Document:

Exhibit 10.01

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 corporation’s 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 Company’s 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 Indemnitee’s continued service
as a director of the Company and to enhance Indemnitee’s 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 Company’s certificate of

 

 

incorporation or
bylaws (collectively, the “Governance Documents”), any change in the composition
of the Company’s 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 Company’s 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:

ARTICLE I

Section 1.01.        Definitions. In addition to
terms defined elsewhere herein, the terms hereinafter set forth when used
herein shall have the following meanings and the following definitions shall be
equally applicable to both the singular and plural forms of any of the terms
herein defined:

(a)           “Change in
Control” means the occurrence of any of the following events:

(i)               any “person,” as
such term is used in Sections 13(d) and 14(d) of the Exchange Act (other
than the Company, any trustee or other fiduciary holding securities under an
employee benefit plan of the Company or any Subsidiary of the Company, or any
company owned, directly or indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company),
is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company
representing more than thirty percent (30%) of either the then-outstanding
shares of common stock of the Company (“Outstanding Common Stock”) or the
combined voting power of the Company’s then outstanding securities (“Outstanding
Company Voting Securities”);

(ii)              at any time
during any period of two (2) consecutive years, 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 clauses (i), (iii), or (iv)
of this subsection (a) or whose initial assumption of office occurred as a
result of an actual or threatened election contest (as described in Rule
14a-12(c) of the Exchange Act) with respect to the election or removal of
directors or other actual or threatened solicitation of proxies or consents by
or on behalf of a person other than the Company) whose election to the Board or
nomination for election by the Company’s stockholders was approved by a vote of
at least two-thirds (2/3) of the 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 of the Board;

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(iii)             consummation of
a reorganization, merger, statutory share exchange or consolidation or similar
corporate transaction involving the Company or any of its Subsidiaries, a sale
or other disposition of all or substantially all of the assets of the Company
or an acquisition of assets or stock of another entity by the Company or any of
its Subsidiaries (each a “Business Combination”) unless, in each case,
following such Business Combination (i) all or substantially all of the
individuals and entities that were the beneficial owners of the Outstanding
Common Stock and Outstanding Company Voting Securities immediately prior to
such Business Combination beneficially own, directly or indirectly, more than
fifty percent (50%) of the then-outstanding shares of common stock and the combined
voting power of the then-outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including a corporation that, as a
result of such Business Combination, owns the Company or all or substantially
all of the Company’s assets either directly or through one or more
Subsidiaries) in substantially the same proportions as their ownership
immediately prior to such Business Combination of the Outstanding Company
Common Stock and the Outstanding Company Voting Securities, as the case may be,
(ii) no person or entity (excluding (A) any entity resulting from such Business
Combination or (B) any employee benefit plan (or related trust) of the Company
or corporation resulting from such Business Combination) beneficially owns,
directly or indirectly fifteen (15%) or more of either the then- outstanding
shares of common stock of the corporation resulting from such Business
Combination or the combined voting power of the then-outstanding voting
securities of such corporation, except to the extent that such ownership
existed prior to such Business Combination, and (iii) at least a majority of
the members of the board of directors of the corporation resulting from such
Business Combination were Incumbent Directors at the time of the execution of
the initial agreement, or of the action of the Board, providing for such
Business Combination; or

(iv)            the stockholders
of the Company approve a plan of complete liquidation or dissolution of the
Company.

(b)           “Claim” means:
(i) any threatened, asserted, pending or completed claim, demand, action, suit
or proceeding, arbitration, alternate dispute resolution mechanism,
investigation, inquiry, administrative hearing or proceeding, including any and
all appeals, whether civil, criminal, administrative, arbitrative,
investigative or other, whether formal or informal, and whether made pursuant
to federal, state or other law; and (ii) any threatened, pending or completed
inquiry or investigation, whether made, instituted or conducted by the Company
or any other person, including any federal, state or other governmental entity,
that Indemnitee determines might lead to the institution of any such claim,
demand, action, suit or proceeding. For purposes of this definition, the term “threatened”
will be deemed to include Indemnitee’s good faith belief that a claim or other
assertion may lead to a Claim.

(c)           “Controlled
Affiliate” means any corporation, limited liability company, partnership,
joint venture, trust or other entity or enterprise, whether or not for profit,
that

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is directly or
indirectly controlled by the Company. For purposes of this definition, “control”
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management or policies of an entity or enterprise, whether
through the ownership of voting securities, through other voting rights, by
contract or otherwise; provided  that direct or indirect
beneficial ownership of capital stock or other interests in an entity or
enterprise entitling the holder to cast twenty percent (20%) or more of the
total number of votes generally entitled to be cast in the election of
directors (or persons performing comparable functions) of such entity or
enterprise shall be deemed to constitute control for purposes of this
definition.

(d)           “Disinterested
Director” means a director of the Company who is not and was not a party to
the Claim in respect of which indemnification is sought by Indemnitee.

(e)           “Exchange Act”
shall mean the Securities Exchange Act of 1934, as amended.

(f)            “Expenses”
means all attorney’s fees, disbursements and retainers, court costs, transcript
costs, fees of experts, witness fees, travel expenses, duplicating costs,
printing and binding costs, telephone charges, postage, fax transmission
charges, secretarial services, delivery service fees and all other
disbursements or expenses paid or incurred in connection with prosecuting,
defending, preparing to prosecute or defend, investigating, being or preparing
to be a witness in, or otherwise participating in, an Indemnifiable Claim, or
in connection with seeking indemnification under this Agreement. Expenses will
also include Expenses paid or incurred in connection with any appeal resulting
from any Indemnifiable Claim, including the premium, security for and other
costs relating to any appeal bond or its equivalent. Expenses, however, will
not include amounts paid in settlement by Indemnitee or the amount of judgments
or fines against Indemnitee

(g)           “Incumbent
Directors” means the individuals who, as of the date hereof, are directors
of the Company and any individual becoming a director subsequent to the date
hereof whose election, nomination for election by the Company’s stockholders,
or appointment, was approved by a vote of at least two-thirds (2/3) of the then
Incumbent Directors (either by a specific vote or by approval of the proxy
statement of the Company in which such person is named as a nominee for
director, without objection to such nomination); provided, however,
that an individual shall not be an Incumbent Director if such individual’s
election or appointment to the Board occurs as a result of an actual or
threatened election contest (as described in Rule 14a-12(c) of the Exchange
Act) with respect to the election or removal of directors or other actual or
threatened solicitation of proxies or consents by or on behalf of a person
other than the Board.

(h)           “Indemnifiable
Claim” means any Claim based upon, arising out of or resulting from: (i)
any actual, alleged or suspected act or failure to act by Indemnitee in his or
her capacity as a director, officer, employee or agent of the Company or as a
director, officer, employee, member, manager, trustee or agent of any other
corporation, limited liability company, partnership, joint venture, trust or
other entity or enterprise, whether or not for profit, as to which Indemnitee
is or was serving at the request of the

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Company as a
director, officer, employee, member, manager, trustee or agent; (ii) any
actual, alleged or suspected act or failure to act by Indemnitee in respect of
any business, transaction, communication, filing, disclosure or other activity
of the Company or any other entity or enterprise referred to in clause (i) of
this sentence; or (iii) Indemnitee’s status as a current or former director,
officer, employee or agent of the Company or as a current or former director,
officer, employee, member, manager, trustee or agent of the Company or any
other entity or enterprise referred to in clause (i) of this sentence or any
actual, alleged or suspected act or failure to act by Indemnitee in connection
with any obligation or restriction imposed upon Indemnitee by reason of such
status. In addition to any service at the actual request of the Company, for
purposes of this Agreement, Indemnitee shall be deemed to be serving or to have
served at the request of the Company as a director, officer, employee, member,
manager, trustee or agent of another entity or enterprise if Indemnitee is or
was serving as a director, officer, employee, member, manager, trustee or agent
of such entity or enterprise and (a) such entity or enterprise is or at the
time of such service was a Controlled Affiliate, (b) such entity or enterprise
is or at the time of such service was an employee benefit plan (or related
trust) sponsored or maintained by the Company or a Controlled Affiliate or (c)
the Company or a Controlled Affiliate directly or indirectly caused or
authorized Indemnitee to be nominated, elected, appointed, designated,
employed, engaged or selected to serve in such capacity.

(i)            “Indemnifiable
Losses” means any and all Losses relating to, arising out of or resulting
from any Indemnifiable Claim.

(j)            “Independent
Counsel” means a law firm, or a member of a law firm, that is experienced
in matters of corporation law and neither presently is, nor in the past five (5)
years has been, retained to represent: (i) the Company (or any Subsidiary), the
Board (or any committee) or Indemnitee in any matter material to either such
party (other than with respect to matters concerning the Indemnitee under this
Agreement, or of other indemnitees under similar indemnification agreements);
or (ii) any other named (or, as to a threatened matter, reasonably likely to be
named) party to the Indemnifiable Claim giving rise to a claim for
indemnification hereunder. Notwithstanding the foregoing, the term “Independent
Counsel” shall not include any person who, under the applicable standards of
professional conduct then prevailing, would have a conflict of interest in
representing either the Company or Indemnitee in an action to determine
Indemnitee’s rights under this Agreement.

(k)           “Losses”
means any and all Expenses, damages, losses, liabilities, judgments, fines,
penalties (whether civil, criminal or other) and amounts paid in settlements,
including all interest, assessments and other charges paid or payable in
connection with or in respect of any of the foregoing.

(l)            “Subsidiary”
means an entity in which the Company directly or indirectly beneficially owns
fifty percent (50%) or more of the outstanding voting securities.

Section 1.02.        Indemnification Obligation.
Subject to Section 1.07, the Company shall indemnify, defend and hold
harmless Indemnitee, to the fullest extent permitted or required by the Company’s
Governance Documents and the laws of the State of Delaware in effect on the

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date hereof or as the same may from time to time hereafter be amended,
interpreted or replaced to increase the scope of such permitted indemnification,
against any and all Indemnifiable Claims and Indemnifiable Losses; provided,
however, that, except as provided in Sections 1.04 and 1.23,
Indemnitee shall not be entitled to indemnification pursuant to this Agreement
in connection with any Claim initiated by Indemnitee against the Company or any
director or officer of the Company unless the Company has joined in or
consented to the initiation of such Claim.

Section 1.03.        Advancement of Expenses.
Indemnitee shall have the right to advancement by the Company to the fullest
extent permitted by the laws of the State of Delaware prior to the final
disposition of any Indemnifiable Claim of any and all Expenses relating to,
arising out of or resulting from any Indemnifiable Claim paid or incurred by
Indemnitee or which Indemnitee determines are reasonably likely to be paid or
incurred by Indemnitee. Indemnitee’s right to such advancement is not subject
to the satisfaction of any standard of conduct. Without limiting the generality
or effect of the foregoing, within five (5) business days after any request by
Indemnitee, the Company shall, in accordance with such request (but without
duplication): (a) pay such Expenses on behalf of Indemnitee; (b) advance to
Indemnitee funds in an amount sufficient to pay such Expenses; or (c) reimburse
Indemnitee for such Expenses; provided  that Indemnitee shall
repay, without interest any amounts actually advanced to Indemnitee that, at
the final disposition of the Indemnifiable Claim to which the advance related,
were in excess of amounts paid or payable by Indemnitee in respect of Expenses
relating to, arising out of or resulting from such Indemnifiable Claim. In
connection with any such payment, advancement or reimbursement, Indemnitee
shall execute and deliver to the Company an undertaking, which need not be
secured and shall be accepted without reference to Indemnitee’s ability to
repay the Expenses, by or on behalf of the Indemnitee, to repay any amounts
paid, advanced or reimbursed by the Company of Expenses relating to, arising
out of or resulting from any Indemnifiable Claim of which it shall have been
determined, following the final disposition of such Indemnifiable Claim and in
accordance with Section 1.07, that Indemnitee is not entitled to
indemnification hereunder.

Section 1.04.        Indemnification for Additional
Expenses. Without limiting the generality or effect of the foregoing,
the Company shall indemnify and hold harmless Indemnitee against and, if
requested by Indemnitee, shall reimburse Indemnitee for, or advance to
Indemnitee, within five (5) business days of such request, any and all Expenses
paid or incurred by Indemnitee or which Indemnitee determines are reasonably
likely to be paid or incurred by Indemnitee in connection with any Claim made,
instituted or conducted by Indemnitee for: (a) indemnification or reimbursement
or advance payment of Expenses by the Company under any provision of this
Agreement, or under any other agreement or provision of the Governance
Documents now or hereafter in effect relating to Indemnifiable Claims; and/or
(b) recovery under any directors’ and officers’ liability insurance policies
maintained by the Company, regardless in each case of whether Indemnitee
ultimately is determined to be entitled to such indemnification, reimbursement,
advance or insurance recovery, as the case may be; provided, however,
that Indemnitee shall return, without interest, any such advance of Expenses
(or portion thereof) that remains unspent at the final disposition of the Claim
to which the advance related.

Section 1.05.        Partial Indemnity. If
Indemnitee is entitled under any provision of this Agreement to indemnification
by the Company for some or a portion of any Indemnifiable Loss,

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but not for all of the total amount thereof, the Company shall
nevertheless indemnify Indemnitee for the portion thereof to which Indemnitee
is entitled.

Section 1.06.        Procedure for Notification.
To obtain indemnification under this Agreement in respect of an Indemnifiable
Claim or Indemnifiable Loss, Indemnitee shall submit to the Company a written
request therefor, including a brief description (based upon information then
available to Indemnitee) of such Indemnifiable Claim or Indemnifiable Loss. If,
at the time of the receipt of such request, the Company has directors’ and
officers’ liability insurance in effect under which coverage for such
Indemnifiable Claim or Indemnifiable Loss is potentially available, the Company
shall give prompt written notice of such Indemnifiable Claim or Indemnifiable
Loss to the applicable insurers in accordance with the procedures set forth in
the applicable policies. The Company shall provide to Indemnitee a copy of such
notice delivered to the applicable insurers, and copies of all subsequent
correspondence between the Company and such insurers regarding the
Indemnifiable Claim or Indemnifiable Loss, in each case substantially
concurrently with the delivery or receipt thereof by the Company. The failure
by Indemnitee to timely notify the Company of any Indemnifiable Claim or Indemnifiable
Loss shall not relieve the Company from any liability hereunder unless, and
only to the extent that, the Company did not otherwise learn of such
Indemnifiable Claim or Indemnifiable Loss and such failure results in
forfeiture by the Company of substantial defenses, rights or insurance
coverage.

Section 1.07.        Determination of Right to
Indemnification.

(a)           To the extent that
Indemnitee shall have been successful on the merits or otherwise in defense of
any Indemnifiable Claim or any portion thereof or in defense of any issue or
matter therein, including dismissal without prejudice, Indemnitee shall be
indemnified against all Indemnifiable Losses relating to, arising out of or
resulting from such Indemnifiable Claim in accordance with Section 1.02
and no Standard of Conduct Determination (as defined in Section 1.07(b))
shall be required.

(b)           To the extent that
the provisions of Section 1.07(a) are inapplicable to an Indemnifiable
Claim that shall have been finally disposed of, any determination of whether
Indemnitee has satisfied any applicable standard of conduct under Delaware law
that is a legally required condition precedent to indemnification of Indemnitee
hereunder against Indemnifiable Losses relating to, arising out of or resulting
from such Indemnifiable Claim (a “Standard of Conduct Determination”)
shall be made as follows: (i) if a Change in Control shall not have occurred,
or if a Change in Control shall have occurred but Indemnitee shall have
requested that the Standard of Conduct Determination be made pursuant to this
clause (i), (A) by a majority vote of the Disinterested Directors, even if less
than a quorum of the Board, (B) if such Disinterested Directors so direct, by a
majority vote of a committee of Disinterested Directors designated by a
majority vote of all Disinterested Directors, or (C) if there are no such
Disinterested Directors, by Independent Counsel in a written opinion addressed
to the Board, a copy of which shall be delivered to Indemnitee; and (ii) if a
Change in Control shall have occurred and Indemnitee shall not have requested
that the Standard of Conduct Determination be made pursuant to clause (i), by
Independent Counsel in a written opinion addressed to the Board, a copy of
which shall be delivered to Indemnitee. Indemnitee will cooperate with the
person or persons making such Standard of Conduct Determination, including

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providing to
such person or persons, upon reasonable advance request, any documentation or
information which is not privileged or otherwise protected from disclosure and
which is reasonably available to Indemnitee and reasonably necessary to such
determination. The Company shall indemnify and hold harmless Indemnitee against
and, if requested by Indemnitee, shall reimburse Indemnitee for, or advance to Indemnitee,
within five (5) business days of such request, any and all costs and expenses
(including attorneys’ and experts’ fees and expenses) incurred by Indemnitee in
so cooperating with the person or persons making such Standard of Conduct
Determination. The person, persons or entity chosen to make the Standard of
Conduct Determination will act reasonably and in good faith in making such
determination.

(c)           The Company shall
use its reasonable best efforts to cause any Standard of Conduct Determination
required under Section 1.07(b) to be made as promptly as practicable. If
(i) the person or persons empowered or selected under Section 1.07 to
make the Standard of Conduct Determination shall not have made a determination
within thirty (30) days after the later of (A) receipt by the Company of
written notice from Indemnitee advising the Company of the final disposition of
the applicable Indemnifiable Claim (the date of such receipt being the “Notification
Date”) and (B) the selection of an Independent Counsel, if such
determination is to be made by Independent Counsel, that is permitted under the
provisions of Section 1.07(e) to make such determination and (ii) Indemnitee
shall have fulfilled his or her obligations set forth in the second sentence of
Section 1.07(b), then Indemnitee shall be deemed to have satisfied the
applicable standard of conduct; provided  that such 30-day period
may be extended for a reasonable time, not to exceed an additional thirty (30)
days, if the person or persons making such determination in good faith requires
such additional time for the obtaining or evaluation or documentation and/or
information relating thereto.

(d)           If (i) Indemnitee
shall be entitled to indemnification hereunder against any Indemnifiable Losses
pursuant to Section 1.07(a), (ii) no determination of whether Indemnitee
has satisfied any applicable standard of conduct under Delaware law is a
legally required condition precedent to indemnification of Indemnitee hereunder
against any Indemnifiable Losses, or (iii) Indemnitee has been determined or
deemed pursuant to Section 1.07(b) or (c) to have satisfied any
applicable standard of conduct under Delaware law which is a legally required
condition precedent to indemnification of Indemnitee hereunder against any
Indemnifiable Losses, then the Company shall pay to Indemnitee, within five (5)
business days after the later of (x) the Notification Date in respect of the
Indemnifiable Claim or portion thereof to which such Indemnifiable Losses are
related, out of which such Indemnifiable Losses arose or from which such
Indemnifiable Losses resulted and (y) the earliest date on which the applicable
criterion specified in clause (i), (ii) or (iii) above shall have been
satisfied, an amount equal to the amount of such Indemnifiable Losses.

(e)           If a Standard of
Conduct Determination is to be made by Independent Counsel pursuant to Section
1.07(b)(i), the Independent Counsel shall be selected by the Board, and the
Company shall give written notice to Indemnitee advising him or her of the
identity of the Independent Counsel so selected. If a Standard of Conduct
Determination is to be made by Independent Counsel pursuant to Section 1.07(b)(ii),
the

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Independent
Counsel shall be selected by Indemnitee, and Indemnitee shall give written notice
to the Company advising it of the identity of the Independent Counsel so
selected. In either case, Indemnitee or the Company, as applicable, may, within
ten (10) business days after receiving written notice of selection from the
other, deliver to the other a written objection to such selection; provided,
however, that such objection may be asserted only on the ground that the
Independent Counsel so selected does not satisfy the criteria set forth in the
definition of “Independent Counsel” in Section 1.01(j), and the objection
shall set forth with particularity the factual basis of such assertion. Absent
a proper and timely objection, the person or firm so selected shall act as
Independent Counsel. If such written objection is properly and timely made and
substantiated, (i) the Independent Counsel so selected may not serve as
Independent Counsel unless and until such objection is withdrawn or a court has
determined that such objection is without merit and (ii) the non-objecting
party may, at its option, select an alternative Independent Counsel and give
written notice to the other party advising such other party of the identity of
the alternative Independent Counsel so selected, in which case the provisions
of the two immediately preceding sentences and clause (i) of this sentence
shall apply to such subsequent selection and notice. If applicable, the
provisions of clause (ii) of the immediately preceding sentence shall apply to
successive alternative selections. If no Independent Counsel that is permitted under
the foregoing provisions of this Section 1.07(e) to make the Standard of
Conduct Determination shall have been selected within thirty (30) days after
the Company gives its initial notice pursuant to the first sentence of this Section
1.07(e) or Indemnitee gives its initial notice pursuant to the second
sentence of this Section 1.07(e), as the case may be, either the Company
or Indemnitee may petition the Court of Chancery of the State of Delaware or
other court of competent jurisdiction for resolution of any objection which
shall have been made by the Company or Indemnitee to the other’s selection of
Independent Counsel and/or for the appointment as Independent Counsel of a
person or firm selected by the Court or by such other person as the Court shall
designate, and the person or firm with respect to whom all objections are so
resolved or the person or firm so appointed will act as Independent Counsel. In
all events, the Company shall pay all of the reasonable fees and expenses of
the Independent Counsel incurred in connection with the Independent Counsel’s
determination pursuant to Section 1.07(b).

Section 1.08.        Presumption of Entitlement.
In making any Standard of Conduct Determination, the person or persons making
such determination shall presume that Indemnitee has satisfied the applicable
standard of conduct, and the Company may overcome such presumption only by its
obtaining clear and convincing evidence to the contrary. Any Standard of
Conduct Determination that is adverse to Indemnitee may be challenged by the
Indemnitee in the Court of Chancery of the State of Delaware or other court of
competent jurisdiction. Neither the failure of any person, persons or entity
chosen to make a determination as to whether Indemnitee has met any particular
standard of conduct or had any particular belief to make such determination,
nor an actual determination by such person, persons or entity that Indemnitee
has not met such standard of conduct or did not have such belief, prior to or
after the commencement of legal proceedings by Indemnitee to secure a judicial
determination that Indemnitee should be indemnified under this Agreement under
applicable law, will be a defense to Indemnitee’s claim or create a presumption
that Indemnitee has not met any particular standard of conduct or did not have
any particular belief.

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Section 1.09.        No Other Presumption. For
purposes of this Agreement, the termination of any Claim by judgment, order,
settlement (whether with or without court approval) or conviction, or upon a
plea of nolo contendere or its equivalent, will not create a presumption that
Indemnitee did not meet any applicable standard of conduct or that
indemnification hereunder is otherwise not permitted. In the event that any
Indemnifiable Claim to which Indemnitee is a party is resolved in any manner
other than by final adverse judgment (as to which all rights of appeal
therefrom have been exhausted or lapsed) against Indemnitee (including, without
limitation, settlement of such Indemnifiable Claim with or without payment of
money or other consideration) it will be presumed that Indemnitee has been
successful on the merits or otherwise in such Indemnifiable Claim. Anyone
seeking to overcome this presumption will have the burden of proof and the
burden of persuasion, by clear and convincing evidence.

Section 1.10.        Non-Exclusivity. The rights
of Indemnitee hereunder will be in addition to any other rights Indemnitee may
have under the Governance Documents, or the substantive laws of the Company’s
jurisdiction of incorporation, any other contract or otherwise (collectively, “Other
Indemnity Provisions”); provided, however, that (a) to the
extent that Indemnitee otherwise would have any greater right to
indemnification under any Other Indemnity Provision, Indemnitee will be deemed
to have such greater right hereunder and (b) to the extent that any change is
made to any Other Indemnity Provision which permits any greater right to
indemnification than that provided under this Agreement as of the date hereof,
Indemnitee will be deemed to have such greater right hereunder. The Company
will not adopt any amendment to any of the Governance Documents the effect of
which would be to deny, diminish or encumber Indemnitee’s right to
indemnification under this Agreement or any Other Indemnity Provision.

Section 1.11.        Liability Insurance and Funding.
For the duration of Indemnitee’s service as a director and/or officer of the
Company, and thereafter for so long as Indemnitee shall be subject to any
pending or possible Indemnifiable Claim, the Company shall use commercially
reasonable efforts (taking into account the scope and amount of coverage
available relative to the cost thereof) to cause to be maintained in effect
policies of directors’ and officers’ liability insurance providing coverage for
directors and/or officers of the Company that is at least substantially
comparable in scope and amount to that provided by the Company’s current
policies of directors’ and officers’ liability insurance. The Company shall
provide Indemnitee with a copy of all directors’ and officers’ liability
insurance applications, binders, policies, declarations, endorsements and other
related materials, and shall provide Indemnitee with a reasonable opportunity
to review and comment on the same. Without limiting the generality or effect of
the two immediately preceding sentences, the Company shall not discontinue or
significantly reduce the scope or amount of coverage from one policy period to
the next: (i) without the prior approval thereof by a majority vote of the
Incumbent Directors, even if less than a quorum; or (ii) if at the time that
any such discontinuation or significant reduction in the scope or amount of
coverage is proposed there are no Incumbent Directors, without the prior
written consent of Indemnitee (which consent shall not be unreasonably withheld
or delayed). In all policies of directors’ and officers’ liability insurance
obtained by the Company, Indemnitee shall be named as an insured in such a
manner as to provide Indemnitee the same rights and benefits, subject to the
same limitations, as are accorded to the Company’s directors and officers most
favorably insured by such policy. The Company may, but shall not be required
to, create a trust fund, grant a security interest or use other means, including
without limitation a letter of credit, to ensure the

 10
 

 

 

payment of such amounts as may be necessary to satisfy its obligations
to indemnify and advance expenses pursuant to this Agreement.

Section 1.12.        Subrogation. In the event of
payment under this Agreement, the Company shall be subrogated to the extent of
such payment to all of the related rights of recovery of Indemnitee against
other persons or entities (other than Indemnitee’s successors), including any
entity or enterprise referred to in clause (i) of the definition of “Indemnifiable
Claim” in Section 1.01(h). Indemnitee shall execute all papers
reasonably required to evidence such rights (all of Indemnitee’s reasonable
Expenses, including attorneys’ fees and charges, related thereto to be reimbursed
by or, at the option of Indemnitee, advanced by the Company).

Section 1.13.        No Duplication of Payments.
The Company shall not be liable under this Agreement to make any payment to
Indemnitee in respect of any Indemnifiable Losses to the extent Indemnitee has
otherwise actually received payment (net of any unreimbursed Expenses of the
Indemnitee incurred in connection therewith) under any insurance policy, the Governance
Documents and Other Indemnity Provisions or otherwise (including from any entity
or enterprise referred to in clause (i) of the definition of “Indemnifiable
Claim” in Section 1.01(h)) in respect of such Indemnifiable Losses
otherwise indemnifiable hereunder.

Section 1.14.        Defense of Claims. The
Company shall be entitled to participate in the defense of any Indemnifiable
Claim or to assume the defense thereof, with counsel reasonably satisfactory to
the Indemnitee; provided  that if Indemnitee believes, after
consultation with counsel selected by Indemnitee, that: (a) the use of counsel
chosen by the Company to represent Indemnitee would present such counsel with an
actual or potential conflict; (b) the named parties in any such Indemnifiable
Claim (including any impleaded parties) include both the Company and Indemnitee
and Indemnitee shall conclude that there may be one or more legal defenses
available to him or her that are different from or in addition to those
available to the Company; or (c) any such representation by such counsel would
be precluded under the applicable standards of professional conduct then
prevailing, then Indemnitee shall be entitled to retain separate counsel (but
not more than one law firm plus, if applicable, local counsel in respect of any
particular Indemnifiable Claim) at the Company’s expense. The Company shall not
be liable to Indemnitee under this Agreement for any amounts paid in settlement
of any threatened or pending Indemnifiable Claim effected without the Company’s
prior written consent. The Company shall not, without the prior written consent
of the Indemnitee, effect any settlement of any threatened or pending
Indemnifiable Claim to which the Indemnitee is, or could have been, a party
unless such settlement solely involves the payment of money and includes a
complete and unconditional release of the Indemnitee from all liability on any
claims that are the subject matter of such Indemnifiable Claim. Neither the
Company nor Indemnitee shall unreasonably withhold its consent to any proposed
settlement; provided  that Indemnitee may withhold consent to any
settlement that does not provide a complete and unconditional release of
Indemnitee. Notwithstanding the foregoing, the Company will not be entitled to
assume the defense of any Indemnifiable Claim as to which Indemnitee has
reasonably made the conclusion provided for in Section 1.14(b).

Section 1.15.        Action by Indemnitee. In the
event that (i) a determination is made pursuant to this Agreement that
Indemnitee is not entitled to indemnification under this Agreement, (ii) an
advancement of Expenses is not timely made pursuant to this Agreement, (iii)

 11
 

 

 

no determination of entitlement to indemnification is made within the
applicable time periods specified in this Agreement or (iv) payment of
indemnified amounts is not made within the applicable time periods specified
herein, Indemnitee will be entitled to an adjudication in an appropriate court
of the State of Delaware, or in any other court of competent jurisdiction, of
his or her entitlement to such indemnification or payment of the advancement of
Expenses. Alternatively, Indemnitee, at Indemnitee’s option, may seek an award
in arbitration to be conducted by a single arbitrator pursuant to the
Commercial Arbitration Rules of the American Arbitration Association. The
provisions of Delaware law (without regard to its conflict of laws rules) will
apply to any such arbitration. The Company will not oppose Indemnitee’s right
to seek any such adjudication or award in arbitration.

Section 1.16.        Company Bears Expenses if Indemnitee
Seeks Adjudication. In the event that Indemnitee, pursuant to Section
1.15, seeks a judicial adjudication or arbitration of his or her rights to
indemnification under, or to recover damages for breach of, this Agreement, any
other agreement for indemnification, the indemnification or advancement of
expenses provisions in the Governance Documents, payment of Expenses in advance
or contribution hereunder or to recover under any director and officer
liability insurance policies maintained by the Company, the Company will, if
Indemnitee ultimately is determined to be entitled to such indemnification,
payment of Expenses in advance or contribution or insurance recovery to the
fullest extent permitted by law, indemnify and hold harmless Indemnitee against
any and all Expenses that are paid or incurred by Indemnitee in connection with
such judicial adjudication or arbitration.

Section 1.17.        Company Bound by Provisions of this
Agreement. The Company will be precluded from asserting in any judicial
or arbitration proceeding commenced pursuant to Section 1.15 that the
procedures and presumptions of this Agreement are not valid, binding and
enforceable and will stipulate in any such judicial or arbitration proceeding
that the Company is bound by all the provisions of this Agreement.

Section 1.18.        Successors and Binding Agreement.

(a)           The Company shall
require any successor (whether direct or indirect, by purchase, merger,
consolidation, reorganization or otherwise) to all or substantially all of the
business or assets of the Company, by agreement in form and substance
satisfactory to Indemnitee and his or her counsel, expressly to assume and
agree to perform this Agreement in the same manner and to the same extent the
Company would be required to perform if no such succession had taken place.
This Agreement shall be binding upon and inure to the benefit of the Company
and any successor to the Company, including without limitation any person
acquiring directly or indirectly all or substantially all of the business or
assets of the Company whether by purchase, merger, consolidation,
reorganization or otherwise (and such successor will thereafter be deemed the “Company”
for purposes of this Agreement), but shall not otherwise be assignable or
delegatable by the Company.

(b)           This Agreement shall
inure to the benefit of and be enforceable by the Indemnitee’s personal or
legal representatives, executors, administrators, heirs, distributees, legatees
and other successors.

 12
 

 

 

(c)           This Agreement is
personal in nature and neither of the parties hereto shall, without the consent
of the other, assign or delegate this Agreement or any rights or obligations
hereunder except as expressly provided in Sections 1.18(a) and (b).
Without limiting the generality or effect of the foregoing, Indemnitee’s right
to receive payments hereunder shall not be assignable, whether by pledge,
creation of a security interest or otherwise, other than by a transfer by the
Indemnitee’s will or by the laws of descent and distribution, and, in the event
of any attempted assignment or transfer contrary to this Section 1.18(c),
the Company shall have no liability to pay any amount so attempted to be
assigned or transferred.

Section 1.19.        Notices. For all purposes of
this Agreement, all communications, including without limitation notices,
consents, requests or approvals, required or permitted to be given hereunder
shall be in writing and shall be deemed to have been duly given when hand
delivered or dispatched by electronic facsimile transmission (with receipt
thereof orally confirmed), or five (5) business days after having been mailed
by United States registered or certified mail, return receipt requested,
postage prepaid or one (1) business day after having been sent for next-day
delivery by a nationally recognized overnight courier service, addressed to the
Company (to the attention of the Secretary of the Company) and to Indemnitee at
the applicable address shown below, or to such other address as any party may
have furnished to the other in writing and in accordance herewith, except that
notices of changes of address will be effective only upon receipt.

	
  If to the Company:

  	
  Haynes International, Inc.

  
	
   

  	
  1020 West Park Avenue

  
	
   

  	
  P.O. Box 9013

  
	
   

  	
  Kokomo, Indiana 46904-9015

  
	
   

  	
  Attn.: V.P.-General Counsel/Corporate Secretary

  
	
   

  	
  Tel.: (765) 456-6012

  
	
   

  	
  Fax: (765) 456-6905

  
	
   

  	
   

  
	
  If to
  Indemnitee:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Tel.:

  	
   

  	
   

  
	
   

  	
  Fax:

  	
   

  	
   

  

 

Section 1.20.        Governing Law. The validity,
interpretation, construction and performance of this Agreement shall be
governed by and construed in accordance with the substantive laws of the State
of Delaware, without giving effect to the principles of conflict of laws of
such State. The Company and Indemnitee each hereby irrevocably consent to the
jurisdiction of the Chancery Court of the State of Delaware for all purposes in
connection with any action or proceeding which arises out of or relates to this
Agreement and agree that any action instituted under this Agreement shall be
brought only in the Chancery Court of the State of Delaware.

Section 1.21.        Validity. If any provision of
this Agreement or the application of any provision hereof to any person or
circumstance is held invalid, unenforceable or otherwise

 13
 

 

 

illegal, the remainder of this Agreement and the application of such
provision to any other person or circumstance shall not be affected, and the
provision so held to be invalid, unenforceable or otherwise illegal shall be
reformed to the extent, and only to the extent, necessary to make it
enforceable, valid or legal. In the event that any court or other adjudicative
body shall decline to reform any provision of this Agreement held to be
invalid, unenforceable or otherwise illegal as contemplated by the immediately
preceding sentence, the parties hereto shall take all such action as may be necessary
or appropriate to replace the provision so held to be invalid, unenforceable or
otherwise illegal with one or more alternative provisions that effectuate the
purpose and intent of the original provisions of this Agreement as fully as
possible without being invalid, unenforceable or otherwise illegal.

Section 1.22.        Miscellaneous. No provision
of this Agreement may be waived, modified, amended or discharged unless such
waiver, modification, amendment or discharge is agreed to in writing signed by
Indemnitee and the Company. No waiver by either party hereto at any time of any
breach by the other party hereto 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 agreements or representations, oral or otherwise,
expressed or implied with respect to the subject matter hereof have been made
by either party that are not set forth expressly in this Agreement.

Section 1.23.        Legal Fees and Expenses. It
is the intent of the Company that Indemnitee not be required to incur legal
fees and or other Expenses associated with the interpretation, exercise,
enforcement or defense of Indemnitee’s rights under this Agreement by
litigation or otherwise because the cost and expense thereof would
substantially detract from the benefits intended to be extended to Indemnitee
hereunder. Accordingly, without limiting the generality or effect of any other
provision hereof, the Company irrevocably authorizes the Indemnitee from time
to time to retain counsel of Indemnitee’s choice, at the expense of the Company
as hereafter provided, to advise and represent Indemnitee in connection with
any such interpretation, exercise, enforcement or defense, including without
limitation the initiation or defense of any litigation or other legal action,
whether by or against the Company or any director, officer, stockholder or other
person affiliated with the Company. Notwithstanding any existing or prior
attorney-client relationship between the Company and such counsel, the Company
irrevocably consents to Indemnitee’s entering into an attorney-client
relationship with such counsel, and in that connection the Company and
Indemnitee agree that a confidential relationship shall exist between
Indemnitee and such counsel. Without respect to whether Indemnitee prevails, in
whole or in part, in connection with any of the foregoing, the Company will pay
and be solely financially responsible for any and all attorneys’ and related
fees and expenses incurred by Indemnitee in connection with any of the
foregoing.

Section 1.24.        Construction. The parties
have participated jointly in the negotiation and drafting of this Agreement. In
the event an ambiguity or question on intent or interpretation arises, this
Agreement must be construed as if drafted jointly by the parties and no
presumption or burden of proof must arise favoring or disfavoring any party by
virtue of the authorship of any of the provisions of this Agreement. The word “including”
shall mean including without limitation. Any reference to the singular in this
Agreement shall also include the plural and vice versa. The word “knowledge”
shall mean knowledge obtained or obtainable after due inquiry and reasonable
investigation.

 14
 

 

 

Section 1.25.        Headings. The headings of the
sections of this Agreement are inserted solely for convenience of reference and
shall not be deemed to affect the meaning or interpretation of this Agreement.

Section 1.26.        Counterparts. This Agreement
may be executed in two counterparts, each of which will be deemed to be an
original but both of which together shall constitute one and the same
agreement.

[SIGNATURES APPEAR ON
FOLLOWING PAGE]

 15
 

 

 

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.

	
  

  	
  HAYNES INTERNATIONAL, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  “INDEMNITEE”

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  

 

 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.

 17EXHIBIT 4.1

Haynes International, Inc.

and

Wells Fargo Bank, N.A.

as
Rights Agent

RIGHTS
AGREEMENT

Dated
as of August 13, 2006

 

 

TABLE OF CONTENTS

	
  

  	
   

  	
   

  	
   

  	
  Page Number

  
	
  Section 1.

  	
   

  	
  Definitions

  	
   

  	
  2

  
	
  Section 2.

  	
   

  	
  Appointment of Rights Agent

  	
   

  	
  14

  
	
  Section 3.

  	
   

  	
  Issue of Right Certificates

  	
   

  	
  15

  
	
  Section 4.

  	
   

  	
  Form of Right Certificates

  	
   

  	
  15

  
	
  Section 5.

  	
   

  	
  Countersignature and Registration

  	
   

  	
  15

  
	
  Section 6.

  	
   

  	
  Transfer, Split Up, Combination and Exchange of
  Right Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates

  	
   

  	
  15

  
	
  Section 7.

  	
   

  	
  Exercise of Rights; Purchase Price; Expiration Date
  of Rights.

  	
   

  	
  15

  
	
  Section 8.

  	
   

  	
  Cancellation and Destruction of Right Certificates

  	
   

  	
  15

  
	
  Section 9.

  	
   

  	
  Availability of Preferred Shares

  	
   

  	
  15

  
	
  Section 10.

  	
   

  	
  Preferred Shares Record Date

  	
   

  	
  15

  
	
  Section 11.

  	
   

  	
  Adjustment of Purchase Price, Number of Shares or
  Number of Rights

  	
   

  	
  15

  
	
  Section 12.

  	
   

  	
  Certificate of Adjusted Purchase Price or Number of
  Shares

  	
   

  	
  15

  
	
  Section 13.

  	
   

  	
  Consolidation, Merger or Sale or Transfer of Assets
  or Earning Power

  	
   

  	
  15

  
	
  Section 14.

  	
   

  	
  Fractional Rights and Fractional Shares

  	
   

  	
  15

  
	
  Section 15.

  	
   

  	
  Rights of Action

  	
   

  	
  15

  
	
  Section 16.

  	
   

  	
  Agreement of Right Holders

  	
   

  	
  15

  
	
  Section 17.

  	
   

  	
  Right Certificate Holder Not Deemed a Stockholder

  	
   

  	
  15

  
	
  Section 18.

  	
   

  	
  Concerning the Rights Agent

  	
   

  	
  15

  
	
  Section 19.

  	
   

  	
  Merger or Consolidation or Change of Name of Rights
  Agent

  	
   

  	
  15

  
	
  Section 20.

  	
   

  	
  Duties of Rights Agent

  	
   

  	
  15

  
	
  Section 21.

  	
   

  	
  Change of Rights Agent

  	
   

  	
  15

  
	
  Section 22.

  	
   

  	
  Issuance of New Right Certificates

  	
   

  	
  15

  
	
  Section 23.

  	
   

  	
  Redemption

  	
   

  	
  15

  
	
  Section 24.

  	
   

  	
  Exchange

  	
   

  	
  15

  
	
  Section 25.

  	
   

  	
  Notice of Certain Events

  	
   

  	
  15

  
	
  Section 26.

  	
   

  	
  Notices

  	
   

  	
  15

  
	
  Section 27.

  	
   

  	
  Supplements and Amendments

  	
   

  	
  15

  
	
  Section 28.

  	
   

  	
  Successors

  	
   

  	
  15

  
	
  Section 29.

  	
   

  	
  Benefits of this Agreement

  	
   

  	
  15

  

 

 i
 

 

 

	
  Section
  30.

  	
   

  	
  Severability

  	
   

  	
  15

  
	
  Section 31.

  	
   

  	
  Determinations and Actions by the Board of
  Directors, etc

  	
   

  	
  15

  
	
  Section 32.

  	
   

  	
  Governing Law

  	
   

  	
  15

  
	
  Section 33.

  	
   

  	
  Counterparts

  	
   

  	
  15

  
	
  Section 34.

  	
   

  	
  Descriptive Headings

  	
   

  	
  15

  

 

	
  LIST OF EXHIBITS

  	
   

  
	
  Exhibit A — Form of Certificate of
  Designations

  
	
  Exhibit B — Form of Right Certificate

  
	
  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:

(a)           “Acquiring Person”
shall mean any Person who or which, together with all Affiliates and Associates
of such Person, shall be the Beneficial Owner of 15% or more of the Common
Shares of the Company then outstanding,
but shall not include (i) the Company, (ii) any Subsidiary of the
Company, (iii) any employee benefit plan of the Company or any Subsidiary of
the Company or (iv) any entity holding Common Shares for or pursuant to the
terms of any such plan.  Notwithstanding the foregoing,
(i) no Person shall become an “Acquiring Person” as the result of an
acquisition of Common Shares by the Company which, by reducing the number of
Common Shares of the Company outstanding, increases the proportionate number of
Common Shares of the Company beneficially owned by such Person to 15% or more
of the Common Shares of the Company then outstanding; provided, however, that, if a
Person shall become the Beneficial Owner of 15% or more of the Common Shares of
the Company then outstanding by reason of share purchases by the Company and
shall, after such share purchases by the Company, become the Beneficial Owner
of any additional Common Shares of the Company (other than pursuant to a
dividend or distribution paid or made by the Company on the outstanding Common
Shares or pursuant to a split or subdivision of the outstanding Common Shares)
then such Person shall be deemed to be an “Acquiring Person;” (ii) if, as of the date hereof
or at any time after the date hereof and prior to the first public announcement
of the adoption of this Agreement, any Person is or becomes the Beneficial
Owner of 15% or more of the Common Shares outstanding, such Person shall not be
deemed to be or to become an “Acquiring Person” unless and until such time as
such Person shall, after the first public announcement of the adoption of this
Agreement, become the Beneficial Owner of additional Common Shares (other than
pursuant to a dividend or distribution paid or made by the 

 1
 

 

Company on the outstanding Common Shares or
pursuant to a split or subdivision of the outstanding Common Shares), unless,
upon becoming the Beneficial Owner of such additional Common Shares, such
Person is not then the Beneficial Owner of 15% or more of the Common Shares
then outstanding; and (iii) if the Board of Directors of the Company
determines in good faith that a Person who would otherwise be an “Acquiring
Person,” as defined pursuant to the foregoing provisions of this paragraph (a),
has become such inadvertently, and such Person as promptly as practicable (as
determined in good faith by the Board of Directors of the Company) divests a
sufficient number of Common Shares so that such Person would no longer be an “Acquiring
Person,” as defined pursuant to the foregoing provisions of this paragraph (a),
then such Person shall not be deemed to be an “Acquiring Person” for any
purposes of this Agreement.

(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
Person’s Affiliates or Associates beneficially owns, directly or indirectly;

 

(ii)            which such Person or any of such
Person’s 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
Person’s 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 Person’s 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

 2
 

 

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 Person’s
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 Person’s 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.

(e)           “Business Day”
shall mean any day other than a Saturday, a Sunday, or a day on which banking
institutions in Minnesota are
authorized or obligated by law or executive order to close.

(f)            “close of business”
on any given date shall mean 5:00 P.M., Minneapolis,
Minnesota time, on such date; provided, however, that, if
such date is not a Business Day, it shall mean 5:00 P.M., Minneapolis, Minnesota time, on the next succeeding
Business Day.

(g)           “Common Shares”
when used with reference to the Company shall mean the shares of common stock,
par value $0.001 per share, of the Company. 
“Common Shares” when used with reference to any Person other than the
Company shall mean the capital stock (or equity interest) with the greatest
voting power of such other Person or, if such other Person is a Subsidiary of
another Person, the Person or Persons which ultimately control such
first-mentioned Person.

(h)           “Distribution Date”
shall have the meaning set forth in Section 3(a)
hereof.

(i)            “Exchange Act”
shall mean the Securities Exchange Act of 1934, as amended.

(j)            “Exchange Ratio”
shall have the meaning set forth in Section 24(a)
hereof.

(k)           “Final Expiration Date”
shall have the meaning set forth in Section 7(a)
hereof.

(l)            “NASDAQ” shall mean
the National Association of Securities Dealers, Inc. Automated Quotation
System.

(m)          “Person” shall mean
any individual, firm, partnership, corporation, limited liability company or
other entity, and shall include any successor (by merger or otherwise) of such
entity.

 3
 

 

 

(n)           “Preferred Shares”
shall mean shares of Series A Junior Participating Preferred Stock, par value
$0.001 per share, of the Company having the rights and preferences set forth in
the Form of Certificate of Designations attached to this Agreement as Exhibit A.

(o)           “Purchase Price”
shall have the meaning set forth in Section 4 hereof, as adjusted
in accordance with this Agreement and as in effect from time to time.

(p)           “Record Date” shall
have the meaning set forth in the second paragraph hereof.

(q)           “Redemption Date”
shall have the meaning set forth in Section 7(a) hereof.

(r)            “Redemption Price”
shall have the meaning set forth in Section 23(a) hereof.

(s)           “Right” shall have
the meaning set forth in the second paragraph hereof.

(t)            “Right Certificate”
shall have the meaning set forth in Section 3(a) hereof.

(u)           “Securities Act”
shall mean the Securities Act of 1933, as amended.

(v)           “Shares Acquisition Date”
shall mean the first date of public announcement by the Company or an Acquiring
Person that an Acquiring Person has become such.

(w)          “Subsidiary” of any
Person shall mean any corporation, partnership or other entity of which a
majority of the voting power of the voting equity securities or equity interest
is owned, directly or indirectly, by such Person.

(x)            “Summary of Rights”
shall have the meaning set forth in Section 3(a) hereof.

(y)           “Trading Day” shall
have the meaning set forth in Section 11(d) hereof.

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.

(a)           Until the earlier of (i) the close of business on the
tenth day after the Shares Acquisition Date or, if the tenth day after the Shares Acquisition Date occurs before the
Record Date, the close of business on the Record Date or (ii) the close of business on the tenth
Business Day (or such later date as may be determined by action of the Board of
Directors of the 

 4
 

 

Company prior to such time as any Person
becomes an Acquiring Person) after the date of the commencement by any Person
(other than the Company, any Subsidiary of the Company, any employee benefit
plan of the Company or of any Subsidiary of the Company or any entity holding
Common Shares of the Company for or pursuant to the terms of any such plan) of
a tender or exchange offer the consummation of which would result in any Person
becoming an Acquiring Person (including any such date which is after the date
of this Agreement and prior to the issuance of the Rights; the earlier of such
dates being herein referred to as the “Distribution
Date”), (x) the Rights will be evidenced (subject to the
provisions of Section 3(b) hereof) by the certificates for Common
Shares of the Company registered in the names of the holders thereof (which
certificates, together with a Summary of Rights, shall also be deemed to be
Right Certificates) and not by separate Right Certificates, and (y) the right
to receive Right Certificates will be transferable only in connection with the
transfer of Common Shares of the Company. 
As soon as practicable after the Distribution Date, the Company will
prepare and execute, the Rights Agent will countersign, and the Company will
send or cause to be sent (and the Rights Agent will, if requested, send) by
first-class, insured, postage-prepaid mail, to each record holder of Common
Shares of the Company as of the close of business on the Distribution Date, at
the address of such holder shown on the records of the Company, a Right
Certificate, in substantially the form of Exhibit B hereto (a “Right Certificate”), evidencing one Right for each
Common Share so held.  As of and after
the Distribution Date, the Rights will be evidenced solely by such Right
Certificates.  On the Record Date, or as
soon as practicable thereafter, the Company will send a copy of a Summary of
Rights to Purchase Preferred Shares, in substantially the form of Exhibit C
hereto (the “Summary of Rights”), by first-class,
postage-prepaid mail, to each record holder of Common Shares as of the close of
business on the Record Date, at the address of such holder shown on the records
of the Company.  With respect to
certificates for Common Shares of the Company outstanding as of the Record
Date, until the Distribution Date, the Rights will be evidenced by such
certificates registered in the names of the holders thereof together with a
copy of the Summary of Rights.  Until the
Distribution Date (or the earlier of the Redemption Date or the Final
Expiration Date), the surrender for transfer of any Common Shares of the
Company outstanding on the Record Date represented by certificates, with or
without a copy of the Summary of Rights, shall also constitute the transfer of the
Rights associated with the Common Shares of the Company represented thereby.

(b)           Certificates for Rights shall, without any further action,
be issued in respect of all Common Shares which become outstanding (whether
originally issued or delivered from treasury and including, without limitation,
reacquired Common Shares referred to in the last sentence of this
paragraph (b)) after the Record Date but prior to the earliest of the
Distribution Date, the Redemption Date or the Final Expiration Date.  Certificates representing Common Shares
issued after the Record Date shall have impressed on, printed on, written on or
otherwise affixed to them the following legend:

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 

 5
 

 

 

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 Company’s
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.  

 6
 

 

 

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 Company’s 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.

 

 7

 

 

Section 7.               Exercise
of Rights; Purchase Price; Expiration Date of Rights.

(a)           The registered holder of any Right Certificate may
exercise the Rights evidenced thereby (except as otherwise provided herein), in
whole or in part, at any time after the Distribution Date, upon surrender of
the Right Certificate, with the form of election to purchase on the reverse
side thereof duly executed, to the Rights Agent at the principal office of the
Rights Agent, together with payment of the Purchase Price for each one
one-thousandth of a Preferred Share as to which the Rights are exercised, at or
prior to the earliest of (i) the close of business on August 13, 2016, (ii) the thirtieth
(30th) 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
this Agreement (the earlier of (i) and (ii) being referred to as the “Final
Expiration Date”), (iii) the
time at which the Rights are redeemed as provided in Section 23
hereof (the “Redemption Date”), or (iv)
the time at which such Rights are exchanged as provided in Section 24 hereof.

(b)           The Purchase Price for each one one-thousandth of a
Preferred Share purchasable pursuant to the exercise of a Right shall initially
be $135.00, and shall be subject to adjustment from time to time as provided in
Section 11 or 13
hereof, and shall be payable in lawful money of the United States of America in
accordance with paragraph (c) below.

(c)           Upon receipt of a Right Certificate representing
exercisable Rights, with the form of election to purchase duly executed,
accompanied by payment of the Purchase Price for the shares to be purchased and
an amount equal to any applicable transfer tax required to be paid by the
holder of such Right Certificate in accordance with Section 9
hereof by certified check, cashier’s check or money order payable to the order
of the Company, the Rights Agent shall thereupon promptly (i) (A) requisition
from any transfer agent of the Preferred Shares certificates for the number of
Preferred Shares to be purchased and the Company hereby irrevocably authorizes
any such transfer agent to comply with all such requests, or (B) if the Company
shall have elected to deposit the total number of Preferred Shares issuable
upon exercise of the Rights with a depositary agent, requisition from the
depositary agent depositary receipts representing such number of one
one-thousandths of a Preferred Share as are to be purchased (in which case
certificates for the Preferred Shares represented by such receipts shall be
deposited by the transfer agent of the Preferred Shares with such depositary
agent) and the Company hereby directs such depositary agent to comply with all
such requests; (ii) when appropriate, requisition from the Company the amount
of cash to be paid in lieu of issuance of fractional shares in accordance with Section 14
hereof; (iii) promptly after receipt of such certificates or depositary
receipts, cause the same to be delivered to or upon the order of the registered
holder of such Right Certificate, registered in such name or names as may be
designated by such holder; and (iv) when appropriate, after receipt, promptly
deliver such cash to or upon the order of the registered holder of such Right
Certificate.

(d)           In case the registered holder of any Right Certificate
shall exercise fewer than all the Rights evidenced thereby, a new Right
Certificate evidencing Rights equivalent to the Rights remaining unexercised
shall be issued by the Rights Agent to registered holder of such Right
Certificate or to such holder’s duly authorized assigns, subject to the
provisions of Section 14 hereof.

 8
 

 

 

(e)           Notwithstanding anything in this Agreement to the
contrary, neither the Rights Agent nor the Company shall be obligated to
undertake any action with respect to a registered holder upon the occurrence of
any purported transfer or exercise of Rights pursuant to Section
6 hereof or this Section 7
unless such registered holder shall have (i) completed and signed the
certificate and the form of assignment or election to purchase set forth on the
reverse side of the Right Certificate surrendered for such transfer or
exercise, and (ii) provided such additional evidence of the identity of the
Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates
thereof as the Company or the Rights Agent shall reasonably request.

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.

(a)           The Company covenants and agrees that it will cause to be
reserved and kept available out of its authorized and unissued Preferred Shares
or any Preferred Shares held in its treasury the number of Preferred Shares
that will be sufficient to permit the exercise in full of all outstanding
Rights in accordance with Section 7
hereof.  The Company covenants and agrees
that it will take all such action as may be necessary to ensure that all
Preferred Shares delivered upon exercise of Rights shall, at the time of
delivery of the certificates for such Preferred Shares (subject to payment of
the Purchase Price), be duly authorized, validly issued, fully paid and
nonassessable shares.

(b)           If then required by law, the Company shall use its best
efforts (i) as soon as practicable following an event described in Section 11(a)(ii)
as to which the consideration to be delivered by the Company upon exercise of
the Rights has been determined in accordance with this Agreement, or as soon as
is required by law following the Distribution Date, as the case may be, to file
a registration statement on an appropriate form under the Securities Act with
respect to the securities purchasable upon exercise of the Rights, (ii) to
cause such registration statement to become effective as soon as practicable
after such filing, and (iii) to cause such registration statement to remain
effective (with a prospectus at all times meeting the requirements of the
Securities Act) until the earlier of (A) the date as of which Rights are no
longer exercisable for such securities and (B) the Final Expiration Date. If
then required by law, the Company shall also use its best efforts to take such
action as may be necessary or appropriate 

 9
 

 

under, or to ensure compliance with, the
securities or “blue sky” laws of the various states in connection with the
exercise of the Rights.  The Company may
temporarily suspend, for a period of time not to exceed one hundred and twenty
(120) days after the first occurrence of an event described in Section 11(a)(ii),
the exercisability of the Rights in order to prepare and file such registration
statement and permit it to become effective. Upon any such suspension, the
Company shall issue a public announcement (and shall provide written notice to
the Rights Agent) stating that the exercisability of the Rights has been
temporarily suspended, as well as a public announcement, in each case with written
notice to the Rights Agent, at such time as the suspension is no longer in
effect.  Notwithstanding any provision of
this Agreement to the contrary, the Rights shall not be exercisable in any
jurisdiction unless any requisite qualification in such jurisdiction shall have
been obtained, the exercise of such Rights is permitted under applicable law, and
if required by law a registration statement has been declared effective.

(c)           The Company further covenants and agrees that it will pay
when due and payable any and all federal and state transfer taxes and charges
which may be payable in respect of the issuance or delivery of the Right
Certificates or of any Preferred Shares upon the exercise of Rights.  The Company shall not, however, be required
to pay any transfer tax which may be payable in respect of any transfer or
delivery of Right Certificates to a Person other than, or the issuance or
delivery of certificates or depositary receipts for the Preferred Shares in a
name other than that of, the registered holder of the Right Certificate
evidencing Rights surrendered for exercise or to issue or to deliver any
certificates or depositary receipts for Preferred Shares upon the exercise of
any Rights until any such tax shall have been paid (any such tax being payable
by the holder of such Right Certificate at the time of surrender) or until it
has been established to the Company’s reasonable satisfaction that no such tax
is due.

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.

(a)           (i) In the event the Company shall at any time after
the date of this Agreement (A) declare a dividend on the Preferred Shares
payable in Preferred Shares, (B) subdivide the outstanding Preferred
Shares, (C) combine the outstanding Preferred Shares 

 10
 

 

into a smaller number of Preferred Shares or
(D) issue any shares of its capital stock in a reclassification of the
Preferred Shares (including any such reclassification in connection with a
consolidation or merger in which the Company is the continuing or surviving
corporation), except as otherwise provided in this Section 11(a),
the Purchase Price in effect at the time of the record date for such dividend
or of the effective date of such subdivision, combination or reclassification,
and the number and kind of shares of capital stock issuable on such date, shall
be proportionately adjusted so that the holder of any Right exercised after
such time shall be entitled to receive the aggregate number and kind of shares
of capital stock which, if such Right had been exercised immediately prior to
such date and at a time when the Preferred Shares transfer books of the Company
were open, such holder would have owned upon such exercise and been entitled to
receive by virtue of such dividend, subdivision, combination or
reclassification; provided,
however, that in no event shall the consideration to be paid upon
the exercise of one Right be less than the aggregate par value of the shares of
capital stock of the Company issuable upon exercise of one Right.  If an event occurs which would require an
adjustment under both this Section 11(a)(i) and Section 11(a)(ii)
hereof, the adjustment provided for in this Section 11(a)(i) shall
be in addition to, and shall be made prior to, any adjustment required pursuant
to Section 11(a)(ii) hereof.

(ii)           Subject to Section 24
hereof, in the event any Person becomes an Acquiring Person, each holder of a
Right shall thereafter have a right to receive, upon 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 in lieu of Preferred Shares,
such number of Common Shares of the Company 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 the Company (determined pursuant to Section 11(d)
hereof) on the date of the occurrence of such event.  In the event that any Person shall become an
Acquiring Person and the Rights shall then be outstanding, the Company shall
not take any action, except as permitted by this Agreement, which if at the
time such action is or would be taken it is reasonably foreseeable that such
action will diminish substantially or otherwise eliminate the benefits intended
to be afforded by the Rights.

From and after the occurrence of such event,
any Rights that are or were acquired or beneficially owned by any Acquiring
Person (or any Associate or Affiliate of such Acquiring Person) shall be void,
and any holder of such Rights shall thereafter have no right to exercise such
Rights under any provision of this Agreement. 
No Right Certificate shall be issued pursuant to Section 3
hereof that represents Rights beneficially owned by an Acquiring Person whose
Rights would be void pursuant to the preceding sentence or any Associate or
Affiliate thereof; no Right Certificate shall be issued at any time upon the
transfer of any Rights to an Acquiring Person whose Rights would be void
pursuant to the preceding sentence or any Associate or Affiliate thereof or to
any nominee of such Acquiring Person, Associate or Affiliate; and any Right
Certificate delivered to the Rights Agent for transfer to an Acquiring Person
whose Rights would be void pursuant to the preceding sentence shall be
cancelled.

(iii)          In the event that there shall not be sufficient Common
Shares issued but not outstanding or authorized but unissued to permit the
exercise in full of the Rights 

 11
 

 

in accordance with subparagraph (ii) above,
the Company shall take all such action as may be necessary to authorize
additional Common Shares for issuance upon exercise of the Rights.  In the event the Company shall, after good
faith effort, be unable to take all such action as may be necessary to
authorize such additional Common Shares, the Company shall substitute, for each
Common Share that would otherwise be issuable upon exercise of a Right, a number
of Preferred Shares or fraction thereof such that the current per share market
price of one Preferred Share multiplied by such number or fraction is equal to
the current per share market price of one Common Share as of the date of
issuance of such Preferred Shares or fraction thereof.

(b)           In case the Company shall fix a record date for the
issuance of rights, options or warrants to all holders of Preferred Shares
entitling them (for a period expiring within 45 calendar days after such record
date) to subscribe for or purchase Preferred Shares (or shares having the same
rights, privileges and preferences as the Preferred Shares (“equivalent
preferred shares”)) or securities convertible into Preferred Shares or
equivalent preferred shares at a price per Preferred Share or equivalent
preferred share (or having a conversion price per share, if a security
convertible into Preferred Shares or equivalent preferred shares) less than the
then current per share market price of the Preferred Shares (as defined in Section 11(d))
on such record date, the Purchase Price to be in effect after such record date
shall be determined by multiplying the Purchase Price in effect immediately
prior to such record date by a fraction, the numerator of which shall be the
number of Preferred Shares outstanding on such record date plus the number of
Preferred Shares which the aggregate offering price of the total number of
Preferred Shares and/or equivalent preferred shares so to be offered (and/or
the aggregate initial conversion price of the convertible securities so to be
offered) would purchase at such current market price and the denominator of
which shall be the number of Preferred Shares outstanding on such record date
plus the number of additional Preferred Shares and/or equivalent preferred
shares to be offered for subscription or purchase (or into which the
convertible securities so to be offered are initially convertible); provided, however,
that in no event shall the consideration to be paid upon the exercise of one
Right be less than the aggregate par value of the shares of capital stock of
the Company issuable upon exercise of one Right.  In case such subscription price may be paid
in a consideration part or all of which shall be in a form other than cash, the
value of such consideration shall be as determined in good faith by the Board
of Directors of the Company, whose determination shall be described in a
statement filed with the Rights Agent and shall be binding on the Rights Agent
and holders of the Rights.  Preferred
Shares owned by or held for the account of the Company shall not be deemed
outstanding for the purpose of any such computation.  Such adjustment shall be made successively
whenever such a record date is fixed; and, in the event that such rights,
options or warrants are not so issued, the Purchase Price shall be adjusted to
be the Purchase Price which would then be in effect if such record date had not
been fixed.

(c)           In case the Company shall fix a record date for the making
of a distribution to all holders of the Preferred Shares (including any such
distribution made in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation) of evidences of
indebtedness or assets (other than a regular quarterly cash dividend or a
dividend payable in Preferred Shares) or subscription rights or warrants
(excluding those referred to in Section 11(b) hereof), the Purchase
Price to be in effect after such record date shall be determined by multiplying
the Purchase Price in effect immediately prior to such record date by a
fraction, the numerator of which shall be the then-current per share market
price of the 

 12
 

 

Preferred Shares on such record date, less
the fair market value (as determined in good faith by the Board of Directors of
the Company, whose determination shall be described in a statement filed with
the Rights Agent and shall be binding on the Rights Agent and holders of the
Rights) of the portion of the assets or evidences of indebtedness so to be
distributed or of such subscription rights or warrants applicable to one
Preferred Share and the denominator of which shall be such then-current per
share market price of the Preferred Shares on such record date; provided,
however, that in no event shall the consideration to be paid upon the exercise
of one Right be less than the aggregate par value of the shares of capital
stock of the Company to be issued upon exercise of one Right.  Such adjustments shall be made successively
whenever such a record date is fixed; and, in the event that such distribution
is not so made, the Purchase Price shall again be adjusted to be the Purchase
Price which would then be in effect if such record date had not been fixed.

(d)           (i) For the purpose of any computation hereunder, the
“current per share market price” of any security (a “Security”
for the purpose of this Section 11(d)(i)) on any date shall be
deemed to be the average of the daily closing prices per share of such Security
for the 30 consecutive Trading Days immediately prior to such date; provided, however, that,
in the event that the current per share market price of the Security is
determined during a period following the announcement by the issuer of such
Security of (A) a dividend or distribution on such Security payable in
shares of such Security or Securities convertible into such shares (other than
the Rights), or (B) any subdivision, combination or reclassification of such
Security and prior to the expiration of 30 Trading Days after the ex-dividend
date for such dividend or distribution, or the record date for such
subdivision, combination or reclassification, then, and in each such case, the
current per share market price shall be appropriately adjusted to reflect the
current market price per share equivalent of such Security.  The closing price for each day shall be the
last sale price, regular way, reported at or prior to 4:00 P.M. Eastern time
or, in case no such sale takes place on such day, the average of the bid and
asked prices, regular way, reported as of 4:00 P.M. Eastern time, in either
case, as reported in the principal consolidated transaction reporting system
with respect to securities listed or admitted to trading on the New York Stock
Exchange or, if the Security is not listed or admitted to trading on the New
York Stock Exchange, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which the Security is listed or admitted to trading or,
if the Security is not listed or admitted to trading on any national securities
exchange, the last quoted price reported at or prior to 4:00 P.M. Eastern time
or, if not so quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported as of 4:00 P.M. Eastern time by NASDAQ or
such other system then in use, or, if on any such date the Security is not
quoted by any such organization, the average of the closing bid and asked
prices as furnished by a professional market maker making a market in the
Security selected by the Board of Directors of the Company.  The term “Trading
Day” shall mean a day on which the principal national securities
exchange on which the Security is listed or admitted to trading is open for the
transaction of business, or, if the Security is not listed or admitted to
trading on any national securities exchange, a Business Day.

(ii)           For the purpose of any computation hereunder, the “current
per share market price” of the Preferred Shares shall be determined in
accordance with the method set forth in Section 11(d)(i).  If the Preferred Shares are not publicly
traded, the “current per share market price” of the Preferred Shares shall be
conclusively deemed to be the current per 

 13
 

 

share market price of the Common Shares as
determined pursuant to Section 11(d)(i) hereof (appropriately
adjusted to reflect any stock split, stock dividend or similar transaction
occurring after the date hereof), multiplied by one thousand.  If neither the Common Shares nor the
Preferred Shares are publicly held or so listed or traded, “current per share
market price” shall mean the fair value per share as determined in good faith
by the Board of Directors of the Company, whose determination shall be
described in a statement filed with the Rights Agent.

(e)           No adjustment in the Purchase Price shall be required
unless such adjustment would require an increase or decrease of at least 1% in
the Purchase Price; provided, however, that any adjustments which by reason of
this Section 11(e) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment.  All calculations under this Section 11
shall be made to the nearest cent or to the nearest one one-millionth of a
Preferred Share or one ten-thousandth of any other share or security as the
case may be.  Notwithstanding the first
sentence of this Section 11(e), any adjustment required by this Section 11
shall be made no later than the earlier of (i) three years from the date of the
transaction which requires such adjustment or (ii) the date of the expiration
of the right to exercise any Rights.

(f)            If, as a result of an adjustment made pursuant to Section 11(a)
hereof, the holder of any Right thereafter exercised shall become entitled to
receive any shares of capital stock of the Company other than Preferred Shares,
thereafter the number of such other shares so receivable upon exercise of any
Right shall be subject to adjustment from time to time in a manner and on terms
as nearly equivalent as practicable to the provisions with respect to the
Preferred Shares contained in Section 11(a), (c),
(e), (i),
(m) and (n),
inclusive, and the provisions of Sections 7,
9, 10, 13 and 14
hereof with respect to the Preferred Shares shall apply on like terms to any
such other shares.

(g)           All Rights originally issued by the Company subsequent to
any adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of one one-thousandths of
a Preferred Share purchasable from time to time hereunder upon exercise of the
Rights, all subject to further adjustment as provided herein.

(h)           Unless the Company shall have exercised its election as
provided in Section 11(i) hereof, upon each adjustment of the
Purchase Price as a result of the calculations made in Section 11(b)
and (c) hereof, each Right outstanding
immediately prior to the making of such adjustment shall thereafter evidence
the right to purchase, at the adjusted Purchase Price, that number of one
one-thousandths of a Preferred Share (calculated to the nearest one
one-millionth of a Preferred Share) obtained by (A) multiplying (x) the number
of one one-thousandths of a share covered by a Right immediately prior to this
adjustment by (y) the Purchase Price in effect immediately prior to such adjustment
of the Purchase Price and (B) dividing the product so obtained by the
Purchase Price in effect immediately after such adjustment of the Purchase
Price.

(i)            The Company may elect, on or after the date of any
adjustment of the Purchase Price, to adjust the number of Rights in
substitution for any adjustment in the number of one one-thousandths of a
Preferred Share purchasable upon the exercise of a Right.  Each of 

 14
 

 

 

the Rights outstanding after such adjustment
of the number of Rights shall be exercisable for the number of one
one-thousandths of a Preferred Share for which a Right was exercisable
immediately prior to such adjustment. 
Each Right held of record prior to such adjustment of the number of
Rights shall become that number of Rights (calculated to the nearest one
ten-thousandth) obtained by dividing the Purchase Price in effect immediately
prior to adjustment of the Purchase Price by the Purchase Price in effect
immediately after adjustment of the Purchase Price.  The Company shall make a public announcement
of its election to adjust the number of Rights, indicating the record date for
the adjustment, and, if known at the time, the amount of the adjustment to be
made.  This record date may be the date on
which the Purchase Price is adjusted or any day thereafter, but, if the Right
Certificates have been issued, shall be at least 10 days later than the date of
the public announcement.  If Right
Certificates have been issued, upon each adjustment of the number of Rights
pursuant to this Section 11(i), the Company shall, as promptly as
practicable, cause to be distributed to holders of record of Right Certificates
on such record date Right Certificates evidencing, subject to Section 14
hereof, the additional Rights to which such holders shall be entitled as a
result of such adjustment, or, at the option of the Company, shall cause to be
distributed to such holders of record in substitution and replacement for the
Right Certificates held by such holders prior to the date of adjustment, and
upon surrender thereof, if required by the Company, new Right Certificates
evidencing all the Rights to which such holders shall be entitled after such
adjustment.  Right Certificates so to be
distributed shall be issued, executed and countersigned in the manner provided
for herein, and shall be registered in the names of the holders of record of
Right Certificates on the record date specified in the public announcement.

(j)            Irrespective of any adjustment or change in the Purchase
Price or in the number of one one-thousandths of a Preferred Share issuable
upon the exercise of the Rights, the Right Certificates theretofore and
thereafter issued may continue to express the Purchase Price and the number of
one one-thousandths of a Preferred Share which were expressed in the initial
Right Certificates issued hereunder.

(k)           Before taking any action that would cause an adjustment
reducing the Purchase Price below one one-thousandth of the then par value, if
any, of the Preferred Shares issuable upon exercise of the Rights, the Company
shall take any corporate action which may, in the opinion of its counsel, be
necessary in order that the Company may duly authorize and validly issue fully
paid and nonassessable Preferred Shares at such adjusted Purchase Price.

(l)            In any case in which this Section 11 shall
require that an adjustment in the Purchase Price be made effective as of a
record date for a specified event, the Company may elect to defer until the
occurrence of such event the issuing to the holder of any Right exercised after
such record date of the Preferred Shares and other capital stock or securities
of the Company, if any, issuable upon such exercise over and above the
Preferred Shares and other capital stock or securities of the Company, if any,
issuable upon such exercise on the basis of the Purchase Price in effect prior
to such adjustment; provided, however, that the Company shall deliver to such
holder a due bill or other appropriate instrument evidencing such holder’s
right to receive such additional shares upon the occurrence of the event
requiring such adjustment.

(m)          Anything in this Section 11 to the contrary
notwithstanding, the Company shall be entitled to make such reductions in the
Purchase Price, in addition to those adjustments 

 15
 

 

 

expressly required by this Section 11,
as and to the extent that it, in its sole discretion, shall determine to be
advisable in order that any consolidation or subdivision of the Preferred
Shares, issuance wholly for cash of any Preferred Shares at less than the
current market price, issuance wholly for cash of Preferred Shares or
securities which by their terms are convertible into or exchangeable for
Preferred Shares, dividends on Preferred Shares payable in Preferred Shares or
issuance of rights, options or warrants referred to in Section 11(b)
hereof, hereafter made by the Company to holders of the Preferred Shares shall
not be taxable to such stockholders.

(n)           In the event that, at any time after the date of this
Agreement and prior to the Distribution Date, the Company shall (i) declare or
pay any dividend on the Common Shares payable in Common Shares, or (ii) effect
a subdivision, combination or consolidation of the Common Shares (by
reclassification or otherwise than by payment of dividends in Common Shares)
into a greater or lesser number of Common Shares, then, in any such case,
(A) the number of one one-thousandths of a Preferred Share purchasable
after such event upon proper exercise of each Right shall be determined by
multiplying the number of one one-thousandths of a Preferred Share so
purchasable immediately prior to such event by a fraction, the numerator of
which is the number of Common Shares outstanding immediately before such event
and the denominator of which is the number of Common Shares outstanding immediately
after such event, and (B) each Common Share outstanding immediately after such
event shall have issued with respect to it that number of Rights which each
Common Share outstanding immediately prior to such event had issued with
respect to it.  The adjustments provided
for in this Section 11(n) shall be made successively whenever such
a dividend is declared or paid or such a subdivision, combination or
consolidation is effected.

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 

 16
 

 

 

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.

(a)           The Company shall not be required to issue fractions of
Rights or to distribute Right Certificates which evidence fractional
Rights.  In lieu of such fractional
Rights, the Company shall pay to the registered holders of the Right Certificates
with regard to which such fractional Rights would otherwise be issuable, an
amount in cash equal to the same fraction of the current market value of a
whole Right.  For the purposes of this Section 14(a), the current market value of a whole
Right shall be the closing price of the Rights for the Trading Day immediately
prior to the date on which such fractional Rights would have been otherwise
issuable.  The closing price for any day
shall be the last sale price, regular way, or, in case no such sale takes place
on such day, the average of the closing bid and asked prices, regular way, in
either case, as reported in the principal consolidated transaction reporting
system with respect to securities listed or admitted to trading on the New York
Stock Exchange or, if the Rights are not listed or admitted to trading on the
New York Stock Exchange, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which the Rights are listed or admitted to trading or,
if the Rights are not listed or admitted to trading on any national securities
exchange, the last quoted price or, if not so quoted, the average of the high
bid and low asked prices in the over-the-counter market, as reported by NASDAQ
or such other system then in use or, if on any such date the Rights are not
quoted by any such organization, the average of the closing bid and asked
prices as furnished by a professional market maker making a market in the Rights
selected by the Board of Directors of the Company.  If on any such date no such market maker is
making a market in the Rights, the fair value of the Rights on such date as
determined in good faith by the Board of Directors of the Company shall be
used.

(b)           The Company shall not be required to issue fractions of
Preferred Shares (other than fractions which are integral multiples of one
one-thousandth of a Preferred Share) upon exercise of the Rights or to
distribute certificates which evidence fractional Preferred Shares (other than
fractions which are integral multiples of one one-thousandth of a Preferred 

 17
 

 

 

Share). 
Fractions of Preferred Shares in integral multiples of one
one-thousandth of a Preferred Share may, at the election of the Company, be
evidenced by depositary receipts, pursuant to an appropriate agreement between
the Company and a depositary selected by it; provided that such agreement shall
provide that the holders of such depositary receipts shall have all the rights,
privileges and preferences to which they are entitled as beneficial owners of
the Preferred Shares represented by such depositary receipts.  In lieu of fractional Preferred Shares that
are not integral multiples of one one-thousandth of a Preferred Share, the
Company shall pay to the registered holders of Right Certificates at the time
such Rights are exercised as herein provided an amount in cash equal to the
same fraction of the current market value of one Preferred Share.  For the purposes of this Section 14(b), the current market value of a Preferred
Share shall be the closing price of a Preferred Share (as determined pursuant
to the second sentence of Section 11(d)(i) hereof) for the Trading
Day immediately prior to the date of such exercise.

(c)           The holder of a Right, by the acceptance of the Right,
expressly waives such holder’s right to receive any fractional Rights or any
fractional shares upon exercise of a Right (except as provided above).

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 holder’s own behalf
and for such holder’s 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 holder’s 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:

(a)           prior to the Distribution Date, the Rights will be
transferable only in connection with the transfer of the Common Shares;

(b)           after the Distribution Date, the Right Certificates are
transferable only on the registry books of the Rights Agent if surrendered at
the principal office of the Rights Agent, duly endorsed or accompanied by a
proper instrument of transfer and with the appropriate forms and certificates
fully executed;

(c)           the Company and the Rights Agent may deem and treat the
person in whose name the Right Certificate (or, prior to the Distribution Date,
the associated Common 

 18
 

 

 

Shares certificate) is registered as the
absolute owner thereof and of the Rights evidenced thereby (notwithstanding any
notations of ownership or writing on the Right Certificate or the associated
Common Shares certificate made by anyone other than the Company or the Rights
Agent) for all purposes whatsoever, and neither the Company nor the Rights
Agent shall be affected by any notice to the contrary; and

(d)           notwithstanding anything in this Agreement to the
contrary, neither the Company nor the Rights Agent shall have any liability to
any holder of a Right or other Person as a result of its inability to perform
any of its obligations under this Agreement by reason of any preliminary or
permanent injunction or other order, decree or ruling issued by a court of
competent jurisdiction or by a governmental, regulatory or administrative
agency or commission, or any statute, rule, regulation or executive order
promulgated or enacted by any governmental authority, prohibiting or otherwise
restraining performance of such obligation; provided, however, the Company must
use its best efforts to have any such order, decree or ruling lifted or
otherwise overturned as soon as possible.

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.

 

 19

 

 

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.

In case at any time the name of the Rights
Agent shall be changed and at such time any of the Right Certificates shall
have been countersigned but not delivered, the Rights Agent may adopt the
countersignature under its prior name and deliver Right Certificates so
countersigned; and, in case at that time any of the Right Certificates shall
not have been countersigned, the Rights Agent may countersign such Right
Certificates either in its prior name or in its changed name; 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:

(a)           The Rights Agent may consult with legal counsel (who may
be legal counsel for the Company), and the opinion of such counsel shall be
full and complete authorization and protection to the Rights Agent as to any
action taken or omitted by it in good faith and in accordance with such
opinion.

(b)           Whenever in the performance of its duties under this
Agreement the Rights Agent shall deem it necessary or desirable that any fact
or matter be proved or established by the Company prior to taking or suffering
any action hereunder, such fact or matter (unless other evidence in respect
thereof be herein specifically prescribed) may be deemed to be conclusively
proved and established by a certificate signed by any one of the Chairman of
the Board, the Chief Executive Officer, the President, any Vice President, the
Treasurer or the Secretary of the Company and delivered to the Rights Agent;
and such certificate shall be full authorization to the Rights Agent for any
action taken or suffered in good faith by it under the provisions of this
Agreement in reliance upon such certificate.

(c)           The Rights Agent shall be liable hereunder to the Company
and any other Person only for its own negligence, bad faith or willful
misconduct.

 20
 

 

(d)           The Rights Agent shall not be liable for or by reason of
any of the statements of fact or recitals contained in this Agreement or in the
Right Certificates (except its countersignature thereof) or be required to
verify the same, but all such statements and recitals are and shall be deemed
to have been made by the Company only.

(e)            The Rights Agent shall not be under any responsibility in
respect of the validity of this Agreement or the execution and delivery hereof
(except the due authorization and execution hereof by the Rights Agent) or in
respect of the validity or execution of any Right Certificate (except its
countersignature thereof); nor shall it be responsible for any breach by the
Company of any covenant or condition contained in this Agreement or in any
Right Certificate; nor shall it be responsible for any change in the
exercisability of the Rights (including the Rights becoming void pursuant to Section 11(a)(ii)
hereof) or any adjustment in the terms of the Rights (including the manner,
method or amount thereof) provided for in Section 3, 11, 13, 23 or 24
hereof, or the ascertaining of the existence of facts that would require any
such change or adjustment (except with respect to the exercise of Rights
evidenced by Right Certificates after actual notice that such change or
adjustment is required); nor shall it by any act hereunder be deemed to make
any representation or warranty as to the authorization or reservation of any
Preferred Shares to be issued pursuant to this Agreement or any Right
Certificate or as to whether any Preferred Shares will, when issued, be duly
authorized, validly issued, fully paid and nonassessable.

(f)            The Company agrees that it will perform, execute,
acknowledge and deliver or cause to be performed, executed, acknowledged and
delivered all such further and other acts, instruments and assurances as may
reasonably be required by the Rights Agent for the carrying out or performing
by the Rights Agent of the provisions of this Agreement.

(g)           The Rights Agent is hereby authorized and directed to
accept instructions with respect to the performance of its duties hereunder
from any one of the Chairman of the Board, the Chief Executive Officer, the
President, any Vice President, the Secretary or the Treasurer of the Company,
and to apply to such officers for advice or instructions in connection with its
duties, and it shall not be liable for any action taken or suffered by it in
good faith in accordance with instructions of any such officer or for any delay
in acting while waiting for those instructions.

(h)           The Rights Agent and any stockholder, director, officer or
employee of the Rights Agent may, to the extent not otherwise prohibited by
applicable law, buy, sell or deal in any of the Rights or other securities of
the Company or become pecuniarily interested in any transaction in which the
Company may be interested, or contract with or lend money to the Company or
otherwise act as fully and freely as though it were not Rights Agent under this
Agreement.  Nothing herein shall preclude
the Rights Agent from acting in any other capacity for the Company or for any
other legal entity.

(i)            If, with respect to any Right Certificate surrendered to
the Rights Agent for exercise or transfer, the certificate attached to the form
of assignment or form of election to purchase, as the case may be, has either
not been completed or indicates an affirmative response to clause 1 and/or 2
thereof, the Rights Agent shall not take any further action with respect to
such requested exercise or transfer without first consulting with the Company.

 21
 

 

 

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 holder’s 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 

 22
 

 

 

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.

(a)           The Board of Directors of the Company may, at its option,
at any time prior to such time as any Person becomes an Acquiring Person,
redeem all but not less than all the then outstanding Rights at a redemption
price of $.01 per Right, appropriately adjusted to reflect any stock split,
stock dividend or similar transaction occurring after the date hereof (such
redemption price being hereinafter referred to as the “Redemption
Price”).  The redemption
of the Rights by the Board of Directors of the Company may be made effective at
such time, on such basis and with such conditions as the Board of Directors of
the Company, in its sole discretion, may establish.

(b)           Immediately upon the action of the Board of Directors of
the Company ordering the redemption of the Rights pursuant to Section 23(a),
and without any further action and without any notice, the right to exercise
the Rights will terminate and the only right thereafter of the holders of
Rights shall be to receive the Redemption Price.  The Company shall promptly give public notice
of any such redemption; provided,
however, that the failure to give, or any defect in, any such notice
shall not affect the validity of such redemption.  Within 10 days after such action of the Board
of Directors of the Company ordering the redemption of the Rights, the Company
shall mail a notice of redemption to all the holders of the then outstanding
Rights at their last addresses as they appear upon the registry books of the
Rights Agent or, prior to the Distribution Date, on the registry books of the
transfer agent for the Common Shares. 
Any notice which is mailed in the manner herein provided shall be deemed
given, whether or not the holder receives the notice.  Each such notice of redemption will state the
method by which the payment of the Redemption Price will be made.

Section 24.             Exchange.

(a)            The Board of Directors of the Company may, at its option,
at any time after any Person becomes an Acquiring Person, exchange all or part
of the then outstanding and exercisable Rights (which shall not include Rights
that have become void pursuant to the provisions of Section 11(a)(ii)
hereof) for Common Shares at an exchange ratio of one Common Share per Right,
appropriately adjusted to reflect any adjustment in the number of Rights
pursuant to Section 11(i) (such exchange ratio being hereinafter
referred to as the “Exchange Ratio”).  Notwithstanding the foregoing, the Board of
Directors of the Company shall not be empowered to effect such exchange at any
time after any Person who is an Acquiring Person, together with all Affiliates
and Associates of such Person, becomes the Beneficial Owner of 50% or more of
the Common Shares then outstanding.

(b)            Immediately upon the action of the Board of Directors of
the Company ordering the exchange of any Rights pursuant to paragraph (a) of
this Section 24 and without any 

 23
 

 

 

further action and without any notice, the right to exercise such
Rights shall terminate and the only right thereafter of a holder of such Rights
shall be to receive that number of Common Shares equal to the number of such
Rights held by such holder multiplied by the Exchange Ratio.  The Company shall promptly give public notice
of any such exchange; provided,
however, that the failure to give, or any defect in, such notice
shall not affect the validity of such exchange. 
The Company promptly shall mail a notice of any such exchange to all of
the holders of such Rights at their last addresses as they appear upon the
registry books of the Rights Agent.  Any
notice which is mailed in the manner herein provided shall be deemed given,
whether or not the holder receives the notice. 
Each such notice of exchange will state the method by which the exchange
of the Common Shares for Rights will be effected, and, in the event of any
partial exchange, the number of Rights which will be exchanged.  Any partial exchange shall be effected pro
rata based on the number of Rights (other than Rights which have become void pursuant
to the provisions of Section 11(a)(ii) hereof) held by each holder
of Rights.

(c)            In the event that there shall not be sufficient Common
Shares issued but not outstanding or authorized but unissued to permit any
exchange of Rights as contemplated in accordance with this Section 24, the Company shall take all such
action as may be necessary to authorize additional Common Shares for issuance
upon exchange of the Rights.  In the
event the Company shall, after good faith effort, be unable to take all such
action as may be necessary to authorize such additional Common Shares, the
Company shall substitute, for each Common Share that would otherwise be
issuable upon exchange of a Right, a number of Preferred Shares or fraction
thereof such that the current per share market price of one Preferred Share
multiplied by such number or fraction is equal to the current per share market
price of one Common Share as of the date of issuance of such Preferred Shares
or fraction thereof.

(d)            The Company shall not be required to issue fractions of
Common Shares or to distribute certificates which evidence fractional Common
Shares.  In lieu of such fractional
Common Shares, the Company shall pay to the registered holders of the Right
Certificates with regard to which such fractional Common Shares would otherwise
be issuable an amount in cash equal to the same fraction of the current market
value of a whole Common Share.  For the
purposes of this paragraph (d), the current market value of a whole Common
Share shall be the closing price of a Common Share (as determined pursuant to
the second sentence of Section 11(d)(i) hereof) for the Trading Day
immediately prior to the date of exchange pursuant to this Section 24.

Section 25.             Notice of Certain Events.

(a)            In case the Company shall, at any time after the
Distribution Date, propose (i) to pay any dividend payable in stock of any
class to the holders of the Preferred Shares or to make any other distribution
to the holders of the Preferred Shares (other than a regular quarterly cash
dividend), (ii) to offer to the holders of the Preferred Shares rights or
warrants to subscribe for or to purchase any additional Preferred Shares or
shares of stock of any class or any other securities, rights or options, (iii)
to effect any reclassification of the Preferred Shares (other than a
reclassification involving only the subdivision of outstanding Preferred
Shares), (iv) to effect any consolidation or merger into or with, or to effect
any sale or other transfer (or to permit one or more of its Subsidiaries to
effect any sale or other transfer), in one or more transactions, of 50% or more
of the assets or earning power of the Company and its Subsidiaries (taken as a 

 24
 

 

 

whole) to, any other Person, (v) to effect
the liquidation, dissolution or winding up of the Company, or (vi) to declare
or pay any dividend on the Common Shares payable in Common Shares or to effect
a subdivision, combination or consolidation of the Common Shares (by
reclassification or otherwise than by payment of dividends in Common Shares),
then, in each such case, the Company shall give to each holder of a Right
Certificate, in accordance with Section 26
hereof, a notice of such proposed action, which shall specify the record date
for the purposes of such stock dividend, or distribution of rights or warrants,
or the date on which such reclassification, consolidation, merger, sale,
transfer, liquidation, dissolution, or winding up is to take place and the date
of participation therein by the holders of the Common Shares and/or Preferred
Shares, if any such date is to be fixed, and such notice shall be so given in
the case of any action covered by clause (i) or (ii) above at least 10 days
prior to the record date for determining holders of the Preferred Shares for
purposes of such action, and, in the case of any such other action, at least 10
days prior to the date of the taking of such proposed action or the date of
participation therein by the holders of the Common Shares and/or Preferred
Shares, whichever shall be the earlier.

(b)          In case the event set forth in Section 11(a)(ii)
hereof shall occur, then the Company shall, as soon as practicable thereafter,
give to each holder of a Right Certificate, in accordance with Section 26 hereof, a notice of the occurrence of
such event, which notice shall describe such event and the consequences of such
event to holders of Rights under Section 11(a)(ii) hereof.

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.

 25
 

 

 

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 

 26
 

 

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]

 27
 

 

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:

  	
   

  	
   

  	
  HAYNES INTERNATIONAL, INC.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Stacy S. Kilian

  	
   

  	
  By:

  	
  /s/ Francis
  Petro

  
	
   

  	
  Name:

  	
  Stacy S. Kilian

  	
   

  	
  Name:

  	
  Francis Petro

  
	
   

  	
  Title:

  	
  Vice President - General Counsel

  	
   

  	
  Title:

  	
  President and Chief Executive Officer

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Attest:

  	
   

  	
   

  	
  WELLS FARGO BANK, N.A

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Suzanne M. Swits

  	
   

  	
  By:

  	
  /s/ Becky Paulson

  
	
   

  	
  Name:

  	
  Suzanne M. Swits

  	
   

  	
  Name:

  	
  Becky Paulson

  
	
   

  	
  Title:

  	
  Assistant Secretary

  	
   

  	
  Title:

  	
  Officer

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

 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 

 A-2
 

 

 

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 

 A-4
 

 

 

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 Corporation’s 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 13th day of August, 2006.

 

	
  

  	
   

  	
   

  
	
   

  	
   

  	
  Chief
  Financial Officer

  
	
   

  	
   

  	
   

  
	
  Attest:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Secretary

  	
   

  	
   

  

 

 A-5

 

 

Exhibit B

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 (30th) 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 Company’s 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              ,
      .

	
  ATTEST:

  	
   

  	
  HAYNES INTERNATIONAL, INC.

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  	
  Title:

  	
   

  

 

 B-2
 

 

 

	
  Countersigned:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  WELLS
  FARGO BANK, N.A.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  	
   

  

 

 B-3
 

 

[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:

	
  

  	
   

  
	
   

  	
  Signature

  

 

 

	
  

  	
   

  
	
  Signature Medallion Guaranteed:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  

 

 

 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    

	
  

  	
   

  
	
   

  	
  Signature

  

 

 

	
  

  	
   

  
	
  Signature Medallion Guaranteed:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  

 

 

 

 

 

 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    

	
  

  	
   

  
	
   

  	
  Signature

  

 

 

	
  

  	
   

  
	
  Signature Medallion Guaranteed:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  

 

 

 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    

	
  

  	
   

  
	
   

  	
  Signature

  

 

 

	
  

  	
   

  
	
  Signature Medallion Guaranteed:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  

 

 

 

 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.

 

 B-8

 

 

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),

 C-1
 

 

 

·                  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 corporation’s 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 (30th) 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 

 C-2
 

 

 

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.

 

 C-3

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