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 TIMET’s 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:
 
ARTICLE 1  
 
DEFINITIONS
 
For purposes of this Agreement, the following defined terms have the meanings
set forth in this Article 1:
 
“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.
 
“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
 
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 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.
 
ARTICLE 2  
 
TITANIUM CONVERSION SERVICES
 

2.1  
Maximum Volumes.

 

(a)  
Upon the terms set forth herein, HAYNES agrees that for each year during the
term of this Agreement, HAYNES shall supply TIMET or its designee(s) with
Titanium Conversion Services on the Operating Assets of up to ten (10) million
output pounds annually (as it may be increased as set forth in Section 2.1(b)
below, the “Maximum Annual Volume”). The foregoing represents a capacity
guarantee and HAYNES agrees that at all times during the term of this Agreement
it shall dedicate to TIMET adequate capacity for the performance of Titanium
Conversion Services on a timely basis as required herein subject to the Maximum
Annual Volume and Maximum Monthly Volume. HAYNES shall be responsible for all
capital equipment, trained personnel, maintenance, utilities and other expenses
incurred to produce the products identified on Exhibit A.

 

(b)  
TIMET shall have the option (the “Option”), exercisable by written notice (the
“Option Notice”) from TIMET to HAYNES, to order Titanium Conversion Services of
up to an additional ten (10) million output pounds annually (such that the
Maximum Annual Volume shall be up to twenty (20) million output pounds
annually); provided, however, that the Maximum Annual Volume shall not increase
unless and until the occurrence of one of the events set forth in Section
2.1(c)(i) or (ii). After the Loan Date (as defined below), the increased volumes
will be staged into HAYNES’ production schedule in mutually agreeable
increments, provided that (i) no later than eighteen (18) months after the Loan
Date, the Maximum Annual Volume shall be up to fifteen (15) million output
pounds, and (ii) not later than thirty (30) months after the Loan Date and in
all subsequent years, the Maximum Annual Volume shall be up to twenty (20)
million output pounds.

 

(c)  
Upon the delivery of the Option Notice, HAYNES and TIMET shall promptly form a
steering committee consisting of two (2) representatives of each of HAYNES and
TIMET (the “Steering Committee”). The Steering Committee will determine and
approve any capital expenditures necessary to achieve the additional capacity.
At TIMET’s option, TIMET may either (i) follow the Steering Committee’s
determination, approve the necessary capital expenditures and offer to lend
HAYNES up to an aggregate of Twelve Million Dollars ($12,000,000) for such
capital investments; or (ii) without seeking Steering Committee approval, offer
to lend HAYNES Twelve Million Dollars ($12,000,000) to use for capital
investments that are required to achieve the additional capacity (the date
HAYNES receives written notice of TIMET’s action under either (i) or (ii) to be
referred to as the “Loan Date”).

 

(d)  
HAYNES shall have up to two (2) months from the Loan Date to evaluate and obtain
an alternative source of financing to the terms proposed by TIMET and set forth
in Exhibit B attached hereto in order to fund the capital expenditures necessary
to achieve the additional capacity. If HAYNES obtains an alternative source of
financing within such two-month period, HAYNES will not be required to accept
TIMET financing in order to satisfy the Option. If HAYNES does not obtain an
alternative source of financing within such two-month period, HAYNES shall
deliver to TIMET by the end of such period a secured promissory note (the
“Option Note”) for the amount of the loan in the form attached hereto as Exhibit
B. The Option Note will be secured as set forth in the Access and Security
Agreement. The Steering Committee will continue to confer at regularly scheduled
meetings on the needs and status of the capital expansion projects with respect
to which the proceeds of the Option Note have been or will be utilized, to
review progress reports of the project managers, and to develop project
milestones and project plans as necessary and appropriate. The proceeds of the
Option Note shall be utilized only for capital expenditures approved by the
Steering Committee.

 

(e)  
Any delivery by HAYNES of a product ordered during a calendar year and delivered
in the subsequent calendar year shall not count against the Maximum Annual
Volume for such subsequent calendar year, but will count against the Maximum
Annual Volume for the year in which the product was ordered.

 

(f)  
HAYNES will not be obligated to provide Titanium Conversion Services for any
one-month period in excess of one hundred and twenty percent (120%) of one
twelfth (1/12) of the Maximum Annual Volume (the “Maximum Monthly Volume”). Any
late delivery of Titanium Conversion Services by HAYNES shall not count against
the Maximum Monthly Volume. Any late delivery of Titanium Conversion Services by
HAYNES that extends past the end of the year in which the services were ordered
shall not count against the Maximum Annual Volume for any subsequent year. Any
Titanium Conversion Services that TIMET determines pursuant to the Acceptance
Procedure in Section 4.3 do not comply with the warranty set forth in Section
6.1 shall not count against the Maximum Monthly Volume or the Maximum Annual
Volume.

 

(g)  
TIMET will not be permitted to exercise the Option unless it has complied with
the provisions of Section 3.4(b) for a period of at least the prior four months.

 

2.2  
Cooperation. HAYNES and TIMET shall cooperate to determine HAYNES’ production
scheduling of the Operating Assets consistent with the provisions of this
Agreement. The Parties recognize that they need to cooperate to achieve TIMET
and TIMET customer qualifications for process practices, operating procedures
and product specifications for the Titanium Conversion Services. In cooperation
with TIMET technical resources, HAYNES shall provide the necessary technical
personnel to further develop process practices, operating procedures and product
specifications required to achieve full product qualifications and performance
target initiatives.

 

2.3  
Product Codes.

 

(a)  
Exhibit A sets forth a product code and pricing for each titanium product form
currently expected to be manufactured utilizing Titanium Conversion Services.
This list will be updated as required during the term of this Agreement.

 

(b)  
In the event TIMET desires to develop new process practices, operating
procedures and product specifications for Titanium Conversion Services for which
a product code is not listed on Exhibit A, TIMET shall promptly notify HAYNES,
and process practices, operating procedures and product specifications for such
product codes shall be jointly developed by TIMET and HAYNES as promptly as
reasonably practical. Once HAYNES and TIMET complete trials and agree upon the
process practices, operating procedures, product specifications and Maximum
Cycle Time, the product shall be assigned a product code. The Parties then
promptly shall prepare and execute an updated Exhibit A to incorporate such new
product and its corresponding Maximum Cycle Time, Base Price and product code.
The initial Base Price for additional services provided under this Agreement
shall be established at [ * ]. All capital costs incurred that are required to
develop such process practices, operating procedures and product specifications
for any product codes added to Exhibit A pursuant to this Section 2.3(b) shall
be shared equally between the Parties and, unless otherwise agreed to in writing
by the head of manufacturing of each Party, no process qualification may require
a total capital expenditure in excess of [ * ]. TIMET shall reimburse HAYNES for
the cost of trial rolling services performed while developing such process
practices, operating procedures and product specifications for new product codes
at [ * ].

 

2.4  
Forecasts.

 

(a)  
Annual Forecasts. No later than December 1st each year, TIMET will provide
HAYNES with a forecast for the following calendar year of its anticipated
monthly volume requirements by product code for Titanium Conversion Services.
Within five (5) business days of receipt of TIMET’s forecast, HAYNES will
provide to TIMET its scheduled production interruptions for holidays and
maintenance. Prior to December 15, the Parties will exchange and reconcile the
forecasts and scheduled interruptions to serve as the initial annual forecast by
month for the upcoming year.

 

(b)  
Scheduling of Conversion Services. During the third week of each calendar month,
TIMET will supply to HAYNES a forecast of estimated Material quantities that
will be scheduled for Titanium Conversion Services to be performed by HAYNES in
the coming calendar month, which forecasts will be non-binding but made by TIMET
in good faith.

 

2.5  
Submission Sheets.

 

(a)  
TIMET shall purchase Titanium Conversion Services from HAYNES on the basis of
firm Submission Sheets.

 

(b)  
Each Submission Sheet shall contain the following:

 

(i)  
reference to this Agreement;

 

(ii)  
the specific product code from Exhibit A;

 

(iii)  
a Purchase Order Number;

 

(iv)  
reference to standard process practice, operating procedures and product
specifications (including but not limited to parameters associated with gauge,
flatness, as rolled surface condition, yield and mechanical properties), which
shall include but not be limited to standard operating procedures, rolling pass
schedules, work instructions, heating practices and similar process
instructions; and

 

(v)  
such other information as the Parties reasonably agree is necessary or advisable
for more efficient performance of this Agreement.

 

2.6  
Ownership of Proprietary Information. TIMET shall retain sole and exclusive
ownership of and all right, title and interest in and to all know-how, concepts,
techniques, methodologies, ideas, process practices, operating procedures and
product specifications, including all updates, modifications, improvements and
enhancements thereof that relate to the provision of the Titanium Conversion
Services (the “Proprietary Information”) provided or developed by TIMET prior to
and during the term of this Agreement. TIMET shall also retain sole and
exclusive ownership of Proprietary Information developed jointly by TIMET and
HAYNES or any HAYNES Successor prior to and during the term of this Agreement
(the “Joint Proprietary Information”). TIMET hereby grants HAYNES or any HAYNES
Successor a non-exclusive, worldwide, fully paid and irrevocable license to use
any Joint Proprietary Information; provided, however, that HAYNES cannot use
such Joint Proprietary Information in competition with TIMET during the term of
this Agreement. Furthermore, such license to use Joint Proprietary Information
shall terminate automatically upon the occurrence of an Event of Default listed
in Section 5.2(a) or 5.2(b) hereof. All Proprietary Information shall constitute
Confidential Information within the meaning of Article 9 hereof; provided,
however, that HAYNES or any HAYNES Successor shall be permitted to disclose
Joint Proprietary Information as necessary to obtain the benefits of the license
granted hereunder.

 
ARTICLE 3  
 
PRICES AND PAYMENT
 

3.1  
Base Prices.

 

(a)  
The Base Prices for Titanium Conversion Services that are effective upon
commencement of this Agreement are set forth in Exhibit A (such prices are
expressed on a per pound basis by input weight, product and size).

 

(b)  
Effective January 1 of each year during the term of this Agreement commencing in
2007, the Base Prices then in effect [ * ].

 

3.2  
Calculation of Adjustments. As soon as the [ * ] identified in Section 3.1(b)
above is available for a calendar year, HAYNES shall provide to TIMET its
written determination of the adjusted Base Prices for the following year based
upon the foregoing formula, and HAYNES shall supply TIMET with copies of the
relevant index. In the event that TIMET finds a mistake in the calculations
provided by HAYNES, TIMET shall notify HAYNES as soon as possible with an
explanation of the error, and the Parties will work in good faith to make an
appropriate adjustment to the adjusted Base Price.

 

3.3  
Changes to [ * ]. If during the performance of this Agreement, the [ * ]
identified in Section 3.1(b) ceases to exist or to be published, the Parties
shall apply instead the relevant factor published by any successor to the [ * ]
or the most compatible factor still published by the [ * ], respectively, or in
the absence of both of the foregoing, such substitute factor or factors upon
which the Parties may mutually agree.

 

3.4  
Terms of Delivery and Payment.

 

(a)  
Except as otherwise set forth herein, all prices are FOB HAYNES’ facility.

 

(b)  
Payment is due based on terms and conditions of the Submission Sheet
acknowledgement, and all payments will be due and payable within thirty (30)
days of the date of the invoice. No invoice will be sent prior to completion of
all relevant services without the prior written consent of TIMET. All invoices
shall contain the Submission Sheet and Purchase Order Number and the
description, quantity and unit price of the Titanium Conversion Services
provided.

 

3.5  
Packaging. Haynes and TIMET shall work in good faith to package Materials with
respect to which Titanium Conversion Services have been provided in accordance
with good commercial practice so as to protect against damage to such Materials
that will result from weather or transportation. In addition, such Material will
be packaged in accordance with any special requirement of the carrier to which
they will be consigned for delivery. Any specified special packaging costs will
be borne by TIMET.

 
ARTICLE 4  
 
PRODUCTION AND QUALITY ASSURANCE MATTERS
 

4.1  
TIMET’s Technical Assistance. In order for HAYNES to provide Titanium Conversion
Services to TIMET hereunder, TIMET shall make available to HAYNES technical
assistance to help HAYNES achieve TIMET’s standard process practice, operating
procedures and product specification as described in Section 2.5(b)(iv).

 

4.2  
Documentation. HAYNES shall provide copies of any documentation related to
non-conformances or defects.

 

4.3  
Acceptance Procedure.

 

(a)  
The term “Acceptance Procedure” shall mean and refer to that procedure to be
performed by TIMET the purpose of which is to verify that the Titanium
Conversion Services have been performed by HAYNES in accordance with the
warranty set forth in Section 6.1. TIMET shall perform the Acceptance Procedure
on titanium products manufactured by HAYNES under this Agreement [ * ] following
delivery by HAYNES to TIMET of the titanium product resulting from the Titanium
Conversion Services.

 

(b)  
If TIMET determines that the Titanium Conversion Services do not comply with the
warranty set forth in Section 6.1, TIMET shall notify HAYNES in writing by means
of a “non-conformance form” of such failures or defects within five (5) days of
TIMET’s completion of the Acceptance Procedure that has resulted in the
discovery of the failures or defects. In such circumstances, TIMET shall have
and be entitled to the rights and remedies described in Section 5.1.

 

(c)  
Subject to TIMET’s other rights and remedies described in Section 5.1 and
Article 6, if TIMET has not notified HAYNES of any failures or defects in the
Titanium Conversion Services or the titanium product resulting from the
performance by HAYNES of the Titanium Conversion Services within [ * ] following
delivery by HAYNES to TIMET of such titanium product, or if prior to the
expiration of such [ * ] period TIMET shall have transferred title to such
titanium product to a third party, TIMET shall be deemed to have accepted such
product.

 

4.4  
Ownership of Material. HAYNES disclaims any rights in the Materials delivered to
it under this Agreement. All Material delivered to HAYNES by TIMET for
performance of Titanium Conversion Services, including all recoverable scraps
generated in the performance of the services hereunder, shall belong to and
remain the property of TIMET or its designee(s) and shall be returned by HAYNES
to TIMET after performance of the Titanium Conversion Services.

 

4.5  
Risk of Loss. Risk of loss of the Material and products manufactured therefrom
shall pass upon their delivery from TIMET to HAYNES for Titanium Conversion
Services FOB HAYNES facility. Risk of loss of the products resulting from the
Titanium Conversion Services performed by HAYNES shall pass from HAYNES to TIMET
upon their delivery to TIMET FOB HAYNES facility.

 

4.6  
Quality Assurance Matters.

 

(a)  
Upon reasonable advance notice and during normal business hours, HAYNES shall
permit TIMET to conduct a formal audit of the 4-High Facility as well as all
related administrative and/or support facilities for quality assurance and
control purposes (either alone or with any TIMET customer); provided, however,
that such audit shall not disrupt materially the progress of the work carried
out in the relevant facilities.

 

(b)  
HAYNES agrees to maintain and keep in good working order and repair, all at its
sole cost and expense, all equipment utilized by HAYNES to perform Titanium
Conversion Services, which shall be deemed to mean such equipment shall, at a
minimum, meet or exceed the OEM design capability and functionality for slab,
plate and coil production.

 

(c)  
HAYNES and its Affiliates shall maintain the policies and operating practices
for quality control and assurance processes required to evidence aerospace and
industrial qualifications required by TIMET or TIMET’s customers. Quality
assurance processes include, without limitation, documentation, record
retention, process improvement agreements and quality assurance system
compliance and audit rights to TIMET or its customers.

 
ARTICLE 5  
 
BREACH OF WARRANTY; EVENTS OF DEFAULT; REMEDIES
 

5.1  
Remedies for Manufacturing or Product Defects Discovered by Acceptance Procedure
or Discovery of Breach of Warranty. If TIMET determines by performance of the
Acceptance Procedure as outlined in Section 4.3 that any Titanium Conversion
Services do not comply with the warranty set forth in Section 6.1, then TIMET
shall be entitled to the following remedies only:

 

(a)  
HAYNES shall promptly, at its choice and cost, either (i) re-perform the
defective Titanium Conversion Services (or any part thereof) as may be necessary
to correct the failures or defects, or (ii) reimburse TIMET the amount paid by
TIMET for the defective Titanium Conversion Services (or any part thereof), or
if TIMET has not yet paid such amounts to HAYNES, HAYNES will not invoice TIMET
for such amounts.

 

(b)  
In addition, for any Material (in part or whole) rendered unusable as a result
of HAYNES’ gross negligence, HAYNES shall promptly pay to TIMET an amount equal
to the sum of the cost of the Material (as indicated by TIMET’s books and
records) plus costs associated with scrap preparation minus a credit for the
market value of such unusable Material at prevailing scrap prices.

 

5.2  
Event of Default. An “Event of Default” shall mean any of the events listed
below. With respect to an Event of Default listed in Section 5.2(b) or 5.2(c),
HAYNES shall have thirty (30) days from the date of HAYNES’ receipt of TIMET’s
notice of default to remedy such default.

 

(a)  
The occurrence of a Change in Control of HAYNES in which the successor to HAYNES
or the Operating Assets does not assume all of the obligations of the
Transaction Documents; provided, however, that a CC Termination shall not
constitute an Event of Default.

 

(b)  
Failure to comply with the requirements of Section 11.1 (as such Section may be
amended by the Non-Compete Amendment).

 

(c)  
In the event that the On-Time Delivery Rate and/or the QTP Rate is less than [ *
] for two (2) consecutive months or less than [ * ] for any one (1) month;
provided, however, that a failure to achieve either the On-Time Delivery Rate
and/or the QTP Rate for the mutually agreed upon incremental volume increases
set forth in clauses (i) and (ii) of Section 2.1(b) during the first month
following each such agreed upon incremental volume increase shall not be deemed
to be an Event of Default so long as Haynes is using commercially reasonable
efforts during such one-month period to achieve each such incremental volume
increase.

 

5.3  
Remedies.

 

(a)  
Upon the occurrence of an Event of Default that has not been remedied within the
30-day cure period set forth in Section 5.2 (if applicable), TIMET may terminate
this Agreement immediately upon written notice, in which event (x) the
outstanding principal balance of the Option Note, and all accrued and unpaid
interest thereon, and the entire unearned portion of the Fee (as defined in the
Access and Security Agreement) shall be immediately due and payable and
(y) Haynes shall pay in good funds to TIMET within five (5) business days
following such termination Twenty Five Million Dollars ($25,000,000) as
liquidated damages (the “Liquidated Damages”). The Parties agree and acknowledge
that TIMET’s actual Damages in the event of an Event of Default would be
extremely difficult or impracticable to ascertain and that the Liquidated
Damages represent the Parties’ reasonable estimate of such Damages. Upon the
occurrence of an Event of Default set forth in Section 5.2(c) that is the result
of Force Majeure (as defined in Section 8.1), TIMET’s sole remedy shall be to
terminate this Agreement upon written notice; provided that TIMET shall have no
obligation to terminate this Agreement in such event, but without waiver of such
right of termination, TIMET may elect to terminate this Agreement at any time
that an event of Force Majeure is continuing; provided, further, that TIMET’s
right to terminate this Agreement as a result of any such event shall cease at
such time as the related event of Force Majeure ceases. In the event that TIMET
elects to terminate this Agreement upon an Event of Default that is the result
of Force Majeure, the outstanding principal balance of the Option Note, and all
accrued and unpaid interest thereon, and fifty percent (50%) of the unearned
portion of the Fee shall be immediately due and payable to TIMET; however, no
Liquidated Damages shall be due or payable.

 

(b)  
Upon the occurrence of an Event of Default listed in Section 5.2(a) or 5.2(b)
hereof that has not been remedied within the 30-day cure period set forth in
Section 5.2 (if applicable), in addition to the remedy set forth in Section
5.3(a), TIMET shall have all rights and remedies at law or in equity against
HAYNES or any HAYNES Successor for (i) specific performance or other equitable
relief and (ii) damages in an amount equal to the excess, if any, of (x) TIMET’s
actual, consequential and incidental damages arising from the unremedied Event
of Default, over (y) the Liquidated Damages.

 

(c)  
Upon the occurrence of an Event of Default listed in Section 5.2(c) hereof, in
addition to the remedy set forth in Section 5.3(a), the Base Prices shall be
reduced by twenty five percent (25%) until the Event of Default is cured or
TIMET elects to terminate the Agreement and receive repayment of the balance of
the Option Note, and all accrued and unpaid interest thereon, the entire
unearned portion of the Fee (as defined in the Access and Security Agreement)
and the Liquidated Damages.

 

(d)  
In addition to the remedies set forth in this Agreement, the Parties shall be
afforded the rights and remedies set forth in the Access and Security Agreement,
including the TIMET remedies set forth in Section 8 of the Access and Security
Agreement and the Haynes Remedies set forth in Section 12 of the Access and
Security Agreement.

 
ARTICLE 6  
 
WARRANTY
 

6.1  
HAYNES Warranty. HAYNES warrants to TIMET that the Titanium Conversion Services
rendered to TIMET by HAYNES shall be performed in a good and workmanlike fashion
in accordance with industry standards and TIMET’s specified process practice,
operating procedures and product specifications consistent with the terms set
forth in the Submission Sheet.

 

6.2  
Investigation of Claims. The Parties agree that any claim relating to an alleged
breach of the foregoing warranty by HAYNES shall be investigated jointly by
TIMET and HAYNES.

 

6.3  
Remedies for Breach of Warranty. TIMET shall notify HAYNES of any breach of
warranty in Section 6.1 after TIMET has discovered such breach. If it is
determined that HAYNES has breached the warranty in Section 6.1, TIMET shall be
entitled solely to the remedies set forth in Section 5.1.

 
ARTICLE 7  
 
INSURANCE; INDEMNIFICATION
 

7.1  
Insurance. As long as this Agreement is in effect and for a period of six (6)
years thereafter, HAYNES shall maintain (or its Affiliates shall maintain on
HAYNES’ behalf), at their respective sole cost, the following type of insurance
with insurers reasonably acceptable to TIMET:

 

(a)  
Commercial General Liability Insurance. The policy shall have a minimum combined
single limit of $1,000,000 per occurrence for bodily injury and property damage
with a minimum aggregate limit of $2,000,000. The policy shall include
products/completed operations, contractual, fellow-employee, broad form property
damage, and contractor-protective coverages as well as coverage for the hazards
of explosion, collapse and underground (XCU). The policy shall include a cross
liability/severability of interests provision and coverage shall be on an
“occurrence” basis. The policy form shall be no less broad than the latest
version issued by the Insurance Services Office (aka ISO).

 

(b)  
Workers’ Compensation/Employers Liability Insurance. The policy shall have the
following limits:

 
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.
 

(c)  
Business Interruptions and Property Floater. The policy will cover all risk of
loss or damage to all of the Operating Assets from fire, theft, malicious
mischief, explosion, water and all other hazards or risks of physical damage
included within the meaning of the term “extended coverage.” The limit shall be
at least equal to the replacement cost of the Operating Assets. The policy will
also contain business interruption coverage.

 

(d)  
All the insurance policies shall provide a waiver of subrogation in favor of
TIMET. In addition, the general liability insurance policy or policies and the
policy insuring against property damage shall name TIMET as an Additional
Insured.

 

(e)  
Certificate of Insurance. Within a reasonable time after signing this Agreement,
HAYNES shall provide TIMET with an insurance certificate(s) as evidence that the
required insurance is in force.

 

(f)  
Renewals. HAYNES will provide renewal certificates to TIMET as long as this
Agreement is in force. Such certificates shall specify that TIMET shall be given
thirty (30) days notice prior to cancellation, material change or notice of
non-renewal of any of the required insurance policies. The certificates shall
also specify that HAYNES’ insurance shall be primary in the event of any
duplication with that of TIMET. If requested, HAYNES shall provide TIMET with
copies of the required insurance policies.

 

7.2  
Indemnification and Waiver. HAYNES agrees to defend and indemnify TIMET, its
employees, directors, stockholders officers and agents for any claims, costs,
expenses (including reasonable attorney fees) or liability arising from injury
(including death and disease) or Damage that arises out of HAYNES’ performance
of the Titanium Conversion Services under this Agreement unless such injury or
Damage shall be the result of the sole negligence of TIMET. TIMET shall provide
HAYNES with notice of any matters that qualify for indemnification as soon as
practicable. The foregoing indemnity shall not apply to claims, costs, expenses
or liability arising from injury or Damage resulting from products produced by
HAYNES through the performance of Titanium Conversion Services. With the
exception of TIMET’s obligations under Section 4(b)(ii) of the Access and
Security Agreement, in no event shall TIMET be liable for damage to, or loss of,
HAYNES’ property, equipment or tools or that of HAYNES’ employees or
sub-contractors regardless of the actual or alleged negligence of TIMET. HAYNES
shall indemnify TIMET for any such claims.

 
ARTICLE 8  
 
FORCE MAJEURE; CONTINGENCIES
 

8.1  
Force Majeure. The occurrence of an event such that delivery of the Titanium
Conversion Services is prevented by any cause, whether foreseeable or
unforeseeable, beyond HAYNES’ reasonable control shall be deemed an event of
Force Majeure (a “Force Majeure”), including, without limitation, the following
causes: acts of God; judgments or orders of any court; a change in the laws that
would expressly prohibit HAYNES’ performance of the Titanium Conversion
Services; power failure; a catastrophic breakdown of the Operating Assets; acts
of war; acts of terrorism, riot, civil strife, insurrection or rebellion; labor
disputes; or fire, explosion, earthquake, storm, flood or other severe weather
condition. The term “Force Majeure” shall not be construed, however, to include
commercial impracticability.

 

8.2  
Notice; Mitigation. As soon as practicable after the occurrence of Force
Majeure, HAYNES shall give notice to TIMET of the suspension of performance
(stating therein the nature of the suspension, the obligation(s) likely to be
affected, the reasons therefor, and a reasonable, good faith estimate of the
period of time during which provision of the Titanium Conversion Services is
expected to be prevented), and thereupon the contractual delivery schedule or
dates of completion shall be extended by a period of time as necessary to
reflect the effect of the delay. HAYNES shall take all reasonable steps to
minimize the impact of the Force Majeure under this Agreement and shall resume
provision of the Titanium Conversion Services as soon as reasonably possible.
The Parties agree to negotiate in good faith during the continuance of any Force
Majeure with respect to possible ways to minimize the effects of the Force
Majeure on the Parties.

 
ARTICLE 9  
 
CONFIDENTIALITY
 

9.1  
Obligations. During the term of this Agreement and for a ten (10) year period
thereafter, no Party shall disclose to any third party (including without
limitation, any subcontractor of such Party) any “Confidential Information” (as
defined below) of any other without such Party’s prior written consent.

 

9.2  
Confidential Information Defined. “Confidential Information” means all
confidential or proprietary information in whatever form furnished by or on
behalf of one Party to the other Party, except information which the receiving
Party can demonstrate that it:

 

(a)  
is generally available to, or known by, the public other than by reason of
disclosure by the receiving Party;

 

(b)  
was obtained by the receiving Party from a source other than the other Party
hereto; provided, however, that such source was not bound by a duty of
confidentiality with respect to such information;

 

(c)  
was in the lawful possession of the receiving Party prior to the date of this
Agreement without confidentiality restrictions; or

 

(d)  
is intentionally made available by the disclosing Party to a third person on an
unrestricted basis.

 

9.3  
Exceptions. The restrictions set forth in Section 9.1 above shall not be deemed
to include disclosures:

 

(a)  
to officers, directors, employees, agents, lenders, contractors, or
representatives of a Party or an Affiliate of such Party who need to know such
information and agree to be bound by the terms hereof;

 

(b)  
required to be made by law, rule, regulation, order of any court or regulatory
body, discovery request, civil investigative demand, or judicial process; or

 

(c)  
to report the terms of this Agreement or file this Agreement as an exhibit as
required by applicable laws or regulations concerning financial reporting or
disclosure, subject to each Party’s requirement to seek to protect proprietary
or confidential information contained in this Agreement by way of protective
order, confidential treatment request or similar process.

 
ARTICLE 10  
 
PROVISION OF TITANIUM PRODUCTS
 
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, TIMET’s 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.
 
ARTICLE 11  
 
NON-COMPETITION
 

11.1  
Non-Compete Obligations. In view of, among other things, the payment of the Fee
by TIMET to HAYNES, the proprietary information and technical assistance to be
made available to HAYNES and TIMET’s provision of the titanium products as set
forth in Article 10, during the term of this Agreement, HAYNES (including its
Affiliates) shall not, except as contemplated in this Agreement with respect to
the performance of Titanium Conversion Services for the benefit of TIMET and its
Affiliates or designees, directly or indirectly through any Affiliate or other
person in which it has an equity interest, anywhere in the world, (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; or (ii) engage in the manufacturing of
titanium or titanium alloys other than cold reduced titanium seamless tubing
(except as specifically permitted in this Agreement). In the event that TIMET
has not fulfilled its obligations under Article 10 hereof relating to TIMET’s
supply of titanium sheet and plate products to HAYNES, HAYNES shall be relieved
of its obligations under clause (ii) of this Article 11 for the period in which
such product shortfall occurred (on an annualized basis) but only to the extent
of the actual product supply shortfall.

 

11.2  
Non-Compete Amendment. In the event of a Change in Control, the successor to
HAYNES or its assets (the “HAYNES Successor”) shall have the option to amend the
provisions of Section 11.1(i) as described below by providing written notice to
TIMET of the exercise of such option within twelve (12) months of the effective
date of such Change in Control (the “Non-Compete Amendment”). Upon exercise of
the option, the HAYNES Successor shall be required to pay TIMET a non-refundable
fee (the “Non-Compete Amendment Fee”) within five (5) business days following
TIMET’s receipt of such notice of exercise in the amount of $15,000,000 in
immediately available U.S. funds. If HAYNES exercises the option and pays TIMET
the Non-Compete Amendment Fee, the unearned portion of the Fee shall be reduced
by the amount of the Non-Compete Amendment Fee.

 

11.3  
Non-Compete Amendment Provision: Upon the HAYNES Successor’s exercise of the
option with respect to the Non-Compete Amendment and payment of the Non-Compete
Amendment Fee, Section 11.1(i) shall be deleted in its entirety and replaced
with the following provision:

 
(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 TIMET’s 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.
 

11.4  
No Further Changes; Conditions With the exception of the provision contained in
Section 11.3 hereof, the Non-Compete Amendment shall not be construed to amend
or modify any other term or condition of this Agreement or the Transaction
Documents. The HAYNES Successor shall be permitted to exercise the option with
respect to the Non-Compete Amendment only if such successor (i) has assumed all
of the obligations of HAYNES under this Agreement and the Transaction Documents
and (ii) is not in default of this Agreement or the Transaction Documents.

 
ARTICLE 12  
 
GOVERNING LAW; SETTLEMENT OF DISPUTES
 

12.1  
Governing Law. This Agreement shall be governed, interpreted, construed and
enforced in accordance with the laws of the State of Delaware without recourse
to the law regarding the conflicts of law.

 
12.2 Voluntary Settlement of Disputes; Voluntary Arbitration.
 

(a)  
If there shall be any Dispute, the representatives of the Parties should use
their best efforts to resolve the matter on an amicable basis and in a manner
fair to the Parties hereto. If one Party notifies another Party that a Dispute
has arisen and the Parties are unable the resolve such Dispute within a period
of thirty (30) days from such notice, then the matter may be referred to senior
executive officers (Chief Operating Officer or its equivalent) of HAYNES and
TIMET for attempted resolution, who shall have a further sixty (60) days from
such notice (or such time as both Parties shall mutually agree) to attempt to
resolve such Dispute. No recourse to arbitration under this Agreement shall take
place unless and until such procedure has been followed.

 

(b)  
If a Dispute is not resolved in the manner and within the period described in
Section 12.2(a), any Party may make a written demand that the dispute be
resolved through binding arbitration (an “Arbitration Demand”) in accordance
with the procedures set forth below.

 

(c)  
Any Arbitration Demand shall state specifically the nature of the claim(s), the
relevant time periods, the document(s) if any that are alleged to govern the
dispute, the names of any relevant known witnesses associated with the either of
the parties, the identification of any third parties that may be relevant to the
dispute, a specific dollar amount alleged to be owing, if any, and any other
specific information that may be necessary to define the nature of the dispute.
The party receiving the Arbitration Demand shall provide a written response (an
“Arbitration Response”) within ten (10) days after receiving the Arbitration
Demand. The Arbitration Response may be a simple denial or may set forth in
writing any counterclaims including the same type of information required in an
original Arbitration Demand. If an Arbitration Response includes any
counterclaims or proposals, then the party originally demanding the Arbitration
may reply within ten (10) days after receiving the Arbitration Response. If any
party fails to respond to any notice, the party shall be deemed to deny the
demand.

 

(d)  
The arbitration shall be handled by a single neutral arbitrator. The Arbitration
Demand shall also include the name of one (1) person proposed to serve as an
arbitrator to decide the dispute. If the designated person is not acceptable to
the other party, then the party responding to the Arbitration Demand shall
propose the name of one (1) arbitrator. If that person is unacceptable to the
party seeking the Arbitration, then both parties shall cooperate to select a
mutually agreeable arbitrator. In the event that the Parties cannot agree to the
selection of a single neutral arbitrator, the Parties shall submit the selection
of the arbitrator to the procedures for the selection of an arbitrator set forth
by the American Arbitration Association, “JAMS” or a similar recognized
alternative dispute resolution body agreed upon by the Parties. The fees and
expenses of the neutral arbitrator shall be split by the parties unless the
Arbitration Award provides differently.

 

(i)  
The Arbitration shall be held in Wilmington, Delaware as soon as possible within
ninety (90) calendar days after the selection of arbitrator who will hear the
case.

 

(ii)  
Each Party shall have the right to engage in reasonable pre-arbitration
discovery in the form of requests for production of documents and depositions as
allowed by the arbitrator. Presentation of the case shall include: opening
statements, testimony of necessary witnesses, stipulated or properly
authenticated documents, and closing statements. No documents may be submitted
as evidence unless the documents have been provided to the opposing party in
advance of the arbitration as allowed by the arbitrator. Either party may demand
that a transcript of the hearing be prepared. If such a demand is made, then the
parties shall each pay one-half of the cost of the transcript.

 

(iii)  
The arbitrator shall issue a reasoned decision in writing within thirty (30)
days of the arbitration. Delaware law, in conjunction with any applicable
federal law, shall be used by the arbitrator to decide all questions, claims or
disputes, notwithstanding any choice of law provisions to the contrary. The
arbitrator shall have the authority to order the losing party to pay some or all
or the fees and expenses of the arbitration proceeding to the prevailing party
as part of the arbitration award, including but not limited to any expert
witness fees. The arbitrator shall not have the authority to award any
incidental, consequential, special (including multiple or punitive), or other
indirect damages to the other party, whether such claim arises under contract,
tort (including strict liability) or other theory of law. The decision shall be
final and binding on the parties, except that either party may appeal as
provided in the Delaware Arbitration Act.

 

(iv)  
The arbitration award reasoned decision may be enforced in any court having
jurisdiction of the parties and the subject matter.

 
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.
 
ARTICLE 13  
 
TERM AND TERMINATION
 

13.1  
Term. This Agreement shall become effective commencing on the date on which the
last of the following conditions is met and shall continue until the date twenty
(20) years after the commencement date unless earlier terminated pursuant to
Section 13.2:

 

(a)  
Execution and delivery of this Agreement and the Access and Security Agreement;
and

 

(b)  
TIMET’s payment to HAYNES of the Fee as described in Section 2(c) of the Access
and Security Agreement.

 
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).
 

13.2  
Termination. This Agreement may be terminated as set forth herein below.

 

(a)  
TIMET may terminate this Agreement upon written notice of termination to HAYNES
(i) upon the occurrence of an Event of Default that has not been remedied within
the 30-day cure period set forth in Section 5.2 (if applicable), or (ii) upon
TIMET’s exercise of its rights under Section 8(b) of the Access and Security
Agreement.

 

(b)  
HAYNES may terminate this Agreement upon written notice of termination to TIMET
if at any time more than 50% of all undisputed outstanding invoices issued to
TIMET have been unpaid for a period of thirty (30) days following TIMET’s
receipt of written notice of default from HAYNES.

 

 
(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 TIMET’s 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.

 

13.3  
Consequences of Termination. As a consequence of termination of this Agreement
by any Party in accordance with this Article 13, all rights and obligations of
the Parties under this Agreement shall terminate without any liability of any
Party to the other (except for liability of any Party then in breach under this
Agreement for such breach).

 

13.4  
Waiver. Any waiver of the option to terminate this Agreement shall not
constitute a waiver of the right to claim Damages or the right to terminate this
Agreement for any subsequent breach or occurrence of the same or other events
herein specified.

 

13.5  
Survival. The obligations of the Parties under Articles 5 (Breach of Warranty;
Events of Default; Remedies), 6 (Warranty), 7 (Insurance; Indemnification), 9
(Confidentiality), 12 (Governing Law; Settlement of Disputes) and 13 (Term and
Termination) shall survive termination or expiration of this Agreement.

 
ARTICLE 14  
 
GENERAL
 

14.1  
Assignment. All of the terms, covenants, obligations, warranties, and conditions
of this Agreement shall be binding upon, and inure to the benefit of and be
enforceable by, the Parties hereto and their respective successors and permitted
assigns. This Agreement and the rights and obligations of the Parties hereunder
may not be assigned by any Party without the prior written consent of the other
Parties. Notwithstanding the foregoing, HAYNES shall be permitted to assign this
Agreement to its successor in connection with a Change in Control provided that
such successor assumes all of HAYNES’ obligations under this Agreement and each
of the other Transaction Documents. Except in reference to TIMET’s successor(s)
and permitted assignee(s), the term designee(s) as used in this Agreement shall
not be construed to alleviate TIMET from its obligations hereunder or permit
TIMET to assign its rights hereunder.

 

14.2  
Severability. If any provision of this Agreement or application of any such
provision to any person or circumstance shall be held invalid, illegal, or
unenforceable in any respect by a court of competent jurisdiction, such
invalidity, illegality, or unenforceability shall not affect any other provision
hereof.

 

14.3  
Notices. All notices, requests, demands and other communications required or
permitted to be given hereunder shall be in writing and shall be deemed to have
been duly given when delivered personally, when sent by verified facsimile (with
confirmation copy sent by courier) or three (3) business days after being sent
by courier, in each case addressed as follows:

 
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
 
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
34th 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.
 

14.4  
Specific Performance. Each of the Parties hereto acknowledges and agrees that
the other Parties would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their specific
terms or otherwise are breached. Accordingly, each of the Parties agrees that
the any Party shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce specifically this
Agreement and the terms and provisions hereof, in addition to any other remedy
to which it may be entitled in accordance with the applicable law set forth in
Section 12.1.

 

14.5  
No Third Party Beneficiaries. This Agreement shall not be deemed to create or
confer, nor shall the same create or confer, any rights on or upon third
parties.

 

14.6  
Amendment; Waiver. This Agreement may be amended, modified, supplemented,
superseded or cancelled, and any of the terms, covenants, guarantees,
warranties, or conditions hereof may be waived, only by a written instrument
executed by the Parties or, in the case of a waiver, by or on behalf of the
Party waiving compliance. The failure of any Party at any time or times to
require performance of any provision hereof shall in no manner affect the right
at a later time to enforce the same. No waiver by any Party of any condition, or
of any breach of any term, covenant, guarantee, or warranty contained in this
Agreement shall be deemed to be or construed as a further or continuing waiver
of any such condition or breach or a waiver of any other condition or of any
breach of any other term, covenant, guarantee, or warranty.

 

14.7  
Captions. The captions contained in this Agreement are solely for purposes of
identification and convenient reference only and shall in no way affect, alter
or vary the meaning, construction or interpretation hereof or thereof.

 

14.8  
Integration. The exhibits to this Agreement are hereby incorporated by reference
in their entirety. If there is any inconsistency among this Agreement or any of
its exhibits, this Agreement shall prevail over the other documents.

 

14.9  
Effectiveness of this Agreement. This Agreement shall be effective upon the
completion of the following conditions:

 

(a)  
TIMET’s perfection of its first priority interest in the Collateral (as defined
in the Access and Security Agreement); and

 

(b)  
TIMET’s payment of the Fee.

 

--------------------------------------------------------------------------------

IN WITNESS HEREOF, the Parties have duly executed this Agreement as of the date
first written above.
 
 
TITANIUM METALS CORPORATION
 
By: /s/BOBBY D. O'BRIEN
 
Name: Bobby D. O'Brien
 
Title: Chief Financial Officer
 

 
 
HAYNES INTERNATIONAL, INC.
 
By: /s/ FRANCIS J. PETRO
 
Name: Francis J. Petro
 
Title: 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 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.
 
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.
 

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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.
 
HAYNES INTERNATIONAL, INC.
 

 
By:        
Name:
Title:

I/1889035.2