the Company and the Subsidiaries such excess portion of the Trust Fund.
ARTICLE 3
POWERS AND DUTIES OF TRUSTEE
3.1. INVESTMENT DIRECTIONS. Except as provided in this Section and Section 3.2 below, the Committee shall provide the Trustee with all investment instructions in writing. The Trustee shall neither affect nor change investments of the Trust Fund, except as directed in writing by the Committee, and shall have no right, duty or responsibility to recommend investments or investment changes; provided, that the Trustee may (i) deposit cash on hand from time to time in any bank savings account, certificate of deposit, or other instrument creating a deposit liability for a bank, including the Trustees own banking department, if the Trustee is a bank, without such prior direction, or (ii) invest in government securities, bonds with specific ratings, equities, or mutual funds composed of such investments, all within broad investment guidelines established by the Committee from time to time.
3.2. INVESTMENT UPON CHANGE IN CONTROL. In the event of a Change in Control, the authority of the Committee to direct investments of the Trust Fund shall cease and the Trustee shall have complete authority to direct investments of the Trust Fund. The president of the Company shall notify the Trustee in writing when a Change in Control has occurred. The Trustee has no duty to inquire whether a Change in Control has occurred and may rely on notification by the president of the Company of a Change in Control; provided, however, that if any officer, former officer, Director or former Director of the Company or any Subsidiary (other than the president of the
5
Company), or any Participant notifies the Trustee that there has been or there may be a Change in Control, the Trustee shall have the duty to satisfy itself as to whether a Change in Control has in fact occurred. The Company and the Subsidiaries shall indemnify and hold harmless the Trustee for any damages or costs (including attorneys fees) that may be incurred because of reliance on the presidents notice or lack thereof.
3.3. MANAGEMENT OF INVESTMENTS. Subject to Section 3.1 above, the Trustee shall have, without exclusion, all powers conferred on the Trustee by applicable law, unless expressly provided otherwise herein, and all rights associated with assets of the Trust shall be exercised by the Trustee or the person designated. by the Trustee, and shall in no event be exercisable by or rest with Participants or their Beneficiaries. The Trustee shall have full power and authority to invest and reinvest the Trust Fund in any investment permitted by law, exercising the judgment and care that persons of prudence, discretion and intelligence would exercise under the circumstances then prevailing, considering the probable income and safety of their capital, including, without limiting the generality of the foregoing, the power:
(a) To invest and reinvest the Trust Fund, together with the income therefrom, in common stock, preferred stock, convertible preferred stock, mutual funds, bonds, debentures, convertible debentures and bonds, mortgages, notes, time certificates of deposit, commercial paper and other evidences of indebtedness (including those issued by the Trustee or any of its affiliates), other securities, policies of life insurance, annuity contracts, options to buy or sell securities or other assets, and other property of any kind (personal, real, or mixed, and tangible or intangible); provided, however, that in no event may the Trustee invest in securities (including stock or rights to acquire stock) or obligations issued by the Company or the Subsidiaries, other than a de minimis amount held in common investment vehicles in which the Trustee invests;
(b) To deposit or invest all or any part of the assets of the Trust Fund in savings accounts or certificates of deposit or other deposits which bear a reasonable interest rate in a bank, including the commercial department of the Trustee, if such bank is supervised by the United States or any State;
(c) To hold, manage, and control all financial assets, forming part of the Trust Fund and to sell, convey, transfer, exchange, partition, lease for any term, even extending beyond the duration of this Trust, and otherwise dispose of the same from time to time in such manner, for such consideration, and upon such terms and conditions as the Trustee shall determine;
(d) To have, respecting securities, all the rights, powers and privileges of an owner, including the power to give proxies, pay assessments and other sums deemed by the Trustee to be necessary for the protection of the Trust Fund, to vote any corporate stock either in person or by proxy, with or without power of substitution, for any purpose; to participate in voting trusts, pooling agreements, foreclosures, reorganizations, consolidations,
6
mergers and liquidations, and in connection therewith to deposit securities with and transfer title to any protective or other committee under such terms as the Trustee may deem advisable; to exercise or sell stock subscriptions or conversion rights; and, regardless of any limitation elsewhere in this instrument relative to investment by the Trustee, to accept and retain as an investment any securities or other property received through the exercise of any of the foregoing powers;
(e) To hold in cash, without liability for interest, such portion of the Trust Fund which, in its discretion, shall be reasonable under the circumstances, pending investments, or payment of expenses, or the distribution of benefits;
(f) To take such actions as may be necessary or desirable to protect the Trust Fund from loss due to the default on mortgages held in the Trust including the appointment of agents or trustees in such other jurisdictions as may seem desirable, to transfer property to such agents or trustees, to grant such powers as are necessary or desirable to protect the Trust or its assets, to direct such agents or trustees, or to delegate such power to direct, and to remove such agents or trustees;
(g) To employ such agents including custodians and counsel as may be reasonably necessary and to pay them reasonable compensation; to settle, compromise or abandon all claims and demands in favor of or against the Trust assets;
(h) To cause title to property of the Trust to be issued, held or registered in the individual name of the Trustee, or in the name of its nominee(es) or agents, or in such form that title will pass by delivery;
(i) To exercise all of the further rights, powers, options and privileges granted, provided for, or vested in trustees generally under the laws of the State whose laws are applicable to this Master Trust Agreement, as provided in Section 10.5 below, so that the powers conferred upon the Trustee herein shall not be in limitation of any authority conferred by law, but shall be in addition thereto;
(j) To borrow money from any source (including the Trustee) and to execute promissory notes, mortgages or other obligations and to pledge or mortgage any Trust assets as security; (k) To lend certificates representing stocks, bonds, or other securities to any brokerage or other firm selected by the Trustee;
(l) To institute, compromise and defend actions and proceedings; to pay or contest any claim; to settle a claim by or against the Trustee by compromise, arbitration, or otherwise; to release, in whole or in part, any claim belonging to the Trust to the extent that the claim is uncollectible;
7
(m) To use securities depositories or custodians and to allow such securities as may be held by a depository or custodian to be registered in the name of such depository or its nominee or in the name of such custodian or its nominee;
(n) To invest the Trust Fund from time to time in one or more investment funds, which funds shall be registered under the Investment Company Act of 1940; and
(o) To do all other acts necessary or desirable for the proper administration of the Trust Fund, as if the Trustee were the absolute owner thereof.
However, nothing in this section shall be construed to mean the Trustee assumes any responsibility for the performance of any investment made by the Trustee in its capacity as trustee under the operations of this Master Trust Agreement. Notwithstanding any powers granted to the Trustee pursuant to this Master Trust Agreement or to applicable law, the Trustee shall not have any power that could give this Trust the objective of carrying on a business and dividing the gains therefrom, within the meaning of section 301.7701-2 of the Procedure and Administrative Regulations promulgated pursuant to the Internal Revenue Code of 1986, as amended.
3.4. SECURITIES. Voting or other rights in securities shall be exercised by the person or entity responsible for directing such investments, and the Trustee shall have no duty to exercise voting or proxy or other rights relating to any investment managed or directed by the Committee. If any foreign securities are purchased pursuant to the direction of the Committee, it shall be the responsibility of the person or entity responsible for directing such investments to advise the Trustee in writing of any laws or regulations, either foreign or domestic, that apply to such foreign securities or to the receipt of dividends or interest on such securities.
3.5. SUBSTITUTION. Notwithstanding any provision of any Plan or the Trust to the contrary, the Company and/or any Subsidiary shall at all times have the power to reacquire the Trust Fund by substituting readily marketable securities (other than stock, a debt obligation or other security issued by the Company or any Subsidiary) and/or cash of an equivalent value and such other property shall, following such substitution, constitute the Trust Fund. Notwithstanding the foregoing, after a Change in Control, any such substitution shall be subject to the approval of the Trustee.
3.6. DISTRIBUTIONS.
(a) The establishment of the Trust and the payment or delivery to the Trustee of money or other property shall not vest in any Participant or Beneficiary any right, title, or interest in and to any assets of the Trust. To the extent that any Participant or Beneficiary acquires the right to receive payments under any of the Plans, such right shall be no greater than the right of an unsecured general creditor of the Company and the Subsidiaries and such Participant or Beneficiary shall have only the unsecured promise of the Company and the Subsidiaries that such payments shall be made.
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(b) Concurrent with the establishment of this Trust, the Company shall deliver to the Trustee a schedule (the Payment Schedule) that indicates the amounts payable in respect of each participant (and his or her Beneficiaries) on a Plan by Plan basis, provides a formula or formulas or other instructions acceptable to the Trustee for determining the amounts so payable, specifies the form in which such amount is to be paid (as provided for or available under the applicable Plans), and the time of commencement for payment of such amounts. The Payment Schedule shall be updated annually and upon a Change in Control and from time to time as is necessary thereafter. Except as otherwise provided herein, prior to a Change in Control, the Trustee shall make payments to the Participants and their Beneficiaries in accordance with such Payment Schedule. Despite the foregoing, after a Change in Control, the Trustee shall make payments in accordance with the terms and provisions of each of the Plans and related plan agreements. The Trustee, at the direction of the Committee or, after a Change in Control, on its own volition, may make any distribution required to be made by it hereunder by delivering:
(i) Its check payable to the person to whom such distribution is to be made, to the person, or, if prior to a Change in Control, to the Company for redelivery to such person; provided that before a Change in Control, the Committee may direct the Trustee to deliver one or more lump sum checks payable to the Company, and the Company shall prepare and deliver individual checks for each Participant or Beneficiary; or
(ii) Its check payable to an insurer for the benefit of such person, to the insurer, or, if prior to a Change in Control, to the Company for redelivery to the insurer; or
(iii) Contracts held on the life of the Participant to whom or with respect to whom the distribution is being made, to the Participant or Beneficiary, or, if prior to a Change in Control, to the Company for redelivery to the person to whom such distribution is to be made; or
(iv) If a distribution is being made, in whole or in part, of other assets, assignments or other appropriate documents or certificates necessary to effect a transfer of title, to the Participant or Beneficiary, or, if prior to a Change in Control, to the Company for redelivery to such person.
(c) If the principal of the Trust, and any earnings thereon, are not sufficient, determined on a Plan by Plan basis, to make payments of benefits in accordance with the terms of the Plans, the Company and the Subsidiaries shall make the balance of each such payment as it falls due. The Trustee shall notify the Company and the Subsidiaries when principal and earnings are not sufficient. To the extent that the total Trust assets available to make benefit payments to Participants or Beneficiaries who are currently entitled to payment are less than the liabilities of the Plans, the Trustee shall make benefit payments
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proportionate to the ratio of assets available to pay benefits to the total values of the liabilities.
(d) The Company and the Subsidiaries may make payment of benefits directly to Participants or their Beneficiaries as they become due under the terms of the Plans. The Company and the Subsidiaries shall notify the Trustee of their decisions to make payment of benefits directly prior to the time amounts are payable to Participants or their Beneficiaries.
(e) Notwithstanding anything contained in this Master Trust Agreement to the contrary, if at any time the Trust is finally determined by the IRS not to be a grantor trust with the result that the income of the Trust Fund is not treated as income of the Company or the Subsidiaries pursuant to Sections 671 through 679 of the Internal Revenue Code of 1986, as amended, or if a tax is finally determined by the IRS to be payable by one or more Participants or Beneficiaries with respect to any interest in the Plans or the Trust Fund prior to payment of such interest to any such Participant or Beneficiary, the Trustee shall immediately determine each Participants share of the Trust Fund in accordance with the Plans, and the Trustee shall immediately distribute such share in a lump sum to each Participant or Beneficiary entitled thereto, regardless of whether such Participants employment has terminated (provided such Participant has a vested interest in his or her accrued benefits under the Plans) and regardless of form and time of payments specified in or pursuant to the Plans. Any remaining assets (less any expenses or costs due under Sections 3.8 and 3.9 of this Master Trust Agreement) shall then be paid by the Trustee to the Company and the Subsidiaries in such amounts, and in the manner instructed by the Committee. If the value of the Trust Fund is less than the benefit obligations under the Plans, the foregoing described distributions will be limited to a Participants share of the Trust Fund, determined by allocating assets to the Participant based on the ratio of the Participants benefit obligations under the Plans to the total benefit obligations under the Plans. Prior to a Change in Control, the Trustee shall rely solely on the written directions of the Committee with respect to the occurrence of the foregoing events and the resulting distributions to be made, and the Trustee shall not be responsible for any failure to act in the absence of such direction.
(f) The Trustee shall make provision for the reporting and withholding of any federal, state or local taxes that may be required to be withheld with respect to the payment of benefits pursuant to the terms of the Plans and at the discretion of the Retirement Committee shall pay amounts withheld to the appropriate taxing authorities or determine that such amounts have been reported, withheld and paid by the Company and the Subsidiaries.
(g) Prior to a Change in Control, payments by the Trustee shall be delivered or mailed to addresses supplied by the Retirement Committee and the Trustees obligation to make such payments shall be satisfied upon such delivery or mailing. Prior to a Change in Control, the Trustee shall have no obligation to determine the identity of persons entitled to benefits or their mailing addresses. After a Change in Control, the Retirement
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Committee shall provide written directions as to the identity of persons entitled to benefits and their mailing addresses.
(h) Prior to a Change in Control, the entitlement of a Participant or his or her Beneficiaries to benefits under the Plans shall be determined by the Company and the Subsidiaries or such party as they shall designate under the Plans, and any claim for such benefits shall be considered and reviewed under the procedures set out in the Plans.
(i) Notwithstanding Section 3.6(h), upon and after the occurrence of a Change in Control, the Plan shall be administered by (i) an independent third party (the Administrator) selected by the Trustee and approved by the individual who, immediately prior to such event, was the Companys Chief Executive Officer or, if not so identified, the Companys highest ranking officer (the Ex-CEO), or (ii) if an independent third party is not selected within ninety (90) days of a Change in Control, the Committee. The Administrator shall have the discretionary power to determine all questions arising in connection with the administration of the Plan and the interpretation of the Plan and Trust including, but not limited to benefit entitlement determinations; provided, however, upon and after the occurrence of a Change in Control, the Administrator shall have no power to direct the investment of Plan or Trust assets or select any investment manager or custodial firm for the Plan or Trust. Upon and after the occurrence of a Change in Control, the Company must: (1) pay all reasonable administrative expenses and fees of the Administrator; (2) indemnify the Administrator against any costs, expenses and liabilities including, without limitation, attorneys fees and expenses arising in connection with the performance of the Administrator hereunder, except with respect to matters resulting from the gross negligence or willful misconduct of the Administrator or its employees or agents; and (3) supply full and timely information to the Administrator or all matters relating to the Plan, the Trust, the Participants and their Beneficiaries, the Account Balances of the Participants, the date of circumstances of the Retirement, Disability, death or Termination of Employment of the Participants, and such other pertinent information as the Administrator may reasonably require. Upon and after a Change in Control, the Administrator may be terminated (and a replacement appointed) by the Trustee only with the approval of the Ex-CEO. Upon and after a Change in Control, the Administrator may not be terminated by the Company.
3.7. TRUSTEE RESPONSIBILITY REGARDING PAYMENTS ON INSOLVENCY.
(a) The Trustee shall cease payment of benefits to Participants and their Beneficiaries if the Company, or any Subsidiary, is Insolvent (the Insolvent Entity). The Insolvent Entity shall be considered Insolvent for purposes of this Master Trust Agreement if:
(i) the Insolvent Entity is unable to pay its debts as they become due, or
(ii) the Insolvent Entity is subject to a pending proceeding as a debtor under the United States Bankruptcy Code.
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For purposes of this Section 3.7, if an entity is determined to be Insolvent, each Subsidiary in which such entity has an equity interest shall also be deemed to be an Insolvent Entity. However, the insolvency of a Subsidiary will not cause a parent corporation to be deemed Insolvent.
(b) At all times during the continuance of this Trust, as provided in Section 1.3 above, the principal and income of the Trust shall be subject to claims of the general creditors of the Company and its Subsidiaries under federal and state law as set forth below:
(i) The Board and the president of the Company shall have the duty to inform the Trustee in writing of the Companys or any Subsidiarys Insolvency. If a person claiming to be a creditor of the Company or my Subsidiary alleges in writing to the Trustee that the Company or any Subsidiary has become Insolvent, the Trustee shall determine whether the Company or any Subsidiary is Insolvent and, pending such determination, the Trustee shall discontinue payment of benefits to the Insolvent Entitys Participants or their Beneficiaries. Prior to a Change in Control, the Trustee may conclusively rely on any determination it receives from the Board or the president of the Company with respect to the Insolvency of the Company or any Subsidiary.
(ii) Unless the Trustee bas actual knowledge of the Companys or a Subsidiarys Insolvency, or has received notice from the Company, a Subsidiary, or a person claiming to be a creditor alleging that the Company or a Subsidiary is Insolvent, the Trustee shall have no duty to inquire whether the Company or any Subsidiary is Insolvent. The Trustee may in all events rely on such evidence, concerning the Companys or any Subsidiarys solvency as may be furnished to the Trustee and that provides the Trustee with a reasonable basis for making. a determination concerning the Companys or any Subsidiarys solvency. In this regard, the Trustee may rely upon a letter from the Companys or a Subsidiarys auditors as to the Companys or any Subsidiarys financial status.
(iii) If at any time the Trustee has determined that the Company or any Subsidiary is Insolvent, the Trustee shall discontinue payments to the Insolvent Entitys Participants or their Beneficiaries, and shall hold the portion of the assets of the Trust allocable to the Insolvent Entity for the benefit of the Insolvent Entitys general creditors. Nothing in this Master Trust Agreement shall in any way diminish any rights of Participants or their Beneficiaries to pursue their rights as general creditors of the Insolvent Entity with respect to benefits due under the Plans or otherwise.
(iv) The Trustee shall resume the payment of benefits to Participants or their Beneficiaries in accordance with this Article 3 of this Master Trust Agreement
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only after the Trustee has been provided proof that the alleged Insolvent Entity is not Insolvent (or is no longer Insolvent).
(c) Provided that there are sufficient assets, if the Trustee discontinues the payment of benefits from the Trust pursuant to Section 3.7(b) hereof and subsequently resumes such payments, the first payment following such discontinuance shall include the aggregate amount of all payments due to Participants or their Beneficiaries under the terms of the Plans for the period of such discontinuance, less the aggregate amount of any payments made to Participants or their Beneficiaries by the Company or any Subsidiary in lieu of the payments provided for hereunder during any such period of discontinuance. Prior to a Change in Control, the Committee shall instruct the Trustee as to such amounts, and after a Change in Control, the Trustee shall determine such amounts in accordance with the terms and provisions of the Plans.
3.8. COSTS OF ADMINISTRATION. The Trustee is authorized to incur reasonable obligations in connection with the administration of the Trust, including attorneys fees, Administrator fees, other administrative fees and appraisal fees. Such obligations shall be paid by the Company and the Subsidiaries. The Trustee is authorized to pay such amounts from the Trust Fund if the Company or the Subsidiaries fail to pay them within 60 days of presentation of a statement of the amounts due.
3.9. TRUSTEE COMPENSATION AND EXPENSES. The Trustee shall be entitled to reasonable compensation for its services as from time to time agreed upon between the Trustee and the Company. If the Trustee and the Company fail to agree upon a compensation, or following a Change in Control, the Trustee shall be entitled to compensation at a rate equal to the rate charged by the Trustee for similar services rendered by it during the current fiscal year for other trusts similar to this Trust. The Trustee shall be entitled to reimbursement for expenses incurred by it in the performance of its duties as the Trustee, including reasonable fees for legal counsel. The Trustees compensation and expenses shall be paid by the Company and the Subsidiaries. The Trustee is authorized to withdraw such amounts from the Trust Fund if the Company or the Subsidiaries fail to pay them within 60 days of presentation of a statement of the amounts due.
3.10. PROFESSIONAL ADVICE. The Company and the Subsidiaries specifically acknowledge that the Trustee and/or the Administrator may find it desirable or expedient to retain legal counsel (who may also be legal counsel for the Company generally) or other professional advisors to advise it in connection with the exercise of any duty under this Master Trust Agreement, including, but not limited to, any matter relating to or following a Change in Control or the Insolvency of the Company or any Subsidiary. The Trustee and/or Administrator shall be fully protected in acting upon the advice of such legal counsel or advisors.
3.11. PAYMENT ON COURT ORDER. To the extent permitted by law, the Trustee is authorized to make any payments directed by court order in any action in which the Trustee has been named as a party. The Trustee is not obligated to defend actions in which the Trustee is named, but shall
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notify the Company or Committee of any such action and may tender defense of the action to the Company, Committee, Participant or Beneficiary whose interest is affected. The Trustee may in its discretion defend any action in which the Trustee is named, and any expenses incurred by the Trustee shall be paid by the Company and the Subsidiaries. The Trustee is authorized to pay such amounts from the Trust Fund if the Company or the Subsidiaries fail to pay them within sixty (60) days of presentation of a statement of the amounts due.
3.12. PROTECTIVE PROVISIONS. Notwithstanding any other provision contained in this Master Trust Agreement to the contrary, the Trustee shall have no obligation to (i) determine the existence of any conversion, redemption, exchange, subscription or other right relating to any securities purchased of which notice was given prior to the purchase of such securities and shall have no obligation to exercise any such right unless the Trustee is advised in writing by the Committee both of the existence of the right and the desired exercise thereof within a reasonable time prior to the expiration of the right to exercise, or (ii) advance any funds to the Trust. Furthermore, the Trustee is not a party to the Plans.
3.13. INDEMNIFICATIONS.
(a) The Company and the Subsidiaries shall indemnify and hold the Trustee harmless from and against all loss or liability (including expenses and reasonable attorneys fees) to which it may be subject by reason of its execution of its duties under this Trust, or by reason of any acts taken in good faith in accordance with any directions, or acts omitted in good faith due to absence of directions, from the Company, the Committee or a Participant, unless such loss or liability is due to the Trustees gross negligence or willful misconduct. The indemnity described herein shall be provided by the Company and the Subsidiaries.
(b) In the event that the Trustee is named as a defendant in a lawsuit or proceeding involving one or more of the Plans or the Trust Fund, the Trustee shall be entitled to receive on a current basis the indemnity payments provided for in this Section, provided however that if the final judgment entered in the lawsuit or proceeding holds that the Trustee is guilty of gross negligence or willful misconduct with respect to the Trust Fund, the Trustee shall be required to refund the indemnity payments that it has received.
(c) The Company and the Subsidiaries shall indemnify and hold the Administrator harmless from and against all loss or liability (including expenses and reasonable attorneys fees) to which it may be subject by reason of its execution of its duties under this Trust, or by reason of any acts taken in good faith in accordance with any directions, or acts omitted in good faith due to absence of directions, from the Company, the Committee or a Participant, unless such loss or liability is due to the Administrators gross negligence or willful misconduct. The indemnity described herein shall be provided by the Company and the Subsidiaries.
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(d) In the event that the Administrator is named as a defendant in a lawsuit or proceeding involving one or more of the Plans or the Trust Fund, the Administrator shall be entitled to receive on a current basis the indemnity payments provided for in this Section, provided however that if the final judgment entered in the lawsuit or proceeding holds that the Administrator is guilty of gross negligence or willful misconduct with respect to its duties under the Plans or the Trust, the Administrator shall be required to refund the indemnity payments that it has received.
(e) All releases and indemnities provided in this Master Trust Agreement shall survive the termination of this Master Trust Agreement.
ARTICLE 4
INSURANCE CONTRACTS
4.1. TYPES OF CONTRACTS. To the extent that the Trustee is directed by the Committee prior to a Change in Control to invest part or all of the Trust Fund in insurance contracts, the type and amount thereof shall be specified by the Committee. The Trustee shall be under no duty to make inquiry as to the propriety of the type or amount so specified.
4.2. OWNERSHIP. Each insurance contract issued shall provide that the Trustee shall be the owner thereof with, the power to exercise all rights, privileges, options and elections granted by or permitted under such contract or under the rules of the insurer. The exercise by the Trustee of any incidents of ownership under any contract shall, prior to a Change in Control, be subject to the direction of the Committee.
4.3. RESTRICTIONS ON TRUSTEES RIGHTS. The Trustee shall have no power to name a beneficiary of the policy other than the Trust, to assign the policy (as distinct from conversion of the policy to a different form) other than to a successor Trustee, or to loan to any person the proceeds of any borrowing against such policy. Despite the foregoing, the Trustee may (i) loan to the Company or any Subsidiary the proceeds of any borrowing against an insurance policy held in the Trust Fund or (ii) assign all, or any portion, of a policy to the Company or any Subsidiary if under other provisions of this Master Trust Agreement the Company or any Subsidiary is entitled to receive assets from the Trust.
ARTICLE 5
TRUSTEES ACCOUNTS
5.1. RECORDS. The Trustee shall maintain accurate records and detailed accounts of all investments, receipts, disbursements and other transactions hereunder. Such records shall be available at all reasonable times for inspection by the Company and Subsidiaries or their authorized representative. The Trustee, at the direction of the Committee, shall submit to the Committee
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and to any insurer such valuations, reports or other information as the Committee may reasonably require and, in the absence of fraud or bad faith, the valuation of the Trust Fund by the Trustee shall be conclusive.
5.2. ANNUAL ACCOUNTING; FINAL ACCOUNTING.
(a) Within 60 days following the end of each Plan Year and within 60 days after the removal or resignation of the Trustee or the termination of the Trust, the Trustee shall file with the Committee a written account setting forth a description of all properties purchased and sold, all receipts, disbursements and other transactions effected by it during the Plan Year or, in the case of removal, resignation or termination, since the close of the previous Plan Year, and listing the properties held in the Trust Fund as of the last day of the Plan Year or other period and indicating their values. Such values shall be either cost or market as directed by the Committee in accordance with the terms of the Plans.
(b) The Committee may approve such account either by written notice of approval delivered to the Trustee or by its failure to express written objection to such account delivered to the Trustee within 60 days after the date of which such account was delivered to the Committee.
(c) The approval by the Committee of an accounting shall be binding as to all matters embraced in such accounting on all parties to this Master Trust Agreement and on all Participants and Beneficiaries, to the same extent as if such accounting had been settled by a judgment or decree of a court of competent jurisdiction in which the Trustee, the Committee, the Company, the Subsidiaries and all persons having or claiming any interest in any Plan or the Trust Fund were made parties.
(d) Despite the foregoing, nothing contained in this Master Trust Agreement shall deprive the Trustee of the right to have an accounting judicially settled, if the Trustee, in the Trustees sole discretion, desires such a settlement.
5.3. VALUATION. The assets of the Trust Fund shall be valued at their respective fair market values on the date of valuation, as determined by the Trustee based upon such sources of information as it may deem reliable, including, but not limited to, stock market quotations, statistical valuation services, newspapers of general circulation, financial publications, advice from investment counselors, brokerage firms or insurance companies, or any combination of sources. Prior to a Change in Control, the Committee shall instruct the Trustee as to the value of assets for which market values are not readily obtainable by the Trustee. If the Committee fails to provide such values, the Trustee may take whatever action it deems reasonable, including employment of attorneys, appraisers, life insurance companies or other professionals, the expense of which shall be an expense of administration of the Trust Fund and payable by the Company and the Subsidiaries. The Trustee may rely upon information from the Company and the Subsidiaries, the Committee, appraisers or other sources and shall not incur any liability for an inaccurate valuation based in good faith upon such information.
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5.4. DELEGATION OF DUTIES. The Company or the Committee, or both, may at any time employ the Trustee as their agent to perform any act, keep any records or accounts and make any computations that are required of the Company, any Subsidiary or the Committee by this Master Trust Agreement or the Plans. The Trustee may be compensated for such employment and such employment shall not be deemed to be contrary to the Trust. Nothing done by the Trustee as such agent shall change or increase its responsibility or liability as Trustee hereunder.
ARTICLE 6
RESIGNATION OR REMOVAL OF TRUSTEE
6.1. RESIGNATION; REMOVAL. The Trustee may resign at any time by written notice to the Company, which shall be effective 60 days after receipt of such notice unless the Company and the Trustee agree otherwise. Prior to a Change in Control, the Trustee may be removed by the Company on 60 days notice or upon shorter notice accepted by the Trustee. After a Change in Control, the Trustee may be removed by a majority vote of the Participants, and if a Participant is dead, his or her Beneficiaries (who collectively shall have one vote among them and shall vote in place of such deceased Participant), on 60 days notice or upon shorter notice accepted by the Trustee.
6.2. SUCCESSOR TRUSTEE. If the Trustee resigns or is removed, a successor shall be appointed by the Company, in accordance with this Section, by the effective date of the resignation or removal under Section 6.1 above. The successor shall be a bank, trust company, or similar independent third party that is granted corporate trustee powers under state or federal law. After the occurrence of a Change in Control, a successor Trustee may not be appointed without the consent of a majority of the Participants. If no such appointment has been made within six months, the Trustee may apply to a court of competent jurisdiction for appointment of a successor or for instructions. All expenses of the Trustee in connection with the proceeding shall be allowed as administrative expenses of the Trust.
6.3. SETTLEMENT OF ACCOUNTS. Upon resignation or removal of the Trustee and appointment of a successor Trustee, all assets shall subsequently be transferred to the successor Trustee. The transfer shall be completed within 90 days after receipt of notice of resignation, removal or transfer, unless the Company extends the time limit. Upon the transfer of the assets, the successor Trustee shall succeed to all of the powers and duties given to the Trustee in this Master Trust Agreement. The resigning or removed Trustee shall render to the Committee an account in the form and manner and at the time prescribed in Section 5.2. The approval of such accounting and discharge of the Trustee shall be as provided in such Section.
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ARTICLE 7
CONTROVERSIES,, LEGAL ACTIONS AND COUNSEL
7.1. CONTROVERSY. If any controversy arises with respect to the Trust, the Trustee shall take action as directed by the Committee or, in the absence of such direction or after a Change in Control, as it deems advisable, whether by legal proceedings, compromise or otherwise. The Trustee may retain the funds or property involved without liability pending settlement of the controversy. The Trustee shall be under no obligation to take any legal action of whatever nature unless there shall be sufficient property in the Trust to indemnify the Trustee with respect to any expenses or losses to which it may be subjected.
7.2. JOINDER OF PARTIES. In any action or other judicial proceedings affecting the Trust, it shall be necessary to join as parties the Trustee, the Committee, the Company and the Subsidiaries. No Participant or other person shall be entitled to any notice or service of process. Any judgment entered in such a proceeding or action shall be binding on all persons claiming under the Trust. Nothing in this Master Trust Agreement shall be construed as to deprive a Participant or Beneficiary of his or her right to seek adjudication of his or her rights by administrative process or by a court of competent jurisdiction.
7.3. EMPLOYMENT OF COUNSEL. The Trustee may consult with legal counsel (who, prior to a Change in Control, but not after a Change in Control, may be counsel for the Company or any Subsidiary) and bail be fully protected with respect to any action taken or omitted by it in good faith pursuant to the advice of counsel.
ARTICLE 8
INSURERS
8.1. INSURER NOT A PARTY. No insurer shall be deemed to be a party to the Trust and an insurers obligations shall be measured and determined solely by the terms of contracts and other agreements executed by it.
8.2. AUTHORITY OF TRUSTEE. An insurer shall accept the signature of the Trustee to any documents or papers executed in connection with such contracts. The signature of the Trustee shall be conclusive proof to the insurer that the person on whose life an application is being made is eligible to have a contract issued on his or her life and is eligible for a contract of the type and amount requested.
8.3. CONTRACT OWNERSHIP. An insurer shall deal with the Trustee as the sole and absolute owner of any insurance contracts and shall have no obligation to inquire whether any action or failure to act on the part of the Trustee is in accordance with or authorized by the terms of the Plans or this Master Trust Agreement.
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8.4. LIMITATION OF LIABILITY. An insurer shall be fully discharged from any and all liability for any action taken or any amount paid in accordance with the direction of the Trustee and shall have no obligation to see to the proper application of the amounts so paid. An insurer shall have no liability for the operation of the Trust or the Plans, whether or not in accordance with their terms and provisions.
8.5. CHANGE OF TRUSTEE. An insurer shall be fully discharged from any and all liability for dealing with a party or parties indicated on its records to be the Trustee until such time as it shall receive at its home office written notice of the appointment and qualification of a successor Trustee.
ARTICLE 9
AMENDMENT AND TERMINATION
9.1. AMENDMENT. Subject to the limitations set forth in this Section 9.1, this Master Trust Agreement may be amended by a written instrument executed by the Trustee and the Company. Notwithstanding the foregoing, no such amendment shall conflict with the terms of the Plans or shall make the Trust revocable after it has become irrevocable in accordance with Section 1.3 above. Any amendment, change or modification shall be subject to the following rules:
(a) GENERAL RULE. Subject to Sections 9.1(b), (c) and (d) below, this Master Trust Agreement may be amended:
(i) By the Company and the Trustee, provided, however, that if an amendment would in any way adversely affect the rights accrued under the Plans in the Trust Fund by any Participant or Beneficiary, each and every Participant and Beneficiary whose rights in the Trust Fund would be adversely affected must consent to the amendment before this Master Trust Agreement may be so amended; and
(ii) By the Company and the Trustee as may be necessary to comply with laws which would otherwise render the Trust void, voidable or invalid in whole or in part.
(b) LIMITATION. Notwithstanding that an amendment may be permissible under Section 9.1(a) above, this Master Trust Agreement shall not be amended by an amendment that would:
(i) Cause any of the assets of the Trust to be used for or diverted to purposes other than for the exclusive benefit of Participants and Beneficiaries as set forth in the Plans, or payment of expenses of the Trust, except as is required to satisfy the claims of the Companys or a Subsidiarys general creditors; or
(ii) Be inconsistent with the tens of any Plan, including the terms of any Plan regarding termination, amendment or modification of the Plan.
(c) WRITING AND CONSENT. Any amendment to this Master Trust Agreement shall be set forth in writing and signed by the Company and the Trustee and, if consent of any Participant
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or Beneficiary is required under Section 9.1(a), the Participant or Beneficiary whose consent is required. Any amendment may be current, retroactive or prospective, in each case as provided therein.
(d) THE COMPANY AND TRUSTEE. In connection with the exercise of the rights under this Section 9.1:
(i) prior to a Change in Control, the Trustee shall have no responsibility to determine whether any proposed amendment complies with the terms and conditions set forth in Sections 9.1(a) and (b) above and may conclusively rely on the directions of the Committee with respect thereto, unless the Trustee has knowledge of a proposed transaction or transactions that would result in a Change in Control; and
(ii) after a Change in Control, the power of the Company to amend this Master Trust Agreement shall cease, and the power to amend that was previously held by the Company shall, instead, be exercised by a majority of the Participants and, if a Participant is dead, his or her Beneficiaries (who collectively shall have one vote among them and shall vote in place of such deceased Participant), with the consent of the Trustee, provided that such amendment otherwise complies with the requirements of Sections 9.1(a), (b) and (c) above.
(e) TAXATION. This Master Trust Agreement shall not be amended, altered, changed or modified in a manner that would cause the Participants and/or Beneficiaries under any Plan to be taxed on the benefits under any Plan in a year other than the year of actual receipt of benefits.
9.2. FINAL TERMINATION. The Trust shall not terminate until the date on which Participants and their Beneficiaries are no longer entitled to benefits pursuant to the terms of the Plans and all of the expenses of the Trust have been paid, and on such date the Trust shall terminate. Upon termination of the Trust, any assets remaining in the Trust shall be returned to the Company and the Subsidiaries. Such remaining assets shall be paid by the Trustee to the Company and the Subsidiaries in such amounts and in the manner instructed by the Company, whereupon the Trustee shall be released and discharged from all obligations hereunder. From and after the date of termination and until final distribution of the Trust Fund, the Trustee shall continue to have all of the powers provided herein as are necessary or expedient for the orderly liquidation and distribution of the Trust Fund.
ARTICLE 10
MISCELLANEOUS
10.1. DIRECTIONS FOLLOWING CHANGE IN CONTROL. Despite any other provision of this Master Trust Agreement that may be construed to the contrary, following a Change in Control, all powers of the Committee, the Company and the Board to direct the Trustee under this Master Trust
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Agreement shall terminate, and the Trustee shall act on its own discretion to carry out the terms of this Master Trust Agreement in accordance with the Plans and this Master Trust Agreement.
10.2. TAXES. The Company and the Subsidiaries shall from time to time pay taxes of any and all kinds whatsoever that at any time are lawfully levied or assessed upon or become payable in respect of the Trust Fund, the income or any property forming a part thereof, or any security transaction pertaining thereto. To the extent that any taxes lawfully levied or assessed upon the Trust Fund are not paid by the Company and the Subsidiaries, the Trustee shall have the power to pay such taxes out of the Trust Fund and shall seek reimbursement from the Company and the Subsidiaries. Prior to making any payment, the Trustee may require such releases or other documents from any lawful taxing authority as it shall deem necessary. The Trustee shall contest the validity of taxes in any manner deemed appropriate by the Company or its counsel, but at the Companys and the Subsidiaries expense, and only if it has received an indemnity bond or other security satisfactory to it to pay any such expenses. Prior to a Change in Control, the Trustee (i) shall not be liable for any nonpayment of tax when it distributes an interest hereunder on directions from the Committee, and (ii) shall have no obligation to prepare or file any tax return on behalf of the Trust Fund, any such return being the sole responsibility of the Committee. The Trustee shall cooperate with the Committee in connection with the preparation and filing of any such return. After a Change in Control, the Trustee shall have such duties and obligations.
10.3. THIRD PERSONS. All persons dealing with the Trustee are released from inquiring into the decisions or authority of the Trustee and from seeing to the application of any moneys, securities or other property paid or delivered to the Trustee.
10.4. NONASSIGNABILITY; NONALIENATION. Benefits payable to Participants and their Beneficiaries under this Master Trust Agreement may not be anticipated, assigned (either at law or in equity), alienated, pledged, encumbered or subjected to attachment, garnishment, levy, execution or other legal or equitable process.
10.5. APPLICABLE LAW. Except to the extent, if any, preempted by ERISA, this Master Trust Agreement shall be governed by and construed in accordance with the internal laws of the State of Florida. Any provision of this Master Trust Agreement prohibited by law shall be ineffective to the extent of any such prohibition, without invalidating the remaining provisions hereof.
10.6. NOTICES AND DIRECTIONS. Whenever a notice or direction is given by the Committee to the Trustee, it shall be in the form required by Section 2.1. Actions by the Company shall be by the Board or a duly authorized officer, with such actions certified to the Trustee by an appropriately certified copy of the action taken. The Trustee shall be protected in acting upon any such notice, resolution, order, certificate or other communication believed by it to be genuine and to have been signed by the proper party or parties.
10.7. SUCCESSORS AND ASSIGNS. This Master Trust Agreement shall be binding upon and inure to the benefit of the Company, the Subsidiaries and the Trustee and their respective successors and assigns.
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10.8. GENDER AND NUMBER. Words used in the masculine shall apply to the feminine where applicable, and when the context requires, the plural shall be read as the singular and the singular as the plural.
10.9. HEADINGS. Headings in this Master Trust Agreement are inserted for convenience of reference only and any conflict between such headings and the text shall be resolved in favor of the text.
10.10. COUNTERPARTS. This Master Trust Agreement may be executed in an original and any number of counterparts, each of which shall be deemed to be an original of one and the same instrument.
10.11. BENEFICIAL INTEREST. The Company and the Subsidiaries are the true beneficiaries hereunder in that the payment of benefits, directly or indirectly to or for a Participant or Beneficiary by the Trustee, is in satisfaction of the Companys and the Subsidiaries liability therefore under the Plans. Nothing in this Master Trust Agreement shall establish any beneficial interest in any person other than the Company and the Subsidiaries.
10.12. THE TRUST AND PLANS. This Trust, the Plans and each Participants Plan Agreement are part of and constitute a single, integrated employee benefit plan and trust, shall be construed together as the entire agreement between the Company, the Trustee, the Participants and the Beneficiaries with regard to the subject matter thereof, and shall supersede all previous negotiations, agreements and commitments with respect thereto.
10.13. EFFECTIVE DATE. The effective date of this Master Trust Agreement shall be January 1, 2003.
IN WITNESS WHEREOF the Company and the Trustee have signed this Master Trust Agreement as of the date first written above.
TRUSTEE |
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THE COMPANY: |
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Legacy Trust Company, Inc. |
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Haynes International, Inc. |
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a Florida corporation, |
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a Delaware corporation, |
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By: |
/s/ Mary B. Knauer |
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By: |
/s/ Francis J. Petro |
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Title: |
EVP |
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Title: |
President and CEO |
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[Exhibit A -Executive Deferral Plans Covered by the Agreement has been omitted from the Agreement as filed with the Securities and Exchange Commission (the SEC). The omitted information is considered immaterial from an investors perspective. The Registrant will furnish supplementally a copy of any of the omitted exhibit to the SEC upon request from the SEC.]
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Exhibit 10.7
AMENDMENT NUMBER ONE
TO THE
MASTER TRUST AGREEMENT
THIS AMENDMENT NUMBER ONE to the Master Trust Agreement (AMENDMENT) is made and entered into as of this 30th day of August, 2004 (the EFFECTIVE DATE), by and between Haynes International, Inc. (the COMPANY) and Legacy Trust Company, Inc. (the TRUSTEE).
WITNESSETH:
WHEREAS, the Company and the Trustee previously entered into that certain Master Trust Agreement for Haynes International, Inc. Supplemental Executive Retirement Plan(s), dated as of January 13, 2003, a copy of which is attached hereto and incorporated herein as EXHIBIT A (the TRUST AGREEMENT); and
WHEREAS, pursuant to SECTION 9.1 of the Trust Agreement, the Company and Trustee desire to amend the Trust Agreement upon the terms and subject to the conditions set forth in this Amendment;
NOW, THEREFORE, in consideration of the mutual promises, covenants and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:
AMENDMENT
1. The following language is hereby inserted at the end of the definition of Change in Control in SECTION 1.5(c) of the Trust Agreement after the phrase the Company is a member in subsection (v):
; provided, however, in no event shall the consummation of the plan of reorganization of the Company and the transactions contemplated thereby as approved by the Bankruptcy Court for the Southern District of Indiana with respect to that certain
voluntary petition for bankruptcy under Chapter 11 of Title 11 of the U.S. Code (11 USC Section 101, ET. SEQ.) in the U.S. Bankruptcy Court for the Southern District of Indiana on March 29, 2004 constitute a Change in Control under this Master Trust Agreement.
2. This Amendment may be executed in two (2) counterparts, each of which shall be deemed an original, but both of which shall constitute one and the same instrument. The validity, meaning, and effect of this Amendment shall be determined in accordance with the laws of the State of Indiana applicable to contracts made and to be performed in that State.
3. This Amendment amends the Trust Agreement to the extent provided herein only and all other provisions thereof shall remain in full force and effect.
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the Effective Date.
TRUSTEE |
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COMPANY |
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LEGACY TRUST COMPANY, INC. |
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HAYNES INTERNATIONAL, INC. |
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By: |
/s/ Mary B. Knauer |
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By: |
/s/ Francis J. Petro |
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Printed: |
Mary B. Knauer |
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Francis J. Petro, President |
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Title: |
EVP |
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[Exhibit A - Supplemental Executive Retirement Plan has been omitted from the Agreement as filed with the Securities and Exchange Commission (the SEC). The omitted information is considered immaterial from an investors perspective. The Registrant will furnish supplementally a copy of any of the omitted exhibit to the SEC upon request from the SEC.]
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Exhibit 10.8
Haynes International, Inc.
Supplemental Executive Retirement Plan
Plan Agreement
Effective January 1, 2002
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THIS PLAN AGREEMENT (this Agreement) is entered into as of December 13, 2002, between Haynes International, Inc. (the Company), the Participants Employer and Francis J. Petro (the Participant).
Recital
Agreement
NOW THEREFORE, it is mutually agreed that:
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IN WITNESS WHEREOF, the Participant has signed and the Company has accepted this Plan.
Agreement, on its behalf of the Employer, as of the date first written above.
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PARTICIPANT |
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12/13/02 |
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/s/ Francis J. Petro |
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Signature of Participant |
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Francis J. Petro |
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Type or Print Name |
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AGREED AND ACCEPTED BY THE COMPANY |
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COMPENSATION COMMITTEE |
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12/13/02 |
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/s/ R.C. Lappin |
Date |
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Signature of Committee Member |
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R.C. Lappin |
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Type or Print Name |
******************************************************************
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PETRO, FRANCIS J. |
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000-00-0000 |
Name (Last, First, Middle Initial) |
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Social Security Number |
In the event of my death, I hereby designate the Beneficiary(ies) identified below to receive the balance of payments to be made under the Haynes International, Inc. Supplemental Executive Retirement Plan (the Plan). I reserve the full right to revoke or modify this designation at any time by a subsequent written designation.
PRIMARY BENEFICIARY. If one of my primary Beneficiaries dies before my death that persons share will be allocated pro rata to my other surviving primary Beneficiaries.
Name |
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Relationship |
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Percent |
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Date of Birth |
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Social Security Number |
1) JEAN R PETRO |
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WIFE |
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100 |
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7/29/39 |
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000-00-0000 |
2) |
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3) |
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If no Primary Beneficiary survives me, the following shall be the Beneficiary:
CONTINGENT BENEFICIARY. If one of my contingent Beneficiaries dies before my death that persons share will be allocated pro rata to my other surviving contingent Beneficiaries.
Name |
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Relationship |
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Percent |
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Date of Birth |
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Social Security Number |
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1) |
DAVID L PETRO |
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SON |
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20 |
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3/16/58 |
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000-00-0000 |
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DEBORAH J PARSONS |
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DAUGHTER |
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20 |
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4/10/60 |
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000-00-0000 |
2) |
DANIEL J PETRO |
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SON |
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20 |
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6/30/61 |
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000-00-0000 |
3) |
ELIZABETH J PETRO |
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DAUGHTER |
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20 |
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1/5/66 |
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000-00-0000 |
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ROBERT F PETRO |
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SON |
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20 |
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12/26/73 |
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000-00-0000 |
This Beneficiary Designation Form is effective until the Participant files another such designation and that Beneficiary Designation Form is acknowledged by the Corporate Secretary. Upon acknowledgment by the Corporate Secretary, all previous Beneficiary Designation Forms are hereby revoked .
The Participant acknowledges that any change of Beneficiary will not be effective until acknowledged and accepted in writing by the Corporate Secretary.
ACKNOWLEDGED AND AGREED: |
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ACKNOWLEDGED: |
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/s/ Francis J. Petro |
12/3/02 |
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/s/ Jean C. Neel |
3/14/03 |
Signature of Participant |
Date |
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Signature of Corporate Secretary |
Date |
Page 1 of 1
Petro, Francis, J . |
000-00-0000 |
Name (Last, First, Middle Initial) |
Social Security Number |
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You may use this form to:
Change the form of Normal Benefit you may receive under the Plan.
Change the form of Change in Control Benefit you may receive under the Plan.
*In order for the following elections to be effective, this form must be both submitted to and accepted by the Committee prior to (i) your termination of employment, if the election is made with respect to your Termination Benefit, or (b) the Change in Control, if the election is made with respect to your Change in Control Benefit.
Form of Normal Benefit
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Please select one option below. |
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I elect to receive my Normal Benefit, payable upon my Termination of Employment, in the following form: |
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o Life Annuity |
o 10 Year Term Certain and Life Annuity |
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x Lump Sum |
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Form of Change in
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Please select one option below. |
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I elect to receive my Change in Control Benefit, payable upon a Change in Control, in the following form: |
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o Life Annuity |
o 10 Year Term Certain and Life Annuity |
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x Lump Sum |
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ACKNOWLEDGED AND AGREED: |
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ACKNOWLEDGED: |
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/s/ Francis J. Petro |
12/13/02 |
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/s/ Calvin S. McKay |
1/01/03 |
Signature of Participant |
Date |
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Signature of Committee Member |
Date |
Page 1 of 1
Exhibit 10.9
AMENDMENT NUMBER ONE
TO THE
PLAN AGREEMENT
THIS AMENDMENT NUMBER ONE TO PLAN AGREEMENT (AMENDMENT) is made and entered into, as of this 30th day of August, 2004 (the EFFECTIVE DATE), by and between Haynes International, Inc. (the COMPANY) and Francis J. Petro (the PARTICIPANT).
WITNESSETH:
WHEREAS, the Company previously established the Haynes International, Inc. Supplemental Executive Retirement Plan, effective January 1, 2002 (the PLAN), whereby a select group of management and highly compensated employees of the Company are entitled to receive specified benefits under the Plan;
WHEREAS, the Participant was selected to participate in the Plan and as a result the Company and the Participant previously entered into that certain Plan Agreement, dated December 13, 2002, a copy of which is attached hereto and incorporated herein as EXHIBIT A (the PLAN AGREEMENT);
WHEREAS, the Company and the Participant previously entered into that certain Executive Employment Agreement, dated as of January 1, 2003 which shall be amended and restated by a certain Amended and Restated Executive Employment Agreement (the EMPLOYMENT AGREEMENT);
WHEREAS, the parties hereto desire to amend the Plan Agreement upon the terms and conditions set forth in this Amendment; and
WHEREAS, capitalized terms used herein but not defined herein shall have the meanings specified in the Plan;
NOW, THEREFORE, in consideration of the mutual promises, covenants and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:
AMENDMENTS
1. Paragraph 4 of the Plan Agreement is hereby deleted in its entirety and replaced with the following:
4. SERP BENEFIT. The Participants SERP Benefit shall be a monthly amount, payable for the life of the Participant commencing as of the date determined in accordance with Article 3 of the Plan Document, equal to the product of:
(a) Three percent (3%), MULTIPLIED BY
(b) the product of (i) the Participants Years of Service, MULTIPLIED BY (ii) the Participants Average Compensation; and reduced by
(c) The Actuarial Equivalent value of any amounts that the Participant is entitled to under the Haynes International, Inc. Pension Plan or any successor defined benefit pension plan.
For the purposes of this Plan Agreement, the consummation of a plan of reorganization of the Company and the transactions contemplated thereby as approved by the Bankruptcy Court for the Southern District of Indiana with respect to the filing of a voluntary petition for bankruptcy by the Company under Chapter 11 of Title 11 of the U.S. Code (11 USC Section 101, ET. SEQ.) in the U.S. Bankruptcy Court for the Southern District of Indiana shall not constitute a Change in Control.
2. Paragraph 8 is hereby inserted as a new paragraph in the Plan Agreement immediately following Paragraph 7 and shall be as follows:
8. ACKNOWLEDGEMENT AND AGREEMENT. The Participant hereby acknowledges and agrees that the provisions of this Agreement, and the Companys obligations hereunder, fully satisfy the Companys obligations under SECTION 1(e)(vii) of the Employment Agreement.
3. This Amendment may be executed in two (2) counterparts, each of which shall be deemed an original, but both of which shall constitute one and the same instrument. The validity,
2
meaning and effect of this Amendment shall be determined in accordance with the laws of the State of Indiana applicable to contracts made and to be performed in that State.
4. This Amendment amends the Plan Agreement to the extent provided herein only and all other provisions thereof shall remain in full force and effect.
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the Effective Date.
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PARTICIPANT |
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/s/ Francis J. Petro |
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Francis J. Petro |
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COMPANY |
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HAYNES INTERNATIONAL, INC. |
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Compensation Committee |
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/s/ Richard C. Lappin |
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Signature of Committee Member |
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Richard C. Lappin |
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Type or Print Name |
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[Exhibit A - Plan Agreement under the Supplemental Executive Retirement Plan Agreement has been omitted from the Agreement as filed with the Securities and Exchange Commission (the SEC). The omitted information is filed as Exhibit 10.08 to the Registration Statement. The Registrant will furnish supplementally a copy of any of the omitted exhibit to the SEC upon request from the SEC.]
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Exhibit 10.10
AMENDED AND RESTATED
EXECUTIVE EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT (this AGREEMENT) is entered into as of the date set forth below and effective as of the Effective Date (defined below), by and between Haynes International, Inc. (the COMPANY), a Delaware corporation, and Francis J. Petro (the EXECUTIVE).
PRELIMINARY STATEMENTS
WHEREAS, the Company and the Executive previously entered into that certain Executive Employment Agreement, dated as of January 1, 2003 (the EMPLOYMENT AGREEMENT);
WHEREAS, the Company and the Executive previously entered into that certain Severance Agreement (the SEVERANCE AGREEMENT) dated as of January 29, 2000 whereby the rights and obligations of the Executive in the event of a termination associated with a change in control of the Company were set forth;
WHEREAS, on March 29, 2004, the Company filed a voluntary petition for bankruptcy under Chapter 11 of Title 11 of the U.S. Code (11 USC Section 101, ET. SEQ.) in the U.S. Bankruptcy Court for the Southern District of Indiana (the BANKRUPTCY); and
WHEREAS, the Company and the Executive desire to amend and restate the Employment Agreement on the terms and conditions set forth herein such that this Agreement shall supersede and replace both the Employment Agreement and the Severance Agreement and shall address the Executives employment and termination of employment with the Company following the Companys emergence from Bankruptcy.
NOW, THEREFORE, in consideration of the mutual promises, covenants and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:
AGREEMENT
SECTION 1. EMPLOYMENT.
(a) PRIOR AGREEMENTS. Effective as of the effective date of the Companys plan of reorganization (the PLAN OF REORGANIZATION) as filed with the U.S. Bankruptcy Court for the Southern District of Indiana (the EFFECTIVE DATE), the Executives employment with the Company and benefits upon a termination of employment shall be governed by this Agreement, which restates and supersedes each of the Employment Agreement and the Severance Agreement.
(b) OFFER AND ACCEPTANCE. During the Employment Term (as defined in SECTION 1(d) below), the Company agrees to employ the Executive in the position of President and Chief Executive Officer of the Company upon the terms and subject to the conditions set forth herein, and the Executive agrees to remain in the employ of the Company on such terms and conditions.
(c) DUTIES. The Executives duties shall include those duties that are consistent with his position as President and Chief Executive Officer of the Company as well as those reasonably assigned to him from time to time, in good faith, by the Board of Directors of the Company (the BOARD). The Executive shall (i) devote his working hours, on a full-time basis, to his duties under this Agreement; (ii) faithfully, industriously and loyally serve the Company; (iii) comply in all material respects with the lawful and reasonable directions and instructions given to him by the Board; and (iv) use his reasonable best efforts to promote and serve the interests of the Company. The Executive shall comply in all material respects with all applicable laws, rules and regulations relating to the performance of the Executives duties and responsibilities hereunder. The Executive agrees to serve as (i) a member of the Board and on any of the board of directors of any subsidiary or affiliate of the Company, and (ii) as an officer of any subsidiary or affiliate of the Company, without any additional compensation while he is employed by the Company. Upon termination of the Executives employment by the Company for any reason, the Executive shall immediately resign from the Board and any other position as a member of the board of directors or as an officer of any such subsidiary or affiliate of the Company.
(d) EMPLOYMENT TERM. The Executives employment by the Company under this Agreement shall commence on the Effective Date and shall continue thereafter and shall terminate on September 30, 2007 (the EMPLOYMENT TERM), unless renewed by a subsequent written agreement of the parties. The Executives employment by the Company shall be subject to termination at any time during the Employment Term as provided in subsection (f) of this SECTION 1. As used herein, the term EMPLOYMENT TERM shall mean the actual period of time during which the Executive is employed by the Company under the terms and conditions of this Agreement.
(e) COMPENSATION AND BENEFITS. During the Employment Term, the Company shall pay and provide the following compensation and other benefits to the Executive as full compensation for all services rendered by the Executive as an employee of the Company under the terms and conditions of this Agreement. All payments made to the Executive hereunder shall be subject to appropriate payroll deductions and other withholdings required by law.
(i) ANNUAL SALARY. During the Employment Term, the Company shall pay to the Executive, in accordance with the then prevailing payroll practices of the Company, a base salary (the ANNUAL SALARY) at the annual rate of Four Hundred Eighty Thousand Dollars ($480,000) per year.
(ii) BONUSES. With respect to each full fiscal year during the Employment Term, the Executive shall be eligible to receive an annual bonus based upon the achievement by the Company of specific performance requirements (e.g. EBITDA benchmarks and/or working capital targets) which shall be determined by the Board in its sole and absolute discretion prior to or at the commencement of the applicable fiscal year (the BONUS). The actual amount of the Bonus shall be equal to a percentage of the Annual Salary in effect as
2
of September 30th of such fiscal year and shall be determined by the Board in its sole and absolute discretion prior to or at the commencement of the applicable fiscal year. Notwithstanding the foregoing, for the 2004 fiscal year only, the target amount for the Bonus shall be sixty percent (60%) of the Annual Salary in effect as of September 30, 2004; provided, however, Executive shall be eligible to receive a minimum Bonus in an amount equal to thirty-five percent (35%) of such Annual Salary and a maximum Bonus equal to one hundred twenty percent (120%) of such Annual Salary, based upon the achievement of the performance requirements, as determined by the Board in its sole and absolute discretion. The Bonus, if earned, shall be paid to the Executive by the Company no later than February 1 of the following calendar year.
(iii) BENEFITS. The Executive shall be eligible to participate in all employee health and welfare benefit plans in which senior executives of the Company are entitled to participate, but participation shall be subject to all of the terms and conditions) of such plans applicable to all such senior executives, including all waiting periods, eligibility requirements, contributions, exclusions and other similar conditions or limitations. In the case of any disability plan, the Company agrees that such plan will provide the benefits contemplated by SECTION 1(e)(iv) or in lieu of such plan participation, the Company will provide to the Executive the disability insurance coverage contemplated by SECTION 1(e)(iv).
(iv) INSURANCE. The Executive shall be entitled to receive long-term disability insurance coverage and the amount of the benefit payments under such insurance coverage shall be not less than sixty percent (60%) of the Annual Salary then in effect (the DISABILITY INSURANCE). The Company shall pay all premiums related to the Disability Insurance as long as the Executive is employed by Company hereunder. In addition, the Company shall provide the Executive with a life insurance policy in a face amount equal to five (5) times the Annual Salary then in effect (the LIFE INSURANCE), which policy shall be convertible to an individual policy at the election of the Executive upon termination of the Executives employment by the Company. The Company shall be the owner of the Life Insurance and shall pay all premiums related thereto prior to termination of the Executives employment by the Company.
(v) EXPENSES. The Company shall reimburse the Executive, in accordance with the then prevailing reimbursement practices of the Company, for all reasonable and customary business expenses incurred by the Executive in connection with his employment by the Company, including, but not limited to, all reasonable and customary travel-related expenses incurred in connection with periodic trips to Syracuse, New York, provided, in any case, that the Executive complies with the standard reporting and reimbursement policies as may be established by the Company from time to time.
(vi) VACATION. The Executive shall be entitled to five (5) weeks of vacation, measured on a calendar year basis. The Executive shall schedule vacation periods at reasonable times in accordance with the Companys vacation policy for senior executives. The Executive shall accrue and receive full compensation and benefits during his vacation periods. Unused vacation leave time shall not entitle the Executive to any additional compensation and may not be carried over to a subsequent calendar year.
(vii) SERP. The Executive shall be entitled to participate in the Haynes International, Inc. Supplemental Executive Retirement Plan on the terms and conditions
3
as set forth in the Participation Agreement entered into by and between the Executive and the Company dated December 13, 2002 as amended as of the date hereof (the SERP).
(viii) COMPANY CAR. The Company shall provide the Executive with the use of an automobile owned or leased by the Company at its expense for Company-related purposes (the COMPANY CAR). The Company shall pay or reimburse the Executive for all expenses incurred in connection with the Executives use of the Company Car, including, but not limited to, insurance, gasoline, registration taxes and maintenance. The Company Car shall be a Buick Park Avenue or an automobile of a similar class. The Executive agrees that the use of the Company Car for personal-related matters will result in imputed income to the Executive and at the end of each calendar year, the Company and its accountants shall reasonably determine the amount of such income to be included in the Executives compensation in connection with the personal use of the Company Car and the Executive agrees that he shall be responsible for any and all taxes imposed on such imputed income.
(ix) COUNTRY CLUB MEMBERSHIP. The Company shall reimburse the Executive for all regular monthly membership dues and business-related charges incurred by the Executive in connection with his membership at a country club. The Executive agrees that he shall be responsible for any and all taxes imposed on the reimbursements made pursuant to the preceding sentence.
(x) OPTIONS. As of the Effective Date, the Company shall establish a long-term equity incentive plan in which the Executive is eligible to participate (the LTIP). During the Employment Term, the Executive shall remain eligible to participate in the LTIP pursuant to the terms and conditions set forth therein.
(xi) DEATH BENEFIT PLAN. The Executive shall be eligible to participate in the Haynes International, Inc. Death Benefit Plan, as amended, pursuant to the terms and conditions set forth in such plan.
(f) TERMINATION OF EMPLOYMENT. Subject to the terms of Section 1(g) below, the Executives employment by the Company may be terminated as follows:
(i) TERMINATION UPON THE EXPIRATION OF THE EMPLOYMENT TERM. Unless otherwise agreed to in writing by the Company and the Executive, the Executives employment shall terminate on September 30, 2007 unless terminated earlier pursuant to this SECTION 1(f). In the event that the Executives employment terminates upon the expiration of the Employment Term, then the Executive shall be entitled to receive the compensation and benefits set forth in SECTION 1(g)(i).
(ii) TERMINATION FOR CAUSE. The Company may immediately terminate, at any time, Executives employment by the Company for Cause. A termination for Cause means a termination by reason of the Boards good faith determination that the Executive (i) continually failed to substantially perform his duties with the Company (other than a failure resulting from the Executives medically documented incapacity due to physical or mental illness) including, without limitation, repeated refusal to follow the reasonable
4
directions of the Board, knowing violation of the law in the course of performance of the Executives duties with the Company, repeated absences from work without a reasonable excuse, or intoxication with alcohol or illegal drugs while on the Companys premises during regular business hours, (ii) engaged in conduct which constituted a material breach of SECTION 2 or SECTION 3 of this Agreement, (iii) was indicted (or equivalent under applicable law), convicted of, or entered a plea of nolo contendere to the commission of a felony or crime involving dishonesty or moral turpitude, or (iv) engaged in conduct which is demonstrably and materially injurious to the financial condition, business reputation, or otherwise of the Company or its subsidiaries or affiliates, or (v) perpetuated a fraud or embezzlement against the Company or its subsidiaries or affiliates, and in each case the particular act or omission was not cured, if curable, in all material respects by the Executive within thirty (30) days after receipt of written notice from the Board which shall set forth in reasonable detail the nature of the facts and circumstances which constitute Cause. Notwithstanding the foregoing, the Executive shall not be deemed to have been terminated for Cause unless there shall have been delivered to the Executive a copy of a resolution duly adopted by the Board. If the Company has reasonable belief that the Executive has committed any of the acts described above, it may suspend the Executive (with or without pay) while it investigates whether it has or could have Cause to terminate the Executive. The Company may terminate the Executive for Cause prior to the completion of its investigation; provided, that, if it is ultimately determined that the Executive has not committed an act which would constitute Cause, the Executive shall be treated as if he were terminated without Cause.
(iii) TERMINATION WITHOUT CAUSE. The Company may, at any time, terminate the Executives employment by Company without Cause by providing prior written notice thereof to the Executive.
(iv) RESIGNATION FOR GOOD REASON. The Executive may terminate his employment by the Company for Good Reason (as defined below) by providing written notice thereof to the Company (the RESIGNATION NOTICE) at least forty-five (45) days prior to the effective date of the resignation, which notice shall set forth in reasonable detail the nature of the facts and circumstances which constitute Good Reason and the Company shall have thirty (30) days after receipt of the Resignation Notice to cure in all material respects the facts and circumstances which constitute Good Reason. For purposes of this Agreement, GOOD REASON shall mean the occurrence, during the Employment Term, of any of the following actions or failures to act, but in each case only if it is not consented to by the Executive in writing: (a) a material adverse change in the Executives duties, reporting responsibilities, titles or elected or appointed offices as in effect immediately prior to the effective date of such change; (b) a material reduction by the Company in the Executives Base Salary or annual bonus opportunity in effect immediately prior to the effective date of such reduction, not including any reduction resulting from changes in the market value of securities or other instruments paid or payable to the Executive; or (c) any change of more than 50 miles in the location of the principal place of employment of the Executive immediately prior to the effective date of such change. For purposes of this definition, none of the actions described in clauses (a) and (b) above shall constitute Good Reason with respect to the Executive if it was an isolated and inadvertent action not taken in bad faith by the Company and if it is
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remedied by the Company within thirty (30) days after receipt of written notice thereof given by the Executive (or, if the matter is not capable of remedy within thirty (30) days, then within a reasonable period of time following such thirty (30) day period, provided that the Company has commenced such remedy within said thirty (30) day period); provided that Good Reason shall cease to exist for any action described in clauses (a) and (b) above on the sixtieth (60th) day following the later of the occurrence of such action or the Executives knowledge thereof, unless the Executive has given the Company written notice thereof prior to such date.
(v) RESIGNATION WITHOUT GOOD REASON. The Executive may, at any time, terminate the Executives employment by the Company without Good Reason by providing thirty (30) days prior written notice thereof to the Company.
(vi) DEATH; DISABILITY OR RETIREMENT. The Executives employment shall terminate immediately upon the Executives death, Disability, or Retirement (each as defined below). For purposes of this Agreement, DISABILITY means the Executive is totally and permanently disabled as defined in the Haynes International, Inc. Pension Plan and RETIREMENT means a resignation by the Executive after having reached age fifty-five (55), but in no event prior to September 30, 2007.
(g) EFFECT OF TERMINATION.
(i) TERMINATION UPON THE EXPIRATION OF THE EMPLOYMENT TERM. Upon the termination of the Executives employment pursuant to SECTION 1(f)(i), the Executive will be entitled to (A) payment of that portion of the Executives then effective) Annual Salary which has been earned but not yet paid through and including the last day of the Executives employment (the TERMINATION DATE); (B) payment of any Bonus earned by the Executive under the terms and conditions of this Agreement prior to the Termination Date that remains unpaid; (C) reimbursement of any reimbursable business expenses under SECTION 1(e)(v), which were incurred by the Executive through and including the Termination Date; (D) continuation of benefits to which the Executive is entitled under SECTION L(e)(iii) and SECTION 1(e)(iv) through and including the Termination Date and; (E) the SERP that the Executive is entitled to under SECTION 1(e)(vii). In addition, any unvested stock options held by the Executive shall terminate immediately and any vested stock options held by the Executive shall remain exercisable for ninety days (90) following the Termination Date, but in no event later than the expiration date of such stock option as specified in the applicable grant letter.
(ii) TERMINATION FOR CAUSE OR RESIGNATION WITHOUT GOOD REASON. Upon the Companys termination of the Executives employment for Cause pursuant to SECTION 1(f)(ii) or the Executives resignation without Good Reason pursuant to SECTION L(f)(v), Executive will be entitled to (A) payment of that portion of the Executives then effective Annual Salary which has been earned but not yet paid through and including the Termination Date; (B) payment of any Bonus earned by the Executive under the terms and conditions of this Agreement prior to the Termination Date that remains unpaid; (C) reimbursement of any reimbursable business expenses under SECTION 1(e)(v), which were incurred by the Executive through and including the
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Termination Date; (D) continuation of benefits to which the Executive is entitled under SECTION 1(e)(iii) and SECTION 1(e)(iv) through and including the Termination Date; and (E) the SERP that the Executive is entitled to under SECTION 1(e)(vii). In addition, (x) upon a termination by the Company pursuant to SECTION 1(f)(ii), any vested or unvested stock options held by the Executive shall terminate immediately and (y) upon the Executives resignation pursuant to SECTION 1(f)(v), any unvested stock options held by the Executive shall terminate immediately and any vested stock option held by the Executive shall remain exercisable for thirty (30) days following the Termination Date but in no event later than the expiration date of such stock option as specified in the applicable grant letter.
(iii) TERMINATION WITHOUT CAUSE OR RESIGNATION FOR GOOD REASON. Upon the Companys termination of the Executives employment without Cause, pursuant to SECTION 1(f)(iii) or the Executives resignation for Good Reason pursuant to SECTION L(f)(iv), the Executive shall be entitled to receive a lump sum payment equal to (A) payment of that portion of the Executives then effective Annual Salary which has been earned but not yet paid through and including the Termination Date; (B) payment of any Bonus earned by the Executive under the terms and conditions of this Agreement prior to the Termination Date that remains unpaid; and (C) payment of an amount based upon the following formula:
(A + ((B + C)/2)) x 2
Where: A equals the Annual Salary then in effect;
B equals the Bonus paid or payable to the Executive with respect to the fiscal year immediately preceding the fiscal year in which the Executives termination or resignation occurs (if no such Bonus was paid or payable with respect to such year, the Bonus amount used for this calculation shall be zero).
C equals the Bonus paid or payable to the Executive with respect to the second fiscal year preceding the fiscal year in which the Executives termination or resignation occurs (if no such Bonus was paid or payable with respect to such year, the Bonus amount used for this calculation shall be zero.)
The Executive shall also be entitled to receive (A) reimbursement of any reimbursable business expenses under SECTION 1(e)(v), which were incurred by the Executive through and including the Termination Date; (B) continuation of medical and hospitalization benefits to which the Executive is entitled under SECTION 1(e)(iii), Life Insurance and Disability Insurance to which the Executive is entitled under SECTION 1(e)(iv), in each case, until the second (2nd) anniversary of the Termination Date; provided, however, that such benefits shall terminate to the extent that the Executive obtains comparable benefits coverage from another employer during such two (2) year period and (C) the SERP that the Executive is entitled to under SECTION 1(e)(vii). In addition, any unvested stock options held by the Executive will vest immediately and all options held by the Executive will remain exercisable for one (1) year from the Termination Date, but in no event later than the expiration date of such stock option as specified in the applicable grant letter.
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(iv) DEATH; DISABILITY OR RETIREMENT. Upon termination of the Executives employment pursuant to SECTION 1(f)(vi), the Executive or the Executives heirs, estate, personal representative or legal guardian, as appropriate, will be entitled to receive (A) payment of that portion of the Executives then effective Annual Salary which has been earned but not yet paid through and including the Termination Date; (B) payment of any Bonus earned by the Executive under the terms and conditions of this Agreement prior to the Termination Date that remains unpaid; (C) reimbursement of any reimbursable business expenses under SECTION 1(e)(v), which were incurred by the Executive through and including the Termination Date; (D) continuation of benefits to which the Executive is entitled under SECTION 1(e)(iii) and SECTION 1(e)(iv) through and including the Termination Date (including, without limitation, coverage under any Company disability plan then in effect); and (E) payment of the SERP that the Executive is entitled to under SECTION 1(e)(vii) in accordance with its terms. In addition, any unvested stock options held by the Executive will vest immediately and all options held by the Executive will remain exercisable for one (1) year in the event of death or Disability and six (6) months in the event of Retirement following the Termination Date, but in no event later than the expiration date of such stock option as specified in the applicable grant letter.
(v) TIMING OF PAYMENT AND RELEASE. As a condition of receiving from the Company the payments and benefits provided for under this SECTION 1(g) which the Executive otherwise would not be entitled to receive, the Executive understands and agrees that, on the Termination Date, he will be required to execute a release of all claims against the Company in substantially the form attached hereto as Exhibit I (the RELEASE) as may be modified by the Company in good faith to reflect changes in law or its employment practices. The Executive acknowledges that he has been advised in writing to consult with an attorney prior to executing the Release. The Executive agrees that he will consult with his attorney prior to executing the Release. The Executive and the Company agree that the Executive has a period of seven (7) days following the execution of the Release within which to revoke the Release. The parties also acknowledge and agree that the Release shall not be effective or enforceable until the seven (7) day revocation period expires. The date on which this seven (7) day period expires shall be the effective date of the Release (the RELEASE EFFECTIVE DATE). The Company shall make all payments required under this Agreement, except to the extent that such payments are to be made over time, within five (5) business days following the Release Effective Date. In the event of a termination for Cause or by reason of the Executives death, the Company shall make any payments under this SECTION 1(g) within five (5) business days of the Termination Date, except to the extent that such payments are to be made over time. The Executive understands that as used in this SECTION 1(g)(iv), the Company includes its past, present and future officers, directors, trustees, shareholders, employees, agents, subsidiaries, affiliates, distributors, successors, and assigns, any and all employee benefit plans (and any fiduciary of such plans) sponsored, by the Company, and any other person related to the Company.
Except as specifically provided in this SECTION 1(g) or required under applicable law, the Executive will not be eligible to receive any salary, bonus or other compensation or benefits described in SECTION 1(e) with respect to any future periods after the
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Termination Date; provided, however, the Executive shall have the right to receive all compensation and benefits to which he is entitled under any benefit plans of the Company to the extent he is fully vested as of the effective date of the termination of the Executives employment by the Company pursuant to the terms and conditions of such employee benefit plans.
SECTION 2. CONFIDENTIALITY. For purposes of this Section 2, the term Company shall include, in addition to the Company, its affiliates, subsidiaries and any of their respective predecessors, successors and assigns. The term Companys Business shall mean the business of developing, manufacturing, selling or distributing high-performance alloys for service in severe corrosion and high temperature applications.
(a) CONFIDENTIAL INFORMATION. As used in this Agreement, CONFIDENTIAL INFORMATION means any and all confidential, proprietary or other information, whether or not originated by the Executive or the Company, which is in any way related to the past or present Companys Business and is either designated as confidential or not generally known by or available to the public. Confidential Information includes, but is not limited to (whether or not reduced to writing or designated as confidential) (i) information regarding the Companys existing and potential customers and vendors; (ii) any contacts (including the existence and contents thereof and parties thereto) to which the Company is a party or is bound; (iii) information regarding products and services being purchased or leased by or provided to the Company; (iv) information received by the Company from third parties under an obligation of confidentiality, restricted, disclosure or restricted use; (v) personnel and financial information of the Company; (vi) information with respect to the Companys products, services, facilities, business methods, systems, trade secrets, technical know-how, and other intellectual property; (vii) marketing and developmental plans and techniques, price and cost data, forecasts and forecast assumptions, and potential strategies of the Company; and (viii) any other information relating to the Company which was obtained by the Executive in connection with his employment by the Company, whether before, on or after the Effective Date.
(b) NON-DISCLOSURE AND NON-USE OF CONFIDENTIAL INFORMATION. The Executive acknowledges that the Confidential Information of the Company is a valuable, unique asset of the Company and the Executives unauthorized use or disclosure thereof could cause irreparable harm to the Company for which no remedy at law could be adequate. Accordingly, the Executive agrees that he shall hold all Confidential Information of the Company in strict confidence and solely for the benefit of the Company, and that, he shall not, directly or indirectly, disclose or use or authorize any third party to disclose or use any Confidential Information except (i) as required for the performance of the Executives duties hereunder, (ii) with the express written consent of the Company, (iii) to the extent that any such information is in or becomes in the public domain other than as a result of the Executives breach of any of his obligations hereunder, or (iv) where required to be disclosed by court order, subpoena or other government process and in such event, the Executive shall cooperate with the Company in attempting to keep such information confidential. The Executive shall follow all Company policies and procedures to protect all Confidential Information and take any additional precautions necessary to preserve and protect the use or disclosure of any Confidential Information at all times. The Company shall reimburse the Executive for all reasonable
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expenses and costs he may incur as a result of cooperating under this SECTION 2(b), upon receipt of proper documentation.
(c) OWNERSHIP OF CONFIDENTIAL INFORMATION. The Executive acknowledges and agrees that all Confidential Information is and shall remain the exclusive property of the Company, whether or not prepared in whole or in part by the Executive and whether or not disclosed to or entrusted to the custody of the Executive. Upon the termination or resignation of his employment by the Company, or at any other time at the request of the Company, the Executive shall promptly deliver to the Company all documents, tapes, disks, or other storage media and any other materials, and all copies thereof in whatever form, in the possession of the Executive pertaining to the Companys Business, including, but not limited to, any containing Confidential Information.
(d) SURVIVAL. The Executives obligations set forth in this SECTION 2, and the Companys rights and remedies with respect hereto, shall indefinitely survive the termination of this Agreement and the Executives employment by the Company, regardless of the reason therefor.
SECTION 3. RESTRICTIVE COVENANTS. For purposes of this SECTION 3, the term Company shall include, in addition to the Company, its affiliates, subsidiaries and any of their respective predecessors, successors and assigns.
(a) NON-COMPETITION. During the Restricted Period and within the Restricted Area (each as defined in subsection (c) below), the Executive shall not, directly or indirectly, perform on behalf of any Competitor (as defined in subsection (c) below) the same or similar services as those that the Executive performed for the Company during the Executives employment by the Company or otherwise. In addition, the Executive shall not, during the Restricted Period or within the Restricted Area, directly or indirectly engage in, own, manage, operate, join, control, tend money or other assistance to, or participate in or be connected with (as an officer, director, member, manager, partner, shareholder, consultant, employee, agent, or otherwise), any Competitor.
(b) NON-SOLICITATION. During the Restricted Period, the Executive shall not, directly or indirectly, for himself or on behalf of any Person (as defined in subsection (c) below), (i) solicit or attempt to solicit any Customers (as defined in subsection (c) below) or prospective Customers with whom the Executive had contact at any time during the Executives employment by the Company; (ii) divert or attempt to divert any business of the Company to any, other Person; (iii) solicit or attempt to solicit for employment, endeavor to entice away from the Company, recruit, hire, or otherwise interfere with the Companys relationship with, any Person who is employed by or otherwise engaged to perform services for the Company (or was employed or otherwise engaged to perform services for the Company, as of any given time, within the immediately preceding twenty-four (24) month period); (iv) cause or assist, or attempt to cause or assist, any employee or other service provider to leave the Company; or (v) otherwise interfere in any manner with the employment or business relationships of the Company or the business or operations then being conducted by the Company.
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(c) DEFINITIONS. For purposes of this SECTION 3, the following definitions have the following meanings:
(i) COMPETITOR means any Person that engages in a business that is the same as, or similar to, the Companys Business.
(ii) CUSTOMER means any Person which, as of any given date, used or purchased or contracted to use or purchase any services or products from Company within the immediately preceding twenty-four (24) month period.
(iii) PERSON means any individual, corporation, partnership, joint venture, association, limited liability company, joint-stock company, trust, or unincorporated organization, or any governmental agency, officer, department, commission, board, bureau, or instrumentality thereof.
(iv) RESTRICTED AREA means, because the market for the Companys Business is global, or has the potential of being global, and is not dependent upon the physical location or presence of the Company, the Executive, or any individual or entity that may be in violation of this Agreement, the broadest geographic region enforceable by law (excluding any location where this type of restriction is prohibited by law) as follows: (A) everywhere in the world that has access to the Companys Business because of the availability of the Internet; (B) everywhere in the world that the Executive has the ability to compete with the Companys Business through the Internet; (C) each state, commonwealth, territory, province and other political subdivision located in North America; (D) each state, commonwealth, territory and other political subdivision of the United States of America; (E) Indiana and any state in which the Executive has performed any services for the Company; (F) any geographical area in which the Company has performed any services or sold any products; (G) any geographical area in which the Company or any of its subsidiaries have engaged in the Companys Business, which has resulted in aggregate sales revenues of at least $25,000 during any year in the five (5) year period immediately preceding the commencement of the Restricted Period; (H) any state or other jurisdiction where the Company had an office at any time during the Executives employment by the Company; (I) within one hundred (100) miles of any location in which the Company had an office at any time during the Executives employment by the Company; and (3) within one hundred (100) miles of any location in which the Executive provided services for the Company.
(v) RESTRICTED PERIOD means the period of time during the Executives employment by the Company plus a period of twenty-four (24) months from the Termination Date. In the event of a breach of this Agreement by the Executive, the Restricted Period will be extended automatically by the period of the breach.
(d) SURVIVAL. The Executives obligations set forth in this Section 3, and the Companys rights and remedies with respect thereto, will remain in full force and effect during the Restricted Period and until full resolution of any dispute related to the performance of the Executives obligations during the Restricted Period.
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(e) PUBLIC COMPANY EXCEPTION. The prohibitions contained in this SECTION 3 do not prohibit the Executives ownership of stock which is publicly traded, provided that (1) the investment is passive, (2) the Executive has no other involvement with the company, (3) the Executives interest is less than five percent (5%) of the shares of the company, and (4) the Executive makes full disclosure to the Company of the stock at the time that the Executive acquires the shares of stock.
SECTION 4. ASSIGNMENT OF INVENTIONS. Any and all inventions, improvements, discoveries, designs, works of authorship, concepts or ideas, or expressions thereof, whether or not subject to patents, copyrights, trademarks or service mark protections, and whether or not reduced to practice, that are conceived or developed by the Executive while employed with the Company and which relate to or result from the actual or anticipated business, work, research or, investigation of the Company (collectively, INVENTIONS), shall be the sole and exclusive property of the Company. The Executive shall do all things reasonably requested by the Company to assign to and vest in the Company the entire right, title and interest to any such Inventions and to obtain full protection therefor. Notwithstanding the foregoing, the provisions of this Agreement do not apply to an Invention for which no equipment, supplies, facility, or Confidential Information of the Company was used and which was developed entirely on the Executives own time, unless (a) the Invention relates (i) to the Companys Business, or (ii) to the Companys actual or demonstrably anticipated research or development, or (b) the Invention results from any work performed by the Executive for the Company.
SECTION 5. GENERAL.
(a) REASONABLENESS. The Executive has carefully considered the nature, extent and duration of the restrictions and obligations contained in this Agreement, including, without limitation, the geographical coverage contained in SECTION 3 and the time periods contained in SECTION 2 and SECTION 3, and acknowledges and agrees that such restrictions are fair and reasonable in all respects to protect the legitimate interests of the Company and that these restrictions are designed for the reasonable protection of the Companys Business.
(b) REMEDIES. The Executive recognizes that any breach of this Agreement shall cause irreparable injury to the Company, inadequately compensable in monetary damages. Accordingly, in addition to any other legal or equitable remedies that may be available to the Company, the Executive agrees that the Company shall be able to seek and obtain injunctive relief in the form of a temporary restraining order, preliminary injunction, or permanent injunction, in each case without notice or bond, against the Executive to enforce this Agreement. The Company shall not be required to demonstrate actual injury or damage to obtain injunctive relief from the courts. To the extent that any damages are calculable resulting from the breach of this Agreement, the Company shall also be entitled to recover damages, including, but not limited to, any lost profits of the Company and/or its affiliates or subsidiaries. For purposes of this Agreement, lost profits of the Company shall be deemed to include all gross revenues resulting from any activity of the Executive in violation of this Agreement and all such revenues shall be held in trust for the benefit of the Company. Any recovery of damages by the Company shall be in addition to and not in lieu of the injunctive relief to which the Company is entitled. In no event will a damage recovery be considered a penalty in liquidated damages. In addition, in any action at law or in equity arising out of this Agreement, the prevailing party shall be entitled
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to recover, in addition to any damages caused by a breach of this Agreement, all costs and expenses, including, but not limited to, reasonable attorneys fees, expenses, and court costs incurred by such party in connection with such action or proceeding. Without limiting the Companys rights under this SECTION 5(b) or any other remedies of the Company, if a court of competent jurisdiction determines that the Executive breached any of the provisions of Section or SECTION 3, Company will have the right to cease making any payments or providing any benefits otherwise due to the Executive under the terms and conditions of this Agreement.
(c) CLAIMS BY EXECUTIVE. The Executive acknowledges and agrees that, any claim or cause of action by the Executive against the Company shall not constitute a defense to the enforcement of the restrictions and covenants set forth in this Agreement and shall not be used to prohibit injunctive relief.
(d) AMENDMENTS. This Agreement may not be modified, amended, or waived in any manner except by an instrument in writing signed by both parties to this Agreement.
(e) WAIVER. The waiver by either party of compliance by the other party with any provision of this Agreement shall not operate or be construed as a waiver of any other provision of this Agreement (whether or not similar), or a continuing waiver, or a waiver of any subsequent breach by a party of any provision of this Agreement.
(f) GOVERNING LAW; JURISDICTION. The laws of the State of New York shall govern the validity, performance, enforcement, interpretation, and other aspects of this Agreement, notwithstanding any states choice of law provisions to the contrary. The parties intend the provisions of this Agreement to supplement, but not displace, their respective obligations and responsibilities under the New York and Indiana Uniform Trade Secrets Act. Any proceeding to enforce, interpret, challenge the validity of, or recover for the breach of any provision of, this Agreement may be filed in the courts of the State of Indiana or the United States District Court sitting in Indianapolis, Indiana, and the parties hereto expressly waive any and all objections to personal jurisdiction, service of processor venue in connection therewith.
(g) COMPLETE AGREEMENT; RELEASE. This Agreement constitutes a complete and total integration of the understanding of the parties with respect to the subject matter hereof and thereof and supersedes all prior or contemporaneous negotiations, commitments, agreements, writings, and discussions with respect to the subject matter of this Agreement, including but not limited to the Severance Agreement and the Employment Agreement. The Executive hereby unconditionally releases and discharges the Company from any and all claims, causes of action, demands, lawsuits or other charges whatsoever, known or unknown, directly or indirectly related to the Severance Agreement and the Employment } Agreement arising prior to the Effective Date.
(h) SEVERABILITY. If a court having proper jurisdiction holds a particular provision of this Agreement unenforceable or invalid for any reason, that provision shall be modified only to the extent necessary in the opinion of such court to make it enforceable and valid and the remainder of this Agreement shall be deemed valid and enforceable and shall be enforced to the greatest extent possible under the then existing law. In the event the court determines such
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modification is not possible, the provision shall be deemed severable and deleted, and all other provisions of this Agreement shall remain unchanged and in full force and effect.
(i) ENFORCEABILITY IN JURISDICTIONS. The parties hereto intend to and hereby confer jurisdiction to enforce the covenants contained in SECTIONS 2 AND 3 above upon the courts of any state within the geographical scope of such covenants. If the courts of any one or more of such states shall hold any of the previous covenants unenforceable by reason of the breadth of such scope or otherwise, it is the intention of the parties hereto that such determination not bar or in any way affect the Companys rights to the relief provided above in the courts of any other states within the geographical scope of such covenants, as to breaches of such covenants in such other respective jurisdictions, the above covenants as they relate to each state being, for this purpose, severable into diverse and independent covenants.
(j) FAIR DEALING. The Executive acknowledges that the Company has negotiated this Agreement in good faith and has been fair in its dealing with the Executive. The Executive shall not raise any defense and expressly waives any defense against the Company based upon any alleged breach of good faith or fair dealing by the Company in connection with this Agreement.
(k) COUNTERPARTS. This Agreement may be executed in two (2) counterparts, each of which shall be deemed an original but both of which together shall constitute one and the same Agreement. Facsimile transmission of the executed version of this Agreement or any counterpart hereof shall have the same force and effect as the original.
(l) EXECUTIVE WARRANTIES. The Executive warrants and represents to the Company that the execution and performance of this Agreement does not and shall not violate any express or implied obligations of the Executive to any other person and that the Executive shall inform any prospective employer about the existence of this Agreement before accepting employment by such employer.
(m) HEADINGS. The headings of the Sections of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction of this Agreement.
(n) THIRD PARTY BENEFICIARIES. The Companys affiliates and subsidiaries are expressly made third party beneficiaries of this Agreement.
(o) NOTICES. Any notice required or permitted hereunder shall be personally delivered or mailed by certified mail, return receipt requested, to the addresses of the parties set out on the signature pages hereto, or as changed from time to time by notice as provided herein.
(p) SUCCESSORS AND ASSIGNS. The Executive shall not assign or transfer any of his rights or obligations under this Agreement to any individual or entity. The Company may assign its rights hereunder to any of its affiliates or to any individual or entity who or that shall acquire or succeed to, by operation of law or otherwise, all or substantially all of the assets of the Company or the Companys Business. All provisions of this Agreement are binding upon, shall inure to the benefit of, and are enforceable by or against, the parties and their respective heirs, executors, administrators or other legal representatives and permitted successors and assigns.
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(q) OPPORTUNITY TO CONSULT COUNSEL. THE EXECUTIVE ACKNOWLEDGES THAT HE HAS CAREFULLY READ THIS AGREEMENT AND HAS BEEN GIVEN ADEQUATE OPPORTUNITY, AND HAS BEEN ENCOURAGED BY THE COMPANY, TO CONSULT WITH LEGAL COUNSEL OF HIS CHOICE CONCERNING THE TERMS HEREOF BEFORE EXECUTING THIS AGREEMENT.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties have made this Agreement effective as of the Effective Date.
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COMPANY |
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HAYNES INTERNATIONAL, INC. |
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By: : |
/s/ Marcel Martin |
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Marcel Martin |
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Title: |
V.P. Finance, CFO |
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1020 W. Park Avenue |
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P.O. Box 9013 |
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Kokomo, IN 46904-9013 |
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EXECUTIVE |
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/s/ Francis J. Petro |
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Francis J. Petro |
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4957 Belrush Road |
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Syracuse, NY 13215 |
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[Exhibit I - Form of Release of Claims has been omitted from the Agreement as filed with the Securities and Exchange Commission (the SEC). The omitted information is filed as Exhibit 10.08 to the Registration Statement. The Registrant will furnish supplementally a copy of any of the omitted exhibit to the SEC upon request from the SEC.]
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Exhibit 10.11
REGISTRATION RIGHTS AGREEMENT
BY AND AMONG
HAYNES INTERNATIONAL, INC.
AND
THE PARTIES SPECIFIED ON
THE SIGNATURE PAGES HEREOF
DATED AS OF AUGUST 31, 2004
HAYNES INTERNATIONAL, INC.
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT dated as of 31, 2004 is made and entered into by and among Haynes International, Inc., a Delaware corporation (together with its successors and assigns, the COMPANY) and the initial holders of the common stock (the HOLDERS) specified on the signature pages hereof.
WHEREAS, on March 29, 2004, Haynes International, Inc. and certain of its subsidiaries and affiliates (the DEBTORS), filed a voluntary petition for reorganization under Chapter 11 of title 11 of the U.S. Code, 11 U.S.C. Sections 101 - 1330 (as amended, the BANKRUPTCY CODE), with the United States Bankruptcy Court for the Southern District of Indiana, Indianapolis Division (the BANKRUPTCY COURT), commencing Chapter 11 Case Nos. 04-05364 through 04-05367 (the BANKRUPTCY CASE);
WHEREAS, on May 26, 2004, the Debtors also filed that certain Plan of Reorganization (as amended and supplemented from time to time, the PLAN) with the Bankruptcy Court in the Bankruptcy Case;
WHEREAS, the Bankruptcy Court confirmed the Plan pursuant to the order under section 1129 of the Bankruptcy Code, dated August 31, 2004 (the CONFIRMATION ORDER); and
WHEREAS, pursuant to the Plan and the Confirmation Order, the Holders have received shares of common stock of the Company (the SHARES) and the Company is obligated to provide the Holders with certain registration rights with respect to such Shares.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
1. SHELF REGISTRATION.
(a) FILING OF SHELF REGISTRATION
(i) (x) Subject to clause (y) below, the Company shall comply with all the provisions of Sections 3(a) to 3(j) and shall use its reasonable best efforts to file with the Commission within 100 days of the Effective Date, and thereafter shall use its reasonable best efforts to cause to be declared effective within 180 days after the Effective Date, a Shelf Registration Statement, covering all of the Registrable Securities, and relating to the offer and sale of the Registrable Securities, by the holders of the Registrable Securities from time to time in accordance with the methods of distribution set forth in the Shelf Registration Statement.
(y) Following delivery of notice to all holders of Registrable Securities, the Company may postpone for up to 90 days the filing or effectiveness of the Shelf Registration Statement if in the good faith judgment of the Company, the filing or effectiveness of the Shelf Registration Statement (A) would reasonably be expected to have a material adverse effect on any proposed financing, reorganization or recapitalization of the Company or pending negotiations relating to a merger, consolidation, acquisition or similar transaction or (B) applicable securities laws would require the Company to disclose material non-public information (NON-PUBLIC INFORMATION) and the disclosure of such Non-Public Information would materially and adversely affect the business and operations of the Company; provided, however, that immediately following such postponement, the Company shall file or request effectiveness of the Shelf Registration Statement.
(ii) (x) Subject to clause (y) below, the Company shall use its reasonable best efforts to keep the Shelf Registration Statement continuously effective in order to permit any prospectus forming part thereof to be used by the holders of the Registrable Securities covered thereby for a period ending on the earlier of (A) the first date on which all the Registrable Securities covered by such Shelf Registration Statement have been sold pursuant thereto, (B) the first date on which all such Registrable Securities can immediately be sold within a ninety day period pursuant to Rule 144(e)(1)(i) under the Securities Act, (C) the first date upon which such holder (i) owns less than ten percent (10%) of the then issued and outstanding shares of Common Stock of the Company, (ii) is no longer an affiliate of the Company for purposes of Rule 144 of the Securities Act and (iii) no longer has a direct seat or a representative with a seat on the Companys Board of Directors or (D) the date upon which such Registrable Securities cease to be outstanding (in any such case, such period being called the SHELF REGISTRATION EFFECTIVENESS PERIOD).
(y) The Company may, by notice given to all holders of Registrable Securities, require such holders not to make any sale of Registrable Securities pursuant to the Shelf Registration Statement if, in the good faith judgment of the Company, (A) securities laws applicable to such sale would require the Company to disclose Non-Public Information and (B) the disclosure of such Non-Public Information would materially and adversely affect the business or operations of the Company or any proposed financing, reorganization or recapitalization of the Company or pending negotiations relating to a merger, consolidation, acquisition or similar transaction. In the event that sales under the Shelf Registration Statement are suspended because of the obligation to disclose Non-Public Information, the Company will notify the holders of Registrable Securities promptly upon such Non-Public Information being included by the Company in a filing with the Commission, being
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otherwise disclosed to the public (other than through the actions of a holder of Registrable Securities) or ceasing to be material to the Company, and upon such notice being given by the Company, the holders of Registrable Securities shall again be entitled to sell Registrable Securities pursuant to the Shelf Registration Statement. Notwithstanding the foregoing, the right of the Company pursuant to this clause (y) to require the holders to suspend sales under such Shelf Registration Statement shall not extend for more than 90 total days in any rolling period of twelve consecutive months during which the Registrable Securities are saleable pursuant to a Registration Statement.
(iii) Notwithstanding any other provisions hereof, the Company will use its reasonable best efforts to ensure that (A) any Shelf Registration Statement and any amendment thereto and any prospectus forming part thereof and any supplement thereto complies in all material respects with the Securities Act and the rules and regulations of the Commission thereunder, (B) any Shelf Registration Statement and any amendment thereto, at the time each become effective (in either case, other than with respect to information included therein in reliance upon or in conformity with information furnished in writing or confirmed in writing to the Company by or on behalf of the holder of such Registrable Securities specifically for use therein (the HOLDER INFORMATION)), does not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading and (C) any prospectus forming part of any Shelf Registration Statement, and any supplement to such prospectus (in either case, other than with respect to Holder Information), as of the date of each, does not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.
(iv) The Company will pay all Registration Expenses incurred in connection with the Shelf Registration Statement.
(b) REGISTRATION STATEMENT FORM. A Shelf Registration Statement shall be on such appropriate registration form promulgated by the Commission as shall be selected by the Company and shall permit the disposition of such Registrable Securities in accordance with the intended method or methods specified in their request for such registration. If, during the period in which the Company is obligated to maintain the Shelf Registration in effect, the Company becomes qualified for registration on Form S-3 or any comparable or successor form or forms for offers and sales by Holders, then, the Company may, in its discretion, terminate the Shelf Registration and concurrently register the Registrable Securities on such short-form registration statement. The obligations of the Company with respect to maintenance of such registration statement and prospectus included therein shall be subject to the terms of this Agreement and such
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new registration statement shall be deemed to be a Shelf Registration Statement for purposes of this Agreement.
2. PIGGYBACK REGISTRATION RIGHTS.
(a) RIGHT TO INCLUDE REGISTRABLE SECURITIES. If the Company at any time proposes after the date hereof to effect a registration, other than a Shelf Registration Statement, of equity securities or securities convertible into equity securities of the Company under the Securities Act whether for sale for the account of the Company or for the account of any holder of securities of the Company (other than Registrable Securities) (a PIGGYBACK REGISTRATION), it will each such time give prompt written notice (a NOTICE OF PIGGYBACK REGISTRATION), at least 10 Business Days prior to the anticipated filing date, to all holders of Registrable Securities stating (i) its intention to do so, (ii) whether the Piggyback Registration will be made pursuant to an underwritten offering and (iii) such holders rights under this Section 2, which Notice of Piggyback Registration shall include a description of the intended method of disposition of such securities.
Upon the written request of any such holder made within five days after receipt of a Notice of Piggyback Registration (which request shall specify the Registrable Securities intended to be disposed of by such holder), the Company will, subject to the other provisions of this Agreement, include in the registration statement relating to such Piggyback Registration all Registrable Securities which the Company has been so requested to register, all to the extent requisite to permit the disposition of such Registrable Securities in accordance with the intended method of disposition set forth in the Notice of Piggyback Registration. Notwithstanding the foregoing, if, at any time after giving a Notice of Piggyback Registration and prior to the effective date of the registration statement filed in connection with such registration, the Company shall determine in its good faith judgment to not register or to delay registration of such securities, the Company shall at its election, give written notice of such determination to each holder of Registrable Securities and, thereupon, in the case of a determination not to register, shall be relieved of its obligation to register any Registrable Securities in connection with such registration (but not from its obligation to pay the Registration Expenses in connection therewith). Notwithstanding the foregoing, for purposes of this Agreement, Piggyback Registration shall not include any registration in respect of a dividend reinvestment or similar plan for stockholders of the Company or any registration on Form S-4 or on Form S-8.
(b) REGISTRATION EXPENSES. The Company will pay all Registration Expenses incurred in connection with each Piggyback Registration.
(c) PRIORITY IN CUTBACK REGISTRATIONS. If a Piggyback Registration becomes a Cutback Registration, the Company will include in such registration, to the extent of the amount or kind of securities which the Managing Underwriter advises the Company can be sold in such offering in the following order:
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(i) First, the securities proposed by the Company to be sold for its own account,
(ii) Second, any Registrable Securities requested to be included in such registration by Requesting Holders, pro rata on the basis of the number of Registrable Securities requested to be included by such holders, and
(iii) Third, any other securities of the Company proposed to be included in such registration, allocated among the holders thereof in accordance with the priorities then existing among the Company and such holders;
and any securities so excluded shall be withdrawn from and shall not be included in such Piggyback Registration but are eligible to be included in any future Piggyback Registration(s).
3. REGISTRATION PROCEDURES.
If and whenever the Company is required to effect the registration of any Registrable Securities under the Securities Act pursuant to Section 1 or Section 2, the Company will use its reasonable best efforts to effect the registration and sale of such Registrable Securities in accordance with the intended method of disposition thereof. Without limiting the foregoing, the Company in each such case will:
(a) As far in advance as reasonably practical before filing a registration statement or any amendment thereto, the Company will furnish to the holders of the Registrable Securities included in such registration statement copies of reasonably complete drafts of all such documents proposed to be filed (including exhibits), and any such holder shall have three Business Days to object to any Holder Information contained therein and the Company will make the corrections reasonably requested by such Holder with respect to such information;
(b) Subject to Section 1(a)(ii) and paragraph (f) below, use its reasonable best efforts to prepare and file with the Commission such amendments and supplements to such registration statement and any prospectus used in connection therewith as may be necessary to maintain the effectiveness of such registration statement and to comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities covered by such registration statement, in accordance with the intended methods of disposition thereof, until the Shelf Registration Effectiveness Period has ended, or, with respect to a Piggyback Registration, until the Company shall determine in its good faith judgment otherwise;
(c) promptly notify each holder of Registrable Securities included on a registration statement (and the underwriters, if any):
(i) when such registration statement or any prospectus used in connection therewith, or any amendment or supplement
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thereto, has been filed and, with respect to such registration statement or any post-effective amendment thereto, when the same has become effective;
(ii) of the notification to the Company by the Commission of the issuance of any stop order suspending the effectiveness of such registration statement, or of any order preventing or suspending the use of any preliminary prospectus; and
(iii) of the receipt by the Company of any notification with respect to the suspension of the qualification or the exemption from qualification of any Registrable Securities for sale under the applicable securities or blue sky laws of any jurisdiction or the initiation of any proceeding for such purpose;
(d) furnish to each holder of Registrable Securities covered by such registration statement, not later than two Business Days after filing with the Commission, such number of copies of the prospectus contained in such registration statement (including any summary prospectus and prospectus supplements) that has been declared effective and any other prospectus filed under Rule 424 promulgated under the Securities Act relating to such holders Registrable Securities as such seller may reasonably request to facilitate the disposition of its Registrable Securities;
(e) use its reasonable best efforts to register or qualify all Registrable Securities covered by such registration statement under such other securities or blue sky laws of such jurisdictions as each holder thereof shall reasonably request, to keep such registration or qualification in effect for so long as such registration statement remains in effect, and to take any other action which may be reasonably necessary or advisable to enable such holder to consummate the disposition in such jurisdictions of the Registrable Securities owned by such holder, except that the Company shall not for any such purpose be required (i) to qualify generally to do business as a foreign corporation in any jurisdiction wherein it would not but for the requirements of this paragraph (e) be obligated to be so qualified, (ii) to subject itself to taxation in any such jurisdiction or (iii) to consent to general service of process in any jurisdiction unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act or applicable rules or regulations thereunder;
(f) promptly notify each holder of Registrable Securities covered by such registration statement, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event, the existence of any condition or any information becoming known as a result of which any prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, and at the request of any such holder promptly prepare and furnish to such holder a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the
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purchasers of such securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, the Company shall not be required to furnish such supplement or amendment at any time that sales of Registrable Securities are suspended under the circumstances described in Section 1(a)(ii)(y) for as long as such sales are suspended;
(g) otherwise use its reasonable best efforts to comply with all applicable rules and regulations of the Commission, and make available to its securityholders, as soon as reasonably practicable, an earnings statement of the Company which complies with the provisions of Section 11(a) of the Securities Act and Rule 158 promulgated thereunder;
(h) make available for inspection by any Requesting Holder and any attorney, accountant or other agent retained by any such Requesting Holder (collectively, the INSPECTORS), all financial and other records, pertinent corporate documents and properties of the Company (collectively, the RECORDS) as shall be reasonably necessary to enable them to exercise their due diligence responsibility, and cause the Companys officers, directors, employees and its counsel and its subsidiaries to supply all information reasonably requested by any such Inspector in connection with such registration statement; provided that nothing in this Agreement shall require the waiver of any privilege or the disclosure of any information that would result in any such waiver. Records which the Company determines, in good faith, to be confidential and which it notifies the Inspectors are confidential shall not be disclosed by the Inspectors unless (i) the release of such Records is ordered pursuant to a subpoena or other order from a court of competent jurisdiction, or (ii) the information in such Records has been made generally available to the public, provided, however, that prior notice shall be provided as promptly as practicable to the Company of the potential disclosure of any information by such Inspector pursuant to clause (i) of this sentence in order to permit the Company to obtain a protective order (or to waive the provisions of this paragraph). The Company may request the Inspectors enter into a standard confidentiality agreement to this effect prior to furnishing any confidential information. The seller of Registrable Securities agrees that it will, upon learning that disclosure of such Records is sought in a court of competent jurisdiction, give notice to the Company and allow the Company, at the Companys expense, to undertake appropriate action to prevent disclosure of the Records deemed confidential;
(i) provide a transfer agent and a registrar for all Registrable Securities covered by such registration statement not later than the effective date of such registration statement; and
(j) provide a CUSIP number for all Registrable Securities not later than the effective date of the Shelf Registration Statement or Piggyback Registration.
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The Company may require each holder of Registrable Securities as to which any registration is being effected to, and each such holder, as a condition to including Registrable Securities in such registration, shall, furnish the Company with such information and affidavits regarding such holder and the distribution of such securities as the Company may from time to time reasonably request in writing in connection with such registration.
Each holder of Registrable Securities agrees that upon receipt of any notice from the Company of the happening of any event of the kind described in paragraph (f), such holder will forthwith discontinue such holders disposition of Registrable Securities pursuant to the registration statement relating to such Registrable Securities until such holders receipt of the copies of the supplemented or amended prospectus contemplated by paragraph (f) and, if so directed by the Company, will deliver to the Company or destroy all copies, other than permanent file copies, then in such holders possession of the prospectus relating to such Registrable Securities current at the time of receipt of such notice.
4. UNDERWRITTEN OFFERINGS.
If the Company at any time proposes to register any of its securities in a registration pursuant to which any Holder has rights pursuant to Section 2(a) and such securities are to be distributed by or through one or more underwriters, the Company will, subject to the provisions of Section 2(c), use its reasonable best efforts, if requested by any holder of Registrable Securities, to arrange for such underwriters to include the Registrable Securities to be offered and sold by Requesting Holders among the securities to be distributed by such underwriters, and such holders shall be obligated to sell their Registrable Securities in such Piggyback Registration through such underwriters on the same terms and conditions as apply to the other Company securities to be sold by such underwriters in connection with such Piggyback Registration. The holders of Registrable Securities to be distributed by such underwriters shall be parties to a customary underwriting agreement between the Company and such underwriter or underwriters and shall make customary representations and warranties regarding such holder, its ownership of securities being registered on its behalf, its ability to consummate the transaction and any other representations required by law; provided, however that no holder of Registrable Securities shall be required to make any representations or warranties with respect to the Company or any other holder. No Requesting Holder may participate in any underwritten Piggyback Offering unless such holder (i) agrees to sell its Registrable Securities on the basis reasonably provided in any underwriting arrangements approved by the Company; and (ii) completes and executes all questionnaires, powers of attorney, indemnities, lock-up agreements and other documents reasonably required under the terms of such underwriting arrangements. If any Requesting Holder disapproves of the terms of an underwriting, such holder may elect to withdraw therefrom and from such registration by notice to the Company and the Managing Underwriter, and each of the remaining Requesting Holders shall be entitled to increase the number of Registrable Securities being registered to the extent of the Registrable Securities so withdrawn in the proportion which the number of Registrable Securities being registered by such
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remaining Requesting Holder bears to the total number of Registrable Securities being registered by all such remaining Requesting Holders.
5. HOLDBACK AGREEMENTS.
If and to the extent requested by the Managing Underwriter (such request to be made at least five Business Days in advance of the beginning of the holdback period), each holder of Registrable Securities agrees, to the extent permitted by law, not to effect any public sale or distribution (including a sale under Rule 144) of Common Stock, or securities convertible into or exchangeable or exercisable for Common Stock, during the 90 days after the effective date of any registration statement filed by the Company in connection with a primary offering of Common Stock on behalf of the Company (or for such shorter period of time as is sufficient and appropriate, in the opinion of the Managing Underwriter, in order to complete the sale and distribution of the securities included in such registration), except as part of such registration statement, whether or not such holder participates in such registration and each such holder of Registrable Securities shall sign a customary agreement with the Managing Underwriter with respect to the matters set for above to the extent requested by the Managing Underwriter. The restrictions in this Section 5 shall only apply to the holders of Registrable Securities in connection with one registration statement filed by the Company in connection with a primary offering of Common Stock on behalf of the Company and only to the extent that all other holders of Registrable Securities, officers of the Company, directors of the Company and all other affiliates of the Company agree to the same restrictions.
6. INDEMNIFICATION.
(a) INDEMNIFICATION BY THE COMPANY. The Company shall, to the full extent permitted by law, indemnify and hold harmless each holder of Registrable Securities included in any registration statement filed in connection with a Shelf Registration Statement or a Piggyback Registration, its directors, officers, members and partners, and each other Person, if any, who controls any such holder within the meaning of the Securities Act, against any losses, claims, damages, expenses or liabilities (as actions or proceedings in respect thereof), joint or several (together, LOSSES), to which such holder or any such director, officer, member, partner or controlling Person may become subject under the Securities Act or otherwise, insofar as such Losses (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any such registration statement, any preliminary prospectus, final prospectus or summary prospectus contained therein, or any amendment or supplement thereto, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein (in the case of a prospectus, in the light of the circumstances under which they were made) not misleading and the Company will reimburse such holder and each such director, officer, member, partner and controlling Person for any legal or any other expenses reasonably incurred by them in connection with investigating or defending against any such Loss (or action or proceeding in respect thereof); provided, however, that the Company shall not be liable in
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any such case to the extent that any such Loss (or action or proceeding in respect thereof) (i) is caused by or contained in any information relating to such holder furnished in writing to the Company by such holder expressly for use in such registration statement, preliminary, final or summary prospectus contained therein, or any amendment or supplement thereto, (ii) is caused by such holders failure to deliver a copy of the current prospectus simultaneously with or prior to such sale after the Company has furnished such holder with a sufficient number of copies of such prospectus correcting such material misstatement or omission, (iii) arises in respect of any offers to sell or sales made during any period when a holder is required to discontinue sales under Section 3(c)(ii) or (iii) (and after such holder has received notice as contemplated by Section 3(c)(ii) or (iii)), or (iv) is incurred as a result of such indemnitees bad faith, willful misconduct or gross negligence. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such holder or any such director, officer, member, partner or controlling Person, and shall survive the transfer of such securities by such holder to a Permitted Successor.
(b) INDEMNIFICATION BY THE HOLDERS. Each holder of Registrable Securities which are included or are to be included in any registration statement filed in connection with a Shelf Registration Statement or a Piggyback Registration, as a condition to including Registrable Securities in such registration statement, shall, to the full extent permitted by law, indemnify and hold harmless the Company, its directors and officers, and each other Person, if any, who controls the Company within the meaning of the Securities Act, against any Losses to which the Company or any such director or officer or controlling Person may become subject under the Securities Act or otherwise, insofar as such Losses (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any such registration statement, any preliminary prospectus, final prospectus or summary prospectus contained therein, or any amendment or supplement thereto, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein (in the case of a prospectus, in the light of the circumstances under which they were made) not misleading, if such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with information furnished or confirmed in writing to the Company; provided, however, that in no event shall any indemnity provided by a Holder under this Section 6(b) exceed the net proceeds from the offering received by such Holder. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Company or any such director, officer, member, partner or controlling Person and shall survive the transfer of such securities by such holder to a Permitted Successor.
(c) NOTICES OF CLAIMS, ETC. Promptly after receipt by an Indemnified Party of notice of the commencement of any action or proceeding involving a claim referred to in the preceding paragraph (a) or (b) of this Section 6, such Indemnified Party will, if a claim in respect thereof is to be made against an Indemnifying Party pursuant to such paragraphs, give written notice to the latter of the commencement of such action, provided that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under
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the preceding paragraphs of this Section 6, except to the extent that the Indemnifying Party is actually prejudiced by such failure to give notice. In case any such action is brought against an Indemnified Party, the Indemnifying Party shall be entitled to participate in and to assume the defense thereof, jointly with any other Indemnifying Party similarly notified to the extent that it may wish, and after notice from the Indemnifying Party to such Indemnified Party of its election so to assume the defense thereof, the Indemnifying Party shall not be liable to such Indemnified Party for any legal or other expenses subsequently incurred by the latter in connection with the defense thereof other than reasonable costs of investigation; provided that the Indemnified Party may participate in such defense at the Indemnified Partys expense; and provided further that the Indemnified Party (or Indemnified Parties) shall have the right to employ one counsel to represent it (or them, collectively) if, in the reasonable judgment of the Indemnified Party or Indemnified Parties, it is advisable for it (or them) to be represented by separate counsel by reason of having legal defenses which are different from or in addition to those available to the Indemnifying Party, and in that event the reasonable fees and expenses of such one counsel shall be paid by the Indemnifying Party. If the Indemnifying Party is not entitled to, or elects not to, assume the defense of a claim, it will not be obligated to pay the fees and expenses of more than one counsel for the Indemnified Parties with respect to such claim. No Indemnifying Party shall consent to entry of any judgment or enter into any settlement without the consent of the Indemnified Party which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect of such claim or litigation. No Indemnifying Party shall be subject to any liability for any settlement made without its consent, which consent shall not be unreasonably withheld.
(d) CONTRIBUTION. If the indemnity and reimbursement obligation provided for in any paragraph of this Section 6 is unavailable or insufficient to hold harmless an Indemnified Party in respect of any Losses (or actions or proceedings in respect thereof) referred to therein, then the Indemnifying Party shall contribute to the amount paid or payable by the Indemnified Party as a result of such Losses (or actions or proceedings in respect thereof) in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party on the one hand and the Indemnified Party on the other hand in connection with the statements or omissions which resulted in such Losses, as well as any other relevant equitable considerations. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Indemnifying Party or the Indemnified Party and the parties relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The parties hereto agree that it would not be just and equitable if contributions pursuant to this paragraph were to be determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the first sentence of this paragraph. The amount paid by an Indemnified Party as a result of the Losses referred to in the first sentence of this paragraph shall be deemed to include any legal and other expenses reasonably incurred by such Indemnified Party in connection with investigating or defending any Loss which is the subject of this paragraph.
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No Indemnified Party guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from the Indemnifying Party if the Indemnifying Party was not guilty of such fraudulent misrepresentation.
(e) INDEMNIFICATION PAYMENTS. The indemnification required by this Section 6 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or Losses are incurred, provided that each Indemnified Party shall repay such payments if and to the extent it shall be determined by a court of competent jurisdiction that such recipient is not entitled to such payment.
7. LISTING REQUIREMENT.
The Company will use its commercially reasonable best efforts to list the Common Stock on a national securities exchange or to be quoted on a national automated interdealer quotation system within one year of the Effective Date unless the Board of Directors of the Company determines otherwise.
8. OTHER REGISTRATION RIGHTS.
The Company represents and warrants to the Holders that there is not in effect on the date hereof any agreement by the Company (other than this Agreement) pursuant to which any holders of securities of the Company have a right to cause the Company to register or qualify such securities under the Securities Act or any securities or blue sky laws of any jurisdiction. The Company agrees that, for so long as any holder is entitled to registration rights under this Agreement, the Company shall not enter into any agreement granting registration rights with respect to the Companys capital stock equivalent or superior to the Companys registration obligations to the holders under Section 2(c)(ii) of this Agreement.
9. DEFINITIONS.
Except as otherwise specifically indicated, the following terms will have the following meanings for all purposes of this Agreement:
AGREEMENT means this Registration Rights Agreement, as the same shall be amended from time to time.
BANKRUPTCY CASE has the meaning ascribed to it in the preamble.
BANKRUPTCY CODE has the meaning ascribed to it in the preamble.
BANKRUPTCY COURT has the meaning ascribed to it in the preamble.
BUSINESS DAY means a day other than Saturday, Sunday or any other day on which banks located in the State of New York are authorized or obligated to close.
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COMMISSION means the United States Securities and Exchange Commission, or any successor governmental agency or authority.
COMMON STOCK means shares of Common Stock, par value $0.001 per share, of the Company, as constituted on the date hereof, and any stock into which such Common Stock shall have been changed or any stock resulting from any reclassification of such Common Stock.
COMPANY has the meaning ascribed to it in the preamble.
CONFIRMATION ORDER has the meaning ascribed to it in the preamble.
CUTBACK REGISTRATION means any registration to be effected as an underwritten Public Offering in which the Managing Underwriter with respect thereto advises the Company in writing that, in its opinion, the number of securities requested to be included in such registration (including securities of the Company which are not Registrable Securities) exceed the number which can be sold in such offering or which can be sold without a material reduction in the selling price anticipated to be received for the securities to be sold in such Public Offering, or which can be sold without otherwise adversely affecting the success of such offering.
EFFECTIVE DATE has the meaning ascribed to it in the Plan.
EXCHANGE ACT means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
FORM S-4 means Form S-4 promulgated by the Commission under the Securities Act, or any successor or similar registration statement.
FORM S-8 means Form S-8 promulgated by the Commission under the Securities Act, or any successor or similar registration statement.
HOLDER has the meaning ascribed to it in the preamble.
HOLDER INFORMATION has the meaning ascribed to it in Section 1(a)(iii).
INDEMNIFIED PARTY means a party entitled to indemnity in accordance with Section 6.
INDEMNIFYING PARTY means a party obligated to provide indemnity in accordance with Section 6.
INSPECTORS has the meaning ascribed to it in Section 3(h).
LOSSES has the meaning ascribed to it in Section 6(a).
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MANAGING UNDERWRITER means, with respect to any Public Offering, the underwriter or underwriters managing such Public Offering.
NASD means the National Association of Securities Dealers, Inc.
NOTICE OF PIGGYBACK REGISTRATION has the meaning ascribed to it in Section 2(a).
PERMITTED SUCCESSORS has the meaning ascribed to it in Section 10(f).
PERSON means any natural person, corporation, general partnership, limited partnership, limited liability company, proprietorship, other business organization, trust, union or association.
PIGGYBACK REGISTRATION has the meaning ascribed to it in Section 2(a).
PLAN has the meaning ascribed to it in the preamble.
PUBLIC OFFERING means any offering of Common Stock to the public, either on behalf of the Company or any of its securityholders, pursuant to an effective registration statement under the Securities Act.
RECORDS has the meaning ascribed to it in Section 3(h).
REGISTRABLE SECURITIES means (i) the Shares held by Holders (or their successors, assignees or transferees as contemplated by Section 10(g)), and (ii) any additional shares of Common Stock issued or distributed to the Holders (or their successors, assignees or transferees as contemplated by Section 10(g)) by way of a dividend, stock split, conversion, or other distribution in respect of the Shares, or acquired by way of any rights offering or similar offering made in respect of the Shares. As to any particular Registrable Securities, such securities shall cease to be Registrable Securities when (i) a registration statement with respect to the sale of such securities shall have become effective under the Securities Act and such Registrable Securities shall have been disposed of in accordance with such registration statement, (ii) they shall have been sold pursuant to Rule 144, or (iii) they shall have ceased to be outstanding.
REGISTRATION EXPENSES means all expenses incident to the Companys performance of or compliance with its obligations under this Agreement to effect and maintain the registration of Registrable Securities in any Shelf Registration Statement or a Piggyback Registration, including, without limitation, all registration, filing, securities exchange listing and NASD fees (including Nasdaq fees, if applicable), all registration, filing, qualification and other fees and expenses of complying with securities or blue sky laws (including fees of a single counsel retained by the holders of a majority of Registrable Securities being registered to advise the holders with respect to all of the foregoing matters), all word processing, duplicating and printing expenses, messenger and delivery expenses, the fees and disbursements of counsel for the Company
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and of its independent public accountants, including the expenses of any special audits or cold comfort letters required by or incident to such performance and compliance in connection with an underwritten offering and any fees and disbursements of underwriters customarily paid by issuers or holders of securities, but excluding underwriting discounts and commissions and transfer taxes, if any, in respect of Registrable Securities, which shall be payable by each holder thereof.
REQUESTING HOLDERS means, with respect to any Piggyback Registration, the holders of Registrable Securities requesting to have Registrable Securities included in such registration in accordance with this Agreement.
RULE 144 means Rule 144 promulgated by the Commission under the Securities Act, and any successor provision thereto.
SECURITIES ACT means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
SHARES has the meaning ascribed to it in the preamble.
SHELF REGISTRATION EFFECTIVENESS PERIOD has the meaning ascribed to it in Section 1(a).
SHELF REGISTRATION STATEMENT means a registration statement of the Company in compliance with the provisions of Section 1(a)(i) and Section 1(b) of this Agreement which registers the continuous offer and sale of all of the Registrable Securities on an appropriate form under Rule 415 under the Securities Act or any similar or successor rule that may be adopted by the Commission, and all amendments to such registration statement, including post-effective amendments, in each case including any prospectus contained therein and any supplement to any such prospectus, all exhibits thereto and all information incorporated by reference therein.
10. MISCELLANEOUS.
(a) NOTICES. All notices, requests and other communications hereunder must be in writing and will be deemed to have been duly given only if delivered personally or by facsimile transmission or mailed (registered or certified mail, postage prepaid) to the parties at the following addresses or facsimile numbers:
If to Holder, to the addresses set forth on the signature pages hereof.
If to the Company, to:
Haynes International, Inc.
1020 West Park Ave
Kokomo IN 46904-9013
Attn: Chief Financial Officer
Telephone No.:
Facsimile No.:
15
With respect to any other holder of Registrable Securities, such notices, requests and other communications shall be sent to the addresses set forth in the stock transfer records regularly maintained by the Company. All such notices, requests and other communications will (i) if delivered personally to the address as provided in this Section, be deemed given upon delivery, (ii) if delivered by facsimile transmission to the facsimile number as provided in this Section, be deemed given when sent by confirmed facsimile if sent during normal business hours of the recipient, if not, then on the next Business Day, and (iii) if delivered by mail in the manner described above to the address as provided in this Section, be deemed given five days after deposit with the United States Post Office (in each case regardless of whether such notice, request or other communication is received by any other Person to whom a copy of such notice is to be delivered pursuant to this Section). Any party from time to time may change its address, facsimile number or other information for the purpose of notices to that party by giving notice specifying such change to the other parties hereto.
(b) ENTIRE AGREEMENT. This Agreement supersedes all prior discussions and agreements between the parties with respect to the subject matter hereof, and contains the sole and entire agreement between the parties hereto with respect to the subject matter hereof.
(c) AMENDMENT. This Agreement may be amended, supplemented or modified only by a written instrument (which may be executed in any number of counterparts) duly executed by or on behalf of each of the Company and Holders owning more than fifty percent (50%) of the Registrable Securities.
(d) WAIVER. Subject to paragraph (e) of this Section, any term or condition of this Agreement may be waived at any time by the party that is entitled to the benefit thereof, but no such waiver shall be effective unless set forth in a written instrument duly executed by or on behalf of the party waiving such term or condition. No waiver by any party of any term or condition of this Agreement, in any one or more instances, shall be deemed to be or construed as a waiver of the same term or condition of this Agreement on any future occasion.
(e) CONSENTS AND WAIVERS BY HOLDERS OF REGISTRABLE SECURITIES. Any consent of the holders of Registrable Securities pursuant to this Agreement, and any waiver by such holders of any provision of this Agreement, shall be in writing (which may be executed in any number of counterparts) and may be given or taken by Holders owning more than fifty percent (50%) of the Registrable Securities and any such consent or waiver so given or taken will be binding on all the holders of Registrable Securities.
(f) NO THIRD PARTY BENEFICIARY. The terms and provisions of this Agreement are intended solely for the benefit of each party hereto and their respective successors or assigns, but only to the extent that such successor or assign has acquired from the Holder shares of Common Stock representing at least 10% of the then issued
16
and outstanding Common Stock of the Company as contemplated by Section 10(g) (PERMITTED SUCCESSOR). It is not the intention of the parties to confer third-party beneficiary rights upon any other Person other than any Person entitled to indemnity under Section 6.
(g) SUCCESSORS AND ASSIGNS. This Agreement is binding upon, inures to the benefit of and is enforceable by the Company and the Holders (or the Person or Persons for which a Holder is acting as fiduciary or agent, as the case may be) and their respective Permitted Successors; provided, however, that this Agreement shall not inure to the benefit of or be binding upon a Permitted Successor unless and except to the extent such Permitted Successor holds Registrable Securities; provided, further, that nothing herein shall be deemed to permit any assignment, transfer or other disposition of Registrable Securities in violation of the terms hereof, the Securities Act or any securities or blue sky laws of any jurisdiction.
(h) HEADINGS. The headings used in this Agreement have been inserted for convenience of reference only and do not define or limit the provisions hereof.
(i) INVALID PROVISIONS. If any provision of this Agreement is held to be illegal, invalid or unenforceable under any present or future law, and if the rights or obligations of any party hereto under this Agreement will not be materially and adversely affected thereby, (i) such provision will be fully severable, (ii) this Agreement will be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part hereof and (iii) the remaining provisions of this Agreement will remain in full force and effect and will not be affected by the illegal, invalid or unenforceable provision or by its severance herefrom.
(j) REMEDIES. Except as otherwise expressly provided for herein, no remedy conferred by any of the specific provisions of this Agreement is intended to be exclusive of any other remedy, and each and every remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute or otherwise. The election of any one or more remedies by any party hereto shall not constitute a waiver by any such party of the right to pursue any other available remedies.
Damages in the event of breach of this Agreement by a party hereto or any other holder of Registrable Securities would be difficult, if not impossible, to ascertain, and it is therefore agreed that each such Person, in addition to and without limiting any other remedy or right it may have, will have the right to an injunction or other equitable relief in any court of competent jurisdiction, enjoining any such breach, and enforcing specifically the terms and provisions hereof and the Company and each holder of Registrable Securities, by its acquisition of such Registrable Securities, hereby waives any and all defenses it may have on the ground of lack of jurisdiction or competence of the court to grant such an injunction or other equitable relief. The existence of this right will not preclude any such Person from pursuing any other rights and remedies at law or in equity which such Person may have.
17
(k) GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK.
(l) COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument.
[Signatures on next page.]
18
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the duly authorized officer of each party hereto as of the date first above written.
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COMPANY |
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HAYNES INTERNATIONAL, INC. |
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By: |
/s/ Marcel Martin |
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Name: |
Marcel Martin |
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Title: |
Vice President, Finance, CFO |
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HOLDERS |
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FIDELITY SUMMER STREET TRUST: |
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FIDELITY CAPITAL & INCOME FUND |
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By: |
/s/ Mark Osterheld |
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Name: Mark Osterheld |
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Title: Assistant Treasurer |
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FIDELITY ADVISOR SERIES II: |
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FIDELITY HIGH INCOME ADVANTAGE |
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FUND |
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By: |
/s/ Mark Osterheld |
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Name: Mark Osterheld |
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Title: Assistant Treasurer |
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PENSION INVESTMENT COMMITTEE |
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OF GENERAL MOTORS FOR GENERAL |
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MOTORS EMPLOYEES DOMESTIC |
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GROUP PENSION TRUST |
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By: |
Fidelity Management and Trust |
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Company, its investment advisor |
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By: |
/s/ John P. OReilly Jr. |
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Name: John P. OReilly Jr. |
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Title: Executive Vice President |
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COMMONWEALTH OF |
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MASSACHUSETTS PENSION |
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RESERVES INVESTMENT |
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MANAGEMENT BOARD |
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By: |
Fidelity Management and Trust |
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Company, its investment advisor |
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By: |
/s/ John P. OReilly Jr. |
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Name: John P. OReilly Jr. |
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Title: Executive Vice President |
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FIDELITY SECURITIES FUND: |
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FIDELITY LEVERAGED COMPANY |
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STOCK FUND |
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By: |
/s/ Mark Osterheld |
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Name: Mark Osterheld |
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Title: Assistant Treasurer |
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FIDELITY ADVISOR SERIES I: |
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FIDELITY ADVISOR LEVERAGED |
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COMPANY STOCK FUND |
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By: |
/s/ Mark Osterheld |
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Name: Mark Osterheld |
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Title: Assistant Treasurer |
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20
Exhibit 10.12
[Execution]
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
by and among
HAYNES INTERNATIONAL, INC.,
as Borrower
and
CONGRESS FINANCIAL CORPORATION (CENTRAL),
as Agent
BANK ONE, NA
as Documentation Agent
and
THE LENDERS FROM TIME TO TIME PARTY HERETO
as Lenders
Dated: August 31, 2004
TABLE OF CONTENTS
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Page |
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SECTION 1. |
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DEFINITIONS |
6 |
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SECTION 2. |
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CREDIT FACILITIES |
36 |
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2.1 |
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LOANS |
36 |
2.2 |
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LETTER OF CREDIT ACCOMMODATIONS |
38 |
2.3 |
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EQUIPMENT PURCHASE LOANS |
42 |
2.4 |
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COMMITMENTS |
45 |
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SECTION 3. |
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INTEREST AND FEES |
45 |
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3.1 |
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INTEREST |
45 |
3.2 |
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FEES |
46 |
3.3 |
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CHANGES IN LAWS AND INCREASED COSTS OF LOANS |
46 |
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SECTION 4. |
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CONDITIONS PRECEDENT |
48 |
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4.1 |
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CONDITIONS PRECEDENT TO INITIAL LOANS AND LETTER OF CREDIT ACCOMMODATIONS |
48 |
4.2 |
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CONDITIONS PRECEDENT TO ALL LOANS AND LETTER OF CREDIT ACCOMMODATIONS |
51 |
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SECTION 5. |
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GRANT AND PERFECTION OF SECURITY INTEREST |
51 |
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5.1 |
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GRANT OF SECURITY INTEREST |
51 |
5.2 |
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PERFECTION OF SECURITY INTERESTS |
53 |
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SECTION 6. |
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COLLECTION AND ADMINISTRATION |
58 |
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6.1 |
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BORROWERS LOAN ACCOUNTS |
58 |
6.2 |
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STATEMENTS |
58 |
6.3 |
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COLLECTION OF ACCOUNTS |
58 |
6.4 |
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PAYMENTS |
59 |
6.5 |
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TAXES |
61 |
6.6 |
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AUTHORIZATION TO MAKE LOANS |
64 |
6.7 |
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USE OF PROCEEDS |
64 |
6.8 |
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ILLEGALITY |
64 |
6.9 |
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PRO RATA TREATMENT |
65 |
6.10 |
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SHARING OF PAYMENTS, ETC |
65 |
6.11 |
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SETTLEMENT PROCEDURES |
66 |
6.12 |
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OBLIGATIONS SEVERAL; INDEPENDENT NATURE OF LENDERS RIGHTS |
68 |
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SECTION 7. |
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COLLATERAL REPORTING AND COVENANTS |
68 |
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7.1 |
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COLLATERAL REPORTING |
68 |
7.2 |
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ACCOUNTS COVENANTS |
69 |
7.3 |
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INVENTORY COVENANTS |
70 |
7.4 |
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EQUIPMENT AND REAL PROPERTY COVENANTS |
71 |
7.5 |
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POWER OF ATTORNEY |
72 |
7.6 |
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RIGHT TO CURE |
73 |
7.7 |
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ACCESS TO PREMISES |
73 |
9.21 |
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COSTS AND EXPENSES |
97 |
9.22 |
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FURTHER ASSURANCES |
98 |
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SECTION 10. |
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EVENTS OF DEFAULT AND REMEDIES |
98 |
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10.1 |
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EVENTS OF DEFAULT |
98 |
10.2 |
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REMEDIES |
100 |
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SECTION 11. |
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JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING LAW |
103 |
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11.1 |
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GOVERNING LAW; CHOICE OF FORUM; SERVICE OF PROCESS; JURY TRIAL WAIVER |
103 |
11.2 |
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WAIVER OF NOTICES |
104 |
11.3 |
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AMENDMENTS AND WAIVERS |
105 |
11.4 |
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WAIVER OF COUNTERCLAIMS |
106 |
11.5 |
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INDEMNIFICATION |
106 |
11.6 |
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CURRENCY INDEMNITY |
107 |
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SECTION 12. |
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THE AGENT |
108 |
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12.1 |
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APPOINTMENT, POWERS AND IMMUNITIES |
108 |
12.2 |
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RELIANCE BY AGENT |
108 |
12.3 |
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EVENTS OF DEFAULT |
108 |
12.4 |
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CONGRESS IN ITS INDIVIDUAL CAPACITY |
109 |
12.5 |
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INDEMNIFICATION |
109 |
12.6 |
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NON-RELIANCE ON AGENT AND OTHER LENDERS |
110 |
12.7 |
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FAILURE TO ACT |
110 |
12.8 |
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ADDITIONAL LOANS |
110 |
12.9 |
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CONCERNING THE COLLATERAL AND THE RELATED FINANCING AGREEMENTS |
111 |
12.10 |
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FIELD AUDIT, EXAMINATION REPORTS AND OTHER INFORMATION; DISCLAIMER BY LENDERS |
111 |
12.11 |
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COLLATERAL MATTERS |
111 |
12.12 |
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AGENCY FOR PERFECTION |
113 |
12.13 |
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SUCCESSOR AGENT |
113 |
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SECTION 13. |
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TERM OF AGREEMENT; MISCELLANEOUS |
114 |
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13.1 |
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TERM |
114 |
13.2 |
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INTERPRETATIVE PROVISIONS |
115 |
13.3 |
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NOTICES |
117 |
13.4 |
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PARTIAL INVALIDITY |
117 |
13.5 |
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CONFIDENTIALITY |
117 |
13.6 |
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SUCCESSORS |
118 |
13.7 |
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ASSIGNMENTS; PARTICIPATIONS |
118 |
13.8 |
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USA PATRIOT ACT |
120 |
13.9 |
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ENTIRE AGREEMENT |
121 |
13.10 |
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COUNTERPARTS, ETC |
121 |
13.11 |
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CODE SECTION 956 OVERRIDE |
121 |
13.12 |
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BANK PRODUCTS OVERRIDE |
121 |
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SECTION 14. |
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ACKNOWLEDGMENT AND RESTATEMENT |
122 |
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14.1 |
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EXISTING OBLIGATIONS |
122 |
14.2 |
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ACKNOWLEDGMENT OF SECURITY INTERESTS |
122 |
14.3 |
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EXISTING AGREEMENTS |
122 |
14.4 |
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RESTATEMENT |
123 |
AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
This Amended and Restated Loan and Security Agreement (this Agreement as hereinafter further defined), dated August 31, 2004, is entered into by and among Haynes International, Inc., a Delaware corporation (Borrower as hereinafter further defined), the parties hereto from time to time as lenders, whether by execution of this Agreement or an Assignment and Acceptance (each individually, a Lender and collectively, Lenders as hereinafter further defined), Bank One, NA, a national banking association, in its capacity as documentation agent (in such capacity, Documentation Agent as hereinafter further defined), and Congress Financial Corporation (Central), an Illinois corporation, in its capacity as agent for Lenders (in such capacity, Agent as hereinafter further defined).
W I T N E S S E T H:
WHEREAS, Borrower filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code with the United States Bankruptcy Court for the Southern District of Indiana (Indianapolis Division);
WHEREAS, Agent and Lenders have provided a secured revolving credit facility in the Chapter 11 Case (as hereinafter defined) to Borrower pursuant to the Existing Agreements (as hereinafter defined) and the Final Financing Order (as hereinafter defined); and
WHEREAS, in the Chapter 11 Case of Borrower and Haynes Holdings, Inc., a Delaware corporation (which is being merged with and into Borrower on the Effective Date (as hereinafter defined)), the First Amended Joint Plan of Reorganization of Haynes International Inc. and its affiliates (the Plan as hereinafter further defined) has been confirmed pursuant to the Confirmation Order (as hereinafter defined), and concurrently with the making of the initial loans or issuance of letters of credit hereunder, the effective date with respect to such Plan has occurred; and
WHEREAS, each Lender is willing to agree (severally and not jointly) to continue to make loans and provide such financial accommodations to Borrower on a pro rata basis according to its Commitment (as defined below) on the terms and conditions set forth herein and Agent is willing to act as agent for Lenders on the terms and conditions set forth herein and the other Financing Agreements; and
NOW, THEREFORE, in consideration of the mutual conditions and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:
SECTION 1. DEFINITIONS
For purposes of this Agreement, the following terms shall have the respective meanings given to them below:
1.1 Accounts shall mean, as to Borrower, all present and future rights of Borrower to payment of a monetary obligation, whether or not earned by performance, which is not evidenced by chattel paper or an instrument, (a) for property that has been or is to be sold, leased, licensed, assigned, or otherwise disposed of, (b) for services rendered or to be rendered, (c) for a secondary obligation incurred or to be incurred, or (d) arising out of the use of a credit or charge card or information contained on or for use with the card.
1.2 Adjusted Eurodollar Rate shall mean, with respect to each Interest Period for any Eurodollar Rate Loan, the rate per annum (rounded upwards, if necessary, to the next one thousandth (1/1000) of one (1%) percent) determined by dividing (a) the Eurodollar Rate for such Interest Period by (b) a percentage equal to: (i) one (1) minus (ii) the Reserve Percentage. For purposes hereof, Reserve Percentage shall mean the reserve percentage, expressed as a decimal, prescribed by any United States banking authority for determining the reserve requirement which is or would be applicable to deposits of United States dollars in a non-United States or an international banking office of Reference Bank used to fund a Eurodollar Rate Loan or any Eurodollar Rate Loan made with the proceeds of such deposit, whether or not the Reference Bank actually holds or has made any such deposits or loans. The Adjusted Eurodollar Rate shall be adjusted on and as of the effective day of any change in the Reserve Percentage.
1.3 Affiliate shall mean, with respect to a specified Person, any other Person which directly or indirectly, through one or more intermediaries, controls or is controlled by or is under common control with such Person, and without limiting the generality of the foregoing, includes (a) any Person which beneficially owns or holds ten (10%) percent or more of any class of Voting Stock of such Person or other equity interests in such Person, (b) any Person of which such Person beneficially owns or holds ten (10%) percent or more of any class of Voting Stock or in which such Person beneficially owns or holds ten (10%) percent or more of the equity interests and (c) any director or executive officer of such Person. For the purposes of this definition, the term control (including with correlative meanings, the terms controlled by and under common control with), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of Voting Stock, by agreement or otherwise.
1.4 Agent shall mean Congress Financial Corporation (Central), in its capacity as agent on behalf of Lenders pursuant to the terms hereof and any replacement or successor agent hereunder.
1.5 Agent Payment Account shall mean account no. 5000000030266 of Agent at Wachovia Bank, National Association, or such other account of Agent as Agent may from time to time designate to Borrower as the Agent Payment Account for purposes of this Agreement and the other Financing Agreements.
1.6 Applicable Margin shall mean, at any time, as to the interest rate for Prime Rate Loans, the interest rate for Prime Rate Fixed Asset Loans, the interest rate for Eurodollar Rate Loans, the interest rate for Eurodollar Rate Fixed Asset Loans, the interest rate for Prime Rate Equipment Purchase Loans, the interest rate for Eurodollar Rate Equipment Purchase Loans and the Letter of Credit Fee, the applicable percentage (on a per annum basis) set forth below
indicated for the Monthly Average Excess Availability for the immediately preceding month is at or within the amounts indicated for such percentage:
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Loans based on Fixed Asset |
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Loans Based on |
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Availability and Equipment |
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Accounts and Inventory |
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Purchase Loans |
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Applicable |
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Applicable |
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Applicable |
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Applicable |
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Monthly Average |
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Prime Rate |
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Eurodollar |
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Prime Rate |
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Eurodollar |
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Excess Availability |
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Margin |
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Margin |
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Margin |
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Margin |
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L/C Rate |
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1. $20,000,000 or more |
|
1.00 |
% |
2.50 |
% |
1.50 |
% |
3.00 |
% |
1.75 |
% |
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2. Greater than or equal to $10,000,000 and less than $20,000,000 |
|
1.25 |
% |
2.75 |
% |
1.75 |
% |
3.25 |
% |
2.00 |
% |
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3. Less than $10,000,000 |
|
1.50 |
% |
3.00 |
% |
2.00 |
% |
3.50 |
% |
2.25 |
% |
PROVIDED, THAT, the Applicable Margin shall be calculated and established on the first day of each month (commencing on March 1, 2005) and shall remain in effect until adjusted thereafter at the beginning of the next month.
1.7 Arcadia Facility Inventory Availability shall mean, with respect to Eligible Arcadia Inventory, the lesser of:
(a) the sum of (i) seventy (70%) percent multiplied by the Value of the Eligible Arcadia Inventory consisting of finished goods, plus (ii) thirty (30%) percent multiplied by the Value of the Eligible Arcadia Inventory consisting of work-in-process, plus (iii) sixty (60%) percent multiplied by the Value of the Eligible Arcadia Inventory consisting of raw materials; or
(b) the amount equal to the sum of the following for each category of Eligible Arcadia Inventory (such categories being finished goods, work-in-process and raw materials as described above): (i) eighty-five (85%) percent of the Net Recovery Percentage for each category of such Eligible Arcadia Inventory multiplied by (ii) the Value of such category of Eligible Arcadia Inventory; or
(c) forty-five (45%) percent multiplied by the sum of the Value of all of the above categories of such Eligible Arcadia Inventory.
1.8 Assignment and Acceptance shall mean an Assignment and Acceptance Agreement substantially in the form of Exhibit A attached hereto (with blanks appropriately completed) delivered to Agent in connection with an assignment of a Lenders interest hereunder in accordance with the provisions of Section 13.7 hereof.
1.9 Bank One shall mean Bank One, NA, in its individual capacity, and its successors and assigns.
1.10 Bank Product Obligations shall mean all obligations, liabilities and indebtedness owing by the Borrower to any Bank Product Provider arising in connection with Bank Products.
1.11 Bank Product Provider shall mean Agent, any Affiliate of Agent, any Lender, any Affiliate of any Lender or any other financial institution designated by Borrower in a writing to the Agent as a Bank Product Provider and which, in each case, is acceptable to Agent and is approved by Bank One in the case of any Bank Product Provider that is not a Lender or an Affiliate of a Lender or an Affiliate of Agent, which approval by Bank One shall not be unreasonably withheld or delayed. So long as Bank One is a Lender, Bank One and its Affiliates shall be a Bank Product Provider.
1.12 Bank Products shall mean any one or more of the following types of services or facilities provided to Borrower by a Bank Product Provider (a) credit cards or stored value cards, (b) cash management or related services, including (i) the automated clearinghouse transfer of funds for the account of Borrower pursuant to agreement or overdraft for any accounts of Borrower maintained at such Bank Product Provider, and (ii) controlled disbursement services.
1.13 Bankruptcy Code shall mean the United States Bankruptcy Code, being Title 11 of the United States Code (11 U.S.C. Sections 101-1330), as the same now exists or may from time to time hereafter be amended, modified, recodified or supplemented, together with all official rules, regulations and interpretations thereunder or related thereto.
1.14 Bankruptcy Court shall mean the United States Bankruptcy Court for the Southern District of Indiana (Indianapolis Division).
1.15 Benefit Plan shall mean an employee benefit plan (as defined in Section 3(3) of ERISA) which Borrower sponsors, maintains, or to which it makes, is making, or is obligated to make contributions, or in the case of a Multiemployer Plan has made contributions at any time during the immediately preceding six (6) plan years and to which Borrower could have any liability.
1.16 Blocked Accounts shall have the meaning set forth in Section 6.3 hereof.
1.17 Borrower shall mean Haynes International, Inc., a Delaware corporation, and its successors and assigns.
1.18 Borrowing Base shall mean, at any time, the amount equal to:
(a) eighty-five (85%) percent of the Eligible Accounts, plus
(b) the lesser of: (i) the sum of (A) the Kokomo Facility Inventory Availability, plus (B) the Arcadia Facility Inventory Availability, plus (C) the Service Center Inventory Availability or (ii) the Inventory Loan Limit, plus
(c) Fixed Asset Availability, less
(d) Reserves.
For purposes only of applying the Inventory Loan Limit, Agent may treat the then undrawn amounts of outstanding Letter of Credit Accommodations issued for the purpose of purchasing Eligible Inventory as Loans to the extent Agent is in effect basing the issuance of the Letter of Credit Accommodations on the Value of the Eligible Inventory being purchased with such Letter of Credit Accommodations. In determining the actual amounts of such Letter of Credit Accommodations to be so treated for purposes of the sublimit, the outstanding Loans and Reserves shall be attributed first to any components of the lending formulas set forth above that are not subject to such sublimit, before being attributed to the components of the lending formulas subject to such sublimit. The amounts of Eligible Inventory of Borrower shall, at Agents option, be determined based on the lesser of the amount of Inventory set forth in the general ledger of Borrower or the perpetual inventory record maintained by Borrower.
1.19 Borrowing Base Certificate shall mean a certificate substantially in the form of Exhibit B hereto, as such form may from time to time be modified by Agent in good faith with the consent of Borrower (which consent shall not be unreasonably withheld, conditioned or delayed), which is duly completed (including all schedules thereto) and executed by the vice-president-finance, chief financial officer, treasurer, assistant treasurer, controller or other financial or senior officer of Borrower and delivered to Agent.
1.20 Business Day shall mean any day other than a Saturday, Sunday, or other day on which commercial banks are authorized or required to close under the laws of the State of Illinois, or the State of North Carolina, and a day on which Agent is open for the transaction of business, except that if a determination of a Business Day shall relate to any Eurodollar Rate Loans, the term Business Day shall also exclude any day on which banks are closed for dealings in dollar deposits in the London interbank market or other applicable Eurodollar Rate market.
1.21 Capital Expenditures shall mean, with respect to any Person, all expenditures made and liabilities incurred for the acquisition of assets which are not, in accordance with GAAP, treated as expense items for such Person in the year made or incurred or as a prepaid expense applicable to a future year or years; PROVIDED, THAT, Capital Expenditures shall not include expenditures that would otherwise constitute Capital Expenditures to the extent made with proceeds from insurance for an insured loss or proceeds of an award of compensation from a condemnation or eminent domain proceeding to replace or restore the assets that were the subject of the loss giving rise to the payment of such insurance proceeds or the subject of such condemnation or eminent domain proceeding giving rise to the payment of such award.
1.22 Capital Leases shall mean, as applied to any Person, any lease of (or any agreement conveying the right to use) any property (whether real, personal or mixed) by such Person as lessee which in accordance with GAAP, is required to be reflected as a liability on the balance sheet of such Person.
1.23 Capital Stock shall mean, with respect to any Person, any and all shares, interests, participations or other equivalents (however designated) of such Persons capital stock or partnership, limited liability company or other equity interests at any time outstanding, and any and all rights, warrants or options exchangeable for or convertible into such capital stock or other interests (but excluding any debt security that is exchangeable for or convertible into such capital stock).
1.24 Cash Equivalents shall mean any of the following: (a) any evidence of Indebtedness with a maturity date of ninety (90) days or less issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof or any agency or instrumentality thereof; PROVIDED, THAT, the full faith and credit of the United States of America is pledged in support thereof; (b) certificates of deposit or bankers acceptances with a maturity of ninety (90) days or less (after the date of the purchase thereof) of any financial institution that is a member of the Federal Reserve System, in any case having combined capital and surplus and undivided profits of not less than $250,000,000; (c) commercial paper (including variable rate demand notes) with a maturity of ninety (90) days or less (after the date of the purchase thereof) issued or guaranteed by a corporation (except an Affiliate of Borrower) organized under the laws of any State of the United States of America, the District of Columbia or a bank organized under the laws of any State of the United States of America or constituting a national banking association under the laws of the United States of America, in each case having a rating of at least A 1 by Standard & Poors Ratings Service, a division of The McGraw Hill Companies, Inc. or at least P 1 by Moodys Investors Service, Inc.; (d) repurchase obligations with a term of not more than thirty (30) days (after the date of the purchase thereof) for underlying securities of the types described in clause (a) above entered into with any financial institution having combined capital and surplus and undivided profits of not less than $250,000,000; (e) repurchase agreements and reverse repurchase agreements relating to marketable direct obligations issued or unconditionally guaranteed by the United States of America or issued by any governmental agency thereof and backed by the full faith and credit of the United States of America in each case maturing within ninety (90) days or less from the date of acquisition; PROVIDED, THAT, the terms of such agreements comply with the guidelines set forth in the Federal Financial Agreements of Depository Institutions with Securities Dealers and Others, as adopted by the Comptroller of the Currency on October 31, 1985; and (f) investments in money market funds and mutual funds which invest substantially all of their assets in securities of the types described in clauses (a) through (e) above.
1.25 Change of Control shall mean (a) the transfer (in one transaction or a series of transactions) of all or substantially all of the assets of Borrower to any Person or group (as such term is used in Section 13(d)(3) of the Exchange Act); (b) the liquidation or dissolution of Borrower; (c) the acquisition by any Person or group (as such term is used in Section 13(d)(3) of the Exchange Act) of beneficial ownership, directly or indirectly, of more than fifty (50%) percent of the voting power of the total outstanding Voting Stock of Borrower; (d) during any period of two (2) consecutive years, individuals who at the beginning of such period constituted the Board of Directors of Borrower (together with any new directors whose nomination for election by the stockholders of Borrower was approved by a vote of at least sixty six and two thirds (66 2/3%) percent of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors of Borrower then still in office.
1.26 Chapter 11 Case shall mean the Chapter 11 Cases of Borrower and its affiliated debtors under the Bankruptcy Code currently pending in the Bankruptcy Court.
1.27 Code shall mean the Internal Revenue Code of 1986, as the same now exists or may from time to time hereafter be amended, modified, recodified or supplemented, together with all governmental rules, regulations and interpretations thereunder or related thereto.
1.28 Collateral shall have the meaning set forth in Section 5 hereof.
1.29 Collateral Access Agreement shall mean an agreement in writing, in form and substance reasonably satisfactory to Agent, from any lessor of premises to Borrower, or any other person to whom any Collateral is consigned or who has custody, control or possession of any Collateral or is otherwise the owner or operator of any premises on which any Collateral is located, in favor of Agent with respect to the Collateral at such premises or otherwise in the custody, control or possession of such lessor, consignee or other person.
1.30 Commitment shall mean, at any time, as to each Lender, the amount equal to the sum of such Lenders Tranche A Commitments and Tranche B Commitments; sometimes being collectively referred to herein as Commitments.
1.31 Confirmation Order shall mean the order captioned Findings of Fact, Conclusions of Law and Order under 11 U.S.C. Sections 1129(a) and (b) and Fed. R. Bankr. P. 3020 Confirming the First Amended Joint Plan of Reorganization of Haynes International, Inc. and its Affiliated Debtors and Debtors in Possession as modified entered by the Bankruptcy Court on August 16, 2004 in the Chapter 11 Case.
1.32 Congress shall mean Congress Financial Corporation (Central), an Illinois corporation, in its individual capacity, and its successors and assigns.
1.33 Consolidated Adjusted Net Income shall mean, with respect to any Person for any period, the aggregate of the net income (loss) of such Person and its Subsidiaries, on a consolidated basis, for such period (excluding to the extent included therein any extraordinary or non recurring gains and non cash charges, including non-cash pension and other non-cash post-employment benefit charges and non-cash restructuring charges and expenses and in the case of Borrower and its Subsidiaries, such cash charges and non-cash charges in each case in amounts acceptable to Agent in its determination and arising pursuant to events or circumstances beyond the control of Borrower), after deducting all charges which should be deducted before arriving at the net income (loss) for such period, and after deducting the Provision for Taxes for such period, all as determined in accordance with GAAP; PROVIDED, THAT, (a) the net income of any Person that is not a wholly owned Subsidiary or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or distributions paid or payable to such Person or a wholly owned Subsidiary of such Person; (b) except to the extent included pursuant to the foregoing clause, the net income of any Person accrued prior to the date it becomes a wholly owned Subsidiary of such Person or is merged into or consolidated with such Person or any of its wholly owned Subsidiaries or that Persons assets are acquired by such Person or by any of its wholly owned Subsidiaries shall be excluded; and (c) the effect of any change in accounting principles adopted by such Person or its Subsidiaries after the date hereof shall be excluded. For the purposes of this definition, net income excludes any gain and non cash loss (but not any cash loss) together with any related Provision for Taxes for such gain and non cash loss (but not any cash loss) realized upon the sale or other disposition of any assets that
are not sold in the ordinary course of business (including, without limitation, dispositions pursuant to sale and leaseback transactions) or of any capital stock of such Person or a Subsidiary of such Person and any net income realized as a result of changes in accounting principles or the application thereof to such Person.
1.34 Credit Facility shall mean the Loans and Letter of Credit Accommodations provided to or for the benefit of Borrower pursuant to Sections 2.1 and 2.2 hereof.
1.35 Default shall mean an act, condition or event which with notice or passage of time or both would constitute an Event of Default.
1.36 Defaulting Lender shall have the meaning set forth in Section 6.11(d) hereof.
1.37 Deposit Account Control Agreement shall mean an agreement in writing, in form and substance reasonably satisfactory to Agent, by and among Agent and Borrower with a deposit account at any bank and the bank at which such deposit account is at any time maintained which provides that such bank will comply with instructions originated by Agent directing disposition of the funds in the deposit account without further consent by Borrower and has such other terms and conditions as Agent may reasonably require.
1.38 EBITDA shall mean, as to any Person, with respect to any period, an amount equal to: (a) the Consolidated Adjusted Net Income of such Person and its Subsidiaries for such period, plus (b) depreciation and amortization and other non-cash charges including imputed interest and deferred compensation for such period (to the extent deducted in the computation of Consolidated Adjusted Net Income of such Person), all in accordance with GAAP, plus (c) Interest Expense for such period (to the extent deducted in the computation of Consolidated Adjusted Net Income of such Person), plus (d) the Provision for Taxes for such period (to the extent deducted in the computation of Consolidated Adjusted Net Income of such Person), plus (e) Restructuring Expenses for such period (to the extent deducted in the computation of Consolidated Adjusted Net Income for such period), plus (f) non-recurring cash charges for such period, including any payments made to unionized employees pursuant to Collective Bargaining Agreement between Haynes International, Inc. and United Steelworkers of America, for itself and on behalf of its Local No. 2958, dated as of July 2, 2002, as modified by the Tentative Agreement, dated as of February 5, 2004 and ratified by the United Steel Workers of America Local No. 2958 on February 13, 2004 as to all of such non-recurring cash charges to the extent deducted in the computation of Consolidated Adjusted Net Income of such Person), PROVIDED, THAT, in no event shall the amount of non-recurring cash charges added pursuant to this clause (f) exceed in the aggregate (i) $2,000,000 for the fiscal year ending September 30, 2005, (ii) $1,000,000 for the fiscal year ending September 30, 2006, and (iii) $1,000,000 for the fiscal year ending September 30, 2007, plus (g) non-cash charges related to fresh-start accounting taken in such period.
1.39 Effective Date shall mean the date after which the Confirmation Order shall have become a Final Order and that all of the conditions precedent to the effectiveness of the Plan shall have been satisfied, or with the consent of Agent, waived in accordance with the terms thereof.
1.40 Eligible Accounts shall mean Accounts created by Borrower that at the time of determination satisfy the criteria set forth below. Accounts shall be Eligible Accounts if:
(a) such Accounts arise from the actual and bona fide sale and delivery of goods by Borrower or rendition of services by Borrower in the ordinary course of its business which transactions are completed in accordance with the terms and provisions contained in any documents related thereto;
(b) such Accounts are not unpaid more than sixty (60) days after the original due date thereof or more than one hundred twenty (120) days after the date of the original invoice for them;
(c) such Accounts comply with the terms and conditions contained in Section 7.2(b) of this Agreement;
(d) such Accounts do not arise from sales on consignment, guaranteed sale, sale and return, sale on approval, or other terms under which payment by the account debtor may be conditional or contingent;
(e) the chief executive office of the account debtor with respect to such Accounts is located in the United States of America or Canada (PROVIDED, THAT, in order for such Account to continue to be an Eligible Account, at any time promptly upon Agents request in good faith, Borrower shall execute and deliver, or cause to be executed and delivered, such other agreements, documents and instruments as may be required by Agent to perfect the security interests of Agent in those Accounts of an account debtor with its chief executive office or principal place of business in Canada in accordance with the applicable laws of the applicable Province of Canada in which such chief executive office or principal place of business is located and take or cause to be taken such other and further actions as Agent may reasonably request to enable Agent as secured party with respect thereto to collect such Accounts under the applicable Federal or Provincial laws of Canada) or, at Agents option, if the chief executive office and principal place of business of the account debtor with respect to such Accounts is located other than in the United States of America or Canada, then if either: (i) the account debtor has delivered to Borrower an irrevocable letter of credit issued or confirmed by a bank satisfactory to Agent and payable only in the United States of America and in U.S. Dollars, sufficient to cover such Account, in form and substance satisfactory to Agent in good faith and if required by Agent, the original of such letter of credit has been delivered to Agent or Agents agent and the issuer thereof, and Borrower has complied with the terms of Section 5.2(f) hereof with respect to the assignment of the proceeds of such letter of credit to Agent or naming Agent as transferee beneficiary thereunder, as Agent may specify, or (ii) such Account is subject to credit insurance payable to Agent issued by an insurer and on terms and in an amount acceptable to Agent, or (iii) such Account is otherwise acceptable in all respects to Agent (subject to such lending formula with respect thereto as Agent may determine);
(f) such Accounts do not consist of progress billings (such that the obligation of the account debtors with respect to such Accounts is conditioned upon Borrowers satisfactory completion of any further performance under the agreement giving rise thereto), bill and hold invoices or retainage invoices, except as to bill and hold invoices, if Agent shall have received an
agreement in writing from the account debtor, in form and substance reasonably satisfactory to Agent, confirming the unconditional obligation of the account debtor to take the goods related thereto and pay such invoice;
(g) the account debtor with respect to such Accounts has not asserted a counterclaim, defense or dispute and is not owed or does not claim to be owed any amounts that may give rise to any right of setoff or recoupment against such Accounts (but the portion of the Accounts of such account debtor in excess of the amount at any time and from time to time owed by Borrower to such account debtor or claimed owed by such account debtor that otherwise satisfy the criteria for Eligible Accounts shall be deemed Eligible Accounts);
(h) there are no facts, events or occurrences which would impair the validity, enforceability or collectability of such Accounts or reduce the amount payable (other than to the extent of sales credits in favor of account debtors consistent with the practices of Borrower with respect thereto as of the date hereof) or delay in any material respect payment thereunder;
(i) except for security interests or liens therein in favor of a person with whom Agent has entered into a satisfactory intercreditor agreement or as Agent may otherwise specifically agree, such Accounts are subject to the first priority, valid and perfected security interest of Agent and any goods giving rise thereto are not, and were not at the time of the sale thereof, subject to any claims, liens, security interest interests, charges or other encumbrances other than in favor of Agent, or those that have been released and terminated on or before the date hereof, or are otherwise permitted under Section 9.8 hereof, PROVIDED, THAT, any of such claims, liens, security interest interests, charges or other encumbrances with respect to such goods do not extend to such Accounts;
(j) the account debtor is not an Affiliate of Borrower;
(k) the account debtors with respect to such Accounts are not any foreign government, the United States of America, any State, political subdivision, department, agency or instrumentality thereof, unless, if the account debtor is the United States of America, any State, political subdivision, department, agency or instrumentality thereof, upon Agents request, the Federal Assignment of Claims Act of 1940, as amended or any similar State or local law, if applicable, has been complied with in a manner satisfactory to Agent; PROVIDED, THAT, so long as no Default or Event of Default shall exist or have occurred and be continuing, and the aggregate amount of such Accounts is less than $500,000, Agent shall not request that Borrower comply with such laws;
(l) there are no proceedings or actions which are threatened or pending against the account debtors with respect to such Accounts that Agent determines in good faith could reasonably be expected to result in any material adverse change in any such account debtors financial condition (including, without limitation, any bankruptcy, dissolution, liquidation, reorganization or similar proceeding);
(m) the aggregate amount of such Accounts owing by a single account debtor do not constitute more than fifteen (15%) percent of the aggregate amount of all otherwise Eligible
Accounts (but the portion of the Accounts not in excess of the applicable percentages may be deemed Eligible Accounts);
(n) such Accounts are not owed by an account debtor who has Accounts unpaid more than sixty (60) days after the original due date for them or one hundred twenty (120) days after the date of the original invoice for them, in either case which constitute more than fifty (50%) percent of the total Accounts of such account debtor;
(o) the account debtor is not located in a State requiring the filing of a Notice of Business Activities Report or similar report in order to permit Borrower to seek judicial enforcement in such State of payment of such Account, unless Borrower has qualified to do business in such state or has filed a Notice of Business Activities Report or equivalent report for the then current year or such failure to file and inability to seek judicial enforcement is capable of being remedied without any material delay or material cost;
(p) such Accounts are owed by account debtors whose total indebtedness to Borrower does not exceed the credit limit with respect to such account debtors as determined by Borrower from time to time, to the extent such credit limit as to any account debtor is established consistent with the current practices of Borrower as of the date hereof and such credit limit is acceptable to Agent in good faith (but the portion of the Accounts not in excess of such credit limit that otherwise satisfy the criteria for Eligible Accounts shall be deemed Eligible Accounts); and
(q) such Accounts are owed by account debtors deemed creditworthy at all times by Agent in good faith.
The criteria for Eligible Accounts set forth above may only be changed and any new criteria for Eligible Accounts may only be established by Agent in good faith based on either: (i) an event, condition or other circumstance arising after the date hereof, or (ii) an event, condition or other circumstance existing on the date hereof to the extent Agent has no written notice thereof from Borrower prior to the date hereof, in either case under clause (i) or (ii) which adversely affects or could reasonably be expected to adversely affect the Accounts in the good faith determination of Agent. Any Accounts that are not Eligible Accounts shall nevertheless be part of the Collateral.
1.41 Eligible Arcadia Inventory shall mean Eligible Inventory (a) located at Borrowers Arcadia, Louisiana facility; or (b) located at third-party processors of Borrowers Inventory used by Borrower in connection with the Arcadia, Louisiana facility and from which processors Agent shall have received a Collateral Access Agreement (except as Agent may otherwise agree); or (c) in transit between Borrowers Arcadia, Louisiana facility and such processors location; or (d) in transit from another of Borrowers facilities referred to herein to Borrowers Arcadia, Louisiana facility.
1.42 Eligible Inventory shall mean Inventory owned by Borrower consisting of finished goods held for resale in the ordinary course of the business of Borrower, raw materials for such finished goods and work-in-process and semi-finished Inventory, in each case that at all times satisfies the criteria set forth below. In general, Eligible Inventory shall not include
(a) spare parts for equipment; (b) packaging and shipping materials; (c) supplies used or consumed in Borrowers business; (d) Inventory at premises other than those permitted hereunder and which are either (i) owned and operated by Borrower or (ii) leased and operated by Borrower or (iii) owned and operated by a third person, PROVIDED, THAT, except as Agent may otherwise agree, as to locations leased and operated by Borrower or locations owned and operated by a third person, Agent shall have received a Collateral Access Agreement duly executed and delivered by the lessor and owner of such leased locations or by such third person, as the case may be; (e) Inventory subject to a security interest, lien, charge or other encumbrance in favor of any Person other than Agent except those permitted in this Agreement that are subject to an intercreditor agreement in form and substance satisfactory to Agent between the holder of such security interest or lien and Agent or as Agent may otherwise specifically agree; (f) bill and hold goods; (g) unserviceable, obsolete or slow moving Inventory; (h) Inventory that is not subject to the first priority, valid and perfected security interests and liens of Agent; (i) returned, damaged and/or defective Inventory; (j) Inventory purchased or sold on consignment and (k) Inventory of Borrower located outside the United States of America. The criteria for Eligible Inventory set forth above may only be changed and any new criteria for Eligible Inventory may only be established by Agent in good faith based on either: (i) an event, condition or other circumstance arising after the date hereof, or (ii) an event, condition or other circumstance existing on the date hereof to the extent Agent has no written notice thereof from Borrower prior to the date hereof, in either case under clause (i) or (ii) which adversely affects or could reasonably be expected to adversely affect the Inventory in the good faith determination of Agent. Any Inventory that is not Eligible Inventory shall nevertheless be part of the Collateral.
1.43 Eligible Kokomo Inventory shall mean Eligible Inventory (a) located at Borrowers Kokomo, Indiana facility; or (b) located at third-party processors of Borrowers Inventory used by Borrower in connection with the Kokomo, Indiana facility and from which processors Agent shall have received a Collateral Access Agreement (except as Agent may otherwise agree); or (c) in transit between Borrowers Kokomo, Indiana facility and such processors location; or (d) in transit from another of Borrowers facilities referred to herein to Borrowers Kokomo, Indiana facility.
1.44 Eligible New Equipment shall mean all new Equipment owned by Borrower which is acquired after April 12, 2004 and is in good order, repair, running and marketable condition that at all times satisfies the criteria set forth below. In general, Eligible New Equipment shall not include: (a) Equipment at premises other than those permitted hereunder and which are either (i) owned and operated by Borrower, or (ii) leased and operated by Borrower or (iii) owned and operated by a third person, PROVIDED, THAT, except as Agent may otherwise agree, Agent shall have received a Collateral Access Agreement duly executed and delivered by such third person; (b) Equipment subject to a security interest, lien, charge or other encumbrance in favor of any Person other than Agent except those permitted in this Agreement that are subject to an intercreditor agreement, in form and substance satisfactory to Agent, between the holder of such security interest or lien and Agent or as Agent may otherwise specifically agree; (c) Equipment located outside the continental United States of America; (d) Equipment that is not subject to the first priority, valid and perfected security interests and liens of Agent; (e) worn-out, obsolete, damaged or defective Equipment or Equipment not used or usable in the ordinary course of Borrowers business as presently conducted; (f) computer hardware; or (g) Equipment that is or becomes a fixture. The criteria for Eligible New
Equipment set forth above may only be changed and any new criteria for Eligible New Equipment may only be established by Agent in good faith based on either: (i) an event, condition or other circumstance arising after the date hereof, or (ii) an event, condition or other circumstance existing on the date hereof to the extent Agent has no written notice thereof from Borrower prior to the date hereof, in either case under clause (i) or (ii) which adversely affects or could reasonably be expected to adversely affect such Equipment in the good faith determination of Agent. Any Equipment that is not Eligible New Equipment shall nevertheless be part of the Collateral.
1.45 Eligible Service Center Inventory shall mean Eligible Inventory (a) located at Borrowers existing leased service center locations as of the date hereof in Windsor, Connecticut, Anaheim, California, Houston, Texas and Lebanon, Indiana; or (b) at any new service center location used by Borrower after the date hereof, so long as Agent has received prior written notice of the use of such location, a Collateral Access Agreement from the owner and lessor of such location (except as Agent may otherwise agree) and such new service center is operating with Inventory and in a manner substantially consistent with the existing service center locations of Borrower as of the date hereof; or (d) in transit from one of Borrowers facilities referred to herein to any of such service center locations.
1.46 Eligible Transferee shall mean (a) any Lender; (b) the parent company of any Lender and/or any Affiliate of such Lender which is at least fifty (50%) percent owned by such Lender or its parent company; (c) any person (whether a corporation, partnership, trust or otherwise) that is engaged in the business of making, purchasing, holding or otherwise investing in bank loans and similar extensions of credit in the ordinary course of its business and is administered or managed by a Lender or with respect to any Lender that is a fund which invests in bank loans and similar extensions of credit, any other fund that invests in bank loans and similar extensions of credit and is managed by the same investment advisor as such Lender or by an Affiliate of such investment advisor, and in each case is approved by Agent; (d) any other commercial bank approved by Agent; and (e) any other financial institution or accredited investor (as defined in Regulation D under the Securities Act of 1933) approved by Agent that makes loans and provides similar extensions of credit in the ordinary course of its business and is capable of funding revolving loans; PROVIDED, THAT, (i) neither Borrower nor any Affiliate of Borrower shall qualify as an Eligible Transferee and (ii) no Person to whom any Indebtedness which is in any way subordinated in right of payment to any other Indebtedness of Borrower shall qualify as an Eligible Transferee, except as Agent may otherwise specifically agree.
1.47 Environmental Laws shall mean all foreign, Federal, State and local laws, legislation, rules, codes, licenses, permits (including any conditions imposed therein), authorizations, judicial or administrative decisions, injunctions or agreements between Borrower and any Governmental Authority, (a) relating to pollution and the protection, preservation or restoration of the environment (including air, water vapor, surface water, ground water, drinking water, drinking water supply, surface land, subsurface land, plant and animal life or any other natural resource), or to human health or safety, (b) relating to the exposure to, or the use, storage, recycling, treatment, generation, manufacture, processing, distribution, transportation, handling, labeling, production, release or disposal, or threatened release, of Hazardous Materials, or (c) relating to all laws with regard to recordkeeping, notification, disclosure and reporting requirements respecting Hazardous Materials.
1.48 Equipment shall mean all of Borrowers now owned and hereafter acquired equipment, wherever located, including machinery, data processing and computer equipment (whether owned or licensed and including embedded software), vehicles, tools, furniture, fixtures, all attachments, accessions and property now or hereafter affixed thereto or used in connection therewith, and substitutions and replacements thereof, wherever located.
1.49 Equipment Purchase Loan Limit shall mean at any time the lesser of (a) $10,000,000 or (b) the amount equal to: (i) the Maximum Credit minus (ii) the sum of (A) the Tranche A Loans then outstanding, plus (B) the Tranche B Loans then outstanding, plus (C) the undrawn amount of Letter of Credit Accommodations then outstanding, plus (D) the aggregate amount of loans and letter of credit accommodations outstanding (and as to such letter of credit accommodations, without regard to the reserves established with respect thereto), to or for the benefit of Haynes UK or any other obligor under the UK Financing Agreements.
1.50 Equipment Purchase Loan Request shall have the meaning set forth in Section 2.3(d) hereof.
1.51 Equipment Purchase Loans shall mean the secured term loans made by Lenders to Borrower after the date hereof as provided for in Section 2.3; such term loans being from time to time referred to herein individually as an Equipment Purchase Loan.
1.52 Equipment Purchase Notes shall mean, collectively, the Equipment Purchase Notes which may at any time hereafter be issued by Borrower to Lenders pursuant to Section 2.3 hereof to evidence an Equipment Purchase Loan; such notes being from time to time referred to herein individually as an Equipment Purchase Note.
1.53 ERISA shall mean the Employee Retirement Income Security Act of 1974, together with all rules, regulations and interpretations thereunder or related thereto.
1.54 ERISA Affiliate shall mean any person required to be aggregated with Borrower or any of their respective Subsidiaries under Sections 414(b), 414(c), 414(m) or 414(o) of the Code.
1.55 ERISA Event shall mean (a) any reportable event described in Section 4043(b) or 4043(c)(1), (2), (5), (6), (8) or (9) of ERISA or the regulations issued thereunder, with respect to a Pension Plan or a Multiemployer Plan; (b) the adoption of any amendment to a Benefit Plan that would require the provision of security pursuant to Section 401(a)(29) of the Code or Section 307 of ERISA; (c) the existence with respect to any Pension Plan of an accumulated funding deficiency (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived; (d) the filing pursuant to Section 412 of the Code or Section 303(d) of ERISA of an application for a waiver of the minimum funding standard with respect to any Pension Plan; (e) the occurrence of a prohibited transaction with respect to which Borrower or any of its Subsidiaries is a disqualified person (within the meaning of Section 4975 of the Code) or with respect to which Borrower or any of its Subsidiaries could otherwise be liable; (f) a complete or partial withdrawal by Borrower or any ERISA Affiliate from a Multiemployer Plan that results in or has a reasonable likelihood of resulting in any liability of Borrower; (g) the receipt by or on behalf of Borrower or any ERISA Affiliate of a notice that
either: (i) any Multiemployer Plan is in reorganization or insolvent (each within the meaning of ERISA) or (ii) any Multiemployer Plan is or will or is likely to be entering reorganization or becoming insolvent or (iii) any Multiemployer Plan intends to terminate or has been terminated, in the case of each of clauses (g)(i), (ii) or (iii) that result in or has a reasonable likelihood of resulting in any liability of Borrower; (h) the filing of a notice of intent to terminate, the treatment of a Benefit Plan amendment as a termination under Section 4041 or 4041A of ERISA, or the commencement of proceedings by the Pension Benefit Guaranty Corporation to terminate a Pension Plan or Borrower receiving a notice of or otherwise obtaining knowledge of the commencement of proceedings by the Pension Benefit Guaranty Corporation to terminate a Multiemployer Plan; (i) the occurrence of an event or condition which might reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan or Borrower receiving a notice of or otherwise obtaining knowledge of any such event or condition as to a Multiemployer Plan; (j) the imposition of any liability under Title IV of ERISA, other than the Pension Benefit Guaranty Corporation premiums due but not delinquent under Section 4007 of ERISA, upon Borrower or any ERISA Affiliate in excess of $250,000.
1.56 Eurodollar Rate shall mean with respect to the Interest Period for a Eurodollar Rate Loan, the interest rate per annum equal to the arithmetic average of the rates of interest per annum (rounded upwards, if necessary, to the next one thousandth (1/1000th) of one (1%) percent) at which Reference Bank is offered deposits of United States dollars in the London interbank market (or other Eurodollar Rate market selected by Borrower and approved by Agent) on or about 9:00 a.m. (New York time) two (2) Business Days prior to the commencement of such Interest Period in amounts substantially equal to the principal amount of the Eurodollar Rate Loans requested by and available to Borrower in accordance with this Agreement, with a maturity of comparable duration to the Interest Period selected by or on behalf of Borrower.
1.57 Eurodollar Rate Loans shall mean any Loans or portion thereof on which interest is payable based on the Adjusted Eurodollar Rate in accordance with the terms hereof (including Eurodollar Rate Fixed Asset Loans and Eurodollar Rate Equipment Purchase Loans).
1.58 Eurodollar Rate Equipment Purchase Loans shall mean Equipment Purchase Loans outstanding from time to time that are Eurodollar Rate Loans.
1.59 Eurodollar Rate Fixed Asset Loans shall mean Eurodollar Rate Loans outstanding from time to time based on Fixed Asset Availability.
1.60 Excess Availability shall mean at any time and without duplication, the sum of:
(a) the amount calculated at such time equal to: (i) the lesser of: (A) the Borrowing Base and (B) the Maximum Credit (in each case under (A) or (B) after giving effect to any applicable Reserves), minus (ii) the sum of: (A) the amount of the then outstanding and unpaid principal amount of the Loans (other than Equipment Purchase Loans) and the undrawn amount of Letter of Credit Accommodations, plus (B) the aggregate amount of all payables or other obligations outstanding more than forty-five (45) days after the due date therefor as of such time (and for this purpose the due date for payables incurred prior to the commencement of the Chapter 11 Case (or during the course thereof) will be the date for payment of such payables as
established pursuant to the Plan and the claims administration process provided for in the Chapter 11 Case and as to those payables or other obligations that are subject to a dispute or are not otherwise allowed, prior to the establishment of the due date for such payables or other obligations pursuant to the Plan and the claims administration process, such payables and other obligations shall not be deemed outstanding more than forty-five (45) days after the due date therefor for purposes of this definition), plus (C) the amount of checks issued by Borrower to pay payables and other obligations which are more than such number of days past due, but not yet sent (without duplication of amounts included in clause (a)(ii)(B) herein); plus
(b) the amount calculated at such time equal to the total amount available for Utilisation (as such term is defined in the UK Financing Agreements), subject to the limitations contained in Sections 5.3 and 5.5 of the Facility Agreement referred to in the definition of the UK Financing Agreements, after giving effect to all then outstanding Utilisations and net of the aggregate of all Past Due Payables (as such term is defined in the UK Financing Agreements).
1.61 Exchange Act shall mean the Securities Exchange Act of 1934, together with all rules, regulations and interpretations thereunder or related thereto.
1.62 Exchange Rate shall mean the prevailing spot rate of exchange of such bank as Agent may reasonably select for the purpose of conversion of one currency to another, at or around 11:00 a.m. Chicago time, on the date on which any such conversion of currency is to be made under this Agreement.
1.63 Excluded Taxes shall have the meaning set forth in Section 6.5 hereof.
1.64 Existing Agreements shall mean, collectively, the following (each as amended, modified or supplemented prior to the date hereof); (a) the Loan and Security Agreement, dated April 12, 2004, by and among Lender and Borrower, and (b) the other agreements listed on Schedule 1.64 hereto.
1.65 Fee Letter shall mean the letter agreement, dated of even date herewith, by and between Borrower and Agent, setting forth certain fees payable by Borrower to Agent for the benefit of itself and Lenders, as the same now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced.
1.66 Final Financing Order shall mean Final Order Pursuant to Sections 361, 363 and 364(c) of The Bankruptcy Code and Rule 4001 of The Federal Rules of Bankruptcy Procedure (i) Authorizing Debtors to Obtain Post-Petition Financing, Granting Senior Liens and Priority Administrative Expense Status, Modifying the Automatic Stay, Authorizing Debtors to Enter into Agreements with Congress Financial Corporation (Central), as Agent for Itself and Certain Other Lenders, and (ii) Authorizing Debtors to Pay in Full the Secured Claims of Fleet Capital Corporation, as Agent for Itself and Certain Other Lenders entered on April 22, 2004 by the Bankruptcy Court in the Chapter 11 Case.
1.67 Final Order shall mean an order or judgment of the Bankruptcy Court duly entered on the docket of the Bankruptcy Court that (a) has not been modified or amended without the consent of the Agent, or vacated, reversed, revoked, rescinded, stayed or appealed from, except as Agent may otherwise specifically agree in good faith, (b) with respect to which
the time to appeal, petition for certiorari, application or motion for reversal, rehearing, reargument, stay, or modification has expired, (c) no petition, application or motion for reversal, rehearing, reargument, stay or modification thereof or for a writ of certiorari with respect thereto has been filed or granted or the order or judgment of the Bankruptcy Court has been affirmed by the highest court to which the order or judgment was appealed and (d) is no longer subject to any or further appeal or petition, application or motion for reversal, rehearing, reargument, stay or modification thereof or for any writ of certiorari with respect thereto or further judicial review in any form.
1.68 Financing Agreements shall mean, collectively, this Agreement and all notes, guarantees, security agreements, Deposit Account Control Agreements, Investment Property Control Agreements, intercreditor agreements and all other agreements, documents and instruments now or at any time hereafter executed and/or delivered by Borrower in connection with this Agreement.
1.69 Fixed Asset Availability shall mean $15,949,276; PROVIDED, THAT, effective on the first day of each month after the date hereof the Fixed Asset Availability shall be reduced by the amount equal to $231,681 on the first day of each such month.
1.70 Fixed Charges shall mean, as to any Person and its Subsidiaries with respect to any period, the sum of, without duplication, (a) all cash Interest Expense (which for purposes of this definition shall not include amortizing payments of deferred financing charges that do not constitute interest), plus (b) net cash costs under any Hedge Agreement (in each case as to such Person and its Subsidiaries for such period and to the extent not included in the calculation of EBITDA of such Person and its Subsidiaries for such period), plus (c) all regularly scheduled (as determined at the beginning of the respective period) principal payments of Indebtedness for borrowed money and Indebtedness with respect to Capital Leases (and without duplicating in items (a) and (c) of this definition, the interest component with respect to Indebtedness under Capital Leases), plus (d) all Capital Expenditures, plus (e) the cash portion of any Provision for Taxes paid in such period and unpaid amounts of any Provision for Taxes the last date for payment of which before becoming past due occurs during such period, plus (f) all scheduled reductions in the Fixed Asset Availability occurring during such period, plus (g) cash payments in respect of US pension obligations made during such period.
1.71 Fixed Charge Coverage Ratio shall mean, as to any Person, with respect to any period, the ratio of (a) the amount equal to EBITDA of such Person and its Subsidiaries for such period to (b) the Fixed Charges of such Person and its Subsidiaries for such period.
1.72 Foreign Subsidiaries shall mean the Subsidiaries of Borrower organized or incorporated under the laws of a jurisdiction outside of the United States of America or which have substantially all of their respective assets and operations outside the United States of America; sometimes being referred to herein individually as a Foreign Subsidiary.
1.73 GAAP shall mean generally accepted accounting principles in the United States of America as in effect from time to time as set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and the statements and pronouncements of the Financial Accounting Standards Board which are
applicable to the circumstances as of the date of determination consistently applied; PROVIDED, THAT, for purposes of Sections 9.17 and 9.18 hereof, GAAP shall be determined on the basis of such principles in effect on the date hereof and consistent with those used in the preparation of the most recent audited financial statements delivered to Agent prior to the date hereof.
1.74 Governmental Authority shall mean any nation or government, any state, province, or other political subdivision thereof, any central bank (or similar monetary or regulatory authority) thereof, and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government.
1.75 Hard Costs shall mean, with respect to the purchase by Borrower of an item of Eligible New Equipment, the net cash amount actually paid to acquire title to such item, net of all incentives, trade-in allowances, discounts and rebates, and exclusive of freight, delivery charges, installation costs and charges, software costs, charges and fees, warranty costs, taxes, insurance and other incidental costs or expenses and all indirect costs or expenses of any kind.
1.76 Haynes UK shall mean Haynes International Ltd., a company organized under the laws of England and Wales, and its successors and assigns.
1.77 Haynes UK Pension Trustees shall mean, collectively, Haynes UK, John Raymond Woolnough and Jynette Rutherford, and their respective successors and assigns in their respective capacities as trustees for the Haynes Pension Plan established by Haynes UK.
1.78 Hazardous Materials shall mean any hazardous, toxic or dangerous substances, materials and wastes, including hydrocarbons (including naturally occurring or man-made petroleum and hydrocarbons), flammable explosives, asbestos, urea formaldehyde insulation, radioactive materials, polychlorinated biphenyls, pesticides, herbicides and any other kind and/or type of pollutants or contaminants (including materials which include hazardous constituents), and including any other substances, materials, or wastes that are classified as hazardous or toxic under any Environmental Law).
1.79 Hedge Agreement shall mean an agreement that is a rate swap agreement, basis swap, forward rate agreement, commodity swap, interest rate option, forward foreign exchange agreement, spot foreign exchange agreement, rate cap agreement rate, floor agreement, rate collar agreement, currency swap agreement, cross currency rate swap agreement, currency option, any other similar agreement (including any option to enter into any of the foregoing or a master agreement for any the foregoing together with all supplements thereto) for the purpose of protecting against or managing exposure to fluctuations in interest or exchange rates, currency valuations or commodity prices; sometimes being collectively referred to herein as Hedge Agreements.
1.80 Indebtedness shall mean, with respect to any Person, whether or not contingent, (a) all indebtedness for borrowed money (whether or not the recourse of the lender is to the whole of the assets of such Person or only to a portion thereof) or evidenced by bonds, notes, debentures or similar instruments; (b) the balance deferred and unpaid of the purchase price of any property or services (except any such balance that constitutes an account payable to a trade creditor (whether or not an Affiliate) created, incurred, assumed or guaranteed by such Person in
the ordinary course of business of such Person in connection with obtaining goods, materials or services that is not overdue by more than one hundred twenty (120) days (unless the trade payable is being contested in good faith and for this purpose the due date for payables incurred prior to the commencement of the Chapter 11 Case (or during the course thereof) will be the date for payment of such payables as established pursuant to the Plan and the claims administration process provided for in the Chapter 11 Case and as to those payables or other obligations that are subject to a dispute or are not otherwise allowed, prior to the establishment of the due date for such payables or other obligations pursuant to the Plan and the claims administration process, such payables and other obligations shall not be deemed overdue by more than one hundred twenty (120) days for purposes of this definition); (c) the principal component of all leases to which it is a lessee which have been, or should be, in accordance with GAAP recorded as Capital Leases; (d) any contractual obligation, contingent or otherwise, of such Person to pay or be liable for the payment of any indebtedness described in this definition of another Person, including, without limitation, any such indebtedness, directly or indirectly guaranteed, or any agreement to purchase, repurchase, or otherwise acquire such indebtedness, obligation or liability or any security therefor, or to provide funds for the payment or discharge thereof, or to maintain solvency, assets, level of income, or other financial condition; (e) all obligations with respect to redeemable stock and redemption or repurchase obligations under any Capital Stock or other equity securities issued by such Person; (f) all reimbursement obligations and other liabilities of such Person with respect to surety bonds (whether bid, performance or otherwise), letters of credit, bankers acceptances, drafts or similar documents or instruments issued for such Persons account; (g) all indebtedness of such Person in respect of indebtedness of another Person for borrowed money or indebtedness of another Person otherwise described in this definition which is secured by any consensual lien, security interest, collateral assignment, conditional sale, mortgage, deed of trust, or other encumbrance on any asset of such Person, whether or not such obligations, liabilities or indebtedness are assumed by or are a personal liability of such Person, all as of such time; (h) all obligations, liabilities and indebtedness of such Person arising under any Hedge Agreements; and (i) the principal and interest portions of all rental obligations of such Person under any synthetic lease or similar off balance sheet financing where such transaction is considered to be borrowed money for tax purposes but is classified as an operating lease in accordance with GAAP.
1.81 Information Certificate shall mean, collectively, the Information Certificate of Borrower constituting Exhibit C hereto containing material information with respect to Borrower, its business and assets provided by or on behalf of Borrower to Agent in connection with the preparation of this Agreement and the other Financing Agreements and the financing arrangements provided for herein.
1.82 Intellectual Property shall mean Borrowers now owned and hereafter arising or acquired: patents, patent rights, patent applications, copyrights, works which are the subject matter of copyrights, copyright applications, copyright registrations, trademarks, servicemarks, trade names, trade styles, trademark and service mark applications, and licenses and rights to use any of the foregoing and all applications, registrations and recordings relating to the foregoing as may be filed in the United States Copyright Office, the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof, any political subdivision thereof or in any other country, together with all rights and privileges arising under applicable law with respect to Borrowers use of any of the foregoing; all extensions, renewals,
reissues, divisions, continuations, and continuations-in-part of any of the foregoing; all rights to sue for past, present and future infringement of any of the foregoing; inventions, trade secrets, formulae, processes, compounds, drawings, designs, blueprints, surveys, reports, manuals, and operating standards; goodwill (including any goodwill associated with any trademark or servicemark or the license of any trademark or servicemark); customer and other lists in whatever form maintained; trade secret rights, copyright rights, rights in works of authorship, domain names and domain name registrations; software and contract rights relating to computer software programs, in whatever form created or maintained.
1.83 Interest Expense shall mean, for any period, as to any Person, as determined in accordance with GAAP, the total interest expense of such Person, whether paid or accrued during such period but without duplication (including the interest component of Capital Leases for such period), including, without limitation, discounts in connection with the sale of any Accounts that are sold for purposes other than collection, but excluding interest paid in property other than cash and any other interest expense not payable in cash.
1.84 Interest Period shall mean for any Eurodollar Rate Loan, a period of approximately one (1), two (2), or three (3) months duration as Borrower may elect, the exact duration to be determined in accordance with the customary practice in the applicable Eurodollar Rate market; PROVIDED, THAT, Borrower may not elect an Interest Period which will end after the last day of the then current term of this Agreement.
1.85 Interest Rate shall mean,
(a) Subject to clause (b) and (c) below, (i) as to Prime Rate Loans (other than Prime Rate Fixed Asset Loans and Prime Rate Equipment Purchase Loans), a rate equal to one and one-quarter (1 1/4%) percent per annum in excess of the Prime Rate, (ii) as to Prime Rate Fixed Asset Loans and Prime Rate Equipment Purchase Loans, a rate of equal to one and three quarters (1 3/4%) percent per annum in excess of the Prime Rate, (iii) as to Eurodollar Rate Loans (other than Eurodollar Rate Fixed Asset Loans and Eurodollar Rate Equipment Purchase Loans), a rate of two and three quarters (2 3/4%) percent per annum in excess of the Adjusted Eurodollar Rate and (iv) as to Eurodollar Rate Fixed Asset Loans and Eurodollar Rate Equipment Purchase Loans, a rate of three and one quarter (3 1/4%) percent per annum in excess of the Adjusted Eurodollar Rate; in the case of each of clause (iii) and (iv) hereof based on the Eurodollar Rate applicable for the Interest Period selected by Borrower as in effect three (3) Business Days after the date of receipt by Agent of the request of Borrower for such Eurodollar Rate Loans in accordance with the terms hereof, whether such rate is higher or lower than any rate previously quoted to Borrower.
(b) Subject to clause (c) of this definition below, effective as of the first day of each month (commencing on March 1, 2005), the Interest Rate payable by Borrower shall be increased or decreased, as the case may be, (i) as to Prime Rate Loans, to the rate equal to the Applicable Margin on a per annum basis in excess of the Prime Rate, and (ii) as to Eurodollar Rate Loans, to the rate equal to the Applicable Margin on a per annum basis in excess of the Adjusted Eurodollar Rate.
(c) Notwithstanding anything to the contrary contained in clause (a) of this definition, the Applicable Margin otherwise used to calculate the Interest Rate for Prime Rate Loans and Eurodollar Rate Loans, shall be the highest percentage in the definition of Applicable Margin (with respect to Loans of the applicable type) plus (in each case) two (2%) percent per annum (without regard to Monthly Excess Availability), at Agents option, without notice, (i) either (A) for the period on and after the date of termination or non-renewal hereof until such time as all Obligations are indefeasibly paid and satisfied in full in immediately available funds (or in the case of contingent Obligations, Agent shall have received cash collateral or a letter of credit, at its option, all in accordance with Section 13.1(c)), or (B) for the period from and after the date of the occurrence of any Event of Default, and for so long as such Event of Default is continuing as determined by Agent and (ii) on the Loans to Borrower at any time outstanding in excess of the Borrowing Base of Borrower or the Loan Limit of Borrower (whether or not such excess(es) arise or are made with or without Agents or any Lenders knowledge or consent and whether made before or after an Event of Default).
1.86 Inventory shall mean all of Borrowers now owned and hereafter existing or acquired goods, wherever located, which (a) are leased by Borrower as lessor; (b) are held by Borrower for sale or lease or to be furnished under a contract of service; (c) are furnished by Borrower under a contract of service; or (d) consist of raw materials, work-in-process, finished goods or materials used or consumed in its business.
1.87 Inventory Loan Limit shall mean at any time, the amount equal to (a) $60,000,000 minus (b) the US Dollar Equivalent of the then outstanding amount of loans to Haynes UK (and including letter of credit accommodations to the extent provided in its borrowing base as such term is defined in the UK Financing Agreements) based on eligible inventory (as such term is defined in the UK Financing Agreements) of Haynes UK.
1.88 Investment Property Control Agreement shall mean an agreement in writing, in form and substance reasonably satisfactory to Agent in good faith, by and among Agent, Borrower and any securities intermediary, commodity intermediary or other person who has custody, control or possession of any investment property of Borrower acknowledging that will comply with entitlement orders originated by Agent with respect to such investment property, or other instructions of Agent, and has such other terms and conditions as Agent may reasonably require.
1.89 Kokomo Facility Inventory Availability shall mean, with respect to Eligible Kokomo Inventory, the lesser of:
(a) the sum of (i) seventy (70%) percent multiplied by the Value of the Eligible Kokomo Inventory consisting of finished goods, plus (ii) fifty-five (55%) percent multiplied by the Value of the Eligible Kokomo Inventory consisting of work-in-process, plus (iii) eighty-five (85%) percent multiplied by the Value of the Eligible Kokomo Inventory consisting of raw materials; or
(b) the amount equal to the sum of the following for each category of Eligible Kokomo Inventory (such categories being finished goods, work-in-process and raw materials as described above): (i) eighty-five (85%) percent of the Net Recovery Percentage for each
category of such Eligible Kokomo Inventory multiplied by (ii) the Value of such category of Eligible Kokomo Inventory; or
(c) sixty (60%) percent multiplied by the sum of the Value of all of the above categories of such Eligible Kokomo Inventory.
1.90 Lenders shall mean the financial institutions who are signatories hereto as Lenders (other than UK Lender) and other persons made a party to this Agreement as a Lender in accordance with Section 13.7 hereof, and their respective successors and assigns; each sometimes being referred to herein individually as a Lender.
1.91 Letter of Credit Accommodations shall mean, collectively, the letters of credit, merchandise purchase or other guaranties which are from time to time either (a) issued or opened by Agent or any Lender for the account of Borrower or (b) with respect to which Agent or Lenders have agreed to indemnify the issuer or guaranteed to the issuer the performance by Borrower of its obligations to such issuer; sometimes being referred to herein individually as Letter of Credit Accommodation.
1.92 Letter of Credit Fee shall have the meaning set forth in Section 2.2(b) hereof.
1.93 License Agreements shall have the meaning set forth in Section 8.11 hereof.
1.94 Loans shall mean, collectively, the Tranche A Loans, the Tranche B Loans and the Equipment Purchase Loans.
1.95 Material Adverse Effect shall mean a material adverse effect on (a) the financial condition, business, performance or operations of Borrower and its Subsidiaries (taken as a whole); (b) the legality, validity or enforceability of this Agreement or any of the other Financing Agreements; (c) the legality, validity, enforceability, perfection or priority of the security interests and liens of Agent upon the Collateral; (d) the Collateral or its value; (e) the ability of Borrower to repay the Obligations or perform its obligations under this Agreement or any of the other Financing Agreements; or (f) the ability of Agent or any Lender to enforce the Obligations or realize upon the Collateral.
1.96 Material Contract shall mean (a) any contract or other agreement (other than the Financing Agreements), of Borrower involving monetary liability of or to any Person in an amount in excess of $2,000,000 in any fiscal year and (b) any other contract or other agreement (other than the Financing Agreements), to which Borrower is a party, as to which the breach, nonperformance, cancellation or failure to renew by any party thereto would have a Material Adverse Effect. For purposes hereof, the breach, non-performance, cancellation or failure to renew by any party will not constitute a Material Adverse Effect if Borrower is readily able to promptly obtain substitute performance from a third party on terms (taken as a whole) that are not less favorable in any material respect to Borrower.
1.97 Maturity Date shall have the meaning set forth in Section 13.1 hereof.
1.98 Maximum Credit shall mean $100,000,000.
1.99 Monthly Average Excess Availability shall mean, at any time, the daily average of the aggregate amount of the Excess Availability for the immediately preceding month as calculated by Agent in good faith, with Excess Availability calculated for this purpose without regard to the Maximum Credit.
1.100 Mortgages shall mean, individually and collectively, each of the following (as the same now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced): (a) the Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing, dated of even date herewith, by Borrower in favor of Agent with respect to the Real Property and related assets of Borrower located in Kokomo, Indiana, and (b) the Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing, dated of even date herewith, by Borrower in favor of Agent with respect to the Real Property and related assets of Borrower located in Arcadia, Louisiana.
1.101 Multiemployer Plan shall mean a multi employer plan as defined in Section 4001(a)(3) of ERISA which is or was at any time during the current year or the immediately preceding six (6) years contributed to by Borrower or any ERISA Affiliate.
1.102 Net Recovery Percentage shall mean the fraction, expressed as a percentage, (a) the numerator of which is the amount equal to the amount of the recovery in respect of the Inventory at such time determined on a net orderly liquidation value basis pursuant to the most recent acceptable appraisal of Inventory received by Agent in accordance with Section 7.3, net of operating expenses, liquidation expenses and commissions (without duplication) likely to be incurred in connection with the liquidation of such Inventory as set forth in such appraisal, and (b) the denominator of which is the applicable standard cost of the aggregate amount of the Inventory subject to such appraisal.
1.103 Non-U.S. Person means a Person that is not a United States person within the meaning of Section 7701(a)(30) of the Code.
1.104 Obligations shall mean collectively, the Pre-Effective Date Obligations and the Post-Effective Date Obligations.
1.105 Other Taxes shall mean any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or from the execution, delivery or registration of, or otherwise with respect to, this Agreement or any of the other Financing Agreements.
1.106 Participant shall mean any financial institution that acquires and holds a participation in the interest of any Lender in any of the Loans and Letter of Credit Accommodations in conformity with the provisions of Section 13.7 of this Agreement governing participations.
1.107 Pension Plan shall mean a pension plan (as defined in Section 3(2) of ERISA) subject to Title IV of ERISA which Borrower sponsors, maintains, or to which Borrower or ERISA Affiliate makes, is making, or is obligated to make contributions, other than a Multiemployer Plan.
1.108 Permits shall have the meaning set forth in Section 8.7 hereof.
1.109 Person or person shall mean any individual, sole proprietorship, partnership, corporation (including any corporation which elects subchapter S status under the Code), limited liability company, limited liability partnership, business trust, unincorporated association, joint stock corporation, trust, joint venture or other entity or any government or any agency or instrumentality or political subdivision thereof.
1.110 Plan shall mean the First Amended Joint Plan of Reorganization of Haynes International, Inc. and certain of its affiliates, dated June 29, 2004, as modified, as confirmed by the Confirmation Order.
1.111 Post-Effective Date Obligations shall mean (a) any and all Loans, Letter of Credit Accommodations and all other obligations, liabilities and indebtedness of every kind, nature and description owing by Borrower to Agent or any Lender and/or any of their Affiliates arising on and after the Effective Date, including principal, interest, charges, fees, costs and expenses, however evidenced, whether as principal, surety, endorser, guarantor or otherwise, in each case arising under this Agreement or any of the other Financing Agreements, whether now existing or hereafter arising, whether arising before, during or after the initial or any renewal term of this Agreement or after the commencement of any case with respect to Borrower under the Bankruptcy Code or any similar statute (and including any principal, interest, fees, costs, expenses and other amounts owed to Agent or any Lender which would accrue and become due but for the commencement of such a case, whether or not such amounts are allowed or allowable in whole or in part in such a case), whether direct or indirect, absolute or contingent, joint or several, due or not due, primary or secondary, liquidated or unliquidated, secured or unsecured, and however acquired by Agent or any Lender and (b) for purposes only of Section 5.1 hereof and subject to the priority in right of payment set forth in Section 6.4 hereof, all obligations of Borrower arising under or pursuant to a Hedge Agreement with a party acceptable to Agent; PROVIDED, THAT, (i) upon Agents request, Agent shall have entered into an agreement, in form and substance satisfactory to Agent, with such Person that is a counterparty to such Hedge Agreement, as acknowledged and agreed to by Borrower, providing for the delivery to Agent by such counterparty of information with respect to the amount of such obligations and providing for the other rights of Agent and such Lender, Affiliate or other Person, as the case may be, in connection with such arrangements and (ii) in no event shall the party to such Hedge Agreement to whom such obligations are owed be deemed a Lender for purposes hereof to the extent of and as to such obligations other than for purposes of Section 5.1 hereof and other than for purposes of Sections 12.1, 12.2, 12.3(b), 12.6, 12.7, 12.9 and 12.12 hereof. Without limiting the generality of the foregoing, the term Obligations shall include, without limitation, all Bank Product Obligations; PROVIDED, THAT, any Bank Product Provider to whom such obligations, liabilities and indebtedness are owing be deemed a Lender for purposes hereof to the extent of and as to such Bank Product Obligations other than for purposes of Section 5.1 hereof and other than for purposes of Section 12.1, 12.2, 12.3(b), 12.6, 12.7, 12.9 and 12.12 hereof .
1.112 Pre-Effective Date Obligations shall mean any and all Loans, Letter of Credit Accommodations and all other obligations, liabilities and indebtedness of every kind, nature and description owing by Borrower to Agent or any Lender and/or any of their Affiliates arising prior to the Effective Date, including principal, interest, charges, fees, costs and expenses, however
evidenced, whether as principal, surety, endorser, guarantor or otherwise, in each case arising under the Existing Agreements, now existing, whether arising before, during the term of the Existing Agreements or during the Chapter 11 Case, or before, during or after the confirmation of any plan of reorganization in the Chapter 11 Case (and including any principal, interest, fees, costs, expenses and other amounts owed to Agent or any Lender by Borrower in the Chapter 11 Case or any similar case or proceeding), whether direct or indirect, absolute or contingent, joint or several, due or not due, primary or secondary, liquidated or unliquidated, secured or unsecured, and however acquired by Agent or any Lender.
1.113 Prime Rate shall mean the rate from time to time publicly announced by Wachovia Bank, National Association, or its successors, as its prime rate, whether or not such announced rate is the best rate available at such bank.
1.114 Prime Rate Equipment Purchase Loans shall mean Prime Rate Loans outstanding from time to time that are Equipment Purchase Loans.
1.115 Prime Rate Fixed Asset Loans shall mean Prime Rate Loans outstanding from time to time based on Fixed Asset Availability.
1.116 Prime Rate Loans shall mean any Loans or portion thereof on which interest is payable based on the Prime Rate in accordance with the terms thereof (including Prime Rate Fixed Asset Loans and Prime Rate Equipment Purchase Loans).
1.117 Pro Rata Share shall mean, subject to Section 2.1(e) hereof:
(a) with respect to a Lenders obligation to make Tranche A Loans and to acquire interests in Letter of Credit Accommodations and receive payments of interest and principal with respect thereto, the fraction (expressed as a percentage) the numerator of which is such Lenders Tranche A Commitment and the denominator of which is the aggregate amount of all of the Tranche A Commitments, as adjusted from time to time in accordance with the provisions of Section 13.7 hereof; PROVIDED, THAT, if the Tranche A Commitments have been terminated, the numerator shall be the unpaid amount of such Lenders Tranche A Loans and its interest in the Letter of Credit Accommodations and the denominator shall be the aggregate amount of all unpaid Tranche A Loans and Letter of Credit Accommodations;
(b) with respect to a Lenders obligation to make Tranche B Loans and to acquire interests in Letter of Credit Accommodations and receive payments of interest and principal with respect thereto, the fraction (expressed as a percentage) the numerator of which is such Lenders Tranche B Commitment and the denominator of which is the aggregate amount of all of the Tranche B Commitments, as adjusted from time to time in accordance with the provisions of Section 13.7 hereof; PROVIDED, THAT, if the Tranche B Commitments have been terminated, the numerator shall be the unpaid amount of such Lenders Tranche B Loans and its interest in the Letter of Credit Accommodations and the denominator shall be the aggregate amount of all unpaid Tranche B Loans and Letter of Credit Accommodations;
(c) with respect to all other matters (including the indemnification obligations arising under Section 11.5 hereof, the voting rights set forth in Section 11.3 hereof and the payment of any fees for the account of Lenders), at any time, as to any Lender, except as Agent
and Lenders may otherwise agree, the fraction (expressed as a percentage) the numerator of which is such Lenders Commitment (PROVIDED, THAT, if the Commitments have been terminated, the numerator shall be the unpaid amount of such Lenders Loans and its interest in the Letter of Credit Accommodations) and the denominator of which shall be the amount equal to the aggregate amount of all Commitments of Lenders, as adjusted from time to time in accordance with the provisions of Section 13.7 hereof.
1.118 Provision for Taxes shall mean an amount equal to all taxes imposed on or measured by net income, whether Federal, State, county or local, and whether foreign or domestic, that are paid or payable by any Person in respect of any period in accordance with GAAP.
1.119 Real Property shall mean all now owned and hereafter acquired real property of Borrower together with all buildings, structures, and other improvements located thereon and all licenses, easements and appurtenances relating thereto, wherever located, including the real property and related assets more particularly described in the Mortgages.
1.120 Receivables shall mean all of the following now owned or hereafter arising or acquired property of Borrower: (a) all Accounts; (b) all interest, fees, late charges, penalties, collection fees and other amounts due or to become due or otherwise payable in connection with any Account; (c) all payment intangibles of Borrower; (d) letters of credit, indemnities, guarantees, security or other deposits and proceeds thereof issued payable to Borrower or otherwise in favor of or delivered to Borrower in connection with any Account; or (e) all other accounts, contract rights, chattel paper, instruments, notes, general intangibles and other forms of obligations owing to Borrower, whether from the sale and lease of goods or other property, licensing of any property (including Intellectual Property or other general intangibles), rendition of services or from loans or advances by Borrower or to or for the benefit of any third person (including loans or advances to any Affiliates or Subsidiaries of Borrower) or otherwise associated with any Accounts, Inventory or general intangibles of Borrower (including, without limitation, choses in action, causes of action, tax refunds, tax refund claims, any funds which may become payable to Borrower in connection with the termination of any Benefit Plan or other employee benefit plan and any other amounts payable to Borrower from any Benefit Plan or other employee benefit plan, rights and claims against carriers and shippers, rights to indemnification, business interruption insurance and proceeds thereof, casualty or any similar types of insurance and any proceeds thereof and proceeds of insurance covering the lives of employees on which Borrower is a beneficiary).
1.121 Records shall mean all of Borrowers present and future books of account of every kind or nature, purchase and sale agreements, invoices, ledger cards, bills of lading and other shipping evidence, statements, correspondence, memoranda, credit files and other data relating to the Collateral or any account debtor, together with the tapes, disks, diskettes and other data and software storage media and devices, file cabinets or containers in or on which the foregoing are stored (including any rights of Borrower with respect to the foregoing maintained with or by any other person).
1.122 Reference Bank shall mean Wachovia Bank, National Association, or such other major U.S. Bank as Agent may from time to time designate. For purposes hereof, a major
U.S. Bank shall be any commercial bank organized under the laws of the United States, or any State thereof, or the District of Columbia that is a member of the Federal Reserve System and has combined capital and surplus and undivided profits of not less than $500,000,000.
1.123 Register shall have the meaning set forth in Section 13.7 hereof.
1.124 Required Lenders shall mean, at any time, those Lenders whose Pro Rata Shares aggregate fifty-one (51%) percent or more of the aggregate of the Commitments of all Lenders, or if the Commitments shall have been terminated, Lenders to whom at least fifty-one (51%) percent of the principal amount of the then outstanding Obligations are owing.
1.125 Reserves shall mean as of any date of determination, such amounts as Agent may from time to time establish and revise in good faith reducing the amount of Loans and Letter of Credit Accommodations that would otherwise be available to Borrower under the lending formula(s) provided for herein: (a) to reflect events, conditions, contingencies or risks which, as determined by Agent in good faith, have adversely affected, or are reasonably likely to adversely affect, either (i) the Collateral, its value or the amount that might be received by Agent from the sale or other disposition thereof, or (ii) the business or operations of Borrower or (iii) the security interests and other rights of Agent or any Lender in the Collateral (including the enforceability, perfection and priority thereof), including, without limitation, the maximum amount of any indebtedness or claim which may have a lien or administrative claim upon property of the estate of Borrower superior to or on a parity with the lien and security interest or administrative claim of Agent or any Lender therein or thereon or (b) to reflect Agents good faith belief that any collateral report or financial information furnished by or on behalf of Borrower to Agent is or may have been incomplete, inaccurate or misleading in any material respect or (c) to reflect outstanding Letter of Credit Accommodations as provided in Section 2.2 hereof. Without limiting the generality of the foregoing, Reserves may, at Agents option, be established to reflect: (i) dilution with respect to the Accounts (based on the ratio of the aggregate amount of non-cash reductions in Accounts for any period to the aggregate dollar amount of the sales of Borrower for such period) as calculated by Agent for any period is or is reasonably anticipated to be greater than five (5%) percent; or (ii) that the fair market value of Real Property subject to a Mortgage, or the net orderly liquidation value of the Equipment, as set forth in any appraisals received by Agent with respect thereto after the date hereof (in each case net of operating expenses, liquidation expenses and commissions (without duplication estimated to be incurred in connection with the liquidation thereof), that are acceptable to Agent for such purpose, has declined so that the Fixed Asset Availability is greater than (A) the percentages with respect to the value of Real Property or Equipment used in establishing the original amounts of the Fixed Asset Availability multiplied by (B) the applicable values set forth in such subsequent appraisals; or (iii) the net orderly liquidation value of any Eligible New Equipment as set forth in any appraisals thereof received by Agent with respect thereto after the date hereof (net of operating expenses, liquidation expenses and commissions without duplication estimated to be incurred in connection with the liquidation thereof) that are acceptable to Agent, for such purpose, has declined so that the Equipment Purchase Loan based on such Eligible New Equipment is greater than the then outstanding principal amount of such Equipment Purchase Loan; or (iv) variances between the Inventory records of Borrower and the results of test counts or physical counts of Inventory with respect thereto; or (v) variances between the stock ledger Inventory report and general ledger; or (vi) returns, discounts, claims, credits and allowances of
any nature that are not paid pursuant to the reduction of Accounts; or (vii) amounts due or to become due in respect of sales, excise, use and/or withholding taxes; or (viii) to the extent that a change in the turnover, age or mix of the categories of Inventory adversely affects the aggregate value of all Inventory or to reflect that the commodity prices of raw materials have decreased; or (ix) any rental payments or other amounts due or to become due to owners and lessors of real property or owners and operators of premises to the extent Inventory, Equipment or Records are located in or on such property or premises and Agent has not received a satisfactory Collateral Access Agreement from the owner or lessor of such real property or owner and operator of such property or premises in possession of such assets (PROVIDED, THAT, such Reserves will not exceed the aggregate of the amounts payable to such owners and lessors or owners and operators for the next three (3) months from any such time and including in each case amounts, if any, then outstanding and unpaid owed by Borrower to such owners and lessors or owners and operators, but such limitations will only apply so long as no Event of Default exists or has occurred and is continuing); or (x) obligations (contingent or otherwise) of Borrower to any Affiliate of Agent or a Lender or any other Person arising under or in connection with any Hedge Agreement of Borrower with such Affiliate or Person or as such Affiliate or Person may otherwise require in connection therewith to the extent that such obligations constitute Obligations as such term is defined herein or otherwise receive the benefit of the security interest of Agent in any Collateral; PROVIDED, THAT, the amount of the Reserves in respect of such obligations shall be based on the amount of the liability of Borrower as agreed by the other party or parties to the Hedge Agreements and reported by such other party or parties to Agent in a form and substance satisfactory to Agent; or (xi) Bank Product Obligations (PROVIDED, THAT, without limiting any other rights of Agent with respect to the establishment or modification of Reserves, the establishment of such Reserve is at the option of Agent, without any obligation to do so and that so long as no Default or Event of Default exists or has occurred and is continuing Agent shall not establish such Reserve to the extent that such obligations are only to be paid after all other Obligations or pro rata with obligations arising under Hedge Agreements that are greater than any Reserves established with respect to Hedge Agreements). To the extent Agent may revise the lending formulas used to determine the Borrowing Base or establish new criteria or revise existing criteria for Eligible Accounts or Eligible Inventory so as to address any circumstances, condition, event or contingency in a manner satisfactory to Agent, Agent shall not establish a Reserve for the same purpose. The amount of any Reserve established by Agent shall have a reasonable relationship to the event, condition or other matter which is the basis for such reserve as determined by Agent in good faith. In the event that the event, condition or other matter giving rise to the establishment of any Reserve shall cease to exist for a period of thirty (30) consecutive days (unless there is a reasonable prospect that such event, condition or other matter will occur again within a reasonable period of time thereafter), the Reserve established pursuant to such event, condition or other matter, shall be discontinued. The term Reserves as used herein shall include in addition, and not in limitation, the Special Availability Reserve.
1.126 Restructuring Expenses shall mean with respect to Borrower and its Subsidiaries, for any period, fees and expenses of (a) professionals whose retention was approved by the Bankruptcy Court during the Chapter 11 Case pursuant to Section 327 and 1103 of the Bankruptcy Code and (b) any statutory committees appointed in the Chapter 11 Case (and, prior to such appointment, the ad hoc committee of the holders of Borrowers pre-petition senior notes), in each case, paid by Borrower during such period.
1.127 Secured Obligations shall mean, collectively, the Obligations and UK Obligations.
1.128 Secured Parties shall mean, collectively, Agent, Lenders, the UK Lender and Bank Product Providers; sometimes being referred to herein individually as a Secured Party.
1.129 Service Center Availability shall mean, with respect to Eligible Service Center Inventory, the lesser of (a) seventy (70%) percent multiplied by the Value of such Eligible Service Center Inventory or (b) eighty-five (85%) percent of the Net Recovery Percentage multiplied by the Value of such Eligible Service Center Inventory.
1.130 Special Agent Advances shall have the meaning set forth in Section 12.11 hereof.
1.131 Special Availability Reserve shall mean, at any time, $1,500,000.
1.132 Subsidiary or subsidiary shall mean, with respect to any Person, any corporation, limited liability company, limited liability partnership or other limited or general partnership, trust, association or other business entity of which an aggregate of at least a majority of the outstanding Capital Stock or other interests entitled to vote in the election of the board of directors of such corporation (irrespective of whether, at the time, Capital Stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency), managers, trustees or other controlling persons, or an equivalent controlling interest therein, of such Person is, at the time, directly or indirectly, owned by such Person and/or one or more subsidiaries of such Person.
1.133 Taxes shall mean any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto imposed by Governmental Authority.
1.134 Tranche A Commitment shall mean, with respect to each Lender, the principal amount set forth below such Lenders signature on the signature pages hereto and designated Tranche A Commitment or on Schedule 1 to the Assignment and Acceptance Agreement pursuant to which such Lender became a Lender hereunder in accordance with the provisions of Section 13.7 hereof, as the same may be adjusted in accordance with the terms hereof; sometimes being collectively referred to as Tranche A Commitments.
1.135 Tranche A Lender shall mean a Lender with a Tranche A Commitment.
1.136 Tranche A Loan Limit shall mean at any time the amount equal to the lesser of: (a) $85,000,000 or (b) the Borrowing Base at such time.
1.137 Tranche A Loans shall mean the loans now or hereafter made by or on behalf of any Lender or by Agent for the account of any Lender, on a revolving basis pursuant to the Credit Facility (including advances, repayments and readvances), as set forth in Section 2.1(a) hereof.
1.138 Tranche B Borrowing Base shall mean, at any time, the amount equal to: (a) the Borrowing Base at such time minus (b) the aggregate amount of the Tranche A Loans then outstanding.
1.139 Tranche B Commitment shall mean, with respect to each Lender, the principal amount set forth below such Lenders signature on the signature pages hereto and designated Tranche B Commitment or on Schedule 1 to the Assignment and Acceptance Agreement pursuant to which such Lender became a Lender hereunder in accordance with the provisions of Section 13.7 hereof, as the same may be adjusted in accordance with the terms hereof; sometimes being collectively referred to as Tranche B Commitments.
1.140 Tranche B Lender shall mean a Lender with a Tranche B Commitment.
1.141 Tranche B Loan Limit shall mean, at any time, the lesser of: (a) the amount equal to: (i) $15,000,000 minus (ii) the sum of (A) the aggregate amount of loans and letter of credit accommodations outstanding (and as to such letter of credit accommodations, without regard to the reserves established with respect thereto), to or for the benefit of Haynes UK or any other obligor under the UK Financing Agreements plus (B) the aggregate amount of the then outstanding principal amount of Equipment Purchase Loans and (b) the Tranche B Borrowing Base.
1.142 Tranche B Loans shall mean the loans now or hereafter made by or on behalf of any Lender or by Agent for the account of any Lender, on a revolving basis pursuant to the Credit Facility (including advances, repayments and readvances), as set forth in Section 2.1(b) hereof.
1.143 UCC shall mean the Uniform Commercial Code as in effect in the State of Illinois, and any successor statute, as in effect from time to time (except that terms used herein which are defined in the Uniform Commercial Code as in effect in the State of Illinois on the date hereof shall continue to have the same meaning notwithstanding any replacement or amendment of such statute).
1.144 UK Financing Agreements shall mean, collectively, the following (as the same now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced): (a) the Facility Agreement, dated April 2, 2004, by and among Haynes UK and UK Lender; (b) the Guarantee, dated April 2, 2004, by Borrower in favor of UK Lender; and (c) all agreements, documents and instruments executed and/or delivered in connection with any of the foregoing.
1.145 UK Lender shall mean Burdale Financial Limited, a company organized under the laws of England and Wales, and its successors and assigns.
1.146 UK Obligations shall mean all obligations, liabilities and indebtedness of every kind, nature and description owing by Borrower to UK Lender, whether now existing or hereafter arising, whether arising before, during or after the initial or any renewal term of this Agreement or the UK Financing Agreements arising under or pursuant to any of the UK Financing Agreements, whether direct or indirect, absolute or contingent, joint or several, due or not due, primary or secondary, liquidated or unliquidated, secured or unsecured.
1.147 US Dollar Equivalent shall mean at any time (a) as to any amount denominated in US Dollars, the amount thereof at such time, and (b) as to any amount denominated in any other currency, the equivalent amount in US Dollars calculated by Agent at such time using the Exchange Rate in effect on the Business Day of determination.
1.148 US Dollars, US$ and $ shall each mean lawful currency of the United States of America.
1.149 Value shall mean the US Dollar Equivalent with respect to Inventory, equal to the lower of (a) cost computed on a first-in-first-out basis in accordance with GAAP using standard costs or (b) market value; PROVIDED, THAT, for purposes of the calculation of the Borrowing Base, (i) the Value of the Inventory shall not include: (A) the portion of the value of Inventory equal to the profit earned by any Affiliate on the sale thereof to Borrower to the extent the same is reflected in the cost of such Inventory or (B) write ups or write downs in value with respect to currency exchange rates and (ii) notwithstanding anything to the contrary contained herein, the cost of the Inventory shall be computed in the same manner and consistent with the most recent appraisal of the Inventory received and accepted by Agent prior to the date hereof, if any.
1.150 Voting Stock shall mean with respect to any Person, (a) one (1) or more classes of Capital Stock of such Person having general voting powers to elect at least a majority of the board of directors, managers or trustees of such Person, irrespective of whether at the time Capital Stock of any other class or classes have or might have voting power by reason of the happening of any contingency, and (b) any Capital Stock of such Person convertible or exchangeable without restriction at the option of the holder thereof into Capital Stock of such Person described in clause (a) of this definition.
SECTION 2. CREDIT FACILITIES
2.1 LOANS.
(a) Subject to and upon the terms and conditions contained herein, each Tranche A Lender severally (and not jointly) agrees to make its Pro Rata Share of Tranche A Loans to Borrower from time to time in amounts requested by Borrower in the aggregate amount for the Tranche A Loans of all Tranche A Lenders of up to the lesser of (i) the Borrowing Base at such time or (ii) the Tranche A Commitments.
(b) Subject to and upon the terms and conditions contained herein, each Tranche B Lender severally (and not jointly) agrees to make its Pro Rata Share of Tranche B Loans to Borrower from time to time in amounts requested by Borrower in the aggregate amount for the Tranche B Loans of all Tranche B Lenders of up to the lesser of (i) the Tranche B Borrowing Base at such time and (ii) the Tranche B Commitments; PROVIDED, THAT, Tranche B Loans will only be made at such time as the then outstanding principal amount of the Tranche A Loans equals or exceeds the Tranche A Loan Limit.
(c) Except in Agents discretion, with the consent of all Lenders, or as otherwise provided herein, (i) the aggregate amount of the Loans and the Letter of Credit Accommodations outstanding at any time shall not exceed the Maximum Credit, (ii) the aggregate principal
amount of the Tranche A Loans and the Tranche B Loans outstanding at any time shall not exceed the Borrowing Base, (iii) the aggregate principal amount of all Tranche A Loans and Letter of Credit Accommodations outstanding at any time shall not exceed the Tranche A Loan Limit, (iv) the aggregate principal amount of all Tranche B Loans outstanding at any time shall not exceed the Tranche B Loan Limit, (v) the aggregate principal amount of the Loans outstanding at any time based on Eligible Inventory shall not exceed the Inventory Loan Limit, and (vi) the aggregate principal amount of the Loans outstanding at any time based on Eligible Inventory consisting of work-in-process shall not exceed $30,000,000.
(d) In the event that the aggregate principal amount of the Loans and Letter of Credit Accommodations outstanding at any time exceeds the Maximum Credit, or the aggregate principal amount of the Tranche A Loans and the Tranche B Loans exceeds the Borrowing Base, or the aggregate principal amount of outstanding Tranche A Loans exceeds the Tranche A Loan Limit, or the aggregate principal amount of outstanding Tranche B Loans exceeds the Tranche B Loan Limit, or the aggregate principal amount of Loans and Letter of Credit Accommodations based on the Eligible Inventory exceed the Inventory Loan Limit, or the aggregate amount of the outstanding Letter of Credit Accommodations exceed the sublimit for Letter of Credit Accommodations set forth in Section 2.2(e), such event shall not limit, waive or otherwise affect any rights of Agent or Lenders in such circumstances or on any future occasions and Borrower shall, upon demand by Agent, which may be made at any time or from time to time, immediately repay to Agent the entire amount of any such excess(es) for which payment is demanded.
(e) In the event that at any time Borrower may request Tranche B Loans in accordance with the terms hereof and such Tranche B Loans are made or in the event that there are any Loans outstanding in excess of the Borrowing Base (other than Equipment Purchase Loans and Special Agent Advances), or in the event that at any time the aggregate principal amount of the Loans exceeds $85,000,000, thereafter and for so long as any such Tranche B Loans or Loans are outstanding, notwithstanding anything to the contrary contained in Sections 1.117(a) and 1.117(b) hereof, for purposes of such sections, the amount of the Pro Rata Share of each Lender shall be calculated based on the fraction, expressed as a percentage,
(i) the numerator of which shall be the sum of (A) the Tranche A Commitment of such Lender plus (B) the amount equal to (1) the Tranche B Commitment of such Lender minus (2) the amount equal to (aa) such Lenders percentage share of the total of the Tranche B Commitments of all Lenders as then in effect (with such share calculated based on the fraction, expressed as a percentage, the numerator of which is the Tranche B Commitment of such Lender and denominator is the total of all Tranche B Commitments) multiplied by (bb) the maximum amount of the loans then available to Haynes UK under the UK Financing Agreements (determined after giving effect to the reduction thereto as a result of the Tranche B Loans then outstanding, but without regard to the UK borrowing base at such time or the amount of the loans or other financial accommodations to Haynes UK outstanding at such time under the UK Financing Agreements), and
(ii) the denominator of which shall be the sum of the principal amount of the Tranche A Loans then outstanding plus the principal amount of the Tranche B Loans then outstanding.
(f) The method for calculating the Pro Rata Shares of each Lender as set forth in Section 2.1(e) above shall apply as to each Lender whether or not such Lender has only a Tranche A Commitment, only a Tranche B Commitment or both and shall apply as to such Lenders obligation to make Loans and receive payments in respect of such Loans in the circumstances when Section 2.1(e) hereof is applicable regardless of whether such Loans would be deemed to constitute Tranche A Loans or Tranche B Loans and regardless of whether any such payments would otherwise be allocated to Tranche A Loans or Tranche B Loans for purposes of Section 6.4(a) hereof and, for purposes of this Section 2.1, regardless of whether such Lender is a Tranche A Lender and/or a Tranche B Lender. Nothing contained herein shall be construed to mean that any Lender that has only a Tranche A Commitment also has a Tranche B Commitment for purposes of the Loan Agreement or that any Lender that has only a Tranche A Commitment is a Tranche B Lender for purposes of the Loan Agreement.
2.2 LETTER OF CREDIT ACCOMMODATIONS.
(a) Subject to and upon the terms and conditions contained herein, at the request of Borrower, Agent agrees, for the ratable risk of each Lender according to its Pro Rata Share, to provide or arrange for Letter of Credit Accommodations for the account of Borrower containing terms and conditions acceptable to Agent and the issuer thereof. Any payments made by or on behalf of Agent or any Lender to any issuer thereof and/or related parties in connection with the Letter of Credit Accommodations provided to or for the benefit of Borrower shall first constitute additional Tranche A Loans to Borrower pursuant to this Section 2 and thereafter Tranche B Loans (or in any event Special Agent Advances as the case may be).
(b) In addition to any charges, fees or expenses charged by any bank or issuer in connection with the Letter of Credit Accommodations, Borrower shall pay to Agent, for the benefit of Lenders based on their respective Pro Rata Shares, a letter of credit fee (the Letter of Credit Fee) at a rate equal to two (2%) percent per annum, on the daily outstanding balance of the Letter of Credit Accommodations for the immediately preceding month (or part thereof), payable in arrears as of the first day of each succeeding month; PROVIDED, THAT, effective as of the first day of each month (commencing on March 1, 2005) the Letter of Credit Fee payable by Borrower shall be the rate equal to the Applicable Margin on a per annum basis; except that Agent may, and upon the written direction of Required Lenders shall, require Borrower to pay to Agent for the benefit of Lenders based on their respective Pro Rata Shares such Letter of Credit Fee, at a rate equal to four (4%) percent per annum on such daily outstanding balance for: (i) the period from and after the date of termination hereof until Agent and Lenders have received full and final payment of all Obligations (notwithstanding entry of a judgment against Borrower) and (ii) the period from and after the date of the occurrence of an Event of Default for so long as such Event of Default is continuing. Such Letter of Credit Fee shall be calculated on the basis of a three hundred sixty (360) day year and actual days elapsed and the obligation of Borrower to pay such fee shall survive the termination of this Agreement.
(c) Borrower shall give Agent two (2) Business Days prior written notice of Borrowers request for the issuance of a Letter of Credit Accommodation. Such notice shall be irrevocable and shall specify the original face amount of the Letter of Credit Accommodation requested, the effective date (which date shall be a Business Day and in no event shall be a date less than ten (10) days prior to the end of the then current term of this Agreement) of issuance of
such requested Letter of Credit Accommodation, whether such Letter of Credit Accommodations may be drawn in a single or in partial draws, the date on which such requested Letter of Credit Accommodation is to expire (which date shall be a Business Day), the purpose for which such Letter of Credit Accommodation is to be issued, and the beneficiary of the requested Letter of Credit Accommodation. Borrower shall attach to such notice the proposed terms of the Letter of Credit Accommodation.
(d) In addition to being subject to the satisfaction of the applicable conditions precedent contained in Section 4 hereof and the other terms and conditions contained herein, no Letter of Credit Accommodations shall be available unless each of the following conditions precedent have been satisfied in a manner satisfactory to Agent: (i) Borrower shall have delivered to the proposed issuer of such Letter of Credit Accommodation at such times and in such manner as such proposed issuer may require, an application, in form and substance satisfactory to such proposed issuer and Agent, for the issuance of the Letter of Credit Accommodation and such other documents as may be required pursuant to the terms thereof, and the form and terms of the proposed Letter of Credit Accommodation shall be satisfactory to Agent and such proposed issuer, (ii) as of the date of issuance, no order of any court, arbitrator or other Governmental Authority shall purport by its terms to enjoin or restrain money center banks generally from issuing letters of credit of the type and in the amount of the proposed Letter of Credit Accommodation, and no law, rule or regulation applicable to money center banks generally and no request or directive (whether or not having the force of law) from any Governmental Authority with jurisdiction over money center banks generally shall prohibit, or request that the proposed issuer of such Letter of Credit Accommodation refrain from, the issuance of letters of credit generally or the issuance of such Letters of Credit Accommodation; and (iii) Excess Availability prior to giving effect to any Reserves with respect to such Letter of Credit Accommodations, on the date of the proposed issuance of any Letter of Credit Accommodations, shall be equal to or greater than: (A) if the proposed Letter of Credit Accommodation is for the purpose of purchasing Eligible Inventory and the documents of title with respect thereto are consigned to the issuer (or subject to such other arrangements as are acceptable to Agent), the sum of (1) the percentage equal to one hundred (100%) percent minus the then applicable percentage with respect to Eligible Inventory set forth in the definition of the term Borrowing Base multiplied by the Value of such Eligible Inventory, plus (2) freight, taxes, duty and other amounts which Agent estimates must be paid in connection with such Inventory upon arrival and for delivery to one of Borrowers locations for Eligible Inventory within the United States of America and (B) if the proposed Letter of Credit Accommodation is for any other purpose or the documents of title are not consigned to the issuer (or subject to such other arrangements as are acceptable to Agent) in connection with a Letter of Credit Accommodation for the purpose of purchasing Inventory, an amount equal to one hundred (100%) percent of the face amount thereof and all other commitments and obligations made or incurred by Agent with respect thereto. Effective on the issuance of each Letter of Credit Accommodation, a Reserve shall be established in the applicable amount set forth in Section 2.2(d)(iii)(A) or Section 2.2(d)(iii)(B).
(e) Except in Agents discretion, with the consent of all Lenders, the amount of all outstanding Letter of Credit Accommodations and all other commitments and obligations made or incurred by Agent or any Lender in connection therewith shall not at any time exceed $10,000,000 minus the US Dollar Equivalent of the amount of the then outstanding letters of
credit provided or arranged for under the UK Financing Agreements and all other commitments made or incurred under the UK Financing Agreements in connection therewith).
(f) Subject to Section 6.5 hereof, Borrower shall indemnify and hold Agent and Lenders harmless from and against any and all losses, claims, damages, liabilities, costs and expenses which Agent or any Lender may suffer or incur in connection with any Letter of Credit Accommodations and any documents, drafts or acceptances relating thereto, including any losses, claims, damages, liabilities, costs and expenses due to any action taken by any issuer or correspondent with respect to any Letter of Credit Accommodation, except for such losses, claims, damages, liabilities, costs or expenses that are a direct result of the gross negligence or willful misconduct of Agent or any Lender as determined pursuant to a final non-appealable order of a court of competent jurisdiction. Borrower assumes all risks with respect to the acts or omissions of the drawer under or beneficiary of any Letter of Credit Accommodation and for such purposes the drawer or beneficiary shall be deemed Borrowers agent. Subject to Section 6.5 hereof, Borrower assumes all risks for, and agrees to pay, all foreign, Federal, State and local taxes, duties and levies relating to any goods subject to any Letter of Credit Accommodations or any documents, drafts or acceptances thereunder. Borrower hereby releases and holds Agent and Lenders harmless from and against any acts, waivers, errors, delays or omissions, whether caused by Borrower, by any issuer or correspondent or otherwise with respect to or relating to any Letter of Credit Accommodation, except for the gross negligence or willful misconduct of Agent or such Lender, as the case may be, as determined pursuant to a final, non-appealable order of a court of competent jurisdiction. The provisions of this Section 2.2(f) shall survive the payment of Obligations and the termination of this Agreement.
(g) In connection with Inventory purchased pursuant to Letter of Credit Accommodations, Borrower shall, at Agents request, instruct all suppliers, carriers, forwarders, customs brokers, warehouses or others receiving or holding cash, checks, Inventory, documents or instruments in which Agent holds a security interest to deliver them to Agent and/or subject to Agents order, and if they shall come into Borrowers possession, to deliver them, upon Agents request, to Agent in their original form; PROVIDED, THAT, Agent shall not exercise its rights under this clause (g) to have such persons deliver any cash, checks, documents or instruments (so long as such documents or instruments are held by a customs broker that has executed and delivered a Collateral Access Agreement) or Inventory to Agent unless a Default or Event of Default exists or has occurred and is continuing. At any time that a Default or Event of Default exists or has occurred and is continuing, Borrower shall also, at Agents request, designate Agent (or the issuer of the Letter of Credit Accommodation with respect thereto as Agent may specify) as the consignee on all bills of lading and other negotiable and non-negotiable documents.
(h) Borrower hereby irrevocably authorizes and directs any issuer of a Letter of Credit Accommodation to name Borrower as the account party therein and to deliver to Agent all instruments, documents and other writings and property received by issuer pursuant to the Letter of Credit Accommodations and to accept and rely upon Agents instructions and agreements with respect to all matters arising in connection with the Letter of Credit Accommodations or the applications therefor (PROVIDED, THAT, such rights of Agent to provide such instructions and agreements shall be subject to the rights of Borrower to provide instructions and agreements with respect to certain matters arising in connection therewith as set forth below). Nothing contained herein shall be deemed or construed to grant Borrower any right or authority to pledge the credit
of Agent or any Lender in any manner. Agent and Lenders shall have no liability of any kind with respect to any Letter of Credit Accommodation provided by an issuer other than Agent or any Lender unless Agent has duly executed and delivered to such issuer the application or a guarantee or indemnification in writing with respect to such Letter of Credit Accommodation. Borrower shall be bound by any reasonable interpretation made in good faith by Agent, or any other issuer or correspondent under or in connection with any Letter of Credit Accommodation or any documents, drafts or acceptances thereunder, notwithstanding that such interpretation may be inconsistent with any instructions of Borrower.
(i) So long as no Event of Default exists or has occurred and is continuing, Borrower may (i) approve or resolve any questions of non-compliance of documents, (ii) give any instructions as to acceptance or rejection of any documents or goods, (iii) execute any and all applications for steamship or airway guaranties, indemnities or delivery orders, and (iv) with Agents consent, grant any extensions of the maturity of, time of payment for, or time of presentation of, any drafts, acceptances, or documents, and agree to any amendments, renewals, extensions, modifications, changes or cancellations of any of the terms or conditions of any of the applications, Letter of Credit Accommodations, or documents, drafts or acceptances thereunder or any letters of credit included in the Collateral.
(j) At any time an Event of Default exists or has occurred and is continuing, Agent shall have the right and authority to, and on and after written notice from Agent to Borrower, Borrower shall not, without the prior written consent of Agent, (i) approve or resolve any questions of non-compliance of documents, (ii) give any instructions as to acceptance or rejection of any documents or goods, (iii) execute any and all applications for steamship or airway guaranties, indemnities or delivery orders, (iv) grant any extensions of the maturity of, time of payments for, or time of presentation of, any drafts, acceptances, or documents, and (v) agree to any amendments, renewals, extensions, modifications, changes or cancellations of any of the terms or conditions of any of the applications, Letter of Credit Accommodations, or documents, drafts or acceptances thereunder or any letters of credit included in the Collateral. Agent may take such actions either in its own name or in Borrowers name.
(k) Any rights, remedies, duties or obligations granted or undertaken by Borrower to any issuer or correspondent in any application for any Letter of Credit Accommodation, or any other agreement in favor of any issuer or correspondent relating to any Letter of Credit Accommodation, shall be deemed to have been granted or undertaken by Borrower to Agent for the ratable benefit of Lenders. Any duties or obligations undertaken by Agent to any issuer or correspondent in any application for any Letter of Credit Accommodation, or any other agreement by Agent in favor of any issuer or correspondent to the extent relating to any Letter of Credit Accommodation, shall be deemed to have been undertaken by Borrower to Agent for the ratable benefit of Lenders and to apply in all respects to Borrower.
(l) Immediately upon the issuance or amendment of any Letter of Credit Accommodation, each Lender shall be deemed to have irrevocably and unconditionally purchased and received, without recourse or warranty, an undivided interest and participation to the extent of such Lenders Pro Rata Share of the liability with respect to such Letter of Credit Accommodation (including, without limitation, all Obligations with respect thereto).
(m) Borrower is irrevocably and unconditionally obligated, without presentment, demand or protest, to pay to Agent any amounts paid by an issuer of a Letter of Credit Accommodation with respect to such Letter of Credit Accommodation (whether through the borrowing of Loans in accordance with Section 2.2(a) or otherwise). In the event that Borrower fails to pay Agent on the date of any payment under a Letter of Credit Accommodation in an amount equal to the amount of such payment, Agent (to the extent it has actual notice thereof) shall promptly notify each Lender of the unreimbursed amount of such payment and each Lender agrees, upon one (1) Business Days notice, to fund to Agent the purchase of its participation in such Letter of Credit Accommodation in an amount equal to its Pro Rata Share of the unpaid amount. The obligation of each Lender to deliver to Agent an amount equal to its respective participation pursuant to the foregoing sentence is absolute and unconditional and such remittance shall be made notwithstanding the occurrence or continuance of any Event of Default, the failure to satisfy any other condition set forth in Section 4 or any other event or circumstance. If such amount is not made available by a Lender when due, Agent shall be entitled to recover such amount on demand from such Lender with interest thereon, for each day from the date such amount was due until the date such amount is paid to Agent at the interest rate then payable by Borrower in respect of Loans that are Prime Rate Loans as set forth in Section 3.1(a) hereof.
2.3 EQUIPMENT PURCHASE LOANS.
(a) Subject to and upon the terms and conditions contained herein, at any time and from to time on or after the date hereof, each Lender severally (and not jointly) shall make its Pro Rata Share of Equipment Purchase Loans to Borrower, at the request of Borrower, of seventy five (75%) percent of the Hard Costs of Eligible New Equipment purchased or to be purchased by Borrower after April 12, 2004, or such lesser amount as to any Equipment Purchase Loan as Borrower may request. The proceeds of each Equipment Purchase Loan shall be used solely for the payment of the purchase price, or to reimburse Borrower for the cash previously paid by Borrower for the purchase price, for the Eligible New Equipment specified in the Equipment Purchase Loan Request applicable to such Equipment Purchase Loan; PROVIDED, THAT, (i) as to any Eligible New Equipment purchased after April 12, 2004 and prior to the date hereof, such Equipment Purchase Loan Request shall be received within thirty (30) days after the date hereof, (ii) as to any Equipment Purchase Loans based on Eligible New Equipment purchased after April 12, 2004 and prior to the date hereof, the aggregate amount of all such Equipment Purchase Loans shall not exceed $2,000,000, (iii) to the extent that the proceeds of any Equipment Purchase Loan are used to reimburse Borrower for the cash paid by Borrower for the purchase price of any Eligible New Equipment purchased after the date hereof, Borrower shall have taken possession of such Eligible New Equipment within ninety (90) days prior to the date of the Equipment Purchase Loan, and (iv) no Equipment Purchase Loan Request shall include any Eligible New Equipment that has been included in any other Equipment Purchase Loan Request. Each Equipment Purchase Loan shall be in an amount of not less than $500,000. A single Equipment Purchase Loan may be used for the purchase price of one or more items constituting Eligible New Equipment specified in the Equipment Purchase Loan Request required to be delivered to Lender pursuant to Section 2.3(d)(i) below and the minimum amount of such Equipment Purchase Loan applies to such Equipment Purchase Loan, not to the purchase price of any individual item of Eligible New Equipment.
(b) The outstanding aggregate principal amount of the Equipment Purchase Loans made by Lenders shall not exceed $10,000,000; PROVIDED, THAT, in no event shall the aggregate principal amount of the Equipment Purchase Loans exceed the aggregate amount of seventy-five (75%) percent of the Hard Costs of all Eligible New Equipment purchased by Borrower pursuant hereto. If at any time the outstanding aggregate principal amount of all Equipment Purchase Loans exceeds eighty (80%) percent of the net orderly liquidation value of all of the Eligible New Equipment (net of liquidation expenses) as set forth in the most recent acceptable appraisal with respect thereto received by Agent, Agent may, at its option, or shall upon the request of the Required Lenders, establish a Reserve in the amount equal to the entire amount of such excess or Agent may instead, at its option, demand and Borrower shall, upon demand by Agent, which may be made at any time and from time to time, repay to Agent the entire amount of such excess.
(c) Each Equipment Purchase Loan to Borrower shall be (i) evidenced by an Equipment Purchase Note executed and delivered by Borrower to Agent concurrently with each Equipment Purchase Loan, (ii) repaid, together with interest and other amounts payable thereunder, in accordance with the provisions of the applicable Equipment Purchase Note, this Agreement and the other Financing Agreements, and (iii) secured by all of the Collateral.
(d) In addition to the other conditions precedent to any Loan or Letter of Credit Accommodation set forth in this Agreement, the making of each Equipment Purchase Loan shall be subject to the satisfaction of each of the following additional conditions precedent, as determined by Agent:
(i) Agent shall have received from Borrower not less than five (5) Business Days and not more than ten (10) Business Days prior written notice of the proposed Equipment Purchase Loan (each such notice being an Equipment Purchase Loan Request), which notice shall specify the following: (A) the proposed date and amount of the Equipment Purchase Loan, (B) a list and description of the Eligible New Equipment (by model, make, manufacturer, serial number and/or such other identifying information as may be requested by Agent), (C) whether any of such Eligible New Equipment has been purchased prior to the date of the proposed Equipment Purchase Loan and if so, the date of such purchase and identifying the specific Eligible New Equipment that has been so purchased, (D) the Hard Costs and total purchase price for the Eligible New Equipment to be purchased with the proceeds of such Equipment Purchase Loan (and the terms of payment of such purchase price), or for which Borrower is being reimbursed, as the case may be and (E) such other information and documents as Agent may from time to time reasonably request with respect thereto;
(ii) Agent shall have a valid and perfected first priority security interest in and lien upon the Eligible New Equipment to be purchased with the proceeds of the Equipment Purchase Loan and the Eligible New Equipment shall be free and clear of all other liens, security interests, claims or other encumbrances (except for those permitted in this Agreement that are subject to an intercreditor agreement, in form and substance satisfactory to Agent, between the holder of such security interest and Agent or as Agent may otherwise specifically agree), and Borrower shall have delivered to Agent such evidence thereof, as Agent may from time to time require;
(iii) the amount of each Equipment Purchase Loan shall not exceed seventy five (75%) percent of the Hard Costs of the Eligible New Equipment to be purchased by Borrower with the proceeds of such Equipment Purchase Loan;
(iv) Agent shall have received (A) copies, or upon Agents request, originals, of all agreements, documents and instruments relating to the sale of the Eligible New Equipment to Borrower, including, without limitation, any purchase orders, invoices, bills of sale or similar documents (provided, that, to the extent that Agent may receive any originals, it will return such originals to Borrower after Agent has finished its use of them) and (B) evidence reasonably satisfactory to Agent that the Eligible New Equipment has been received and installed by Borrower and is in good working order and operating for its intended purpose;
(v) as of the date of such Equipment Purchase Loan, and after giving effect thereto, the aggregate amount of all Equipment Purchase Loans shall not exceed the Equipment Purchase Loan Limit;
(vi) as of the date of such Equipment Purchase Loan, and after giving effect thereto, the aggregate amount of the Loans and the Letter of Credit Accommodations shall not exceed the Maximum Credit minus the sum of (A) the aggregate amount of the Tranche A Loans then outstanding, (B) the aggregate amount of Tranche B Loans then outstanding, (C) the aggregate amount of the undrawn Letter of Credit Accommodations then outstanding and (D) the aggregate amount of loans and letter of credit accommodations (and as to such letter of credit accommodations without regards to the reserve established with respect thereto), to or for the benefit of Haynes UK or any other obligor under the UK Financing Agreements;
(vii) Borrower shall duly authorize, execute and deliver to Agent a single original Equipment Purchase Note in the form annexed hereto as Exhibit D, as completed to reflect the date and amount of each such Equipment Purchase Loan and with the number of monthly installments of principal payable thereunder and the amount of each such monthly installment completed in accordance with Sections 2.3(e) and 2.3(f) below, as the case may be, which note shall evidence a valid and legally enforceable indebtedness of Borrower unconditionally owing to Lenders, without offset, defense or counterclaim of any kind, nature or description whatsoever; and
(viii) as of the date of such Equipment Purchase Loan and after giving effect thereto, no Default or Event of Default shall exist or have occurred and be continuing.
(e) The principal amount of each Equipment Purchase Loan shall be payable (subject to earlier payment as provided herein or in such Equipment Purchase Note) in seventy-two (72) equal, consecutive monthly installments of principal, each in an amount calculated below, commencing on the first day of the second month after the date of the making of such Equipment Purchase Loan, together with interest and other amounts as provided herein and in the Equipment Purchase Note with respect to such Equipment Purchase Loan.
(f) The amount of each monthly installment of principal in respect of each Equipment Purchase Loan (other than the last installment which shall be in an amount equal to
the entire unpaid balance of the Equipment Purchase Note) shall equal: (i) the original principal amount of the proposed Equipment Purchase Loan divided by (ii) seventy-two (72).
2.4 COMMITMENTS. The aggregate amount of each Lenders Pro Rata Share of the Loans and Letter of Credit Accommodations shall not exceed the amount of such Lenders Commitment, as the same may from time to time be amended in accordance with the provisions hereof.
SECTION 3. INTEREST AND FEES
3.1 INTEREST.
(a) Borrower shall pay to Agent, for the benefit of Lenders, interest on the outstanding principal amount of the Loans at the Interest Rate. All interest accruing hereunder on and after the date of any Event of Default or termination hereof shall be payable on demand.
(b) Borrower may from time to time request Eurodollar Rate Loans or may request that Prime Rate Loans be converted to Eurodollar Rate Loans or that any existing Eurodollar Rate Loans continue for an additional Interest Period. Such request from Borrower shall specify the amount of the Eurodollar Rate Loans or the amount of the Prime Rate Loans to be converted to Eurodollar Rate Loans or the amount of the Eurodollar Rate Loans to be continued (subject to the limits set forth below) and the Interest Period to be applicable to such Eurodollar Rate Loans. Subject to the terms and conditions contained herein, three (3) Business Days after receipt by Agent of such a request from Borrower , such Eurodollar Rate Loans shall be made or Prime Rate Loans shall be converted to Eurodollar Rate Loans or such Eurodollar Rate Loans shall continue, as the case may be; PROVIDED, THAT, (i) no Default or Event of Default shall exist or have occurred and be continuing, (ii) Borrower shall have complied with such customary procedures as are established by Agent and specified by Agent to Borrower from time to time for requests by Borrower for Eurodollar Rate Loans, (iii) no more than eight (8) Interest Periods may be in effect at any one time, (iv) the aggregate amount of the Eurodollar Rate Loans must be in an amount not less than $5,000,000 or an integral multiple of $1,000,000 in excess thereof, and (v) Agent and each Lender shall have determined that the Interest Period or Adjusted Eurodollar Rate is available to Agent and such Lender and can be readily determined as of the date of the request for such Eurodollar Rate Loan by Borrower. Any request by or on behalf of Borrower for Eurodollar Rate Loans or to convert Prime Rate Loans to Eurodollar Rate Loans or to continue any existing Eurodollar Rate Loans shall be irrevocable. Notwithstanding anything to the contrary contained herein, Agent and Lenders shall not be required to purchase United States Dollar deposits in the London interbank market or other applicable Eurodollar Rate market to fund any Eurodollar Rate Loans, but the provisions hereof shall be deemed to apply as if Agent and Lenders had purchased such deposits to fund the Eurodollar Rate Loans.
(c) Any Eurodollar Rate Loans shall automatically convert to Prime Rate Loans upon the last day of the applicable Interest Period, unless Agent has received and approved a request to continue such Eurodollar Rate Loan at least three (3) Business Days prior to such last day in accordance with the terms hereof. Any Eurodollar Rate Loans shall, at Agents option, upon notice by Agent to Borrower, be subsequently converted to Prime Rate Loans in the event that this Agreement shall terminate or not be renewed. Borrower shall pay to Agent, for the
benefit of Lenders, upon demand by Agent (or Agent may, at its option, charge any loan account of Borrower) any amounts required to compensate any Lender or Participant for any loss (including loss of anticipated profits), cost or expense incurred by such person, as a result of the conversion of Eurodollar Rate Loans to Prime Rate Loans (other than at the end of an Interest Period) pursuant to any of the foregoing.
(d) Interest shall be payable by Borrower to Agent, for the account of Lenders, monthly in arrears not later than the first day of each calendar month and shall be calculated on the basis of a three hundred sixty (360) day year and actual days elapsed. The interest rate on non-contingent Obligations (other than Eurodollar Rate Loans) shall increase or decrease by an amount equal to each increase or decrease in the Prime Rate effective on the first day of the month after any change in such Prime Rate is announced based on the Prime Rate in effect on the last day of the month in which any such change occurs. In no event shall charges constituting interest payable by Borrower to Agent and Lenders exceed the maximum amount or the rate permitted under any applicable law or regulation, and if any such part or provision of this Agreement is in contravention of any such law or regulation, such part or provision shall be deemed amended to conform thereto.
3.2 FEES.
(a) Borrower shall pay to Agent, for the account of Lenders, monthly an unused line fee at a rate equal to three-eighths (3/8%) percent per annum calculated upon the amount by which the Maximum Credit exceeds the average daily principal balance of the outstanding Loans and Letter of Credit Accommodations during the immediately preceding month (or part thereof) while this Agreement is in effect and for so long thereafter as any of the Obligations are outstanding, which fee shall be payable on the first day of each month in arrears.
(b) Borrower agree to pay to Agent the other fees and amounts set forth in the Fee Letter in the amounts and at the times specified therein.
3.3 CHANGES IN LAWS AND INCREASED COSTS OF LOANS.
(a) Subject to Section 6.5 hereof, if after the date hereof, either (i) any change in, or in the interpretation of, any law or regulation is introduced, including, without limitation, with respect to reserve requirements, applicable to Lender or any banking or financial institution from whom any Lender borrows funds or obtains credit (a Funding Bank), which Funding Bank is a commercial bank or other financial institution having combined capital and surplus and undivided profits of not less than $500,000,000 or (ii) a Funding Bank or any Lender complies with any future guideline or request from any central bank or other Governmental Authority or (iii) a Funding Bank or any Lender determines that the adoption of any applicable law, rule or regulation regarding capital adequacy, or any change therein, or any change in the interpretation or administration thereof by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof has or would have the effect described below, or a Funding Bank or any Lender complies with any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, and in the case of any event set forth in this clause (iii), such adoption, change or compliance has or would have the direct or indirect effect of reducing the rate of
return on any Lenders capital as a consequence of its obligations hereunder to a level below that which Lender could have achieved but for such adoption, change or compliance (taking into consideration the Funding Banks or Lenders policies with respect to capital adequacy) by an amount deemed by such Lender to be material, and the result of any of the foregoing events described in clauses (i), (ii) or (iii) is or results in an increase in the cost to any Lender of funding or maintaining the Loans, the Letter of Credit Accommodations or its Commitment, then Borrower shall from time to time upon demand by Agent pay to Agent additional amounts sufficient to indemnify Lenders against such increased cost (after taking into account applicable deductions and credits in respect of the amount indemnified). A certificate as to the amount of such increased cost setting forth in reasonable detail the basis for such increased cost and calculation of the amount thereof shall be submitted to Borrower by or on behalf of the Lender seeking indemnification therefor or by Agent on its behalf and shall be conclusive, absent manifest error.
(b) If prior to the first day of any Interest Period, (i) Agent shall have determined in good faith (which determination shall be conclusive and binding upon Borrower ) that, by reason of circumstances affecting the relevant market, adequate and reasonable means do not exist for ascertaining the Eurodollar Rate for such Interest Period, (ii) Agent has received notice from the Required Lenders that Eurodollar Rate determined or to be determined for such Interest Period will not adequately and fairly reflect the cost to Lenders of making or maintaining Eurodollar Rate Loans during such Interest Period, or (iii) Dollar deposits in the principal amounts of the Eurodollar Rate Loans to which such Interest Period is to be applicable are not generally available in the London interbank market, Agent shall give telecopy or telephonic notice thereof to Borrower as soon as practicable thereafter, and will also give prompt written notice to Borrower when such conditions no longer exist. If such notice is given (A) any Eurodollar Rate Loans requested to be made on the first day of such Interest Period shall be made as Prime Rate Loans, (B) any Loans that were to have been converted on the first day of such Interest Period to or continued as Eurodollar Rate Loans shall be converted to or continued as Prime Rate Loans and (C) each outstanding Eurodollar Rate Loan shall be converted, on the last day of the then current Interest Period thereof, to Prime Rate Loans. Until such notice has been withdrawn by Agent, no further Eurodollar Rate Loans shall be made or continued as such, nor shall Borrower have the right to convert Prime Rate Loans to Eurodollar Rate Loans.
(c) Notwithstanding any other provision herein, if the adoption of or any change in any law, treaty, rule or regulation or final, non-appealable determination of an arbitrator or a court or other Governmental Authority or in the interpretation or application thereof occurring after the date hereof shall make it unlawful for Agent or any Lender to make or maintain Eurodollar Rate Loans as contemplated by this Agreement, (i) Agent or such Lender shall promptly give written notice of such circumstances to Borrower (which notice shall be withdrawn whenever such circumstances no longer exist), (ii) the commitment of such Lender hereunder to make Eurodollar Rate Loans, continue Eurodollar Rate Loans as such and convert Prime Rate Loans to Eurodollar Rate Loans shall forthwith be canceled and, until such time as it shall no longer be unlawful for such Lender to make or maintain Eurodollar Rate Loans, such Lender shall then have a commitment only to make a Prime Rate Loan when a Eurodollar Rate Loan is requested and (iii) such Lenders Loans then outstanding as Eurodollar Rate Loans, if any, shall be converted automatically to Prime Rate Loans on the respective last days of the then current Interest Periods with respect to such Loans or within such earlier period as required by
law. If any such conversion of a Eurodollar Rate Loan occurs on a day which is not the last day of the then current Interest Period with respect thereto, Borrower shall pay to such Lender such amounts, if any, as may be required pursuant to Section 3.3(d) below.
(d) Subject to Section 6.5 hereof, Borrower shall indemnify Agent and each Lender and to hold Agent and each Lender harmless from any loss or expense which Agent or such Lender may sustain or incur as a consequence of (i) default by Borrower in making a borrowing of, conversion into or extension of Eurodollar Rate Loans after Borrower has given a notice requesting the same in accordance with the provisions of this Loan Agreement, (ii) default by Borrower in making any prepayment of a Eurodollar Rate Loan after Borrower has given a notice thereof in accordance with the provisions of this Agreement, and (iii) the making of a prepayment of Eurodollar Rate Loans on a day which is not the last day of an Interest Period with respect thereto. With respect to Eurodollar Rate Loans, such indemnification may include an amount equal to the excess, if any, of (A) the amount of interest which would have accrued on the amount so prepaid, or not so borrowed, converted or extended, for the period from the date of such prepayment or of such failure to borrow, convert or extend to the last day of the applicable Interest Period (or, in the case of a failure to borrow, convert or extend, the Interest Period that would have commenced on the date of such failure) in each case at the applicable rate of interest for such Eurodollar Rate Loans provided for herein over (B) the amount of interest (as determined by such Agent or such Lender) which would have accrued to Agent or such Lender on such amount by placing such amount on deposit for a comparable period with leading banks in the interbank Eurodollar market as set forth in a certificate from or on behalf of Agent or such Lender to Borrower setting forth the calculation of such amounts. This covenant shall survive the termination or non-renewal of this Loan Agreement and the payment of the Obligations.
SECTION 4. CONDITIONS PRECEDENT
4.1 CONDITIONS PRECEDENT TO INITIAL LOANS AND LETTER OF CREDIT ACCOMMODATIONS. Each of the following is a condition precedent to Agent and Lenders making the initial Loans and providing the initial Letter of Credit Accommodations hereunder:
(a) no court of competent jurisdiction shall have issued any injunction, restraining order or other order with respect to the Confirmation Order which otherwise prohibits the consummation of the transactions described herein, or (except for changes consented to by Agent) modifies such transactions, and no governmental or other action or proceeding shall have been commenced, seeking any injunction, restraining order or other order which seeks to void or otherwise modify the transactions described herein;
(b) no motion, action or proceeding shall be pending against Borrower by any creditor or other party-in-interest in the Bankruptcy Court or in any other court of competent jurisdiction which if successful could reasonably be expected to have a Material Adverse Effect;
(c) Agent shall have received a certified copy of the Confirmation Order as duly entered by the Bankruptcy Court and entered on the docket of the Clerk of the Bankruptcy Court in the Chapter 11 Case, following due notice to such creditors and other parties-in-interest as required by the Bankruptcy Court, which order shall be in form and substance acceptable to Agent, providing, among other things, that (i) the Existing Agreements and the Final Financing
Order shall continue in full force and effect through the Effective Date, (ii) as of and after the Effective Date, all loans, advances, financial accommodations, borrowing and obligations outstanding under the Existing Agreements shall continue in effect on and after the Effective Date and be deemed loans, advances, financial accommodations and borrowing of or to be assumed by Borrower, (iii) the security interests and liens in favor of Agent granted by the Final Financing Order and the Existing Agreements shall continue in effect in favor of Agent on and after the Effective Date and shall not be discharged, released or terminated, and (iv) Borrower is authorized to enter into this Agreement and the other Financing Agreements and perform all of their obligations hereunder and thereunder;
(d) Agent shall have received evidence, in form and substance satisfactory to Agent, that prior to the date hereof or concurrently herewith, (i) the Effective Date shall have occurred, the Confirmation Order shall be valid, subsisting and continuing and, unless otherwise agreed by Agent, a Final Order which Agent may waive the requirement thereof, and all conditions precedent to the consummation of the Plan shall have been fulfilled, or validly waived (but not including conditions consisting of the effectiveness of this Agreement), and (ii) no motion, action or proceeding shall be pending or filed by any creditor or other party-in-interest in the Chapter 11 Case that could adversely affect the Plan, the consummation of the Plan, the business or operations of Borrower in each case in any material respect, and the transactions contemplated by the Financing Agreements, as determined by Agent in good faith, PROVIDED, THAT, Borrower hereby represents that the general claims administration and resolution of cure claims arising under the Chapter 11 Case pursuant to the Plan will not adversely affect any of such matters in any material respect;
(e) all requisite corporate action and proceedings in connection with this Agreement and the other Financing Agreements shall be reasonably satisfactory in form and substance to Agent, and Agent shall have received all information and copies of all documents, including records of requisite corporate action and proceedings which Agent may have reasonably requested in connection therewith, such documents where requested by Agent or its counsel to be certified by appropriate corporate officers or Governmental Authority (and including a copy of the certificate of incorporation of Borrower certified by the Secretary of State (or equivalent Governmental Authority) which shall set forth the same complete corporate name of Borrower as is set forth herein and such document as shall set forth the organizational identification number of Borrower, if one is issued in its jurisdiction of incorporation;
(f) no act, condition or event shall have occurred since the date of Agents latest field examination (not including for this purpose the field review referred to in clause (g) below) that has or is reasonably likely to have Material Adverse Effect;
(g) Agent shall have completed a field review of the Records and such other information with respect to the Collateral as Agent may require to determine the amount of Loans available to Borrower (including, without limitation, current perpetual inventory records and/or roll forwards of Accounts and Inventory through the date of closing and test counts of the Inventory in a manner satisfactory to Agent, together with such supporting documentation as may be necessary or appropriate, and other documents and information that will enable Agent to accurately identify and verify the Collateral), the results of which in each case shall be satisfactory to Agent, not more than seven (7) Business Days prior to the date hereof;
(h) Agent shall have received, in form and substance satisfactory to Agent, all consents, waivers, acknowledgments and other agreements from third persons which Agent may deem necessary or desirable in good faith in order to permit, protect and perfect its security interests in and liens upon the Collateral or to effectuate the provisions or purposes of this Agreement and the other Financing Agreements, including, without limitation, Collateral Access Agreements; PROVIDED, THAT, the failure to deliver Collateral Access Agreements as to specific locations shall not be a condition of closing, so long as all other conditions are met after giving effect to any Reserves established by Agent in respect of amounts due or to become due to the owner, lessor or operator thereof as provided for in the definition of Reserves;
(i) the Excess Availability as of the date hereof shall be not less than $7,500,000 after giving effect to the initial Loans made or to be made and Letter of Credit Accommodations issued or to be issued in connection with the initial transactions hereunder;
(j) Agent shall have received a Borrowing Base Certificate setting forth the Borrowing Base as at the date set forth therein and completed in a manner reasonably satisfactory to Agent and duly authorized, executed and delivered on behalf of Borrower;
(k) Agent shall have received, in form and substance satisfactory to Agent in good faith, Deposit Account Control Agreements by and among Agent, Borrower, and each bank where Borrower has a deposit account (other than as to those deposit accounts for which Agent is not requiring a Deposit Account Control Agreement as of the date hereof), in each case, duly authorized, executed and delivered by such bank and Borrower, as the case may be;
(l) Agent shall have received evidence, in form and substance satisfactory to Agent in good faith, that Agent has a valid perfected first priority security interest in all of the Collateral in which Borrower has granted a security interest pursuant to this Agreement or any of the other Financing Agreements, and as to priority subject only to the security interests permitted herein or in the other Financing Agreements that have priority under applicable law (and in each case other than as to those specific assets for which Agent has not required that its security interests and/or liens be perfected as of the date hereof);
(m) Agent shall have received and reviewed lien and judgment search results for the jurisdiction of organization of Borrower , the jurisdiction of the chief executive office of Borrower and all jurisdictions in which assets of Borrower are located, which search results shall be in form and substance satisfactory to Agent;
(n) Agent shall have received, in form and substance satisfactory to Agent, an endorsement to existing title insurance policies with respect to the Mortgages to cover the amendments thereto dated of even date herewith;
(o) Agent shall have received evidence of insurance and loss payee endorsements required hereunder and under the other Financing Agreements, in form and substance satisfactory to Agent, and certificates of insurance policies and/or endorsements naming Agent as loss payee;
(p) Agent shall have received, in form and substance reasonably satisfactory to Agent, such opinion letters of counsel to Borrower with respect to the Financing Agreements and such other matters as Agent may reasonably request; and
(q) the other Financing Agreements and all instruments and documents required to be delivered hereunder and thereunder prior to the date hereof shall have been duly executed and delivered to Agent, in form and substance reasonably satisfactory to Agent.
4.2 CONDITIONS PRECEDENT TO ALL LOANS AND LETTER OF CREDIT ACCOMMODATIONS. Each of the following is an additional condition precedent to the Loans and/or providing Letter of Credit Accommodations to Borrower, including the initial Loans and Letter of Credit Accommodations and any future Loans and Letter of Credit Accommodations:
(a) all representations and warranties contained herein and in the other Financing Agreements that are qualified as to materiality or Material Adverse Effect shall be true and correct and the representations and warranties that are not so qualified shall be true and correct in all material respects, in each case with the same effect as though such representations and warranties had been made on and as of the date of the making of each such Loan or providing each such Letter of Credit Accommodation and after giving effect thereto, except to the extent that such representations and warranties expressly relate solely to an earlier date (in which case such representations and warranties shall have been true and correct to the extent required hereunder or under the other Financing Agreements on and as of such earlier date);
(b) no law, regulation, order, judgment or decree of any Governmental Authority shall exist, and no action, suit, investigation, litigation or proceeding shall be pending or threatened in any court or before any arbitrator or Governmental Authority, which (i) purports to enjoin, prohibit, restrain or otherwise adversely affect (A) the making of the Loans or providing the Letter of Credit Accommodations, or (B) the consummation of the transactions contemplated pursuant to the terms hereof or the other Financing Agreements or (ii) has or has a reasonable likelihood of having a Material Adverse Effect;
(c) no Default or Event of Default shall exist or have occurred and be continuing on and as of the date of the making of such Loan or providing each such Letter of Credit Accommodation and after giving effect thereto.
SECTION 5. GRANT AND PERFECTION OF SECURITY INTEREST
5.1 GRANT OF SECURITY INTEREST.
(a) To secure payment and performance of all Secured Obligations, Borrower hereby grants to Agent, for the benefit of Secured Parties, a continuing security interest in, a lien upon, and a right of set off against, all personal and real property and fixtures, and interests in property and fixtures, of Borrower , whether now owned or hereafter acquired or existing, and wherever located (together with all other collateral security for the Secured Obligations at any time granted to or held or acquired by Agent or any Secured Party, collectively, the Collateral), including:
(i) all Accounts;
(ii) all general intangibles, including, without limitation, all Intellectual Property;
(iii) all goods, including, without limitation, Inventory and Equipment;
(iv) all Real Property and fixtures;
(v) all chattel paper, including, without limitation, all tangible and electronic chattel paper;
(vi) all instruments, including, without limitation, all promissory notes;
(vii) all documents;
(viii) all deposit accounts;
(ix) all letters of credit, bankers acceptances and similar instruments and including all letter of credit rights;
(x) all supporting obligations and all present and future liens, security interests, rights, remedies, title and interest in, to and in respect of Receivables and other Collateral, including (A) rights and remedies under or relating to guaranties, contracts of suretyship, letters of credit and credit and other insurance related to the Collateral, (B) rights of stoppage in transit, replevin, repossession, reclamation and other rights and remedies of an unpaid vendor, lienor or secured party, (C) goods described in invoices, documents, contracts or instruments with respect to, or otherwise representing or evidencing, Receivables or other Collateral, including returned, repossessed and reclaimed goods, and (D) deposits by and property of account debtors or other persons securing the obligations of account debtors;
(xi) all (A) investment property (including securities, whether certificated or uncertificated, securities accounts, security entitlements, commodity contracts or commodity accounts), except as otherwise provided in Section 5.2(e) below and (B) monies, credit balances, deposits and other property of Borrower now or hereafter held or received by or in transit to Agent or any Lender or its Affiliates or at any other depository or other institution from or for the account of Borrower, whether for safekeeping, pledge, custody, transmission, collection or otherwise;
(xii) all commercial tort claims listed on Schedule 5.1 hereto;
(xiii) to the extent not otherwise described above, all Receivables and all present and future claims, rights, interests, assets and properties recovered by or on behalf of Borrower or any trustee of Borrower (including in the Chapter 11 Case), including, without limitation, all such property recovered as a result of transfers or obligations avoided or actions maintained or taken pursuant to, inter alia, Sections 542, 545, 547, 548, 549, 550, 552 and 553 of the Bankruptcy Code;
(xiv) all Records; and
(xv) all products and proceeds of the foregoing, in any form, including insurance proceeds (other than business interruption insurance) and all claims against third parties for loss or damage to or destruction of or other involuntary conversion of any kind or nature of any or all of the other Collateral or damages and payments or claims by Borrower for past or future infringements of any Intellectual Property.
(b) Notwithstanding anything to the contrary set forth in Section 5.1(a) above, the types or items of Collateral described in such Section shall not include:
(i) any rights or interests in any contract, lease, permit, license, charter or license agreement covering real or personal property, as such, if under the terms of such contract, lease, permit, license, charter or license agreement, or applicable law with respect thereto, the valid grant of a security interest or lien therein to Agent is prohibited and such prohibition has not been or is not waived or the consent of the other party to such contract, lease, permit, license, charter or license agreement has not been or is not otherwise obtained or under applicable law such prohibition cannot be waived; PROVIDED, THAT, the foregoing exclusion shall in no way be construed (A) to apply if any such prohibition is unenforceable under Sections 9 406, 9 407, 9 408, or 9-409 of the UCC or other applicable law or (B) so as to limit, impair or otherwise affect Agents unconditional continuing security interests in and liens upon any rights or interests of Borrower in or to monies due or to become due under any such contract, lease, permit, license, charter or license agreement (including any Receivables);
(ii) the Capital Stock in excess of 65% of any Foreign Subsidiary that is (a) organized under the laws of a jurisdiction outside of the United States and (b) directly owned by Borrower (without regard to any indirect ownership attributed to the Borrower); and
(iii) trademark or servicemark applications that have been filed with the U.S. Patent and Trademark Office on the basis of an intent-to-use with respect to such marks, unless and until a statement of use or amendment to allege use is filed or any other filing is made or circumstances otherwise change so that the interests of Borrower in such marks is no longer on an intent-to-use basis, at which time such marks shall automatically and without further action by the parties be subject to the security interests and liens granted by Borrower to Agent hereunder.
5.2 PERFECTION OF SECURITY INTERESTS.
(a) Borrower irrevocably and unconditionally authorizes Agent (or its agent) to file at any time and from time to time such financing statements with respect to the Collateral naming Agent as the secured party and Borrower as debtor, as Agent may require, and including any other information with respect to Borrower or otherwise required by part 5 of Article 9 of the Uniform Commercial Code of such jurisdiction as Agent may determine, together with any amendment and continuations with respect thereto, which authorization shall apply to all financing statements filed on, prior to or after the date hereof. Such financing statements may describe the Collateral in the same manner as described herein or in any security agreement or pledge agreement entered into by the parties in connection herewith or may contain an indication or description of collateral that describes such property in any other manner as the Agent may determine, in its sole discretion, is necessary, advisable or prudent to ensure the perfection of the
security interest in the Collateral granted to the Agent in connection herewith or therewith. Borrower hereby ratifies and approves all financing statements naming Agent or its designee as secured party and Borrower, as debtor with respect to the Collateral (and any amendments with respect to such financing statements) filed by or on behalf of Agent prior to the date hereof and ratifies and confirms the authorization of Agent to file such financing statements (and amendments, if any). Borrower hereby authorizes Agent to adopt on behalf of Borrower any symbol required for authenticating any electronic filing. In the event that the description of the collateral in any financing statement naming Agent or its designee as the secured party and Borrower as debtor includes assets and properties of Borrower that do not at any time constitute Collateral, whether hereunder, under any of the other Financing Agreements or otherwise, the filing of such financing statement shall nonetheless be deemed authorized by Borrower to the extent of the Collateral included in such description and it shall not render the financing statement ineffective as to any of the Collateral or otherwise affect the financing statement as it applies to any of the Collateral. In no event shall Borrower at any time file, or permit or cause to be filed, any correction statement or termination statement with respect to any financing statement (or amendment or continuation with respect thereto) naming Agent or its designee as secured party and Borrower as debtor, without the express prior written consent of Agent.
(b) Borrower does not have any chattel paper (whether tangible or electronic) or instruments as of the date hereof, except as set forth in the Information Certificate and except for checks deposited or to be deposited in the ordinary course of business. In the event that Borrower shall receive any chattel paper or instrument in excess of $50,000 after the date hereof (except for checks deposited or to be deposited for collection in the ordinary course of business), Borrower shall promptly notify Agent thereof in writing. Promptly upon the receipt thereof by or on behalf of Borrower, Borrower shall deliver, or cause to be delivered to Agent, all tangible chattel paper and instruments (except for checks deposited or to be deposited for collection in the ordinary course of business) that either Borrower has or may at any time acquire, accompanied by such instruments of transfer or assignment duly executed in blank as Agent may from time to time specify, in each case except as Agent may otherwise agree; PROVIDED, THAT, so long as no Default or Event of Default shall exist or have occurred and be continuing, Borrower shall not be required to deliver to Agent any tangible chattel paper or instrument received after the date hereof until the aggregate amount of the monetary obligations evidenced thereby exceed $50,000. At Agents option, Borrower shall, or Agent may at any time on behalf of Borrower, cause the original of any such instrument or chattel paper to be conspicuously marked in a form and manner acceptable to Agent with the following legend referring to chattel paper or instruments as applicable: This [chattel paper][instrument] is subject to the security interest of Congress Financial Corporation (Central), as Agent and any sale, transfer, assignment or encumbrance of this [chattel paper][instrument] violates the rights of such secured party.
(c) In the event that Borrower shall at any time hold or acquire an interest in any electronic chattel paper or any transferable record (as such term is defined in Section 201 of the Federal Electronic Signatures in Global and National Commerce Act or in Section 16 of the Uniform Electronic Transactions Act as in effect in any relevant jurisdiction), Borrower shall promptly notify Agent thereof in writing. Promptly upon Agents request, Borrower shall take, or cause to be taken, such actions as Agent may reasonably request to give Agent control of such electronic chattel paper under Section 9-105 of the UCC and control of such transferable record under Section 201 of the Federal Electronic Signatures in Global and National Commerce Act or,
as the case may be, Section 16 of the Uniform Electronic Transactions Act, as in effect in such jurisdiction.
(d) Borrower does not have deposit accounts as of the date hereof having or reasonably anticipated to have a balance in excess of $12,500 (or the US Dollar Equivalent thereof), except as set forth in the Information Certificate (PROVIDED, THAT, the aggregate amount of the balances in all of those deposit accounts having a balance of less than $12,500 (or the US Dollar Equivalent thereof) does not, and shall not, exceed $65,000 or the US Dollar Equivalent thereof). Borrower shall not, directly or indirectly, after the date hereof open, establish or maintain any deposit account unless each of the following conditions is satisfied: (i) Agent shall have received not less than five (5) Business Days prior written notice of the intention of Borrower to open or establish such account which notice shall specify in reasonable detail and specificity acceptable to Agent the name of the account, the owner of the account, the name and address of the bank at which such account is to be opened or established, the individual at such bank with whom Borrower is dealing and the purpose of the account, (ii) the bank where such account is opened or maintained shall be reasonably acceptable to Agent, and (iii) on or before the opening of such deposit account or so long as no Default or Event of Default shall exist or have occurred and be continuing, promptly after the opening of such deposit account, Borrower shall deliver to Agent a Deposit Account Control Agreement with respect to such deposit account duly authorized, executed and delivered by Borrower and the bank at which such deposit account is opened and maintained, except, that, Borrower shall not be required to comply with clauses (i), (ii) or (iii) of this subsection (d) as to any deposit account which at all times has a balance of less than $12,500 so long as the aggregate amount of all deposits in all such accounts is less than $65,000 and no Default of Event of Default shall exist or have occurred and be continuing. In addition, Borrower shall not be required to provide a Deposit Account Control Agreement with respect to the existing deposit account of Borrower maintained at Community First Bank (account number 08001031) so long as such account is used only in connection with the cashing of checks or similar items for employees of Borrower and the aggregate amount of the funds in such account does not exceed $60,000. If the purpose of such account shall change or the aggregate amount of such funds at any time exceed $60,000 for five (5) consecutive days or shall exceed $60,000 more than two (2) times, promptly upon the request of Agent, Borrower shall deliver or cause to be delivered to Agent a Deposit Account Control Agreement with respect to such deposit account. The terms of this subsection (d) shall not apply to deposit accounts specifically and exclusively used for payroll, payroll taxes and other employee wage and benefit payments to or for the benefit of Borrowers employees.
(e) Borrower does not own or hold, directly or indirectly, beneficially or as record owner or both, any investment property, as of the date hereof, or has any investment account, securities account, commodity account or other similar account with any bank or other financial institution or other securities intermediary or commodity intermediary as of the date hereof, in each case except as set forth in the Information Certificate.
(i) In the event that Borrower shall be entitled to or shall at any time after the date hereof hold or acquire any certificated securities, Borrower shall promptly endorse, assign and deliver the same to Agent, accompanied by such instruments of transfer or assignment duly executed in blank as Agent may from time to time specify; PROVIDED, THAT, if such certificated securities constitute shares of Capital Stock of a Foreign Subsidiary constituting a controlled
foreign corporation (as such term is defined in Section 957(a) of the Code or a successor provision thereof), then Borrower shall not be required to endorse, assign or deliver to Agent those certificates representing the number of shares of the issuer thereof exceeding sixty-five (65%) percent of the voting power of all classes of Capital Stock of such issuer entitled to vote. If any securities, now or hereafter acquired by Borrower are uncertificated and are issued to Borrower or its nominee directly by the issuer thereof, Borrower shall immediately notify Agent thereof and shall subject to the proviso contained in the immediately preceding sentence, as Agent may specify, either (A) cause the issuer to agree to comply with instructions from Agent as to such securities, without further consent of Borrower or such nominee, or (B) arrange for Agent to become the registered owner of the securities. Nothing contained in this Section 5 shall be construed to require that the Collateral include the portion of the Capital Stock of any Foreign Subsidiary that is a controlled foreign corporation, as defined in Section 957 of the Code, in excess of sixty-five (65%) percent of the issued and outstanding Capital Stock thereof entitled to vote (within the meaning of Treasury Regulation Section 1.956-2).
(ii) Borrower shall not, directly or indirectly, after the date hereof open, establish or maintain any investment account, securities account, commodity account or any other similar account (other than a deposit account) with any securities intermediary or commodity intermediary unless each of the following conditions is satisfied: (A) Agent shall have received not less than five (5) Business Days prior written notice of the intention of Borrower to open or establish such account which notice shall specify in reasonable detail and specificity acceptable to Agent the name of the account, the owner of the account, the name and address of the securities intermediary or commodity intermediary at which such account is to be opened or established, the individual at such intermediary with whom Borrower is dealing and the purpose of the account, (B) the securities intermediary or commodity intermediary (as the case may be) where such account is opened or maintained shall be reasonably acceptable to Agent, and (C) on or before the opening of such investment account, securities account or other similar account with a securities intermediary or commodity intermediary, Borrower shall as Agent may specify either (1) execute and deliver, and cause to be executed and delivered to Agent, an Investment Property Control Agreement with respect thereto duly authorized, executed and delivered by Borrower and such securities intermediary or commodity intermediary or (2) arrange for Agent to become the entitlement holder with respect to such investment property on terms and conditions acceptable to Agent.
(f) Borrower is not the beneficiary or otherwise entitled to any right to payment under any letter of credit, bankers acceptance or similar instrument as of the date hereof, except as set forth in the Information Certificate. In the event that Borrower shall receive any right to payment under any letter of credit, bankers acceptance or any similar instrument having a face amount of excess of $25,000 in any one case or $100,000 in the aggregate (or after notice by Agent to Borrower, at any time after a Default or Event of Default shall exist or have occurred and for so long as the same is continuing, regardless of the amount thereof), whether as beneficiary thereof or otherwise after the date hereof, Borrower shall promptly notify Agent thereof in writing. At any time that Excess Availability is less than $5,000,000, or a Default or an Event of Default exists or has occurred and is continuing, or the aggregate amount of such letters of credit, bankers acceptance or similar instruments outstanding at any time shall exceed $3,500,000, or as to any such letter of credit, bankers acceptance or similar instrument outstanding at any time that is more than $1,000,000, Borrower shall promptly, as Agent may
specify and upon Agents request, either (i) use all commercially reasonable efforts (including the payment of reasonable attorneys fees and expenses of any person in connection therewith) to deliver, or cause to be delivered to Agent, with respect to any such letter of credit, bankers acceptance or similar instrument, the written agreement of the issuer and any other nominated person obligated to make any payment in respect thereof (including any confirming or negotiating bank), in form and substance reasonably satisfactory to Agent, consenting to the assignment of the proceeds of the letter of credit to Agent by Borrower and agreeing to make all payments thereon directly to Agent or as Agent may otherwise direct or (ii) cause Agent to become, at Borrowers expense, the transferee beneficiary of the letter of credit, bankers acceptance or similar instrument (as the case may be); PROVIDED, THAT, upon Agents request, Borrower shall use their commercially reasonable efforts (without having to pay more than the customary fees of the applicable bank but including the payment of reasonable attorneys fees and expenses of any person in connection therewith) to have such letter of credit, bankers acceptance or similar instrument be transferable.
(g) Borrower does not have any commercial tort claims as of the date hereof, except as set forth in the Information Certificate. In the event that Borrower shall at any time after the date hereof have any commercial tort claims in excess of $50,000, Borrower shall promptly notify Agent thereof in writing, which notice shall (i) set forth in reasonable detail the basis for and nature of such commercial tort claim and (ii) include the express grant by Borrower to Agent of a security interest in such commercial tort claim (and the proceeds thereof). In the event that such notice does not include such grant of a security interest, the sending thereof by Borrower to Agent shall be deemed to constitute such grant to Agent. Upon the sending of such notice, any commercial tort claim described therein shall constitute part of the Collateral and shall be deemed included therein. Without limiting the authorization of Agent provided in Section 5.2(a) hereof or otherwise arising by the execution by Borrower of this Agreement or any of the other Financing Agreements, Agent is hereby irrevocably authorized from time to time and at any time to file such financing statements naming Agent or its designee as secured party and Borrower, as debtor, or any amendments to any financing statements, covering any such commercial tort claim as Collateral. In addition, Borrower shall promptly upon Agents request, execute and deliver, or cause to be executed and delivered, to Agent such other agreements, documents and instruments as Agent may require in order to perfect its security interest in such commercial tort claim.
(h) Borrower does not have any goods, documents of title or other Collateral in the custody, control or possession of a third party as of the date hereof, except as set forth in the Information Certificate and except for goods located in the United States in transit to a location of Borrower permitted herein in the ordinary course of business of Borrower in the possession of the carrier transporting such goods. In the event that any goods, documents of title or other Collateral are at any time after the date hereof in the custody, control or possession of any other person not referred to in the Information Certificate or such carriers, Borrower shall promptly notify Agent thereof in writing. Promptly upon Agents request, Borrower shall use commercially reasonable efforts to deliver to Agent a Collateral Access Agreement duly authorized, executed and delivered by such person and Borrower as owner of such Collateral.
(i) Borrower shall take any other actions reasonably requested by Agent from time to time to cause the attachment, perfection and (subject to liens permitted hereunder) first priority of, and the ability of Agent to enforce, the security interest of Agent in any and all of the
Collateral, including, without limitation, (i) executing, delivering and, where appropriate, filing financing statements and amendments relating thereto under the UCC or other applicable law, to the extent, if any, that Borrowers signature thereon is required therefor, (ii) complying with any provision of any statute, regulation or treaty as to any Collateral if compliance with such provision is a condition to attachment, perfection or priority of, or ability of Agent to enforce, the security interest of Agent in such Collateral, (iii) using its commercially reasonable efforts (but excluding the payment of reasonable attorneys fees and expenses of any person in connection therewith) to obtain the consents and approvals of any Governmental Authority or third party, including, without limitation, any consent of any licensor, lessor or other person obligated on Collateral, and (iv) taking all actions required by any law, as applicable in any relevant jurisdiction.
SECTION 6. COLLECTION AND ADMINISTRATION
6.1 BORROWERS LOAN ACCOUNTS. Agent shall maintain one or more loan account(s) on its books in which shall be recorded (a) all Loans, Letter of Credit Accommodations and other Obligations and the Collateral, (b) all payments made by or on behalf of Borrower and (c) all other appropriate debits and credits as provided in this Agreement, including fees, charges, costs, expenses and interest. All entries in the loan account(s) shall be made in accordance with Agents customary practices as in effect from time to time.
6.2 STATEMENTS. Agent shall render to Borrower each month a statement setting forth the balance in the Borrowers loan account(s) maintained by Agent for Borrower pursuant to the provisions of this Agreement, including principal, interest, fees, costs and expenses. Each such statement shall be subject to subsequent adjustment by Agent but shall, absent manifest errors or omissions, be considered correct and deemed accepted by Borrower and conclusively binding upon Borrower as an account stated except to the extent that Agent receives a written notice from Borrower of any specific exceptions of Borrower thereto within thirty (30) days after the date such statement has been received by Borrower. Until such time as Agent shall have rendered to Borrower a written statement as provided above, the balance in Borrowers loan account(s) shall be presumptive evidence of the amounts due and owing to Agent and Lenders by Borrower.
6.3 COLLECTION OF ACCOUNTS.
(a) Borrower shall establish and maintain, at its expense, lockboxes and related blocked accounts with such banks as are acceptable to Agent in good faith (such account or accounts being referred to herein, collectively, as the Blocked Accounts, and individually as a Blocked Account). Borrower shall promptly deposit and direct its account debtors to directly remit all payments on Receivables and all payments constituting proceeds of Inventory or other Collateral in the identical form in which such payments are made, whether by cash, check or other manner, to the Blocked Account. Borrower shall deliver, or cause to be delivered to Agent a Deposit Account Control Agreement duly authorized, executed and delivered by each bank where a Blocked Account is maintained as provided in Section 5.2(d) hereof. Promptly upon Agents request, Borrower shall execute and deliver such agreements and documents as Agent may require in connection therewith. Borrower agrees that all payments made to any Blocked Account or other funds received and collected by Agent or any Lender, whether in respect of the Receivables, as proceeds of Inventory or other Collateral of Borrower or otherwise shall be
treated as payments to Agent and Lenders in respect of the Obligations of Borrower and therefore shall constitute the property of Agent and Lenders to the extent of the then outstanding Obligations of Borrower.
(b) The Deposit Account Control Agreements with the depository banks at which the Blocked Accounts are maintained shall provide that the items received for deposit therein, or the available funds from time to time on deposit therein, will be transferred daily, only to the Agent Payment Account.
(c) For purposes of calculating the amount of the Loans available to Borrower, such payments will be applied (conditional upon final collection) to the Obligations of the applicable Borrower on the Business Day of receipt by Agent of immediately available funds in the Agent Payment Account provided such payments and notice thereof are received in accordance with Agents usual and customary practices as in effect from time to time and within sufficient time to credit Borrowers loan account on such day, and if not, then on the next Business Day. For the purposes of calculating interest on the Obligations, such payments or other funds received will be applied (conditional upon final collection) to the Obligations one (1) Business Day following the date of receipt of immediately available funds by Agent in the Agent Payment Account provided such payments or other funds and notice thereof are received in accordance with Agents usual and customary practices as in effect from time to time and within sufficient time to credit Borrowers loan account on such day, and if not, then on the next Business Day. In the event that at any time or from time to time there are no Loans to Borrower outstanding. Agent shall be entitled to an administrative fee payable by Borrower in an amount calculated based on the Interest Rate for Prime Rate Loans (on a per annum basis) multiplied by the amount of the funds received in the Blocked Account for such day as calculated by Agent in accordance with its customary practice. The economic benefit of the timing in the application of payments (and the administrative charge with respect thereto, if applicable) shall be for the sole benefit of Agent.
(d) Subject to Section 6.3(b) above, Borrower and its Subsidiaries or other Affiliates shall, acting as trustee for Agent, receive, as the property of Agent, any monies, checks, notes, drafts or any other payment relating to and/or proceeds of Accounts or other Collateral which come into their possession or under their control and immediately upon receipt thereof, shall deposit or cause the same to be deposited in the Blocked Accounts, or remit the same or cause the same to be remitted, in kind, to Agent. In no event shall the same be commingled with Borrowers own funds. Borrower agrees to reimburse Agent and Lenders on demand for any amounts owed or paid to any bank at which a Blocked Account is established for it or any other bank or person involved in the transfer of funds to or from its Blocked Accounts arising out of payments by Agent or any Lender to or indemnification of such bank or person in connection with such Blocked Account or any amounts received therein or transferred therefrom. The obligations of Borrower to reimburse Agent for such amounts pursuant to this Section 6.3 shall survive the termination of this Agreement.
6.4 PAYMENTS.
(a) All Obligations shall be payable to the Agent Payment Account as provided in Section 6.3 or such other place as Agent may designate from time to time. The foregoing shall
not apply to payments with proceeds of Loans to a Bank Product Provider for Obligations to such Bank Product Provider in connection with checks or other items issued by Borrower drawn on such Bank Product Provider. Subject to the other terms and conditions contained herein, Agent shall apply payments received or collected from Borrower or for the account of Borrower (including the monetary proceeds of collections or of realization upon any Collateral) as follows: FIRST, to pay any fees, indemnities or expense reimbursements then due to Agent and Lenders from Borrower; SECOND, to pay interest due in respect of any Loans (and including any Special Agent Advances); THIRD, to pay or prepay principal in respect of Special Agent Advances; FOURTH, to pay or prepay principal in respect of Tranche B Loans; FIFTH, to pay principal due in respect of the Tranche A Loans or to pay or prepay Obligations arising under or pursuant to any Hedge Agreement of Borrower that has been approved in writing by Agent (up to the amount of any then effective Reserve established in respect of such Obligations) on a pro rata basis; SIXTH, to pay or prepay any other Obligations whether or not then due, in such order and manner as Agent reasonably determines or to be held as cash collateral in connection with any Letter of Credit Accommodations or other contingent Obligations (but not including for purposes of this clause sixth any Obligations arising under or pursuant to any Hedge Agreement or in connection with any Bank Products); SEVENTH, to pay or prepay any of the UK Obligations after demand for payment under the Guarantee by Borrower in favor of UK Lender; PROVIDED, THAT, any such amounts received for application to the UK Obligations shall not be applied to such UK Obligations for a period of sixty (60) days (or such longer period as UK Lender may agree) after the date of such demand and shall be held as cash collateral in connection with the UK Obligations until the end of such sixty (60) day period (or such longer period as UK Lender may agree); and EIGHTH, to pay or prepay any Obligations arising under or pursuant to Hedge Agreements that have been approved in writing by Agent (other than to the extent provided for above) and any Obligations then due to any Bank Provider arising from or in connection with any Bank Products, as to all of such Obligations on a pro rata basis.
(b) Notwithstanding anything to the contrary contained in this Agreement, (i) unless so directed by Borrower, or unless a Default or an Event of Default shall exist or have occurred and be continuing, Agent shall not apply any payments which it receives to any Eurodollar Rate Loans, except (A) on the expiration date of the Interest Period applicable to any such Eurodollar Rate Loans or (B) in the event that there are no outstanding Prime Rate Loans, and (ii) to the extent Borrower uses any proceeds of the Loans or Letter of Credit Accommodations to acquire rights in or the use of any Collateral or to repay any Indebtedness used to acquire rights in or the use of any Collateral, payments in respect of the Obligations shall be deemed applied first to the Obligations arising from Loans and Letter of Credit Accommodations that were not used for such purposes and second to the Obligations arising from Loans and Letter of Credit Accommodations the proceeds of which were used to acquire rights in or the use of any Collateral in the chronological order in which Borrower acquired such rights in or the use of such Collateral, and (iii) except as Agent may otherwise determine (A) payments shall be applied to Obligations other than the Eurodollar Rate Fixed Asset Loans and Prime Rate Fixed Asset Loans before being applied to the Eurodollar Rate Fixed Asset Loans and the Prime Rate Fixed Asset Loans, except at such time as any payments in respect of the Eurodollar Rate Fixed Asset Loans or Prime Rate Fixed Asset Loans may be then due and payable and (B) the first Loans outstanding shall be deemed to be Eurodollar Rate Fixed Asset Loans.
(c) At Agents option, all principal, interest, fees, costs, expenses and other charges provided for in this Agreement or the other Financing Agreements may be charged directly to the loan account(s) of Borrower maintained by Agent. Except as otherwise specifically provided in Section 6.5 hereof, Borrower shall make all payments to Agent and Lenders on the Obligations free and clear of, and without deduction or withholding for or on account of, any setoff, counterclaim, defense, duties, taxes, levies, imposts, fees, deductions, withholding, restrictions or conditions of any kind. To the extent Agent or any Lender receives any payments or collections in respect of the Obligations in a currency other than US Dollars, Agent may, at its option (but is not obligated to), convert such other currency to US Dollars at the Exchange Rate within a reasonable time thereafter or if Agent elects not to convert such currency, Agent shall promptly notify Borrower and provide such currency to Borrower for Borrower to arrange for the conversion on such date (and then payment thereof to Agent). Borrower shall pay the costs of such conversion (or Agent may, at its option, charge such costs to the loan account of Borrower maintained by Agent). Payments and collections received in any currency other than the currency in which any outstanding Obligations are denominated will be accepted and/or applied at the discretion of Agent.
(d) If after receipt of any payment of, or proceeds of Collateral applied to the payment of, any of the Obligations, Agent or any Lender is required to surrender or return such payment or proceeds to any Person for any reason, then the Obligations intended to be satisfied by such payment or proceeds shall be reinstated and continue and this Agreement shall continue in full force and effect as if such payment or proceeds had not been received by Agent or such Lender. Borrower shall be liable to pay to Agent, and do hereby indemnify and hold Agent and Lenders harmless for the amount of any payments or proceeds surrendered or returned. This Section 6.4 shall remain effective notwithstanding any contrary action which may be taken by Agent or any Lender in reliance upon such payment or proceeds. This Section 6.4 shall survive the payment of the Obligations and the termination of this Agreement.
6.5 TAXES.
(a) Subject to Section 6.5(f) hereof, any and all payments by or on behalf of Borrower hereunder and under any other Financing Agreement shall be made, in accordance with Section 6.4, free and clear of and without deduction for any and all Taxes, excluding the following (collectively, Excluded Taxes): (i) taxes imposed on the net income or net profit of Agent or any Lender (or any transferee or assignee of such Lender, including any Participant, any such transferee or assignee being referred to as a Transferee) and (ii) franchise or similar taxes imposed on or determined by reference to the net income or net profit of Agent or any Lender (or Transferee), in each case by the United States of America or by the jurisdiction under the laws of which such Lender (or Transferee), in each case as to clause (i) or (ii) of this Section 6.5(a), (A) is organized or any political subdivision thereof, (B) has its applicable lending office located, or (C) in a jurisdiction as a result of a present or former connection between the Agent or such Lender (or Transferee) and such jurisdiction or (D) any political subdivision of the jurisdictions described in clauses (A) through (C) hereof. In addition, Borrower agrees to pay to the relevant Governmental Authority in accordance with applicable law any Other Taxes.
(b) If Borrower shall be required by law to deduct or withhold in respect of any Taxes or Other Taxes (other than Excluded Taxes) from or in respect of any sum payable hereunder to Agent or any Lender, then:
(i) the sum payable shall be increased as necessary so that after making all required deductions and withholdings (including deductions and withholdings applicable to additional sums payable under this Section) such Lender (or Agent on behalf of such Lender or itself, as the case may be) receives an amount equal to the sum it would have received had no such deductions or withholdings been made;
(ii) Borrower shall make such deductions and withholdings;
(iii) Borrower shall pay the full amount deducted or withheld to the relevant taxing authority or other authority in accordance with applicable law; and
(iv) to the extent not paid to Agent and Lenders pursuant to clause (i) above, Borrower shall also pay to Agent or any Lender, at the time interest is paid, all additional amounts which Agent or any Lender specifies as necessary to preserve the after tax yield such Lender would have received if such Taxes (other than Excluded Taxes) or Other Taxes had not been imposed.
(c) Within thirty (30) days after the date of any payment by Borrower of Taxes (other than Excluded Taxes) or Other Taxes, upon Agents request, Borrower shall furnish to Agent the original or a certified copy of a receipt evidencing payment thereof, or other evidence of payment reasonably satisfactory to Agent.
(d) Subject to Section 6.5(f) hereof, Borrower will indemnify Agent and each Lender (or Transferee) for the full amount of Taxes (other than Excluded Taxes) and Other Taxes paid by Agent or such Lender (or Transferee, as the case may be) promptly upon written demand. If Agent or such Lender (or Transferee) receives a refund in respect of any Taxes or Other Taxes for which Agent or such Lender (or Transferee) has received payment from Borrower hereunder, so long as no Event of Default shall exist or have occurred and be continuing, Agent or such Lender (as the case may be) shall credit to the loan account of Borrower the amount of such refund plus any interest received (but only to the extent of indemnity payments made, or additional amounts paid, by or on behalf of Borrower under this Section 6.5 with respect to the Taxes or Other Taxes giving rise to such refund). If a Lender (or any Transferee) claims a tax credit in respect of any Taxes for which it has been indemnified by Borrower pursuant to this Section 6.5, such Lender will apply the amount of the actual dollar benefit received by such Lender as a result thereof, as reasonably calculated by such Lender and net of all expenses related thereto, to the Loans made by such Lender. If Taxes or Other Taxes were not correctly or legally asserted, Agent or such Lender shall, upon Borrowers request and at the expense of Borrower, provide such documents to Borrower in form and substance satisfactory to Agent, as Borrower may reasonably request, to enable Borrower to contest such Taxes or Other Taxes pursuant to appropriate proceedings then available to Borrower (so long as providing such documents shall not, in the good faith determination of Agent or the Lender, have a reasonable likelihood of resulting in any liability of Agent or such Lender for which Agent has not established a Reserve). The indemnity provided for herein shall survive the payment of the
Obligations and the termination of this Agreement but shall not survive the statute of limitations applicable to any liability for the relevant Taxes, except to the extent that Agent or any Lender is subject to a claim for which it is entitled for indemnification by Borrower, notwithstanding that the statute of limitations has expired. A certificate as to the amount of such payment or liability and setting forth in reasonable detail the calculation and basis for such payment or liability delivered to Borrower by a Lender or by Agent on its own behalf or on behalf of a Lender, shall be conclusive, absent manifest error.
(e) Each Lender (or Transferee) and Agent that is a Non-U.S. Person shall deliver to Borrower two (2) copies of the applicable United States Internal Revenue Service Form W-8 and/or other applicable form wherein such Person claims entitlement to a complete exemption from, or reduction in the rate of, U.S. federal income withholding tax on all payments by or on behalf of Borrower under this Agreement and the other Financing Agreements. Such forms shall be delivered by any Non-U.S. Person receiving payments by or on behalf of Borrower on or before the date it becomes a party to this Agreement (or, in the case of a Transferee that is a Participant, on or before the date such Participant becomes a Transferee hereunder) and on or before the date, if any, such Non-U.S. Person changes its applicable lending office by designating a different lending office (a "New Lending Office"). In addition, a Non-U.S. Person shall upon written notice from Borrower promptly deliver such new forms as are required by the relevant Governmental Authority to claim exemption from, or reduction in the rate of, U.S. Federal withholding tax upon the obsolescence or invalidity of any form previously delivered by such Non-U.S. Person. Each Lender (or Transferee) and Agent that is a "United States Person" within the meaning of Section 7701(a)(30) of the Code (other than a Lender or Agent that is a corporation or otherwise exempt from United States backup withholding) shall deliver at the time(s) and in the manner(s) required under applicable law, to Borrower and Agent (as applicable), a properly completed and duly executed United States Internal Revenue From W-9 or any successor form, certifying that such Person is exempt from United States backup withholding Tax on payments made by or on behalf of Borrower hereunder. Notwithstanding any other provision of this Section 6.5(e), no Non-U.S. Person, Agent or any Lender shall be required to deliver any form pursuant to this Section 6.5(e) that such Non-U.S. Person, Agent or Lender is not legally able to deliver.
(f) Borrower shall not be required to indemnify any Person or to pay any additional amounts to any Person pursuant to subsections (a) or (d) above to the extent that (i) the Tax was applicable on the date such Person became a party to this Agreement (or, in the case of a Transferee that is a Participant, on the date such Participant became a Transferee hereunder) or, with respect to payments to a New Lending Office, the date such Person designated such New Lending Office with respect to a Loan; PROVIDED, THAT, this subsection (f) shall not apply (A) to any Transferee or New Lending Office that becomes a Transferee or New Lending Office as a result of an assignment, participation, transfer or designation made at the request of Borrower and (B) to the extent the indemnity payment or additional amounts any Transferee, acting through a New Lending Office, would be entitled to receive (without regard to this subsection (f)) do not exceed the indemnity payment or additional amounts that the person making the assignment, participation or transfer to such Transferee making the designation of such New Lending Office, would have been entitled to receive in the absence of such assignment, participation, transfer or designation or (ii) the obligation to pay such additional amounts would not have arisen but for a failure by such Person to comply with the provisions of subsection (e)
above or the gross negligence or wilful misconduct of such Person as determined pursuant to a final, non appealable order of a court of competent jurisdiction.
6.6 AUTHORIZATION TO MAKE LOANS.
(a) Agent and Lenders are authorized to make the Loans and provide the Letter of Credit Accommodations based upon telephonic or other instructions received from anyone purporting to be (and believed by Agent to be) an officer of Borrower or other authorized person or, at the discretion of Agent, if such Loans are necessary to satisfy any Obligations. All requests for Loans or Letter of Credit Accommodations hereunder shall specify the date on which the requested advance is to be made or Letter of Credit Accommodations established (which day shall be a Business Day) and the amount of the requested Loan. Requests received after 12:00 noon Chicago time on any day shall be deemed to have been made as of the opening of business on the immediately following Business Day. All Loans and Letter of Credit Accommodations under this Agreement shall be conclusively presumed to have been made to, and at the request of and for the benefit of, Borrower when deposited to the credit of Borrower or otherwise disbursed or established in accordance with the instructions of Borrower or in accordance with the terms and conditions of this Agreement.
(b) All Loans shall be in or denominated in US Dollars and shall be disbursed only to bank accounts in the United States of America. Set forth on Schedule 6.6(b) hereof are the bank accounts of Borrower used by Borrower for making payments of its Indebtedness and other obligations to which, as of the date hereof, proceeds of Loans may be disbursed.
6.7 USE OF PROCEEDS. Borrower shall use the initial proceeds of the Loans provided by Agent to Borrower hereunder only for: (a) payments to each of the persons listed in the disbursement direction letter furnished by Borrower to Agent on or about the date hereof, (b) costs, expenses and fees in connection with the preparation, negotiation, execution and delivery of this Agreement and the other Financing Agreements, (c) for payments permitted to be made in the Plan and the Confirmation Order, and (d) for Borrowers working capital (including, without limitation, the payment of allowable administrative expenses) and other proper corporate purposes. All other Loans made or Letter of Credit Accommodations provided to or for the benefit of Borrower pursuant to the provisions hereof shall be used by Borrower only for general operating, working capital and other proper corporate purposes of Borrower not otherwise prohibited by the terms hereof. None of the proceeds will be used, directly or indirectly, for the purpose of purchasing or carrying any margin security or for the purposes of reducing or retiring any indebtedness which was originally incurred to purchase or carry any margin security or for any other purpose which might cause any of the Loans to be considered a "purpose credit" within the meaning of Regulation U of the Board of Governors of the Federal Reserve System, as amended.
6.8 ILLEGALITY. In the event that any change in or introduction of or change after the date hereof in the interpretation or application of any law, regulation, treaty, or official directive or official request (whether or not having the force of law but, if not, being of a type with which Agent or any Lender is accustomed to comply) makes it unlawful (or contrary to such directive or request) in any jurisdiction applicable to Agent or such Lender for Agent or such Lender to make available or maintain the financing arrangements provided for herein (or any of them) or to
give effect to its obligations under the Financing Agreements, Agent or such Lender may give seven (7) Business Days written notice to that effect to Borrower and upon such notice this Agreement shall terminate. Agent or such Lender will use reasonable efforts (including reasonable efforts to change its lending office) to avoid the making or maintaining of such financing arrangements from being unlawful or contrary to such directive or request; PROVIDED, THAT, such efforts shall not cause the imposition on Agent or such Lender of any additional costs or legal or regulatory burdens deemed by Agent or such Lender to be material in good faith.
6.9 PRO RATA TREATMENT. Except to the extent otherwise provided in this Agreement: (a) the making and conversion of Loans shall be made among the Lenders based on their respective Pro Rata Shares as to the applicable type of Loans and (b) each payment on account of any Obligations to or for the account of one or more of Lenders in respect of any Obligations due on a particular day shall be allocated among the Lenders entitled to such payments based on their respective Pro Rata Shares applicable thereto and shall be distributed accordingly.
6.10 SHARING OF PAYMENTS, ETC.
(a) Borrower agrees that, in addition to (and without limitation of) any right of setoff, bankers lien or counterclaim Agent or any Lender may otherwise have, each Lender shall be entitled, at its option (but subject, as among Agent and Lenders, to the provisions of Section 12.3(b) hereof), to offset balances held by it for the account of Borrower at any of its offices, in dollars or in any other currency, against any principal of or interest on any Loans owed to such Lender or any other amount payable to such Lender hereunder, that is not paid when due (regardless of whether such balances are then due to Borrower), in which case it shall promptly notify Borrower and Agent thereof; PROVIDED, THAT, such Lenders failure to give such notice shall not affect the validity thereof.
(b) If any Lender (including Agent) shall obtain from Borrower payment of any principal of or interest on any Loan owing to it or payment of any other amount under this Agreement or any of the other Financing Agreements through the exercise of any right of setoff, bankers lien or counterclaim or similar right or otherwise (other than from Agent as provided herein), and, as a result of such payment, such Lender shall have received more than its Pro Rata Share of the principal of the Loans or more than its share of such other amounts then due hereunder or thereunder by Borrower to such Lender than the percentage thereof received by any other Lender, it shall promptly pay to Agent, for the benefit of Lenders, the amount of such excess and simultaneously purchase from such other Lenders a participation in the Loans or such other amounts, respectively, owing to such other Lenders (or such interest due thereon, as the case may be) in such amounts, and make such other adjustments from time to time as shall be equitable, to the end that all Lenders shall share the benefit of such excess payment (net of any expenses that may be incurred by such Lender in obtaining or preserving such excess payment) in accordance with their respective Pro Rata Shares or as otherwise agreed by Lenders. To such end all Lenders shall make appropriate adjustments among themselves (by the resale of participation sold or otherwise) if such payment is rescinded or must otherwise be restored.
(c) Borrower agrees that any Lender purchasing a participation (or direct interest) as provided in this Section may exercise, in a manner consistent with this Section, all rights of setoff, bankers lien, counterclaim or similar rights with respect to such participation as fully as if
such Lender were a direct holder of Loans or other amounts (as the case may be) owing to such Lender in the amount of such participation.
(d) Nothing contained herein shall require any Lender to exercise any right of setoff, bankers lien, counterclaims or similar rights or shall affect the right of any Lender to exercise, and retain the benefits of exercising, any such right with respect to any other Indebtedness or obligation of Borrower. If, under any applicable bankruptcy, insolvency or other similar law, any Lender receives a secured claim in lieu of a setoff to which this Section applies, such Lender shall, to the extent practicable, assign such rights to Agent for the benefit of Lenders and, in any event, exercise its rights in respect of such secured claim in a manner consistent with the rights of Lenders entitled under this Section to share in the benefits of any recovery on such secured claim.
6.11 SETTLEMENT PROCEDURES.
(a) In order to administer the Credit Facility in an efficient manner and to minimize the transfer of funds between Agent and Lenders, Agent may, at its option, subject to the terms of this Section, make available, on behalf of Lenders, the full amount of the Loans requested or charged to Borrowers loan account(s) or otherwise to be advanced by Lenders pursuant to the terms hereof, without requirement of prior notice to Lenders of the proposed Loans.
(b) With respect to all Loans made by Agent on behalf of Lenders as provided in this Section, the amount of each Lenders Pro Rata Share of the outstanding Loans shall be computed weekly, and shall be adjusted upward or downward on the basis of the amount of the outstanding Loans as of 5:00 p.m. Chicago time on the Business Day immediately preceding the date of each settlement computation; PROVIDED, THAT, Agent retains the absolute right at any time or from time to time to make the above described adjustments at intervals more frequent than weekly, but in no event more than twice in any week. Agent shall deliver to each of the Lenders after the end of each week, or at such lesser period or periods as Agent shall determine, a summary statement of the amount of outstanding Loans for such period (such week or lesser period or periods being hereinafter referred to as a "Settlement Period"). If the summary statement is sent by Agent and received by a Lender prior to 12:00 noon Chicago time, then such Lender shall make the settlement transfer described in this Section by no later than 3:00 p.m. Chicago time on the same Business Day and if received by a Lender after 12:00 noon Chicago time, then such Lender shall make the settlement transfer by not later than 3:00 p.m. Chicago time on the next Business Day following the date of receipt. If, as of the end of any Settlement Period, the amount of a Lenders Pro Rata Share of the outstanding Loans is more than such Lenders Pro Rata Share of the outstanding Loans as of the end of the previous Settlement Period, then such Lender shall forthwith (but in no event later than the time set forth in the preceding sentence) transfer to Agent by wire transfer in immediately available funds the amount of the increase. Alternatively, if the amount of a Lenders Pro Rata Share of the outstanding Loans in any Settlement Period is less than the amount of such Lenders Pro Rata Share of the outstanding Loans for the previous Settlement Period, Agent shall forthwith transfer to such Lender by wire transfer in immediately available funds the amount of the decrease. The obligation of each of the Lenders to transfer such funds and effect such settlement shall be irrevocable and unconditional and without recourse to or warranty by Agent. Agent and each Lender agrees to mark its books and records at the end of each Settlement Period to show at all
times the dollar amount of its Pro Rata Share of the outstanding Loans and Letter of Credit Accommodations. Each Lender shall only be entitled to receive interest on its Pro Rata Share of the Loans to the extent such Loans have been funded by such Lender. Because the Agent on behalf of Lenders may be advancing and/or may be repaid Loans prior to the time when Lenders will actually advance and/or be repaid such Loans, interest with respect to Loans shall be allocated by Agent in accordance with the amount of Loans actually advanced by and repaid to each Lender and the Agent and shall accrue from and including the date such Loans are so advanced to but excluding the date such Loans are either repaid by Borrower or actually settled with the applicable Lender as described in this Section.
(c) To the extent that Agent has made any such amounts available and the settlement described above shall not yet have occurred, upon repayment of any Loans by Borrower, Agent may apply such amounts repaid directly to any amounts made available by Agent pursuant to this Section. In lieu of weekly or more frequent settlements, Agent may, at its option, at any time require each Lender to provide Agent with immediately available funds representing its Pro Rata Share of each Loan, prior to Agents disbursement of such Loan to Borrower. In such event, all Loans under this Agreement shall be made by the Lenders simultaneously and proportionately to their Pro Rata Shares. No Lender shall be responsible for any default by any other Lender in the other Lenders obligation to make a Loan requested hereunder nor shall the Commitment of any Lender be increased or decreased as a result of the default by any other Lender in the other Lenders obligation to make a Loan hereunder.
(d) If Agent is not funding a particular Loan to Borrower pursuant to this Section, Agent may assume that each Lender will make available to Agent such Lenders Pro Rata Share of the Loan requested or otherwise made on such day and Agent may, in its discretion, but shall not be obligated to, cause a corresponding amount to be made available to or for the benefit of Borrower on such day. If Agent makes such corresponding amount available to Borrower and such corresponding amount is not in fact made available to Agent by such Lender, Agent shall be entitled to recover such corresponding amount on demand from such Lender together with interest thereon for each day from the date such payment was due until the date such amount is paid to Agent at the Federal Funds Rate for each day during such period (as published by the Federal Reserve Bank of New York or at Agents option based on the arithmetic mean determined by Agent of the rates for the last transaction in overnight Federal funds arranged prior to 9:00 a.m. (New York City time) on that day by each of the three leading brokers of Federal funds transactions in New York City selected by Agent) and if such amounts are not paid within three (3) days of Agents demand, at the highest Interest Rate provided for in Section 3.1 hereof applicable to Prime Rate Loans. During the period in which such Lender has not paid such corresponding amount to Agent, notwithstanding anything to the contrary contained in this Agreement or any of the other Financing Agreements, the amount so advanced by Agent to or for the benefit of Borrower shall, for all purposes hereof, be a Loan made by Agent for its own account. Upon any such failure by a Lender to pay Agent, Agent shall promptly thereafter notify Borrower of such failure and Borrower shall pay such corresponding amount to Agent for its own account within five (5) Business Days of Borrowers receipt of such notice. A Lender who fails to pay Agent its Pro Rata Share of any Loans made available by the Agent on such Lenders behalf, or any Lender who fails to pay any other amount owing by it to Agent, is a "Defaulting Lender". Agent shall not be obligated to transfer to a Defaulting Lender any payments received by Agent for the Defaulting Lenders benefit, nor shall a Defaulting Lender be entitled to the
sharing of any payments hereunder (including any principal, interest or fees). Amounts payable to a Defaulting Lender shall instead be paid to or retained by Agent. Agent may hold and, in its discretion, relend to Borrower the amount of all such payments received or retained by it for the account of such Defaulting Lender. For purposes of voting or consenting to matters with respect to this Agreement and the other Financing Agreements and determining Pro Rata Shares, such Defaulting Lender shall be deemed not to be a "Lender" and such Lenders Commitment shall be deemed to be zero (0). This Section shall remain effective with respect to a Defaulting Lender until such default is cured. The operation of this Section shall not be construed to increase or otherwise affect the Commitment of any Lender, or relieve or excuse the performance by Borrower of their duties and obligations hereunder.
(e) Nothing in this Section or elsewhere in this Agreement or the other Financing Agreements shall be deemed to require Agent to advance funds on behalf of any Lender or to relieve any Lender from its obligation to fulfill its Commitment hereunder or to prejudice any rights that Borrower may have against any Lender as a result of any default by any Lender hereunder in fulfilling its Commitment.
6.12 OBLIGATIONS SEVERAL; INDEPENDENT NATURE OF LENDERS RIGHTS. The obligation of each Lender hereunder is several, and no Lender shall be responsible for the obligation or commitment of any other Lender hereunder. Nothing contained in this Agreement or any of the other Financing Agreements and no action taken by the Lenders pursuant hereto or thereto shall be deemed to constitute the Lenders to be a partnership, an association, a joint venture or any other kind of entity. The amounts payable at any time hereunder to each Lender shall be a separate and independent debt, and subject to Section 12.3 hereof, each Lender shall be entitled to protect and enforce its rights arising out of this Agreement and it shall not be necessary for any other Lender to be joined as an additional party in any proceeding for such purpose.
SECTION 7. COLLATERAL REPORTING AND COVENANTS
7.1 COLLATERAL REPORTING.
(a) Borrower shall provide Agent with the following documents in a form satisfactory to Agent in good faith:
(i) as soon as possible after the end of each week (but in any event by the close of business on the fourth (4th) Business Day after the end hereof), on a weekly basis or more frequently as Agent may request at any time that Excess Availability is less than $7,500,000 or a Default or Event of Default exists or has occurred and is continuing, a Borrowing Base Certificate setting forth the calculation of the Borrowing Base as of the last Business Day of the immediately preceding period, duly completed and executed by the vice president-finance, chief financial officer, treasurer, assistant treasurer, controller or other financial or senior officer of Borrower, together with all schedules required pursuant to the terms of the Borrowing Base Certificate duly completed (including a schedule of all Accounts created, collections received and credit memos issued for each day of the immediately preceding period);
(ii) as soon as possible after the end of each month (but in any event within twelve (12) Business Days after the end thereof), on a monthly basis or more frequently as Agent
may reasonably request, (A) perpetual inventory reports, (B) inventory reports by location and category (and including the amounts of Inventory and the value thereof at any leased locations and at premises of warehouses, processors or other third parties), (C) agings of accounts receivable (including an aging by due date and together with a reconciliation to the previous months aging and general ledger), and (D) agings of accounts payable (and including information indicating the amounts owing to owners and lessors of leased premises, warehouses, processors and other third parties from time to time in possession of any Collateral);
(iii) upon Agents reasonable request, (A) copies of customer statements, purchase orders, sales invoices, credit memos, remittance advices and reports, and copies of deposit slips and bank statements, (B) copies of shipping and delivery documents, and (C) copies of purchase orders, invoices and delivery documents for Inventory and Equipment acquired by Borrower;
(iv) such other reports as to the Collateral as Agent shall reasonably request from time to time.
(b) Nothing contained in any Borrowing Base Certificate shall be deemed to limit, impair or otherwise affect the rights of Agent or any Lender contained herein and in the event of any conflict or inconsistency between the calculation of a Borrowing Base as set forth in any Borrowing Base Certificate and as determined by Agent in good faith, the reasonable determination of Agent shall govern and be conclusive and binding upon Borrowers, absent manifest error. Without limiting the foregoing, Borrowers shall furnish to Agent any information which Agent may reasonably request regarding the determination and calculation of any of the amounts set forth in any Borrowing Base Certificate.
(c) If Borrowers records or reports of the Collateral are prepared or maintained by an accounting service, contractor, shipper or other agent, Borrower hereby irrevocably authorizes such service, contractor, shipper or agent to deliver such records, reports, and related documents to Agent and to follow Agents instructions with respect to further services at any time that an Event of Default exists or has occurred and is continuing.
7.2 ACCOUNTS COVENANTS.
(a) Borrower shall notify Agent promptly of: (i) any material delay in Borrowers performance of any of its material obligations to any account debtor or the assertion of any material claims, offsets, defenses or counterclaims by any account debtor, or any material disputes with account debtors, or any settlement, adjustment or compromise thereof, (ii) all material adverse information known to Borrower relating to the financial condition of any significant account debtor and (iii) any event or circumstance which, to the best of Borrowers knowledge, would result in any then existing Accounts as no longer constituting Eligible Accounts (other than as a result of the aging of accounts which shall be reported to Agent in accordance with Section 7.1 above). No credit, discount, allowance or extension or agreement for any of the foregoing shall be granted to any account debtor without Agents consent, except in the ordinary course of Borrowers business in accordance with practices and policies previously disclosed in writing to Agent and except as set forth in the schedules delivered to Agent pursuant to Section 7.1(a) above. So long as no Event of Default exists or has occurred
and is continuing, Borrower may settle, adjust or compromise any claim, offset, counterclaim or dispute with any account debtor. At any time that an Event of Default exists or has occurred and is continuing, Agent may, at its option, notify Borrower that Agent intends to have the exclusive right to settle, adjust or compromise any claim, offset, counterclaim or dispute with account debtors or grant any credits, discounts or allowances and on and after such notice from Agent to Borrower, Agent shall have such exclusive right, until the earlier of such time as Agent may notify Borrower otherwise or no Event of Default shall exist or be continuing.
(b) With respect to each Account: (i) the amounts shown on any invoice delivered to Agent from time to time shall be true and complete (other than for de minimis errors that occur in the ordinary course) and any schedule thereof from time to time delivered to Agent pursuant to the terms hereof shall be true and complete (with errors of no more than one (1%) percent of the aggregate amount of the Accounts shown on any such schedule), (ii) no payments shall be made thereon except payments immediately delivered to Agent pursuant to the terms of this Agreement, (iii) no credit, discount, allowance or extension or agreement for any of the foregoing shall be granted to any account debtor except as reported to Agent in accordance with this Agreement and except for credits, discounts, allowances or extensions made or given in the ordinary course of Borrowers business in accordance with practices and policies previously disclosed to Agent, (iv) there shall be no setoffs, deductions, contras, defenses, counterclaims or disputes existing or asserted with respect thereto except as reported to Agent in accordance with the terms of this Agreement and (v) none of the transactions giving rise thereto will violate any applicable foreign, Federal, State or local laws or regulations in any material respect, all documentation relating thereto will be legally sufficient under such laws and regulations and all such documentation will be legally enforceable in accordance with its terms.
(c) Agent shall have the right at any time or times but subject to reasonable intervals consistent with Agents customary practices, in Agents name or in the name of a nominee of Agent, to verify the validity, amount or any other matter relating to any Receivables or other Collateral, by mail, telephone, facsimile transmission or otherwise.
7.3 INVENTORY COVENANTS. With respect to the Inventory: (a) Borrower shall at all times maintain inventory records, consistent with the current practices of Borrower as of the date hereof, keeping correct and accurate records itemizing and describing the kind, type, quality and quantity of Inventory, Borrowers cost therefor and daily withdrawals therefrom and additions thereto; (b) Borrower shall conduct a physical count of the Inventory at least once each year but at any time or times as Agent may request on or after an Event of Default and for so long as the same is continuing, and promptly following such physical inventory shall supply Agent with a report in the form and with such specificity as may be reasonably satisfactory to Agent concerning such physical count; (c) Borrower shall not remove any Inventory from the locations set forth or permitted herein, without the prior written consent of Agent, except for sales of Inventory in the ordinary course of its business and except to move Inventory directly from one location set forth or permitted herein to another such location and except for Inventory shipped from the manufacturer thereof to Borrower which is in transit to the locations set forth or permitted herein, PROVIDED, THAT, Borrower may remove Inventory to any locations not otherwise permitted hereunder so long as the aggregate amount of all of such Inventory at such other locations does not have a Value in excess of $10,000; (d) upon Agents request, Borrower shall, at its expense, no more than one (1) time in any twelve (12) month period, but at any time or
times as Agent may request on or after an Event of Default and for so long as the same is continuing or at any time on or after any change in the calculation of standard costs of Inventory, deliver or cause to be delivered to Agent written appraisals as to the Inventory in form, scope and methodology acceptable to Agent in good faith and by an appraiser acceptable to Agent (which includes Hilco Appraisal Services, LLC), addressed to Agent and Lenders and upon which Agent and Lenders are expressly permitted to rely (PROVIDED, THAT, any appraisal requested at such time as an Event of Default exists or has occurred and is continuing or on and after a change in the calculation of standard costs shall not be considered for purposes of the limitation on the number of appraisals provided for herein); (e) Borrower shall produce, use, store and maintain the Inventory with all reasonable care and caution and in accordance with applicable standards of any insurance in all material respects and in conformity with applicable laws in all material respects (including the requirements of the Federal Fair Labor Standards Act of 1938, as amended and all rules, regulations and orders related thereto); (f) none of the Inventory or other Collateral constitutes farm products or the proceeds thereof; (g) Borrower assumes all responsibility and liability arising from or relating to the production, use, sale or other disposition of the Inventory; (h) Borrower shall not sell Inventory to any customer on approval, or any other basis which entitles the customer to return or may obligate Borrower to repurchase such Inventory other than the right of customers to return defective or non-conforming goods in the ordinary course of business; (i) Borrower shall give Agent not less than thirty (30) days written notice prior to the effectiveness of any change in the method of calculation of the standard costs of Inventory; (j) Borrower shall keep the Inventory generally in good and marketable condition; and (k) Borrower shall not, without prior written notice to Agent or the specific identification of such Inventory in a report with respect thereto provided by Borrower to Agent pursuant to Section 7.1(a) hereof, acquire or accept any Inventory on consignment or approval.
7.4 EQUIPMENT AND REAL PROPERTY COVENANTS. With respect to the Equipment and Real Property: (a) upon Agents request, Borrower shall, at its expense, no more than one (1) time in any twelve (12) month period, but at any time or times as Agent may request on or after an Event of Default exists or has occurred and is continuing, deliver or cause to be delivered to Agent written appraisals as to the Equipment and/or the Real Property in form, scope and methodology reasonably acceptable to Agent and by an appraiser reasonably acceptable to Agent, addressed to Agent and Lenders and upon which Agent and Lenders are expressly permitted to rely (PROVIDED, THAT, any appraisal requested at such time as an Event of Default exists or has occurred and is continuing shall not be considered for purposes of the limitation on the number of appraisals provided for herein); (b) Borrower shall keep the Equipment in good order, repair, running and marketable condition (ordinary wear and tear excepted and except for worn-out or obsolete Equipment or Equipment no longer used or useful in the business of Borrower); (c) Borrower shall use the Equipment and Real Property with all reasonable care and caution and in accordance with applicable standards of any insurance in all material respects and in conformity with all applicable laws in all material respects; (d) the Equipment is and shall be used in the business of Borrower and not for personal, family, household or farming use; (e) Borrower shall not remove any Equipment from the locations set forth or permitted herein, except that Borrower may remove Equipment from the locations set forth or permitted herein: (i) to the extent necessary to have any Equipment repaired or maintained in the ordinary course of its business or (ii) to move Equipment directly from one location set forth or permitted herein to another such location or (iii) to the extent such Equipment are motor vehicles and trailers used by or for the
benefit of Borrower in the ordinary course of business or (iv) other Equipment so long as the aggregate amount of all of such Equipment at such other locations does not have a value in excess of $25,000; (f) the Equipment (other than Equipment that is a fixture) is now and shall remain personal property and Borrower shall not permit any of the Equipment (other than Equipment that is a fixture) to be or become a part of or affixed to real property other than Real Property owned by Borrower and subject to a Mortgage (unless the Real Property has a value of less than $100,000); and (v) neither Agent nor any Lender shall have any responsibility or liability arising from the use of the Equipment and Real Property.
7.5 POWER OF ATTORNEY. Borrower hereby irrevocably designates and appoints Agent (and all persons designated by Agent) as Borrowers true and lawful attorney in fact, and authorizes Agent, in Borrowers or Agents name, to: (a) at any time an Event of Default exists or has occurred and is continuing (i) demand payment on Receivables or other Collateral, (ii) enforce payment of Receivables by legal proceedings or otherwise, (iii) exercise all of Borrowers rights and remedies to collect any Receivable or other Collateral, (iv) sell or assign any Receivable upon such terms, for such amount and at such time or times as the Agent deems advisable, (v) settle, adjust, compromise, extend or renew any Account, (vi) discharge and release any Receivable, (vii) prepare, file and sign Borrowers name on any proof of claim in bankruptcy or other similar document against an account debtor or other obligor in respect of any Receivables or other Collateral, (viii) notify the post office authorities to change the address for delivery of remittances from account debtors or other obligors in respect of Receivables or other proceeds of Collateral to an address designated by Agent, and open and dispose of all mail addressed to Borrower and handle and store all mail relating to the Collateral; and (ix) do all acts and things which are necessary, in Agents determination, to fulfill Borrowers obligations under this Agreement and the other Financing Agreements and (b) at any time to (i) take control in any manner of any item of payment in respect of Receivables or constituting Collateral or otherwise received in or for deposit in the Blocked Accounts or otherwise received by Agent or any Lender, (ii) have access to any lockbox or postal box into which remittances from account debtors or other obligors in respect of Receivables or other proceeds of Collateral are sent or received, (iii) endorse Borrowers name upon any items of payment in respect of Receivables or constituting Collateral or otherwise received by Agent and any Lender and deposit the same in Agents account for application to the Obligations, (iv) endorse Borrowers name upon any chattel paper, document, instrument, invoice, or similar document or agreement relating to any Receivable or any goods pertaining thereto or any other Collateral, including any warehouse or other receipts, or bills of lading and other negotiable or non-negotiable documents, (v) clear Inventory the purchase of which was financed with Letter of Credit Accommodations through U.S. Customs or Customs and Excise or other foreign export control authorities in Borrowers name, Agents name or the name of Agents designee, and to sign and deliver to customs officials powers of attorney in Borrowers name for such purpose, and to complete in Borrowers or Agents name, any order, sale or transaction, obtain the necessary documents in connection therewith and collect the proceeds thereof, and (vi) sign Borrowers name on any verification of Receivables and notices thereof to account debtors or any secondary obligors or other obligors in respect thereof. Borrower hereby releases Agent and Lenders and their respective officers, employees and designees from any liabilities arising from any act or acts under this power of attorney and in furtherance thereof, whether of omission or commission, except as a result of Agents or any Lenders own gross negligence or willful misconduct as determined pursuant to a final non-appealable order of a court of competent jurisdiction.
7.6 RIGHT TO CURE. Agent may, at its option, upon notice to Borrower, (a) cure any default by Borrower under any material agreement with a third party that affects the Collateral, its value or the ability of Agent to collect, sell or otherwise dispose of the Collateral or the rights and remedies of Agent or any Lender therein or the ability of Borrower to perform its obligations hereunder or under any of the other Financing Agreements, at any time on or after a Default or Event of Default exists or has occurred and is continuing, or if after giving effect to any Reserve in respect of such default Excess Availability is or would be less than $5,000,000; (b) pay or bond on appeal any judgment entered against Borrower, at any time on or after a Default or Event of Default exists or has occurred and is continuing, or if after giving effect to any Reserve in respect of such judgment Excess Availability is or would be less than $5,000,000; (c) discharge taxes, liens, security interests or other encumbrances at any time levied on or existing with respect to the Collateral and pay any amount, incur any expense or perform any act which, in Agents judgment, is necessary or appropriate to preserve, protect, insure or maintain the Collateral and the rights of Agent and Lenders with respect thereto; PROVIDED, THAT, Agent shall not exercise its right pursuant to this Section 7.6(c) to discharge such taxes, liens, security interest or other encumbrances that are permitted under Section 9.8 hereof, unless either (i) a Default or Event of Default shall exist or have occurred and be continuing, or (ii) with respect to liens, security interests or other encumbrances, the beneficiary or holder of such lien, security interest or other encumbrance has the right to take action against or with respect to the Collateral which right is not subject to an effective stay pursuant to applicable law. Agent may add any amounts so expended to the Obligations and charge Borrowers account therefor, such amounts to be repayable by Borrower on demand. Agent and Lenders shall be under no obligation to effect such cure, payment or bonding and shall not, by doing so, be deemed to have assumed any obligation or liability of Borrower. Any payment made or other action taken by Agent under this Section shall be without prejudice to any right to assert an Event of Default hereunder and to proceed accordingly.
7.7 ACCESS TO PREMISES. From time to time as requested by Agent, at the cost and expense of Borrower, (a) Agent or its designee shall have complete access to all of Borrowers premises during normal business hours and after notice to Borrower, or at any time and without notice to Borrower if an Event of Default exists or has occurred and is continuing, for the purposes of inspecting, verifying and auditing the Collateral and all of Borrowers books and records, including the Records, and (b) Borrower shall promptly furnish to Agent such copies of such books and records or extracts therefrom as Agent may reasonably request, and (c) Agent or any Lender or Agents designee may use during normal business hours such of Borrowers personnel, equipment, supplies and premises as may be reasonably necessary for the foregoing and if an Event of Default exists or has occurred and is continuing for the collection of Receivables and realization of other Collateral.
SECTION 8. REPRESENTATIONS AND WARRANTIES
Borrower hereby represents and warrants to Agent and Lenders the following (which shall survive the execution and delivery of this Agreement):
8.1 CORPORATE EXISTENCE, POWER AND AUTHORITY. Borrower is a corporation duly organized and in good standing under the laws of its State or country of incorporation or organization and is duly qualified as a foreign corporation and in good standing in all States or other jurisdictions
(domestic or foreign) where the nature and extent of the business transacted by it or the ownership of assets makes such qualification necessary, except for those jurisdictions in which the failure to so qualify would not have a Material Adverse Effect and except to the extent required in connection with a transaction permitted under Section 9.7 hereof. The execution, delivery and performance of this Agreement, the other Financing Agreements and the transactions contemplated hereunder and thereunder (a) are all within Borrowers corporate powers, (b) have been duly authorized, (c) are not in contravention of law or the terms of Borrowers certificate of incorporation, by-laws, or other organizational documentation, or any indenture, agreement or undertaking to which Borrower is a party or by which Borrower or its property are bound, and (d) will not result in the creation or imposition of, or require or give rise to any obligation to grant, any lien, security interest, charge or other encumbrance upon any property of Borrower except in favor of Agent pursuant to this Agreement and the other Financing Agreements. This Agreement and the other Financing Agreements to which Borrower is a party constitute legal, valid and binding obligations of Borrower enforceable in accordance with their respective terms, except as such enforceability may be limited by any applicable bankruptcy, insolvency, reorganization, moratorium, or similar law affecting creditors rights generally and by general principles of equity.
8.2 NAME; STATE OF ORGANIZATION; CHIEF EXECUTIVE OFFICE; COLLATERAL LOCATIONS.
(a) The exact legal name of Borrower on the date hereof is as set forth on the signature page of this Agreement and in the Information Certificate. Borrower has, during the five years prior to the date of this Agreement, been known by or used any other corporate or fictitious name or been a party to any merger or consolidation, except as set forth in the Information Certificate.
(b) Borrower is on the date hereof an organization of the type and organized in the jurisdiction set forth in the Information Certificate. As of the date hereof, the Information Certificate accurately sets forth the organizational identification number of Borrower or accurately states that Borrower has none and accurately sets forth the federal employer identification number of Borrower.
(c) The chief executive office and mailing address of Borrower and Borrowers Records concerning Accounts are located only at the addresses identified as such in Schedule 8.2 to the Information Certificate and its only other places of business and the only other locations of Collateral, if any, are the addresses set forth in Schedule 8.2 to the Information Certificate, subject to the rights of Borrower to establish new locations in accordance with Section 9.2 below. As of the date hereof, the Information Certificate correctly identifies any of such locations which are not owned by Borrower and sets forth the owners and/or operators thereof.
8.3 FINANCIAL STATEMENTS; NO MATERIAL ADVERSE CHANGE. All financial statements relating to Borrower which have been or may hereafter be delivered by Borrower to Agent and Lenders have been prepared in accordance with GAAP (except as to any interim financial statements, to the extent such statements are subject to normal year end adjustments and do not include any notes) and fairly present in all material respects the financial condition and the results of operation of Borrower as at the dates and for the periods set forth therein. Except as disclosed in any interim financial statements furnished by Borrower to Agent or otherwise disclosed by
Borrower to Agent in writing, in each case prior to the date of this Agreement, there has been no act, condition or event which has had or is reasonably likely to have a Material Adverse Effect since the date of the most recent audited financial statements of Borrower furnished by Borrower to Agent prior to the date of this Agreement.
8.4 PRIORITY OF LIENS; TITLE TO PROPERTIES. The security interests and liens granted to Agent under this Agreement and the other Financing Agreements constitute valid and perfected first priority liens and security interests in and upon the Collateral subject as to priority only to the liens indicated on Schedule 8.4 to the Information Certificate and the other liens permitted under Section 9.8 hereof to the extent such liens may have priority under applicable law and except to the extent that Agent does not require such perfection or priority. Borrower has good and marketable fee simple title to or valid leasehold interests in all of its Real Property (subject to the effects on such title being marketable of a Mortgage on such Real Property) and good, valid and merchantable title to all of its other properties and assets subject to no liens, mortgages, pledges, security interests, encumbrances or charges of any kind, except those granted to Agent and such others as are specifically listed on Schedule 8.4 to the Information Certificate or permitted under Section 9.8 hereof.
8.5 TAX RETURNS. Borrower has filed, or caused to be filed, in a timely manner all Federal and other material tax returns, reports and declarations which are required to be filed by it. All information in such tax returns, reports and declarations is complete and accurate in all material respects. Borrower has paid or caused to be paid all material taxes due and payable or claimed due and payable in any assessment received by it, except (a) taxes the validity of which are being contested in good faith by appropriate proceedings diligently pursued and available to Borrower and with respect to which adequate reserves have been set aside on its books to the extent required by GAAP and (b) tax obligations the terms of payment for which are provided for in the Plan; PROVIDED, THAT, Borrower shall pay or cause to be paid such taxes in accordance with the Plan and as otherwise required under the terms of its arrangements with the taxing authority to whom such taxes are owed or other Governmental Authority responsible for the administration of the collection of such taxes. Adequate provision has been made for the payment of all material accrued and unpaid Federal, State, county, local, foreign and other taxes whether or not yet due and payable and whether or not disputed. Borrower has collected and remitted to the appropriate tax authority all material excise taxes and sales and/or use taxes applicable to its business required to be collected and remitted under the laws of the United States and each political subdivision thereof, and each of their respective political subdivisions, including any such jurisdiction in which Borrower owns any Inventory or owns or leases any other property, EXCEPT such taxes the terms of payment for which are provided for in the Plan; PROVIDED, THAT, Borrower shall pay or cause to be paid such taxes in accordance with the Plan and as otherwise required under the terms of its arrangements with the taxing authority to whom such taxes are owed or other Governmental Authority responsible for the administration of the collection of such taxes.
8.6 LITIGATION. Except as set forth on Schedule 8.6 to the Information Certificate, (a) there is no investigation by any Governmental Authority pending, or to the best of Borrowers knowledge threatened, against or affecting Borrower, or its assets or business and (b) there is no action, suit, proceeding or claim by any Person pending, or to the best of Borrowers knowledge threatened, against Borrower or its assets, or against or affecting any transactions contemplated
by this Agreement, in each case as to clauses (a) and (b), which has or could reasonably be expected to have a Material Adverse Effect.
8.7 COMPLIANCE WITH OTHER AGREEMENTS AND APPLICABLE LAWS.
(a) Borrower is not in default in any respect under, or in violation in any respect of the terms of, any agreement, contract, instrument, lease or other commitment to which it is a party or by which it or any of its assets are bound where such default or violation has or could reasonably be expected to have a Material Adverse Effect. Borrower is in compliance with the requirements of all applicable laws, rules, regulations and orders of any Governmental Authority relating to their respective businesses, where the failure to so comply has or could reasonably be expected to have a Material Adverse Effect.
(b) Borrower has obtained all material permits, licenses, approvals, consents, certificates, orders or authorizations of any Governmental Authority required for the lawful conduct of its business (the "Permits"). All of the Permits are valid and subsisting and in full force and effect where the failure to have any such Permit has or could reasonably be expected to have a Material Adverse Effect. There are no actions, claims or proceedings pending or to the best of Borrowers knowledge, threatened that seek the revocation, cancellation, suspension or modification of any of the Permits which has or could reasonably be expected to have a Material Adverse Effect.
8.8 ENVIRONMENTAL COMPLIANCE.
(a) Except as set forth on Schedule 8.8 to the Information Certificate, neither Borrower nor any Subsidiary of Borrower has generated, used, stored, treated, transported, manufactured, handled, produced or disposed of any Hazardous Materials, on or off its premises (whether or not owned by it) in any manner which violates in any material respect any applicable Environmental Law or Permit, and the operations of Borrower and each Subsidiary of Borrower complies in all material respects with all Environmental Laws and all Permits.
(b) Except as set forth on Schedule 8.8 to the Information Certificate, there is no pending, active, or to the best of Borrowers knowledge, threatened investigation, proceeding, complaint, order, directive, claim, citation or notice by any Governmental Authority or any other person with respect to any non-compliance with or violation of the requirements of any Environmental Law or the release, spill or discharge, threatened or actual, of any Hazardous Material or the generation, use, storage, treatment, transportation, manufacture, handling, production or disposal of any Hazardous Materials by Borrower or any Subsidiary of Borrower and there are no other environmental, health or safety matters, which in any case could reasonably be expected to have a Material Adverse Effect.
(c) Except as set forth on Schedule 8.8 to the Information Certificate, none of Borrower and or any Subsidiary of Borrower has any material liability (contingent or otherwise) in connection with a release, spill or discharge, threatened or actual, of any Hazardous Materials or the generation, use, storage, treatment, transportation, manufacture, handling, production or disposal of any Hazardous Materials.
(d) Borrower and each Subsidiary of Borrower has all Permits required to be obtained or filed in connection with the operations of Borrower and such Subsidiaries under any Environmental Law and all of such licenses, certificates, approvals or similar authorizations and other Permits are valid and in full force and effect where the failure to have such license, certificate, approval or similar authorization would have a Material Adverse Effect.
8.9 EMPLOYEE BENEFITS.
(a) Each Benefit Plan is in compliance in all material respects with the applicable provisions of ERISA, the Code and other Federal or State law. Each Benefit Plan which is intended to qualify under Section 401(a) of the Code has received a favorable determination letter from the Internal Revenue Service and to the best of Borrowers knowledge, nothing has occurred which would cause the loss of such qualification. Borrower and its ERISA Affiliates have made all required contributions to any Benefit Plan subject to Section 412 of the Code, and no application for a funding waiver or an extension of any amortization period pursuant to Section 412 of the Code has been made with respect to any Benefit Plan.
(b) There are no pending, or to the best of Borrowers knowledge, threatened claims, actions or lawsuits, or action by any Governmental Authority, with respect to any Benefit Plan. There has been no prohibited transaction or violation of the fiduciary responsibility rules with respect to any Benefit Plan.
(c) No ERISA Event has occurred or is reasonably expected to occur; (i) the current value of each Benefit Plans assets (determined in accordance with the assumptions used for funding such Benefit Plan pursuant to Section 412 of the Code) are not less than such Benefit Plans liabilities under Section 4001(a)(16) of ERISA; (ii) Borrower and its ERISA Affiliates have not incurred and do not reasonably expect to incur, any liability under Title IV of ERISA with respect to any Benefit Plan (other than premiums due and not delinquent under Section 4007 of ERISA); (iii) Borrower and its ERISA Affiliates have not incurred and do not reasonably expect to incur, any liability (and no event has occurred which, with the giving of notice under Section 4219 of ERISA, would result in such liability) under Section 4201 or 4243 of ERISA with respect to a Multiemployer Plan; and (iv) Borrower and its ERISA Affiliates have not engaged in a transaction that would be subject to Section 4069 or 4212(c) of ERISA.
8.10 BANK ACCOUNTS. All of the deposit accounts, investment accounts or other accounts in the name of or used by Borrower maintained at any bank or other financial institution are set forth on Schedule 8.10 to the Information Certificate, subject to the right of Borrower to establish new accounts in accordance with Section 5.2 hereof.
8.11 INTELLECTUAL PROPERTY. Borrower owns or licenses or otherwise has the right to use all Intellectual Property necessary in all material respects for the operation of its business. As of the date hereof, Borrower does not have any Intellectual Property registered, or subject to pending applications, in the United States Patent and Trademark Office or any similar office or agency in the United States, any State thereof, any political subdivision thereof or in any other country, other than those described in Schedule 8.11 to the Information Certificate and has not granted any material licenses with respect thereto other than as set forth in Schedule 8.11 to the Information Certificate. Borrower has not received any written notice within the immediately
preceding three (3) years prior to the date hereof that any slogan or other advertising device or other Intellectual Property or product bearing or embodying any Intellectual Property presently contemplated to be sold by or employed by Borrower infringes any patent, trademark, servicemark, tradename, copyright, license or other intellectual property owned by any other Person presently where the matter set forth in such written notice has not been settled by an agreement of the parties or the written withdrawal or waiver of any claim or allegation set forth in any such written notice and as of the date hereof, no claim or litigation is pending or to the best of Borrowers knowledge, threatened against Borrower contesting its right to sell any such product or use any such Intellectual Property. Schedule 8.11 to the Information Certificate sets forth all of the agreements or other arrangements of Borrower pursuant to which Borrower has obtained a license or other right to use any trademarks or other intellectual property owned by another person that is material to the business of Borrower or affixed to or used in connection with the Inventory or any of the other Collateral (excluding licenses for standard "off-the-shelf" commercial software that is generally available having a replacement value of less than $25,000) as in effect on the date hereof and the dates of the expiration of such agreements of Borrower as in effect on the date hereof (collectively, together with such agreements or other arrangements as may be entered into by Borrower after the date hereof, collectively, the "License Agreements" and individually, a "License Agreement"). All trademarks and other Intellectual Property used by Borrower that are owned by another person are being used all material respects in accordance with the terms of the License Agreement applicable thereto.
8.12 SUBSIDIARIES; AFFILIATES; CAPITALIZATION.
(a) As of the date hereof, Borrower does not have any direct or indirect Subsidiaries and is not engaged in any joint venture or partnership, except as set forth in Schedule 8.12 to the Information Certificate.
(b) As of the date hereof, Borrower is the record and beneficial owner of all of the issued and outstanding shares of Capital Stock of each of the Subsidiaries listed on Schedule 8.12 to the Information Certificate as being owned by Borrower and there are no proxies, irrevocable or otherwise, with respect to such shares and no equity securities of any of the Subsidiaries are or may become required to be issued by reason of any options, warrants, rights to subscribe to, calls or commitments of any kind or nature and there are no contracts, commitments, understandings or arrangements by which any Subsidiary is or may become bound to issue additional shares of it Capital Stock or securities convertible into or exchangeable for such shares.
(c) Each of the direct or indirect Subsidiaries of Borrower listed on Schedule 8.12 hereto is inactive or dissolved and (i) does not and will not engage in any commercial or business activity and (ii) does not own assets having a book value of more than the US Dollar Equivalent of US$10,000, and (iii) is not directly or indirectly, contingently or otherwise, liable in respect of any Indebtedness or other obligations, other than (A) obligations for franchise taxes and other customary obligations in the ordinary course directly related to the maintenance of its existence and continued good standing as a legal entity and (B) Indebtedness and other obligations owed to Borrower.
8.13 LABOR DISPUTES.
(a) Set forth on Schedule 8.13 to the Information Certificate is a list (including dates of termination) of all collective bargaining or similar agreements between or applicable to Borrower and any union, labor organization or other bargaining agent in respect of the employees of Borrower on the date hereof.
(b) There is (i) no significant unfair labor practice complaint pending against Borrower or, to the best of Borrowers knowledge, threatened against it, before the National Labor Relations Board (or similar Governmental Authority), and no significant grievance or significant arbitration proceeding arising out of or under any collective bargaining agreement is pending on the date hereof against Borrower or, to best of Borrowers knowledge, threatened against it which has or could reasonably be expected to have a Material Adverse Effect, and (ii) no significant strike, labor dispute, slowdown or stoppage is pending against Borrower or, to the best of Borrowers knowledge, threatened against Borrower which has or could reasonably be expected to have a Material Adverse Effect.
8.14 RESTRICTIONS ON SUBSIDIARIES. Except for restrictions contained in this Agreement or any other agreement with respect to Indebtedness of Borrower permitted hereunder as in effect on the date hereof, there are no contractual or consensual restrictions on Borrower or any of its Subsidiaries, binding on Borrower, any of its Subsidiaries or any of their respective assets, in effect on the date hereof which prohibit or otherwise restrict (a) the transfer of cash or other assets (i) between Borrower and any of its Subsidiaries or (ii) between any Subsidiaries of Borrower or (b) the ability of Borrower or any of its Subsidiaries to incur Indebtedness or grant security interests to Agent or any Lender in the Collateral, except:
(i) restrictions pursuant to customary provisions restricting subletting or assignment of any lease governing any leasehold interest of Borrower or any Subsidiary and pursuant to anti-assignment provisions contained in contracts;
(ii) restrictions contained in agreements governing or relating to any lien or security interest permitted hereunder or the obligations secured thereby, provided that such restriction, condition or prohibition relates solely to the assets or property subject to such lien or security interest;
(iii) pursuant to customary provisions contained in license agreements for Intellectual Property licensed by third parties to Borrower or any of its Subsidiaries which restrict the sublicensing, pledge, transfer or assignment of the licensees rights thereunder;
(iv) customary restrictions on asset transfers and liens under asset sale agreements relating solely to the assets subject to such sale or other disposition pending such sale or other disposition; and
(v) restrictions contained in agreements relating to any Indebtedness of Foreign Subsidiaries permitted hereunder; provided, that such restriction or prohibition shall only apply to the Foreign Subsidiary incurring such Indebtedness and such Foreign Subsidiarys assets.
8.15 MATERIAL CONTRACTS. Schedule 8.15 to the Information Certificate sets forth all Material Contracts to which Borrower is a party or is bound as of the date hereof. Borrower has delivered true, correct and complete copies of such Material Contracts to Agent on or before the
date hereof. Borrower is not in breach or in default in any material respect of or under any Material Contract, except to the extent set forth on Schedule 8.15 to the Information Certificate. Except as set forth on Schedule 8.15 to the Information Certificate, as of the date hereof, no notice of the intention of any other party thereto to terminate any Material Contract has been received by or on behalf of Borrower.
8.16 CONFIRMATION ORDER. Borrower has delivered to Agent a complete and correct copy of the Plan and the Confirmation Order (including all schedules, exhibits, amendments, supplements, modifications, assignments and all other documents delivered pursuant thereto or in connection therewith). Borrower is not in default in the performance of or compliance with any provisions of the Plan. The Plan is in full force and effect as of the date hereof and has not been terminated, rescinded or withdrawn. The Confirmation Order is a Final Order and is in full force and effect, and has not been amended, modified or stayed and no appeal therefrom or request for hearing with respect thereto is pending. All conditions to confirmation and consummation of the Plan have been satisfied or validly waived pursuant to the Plan (other than conditions consisting of the effectiveness of this Agreement) and the Effective Date (as defined in the Plan) has occurred. Set forth on Schedule 8.16 hereto is a true and correct (a) list of the uses with respect to all cash amounts payable by Borrower on the Effective Date pursuant to the Plan and (b) list of all claims which may be required to be paid by Borrower pursuant to the Plan after the Effective Date and whether such claims are or purport to be secured claims. No court of competent jurisdiction has issued any injunction, restraining order or other order prior to the date hereof which prohibits consummation of the transactions described in the Confirmation Order and no governmental or other action or proceeding has been commenced, seeking any injunction, restraining order or other order which seeks to void or otherwise modify the transactions described in the Confirmation Order.
8.17 PAYABLE PRACTICES; RETENTION OF TITLE. Borrower has not made any material change in its historical accounts payable practices from those in effect immediately prior to the date hereof.
8.18 ACCURACY AND COMPLETENESS OF INFORMATION. All information furnished by or on behalf of Borrower in writing to Agent or any Lender in connection with this Agreement or any of the other Financing Agreements or any transaction contemplated hereby or thereby, including all information on the Information Certificate is true and correct in all material respects on the date as of which such information is dated or certified and does not omit any material fact necessary in order to make such information not misleading (it being understood that any forward-looking statement or projection shall be judged in light of circumstances then known to, or which reasonably should have been known to a person making such statement or projection and having the information reasonably available to a person so situated). No event or circumstance has occurred which has had or could reasonably be expected to have a Material Adverse Effect, which has not been fully and accurately disclosed to Agent in writing prior to the date hereof.
8.19 SURVIVAL OF WARRANTIES; CUMULATIVE. All representations and warranties contained in this Agreement or any of the other Financing Agreements shall survive the execution and delivery of this Agreement and shall be deemed to have been made again to Agent and Lenders on the date of each additional borrowing or other credit accommodation hereunder and shall be
conclusively presumed to have been relied on by Agent and Lenders regardless of any investigation made or information possessed by Agent or any Lender. The representations and warranties set forth herein shall be cumulative and in addition to any other representations or warranties which Borrower shall now or hereafter give, or cause to be given, to Agent or any Lender.
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS
9.1 MAINTENANCE OF EXISTENCE.
(a) Borrower shall at all times preserve, renew and keep in full force and effect its corporate existence and rights and franchises with respect thereto and maintain in full force and effect all licenses, trademarks, tradenames, approvals, authorizations, leases, contracts and Permits necessary to carry on the business as presently conducted, except to the extent that the failure to maintain the same has or could reasonably be expected to have a Material Adverse Effect.
(b) Borrower shall not change its name unless each of the following conditions is satisfied: (i) Agent shall have received not less than ten (10) Business Days prior written notice from Borrower of such proposed change in its corporate name, which notice shall accurately set forth the new name and (ii) Agent shall have received a copy of the amendment to the Certificate of Incorporation of Borrower, providing for the name change certified by the Secretary of State of the jurisdiction of incorporation or organization of Borrower as soon as it is available.
(c) Borrower shall not change its chief executive office or its mailing address or organizational identification number, if any, unless Agent shall have received not less than ten (10) Business Days prior written notice from Borrower of such proposed change, which notice shall set forth such information with respect thereto as Agent may reasonably require and Agent shall have received such agreements as Agent may reasonably require in connection therewith. Borrower shall not change its type of organization, jurisdiction of organization or other legal structure unless Agent shall have received not less than ten (10) Business Days prior written notice from Borrower of such proposed change, which notice shall set forth such information with respect thereto as Agent may require and Agent shall have received such agreements as Agent may reasonably require in connection therewith; PROVIDED, THAT, in no event shall Borrower change its type of organization so that it is other than a registered organization or change its jurisdiction to a jurisdiction outside the United States of America.
9.2 NEW COLLATERAL LOCATIONS. Borrower may open any new location within the United States, provided Borrower (a) gives Agent ten (10) Business Days prior written notice of the intended opening of any such new location and (b) executes and delivers, or causes to be executed and delivered, to Agent such agreements, documents, and instruments as Agent may deem reasonably necessary or desirable to protect its interests in the Collateral at such location.
9.3 COMPLIANCE WITH LAWS, REGULATIONS, ETC.
(a) Borrower shall, and shall cause any Subsidiary to, at all times, comply in all material respects with all laws, rules, regulations, licenses, approvals, orders and other Permits applicable to it and duly observe all requirements of any foreign, Federal, State or local
Governmental Authority where the failure to so comply or observe has or could reasonably be expected to have a Material Adverse Effect.
(b) Borrower shall give written notice to Agent immediately upon Borrowers receipt of any notice of, or Borrower otherwise obtaining knowledge of, (i) the occurrence of any event involving the release, spill or discharge, threatened or actual, of any Hazardous Material in violation of any applicable Environmental Law or (ii) any investigation, proceeding, complaint, order, directive, claims, citation or notice with respect to: (A) any material non-compliance with or violation of any Environmental Law by Borrower or (B) any material spill or discharge, threatened or actual, of any Hazardous Material other than in the ordinary course of business and other than as permitted under any applicable Environmental Law. Unless otherwise agreed by Borrower and Agent, copies of all environmental surveys, audits, assessments, feasibility studies and results of remedial investigations shall be promptly furnished, or caused to be furnished, by Borrower to Agent. Borrower shall take prompt action to respond to any material non-compliance with any of the Environmental Laws and shall regularly report to Agent on such response.
(c) Without limiting the generality of the foregoing, whenever Agent reasonably determines that there is material non-compliance, or any condition which requires any action by or on behalf of Borrower in order to avoid any material non-compliance, with any Environmental Law, Borrower shall, at Agents reasonable request and Borrowers expense: (i) cause an independent environmental engineer reasonably acceptable to Agent to conduct such tests of the site where such material non-compliance or alleged material non-compliance with such Environmental Laws has occurred as to such material non-compliance and prepare and deliver to Agent a report as to such material non-compliance setting forth the results of such tests, a proposed plan for responding to any environmental problems described therein, and an estimate of the costs thereof and (ii) provide to Agent a supplemental report of such engineer whenever the scope of such material non-compliance, or Borrowers response thereto or the estimated costs thereof, shall change in any material respect.
(d) Borrower shall indemnify and hold harmless Agent and Lenders and their respective directors, officers, employees, agents, invitees, representatives, successors and assigns, from and against any and all losses, claims, damages, liabilities, costs, and expenses (including reasonable attorneys fees and expenses) directly or indirectly arising out of or attributable to the use, generation, manufacture, reproduction, storage, release, threatened release, spill, discharge, disposal or presence of a Hazardous Material, including the costs of any required or necessary repair, cleanup or other remedial work with respect to any property of Borrower and the preparation and implementation of any closure, remedial or other required plans, except that Borrower shall not have any obligation under this Section 9.3(d) to indemnify a person otherwise to be indemnified pursuant to the terms hereof with respect to a matter covered hereby resulting solely from the gross negligence or wilful misconduct of such indemnitee as determined pursuant to a final, non appealable order of a court of competent jurisdiction (but without limiting the obligations of Borrower as to any other person hereunder). All representations, warranties, covenants and indemnifications in this Section 9.3 shall survive the payment of the Obligations and the termination of this Agreement.
9.4 PAYMENT OF TAXES AND CLAIMS. Borrower shall, and shall cause any Subsidiary to, duly pay and discharge all material taxes, assessments, contributions and governmental charges upon or against it or its properties or assets when due, except for taxes, assessments, contributions and governmental changes the validity of which are being contested in good faith by appropriate proceedings, including, but not limited to, claim objection proceedings in the Bankruptcy Court as provided for in the Plan, diligently pursued and available to Borrower or any Subsidiary, as the case may be, and with respect to which adequate reserves have been set aside on its books to the extent required by GAAP and except for other taxes, assessments, contributions and damages arising prior to the date hereof that are subject to, and paid in the ordinary course under, the claims administration process provided for in the Chapter 11 Case.
9.5 INSURANCE. Borrower shall, and shall cause any Subsidiary to, at all times, maintain with financially sound and reputable insurers insurance with respect to the Collateral against loss or damage and all other insurance of the kinds and in the amounts customarily insured against or carried by corporations of established reputation engaged in the same or similar businesses and similarly situated. Said policies of insurance shall be reasonably satisfactory to Agent as to form, amount and insurer. Borrower shall furnish certificates, policies or endorsements to Agent as Agent shall reasonably require as proof of such insurance, and, if Borrower fails to do so, Agent is authorized, but not required, to obtain such insurance at the expense of Borrower. All policies shall provide for at least thirty (30) days prior written notice to Agent of any cancellation or reduction of coverage and that Agent may act as attorney for Borrower in obtaining, and at any time an Event of Default exists or has occurred and is continuing, adjusting, settling, amending and canceling such insurance. Borrower shall cause Agent to be named as a loss payee and an additional insured (but without any liability for any premiums) as applicable under such insurance policies (other than business interruption insurance) and Borrower shall obtain non-contributory lenders loss payable endorsements to all insurance policies in form and substance reasonably satisfactory to Agent. Such lenders loss payable endorsements shall specify that the proceeds of such insurance shall be payable to Agent as its interests may appear and further specify that Agent and Lenders shall be paid regardless of any act or omission by Borrower or any of its Affiliates. Without limiting any other rights of Agent or Lenders, any insurance proceeds received by Agent at any time may be applied to payment of the Obligations in accordance with the terms of Section 6.4 hereof. Upon application of such proceeds to the Obligations, nothing contained in this Section 9.5 shall be construed to limit the use of any subsequent Loans for the costs of repair or replacement of the Collateral lost or damaged resulting in the payment of such insurance proceeds.
9.6 FINANCIAL STATEMENTS AND OTHER INFORMATION.
(a) Borrower shall, and shall cause any Subsidiary to, keep proper books and records in which true and complete entries shall be made of all dealings or transactions of or in relation to the Collateral and the business of Borrower and its Subsidiaries in accordance with GAAP. Borrower shall promptly furnish to Agent and Lenders all such financial and other information as Agent shall reasonably request relating to the Collateral and the assets, business and operations of Borrower, and Borrower shall notify the auditors and accountants of Borrower that Agent is authorized to obtain such information directly from them, PROVIDED THAT, so long as no Default or Event of Default shall exist or have occurred and be continuing, and Agent shall have otherwise received such information hereunder as it may have requested, Agent shall not
exercise its right under this Section 9.6 to contact the accountants and auditors directly to obtain information from them not relating to the Collateral without the prior approval of Borrower, which approval shall not be unreasonably withheld, conditioned or delayed. Without limiting the foregoing, Borrower shall furnish or cause to be furnished to Agent, the following: (i) within thirty (30) days after the end of each fiscal month, monthly unaudited consolidated financial statements, and unaudited consolidating financial statements (including in each case balance sheets, statements of income and loss, statements of cash flow, and statements of shareholders equity), all in reasonable detail, fairly presenting in all material respects the financial position and the results of the operations of Borrower and its Subsidiaries as of the end of and through such fiscal month, certified to be correct by the vice-president-finance, chief financial officer, controller, treasurer, assistant treasurer or other appropriate financial or senior officer of Borrower, subject to normal year end adjustments and no footnotes and accompanied by a compliance certificate substantially in the form of Exhibit E hereto, along with a schedule in a form reasonably satisfactory to Agent of the calculations used in determining, as of the end of such month, whether Borrower is in compliance with the covenants set forth in Sections 9.17 and 9.18 of this Agreement for such month and (ii) within ninety (90) days after the end of each fiscal year, audited consolidated financial statements and unaudited consolidating financial statements of Borrower and its Subsidiaries (including in each case balance sheets, statements of income and loss, statements of cash flow, and statements of shareholders equity), and the accompanying notes thereto, all in reasonable detail, fairly presenting in all material respects the financial position and the results of the operations of Borrower and its Subsidiaries as of the end of and for such fiscal year, together with the unqualified opinion of independent certified public accountants with respect to the audited consolidated financial statements, which accountants shall be an independent accounting firm selected by Borrower and reasonably acceptable to Agent, that such audited consolidated financial statements have been prepared in accordance with GAAP, and present fairly in all material respects the results of operations and financial condition of Borrower and its Subsidiaries as of the end of and for the fiscal year then ended.
(b) Borrower shall promptly notify Agent in writing of the details of (i) any loss, damage, investigation, action, suit, proceeding or claim relating to Collateral having a value of more than $50,000 or which could reasonably be expect to result in a Material Adverse Effect, (ii) any Material Contract being terminated or amended or any new Material Contract entered into (in which event Borrower shall provide Agent with a copy of such Material Contract), (iii) any order, judgment or decree in excess of $100,000 shall have been entered against Borrower or any of its or their properties or assets, (iv) any notification of a material violation of laws or regulations received by Borrower, (v) any ERISA Event, and (vi) the occurrence of any Default or Event of Default.
(c) Promptly after the sending or filing thereof, Borrower shall send to Agent copies of (i) all public information which Borrower or any of its Subsidiaries sends to its security holders generally, (ii) all Form 10-K, Form 10-Q, Form 8-K, proxy statements, all amendments and supplements thereto or equivalent reports and registration statements which Borrower or any of its Subsidiaries files with the Securities Exchange Commission, any national or foreign securities exchange or the National Association of Securities Dealers, Inc., and such other reports as Agent may hereafter specifically identify to Borrower that Agent will require be provided to Agent, (iii) all press releases and (iv) all other statements concerning material changes or developments in the business of Borrower made available by Borrower to the public.
(d) Borrower shall furnish or cause to be furnished to Agent such budgets, forecasts and projections with respect to the businesses of Borrower as Agent may from time to time reasonably request prepared on a basis consistent with such budgets, forecasts and projections as are currently prepared by Borrower, together with such other information respecting the Collateral, as Agent may, from time to time, reasonably request, or such other budgets, forecasts and projections with respect to the businesses of Borrower as Agent may otherwise require at any time that Excess Availability is less than $5,000,000 or either a Default or Event of Default shall exist or have occurred and be continuing or in connection with any amendment, waiver or consent hereunder or under any of the other Financing Agreements. Agent is hereby authorized to deliver a copy of any financial statement or any other information relating to the business of Borrower to any court or other Governmental Authority or to any Lender or Participant or prospective Lender or Participant or any Affiliate of any Lender or Participant, subject to Section 13.5 hereof. Borrower hereby irrevocably authorizes and directs all accountants or auditors to deliver to Agent, at Borrowers expense, copies of the financial statements of Borrower and any reports or management letters prepared by such accountants or auditors on behalf of Borrower and to disclose to Agent and Lenders such information as they may have regarding the business of Borrower. Any documents, schedules, invoices or other papers delivered to Agent or any Lender may be destroyed or otherwise disposed of, subject to Section 13.5 hereof, by Agent or such Lender one (1) year after the same are delivered to Agent or such Lender, except as otherwise designated by Administrative Borrower to Agent or such Lender in writing.
9.7 SALE OF ASSETS, CONSOLIDATION, MERGER, DISSOLUTION, ETC. Borrower shall not, and shall not permit any Subsidiary to, directly or indirectly,
(a) merge into or with or consolidate with any other Person or permit any other Person to merge into or with or consolidate with it except that any Subsidiary of Borrower may merge with and into or consolidate with Borrower or any other Subsidiary of Borrower; PROVIDED, THAT, each of the following conditions is satisfied: (i) Agent shall have received not less than ten (10) Business Days prior written notice of the intention of Borrower or such Subsidiaries to so merge or consolidate, which notice shall set forth in reasonable detail, the persons that are merging or consolidating, which person will be the surviving entity, the locations of the assets of the persons that are merging or consolidating, together with such other information with respect to such merger or consolidation as Agent may reasonably request, (ii) as of the effective date of the merger or consolidation and after giving effect thereto, no Default or Event of Default shall exist or have occurred and be continuing, (iii) Agent shall have received, true, correct and complete copies of all material agreements, documents and instruments relating to such merger or consolidation, including, when available, the certificate or certificates of merger to be filed with each appropriate Secretary of State or similar Governmental Authority, foreign or domestic (with a copy as filed promptly after such filing), (iv) the surviving corporation shall expressly confirm, ratify and assume the Obligations and the Financing Agreements to which it is a party in writing, in form and substance reasonably satisfactory to Agent, and Borrower shall execute and deliver such other agreements, documents and instruments as Agent may reasonably request in connection therewith, (v) in no event shall Borrower merge with or into or consolidate with, or enter into any similar transaction with, any Foreign Subsidiary, and (vi) in the case of any such merger or consolidation to which Borrower is a party, (A) Borrower shall be the surviving corporation, and (B) in no event shall Borrower
become liable for any Indebtedness or other obligations (contingent or otherwise) as a result of all such mergers or consolidations in an aggregate amount in excess of $150,000;
(b) sell, issue, assign, lease, license, transfer, abandon or otherwise dispose of any Capital Stock or Indebtedness to any other Person or any of its assets to any other Person, except for:
(i) sales of Inventory in the ordinary course of business,
(ii) Indebtedness permitted under Section 9.9,
(iii) the sale or other disposition of Equipment (including worn out or obsolete Equipment or Equipment no longer used or useful in the business of Borrower or any of Subsidiary of Borrower) so long as such sales or other dispositions do not involve Equipment having an aggregate fair market value in excess of $500,000 for all such Equipment disposed of in any fiscal year of Borrower or as Agent may otherwise agree,
(iv) the sale or other disposition of the real property and equipment of Haynes UK currently owned by Haynes UK located in Openshaw, England to the extent permitted under the UK Financing Agreements,
(v) the issuance and sale by Borrower or any of Subsidiary of Borrower of Capital Stock of such Borrower or any of Subsidiary of Borrower after the date hereof; PROVIDED, THAT, as to any such issuance and sale to Persons other than the Permitted Holders as of the date hereof, each of the following conditions is satisfied: (A) Agent shall have received not less than ten (10) Business Days prior written notice of such issuance and sale by Borrower or such Subsidiary of Borrower, as the case may be, which notice shall specify the parties to whom such shares are to be sold, the terms of such sale, the number of shares to be issued and sold, the total amount which it is anticipated will be realized from the issuance and sale of such stock, the net cash proceeds which it is anticipated will be received by Borrower or any of Subsidiary of Borrower, as the case may be from such sale, together with such other information with respect thereto as Agent may in good faith request, (B) none of Borrower or any of Subsidiary of Borrower shall be required to pay any cash dividends or repurchase or redeem such Capital Stock or make any other payments in respect thereof, except as otherwise permitted in Section 9.11 hereof, (C) the terms of such Capital Stock, and the terms and conditions of the purchase and sale thereof, shall not include any terms that include any limitation on the right of Borrower to request or receive Loans or Letter of Credit Accommodations or the right of Borrower to amend or modify any of the terms and conditions of this Agreement or any of the other Financing Agreements or are more restrictive or burdensome to Borrower than the terms of any Capital Stock in effect on the date hereof, (D) except as Agent may otherwise agree in writing, all of the proceeds of the sale and issuance of such Capital Stock shall be remitted to Agent for application to the principal amount of the Obligations and such other Obligations then due and payable, in such order and manner as Agent may determine (without any permanent reduction in the Commitments, but without limitation of any rights of Agent or Lenders at any time that a Default or Event of Default shall exist or have occurred and be continuing) and (E) as of the date of such issuance and sale and after giving effect thereto, no Default or Event of Default shall exist or have occurred and be continuing,
(vi) the issuance of Capital Stock of Borrower consisting of common stock pursuant to an employee stock option, restricted stock award or grant or similar equity plan or 401(k) plans of Borrower for the benefit of its employees, directors and consultants; PROVIDED, THAT, in no event shall Borrower be required to issue, or shall Borrower issue, Capital Stock pursuant to such stock plans or 401(k) plans which would result in a Change of Control or other Event of Default,
(vii) the licensing by Borrower of Intellectual Property owned by it to a Subsidiary of Borrower that is wholly-owned by it or by it and its subsidiaries other than for director qualifying shares of up to two (2%) percent thereof; PROVIDED, THAT, as to any such license: (A) any rights of such Subsidiary shall be subject to the rights of Agent in such Intellectual Property (including the rights of Agent to use such Intellectual Property upon an Event of Default) under this Agreement and as a matter of law, and (B) such license shall not impair, hinder or otherwise adversely affect the rights of Agent,
(viii) the grant by any Borrower after the date hereof of a non-exclusive license or an exclusive license to any Person for the use of any Intellectual Property owned by such Borrower in the ordinary course of business consistent with the current practices of Borrower as of the date hereof; PROVIDED, THAT, as to any such license, each of the following conditions is satisfied, (A) such license is only for the use of Intellectual Property for the manufacture, distribution or sale of products that Borrower do not manufacture, distribute or sell, (B) such licenses shall be on commercially reasonable prices and terms in a bona fide arms length transactions, (C) in the case of a non-exclusive license, the rights of the licensee shall be subject to the rights of Agent, and in the case of any license, shall not adversely affect, limit or restrict the rights of Agent to use any Intellectual Property of a Borrower to sell or otherwise dispose of any Inventory or other Collateral, (D) Agent shall have received, true, correct and complete copies of the executed license agreement, promptly upon the execution thereof and (E) as of the date of the grant of any such license, and after giving effect thereto, no Default or Event of Default shall exist or have occurred and be continuing,
(ix) the abandonment or cancellation of Intellectual Property that is not material, is no longer used or useful in any material respect in the business of Borrower or its Subsidiaries, and which it is not commercially reasonable to maintain, PROVIDED, THAT, (A) such abandonment or cancellation shall not adversely affect the right or ability of Agent to exercise its rights or remedies with respect to any of the Collateral or reduce the value of the Collateral in any material respect and (B) Borrower shall provide prior written notice to Agent of the intention of Borrower to abandon or cancel such Intellectual Property,
(c) wind up, liquidate or dissolve, except that any Subsidiary listed on Schedule 8.12 hereto may wind up, liquidate and dissolve; PROVIDED, THAT, each of the following conditions is satisfied, (i) the winding up, liquidation and dissolution of such Subsidiary shall not violate any law or any order or decree of any court or other Governmental Authority in any material respect and shall not conflict with or result in the breach of, or constitute a default under, any indenture, mortgage, deed of trust, or any other agreement or instrument to which Borrower is a party or may be bound, (ii) such winding up, liquidation or dissolution shall be done in accordance with the requirements of all applicable laws and regulations, (iii) effective upon such winding up, liquidation or dissolution, all of the assets and properties of such Subsidiary shall be
duly and validly transferred and assigned to Borrower, free and clear of any liens, restrictions or encumbrances other than the security interest and liens of Agent (and Agent shall have received such evidence thereof as Agent may require) and Agent shall have received such deeds, assignments or other agreements as Agent may request to evidence and confirm the transfer of such assets of such Subsidiary to Borrower, (iv) Agent shall have received all documents and agreements that Borrower has filed with any Governmental Authority or as are otherwise required to effectuate such winding up, liquidation or dissolution, (v) Borrower shall not assume any Indebtedness, obligations or liabilities as a result of such winding up, liquidation or dissolution, or otherwise become liable in respect of any obligations or liabilities of the entity that is winding up, liquidating or dissolving, unless such Indebtedness is otherwise expressly permitted hereunder, (vi) Agent shall have received not less than ten (10) Business Days prior written notice of the intention of such Subsidiary to wind up, liquidate or dissolve, and (vii) as of the date of such winding up, liquidation or dissolution and after giving effect thereto, no Default or Event of Default shall exist or have occurred and be continuing; or
(d) agree to do any of the foregoing, except to the extent that such agreement is part of the Plan as in effect on the date hereof (PROVIDED, THAT, nothing contained herein shall be construed to affect any of the rights or obligations of Agent and Lenders with respect to any such plan of reorganization hereunder or under the commitment letter with respect to providing financing to Borrower upon confirmation of a plan of reorganization).
9.8 ENCUMBRANCES. Borrower shall not, and shall not permit any Subsidiary to, create, incur, assume or suffer to exist any security interest, mortgage, pledge, lien, charge or other encumbrance of any nature whatsoever on any of its assets or properties, including the Collateral, except:
(a) the security interests and liens of Agent for the benefit of Secured Parties;
(b) liens securing the payment of taxes, either (i) not yet overdue (it being understood that taxes owing for periods prior to the date hereof shall not be considered to be overdue unless the same are not paid by the date established by the Plan and the claims administration process provided for in the Chapter 11 Case) or the validity of which are being contested in good faith by appropriate proceedings, including, but not limited to claim objection proceedings in the Bankruptcy Court as provided for in the Plan, diligently pursued and available to Borrower or such Subsidiary and with respect to which adequate reserves have been set aside on its books or (ii) identified on Schedule 9.8 hereto;
(c) non-consensual statutory liens (other than liens securing the payment of taxes) arising in the ordinary course of Borrowers or Subsidiarys business (including such liens in favor of landlords, warehousemen and mechanics and similar liens) to the extent such liens secure Indebtedness or other obligations relating to claims or liabilities which are being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or such Subsidiary, in each case prior to the commencement of foreclosure or other similar proceedings and with respect to which adequate reserves have been set aside on its books in accordance with GAAP and other than liens identified on Schedule 9.8 hereof;
(d) zoning restrictions, easements, licenses, covenants and other restrictions affecting the use of Real Property which do not interfere in any material respect with the use of such Real Property or ordinary conduct of the business of Borrower or such Subsidiary as presently conducted thereon or materially impair the value of the Real Property which may be subject thereto;
(e) purchase money security interests in Equipment (including Capital Leases) and purchase money mortgages on Real Property (including Capital Leases) to secure Indebtedness permitted under Section 9.9(b) hereof;
(f) pledges and deposits of cash by Borrower or any Subsidiary in the ordinary course of business in connection with workers compensation, unemployment insurance and other types of social security benefits consistent with the current practices of Borrower as of the date hereof;
(g) pledges and deposits of cash by Borrower or any Subsidiary in the ordinary course of business with any financial institution at which a deposit account of Borrower or such Subsidiary is maintained to secure obligations of Borrower to such financial institution in connection with such deposit account and the cash management services provided by such financial institution for which such deposit account is used consistent with the current practices of Borrower or such Subsidiary as of the date hereof;
(h) pledges and deposits of cash by Borrower or any of Subsidiary of Borrower to secure the performance of tenders, bids, leases, trade contracts (other than for the repayment of Indebtedness), statutory obligations, appeals and other similar obligations in each case in the ordinary course of business of Borrower; PROVIDED, THAT, in connection with any performance bonds issued by a surety or other person, the issuer of such bond shall not have any rights in or to, or other interest in (whether contingent or otherwise), any of the Collateral other than the pledges or deposits of cash and as to any pledges in respect of an appeal, after giving effect thereto, Excess Availability is not less than $5,000,000;
(i) liens or other security interests arising from (i) operating leases and the precautionary UCC financing statement filings in respect thereof and (ii) equipment or other materials which are not owned by Borrower or any Subsidiary located on the premises of Borrower or such Subsidiary (but not in connection with, or as part of, the financing thereof) from time to time in the ordinary course of business and consistent with current practices of Borrower or any of Subsidiary of Borrower and the precautionary UCC financing statement filings in respect thereof;
(j) judgments and other similar liens arising in connection with court proceedings that do not constitute an Event of Default; PROVIDED, THAT, (i) such liens are being contested in good faith and by appropriate proceedings diligently pursued, (ii) adequate reserves or other appropriate provision, if any, as are required by GAAP have been made therefor, (iii) a stay of enforcement of any such liens is in effect;
(k) the security interests and liens on assets of any Foreign Subsidiary to secure Indebtedness of such Subsidiary permitted under Section 9.9 hereof, including the fixed and
floating charges with respect to the assets of Haynes UK securing the Indebtedness of Haynes UK under the UK Financing Agreements;
(l) the mortgage on the real property of Haynes UK located in Openshaw, England as of the date hereof in favor of the Haynes UK Pension Trustees to secure the obligations of Haynes UK to make certain payments to the pension plan established by Haynes UK as set forth therein;
(m) security interests and liens granted by Borrower or any Subsidiary to secure Indebtedness and other obligations otherwise permitted hereunder not to exceed $50,000 so long as in the case of security interests and liens on any assets of Borrower, such security interests and liens are subordinate to the security interests and liens of Agent and are otherwise permitted under any other agreement to which such Borrower or Subsidiary is a party or by which its assets or properties are bound;
(n) the pledge, mortgage and charge over the share of Haynes UK granted by Borrower to UK Lender pursuant to the UK Financing Agreements to secure the Indebtedness and other obligations of Borrower to UK Lender permitted under Section 9.9(g) hereof; and
(o) the security interests and liens set forth on Schedule 8.4 to the Information Certificate.
9.9 INDEBTEDNESS. Borrower shall not, and shall not permit any Subsidiary to, incur, create, assume, become or be liable in any manner with respect to, or permit to exist, any Indebtedness, or guarantee, assume, endorse, or otherwise become responsible for (directly or indirectly), the Indebtedness, performance, obligations or dividends of any other Person, except:
(a) the Secured Obligations;
(b) purchase money Indebtedness (including purchase money Capital Leases) arising after the date hereof to the extent secured by purchase money security interests in Equipment (including Capital Leases) and purchase money mortgages on Real Property not to exceed $1,500,000 in the aggregate at any time outstanding so long as such security interests and mortgages do not apply to any property of Borrower or Subsidiary other than the Equipment or Real Property so acquired, and the Indebtedness secured thereby does not exceed the cost of the Equipment or Real Property so acquired, as the case may be;
(c) Indebtedness of Borrower or its Subsidiaries entered into in the ordinary course of business consistent with the current practices of Borrower or such Subsidiary as of the date hereof pursuant to Hedge Agreements with a party acceptable to Agent; PROVIDED, THAT, (i) such arrangements are with banks or other financial institutions that have combined capital and surplus and undivided profits of not less than $250,000,000 and are acceptable to Agent, (ii) are not for speculative purposes and (iii) such Indebtedness shall be unsecured, except as to obligations under Hedge Agreements with a party acceptable to Agent, in each case approved by Agent, to the extent of the security interest of Agent in the Collateral as provided herein;
(d) contingent Indebtedness of Borrower or any Subsidiary arising after the date hereof to reimburse the issuer of a surety bond issued in the ordinary course of the business of
Borrower or such Subsidiary consistent with the current practices of Borrower or such Subsidiary as of the date hereof required for the performance of tenders, bids, leases, trade contracts (other than for the repayment of Indebtedness), appeals statutory obligations and other similar obligations; PROVIDED, THAT, (i) the aggregate amount of such contingent Indebtedness outstanding at any time shall not exceed $100,000 and (ii) no such Indebtedness shall be incurred at any time that a Default or Event of Default shall exist or have occurred and be continuing;
(e) Indebtedness created, incurred, assumed or guaranteed by Borrower or any Subsidiary in the ordinary course of the business of Borrower or such Subsidiary in connection with obtaining goods, materials or services that is overdue by more than one hundred twenty (120) days; PROVIDED, THAT, the aggregate amount thereof at any time outstanding shall not exceed $100,000;
(f) the Indebtedness of Borrower or any of Subsidiary of Borrower arising pursuant to loans and advances permitted under Sections 9.10(g), 9.10(h), 9.10(i) and 9.10(j) hereof;
(g) Indebtedness of Borrower pursuant to the guarantee by Borrower of the Indebtedness and other obligations of Haynes UK under the UK Financing Agreements;
(h) Indebtedness of any Foreign Subsidiary arising after the date hereof, PROVIDED, THAT, (i) as to any such Indebtedness, Borrower shall not be directly or indirectly liable (by virtue of Borrower being the primary obligor on, guarantor of, or otherwise liable in any respect of such Indebtedness), and (ii) such Indebtedness is permitted under Section 9.9 hereof;
(i) Indebtedness of Haynes UK to the Haynes UK Pension Trustees in respect of the payment of L 300,000 as a contribution to the Haynes Pension Plan established by Haynes UK as required under the terms of the Agreement, dated April 2, 2004, by and among Haynes UK and the Haynes UK Pension Trustees, which Indebtedness is secured by the mortgage permitted under Section 9.8 hereof;
(j) unsecured Indebtedness of Borrower or any Subsidiary arising after the date hereof to any third person (but not to any Affiliate) pursuant to loans in cash by such person to Borrower or Subsidiary not to exceed $500,000 in the aggregate as to all such Indebtedness outstanding at any time;
(k) the Indebtedness set forth on Schedule 9.9 to the Information Certificate; PROVIDED, THAT, (i) Borrower or such Subsidiary may not make payments in respect of such Indebtedness other than regularly scheduled payments of principal and interest in accordance with the terms of the agreement or instrument evidencing or giving rise to such Indebtedness as in effect on the date hereof, (ii) Borrower and such Subsidiary shall not, directly or indirectly, (A) amend, modify, alter or change the terms of such Indebtedness or any agreement, document or instrument related thereto as in effect on the date hereof except, that, Borrower and such Subsidiary may, after prior written notice to Agent, amend, modify, alter or change the terms thereof so as to extend the maturity thereof, or defer the timing of any payments in respect thereof, or to forgive or cancel any portion of such Indebtedness (other than pursuant to payments thereof), or to reduce the interest rate or any fees in connection therewith, or to make any covenant less restrictive, or (B) redeem, retire, defease, purchase or otherwise acquire such
Indebtedness, or set aside or otherwise deposit or invest any sums for such purpose (other than required prepayments of Indebtedness incurred in single asset financings in connection with the sale or other disposition of the assets so financed provided such sale or other disposition is otherwise permitted hereunder), and (iii) Borrower shall furnish to Agent all notices or demands in connection with such Indebtedness either received by Borrower or on its behalf, promptly after the receipt thereof, or sent by Borrower or on its behalf, concurrently with the sending thereof, as the case may be.
9.10 LOANS, INVESTMENTS, ETC. Borrower shall not, and shall not permit any Subsidiary to, directly or indirectly, make any loans or advance money or property to any person (which shall not be deemed to include Accounts arising from the sale of goods and services in the ordinary course of business), or invest in (by capital contribution, dividend or otherwise) or purchase or repurchase the Capital Stock or Indebtedness or all or a substantial part of the assets or property of any person, or form or acquire any Subsidiaries, or agree to do any of the foregoing, except:
(a) the endorsement of instruments for collection or deposit in the ordinary course of business;
(b) investments in cash or Cash Equivalents; PROVIDED, THAT, with respect to investments in Cash Equivalents by the Borrower, (i) no Loans are then outstanding, except that notwithstanding that any Loans are outstanding, Borrower may from time to time in the ordinary course of business consistent with current practices as of the date hereof (A) make deposits of cash or other immediately available funds in operating demand deposit accounts used for disbursements to the extent required to provide funds for amounts drawn or anticipated to be drawn shortly on such accounts (but not more than one (1) Business Days after the date of deposit therein), (B) cause amounts to be deposited in the Blocked Accounts in accordance with the terms of Section 6.3 hereof and (C) make deposits in those deposit accounts having balances of less than $12,500 up to an aggregate amount for all such accounts of $65,000 (and in the case of the deposit account number 08001031 at Community First Bank having a balance of not more than $60,000 for more than five (5) consecutive days) as described in Section 5.2(d) hereof, and (ii) the terms and conditions of Section 5.2 hereof shall have been satisfied with respect to the deposit account, investment account or other account in which such cash or Cash Equivalents are held to the extent required thereunder;
(c) the existing equity investments of Borrower and the Subsidiaries of Borrower as of the date hereof in its Subsidiaries; PROVIDED, THAT, no Borrower shall have any further obligations or liabilities to make any capital contributions or other additional investments or other payments to or in or for the benefit of any of such Subsidiaries;
(d) loans and advances by Borrower or any of its Subsidiaries to employees of Borrower or such Subsidiary not to exceed the principal amount of $100,000 in the aggregate at any time outstanding for: (i) reasonably and necessary work-related travel or other ordinary business expenses to be incurred by such employees in connection with their work for Borrower or such Subsidiary and (ii) reasonable and necessary relocation expenses of such employees (including home mortgage financing for relocated employees);
(e) stock or obligations issued to Borrower or any other Person liable in respect of the Obligations by any Person (or the representative of such Person) in respect of indebtedness of such Person owing to Borrower or such obligor in connection with the insolvency, bankruptcy, receivership or reorganization of such Person or a composition or readjustment of the debts of such Person or in connection with the settlement of disputes or trade payables; PROVIDED, THAT, to the extent that the original of any such stock or instrument evidencing such obligations (if any) is issued or payable to Borrower or any other Person liable in respect of the Obligations, it shall be promptly delivered to Agent, upon Agents request, together with such stock power, assignment or endorsement by Borrower or such other Person as Agent may request;
(f) obligations of account debtors to Borrower or any of its Subsidiaries arising from Accounts which are past due whether or not evidenced by a promissory note made by such account debtor payable to Borrower or such Subsidiary; PROVIDED, THAT, promptly upon the receipt of the original of any such promissory note by Borrower or any Person liable in respect of the Obligations, such promissory note shall be endorsed to the order of Agent by Borrower or such Person and promptly delivered to Agent as so endorsed;
(g) loans from time to time by Haynes UK to Borrower to the extent permitted under the UK Financing Agreements; PROVIDED, THAT, (i) the Indebtedness of Borrower to Haynes UK arising pursuant to such loans shall be subject to, and subordinate in right of payment to, the right of Agent and Lenders to receive the prior final payment and satisfaction in full of all of the Obligations on terms and conditions acceptable to Agent, (ii) the terms and conditions of such Indebtedness are set forth in the Memorandum of Agreement between Haynes UK and Borrower dated as of April 2, 2004 as in effect on the date hereof, (iii) promptly upon Agents request, Agent shall have received a subordination agreement, in form and substance satisfactory to Agent, providing for the terms of the subordination in right of payment of such Indebtedness of Borrower to the prior final payment and satisfaction in full of all of the Obligations, duly authorized, executed and delivered by Haynes UK and Borrower, (iv) promptly upon Agents request, Agent shall have received a promissory note in form and substance satisfactory to Agent evidencing the terms and conditions of such Indebtedness, and (v) Borrower shall not, directly or indirectly make, or be required to make, any payments in respect of such Indebtedness prior to the end of the then current term of this Agreement, except (A) for payments of regularly scheduled interest in respect thereof at the rate set forth in the Memorandum of Agreement referred to above as in effect on the date hereof and (B) for payments of principal in respect of the Indebtedness arising pursuant to such loans, PROVIDED, THAT, as to any such payment, each of the following conditions is satisfied: (1) Agent shall have received not less than two (2) Business Days prior written notice with respect to any such payment, (2) as of the date of any such payment and after giving effect thereto, Excess Availability for each of the immediately preceding ten (10) consecutive days shall have been not less than $5,000,000 and as of the date of any such payment and after giving effect thereto, Excess Availability shall be not less than $5,000,000 and (3) as of the date of any such payment and after giving effect thereto, no Default or Event of Default shall exist or have occurred and be continuing;
(h) loans or advances of money or property by any Foreign Subsidiary to any person (including to Borrower or any of its Subsidiaries) after the date hereof (except for loans or advances by Haynes UK which shall be subject to clause (g) above), or the investment by any such Subsidiary in any person (by capital contribution, dividend or otherwise) or in any Cash
Equivalents or similar instruments in any foreign jurisdiction after the date hereof, or the purchase or repurchase by any such Subsidiary of the Capital Stock or Indebtedness or all or a substantial part of the assets or property of any person after the date hereof, or the formation or acquisition by any such Subsidiary of any Subsidiaries after the date hereof or the agreement of any such Subsidiary to do any of the foregoing after the date hereof; PROVIDED, THAT, (i) as of the date of such loan or advance (other than any loan or advance to Borrower), or investment or purchase or repurchase (other than investments in cash or Cash Equivalents or similar instruments in any foreign jurisdiction), or the formation or acquisition of any such Subsidiary and after giving effect thereto, no Default or Event of Default shall exist or have occurred and be continuing, (ii) in no event shall Borrower make, or be required to make, any payment or incur any obligation or liability (contingent or otherwise) in connection with any such loan or advance, or investment or purchase or repurchase, or the formation or acquisition of such Subsidiary or take any other action otherwise prohibited hereunder, (iii) in the case of any loans or advances to Borrower, (A) the Indebtedness arising pursuant to such loans shall be subject to, and subordinate in right of payment to, the right of Agent and Lenders to receive the prior final payment and satisfaction in full of all of the Obligations on terms and condition acceptable to Agent, (B) promptly upon Agents request, Agent shall have received a subordination agreement, in form and substance satisfactory to Agent, providing for the terms of the terms of the subordination in right of payment of such Indebtedness of Borrower to the prior final payment and satisfaction in full of all of the Obligations, duly authorized, executed and delivered by such Subsidiary and Borrower, and (C) Borrower shall not, directly or indirectly make, or be required to make, any payments in respect of such Indebtedness and (iv) in the case of any such loan or advance, or investment or purchase or repurchase or the formation or acquisition of a Subsidiary by Haynes UK, it shall be permitted under the UK Financing Agreements; and (i) the investments, loans and advances set forth on Schedule 9.10 to the Information Certificate; PROVIDED, THAT, as to such loans and advances, Borrower shall not, directly or indirectly, amend, modify, alter or change the terms of such loans and advances or any agreement, document or instrument related thereto and Borrower shall furnish to Agent all notices or demands in connection with such loans and advances either received by Borrower or on its behalf, promptly after the receipt thereof, or sent by Borrower or on its behalf, concurrently with the sending thereof, as the case may be.
9.11 DIVIDENDS AND REDEMPTIONS. Borrower shall not, directly or indirectly, declare or pay any dividends on account of any shares of class of any Capital Stock of Borrower now or hereafter outstanding, or set aside or otherwise deposit or invest any sums for such purpose, or redeem, retire, defease, purchase or otherwise acquire any shares of any class of Capital Stock (or set aside or otherwise deposit or invest any sums for such purpose) for any consideration or apply or set apart any sum, or make any other distribution (by reduction of capital or otherwise) in respect of any such shares or agree to do any of the foregoing, except that:
(a) Borrower may declare and pay such dividends or redeem, retire, defease, purchase or otherwise acquire any shares of any class of Capital Stock for consideration in the form of shares of common stock (so long as after giving effect thereto no Change of Control or other Default or Event of Default shall exist or occur and be continuing);
(b) Borrower may pay dividends to the extent permitted in Section 9.12 below; and
(c) any Subsidiary of Borrower may pay dividends to Borrower.
9.12 TRANSACTIONS WITH AFFILIATES. Borrower shall not, directly or indirectly:
(a) purchase, acquire or lease any property from, or sell, transfer or lease any property to, any officer, director or other Affiliate of Borrower, except in the ordinary course of and pursuant to the reasonable requirements of Borrowers business and upon fair and reasonable terms no less favorable to Borrower than Borrower would obtain in a comparable arms length transaction with a person that is not an Affiliate and except as to (i) loans and advances to Borrower permitted under Section 9.10(g) and 9.10(h) above and (ii) licenses of Intellectual Property by Borrower to its Subsidiaries otherwise permitted hereunder; or
(b) make any payments (whether by dividend, loan or otherwise) of management, consulting or other fees for management or similar services, or of any Indebtedness owing to any officer, employee, shareholder, director or any other Affiliate of Borrower, except (i) reasonable compensation and reimbursement of expenses to officers, employees and directors in each case for or in connection with services rendered to Borrower in the ordinary course of business (including existing management incentive plans, the Long Term Incentive Plan (as defined in the Plan as in effect on the date hereof) and other management and director compensation, retention, benefit, bonus and severance plans entered into in the ordinary course of business), and (ii) payments in respect of any such Indebtedness to the extent permitted under Section 9.10 hereof.
9.13 COMPLIANCE WITH ERISA. Borrower shall, and shall cause each of its ERISA Affiliates, to: (a) maintain each Benefit Plan in compliance in all material respects with the applicable provisions of ERISA, the Code and other Federal and State law; (b) cause each Benefit Plan which is intended to be qualified under Section 401(a) of the Code to maintain such qualification; (c) not terminate any Pension Plan so as to incur any material liability to the Pension Benefit Guaranty Corporation; (d) not allow or suffer to exist any prohibited transaction involving any Pension Plan or any trust created thereunder which would subject Borrower or such ERISA Affiliate to a material tax or penalty or other material liability on prohibited transactions imposed under Section 4975 of the Code or ERISA; (e) make all required contributions to any Pension Plan which it is obligated to pay under Section 302 of ERISA, Section 412 of the Code or the terms of such Pension Plan and make all required contributions to any other Benefit Plan to the extent that the failure to do so may result in liability of more than $250,000; (f) not allow or suffer to exist any accumulated funding deficiency, whether or not waived, with respect to any such Benefit Plan; or (g) not allow or suffer to exist any occurrence of a reportable event or any other event or condition that presents a material risk of an ERISA Event that results in or has a reasonable likelihood of resulting in any liability in excess of $250,000.
9.14 END OF FISCAL YEARS; FISCAL QUARTERS. Borrower shall, for financial reporting purposes, cause its, and each of its Subsidiaries (a) fiscal years to end on September 30 of each year and (b) fiscal quarters to end on December 31, March 31, June 30 and September 30 of each year.
9.15 CHANGE IN BUSINESS. Borrower shall not engage in any business other than the business of Borrower on the date hereof and any business reasonably related, ancillary or complimentary to the business in which Borrower is engaged on the date hereof.
9.16 LIMITATION OF RESTRICTIONS AFFECTING SUBSIDIARIES. Borrower shall not, directly, or indirectly, create or otherwise cause or suffer to exist any encumbrance or restriction which prohibits or limits the ability of any Subsidiary of Borrower to (a) pay dividends or make other distributions or pay any Indebtedness owed to Borrower or any Subsidiary of Borrower; (b) make loans or advances to Borrower or any Subsidiary of Borrower, (c) transfer any of its properties or assets to Borrower or any Subsidiary of Borrower; or (d) create, incur, assume or suffer to exist any lien upon any of its property, assets or revenues, whether now owned or hereafter acquired, other than encumbrances and restrictions arising under (i) applicable law, (ii) this Agreement, (iii) customary provisions restricting subletting or assignment of any lease governing a leasehold interest of Borrower or any Subsidiary of Borrower, (iv) customary restrictions on dispositions of real property interests found in reciprocal easement agreements of Borrower or any Subsidiary of Borrower, (v) customary restrictions in agreements for the sale of assets (to the extent such sale is permitted hereunder) on the transfer or encumbrance of such assets during an interim period prior to the closing of the sale of such assets, (vi) customary restrictions in contracts that prohibit the assignment of such contract, (vii) customary restrictions in agreements relating to purchase money financing arrangements of Borrower or contained in security agreements providing for the grant of a security interest to secure other Indebtedness owing to a person that is not an Affiliate (in each case to the extent such purchase money financing or other Indebtedness is permitted hereunder) to the extent such restrictions restrict the transfer of, or the granting of liens on, the property subject to such purchase money financing arrangements or security agreements, (viii) any agreement relating to permitted Indebtedness incurred by a Subsidiary of Borrower prior to the date on which such Subsidiary was acquired by Borrower and outstanding on such acquisition date, (ix) the UK Financing Agreements, (x) customary restrictions in license agreements with respect to Intellectual Property which restrict the sublicensing, pledge, transfer or assignment of the licensees rights thereunder, (xi) restrictions in agreements in existence prior to the date hereof and the extension or continuation of contractual obligations in existence on the date hereof; PROVIDED, THAT, any such encumbrances or restrictions contained in such extension or continuation are no less favorable to Agent and Lenders than those encumbrances and restrictions under or pursuant to the contractual obligations so extended or continued.
9.17 MINIMUM EBITDA. At any time that Excess Availability is less than $20,000,000, the EBITDA of Borrower and its Subsidiaries (on a consolidated basis) for each period set forth on Schedule 9.17 hereto for which financial statements of Borrower and its Subsidiaries have been received by Agent shall be not less than amounts set forth on Schedule 9.17 hereto with respect to such period.
9.18 FIXED CHARGE COVERAGE RATIO. At any time that Excess Availability is less than $20,000,000, the Fixed Charge Coverage Ratio of Borrower and its Subsidiaries (on a consolidated basis) for each period set forth on Schedule 9.18 hereto for which financial statements of Borrower and its Subsidiaries have been received by Agent shall be not less than amounts set forth on Schedule 9.18 hereto with respect to such period.
9.19 AFTER ACQUIRED REAL PROPERTY. If Borrower hereafter acquires a fee interest in Real Property and such Real Property is adjacent to, contiguous with or necessary or related to or used in connection with any Real Property then subject to a Mortgage, or if such Real Property is not adjacent to, contiguous with or related to or used in connection with such Real Property, then if such Real Property at any location (or series of adjacent, contiguous or related locations, and regardless of the number of parcels) has a fair market value in an amount equal to or greater than $100,000 (or if a Default or Event of Default exists, then regardless of the fair market value of such assets), without limiting any other rights of Agent or any Lender, or duties or obligations of Borrower, promptly upon Agents request, Borrower shall execute and deliver to Agent a mortgage, deed of trust or deed to secure debt, as Agent may determine, in form and substance substantially similar to the Mortgages and as to any provisions relating to specific State or foreign laws reasonably satisfactory to Agent and in form appropriate for recording in the real estate records of the jurisdiction in which such Real Property or other property is located granting to Agent a first and only lien and mortgage on and security interest in such Real Property, fixtures or other property (except as Borrower would otherwise be permitted to incur hereunder or under the Mortgages or as otherwise consented to in writing by Agent) and such other agreements, documents and instruments as Agent may reasonably require in connection therewith; PROVIDED, THAT, as to any such Real Property that is not adjacent, contiguous or related to Real Property then subject to a Mortgage, if the purchase price for such Real Property is paid with the initial proceeds of a loan from a financial institution giving rise to Indebtedness permitted under Section 9.9(b) hereof, then Borrower shall not be required to execute and deliver such mortgage, deed of trust or deed to secure debt in favor of Agent with respect to such Real Property.
9.20 EFFECT OF INDEBTEDNESS OF FOREIGN SUBSIDIARIES. Borrower shall not incur, create, assume, become or be liable in any manner with respect to, or permit to exist, any Indebtedness if under the terms thereof the occurrence of a default under or with respect to Indebtedness of a Foreign Subsidiary shall result in, or permit any holder of any Indebtedness of Borrower to declare, a default under or with respect to Indebtedness of Borrower or cause the payment of such Indebtedness of Borrower to be accelerated or payable prior to its stated maturity.
9.21 COSTS AND EXPENSES. Borrower jointly and severally agree to pay to Agent on demand all costs, expenses, filing fees and taxes (except to the extent Taxes may be subject to the terms of Section 6.5 hereof) paid or payable in connection with the preparation, negotiation, execution, delivery, recording, syndication, administration, collection, liquidation, enforcement and defense of the Obligations, Agents rights in the Collateral, this Agreement, the other Financing Agreements and all other documents related hereto or thereto, including any amendments, supplements or consents which may hereafter be contemplated (whether or not executed) or entered into in respect hereof and thereof, including: (a) all out-of-pocket costs and expenses of filing or recording (including Uniform Commercial Code financing statement filing taxes and fees, documentary taxes, intangibles taxes and mortgage recording taxes and fees, if applicable); (b) all reasonable out-of-pocket costs and expenses and fees for insurance premiums, environmental audits, title insurance premiums, surveys, assessments, engineering reports and inspections, appraisal fees and search fees, out-of-pocket costs and expenses of remitting loan proceeds, collecting checks and other items of payment, and establishing and maintaining the Blocked Accounts, together with Agents customary charges and fees with respect thereto; (c) charges, fees or expenses charged by any bank or issuer in connection with the Letter of Credit
Accommodations; (d) out-of-pocket costs and expenses of preserving and protecting the Collateral; (e) costs and expenses paid or incurred in connection with obtaining payment of the Obligations, enforcing the security interests and liens of Agent, selling or otherwise realizing upon the Collateral, and otherwise enforcing the provisions of this Agreement and the other Financing Agreements or defending any claims made or threatened against Agent or any Lender arising out of the transactions contemplated hereby and thereby (including preparations for and consultations concerning any such matters); (f) all reasonable out-of-pocket expenses and costs heretofore and from time to time hereafter incurred by Agent during the course of periodic field examinations of the Collateral and Borrowers operations (it being understood that unless an Event of Default shall exist or have occurred and be continuing, only four (4) such field examinations shall be conducted at the expense of Borrower in any calendar year), plus a per diem charge at Agents then standard rate for Agents examiners in the field and office (which rate as of the date hereof is $1,000 per person per day); and (g) the reasonable fees and disbursements of counsel (including legal assistants) to Agent in connection with any of the foregoing.
9.22 FURTHER ASSURANCES. Upon the reasonable request of Agent at any time and from time to time, Borrower shall promptly, at their expense, duly execute and deliver, or cause to be duly executed and delivered, such further agreements, documents and instruments, and do or cause to be done such further acts as may be necessary or proper to evidence, perfect, maintain and enforce the security interests and the priority thereof in the Collateral and to otherwise effectuate the provisions or purposes of this Agreement or any of the other Financing Agreements.
SECTION 10. EVENTS OF DEFAULT AND REMEDIES
10.1 EVENTS OF DEFAULT. The occurrence or existence of any one or more of the following events are referred to herein individually as an Event of Default, and collectively as Events of Default:
(a) (i) Borrower fails to pay any of the Obligations when due and such failure shall continue for three (3) Business Days or (ii) Borrower fails to perform any of the covenants contained in Sections 9.3, 9.4, 9.13, 9.14, 9.15, 9.16 and 9.19 of this Agreement or provisions of the other Financing Agreements covering the same matters and such failure shall continue for ten (10) Business Days; PROVIDED, THAT, such ten (10) Business Day period shall not apply in the case of any failure to observe any such covenant which is not capable of being cured at all or (iii) Borrower fails to perform any of the terms, covenants, conditions or provisions contained in this Agreement or any of the other Financing Agreements other than those described in Sections 10.1(a)(i) and 10.1(a)(ii) above;
(b) any representation, warranty or statement of fact made by Borrower to Agent in this Agreement, the other Financing Agreements or any other written agreement, schedule, confirmatory assignment or otherwise shall when made or deemed made be false or misleading in any material respect;
(c) any judgment for the payment of money is rendered against Borrower in excess of $1,000,000 in any one case or in excess of $2,500,000 in the aggregate (to the extent not
covered by insurance where the insurer has assumed responsibility in writing for such judgment) and shall remain undischarged or unvacated for a period in excess of thirty (30) days or execution shall at any time not be effectively stayed, or any judgment other than for the payment of money, or injunction, attachment, garnishment or execution is rendered against Borrower or any of the Collateral having a value in excess of $1,000,000;
(d) Borrower dissolves or suspends or discontinues doing business;
(e) a case or proceeding under the bankruptcy laws of the United States of America now or hereafter in effect or under any insolvency, reorganization, receivership, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction now or hereafter in effect (whether at law or in equity) is filed against Borrower or all or any part of its properties and such petition or application is not dismissed within forty-five (45) days after the date of its filing or Borrower shall file any answer admitting or not contesting such petition or application or indicates its consent to, acquiescence in or approval of, any such action or proceeding or the relief requested is granted sooner;
(f) a case or proceeding under the bankruptcy laws of the United States of America now or hereafter in effect or under any insolvency, reorganization, receivership, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction now or hereafter in effect (whether at a law or equity) is filed by Borrower or for all or any part of its property;
(g) any failure by Borrower to observe or perform any of the material terms or conditions of any material order, stipulation or other arrangements entered by or with the Bankruptcy Court in the Chapter 11 Case or otherwise under the Plan;
(h) any default by Borrower under any agreement, document or instrument relating to any Indebtedness for borrowed money owing to any person other than Agent and Lenders, or any Capital Lease, contingent Indebtedness in connection with any guarantee, letter of credit, indemnity or similar type of instrument in favor of any person other than Agent and Lenders, except for disputed claims or unallowed claims that Borrower is not then required to pay under the Plan, in any case in an amount in excess of $500,000 which default continues for more than the applicable cure period, if any, with respect thereto, or any default by Borrower under any Material Contract, which default continues for more than the applicable cure period, if any, with respect thereto;
(i) any material provision hereof or of any of the other Financing Agreements shall for any reason cease to be valid, binding and enforceable with respect to any party hereto or thereto (other than Agent) in accordance with its terms, or any such party shall challenge the enforceability hereof or thereof, or shall assert in writing, or take any action or fail to take any action based on the assertion that any provision hereof or of any of the other Financing Agreements has ceased to be or is otherwise not valid, binding or enforceable in accordance with its terms, or any security interest provided for herein or in any of the other Financing Agreements shall cease to be a valid and perfected first priority security interest in any of the Collateral purported to be subject thereto (except as otherwise permitted herein or therein);
(j) an ERISA Event shall occur which results in or could reasonably be expected to result in liability of Borrower in an aggregate amount in excess of $250,000;
(k) any Change of Control;
(l) the indictment by any Governmental Authority, or as Agent may reasonably and in good faith determine, the threatened indictment by any Governmental Authority of Borrower of which Borrower or Agent receives notice, in either case, as to which there is a reasonable possibility of an adverse determination, in the good faith determination of Agent, under any criminal statute, or commencement or threatened commencement of criminal or civil proceedings against Borrower, pursuant to which statute or proceedings the penalties or remedies sought or available include forfeiture of (i) any of the Collateral having a value in excess of $1,000,000 or (ii) any other property of Borrower which is necessary or material to the conduct of its business;
(m) there shall be an act, condition or event that has a Material Adverse Effect after the date hereof; or
(n) there shall be an event of default under any of the other Financing Agreements or any event of default under the UK Financing Agreements.
10.2 REMEDIES.
(a) At any time an Event of Default exists or has occurred and is continuing, Agent and Lenders shall have all rights and remedies provided in this Agreement, the other Financing Agreements, the UCC and other applicable law, all of which rights and remedies may be exercised without notice to or consent by Borrower, except as such notice or consent is expressly provided for hereunder or required by applicable law. All rights, remedies and powers granted to Agent and Lenders hereunder, under any of the other Financing Agreements, the UCC or other applicable law, are cumulative, not exclusive and enforceable, in Agents discretion, alternatively, successively, or concurrently on any one or more occasions, and shall include, without limitation, the right to apply to a court of equity for an injunction to restrain a breach or threatened breach by Borrower of this Agreement or any of the other Financing Agreements. Subject to Section 12 hereof, Agent may, and at the direction of the Required Lenders shall, at any time or times, proceed directly against Borrower to collect the Obligations without prior recourse to the Collateral.
(b) Without limiting the generality of the foregoing, at any time an Event of Default exists or has occurred and is continuing, Agent may, at its option and shall upon the direction of the Required Lenders, (i) upon notice to Borrower, accelerate the payment of all Obligations and demand immediate payment thereof to Agent for itself and the benefit of Lenders; and (ii) terminate the Commitments and this Agreement.
(c) Without limiting the generality of the foregoing, at any time an Event of Default exists or has occurred and is continuing, Agent may, in its discretion (i) with or without judicial process or the aid or assistance of others, enter upon any premises on or in which any of the Collateral may be located and take possession of the Collateral or complete processing, manufacturing and repair of all or any portion of the Collateral, to the extent permitted by law,
(ii) require Borrower, at Borrowers expense, to assemble and make available to Agent any part or all of the Collateral at any place and time designated by Agent, (iii) collect, foreclose, receive, appropriate, setoff and realize upon any and all Collateral, (iv) remove any or all of the Collateral from any premises on or in which the same may be located for the purpose of effecting the sale, foreclosure or other disposition thereof or for any other purpose, (v) sell, lease, transfer, assign, deliver or otherwise dispose of any and all Collateral (including entering into contracts with respect thereto, public or private sales at any exchange, brokers board, at any office of Agent or elsewhere) at such prices or terms as Agent may deem reasonable, for cash, upon credit or for future delivery, with the Agent having the right to purchase the whole or any part of the Collateral at any such public sale, all of the foregoing being free from any right or equity of redemption of Borrower, which right or equity of redemption is hereby expressly waived and released by Borrower and/or (vi) terminate this Agreement. If any of the Collateral is sold or leased by Agent upon credit terms or for future delivery, the Obligations shall not be reduced as a result thereof until payment therefor is finally collected by Agent. If notice of disposition of Collateral is required by law, ten (10) days prior notice by Agent to Borrower designating the time and place of any public sale or the time after which any private sale or other intended disposition of Collateral is to be made, shall be deemed to be reasonable notice thereof and Borrower waives any other notice. In the event Agent institutes an action to recover any Collateral or seeks recovery of any Collateral by way of prejudgment remedy, Borrower waives the posting of any bond which might otherwise be required. At any time an Event of Default exists or has occurred and is continuing, upon Agents request, Borrower will either, as Agent shall specify, furnish cash collateral to the issuer to be used to secure and fund Agents reimbursement obligations to the issuer in connection with any Letter of Credit Accommodations or furnish cash collateral to Agent for the Letter of Credit Accommodations. Such cash collateral shall be in the amount equal to one hundred five (105%) percent of the amount of the Letter of Credit Accommodations plus the amount of any fees and expenses payable in connection therewith through the end of the latest expiration date of such Letter of Credit Accommodations.
(d) At any time or times that an Event of Default exists or has occurred and is continuing, Agent may, in its discretion, enforce the rights of Borrower against any account debtor, secondary obligor or other obligor in respect of any of the Accounts or other Receivables. Without limiting the generality of the foregoing, at any time or times that an Event of Default exists or has occurred and is continuing, Agent may, in its discretion, at such time or times (i) notify any or all account debtors, secondary obligors or other obligors in respect thereof that the Receivables have been assigned to Agent and that Agent has a security interest therein and Agent may direct any or all accounts debtors, secondary obligors and other obligors to make payment of Receivables directly to Agent, (ii) extend the time of payment of, compromise, settle or adjust for cash, credit, return of merchandise or otherwise, and upon any terms or conditions, any and all Receivables or other obligations included in the Collateral and thereby discharge or release the account debtor or any secondary obligors or other obligors in respect thereof without affecting any of the Obligations, (iii) demand, collect or enforce payment of any Receivables or such other obligations, but without any duty to do so, and Agent and Lenders shall not be liable for any failure to collect or enforce the payment thereof nor for the negligence of its agents or attorneys with respect thereto and (iv) take whatever other action Agent may deem necessary or desirable for the protection of its interests and the interests of Lenders. At any time that an Event of Default exists or has occurred and is continuing, at Agents request, all invoices and
statements sent to any account debtor shall state that the Accounts and such other obligations have been assigned to Agent and are payable directly and only to Agent and Borrower shall deliver to Agent such originals of documents evidencing the sale and delivery of goods or the performance of services giving rise to any Accounts as Agent may require. In the event any account debtor returns Inventory when an Event of Default exists or has occurred and is continuing, Borrower shall, upon Agents request, hold the returned Inventory in trust for Agent, segregate all returned Inventory from all of its other property, dispose of the returned Inventory solely according to Agents instructions, and not issue any credits, discounts or allowances with respect thereto without Agents prior written consent.
(e) To the extent that applicable law imposes duties on Agent or any Lender to exercise remedies in a commercially reasonable manner (which duties cannot be waived under such law), Borrower acknowledges and agrees that it is not commercially unreasonable for Agent or any Lender (i) to fail to incur expenses reasonably deemed significant by Agent or any Lender to prepare Collateral for disposition or otherwise to complete raw material or work in process into finished goods or other finished products for disposition, (ii) to fail to obtain third party consents for access to Collateral to be disposed of, or to obtain or, if not required by other law, to fail to obtain consents of any Governmental Authority or other third party for the collection or disposition of Collateral to be collected or disposed of, (iii) to fail to exercise collection remedies against account debtors, secondary obligors or other persons obligated on Collateral or to remove liens or encumbrances on or any adverse claims against Collateral, (iv) to exercise collection remedies against account debtors and other persons obligated on Collateral directly or through the use of collection agencies and other collection specialists, (v) to advertise dispositions of Collateral through publications or media of general circulation, whether or not the Collateral is of a specialized nature, (vi) to contact other persons, whether or not in the same business as Borrower, for expressions of interest in acquiring all or any portion of the Collateral, (vii) to hire one or more professional auctioneers to assist in the disposition of Collateral, whether or not the collateral is of a specialized nature, (viii) to dispose of Collateral by utilizing Internet sites that provide for the auction of assets of the types included in the Collateral or that have the reasonable capability of doing so, or that match buyers and sellers of assets, (ix) to dispose of assets in wholesale rather than retail markets, (x) to disclaim disposition warranties, (xi) to purchase insurance or credit enhancements to insure Agent or Lenders against risks of loss, collection or disposition of Collateral or to provide to Agent or Lenders a guaranteed return from the collection or disposition of Collateral, or (xii) to the extent deemed appropriate by Agent, to obtain the services of other brokers, investment bankers, consultants and other professionals to assist Agent in the collection or disposition of any of the Collateral. Borrower acknowledges that the purpose of this Section is to provide non-exhaustive indications of what actions or omissions by Agent or any Lender would not be commercially unreasonable in the exercise by Agent or any Lender of remedies against the Collateral and that other actions or omissions by Agent or any Lender shall not be deemed commercially unreasonable solely on account of not being indicated in this Section. Without limitation of the foregoing, nothing contained in this Section shall be construed to grant any rights to Borrower or to impose any duties on Agent or Lenders that would not have been granted or imposed by this Agreement or by applicable law in the absence of this Section.
(f) For the purpose of enabling Agent to exercise the rights and remedies hereunder, Borrower hereby grants to Agent, to the extent assignable, an irrevocable, non-exclusive license
(exercisable at any time an Event of Default shall exist or have occurred and for so long as the same is continuing) without payment of royalty or other compensation to Borrower, to use, assign, license or sublicense any of the trademarks, service-marks, trade names, business names, trade styles, designs, logos and other source of business identifiers and other Intellectual Property and general intangibles now owned or hereafter acquired by Borrower, wherever the same maybe located, including in such license reasonable access to all media in which any of the licensed items may be recorded or stored and to all computer programs used for the compilation or printout thereof.
(g) At any time an Event of Default exists or has occurred and is continuing, Agent may apply the cash proceeds of Collateral actually received by Agent from any sale, lease, foreclosure or other disposition of the Collateral to payment of the Obligations, in whole or in part and in accordance with the terms hereof, whether or not then due or may hold such proceeds as cash collateral for the Obligations. Borrower shall remain liable to Agent and Lenders for the payment of any deficiency with interest at the highest rate provided for herein and all costs and expenses of collection or enforcement, including attorneys fees and expenses.
(h) Without limiting the foregoing, upon the occurrence of a Default or an Event of Default and for so long as the same is continuing, (i) Agent and Lenders may, at Agents option, and upon the occurrence of an Event of Default at the direction of the Required Lenders, Agent and Lenders shall, without notice, (A) cease making Loans or arranging for Letter of Credit Accommodations or reduce the lending formulas or amounts of Loans and Letter of Credit Accommodations available to Borrower and/or (B) terminate any provision of this Agreement providing for any future Loans or Letter of Credit Accommodations to be made by Agent and Lenders to Borrower and (ii) Agent may, at its option, establish such Reserves as Agent determines, without limitation or restriction, notwithstanding anything to the contrary contained herein.
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING LAW
11.1 GOVERNING LAW; CHOICE OF FORUM; SERVICE OF PROCESS; JURY TRIAL WAIVER.
(a) The validity, interpretation and enforcement of this Agreement and the other Financing Agreements (except as otherwise provided therein) and any dispute arising out of the relationship between the parties hereto, whether in contract, tort, equity or otherwise, shall be governed by the internal laws of the State of Illinois but excluding any principles of conflicts of law or other rule of law that would cause the application of the law of any jurisdiction other than the laws of the State of Illinois.
(b) Borrower and Secured Parties each irrevocably consent and submit to the non-exclusive jurisdiction of the Circuit Court of Cook County, Illinois and the United States District Court for the Northern District of Illinois, whichever Agent may elect, and waive any objection based on venue or forum non conveniens with respect to any action instituted therein arising under this Agreement or any of the other Financing Agreements or in any way connected with or related or incidental to the dealings of the parties hereto in respect of this Agreement or any of the other Financing Agreements or the transactions related hereto or thereto, in each case
whether now existing or hereafter arising, and whether in contract, tort, equity or otherwise, and agree that any dispute with respect to any such matters shall be heard only in the courts described above (except that Agent and Lenders shall have the right to bring any action or proceeding against Borrower or its property in the courts of any other jurisdiction which Agent deems necessary or appropriate in order to realize on the Collateral or to otherwise enforce its rights against Borrower or its property).
(c) Borrower hereby waives personal service of any and all process upon it and consents that all such service of process may be made by registered or certified mail (return receipt requested) directed to its address set forth herein and service so made shall be deemed to be completed five (5) days after the same shall have been so deposited in the U.S. mails, or, at Agents option, by service upon Borrower in any other manner provided under the rules of any such courts.
(d) BORROWER AND SECURED PARTIES EACH HEREBY WAIVE ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO IN RESPECT OF THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR THE TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. BORROWER AND SECURED PARTIES EACH HEREBY AGREE AND CONSENT THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT BORROWER OR ANY SECURED PARTY MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
(e) Agent and Lenders shall not have any liability to Borrower (whether in tort, contract, equity or otherwise) for losses suffered by Borrower in connection with, arising out of, or in any way related to the transactions or relationships contemplated by this Agreement or any of the other Financing Agreements, or any act, omission or event occurring in connection herewith, unless it is determined by a final and non-appealable judgment or court order binding on Agent and such Lender, that the losses were the result of acts or omissions constituting gross negligence or willful misconduct. Borrower: (i) certifies that neither Agent, any Lender nor any representative, agent or attorney acting for or on behalf of Agent or any Lender has represented, expressly or otherwise, that Agent and Lenders would not, in the event of litigation, seek to enforce any of the waivers provided for in this Agreement or any of the other Financing Agreements and (ii) acknowledges that in entering into this Agreement and the other Financing Agreements, Agent and Lenders are relying upon, among other things, the waivers and certifications set forth in this Section 11.1 and elsewhere herein and therein.
11.2 WAIVER OF NOTICES. Borrower hereby expressly waives demand, presentment, protest and notice of protest and notice of dishonor with respect to any and all instruments and chattel paper, included in or evidencing any of the Obligations or the Collateral, and any and all other demands and notices of any kind or nature whatsoever with respect to the Obligations, the
Collateral and this Agreement, except such as are expressly provided for herein. No notice to or demand on Borrower which Agent or any Lender may elect to give shall entitle Borrower to any other or further notice or demand in the same, similar or other circumstances.
11.3 AMENDMENTS AND WAIVERS.
(a) Neither this Agreement nor any other Financing Agreement nor any terms hereof or thereof may be amended, waived, discharged or terminated unless such amendment, waiver, discharge or termination is in writing signed by Agent and the Required Lenders or at Agents option, by Agent with the authorization of the Required Lenders, and as to amendments to any of the Financing Agreements (other than with respect to any provision of Section 12 hereof), by Borrower against which enforcement is sought; except, that, no such amendment, waiver, discharge or termination shall:
(i) reduce the interest rate or any fees or extend the time of payment of principal, interest or any fees or reduce the principal amount of any Loan or Letter of Credit Accommodations, in each case without the consent of each Lender directly affected thereby,
(ii) increase the Commitment of any Lender over the amount thereof then in effect or provided hereunder, in each case without the consent of the Lender directly affected thereby,
(iii) release any Collateral (except as expressly required or permitted hereunder or under any of the other Financing Agreements or applicable law and except as permitted under Section 12.11(b) hereof), without the consent of Agent and all of Lenders,
(iv) reduce any percentage specified in the definition of Required Lenders, without the consent of Agent and all of Lenders,
(v) consent to the assignment or transfer by Borrower of any of its rights and obligations under this Agreement, without the consent of Agent and all of Lenders,
(vi) amend, modify or waive any terms of this Section 11.3, without the consent of Agent and all of Lenders, or
(vii) increase the advance rates constituting part of the Borrowing Base or increase the sublimits with respect to Loans based on Eligible Inventory or for Letter of Credit Accommodations, without the consent of Agent and all of Lenders.
(b) Agent and Lenders shall not, by any act, delay, omission or otherwise be deemed to have expressly or impliedly waived any of its or their rights, powers and/or remedies unless such waiver shall be in writing and signed as provided herein. Any such waiver shall be enforceable only to the extent specifically set forth therein. A waiver by Agent or any Lender of any right, power and/or remedy on any one occasion shall not be construed as a bar to or waiver of any such right, power and/or remedy which Agent or any Lender would otherwise have on any future occasion, whether similar in kind or otherwise.
(c) Notwithstanding anything to the contrary contained in Section 11.3(a) above, in connection with any amendment, waiver, discharge or termination, in the event that any Lender whose consent thereto is required shall fail to consent or fail to consent in a timely manner (such Lender being referred to herein as a Non-Consenting Lender), but the consent of any other Lenders to such amendment, waiver, discharge or termination that is required are obtained, if any, then Congress shall have the right, but not the obligation, to purchase at any time thereafter, and upon the exercise by Congress of such right, such Non-Consenting Lender shall have the obligation, to sell, assign and transfer to Congress or such Eligible Transferee as Congress may specify, the Commitment of such Non-Consenting Lender and all rights and interests of such Non-Consenting Lender pursuant thereto. Congress shall provide the Non-Consenting Lender with prior written notice of its intent to exercise its right under this Section, which notice shall specify on date on which such purchase and sale shall occur. Such purchase and sale shall be pursuant to the terms of an Assignment and Acceptance (whether or not executed by the Non-Consenting Lender), except that on the date of such purchase and sale, Congress, or such Eligible Transferee specified by Congress, shall pay to the Non-Consenting Lender (except as Congress and such Non-Consenting Lender may otherwise agree) the amount equal to: (i) the principal balance of the Loans held by the Non-Consenting Lender outstanding as for the close of business on the business day immediately preceding the effective date of such purchase and sale, plus (ii) amounts accrued and unpaid in respect of interest and fees payable to the Non-Consenting Lender to the effective date of the purchase (but in no event shall the Non-Consenting Lender be deemed entitled to any early termination fee), minus (iii) the amount of the closing fee received by the Non-Consenting Lender pursuant to the terms hereof or of any of the other Financing Agreements multiplied by the fraction, the numerator of which is the number of months remaining in the then current term of the Credit Facility and the denominator of which is the number of months in the then current term thereof. Such purchase and sale shall be effective on the date of the payment of such amount to the Non-Consenting Lender and the Commitment of the Non-Consenting Lender shall terminate on such date.
(d) The consent of Agent shall be required for any amendment, waiver or consent affecting the rights or duties of Agent hereunder or under any of the other Financing Agreements, in addition to the consent of the Lenders otherwise required by this Section and the exercise by Agent of any of its rights hereunder with respect to Reserves or Eligible Accounts or Eligible Inventory shall not be deemed an amendment to the advance rates provided for in this Section 11.3.
11.4 WAIVER OF COUNTERCLAIMS. Borrower waives all rights to interpose any claims, deductions, setoffs or counterclaims of any nature (other then compulsory counterclaims) in any action or proceeding with respect to this Agreement, the Obligations, the Collateral or any matter arising therefrom or relating hereto or thereto.
11.5 INDEMNIFICATION. Other than with respect to Taxes (for which the indemnification obligations of Borrower to Agent and Lenders are subject to Section 6.5 hereof) Borrower shall, jointly and severally, indemnify and hold Agent and each Lender, and its officers, directors, agents, employees, advisors and counsel and their respective Affiliates (each such person being an Indemnitee), harmless from and against any and all losses, claims, damages, liabilities, costs or expenses (including reasonable attorneys fees and expenses) imposed on, incurred by or asserted against any of them in connection with any litigation, investigation, claim or proceeding
commenced or threatened related to the negotiation, preparation, execution, delivery, enforcement, performance or administration of this Agreement, any other Financing Agreements, or any undertaking or proceeding related to any of the transactions contemplated hereby or any act, omission, event or transaction related or attendant thereto, including amounts paid in settlement, court costs, and the reasonable fees and expenses of counsel except that Borrower shall not have any obligation under this Section 11.5 to indemnify an Indemnitee with respect to a matter covered hereby resulting from the gross negligence or willful misconduct of such Indemnitee as determined pursuant to a final, non-appealable judgment of a court of competent jurisdiction (but without limiting the obligations of Borrower as to any other Indemnitee). To the extent that the undertaking to indemnify, pay and hold harmless set forth in this Section may be unenforceable because it violates any law or public policy, Borrower shall pay the maximum portion which it is permitted to pay under applicable law to Agent and Lenders in satisfaction of indemnified matters under this Section. To the extent permitted by applicable law, Borrower shall not assert, and Borrower hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement, any of the other Financing Agreements or any undertaking or transaction contemplated hereby. All amounts due under this Section shall be payable upon demand. The foregoing indemnity shall survive the payment of the Obligations and the termination or non-renewal of this Agreement.
11.6 CURRENCY INDEMNITY. If, for the purposes of obtaining judgment in any court in any jurisdiction with respect to this Agreement or any of the other Financing Agreements, it becomes necessary to convert into the currency of such jurisdiction (the Judgment Currency) any amount due under this Agreement or under any of the other Financing Agreements in any currency other than the Judgment Currency (the Currency Due), then conversion shall be made at the Exchange Rate prevailing on the Business Day before the day on which judgment is given for the purchase of the Currency Due with the Judgment Currency. In the event that there is a change in the Exchange Rate prevailing between the Business Day before the day on which the judgment is given and the date of receipt by Agent of the amount due, Borrower will, on the date of receipt by Agent, pay such additional amounts, if any, or be entitled to receive reimbursement of such amount, if any, as may be necessary to ensure that the amount received by Agent and Lenders on such date is the amount in the Judgment Currency which when converted at the Exchange Rate prevailing on the date of receipt by Agent is the amount then due under this Agreement or such other of the Financing Agreements in the Currency Due. If the amount of the Currency Due which Agent is able to purchase is less than the amount of the Currency Due originally due to it, Borrower shall indemnify and save Agent and Lenders harmless from and against loss or damage arising as a result of such deficiency. The indemnity contained herein shall constitute an obligation separate and independent from the other obligations contained in this Agreement and the other Financing Agreements, shall give rise to a separate and independent cause of action, shall apply irrespective of any indulgence granted by Agent from time to time and shall continue in full force and effect notwithstanding any judgment or order for a liquidated sum in respect of an amount due under this Agreement or any of the other Financing Agreements or under any judgment or order.
SECTION 12. THE AGENT
12.1 APPOINTMENT, POWERS AND IMMUNITIES. Each Secured Party irrevocably designates, appoints and authorizes Congress to act as Agent hereunder and under the other Financing Agreements with such powers as are specifically delegated to Agent by the terms of this Agreement and of the other Financing Agreements, together with such other powers as are reasonably incidental thereto. Agent (a) shall have no duties or responsibilities except those expressly set forth in this Agreement and in the other Financing Agreements, and shall not by reason of this Agreement or any other Financing Agreement be a trustee or fiduciary for any Secured Party; (b) shall not be responsible to Secured Parties for any recitals, statements, representations or warranties contained in this Agreement or in any of the other Financing Agreements, or in any certificate or other document referred to or provided for in, or received by any of them under, this Agreement or any other Financing Agreement, or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Financing Agreement or any other document referred to or provided for herein or therein or for any failure by Borrower or any other Person to perform any of its obligations hereunder or thereunder; and (c) shall not be responsible to Secured Parties for any action taken or omitted to be taken by it hereunder or under any other Financing Agreement or under any other document or instrument referred to or provided for herein or therein or in connection herewith or therewith, except for its own gross negligence or willful misconduct as determined by a final non-appealable judgment of a court of competent jurisdiction. Agent may employ agents and attorneys-in-fact and shall not be responsible for the negligence or misconduct of any such agents or attorneys-in-fact selected by it in good faith. Agent may deem and treat the payee of any note as the holder thereof for all purposes hereof unless and until the assignment thereof pursuant to an agreement (if and to the extent permitted herein) in form and substance satisfactory to Agent shall have been delivered to and acknowledged by Agent. The designation of any Person as Documentation Agent under the Loan Agreement shall not create any rights in favor of it in such capacity nor subject it to any duties or obligations in such capacity.
12.2 RELIANCE BY AGENT. Agent shall be entitled to rely upon any certification, notice or other communication (including any thereof by telephone, telecopy, telex, telegram or cable) believed by it to be genuine and correct and to have been signed or sent by or on behalf of the proper Person or Persons, and upon advice and statements of legal counsel, independent accountants and other experts selected by Agent. As to any matters not expressly provided for by this Agreement or any other Financing Agreement, Agent shall in all cases be fully protected in acting, or in refraining from acting, hereunder or thereunder in accordance with instructions given by the Required Lenders or all of Secured Parties as is required in such circumstance, and such instructions of such Agents and any action taken or failure to act pursuant thereto shall be binding on all Secured Parties.
12.3 EVENTS OF DEFAULT.
(a) Agent shall not be deemed to have knowledge or notice of the occurrence of a Default or an Event of Default or other failure of a condition precedent to the Loans and Letter of Credit Accommodations hereunder, unless and until Agent has received written notice from a Lender or Borrower specifying such Event of Default or any unfulfilled condition precedent, and stating that such notice is a Notice of Default or Failure of Condition. In the event that Agent
receives such a Notice of Default or Failure of Condition, Agent shall give prompt notice thereof to the Lenders. Agent shall (subject to Section 12.7) take such action with respect to any such Event of Default or failure of condition precedent as shall be directed by the Required Lenders to the extent provided for herein; PROVIDED, THAT, unless and until Agent shall have received such directions, Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to or by reason of such Event of Default or failure of condition precedent, as it shall deem advisable in the best interest of Lenders. Without limiting the foregoing, and notwithstanding the existence or occurrence and continuance of an Event of Default or any other failure to satisfy any of the conditions precedent set forth in Section 4 of this Agreement to the contrary, unless and until otherwise directed by the Required Lenders, Agent may, but shall have no obligation to, continue to make Loans and issue or cause to be issued Letter of Credit Accommodations for the ratable account and risk of Lenders from time to time if Agent believes making such Loans or issuing or causing to be issued such Letter of Credit Accommodations is in the best interests of Lenders.
(b) Except with the prior written consent of Agent, no Secured Party may assert or exercise any enforcement right or remedy in respect of the Loans, Letter of Credit Accommodations or other Obligations, as against Borrower or any of the Collateral or other property of Borrower.
12.4 CONGRESS IN ITS INDIVIDUAL CAPACITY. With respect to its Commitment and the Loans made and Letter of Credit Accommodations issued or caused to be issued by it (and any successor acting as Agent), so long as Congress shall be a Lender hereunder, it shall have the same rights and powers hereunder as any other Lender and may exercise the same as though it were not acting as Agent, and the term Lender or Lenders shall, unless the context otherwise indicates, include Congress in its individual capacity as Lender hereunder. Congress (and any successor acting as Agent) and its Affiliates may (without having to account therefor to any Lender) lend money to, make investments in and generally engage in any kind of business with Borrower (and any of its Subsidiaries or Affiliates) as if it were not acting as Agent, and Congress and its Affiliates may accept fees and other consideration from Borrower and any of its Subsidiaries and Affiliates for services in connection with this Agreement or otherwise without having to account for the same to Lenders.
12.5 INDEMNIFICATION. Secured Parties agree to indemnify Agent (to the extent not reimbursed by Borrower hereunder and without limiting any obligations of Borrower hereunder) ratably, in accordance with their Pro Rata Shares, for any and all claims of any kind and nature whatsoever that may be imposed on, incurred by or asserted against Agent (including by any Secured Party) arising out of or by reason of any investigation in or in any way relating to or arising out of this Agreement or any other Financing Agreement or any other documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby (including the costs and expenses that Agent is obligated to pay hereunder) or the enforcement of any of the terms hereof or thereof or of any such other documents; PROVIDED, THAT, no Lender shall be liable for any of the foregoing to the extent it arises from the gross negligence or willful misconduct of the party to be indemnified as determined by a final non-appealable judgment of a court of competent jurisdiction. The foregoing indemnity shall survive the payment of the Obligations and the termination or non-renewal of this Agreement.
12.6 NON-RELIANCE ON AGENT AND OTHER LENDERS. Each Secured Party agrees that it has, independently and without reliance on Agent or other Secured Party, and based on such documents and information as it has deemed appropriate, made its own credit analysis of Borrower and has made its own decision to enter into this Agreement and that it will, independently and without reliance upon Agent or any other Secured Party, and based on such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking or not taking action under this Agreement or any of the other Financing Agreements. Agent shall not be required to keep itself informed as to the performance or observance by Borrower of any term or provision of this Agreement or any of the other Financing Agreements or any other document referred to or provided for herein or therein or to inspect the properties or books of Borrower. Agent will use reasonable efforts to provide Lenders with any information received by Agent from Borrower which is required to be provided to Lenders or deemed to be requested by Lenders hereunder and with a copy of any Notice of Default or Failure of Condition received by Agent from Borrower or any Lender; PROVIDED, THAT, Agent shall not be liable to any Lender for any failure to do so, except to the extent that such failure is attributable to Agents own gross negligence or willful misconduct as determined by a final non-appealable judgment of a court of competent jurisdiction. Except for notices, reports and other documents expressly required to be furnished to Lenders by Agent or deemed requested by Lenders hereunder, Agent shall not have any duty or responsibility to provide any Lender with any other credit or other information concerning the affairs, financial condition or business of Borrower that may come into the possession of Agent.
12.7 FAILURE TO ACT. Except for action expressly required of Agent hereunder and under the other Financing Agreements, Agent shall in all cases be fully justified in failing or refusing to act hereunder and thereunder unless it shall receive further assurances to its satisfaction from Secured Parties of their indemnification obligations under Section 12.5 hereof against any and all liability and expense that may be incurred by it by reason of taking or continuing to take any such action.
12.8 ADDITIONAL LOANS. Agent shall not make any Loans or provide any Letter of Credit Accommodations to Borrower on behalf of Lenders intentionally and with actual knowledge that such Loans or Letter of Credit Accommodations would cause the aggregate amount of the total outstanding Loans and Letter of Credit Accommodations to Borrower to exceed the Borrowing Base of Borrower, without the prior consent of all Lenders, except, that, Agent may make such additional Loans or provide such additional Letter of Credit Accommodations on behalf of Lenders, intentionally and with actual knowledge that such Loans or Letter of Credit Accommodations will cause the total outstanding Loans and Letter of Credit Accommodations to Borrower to exceed the Borrowing Base, as Agent may deem necessary or advisable in its discretion; provided, that: (a) the total principal amount of the additional Loans or additional Letter of Credit Accommodations to Borrower which Agent may make or provide after obtaining such actual knowledge that the aggregate principal amount of the Loans equal or exceed the Borrowing Base, plus the amount of Special Agent Advances made pursuant to Section 12.11(a)(ii) hereof then outstanding, shall not exceed the aggregate amount equal to $7,500,000 and shall not cause the total principal amount of the Loans and Letter of Credit Accommodations to exceed the Maximum Credit and (b) no such additional Loan or Letter of Credit Accommodation shall be outstanding more than ninety (90) days after the date such additional Loan or Letter of Credit Accommodation is made or issued (as the case may be),
except as the Required Lenders may otherwise agree. Each Lender shall be obligated to pay Agent the amount of its Pro Rata Share of any such additional Loans or Letter of Credit Accommodations.
12.9 CONCERNING THE COLLATERAL AND THE RELATED FINANCING AGREEMENTS. Each Secured Party authorizes and directs Agent to enter into this Agreement and the other Financing Agreements. Each Secured Party agrees that any action taken by Agent or Required Lenders in accordance with the terms of this Agreement or the other Financing Agreements and the exercise by Agent or Required Lenders of their respective powers set forth therein or herein, together with such other powers that are reasonably incidental thereto, shall be binding upon all of the Secured Parties.
12.10 FIELD AUDIT, EXAMINATION REPORTS AND OTHER INFORMATION; DISCLAIMER BY LENDERS. By signing this Agreement, each Lender:
(a) is deemed to have requested that Agent furnish such Lender, promptly after it becomes available, a copy of each field audit or examination report and report with respect to the Borrowing Base prepared or received by Agent (each field audit or examination report and report with respect to the Borrowing Base being referred to herein as a Report and collectively, Reports), appraisals with respect to the Collateral and financial statements with respect to Borrower and its Subsidiaries received by Agent;
(b) expressly agrees and acknowledges that Agent (i) does not make any representation or warranty as to the accuracy of any Report, appraisal or financial statement or (ii) shall not be liable for any information contained in any Report, appraisal or financial statement;
(c) expressly agrees and acknowledges that the Reports are not comprehensive audits or examinations, that Agent or any other party performing any audit or examination will inspect only specific information regarding Borrower and will rely significantly upon Borrowers books and records, as well as on representations of Borrowers personnel; and
(d) agrees to keep all Reports confidential and strictly for its internal use in accordance with the terms of Section 13.5 hereof, and not to distribute or use any Report in any other manner.
12.11 COLLATERAL MATTERS.
(a) Agent may, at its option, from time to time, at any time on or after an Event of Default and for so long as the same is continuing or upon any other failure of a condition precedent to the Loans and Letter of Credit Accommodations hereunder, make such disbursements and advances (Special Agent Advances) which Agent, in its sole discretion, (i) deems necessary or desirable either to preserve or protect the Collateral or any portion thereof or (ii) to enhance the likelihood or maximize the amount of repayment by Borrower of the Loans and other Obligations; PROVIDED, THAT, the aggregate principal amount of the Special Agent Advances pursuant to this clause (ii), plus the then outstanding principal amount of the additional Loans and Letter of Credit Accommodations which Agent may make or provide as set forth in Section 12.8 hereof, shall not exceed the aggregate amount of $7,500,000 or (iii) to pay any other
amount chargeable to Borrower pursuant to the terms of this Agreement or any of the other Financing Agreements consisting of (A) costs, fees and expenses and (B) payments to any issuer of Letter of Credit Accommodations. Special Agent Advances shall be repayable on demand and together with all interest thereon shall constitute Obligations secured by the Collateral. Special Agent Advances shall not constitute Loans but shall otherwise constitute Obligations hereunder. Interest on Special Agent Advances shall be payable at the Interest Rate then applicable to Prime Rate Loans and shall be payable on demand. Without limitation of its obligations pursuant to Section 6.10, each Lender agrees that it shall make available to Agent, upon Agents demand, in immediately available funds, the amount equal to such Lenders Pro Rata Share of each such Special Agent Advance. If such funds are not made available to Agent by such Lender, such Lender shall be deemed a Defaulting Lender and Agent shall be entitled to recover such funds, on demand from such Lender together with interest thereon for each day from the date such payment was due until the date such amount is paid to Agent at the Federal Funds Rate for each day during such period (as published by the Federal Reserve Bank of New York or at Agents option based on the arithmetic mean determined by Agent of the rates for the last transaction in overnight Federal funds arranged prior to 9:00 a.m. (New York City time) on that day by each of the three leading brokers of Federal funds transactions in New York City selected by Agent) and if such amounts are not paid within three (3) days of Agents demand, at the highest Interest Rate provided for in Section 3.1 hereof applicable to Prime Rate Loans.
(b) Lenders hereby irrevocably authorize Agent, at its option and in its discretion to release any security interest in, mortgage or lien upon, any of the Collateral (i) upon termination of the Commitments and payment and satisfaction of all of the Obligations and delivery of cash collateral to the extent required under Section 13.1 below, or (ii) constituting property being sold or disposed of if Borrower certifies to Agent that the sale or disposition is made in compliance with Section 9.7 hereof (and Agent may rely conclusively on any such certificate, without further inquiry), or (iii) constituting property in which Borrower did not own an interest at the time the security interest, mortgage or lien was granted or at any time thereafter, or (iv) having a value in the aggregate in any twelve (12) month period of less than $2,500,000, and to the extent Agent may release its security interest in and lien upon any such Collateral pursuant to the sale or other disposition thereof, such sale or other disposition shall be deemed consented to by Lenders, or (v) if required or permitted under the terms of any of the other Financing Agreements, including any intercreditor agreement, or (vi) approved, authorized or ratified in writing by all of Lenders. Except as provided above, Agent will not release any security interest in, mortgage or lien upon, any of the Collateral without the prior written authorization of all of Lenders. Upon request by Agent at any time, Lenders will promptly confirm in writing Agents authority to release particular types or items of Collateral pursuant to this Section. Nothing contained herein shall be construed to require the consent of UK Lender or any party providing a Hedge Agreement or any Bank Product Provider to any release of any Collateral or termination of security interests in any Collateral.
(c) Without any manner limiting Agents authority to act without any specific or further authorization or consent by the Required Lenders, each Lender agrees to confirm in writing, upon request by Agent, the authority to release Collateral conferred upon Agent under this Section. Agent shall (and is hereby irrevocably authorized by Lenders to) execute such documents as may be necessary to evidence the release of the security interest, mortgage or liens granted to Agent upon any Collateral to the extent set forth above; PROVIDED, THAT, (i) Agent shall
not be required to execute any such document on terms which, in Agents opinion, would expose Agent to liability or create any obligations or entail any consequence other than the release of such security interest, mortgage or liens without recourse or warranty and (ii) such release shall not in any manner discharge, affect or impair the Obligations or any security interest, mortgage or lien upon (or obligations of Borrower in respect of) the Collateral retained by Borrower.
(d) Agent shall have no obligation whatsoever to any Lender or any other Person to investigate, confirm or assure that the Collateral exists or is owned by Borrower or is cared for, protected or insured or has been encumbered, or that any particular items of Collateral meet the eligibility criteria applicable in respect of the Loans or Letter of Credit Accommodations hereunder, or whether any particular reserves are appropriate, or that the liens and security interests granted to Agent pursuant hereto or any of the Financing Agreements or otherwise have been properly or sufficiently or lawfully created, perfected, protected or enforced or are entitled to any particular priority, or to exercise at all or in any particular manner or under any duty of care, disclosure or fidelity, or to continue exercising, any of the rights, authorities and powers granted or available to Agent in this Agreement or in any of the other Financing Agreements, it being understood and agreed that in respect of the Collateral, or any act, omission or event related thereto, subject to the other terms and conditions contained herein, Agent may act in any manner it may deem appropriate, in its discretion, given Agents own interest in the Collateral as a Lender and that Agent shall have no duty or liability whatsoever to any other Lender.
12.12 AGENCY FOR PERFECTION. Each Secured Party hereby appoints Agent and each other Secured Party as agent and bailee for the purpose of perfecting the security interests in and liens upon the Collateral of Agent in assets which, in accordance with Article 9 of the UCC can be perfected only by possession (or where the security interest of a secured party with possession has priority over the security interest of another secured party) and Agent and each Secured Party hereby acknowledges that it holds possession of any such Collateral for the benefit of Agent as secured party. Should any Secured Party obtain possession of any such Collateral, such Secured Party shall notify Agent thereof, and, promptly upon Agents request therefor shall deliver such Collateral to Agent or in accordance with Agents instructions.
12.13 SUCCESSOR AGENT. Agent may resign as Agent upon thirty (30) days notice to Lenders and Borrower. If Agent resigns under this Agreement, the Required Lenders shall appoint from among the Lenders a successor agent for Lenders. If no successor agent is appointed prior to the effective date of the resignation of Agent, Agent may appoint, after consulting with Lenders and Borrower, a successor agent from among Lenders. Upon the acceptance by the Lender so selected of its appointment as successor agent hereunder, such successor agent shall succeed to all of the rights, powers and duties of the retiring Agent and the term Agent as used herein and in the other Financing Agreements shall mean such successor agent and the retiring Agents appointment, powers and duties as Agent shall be terminated. After any retiring Agents resignation hereunder as Agent, the provisions of this Section 12 shall inure to its benefit as to any actions taken or omitted by it while it was Agent under this Agreement. If no successor agent has accepted appointment as Agent by the date which is thirty (30) days after the date of a retiring Agents notice of resignation, the retiring Agents resignation shall nonetheless thereupon become effective and Lenders shall perform all of the duties of Agent hereunder until such time, if any, as the Required Lenders appoint a successor agent as provided for above.
SECTION 13. TERM OF AGREEMENT; MISCELLANEOUS
13.1 TERM.
(a) This Agreement and the other Financing Agreements shall become effective as of the date set forth on the first page hereof and shall continue in full force and effect for a term ending on April 12, 2007 (the Maturity Date), unless sooner terminated pursuant to the terms hereof. In addition, Borrower may terminate this Agreement at any time upon ten (10) days prior written notice to Agent (which notice shall be irrevocable) and, Agent may, at its option, and shall at the direction of Required Lenders, terminate this Agreement at any time (after giving notice to Borrower) on or after an Event of Default. Upon the Maturity Date or any other effective date of termination of the Financing Agreements, Borrower shall pay to Agent all outstanding and unpaid Obligations and shall furnish cash collateral to Agent (or at Agents option, a letter of credit issued for the account of Borrower and at Borrowers expense, in form and substance satisfactory to Agent, by an issuer acceptable to Agent and payable to Agent as beneficiary) in such amounts as Agent determines are reasonably necessary to secure Agent and Lenders from loss, cost, damage or expense, including attorneys fees and expenses, in connection with any contingent Obligations, including issued and outstanding Letter of Credit Accommodations and checks or other payments provisionally credited to the Obligations and/or as to which Agent or any Lender has not yet received and indefeasible payment and any continuing obligations of Agent or any Lender pursuant to any Deposit Account Control Agreement. The amount of such cash collateral (or letter of credit, as Agent may determine) as to any Letter of Credit Accommodations shall be in the amount equal to one hundred five (105%) percent of the amount of the Letter of Credit Accommodations plus the amount of any fees and expenses payable in connection therewith through the end of the latest expiration date of such Letter of Credit Accommodations. Such payments in respect of the Obligations and cash collateral shall be remitted by wire transfer in Federal funds to the Agent Payment Account or such other bank account of Agent, as Agent may, in its discretion, designate in writing to Borrower for such purpose. Interest shall be due until and including the next Business Day, if the amounts so paid by Borrower to the Agent Payment Account or other bank account designated by Agent are received in such bank account later than 12:00 noon, Chicago time.
(b) If for any reason this Agreement is terminated prior to the Maturity Date, in view of the impracticality and extreme difficulty of ascertaining actual damages and by mutual agreement of the parties as to a reasonable calculation of Agents and each Lenders lost profits as a result thereof, Borrower shall pay to Agent, for the account of Lenders (in accordance with the arrangements by and among the Lenders), upon the effective date of such termination, an early termination fee in the amount equal to one (1%) percent of the Maximum Credit as then in effect. Notwithstanding anything to contrary contained in this Section, in the event of the termination of this Agreement by Borrower prior to the Maturity Date and the full and final repayment in cash of all of the Obligations and receipt by Agent of cash collateral or at its option a letter of credit for contingent obligations in accordance with the terms hereof with the proceeds of initial loans and advances or other financial accommodations to Borrower pursuant to a credit facility provided by Wachovia Bank, National Association or its affiliates (or for which Wachovia Bank, National Association or any of its affiliates is acting as agent), Borrower shall not be required to pay the early termination fee provided for above.
(c) No termination of this Agreement or the other Financing Agreements shall relieve or discharge Borrower of its duties, obligations and covenants under this Agreement or the other Financing Agreements until all Obligations have been fully and finally discharged and paid in cash (other than contingent Obligations as to which Agent shall have received such cash collateral, or letter of credit, as Agent may determine, as is required pursuant to the terms hereof), and Agents continuing security interest in the Collateral and the rights and remedies of Agent and Lenders hereunder, under the other Financing Agreements and applicable law, shall remain in effect until all such Obligations have been fully and finally discharged and paid in cash (other than contingent Obligations as to which Agent shall have received such cash collateral, or letter of credit, as Agent may determine, as is required pursuant to the terms hereof). Accordingly, Borrower waives any rights it may have under the UCC to demand the filing of termination statements with respect to the Collateral and Agent shall not be required to send such termination statements to Borrower, or to file them with any filing office, unless and until this Agreement shall have been terminated in accordance with its terms and all Obligations are paid and satisfied in full in immediately available funds (other than contingent Obligations as to which Agent shall have received such cash collateral, or letter of credit, as Agent may determine, as is required pursuant to the terms hereof).
13.2 INTERPRETATIVE PROVISIONS.
(a) All terms used herein which are defined in Article 1, Article 8 or Article 9 of the UCC shall have the meanings given therein unless otherwise defined in this Agreement.
(b) All references to the plural herein shall also mean the singular and to the singular shall also mean the plural unless the context otherwise requires.
(c) All references to Borrower pursuant to the definitions set forth in the recitals hereto shall include its successors and assigns. All references to Agent or Lender pursuant to the definitions set forth in the recitals hereto, or to any other person herein, shall include their respective successors and assigns.
(d) The words hereof, herein, hereunder, this Agreement and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not any particular provision of this Agreement and as this Agreement now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced.
(e) The word including when used in this Agreement shall mean including, without limitation and the word will when used in this Agreement shall be construed to have the same meaning and effect as the word shall.
(f) An Event of Default shall exist or continue or be continuing until such Event of Default is waived in accordance with Section 11.3 or is cured. Reference herein to a Default or Event of Default that exists shall only include a Default or Event of Default, as the case may be, that has not been cured or waived in accordance with the terms hereof, so that such Default or Event of Default, as the case may be, shall cease to exist and shall not be deemed to be continuing if it has been so cured or waived.
(g) All references to the term good faith used herein when applicable to Agent or any Lender shall mean, notwithstanding anything to the contrary contained herein or in the UCC, honesty-in-fact in the conduct or transaction concerned and observance of reasonable commercial standards of fair dealing based on how an asset-based lender with similar rights providing a credit facility of the type set forth herein would act in similar circumstances at the time with the information then available to it. All references to the term reasonably as applied to any conduct or determination by Agent shall be based on how an asset-based lender with similar rights providing a credit facility of the type set forth herein would act in similar circumstances.
(h) Any accounting term used in this Agreement shall have, unless otherwise specifically provided herein, the meaning customarily given in accordance with GAAP, and all financial computations hereunder shall be computed unless otherwise specifically provided herein, in accordance with GAAP as consistently applied and using the same method for inventory valuation as used in the preparation of the financial statements of Borrower most recently received by Agent prior to the date hereof. Notwithstanding anything to the contrary contained in GAAP or any interpretations or other pronouncements by the Financial Accounting Standards Board or otherwise, the term unqualified opinion as used herein to refer to opinions or reports provided by accountants shall mean an opinion or report that is not only unqualified but also does not include any explanation, supplemental comment or other comment concerning the ability of the applicable person to continue as a going concern or the scope of the audit.
(i) In the computation of periods of time from a specified date to a later specified date, the word from means from and including, the words to and until each mean to but excluding and the word through means to and including.
(j) Unless otherwise expressly provided herein, (i) references herein to any agreement, document or instrument shall be deemed to include all subsequent amendments, modifications, supplements, extensions, renewals, restatements or replacements with respect thereto, but only to the extent the same are not prohibited by the terms hereof or of any other Financing Agreement, and (ii) references to any statute or regulation are to be construed as including all statutory and regulatory provisions consolidating, amending, replacing, recodifying, supplementing or interpreting the statute or regulation.
(k) The captions and headings of this Agreement are for convenience of reference only and shall not affect the interpretation of this Agreement.
(l) This Agreement and other Financing Agreements may use several different limitations, tests or measurements to regulate the same or similar matters. All such limitations, tests and measurements are cumulative and shall each be performed in accordance with their terms.
(m) This Agreement and the other Financing Agreements are the result of negotiations among and have been reviewed by counsel to Agent and the other parties, and are the products of all parties. Accordingly, this Agreement and the other Financing Agreements shall not be construed against Agent or Lenders merely because of Agents or any Lenders involvement in their preparation.
13.3 NOTICES. All notices, requests and demands hereunder shall be in writing and deemed to have been given or made: if delivered in person, immediately upon delivery; if by telex, telegram or facsimile transmission, immediately upon sending and upon confirmation of receipt; if by nationally recognized overnight courier service with instructions to deliver the next Business Day, one (1) Business Day after sending; and if by certified mail, return receipt requested, five (5) days after mailing. All notices, requests and demands upon the parties are to be given to the following addresses (or to such other address as any party may designate by notice in accordance with this Section):
If to Borrower: |
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Haynes International, Inc. |
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1020 West Park Avenue |
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Kokomo, Indiana 46904 |
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Attention: Mr. Marcel Martin |
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VP Finance and CFO |
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Telephone No.: 765-456-6000 |
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Telecopy No.: 765-456-6985 |
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with a copy to: |
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Skadden, Arps, Slate, Meagher & Flom LLP |
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333 West Wacker Drive |
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Chicago, Illinois 60606 |
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Attention: John Wm. Butler, Jr., Esq. |
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Telephone No.:312-407-0700 |
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Telecopy No.:312-407-0411 |
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If to Agent: |
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Congress Financial Corporation (Central) |
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150 South Wacker Drive |
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Chicago, Illinois 60606 |
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Attention: Portfolio Manager |
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Telephone No.: 312-332-0420 |
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Telecopy No.: 312-332-0424 |
13.4 PARTIAL INVALIDITY. If any provision of this Agreement is held to be invalid or unenforceable, such invalidity or unenforceability shall not invalidate this Agreement as a whole, but this Agreement shall be construed as though it did not contain the particular provision held to be invalid or unenforceable and the rights and obligations of the parties shall be construed and enforced only to such extent as shall be permitted by applicable law.
13.5 CONFIDENTIALITY.
(a) Agent and each Lender shall keep confidential, in accordance with its customary procedures for handling confidential information and safe and sound lending practices and consistent with its practices with respect to its own confidential information, any non-public written information supplied to it by Borrower pursuant to this Agreement; PROVIDED, THAT, nothing contained herein shall limit the disclosure of any such information: (i) to the extent required by statute, rule, regulation, subpoena or court order, (ii) to bank examiners and other regulators, auditors and/or accountants, in connection with any litigation to which Agent or such Lender is a party, (iii) to any Lender or Participant (or prospective Lender or Participant) or to
any Affiliate of any Lender so long as such information has been delivered to such Lender or Participant (or prospective Lender or Participant) or Affiliate subject to the written condition that such information shall be treated as confidential or such Lender or Participant (or prospective Lender or Participant) shall have otherwise agreed to treat such information as confidential in accordance with this Section 13.5, or (iv) to counsel for Agent or any Lender or Participant (or prospective Lender or Participant).
(b) In the event that Agent or any Lender receives a request or demand to disclose any confidential information pursuant to any subpoena or court order, Agent or such Lender, as the case may be, agrees (i) to the extent permitted by applicable law, Agent or such Lender will promptly notify Borrower of such request so that Borrower may seek a protective order or other appropriate relief or remedy and (ii) if disclosure of such information is required, disclose such information and, subject to reimbursement by Borrower of Agents or such Lenders expenses, cooperate with Borrower in the reasonable efforts to obtain an order or other reliable assurance that confidential treatment will be accorded to such portion of the disclosed information which Borrower so designates.
(c) In no event shall this Section 13.5 or any other provision of this Agreement, any of the other Financing Agreements or applicable law be deemed: (i) to apply to or restrict disclosure of information that has been or is made public by Borrower or any third party or otherwise becomes generally available to the public other than as a result of a disclosure in violation hereof, (ii) to apply to or restrict disclosure of information that was or becomes available to Agent or any Lender (or any Affiliate of any Lender) on a non-confidential basis from a person other than Borrower or a person Agent or Lender has actual knowledge has provided such information to Agent or such Lender, as the case may be, in violation of a binding agreement upon such person known to such Agent or Lender to have obtained such information on a confidential basis from Borrower, and (iii) to require Agent or any Lender to return any materials furnished by Borrower to Agent or a Lender. The obligations of Agent and Lenders under this Section 13.5 shall supersede and replace the obligations of Agent and Lenders under any confidentiality letter signed prior to the date hereof.
13.6 SUCCESSORS. This Agreement, the other Financing Agreements and any other document referred to herein or therein shall be binding upon and inure to the benefit of and be enforceable by Agent, Lenders, Borrower and their respective successors and assigns, except that Borrower may not assign its rights under this Agreement, the other Financing Agreements and any other document referred to herein or therein without the prior written consent of Agent and Lenders. Any such purported assignment without such express prior written consent shall be void. No Lender may assign its rights and obligations under this Agreement without the prior written consent of Agent, except as provided in Section 13.7 below. The terms and provisions of this Agreement and the other Financing Agreements are for the purpose of defining the relative rights and obligations of Borrower, Agent and Lenders with respect to the transactions contemplated hereby and there shall be no third party beneficiaries of any of the terms and provisions of this Agreement or any of the other Financing Agreements.
13.7 ASSIGNMENTS; PARTICIPATIONS.
(a) Each Lender may, with the prior written consent of Agent, assign all or, if less than all, a portion equal to at least $10,000,000 in the aggregate for the assigning Lender, of such rights and obligations under this Agreement to one or more Eligible Transferees (but not including for this purpose any assignments in the form of a participation), each of which assignees shall become a party to this Agreement as a Lender by execution of an Assignment and Acceptance; PROVIDED, THAT, (i) such transfer or assignment will not be effective until recorded by Agent on the Register and (ii) Agent shall have received for its sole account payment of a processing fee from the assigning Lender or the assignee in the amount of $5,000.
(b) Agent shall maintain a register of the names and addresses of Lenders, their Commitments and the principal amount and interest of their Loans (the Register). Agent shall also maintain a copy of each Assignment and Acceptance delivered to and accepted by it and shall modify the Register to give effect to each Assignment and Acceptance. The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and Borrower, Agent and Lenders may treat each Person whose name is recorded in the Register as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by Borrower and any Lender at any reasonable time and from time to time upon reasonable prior notice. This Section 13.7 shall be construed so that the Obligations are at all times maintained in registered form within the meaning of Sections 163(f), 871(h)(2) and 881(c)(2) of the Code and regulations thereunder.
(c) Upon such execution, delivery, acceptance and recording, from and after the effective date specified in each Assignment and Acceptance, the assignee thereunder shall be a party hereto and to the other Financing Agreements and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, have the rights and obligations (including, without limitation, the obligation to participate in Letter of Credit Accommodations) of a Lender hereunder and thereunder and the assigning Lender shall, to the extent that rights and obligations hereunder have been assigned by it to an Eligible Transferee pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under this Agreement.
(d) By execution and delivery of an Assignment and Acceptance, the assignor and assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) other than as provided in such Assignment and Acceptance, the assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or any of the other Financing Agreements or the execution, legality, enforceability, genuineness, sufficiency or value of this Agreement or any of the other Financing Agreements furnished pursuant hereto, (ii) the assigning Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of Borrower or any of its Subsidiaries or the performance or observance by Borrower of any of the Obligations; (iii) such assignee confirms that it has received a copy of this Agreement and the other Financing Agreements, together with such other documents and information it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance, (iv) such assignee will, independently and without reliance upon the assigning Lender, Agent and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement and the other Financing Agreements, (v) such
assignee appoints and authorizes Agent to take such action as agent on its behalf and to exercise such powers under this Agreement and the other Financing Agreements as are delegated to Agent by the terms hereof and thereof, together with such powers as are reasonably incidental thereto, and (vi) such assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of this Agreement and the other Financing Agreements are required to be performed by it as a Lender. Subject to Section 13.5 hereof, Agent and Lenders may furnish any information concerning Borrower in the possession of Agent or any Lender from time to time to assignees and Participants.
(e) Each Lender may sell participations to one or more banks or other entities in or to all or a portion of its rights and obligations under this Agreement and the other Financing Agreements (including, without limitation, all or a portion of its Commitments and the Loans owing to it and its participation in the Letter of Credit Accommodations, without the consent of Agent or the other Lenders); PROVIDED, THAT, (i) such Lenders obligations under this Agreement (including, without limitation, its Commitment hereunder) and the other Financing Agreements shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, and Borrower, the other Lenders and Agent shall continue to deal solely and directly with such Lender in connection with such Lenders rights and obligations under this Agreement and the other Financing Agreements, and (iii) the Participant shall not have any rights under this Agreement or any of the other Financing Agreements (the Participants rights against such Lender in respect of such participation to be those set forth in the agreement executed by such Lender in favor of the Participant relating thereto) and all amounts payable by Borrower hereunder shall be determined as if such Lender had not sold such participation.
(f) Nothing in this Agreement shall prevent or prohibit any Lender from pledging its Loans hereunder to a Federal Reserve Bank in support of borrowings made by such Lenders from such Federal Reserve Bank; PROVIDED, THAT, no such pledge shall release such Lender from any of its obligations hereunder or substitute any such pledgee for such Lender as a party hereto.
(g) Borrower shall assist Agent or any Lender permitted to sell assignments or participations under this Section 13.7 in whatever manner reasonably necessary in order to enable or effect any such assignment or participation, including (but not limited to) the execution and delivery of any and all agreements, notes and other documents and instruments as shall be requested and the delivery of informational materials, appraisals or other documents for, and the participation of relevant management in meetings and conference calls with, potential Lenders or Participants. Borrower shall certify the correctness, completeness and accuracy, in all material respects, of all descriptions of Borrower and its affairs provided, prepared or reviewed by Borrower that are contained in any selling materials and all other information provided by it and included in such materials.
(h) The Lenders signatory hereto that have executed and delivered Assignment and Acceptances with respect to the credit facility under the Existing Agreements hereby confirm that such Assignment and Acceptances are replaced and superseded by the terms hereof.
13.8 USA PATRIOT ACT. Each Lender hereby notifies Borrower that pursuant to the requirements of the USA Patriot Act, it is required to obtain, verify and record information that
identifies Borrower, which information includes the name and address of Borrower and other information that will allow such Lender to identify Borrower in accordance with the requirements of such Act and any other applicable law.
13.9 ENTIRE AGREEMENT. This Agreement, the other Financing Agreements, any supplements hereto or thereto, and any instruments or documents delivered or to be delivered in connection herewith or therewith represents the entire agreement and understanding concerning the subject matter hereof and thereof between the parties hereto, and supersede all other prior agreements, understandings, negotiations and discussions, representations, warranties, commitments, proposals, offers and contracts concerning the subject matter hereof, whether oral or written. In the event of any inconsistency between the terms of this Agreement and any schedule or exhibit hereto, the terms of this Agreement shall govern.
13.10 COUNTERPARTS, ETC. This Agreement or any of the other Financing Agreements may be executed in any number of counterparts, each of which shall be an original, but all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of this Agreement or any of the other Financing Agreements by telefacsimile shall have the same force and effect as the delivery of an original executed counterpart of this Agreement or any of such other Financing Agreements. Any party delivering an executed counterpart of any such agreement by telefacsimile shall also deliver an original executed counterpart, but the failure to do so shall not affect the validity, enforceability or binding effect of such agreement.
13.11 CODE SECTION 956 OVERRIDE. Notwithstanding anything to the contrary contained herein or in any of the other Financing Agreements (including any provision that provides that it applies notwithstanding contrary provisions), in no event shall any provision hereof or of any of the other Financing Agreements be construed to provide that (a) any Foreign Subsidiary of Borrower incorporated under the laws of a jurisdiction outside the United States of America that is a controlled foreign corporation (as such term is defined in Section 957(a) of the Code), referred to herein as a non US Subsidiary, has any obligation to make any payments for or on behalf of Borrower to the extent that any such obligation would increase the amount of taxes otherwise payable by Borrower pursuant to the Code; (b) more than sixty five (65%) percent of the voting power of all classes of Capital Stock of a non US Subsidiary are pledged or hypothecated to support any Obligations of Borrower hereunder or under any of the other Financing Agreements; (c) a security interest or lien upon any assets of a non US Subsidiary have been granted to Agent under this Agreement or any of the other Financing Agreements to secure any Obligations of Borrower and (d) any non US subsidiary has entered into any agreement to guarantee or support the Obligations of Borrower hereunder or under any of the other Financing Agreements.
13.12 BANK PRODUCTS OVERRIDE. Notwithstanding anything to the contrary contained herein or in any of the other Financing Agreements to the contrary, if all of the Obligations have been paid in full and all Commitments terminated, (other than Bank Product Obligations), it shall not be a condition to the release of all or any portion of the Collateral or a requirement to the termination of this Loan Agreement or any of the other Financing Agreements or the exercise of any rights created hereunder that any Bank Product Obligations be paid or cash collateralized;
PROVIDED THAT, this Section 13.12 shall in no way be deemed to amend, supplement or otherwise modify any agreement or document evidencing or governing any Bank Product.
SECTION 14. ACKNOWLEDGMENT AND RESTATEMENT
14.1 EXISTING OBLIGATIONS. Borrower hereby acknowledges, confirms and agrees that Borrower is indebted to Lenders for loans and advances to Borrower under the Existing Agreements, as of the close of business on August 27, 2004, in the aggregate principal amount of $80,161,509 and the aggregate amount of $1,105,825 in respect of Letter of Credit Accommodations (as defined in the Existing Agreements), together with all interest accrued and accruing thereon (to the extent applicable), and all fees, costs, expenses and other charges relating thereto, all of which are unconditionally owing by Borrower to Lenders, without offset, defense or counterclaim of any kind, nature or description whatsoever.
14.2 ACKNOWLEDGMENT OF SECURITY INTERESTS.
(a) Borrower hereby acknowledges, confirms and agrees that Agent for the benefit of Secured Parties has and shall continue to have a security interest in and lien upon the Collateral heretofore granted to Agent for the benefit of Secured Parties pursuant to the Existing Agreements to secure the Obligations, as well as any Collateral granted under this Agreement or under any of the other Financing Agreements or otherwise granted to or held by Agent or Secured Parties.
(b) The liens and security interests of Agent in the Collateral shall be deemed to be continuously granted and perfected from the earliest date of the granting and perfection of such liens and security interests to Agent and Secured Parties, whether under the Existing Agreements, this Agreement or any of the other Financing Agreements.
14.3 EXISTING AGREEMENTS. Borrower hereby acknowledges, confirms and agrees that: (a) the Existing Agreements have been duly executed and delivered by Borrower, (b) the Existing Agreements listed in Section B of Schedule 1.64 are and shall continue to be in full force and effect, and as of the moment immediately prior to the effectiveness of this Agreement, the Existing Agreements listed in Section A of Schedule 1.64 are in full force and effect as of the date hereof, (c) as to the Existing Agreements listed in Section A of Schedule 1.64, as of the moment immediately prior to the effectiveness of this Agreement: (i) the agreements and obligations of Borrower contained in such Existing Agreements constitute the legal, valid and binding obligations of Borrower enforceable against it in accordance with their respective terms and (ii) Borrower has no valid defense to the enforcement of such obligations and (iii) Agent and Lenders are entitled to all of the rights and remedies provided for in such Existing Agreements and (d) as to the Existing Agreements listed in Section B of Schedule 1.64: (i) the agreements and obligations of Borrower contained in such Existing Agreements constitute the legal, valid and binding obligations of Borrower enforceable against it in accordance with their respective terms and (ii) Borrower has no valid defense to the enforcement of such obligations and (iii) Agent and Lenders are entitled to all of the rights and remedies provided for in such Existing Agreements. The acknowledgements contained herein shall not be construed to limit or affect any of the terms of any other agreements of Borrower with, to or in favor of Agent or any of the Secured Parties.
14.4 RESTATEMENT.
(a) Except as otherwise stated in Section 14.2 hereof and this Section 14.4, as of the date hereof, the terms, conditions, agreements, covenants, representations and warranties set forth in the Existing Agreements listed in Section A of the Schedule 1.64 are hereby amended and restated in their entirety, and as so amended and restated, replaced and superseded, by the terms, conditions, agreements, covenants, representations and warranties set forth in this Agreement and the other Financing Agreements, except that nothing herein or in the other Financing Agreements shall impair or adversely affect the continuation of the liability of Borrower for the Obligations heretofore incurred during the Chapter 11 Case (as predecessors to Borrower) and the security interests, liens and other interests in the Collateral heretofore granted, pledged and/or assigned by Borrower (including during the Chapter 11 Case), as predecessors to Borrower or otherwise, to Agent. The amendment and restatement contained herein shall not, in any manner, be construed to constitute payment of, or impair, limit, cancel or extinguish, or constitute a novation in respect of, the Indebtedness and other obligations and liabilities of Borrower evidenced by or arising under the Existing Agreements, and the liens and security interests of Agent securing such Indebtedness and other obligations and liabilities, which shall not in any manner be impaired, limited, terminated, waived or released, but shall continue in full force and effect in favor of Agent for the benefit of Lenders.
(b) The principal amount of the Loans and the amount of the Letters of Credit Accommodations outstanding as of the date hereof under the Existing Agreements shall be allocated to the Loans and Letter of Credit Accommodations hereunder in such manner and in such amounts as Agent shall determine consistent with the terms hereof.
IN WITNESS WHEREOF, Agent, Lenders, Borrower have caused these presents to be duly executed as of the day and year first above written.
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BORROWER: |
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HAYNES INTERNATIONAL, INC., |
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By: |
/s/ Marcel Martin |
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Title: |
Vice President, Finance and CFO |
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AGENT: |
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CONGRESS FINANCIAL CORPORATION (CENTRAL), as Agent |
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By: |
/s/ Vicky Geist |
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Title: |
Vice President |
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LENDERS: |
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CONGRESS FINANCIAL CORPORATION (CENTRAL) |
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By: |
/s/ Vicky Geist |
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Title: |
Vice President |
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Tranche A Commitment: US $25,000,000 |
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Tranche B Commitment: US$15,000,000 |
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[SIGNATURES CONTINUED ON NEXT PAGE] |
BANK ONE, NA (Main Office Chicago) |
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By: |
/s/ Elizabeth Manning |
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Title: |
Managing Director |
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Tranche A Commitment: US $40,000,000 |
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Tranche B Commitment: US$0 |
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WESTERNBANK PUERTO RICO BUSINESS CREDIT DIVISION |
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By: |
/s/ Miguel A. Vazquez |
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Title: |
President, Westernbank Business Credit Division |
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Tranche A Commitment: US$20,000,000 |
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Tranche B Commitment: US$0 |
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[Exhibit A - Form of Assignment and Acceptance Agreement, Exhibit B - Form of Borrowing Base Certificate, Exhibit C - Information Certificate, Exhibit D - Form of Equipment Purchase Note, Exhibit E - Form of Compliance Certificate and the Disclosure Schedules have been omitted from the Agreement as filed with the Securities and Exchange Commission (the SEC). The omitted information is considered immaterial from an investors perspective. The Registrant will furnish supplementally a copy of any of the omitted exhibits and schedules to the SEC upon request from the SEC.]
Exhibit 10.13
[Execution]
AMENDMENT NO. 1 TO
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
AMENDMENT NO. 1 TO AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT dated as of November 5, 2004 by and among Haynes International, Inc., a Delaware corporation (Haynes Parent), Haynes Wire Company, a Delaware corporation (Haynes Wire and together with Haynes Parent, each individually, a Borrower and collectively, Borrowers), the parties from time to time to the Loan Agreement (as hereinafter defined) as lenders (each individually, a Lender and collectively, Lenders) and Congress Financial Corporation (Central), an Illinois corporation, in its capacity as agent for Lenders pursuant to the Loan Agreement (in such capacity, Agent).
W I T N E S S E T H
WHEREAS, Haynes Parent has entered into financing arrangements with Agent and Lenders pursuant to which Lenders (or Agent on behalf of Lenders) have made and may make loans and advances and provide other financial accommodations to Haynes Parent as set forth in, and subject to the terms and conditions of, the Amended and Restated Loan and Security Agreement, dated August 31, 2004, by and among Agent, Lenders, Bank One, NA, in its capacity as documentation agent for Lenders, and Haynes Parent ( as amended and supplemented hereby and as the same may hereafter be further amended, modified, supplemented, extended, renewed, restated or replaced, the Loan Agreement) and the other Financing Agreements (as defined therein); and
WHEREAS, Haynes Parent has formed Haynes Wire, which is a wholly-owned subsidiary of Haynes Parent; and
WHEREAS, Haynes Parent and Haynes Wire have requested that Agent and Lenders consent to the acquisition by Haynes Wire of certain assets of the Sellers (as hereinafter defined) pursuant to the Branford Purchase Documents (as hereinafter defined) and enter into certain amendments to the Financing Agreements in connection therewith; and
WHEREAS, Haynes Parent and Haynes Wire have requested that Agent and Lenders provide certain consents and agree to certain amendments to the Loan Agreement in connection with the formation of Haynes Wire, the addition of Haynes Wire as an additional party to the Loan Agreement as a Borrower and certain of the other Financing Agreements and certain related matters, and Agent and Lenders are willing to provide such consents and agree to such amendments, subject to the terms and conditions herein; and
WHEREAS, by this Amendment No. 1, Haynes Parent, Haynes Wire, Agent and Lenders desire and intend to evidence such consents and amendments;
NOW, THEREFORE, in consideration of the foregoing, the mutual conditions and agreements and covenants set forth herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
Section 1. DEFINITIONS.
1.1 DEFINED TERMS. For purposes of this Amendment No. 1, unless otherwise defined herein, all capitalized terms used herein shall have the meanings assigned thereto in the Loan Agreement.
1.2 ADDITIONAL DEFINITIONS. As used herein, the following terms shall have the meanings given to them below, and the Loan Agreement is hereby amended to include the following definitions:
(a) Amendment No. 1 shall mean Amendment No. 1 to Amended and Restated Loan and Security Agreement by and among Haynes Parent, Haynes Wire, Agent and Lenders, as it now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced.
(b) Branford Purchase Agreement shall mean the Asset Purchase Agreement, dated as of October 28, 2004, by and among Haynes Wire, Sellers and Richard Harcke, as the same now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced.
(c) Branford Purchased Assets shall mean, collectively, the Acquired Assets, as such term is defined in the Branford Purchase Agreement as in effect on the date hereof.
(d) Branford Purchase Documents shall mean, collectively, the following (as the same now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced): (i) the Branford Purchase Agreement, (ii) all bills of sale, deeds, and such instruments of transfer as are referred to therein, and (iii) all side letters with respect thereto and all other agreements, documents and instruments executed and/or delivered by Sellers, Richard Harcke or Borrowers in connection therewith; PROVIDED, THAT, the term Branford Purchase Documents shall not include this Amendment No. 1 or any of the other Financing Agreements.
(e) Haynes Parent shall mean Haynes International, Inc., a Delaware corporation, and its successors and assigns.
(f) Haynes Parent Borrowing Base shall mean, at any time, the amount equal to:
(i) eighty-five (85%) percent of the Eligible Accounts of Haynes Parent, plus
(ii) the lesser of: (A) the sum of (1) the Kokomo Facility Inventory Availability, plus (2) the Arcadia Facility Inventory Availability, plus (3) the Service Center Inventory Availability or (B) the Inventory Loan
Limit applicable to Haynes Parent, plus
(iii) Haynes Parent Fixed Asset Availability, less
(iv) Reserves attributable to Haynes Parent.
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For purposes only of applying the Inventory Loan Limit as to Haynes Parent, Agent may treat the then undrawn amounts of outstanding Letter of Credit Accommodations issued for the purpose of purchasing Eligible Inventory of Haynes Parent as Loans to Haynes Parent to the extent Agent is in effect basing the issuance of the Letter of Credit Accommodations on the Value of the Eligible Inventory of Haynes Parent being purchased with such Letter of Credit Accommodations. In determining the actual amounts of such Letter of Credit Accommodations to be so treated for purposes of the sublimit, the outstanding Loans and Reserves shall be attributed first to any components of the lending formulas set forth above that are not subject to such sublimit, before being attributed to the components of the lending formulas subject to such sublimit. The amounts of Eligible Inventory of Haynes Parent shall, at Agents option, be determined based on the lesser of the amount of Inventory set forth in the general ledger of Haynes Parent or the perpetual inventory record maintained by Haynes Parent.
(g) Haynes Parent Excess Availability shall mean at any time and without duplication, the sum of:
(i) the amount calculated at such time equal to: (A) the lesser of: (1) the Haynes Parent Borrowing Base and (2) the Maximum Credit minus the then outstanding Loans to Haynes Wire (in each case under (1) or (2) after giving effect to any applicable Reserves), minus (B) the sum of: (1) the amount of the then outstanding and unpaid principal amount of the Loans to Haynes Parent (other than Equipment Purchase Loans) and the undrawn amount of Letter of Credit Accommodations issued on behalf or for the benefit of Haynes Parent, plus (2) the aggregate amount of all payables or other obligations of Haynes Parent outstanding more than forty-five (45) days after the due date therefor as of such time (and for this purpose the due date for payables incurred prior to the commencement of the Chapter 11 Case (or during the course thereof) will be the date for payment of such payables as established pursuant to the Plan and the claims administration process provided for in the Chapter 11 Case and as to those payables or other obligations that are subject to a dispute or are not otherwise allowed, prior to the establishment of the due date for such payables or other obligations pursuant to the Plan and the claims administration process, such payables and other obligations shall not be deemed outstanding more than forty-five (45) days after the due date therefor for purposes of this definition), plus (3) the amount of checks issued by Haynes Parent to pay payables and other obligations which are more than such number of days past due, but not yet sent (without duplication of amounts included in clause (i)(B)(2) herein); plus
(ii) the amount calculated at such time equal to the total amount available for Utilisation (as such term is defined in the UK Financing Agreements), subject to the limitations contained in Sections 5.3 and 5.5 of the Facility Agreement referred to in the definition of the UK Financing Agreements, after giving effect to all then outstanding Utilisations and net of the aggregate of all Past Due Payables (as such term is defined in the UK Financing Agreements).
(h) Haynes Parent Fixed Asset Availability shall mean $15,949,276; PROVIDED, THAT, effective on the first day of each month after the date hereof the Haynes Parent Fixed Asset Availability shall be reduced by the amount equal to $231,681 on the first day of each such month.
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(i) Haynes Wire shall mean Haynes Wire Company, a Delaware corporation, and its successors and assigns.
(j) Haynes Wire Borrowing Base shall mean, at any time, the amount equal to:
(i) eighty-five (85%) percent of the Eligible Accounts of Haynes Wire, plus
(ii) the lesser of: (A) sixty (60%) percent multiplied by the Value of the Eligible Inventory of Haynes Wire, (B) eighty-five (85%) percent of the Net Recovery Percentage of Eligible Inventory of Haynes Wire or (C)the Inventory Loan Limit applicable to Haynes Wire, plus
(iii) the Haynes Wire Fixed Asset Availability, less
(iv) Reserves attributable to Haynes Wire.
For purposes only of applying the Inventory Loan Limit as to Haynes Wire, Agent may treat the then undrawn amounts of outstanding Letter of Credit Accommodations issued for the purpose of purchasing Eligible Inventory of Haynes Wire as Loans to Haynes Wire to the extent Agent is in effect basing the issuance of the Letter of Credit Accommodations on the Value of the Eligible Inventory of Haynes Wire being purchased with such Letter of Credit Accommodations. In determining the actual amounts of such Letter of Credit Accommodations to be so treated for purposes of the sublimit, the outstanding Loans and Reserves shall be attributed first to any components of the lending formulas set forth above that are not subject to such sublimit, before being attributed to the components of the lending formulas subject to such sublimit. The amounts of Eligible Inventory of Haynes Wire shall, at Agents option, be determined based on the lesser of the amount of Inventory set forth in the general ledger of Haynes Wire or the perpetual inventory record maintained by Haynes Wire.
(k) Haynes Wire Excess Availability shall mean at any time and without duplication, the amount calculated at such time equal to:
(i) the lesser of: (A) the Haynes Wire Borrowing Base and (B) the amount equal to the Maximum Credit minus the then outstanding Loans to Haynes Parent (in each case under (A) or (B) after giving effect to any applicable Reserves), minus
(ii) the sum of: (A) the amount of the then outstanding and unpaid principal amount of the Loans to Haynes Wire (other than Equipment Purchase Loans) and the undrawn amount of Letter of Credit Accommodations issued on behalf or for the benefit of Haynes Wire, plus (B) the aggregate amount of all payables or other obligations of Haynes Wire outstanding more than forty-five (45) days after the due date therefor as of such time, plus (C) the amount of checks issued by Haynes Wire to pay payables and other obligations which are more than such number of days past due, but not yet sent (without duplication of amounts included in clause (i)(B)(2) herein).
(l) Haynes Wire Fixed Asset Availability shall mean shall mean $2,165,000; PROVIDED, THAT, effective on the first day of each month after December 31, 2004 the Haynes Wire
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Fixed Asset Availability shall be reduced by the amount equal to $30,069 on the first day of each such month.
(m) Sellers shall mean, collectively, the following (together with their respective successors and assigns): (i) Branford Wire and Manufacturing Company, a Connecticut corporation and (ii) Carolina Industries, Inc., a Connecticut corporation; sometimes being referred to herein individually as a Seller.
1.3 AMENDMENTS TO DEFINITIONS. Each of the defined terms below shall be deemed to be amended and restated in their entirety to have the meaning as to such term set forth below.
(a) Borrower and Borrowers shall mean Haynes Parent and Haynes Wire, individually and collectively, and jointly and severally, except for purposes of Sections 1.25, 1.33, 1.41, 1.43, 1.45, 1.65, 1.95(a), 1.112, 2.1(b), 8.16, 9.6(a) (but only to the extent of the financial statements referenced therein), 9.17 and 9.18, where the references to Borrower shall mean only Haynes Parent.
(b) Borrowing Base shall mean, at any time, collectively, the Haynes Parent Borrowing Base and the Haynes Wire Borrowing Base at such time.
(c) Collateral shall mean, collectively, Collateral as defined in Section 5 hereof and Collateral as described in Section 4 of Amendment No. 1.
(d) Financing Agreements shall mean, collectively, this Agreement, Amendment No. 1 and all notes, guarantees, security agreements, Deposit Account Control Agreements, Investment Property Control Agreements, intercreditor agreements and all other agreements, documents and instruments now or at any time hereafter executed and/or delivered by Borrower in connection with this Agreement.
(e) Fixed Asset Availability shall mean, at any time, collectively, the Haynes Parent Fixed Asset Availability and the Haynes Wire Fixed Asset Availability at such time.
(f) Information Certificate shall mean, collectively, the Information Certificate of Parent constituting Exhibit C hereto and the Information Certificate of Haynes Wire constituting Exhibit B to Amendment No. 1. each containing material information with respect to Borrower, its business and assets provided by or on behalf of Borrower to Agent in connection with the preparation of this Agreement and the other Financing Agreements and the financing arrangements provided for herein.
(g) Inventory Loan Limit shall mean at any time, (i) as to Haynes Parent, the amount equal to (A) $70,000,000 minus (B) the sum of (1) the US Dollar Equivalent of the then outstanding amount of loans to Haynes UK (and including letter of credit accommodations to the extent provided in its borrowing base as such term is defined in the UK Financing Agreements) based on eligible inventory (as such term is defined in the UK Financing Agreements) of Haynes UK and (2) the then outstanding amount of Loans to Haynes Wire (and including Letter of Credit Accommodations to the extent provided in Haynes Wire Borrowing Base) based on Eligible Inventory of Haynes Wire and (ii) as to Haynes Wire, the amount equal to (A) $70,000,000 minus (B) the sum of (1) the US Dollar Equivalent of the then outstanding amount of loans to
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Haynes UK (and including letter of credit accommodations to the extent provided in its borrowing base as such term is defined in the UK Financing Agreements ) based on eligible inventory (as such term is defined in the UK Financing Agreements) of Haynes UK plus (2) the then outstanding amount of Loans to Haynes Parent (and including Letter of Credit Accommodations to the extent provided in Haynes Parent Borrowing Base) based on Eligible Inventory of Haynes Parent.
(h) Maximum Credit shall mean $110,000,000.
(i) Mortgages shall mean, individually and collectively, each of the following (as the same now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced): (a) the Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing, dated of even date herewith, by Haynes Parent in favor of Agent with respect to the Real Property and related assets of Haynes Parent located in Kokomo, Indiana, (b) the Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing, dated of even date herewith, by Haynes Parent in favor of Agent with respect to the Real Property and related assets of Haynes Parent located in Arcadia, Louisiana, and (c) the Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing, dated the date of Amendment No. 1, by Haynes Wire in favor of Agent with respect to the Real Property of Haynes Wire located in Mountain Home, North Carolina.
(j) Tranche A Commitment shall mean, with respect to each Lender, the principal amount set forth opposite such Lenders name on Schedule 1.134 hereto and designated Tranche A Commitment or on Schedule 1 to the Assignment and Acceptance Agreement pursuant to which such Lender became a Lender hereunder in accordance with the provisions of Section 13.7 hereof, as the same may be adjusted in accordance with the terms hereof; sometimes being collectively referred to as Tranche A Commitments.
(k) Tranche A Loan Limit shall mean at any time the amount equal to the lesser of: (i) $95,000,000 or (ii) the aggregate amount of the Borrowing Base of Borrowers at such time.
(l) Tranche B Borrowing Base shall mean, as to each Borrower, the amount equal to (i) such Borrowers Borrowing Base minus (ii) the Tranche A Loans then outstanding to such Borrower.
Section 2. CONSENTS. Subject to the terms and conditions contained herein, to the extent such consents are or may be required under the Loan Agreement, Agent and Lenders hereby consent to:
2.1 the formation by Haynes Parent of Haynes Wire, as a wholly-owned subsidiary of Haynes Parent, and the investments made by Haynes Parent in Haynes Wire in connection with the initial capitalization of Haynes Wire and the purchase of the Branford Purchased Assets; and
2.2 the purchase by Haynes Wire of the Branford Purchased Assets pursuant to the terms of the Branford Purchase Documents as in effect on the date hereof.
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Section 3. ASSUMPTION OF OBLIGATIONS AND ACKNOWLEDGEMENT OF FINANCING AGREEMENTS. Haynes Wire hereby expressly:
3.1 assumes and agrees to be directly liable to Agent and Lenders, jointly and severally, with Haynes Parent, for all Obligations under, contained in, or arising pursuant to the Loan Agreement or any of the other Financing Agreements;
3.2 agrees to perform, comply with and be bound by all terms, conditions and covenants of the Loan Agreement and the other Financing Agreements applicable to Borrower; and
3.3 agrees that Agent and Lenders shall have all rights, remedies and interests, including security interests in and to the Collateral granted pursuant to Section 4 hereof, the Loan Agreement and the other Financing Agreements, with respect to Haynes Wire and its properties and assets with the same force and effect as Agent and Lenders have with respect to Haynes Parent and its assets and properties.
Section 4. GRANT OF SECURITY INTEREST.
4.1 Without limiting the provisions of Section 3 hereof, the Loan Agreement and the other Financing Agreements, to secure payment and performance of its Secured Obligations, Haynes Wire hereby grants to Agent, for the benefit of Secured Parties, a continuing security interest in, a lien upon, and a right of set off against, all personal property and fixtures, and interests in personal property and fixtures, of Haynes Wire, whether now owned or hereafter acquired or existing, and wherever located, including without limitation, the following:
(a) all Accounts;
(b) all general intangibles, including, without limitation, all Intellectual Property;
(c) all goods, including, without limitation, Inventory and Equipment;
(d) all chattel paper, including, without limitation, all tangible and electronic chattel paper;
(e) all instruments, including, without limitation, all promissory notes;
(f) all documents;
(g) all deposit accounts;
(h) all letters of credit, bankers acceptances and similar instruments and including all letter-of-credit rights;
(i) all supporting obligations and all present and future liens, security interests, rights, remedies, title and interest in, to and in respect of Receivables and other Collateral, including (i) rights and remedies under or relating to guaranties, contracts of suretyship, letters of credit and credit and other insurance related to the Collateral, (ii) rights of stoppage in transit, replevin, repossession, reclamation and other rights and remedies of an unpaid vendor, lienor or
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secured party, (iii) goods described in invoices, documents, contracts or instruments with respect to, or otherwise representing or evidencing, Receivables or other Collateral, including returned, repossessed and reclaimed goods, and (iv) deposits by and property of account debtors or other persons securing the obligations of account debtors;
(j) all (i) investment property (including securities, whether certificated or uncertificated, securities accounts, security entitlements, commodity contracts or commodity accounts) and (ii) monies, credit balances, deposits and other property of Haynes Wire now or hereafter held or received by or in transit to Agent, any Lender or its Affiliates or at any other depository or other institution from or for the account of Haynes Wire, whether for safekeeping, pledge, custody, transmission, collection or otherwise;
(k) all commercial tort claims listed on Schedule 4.1 hereto;
(l) to the extent not otherwise described above, all Receivables;
(m) all Records; and
(n) all products and proceeds of the foregoing, in any form, including insurance proceeds (other than business interruption insurance proceeds) and all claims against third parties for loss or damage to or destruction of or other involuntary conversion of any kind or nature of any or all of the other Collateral described above, it being understood and agreed that for the purposes of this grant, the term Borrower as the same appears in the definitions of Accounts, Intellectual Property, Inventory, Equipment, Receivables and Records which are incorporated herein by reference to the Loan Agreement shall mean Haynes Wire.
4.2 Without limiting the generality of the foregoing, the Collateral shall include, and Haynes Wire hereby grants (and Haynes Parent hereby confirms its grant of) a security interest in and lien upon, to Agent, for the benefit of the Secured Parties, to secure payment in full of all of the Secured Obligations, all of such Borrowers now existing or hereafter arising right, title and interest in and to each of the Branford Purchase Documents and all proceeds thereunder, including, but not limited to, (a) all rights of such Borrower to receive monies due to become due to it thereunder or in connection therewith; (b) all rights of such Borrower to indemnification and claims for damages or other relief pursuant to or in respect of the Branford Purchase Documents; (c) all rights of such Borrower to perform and exercise all remedies thereunder and to require performance by the other parties to the Branford Purchase Documents of its obligations thereunder; and (d) all proceeds, collections, recoveries and rights of subrogation with respect to the foregoing. The grant of security interest and lien is provided only as security for the Secured Obligations and, therefore shall not subject Agent or any Lender to, or transfer or pass to Agent or any Lender, or in any way affect or modify, the liability of a Borrower under any of the Branford Purchase Documents. In no event shall the grant of the security interest and lien provided for herein or the exercise by Agent or any Lender of any rights hereunder or assigned hereby, constitute an assumption of any liability or obligation of Agent or any Lender to any of the other parties to the Branford Purchase Documents or any other persons.
4.3 Notwithstanding anything to the contrary set forth in Section 4.1 above, the types or items of Collateral described in such Section shall not include:
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(a) any rights or interests in any contract, lease, permit, license, charter or license agreement covering real or personal property, as such, if under the terms of such contract, lease, permit, license, charter or license agreement, or applicable law with respect thereto, the valid grant of a security interest or lien therein to Agent is prohibited and such prohibition has not been or is not waived or the consent of the other party to such contract, lease, permit, license, charter or license agreement has not been or is not otherwise obtained or under applicable law such prohibition cannot be waived; provided, that, the foregoing exclusion shall in no way be construed (A) to apply if any such prohibition is unenforceable under Sections 9-406, 9-407 or 9-408 of the UCC or other applicable law or (B) so as to limit, impair or otherwise affect Agents unconditional continuing security interests in and liens upon any rights or interests of a Borrower in or to monies due or to become due under any such contract, lease, permit, license, charter or license agreement (including any Receivables);
(b) trademark or servicemark applications that have been filed with the U.S. Patent and Trademark Office on the basis of an intent-to-use with respect to such marks, unless and until a statement of use or amendment to allege use is filed or any other filing is made or circumstances otherwise change so that the interests of Haynes Wire in such marks is no longer on an intent-to-use basis, at which time such marks shall automatically and without further action by the parties be subject to the security interests and liens granted by Haynes Wire to Agent hereunder.
4.4 Each Borrower irrevocably and unconditionally authorizes Agent (or its agent) to file at any time and from time to time such financing statements with respect to the Collateral naming Agent as the secured party and such Borrower as Debtor, as Agent may require, and including any other information with respect to such Borrower or otherwise required by Part 5 of Article 9 of the Uniform Commercial Code of such jurisdiction as Agent may determine, together with any amendment and continuations with respect thereto, which authorization shall apply to all financing statements filed on, prior to or after the date hereof. Such financing statements may describe the Collateral in the same manner as described herein or in any security agreement or pledge agreement entered into by the parties in connection herewith or may contain an indication or description of collateral that describes such property in any other manner as the Agent may determine, in its sole discretion, is necessary, advisable or prudent to ensure the perfection of the security interest in the Collateral granted to the Agent in connection herewith or therewith. Each Borrower hereby ratifies and approves all financing statements naming Agent or its designee as secured party and such Borrower, as debtor with respect to the Collateral (and any amendments with respect to such financing statements) filed by or on behalf of Agent prior to the date hereof and ratifies and confirms the authorization of Agent to file such financing statements (and amendments, if any). Each Borrower hereby authorizes Agent to adopt on behalf of such Borrower any symbol required for authenticating any electronic filing. In the event that the description of the collateral in any financing statement naming Agent or its designee as the secured party and any Borrower as debtor includes assets and properties of such Borrower that do not at any time constitute Collateral, whether hereunder, under any of the other Financing Agreements or otherwise, the filing of such financing statement shall nonetheless be deemed authorized by such Borrower to the extent of the Collateral included in such description and it shall not render the financing statement ineffective as to any of the Collateral or otherwise affect the financing statement as it applies to any of the Collateral.
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Section 5. AMENDMENTS TO LOAN AGREEMENT.
5.1 Section 2.1(a) of the Loan Agreement is hereby deleted in its entirety and the following substituted therefor:
(a) Subject to and upon the terms and conditions contained herein, each Tranche A Lender severally (and not jointly) agrees to make its Pro Rata Share of Tranche A Loans to: (i) Haynes Parent from time to time in amounts requested by Haynes Parent in the aggregate amount for the Tranche A Loans of all Tranche A Lenders of up to the lesser of (A) the Borrowing Base of Haynes Parent at such time or (B) the Tranche A Commitments minus the then outstanding Tranche A Loans to Haynes Wire and (ii) Haynes Wire from time to time in amounts requested by or on behalf of Haynes Wire in the aggregate amount for the Tranche A Loans of all Tranche A Lenders of up to the lesser of: (A) the Borrowing Base of Haynes Wire at such time or (B) the Tranche A Commitments minus the then outstanding Tranche A Loans to Haynes Parent.
5.2 Section 2.1(b) of the Loan Agreement is hereby deleted in its entirety and the following is substituted therefor:
(b) Subject to and upon the terms and conditions contained herein, each Tranche B Lender severally (and not jointly) agrees to make its Pro Rata Share of Tranche B Loans to: (i) Haynes Parent from time to time in amounts requested by Haynes Parent in the aggregate amount for the Tranche B Loans of all Tranche B Lenders of up to the lesser of (A) the Tranche B Borrowing Base of Haynes Parent at such time and (B) the Tranche B Commitments minus the then outstanding Tranche B Loans to Haynes Wire and (ii) Haynes Wire in amounts requested by or on behalf of Haynes Wire in the aggregate amount for the Tranche B Loans of all Tranche B Lenders up to the lesser of (A) the Tranche B Borrowing Base of Haynes Wire at such time and (B) the Tranche B Commitments minus the then outstanding Tranche B Loans to Haynes Parent; PROVIDED, THAT, Tranche B Loans will only be made at such time as the then outstanding amount of Trache A Loans equals or exceeds the Tranche A Loan Limit .
5.3 Section 2.1(c) of the Loan Agreement is hereby amended by adding new clauses (vii), (viii), (ix) and (x) at the end thereof as follows:
(vii) the aggregate principal amount of the Tranche A Loans and Tranche B Loans to Haynes Parent outstanding at any time shall not exceed the Haynes Parent Borrowing Base, (viii) the aggregate principal amount of Tranche A Loans and Tranche B Loans to Haynes Wire outstanding at any time shall not exceed the Haynes Wire Borrowing Base, (ix) the aggregate principal amount of the Loans to Haynes Parent outstanding at any time based on Eligible Inventory of Haynes Parent shall not exceed the Inventory Loan Limit applicable to Haynes Parent, and (x) the aggregate principal amount of the Loans to Haynes Wire
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outstanding at any time based on Eligible Inventory of Haynes Wire shall not exceed the Inventory Loan Limit applicable to Haynes Wire.
5.4 Section 2.1(d) of the Loan Agreement is hereby deleted in its entirety and the following substituted therefor:
(d) In the event that the aggregate principal amount of the Loans and Letter of Credit Accommodations outstanding at any time exceeds the Maximum Credit, or the aggregate principal amount of the Tranche A Loans and the Tranche B Loans exceeds the Borrowing Base, or the aggregate principal amount of outstanding Tranche A Loans exceeds the Tranche A Loan Limit, or the aggregate principal amount of outstanding Tranche B Loans exceeds the Tranche B Loan Limit, or the aggregate principal amount of Loans and Letter of Credit Accommodations based on the Eligible Inventory exceed the Inventory Loan Limit, or the aggregate amount of the outstanding Letter of Credit Accommodations exceed the sublimit for Letter of Credit Accommodations set forth in Section 2.2(e), or the aggregate principal amount of the Tranche A Loans and Tranche B Loans applicable to Haynes Parent outstanding at any time exceed the Haynes Parent Borrowing Base, or the aggregate principal amount of Tranche A Loans to Haynes Wire outstanding at any time exceed the Haynes Wire Borrowing Base, or the aggregate principal amount of the Loans to Haynes Parent outstanding at any time based on Eligible Inventory of Haynes Parent exceed the Inventory Loan Limit applicable to Haynes Parent, or the aggregate principal amount of the Loans to Haynes Wire outstanding at any time based on Eligible Inventory of Haynes Wire exceed the Inventory Loan Limit applicable to Haynes Wire, in any case such event shall not limit, waive or otherwise affect any rights of Agent or Lenders in such circumstances or on any future occasions and Borrower shall, upon demand by Agent, which may be made at any time or from time to time, immediately repay to Agent the entire amount of any such excess(es) for which payment is demanded.
5.5 Section 2.1(e) of the Loan Agreement is hereby amended (a) to delete the reference to the figure $85,000,000 contained therein and substitute the following therefor: $95,000,000 and (b) to delete the reference to and 1.117(b) and substitute the following therefor: 1.117(b) and 6.4(a)
5.6 Section 2.1(f) of the Loan Agreement is hereby deleted in its entirety and the following substituted therefor:
(f) The method for calculating the Pro Rata Shares of each Lender as set forth in Section 2.1(e) above shall apply as to each Lender whether or not such Lender has only a Tranche A Commitment, only a Tranche B Commitment or both and shall apply as to such Lenders obligation to make Loans and receive payments (pursuant to any section of this Agreement, including Section 6.4(a)) in respect of such Loans in the circumstances when Section 2.1(e) hereof is applicable regardless of whether any such loans would be deemed to constitute Tranche A Loans
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or Tranche B Loans and regardless of whether any such payments would otherwise be allocated to Tranche A Loans or Tranche B Loans for purposes of Section 6.4(a) hereof and, for purposes of this Section 2.1, regardless of whether such Lender is a Tranche A Lender and/or a Tranche B Lender. Nothing contained herein shall be construed to mean that any Lender that has only a Tranche A Commitment also has a Tranche B Commitment for purposes of the Loan Agreement or that any Lender has only a Tranche A Commitment is a Tranche B Lender for purposes of the Loan Agreement.
5.7 Section 6.4(a) of the Loan Agreement is hereby amended to add the following at the end thereof: Notwithstanding anything to the contrary contained in this Agreement, payments with proceeds of Collateral of Haynes Parent shall be applied to the payment of the Obligations of Haynes Parent and payments with proceeds of Collateral of Haynes Wire shall be applied to the payment of the Obligations of Haynes Wire, except (at any time an Event of Default exists or has occurred and is continuing) as Agent may from time to time otherwise determine.
5.8 Section 9.7(b)(i) of the Loan Agreement is hereby amended by adding the following words thereto at the end thereof: and transfers of Inventory by Haynes Wire to the Sellers pursuant to the post-closing adjustment contemplated under the Branford Purchase Agreement as in effect on the date of Amendment No. 1.
5.9 Section 9.10 of the Loan Agreement is hereby amended to add a new Section 9.10(j) at the end thereof as follows:
(j) loans by Haynes Parent to Haynes Wire from time to time on and after the date of Amendment No. 1, PROVIDED, THAT, (i) the Indebtedness arising pursuant to any such loan shall not be evidenced by a promissory note or other instrument, unless the single original of such note or other instrument is promptly delivered to Agent upon its request to hold as part of the Collateral, with such endorsement and/or assignment by the payee of such note or other instrument as Agent may require, (ii) as of the date of any such loan and after giving effect thereto, the Haynes Parent Excess Availability shall be not less than $500,000, (iii) except as Agent may from time to time otherwise agree, Haynes shall not make, and shall not be required to make, any payments in respect of the Indebtedness of Haynes Wire to Haynes Parent arising pursuant to such loans, unless as of the date of any such payments, and after giving effect thereto, the Haynes Wire Excess Availability shall be not less than $250,000, and (iv) except as Agent may from time to time otherwise agree, as of the date of any such loan, or the repayment of any Indebtedness arising pursuant to such loan, and in each case after giving effect thereto, no Default or Event of Default shall exist or have occurred and be continuing.
5.10 Section 9.12(a) of the Loan Agreement is hereby amended to delete the reference to Sections 9.10(g) and 9.10(h) contained therein and substitute the following therefor: Sections 9.10(g), 9.10(h) and 9.10(j).
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5.11 Section 9.16(d)(ii) of the Loan Agreement is hereby amended by adding the following words thereto at the end thereof: and the other Financing Agreements.
5.12 Section 13.2 of the Loan Agreement is hereby amended by adding a new clause (n) at the end thereof as follows:
(n) From and after the effective date of Amendment No. 1 (i) all payment and indemnity obligations of the Borrower contained herein shall constitute the joint and several obligations of each Borrower, and all other obligations of the Borrower contained herein shall constitute obligations of each Borrower and (ii) all references to information contained on the Information Certificate shall, with respect to each Borrower, be a reference to the Information Certificate delivered by such Borrower.
Section 6. APPOINTMENT OF HAYNES PARENT AS AGENT FOR REQUESTING LOANS AND RECEIPTS OF LOANS AND STATEMENTS.
6.1 Haynes Wire hereby irrevocably appoints and constitutes Haynes Parent as its agent to request Loans and Letter of Credit Accommodations pursuant to the Loan Agreement and the other Financing Agreements from Agent or any Lender in the name or on behalf of such Borrower. Agent and Lenders shall disburse the Loans to such bank account of Haynes Parent or Haynes Wire or otherwise make such Loans and provide such Letter of Credit Accommodations to a Borrower as Haynes Parent may designate or direct. Notwithstanding anything to the contrary contained herein, Agent may at any time and from time to time require that Loans to or for the account of any Borrower be disbursed directly to an operating account of such Borrower.
6.2 Haynes Parent hereby accepts the appointment by Haynes Wire to act as the agent of Haynes Wire pursuant to this Section 6. Haynes Parent shall ensure that the disbursement of any Loans to each Borrower requested by or paid to or for the account of such Borrower, or the issuance of any Letter of Credit Accommodations for a Borrower hereunder, shall be paid to or for the account of such Borrower.
6.3 Haynes Wire hereby irrevocably appoints and constitutes Haynes Parent as its agent to receive statements on account and all other notices from Agent and Lenders with respect to the Obligations or otherwise under or in connection with this Agreement and the other Financing Agreements.
6.4 Any notice or election, (and any representation, warranty, agreement or undertaking made in connection therewith) by or on behalf of Haynes Wire by Haynes Parent shall be deemed for all purposes to have been made by Haynes Wire, and shall be binding upon and enforceable against Haynes Wire to the same extent as if made directly by Haynes Wire.
6.5 No purported termination of the appointment of Haynes Parent as agent as aforesaid shall be effective, except after ten (10) days prior written notice to Agent.
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Section 7. SCHEDULES.
7.1 Each of Schedule 6.6(b) of the Loan Agreement is hereby amended and restated in its entirety by Amended and Restated Schedule 6.6(b) to this Amendment No. 1.
7.2 Schedule 1.134 hereto is hereby added to the Loan Agreement as Schedule 1.134 and made a part thereof.
7.3 AMENDMENT FEE. In addition to all the other fees, charges, interest and expenses payable to Borrowers to Agent and Lenders under the Loan Agreement and the other Financing Agreements, Borrowers shall pay to Agent for the account of Lenders, contemporaneously with the effectiveness of this Agreement, an amendment fee in the amount of $50,000, which fee shall be fully earned and payable on the effective date hereof and may be charged to any loan account of Borrowers.
Section 8. REPRESENTATIONS AND WARRANTIES. Each Borrower (including Haynes Wire) hereby represents and warrants to Agent and Lenders the following (which shall survive the execution and delivery of this Amendment No. 1), the truth and accuracy of which on the date hereof are a continuing condition of the making of Loans and providing Letter of Credit Accommodations to Borrowers:
8.1 This Amendment No. 1 and each other Agreement or instrument to be executed and delivered by Haynes Parent or Haynes Wire pursuant hereto have been duly authorized, executed and delivered by it, and has been authorized by all necessary action on the part of such Borrower which is a party hereto and thereto (and, if necessary, their respective stockholders) and each such agreement is in full force and effect as of the date hereof, and the agreements and obligations of Haynes Parent and Haynes Wire, as the case may be, contained herein and therein, constitute the legal, valid and binding obligations of such Borrower, enforceable against it in accordance with their respective terms, except as such enforceability may be limited by any applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors rights generally and by general principles of equity.
8.2 The execution, delivery and performance of this Amendment No. 1 (a) are all within the corporate powers of Haynes Parent and Haynes Wire and (b) are not in contravention of law or the terms of such Borrowers certificate of incorporation, by-laws, or other organizational documentation, or any indenture, agreement or undertaking to which such Borrower is a party or by which such Borrower or its property are bound.
8.3 Haynes Wire is a Delaware corporation, duly organized and validly existing in good standing under the laws of the State of Delaware and has all requisite power and authority to own, lease and operate its properties, if any, and to carry on its business as it is now being conducted.
8.4 All of the outstanding shares of Capital Stock of Haynes Wire have been duly authorized, validly issued and are fully paid and non-assessable, free and clear of all claims, liens, pledges and encumbrances of any kind. Haynes Parent is the beneficial and direct owner of record of one hundred (100%) percent of the issued and outstanding shares of Capital Stock of Haynes Wire. There is no debt outstanding that is convertible into Capital Stock of Haynes
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Wire, and there are no outstanding rights, options or warrants to acquire any Capital Stock or debt convertible into capital stock of Haynes Wire.
8.5 After giving effect to this Amendment, no Default or Event of Default exists or has occurred and is continuing.
8.6 Haynes Wire has acquired all of the Sellers rights, title and interest in and to the Branford Purchased Assets, free and clear of all liens, claims, charges and encumbrances in accordance with the Branford Purchase Documents.
8.7 Neither the execution and delivery of the Branford Purchase Documents, nor the consummation of the transactions contemplated by the Branford Purchase Documents, nor compliance with the provisions of the Branford Purchase Documents or instruments thereunder shall result in (a) the creation or imposition of any lien, claim, charge or encumbrance upon any of the Collateral, except in favor of Agent, for the benefit of the Secured Parties, or as expressly permitted by Section 9.8 of the Loan Agreement and by the other Financing Agreements or (b) the incurrence, creation or assumption of any Indebtedness of a Borrower, except as expressly permitted under Section 9.9 of the Loan Agreement.
8.8 All actions and proceedings required by the Branford Purchase Documents, applicable law or regulation have been duly and validly taken and consummated.
8.9 No court of competent jurisdiction has issued any injunction, restraining order or other order which prohibits consummation of the transactions contemplated in respect of the Branford Purchase Documents and no governmental or other action or proceeding has been threatened or commenced in the United States of America, seeking any injunction, restraining order or other order which seeks to void or otherwise modify the transactions described in the Branford Purchase Documents, nor compliance with the provisions thereof, has violated or shall violate any Federal or State securities laws or any other law or regulation or any order or decree of any court or governmental instrumentality in respect or does or shall conflict with or result in the breach of, or constitute a default in any respect under, any indenture, mortgage, deed of trust, security agreement or other agreement or instrument to which a Borrower is a party or may be bound, or violate any provision of the organizational documents of a Borrower.
8.10 Agent has, on or before the date hereof, received from Haynes Wire, true and complete copies of the Branford Purchase Documents and all notices, consents, instruments, documents and agreements relating thereto, including all exhibits and schedules thereto, all as duly executed and delivered by the parties thereto.
8.11 Borrowers shall take such steps and execute and deliver, such further agreements, documents and instruments as Agent may require in order to more fully evidence, perfect and protect Agents security interest in, among other Collateral, the Branford Purchased Assets.
8.12 Each of the Branford Purchase Documents has been duly authorized, executed and delivered by Haynes Wire, and each is in full force and effect as of the date hereof. No material default by Haynes Wire under or with respect to the Branford Purchase Documents exists or has occurred. To the best of the knowledge of Borrowers, no default by any party (other than Haynes Wire) under or with respect to any material agreement contained in the Branford
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Purchase Documents exists or has occurred. Borrowers have obtained all consents required for the valid and binding assignment of, and grant to Agent of a security interest in, the Branford Purchase Documents and such consents are in full force and effect.
Section 9. COVENANTS.
9.1 Borrowers will not consent to or enter into any modification, alteration, amendment or cancellation of the Branford Purchase Documents or any agreement or instrument related thereto, or waive or release any rights, remedies or benefits of a Borrower under the Branford Purchase Documents or any agreement or instrument related thereto, without the prior written consent of Agent in each case. Borrowers will give prompt notice to Agent of any notice of default or any other notice under any of the Branford Purchase Documents at any time received by a Borrower promptly upon receipt thereof or sent by a Borrower or on its behalf concurrently with the sending thereof, in each case together with a complete copy of such notice. Borrowers shall promptly and faithfully abide by, perform and discharge in all material respects the obligations, covenants, conditions and duties which the Branford Purchase Documents provide are to be performed by a Borrower.
9.2 Borrowers shall: (a) promptly notify Agent of any amounts required to be paid by or to a Borrower (or for its benefit) in connection with the Branford Purchase Documents, including as part of any purchase price adjustment, (b) promptly notify Agent of each and every dispute with, proceeding or claim against, cause of action or litigation involving any Person for which a Borrower has or may have any right to indemnification or claim for damages or other relief or remedies, whether at law or in equity, arising under or in connection with the Branford Purchase Documents, (c) diligently enforce all rights to indemnification or claim for damages or other relief or remedies, whether at law or in equity, arising under or in connection with the Branford Purchase Documents, (d) promptly provide Agent with copies of all notices, demands, requests or other communications sent or received by, or on behalf of, a Borrower pursuant to the Branford Purchase Documents, as well as prior written notice of a Borrowers intention to exercise any power, right or remedy pursuant to the Branford Purchase Documents and (e) not take any action that adversely affects, in the good faith judgment of Agent, the rights of a Borrower under the Branford Purchase Documents in any material respect.
9.3 In no event shall a Borrower, without the prior written consent of Agent, waive, release or discharge any of its rights or any of the obligations, duties or liabilities of any other party to any of the Branford Purchase Documents or compromise or settle any right or any claim or dispute with respect to any of its rights or any of the obligations, duties or liabilities of any other party to any of the Branford Purchase Documents. No such waiver, release, discharge, compromise or settlement shall be effective without the prior written consent of Agent.
9.4 At any time an Event of Default exists or has occurred and is continuing, without limiting any other rights or remedies of Agent or Lenders, Agent shall have all rights and remedies under the Loan Agreement and the other Financing Agreements, the Uniform Commercial Code and other applicable law, and shall have the absolute right to enforce, in its name, any and all rights to indemnification or claim for damages or other relief or remedies, whether at law or in equity, arising under or in connection with the Branford Purchase Documents, or otherwise and apply the proceeds thereof to the Obligations in such order or
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manner as Agent shall determine. In order to effectuate the foregoing, each Borrower, for itself and its respective successors and assigns, hereby constitutes and appoints Agent and each officer and employee thereof (effective at any time an Event of Default exists or has occurred and is continuing) as its attorney-in-fact with power to assert claims and commence and prosecute suit against any Person or to settle or compromise any such claim or suit relating to any such right, claim, relief or remedy, and to sign and file any and all papers required in connection therewith and to take any and all other action which Agent may, in its good faith discretion, deem appropriate. Each Borrower hereby ratifies and approves all acts which Agent or any officer or employee thereof as attorney may do and this power of attorney, being coupled with an interest, is irrevocable as long as any of the Obligations remain outstanding.
Section 10. CONDITIONS PRECEDENT. The consents and amendments contained herein shall only be effective upon the receipt by Agent of each of the following, in each case in form and substance reasonably satisfactory to Agent:
10.1 an executed original or executed original counterparts of this Amendment No. 1 (as the case may be), duly authorized, executed and delivered by the respective party or parties hereto;
10.2 all consents, waivers, acknowledgments and other agreements from third persons (other than Deposit Account Control Agreements and Collateral Access Agreements relating to those accounts and premises not identified on Schedule 10.2 hereto) which Agent may deem necessary or desirable in order to permit, protect and perfect its security interests in and liens upon the Collateral of Haynes Wire, including, without limitation, the Branford Purchased Assets, in favor of Agent or to effectuate the provisions or purposes of this Amendment No. 1 and the other Financing Agreements;
10.3 Deposit Account Control Agreements by and among Agent, Haynes Wire and each bank where Haynes Wire has a deposit account identified on Schedule 10.3 hereto, in each case, duly authorized, executed and delivered by such bank and Haynes Wire;
10.4 the properly completed Information Certificate of Haynes Wire duly authorized, executed and delivered by Haynes Wire;
10.5 (a) a copy of the Certificate of Incorporation of Haynes Wire, and all amendments thereto, certified by the Secretary of State of its jurisdiction of incorporation as of the most recent practicable date certifying that each of the foregoing documents remains in full force and effect and has not been modified or amended, except as described therein, (b) a copy of the By-Laws of Haynes Wire, certified by the Secretary of Haynes Wire, and (c) a certificate from the Secretary of Haynes Wire dated the date hereof certifying that each of the foregoing documents remains in full force and effect and has not been modified or amended, except as described therein;
10.6 Secretarys Certificates of Directors Resolutions evidencing the adoption and subsistence of corporate resolutions approving the execution, delivery and performance by Borrowers of this Amendment No. 1 and the agreements, documents and instruments to be delivered pursuant to this Amendment No. 1;
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10.7 original good standing certificates (or its equivalent) from the Secretary of State (or equivalent Governmental Authority) from each jurisdiction where Haynes Wire conducts business;
10.8 a true and correct copy of any consent, waiver or approval (if any) to or of this Amendment No. 1, which any Borrower is required to obtain from any other Person;
10.9 such opinion letter(s) of counsel to Borrowers with respect to the matters contemplated by this Amendment No. 1 and such other matters as Agent may reasonably request;
10.10 lien and judgment search results for the jurisdiction of incorporation of Haynes Wire and each Seller, the jurisdiction of the chief executive office of Haynes Wire and each Seller and all jurisdictions in which assets of Haynes Wire and each Seller are located, which search results shall be in form and substance satisfactory to Agent;
10.11 evidence of insurance and loss payee endorsement required hereunder and under the other Financing Agreements with respect to Haynes Wire and certificates of insurance policies and/or endorsement naming Agent as loss payee;
10.12 a Pledge and Security Agreement by Haynes Parent in favor of Agent for the benefit of the Secured Parties, with respect to the pledge of all of the issued and outstanding shares of capital stock of Haynes Wire by Haynes Parent to Agent for the benefit of Secured Parties, duly authorized, executed and delivered by Haynes Parent;
10.13 a Mortgage by Haynes Wire in favor of Agent, for the benefit of the Secured Parties, with respect to the Real Property of Haynes Wire acquired from Sellers, duly authorized, executed and delivered by Haynes Wire;
10.14 Agent shall have received environmental audits of the Real Property of Haynes Wire to be subject to the Mortgage by Haynes Wire in favor of Agent conducted by an independent environmental engineering firm acceptable to Agent, and in form, scope and methodology satisfactory to Agent, confirming that (i) Haynes Wire (and its predecessor owner) is in compliance with all material applicable Environmental Laws and (ii) the absence of any material environmental problems;
10.15 Agent shall have received, in form and substance satisfactory to Agent, a valid and effective title insurance policy issued by a company and agent acceptable to Agent: (i) insuring the priority, amount and sufficiency of the Mortgages, (ii) insuring against matters that would be disclosed by surveys and (iii) containing any legally available endorsements, assurances or affirmative coverage requested by Agent for protection of its interests;
10.16 all releases, terminations and such other documents as Agent may request to evidence and effectuate the termination or the release by any party of any interest in and to any of the Branford Purchased Assets, including, without limitation, a termination agreement duly authorized, executed and delivered by First-Citizens Bank and Trust Company and UCC termination statements for all UCC financing statements previously filed by any such person against a Seller, as debtor;
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10.17 evidence that the Branford Purchase Documents have been duly authorized, executed and delivered by and to the appropriate parties thereto and that the transactions contemplated under the terms and conditions of the Branford Purchase Documents have been consummated prior to or contemplated with the execution of this Amendment No. 1;
10.18 true and complete copies of the Branford Purchase Documents and all notices, consents, instruments, documents and agreements relating thereto, including all exhibits and schedules thereto, all as duly executed and delivered by the parties thereto; and
10.19 a Seller Acknowledgment Letter by Sellers in favor of Agent with respect to the Branford Purchase Documents, duly authorized, executed and delivered by Sellers.
Section 11. ADDITIONAL EVENTS OF DEFAULT. The parties hereto acknowledge, confirm and agree that the failure of a Borrower to comply with the covenants, conditions and agreements contained herein shall constitute an Event of Default under the Loan Agreement and the other Financing Agreements (subject to the applicable cure period, if any, with respect thereto provided for in the Loan Agreement as in effect on the date hereof).
Section 12. PROVISIONS OF GENERAL APPLICATION.
12.1 EFFECT OF THIS AMENDMENT. Except as expressly amended pursuant hereto and except for the consents expressly granted herein, no other changes or modifications to the Financing Agreements are intended or implied and, in all other respects, the Financing Agreements are hereby specifically ratified, restated and confirmed by all parties hereto as of the effective date hereof. To the extent that any provision of the Loan Agreement or any of the other Financing Agreements are inconsistent with the provisions of this Amendment No. 1, the provisions of this Amendment No. 1 shall control. The Loan Agreement and this Amendment No. 1 shall be read and construed as one Agreement.
12.2 GOVERNING LAW. The validity, interpretation and enforcement of this Amendment No. 1 and the other Financing Agreements (except as otherwise provided therein) and any dispute arising out of the parties hereto, whether in contract, tort, equity or otherwise, shall be governed by the internal laws of the State of Illinois, but excluding any principles of conflicts of law or other rule of law that would cause the application of the law of any jurisdiction other than the laws of the State of Illinois.
12.3 BINDING EFFECT. This Amendment No. 1 shall be binding upon and inure to the benefit of each of the parties hereto and their respective successors and assigns. Any acknowledgments or consents contained herein shall not be construed to constitute a consent to any other or further action by a Borrower or to entitle such Borrower to any other consent.
12.4 FURTHER ASSURANCES. Each Borrower shall execute and deliver such additional documents and take such additional action as may be reasonably requested by Agent and Lenders to effectuate the provisions and purposes of this Amendment No. 1.
12.5 HEADINGS. The headings listed herein are for convenience only and do not constitute matters to be construed in interpreting this Amendment No. 1.
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12.6 COUNTERPARTS. This Amendment No. 1 may be executed in any number of counterparts, each of which shall be an original but all of which taken together shall constitute one and the same Agreement. Delivery of an executed counterpart of this Amendment No. 1 by telefacsimile shall have the same force and effect as the delivery of an original executed counterpart of this Amendment No. 1. Any party delivering an executed counterpart of this Amendment No. 1 by telefacsimile shall also deliver an originally executed counterpart of this Amendment No. 1, but the failure to do so shall not affect the validity, enforceability or binding effect of this Amendment No. 1.
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IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1 to be duly executed and delivered by their authorized officers as of the date and year first above written.
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CONGRESS FINANCIAL CORPORATION |
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(CENTRAL), as Agent and as Lender |
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By: |
/s/ Vicky Geist |
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Title: |
Vice President |
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HAYNES INTERNATIONAL, INC. |
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By: |
/s/ MARCEL MARTIN |
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Title: |
Vice President, Finance and CFO |
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HAYNES WIRE COMPANY |
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By: |
/s/ Marcel Martin |
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Title: |
Vice President, Finance and CFO |
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BANK ONE, NA (Main Office Chicago) |
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/s/ James Gurgone |
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Title: |
Director |
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WESTERNBANK PUERTO RICO |
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BUSINESS CREDIT DIVISION |
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/s/ Miguel A. Vazquez |
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President, Westernbank Business Credit Division |
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[The Disclosure Schedules have been omitted from the Agreement as filed with the Securities and Exchange Commission (the SEC). The omitted information is considered immaterial from an investors perspective. The Registrant will furnish supplementally a copy of any of the schedules to the SEC upon request from the SEC.]
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EXHIBIT 10.14
CONSULTING, NON-COMPETITION AND
CONFIDENTIALITY AGREEMENT
This Consulting, Non-Competition and Confidentiality Agreement (the AGREEMENT) is made as of the 5th day of November 2004 (the EFFECTIVE DATE), by and between Richard Harcke (HARCKE) and Haynes Wire Company, a Delaware corporation (BUYER).
PRELIMINARY STATEMENT
Prior to the date hereof, Sellers have engaged in the business of owning and operating a wire manufacturing business (the BUSINESS). This Agreement is made in connection with and as a condition to consummation of the transactions contemplated by a certain Asset Purchase Agreement dated October 28, 2004, by and among Harcke, The Branford Wire and Manufacturing Company, a Connecticut corporation (BRANFORD), Carolina Industries, Inc. a Connecticut corporation (CAROLINA INDUSTRIES) (Branford and Carolina Industries together, SELLERS) and Buyer (the ASSET PURCHASE AGREEMENT). Under the terms of the Asset Purchase Agreement, Buyer has agreed to purchase, and Sellers have agreed to sell, the assets used in Sellers operation of the Business. Harcke has acquired extensive knowledge about the conduct of the Business as the owner and operator of Sellers. This Agreement is entered into between Buyer and Harcke to protect the goodwill of the Business that is being sold to Buyer by Sellers and to protect against unfair competition by Harcke. All capitalized terms not herein defined have the meaning ascribed to them in the Asset Purchase Agreement.
AGREEMENT
In consideration of the premises and mutual covenants contained in this Agreement and as an inducement to Buyer to enter into the Asset Purchase Agreement, the parties hereby agree as follows:
I. CONSULTING
A. SERVICES. For a period of six (6) months from the Effective Date, Harcke will, at the request of the officers of Buyer from time to time, provide consulting services to Buyer or any affiliate of Buyer with respect to all aspects of the Business, including without limitation the provision of advice on business strategy and operations for the Business and management advice and consultation to the officers of Buyer (collectively, the SERVICES). Harcke shall provide the Services at such times as may be reasonably requested by Buyer.
II. NON-COMPETITION
A. AGREEMENT NOT TO COMPETE. To protect Buyers interest in the goodwill acquired by Buyer from Sellers and to prevent unfair competition, for a period of seven (7) years from the Effective Date (the RESTRICTED PERIOD), except as provided in SECTION II(A) and subject to the geographical limitations set forth in SECTION II(B), Harcke shall not:
1. Engage in any activity directly or indirectly, as an owner, consultant, independent contractor or otherwise in the Business or any related business that is competitive with Buyer, including without limitation any activity that is necessary or incident to the conduct of the Business or any related business in a manner similar to any of the business practices engaged in by either Seller during Harckes ownership and operation of such Seller; provided, however, nothing contained in this Agreement shall prevent either Seller from continuing to sell the Excess Inventory (as such term is defined in the Asset Purchase Agreement);
2. Perform, on behalf of himself or any person or entity, the same or similar services as those performed by Harcke for either Seller prior to the date of this Agreement;
3. Hire or employ or attempt to hire or employ any person who on or after the date hereof, is an employee, manager, or officer of Buyer (each, an EMPLOYEE), or in any way cause or assist or attempt to cause or assist, or, directly or indirectly, seek to solicit, induce, bring about, influence, promote, facilitate, cause, assist or encourage any Employee to leave Buyers employ or to accept employment with or otherwise perform services for on or on behalf of any person or entity that engages in, or otherwise competes with, the Business or any related business (COMPETITOR); or
4. Contact any customers or suppliers of Buyer, either directly or indirectly, for himself or for others, so as to (i) directly or indirectly divert or influence or attempt to divert or influence any business of Buyer to a Competitor, or (ii) directly or indirectly solicit or provide services similar to those provided by Buyer, or (iii) otherwise directly or indirectly interfere in any fashion with Buyers relationship with such customers or suppliers, or with the business or operations then being conducted by Buyer.
B. GEOGRAPHICAL LIMITATIONS. The restrictions set forth in SECTION II(A) in this Agreement shall be applicable to the following geographic areas that can be enforced against Harcke during the Restricted Period:
1. In North America;
2. In the United States of America;
3. In each State in which Sellers previously had operations and/or conducted significant activities relating to the Business, and all contiguous states;
4. In the State of North Carolina;
5. In Henderson County, North Carolina, and all contiguous counties; and
6. Within a fifty (50) mile radius of any location at which Sellers conducted the Business.
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III. CONFIDENTIALITY
A. CONFIDENTIAL INFORMATION DEFINED. CONFIDENTIAL INFORMATION as used in this Agreement shall mean, collectively, any and all data and information about Buyers or Sellers businesses including, but not limited to (i) all information relating to selling or financing processes, specifications and procedures relating to the Business; (ii) customer lists and other customer-related information including names, addresses, specifications or requirements, purchase or delivery quantities, lines of credit, and delivery, financing, and auction schedules; (iii) supplier lists; (iv) marketing plans and concepts; and (v) sales, costs, profits, profit margins, salaries and other financial information pertaining to Buyer or either Seller; provided, however, that Confidential Information shall in no event include data or information that (a) was available to the public prior to the date hereof or (b) becomes available to the public other than as a result of disclosure by Harcke in violation hereof.
B. USE OR DISCLOSURE OF CONFIDENTIAL INFORMATION. Throughout the Restricted Period, Harcke agrees to (i) keep confidential and not to disclose to anyone except the authorized representatives of Buyer all Confidential Information; and (ii) refrain from using such Confidential Information in any manner adverse to the interests of Buyer.
C. RECORDS AND COPIES. Any and all records and copies of records pertaining to the Confidential Information that were or are made or received by either Seller or Harcke shall be kept confidential and Harcke shall not disclose any such records or copies of records to anyone except Buyer and its authorized representatives. All records and copies of records of Buyer are and shall remain the property of Buyer and shall be subject to Buyers custody and control.
IV. COMPENSATION
A. COMPENSATION. In full payment and satisfaction for the Services and Harckes agreements and understandings in SECTIONS I and II and subject to the terms and conditions of this Agreement, Buyer shall compensate Harcke as follows:
1. Buyer shall pay Harcke seven (7) equal annual installments of $110,000.00 each. The first installment shall be paid on the Effective Date and one (1) additional installment shall be paid on each of the first six (6) anniversaries of the Effective Date; provided that Buyer shall not be required to make any payment due on any anniversary following a breach by Harcke of his obligations under SECTIONS I or II of this Agreement. At any time on or after April 1, 2005, Buyer shall, upon three (3) Business Days written request from Harcke, escrow the remaining $660,000 of installments to be paid in exchange for Harckes performance under this Agreement with Investors Bank and Trust Company. In the event that Harcke requests that Buyer provide the escrow as set forth above and Buyer does not provide such escrow, this Agreement shall automatically terminate, including all obligations of Harcke not to compete under ARTICLE II and of Buyer to make payments to Harcke under this ARTICLE IV.
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2. For a period of three (3) years following the Effective Date, Buyer shall provide Harcke with office space at the facilities of Buyer located at 158 N. Egerton Road, Mountain Home, North Carolina 28758, as the parties shall mutually agree.
3. During the Restricted Period, Buyer shall provide Harcke and his spouse with medical benefits comparable to those previously provided to Harcke and his spouse by Sellers.
V. GENERAL PROVISIONS
A. REMEDIES. Harcke acknowledges and agrees that any violation by Harcke of this Agreement will cause Buyer to suffer irreparable harm for which Buyer will not have any adequate remedy at law. Therefore, if Harcke threatens to violate or violates any provision of this Agreement, Buyer shall be entitled to injunctive relief without bond, including, but not limited to, temporary restraining orders and/or preliminary or permanent injunctions, to restrain or enjoin any violation or threatened violation of this Agreement. Buyers right to injunctive relief shall be in addition to, and not in lieu of, any other legal or equitable remedies that may be available to Buyer, including but not limited to monetary damages to the extent they are calculable, including lost profits.
B. CLAIMS BY HARCKE. Any claim or cause of action by Harcke against Buyer shall not constitute a defense to the enforcement of the restrictions and covenants set forth in this Agreement and shall not be used to prohibit injunctive relief.
C. GOVERNING LAW; JURISDICTION AND VENUE. This Agreement shall be construed and enforced in accordance with, and governed by, the Laws of the State of Indiana (without giving effect to the principles of conflicts of Laws thereof). The parties hereto irrevocably agree and consent to the non-exclusive jurisdiction of the courts of the State of Indiana and the federal courts of the United States, sitting in Indianapolis, Indiana for the adjudication of any matters arising under or in connection with this Agreement.
D. COSTS AND ATTORNEYS FEES. In the event any party brings suit to construe or enforce the terms hereof, or raises this Agreement as a defense in a suit brought by another party, the prevailing party shall be entitled to recover its reasonable costs and expenses, including, without limitation, reasonable attorneys fees incurred by that party in enforcing the terms and conditions of this Agreement.
E. SEVERABILITY. Harcke acknowledges and agrees that the restrictions contained in this Agreement are reasonable and necessary to safeguard the protectable interests of Buyer. If, notwithstanding such acknowledgement and agreement, any clause, portion, section, restriction or paragraph of this Agreement is determined to be unreasonable, unenforceable or invalid for any reason, such determination shall not affect the enforceability or validity of the remainder of this Agreement, and the unreasonable, unenforceable or invalid provision shall be deemed amended and modified and shall be given effect and enforced to the maximum extent that is determined to be reasonable and enforceable.
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F. ENTIRE AGREEMENT, MODIFICATIONS, INTERPRETATION. This Agreement constitutes the entire agreement by and between Buyer and Harcke with respect to the matters addressed herein and shall supersede all prior and contemporaneous agreements, representations, and understandings whether written or oral, with respect to such obligations. No amendment to or modification of this Agreement shall be effective unless the amendment or modification is in writing and signed by the parties. This Agreement shall be construed as a whole, according to its fair meaning, and not strictly construed for or against either party.
G. SUCCESSORS AND ASSIGNS. Neither party hereto shall assign or delegate this Agreement or any rights or obligations hereunder without the prior written consent of the other party hereto, and any attempted assignment or delegation without prior written consent shall be void and of no force or effect; provided, however, Buyer may without consent assign this Agreement and all of its rights and delegate its obligations hereunder to an affiliate of Buyer or to any person or entity who shall acquire all or substantially all of the assets of Buyer. This Agreement shall inure to the benefit of and shall be binding upon the successors and permitted assigns of the parties hereto.
H. NON-WAIVER. No act or omission by Buyer shall be deemed a waiver by Buyer of any of Buyers rights under this Agreement. Therefore, the failure of Buyer to enforce any restriction against Harcke or to seek a different remedy shall not be construed as a waiver or estoppel to the enforcement of the restrictions against Harcke.
I. NOTICES. All notices, requests and other communications hereunder must be in writing and will be deemed to have been duly given only if delivered personally or by facsimile transmission, with confirmation of successful transmission, and mailed (first class postage prepaid) to the parties at the following addresses or facsimile numbers:
If to Buyer: |
Haynes Wire Company |
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1020 West Park Avenue |
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P.O. Box 9013 |
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Kokomo, IN 46904-9013 |
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Tel. No. (765) 456-6000 |
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Fax. No. (765) 456-6125 |
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Attn: Francis J. Petro, President and CEO |
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With a copy to: |
Ice Miller |
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One American Square, Box 82001 |
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Indianapolis, IN 46282-0200 |
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Facsimile No.: (317) 592-4666 |
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Attn: Stephen J. Hackman |
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If to Harcke: |
Richard Harcke |
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420 Vanderbilt Road |
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Asheville, NC 28803 |
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Tel. No. 828-692-5791 |
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Fax No. 828-697-9818 |
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J. COUNTERPARTS. This Agreement may be executed in one or more counterparts, any one of which need not contain the signatures of more than one party, and all such counterparts taken together shall constitute one and the same instrument. Signatures on this Agreement may be communicated by facsimile transmission and shall be binding upon the parties transmitting the same by facsimile transmission. Counterparts with original signatures shall be mailed to the other parties within three (3) calendar days of the applicable facsimile transmission; PROVIDED, that the failure to provide the original counterpart shall have no effect on the validity or the binding nature of this Agreement.
[SIGNATURES ON FOLLOWING PAGE]
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THE PARTIES HERETO ACKNOWLEDGE THAT THEY HAVE READ THIS AGREEMENT, UNDERSTAND IT, AND AGREE TO BE BOUND BY ITS TERMS. They further acknowledge that they have exercised due diligence in reviewing this Agreement, and that each has had adequate opportunity to consult with legal counsel or other advisors to the extent that each deemed such consultation necessary.
IN WITNESS WHEREOF, Buyer and Harcke have executed this Agreement effective for all purposes as of the Effective Date.
BUYER |
HARCKE |
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HAYNES WIRE COMPANY |
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By: |
/s/Marcel Martin |
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By: |
/s/Richard Harcke |
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Marcel Martin, Vice President-Finance, |
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Richard Harcke |
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Chief Financial Officer and Treasurer |
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EXHIBIT 10.15
FACILITY AGREEMENT
DATED 2nd APRIL 2004
HAYNES INTERNATIONAL LIMITED
BURDALE FINANCIAL LIMITED
CONTENTS
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SCHEDULE 1 - THE OBLIGORS |
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SCHEDULE 2 - CONDITIONS PRECEDENT |
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SCHEDULE 3 - FORMS OF REQUEST |
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SCHEDULE 4 - FORMS OF REPORT |
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SCHEDULE 5 - FORM OF ACCESSION LETTER |
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FACILITY AGREEMENT
DATED
BETWEEN
(1) HAYNES INTERNATIONAL LIMITED (the COMPANY) registered in England with number 01209891;
(2) THE COMPANIES (if any) identified in Part I of Schedule 1 as Facility Companies;
(3) THE COMPANIES (if any) identified in Part I of Schedule 1 as Guarantors;
(4) BURDALE FINANCIAL LIMITED (BURDALE) registered in England with number 2656007.
IT IS AGREED:
1 INTERPRETATION
1.1 DEFINITIONS
In this Agreement:
ACCESSION LETTER means a document substantially in the form set out in Schedule 5.
ACTUAL DAY OF PAYMENT in relation to a Purchased Receivable means the date on which full payment in respect of that Purchased Receivable is made into a Blocked Account by the relevant account debtor or the relevant Facility Company.
ADDITIONAL FACILITY COMPANY means each company which becomes an Additional Facility Company in accordance with Clause 22.2.
ADDITIONAL GUARANTOR means each company which becomes an Additional Guarantor in accordance with Clause 22.3.
ADDITIONAL OBLIGOR means each Additional Facility Company and each Additional Guarantor.
AFFILIATE means, in relation to any person, a Subsidiary of that person or a Holding Company of that person or any other Subsidiary of that Holding Company.
AVAILABILITY LIMITS means the restrictions on Utilisations set out in Clause 5.
AVAILABILITY PERIOD means the period from the opening of business in London on todays date until close of business in London on the date falling five Business Days prior to the Final Repayment Date or such later date as Burdale may agree.
BLOCKED ACCOUNTS means the following accounts of the Facility Companies with The Royal Bank of Scotland, Manchester Mosely Street branch:
(a) the Companys Sterling account number 20469010, sort code 16-00-01;
(b) the Companys euro account number HAYEINTE-EUR1;
(c) the Companys Dollar account number HAYEINTE-USD1;
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(d) any bank accounts of an Additional Facility Company specified as Blocked Accounts in the relevant Accession Letter;
in each case, (as the same may be redesignated, renumbered or renamed from time to time), or such other account(s) as previously approved by Burdale.
BUSINESS DAY means any day not being a Saturday, Sunday or Bank holiday when banks are open for business in London.
CASH REQUEST means a request for Burdale to pay to a Facility Company an amount of unpaid Purchase Price and/or the proceeds of a Loan in substantially the form set out in Part II of Schedule 3.
CHARGED ACCOUNTS means the Blocked Accounts and the Other Accounts.
CONGRESS means Congress Financial Corporation (Central) an Illinois corporation.
CONSOLIDATED PROFIT means, for any period, the consolidated profit of the Company on ordinary trading activities before tax, adding back depreciation and amortisation but after deducting any exceptional or extraordinary profit and after adding back any non-cash exceptional write-offs during such period as all such terms are defined in accordance with GAAP (applied consistently with the accounting principles of the Obligors as at todays date) and all as determined from the most recent consolidated monthly management accounts of the Company delivered to Burdale pursuant to Clause 14.1(b).
CONSOLIDATED TANGIBLE NET WORTH means the aggregate amount from time to time paid up or credited as paid up on the share capital of the Company and the amount standing to the credit of its consolidated capital and reserves (including any share premium account or capital redemption reserve, but excluding any goodwill (whether positive or negative) and/or any intangible assets) plus or minus the amount standing to the credit or debit of the consolidated profit or loss account of the Company all as determined from the most recent consolidated monthly management accounts of the Company delivered to Burdale pursuant to Clause 14.1(b).
DEBENTURE means the debenture executed or to be executed by the Company in favour of Burdale.
DEED OF PRIORITIES means the deed of priorities dated on or about the date of this Agreement between the Company, Burdale and the Trustees of the Haynes International Limited Pension Scheme.
DEFAULT means any Event of Default and any event which with the giving of notice and/or lapse of time and/or as a result of any Utilisation and/or determination of materiality and/or fulfilment of any condition (or any combination of the foregoing) would constitute an Event of Default.
DEFAULT RATE means the rate determined by Burdale to be 2% above the Interest Rate from time to time.
DILUTION RATE means the monthly value of credit notes and non-cash credits issued by a Facility Company as a percentage of the monthly value of sales.
DIP FINANCING DATE means the first date on which Congress makes funding available to Haynes US pursuant to a debtor-in-possession facility provided to it upon its commencement of a case under Chapter 11 of the United States Bankruptcy Code and Burdale has received (in a form and substance satisfactory to it) the documents, evidence and other items specified in Part II of Schedule 2.
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DOCUMENTS means any and all documents which represent or relate to any Goods and/or the carriage of and/or possession of and/or ownership of and/or title to and/or insurance of and/or warehousing of and/or any other dealing in or with any Goods.
DOLLARS and $ means the lawful currency for the time being of the United States of America.
ELIGIBLE RECEIVABLES means, at any time, any Receivables at such time which are evidenced by an invoice rendered by a Facility Company to the relevant account debtors save for any Receivable:
(a) which does not arise from the actual and bona fide sale and delivery of goods by the relevant Facility Company or rendering of services by the relevant Facility Company in the ordinary course of its business which transactions are completed in accordance with the terms and provisions contained in any documents relating to such transactions;
(b) which remains fully or partly unpaid after its Maturity Date or such longer period as may be agreed by Burdale;
(c) owing by a single account debtor if Receivables representing 50% or more of the aggregate balance owing by such account debtor to the Facility Companies are not Eligible Receivables by reason of the operation of paragraph (b) above;
(d) with respect to which the account debtor is a director, officer, employee or Affiliate of any Obligor;
(e) with respect to which the account debtor has or has asserted a counterclaim or has a right of set off, to the extent of such counterclaim or set off;
(f) as to which performance has not been completed by the relevant Facility Company or as to which all goods and services in connection with such Receivable have not been delivered to or performed for the account debtor or which has not been invoiced or is not fully assignable;
(g) with respect to which the account debtor is the subject of any bankruptcy or insolvency proceeding in any jurisdiction or has made an assignment for the benefit of creditors or whose assets have been conveyed to a receiver, administrator, trustee or other insolvency official;
(h) with respect to which the account debtors obligation to pay the Receivable is conditional upon the account debtors approval or is otherwise subject to any repurchase obligation or right of return, as with sales made on a bill-and-hold, guaranteed sale, sale-and-return, sale on approval (except with respect to Receivables in connection with which account debtors are entitled to return goods on the basis of the quality of those goods) or consignment basis;
(i) owed by an account debtor incorporated or resident outside the United Kingdom, unless Burdale otherwise agrees and such Receivable is subject to valid and enforceable credit insurance payable to Burdale issued by an insurer on terms and in an amount acceptable to Burdale as determined by it in good faith and the aggregate invoice values owed by that relevant account debtor are within the insured limit;
(j) owed by an account debtor whose total indebtedness to the Facility Companies exceeds any credit limit set by Burdale from time to time with respect to that account debtor to the extent such Receivable breaches that credit limit provided that any reduction in the credit limit as to a particular account debtor will not cause any Receivables owing by
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that account debtor as of the date of such reduction not to qualify as Eligible Receivables;
(k) where there are proceedings or actions which are threatened or pending against the account debtors with respect to such Receivables which would result in any material adverse change in any such account debtors financial condition;
(l) where there are facts, events or occurrences which would impair the validity, enforceability or collectability of that Receivable or of reducing the amount payable or delaying payment of that Receivable.
ELIGIBLE STOCK means all Stock save for any Stock which, at any time:
(a) is obsolete, slow-moving, not in good condition or not currently usable or saleable in the ordinary course of a Facility Companys business;
(b) is held at third party premises but not held subject to Warehouseman Association standard agreement;
(c) constitutes materials over which Burdale does not have a valid first ranking fixed or floating charge under the Security Documents;
(d) constitutes consumables used in a Facility Companys business or constitutes packaging or shipping materials;
(e) constitutes returned, damaged or defective materials;
(f) is held by a Facility Company as consignee for a third party;
(g) is not the property of the relevant Facility Company by virtue of retention of title or Romalpa provisions in favour of any person;
(h) is spare parts or scrap or is only semi-finished or otherwise constitutes work-in-progress;
(i) is in transit outside property which is owned and controlled by any Obligor except in cases where they are (i) in transit by a Facility Company or by a courier on its behalf between such property and the aggregate value of such Stock does not at any time exceed the sum of $15,000 or (ii) in transit to a Facility Company and Burdale has in its possession all originals of the bills of lading or other documents of title with respect to such Stock and has received all such agreements as Burdale requires in order to perfect first ranking fixed or floating security in such Stock and to obtain possession of such Stock from any third party having possession of the same; or
(j) is determined in good faith by Burdale as being unsuitable for forming the basis of a lending decision as a result of any change in or introduction of or change in the interpretation or application of any law, regulation, treaty or official directive or official request having the force of law.
END DATE in relation to an L/C means the earlier of the expiry date of such L/C and the date on which the L/C is drawn in full.
EQUIPMENT means equipment, machinery, computers and computer hardware and software (whether owned or licensed), vehicles, tools, furniture and fixtures and all attachments, accessories and property now or in future relating to them or used in connection with them and replacements and substitutions for them.
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EURO or EURO means the single currency of the Participating Member States.
EVENT OF DEFAULT means any of the events specified in Clause 16.1.
EXCHANGE RATE means the prevailing spot rate of exchange of such bank as Burdale may select for the purpose, at or around 11.00 a.m. on the date on which any conversion of currency is to be made under this Agreement. FACILITIES means the Receivables Finance Facility and the Revolving Credit Facility.
FACILITY COMPANY means each company (if any) identified as a Facility Company in Part I of Schedule 1 and each Additional Facility Company.
FACILITY LIMIT means $10,000,000 until the occurrence of the DIP Financing Date and thereafter $15,000,000.
FINAL REPAYMENT DATE means the third anniversary of todays date.
FINANCE DOCUMENTS means this Agreement, the Deed of Priorities, the Security Documents, all other agreements, documents and instruments at any time executed in favour of and/or delivered by any Obligor to Burdale and/or designated as a Finance Document by Burdale and the Company.
FINANCIAL INDEBTEDNESS means any indebtedness for or in respect of:
(a) moneys borrowed;
(b) any amount raised by acceptance under any acceptance credit facility;
(c) any amount raised pursuant to any note purchase facility or the issue of bonds, notes, debentures, loan stock or any similar instrument;
(d) the amount of any liability in respect of any lease or hire purchase contract which would, in accordance with GAAP, be treated as a finance or capital lease;
(e) receivables sold or discounted (other than any receivables to the extent they are sold on a non-recourse basis);
(f) any amount raised under any other transaction (including any forward sale or purchase agreement) having the commercial effect of a borrowing;
(g) any derivative transaction entered into in connection with protection against or benefit from fluctuation in any rate or price (and, when calculating the value of any derivative transaction, only the marked to market value shall be taken into account);
(h) any counter-indemnity obligation in respect of a guarantee, indemnity, bond, standby or documentary letter of credit or any other instrument issued by a bank or financial institution; and
(i) the amount of any liability in respect of any guarantee or indemnity for any of the items referred to in paragraphs (a) to (h) above.
FOREIGN CURRENCY means any currency other than Sterling which is freely available and transferable.
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FOREX EXPOSURE in relation to any unmatured Forex Transaction means the Forex Percentage of such transaction.
FOREX LIMIT means $nil.
FOREX PERCENTAGE means:
(a) 10% in relation to euros and United States Dollars; and
(b) 20% in relation to all other currencies,
or in each case, such higher percentage determined by Burdale having regard to the nature of the currencies involved in any Forex Transaction.
FOREX REQUEST means a request for a Utilisation of the Revolving Credit Facility for the sale or purchase of a Foreign Currency substantially in the form set out in Part IV of Schedule 3.
FOREX TRANSACTION means a foreign exchange transaction entered into as a Utilisation of the Revolving Credit Facility.
GAAP means generally accepted accounting principles in the United Kingdom.
GOODS means all Stock, produce, inventory and/or other goods which are the subject of a purchase by a Facility Company and in respect of which any L/C has been issued.
GROUP means the Company and its Subsidiaries.
GUARANTOR means each company (if any) identified as a Guarantor in Part II of Schedule 1 and each Additional Guarantor.
HAYNES US means Haynes International, Inc, a Delaware corporation.
HOLDING COMPANY means, in relation to a company or a corporation, any other company or corporation in respect of which it is a Subsidiary.
INTEREST RATE means the aggregate of LIBOR, MLA Cost and the Margin.
L/Cs means letters of credit, merchandise purchase or other guarantees which are from time to time either (a) issued or opened by Burdale for the account of a Facility Company or (b) with respect to which Burdale has agreed to indemnify the issuer or guaranteed to the issuer the performance by a Facility Company of its obligations to such issuer.
L/C EXPOSURE in relation to any L/C means:
(a) if the proposed L/C is by way of a letter of credit and for the purpose of purchasing Eligible Stock:
(i) the face amount of the L/C; LESS
(ii) the Stock Percentage TIMES the cost of such Eligible Stock for which such L/C was drawn; PLUS
(iii) freight, taxes, duty and other amounts which Burdale estimates must be paid in connection with such Stock upon arrival and for delivery to one of the relevant Facility Companys locations for Eligible Stock within the United Kingdom; and
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(b) if the proposed L/C is for any other purpose an amount equal to 100% of the face amount of such L/C and all other commitments and obligations made or incurred by Burdale with respect to such L/C.
L/C LIMIT means $1,000,000.
L/C REQUEST means a request for a Utilisation of the Revolving Credit Facility by way of the issue of an L/C in substantially the form set out in Part III of Schedule 3.
LIBOR means:
(a) in relation to an amount denominated in euro, the thirty day LIBOR euro rate quoted on the first Business Day of each month in the Financial Times, London edition as conclusively determined by Burdale;
(b) in relation to an amount denominated in Sterling, the thirty day LIBOR Sterling rate quoted on the first Business Day of each month in the Financial Times, London edition as conclusively determined by Burdale;
(c) in relation to an amount denominated in Dollars, the thirty day LIBOR Dollar rate quoted on the first Business Day of each month in the Financial Times, London edition as conclusively determined by Burdale; or
(d) (if for any reason the Financial Times, London edition ceases or fails to quote such a rate) Burdales cost of funds from whatever source it may reasonably request.
LOAN means the principal amount of each borrowing under this Agreement from the Revolving Credit Facility (including any deemed borrowing pursuant to Clause 6.6) as reduced by repayment or prepayment from time to time.
MARGIN means 3% per annum.
MATERIAL ADVERSE EFFECT means an effect that results in or causes, or has a reasonable likelihood of resulting in or causing, a material adverse change in any of:
(a) the business, performance, operations or properties of the Obligors taken either individually or as a whole; and/or
(b) the legality, validity or enforceability of any Finance Document; and/or
(c) the perfection or priority of the Security Interests granted to Burdale under the Finance Documents; and/or
(d) the ability of any Obligor to perform its respective obligations under any of the Finance Documents; and/or
(e) the rights and remedies of Burdale under any Finance Document.
MATURITY DATE means in respect of any Receivable the Business Day which is, or immediately succeeds the date which is the earlier of:
(a) 120 days after the date of the invoice in respect of such Receivable; and
(b) 60 days after the due date for payment of such invoice.
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MLA COST means the cost (expressed as a rate per annum) of the London branch of Wachovia N.A. (or any other bank from which Burdale obtains funding for its provision of the Facilities) of complying with the requirements of the Bank of England and/or the Financial Services Authority and/or any other applicable regulatory authority in respect of monetary control, liquidity or otherwise.
NET STOCK VALUE means the net value of Stock as determined by the relevant Facility Company in accordance with its customary practices and procedures (as disclosed to Burdale prior to todays date and as the same may be varied from time to time with Burdales written consent) and advised to Burdale from time to time.
OBLIGORS means the Facility Companies and the Guarantors.
OTHER ACCOUNTS means the bank accounts of the Obligors specified as Other Accounts in the Debenture and/or such other bank accounts of the Obligors as Burdale may permit.
OUTSTANDING PURCHASE PRICE means the aggregate from time to time of the Purchase Prices of Receivables paid to the Facility Companies (including any deemed payment of Purchase Price pursuant to Clause 6.6) in respect of which Burdale has not received payment from the relevant account debtor or the relevant Facility Company.
PARENT GUARANTEE means the guarantee of the obligations of the Company to Burdale executed and delivered by Haynes US and Haynes Holdings, Inc. on or about todays date.
PARENT SECURITY means any document or documents by which Haynes US grants a Security Interest over its assets (other than the Share Mortgage) in favour of Burdale.
PARTICIPATING MEMBER STATE means a member state of the European Community which has adopted or adopts the single currency in accordance with legislation of the European Community relating to Economic and Monetary Union.
PAST DUE PAYABLE means any trade payable of any Obligor which remains outstanding more than 60 days after its original due date for payment.
PERMITTED CURRENCY means euro, Sterling or Dollars.
PURCHASE COMMISSION is defined in Clause 8.2.
PURCHASE DATE in relation to a Purchased Receivable means the date of delivery of a Purchase Request by a Facility Company with respect to such Purchased Receivable.
PURCHASE PRICE means the purchase price to be paid by Burdale for Purchased Receivables being 85% of the face value of each Eligible Receivable to be purchased under the Receivables Finance Facility less maximum discounts, credits and allowances of any nature which may be taken by or granted to any account debtor or other person in connection with such Eligible Receivable (all as determined by Burdale in accordance with Clause 6.1.3).
PURCHASE REQUEST means a Request for a Utilisation of the Receivables Finance Facility in substantially the form set out in Part I of Schedule 3.
PURCHASED RECEIVABLE means a Receivable purchased by Burdale from a Facility Company in accordance with the terms of this Agreement.
RECEIVABLE means, at any time, the aggregate present and future obligations of an account debtor of a Facility Company for the payment of money to such Facility Company at such time together with all connected rights, claims, deposits and payments.
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RECEIVABLES FINANCE FACILITY is defined in Clause 2(a).
RECEIVABLES LIMIT means $10,000,000 until the occurrence of the DIP Financing Date and thereafter $15,000,000.
REQUEST means a request substantially in the form set out in the relevant Part of Schedule 3 for a Utilisation of one of the Facilities.
RESERVES is defined in Clause 5.5.
REVOLVING CREDIT FACILITY is defined in Clause 2(b).
REVOLVING CREDIT LIMIT means $5,000,000 until the occurrence of the DIP Financing Date and thereafter $7,500,000.
SECURITY DOCUMENTS means the Debenture, the Share Mortgage, the Parent Guarantee, the Parent Security and any other guarantee or security documents executed in favour of Burdale from time to time in relation to the obligations or indebtedness of the Obligors (or any of them).
SECURITY INTEREST means a mortgage, charge, pledge, lien or other security interest securing any obligation of any person, or any other agreement or arrangement having similar effect.
SHARE MORTGAGE means the mortgage of the entire issued share capital of the Company to be executed and delivered by Haynes US on the DIP Financing Date.
STERLING and L means the lawful currency for the time being of the United Kingdom.
STOCK means each Facility Companys stock and inventory at any time.
STOCK PERCENTAGE means 68%.
SUBSIDIARY means a subsidiary within the meaning of Section 736 of the Companies Act 1985.
TAX means any tax, levy, impost, duty or other charge or withholding of a similar nature (including any penalty or interest payable in connection with any failure to pay or delay in paying the same).
TAX CREDIT means a credit against, relief or remission for, or repayment of any Tax.
TAX DEDUCTION means a deduction or withholding for or on account of Tax from a payment under the Finance Documents.
TAX PAYMENT means an increased payment made by an Obligor to Burdale under Clause 10.1.3 or 10.2.1.
TOTAL RECEIVABLES AVAILABILITY means, at any time, 85% of the face value of the Eligible Receivables less maximum discounts, credits and allowances of any nature which may be taken by or granted to any account debtor or any other person in connection with the Eligible Receivables at such time.
TOTAL STOCK AVAILABILITY means, at any time, the Stock Percentage of the Net Stock Value of Eligible Stock at such time.
TRADING CASHFLOW means, for any period, the Consolidated Profit during such period but after deducting all amounts of capital expenditure by any member of the Group as all such terms are defined in accordance with GAAP (applied consistently with the accounting principles of the
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Obligors as at todays date) and all as determined from the most recent consolidated monthly management accounts of the Company delivered to Burdale pursuant to Clause 14.1(b).
TRUSTEES is defined in the Deed of Priorities.
TRUSTEE AGREEMENT is defined in the Deed of Priorities.
TRUSTEE MORTGAGE is defined in the Deed of Priorities.
UTILISATION means a utilisation of a Facility under this Agreement (with the delivery of a Purchase Request and the payment of Purchase Price by Burdale pursuant to a Cash Request constituting separate Utilisations of the Receivables Finance Facility).
UTILISATION DATE in relation to a Utilisation means the date on which such Utilisation is made (being in relation to any Utilisation of the Receivables Finance Facility, both the Purchase Date and the date on which any payment of Purchase Price is made to a Facility Company pursuant to a Cash Request).
VAT means value added tax as provided for in the Value Added Tax Act 1994 and any other tax of a similar nature.
1.2 CONSTRUCTION
1.2.1 Any reference in this Agreement to:
(a) ASSETS includes present and future properties, revenues and rights of every description;
(b) an AUTHORISATION means an authorisation, consent, approval, licence, resolution, filing or registration;
(c) a FINANCE DOCUMENT or any other agreement or instrument is a reference to that Finance Document or other agreement or instrument as amended or novated;
(d) INDEBTEDNESS includes any obligation (whether incurred as principal or as surety) for the payment or repayment of money, whether present or future, actual or contingent;
(e) a PERSON includes any person, firm, company, corporation, government, state or agency of a state or any association, trust or partnership (whether or not having separate legal personality) or two or more of the foregoing;
(f) a REGULATION includes any regulation, rule, official directive, request or guideline (whether or not having the force of law) of any governmental, intergovernmental or supranational body, agency, department or regulatory, self-regulatory or other authority or organisation;
(g) a provision of law is a reference to that provision as amended or re-enacted;
(h) words importing the singular shall include the plural and vice versa; and
(i) unless a contrary indication appears, a time of day is a reference to London time.
1.2.2 Clause and Schedule headings are for ease of reference only.
1.2.3 A Default (other than an Event of Default) is CONTINUING if it has not been remedied or waived and an Event of Default is CONTINUING if it has not been waived.
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1.2.4 If at any time there are no persons who are Guarantors, the term OBLIGORS shall be construed, whilst such circumstance is continuing, as a reference solely to the Facility Companies and if at any time the Company is the only Facility Company the references in this Agreement to FACILITY COMPANY shall, whilst such circumstance is continuing, be construed accordingly.
1.2.5 A person who is not party to this Agreement has no right under the Contracts (Rights of Third Parties) Act 1999 to enforce any term of this Agreement but this does not affect any right or remedy of a third party which exists or is available apart from the Contracts (Rights of Third Parties) Act 1999.
1.2.6 Where there is a reference in this Agreement to any amount, limit or threshold specified in Dollars, in ascertaining whether or not that amount, limit or threshold has been attained, broken or achieved, an amount denominated in a currency other then Dollars shall be counted on the basis of the equivalent in Dollars of that amount using the Exchange Rate.
2 FACILITIES
Subject to the terms of this Agreement Burdale agrees to make available the following facilities:
(a) to the Facility Companies, a Receivables Finance Facility pursuant to which Burdale will from time to time during the Availability Period purchase Receivables from the Facility Companies (the RECEIVABLES FINANCE FACILITY);
(b) to the Facility Companies, a revolving credit facility pursuant to which Burdale will during the Availability Period (i) make Loans to the Facility Companies (ii) issue, or procure the issue of, L/Cs for the account of the Facility Companies and (iii) buy or sell Foreign Currency spot and/or for delivery at a future date on behalf of the Facility Companies (the REVOLVING CREDIT FACILITY).
3 PURPOSE
3.1 GENERAL
3.1.1 The Company will use the Facilities:
(a) in making a loan to Haynes US in an amount not exceeding $5,600,000 out of the initial Utilisations, and
(b) otherwise only for its general operating, working capital and other proper corporate purposes and always in a manner which is not inconsistent with the Finance Documents.
3.1.2 Each other Facility Company will use the Facilities only for its general operating, working capital and other proper corporate purposes and always in a manner which is not inconsistent with the Finance Documents.
3.2 NO OBLIGATION
Without affecting the obligations of the Facility Companies in any way, Burdale is not obliged to monitor or verify the application of the Facilities.
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4 CONDITIONS PRECEDENT
4.1 INITIAL CONDITIONS
No Request may be delivered unless Burdale shall have received all of the documents and evidence specified in Part I of Schedule 2 in a form and substance satisfactory to it.
4.2 FURTHER CONDITIONS
The obligations of Burdale in respect of any Utilisation are subject to the further conditions precedent that both on the date of the relevant Request and the proposed Utilisation Date:
(a) the representations and warranties set out in Clause 12 to be repeated on such dates are true and correct; and
(b) no Default has occurred and is continuing or would result from the making of such Utilisation.
5 RESTRICTIONS ON UTILISATION
5.1 LOANS
No Cash Request may be delivered which would involve the drawing of a Loan unless at the time of delivery either (a) the Receivables Finance Facility is or would be following the delivery of such Cash Request being utilised up to the Receivables Limit or (b) the Facility Companies have no Receivables with which to utilise the Receivables Finance Facility.
5.2 LETTERS OF CREDIT
No Request may be delivered for an L/C to be issued pursuant to the Revolving Credit Facility unless and until the form of L/C has been approved by Burdale, the relevant issuer and the proposed beneficiary of such L/C.
5.3 OVERALL LIMIT
The aggregate amount of:
(a) all Loans;
(b) Outstanding Purchase Price;
(c) all L/C Exposures; and
(d) all Forex Exposures,
shall not at any time exceed the Facility Limit.
5.4 SPECIFIC LIMITS
5.4.1 RECEIVABLES FINANCE FACILITY: The Outstanding Purchase Price shall not at any time exceed the Receivables Limit.
5.4.2 REVOLVING CREDIT FACILITY: The aggregate amount of:
(a) all Loans;
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(b) all L/C Exposures; and
(c) all Forex Exposures,
shall not at any time exceed the Revolving Credit Limit.
5.4.3 L/C UTILISATIONS: The aggregate amount of all L/C Exposures shall not at any time exceed the L/C Limit.
5.4.4 FOREIGN EXCHANGE UTILISATIONS: The aggregate amount of all Forex Exposures shall not at any time exceed the Forex Limit.
5.5 AVAILABILITY
The aggregate amount of:
(a) Outstanding Purchase Price;
(b) all Loans;
(c) all L/C Exposures; and
(d) all Forex Exposures,
shall not at any time exceed the sum of:
(i) the Total Receivables Availability; PLUS
(ii) the Total Stock Availability; LESS
(iii) the amount of Reserves,
at such time.
For the purposes of this Clause 5.5, RESERVES means reserves established by Burdale from time to time:
(a) to reflect the full amount of the liabilities at such time which have a right imposed to provide for payment ranking or capable of ranking senior to or pari passu with the liabilities of the Obligors under the Finance Documents and/or having the benefit of any Security Interest over the assets of any Obligor ranking or capable of ranking senior to or pari passu with the Security Interests granted to Burdale under the Finance Documents;
(b) to reflect Burdales good faith belief that any report or financial information provided by or on behalf of any Obligor under the Finance Documents is or may have been incomplete, inaccurate or misleading in any material respect; and
(c) in an amount of $1,000,000.
5.6 PROHIBITION
No Utilisation may be made which would cause the provisions of this Clause 5 to be breached.
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5.7 PERCENTAGES
Burdale may from time to time, following prior consultation with the Company:
(a) reduce the Purchase Price and/or the Total Receivables Availability to the extent that the Dilution Rate has increased;
(b) reduce the Total Stock Availability (or any component of it) to the extent that:
(i) the number of days of the turnover of the Stock for any period has changed in any material respect; or
(ii) the liquidation value of the Eligible Stock, or any category of Eligible Stock, has decreased; or
(iii) the nature and quality of the Stock has deteriorated; and
(iv) there is any change in seasonality with respect to Stock and patterns of sales after todays date; or
(v) there is any reduction in the Facility Limit pursuant to Clause 7.7.
6 UTILISATION OF FACILITIES
6.1 AVAILABILITY OF RECEIVABLES FINANCE FACILITY
6.1.1 Subject to the terms of this Agreement, each Facility Company shall offer to sell its Receivables to Burdale by delivering to Burdale from time to time duly completed Purchase Requests (together with all deeds and documents referred to in such Purchase Request), delivery of which shall oblige such Facility Company to sell the Receivables stated in such Purchase Request upon the terms and subject to the conditions of this Agreement.
6.1.2 A Purchase Request will not be regarded as having been duly completed unless it is in substantially the form set out in Part I of Schedule 3.
6.1.3 As soon as reasonably practicable following delivery of a Purchase Request, Burdale shall determine the Purchase Price for the Receivables specified in such Purchase Request and will, upon being requested by the relevant Facility Company, advise such Facility Company of such determination.
6.2 UTILISATION OF RECEIVABLES FINANCE FACILITY AND REVOLVING CREDIT FACILITY
6.2.1 Subject to the terms of this Agreement, each Facility Company may from time to time request that Burdale pay sums in a Permitted Currency to such Facility Company of up to the aggregate of (i) the amount of any unpaid Purchase Price and (ii) the amount available for drawing by way of Loan, by delivering a duly completed Cash Request to Burdale not later than 11.00 a.m. on the proposed Utilisation Date for such payment.
6.2.2 A Cash Request will not be regarded as having been duly completed unless it is in substantially the form set out in Part II of Schedule 3 and, in particular, specifies:
(a) the proposed Utilisation Date, being a Business Day falling during the Availability Period;
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(b) the amount and the currency of the sum to be paid by Burdale which must be less than or equal to the aggregate of the amounts specified in Clause 6.2.1; and
(c) if not already notified to Burdale, the details of the Other Account into which the payment is to be made on the Utilisation Date.
6.2.3 Payments made by Burdale pursuant to a Cash Request shall be deemed to be first payments of any unpaid Purchase Price to the full extent of such unpaid Purchase Price and second, to the extent of any surplus, to be the drawing of a Loan.
6.2.4 Burdales obligation to pay the Purchase Price of any Receivable (or any unpaid portion of it as the case may be) shall be terminated on the earlier of the Actual Day of Payment and the Maturity Date of such Receivable.
6.2.5 To the extent that any payments made by Burdale pursuant to a Cash Request to a Facility Company (the DEBTOR COMPANY) represent payment of Purchase Price in relation to the Purchased Receivables of another Facility Company (the CREDITOR COMPANY) then (without double counting with the provisions of Clause 7.2(e)(ii)) the Creditor Company shall be deemed to have made a loan to the Debtor Company in an amount equal to the amount of such payment by Burdale and in the same currency as such payment (an INTERCOMPANY LOAN). All Intercompany Loans shall bear interest at such rates as the relevant Creditor Companies may agree with the relevant Debtor Companies and all principal and interest on any Intercompany Loan shall be payable on demand.
6.3 L/C UTILISATIONS
6.3.1 Subject to the terms of this Agreement, a Facility Company may request the issue of an L/C by delivering a duly completed L/C Request to Burdale not later than 11.00 a.m. on the proposed Utilisation Date for that L/C.
6.3.2 An L/C Request will not be regarded as having been duly completed unless it is substantially in the form attached in Part III of Schedule 3 and, in particular, specifies:
(a) the proposed Utilisation Date, being a Business Day falling during the Availability Period;
(b) the amount of the L/C required, the L/C Exposure of which must be equal to or less than the undrawn/unutilised amount of the Revolving Credit Facility and within the relevant Availability Limits as at the proposed Utilisation Date;
(c) if not already notified to Burdale, the details of the beneficiary, payee or addressee of such L/C.
6.4 GENERAL PROVISIONS REGARDING L/Cs
6.4.1 Nothing in this Agreement shall be deemed or construed to grant any Facility Company any right or authority to pledge the credit of Burdale in any manner. Burdale shall have no liability of any kind with respect to any L/C provided by an issuer other than Burdale unless Burdale has duly executed and delivered to such issuer the application or a guarantee or indemnification in writing with respect to such L/C. Each Facility Company shall be bound by an interpretation made in good faith by Burdale, or any other issuer or correspondent under or in connection with any L/C or any documents, drafts or acceptances in relation to any L/C, notwithstanding that such interpretation may be inconsistent with any instructions of any Facility Company. Burdale shall have the sole and exclusive right and authority to, and no Facility Company shall:
(a) at any time an Event of Default exists or has occurred and is continuing:
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(i) approve or resolve any questions of non-compliance of documents;
(ii) give any instructions as to acceptance or rejection of any documents or goods; or
(iii) execute any and all applications for steamship or airway guarantees, indemnities or delivery orders;
(b) at any time:
(i) grant any extensions of the maturity of, time of payment for, or time of presentation of, any drafts, acceptances, or documents; and
(ii) agree to any amendments, renewals, extensions, modifications, changes or cancellations of any of the terms or conditions of any of the applications, L/Cs, or documents, drafts or acceptances in relation to any L/C or any letters of credit provided as security to Burdale. Burdale may take such actions either in its own name or in the relevant Facility Companys name.
6.4.2 Any rights, remedies, duties or obligations granted or undertaken by any Facility Company to any issuer or correspondent in any application for any L/C, or any other agreement in favour of any issuer or correspondence relating to any L/C, shall be deemed to have been granted or undertaken by such Facility Company to Burdale. Any duties or obligations undertaken by Burdale to any issuer or correspondence in any application for any L/C, or any other agreement by Burdale in favour of any issuer or correspondence relating to any L/C, shall be deemed to have been undertaken by the relevant Facility Company to Burdale and to apply in all respects to such Facility Company.
6.4.3 None of Burdale, any L/C issuer (or any of their respective correspondents) or any advising, negotiating or paying bank with respect to any L/C shall be responsible in any way for:
(a) the performance by any beneficiary under any L/C of that beneficiarys obligations to the relevant Facility Company; or
(b) the form, sufficiency, correctness, genuineness, authority of any person signing or the legal effect of any documents called for under any L/C if such documents appear on their face to be in order.
6.5 FOREX UTILISATIONS
6.5.1 Subject to the terms of this Agreement, a Facility Company may request a Utilisation of the Revolving Credit Facility by way of the sale or purchase of Foreign Currency by delivering a duly completed Forex Request to Burdale not later than 11.00 a.m. on the proposed date of the contract for the sale or purchase of Foreign Currency.
6.5.2 A Forex Request will not be regarded as having been duly completed unless it is in substantially the form set out in Part IV of Schedule 3 and, in particular, specifies:
(a) the proposed date of effect of the sale or purchase of Foreign Currency being a Business Day falling during the Availability Period; and
(b) the value of the contract for the sale or purchase of Foreign Currency required and the Foreign Currency required to be purchased which must be such that the Forex Exposure with respect to such Utilisation when aggregated with all other Forex Exposures is equal to or less than the Forex Limit as at the proposed Utilisation Date.
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6.6 DEEMED UTILISATIONS
All payments made by Burdale:
(a) in accordance with the terms of any L/C or any guarantee or indemnity given by Burdale to the issuer of any L/C (as the case may be); and
(b) on the maturity of any Forex Transaction,
shall be deemed to be a payment to the relevant Facility Company in an amount equal to such payment, as if such Facility Company had lodged a Cash Request for such amount and subject to the provisions of this Agreement with respect to Utilisations of the Receivables Finance Facility and/or the Revolving Credit Facility (including, without limitation, as to interest, purchase commission and repayment).
7 REPAYMENT AND PREPAYMENT
7.1 RECEIVABLES FINANCE FACILITY
7.1.1 If in relation to a Purchased Receivable Burdale determines on the Maturity Date in respect of such Purchased Receivable that it has not received payment in accordance with Clause 9.1 of the full amount of such Purchased Receivable, the relevant Facility Company shall, on demand by Burdale pay to Burdale an amount equal to the Outstanding Purchase Price of such Purchased Receivable for which payment has not been received PROVIDED THAT this provision shall not restrict (nor oblige) Burdale in any way in or from pursuing and obtaining payment in respect of such Purchased Receivable from the account debtors or otherwise (which payment shall be made into a Blocked Account) and each Facility Company undertakes that it will do all such reasonable acts or things necessary or desirable to help Burdale in pursuing and obtaining such payment.
7.1.2 Burdale shall be entitled to deduct from payments made by account debtors and/or the Facility Companies into a Blocked Account in respect of Purchased Receivables the then Outstanding Purchase Price in respect of such Purchased Receivables and the balance remaining after such deduction shall be applied in accordance with Clause 7.2.
7.2 OTHER UTILISATIONS
Subject as provided below all amounts standing to the credit of the Blocked Accounts from time to time following the deductions referred to in Clause 7.1.2 shall be applied as follows:
(a) FIRST in repayment of the outstanding principal amount of any Loans;
(b) SECOND in payment of any fees, costs and expenses due from any Obligor to Burdale under the Finance Documents;
(c) THIRD in payment of (i) all amounts of interest due on the Loans (including any deemed borrowing pursuant to Clause 6.6) and (ii) all Purchase Commission (or in making provision for Purchase Commission which will fall due for payment on the last Business Day of the current calendar month);
(d) FOURTH in or towards satisfaction of any other payment obligation of any Obligor under the Finance Documents; and
(e) FIFTH to the relevant Facility Company by way of payment into such Other Account as the relevant Facility Company may specify to Burdale in writing from time to time.
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PROVIDED THAT:
(i) notwithstanding the above, at all times whilst an Event of Default is continuing, amounts standing to the credit of a Blocked Account shall be applied to such of the liabilities of the Obligors under the Finance Documents and in such order as Burdale may in its absolute discretion determine; and
(ii) to the extent that any amount standing to the credit of one Facility Companys Blocked Account is applied to discharge the liabilities of another Obligor pursuant to Clause 7.1.2 or this Clause 7.2 then (without double counting) the provisions of Clause 6.2.5 shall apply to such application mutatis mutandis.
7.3 CURRENCY
7.3.1 Any amount deducted by Burdale pursuant to Clause 7.1.2 shall first be used by Burdale in or towards paying the then Outstanding Purchase Price denominated in the same Permitted Currency as the payment from which such deduction was made and then (at Burdales discretion) the remainder of any such deduction may be converted by Burdale at the Exchange Rate and used in or towards paying the then Outstanding Purchase Price denominated in any Permitted Currency (unless Burdale otherwise agrees).
7.3.2 Any amount applied pursuant to Clauses 7.2(a) to 7.2(d) (inclusive) above shall first be applied by Burdale in or towards satisfying the obligations of the Obligors under the Finance Documents denominated in the same Permitted Currency as the Permitted Currency of the funds so applied and then (at Burdales discretion) the remainder of any such amount may be converted by Burdale at the Exchange Rate and used in or towards satisfying any such obligations denominated in any Permitted Currency (unless Burdale otherwise agrees).
7.4 REUTILISATION
7.4.1 RECEIVABLES FINANCE FACILITY: Subject to the terms of this Agreement, all amounts of Outstanding Purchase Price recovered and paid to Burdale, may be reutilised as Utilisations of the Receivables Finance Facility.
7.4.2 REVOLVING CREDIT FACILITY: Subject to the terms of this Agreement, all Loans repaid and all amounts recovered and paid to Burdale in relation to L/Cs and Forex Transactions, may be redrawn or reutilised as Utilisations of the Revolving Credit Facility.
7.5 PREPAYMENT
If at any time the outstanding Utilisations or any part of them cause any Availability Limit to be exceeded then the Company will immediately repay or procure repayment of such amount of the Loans together with cash collateral in respect of Outstanding Purchase Price and/or any contingent obligation of Burdale in relation to any L/C or other Utilisation together with interest on the Loans, to the extent required to ensure compliance with that Availability Limit and, until such time as that Availability Limit is no longer breached, no further Utilisations may be requested (including, for the avoidance of doubt, pursuant to a Cash Request) or will, at Burdales option, be made or issued.
7.6 ILLEGALITY
If it becomes unlawful in any jurisdiction for Burdale to make available or maintain the Facilities (or any of them) or to give effect to its obligations under the Finance Documents, Burdale may give seven Business Days written notice to that effect to the Company whereupon the Facilities will be cancelled and all the provisions of this Agreement will apply as if the
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cancellations or terminations had been a reduction of the Facility Limit to zero pursuant to Clause 7.7.
7.7 REDUCTION OF FACILITY LIMIT
7.7.1 At the request of the Company by giving not less than ten Business Days prior written notice to Burdale, the Facility Limit may from time to time be reduced provided that on or before the effective date for such reduction the Company shall pay (or procure payment) to Burdale of:
(a) such amount as may be necessary in prepayment of the Loans and/or as cash collateral for Outstanding Purchase Price and/or Burdales contingent obligations under any issued L/C or unmatured Forex Transaction to ensure that the Facility Companies remain in compliance with the Availability Limits (as adjusted to take account of such amendments pursuant to Clause 5.7); and
(b) a fee of 1% of the amount of the reduction of the Facility Limit.
7.7.2 Any exercise by Burdale of its rights under Clause 16.2(b) and/or 16.3 and/or the operation of Clause 7.6 shall be deemed for the purposes of paragraph 7.7.1(b) above to be a reduction in the Facility Limit in an amount equal to the amount of the Facility or Facilities so cancelled.
7.8 FINAL REPAYMENT
The Company will, on the Final Repayment Date, pay (or procure payment) to Burdale in full all outstanding and unpaid liabilities under the Finance Documents (whether by way of principal, interest, commission, fees, costs, expenses or otherwise) and shall pay to Burdale such amount as is necessary to provide full cash collateral for Outstanding Purchase Price and any contingent obligations which Burdale may have in respect of any L/C, Forex Transaction or other outstanding Utilisation. If the amounts so paid are received by Burdale later than 1.00 p.m. on the Final Repayment Date then the Company will pay interest on such amounts to Burdale at the Default Rate until payment has been made in full.
7.9 CASH COLLATERAL
If under this Agreement any Facility Company is required to provide and does provide cash collateral for any contingent liability, such cash collateral shall be held by Burdale in an interest bearing account for application against such contingent liability, provided that any sum remaining after settling such payments shall be applied first in settlement of any other amounts then due and payable to Burdale under the Finance Documents and any balance shall be promptly repaid to the relevant Facility Company or other person entitled to the balance.
8 INTEREST AND COMMISSION
8.1 INTEREST
8.1.1 Each Facility Company will pay Burdale interest on each Loan made to it by Burdale at the Interest Rate.
8.1.2 Except as otherwise provided in this Agreement, accrued interest on each Loan shall be paid by the relevant Facility Company in arrear on the last Business Day of each month and on the Final Repayment Date. All interest accruing on or after the date of any Event of Default or the Final Repayment Date shall be payable on demand.
8.1.3 Interest will be calculated on the basis of a 365 day year and actual days elapsed and will accrue and be calculated on a daily basis.
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8.2 PURCHASE COMMISSION
Each Facility Company shall pay to Burdale commission in respect of each of its Purchased Receivables at a rate equivalent to the Interest Rate applied to the Outstanding Purchase Price for such Receivable from the date on which Burdale paid such Purchase Price to a Facility Company down to the Actual Day of Payment (the PURCHASE COMMISSION). Burdale shall calculate the Purchase Commission on a daily basis and it shall be paid by the relevant Facility Company monthly in arrears on the last Business Day of each month.
8.3 DEFAULT INTEREST
8.3.1 Upon the occurrence of an Event of Default and whilst the same is continuing, all amounts outstanding under this Agreement shall bear interest (both before and after judgment) at the Default Rate.
8.3.2 Interest at the Default Rate will be compounded at the end of each period designated by Burdale and will be determined by Burdale on the first Business Day of each such period.
9 COLLECTION OF RECEIVABLES
9.1 FLOW OF FUNDS
Subject to Clause 9.2, each Facility Company undertakes that during the period commencing on the date of this Agreement and ending when all its liabilities under the Finance Documents have been discharged in full and Burdale is under no further obligation under any of the Finance Documents:
(a) such Facility Company will collect as agent and trustee for Burdale all Receivables and immediately pay (or procure that payment is made) all amounts due in respect of each Receivable into a Blocked Account, provided however that until payment into a Blocked Account it will hold all money so received upon trust for Burdale and will not commingle in any Charged Account any monies which are not Receivables or which are not payable to Burdale;
(b) without prejudice to its obligations under Clause 13.14, in the event that any account debtor makes a payment in respect of Receivables into another Charged Account or other account which is not a Blocked Account, such Facility Company will ensure that the amounts representing such payment are promptly transferred into a Blocked Account and will immediately direct the relevant account debtor to make all future payments to a Blocked Account; and
(c) all the transfers and collections referred to in paragraphs (a) and (b) above shall be carried out daily prior to the occurrence of any Default and thereafter at such intervals as Burdale may, at its discretion, specify to the Company.
9.2 FAILURE OF DEBENTURE
In the event that the Debenture is not, at any time, effective or is not in full force and effect in respect of any Charged Account, each Facility Company will (unless otherwise directed by Burdale and without prejudice to Burdales rights and remedies under the Finance Documents), for so long as the Debenture is ineffective or not in full force and effect and ending on the date when all of its liabilities under the Finance Documents have been repaid or discharged in full and Burdale is under no further obligation under any of the Finance Documents, collect as agent and trustee for Burdale all Receivables which would otherwise have been payable into a
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Blocked Account and immediately pay (or procure the payment of) all amounts due in respect of those Receivables directly to such bank account of Burdale as it may specify for this purpose.
9.3 DECLARATION OF TRUST
If for any reason (including, without limitation, any prohibition or restriction on assignment contained in any agreement between a Facility Company and the relevant account debtor), title to any Receivable which is purchased by Burdale under this Agreement does not pass to Burdale then the relevant Facility Company shall hold such Receivable on trust for Burdale and shall collect and deal with such Receivable in accordance with the terms of Clauses 9.1 and 9.2.
9.4 REIMBURSEMENT
Each Facility Company agrees to reimburse Burdale on demand for any liability of Burdale to any bank or other person involved in the transfer of funds to or from any Blocked Account arising out of Burdales payments to or indemnification of that bank or person, and this obligation to reimburse shall survive the termination or non-renewal of this Agreement.
9.5 APPLICATION
For the purposes of calculating the amount of the Loans available to the Facility Companies, the Receivables Limit and the Forex Limit such payments will be applied (conditional upon final collection) in satisfaction or reduction of the relevant Facility Companys liabilities under the Finance Documents on the Business Day of receipt by Burdale. For the purposes of calculating interest in respect of the Loans and for calculating any Purchase Commission or commission in respect of the Forex Transactions, payments or other funds received by Burdale will be applied (conditional upon final collection) in satisfaction or reduction of the relevant Facility Companys liabilities under the Finance Documents one Business Day following the date of receipt of funds by Burdale.
9.6 BUSINESS DAYS
If any payment under the Finance Documents would otherwise be due on a day which is not a Business Day, it will be due on the next succeeding Business Day or, if that Business Day falls in the following month, on the preceding Business Day.
10 TAX
10.1 TAX GROSS-UP
10.1.1 Each Obligor shall make all payments to be made by it without any Tax Deduction, unless a Tax Deduction is required by law.
10.1.2 The Company shall promptly upon becoming aware that an Obligor must make a Tax Deduction (or that there is any change in the rate or the basis of a Tax Deduction) notify Burdale accordingly.
10.1.3 If a Tax Deduction is required by law to be made by an Obligor the amount of the payment due from that Obligor shall be increased to an amount which (after making any Tax Deduction) leaves an amount equal to the payment which would have been due if no Tax Deduction had been required.
10.1.4 If an Obligor is required to make a Tax Deduction, that Obligor shall make that Tax Deduction and any payment required in connection with that Tax Deduction within the time allowed and in the minimum amount required by law.
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10.1.5 Within thirty days of making either a Tax Deduction or any payment required in connection with that Tax Deduction, the Obligor making that Tax Deduction shall deliver to Burdale evidence reasonably satisfactory to Burdale that the Tax Deduction has been made or (as applicable) any appropriate payment paid to the relevant taxing authority.
10.2 TAX INDEMNITY
10.2.1 The Company shall (within three Business Days of demand by Burdale) pay to Burdale an amount equal to the loss, liability or cost which Burdale determines will be or has been (directly or indirectly) suffered for or on account of Tax.
10.2.2 Paragraph 10.2.1 above shall not apply with respect to any Tax assessed on Burdale if that Tax is imposed on or calculated by reference to the net income received or receivable (but not any sum deemed to be received or receivable) by Burdale.
10.3 TAX CREDIT
If an Obligor makes a Tax Payment and Burdale determines that:
(a) a Tax Credit is attributable to that Tax Payment; and
(b) it has obtained, utilised and retained that Tax Credit,
Burdale shall pay an amount to the Obligor which Burdale determines will leave it (after that payment) in the same after-Tax position as it would have been in had the Tax Payment not been made by the Obligor.
10.4 STAMP TAXES
The Company shall pay and, within three Business Days of demand, indemnify Burdale against any cost, loss or liability that Burdale incurs in relation to all stamp duty, registration and other similar Taxes payable in respect of any Finance Document.
10.5 VALUE ADDED TAX
10.5.1 All consideration payable under a Finance Document by an Obligor to Burdale shall be deemed to be exclusive of any VAT. If VAT is chargeable, the Obligor shall pay to Burdale (in addition to and at the same time as paying the consideration) an amount equal to the amount of the VAT.
10.5.2 Where a Finance Document requires an Obligor to reimburse Burdale for any costs or expenses, that Obligor shall also at the same time pay and indemnify Burdale against all VAT incurred by Burdale in respect of the costs or expenses save to the extent that Burdale is entitled to repayment or credit in respect of the VAT.
11 INCREASED COSTS
11.1 INCREASED COSTS
11.1.1 Subject to Clause 11.3 the Company shall, within three Business Days of a demand by Burdale, pay to Burdale the amount of any Increased Costs incurred by Burdale or any of its Affiliates as a result of (i) the introduction of or any change in (or in the interpretation or application of) any law or regulation or (ii) compliance with any law or regulation made after the date of this Agreement.
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11.1.2 In this Agreement INCREASED COSTS means:
(a) a reduction in the rate of return from the Facilities (or any of them) or on Burdales (or its Affiliates) overall capital;
(b) an additional or increased cost; or
(c) a reduction of any amount due and payable under any Finance Document,
which is incurred or suffered by Burdale or any of its Affiliates to the extent that it is attributable to Burdale having entered into this Agreement or funding or performing its obligations under any Finance Document.
11.2 INCREASED COST CLAIMS
If Burdale intends to make a claim pursuant to Clause 11.1 it shall notify the Company of the event giving rise to the claim, and shall, as soon as practicable after a demand by the Company, provide a certificate confirming the amount of its Increased Costs.
11.3 EXCEPTIONS
Clause 11.1 does not apply to the extent any Increased Cost is:
(a) attributable to a Tax Deduction required by law to be made by an Obligor;
(b) compensated for by Clause 10.2 (or would have been compensated for under Clause 10.2 but was not so compensated solely because the exclusion in Clause 10.2.2 applied);
(c) compensated for by the payment of MLA Cost; or
(d) attributable to the wilful breach by Burdale or its Affiliates of any law or regulation.
12 REPRESENTATIONS AND WARRANTIES
12.1 WARRANTIES
Each Obligor makes the representations and warranties in this Clause 12 to Burdale on todays date and such representations and warranties will be deemed repeated by the Obligors on each date:
(a) on which a Request is submitted;
(b) which is a Utilisation Date;
(c) on which any payment of interest or Purchase Commission is due under the Finance Documents,
as if made with reference to the facts and circumstances existing on such date.
12.2 STATUS
12.2.1 It is a corporation, duly incorporated and validly existing under the law of its jurisdiction of incorporation.
12.2.2 It has the power to own its assets and carry on its business as it is being conducted.
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12.3 BINDING OBLIGATIONS
The obligations expressed to be assumed by it in each Finance Document are, subject to any principles of law affecting creditors rights generally, legal, valid, binding and enforceable obligations.
12.4 NON-CONFLICT WITH OTHER OBLIGATIONS
The entry into and performance by it of, and the transactions contemplated by, the Finance Documents do not and will not conflict with:
(a) any law or regulation applicable to it;
(b) its constitutional documents; or
(c) any agreement or instrument binding upon it or any of its assets.
12.5 POWER AND AUTHORITY
It has the power to enter into, perform and deliver, and has taken all necessary action to authorise its entry into, performance and delivery of, the Finance Documents to which it is a party and the transactions contemplated by those Finance Documents.
12.6 VALIDITY AND ADMISSIBILITY IN EVIDENCE
All authorisations required or desirable:
(a) to enable it lawfully to enter into, exercise its rights and comply with its obligations in the Finance Documents to which it is a party; and
(b) to make the Finance Documents to which it is a party admissible in evidence in its jurisdiction of incorporation, have been obtained or effected and are in full force and effect.
12.7 NO FILING OR STAMP TAXES
Under the law of its jurisdiction of incorporation it is not necessary that the Finance Documents be filed, recorded or enrolled with any court or other authority in that jurisdiction or that any stamp, registration or similar tax be paid on or in relation to the Finance Documents or the transactions contemplated by the Finance Documents.
12.8 NO DEFAULT
12.8.1 No Event of Default is continuing or might reasonably be expected to result from the making of any Utilisation.
12.8.2 No other event or circumstance is outstanding which constitutes a default under any other agreement or instrument which is binding on it or to which its assets are subject which might have a Material Adverse Effect.
12.9 PARI PASSU RANKING
Its payment obligations under the Finance Documents rank at least pari passu with the claims of all its other unsecured and unsubordinated creditors, except for obligations mandatorily preferred by law applying to companies generally.
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12.10 NO PROCEEDINGS PENDING OR THREATENED
No litigation, arbitration or administrative proceedings of or before any court, arbitral body or agency which, if adversely determined, might reasonably be expected to have a Material Adverse Effect have (to the best of its knowledge and belief) been started or threatened against it or any of its Subsidiaries.
12.11 MATERIAL DISCLOSURES
All information furnished by or on behalf of any Obligor in writing to Burdale in connection with the Finance Documents is true and correct in all material respects as of the date such information is dated or certified and does not omit any material information and is not misleading. No event or circumstance has occurred which has or could reasonably be expected to have a Material Adverse Effect which has not been fully and accurately disclosed to Burdale.
12.12 FINANCIAL STATEMENTS
Its latest audited financial statements (i) have been reported upon by its auditors without qualification, (ii) have been prepared in accordance with GAAP and give a true and fair view of the results of its operations and its assets and liabilities for the relevant period and of the state of its affairs at the relevant date, and (iii) in particular, accurately disclose or reserve against all liabilities (actual or contingent), and there has been no change in its assets, financial condition or prospects since the date of those financial statements such that it may reasonably be expected to be unable to perform and comply with any one or more of its material obligations under any of the Finance Documents.
12.13 BANK ACCOUNTS
All the accounts maintained or used by any Obligor at any bank or financial institution as at the date of this Agreement have been included within the definition of Charged Accounts.
13 GENERAL UNDERTAKINGS
13.1 DURATION
The undertakings in this Clause 13 and in Clause 14 remain in force from the date of this Agreement for so long as any amount is outstanding under the Finance Documents or Burdale is under any obligation under any Finance Document.
13.2 AUTHORISATIONS
Each Obligor shall promptly:
(a) obtain, comply with and do all that is necessary to maintain in full force and effect; and
(b) supply certified copies to Burdale of,
any authorisation required under any law or regulation of its jurisdiction of incorporation to enable it to perform its obligations under the Finance Documents and to ensure the legality, validity, enforceability or admissibility in evidence in its jurisdiction of incorporation of any Finance Document.
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13.3 COMPLIANCE WITH LAWS
Each Obligor shall comply in all respects with all laws to which it may be subject, if failure so to comply would materially impair its ability to perform its obligations under the Finance Documents.
13.4 NEGATIVE PLEDGE
13.4.1 No Obligor shall create or permit to subsist any Security Interest over any of its assets.
13.4.2 No Obligor shall:
(a) sell, transfer or otherwise dispose of any of its assets on terms whereby they are or may be leased to or re-acquired by an Obligor;
(b) sell, transfer or otherwise dispose of any of its receivables on recourse terms otherwise than pursuant to the Finance Documents;
(c) enter into any arrangement under which money or the benefit of a bank or other account may be applied, set-off or made subject to a combination of accounts; or
(d) enter into any other preferential arrangement having a similar effect,
in circumstances where the arrangement or transaction is entered into primarily as a method of raising Financial Indebtedness or of financing the acquisition of an asset.
13.4.3 Paragraphs 13.4.1 and 13.4.2 above do not apply to:
(a) any lien arising by operation of law and in the ordinary course of trading;
(b) any Security Interest in favour of Burdale.
13.5 MERGER
No Obligor shall enter into any amalgamation, demerger, merger or corporate reconstruction.
13.6 CHANGE OF BUSINESS
The Company shall procure that no substantial change is made to the general nature of the business of the Company or any Obligor from that carried on at the date of this Agreement.
13.7 DEFAULT
Each Obligor will notify Burdale forthwith upon becoming aware of the occurrence of any Default and will provide Burdale with full details of any steps which it is taking, or is considering taking, in order to remedy or mitigate the effect of the Default.
13.8 DISPOSALS
No Obligor shall enter into a single transaction or series of transactions (whether related or not) and whether voluntary or involuntary to sell, lease, transfer or otherwise dispose of any asset save for:
(a) the disposal of Stock in the ordinary course of trading; or
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(b) the application of cash in the purchase or acquisition of goods and services in the ordinary course of trading or in any manner not prohibited by any of the Finance Documents; or
(c) the disposal of obsolete assets where the proceeds of sale (if any) are paid into a Blocked Account; or
(d) any disposal in respect of which Burdale has given its prior written consent; or
(e) a disposal of the real property owned by the Company at Openshaw, Manchester provided that:
(i) any such disposal is on arms length commercial terms to an unrelated third party;
(ii) no Default is continuing at the time of any such disposal; and
(iii) all proceeds of sale arising on any such disposal (less the L 300,000 payable to the Trustees under the Trustee Agreement) are paid into a Blocked Account; or
(f) the disposal of any asset where the higher of market value or consideration receivable (when aggregated with the higher of market value or consideration receivable for any other sale, lease, transfer or other disposal (other than any permitted under paragraphs (a) to (e) above)) does not exceed $15,000 (or its equivalent in another currency or currencies) in any financial year and the proceeds of sale are paid into a Blocked Account.
13.9 ACQUISITIONS
No Obligor will, except in the ordinary course of its trade acquire any business, undertaking or assets of any kind whatsoever.
13.10 INTRA-GROUP ARRANGEMENTS
No Obligor will, without obtaining Burdales prior written consent:
(a) pay any dividend or make any other distribution of any of its assets to its shareholders or any of them; or
(b) pay any other moneys, whether by way of interest, management fees or otherwise howsoever, to any affiliate, subsidiary or any shareholder, director or employee except for payments in the ordinary course of, and pursuant to the reasonable requirements of, trading and on arms length commercial terms unless immediately following the making of any such payment the amount available for Utilisation (less the aggregate amount of Past Due Payables) would be at least $1,000,000.; or
(c) redeem any of its ordinary or preference share capital.
13.11 AUDITS BY BURDALE
Each Obligor will permit Burdale or its appointed representatives or agents at the relevant Obligors expense to conduct an audit of its financial records, systems and forecasts on a quarterly basis or, following a Default at more frequent intervals as Burdale may stipulate and will afford all co-operation to Burdale and its representatives or agents to enable such audit to take place.
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13.12 FINANCIAL INDEBTEDNESS
No Obligor will incur any Financial Indebtedness other than:
(a) under the Finance Documents;
(b) under the Trustee Agreement and the Trustee Mortgage for such time as the Deed of Priorities is in full force and effect;
(c) normal trade credit granted to it in the ordinary course of business;
(d) equipment, vehicle and operating leases and hire purchase transactions entered into in the ordinary course of business where the total annual Financial Indebtedness for such leases and transactions for the Obligors as a whole does not exceed $50,000 at any one time; or
(e) with respect to loans made to it by another Obligor which is a Chargor under the Debenture.
13.13 MAKING LOANS
No Obligor will be a creditor with respect to any Financial Indebtedness except for:
(a) the grant of normal trade credit in the ordinary course of its trade;
(b) loans made by it to another Obligor which is a Chargor under the Debenture; and
(c) loans made by the Company to Haynes US:
(i) in an amount not exceeding $5,600,000 out of the first Utilisations; and
(ii) thereafter, provided that:
(aa) for the period of 30 days immediately preceding the making of any such loan the minimum amount available for Utilisation was; and
(bb) following the making of any such loan the amount available for Utilisation would be,
(in each case, less the aggregate of all Past Due Payables) at least $1,000,000.
13.14 BANK ACCOUNTS
No Obligor will, open or maintain any account of any type with any bank or financial institution providing like services other than the Charged Accounts.
13.15 INSURANCE
Each Obligor will:
(a) as regards all its assets and property of any kind and businesses arrange and maintain in full force and effect insurances (including consequential loss, business interruption and public liability and damage and other insurances usually maintained by companies carrying on the same type of business as its own business) with such insurers as Burdale approves and on such terms and in such amounts as Burdale may reasonably require and
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is customary for an enterprise engaged in the same or similar business and in the same or similar localities and against such risks as Burdale shall reasonably request;
(b) procure that Burdales interest is noted on all policies relating to insurances so arranged in such manner as Burdale may in its absolute discretion require and will use all reasonable endeavours to ensure that Burdale is named as sole loss payee (but without having any obligation for premiums);
(c) ensure that every policy of insurance contains a standard mortgagee clause, whereby such insurance will not be invalidated, vitiated or avoided as against a mortgagee in the event of any misrepresentation, act, neglect or failure to disclose on the part of the insured provided that where the insurers will not agree such terms, terms acceptable to Burdale in Burdales absolute discretion are agreed; and
(d) will supply to Burdale copies of all such policies of insurance and all endorsements and renewals of such policies;
(e) duly and punctually pay all premiums in respect of its insurances and not do or omit to do any act, matter or thing whereby any such insurance may be or becomes void or voidable at the option of the insurers or settle any claim in respect of those insurances without the prior written consent of Burdale, such consent not to be unreasonably withheld or delayed;
(f) it shall comply with, enforce and not waive, release, terminate or vary (or agree so to do) any obligations arising under all policies of insurance and in particular, but without limitation, it shall notify Burdale immediately upon receiving notice from any insurer that the details of any insurance policy are to change in any way and upon receiving notice from any insurer terminating any insurance policies;
(g) in the event that it receives from any insurer notice that such insurer is terminating any insurance policy, it shall use all reasonable endeavours to enter into an agreement on substantially the same terms as those contained in the original insurance policy with such other insurer as approved by Burdale and to the extent that the same terms or substantially the same terms are not available from the insurer, such terms as are acceptable to Burdale in its absolute discretion, to take effect on or before the expiry of such notice and shall use all reasonable endeavours to procure that such insurer gives to Burdale such acknowledgements and undertakings in relation to this Agreement as Burdale may in its absolute discretion require;
(h) produce to Burdale on request copies of all policies and all receipts for the current premiums with respect to the insurance; and
(i) immediately give notice to Burdale of any occurrence which gives rise, or might give rise, to a claim under any policy of insurance.
If any Obligor at any time fails to perform any of its obligations contained in this Clause, Burdale may effect or renew such insurance as Burdale thinks fit and such Obligor shall reimburse Burdale for the costs thereby incurred on demand.
13.16 FINANCIAL YEAR END AND CHANGE OF AUDITORS
Except with the prior written consent of Burdale (not to be unreasonably withheld or delayed), no Obligor will alter its financial year end from that applicable at the date of this Agreement and each Obligor will procure that it has at all times appointed as its auditors a firm of auditors which is acceptable to Burdale.
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13.17 TAXES
Each Obligor will promptly pay all Taxes as and when they fall due (other than in circumstances where such Taxes are the subject of a dispute being carried on properly and in good faith by the relevant Obligor where written details of such dispute have been supplied to Burdale (if requested, Burdale having been notified of the dispute) or, in the case of PAYE and National Insurance contributions, within any permitted grace period or, in the case of any other taxes, in accordance with any other arrangements agreed with the Inland Revenue or other taxing authority.
13.18 CHANGE OF NAME
No Obligor will change its name without giving Burdale 30 days prior written notice of the proposed new name and will supply a copy of the relevant certificate of incorporation on change of name to Burdale as soon as it becomes available.
13.19 NEW LOCATIONS
No Obligor will move any of its assets to any new location without giving Burdale 30 days prior written notice of the new location and executing and delivering to Burdale such access agreements, landlord waivers and other documents as Burdale may reasonably require in order to protect its interest in such assets.
13.20 STAMP DUTY
Each Obligor will promptly pay any liability incurred in respect of any stamp, registration and similar Tax which is or becomes payable in connection with the entry into, registration, performance, enforcement or admissibility in evidence of any Finance Document and/or any amendment, supplement or waiver of any Finance Document. In the event of any breach of this undertaking the relevant Obligor shall immediately pay to Burdale by way of liquidated damages the amount of any liability that Burdale may incur as a result of or by reference to such Obligors delay in paying or omission to pay any such Tax.
13.21 FINANCIAL COVENANTS
13.21.1 The Company shall procure that Consolidated Tangible Net Worth is at all times at least equal to $17,500,000.
13.21.2 The Company shall procure that, as at the end of each month (each a TEST DATE), Trading Cashflow for the period of 12 months ending on such Test Date (but ignoring any period prior to the date of this Agreement) is not less than $nil.
13.22 ADDITIONAL SECURITY DOCUMENTS
The Company shall procure that the documents, evidence and other items specified in Part II of Schedule 2 are delivered to Burdale (in a form and substance satisfactory to Burdale) on the DIP Financing Date.
13.23 ROT SUPPLIERS
The Company shall within 10 Business Days deliver to Burdale a list of all suppliers to the Obligors whose terms of business include retention of title provisions.
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14 INFORMATION AND ASSET UNDERTAKINGS
14.1 FINANCIAL INFORMATION
The Company shall supply to Burdale:
(a) as soon as the same become available, but in any event within 120 days after the end of each of its financial years:
(i) its audited consolidated financial statements for that financial year; and
(ii) the audited financial statements of each Obligor for that financial year; and
(b) as soon as practicable and in any event within 30 days from the end of each monthly management accounting period and in each case in a format satisfactory to Burdale, full individual and, if applicable, consolidated accounts in each case prepared in Sterling in respect of that period for itself and each other Obligor including Stock figures and valuations for that month, a breakdown of the value and identity of preferential creditors for that month (in substantially the form set out in Part II of Schedule 4) and details of all input and output VAT together with such calculations as may be necessary to establish whether the Company is in compliance with Clause 13.21;
(c) copies of all notices, circulars, reports and statements sent to any Obligors shareholders or creditors generally (or any class of them) at the same time as they are made available to such shareholders or creditors; and
(d) such further information relating to the financial condition or operations of it or any Obligor which Burdale may reasonably require at such time as Burdale may reasonably require it.
14.2 REQUIREMENTS AS TO FINANCIAL STATEMENTS
Each set of financial statements delivered by the Company pursuant to Clause 14.1 shall be certified by a director of the relevant company as fairly representing its financial condition as at the date as at which those financial statements were drawn up and the Company shall procure that each set of financial statements delivered pursuant to Clause 14.1 is prepared using GAAP and consistently with the policies and practices adopted by the relevant company for the preparation of such accounts as at todays date.
14.3 REPORTING REGARDING RECEIVABLES, STOCK AND EQUIPMENT
Each Facility Company will provide Burdale with the following documents with all amounts expressed in Sterling and otherwise in a form satisfactory to Burdale:
(a) on a daily basis with a schedule of Receivables, collections received and credits issued and on a weekly basis with a stock report substantially in the form set out in Part I of Schedule 4 and on an annual basis with an Equipment report together with such further information reports and copies of documents regarding Receivables, Stock and Equipment as Burdale may from time to time reasonably request;
(b) as soon as practicable and in any event within 15 days of the end of each month or more frequently as Burdale may reasonably request:
(i) ageings of creditors and Receivables with details of all dated invoices;
(ii) full details of all Stock by category, location and supplier; and
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(iii) reconciliations of Stock and Receivables listings to the nominal ledger and the management accounts,
all in a format to be agreed with Burdale (acting reasonably).
(c) on a daily basis, details of any Receivables which have become or are purported to be, by the relevant account debtor or otherwise, subject to any prohibitions or restriction on charge or assignment; and
(d) immediately upon becoming aware of the same, details of any creditor of any Obligor whose ordinary terms of business include title retention provisions which have not already been notified to Burdale.
14.4 REPORTING REGARDING ACCOUNT DEBTORS
14.4.1 NOTIFICATION: Each Facility Company will notify Burdale promptly of:
(a) any material delay in such Facility Companys performance of any of its obligations to any account debtor or the assertion of any claims, offsets, defences or counterclaims by any account debtor, or any material disputes with account debtors, or any settlement, adjustment or compromise of any such matter;
(b) all material adverse information known to such Facility Company relating to the financial condition of any account debtor; and
(c) any event or circumstance which, to such Facility Companys knowledge, would cause Burdale to consider any then existing Receivables as no longer constituting Eligible Receivables.
14.4.2 DISPUTES AND SETTLEMENTS WITH ACCOUNT DEBTORS: No credit, discount, allowance or extension or agreement for any of the foregoing will be granted to any account debtor without Burdales consent, except in the ordinary course of the relevant Facility Companys business in accordance with proper practices and policies operated by the relevant Facility Company prior to the date of this Agreement. At any time while an Event of Default is continuing, Burdale will, at its option, have the exclusive right to settle, adjust or compromise any claim, offset, counterclaim or dispute with any account debtor and to grant any credits, discounts or allowances in relation to such matters.
14.4.3 RETURN OF STOCK: Each Facility Company will promptly report to Burdale any return of Stock by an account debtor where that Stock has a value in excess of $75,000. At any time that any Stock (irrespective of its value) is returned, reclaimed or repossessed, the related Receivable will be deemed not to be an Eligible Receivable. In the event any account debtor returns Stock when an Event of Default has occurred and is continuing, such Facility Company will, upon Burdales request:
(a) hold the returned Stock on trust for Burdale;
(b) segregate all returned Stock from all of its other property;
(c) dispose of the returned Stock solely according to Burdales instructions; and
(d) not issue any credits, discounts or allowances with respect to such returned stock without Burdales prior written consent.
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14.5 VERIFICATION
Burdale will have the right from time to time, in the name of any nominee, to verify the validity, amount or any other matter relating to any Receivable or other asset of any Obligor, by mail, telephone, facsimile or otherwise.
14.6 RIGHTS AFTER A DEFAULT
14.6.1 DEALING WITH ASSETS: Burdale may, at any time that a Default has occurred and is continuing and without prejudice to any of its rights under Clause 16.2 or otherwise under this Agreement or any other Finance Document:
(a) extend the time of payment of, compromise, settle or adjust for cash, credit, return of merchandise or otherwise, and upon any terms or conditions, any and all Receivables and thereby discharge or release any account debtor or any other party or parties in any way liable for payment of any Receivable without affecting any of the Receivables, demand or enforce payment of any Receivables, but without any duty to do so, and Burdale will not be liable for its failure to enforce the payment of any Receivable nor for the negligence of its agents or attorneys with respect to any Receivable; and
(b) take, whatever other action Burdale may deem necessary for the protection of its interests in any assets subject to a Security Interest under the Security Documents.
14.6.2 NOTICE TO DEBTORS: At any time that a Default is continuing, Burdale or its nominee may, at Burdales discretion as the case may be do any of the following:
(a) having given prior notification to the Company, notify any or all account debtors that the Receivables have been assigned to Burdale and that payments in respect of Receivables are to be redirected to such account as is specified by Burdale;
(b) request the relevant Facility Company to give the notification referred to in Clause 14.6.2(a) above and/or to ensure that all invoices and statements in respect of Receivables issued to the account debtors state the information referred to in Clause 14.6.2(a); and
(c) direct any or all relevant account debtors to make all payments in respect of Receivables direct to Burdale at such account as Burdale may specify.
14.6.3 ORIGINALS: At any time that an Event of Default is continuing, each Facility Company will deliver to Burdale the originals of all documents evidencing the sale and delivery of goods or the performance of services giving rise to any Receivables as Burdale may require.
14.7 UNDERTAKINGS REGARDING STOCK
With respect to the Stock:
(a) each Facility Company will at all times maintain perpetual stock records reasonably satisfactory to Burdale, keeping correct and accurate records itemising and describing the kind, type, quality and quantity of Stock, such Facility Companys cost in relation to such Stock and daily withdrawals from and additions to the Stock;
(b) each Facility Company will conduct a physical count of the Stock at least once each year and at any time or times as Burdale may request while an Event of Default is continuing, and promptly following such physical count will supply Burdale with a report in a form and containing such specific information as may be reasonably satisfactory to Burdale concerning such physical count;
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(c) no Facility Company will remove any Stock from property which is owned and controlled by it or any other Obligor or to or from a public warehouse without the prior written consent of Burdale, except for sales of Stock in the ordinary course of the relevant Facility Companys trade and except to move Stock directly from such property to another location previously agreed to by Burdale;
(d) upon Burdales request, each Facility Company will, at its expense, not more than once in any twelve month period, but at any time or times as Burdale may request while an Event of Default is continuing, deliver or cause to be delivered to Burdale written reports or appraisals regarding the Stock in form and substance acceptable to Burdale and by an appraiser acceptable to Burdale, addressed to Burdale and upon which Burdale is expressly permitted to rely;
(e) each Facility Company will produce, use, store and maintain the Stock with all reasonable care and caution and in accordance with applicable standards relating to any insurance and in conformity with applicable laws and regulations;
(f) each Facility Company assumes all responsibility and liability arising from or relating to the production, use, sale or other disposition of the Stock;
(g) in respect of Stock exceeding $15,000, no Facility Company will, without prior notice to Burdale, sell such Stock to any customer on sale or return, or on any other basis which entitles the customer to return or may oblige such Facility Company or any other Obligor to repurchase such Stock; and
(h) each Facility Company will keep the Stock in good and marketable condition and will not, without the prior written consent of Burdale, acquire or accept any consignment Stock.
14.8 BURDALES RIGHT TO CURE
Burdale may, at its option:
(a) after giving five days notice to the Company, cure any default by any Facility Company under any agreement with an account debtor in respect of a Receivable (other than bona fide disputes in the ordinary course of the relevant Facility Companys business where no Event of Default has occurred and is continuing) or under any other agreement with a third party as may be required by Burdale in good faith to facilitate the collection of the Receivables or to enable Burdale to have access to any assets subject to a Security Interest under the Security Documents;
(b) after giving five days notice to the Company, pay or make a bond in respect of or appeal any judgment entered into against any Facility Company which, upon execution, attachment or the exercise of any similar remedy in respect of such judgment, would result in a Security Interest being imposed on the assets of any Obligor or would impair Burdales ability to obtain possession of, realise or collect any assets subject to a Security Interest under the Security Documents;
(c) discharge taxes, Security Interests or other encumbrances at any time levied on or existing with respect to any assets of any Obligor; and
(d) pay any amount, incur any expense or perform any act including without limitation the payment to any creditors in respect of plant and/or machinery, which, in Burdales judgment, is necessary or appropriate to reserve, protect, insure or maintain the assets
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subject to a Security Interest under the Security Documents and the rights of Burdale with respect to them.
Any monies so expended or costs so incurred by Burdale shall be repayable by the relevant Obligor on demand. Burdale will be under no obligation to effect any such cure or payment or incur any such cost and will not, by doing so, be deemed to have assumed any obligation or liability of the Facility Company. Any payment made or other action taken by Burdale under this Clause will be without prejudice to any right it may have to assert an Event of Default under this Agreement and to proceed accordingly.
14.9 ACCESS TO PROPERTY
From time to time as requested by Burdale on one Business Days notice except in the case of emergency as determined by Burdale (but subject to Clause 17.1(d) regarding daily charge rates), at the cost and expense of the Company:
(a) Burdale or its nominee will have complete access to all of each Obligors premises during normal business hours and having given prior notice to the Company, or at any time and without notice to the Company if an Event of Default is continuing, for the purposes of inspecting, verifying and auditing the Obligors books, records and assets;
(b) each Obligor will promptly furnish to Burdale or any such nominee such copies of or extracts from such books and records as may be reasonably requested from any Obligor.
15 GUARANTEE AND INDEMNITY
15.1 GUARANTEE AND INDEMNITY
Each Guarantor irrevocably and unconditionally jointly and severally:
(a) guarantees to Burdale punctual performance by each Facility Company of all that Facility Companys obligations under the Finance Documents;
(b) undertakes with Burdale that whenever a Facility Company does not pay any amount when due under or in connection with any Finance Document, that Guarantor shall immediately on demand pay that amount as if it was the principal obligor; and
(c) indemnifies Burdale immediately on demand against any cost, loss or liability suffered by Burdale if any obligation guaranteed by it is or becomes unenforceable, invalid or illegal. The amount of the cost, loss or liability shall be equal to the amount which Burdale would otherwise have been entitled to recover.
15.2 CONTINUING GUARANTEE
This guarantee is a continuing guarantee and will extend to the ultimate balance of sums payable by any Obligor under the Finance Documents, regardless of any intermediate payment or discharge in whole or in part.
15.3 REINSTATEMENT
If any payment by an Obligor or any discharge given by Burdale (whether in respect of the obligations of any Obligor or any security for those obligations or otherwise) is avoided or reduced as a result of insolvency or any similar event:
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(a) the liability of each Obligor shall continue as if the payment, discharge, avoidance or reduction had not occurred; and
(b) Burdale shall be entitled to recover the value or amount of that security or payment from each Obligor, as if the payment, discharge, avoidance or reduction had not occurred.
15.4 WAIVER OF DEFENCES
The obligations of each Guarantor under this Clause 15 will not be affected by an act, omission, matter or thing which, but for this Clause, would reduce, release or prejudice any of its obligations under this Clause 15 (without limitation and whether or not known to it or Burdale) including:
(a) any time, waiver or consent granted to, or composition with, any Obligor or other person;
(b) the release of any other Obligor or any other person under the terms of any composition or arrangement with any creditor of any Obligor or any other person;
(c) the taking, variation, compromise, exchange, renewal or release of, or refusal or neglect to perfect, take up or enforce, any rights against, or security over assets of, any Obligor or other person or any non-presentation or non-observance of any formality or other requirement in respect of any instrument or any failure to realise the full value of any security;
(d) any incapacity or lack of power, authority or legal personality of or dissolution or change in the members or status of an Obligor or any other person;
(e) any amendment (however fundamental) or replacement of a Finance Document or any other document or security;
(f) any unenforceability, illegality or invalidity of any obligation of any person under any Finance Document or any other document or security; or
(g) any insolvency or similar proceedings.
15.5 IMMEDIATE RECOURSE
Each Guarantor waives any right it may have of first requiring Burdale to proceed against or enforce any other rights or security or claim payment from any person before claiming from that Guarantor under this Clause 15. This waiver applies irrespective of any law or any provision of a Finance Document to the contrary.
15.6 APPROPRIATIONS
Until all amounts which may be or become payable by the Obligors under or in connection with the Finance Documents have been irrevocably paid in full, Burdale may:
(a) refrain from applying or enforcing any other moneys, security or rights held or received by Burdale in respect of those amounts, or apply and enforce the same in such manner and order as it sees fit (whether against those amounts or otherwise) and no Guarantor shall be entitled to the benefit of the same; and
(b) hold in an interest-bearing suspense account any moneys received from any Guarantor or on account of any Guarantors liability under this Clause 15.
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15.7 DEFERRAL OF GUARANTORS RIGHTS
Until all amounts which may be or become payable by the Obligors under or in connection with the Finance Documents have been irrevocably paid in full and unless Burdale otherwise directs, no Guarantor will exercise any rights which it may have by reason of performance by it of its obligations under the Finance Documents:
(a) to be indemnified by an Obligor;
(b) to claim any contribution from any other guarantor of any Obligors obligations under the Finance Documents; and/or
(c) to take the benefit (in whole or in part and whether by way of subrogation or otherwise) of any of Burdales rights under the Finance Documents or of any other guarantee or security taken pursuant to, or in connection with, the Finance Documents by Burdale.
15.8 ADDITIONAL SECURITY
This guarantee is in addition to and is not in any way prejudiced by any other guarantee or security now or subsequently held by Burdale.
16 EVENTS OF DEFAULT
16.1 DEFAULT
Each of the events or circumstances specified below constitutes an Event of Default:
(a) PAYMENT DEFAULT: Any Obligor does not pay on its due date any amount payable by it under the Finance Documents at the place and in the currency in which it is expressed to be payable or, where such failure is due to a technical or administrative failure within the banking system (which is not attributable to the relevant Obligor), within two Business Days of such due date.
(b) Breach of Other Obligations:
(i) Any Obligor does not comply with its obligations or undertakings under, or there is a breach of any of Clauses 13.4, 13.8, 13.12, 13.15, 13.21 or 13.22.
(ii) Any Obligor does not comply with any of its obligations or undertakings under any of the Finance Documents (other than those referred to in Clause 16.1(a) or 16.1(b)(i)) and, where such failure is capable of remedy, such Obligor fails to remedy the same within ten Business Days of the relevant Obligor becoming aware of the failure to comply.
(c) MISREPRESENTATION: Any representation or warranty made or repeated in connection with any Finance Document or any other document delivered by or on behalf of any Obligor under or in connection with any Finance Document is or proves to have been incorrect or misleading in any material respect when made or deemed to be made.
(d) INVALIDITY: Any provision of any of the Finance Documents is not, or is alleged by any Obligor not to be binding on or enforceable against any Obligor or effective to create any security intended to be created by it.
(e) CROSS-DEFAULT:
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(i) Any Financial Indebtedness of any Obligor exceeding $75,000 (or its equivalent in other currencies) in aggregate is not paid when due.
(ii) An event of default howsoever described occurs under any document relating to Financial Indebtedness of any Obligor exceeding $75,000 (or its equivalent in other currencies).
(iii) Any Security Interest securing Financial Indebtedness over any asset of any Obligor becomes enforceable.
(iv) An amount exceeding $75,000 in aggregate owed to trade creditors of any Obligor remains outstanding following the expiry of any relevant customary trade credit period.
(f) CREDITORS PROCESS: Any attachment, sequestration, distress or execution affects any asset of any Obligor and is not discharged within 14 days.
(g) INSOLVENCY:
(i) Any Obligor is unable or admits inability to pay its debts as they fall due, suspends making payments on any of its debts or, by reason of actual or anticipated financial difficulties, commences negotiations with one or more of its creditors with a view to rescheduling any of its indebtedness.
(ii) The value of the assets of any Obligor is less than its liabilities (taking into account contingent and prospective liabilities).
(iii) A moratorium is declared in respect of any indebtedness of any Obligor.
(h) INSOLVENCY PROCEEDINGS:
(i) Any corporate action, legal proceedings or other procedure or step is taken in relation to:
(ii) the suspension of payments, a moratorium of any indebtedness, winding-up, dissolution, administration or reorganisation (by way of voluntary arrangement, scheme of arrangement or otherwise) of any Obligor;
(iii) a composition, assignment or arrangement with any creditor of any Obligor;
(iv) the appointment of a liquidator, receiver, administrator, administrative receiver, compulsory manager or other similar officer in respect of any Obligor or any of its assets; or
(v) enforcement of any Security Interest over any assets of any Obligor,
or any analogous procedure or step is taken in any jurisdiction.
(i) CESSATION OF BUSINESS: Any Obligor ceases, or threatens to cease, to carry on all or a substantial part of its business.
(j) AUTHORISATIONS: Any authorisation or other requirement necessary to enable any Obligor to comply with any of its obligations under the Finance Documents or for Burdale to enter into this Agreement and make available and/or maintain the Facilities
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or any of them is revoked or withheld or does not remain in full force and effect or is materially and adversely modified.
(k) UNLAWFULNESS: It is or becomes unlawful for any Obligor to perform any of its obligations under the Finance Documents.
(l) CHANGE OF CONTROL: Any single person or group of persons acting in concert (as defined in the City Code on Takeovers and Mergers) not having control of the Company directly or indirectly as at todays date, acquires or agrees to acquire control (as defined in Section 416 of the Income and Corporation Taxes Act 1988) of the Company.
(m) CHARGED ACCOUNT ARRANGEMENTS: Any bank repudiates or purports to terminate the arrangements set out in the Debenture in relation to any Charged Account or a cash-sweep or payment required to be made under any Finance Document from a Charged Account is not made in the amount and manner required.
(n) MATERIAL ADVERSE EFFECT: An event or series of events occurs which in Burdales reasonable opinion constitutes or could reasonably be expected to constitute a Material Adverse Effect.
16.2 ACTION ON DEFAULT
Upon the occurrence of any Event of Default and whilst the same is continuing, and without prejudice to any of Burdales rights under this Agreement, Burdale may, by notice to the Company:
(a) declare that an Event of Default has occurred; and/or
(b) declare that the Facilities or any of them shall be cancelled, whereupon the Facilities or such of them (as the case may be) shall be so cancelled and all fees (including without limitation pursuant to Clause 7.7.1(b)) payable in relation to the Facilities or such of them (as the case may be) shall become immediately due and payable; and/or
(c) declare that some or all of the Loans, together with accrued interest and all other amounts accrued, be immediately due and payable, whereupon they shall become immediately due and payable; and/or
(d) declare that some or all of the Loans, together with accrued interest and all other amounts accrued, be payable on demand, whereupon they shall immediately become payable on demand (and in the event of any such demand those Loans, such interest and such other amounts shall be immediately due and payable); and/or
(e) declare that the Company shall forthwith pay or procure the payment to Burdale of a sufficient sum to cover the amount of all Outstanding Purchase Price and/or any contingent obligations of Burdale under any outstanding L/Cs and/or any contingent obligation of Burdale under any Forex Transaction, whereupon the same shall become immediately due and payable.
16.3 APPOINTMENT OF INSOLVENCY OFFICER
If any liquidator, trustee in bankruptcy, judicial custodian, compulsory manager, receiver, administrative receiver, administrator or any other insolvency officer is appointed in respect of any Obligor or any part of its assets (whether on the application or with the consent of Burdale or otherwise) then Burdale may (with or without it first having exercised any of its other rights under the Finance Documents), by notice to the Company, declare that the fee specified in Clause 7.7.1(b) be immediately due and payable or, at Burdales option, payable upon demand
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as if the Facility Limit at such time had been reduced to zero, whereupon such fee shall become immediately due and payable or payable on demand (as the case may be).
17 COSTS, EXPENSES AND FEES
17.1 INITIAL AND GENERAL COSTS
The Company shall pay to Burdale on demand the amount of all costs and expenses (including legal fees) incurred by it:
(a) in the negotiation, preparation, printing and execution of the Finance Documents (including any Finance Documents executed after todays date);
(b) in relation to any amendment, waiver, consent or suspension of rights requested by or on behalf of any Obligor relating to a Finance Document;
(c) in remitting loan proceeds, collecting cheques and other items of payment, and establishing and maintaining the Charged Accounts, together with Burdales associated and customary charges and fees;
(d) as out-of-pocket expenses and costs from time to time (including prior to todays date) during the course of periodic field examinations of the Obligors assets and operations, plus a daily charge at the rate of $1,000 for Burdales examiners in the field and office for up to four such periodic field examinations in any 12 month period prior to a Default and for any other or additional field examinations on and after the occurrence of a Default.
17.2 ENFORCEMENT COSTS
The Company shall pay to Burdale on demand the amount of all costs and expenses (including legal fees and VAT) incurred by it in:
(a) the enforcement of, or the preservation of any rights under, any Finance Document; or
(b) investigating any Default.
17.3 FEES
17.3.1 FACILITY FEE: The Company will pay to Burdale today a facility fee of $100,000 and on the DIP Financing Date a further facility fee of $25,000.
17.3.2 COMMITMENT FEE: The Company will pay to Burdale a commitment fee computed at the rate of 0.375% on the daily undrawn/unutilised balance of the Facility Limit. Accrued Commitment Fee shall be payable monthly in arrears from todays date and also on the date on which all the Facilities are terminated. Commitment fee shall accrue from day to day and be calculated on the basis of a 365 day year and for the actual number of days elapsed.
17.3.3 MONITORING FEE: The Company will pay to Burdale a monitoring fee of $2,500 quarterly in advance with the first payment to be made on todays date.
17.3.4 L/C FEE: Each Facility Company will pay to Burdale a fee equal to 2.25% per annum on the face amount of each L/C issued at such Facility Companys request in respect of the period between the date of issue of the L/C and the End Date of such L/C. The fee shall be calculated on the basis of a 365 day year and shall be paid monthly in arrears and on the End Date of such L/C.
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18 INDEMNITIES
18.1 CURRENCY INDEMNITY
If any amount payable by any Obligor under or in connection with any of the Finance Documents is received by Burdale in a currency other than that agreed to be payable under the Finance Documents, whether as a result of any judgment or order or other enforcement, the liquidation or bankruptcy of any Obligor or otherwise howsoever and the amount produced by converting the currency so received into the agreed currency is less than the relevant amount of the agreed currency, then the relevant Obligor will as an independent obligation indemnify Burdale for the deficiency and any loss sustained as a result. Such conversion will be made at the Exchange Rate, on such date and in such market as is determined by Burdale as being most favourable for such conversion. The relevant Obligor will in addition pay the costs of such conversion.
18.2 FOREIGN EXCHANGE INDEMNITY
Each Facility Company will indemnify and hold Burdale harmless from and against any and all losses, claims, damages, liabilities, costs and expenses which Burdale may suffer or incur in connection with any Forex Transaction and any documents, drafts or financial information relating to such Forex Transaction, including, but not limited to, any losses, claims, damages, liabilities, costs and expenses due to any action taken by any counterparty with respect to any Forex Transaction, except for any such losses, claims, damages, liabilities, costs and expenses suffered or incurred by Burdale as a result of its gross negligence or wilful misconduct. Each Facility Company assumes all risks with respect to the acts or omissions of any counterparty to any Forex Transaction and for such purposes the counterparty will be deemed such Facility Companys agent. Each Facility Company assumes all risks for, and agrees to pay, all foreign and local taxes, duties and levies relating to any transaction pursuant to the Forex Transactions or any documents, drafts or financial information relating to such Forex Transaction. Each Facility Company releases and holds Burdale harmless from and against any acts, waivers, errors, delays or omissions, whether caused by such Facility Company, by any counterparty or otherwise with respect to or relating to any Forex Transaction.
18.3 OTHER INDEMNITIES
The Company will (or will procure that an Obligor will) indemnify Burdale on demand against any loss or liability which Burdale incurs as a result of:
(a) the occurrence of any Default;
(b) any payment of principal or other amount being received from any source otherwise than on its due date under this Agreement;
(c) any Utilisation not being effected after a Facility Company has delivered a Request in respect of such Utilisation other than as a result of Burdales negligence or default;
(d) any prepayment or provision of cash collateral by any Obligor not being made in accordance with the terms of this Agreement.
In each case the Companys liability includes (without limitation) any loss of margin or anticipated profits or other loss or expense on account of funds borrowed, contracted for or utilised to fund any amount payable under any Finance Document and on account of any security given by Burdale in relation to those funds and in relation to any amount repaid or prepaid in relation to any Finance Document.
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19 NOTICES
19.1 DELIVERY AND RECEIPT
19.1.1 Any communications to be made under or in connection with the Finance Documents shall be made in writing, may be made by letter or facsimile and shall be deemed to be given as follows:
(a) if by way of letter, when it has been left at the relevant address or two Business Days after being deposited in the post with postage prepaid in an envelope addressed to it at that address; and
(b) if by facsimile, when received in legible form,
save that any notice delivered or received on a non-Business Day or after business hours shall be deemed to be given on the next Business Day at the place of delivery or receipt.
19.1.2 Any communication or document made or delivered to the Company in accordance with this Clause will be deemed to have been made or delivered to each of the Obligors.
19.2 ADDRESSES
19.2.1 The Companys and each other Obligors address and facsimile number for notices are:
Parkhouse Street
Openshaw
Manchester
Facsimile no: 0161 223 2412
For the attention of: Managing Director
or such as the Company may notify to Burdale by not less than 10 days notice.
19.2.2 Burdales address and facsimile number for notices are:
53 Queen Anne Street
London W1G 9HP
Facsimile no: 020 7935 5445
For the attention of: Company Secretary
or such as Burdale may notify to the Company by not less than 10 days notice.
20 MISCELLANEOUS PROVISIONS
20.1 REMEDIES AND WAIVERS
The rights of Burdale under the Finance Documents:
(a) may be exercised as often as necessary;
(b) are cumulative and not exclusive of its rights under the general law; and
(c) may be waived only in writing and specifically.
Delay in exercising or non-exercise of any right shall not be deemed to be a waiver of that right.
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20.2 INVALIDITY
If, at any time, any provision of any Finance Document is or becomes invalid, illegal or unenforceable in any respect under any law, the validity, legality and enforceability of the remaining provisions will not in any way be affected or impaired.
20.3 CHANGE OF CURRENCY
20.3.1 Unless otherwise prohibited by law, if more than one currency or currency unit are at the same time recognised by the central bank of any country as the lawful currency of that country, then:
(a) any reference in the Finance Documents to, and any obligations arising under the Finance Documents in, the currency of that country shall be translated into, or paid in, the currency or currency unit of that country designated by Burdale (after consultation with the Facility Companies); and
(b) any translation from one currency or currency unit to another shall be at the official rate of exchange recognised by the central bank for the conversion of that currency or currency unit into the other, rounded up or down by Burdale (acting reasonably).
20.3.2 If a change in any currency of a country occurs, this Agreement will, to the extent Burdale (acting reasonably and after consultation with the Facility Companies) specifies to be necessary, be amended to comply with any generally accepted conventions and market practice in the London interbank market and otherwise to reflect the change in currency.
20.4 ACCOUNTS
In any litigation or arbitration proceedings arising out of or in connection with a Finance Document, the entries made in the accounts maintained by Burdale are prima facie evidence of the matters to which they relate.
20.5 CERTIFICATES AND DETERMINATIONS
Any certification or determination by Burdale of a rate or amount under any Finance Document is, in the absence of manifest error, conclusive evidence of the matters to which it relates.
20.6 DISCLOSURE OF INFORMATION
Burdale may disclose to any person with whom it is proposing to enter into (or has entered into) any kind of assignment or transfer in relation to this Agreement any information concerning the Obligors as Burdale may in its discretion think fit, and may advertise or publicise in such publications and to such persons as Burdale may in its discretion think fit such particulars of this transaction as Burdale may in its absolute discretion deem appropriate.
20.7 COUNTERPARTS
This Agreement may be executed in any number of counterparts and all of such counterparts taken together will be deemed to constitute one and the same instrument.
21 GOODS AND DOCUMENTS
21.1 PLEDGE
All Goods and Documents are hereby and shall upon despatch from the supplier of any Goods be deemed to be pledged by the relevant Facility Company to Burdale and the Goods and the
43
proceeds of all insurances in relation to them and all sales of them and all of the relevant Facility Companys rights as unpaid seller of them shall be a continuing security for the payment and discharge in full of all of the obligations of the relevant Facility Company under the Finance Documents.
21.2 PERFECTION OF PLEDGE
Burdale shall be entitled at its option to obtain possession of the Goods in order to perfect the pledge made by Clause 21.1 and in this regard the relevant Facility Company assigns to Burdale its right, title and interest in and to the Documents and all claims and rights arising from them and the relevant Facility Company irrevocably and unconditionally authorises Burdale to do all such things as may be necessary to clear the Goods, take possession of them and realise the Goods in reduction of the relevant Facility Companys indebtedness to Burdale and in this regard the relevant Facility Company irrevocably appoints Burdale acting through any one of Burdales directors as the relevant Facility Companys agent to sign all such documents and do all such things on the relevant Facility Companys behalf as may be necessary to give effect to the provisions of this Clause 21.2.
21.3 TRUST RECEIPTS
The Goods and the Documents shall only be released to the relevant Facility Company by Burdale against receipt by Burdale of a duly executed trust receipt from the relevant Facility Company in Burdales standard form (from time to time) and if, for any reason, no such trust receipt is executed by the relevant Facility Company in respect of any Goods or Documents, such Goods or Documents shall be deemed to be subject to a trust receipt in such form.
21.4 SEPARATION
Each Facility Company undertakes to keep the Documents and the Goods separate and distinct from any other bills of lading, documents of title or goods.
22 CHANGES TO PARTIES
22.1 ASSIGNMENTS AND TRANSFER BY OBLIGORS
No Obligor may assign any of its rights or transfer any of its rights or obligations under the Finance Documents.
22.2 ADDITIONAL FACILITY COMPANIES
The Company may request that any of its Subsidiaries becomes an Additional Facility Company. That Subsidiary shall become an Additional Facility Company if:
(a) Burdale approves the addition of that Subsidiary as an Additional Facility Company;
(b) the Company delivers to Burdale a duly completed and executed Accession Letter;
(c) the Company confirms that no Default is continuing or would occur as a result of that Subsidiary becoming an Additional Facility Company; and
(d) Burdale has received all of the documents and other evidence listed in Part III of Schedule 2 in relation to that Additional Facility Company, each in form and substance satisfactory to Burdale.
44
22.3 ADDITIONAL GUARANTORS
The Company shall procure that each of its Subsidiaries is a Guarantor. With respect to any company which becomes a Subsidiary of the Company after todays date, the Company shall procure that such Subsidiary becomes an Additional Guarantor by delivering to Burdale (promptly upon such company becoming a Subsidiary):
(a) a duly completed and executed Accession Letter; and
(b) all of the documents and other evidence listed in Part III of Schedule 2 in relation to that Additional Guarantor, each in form and substance satisfactory to Burdale.
22.4 REPETITION OF REPRESENTATIONS
Delivery of an Accession Letter constitutes confirmation by the relevant Subsidiary that the representations and warranties in Clause 12 are true and correct in relation to it as at the date of delivery as if made by reference to the facts and circumstances then existing.
22.5 TRANSFER BY BURDALE
Burdale may at any time assign, transfer, delegate or offer participations in all or a proportion of all its rights and obligations under the Finance Documents to any other bank or financial institution.
23 GOVERNING LAW AND JURISDICTION
23.1 GOVERNING LAW
This Agreement is governed by English law.
23.2 JURISDICTION
23.2.1 The courts of England have exclusive jurisdiction to settle any dispute arising out of or in connection with this Agreement (including a dispute regarding the existence, validity or termination of this Agreement) (a DISPUTE).
23.2.2 The parties agree that the courts of England are the most appropriate and convenient courts to settle Disputes and accordingly no party will argue to the contrary.
23.2.3 This Clause 23.2 is for the benefit of Burdale only. As a result, Burdale shall not be prevented from taking proceedings relating to a Dispute in any other courts with jurisdiction. To the extent allowed by law, Burdale may take concurrent proceedings in any number of jurisdictions.
23.3 SERVICE OF PROCESS
Without prejudice to any other mode of service allowed under any relevant law, each Obligor (other than an Obligor incorporated in England and Wales):
(a) irrevocably appoints the Company as its agent for service of process in relation to any proceedings before the English courts in connection with any Finance Document; and
(b) agrees that failure by a process agent to notify the relevant Obligor of the process will not invalidate the proceedings concerned.
45
For the benefit of Burdale the Company expressly agrees and consents to its irrevocable appointment as process agent pursuant to this Clause 23.3.
This Agreement has been entered into on the date stated at the beginning of this Agreement.
46
SIGNATORIES
THE COMPANY |
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|
||
HAYNES INTERNATIONAL LIMITED |
||
|
||
By: |
/s/ P.J. Crawshaw |
|
|
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BURDALE |
||
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BURDALE FINANCIAL LIMITED |
||
|
||
By: |
/s/ S.J. Chait |
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By: |
/s/ Brian Gitlin |
|
[The exhibits and schedules have been omitted from this Agreement as filed with the Securities and Exchange Commission (the SEC). The omitted information is considered immaterial from an investors perspective. The Registrant will furnish supplementally a copy of any of the omitted exhibits or schedules to the SEC upon request from the SEC.]
47
EXHIBIT 10.16
COMPENSATION OF NAMED EXECUTIVE OFFICERS AND DIRECTORS
CURRENT SALARIES OF NAMED EXECUTIVE OFFICERS:
The following table sets forth certain information concerning compensation paid by Haynes during fiscal 2006 to the Named Executive Officers:
|
|
|
|
Annual compensation(1) |
|
Long-term
|
|
|
|
|||||
Name and principal position |
|
Fiscal
|
|
Salary |
|
Bonus |
|
Securities
|
|
All other
|
|
|||
Francis J. Petro(4) |
|
2006 |
|
$ |
480,000 |
|
$ |
288,000 |
|
|
|
$ |
269,749 |
|
President & Chief |
|
2005 |
|
$ |
480,000 |
|
$ |
460,000 |
|
|
|
$ |
343,526 |
|
Executive Officer |
|
2004 |
|
$ |
473,077 |
|
$ |
0 |
|
200,000 |
|
$ |
317,084 |
|
|
|
|
|
|
|
|
|
|
|
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|
|||
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|
|
|
|
|
|
|
|
|
|
|
|||
Marcel Martin |
|
2006 |
|
$ |
196,923 |
|
$ |
85,500 |
|
|
|
$ |
6,543 |
|
Vice President, Finance |
|
2005 |
|
$ |
190,000 |
|
$ |
140,000 |
|
|
|
$ |
8,021 |
|
& Chief Financial |
|
2004 |
|
$ |
163,992 |
|
$ |
0 |
|
100,000 |
|
$ |
3,678 |
|
Officer, Treasurer |
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|||
August A. Cijan |
|
2006 |
|
$ |
192,308 |
|
$ |
85,500 |
|
|
|
$ |
6,471 |
|
Vice President, |
|
2005 |
|
$ |
190,000 |
|
$ |
106,000 |
|
|
|
$ |
8,167 |
|
Operations |
|
2004 |
|
$ |
178,051 |
|
$ |
0 |
|
100,000 |
|
$ |
4,171 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|||
James A. Laird |
|
2006 |
|
$ |
192,308 |
|
$ |
85,500 |
|
|
|
$ |
5,798 |
|
Vice President, |
|
2005 |
|
$ |
190,000 |
|
$ |
106,000 |
|
|
|
$ |
6,903 |
|
Marketing, Research |
|
2004 |
|
$ |
157,115 |
|
$ |
0 |
|
100,000 |
|
$ |
5,388 |
|
& European Sales |
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|||
Gregory M. Spalding |
|
2006 |
|
$ |
162,308 |
|
$ |
40,000 |
|
|
|
$ |
5,561 |
|
Vice President, Haynes |
|
2005 |
|
$ |
160,000 |
|
$ |
65,000 |
|
|
|
$ |
5,555 |
|
Wire & Chief |
|
2004 |
|
$ |
149,335 |
|
$ |
0 |
|
50,000 |
|
$ |
2,925 |
|
Operating Officer |
|
|
|
|
|
|
|
|
|
|
|
(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) The options set forth in the table were granted on August 31, 2004 pursuant to the plan of reorganization.
(3) Premium payments to the group term life insurance plan, gain sharing payments and relocation reimbursements which were made by Haynes, 401(k) match, executive disability, and 401(m) match.
(4) Includes $289,000, $314,000 and $246,000 for fiscal 2004, 2005 and 2006, respectively which accrued pursuant to our Supplemental Executive Retirement Plan and which is payable upon Mr. Petros retirement.
Position |
|
Salary |
|
|
President & Chief Executive Officer |
|
$ |
480,000 |
|
Vice President, Finance & Chief Financial Officer, Treasurer |
|
$ |
196,923 |
|
Vice President, Marketing, Research & European Sales |
|
$ |
192,308 |
|
Vice President, Operations |
|
$ |
192,308 |
|
Vice President, Haynes Wire & Chief Operating Officer |
|
$ |
162,308 |
|
MANAGEMENT INCENTIVE PLAN:
Under the 2007 Management Incentive Plan, certain Haynes employees are eligible for cash awards based on Company performance, including, but not limited to, the Named Executive Officers. If Haynes meets certain specific financial targets established by the Compensation Committee for fiscal 2007 (the Financial Targets), each Named Executive Officer is eligible for a cash payment under the Plan based on fiscal 2007 base salary. The target cash payments under the Plan are 60% of fiscal 2007 base salary for Mr. Petro, 45% of fiscal 2007 base salary for Mr. Martin, Mr. Cijan and Mr. Laird, and 25% of fiscal 2007 base salary for Mr. Spalding. The Named Executive Officer are also eligible for a cash payment under the Plan if the Companys performance is equal to at least 85% of the Financial Targets. Those cash payments would be 35% of fiscal 2007 base salary for Mr. Petro, 25% of fiscal 2007 base salary for Mr. Martin, Mr. Cijan and Mr. Laird, and 12.5% of fiscal 2007 base salary for Mr. Spalding. If the Companys performance exceeds the Financial Targets by at least 15%, the Named Executive Officer would be eligible for cash payments of 90% of fiscal 2007 base salary for Mr. Petro, 67.5% of fiscal 2007 base salary for Mr. Cijan and Mr. Laird, and 37.5% of fiscal 2007 base salary for Mr. Spalding.
Individual awards may be made at the discretion of the Board of Directors even if the Companys performance is below the Financial Targets, provided that liquidity goals for fiscal 2007 established by the Compensation Committee are met. In addition, a discretionary bonus pool is available for grants by the Board of Directors, provided that in no case will total cash bonuses pursuant to the Plan exceed $2.2 million. The Board of Directors has full discretion to eliminate, delay or change any awards or payouts and may choose to pay awards at any level of performance.
SCHEDULE OF DIRECTOR FEES:
Annual Retainer: |
|
$ |
40,000 |
|
Offering and Pricing Committee One-time Fee: |
|
$ |
10,000 |
|
Attendance Fee per Meeting of Board or Committee: |
|
$ |
2,000 |
|
Audit Committee Chairman (separate retainer): |
|
$ |
15,000 |
|
Chairman of the Board |
|
$ |
20,000 |
|
All other Committee Chairmen: |
|
$ |
10,000 |
|
Exhibit 10.17
[Execution]
AMENDMENT
NO. 2 TO
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
AMENDMENT NO. 2 TO AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT dated as of January 27, 2005 by and among Haynes International, Inc., a Delaware corporation (Haynes Parent), Haynes Wire Company, a Delaware corporation (Haynes Wire and together with Haynes Parent, each individually, a Borrower and collectively, Borrowers), the parties from time to time to the Loan Agreement (as hereinafter defined) as lenders (each individually, a Lender and collectively, Lenders) and Congress Financial Corporation (Central), an Illinois corporation, in its capacity as agent for Lenders pursuant to the Loan Agreement (in such capacity, Agent).
WITNESSETH
WHEREAS, Borrowers have entered into financing arrangements with Agent and Lenders pursuant to which Lenders (or Agent on behalf of Lenders) have made and may make loans and advances and provide other financial accommodations to Borrowers as set forth in, and subject to the terms and conditions of, the Amended and Restated Loan and Security Agreement, dated August 31, 2004, by and among Agent, Lenders, JPMorgan Chase Bank N.A., successor by merger to Bank One, NA, in its capacity as documentation agent for Lenders, and Haynes Parent, as amended by Amendment No. 1 to Amended and Restated Loan and Security Agreement, dated November 5, 2004, by and among Borrowers, Lenders and Agent (as amended and supplemented hereby and as the same may hereafter be further amended, modified, supplemented, extended, renewed, restated or replaced, the Loan Agreement) and the other Financing Agreements (as defined therein); and
WHEREAS, Borrowers, Agent and Lenders have agreed to certain amendments to the Loan Agreement, subject to the terms and conditions herein; and
WHEREAS, by this Amendment No. 2, Borrowers, Agent and Lenders desire and intend to evidence such consents and amendments;
NOW, THEREFORE, in consideration of the foregoing, the mutual conditions and agreements and covenants set forth herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
2
3
(a) Subject to and upon the terms and conditions contained herein, each Lender severally (and not jointly) agrees to make its Pro Rata Share of Revolving Loans to: (i) Haynes Parent from time to time in amounts requested by Haynes Parent in the aggregate amount for the Loans of all Lenders of up to the lesser of (A) the Borrowing Base of Haynes Parent at such time or (B) the Commitments minus the then outstanding Revolving Loans to Haynes Wire and (ii) Haynes Wire from time to time in amounts requested by or on behalf of Haynes Wire in the aggregate amount for the Revolving Loans of all Lenders of up to the lesser of: (A) the Borrowing Base of Haynes Wire at such time or (B) the Commitments minus the then outstanding Revolving Loans to Haynes Parent.
4
(b) Except in Agents discretion, with the consent of all Lenders, or as otherwise provided herein, (i) the aggregate amount of the Loans and the Letter of Credit Accommodations outstanding at any time shall not exceed the Maximum Credit, (ii) the aggregate principal amount of the Revolving Loans outstanding at any time shall not exceed the lesser of the Borrowing Base and the Revolving Loan Limit, (iii) the aggregate principal amount of the Revolving Loans outstanding at any time based on Eligible Inventory consisting of work-in-process shall not exceed $40,000,000, (iv) the aggregate principal amount of the Revolving Loans to Haynes Parent outstanding at any time shall not exceed the Haynes Parent Borrowing Base, (v) the aggregate principal amount of Revolving Loans to Haynes Wire outstanding at any time shall not exceed the Haynes Wire Borrowing Base, (vi) the aggregate principal amount of the Revolving Loans to Haynes Parent outstanding at any time based on Eligible Inventory of Haynes Parent shall not exceed the Inventory Loan Limit applicable to Haynes Parent, and (vii) the aggregate principal amount of the Revolving Loans to Haynes Wire outstanding at any time based on Eligible Inventory of Haynes Wire shall not exceed the Inventory Loan Limit applicable to Haynes Wire.
(c) In the event that the aggregate principal amount of the Loans and Letter of Credit Accommodations outstanding at any time exceeds the Maximum Credit, or the aggregate principal amount of the Revolving Loans exceeds the lesser of the Borrowing Base or the Revolving Loan Limit, or the aggregate amount of the outstanding Letter of Credit Accommodations exceed the sublimit for Letter of Credit Accommodations set forth in Section 2.2(e), or the aggregate principal amount of the Revolving Loans applicable to Haynes Parent outstanding at any time exceed the Haynes Parent Borrowing Base, or the aggregate principal amount of the Revolving Loans to Haynes Wire outstanding at any time exceed the Haynes Wire Borrowing Base, or the aggregate principal amount of the Revolving Loans to Haynes Parent outstanding at any time based on Eligible Inventory of Haynes Parent exceed the Inventory Loan Limit applicable to Haynes Parent, or the aggregate principal amount of the Revolving Loans to Haynes Wire outstanding at any time based on Eligible Inventory of Haynes Wire exceed the Inventory Loan Limit applicable to Haynes Wire, in any case such event shall not limit, waive or otherwise affect any rights of Agent or Lenders in such circumstances or on any future occasions and Borrower shall, upon demand by Agent, which may be made at any time or from time to time, immediately repay to Agent the entire amount of any such excess(es) for which payment is demanded.
(a) Subject to and upon the terms and conditions contained herein, at the request of Borrower, Agent agrees, for the ratable risk of each Lender according to its Pro Rata Share, to provide or arrange for Letter of Credit Accommodations for the account of a Borrower containing terms and conditions acceptable to Agent and the issuer thereof. Any payments made by or on behalf of Agent or any Lender to any issuer thereof and/or related parties in connection with the Letter of Credit Accommodations provided to or for
5
the benefit of a Borrower shall constitute additional Revolving Loans to such Borrower pursuant to this Section 2 (or in any event Special Agent Advances as the case may be).
(e) Except in Agents discretion, with the consent of all Lenders, the amount of all outstanding Letter of Credit Accommodations and all other commitments and obligations made or incurred by Agent or any Lender in connection therewith shall not at any time exceed $10,000,000.
(vi) as of the date of such Equipment Purchase Loan, and after giving effect thereto, the aggregate amount of the Loans and the Letter of Credit Accommodations shall not exceed the Maximum Credit minus the sum of (A) the aggregate amount of the Revolving Loans then outstanding, and (B) the aggregate amount of the undrawn Letter of Credit Accommodations then outstanding;
(a) All Obligations shall be payable to the Agent Payment Account as provided in Section 6.3 or such other place as Agent may designate from time to time. The foregoing shall not apply to payments with proceeds of Loans to a Bank Product Provider for Obligations to such Bank Product Provider in connection with checks or other items issued by Borrower drawn on such Bank Product Provider. Subject to the other terms and conditions contained herein, Agent shall apply payments received or collected from Borrower or for the account of Borrower (including the monetary proceeds of collections or of realization upon any Collateral) as follows: first , to pay any fees, indemnities or expense reimbursements then due to Agent and Lenders from Borrower; second , to pay interest due in respect of any Loans (and including any Special Agent Advances); third , to pay or prepay principal in respect of Special Agent Advances; fourth , to pay or prepay principal in respect of the Loans or to pay or prepay Obligations arising under or pursuant to any Hedge Agreement of Borrower that has been approved in writing by Agent (up to the amount of any then effective Reserve established in respect of such Obligations) on a pro rata basis; fifth , to pay or prepay any other Obligations whether or not then due, in such order and manner as Agent reasonably determines or to be held as cash collateral in connection with any Letter of Credit Accommodations or other contingent Obligations (but not including for purposes of this clause fifth any Obligations arising under or pursuant to any Hedge Agreement or in connection with any Bank Products); sixth , to pay or prepay any of the UK Obligations after demand for payment under the Guarantee by Borrower in favor of UK Lender; provided, that, any such amounts received for application to the UK Obligations shall not be applied to such UK Obligations for a period of sixty (60) days (or such longer period as UK Lender may agree) after the date of such demand and shall be held as cash collateral in connection
6
with the UK Obligations until the end of such sixty (60) day period (or such longer period as UK Lender may agree); and seventh , to pay or prepay any Obligations arising under or pursuant to Hedge Agreements that have been approved in writing by Agent (other than to the extent provided for above) and any Obligations then due to any Bank Provider arising from or in connection with any Bank Products, as to all of such Obligations on a pro rata basis. Notwithstanding anything to the contrary contained in this Agreement, except as Agent may from time to time otherwise determine at any time an Event of Default exists or has occurred and is continuing, payments with proceeds of Collateral of Haynes Parent shall be applied to the payment of the Obligations of Haynes Parent and payments with proceeds of Collateral of Haynes Wire shall be applied to the payment of the Obligations of Haynes Wire.
7
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
8
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1 to be duly executed and delivered by their authorized officers as of the date and year first above written.
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CONGRESS FINANCIAL CORPORATION (CENTRAL), as Agent and as Lender |
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By: |
/s/ Vicky Geist |
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|
|
||||
|
Title: |
Vice President |
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|
|
||||
|
|
|
||||
|
HAYNES INTERNATIONAL, INC. |
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|
|
|||||
|
By: |
/s/ Marcel Martin |
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|
|
|
||||
|
Title: |
CFO |
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|
|
|
||||
|
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|
||||
|
HAYNES WIRE COMPANY |
|||||
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|
|||||
|
By: |
/s/ Marcel Martin |
||||
|
|
|
||||
|
Title: |
CFO |
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|
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JPMORGAN CHASE BANK N.A. |
|
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successor by merger to BANK ONE, NA (Main Office Chicago) |
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By: |
/s/ John Freeman |
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|
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Title: |
Vice President |
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|
||
WESTERNBANK PUERTO RICO |
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|
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BUSINESSCREDIT DIVISION |
|
|
||||
|
|
|
||||
By: |
/s/ Miguel A. Vasquez |
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Title: |
President |
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||
Exhibit 10.18
[Execution]
AMENDMENT NO. 3 TO
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
AMENDMENT NO. 3 TO AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT dated as of May 1, 2005 by and among Haynes International, Inc., a Delaware corporation (Haynes Parent), Haynes Wire Company, a Delaware corporation (Haynes Wire and together with Haynes Parent, each individually, a Borrower and collectively, Borrowers), the parties from time to time to the Loan Agreement (as hereinafter defined) as lenders (each individually, a Lender and collectively, Lenders) and Wachovia Capital Finance Corporation (Central), formerly known as Congress Financial Corporation (Central), an Illinois corporation, in its capacity as agent for Lenders pursuant to the Loan Agreement (in such capacity, Agent).
W I T N E S S E T H
WHEREAS, Borrowers have entered into financing arrangements with Agent and Lenders pursuant to which Lenders (or Agent on behalf of Lenders) have made and may make loans and advances and provide other financial accommodations to Borrowers as set forth in, and subject to the terms and conditions of, the Amended and Restated Loan and Security Agreement, dated August 31, 2004, by and among Agent, Lenders, JPMorgan Chase Bank N.A., successor by merger to Bank One, NA, in its capacity as documentation agent for Lenders, and Haynes Parent, as amended by Amendment No. 1 to Amended and Restated Loan and Security Agreement dated November 5, 2004, and Amendment No. 2 to Amended and Restated Loan and Security Agreement dated as of January 27, 2005 (as amended and supplemented hereby and as the same may hereafter be further amended, modified, supplemented, extended, renewed, restated or replaced, the Loan Agreement) and the other Financing Agreements (as defined therein); and
WHEREAS, Borrowers, Agent and Lenders have agreed to certain amendments to the Loan Agreement, subject to the terms and conditions herein; and
WHEREAS, by this Amendment No. 3, Borrowers, Agent and Lenders desire and intend to evidence such consents and amendments;
NOW, THEREFORE, in consideration of the foregoing, the mutual conditions and agreements and covenants set forth herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
Applicable Margin shall mean, at any time, as to the interest rate for Prime Rate Loans, the interest rate for Prime Rate Fixed Asset Loans, the interest rate for Eurodollar Rate Loans, the interest rate for Eurodollar Rate Fixed Asset Loans, the interest rate for Prime Rate Equipment Purchase Loans, the interest rate for Eurodollar Rate Equipment Purchase Loans and the Letter of Credit Fee, the applicable percentage (on a per annum basis) set forth below indicated for the Monthly Average Excess Availability for the immediately preceding month is at or within the amounts indicated for such percentage:
|
|
|
|
Loans Based on Accounts
|
|
Loans Based on Fixed Asset
|
|
|
|
||||
Tier |
|
Monthly
|
|
Applicable
|
|
Applicable
|
|
Applicable
|
|
Applicable
|
|
L/C
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1. |
|
$20,000,000 or more |
|
.50 |
% |
2.00 |
% |
1.00 |
% |
2.50 |
% |
1.75 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2. |
|
Greater than or equal to $10,000,000 and less than $20,000,000 |
|
.75 |
% |
2.25 |
% |
1.25 |
% |
2.75 |
% |
2.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3. |
|
Less than $10,000,000 |
|
1.00 |
% |
2.50 |
% |
1.50 |
% |
3.00 |
% |
2.25 |
% |
provided , that , the Applicable Margin shall be calculated and established on the first day of each month (commencing on May 1, 2005) and shall remain in effect until adjusted thereafter at the beginning of the next month.
2
3
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4
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. I to be duly executed and delivered by their authorized officers as of the date and year first above written.
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WACHOVIA CAPITAL FINANCE CORPORATION (CENTRAL), formerly known as Congress Financial Corporation (Central), as Agent, and as Lender |
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By: |
/s/ Vicky Geist |
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Title: |
Vice President |
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HAYNES INTERNATIONAL, INC. |
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By: |
/s/ Marcel Martin |
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Title: |
CFO |
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HAYNES WIRE COMPANY |
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By: |
/s/ Marcel Martin |
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Title: |
CFO |
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JPMORGAN CHASE BANK N.A.
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By: |
/s/ John Freeman |
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Title: |
Director |
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WESTERNBANK PUERTO RICO
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By: |
/s/ Julia Frentis |
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Title: |
SVP Portfolio Manager |
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5
Exhibit 10.19
[Execution]
AMENDMENT NO. 4
TO AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
AMENDMENT NO.4 TO AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT, dated August 31, 2005, by and among Haynes International, Inc., a Delaware corporation (Haynes Parent), Haynes Wire Company, a Delaware corporation (Haynes Wire and together with Haynes Parent, each individually, a Borrower and collectively, Borrowers), the parties from time to time to the Loan Agreement (as hereinafter defined) as lenders (each individually, a Lender and collectively, Lenders) and Wachovia Capital Finance Corporation (Central), formerly known as Congress Financial Corporation (Central), an Illinois corporation, in its capacity as agent for Lenders pursuant to the Loan Agreement (in such capacity, Agent).
W I T N E S S E T H
WHEREAS, Borrowers have entered into financing arrangements with Agent and Lenders pursuant to which Lenders (or Agent on behalf of Lenders) have made and may make loans and advances and provide other financial accommodations to Borrowers as set forth in, and subject to the terms and conditions of, the Amended and Restated Loan and Security Agreement, dated August 31, 2004, by and among Agent, Lenders, JPMorgan Chase Bank N.A., successor by merger to Bank One, NA, in its capacity as documentation agent for Lenders, and Haynes Parent, as amended by Amendment No. 1 to Amended and Restated Loan and Security Agreement dated November 5, 2004, Amendment No. 2 to Amended and Restated Loan and Security Agreement dated as of January 27, 2005 and Amendment No. 3 to Amended and Restated Loan and Security Agreement dated May 1, 2005 (as amended and supplemented hereby and as the same may hereafter be further amended, modified, supplemented, extended, renewed, restated or replaced, the Loan Agreement) and the other Financing Agreements (as defined therein); and
WHEREAS, Borrowers, Agent and Lenders have agreed to certain amendments to the Loan Agreement, subject to the terms and conditions herein; and
WHEREAS, by this Amendment No. 4, Borrowers, Agent and Lenders desire and intend to evidence such consents and amendments;
NOW, THEREFORE, in consideration of the foregoing, the mutual conditions and agreements and covenants set forth herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
2
3
|
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Loans Based on
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Loans based on Fixed Asset
|
|
|
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||||
Monthly Average
|
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Applicable
|
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Applicable
|
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Applicable
|
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Applicable
|
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L/C Rate |
|
1. Greater than $20,000,000 |
|
0 |
% |
1.50 |
% |
.50 |
% |
2.00 |
% |
1.50 |
% |
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|
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|
|
|
|
|
|
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2. Greater than $10,000,000 and equal to or less than $20,000,000 |
|
.25 |
% |
1.75 |
% |
.75 |
% |
2.25 |
% |
1.75 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
3. Greater than $5,000,000 and equal to or less than $10,000,000 |
|
.50 |
% |
2.00 |
% |
1.00 |
% |
2.50 |
% |
2.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
4. Equal to or less than $5,000,000 |
|
.75 |
% |
2.25 |
% |
1.25 |
% |
2.75 |
% |
2.25 |
% |
provided, that, the Applicable Margin shall be calculated and established on the first day of each month (commencing on March 1, 2005) and shall remain in effect until adjusted thereafter at the beginning of the next month.
4
5
6
(vi) as of the date of such Equipment Purchase Loan, and after giving effect thereto, the aggregate amount of the Revolving Loans and the Letter of Credit Accommodations shall not exceed the amount equal to $120,000,000 minus the sum of (A) the aggregate amount of the Revolving Loans then outstanding, and (B) the aggregate amount of the undrawn Letter of Credit Accommodations then outstanding;
7
(a) All Obligations shall be payable to the Agent Payment Account as provided in Section 6.3 or such other place as Agent may designate from time to time. The foregoing shall not apply to payments with proceeds of Loans to a Bank Product Provider for Obligations to such Bank Product Provider in connection with checks or other items issued by Borrower drawn on such Bank Product Provider. Subject to the other terms and conditions contained herein, Agent shall apply payments received or collected from Borrower or for the account of Borrower (including the monetary proceeds of collections or of realization upon any Collateral) as follows:
(i) first , to the payment in full of any fees, indemnities or expense reimbursements then due to Agent and Lenders from Borrower;
(ii) second , to the payment in full of interest then due in respect of any Loans (and including any Special Agent Advances);
(iii) third , to the payment or prepayment in full of principal in respect of Special Agent Advances;
(iv) fourth , to the payment or prepayment in full of principal in respect of the Revolving Loans or to pay or prepay Obligations arising under or pursuant to any Hedge Agreement of Borrower that has been approved in writing by Agent (up to the amount of any then effective Reserve established in respect of such Obligations) on a pro rata basis;
(v) fifth , to the payment in full of principal in respect of Equipment Purchase Loans then due;
(vi) sixth , to the payment in full of principal in respect of the Term B Loan then due;
(vii) seventh , to the payment or prepayment in full of any other Obligations whether or not then due, in such order and manner as Agent reasonably determines or to be held as cash collateral in connection with any Letter of Credit Accommodations or other contingent Obligations (but not including for purposes of this clause seventh any Obligations arising under or pursuant to any Hedge Agreement or in connection with any Bank Products);
(viii) eighth , to the payment or prepayment in full of any of the UK Obligations after demand for payment under the Guarantee by Borrower in favor of UK Lender; provided, that, any such amounts received for application to the UK Obligations shall not be applied to such UK Obligations for a period of sixty (60) days (or such longer period as UK Lender may agree) after the date of such demand and shall be held as cash collateral in connection with the UK Obligations until the end of such sixty (60) day period (or such longer period as UK Lender may agree); and
8
(ix) ninth , to the payment or prepayment in full of any Obligations arising under or pursuant to Hedge Agreements that have been approved in writing by Agent (other than to the extent provided for above) and any Obligations then due to any Bank Provider arising from or in connection with any Bank Products, as to all of such Obligations on a pro rata basis.
Provided, that, in each instance set forth above in Section 6.4(a) above so long as no Priority Event has occurred and is continuing, this Section 6.4(a) shall not be deemed to apply to any payment by a Borrower specified by such Borrower to be for the payment of specific Obligations then due and payable (or prepayable) under and in accordance with any provision of this Agreement. Notwithstanding anything to the contrary contained in this Agreement, except as Agent may from time to time otherwise determine at any time an Event of Default exists or has occurred and is continuing, payments with proceeds of Collateral of Haynes Parent shall be applied to the payment of the Obligations of Haynes Parent and payments with proceeds of Collateral of Haynes Wire shall be applied to the payment of the Obligations of Haynes Wire.
(e) Notwithstanding anything to the contrary contained in Section 6.4(a) above or otherwise herein, at any time on and after a Priority Event and for so long as the same is continuing, Agent shall apply payments received or collected from Borrower or for the account of Borrower (including the monetary proceeds of collections or of realization upon any Collateral) as follows:
(i) first , to the payment in full of any fees (other than the Early Termination Fee), indemnities or expense reimbursements then due to Agent and Lenders from Borrower;
(ii) second , to the payment in full of interest then due in respect of any Revolving Loans and Equipment Purchase Loans (and including any Special Agent Advances);
(iii) third , to the payment or prepayment in full of principal in respect of Special Agent Advances;
(iv) fourth , to the payment or prepayment in full of principal in respect of the Revolving Loans or to the payment or prepayment in full of Obligations arising under or pursuant to any Hedge Agreement of Borrower that has been approved in writing by Agent (up to the amount of any then effective Reserve established in respect of such Obligations) on a pro rata basis;
(v) fifth , to the payment in full of principal in respect of Equipment Purchase Loans then due;
(vi) sixth , to be held as cash collateral in connection with any Letter of Credit Accommodations or other contingent Obligations (but not including for purposes of this clause sixth any Obligations arising under or pursuant to any Hedge Agreement or in connection with any Bank Products and as to Letter of Credit Accommodations only up to the amount provided for in Section 13.1 (a) for such Obligations);
9
(vii) seventh , to the payment in full of interest then due in respect of Term B Loan;
(viii) eighth , to the payment in full of principal in respect of the Term B Loan then due;
(ix) ninth , to the payment or prepayment in full of any other Obligations whether or not then due (including the Early Termination Fee), in such order and manner as Agent reasonably determines;
(x) tenth , to the payment or prepayment in full of any of the UK Obligations after demand for payment under the Guarantee by Borrower in favor of UK Lender; provided, that, any such amounts received for application to the UK Obligations shall not be applied to such UK Obligations for a period of sixty (60) days (or such longer period as UK Lender may agree) after the date of such demand and shall be held as cash collateral in connection with the UK Obligations until the end of such sixty (60) day period (or such longer period as UK Lender may agree); and
(xi) eleventh , to the payment or prepayment in full of any Obligations arising under or pursuant to Hedge Agreements that have been approved in writing by Agent (other than to the extent provided for above) and any Obligations then due to any Bank Provider arising from or in connection with any Bank Products, as to all of such Obligations on a pro rata basis.
(f) All references to payment in full or payment or prepayment in full in this Section 6.4 means all amounts owing in respect of the Obligations referred to, including any principal, interest, fees, costs, expenses and other amounts owed to Agent or any Lender which would accrue and become due but for the commencement of any case under the Bankruptcy Code or any similar statute, whether or not such amounts are allowed or allowable in whole or in part in such a case, but excluding (A) interest to the extent paid in excess of amounts based on the pre-default rates (but not any other interest) and (B) fees paid in respect of the waiver of an Event of Default, in each case as to amounts under clause (A) and (B) only to the extent that such amounts are disallowed in any case with respect to Borrowers under the Bankruptcy Code.
(e) Each Lender that is organized under the laws of a jurisdiction outside the United States (a Non-U.S. Lender) agrees that it shall, no later than the Effective Date (or, in the case of a Lender which becomes a party hereto pursuant to Section 13.7 hereof after the Effective Date, promptly after the date upon which such Lender becomes a party hereto) deliver to the Agent (or, in the case of an assignee of a Lender which (x) is an Affiliate of such Lender or a Related Fund of such Lender and (y) does not deliver an Assignment and Acceptance to the Agent pursuant to the last sentence of Section 13.7(a) for recordation pursuant to Section 13.7(b), to the assigning Lender only, and in the case of a participant, to the Lender granting the participation only) two properly completed and duly executed copies of either U.S. Internal Revenue Service Form W-8BEN, W-8ECI or W-8IMY or any subsequent versions thereof or successors thereto, in each case
10
claiming complete exemption from, or reduced rate of, U.S. Federal withholding tax and payments of interest hereunder. In addition, in the case of a Non-U.S. Lender claiming exemption from U.S. Federal withholding tax under Section 871(h) or 881(c) of the Internal Revenue Code, such Non-U.S. Lender hereby represents to the Agent and the Borrowers that such Non-U.S. Lender is not a bank for purposes of Section 881(c) of the Internal Revenue Code, is not a 10-percent shareholder (within the meaning of Section 871(h)(3)(B) of the Internal Revenue Code) of the Parent and is not a controlled foreign corporation related to the Parent (within the meaning of Section 864(d)(4) of the Internal Revenue Code), and such Non-U.S. Lender agrees that it shall promptly notify the Agent in the event any such representation is no longer accurate. Such forms shall be delivered by each Non-U.S. Lender on or before the date it becomes a party to this Agreement and on or before the date, if any, such Non-U.S. Lender changes its applicable lending office by designating a different lending office (a New Lending Office). In addition, such Non-U.S. Lender shall deliver such forms within 20 days after receipt of a written request therefor from the Agent, the assigning Lender or the Lender granting a participation, as applicable. Notwithstanding any other provision of this Section 6.5, a Non-U.S. Lender shall not be required to deliver any form pursuant to this Section 6.5(e) that such Non-U.S. Lender is not legally able to deliver.
(i) Notwithstanding anything to the contrary contained herein, except as the Term B Loan Lender shall otherwise agree, Agent shall demand payment of the Obligations and commence and pursue such other Enforcement Actions as Agent in good faith deems appropriate within ninety (90) days (except with respect to Events of Default described in Sections 10.1(g) and 10.1(h), Agent shall take such Enforcement Actions as it deems appropriate under the circumstances promptly upon receipt of notice) after the date of the receipt by Agent of written notice executed and delivered by the Term B Loan Lender of a Term B Loan Action Default, and requesting that Agent commence Enforcement Actions, provided, that, (i) such Term B Loan Action Default has not been waived or cured, (ii) in the good faith determination of Agent, taking an Enforcement Action is permitted under the terms of this Agreement and applicable law, (iii) taking an Enforcement Action shall not result in any liability of Agent or Lenders to any Borrower or any other person, (iv) Agent shall be entitled to all of the benefits of Sections 12.2, 12.3 and 12.5 hereof, and (v) Agent shall not be required to take an Enforcement Action so long as within the ninety (90) day period provided above, Agent shall, at its option, appoint Term B Loan Lender, as an agent of Agent for purposes of exercising the rights of Agent to take an Enforcement Action, subject to the terms hereof.
11
(e) Notwithstanding anything to the contrary contained in Section 11.3(a), no such amendment, waiver, discharge or termination shall provide for any such amendment, waiver, discharge or termination of any of the following to the extent provided below without the consent of Agent and Term B Loan Lender:
(i) the terms of Section 9.17 or 9.18 hereof (or any definition with respect to financial terms used in such financial covenant in a manner which has the effect of reducing the amounts which Borrowers are required to maintain pursuant to such financial covenants);
(ii) the definitions of Adjusted Eurodollar Rate, Borrowing Base (but only to the extent such proposed change in the definition would increase the advance rates above those in effect on the date hereof), Change of Control, Consolidated Adjusted Net Income, EBITDA, Eligible Accounts, Eligible Inventory, Eligible Transferee, Enforcement Action, Excess Availability, Material Adverse Effect, Net Recovery Percentage, Priority Event, Pro Rata Share, Term B Loan, Term B Loan Action Default, or Term B Loan Interest Rate;
(iii) the terms of Section 2 of Amendment No. 4;
(iv) any of the following Sections hereof in any material respect: 6.4, 7.7, 9.7, 9.8, 9.9, 9.10, 9.11, 9.12(b), 9.16, 9.21, 10.2, 11.3, 12.8, 12.11, 13.1(a), or 13.7 hereof,
(v) an increase in the Maximum Credit or the Revolving Loan Limit or the outstanding principal amount of the Term B Loan;
(vi) forgiveness, compromise or cancellation of any of the Term B Loan.
In addition, Agent shall not make any Special Agent Advance pursuant to Section 12.1(a)(i) or Section 12.11(a)(ii), or additional Revolving Loan or Letter of Credit Accommodation as provided in Section 12.8, without the prior consent of Term B Loan Lender if after giving effect thereto the sum of the then outstanding Special Agent Advances pursuant to such Sections and any then outstanding Revolving Loans and Letter of Credit Accommodations in excess of the Borrowing Base as provided in Section 12.8, would exceed the lesser of $10,000,000 or ten (10%) percent of the Borrowing Base (determined as of the date of such Special Agent Advance based on the then most recent information received and accepted by Agent) .
In the event that all Obligations other than in respect of the Term B Loan are fully and finally paid and satisfied or Term B Loan Lender has exercised its option to purchase Obligations owing to the Revolving Loan Lenders as provided in Amendment No. 4, (a) Agent may, at its option, appoint Term B Loan Lender as successor agent
12
hereunder and (b) Term B Loan Lender shall have the right, but not the obligation, upon written notice to Agent, to require Agent to resign under this Section 12.13 (and in the case of the exercise by Term B Loan Lender of its purchase option provided in Amendment No. 4, such resignation to be effective immediately upon the effectiveness of the purchase by Term B Loan Lender of the Obligations owing to the Revolving Loan Lenders pursuant to the purchase option granted to Term B Loan Lender set forth in Amendment No. 4).
(a) This Agreement and the other Financing Agreements shall become effective as of the date set forth on the first page hereof and shall continue in full force and effect for a term ending on April 12, 2009 (the Maturity Date), unless sooner terminated pursuant to the terms hereof.
(b) If for any reason this Agreement is terminated prior to the Maturity Date, in view of the impracticality and extreme difficulty of ascertaining actual damages and by mutual agreement of the parties as to a reasonable calculation of Agents and each Lenders lost profits as a result thereof, Borrowers shall pay to Agent, for the account of Lenders (in accordance with the arrangements by and among the Lenders), upon the effective date of such termination, an early termination fee in the amount equal to
Amount |
|
Period |
(i) 1% of the Maximum Credit |
|
From the date hereof to and excluding the fourth anniversary of the date hereof |
|
|
|
(ii) ½% of the Maximum Credit |
|
From and after the fourth anniversary hereof at any time prior to the Maturity Date. |
Notwithstanding anything to the contrary contained in this Section, in the event of the termination of this Agreement by Borrowers prior to the Maturity Date and the full and final repayment in cash of all of the Obligations and receipt by Agent of cash collateral or at its option a letter of credit for contingent obligations in accordance with the terms hereof with the proceeds of initial loans and advances or other financial accommodations to Borrowers pursuant to a credit facility provided by Wachovia Bank, National Association or its affiliates (or for which Wachovia Bank, National Association or any of its affiliates is acting as agent), Borrowers shall not be required to pay the early termination fee provided for above.
13
(a) Each Lender may, with the prior written consent of Agent, assign all or, if less than all, a portion equal to at least $10,000,000 in the aggregate for the assigning Lender (or in the case of Term B Loan Lender, a portion equal to at least $2,000,000), of such rights and obligations under this Agreement to one or more Eligible Transferees (but not including for this purpose any assignments in the form of a participation), each of which assignees shall become a party to this Agreement as a Lender by execution of an Assignment and Acceptance; provided, that, (i) such transfer or assignment will not be effective until recorded by Agent on the Register and (ii) Agent shall have received for its sole account payment of a processing fee from the assigning Lender or the assignee in the amount of $5,000; provided , that , such fee shall not be applicable to any assignments made to Affiliates of the assigning Lender or Approved Funds. Notwithstanding anything to the contrary contained in this Section 13.7(a), Term B Loan Lender may assign any or all of its rights under the Financing Agreements to an Affiliate of Term B Loan Lender or an Approved Fund of Term B Loan Lender without the prior written consent of Agent and without delivering an Assignment and Acceptance to Agent or Borrowers, provided, that, (i) Borrowers and Agent may continue to deal solely and directly with such Term B Loan Lender until a fully executed Assignment and Acceptance has been delivered to Agent for recordation on the Register, (ii) the failure of Term B Loan Lender to deliver an Assignment and Acceptance to Agent or Borrowers shall not affect the legality, validity or binding effect of such assignment and (iii) an Assignment and Acceptance between Term B Loan Lender and an Affiliate of Term B Loan Lender or an Approved Fund of Term B Loan Lender shall be effective as of the date specified in such Assignment and Acceptance.
(i) A Registered Term B Loan (and the Registered Term B Note, if any, evidencing the same) may be assigned or sold in whole or in part only by registration of such assignment or sale on the Register or comparable register (and each Registered Term B Note shall expressly so provide). Any assignment or sale of all or part of such Registered Term B Loan (and the Registered Term B Note, if any, evidencing the same) may be effected only by registration of such assignment or sale on the Register (or comparable register), together with the surrender of the Registered Term B Note, if any, evidencing the same duly endorsed by (or accompanied by a written instrument of assignment or sale duly executed by) the holder of such Registered Term B Note, whereupon, at the request of the designated assignee(s) or transferee(s), one or more new Registered Term B Notes in the same aggregate principal amount shall be issued to the designated assignee(s) or transferee(s). Prior to the registration of assignment or sale of any Registered Term B Loan (and the Registered Term Note, if any evidencing the
14
same), Agent and Borrowers shall treat the Person in whose name such Loan (and the Registered Term Note, if any, evidencing the same) is registered as the owner thereof for the purpose of receiving all payments thereon and for all other purposes, notwithstanding notice to the contrary. In the event that Term B Loan Lender sells participations in a Registered Term B Loan, Term B Loan Lender shall maintain a register on which it enters the name of all participants in the Registered Term B Loan (the Participant Register). A Registered Term B Loan (and the Registered Term B Note, if any, evidencing the same) may be participated in whole or in part only by registration of such participation on the Participant Register (and each Registered Term B Note shall expressly so provide). Any participation of such Registered Term Loan (and the Registered Term Note, if any, evidencing the same) may be effected only by the registration of such participation on the Participant Register.
15
16
17
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
18
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 4 to be duly executed and delivered by their authorized officers as of the date and year first above written.
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WACHOVIA CAPITAL FINANCE CORPORATION
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By: |
/s/ Vicky Geist |
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|||
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Title: |
Vice President |
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|||
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|||
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HAYNES INTERNATIONAL, INC. |
|||
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|||
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By: |
/s/ Marcel Martin |
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|||
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Title: |
CFO V.P. Finance |
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HAYNES WIRE COMPANY |
|||
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By: |
/s/ Marcel Martin |
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|||
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Title: |
CFO V.P. Finance |
||
AGREED: |
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|||||
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|||||
JPMORGAN CHASE BANK, N.A.,
|
||||||
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|||||
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|||||
By: |
/s/ John Freeman |
|
||||
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|
|||||
Title: |
Vice President |
|
||||
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|||||
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|||||
WESTERNBANK PUERTO RICO
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|||||
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By: |
/s/ Julia Fuentes |
|
||||
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Title: |
Senior Vice President |
|
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ABLECO FINANCE LLC |
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|||||
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By: |
/s/ Daniel E. Wolf |
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||||
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|||||
Title: |
Senior Vice President |
|
||||
EXHIBIT A
TO
AMENDMENT NO. 4 TO
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
Revolving Loan Lenders |
|
Revolving Loan Commitment |
|
|
|
Wachovia Bank, National Association |
|
$50,000,000 |
|
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JPMorgan Chase Bank N.A. |
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$45,000,000 |
|
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|
Westernbank
Puerto Rico Credit
|
|
$25,000,000 |
|
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Term B Loan Lender |
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Term B Loan Commitment |
|
|
|
Ableco Finance LLC |
|
$10,000,000 |
EXHIBIT 10.20
[Execution]
AMENDMENT NO. 5
TO AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
AMENDMENT NO. 5 TO AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT, dated as of February 2, 2006, by and among Haynes International, Inc., a Delaware corporation (Haynes Parent), Haynes Wire Company, a Delaware corporation (Haynes Wire and together with Haynes Parent, each individually, a Borrower and collectively, Borrowers), the parties from time to time to the Loan Agreement (as hereinafter defined) as lenders (each individually, a Lender and collectively, Lenders) and Wachovia Capital Finance Corporation (Central), an Illinois corporation, in its capacity as agent for Lenders pursuant to the Loan Agreement (in such capacity, Agent).
W I T N E S S E T H
WHEREAS, Borrowers have entered into financing arrangements with Agent and Lenders pursuant to which Lenders (or Agent on behalf of Lenders) have made and may make loans and advances and provide other financial accommodations to Borrowers as set forth in, and subject to the terms and conditions of, the Amended and Restated Loan and Security Agreement, dated August 31, 2004, by and among Agent, Lenders, JPMorgan Chase Bank N.A., successor by merger to Bank One, NA, in its capacity as documentation agent for Lenders, and Haynes Parent, as amended by Amendment No. 1 to Amended and Restated Loan and Security Agreement dated November 5, 2004, Amendment No. 2 to Amended and Restated Loan and Security Agreement dated as of January 27, 2005, Amendment No. 3 to Amended and Restated Loan and Security Agreement dated May 1, 2005 and Amendment No. 4 to Amended and Restated Loan and Security Agreement dated August 31, 2005 (as amended and supplemented hereby and as the same may hereafter be further amended, modified, supplemented, extended, renewed, restated or replaced, the Loan Agreement) and the other Financing Agreements (as defined therein); and
WHEREAS, Borrowers, Agent and Lenders have agreed to certain amendments to the Loan Agreement, subject to the terms and conditions herein; and
WHEREAS, by this Amendment No. 5, Borrowers, Agent and Lenders desire and intend to evidence such consents and amendments;
NOW, THEREFORE, in consideration of the foregoing, the mutual conditions and agreements and covenants set forth herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
3
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
4
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 5 to be duly executed and delivered by their authorized officers as of the date and year first above written.
|
|
|
WACHOVIA CAPITAL FINANCE
CORPORATION
|
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||
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By: |
/s/ Vicky Geist |
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Title: |
Vice President |
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HAYNES INTERNATIONAL, INC. |
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||
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By: |
/s/ Marcel Martin |
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|
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|
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Title: |
Chief Financial Officer, Vice President Finance |
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HAYNES WIRE COMPANY |
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/s/ Marcel Martin |
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Chief Financial Officer, Vice President Finance |
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JPMORGAN CHASE BANK, N.A., |
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successor by merger to BANK ONE, NA (Main Office Chicago) |
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/s/ Grey |
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Regional Portfolio Manager |
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WESTERNBANK PUERTO RICO |
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BUSINESS CREDIT DIVISION |
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/s/ Miguel A. Vazquez |
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President |
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ABLECO FINANCE LLC |
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/s/ Daniel E. Wolf, Sr. |
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Senior Vice President |
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5
Exhibit 10.21
FORM OF
DIRECTOR INDEMNIFICATION AGREEMENT
This Director Indemnification Agreement (this Agreement ), dated as of this day of August, 2006, is made by and between Haynes International, Inc., a Delaware corporation (the Company ), and ( Indemnitee ).
RECITALS:
WHEREAS, Section 141 of the Delaware General Corporation Law provides that a corporations business and affairs shall be managed by or under the direction of its board of directors;
WHEREAS, by virtue of the managerial prerogatives vested in the directors of a Delaware corporation, directors act as fiduciaries of the corporation and its stockholders;
WHEREAS, it is critically important to the Company and its stockholders that the Company be able to attract and retain the most capable persons reasonably available to serve as directors of the Company;
WHEREAS, in recognition of the need for corporations to be able to induce capable and responsible persons to accept positions in corporate management, Delaware law authorizes (and in some instances requires) corporations to indemnify their directors and officers, and further authorizes corporations to purchase and maintain insurance for the benefit of their directors and officers;
WHEREAS, the number of lawsuits challenging the judgment and actions of directors of corporations, the costs of defending those lawsuits and the threat to directors personal assets have all materially increased over the past several years, chilling the willingness of capable persons to undertake the responsibilities imposed on corporate directors;
WHEREAS, recent federal legislation and rules adopted by the Securities and Exchange Commission have imposed additional disclosure and corporate governance obligations on directors of public companies and have exposed such directors to new and substantially broadened liabilities;
WHEREAS, Indemnitee is a director of the Company and his or her willingness to serve in such capacity is predicated, in substantial part, upon the Companys willingness to indemnify him or her in accordance with the principles reflected above, to the fullest extent permitted by the laws of the state of Delaware, and upon the other undertakings set forth in this Agreement; and
WHEREAS, in recognition of the need to provide Indemnitee with substantial protection against personal liability, in order to procure Indemnitees continued service as a director of the Company and to enhance Indemnitees ability to serve the Company in an effective manner, and in order to provide such protection pursuant to express contract rights (intended to be enforceable irrespective of, among other things, any amendment to the Companys certificate of
incorporation or bylaws (collectively, the Governance Documents ), any change in the composition of the Companys Board of Directors (the Board ) or any change-in-control or business combination transaction relating to the Company), the Company desires to provide in this Agreement for the indemnification of and the advancement of Expenses (as defined in Section 1.01(f) ) to Indemnitee as set forth in this Agreement and for the continued coverage of Indemnitee under the Companys directors and officers liability insurance policies;
NOW, THEREFORE, in consideration of the promises and the covenants contained herein, the Company and Indemnitee do hereby covenant and agree as follows:
AGREEMENT :
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If to the Company: |
Haynes International, Inc. |
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1020 West Park Avenue |
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P.O. Box 9013 |
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Kokomo, Indiana 46904-9015 |
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Attn.: V.P.-General Counsel/Corporate Secretary |
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Tel.: (765) 456-6012 |
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Fax: (765) 456-6905 |
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[SIGNATURES APPEAR ON FOLLOWING PAGE]
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IN WITNESS WHEREOF , Indemnitee has executed and the Company has caused its duly authorized representative to execute this Agreement as of the date first above written.
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HAYNES INTERNATIONAL, INC. |
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INDEMNITEE |
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16
SCHEDULE
OF DIRECTORS PARTY TO THE DIRECTOR
INDEMNIFICATION AGREEMENT
Bohan, Paul J.
Campion, Donald C.
Corey, John C.
Getz, Robert H.
McCarthy, Timothy J.
Petro, Francis J.
Wall, William P.
Zabel, Ronald W.
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Exhibit 10.22
Portions of this Exhibit 10.22 have been omitted based upon a request for confidential treatment. This Exhibit 10.22, including the non-public information, has been filed separately with the Securities and Exchange Commission. [*] designates portions of this document that have been redacted pursuant to the request for confidential treatment filed with the Securities and Exchange Commission.
This CONVERSION SERVICES AGREEMENT (this Agreement) is made this 17th day of November 2006 by and between,
Haynes International, Inc., a corporation organized and duly existing under the laws of the State of Delaware, having its head office at 1020 West Park Avenue, Kokomo, Indiana 46904-9013, hereinafter referred to as HAYNES;
and
Titanium Metals Corporation, a corporation organized and duly existing under the laws of the State of Delaware, having its head office at 5430 LBJ Freeway, Suite 1700, Dallas, TX 75240, hereinafter referred to as TIMET.
HAYNES and TIMET are each hereinafter individually referred to as a Party or collectively as the Parties.
RECITALS
A. Contemporaneous with the entry into this Agreement, HAYNES and TIMET have entered into certain transactions evidenced by the Transaction Documents (as hereinafter defined);
B. TIMET requires, and HAYNES has agreed, to provide, the Titanium Conversion Services (as hereinafter defined);
C. HAYNES is technically capable of performing the Titanium Conversion Services;
D. In connection with its performance hereunder, Haynes will obtain know-how from TIMET that could competitively harm TIMET if Haynes were to perform Titanium Conversion Services on behalf of a competitor of TIMET; and
E. In order to increase TIMETs competitiveness for customers against fully integrated titanium producers, TIMET needs long-term access to a guaranteed source of Titanium Conversion Services.
NOW THEREFORE, in consideration of the premises and mutual covenants herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, HAYNES and TIMET agree as follows:
Acceptance Procedure shall have the meaning set forth in Section 4.3(a).
Access and Security Agreement shall mean that certain Access and Security Agreement of even date herewith by and between HAYNES and TIMET.
Affiliate shall mean any legal corporation, entity, firm or person directly or indirectly owned by or under the same ownership as either Party, for so long as such ownership lasts. Ownership shall exist through the direct or indirect: (i) ownership or control of more than fifty percent (50%) of the nominal value of the issued equity share capital or of more than fifty percent (50%) of the shares entitling the holders to vote for the election of directors or officers or persons performing similar functions, or (ii) right by any other means to elect or appoint directors, officers or persons performing similar functions, who have a majority vote.
Agreement shall mean this Conversion Services Agreement, and each of the exhibits attached hereto and forming an integral part hereof, as the foregoing may from time to time hereafter be amended, supplemented or modified.
Arbitration Demand shall have the meaning set forth in Section 12.2(b).
Arbitration Response shall have the meaning set forth in Section 12.2(c).
Base Prices shall mean the base prices set forth and/or calculated pursuant to Section 3.1.
CC Termination shall have the meaning set forth in Section 13.2(c).
Change in Control shall mean (i) a merger or consolidation of HAYNES where HAYNES is not the surviving entity or the current stockholders of HAYNES hold less than 50% of the voting securities of HAYNES after such merger or consolidation, (ii) any person (as defined in the Exchange Act) (other than HAYNES, any of its subsidiaries or any trustee, fiduciary or other person holding securities under any employee share ownership plan or any other employee benefit plan of HAYNES or any of its subsidiaries), together with its affiliates and associates (as such terms are defined in Rule 12b-2 under the Exchange Act), shall have become the beneficial owner (as defined in Rule 13d-3 of the Exchange Act) of 50% or more of the outstanding voting securities of HAYNES, (iii) a sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of HAYNES, or the Operating Assets, or (iv) any other transaction or series of related transactions effectively changing the control of HAYNES to any person or entity.
Confidential Information shall have the meaning set forth in Section 9.2.
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Damages shall mean, collectively, any damage, liability, loss, or cost (including, but not limited to, reasonable attorneys fees and other costs and expenses directly related to proceedings or investigations or the defense of any claim), but shall not include any consequential or incidental damages suffered directly by a Party hereto, except as otherwise expressly indicated.
Direct Cost shall have the meaning set forth in Section 2.3(b).
Dispute shall mean any dispute, controversy, or claim between the Parties arising out of, relating to, or connected with this Agreement or the breach or invalidity hereof.
Effective Termination Date shall have the meaning set forth in Section 13.2(c).
Event of Default shall have the meaning set forth in Section 5.2.
Exchange Act shall mean the Securities Exchange Act of 1934, as amended.
Force Majeure shall have the meaning set forth in Section 8.1.
4-High Facility shall have the meaning set forth under the term Mill as defined in the Access and Security Agreement.
HAYNES shall have the meaning set forth in the introduction hereto.
HAYNES Successor shall have the meaning set forth in Section 11.2.
Joint Proprietary Information shall have the meaning set forth in Section 2.6.
Liquidated Damages shall have the meaning set forth in Section 5.3(a).
Loan Date shall have the meaning set forth in Section 2.1(c).
Material shall mean any and all titanium material delivered by TIMET or its designee(s) to HAYNES for Titanium Conversion Services performed hereunder.
Maximum Annual Volume shall have the meaning set forth in Section 2.1(a).
Maximum Cycle Time shall mean the Maximum Cycle Time set forth on Exhibit A.
Maximum Monthly Volume shall have the meaning set forth in Section 2.1(e).
Non-Compete Amendment shall have the meaning set forth in Section 11.2.
Non-Compete Amendment Fee shall have the meaning set forth in Section 11.2.
On-Time Delivery Rate shall be the percentage of deliveries delivered on-time as calculated each month according to the following formula:
OTD = (TD R)/TD
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Where:
OTD is the On-Time Delivery Rate (expressed as a percentage).
R is the number of orders (by Purchase Order Number) delivered after the Scheduled Delivery Date.
TD is the total number of orders (by Purchase Order Number) scheduled for the calendar month.
Operating Assets shall mean the 4-High Facility, together with the Equipment, Intellectual Property, Contract Rights and Real Estate (as such terms are defined in the Access and Security Agreement), used in connection with the performance of the Titanium Conversion Services. The term Operating Assets as used herein shall be deemed to have the same meaning assigned to the term Operating Assets in the Access and Security Agreement.
Option shall have the meaning set forth in Section 2.1(b).
Option Note shall have the meaning set forth in Section 2.1(d).
Option Notice shall have the meaning set forth in Section 2.1(b).
Parties shall mean HAYNES and TIMET.
Party shall mean HAYNES or TIMET, as the case may be.
Proprietary Information shall have the meaning set forth in Section 2.6.
Purchase Order Number shall mean the unique TIMET identification associated with the complete processing of a single batch or heat of titanium.
QTP Rate means the Quality Throughput Pass rate or First Time Pass rate shall be calculated monthly in accordance with the following formula:
QTP = (TD-R)/TD
Where:
QTP is the Quality Throughput Pass rate (expressed as a percentage).
R it the total number of orders (measured by Purchase Order Number) rejected due to not meeting acceptance requirements of Section 4.3.
TD is the total number of orders (measured by Purchase Order Numbers) scheduled for the calendar month.
Scheduled Delivery Date shall mean the date HAYNES shall be required to deliver a titanium product resulting from its provision of Titanium Conversion Services
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determined based on the addition of the number of effective calendar days set forth on Exhibit A under the column with the heading Maximum Cycle Times to the date the relevant Submission Sheet is received by HAYNES.
Steering Committee shall have the meaning set forth in Section 2.1(c).
Submission Sheet shall mean a simplified order form issued for Material deemed by the Parties a purchase order from TIMET authorizing HAYNES to perform Titanium Conversion Services under this Agreement. The Submission Sheet will contain a summary listing of products required for the scheduled rolling campaign, the Purchase Order Number, heat number, product code reference, input weight and other relevant information.
Termination Fee shall have the meaning set forth in Section 13.2(c).
Titanium Conversion Services shall mean the processing of Materials performed with the Operating Assets and related equipment, which includes hot rolling and the related processes required to produce the products listed on Exhibit A.
TIMET shall have the meaning set forth in the introduction hereto.
Transaction Documents means, collectively, the Access and Security Agreement, this Agreement and the Option Note and any other document or instrument delivered in connection herewith or therewith.
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Workers Compensation - Statutory
Employers Liability - $500,000 per occurrence
The policy shall have alternative employer and borrowed servant coverage.
If HAYNES shall be a qualified self-insurer for purposes of state workers compensation, evidence of such qualification shall be sufficient to waive the requirement that workers compensation insurance be maintained. However, HAYNES agrees to waive subrogation for any payments that it (or its third party administrator) may make as a qualified self-insurer.
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During the term of this Agreement, upon request, TIMET will supply to HAYNES titanium sheet and plate products of up to two hundred thousand (200,000) pounds per year in each of 2007 through 2011, up to three hundred thousand (300,000) pounds per year in each of 2012 through 2016 and up to five hundred thousand (500,000) pounds per year in each of 2017 through the end of the term of this Agreement; provided, however, that in any year, TIMETs supply of hot-rolled alloy sheet products cannot exceed 25% of the total volume of titanium plate sheet products supplied by TIMET. Each purchase and sale shall be made by separate purchase orders placed by Haynes, and acknowledged within a reasonable time by TIMET, and such purchases and sales shall be subject to the prevailing market prices, lead-times, warranties and other terms and conditions applicable to TIMET customers who place orders on an order-by-order basis. In the event of any conflict between this Agreement and either of the HAYNES conditions of purchase or the corresponding TIMET sales acknowledgement, this Agreement shall prevail. In the event of any conflict between a HAYNES purchase order and the corresponding TIMET sales acknowledgement, the documents shall be interpreted together under the Uniform Commercial Code of the State of Delaware.
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(i) provide, directly or indirectly, Titanium Conversion Services with the Operating Assets to any third party, or grant any third party access to, or the right to use, either directly or indirectly, the Operating Assets for purposes of performing any Titanium Conversion Services; provided, however, that the HAYNES Successor shall be permitted, subject to TIMETs rights under this Agreement, to perform Titanium Conversion Services using the Operating Assets for itself, its Affiliates or any third party up to a maximum aggregate amount of ten (10) million output pounds of flat-rolled titanium products on an annual basis.
12.2 Voluntary Settlement of Disputes; Voluntary Arbitration .
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Notwithstanding anything to the contrary set forth herein, it is the express intention of the Parties that the provisions, procedures and requirements of this Section 12.2 are entirely voluntary. The alternative dispute resolution and arbitration provisions, procedures or requirements of this Section 12.2 shall not apply to any Dispute between the Parties absent the Parties mutual written agreement to submit a Dispute to the provisions, procedures and requirements contained in this Section 12.2.
Upon the commencement of the term of this Agreement, HAYNES shall execute and deliver, or cause to be executed and delivered, to TIMET the non-disturbance agreement pursuant to Section 3(c) of the Access and Security Agreement and such further instruments and documents, and shall take such further action as TIMET may reasonably request, for the purpose of obtaining the full benefits of this Agreement and the Access and Security Agreement and of the rights and powers granted herein and therein, and TIMET shall be authorized by HAYNES to file one or more financing statements, and amendments thereto, relating to the Collateral (as defined in the Access and Security Agreement).
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(c) Upon a Change in Control of HAYNES, a HAYNES Successor shall have the right to terminate this Agreement (a CC Termination) by providing written notice of termination to TIMET within twelve (12) months of the effective date of such Change in Control, and such CC Termination shall become effective upon the last day of the ten- (10) year period following the date on which the notice is received by TIMET (the Effective Termination Date). As a result of its election of a CC Termination, the HAYNES Successor shall be required to pay to TIMET a termination fee that is equal to (i) Twenty Five Million Dollars ($25,000,000) plus (ii) the entire unearned portion of the Fee calculated as of the Effective Termination Date (the Termination Fee). The Termination Fee shall be due and payable to TIMET in equal monthly payments during the period beginning upon TIMETs receipt of the notice of termination and ending upon the Effective Termination Date. Upon its election of a CC Termination, HAYNES shall deliver to TIMET a promissory note substantially in the form attached hereto as Exhibit B in the amount of the Termination Fee and with a payment schedule as reflected in this Section 13.2(c); provided, however, that the Termination Fee shall not bear interest prior to maturity, and, therefore, the interest provisions in Exhibit B (other than the Default Rate (as defined in Exhibit B) shall be deleted; provided, further, that upon a default thereunder, the Termination Fee shall bear interest at the Default Rate.
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If to TIMET:
Titanium Metals
Corporation
PO Box 309
Toronto, OH 43964
Attn: Jim Pieron, Vice President of
Manufacturing Strategy
Facsimile: (740) 537-5776
With a copy to:
Titanium Metals
Corporation
Three Lincoln Centre
5430 LBJ Freeway
Suite 1700
Dallas, TX 75420
Attn: General Counsel
Facsimile: (972) 448-1445
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If to HAYNES:
Haynes International, Inc.
1020 West Park Avenue
P.O. Box 9013
Kokomo, Indiana 46904-9013
Attn: Marcel Martin, Chief Financial Officer
Facsimile: (765) 456-6526
Attn: Stacy S. Kilian, V.P. General Counsel
Facsimile: (765) 456-6935
With a copy to:
Ice Miller LLP
One American Square
34 th Floor
Indianapolis, IN 46282-0200
Attn: Stephen J. Hackman
Facsimile: (317) 592-4666
Each Party mentioned herein may change its address or facsimile number to which such communications, notices, requests or demands are to be directed to it by giving written notice to the others in the manner described in this Section 14.3.
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IN WITNESS HEREOF, the Parties have duly executed this Agreement as of the date first written above.
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TITANIUM METALS CORPORATION |
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By: |
/s/BOBBY D. OBRIEN |
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Name: |
Bobby D. OBrien |
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Chief Financial Officer |
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HAYNES INTERNATIONAL, INC. |
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By: |
/s/ FRANCIS J. PETRO |
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Francis J. Petro |
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President & CEO |
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Exhibit A: Product, Price List and Maximum Cycle Times
[ * ]
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EXHIBIT B
FORM OF PROMISSORY NOTE
$[up to 12,000,000.00] |
, 20 |
FOR VALUE RECEIVED, the undersigned, HAYNES INTERNATIONAL, INC., a Delaware corporation (Maker), hereby promises to pay to the order of TITANIUM METALS CORPORATION, a Delaware corporation (Payee), at its address at 3 Lincoln Centre, 5430 LBJ Freeway, Suite 1700, Dallas, Texas 76240, in lawful money of the United States of America, the principal sum of [up to TWELVE MILLION AND NO/100 DOLLARS ($[up to 12,000,000.00]), in installments as follows:
(a) Twenty-three (23) successive substantially equal quarterly installments of principal, plus accrued and unpaid interest, shall be made quarterly on March 31, June 30, September 30 and December 31 of each year, commencing on the quarter that begins eighteen (18) months from the Loan Date (as defined in the Conversion Services Agreement dated as of November 17, 2006 by and between Make and Payee; and
(b) A final installment in the amount of the entire principal balance then remaining unpaid, plus all accrued and unpaid interest, shall be due and payable on , 20 [six years from the date made].
The outstanding principal balance hereof shall bear interest prior to maturity at the rate equal to the Prime Rate plus one percent (1.00%) per annum; provided that all past due principal and (to the fullest extent permitted by law) interest and other amounts payable by Maker under this Note shall bear interest at the Default Rate (hereinafter defined). Interest payable at the Default Rate shall be payable from time to time on demand. Interest shall be computed on the basis of the actual number of days elapsed in the applicable calendar year in which accrued.
Maker shall have the right to prepay, at any time and from time to time without premium or penalty, the entire unpaid principal balance of this Note or any portion thereof, and any such prepayment to be made together with the payment of interest accrued on the amount of principal being prepaid through the date of such prepayment, and any such partial prepayments to be applied in inverse order of maturity to the last maturing installment(s) of principal.
Notwithstanding anything to the contrary contained herein, no provisions of this Note shall require the payment or permit the collection of interest in excess of the Maximum Rate (hereinafter defined). If any excess of interest in such respect is herein provided for, or shall be adjudicated to be so provided, in this Note or otherwise in connection with this loan transaction, the provisions of this paragraph shall govern and prevail, and neither Maker nor the sureties, guarantors, successors or assigns of Maker shall be obligated to pay the excess amount of such interest, or any other excess sum paid for the use, forbearance or detention of sums loaned pursuant hereto. If for any reason interest in excess of the Maximum Rate shall be deemed charged, required or permitted by any court of competent jurisdiction, any such excess shall be applied as a payment and reduction of the principal of indebtedness evidenced by this Note; and, if the principal amount hereof has been paid in full, any remaining excess shall forthwith be paid
B-1
to Maker. In determining whether or not the interest paid or payable exceeds the Maximum Rate, Maker and Payee shall, to the extent permitted by applicable law, (i) characterize any non-principal payment as an expense, fee, or premium rather than as interest, (ii) exclude voluntary prepayments and the effects thereof, and (iii) amortize, prorate, allocate, and spread in equal or unequal parts the total amount of interest throughout the entire contemplated term of the indebtedness evidenced by this Note so that the interest for the entire term does not exceed the Maximum Rate.
As used herein, the following terms shall have the following meanings:
Default Rate means the lesser of (a) the Maximum Rate or (b) the sum of the Prime Rate plus the ten percent (10.00%) per annum.
Maximum Rate means the maximum nonusurious rate of interest permitted to be charged by the holder hereof under applicable federal or Delaware laws.
Prime Rate means, at any time, the rate of interest per annum reported in the Money Rates column of the Wall Street Journal as the prime rate then in effect, or such other rate of interest mutually acceptable to the Maker and the Payee. In the event the Wall Street Journal ceases publication or ceases to publish the prime rate, the Payee shall select a comparable publication and provide notice thereof to the Maker. Each change in any interest rate provided for herein based upon the Prime Rate resulting from a change in the Prime Rate shall take effect without notice to the Maker at the time of such change in the Prime Rate.
This Note is secured by that certain Access and Security Agreement, dated , 2006, between Maker and Payee (as the same may be amended, modified, supplemented or restated from time to time, the Access and Security Agreement).
Maker shall be in default hereunder upon the happening of any of the following events or conditions (each such event or condition hereinafter referred to as an Event of Default):
(a) Maker shall fail to pay when due any principal of or other amount due on this Note and such failure shall continue for five (5) days after the date such payment becomes due.
(b) The occurrence of a Default under and as defined in the Access and Security Agreement.
Upon the occurrence of any Event of Default, the holder hereof may, at its option, declare the entire unpaid principal of and accrued interest on this Note immediately due and payable without notice, demand or presentment, all of which are hereby waived, and upon such declaration, the same shall become and shall be immediately due and payable, and the holder hereof shall have the right to foreclose or otherwise enforce all liens or security interests securing payment hereof, or any part hereof, and offset against this Note any sum or sums owed by the holder hereof to Maker. Failure of the holder hereof to exercise this option shall not constitute a waiver of the right to exercise the same upon the occurrence of a subsequent Event of Default.
B-2
If the holder hereof expends any effort in any attempt to enforce payment of all or any part or installment of any sum due the holder hereunder, or if this Note is placed in the hands of an attorney for collection, or if it is collected through any legal proceedings, Maker agrees to pay all collection costs and fees incurred by the holder, including reasonable attorneys fees.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE AND THE APPLICABLE LAWS OF THE UNITED STATES OF AMERICA WITHOUT REGARD TO THE CONFLICTS OF LAWS PRINCIPLES THEREOF. ANY ACTION OR PROCEEDING UNDER OR IN CONNECTION WITH THIS NOTE AGAINST MAKER OR ANY OTHER PARTY EVER LIABLE FOR PAYMENT OF ANY SUMS OF MONEY PAYABLE ON THIS NOTE MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT IN NEW CASTLE COUNTY, DELAWARE. MAKER AND EACH SUCH OTHER PARTY HEREBY IRREVOCABLY (I) SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURTS, AND (II) WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING BROUGHT IN SUCH COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL AFFECT THE RIGHT OF PAYEE TO BRING ANY ACTION OR PROCEEDING AGAINST MAKER OR ANY OTHER PARTY LIABLE HEREUNDER OR WITH RESPECT TO ANY COLLATERAL IN ANY STATE OR FEDERAL COURT IN ANY OTHER JURISDICTION. ANY ACTION OR PROCEEDING BY MAKER OR ANY OTHER PARTY LIABLE HEREUNDER AGAINST PAYEE SHALL BE BROUGHT ONLY IN A COURT LOCATED IN NEW CASTLE COUNTY, DELAWARE.
Except for notices required by the definition of Default in the Access and Security Agreement, Maker and each surety, guarantor, endorser, and other party ever liable for payment of any sums of money payable on this Note jointly and severally waive notice, presentment, demand for payment, protest, notice of protest and non-payment or dishonor, notice of acceleration, notice of intent to accelerate, notice of intent to demand, diligence in collecting, grace, and all other formalities of any kind, and consent to all extensions without notice for any period or periods of time and partial payments, before or after maturity, and any impairment of any collateral securing this Note, all without prejudice to the holder. The holder shall similarly have the right to deal in any way, at any time, with one or more of the foregoing parties without notice to any other party, and to grant any such party any extensions of time for payment of any said indebtedness, or to release or substitute part or all of the collateral securing this Note, or to grant any other indulgences or forbearances whatsoever, without notice to any other party and without in any way affecting the personal liability of any party hereunder.
B-3
THIS NOTE AND ALL OTHER INSTRUMENTS, DOCUMENTS AND AGREEMENTS EXECUTED AND DELIVERED BY MAKER IN CONNECTION WITH THE INDEBTEDNESS EVIDENCED BY THIS NOTE REPRESENT THE FINAL, ENTIRE AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS OF THE PARTIES.
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B-4
Exhibit 10.23
[Execution]
AMENDMENT NO. 6
TO AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
AMENDMENT NO. 6 TO AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT, dated as of November 17, 2006, by and among Haynes International, Inc., a Delaware corporation (Haynes Parent), Haynes Wire Company, a Delaware corporation (Haynes Wire and together with Haynes Parent, each individually, a Borrower and collectively, Borrowers), the parties from time to time to the Loan Agreement (as hereinafter defined) as lenders (each individually, a Lender and collectively, Lenders) and Wachovia Capital Finance Corporation (Central), an Illinois corporation, in its capacity as agent for Lenders pursuant to the Loan Agreement (in such capacity, Agent).
W I T N E S S E T H
WHEREAS, Borrowers have entered into financing arrangements with Agent and Lenders pursuant to which Lenders (or Agent on behalf of Lenders) have made and may make loans and advances and provide other financial accommodations to Borrowers as set forth in, and subject to the terms and conditions of, the Amended and Restated Loan and Security Agreement, dated August 31, 2004, by and among Agent, Lenders, JPMorgan Chase Bank N.A., successor by merger to Bank One, NA, in its capacity as documentation agent for Lenders, and Haynes Parent, as amended by Amendment No. 1 to Amended and Restated Loan and Security Agreement dated November 5, 2004, Amendment No. 2 to Amended and Restated Loan and Security Agreement dated as of January 27, 2005, Amendment No. 3 to Amended and Restated Loan and Security Agreement dated May 1, 2005, Amendment No. 4 to Amended and Restated Loan and Security Agreement dated August 31, 2005 and Amendment No. 5 to Amended and Restated Loan and Security Agreement dated as of February 2, 2006 (as amended and supplemented hereby and as the same may hereafter be further amended, modified, supplemented, extended, renewed, restated or replaced, the Loan Agreement) and the other Financing Agreements (as defined therein); and
WHEREAS, Borrowers have requested that Agent and Lenders agree to amendments to the Loan Agreement in connection with Haynes Parent entering into certain arrangements to provide titanium processing services to Titanium Metals Corporation (Timet as hereinafter further defined) including the grant to Timet of a security interest in and lien upon certain specified assets of Haynes Parent related thereto; and
WHEREAS, Agent and Lenders are willing to agree to such amendments to the Loan Agreement, subject to the terms and conditions herein; and
WHEREAS, by this Amendment No. 6, Borrowers, Agent and Lenders desire and intend to evidence such amendments;
NOW, THEREFORE, in consideration of the foregoing, the mutual conditions and agreements and covenants set forth herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
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(iv) the Timet Collateral.
(x) the grant by Haynes Parent of a non-exclusive license of the 4-High Intellectual Property to Timet in accordance with Section 5 of the Timet Security Agreement as in effect on the date of Amendment No. 6; provided , that , such license is only for the use of the 4-High Intellectual Property to the extent required for the titanium conversion services provided for under the Timet Conversion Agreement as in effect on the date of Amendment No. 6 and during the time that Timet is exercising its rights of access to the Timet Collateral in accordance with the terms of the Timet Security Agreement.
(p) the security interests in and liens upon the Timet Collateral to secure the Timet Obligations granted by Haynes Parent to Timet pursuant to the Timet Security Agreement as in effect on the date of Amendment No. 6.
(l) the Timet Debt arising pursuant to the Timet Documents as in effect on the date of Amendment No. 6; provided , that , the aggregate amount of such Indebtedness shall consist of and not exceed (A) the amount of the Timet Fee as reduced by an amount equal to $2,500,000 on November 17 of each year commencing on November 17, 2007, plus (B) the lesser of the amount equal to $12,000,000 or the amount of the cash received by Haynes Parent from Timet giving rise to Indebtedness evidenced by the Timet Option Note in the event that Timet makes a loan in such amount to Haynes Parent in accordance with the terms of Section 2.1(c) of the Timet Conversion Agreement as in effect on the date of Amendment No. 6, as reduced by all payments in respect thereof, plus accrued and unpaid interest thereon, if any, (C) the contingent liability of Haynes Parent to Timet for liquidated damages as provided in Section 5.3(a)(y) of the Timet Conversion
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Agreement (not to exceed $25,000,000 in the aggregate), (D) the contingent liability of Haynes Parent to reimburse Timet under Section 5.1 of the Timet Conversion Agreement as a result of the failure of Haynes Parent to comply with the warranty set forth in Section 6.1 of the Timet Conversion Agreement, (E) the amount of any Termination Fee owing as a result of a Change in Control (as defined in the Timet Conversion Agreement) calculated in accordance with Section 13.2 of the Timet Conversion Agreement (not to exceed $25,000,000), and (F) the amount of any Non-Compete Amendment Fee calculated in accordance with Section 11.2 of the Timet Conversion Agreement (not to exceed $15,000,000 in the aggregate); (ii) Haynes Parent shall not, directly or indirectly, (A) amend, modify, alter or change the terms of such Indebtedness or any of the Timet Documents as in effect on the date of Amendment No. 6 (or in the case of the Timet Option Note as set forth in Exhibit A to Amendment No. 6, except to complete such form as required), except, that, Haynes Parent may, after prior written notice to Agent, amend, modify, alter or change the terms thereof so as to extend the maturity thereof, or defer the timing of any payments in respect thereof, or to forgive or cancel any portion of such Indebtedness (other than pursuant to payments thereof), or to reduce the interest rate or any fees in connection therewith, or to make any covenant less restrictive, or (B) redeem, retire, defease, purchase or otherwise acquire such Indebtedness, or set aside or otherwise deposit or invest any sums for such purpose; (iii) Agent shall receive notice that Timet has exercised its option to require additional output pounds of titanium conversion services under Section 2.1(b) of the Timet Conversion Agreement promptly upon the receipt of such notice by Haynes Parent and a copy of the Timet Option Note as executed and delivered by Haynes Parent to Timet upon the execution and delivery thereof by Haynes Parent to Timet, and (iv) Haynes Parent shall furnish or cause to be furnished to Agent all notices or demands in connection with such Indebtedness or otherwise under the Timet Documents either received by Haynes Parent or on its behalf, promptly after the receipt thereof, or sent by Haynes Parent or on its behalf, concurrently with the sending thereof, as the case may be.
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IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 6 to be duly executed and delivered by their authorized officers as of the date and year first above written.
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WACHOVIA CAPITAL FINANCE CORPORATION (CENTRAL), as Agent and as Lender |
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By: |
/s/ VICKY GEIST |
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Title: VICE PRESIDENT |
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HAYNES INTERNATIONAL, INC. |
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By: |
/s/ FRANCIS PETRO |
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Title: President and CEO |
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HAYNES WIRE COMPANY |
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By: |
/s/ FRANCIS PETRO |
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Title: President and CEO |
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AGREED: |
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JPMORGAN CHASE BANK, N.A., |
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successor by merger to BANK ONE, NA (Main Office Chicago) |
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By: |
/s/ JOHN FREEMAN |
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Title: Vice President |
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WESTERNBANK PUERTO RICO |
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BUSINESS CREDIT DIVISION |
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By: |
/s/ JULIA FRENTIS |
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Title: SVP Portfolio Manager |
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ABLECO FINANCE LLC |
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By: |
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Title: Senior Vice President |
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Exhibit 10.24
Summary of
2007 Management
Incentive Plan
On January 12, 2007, the Compensation Committee of the Board of Directors of Haynes International, Inc. (the Company) approved the 2007 Management Incentive Plan (the Plan). Under the Plan, certain employees of the Company are eligible for cash awards based on Company performance, including, but not limited to, Francis J. Petro, the President and Chief Executive Officer, and the other named executive officers as set forth in the Companys Annual Report on Form 10-K for the fiscal year ended September 30, 2006, which are Marcel Martin, Vice President Finance and Chief Financial Officer; August A. Cijan, Vice President Operations; James A. Laird, Vice President International Sales and Marketing; and Gregory M. Spalding, Vice President Haynes Wire and Chief Operating Officer (Messrs. Petro, Martin, Cijan, Laird and Spalding are herein referred to collectively as the named executive officers).
If the Company meets certain specific financial targets established by the Compensation Committee for fiscal 2007 (the Financial Targets), each named executive officer is eligible for a cash payment under the Plan based on fiscal 2007 base salary. The target cash payments under the Plan are 60% of fiscal 2007 base salary for Mr. Petro, 45% of fiscal 2007 base salary for Mr. Martin, Mr. Cijan and Mr. Laird, and 25% of fiscal 2007 base salary for Mr. Spalding. The named executive officers are also eligible for a cash payment under the Plan if the Companys performance is equal to at least 85% of the Financial Targets. Those cash payments would be 35% of fiscal 2007 base salary for Mr. Petro, 25% of fiscal 2007 base salary for Mr. Martin, Mr. Cijan and Mr. Laird, and 12.5% of fiscal 2007 base salary for Mr. Spalding. If the Companys performance exceeds the Financial Targets by at least 15%, the named executive officers would be eligible for cash payments of 90% of fiscal 2007 base salary for Mr. Petro, 67.5% of fiscal 2007 base salary for Mr. Martin, Mr. Cijan and Mr. Laird, and 37.5% of fiscal 2007 base salary for Mr. Spalding. All payments pursuant to the Plan must be approved by the Companys Board of Directors.
Individual awards may be made at the discretion of the Board of Directors even if the Companys performance is below the Financial Targets, provided that liquidity goals for fiscal 2007 established by the Compensation Committee are met. In addition, a discretionary bonus pool is available for grants by the Board of Directors, provided that in no case will total cash bonuses pursuant to the Plan exceed $2.2 million. The Board of Directors has full discretion to eliminate, delay or change any awards or payouts and may choose to pay awards at any level of performance.
Exhibit 10.25
HAYNES INTERNATIONAL, INC.
2007 STOCK OPTION PLAN
As adopted by the Board of Directors on January 18, 2007
The Board of Directors of Haynes International, Inc. (the Company) has determined that the best interests of the Company will be served by making available to eligible employees and directors of the Company and its Subsidiaries a means to acquire shares of the Companys common stock through the granting of stock options. The Haynes International, Inc. 2007 Stock Option Plan (the Plan) is intended to promote the growth of the Company and its shareholders by attracting and motivating key employees and directors whose efforts are deemed worthy of encouragement through the incentive effects of stock options.
Accordingly, the Companys Board of Directors adopts this Plan, effective as of the Effective Date.
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shall confer upon any Participant the right to continue in the employ of the Company or any Subsidiary, nor shall it limit or restrict in any way the right of the Company or any Subsidiary to discharge the Participant at any time for any reason whatsoever, with or without cause.
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Exhibit 10.26
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Haynes International, Inc. |
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1020 West Park Avenue |
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P.O. Box 9103 |
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Kokomo, Indiana 46904-9013 |
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765-456-6000 / Fax: 765-456-6905 |
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FORM
OF
HAYNES INTERNATIONAL, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
Dear |
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The Compensation Committee of the Board of Directors of Haynes International, Inc. (the Company) on , 20 (Date of Grant) has granted you an option (the Option) to purchase Shares of the Companys Common Stock, $0.001 par value, pursuant to the Haynes International, Inc. 2007 Stock Option Plan, dated as of January 18, 2007 (the Plan), upon the following terms and conditions of this Nonqualified Stock Option Agreement (Agreement):
To exercise the Option, you must send written notice to the Committee at the address provided in SECTION 11 of this Agreement. Such notice shall (1) state the number of Shares being purchased pursuant to the Option; (2) be signed by the person or persons exercising the Option; and (3) be accompanied by payment of the full purchase price of such Shares (as provided above). Certificates evidencing Shares of the Company shall not be delivered to you until an appropriate notice has been delivered and payment has been made.
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Very truly yours, |
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HAYNES INTERNATIONAL, INC. |
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Chairman of the Board |
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ACCEPTANCE OF NONQUALIFIED STOCK OPTION AGREEMENT
I hereby accept the terms and provisions of this Nonqualified Stock Option Agreement, dated , 20 (Agreement), and the Haynes International, Inc. (Company) 2007 Stock Option Plan dated as of January 18, 2007 (Plan). I acknowledge that I have received a copy of the Plan, and I am familiar with the terms and provisions of the Plan and the Agreement. I agree to accept as binding, conclusive, and final all decisions and interpretations of the Companys Board of Directors and Committee upon any questions arising under the Plan or this Agreement.
Dated this day of , 20 .
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Exhibit 10.27
HAYNES INTERNATIONAL, INC.
SECOND AMENDED AND RESTATED STOCK OPTION PLAN
As adopted by the Board of Directors as of January 22, 2007
The Board of Directors of Haynes International, Inc. (the Company) has determined that the best interests of the Company will be served by making available to eligible employees and directors of the Company and its Subsidiaries a means to acquire shares of the Companys common stock (the Shares) through the granting of stock options. The Haynes International, Inc. Stock Option Plan, as amended or amended and restated from time to time (the Plan), is intended to promote the growth of the Company and its shareholders by attracting and motivating key employees and directors whose efforts are deemed worthy of encouragement through the incentive effects of stock options.
The Shares purchased pursuant to the Plan shall be subject to certain restrictions, the details of which are set forth below. There is currently no public market for the Shares. The future market price, if any, of the Shares may be highly volatile depending on a number of factors. In addition, the ownership of the Company represented by Options may be diluted by the future issuances of Shares or convertible securities.
Accordingly, the Companys Board of Directors adopts this Plan in accordance with the Plan of Reorganization (as defined below), effective as of the Effective Date.
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Ice Miller LLP Draft
January 19, 2007
EXHIBIT A
Position |
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% of Options |
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Option Shares |
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President & CEO |
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20 |
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200,000 |
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VP Finance & CFO |
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10 |
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100,000 |
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VP Marketing & International |
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10 |
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100,000 |
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VP Operations Kokomo |
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10 |
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100,000 |
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VP IT & Business Planning |
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5 |
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50,000 |
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VP Corporate Affairs |
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5 |
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50,000 |
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VP Engr. & Tech. |
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5 |
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50,000 |
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Controller & CAO |
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5 |
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50,000 |
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VP Sales |
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5 |
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50,000 |
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VP Manufacturing Planning |
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5 |
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50,000 |
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GM Arcadia |
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5 |
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50,000 |
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Options reserved for distribution to Directors |
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9 |
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90,000 |
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Options reserved for distribution to Discretionary Participants |
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6 |
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60,000 |
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Total |
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100 |
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1,000,000 |
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Exhibit 10.28
FORM OF
HAYNES
INTERNATIONAL, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
Dear :
You are hereby granted an option (the Option) to purchase Shares of Haynes International, Inc. pursuant to the Haynes International, Inc. (the Company) Stock Option Plan, dated as of August 31, 2004 (the Plan), upon the following terms and conditions of this Nonqualified Stock Option Agreement (Agreement):
To exercise the Option, you must send written notice to the Committee at the address provided in Section 11 of this Agreement. Such notice shall (1) state the number of Shares being purchased pursuant to the Option; (2) be signed by the person or persons exercising the Option; and (3) be accompanied by payment of the full purchase price of such Shares (as provided
above). Certificates evidencing Shares of the Company shall not be delivered to you until an appropriate notice has been delivered and payment has been made.
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Very truly yours, |
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HAYNES INTERNATIONAL, INC. |
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Chairman of the Board |
SCHEDULE OF EXECUTIVE OFFICERS PARTY TO THE STOCK OPTION AGREEMENT
Bohan, Paul J.
Campion, Donald C.
Cijan, August A.
Corey, John C.
Douglas, Michael
Getz, Robert
Laird, James A.
Losch, Marlin
Martin, Marcel
Maudlin, Daniel
McCarthy, Timothy J.
Neel, Jean C.
Petro, Francis J.
Pinkham, Scott R.
Spalding, Gregory M.
Sponaugle, Charles J.
Wall, William
Young, Jeff
Zabel, Ronald W.
Exhibit 10.29
August 31, 2004
HAYNES INTERNATIONAL, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
Dear Francis J. Petro:
You are hereby granted an option (the Option) to purchase 200,000 Shares of Haynes International, Inc. (the Company) pursuant to the Haynes International, Inc. Stock Option Plan, dated as of August 31, 2004 (the Plan), upon the following terms and conditions of this Nonqualified Stock Option Agreement (Agreement):
1. PURCHASE PRICE OF THE OPTION. The purchase price of the Shares subject to the Option is $12.80 per Share which is equal to the Fair Market Value per Share as of the date of this Agreement. You must pay this purchase price by personal or bank cashiers check at the time the Option is exercised; provided, however, that, with the approval of the Committee, you may exercise the Option by (i) tendering to the Company certificates representing whole Shares owned by you duly endorsed for transfer, (ii), surrendering a sufficient portion of the vested Option based on the difference between the exercise price of the Option and the Fair Market Value at the time of exercise of the Shares subject to the Option, or (iii) any combination of (i) and/or (ii) and cash, together having a Fair Market Value at the time of exercise equal to the exercise price of the Shares with respect to which the Option is exercised. For this purpose, any Shares so tendered or withheld shall be deemed to have a Fair Market Value as determined under the Plan.
To exercise the Option, you must send written notice to the Committee at the address provided in SECTION 11 of this Agreement. Such notice shall: (1) state the number of Shares
being purchased pursuant to the Option; (2) be signed by the person or persons exercising the Option; and (3) be accompanied by payment of the full purchase price of such Shares (as provided above). Certificates evidencing Shares of the Company shall not be delivered to you until an appropriate notice has been delivered and payment in full has been made and received by the Company.
2. OPTION TERM AND VESTING. The term of the Option (the Option Term) shall be a period of ten (10) years from the date of this Agreement, subject to earlier termination as provided in SECTIONS 3 and 4 or as may be provided in the Plan. Except as otherwise provided below in SECTION 3 or 4, which provide for accelerated vesting under certain circumstances, the Option shall become vested and exercisable with respect to 33-1/3 percent of the total number of Shares covered by the Option on August 31, 2005 and with respect to an additional 33-1/3 percent on each of August 31, 2006 and August 31, 2007, respectively. When the Option becomes exercisable with respect to any Shares, those Shares may be purchased at any time, or from time to time, in whole or in part, until the Option Term expires.
3. TERMINATION OF EMPLOYMENT.
(a) Notwithstanding the vesting schedule set forth in SECTION 2, if you cease to be the CEO of the Company and all of its Subsidiaries due to Termination for Cause, all outstanding Options whether vested or unvested shall be void and deemed to be forfeited upon the date your employment ceases by reason of Termination for Cause and shall not be exercisable to any extent whatsoever. If you terminate employment during the employment term under your employment agreement without Good Reason, the unvested portion of the Option, shall terminate immediately and the vested portion of the Option shall remain exercisable for thirty (30) days following the date of such termination of
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employment, but in no event later than the expiration of such Option as specified in this Agreement. If the Option is not exercised during this period, it shall be void and deemed to have been forfeited and be of no further force or effect.
(b) If you cease to be the CEO of the Company and all of its Subsidiaries for any reason other than Cause or for Good Reason, the unvested portion of the Option shall immediately vest and become exercisable and the Option shall remain exercisable for one (1) year following such termination, but not later than the expiration of the Option Term. If you do not exercise such Option during such period, the Option shall be void and deemed to have been forfeited upon the expiration of such period and shall be of no further force or effect. If your employment terminates upon expiration of the employment term under your existing or a subsequent employment agreement, the unvested portion of the Option shall terminate immediately and the vested portion of the Option shall remain exercisable for ninety (90) days following termination of employment, but in no event later than the expiration of the Option Term. If the Option is not exercised during this period, it shall be void and deemed to have been forfeited and be of no further force or effect.
(c) If you cease to be the CEO of the Company and all of its Subsidiaries by reason of your death, Disability or Retirement, the unvested portion of the Option shall immediately vest and become exercisable and the Option shall remain exercisable for one (1) year following the date of death or Disability and for six (6) months following the date of Retirement, but not later than the expiration of the Option Term. If you, or your authorized representative in the case of death, do(es) not exercise the Option during such
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period, the Option shall be void and deemed to have been forfeited upon the expiration of such period and shall be of no further force or effect.
(d) In the event of your Disability or death and only if price quotations for the Shares are not available on any exchange or national market system, you or the beneficial holder of the Option, as the case may be, shall have the right during the exercise period provided in SECTION 3(c) above to demand that the Company purchase the vested portion of the Option from you, or such beneficial holder, at a value equal to the value of the difference between the Fair Market Value of the Shares and the exercise price of such Option.
4. ADJUSTMENTS; CHANGE IN CONTROL.
(a) The Option may be adjusted or terminated in any manner as contemplated in the Plan.
(b) Unless the Committee determines otherwise in accordance with the terms of the Plan or except as otherwise provided in Section 11 of the Plan, the vesting of the Option shall not accelerate upon the occurrence of a Change in Control.
(c) Except as provided herein, the Option may be exercised in whole at any time or in part at any time to the extent that the Shares under the Option are then exercisable. In no event, however, may the Option be exercised after the expiration of the Option Term, as described in Section 6, below.
5. TRANSFER RESTRICTIONS. The Option is non-transferable otherwise than by will or the laws of descent and distribution. It may be exercised during your lifetime only by you, or if you die, by your executor, administrator, or person(s) to whom the Option is transferred by will or the applicable laws of descent and distribution in accordance with SECTION 3.
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6. EXPIRATION OF AGREEMENT. All rights to exercise the Option shall expire, in any event, upon the expiration of the Option Term.
7. SHARE CERTIFICATES. Certificates evidencing Shares issued upon any exercise of the Option may bear a legend setting forth among other things such restrictions on the disposition or transfer of the Shares as the Company may deem appropriate to comply with federal and state securities laws.
8. IMPACT OF AGREEMENT ON YOUR EMPLOYMENT. Nothing contained in this Agreement or the Plan shall restrict the right of the Company or any of its Subsidiaries to terminate your employment at any time with or without Cause subject to any written employment agreement.
9. AGREEMENT IS SUBJECT TO PLAN. This Agreement is subject to all terms, provisions and conditions of the Plan, which is incorporated herein by reference, and to such regulations as may from time to time be adopted by the Committee. In the event of any conflict between the provisions of the Plan and the provisions of this Agreement, the terms, conditions and provisions of the Plan shall control, and this Agreement shall be deemed to be modified accordingly.
10. NATURE OF THE OPTION. This Agreement is intended to grant a Nonqualified Option.
11. NOTICE. All notices sent by you to the Company and your exercise of the Option shall be addressed to Haynes International, Inc., 1020 West Park Avenue, P.O. Box 9013, Kokomo, IN 46902, ATTENTION: Compensation Committee, or such other address as the Company may from time to time specify.
12. SECURITIES LAWS. Notwithstanding anything contained in this Agreement or in the Plan to the contrary, the Option may not be exercised until all applicable federal and state securities requirements pertaining to the offer and sale of the securities issued pursuant to the Plan have been met and the Company has been advised by counsel satisfactory to the Company
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that all applicable requirements have been met. If requested by the Committee, you agree to deliver to the Company such signed representations and covenants as may be necessary, satisfactory to the Company in the opinion of counsel, for compliance with applicable federal and state securities laws and such other instruments and agreements as the Committee may reasonably request.
13. WITHHOLDING. The Company shall have the right to withhold from your regular cash compensation or from any payments under this Agreement, or require you to submit, amounts sufficient to satisfy any federal, state or local income or employment tax withholding requirements arising from your exercise of any rights under this Agreement or make such other arrangements satisfactory to the Company with regard to such taxes, including the withholding of Shares of common stock that are subject to the Option, at such time as the Company deems necessary or appropriate for compliance with such federal, state or local laws.
14. DEFINITIONS. All capitalized terms not otherwise defined herein shall have the meanings assigned to them in the Plan.
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Very truly yours, |
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HAYNES INTERNATIONAL, INC. |
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/s/ John C. Corey |
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Chairman of the Board |
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Exhibit 21.1
HAYNES INTERNATIONAL, INC. AND SUBSIDIARIES
Haynes International, Inc.
Parent company
Haynes Wire Company
(Wholly owned subsidiary in Mountain Home, North Carolina)
Haynes International, Ltd.
(Wholly owned subsidiary in Openshaw, England)
Haynes International, S.A.R.L.
(Wholly owned subsidiary in Paris, France)
Nickel-Contor AG
(Wholly owned subsidiary in Zurich, Switzerland)
Haynes International, S.r.l.
(Wholly owned subsidiary of Nickel-Contor in Italy)
Haynes Pacific Pte Ltd
(Wholly owned subsidiary in Singapore)
Haynes International
(China) Ltd.
(Wholly owned subsidiary of Haynes Pacific Pte. Ltd.)
Haynes International, Inc. India Branch Office
(Wholly owned Branch Office in India)
Haynes Sour Gas Tubulars, Inc.
(Wholly owned subsidiary, Inactive)
Haynes Specialty Steels Company
(Wholly owned subsidiary, Inactive)
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Exhibit 23.2
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the use in this Registration Statement on Form S-1 of our reports dated December 7, 2006 relating to the consolidated financial statements of Haynes International, Inc. (which report expresses an unqualified opinion and includes an explanatory paragraph referring to the Companys application of AICPA Statement of Position, 90-7, Financial Reporting by Entities in Reorganization under the Bankruptcy Code , and an explanatory paragraph regarding the Companys change of accounting for share-based payments as required by Statement of Financial Accounting Standards No. 123(R), Share-Based Payment ), and managements report on the effectiveness of internal control over financial reporting appearing in the Prospectus, which is a part of this Registration Statement.
We also consent to the reference to us under the heading Experts in such Prospectus.
DELOITTE & TOUCHE LLP
Indianapolis, Indiana
January 23, 2007