Document:

TIMET Exhibit 10.22

    

      EXHIBIT
        10.22

       

      

        Portions
          of this Exhibit 10.22 have been omitted based upon a request for confidential
          treatment. This Exhibit 10.22, including the non-public information, has
          been
          filed separately with the Securities and Exchange Commission “[*]” designates
          portions of this document that have been redacted pursuant to the request
          for
          confidential treatment filed with the Securities and Exchange
          Commission.

         

        This
          CONVERSION SERVICES AGREEMENT (this “Agreement”) is made this 17th day of
          November 2006 by and between,

      

       

      Haynes
        International, Inc., a corporation organized and duly existing under the
        laws of
        the State of Delaware, having its head office at 1020 West Park Avenue, Kokomo,
        Indiana 46904-9013, hereinafter referred to as “HAYNES”;

       

      and

       

      Titanium
        Metals Corporation, a corporation organized and duly existing under the laws
        of
        the State of Delaware, having its head office at 5430 LBJ Freeway, Suite
        1700,
        Dallas, TX 75240, hereinafter referred to as “TIMET.”

       

      HAYNES
        and TIMET are each hereinafter individually referred to as a “Party” or
        collectively as the “Parties.”

       

      RECITALS

       

      A. Contemporaneous
        with the entry into this Agreement, HAYNES and TIMET have entered into certain
        transactions evidenced by the Transaction Documents (as hereinafter
        defined);

       

      B. TIMET
        requires, and HAYNES has agreed, to provide, the Titanium Conversion Services
        (as hereinafter defined);

       

      C. HAYNES
        is
        technically capable of performing the Titanium Conversion Services;

       

      D. In
        connection with its performance hereunder, Haynes will obtain know-how from
        TIMET that could competitively harm TIMET if Haynes were to perform Titanium
        Conversion Services on behalf of a competitor of TIMET; and

       

      E. In
        order
        to increase TIMET’s competitiveness for customers against fully integrated
        titanium producers, TIMET needs long-term access to a guaranteed source of
        Titanium Conversion Services.

       

      NOW
        THEREFORE, in consideration of the premises and mutual covenants herein
        contained and for other good and valuable consideration, the receipt and
        sufficiency of which are hereby acknowledged, HAYNES and TIMET agree as
        follows:

       

      ARTICLE
        1  

       

      DEFINITIONS

       

      For
        purposes of this Agreement, the following defined terms have the meanings
        set
        forth in this Article 1:

       

      “Acceptance
        Procedure”
shall
        have the meaning set forth in Section 4.3(a).

       

      “Access
        and Security Agreement”
shall
        mean that certain Access and Security Agreement of even date herewith by
        and
        between HAYNES and TIMET.

       

      “Affiliate”
shall
        mean any legal corporation, entity, firm or person directly or indirectly
        owned
        by or under the same ownership as either Party, for so long as such ownership
        lasts. Ownership shall exist through the direct or indirect: (i) ownership
        or control of more than fifty percent (50%) of the nominal value of the issued
        equity share capital or of more than fifty percent (50%) of the shares entitling
        the holders to vote for the election of directors or officers or persons
        performing similar functions, or (ii) right by any other means to elect or
        appoint directors, officers or persons performing similar functions, who
        have a
        majority vote.

       

      “Agreement”
shall
        mean this Conversion Services Agreement, and each of the exhibits attached
        hereto and forming an integral part hereof, as the foregoing may from time
        to
        time hereafter be amended, supplemented or modified.

       

      “Arbitration
        Demand”
shall
        have the meaning set forth in Section 12.2(b).

       

      “Arbitration
        Response”
shall
        have the meaning set forth in Section 12.2(c).

       

      “Base
        Prices”
shall
        mean the base prices set forth and/or calculated pursuant to
        Section 3.1.

       

      “CC
        Termination”
shall
        have the meaning set forth in Section 13.2(c). 

       

      “Change
        in Control”
shall
        mean (i) a merger or consolidation of HAYNES where HAYNES is not the surviving
        entity or the current stockholders of HAYNES hold less than 50% of the voting
        securities of HAYNES after such merger or consolidation, (ii) any person
        (as defined in the Exchange Act) (other than HAYNES, any of its subsidiaries
        or
        any trustee, fiduciary or other person holding securities under any employee
        share ownership plan or any other employee benefit plan of HAYNES or any
        of its
        subsidiaries), together with its affiliates and associates (as such terms
        are
        defined in Rule 12b-2 under the Exchange Act), shall have become the beneficial
        owner (as defined in Rule 13d-3 of the Exchange Act) of 50% or more of the
        outstanding voting securities of HAYNES, (iii) a sale, lease, exchange or
        other
        transfer (in one transaction or a series of related transactions) of all,
        or
        substantially all, of the assets of HAYNES, or the Operating Assets, or
        (iv) any other transaction or series of related transactions effectively
        changing the control of HAYNES to any person or entity.

       

      “Confidential
        Information”
shall
        have the meaning set forth in Section 9.2.

       

      “Damages”
shall
        mean, collectively, any damage, liability, loss, or cost (including, but
        not
        limited to, reasonable attorneys’ fees and other costs and expenses directly
        related to proceedings or investigations or the defense of any claim), but
        shall
        not include any consequential or incidental damages suffered directly by
        a Party
        hereto, except as otherwise expressly indicated.

       

      “Direct
        Cost”
shall
        have the meaning set forth in Section 2.3(b).

       

      “Dispute”
shall
        mean any dispute, controversy, or claim between the Parties arising out of,
        relating to, or connected with this Agreement or the breach or invalidity
        hereof.

       

      “Effective
        Termination Date”
shall
        have the meaning set forth in Section 13.2(c).

       

      “Event
        of Default”
shall
        have the meaning set forth in Section 5.2.

       

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

       

      “Force
        Majeure”
shall
        have the meaning set forth in Section 8.1.

       

      “4-High
        Facility”
shall
        have the meaning set forth under the term “Mill” as defined in the Access and
        Security Agreement. 

       

      “HAYNES”
shall
        have the meaning set forth in the introduction hereto.

       

      “HAYNES
        Successor”
shall
        have the meaning set forth in Section 11.2.

       

      “Joint
        Proprietary Information”
shall
        have the meaning set forth in Section 2.6.

       

      “Liquidated
        Damages”
shall
        have the meaning set forth in Section 5.3(a).

       

      “Loan
        Date”
shall
        have the meaning set forth in Section 2.1(c).

       

      “Material”
shall
        mean any and all titanium material delivered by TIMET or its designee(s)
        to
        HAYNES for Titanium Conversion Services performed hereunder.

       

      “Maximum
        Annual Volume”
shall
        have the meaning set forth in Section 2.1(a).

       

      “Maximum
        Cycle Time”
shall
        mean the Maximum Cycle Time set forth on Exhibit A. 

       

      “Maximum
        Monthly Volume”
shall
        have the meaning set forth in Section 2.1(e).

       

      “Non-Compete
        Amendment”
shall
        have the meaning set forth in Section 11.2.

       

      “Non-Compete
        Amendment Fee”
shall
        have the meaning set forth in Section 11.2.

       

      “On-Time
        Delivery Rate”
shall
        be the percentage of deliveries delivered on-time as calculated each month
        according to the following formula:

       

      OTD
        = (TD
        - R)/TD

       

      Where:

       

      “OTD”
is
        the On-Time Delivery Rate (expressed as a percentage).

       

      “R”
is
        the number of orders (by Purchase Order Number) delivered after the Scheduled
        Delivery Date.

       

      “TD”
is
        the total number of orders (by Purchase Order Number) scheduled for the calendar
        month.

       

      “Operating
        Assets”
shall
        mean the 4-High Facility, together with the “Equipment,” “Intellectual
        Property,” “Contract Rights” and “Real Estate” (as such terms are defined in the
        Access and Security Agreement), used in connection with the performance of
        the
        Titanium Conversion Services. The term “Operating Assets” as used herein shall
        be deemed to have the same meaning assigned to the term “Operating Assets” in
        the Access and Security Agreement.

       

      “Option”
shall
        have the meaning set forth in Section 2.1(b).

       

      “Option
        Note”
shall
        have the meaning set forth in Section 2.1(d).

       

      “Option
        Notice”
shall
        have the meaning set forth in Section 2.1(b).

       

      “Parties”
shall
        mean HAYNES and TIMET.

       

      “Party”
shall
        mean HAYNES or TIMET, as the case may be.

       

      “Proprietary
        Information”
shall
        have the meaning set forth in Section 2.6.

       

      “Purchase
        Order Number”
shall
        mean the unique TIMET identification associated with the complete processing
        of
        a single batch or heat of titanium.

       

      “QTP
        Rate”
means
        the Quality Throughput Pass rate or First Time Pass rate shall be calculated
        monthly in accordance with the following formula:

       

      QTP
        =
        (TD-R)/TD

       

      Where:

       

      “QTP”
is
        the Quality Throughput Pass rate (expressed as a percentage).

       

      “R”
it
        the total number of orders (measured by Purchase Order Number) rejected due
        to
        not meeting acceptance requirements of Section 4.3.

       

      “TD”
is
        the total number of orders (measured by Purchase Order Numbers) scheduled
        for
        the calendar month.

       

      “Scheduled
        Delivery Date”
shall
        mean the date HAYNES shall be required to deliver a titanium product resulting
        from its provision of Titanium Conversion Services determined based on the
        addition of the number of effective calendar days set forth on Exhibit A
        under
        the column with the heading “Maximum Cycle Times” to the date the relevant
        Submission Sheet is received by HAYNES.

       

      “Steering
        Committee”
shall
        have the meaning set forth in Section 2.1(c).

       

      “Submission
        Sheet”
shall
        mean a simplified order form issued for Material deemed by the Parties a
        purchase order from TIMET authorizing HAYNES to perform Titanium Conversion
        Services under this Agreement. The Submission Sheet will contain a summary
        listing of products required for the scheduled rolling campaign, the Purchase
        Order Number, heat number, product code reference, input weight and other
        relevant information.

       

      “Termination
        Fee”
shall
        have the meaning set forth in Section 13.2(c).

       

      “Titanium
        Conversion Services”
shall
        mean the processing of Materials performed with the Operating Assets and
        related
        equipment, which includes hot rolling and the related processes required
        to
        produce the products listed on Exhibit A.

       

      “TIMET”
shall
        have the meaning set forth in the introduction hereto.

       

      “Transaction
        Documents”
means,
        collectively, the Access and Security Agreement, this Agreement and the Option
        Note and any other document or instrument delivered in connection herewith
        or
        therewith.

       

      ARTICLE
        2  

       

      TITANIUM
        CONVERSION SERVICES

       

      	2.1  	
              Maximum
                Volumes.

            

       

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

            

       

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

            

       

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

            

       

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

            

       

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

            

       

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

            

       

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

            

       

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

            

       

      	2.3  	
              Product
                Codes.

            

       

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

            

       

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

            

       

      	2.4  	
              Forecasts.

            

       

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

            

       

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

            

       

      	2.5  	
              Submission
                Sheets.

            

       

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

            

       

      	(b)  	
              Each
                Submission Sheet shall contain the
                following:

            

       

      	(i)  	
              reference
                to this Agreement;

            

       

      	(ii)  	
              the
                specific product code from Exhibit A;

            

       

      	(iii)  	
              a
                Purchase Order Number;

            

       

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

            

       

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

            

       

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

            

       

      ARTICLE
        3  

       

      PRICES
        AND PAYMENT

       

      	3.1  	
              Base
                Prices.

            

       

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

            

       

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

            

       

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

            

       

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

            

       

      	3.4  	
              Terms
                of Delivery and Payment.

            

       

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

            

       

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

            

       

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

            

       

      ARTICLE
        4  

       

      PRODUCTION
        AND QUALITY ASSURANCE MATTERS

       

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

            

       

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

            

       

      	4.3  	
              Acceptance
                Procedure.

            

       

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

            

       

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

            

       

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

            

       

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

            

       

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

            

       

      	4.6  	
              Quality
                Assurance Matters.

            

       

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

            

       

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

            

       

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

            

       

      ARTICLE
        5  

       

      BREACH
        OF WARRANTY; EVENTS OF DEFAULT; REMEDIES

       

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

            

       

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

            

       

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

            

       

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

            

       

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

            

       

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

            

       

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

            

       

      	5.3  	
              Remedies.
                

            

       

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

            

       

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

            

       

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

            

       

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

            

       

      ARTICLE
        6  

       

      WARRANTY

       

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

            

       

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

            

       

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

            

       

      ARTICLE
        7  

       

      INSURANCE;
        INDEMNIFICATION

       

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

            

       

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

            

       

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

            

       

      Workers’
        Compensation - Statutory

      Employers
        Liability - $500,000 per occurrence

       

      The
        policy shall have alternative employer and borrowed servant
        coverage.

       

      If
        HAYNES
        shall be a qualified self-insurer for purposes of state workers compensation,
        evidence of such qualification shall be sufficient to waive the requirement
        that
        workers compensation insurance be maintained. However, HAYNES agrees to waive
        subrogation for any payments that it (or its third party administrator) may
        make
        as a qualified self-insurer.

       

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

            

       

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

            

       

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

            

       

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

            

       

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

            

       

      ARTICLE
        8  

       

      FORCE
        MAJEURE; CONTINGENCIES

       

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

            

       

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

            

       

      ARTICLE
        9  

       

      CONFIDENTIALITY

       

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

            

       

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

            

       

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

            

       

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

            

       

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

            

       

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

            

       

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

            

       

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

            

       

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

            

       

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

            

       

      ARTICLE
        10  

       

      PROVISION
        OF TITANIUM PRODUCTS

       

      During
        the term of this Agreement, upon request, TIMET will supply to HAYNES titanium
        sheet and plate products of up to two hundred thousand (200,000) pounds per
        year
        in each of 2007 through 2011, up to three hundred thousand (300,000) pounds
        per
        year in each of 2012 through 2016 and up to five hundred thousand (500,000)
        pounds per year in each of 2017 through the end of the term of this Agreement;
        provided, however, that in any year, TIMET’s supply of hot-rolled alloy sheet
        products cannot exceed 25% of the total volume of titanium plate sheet products
        supplied by TIMET. Each purchase and sale shall be made by separate purchase
        orders placed by Haynes, and acknowledged within a reasonable time by TIMET,
        and
        such purchases and sales shall be subject to the prevailing market prices,
        lead-times, warranties and other terms and conditions applicable to TIMET
        customers who place orders on an order-by-order basis. In the event of any
        conflict between this Agreement and either of the HAYNES’ conditions of purchase
        or the corresponding TIMET sales acknowledgement, this Agreement shall prevail.
        In the event of any conflict between a HAYNES purchase order and the
        corresponding TIMET sales acknowledgement, the documents shall be interpreted
        together under the Uniform Commercial Code of the State of
        Delaware.

       

      ARTICLE
        11  

       

      NON-COMPETITION

       

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

            

       

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

            

       

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

            

       

      (i) provide,
        directly or indirectly, Titanium Conversion Services with the Operating Assets
        to any third party, or grant any third party access to, or the right to use,
        either directly or indirectly, the Operating Assets for purposes of performing
        any Titanium Conversion Services; provided, however, that the HAYNES Successor
        shall be permitted, subject to TIMET’s rights under this Agreement, to perform
        Titanium Conversion Services using the Operating Assets for itself, its
        Affiliates or any third party up to a maximum aggregate amount of ten (10)
        million output pounds of flat-rolled titanium products on an annual basis.
        

       

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

            

       

      ARTICLE
        12  

       

      GOVERNING
        LAW; SETTLEMENT OF DISPUTES

       

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

            

       

      12.2 Voluntary
        Settlement of Disputes; Voluntary Arbitration.

       

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

            

       

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

            

       

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

            

       

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

            

       

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

            

       

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

            

       

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

            

       

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

            

       

      Notwithstanding
        anything to the contrary set forth herein, it is the express intention of
        the
        Parties that the provisions, procedures and requirements of this Section
        12.2
        are entirely voluntary. The alternative dispute resolution and arbitration
        provisions, procedures or requirements of this Section 12.2 shall not apply
        to
        any Dispute between the Parties absent the Parties’ mutual written agreement to
        submit a Dispute to the provisions, procedures and requirements contained
        in
        this Section 12.2. 

       

      ARTICLE
        13  

       

      TERM
        AND TERMINATION

       

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

            

       

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

            

       

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

            

       

      Upon
        the
        commencement of the term of this Agreement, HAYNES shall execute and deliver,
        or
        cause to be executed and delivered, to TIMET the non-disturbance agreement
        pursuant to Section 3(c) of the Access and Security Agreement and such further
        instruments and documents, and shall take such further action as TIMET may
        reasonably request, for the purpose of obtaining the full benefits of this
        Agreement and the Access and Security Agreement and of the rights and powers
        granted herein and therein, and TIMET shall be authorized by HAYNES to file
        one
        or more financing statements, and amendments thereto, relating to the Collateral
        (as defined in the Access and Security Agreement).

       

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

            

       

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

            

       

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

            

       

      
        	 	
                (c)

              	
                Upon
                  a Change in Control of HAYNES, a HAYNES Successor shall have the
                  right to
                  terminate this Agreement (a “CC Termination”) by providing written notice
                  of termination to TIMET within twelve (12) months of the effective
                  date of
                  such Change in Control, and such CC Termination shall become effective
                  upon the last day of the ten- (10) year period following the date
                  on which
                  the notice is received by TIMET (the “Effective Termination Date”). As a
                  result of its election of a CC Termination, the HAYNES Successor
                  shall be
                  required to pay to TIMET a termination fee that is equal to (i)
                  Twenty
                  Five Million Dollars ($25,000,000) plus (ii) the entire unearned
                  portion
                  of the Fee calculated as of the Effective Termination Date (the
                  “Termination Fee”). The Termination Fee shall be due and payable to TIMET
                  in equal monthly payments during the period beginning upon TIMET’s receipt
                  of the notice of termination and ending upon the Effective Termination
                  Date. Upon its election of a CC Termination, HAYNES shall deliver
                  to TIMET
                  a promissory note substantially in the form attached hereto as
                  Exhibit B
                  in the amount of the Termination Fee and with a payment schedule
                  as
                  reflected in this Section 13.2(c); provided, however, that the
                  Termination
                  Fee shall not bear interest prior to maturity, and, therefore,
                  the
                  interest provisions in Exhibit B (other than the Default Rate (as
                  defined
                  in Exhibit B) shall be deleted; provided, further, that upon a
                  default
                  thereunder, the Termination Fee shall bear interest at the Default
                  Rate.
                  

              

      

       

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

            

       

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

            

       

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

            

       

      ARTICLE
        14  

       

      GENERAL

       

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

            

       

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

            

       

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

            

       

      If
        to
        TIMET:

       

      Titanium
        Metals Corporation

              
PO
        Box
        309

                                      
        Toronto, OH 43964

                                       Attn:
        Jim Pieron, Vice President of Manufacturing Strategy

                                      
        Facsimile: (740) 537-5776

       

      With
        a
        copy to:

       

      Titanium
        Metals Corporation

      Three
        Lincoln Centre

      5430
        LBJ
        Freeway

      Suite
        1700

      Dallas,
        TX 75420

      Attn:
        General Counsel

      Facsimile:
        (972) 448-1445

       

      If
        to
        HAYNES:

       

      Haynes
        International, Inc.

      1020
        West
        Park Avenue

      P.O.
        Box
        9013

      Kokomo,
        Indiana 46904-9013

      Attn:
        Marcel Martin, Chief Financial Officer

      Facsimile:
        (765) 456-6526

       

      Attn:
        Stacy S. Kilian, V.P. - General Counsel

      Facsimile:
        (765) 456-6935

      

      With
        a
        copy to:

      

      Ice
        Miller LLP

      One
        American Square

      34th
        Floor

      Indianapolis,
        IN 46282-0200

      Attn:
        Stephen J. Hackman

      Facsimile:
        (317) 592-4666

      

      Each
        Party mentioned herein may change its address or facsimile number to which
        such
        communications, notices, requests or demands are to be directed to it by
        giving
        written notice to the others in the manner described in this
        Section 14.3.

       

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

            

       

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

            

       

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

            

       

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

            

       

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

            

       

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

            

       

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

            

       

      	(b)  	
              TIMET’s
                payment of the Fee.

            

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      IN
        WITNESS HEREOF, the Parties have duly executed this Agreement as of the date
        first written above.

       

       

      TITANIUM
        METALS CORPORATION

       

      By: /s/BOBBY
        D.
        O'BRIEN

       

      Name: Bobby
        D.
        O'Brien

       

      Title: Chief
        Financial Officer

       

      

       

       

      HAYNES
        INTERNATIONAL, INC.

       

      By: /s/
        FRANCIS J. PETRO

       

      Name: Francis
        J. Petro

       

      Title: President
        & CEO

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      Exhibit
        A: Product, Price List and Maximum Cycle Times

       

      [
        * ]

       

      

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      EXHIBIT
        B

       

      FORM
        OF
        PROMISSORY NOTE

       

      $[up
        to
        12,000,000.00]       
        __________, 20__

       

      FOR
        VALUE
        RECEIVED, the undersigned, HAYNES INTERNATIONAL, INC., a Delaware corporation
        (“Maker”), hereby promises to pay to the order of TITANIUM METALS CORPORATION, a
        Delaware corporation (“Payee”), at its address at 3 Lincoln Centre, 5430 LBJ
        Freeway, Suite 1700, Dallas, Texas 76240, in lawful money of the United States
        of America, the principal sum of [up to TWELVE MILLION AND NO/100 DOLLARS
        ($[up
        to 12,000,000.00]), in installments as follows: 

       

      
        	 	
                (a)

              	
                Twenty-three
                  (23) successive substantially equal quarterly installments of principal,
                  plus accrued and unpaid interest, shall be made quarterly on March
                  31,
                  June 30, September 30 and December 31 of each year, commencing
                  on the
                  quarter that begins eighteen (18) months from the Loan Date (as
                  defined in
                  the Conversion Services Agreement dated as of November 17, 2006
                  by and
                  between Make and Payee; and

              

      

       

      
        	 	
                (b)

              	
                A
                  final installment in the amount of the entire principal balance
                  then
                  remaining unpaid, plus all accrued and unpaid interest, shall be
                  due and
                  payable on ______________, 20__ [six years from the date made].
                  

              

      

       

      The
        outstanding principal balance hereof shall bear interest prior to maturity
        at
        the rate equal to the Prime Rate plus one percent (1.00%) per annum; provided
        that all past due principal and (to the fullest extent permitted by law)
        interest and other amounts payable by Maker under this Note shall bear interest
        at the Default Rate (hereinafter defined). Interest payable at the Default
        Rate
        shall be payable from time to time on demand. Interest shall be computed
        on the
        basis of the actual number of days elapsed in the applicable calendar year
        in
        which accrued. 

       

      Maker
        shall have the right to prepay, at any time and from time to time without
        premium or penalty, the entire unpaid principal balance of this Note or any
        portion thereof, and any such prepayment to be made together with the payment
        of
        interest accrued on the amount of principal being prepaid through the date
        of
        such prepayment, and any such partial prepayments to be applied in inverse
        order
        of maturity to the last maturing installment(s) of principal.

       

      Notwithstanding
        anything to the contrary contained herein, no provisions of this Note shall
        require the payment or permit the collection of interest in excess of the
        Maximum Rate (hereinafter defined). If any excess of interest in such respect
        is
        herein provided for, or shall be adjudicated to be so provided, in this Note
        or
        otherwise in connection with this loan transaction, the provisions of this
        paragraph shall govern and prevail, and neither Maker nor the sureties,
        guarantors, successors or assigns of Maker shall be obligated to pay the
        excess
        amount of such interest, or any other excess sum paid for the use, forbearance
        or detention of sums loaned pursuant hereto. If for any reason interest in
        excess of the Maximum Rate shall be deemed charged, required or permitted
        by any
        court of competent jurisdiction, any such excess shall be applied as a payment
        and reduction of the principal of indebtedness evidenced by this Note; and,
        if
        the principal amount hereof has been paid in full, any remaining excess shall
        forthwith be paid to Maker. In determining whether or not the interest paid
        or
        payable exceeds the Maximum Rate, Maker and Payee shall, to the extent permitted
        by applicable law, (i) characterize any non-principal payment as an expense,
        fee, or premium rather than as interest, (ii) exclude voluntary prepayments
        and
        the effects thereof, and (iii) amortize, prorate, allocate, and spread in
        equal
        or unequal parts the total amount of interest throughout the entire contemplated
        term of the indebtedness evidenced by this Note so that the interest for
        the
        entire term does not exceed the Maximum Rate. 

       

      As
        used
        herein, the following terms shall have the following meanings:

       

      “Default
        Rate” means the lesser of (a) the Maximum Rate or (b) the sum of the Prime Rate
        plus the ten percent (10.00%) per annum.

       

      “Maximum
        Rate” means the maximum nonusurious rate of interest permitted to be charged by
        the holder hereof under applicable federal or Delaware laws.

       

      “Prime
        Rate” means, at any time, the rate of interest per annum reported in the “Money
        Rates” column of the Wall Street Journal as the prime rate then in effect, or
        such other rate of interest mutually acceptable to the Maker and the Payee.
        In
        the event the Wall Street Journal ceases publication or ceases to publish
        the
        prime rate, the Payee shall select a comparable publication and provide notice
        thereof to the Maker. Each change in any interest rate provided for herein
        based
        upon the Prime Rate resulting from a change in the Prime Rate shall take
        effect
        without notice to the Maker at the time of such change in the Prime Rate.
        

       

      This
        Note
        is secured by that certain Access and Security Agreement, dated ___________,
        2006, between Maker and Payee (as the same may be amended, modified,
        supplemented or restated from time to time, the “Access and Security
        Agreement”). 

       

      Maker
        shall be in default hereunder upon the happening of any of the following
        events
        or conditions (each such event or condition hereinafter referred to as an
“Event
        of Default”): 

       

      
        	 	
                (a)

              	
                Maker
                  shall fail to pay when due any principal of or other amount due
                  on this
                  Note and such failure shall continue for five (5) days after the
                  date such
                  payment becomes due. 

              

      

       

      
        	 	
                (b)

              	
                The
                  occurrence of a Default under and as defined in the Access and
                  Security
                  Agreement. 

              

      

       

      Upon
        the
        occurrence of any Event of Default, the holder hereof may, at its option,
        declare the entire unpaid principal of and accrued interest on this Note
        immediately due and payable without notice, demand or presentment, all of
        which
        are hereby waived, and upon such declaration, the same shall become and shall
        be
        immediately due and payable, and the holder hereof shall have the right to
        foreclose or otherwise enforce all liens or security interests securing payment
        hereof, or any part hereof, and offset against this Note any sum or sums
        owed by
        the holder hereof to Maker. Failure of the holder hereof to exercise this
        option
        shall not constitute a waiver of the right to exercise the same upon the
        occurrence of a subsequent Event of Default. 

       

      If
        the
        holder hereof expends any effort in any attempt to enforce payment of all
        or any
        part or installment of any sum due the holder hereunder, or if this Note
        is
        placed in the hands of an attorney for collection, or if it is collected
        through
        any legal proceedings, Maker agrees to pay all collection costs and fees
        incurred by the holder, including reasonable attorneys’ fees. 

       

      THIS
        NOTE
        SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE
        OF
        DELAWARE AND THE APPLICABLE LAWS OF THE UNITED STATES OF AMERICA WITHOUT
        REGARD
        TO THE CONFLICTS OF LAWS PRINCIPLES THEREOF. ANY ACTION OR PROCEEDING UNDER
        OR
        IN CONNECTION WITH THIS NOTE AGAINST MAKER OR ANY OTHER PARTY EVER LIABLE
        FOR
        PAYMENT OF ANY SUMS OF MONEY PAYABLE ON THIS NOTE MAY BE BROUGHT IN ANY STATE
        OR
        FEDERAL COURT IN NEW CASTLE COUNTY, DELAWARE. MAKER AND EACH SUCH OTHER PARTY
        HEREBY IRREVOCABLY (I) SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF SUCH
        COURTS, AND (II) WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO
        THE VENUE OF ANY SUCH ACTION OR PROCEEDING BROUGHT IN SUCH COURT OR THAT
        SUCH
        COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL AFFECT THE RIGHT OF
        PAYEE
        TO BRING ANY ACTION OR PROCEEDING AGAINST MAKER OR ANY OTHER PARTY LIABLE
        HEREUNDER OR WITH RESPECT TO ANY COLLATERAL IN ANY STATE OR FEDERAL COURT
        IN ANY
        OTHER JURISDICTION. ANY ACTION OR PROCEEDING BY MAKER OR ANY OTHER PARTY
        LIABLE
        HEREUNDER AGAINST PAYEE SHALL BE BROUGHT ONLY IN A COURT LOCATED IN NEW CASTLE
        COUNTY, DELAWARE. 

       

      Except
        for notices required by the definition of “Default” in the Access and Security
        Agreement, Maker and each surety, guarantor, endorser, and other party ever
        liable for payment of any sums of money payable on this Note jointly and
        severally waive notice, presentment, demand for payment, protest, notice
        of
        protest and non-payment or dishonor, notice of acceleration, notice of intent
        to
        accelerate, notice of intent to demand, diligence in collecting, grace, and
        all
        other formalities of any kind, and consent to all extensions without notice
        for
        any period or periods of time and partial payments, before or after maturity,
        and any impairment of any collateral securing this Note, all without prejudice
        to the holder. The holder shall similarly have the right to deal in any way,
        at
        any time, with one or more of the foregoing parties without notice to any
        other
        party, and to grant any such party any extensions of time for payment of
        any
        said indebtedness, or to release or substitute part or all of the collateral
        securing this Note, or to grant any other indulgences or forbearances
        whatsoever, without notice to any other party and without in any way affecting
        the personal liability of any party hereunder.

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      THIS
        NOTE
        AND ALL OTHER INSTRUMENTS, DOCUMENTS AND AGREEMENTS EXECUTED AND DELIVERED
        BY
        MAKER IN CONNECTION WITH THE INDEBTEDNESS EVIDENCED BY THIS NOTE REPRESENT
        THE
        FINAL, ENTIRE AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY
        EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
        THERE ARE NO UNWRITTEN ORAL AGREEMENTS OF THE PARTIES. 

       

      HAYNES
        INTERNATIONAL, INC.

       

      

       

      By:        

      Name:

      Title:

      

      

      

      

      
        I/1889035.22007 NICOR ANNUAL INCENTIVE COMPENSATION PLAN FOR OFFICERS

    2007
      NICOR ANNUAL INCENTIVE COMPENSATION PLAN FOR OFFICERS

    

    

    
      	 	
              The
                2007 Nicor Annual Incentive Compensation Plan for Officers is designed
                to
                link participant incentive compensation to the accomplishment of
                corporate
                and operating unit financial performance, as well as non-financial
                measures of operating performance across the Company and operating
                units.
                It ties the pay an individual receives to Company performance and
                non-financial goals. This plan is intended to provide a framework
                for a
                performance-based bonus program for
                Nicor.

            

    

    

    
      	 	
              Purpose

            

    

    The
      purpose of this Plan is to provide meaningful annual incentive award opportunity
      to the participants. Awards will be directly tied to the achievement of
      corporate financial and goals and non-financial objectives.

    

    
      	 	
              Eligible
                Group

            

    

    Officers
      of Nicor are eligible for participation. As such, participation is limited
      to
      employees in positions which enable them to make significant contributions
      to
      the performance and growth of the Company.

    

    Compensation
      Objective

    Base
      Salary + Bonus Target = Short-Term Compensation Objective

    

    An
      individual's short-term compensation objective will be based on salary plus
      a
      bonus, expected to be earned if established performance targets are met.
      Short-term compensation above (or below) target levels may be paid in the event
      performance exceeds (or falls short of) goals.

    

    Base
      Salary

    Standards
      for base salaries will be targeted to the 50th
      percentile of the appropriate blend of general and industry survey data. Base
      salaries are reviewed annually by the Compensation Committee of the Board of
      Directors.

    

    Bonus
      Targets

    The
      bonus
      target amount varies according to pay, job responsibilities and ability to
      impact the organization and is consistent with the bonus opportunity ranges
      set
      by officer salary bands. Higher responsibility and impact levels result in
      greater dollars at risk.

    

    Performance
      Targets

    Performance
      criteria focus on the achievement of established and documented strategic goals.
      Performance targets may include measures of corporate financial and operating
      performance, defined group objectives or individual performance objectives.
      Each
      particular performance target will be assigned weighting reflected as a
      percentage of compensation objectives.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    Goal
      Setting Guidelines

    The
      most
      important aspect of this Plan will be the establishment of effective goals.
      In
      addition to measures of corporate financial and operating performance, other
      non-financial measures of performance will also be established. The goals should
      be realistic and measurable wherever possible by quantifiable performance
      criteria. It is recognized that measurement of some goals will require
      subjective assessments of performance. Goals must be consistent with the
      longer-term strategic plan.

    

    A
      set of
      guidelines will be devised by the Nicor Human Resources Department to aid in
      this process. These guidelines will provide direction as to the formulation
      and
      reporting of non-financial goals.

    

    Amount
      of
      bonus payment for financial/budget related goals can vary above and below target
      based upon results achieved. For targets met, bonus amount will be 100% of
      target. When targets are exceeded or are not reached, bonus will be
      proportionately more or less than the target.

    

    The
      Compensation Committee may make appropriate upward or downward adjustments
      if,
      after taking into consideration all of the facts and circumstances of the
      performance period, it determines that adjustments are warranted.

    

    Plan
      Schedule

    The
      2007
      Nicor Incentive Compensation Plan runs on a calendar year basis, with the
      strategic planning cycle and budgeting process serving as the primary link
      to
      performance and bonus targets. The Accounting Department is responsible for
      the
      determination of actual financial results. Performance will be reviewed at
      least
      twice a year to monitor progress and adjust accruals.

    

    Year-end
      results should be available and evaluated as early as possible in the following
      year. No bonus shall be paid until the Compensation Committee of the Board
      of
      Directors (the “Compensation Committee”) approves such payment. Following
      approval of the Compensation Committee, bonuses will be paid to participants
      by
      March 15 of the year in which such approval is given, unless payment by March
      15
      is not administratively practicable, in which case payment shall be made by
      December 31.

    

    Form
      of Payment

    All
      awards will be paid in cash, except that a participant in the Stock Deferral
      Plan may elect to defer up to 50% of their award into that plan and a
      participant in the Salary Deferral Plan may elect to defer 10% to 20% of their
      award into that plan. Deferral elections must meet the guidelines and timing
      of
      the Stock Deferral and/or Salary Deferral Plans to be effective. Appropriate
      taxes for the entire award amount will be withheld from the portion of the
      award
      being paid in cash.

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    In
      addition, a participant may elect by writing to the Compensation Committee
      prior
      to July 1 to have all or a portion of the incentive award otherwise payable
      in
      the following year to be deferred; provided that such bonus meets the
      requirements of “performance based compensation” within the meaning of Section
      409A of the Internal Revenue Code of 1986, as amended (the “Code”).

    

    Such
      deferral election shall specify whether such bonus, plus interest thereon shall
      be paid in either annual installments over a period of not more than five years,
      or a lump sum. Payment shall be made upon the earlier of separation from service
      (within the meaning of Section 409A of the Code) or such other date as the
      participant shall specify in the election. If payment is made upon separation
      from service, such payment will commence on the first regularly scheduled
      payroll of Nicor following the six months anniversary of the participant’s
      separation from service. 

    

    The
      participant may submit a request to change the original date of payment elected;
      provided, however, that any such change (i) must be made at least twelve months
      prior to the originally scheduled payment date, (ii) will not be effective
      for a
      period of twelve months, and (iii) must defer payment for at least five years
      beyond the originally elected date of payment. For this purpose, installment
      payments shall be treated as a single payment. The request to change a deferral
      election must be submitted in writing to the Compensation Committee who will
      take into consideration the particular facts and circumstances in its final
      determination. In no event shall the Compensation Committee allow a participant
      to defer a bonus or make changes to a deferral election if such election would
      violate Section 409A of the Code. 

    

    The
      Compensation Committee may modify any such election to the extent necessary
      to
      comply with Section 409A of the Code, as it may determine in its sole
      discretion. 

    

    Notwithstanding
      anything contained herein to the contrary, the portion of any bonus which would
      otherwise be payable to a “covered individual” within the meaning of Section
      162(m) of the Code, that is not deductible by reason of Section 162(m) of the
      Code, shall automatically be deferred and paid to the covered individual in
      a
      lump sum on the first payroll of Nicor following the six month anniversary
      of
      the covered individual’s separation from service.

    

    All
      amounts which are deferred shall be credited with compounded interest equal
      to
      the prime rate applied on a quarterly basis.

    

    
      	 	
              Integration
                with Existing Programs

            

    

    Base
      salaries will be managed with range bands at the appropriate blend of general
      and industry data for comparable positions, with total compensation objectives
      to be managed at a level appropriate with the performance of the company, as
      determined by the Compensation Committee. Salaries will be monitored each year
      and increases granted based on merit and range band. Bonus targets will be
      set
      as a 

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    percentage
      of base salary. A change, other than the annual salary review, in the
      compensation objective will customarily occur during the year only through
      promotion to various levels, at which time the base salary and bonus target
      are
      also likely to change.

    

    Promotion
      of an employee during the year or reassignment to responsibilities in which
      new
      performance objectives apply will result in proration of the existing
      performance objectives and bonus target and assignment of new performance
      objectives as determined by the Compensation Committee. Promotion into an
      Executive Salary Band would create eligibility for bonus at a prorated amount,
      based on the effective date of the promotion.

    

    If
      a
      participant voluntarily terminates or is terminated for cause prior to the
      end
      of the performance period, then no award shall be granted. In the event a
      participant shall die, become disabled, retire or is terminated without cause
      before the end of the performance period, then the Compensation Committee will
      authorize payment of an award to the participant, or beneficiary, in such amount
      as the Committee deems appropriate.

    

    
      	 	
              Responsibility

            

    

    The
      Human
      Resources Department will be responsible for the administration of the process
      for the company. This will include:

    

    1)     monitoring
      market salary and total compensation levels;

     

    2)    
recommending
      structural
      changes in base salary and compensation objective adjustments;

     

    3)    
reviewing
      eligibility and performance targets;

     

    4)    
monitoring
      financial
      performance targets through the Accounting Department;

     

    5)    
communicating
      progress
      reports to participants;

     

    6)    
progress
      and exception
      reporting to Compensation Committee;

     

    7)    
monitoring
      compliance with
      related financial controls; and

     

    8)    
maintaining
      the accuracy of
      the plan document(s) governing the plan.

     

    The
      2007
      Nicor Annual Incentive Compensation Plan for Officers and changes to its
      performance targets and measurement criteria will be reviewed and approved
      by
      the Compensation Committee.

    

    In
      determining the actual bonus awards to be made, the Compensation Committee
      may
      take into account all of the facts and circumstances which exist during the
      year

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    and
      may
      make appropriate upward or downward revisions in performance criteria, add
      or
      delete objectives, or change the relative percentages assigned to the various
      performance objectives.

    

    
      	 	
              Amendment
                and Termination

            

    

    The
      Board
      of Directors may amend or terminate the Plan at any time without the consent
      of
      the participants. No such amendment or termination shall negatively impact
      any
      participant's amount which accrued under the Plan prior to the calendar year
      in
      which the amendment is made.

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    Nicor
      Human Resources

    February
      2007

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