Exhibit 10.10


 


[Execution]


 


SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT


 


by and among


 


HAYNES INTERNATIONAL, INC.


HAYNES WIRE COMPANY,


as Borrowers


 


and


 


WACHOVIA CAPITAL FINANCE CORPORATION (CENTRAL),


as Agent


 


JPMORGAN CHASE BANK, N.A.


as Documentation Agent


 


and


 


THE LENDERS FROM TIME TO TIME PARTY HERETO


as Lenders


 


 


Dated: November 18, 2008


 

















 


TABLE OF
CONTENTS


 


	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  SECTION 1.

  	
  DEFINITIONS

  	
  1

  
	
   

  	
   

  	
   

  
	
  SECTION 2.

  	
  CREDIT
  FACILITIES

  	
  33

  
	
   

  	
   

  
	
  2.1

  	
  Loans

  	
  33

  
	
  2.2

  	
  Letter of Credit Accommodations

  	
  34

  
	
  2.3

  	
  Equipment Purchase Loans

  	
  38

  
	
  2.4

  	
  Commitments

  	
  41

  
	
   

  	
   

  
	
  SECTION 3.

  	
  INTEREST AND
  FEES

  	
  42

  
	
   

  	
   

  
	
  3.1

  	
  Interest

  	
  42

  
	
  3.2

  	
  Fees

  	
  43

  
	
  3.3

  	
  Changes in Laws and Increased Costs of
  Loans

  	
  44

  
	
   

  	
   

  
	
  SECTION 4.

  	
  CONDITIONS
  PRECEDENT

  	
  46

  
	
   

  	
   

  
	
  4.1

  	
  Conditions Precedent to Amendment and
  Restatement

  	
  46

  
	
  4.2

  	
  Conditions Precedent to All Loans and Letter
  of Credit Accommodations

  	
  47

  
	
   

  	
   

  
	
  SECTION 5.

  	
  GRANT AND
  PERFECTION OF SECURITY INTEREST

  	
  47

  
	
   

  	
   

  
	
  5.1

  	
  Grant of Security Interest

  	
  47

  
	
  5.2

  	
  Perfection of Security Interests

  	
  49

  
	
   

  	
   

  
	
  SECTION 6.

  	
  COLLECTION
  AND ADMINISTRATION

  	
  54

  
	
   

  	
   

  
	
  6.1

  	
  Borrowers’ Loan Accounts

  	
  54

  
	
  6.2

  	
  Statements

  	
  54

  
	
  6.3

  	
  Collection of Accounts

  	
  54

  
	
  6.4

  	
  Payments

  	
  55

  
	
  6.5

  	
  Taxes

  	
  57

  
	
  6.6

  	
  Authorization to Make Loans

  	
  60

  
	
  6.7

  	
  Use of Proceeds

  	
  60

  
	
  6.8

  	
  Appointment of
  Administrative Borrower as Agent for Requesting Loans and Receipts of Loans
  and Statements

  	
  61

  
	
  6.9

  	
  Illegality

  	
  61

  
	
  6.10

  	
  Pro Rata Treatment

  	
  62

  
	
  6.11

  	
  Sharing of Payments, Etc

  	
  62

  
	
  6.12

  	
  Settlement Procedures

  	
  63

  
				



 


ii

















 


	
  6.13

  	
  Obligations Several; Independent Nature of
  Lenders’ Rights

  	
  66

  
	
   

  	
   

  
	
  SECTION 7.

  	
  COLLATERAL
  REPORTING AND COVENANTS

  	
  66

  
	
   

  	
   

  
	
  7.1

  	
  Collateral Reporting

  	
  66

  
	
  7.2

  	
  Accounts Covenants

  	
  67

  
	
  7.3

  	
  Inventory Covenants

  	
  68

  
	
  7.4

  	
  Equipment and Real Property Covenants

  	
  69

  
	
  7.5

  	
  Power of Attorney

  	
  70

  
	
  7.6

  	
  Right to Cure

  	
  71

  
	
  7.7

  	
  Access to Premises

  	
  71

  
	
   

  	
   

  
	
  SECTION 8.

  	
  REPRESENTATIONS
  AND WARRANTIES

  	
  72

  
	
   

  	
   

  
	
  8.1

  	
  Corporate Existence, Power and Authority

  	
  72

  
	
  8.2

  	
  Name; State of Organization; Chief Executive
  Office; Collateral Locations

  	
  72

  
	
  8.3

  	
  Financial Statements; No Material Adverse
  Change

  	
  73

  
	
  8.4

  	
  Priority of Liens; Title to Properties

  	
  73

  
	
  8.5

  	
  Tax Returns

  	
  73

  
	
  8.6

  	
  Litigation

  	
  74

  
	
  8.7

  	
  Compliance with Other Agreements and
  Applicable Laws

  	
  74

  
	
  8.8

  	
  Environmental Compliance

  	
  74

  
	
  8.9

  	
  Employee Benefits

  	
  75

  
	
  8.10

  	
  Bank Accounts

  	
  75

  
	
  8.11

  	
  Intellectual Property

  	
  76

  
	
  8.12

  	
  Subsidiaries; Affiliates; Capitalization

  	
  76

  
	
  8.13

  	
  Labor Disputes

  	
  77

  
	
  8.14

  	
  Restrictions on Subsidiaries

  	
  77

  
	
  8.15

  	
  Material Contracts

  	
  78

  
	
  8.16

  	
  Payable Practices; Retention of Title

  	
  78

  
	
  8.17

  	
  Accuracy and Completeness of Information

  	
  78

  
	
  8.18

  	
  Survival of Warranties; Cumulative

  	
  78

  
	
   

  	
   

  
	
  SECTION 9.

  	
  AFFIRMATIVE
  AND NEGATIVE COVENANTS

  	
  79

  
	
   

  	
   

  
	
  9.1

  	
  Maintenance of Existence

  	
  79

  
	
  9.2

  	
  New Collateral Locations

  	
  79

  
	
  9.3

  	
  Compliance with Laws, Regulations, Etc

  	
  80

  
	
  9.4

  	
  Payment of Taxes and Claims

  	
  81

  
	
  9.5

  	
  Insurance

  	
  81

  
	
  9.6

  	
  Financial Statements and Other Information

  	
  81

  
				



 


iii

















 


	
  9.7

  	
  Sale of Assets,
  Consolidation, Merger, Dissolution, Etc

  	
  83

  
	
  9.8

  	
  Encumbrances

  	
  86

  
	
  9.9

  	
  Indebtedness

  	
  88

  
	
  9.10

  	
  Loans, Investments, Etc

  	
  90

  
	
  9.11

  	
  Dividends and Redemptions

  	
  93

  
	
  9.12

  	
  Transactions with Affiliates

  	
  94

  
	
  9.13

  	
  Compliance with ERISA

  	
  95

  
	
  9.14

  	
  End of Fiscal Years; Fiscal Quarters

  	
  95

  
	
  9.15

  	
  Change in Business

  	
  95

  
	
  9.16

  	
  Limitation of Restrictions Affecting
  Subsidiaries

  	
  95

  
	
  9.17

  	
  Intentionally deleted

  	
  96

  
	
  9.18

  	
  Fixed Charge Coverage Ratio

  	
  96

  
	
  9.19

  	
  After Acquired Real Property

  	
  96

  
	
  9.20

  	
  Effect of Indebtedness of Foreign
  Subsidiaries

  	
  97

  
	
  9.21

  	
  Costs and Expenses

  	
  97

  
	
  9.22

  	
  Further Assurances

  	
  97

  
	
   

  	
   

  
	
  SECTION 10.

  	
  EVENTS OF
  DEFAULT AND REMEDIES

  	
  98

  
	
   

  	
   

  
	
  10.1

  	
  Events of Default

  	
  98

  
	
  10.2

  	
  Remedies

  	
  99

  
	
   

  	
   

  
	
  SECTION 11.

  	
  JURY TRIAL
  WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING LAW

  	
  103

  
	
   

  	
   

  
	
  11.1

  	
  Governing Law; Choice of Forum; Service of
  Process; Jury Trial Waiver

  	
  103

  
	
  11.2

  	
  Waiver of Notices

  	
  104

  
	
  11.3

  	
  Amendments and Waivers

  	
  104

  
	
  11.4

  	
  Waiver of Counterclaims

  	
  106

  
	
  11.5

  	
  Indemnification

  	
  106

  
	
  11.6

  	
  Currency Indemnity

  	
  107

  
	
   

  	
   

  
	
  SECTION 12.

  	
  THE AGENT

  	
  107

  
	
   

  	
   

  
	
  12.1

  	
  Appointment, Powers and Immunities

  	
  107

  
	
  12.2

  	
  Reliance by Agent

  	
  108

  
	
  12.3

  	
  Events of Default

  	
  108

  
	
  12.4

  	
  Wachovia in its Individual Capacity

  	
  109

  
	
  12.5

  	
  Indemnification

  	
  109

  
	
  12.6

  	
  Non-Reliance on Agent and Other Lenders

  	
  109

  
	
  12.7

  	
  Failure to Act

  	
  110

  
				



 


iv

















 


	
  12.8

  	
  Additional Loans

  	
  110

  
	
  12.9

  	
  Concerning the Collateral and the Related
  Financing Agreements

  	
  110

  
	
  12.10

  	
  Field Audit, Examination Reports and other
  Information; Disclaimer by Lenders

  	
  110

  
	
  12.11

  	
  Collateral Matters

  	
  111

  
	
  12.12

  	
  Agency for Perfection

  	
  113

  
	
  12.13

  	
  Successor Agent

  	
  113

  
	
   

  	
   

  
	
  SECTION 13.

  	
  TERM OF
  AGREEMENT; MISCELLANEOUS

  	
  113

  
	
   

  	
   

  
	
  13.1

  	
  Term

  	
  113

  
	
  13.2

  	
  Interpretative Provisions

  	
  115

  
	
  13.3

  	
  Notices

  	
  117

  
	
  13.4

  	
  Partial Invalidity

  	
  117

  
	
  13.5

  	
  Confidentiality

  	
  118

  
	
  13.6

  	
  Successors

  	
  118

  
	
  13.7

  	
  Assignments; Participations

  	
  119

  
	
  13.8

  	
  USA Patriot Act

  	
  121

  
	
  13.9

  	
  Entire Agreement

  	
  121

  
	
  13.10

  	
  Counterparts, Etc

  	
  121

  
	
  13.11

  	
  Code Section 956 Override

  	
  121

  
	
  13.12

  	
  Bank Products Override

  	
  122

  
	
   

  	
   

  
	
  SECTION 14.

  	
  ACKNOWLEDGMENT
  AND RESTATEMENT

  	
  122

  
	
   

  	
   

  
	
  14.1

  	
  Existing Obligations

  	
  122

  
	
  14.2

  	
  Acknowledgment of Security Interests

  	
  122

  
	
  14.3

  	
  Existing Financing Agreements

  	
  122

  
	
  14.4

  	
  Restatement

  	
  123

  
						



 


v

















 


INDEX TO


EXHIBITS AND
SCHEDULES


 


	
  Exhibit A

  	
  Form of
  Assignment and Acceptance

  
	
   

  	
   

  
	
  Exhibit B

  	
  Form of
  Borrowing Base Certificate

  
	
   

  	
   

  
	
  Exhibit C

  	
  Information
  Certificate

  
	
   

  	
   

  
	
  Exhibit D

  	
  Form of
  Equipment Purchase Note

  
	
   

  	
   

  
	
  Exhibit E

  	
  Form of
  Compliance Certificate

  
	
   

  	
   

  
	
  Exhibit F

  	
  Revolving
  Loan Commitment

  
	
   

  	
   

  
	
  Schedule
  1.64

  	
  Existing
  Financing Agreements

  
	
   

  	
   

  
	
  Schedule
  1.136

  	
  Timet
  Collateral

  
	
   

  	
   

  
	
  Schedule
  1.140

  	
  Timet Option
  Note

  
	
   

  	
   

  
	
  Schedule 5.1

  	
  Commercial
  Tort Claims

  
	
   

  	
   

  
	
  Schedule
  6.6(b)

  	
  Operating
  Accounts to Receive Loan Proceeds

  
	
   

  	
   

  
	
  Schedule
  8.12

  	
  Inactive or
  Dissolved Subsidiaries

  
	
   

  	
   

  
	
  Schedule 9.8

  	
  Tax Liens
  and Other Non-Consensual Liens

  



 


vi

















 


SECOND AMENDED
AND RESTATED


LOAN AND
SECURITY AGREEMENT


 


This Second
Amended and Restated Loan and Security Agreement (this “Agreement” as
hereinafter further defined), dated November 18, 2008, is entered into by
and among Haynes International, Inc., a Delaware corporation (“Haynes
Parent”), Haynes Wire Company, a Delaware corporation (“Haynes Wire” and
together with Haynes Parent, collectively, “Borrowers”), the parties hereto
from time to time as lenders, whether by execution of this Agreement or an
Assignment and Acceptance (each individually, a “Lender” and collectively, “Lenders”
as hereinafter further defined), JPMorgan Chase Bank, NA, a national banking
association, in its capacity as documentation agent (in such capacity, “Documentation
Agent” as hereinafter further defined), and Wachovia Capital Finance
Corporation (Central), formerly known as Congress Financial Corporation
(Central), an Illinois corporation, in its capacity as agent for Lenders (in
such capacity, “Agent” as hereinafter further defined).


 


W I T N E S S
E T H:


 


WHEREAS,
Borrowers, Agent and the parties thereto as lenders, are parties to the Amended
and Restated Loan and Security Agreement, dated August 31, 2004, as
amended (the “Existing Loan Agreement”);


 


WHEREAS,
Borrowers have requested that Agent and Lenders amend and restate the Existing
Loan Agreement pursuant to and in accordance with the terms and conditions set
forth herein; and


 


WHEREAS, each
Lender is willing to agree (severally and not jointly) to amend and restate the
Existing Loan Agreement and to make such loans and provide such financial
accommodations to Borrowers on a pro rata basis according to
its Commitment (as defined below) on the terms and conditions set forth herein
and Agent is willing to act as agent for Lenders on the terms and conditions
set forth herein and the other Financing Agreements (as hereinafter defined);


 


NOW,
THEREFORE, in consideration of the mutual conditions and agreements set forth
herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:


 


SECTION 1.  DEFINITIONS


 


For purposes
of this Agreement, the following terms shall have the respective meanings given
to them below:


 


1.1           “Accounts” shall mean,
as to each Borrower, all present and future rights of such Borrower to payment
of a monetary obligation, whether or not earned by performance, which is not
evidenced by chattel paper or an instrument, (a) for property that has
been or is to be sold, leased, licensed, assigned, or otherwise disposed of, (b) for
services rendered or to be rendered, (c) for a secondary obligation
incurred or to be incurred, or (d) arising out of the use of a credit or
charge card or information contained on or for use with the card.


 

















 


1.2           “Adjusted Eurodollar
Rate” shall mean, with respect to each Interest Period for any Eurodollar Rate
Loan, the rate per annum (rounded upwards, if necessary, to the next one
thousandth (1/1000) of one (1%) percent) determined by dividing (a) the
Eurodollar Rate for such Interest Period by (b) a percentage equal to: (i) one
(1) minus (ii) the Reserve Percentage.  For purposes hereof, “Reserve Percentage”
shall mean the reserve percentage, expressed as a decimal, prescribed by any
United States banking authority for determining the reserve requirement which
is or would be applicable to deposits of United States dollars in a non-United
States or an international banking office of Reference Bank used to fund a
Eurodollar Rate Loan or any Eurodollar Rate Loan made with the proceeds of such
deposit, whether or not the Reference Bank actually holds or has made any such
deposits or loans.  The Adjusted
Eurodollar Rate shall be adjusted on and as of the effective day of any change
in the Reserve Percentage.


 


1.3           “Administrative
Borrower” shall mean Haynes International, Inc., a Delaware corporation in
its capacity as Administrative Borrower on behalf of itself and Haynes Wire
pursuant to Section 6.8 hereof and its successors and assigns in such
capacity.


 


1.4           “Affiliate” shall mean,
with respect to a specified Person, any other Person which directly or
indirectly, through one or more intermediaries, controls or is controlled by or
is under common control with such Person, and without limiting the generality
of the foregoing, includes (a) any Person which beneficially owns or holds
ten (10%) percent or more of any class of Voting Stock of such Person or other
equity interests in such Person, (b) any Person of which such Person
beneficially owns or holds ten (10%) percent or more of any class of Voting
Stock or in which such Person beneficially owns or holds ten (10%) percent or
more of the equity interests and (c) any director or executive officer of
such Person.  For the purposes of this
definition, the term “control” (including with correlative meanings, the terms “controlled
by” and “under common control with”), as used with respect to any Person, means
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of Voting Stock, by agreement or otherwise.


 


1.5           “Agent” shall mean
Wachovia Capital Finance Corporation (Central), in its capacity as agent on
behalf of Lenders pursuant to the terms hereof and any replacement or successor
agent hereunder.


 


1.6           “Agent Payment Account”
shall mean account no. 5000000030266 of Agent at Wachovia Bank, National
Association, or such other account of Agent as Agent may from time to time
designate to Administrative Borrower as the Agent Payment Account for purposes
of this Agreement and the other Financing Agreements.


 


1.7           “Applicable Margin”
shall mean, at any time, with respect to Prime Rate Loans and Eurodollar Rate
Loans, the applicable percentage (on a per annum basis) set forth below based
on the Monthly Average Excess Availability for the immediately preceding month:


 




	
  Tier

  	
   

  	
  Monthly Average

  Excess Availability

  	
   

  	
  Applicable

  Margin for Prime

  Rate Loans

  	
   

  	
  Applicable Margin

  for Eurodollar

  Rate Loans

  	
   

  
	
  1

  	
   

  	
  Greater than
  $40,000,000

  	
   

  	
  1.75

  	
  %

  	
  2.50

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2

  	
   

  	
  Greater than
  or equal to $20,000,000 and less than or equal to $40,000,000

  	
   

  	
  2.00

  	
  %

  	
  2.75

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3

  	
   

  	
  Less than
  $20,000,000

  	
   

  	
  2.25

  	
  %

  	
  3.00

  	
  %

  






 


2

















 


provided, that, (i) the Applicable Margin shall
be calculated and established on the first day of each month and shall remain
in effect until adjusted thereafter at the beginning of the next month and (ii) the
Applicable Margin from and including the date hereof through November 30,
2008 shall be the amount for Tier 1 set forth above.


 


1.8           “Approved Fund” shall
mean with respect to any Lender that is a fund or similar investment vehicle
that makes or invests in commercial loans, any other fund or similar investment
vehicle that invests in commercial loans which is managed or advised by the
same investment advisor as such Lender or by an Affiliate of such investment
advisor.


 


1.9           “Arcadia Facility
Inventory Availability” shall mean, with respect to Eligible Arcadia Inventory,
the lesser of:


 


(a)       the sum of (i) seventy
(70%) percent multiplied by the Value of the Eligible Arcadia Inventory
consisting of finished goods, plus (ii) thirty (30%) percent multiplied by
the Value of the Eligible Arcadia Inventory consisting of work-in-process, plus
(iii) sixty (60%) percent multiplied by the Value of the Eligible Arcadia
Inventory consisting of raw materials; or


 


(b)      the amount equal to the sum
of the following for each category of Eligible Arcadia Inventory (such
categories being finished goods, work-in-process and raw materials as described
above): (i) eighty-five (85%) percent of the Net Recovery Percentage for
each category of such Eligible Arcadia Inventory multiplied by (ii) the
Value of such category of Eligible Arcadia Inventory; or


 


(c)       forty-five (45%) percent
multiplied by the sum of the Value of all of the above categories of such
Eligible Arcadia Inventory.


 


1.10         “Assignment and
Acceptance” shall mean an Assignment and Acceptance Agreement substantially in
the form of Exhibit A attached hereto (with blanks appropriately
completed) delivered to Agent in connection with an assignment of a Lender’s
interest hereunder in accordance with the provisions of Section 13.7
hereof.


 


3














 


1.11         “Bank Product Obligations”
shall mean all obligations, liabilities and indebtedness owing by Borrowers to
any Bank Product Provider arising in connection with Bank Products.


 


1.12         “Bank Product Provider”
shall mean Agent, any Affiliate of Agent, any Lender, any Affiliate of any
Lender or any other financial institution designated by Borrowers in a writing
to the Agent as a “Bank Product Provider” and which, in each case, is
acceptable to Agent and is approved by JPMorgan Chase Bank, N.A. (so long as it
is a Lender hereunder) in the case of any Bank Product Provider that is not a
Lender or an Affiliate of a Lender or an Affiliate of Agent, which approval by
JPMorgan Chase Bank, N.A. shall not be unreasonably withheld or delayed.  So long as JPMorgan Chase Bank, N.A. is a
Lender, JPMorgan Chase Bank, N.A. and its Affiliates shall be a Bank Product
Provider.


 


1.13         “Bank Products” shall
mean any one or more of the following types of services or facilities provided
to a Borrower by a Bank Product Provider (a) credit cards or stored value
cards or the processing of credit cards or stored value cards, (b) cash
management or related services, including (i) the automated clearinghouse
transfer of funds for the account of a Borrower pursuant to agreement or overdraft
for any accounts of a Borrower maintained at such Bank Product Provider, and (ii) controlled
disbursement services.


 


1.14         “Bankruptcy Code” shall
mean the United States Bankruptcy Code, being Title 11 of the United States
Code (11 U.S.C. Sections 101-1330), as the same now exists or may from time to
time hereafter be amended, modified, recodified or supplemented, together with
all official rules, regulations and interpretations thereunder or related
thereto.


 


1.15         “Benefit Plan” shall mean
an employee benefit plan (as defined in Section 3(3) of ERISA) which
Borrowers sponsor, maintain, or to which it makes, is making, or is obligated
to make contributions, or in the case of a Multiemployer Plan has made
contributions at any time during the immediately preceding six (6) plan
years and to which Borrowers could have any liability.


 


1.16         “Blocked Accounts” shall
have the meaning set forth in Section 6.3 hereof.


 


1.17         “Borrowers” shall mean,
collectively (except for purposes of Sections 1.25, 1.30 and 9.6(a) (but
only to the extent of the financial statements referenced therein), where the
references to Borrowers shall mean only Haynes Parent), the following (together
with their respective successors and assigns): 
(a) Haynes International, Inc., a Delaware corporation, (b) Haynes
Wire Company, a Delaware corporation; and (c) any other Person that at any
time after the date hereof becomes a Borrower; each sometimes being referred to
herein individually as a “Borrower”.


 


1.18         “Borrowing
Base” shall mean, at any time, the amount equal to:


 


(a)       eighty-five (85%) percent
of the Eligible Accounts, plus


 


(b)      the lesser of: (i) the
sum of (1) the Kokomo Facility Inventory Availability, plus (2) the
Arcadia Facility Inventory Availability, plus (3) the Service Center Inventory
Availability, plus (4) the lesser of: (A) sixty (60%) percent
multiplied by the Value of the 


 


4

















 


Eligible Inventory of Haynes
Wire or (b) eighty-five (85%) percent of the Net Recovery Percentage of
Eligible Inventory of Haynes Wire, or (ii) the Inventory Loan Limit, plus


 


(c)       the Fixed Asset
Availability, less


 


(d)      Reserves.


 


For purposes
only of applying the Inventory Loan Limit, Agent may treat the then undrawn
amounts of outstanding Letter of Credit Accommodations issued for the purpose
of purchasing Eligible Inventory as Loans to the extent Agent is in effect
basing the issuance of the Letter of Credit Accommodations on the Value of the
Eligible Inventory being purchased with such Letter of Credit
Accommodations.  In determining the
actual amounts of such Letter of Credit Accommodations to be so treated for
purposes of the sublimit, the outstanding Loans and Reserves shall be
attributed first to any components of the lending formulas set forth above that
are not subject to such sublimit, before being attributed to the components of
the lending formulas subject to such sublimit. 
The amounts of Eligible Inventory of Borrowers shall, at Agent’s option,
be determined based on the lesser of the amount of Inventory set forth in the
general ledger of Borrowers or the perpetual inventory record maintained by
Borrowers.


 


1.19         “Borrowing Base
Certificate” shall mean a certificate substantially in the form of Exhibit B
hereto, as such form may from time to time be modified by Agent in good faith
with the consent of each Borrower (which consent shall not be unreasonably
withheld, conditioned or delayed), which is duly completed (including all
schedules thereto) and executed by the vice-president-finance, chief financial
officer, treasurer, assistant treasurer, controller or other financial or
senior officer of Administrative Borrower on behalf of Borrowers acceptable to
Agent and delivered to Agent.


 


1.20         “Business Day” shall mean
any day other than a Saturday, Sunday, or other day on which commercial banks
are authorized or required to close under the laws of the State of Illinois, or
the State of North Carolina, and a day on which Agent is open for the
transaction of business, except that if a determination of a Business Day shall
relate to any Eurodollar Rate Loans, the term Business Day shall also exclude
any day on which banks are closed for dealings in dollar deposits in the London
interbank market or other applicable Eurodollar Rate market.


 


1.21         “Capital Expenditures”
shall mean, with respect to any Person, all expenditures made and liabilities
incurred for the acquisition of assets which are not, in accordance with GAAP,
treated as expense items for such Person in the year made or incurred or as a
prepaid expense applicable to a future year or years; provided, that, Capital
Expenditures shall not include expenditures that would otherwise constitute
Capital Expenditures to the extent made with proceeds from insurance for an
insured loss or proceeds of an award of compensation from a condemnation or
eminent domain proceeding to replace or restore the assets that were the
subject of the loss giving rise to the payment of such insurance proceeds or
the subject of such condemnation or eminent domain proceeding giving rise to
the payment of such award.


 


1.22         “Capital Leases” shall
mean, as applied to any Person, any lease of (or any agreement conveying the
right to use) any property (whether real, personal or mixed) by such 


 


5

















 


Person as
lessee which in accordance with GAAP, is required to be reflected as a
liability on the balance sheet of such Person.


 


1.23         “Capital Stock” shall
mean, with respect to any Person, any and all shares, interests, participations
or other equivalents (however designated) of such Person’s capital stock or
partnership, limited liability company or other equity interests at any time
outstanding, and any and all rights, warrants or options exchangeable for or
convertible into such capital stock or other interests (but excluding any debt
security that is exchangeable for or convertible into such capital stock).


 


1.24         “Cash Equivalents” shall
mean any of the following: (a) any evidence of Indebtedness with a
maturity date of ninety (90) days or less issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof or any agency or instrumentality thereof; provided,
that, the full faith and credit of the United States of America is
pledged in support thereof; (b) certificates of deposit or bankers’
acceptances with a maturity of ninety (90) days or less (after the date of the
purchase thereof) of any financial institution that is a member of the Federal
Reserve System, in any case having combined capital and surplus and undivided
profits of not less than $250,000,000; (c) commercial paper (including
variable rate demand notes) with a maturity of ninety (90) days or less (after
the date of the purchase thereof) issued or guaranteed by a corporation (except
an Affiliate of any Borrower) organized under the laws of any State of the
United States of America, the District of Columbia or a bank organized under
the laws of any State of the United States of America or constituting a
national banking association under the laws of the United States of America, in
each case having a rating of at least A 1 by Standard & Poor’s Ratings
Service, a division of The McGraw Hill Companies, Inc. or at least P 1 by
Moody’s Investors Service, Inc.; (d) repurchase obligations with a
term of not more than thirty (30) days (after the date of the purchase thereof)
for underlying securities of the types described in clause (a) above
entered into with any financial institution having combined capital and surplus
and undivided profits of not less than $250,000,000; (e) repurchase
agreements and reverse repurchase agreements relating to marketable direct
obligations issued or unconditionally guaranteed by the United States of
America or issued by any governmental agency thereof and backed by the full
faith and credit of the United States of America in each case maturing within
ninety (90) days or less from the date of acquisition; provided, that,
the terms of such agreements comply with the guidelines set forth in the
Federal Financial Agreements of Depository Institutions with Securities Dealers
and Others, as adopted by the Comptroller of the Currency on October 31,
1985; and (f) investments in money market funds and mutual funds which
invest substantially all of their assets in securities of the types described
in clauses (a) through (e) above.


 


1.25         “Change of Control” shall
mean (a) the transfer (in one transaction or a series of transactions) of
all or substantially all of the assets of any Borrower to any Person or group (as
such term is used in Section 13(d)(3) of the Exchange Act); (b) the
liquidation or dissolution of any Borrower; (c) the acquisition by any
Person or group (as such term is used in Section 13(d)(3) of the
Exchange Act) of beneficial ownership, directly or indirectly, of more than
fifty (50%) percent of the voting power of the total outstanding Voting Stock
of any Borrower; (d) during any period of two (2) consecutive years,
individuals who at the beginning of such period constituted the Board of
Directors of any Borrower (together with any new directors whose nomination for
election by the stockholders of any Borrower was approved by a vote of at least



 


6

















 


sixty six and
two thirds (66 2/3%) percent of the directors then still in office who were
either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors of any Borrower then still in
office.


 


1.26         “Code” shall mean the
Internal Revenue Code of 1986, as the same now exists or may from time to time
hereafter be amended, modified, recodified or supplemented, together with all
governmental rules, regulations and interpretations thereunder or related
thereto.


 


1.27         “Collateral” shall have
the meaning set forth in Section 5 hereof.


 


1.28         “Collateral Access
Agreement” shall mean an agreement in writing, in form and substance reasonably
satisfactory to Agent, from any lessor of premises to each Borrower, or any
other person to whom any Collateral is consigned or who has custody, control or
possession of any Collateral or is otherwise the owner or operator of any
premises on which any Collateral is located, in favor of Agent with respect to
the Collateral at such premises or otherwise in the custody, control or
possession of such lessor, consignee or other person.


 


1.29         “Commitment” shall mean,
with respect to each Lender, the principal amount set forth on Exhibit F
hereto for such Lender or for any party becoming a Lender after the date hereof
the amount of such Lender’s Commitment as set forth on Schedule 1 to the
Assignment and Acceptance Agreement pursuant to which such Lender may become a
Lender hereunder in accordance with the provisions of Section 13.7 of this
Agreement; as the same may be adjusted in accordance with the terms hereof;
sometimes being collectively referred to as “Commitments”.


 


1.30         “Consolidated Adjusted
Net Income” shall mean, with respect to any Person for any period, the
aggregate of the net income (loss) of such Person and its Subsidiaries, on a
consolidated basis, for such period (excluding to the extent included therein
any extraordinary or non recurring gains and non cash charges, including
non-cash pension and other non-cash post-employment benefit charges and
non-cash restructuring charges and expenses and in the case of Borrowers and
its Subsidiaries, such cash charges and non-cash charges in each case in
amounts acceptable to Agent in its determination and arising pursuant to events
or circumstances beyond the control of Borrowers), after deducting all charges
which should be deducted before arriving at the net income (loss) for such
period, and after deducting the Provision for Taxes for such period, all as determined
in accordance with GAAP; provided, that, (a) the net income
of any Person that is not a wholly owned Subsidiary or that is accounted for by
the equity method of accounting shall be included only to the extent of the
amount of dividends or distributions paid or payable to such Person or a wholly
owned Subsidiary of such Person; (b) except to the extent included
pursuant to the foregoing clause, the net income of any Person accrued prior to
the date it becomes a wholly owned Subsidiary of such Person or is merged into
or consolidated with such Person or any of its wholly owned Subsidiaries or
that Person’s assets are acquired by such Person or by any of its wholly owned
Subsidiaries shall be excluded; and (c) the effect of any change in
accounting principles adopted by such Person or its Subsidiaries after the date
hereof shall be excluded.  For the
purposes of this definition, net income excludes any gain and non cash loss
(but not any cash loss) together with any related Provision for Taxes for such gain
and non cash loss (but not any cash loss) realized upon the sale or other
disposition of any assets that 


 


7

















 


are not sold
in the ordinary course of business (including, without limitation, dispositions
pursuant to sale and leaseback transactions) or of any capital stock of such
Person or a Subsidiary of such Person and any net income realized as a result
of changes in accounting principles or the application thereof to such Person.


 


1.31         “Credit Facility” shall
mean the Loans and Letter of Credit Accommodations provided to or for the
benefit of any Borrower pursuant to Sections 2.1 and 2.2 hereof.


 


1.32         “Default” shall mean an
act, condition or event which with notice or passage of time or both would constitute
an Event of Default.


 


1.33         “Defaulting Lender” shall
have the meaning set forth in Section 6.12(e) hereof.


 


1.34         “Deposit Account Control
Agreement” shall mean an agreement in writing, in form and substance reasonably
satisfactory to Agent, by and among Agent, the Borrowers with a deposit account
at any bank and the bank at which such deposit account is at any time
maintained which provides that such bank will comply with instructions
originated by Agent directing disposition of the funds in the deposit account
without further consent by such Borrower and has such other terms and
conditions as Agent may reasonably require.


 


1.35         “Direct Remittance Event”
shall have the meaning set forth in Section 6.3(a) hereof.


 


1.36         “Early Termination Fee”
shall mean the fee payable by Borrowers pursuant to Section 13.1(b) hereof.


 


1.37         “EBITDA” shall mean, as
to any Person, with respect to any period, an amount equal to: (a) the
Consolidated Adjusted Net Income of such Person and its Subsidiaries for such
period, plus (b) depreciation and amortization and other non-cash charges
including imputed interest and deferred compensation for such period (to the
extent deducted in the computation of Consolidated Adjusted Net Income of such
Person), all in accordance with GAAP, plus (c) Interest Expense for such
period (to the extent deducted in the computation of Consolidated Adjusted Net
Income of such Person), plus (d) the Provision for Taxes for such period
(to the extent deducted in the computation of Consolidated Adjusted Net Income
of such Person), plus (e) non-recurring cash charges for such period,
including any payments made to unionized employees pursuant to a Collective
Bargaining Agreement, to be entered into after the date hereof, between Haynes
International, Inc. and United Steelworkers of America, for itself and on
behalf of its Local No. 2958 as to all of such non-recurring cash charges
to the extent deducted in the computation of Consolidated Adjusted Net Income
of such Person), provided, that, in no event shall the amount of
non-recurring cash charges added pursuant to this clause (f) exceed
$10,000,000 in the aggregate for the fiscal year ending September 30, 2009
and each fiscal year thereafter, plus (f) non-cash charges related to “fresh-start”
accounting taken in such period.


 


1.38         “Eligible Accounts” shall
mean Accounts created by a Borrower that at the time of determination satisfy
the criteria set forth below.  Accounts
shall be Eligible Accounts if:


 


(a)       such Accounts arise from
the actual and bona fide sale and delivery of goods by such Borrower or
rendition of services by such Borrower in the ordinary course of its business 


 


8

















 


which transactions are
completed in accordance with the terms and provisions contained in any
documents related thereto;


 


(b)      such Accounts are not unpaid
more than sixty (60) days after the original due date thereof or more than one
hundred twenty (120) days after the date of the original invoice for them;


 


(c)       such Accounts comply with
the terms and conditions contained in Section 7.2(b) of this
Agreement;


 


(d)      such Accounts do not arise
from sales on consignment, guaranteed sale, sale and return, sale on approval,
or other terms under which payment by the account debtor may be conditional or
contingent;


 


(e)       the chief executive office
of the account debtor with respect to such Accounts is located in the United
States of America or Canada (provided, that, in order for such
Account to continue to be an Eligible Account, at any time promptly upon Agent’s
request in good faith, such Borrower shall execute and deliver, or cause to be
executed and delivered, such other agreements, documents and instruments as may
be required by Agent to perfect the security interests of Agent in those Accounts
of an account debtor with its chief executive office or principal place of
business in Canada in accordance with the applicable laws of the applicable
Province of Canada in which such chief executive office or principal place of
business is located and take or cause to be taken such other and further
actions as Agent may reasonably request to enable Agent as secured party with
respect thereto to collect such Accounts under the applicable Federal or
Provincial laws of Canada) or, at Agent’s option, if the chief executive office
and principal place of business of the account debtor with respect to such
Accounts is located other than in the United States of America or Canada, then
if either: (i) the account debtor has delivered to such Borrower an
irrevocable letter of credit issued or confirmed by a bank satisfactory to
Agent and payable only in the United States of America and in U.S. Dollars,
sufficient to cover such Account, in form and substance satisfactory to Agent
in good faith and if required by Agent, the original of such letter of credit
has been delivered to Agent or Agent’s agent and the issuer thereof, and such
Borrower has complied with the terms of Section 5.2(f) hereof with
respect to the assignment of the proceeds of such letter of credit to Agent or
naming Agent as transferee beneficiary thereunder, as Agent may specify, or (ii) such
Account is subject to credit insurance payable to Agent issued by an insurer
and on terms and in an amount acceptable to Agent, or (iii) such Account
is otherwise acceptable in all respects to Agent (subject to such lending
formula with respect thereto as Agent may determine);


 


(f)       such Accounts do not
consist of progress billings (such that the obligation of the account debtors
with respect to such Accounts is conditioned upon such Borrower’s satisfactory
completion of any further performance under the agreement giving rise thereto),
bill and hold invoices or retainage invoices, except as to bill and hold
invoices, if Agent shall have received an agreement in writing from the account
debtor, in form and substance reasonably satisfactory to Agent, confirming the
unconditional obligation of the account debtor to take the goods related
thereto and pay such invoice;


 


9

















 


(g)      the account debtor with
respect to such Accounts has not asserted a counterclaim, defense or dispute
and is not owed or does not claim to be owed any amounts that may give rise to
any right of setoff or recoupment against such Accounts (but the portion of the
Accounts of such account debtor in excess of the amount at any time and from
time to time owed by such Borrower to such account debtor or claimed owed by
such account debtor that otherwise satisfy the criteria for Eligible Accounts
shall be deemed Eligible Accounts);


 


(h)      there are no facts, events
or occurrences which would impair the validity, enforceability or
collectability of such Accounts or reduce the amount payable (other than to the
extent of sales credits in favor of account debtors consistent with the
practices of Borrowers with respect thereto as of the date hereof) or delay in
any material respect payment thereunder;


 


(i)        except for security
interests or liens therein in favor of a person with whom Agent has entered
into a satisfactory intercreditor agreement or as Agent may otherwise
specifically agree, such Accounts are subject to the first priority, valid and
perfected security interest of Agent and any goods giving rise thereto are not,
and were not at the time of the sale thereof, subject to any claims, liens,
security interest interests, charges or other encumbrances other than in favor
of Agent, or those that have been released and terminated on or before the date
hereof, or are otherwise permitted under Section 9.8 hereof, provided,
that, any of such claims, liens, security interest interests, charges or
other encumbrances with respect to such goods do not extend to such Accounts;


 


(j)        the account debtor is not
an Affiliate of any Borrower;


 


(k)       the account debtors with
respect to such Accounts are not any foreign government, the United States of
America, any State, political subdivision, department, agency or
instrumentality thereof, unless, if the account debtor is the United States of
America, any State, political subdivision, department, agency or
instrumentality thereof, upon Agent’s request, the Federal Assignment of Claims
Act of 1940, as amended or any similar State or local law, if applicable, has
been complied with in a manner satisfactory to Agent; provided, that,
so long as no Default or Event of Default shall exist or have occurred and be
continuing, and the aggregate amount of such Accounts is less than $500,000,
Agent shall not request that Borrowers comply with such laws;


 


(l)        there are no proceedings
or actions which are threatened or pending against the account debtors with
respect to such Accounts that Agent determines in good faith could reasonably
be expected to result in any material adverse change in any such account debtor’s
financial condition (including, without limitation, any bankruptcy,
dissolution, liquidation, reorganization or similar proceeding);


 


(m)      the aggregate amount of such
Accounts owing by a single account debtor do not constitute more than fifteen
(15%) percent of the aggregate amount of all otherwise Eligible Accounts (but
the portion of the Accounts not in excess of the applicable percentages may be
deemed Eligible Accounts);


 


(n)      such Accounts are not owed
by an account debtor who has Accounts unpaid more than sixty (60) days after
the original due date for them or one hundred twenty (120) days 


 


10

















 


after the date of the original
invoice for them, in either case which constitute more than fifty (50%) percent
of the total Accounts of such account debtor;


 


(o)      the account debtor is not
located in a State requiring the filing of a Notice of Business Activities
Report or similar report in order to permit such Borrower to seek judicial
enforcement in such State of payment of such Account, unless such Borrower has
qualified to do business in such state or has filed a Notice of Business
Activities Report or equivalent report for the then current year or such
failure to file and inability to seek judicial enforcement is capable of being
remedied without any material delay or material cost;


 


(p)      such Accounts are owed by
account debtors whose total indebtedness to such Borrower do not exceed the
credit limit with respect to such account debtors as determined by such
Borrower from time to time, to the extent such credit limit as to any account
debtor is established consistent with the current practices of such Borrower as
of the date hereof and such credit limit is acceptable to Agent in good faith
(but the portion of the Accounts not in excess of such credit limit that
otherwise satisfy the criteria for Eligible Accounts shall be deemed Eligible
Accounts); and


 


(q)      such Accounts are owed by
account debtors deemed creditworthy at all times by Agent in good faith.


 


The criteria
for Eligible Accounts set forth above may only be changed and any new criteria
for Eligible Accounts may only be established by Agent in good faith based on
either: (i) an event, condition or other circumstance arising after the
date hereof, or (ii) an event, condition or other circumstance existing on
the date hereof to the extent Agent has no written notice thereof from a
Borrower prior to the date hereof, in either case under clause (i) or (ii) which
adversely affects or could reasonably be expected to adversely affect the
Accounts in the good faith determination of Agent.  Any Accounts that are not Eligible Accounts
shall nevertheless be part of the Collateral.


 


1.39         “Eligible Arcadia
Inventory” shall mean Eligible Inventory (a) located at Haynes Parent’s
Arcadia, Louisiana facility; or (b) located at third-party processors of
Haynes Parent’s Inventory used by Haynes Parent in connection with the Arcadia,
Louisiana facility and from which processors Agent shall have received a
Collateral Access Agreement (except as Agent may otherwise agree); or (c) in
transit between Haynes Parent’s Arcadia, Louisiana facility and such processor’s
location; or (d) in transit from another of Haynes Parent’s facilities
referred to herein to Haynes Parent’s Arcadia, Louisiana facility.


 


1.40         “Eligible Equipment”
shall mean all Equipment owned by Borrowers which has been acquired prior to or
after the date hereof and which is included in an appraisal of Equipment
received by Agent after the date hereof in accordance with Section 7.4(a) hereof
and is in good order, repair, running and marketable condition that at all
times satisfies the criteria set forth below. 
In general, Eligible Equipment shall not include:  (a) Equipment at premises other than
those permitted hereunder and which are either (i) owned and operated by
Borrowers, or (ii) leased and operated by Borrowers or (iii) owned
and operated by a third person, provided, that, except as Agent
may otherwise agree, Agent shall have received a Collateral Access Agreement
duly executed and delivered by such third person; (b) Equipment subject to
a security interest, lien, charge or other encumbrance in favor of any Person
other than Agent except those 


 


11

















 


permitted in
this Agreement that are subject to an intercreditor agreement, in form and
substance satisfactory to Agent, between the holder of such security interest
or lien and Agent or as Agent may otherwise specifically agree; (c) Equipment
located outside the continental United States of America; (d) Equipment
that is not subject to the first priority, valid and perfected security
interests and liens of Agent; (e) worn-out, obsolete, damaged or defective
Equipment or Equipment not used or usable in the ordinary course of Borrowers’
business as presently conducted; (f) computer hardware; (g) Equipment
that is or becomes a fixture; or (h) Equipment which is Eligible New
Equipment.  The criteria for Eligible
Equipment set forth above may only be changed and any new criteria for Eligible
Equipment may only be established by Agent in good faith based on either: (i) an
event, condition or other circumstance arising after the date hereof, or (ii) an
event, condition or other circumstance existing on the date hereof to the
extent Agent has no written notice thereof from Borrowers prior to the date
hereof, in either case under clause (i) or (ii) which adversely
affects or could reasonably be expected to adversely affect such Equipment in
the good faith determination of Agent. 
Any Equipment that is not Eligible Equipment shall nevertheless be part
of the Collateral.


 


1.41         “Eligible Inventory”
shall mean, as to each Borrower, Inventory owned by such Borrower consisting of
finished goods held for resale in the ordinary course of the business of such
Borrower, raw materials for such finished goods and work-in-process and
semi-finished Inventory, in each case that at all times satisfies the criteria
set forth below.  In general, Eligible
Inventory shall not include (a) spare parts for equipment; (b) packaging
and shipping materials; (c) supplies used or consumed in such Borrower’s
business; (d) Inventory at premises other than those permitted hereunder
and which are either  (i) owned and
operated by Borrowers or (ii) leased and operated by Borrowers or (iii) owned
and operated by a third person, provided, that, except as Agent
may otherwise agree, as to locations leased and operated by Borrowers or
locations owned and operated by a third person, Agent shall have received a
Collateral Access Agreement duly executed and delivered by the lessor and owner
of such leased locations or by such third person, as the case may be; (e) Inventory
subject to a security interest, lien, charge or other encumbrance in favor of
any Person other than Agent except those permitted in this Agreement that are
subject to an intercreditor agreement in form and substance satisfactory to
Agent between the holder of such security interest or lien and Agent or as
Agent may otherwise specifically agree; (f) bill and hold goods; (g) unserviceable,
obsolete or slow moving Inventory; (h) Inventory that is not subject to
the first priority, valid and perfected security interests and liens of Agent; (i) returned,
damaged and/or defective Inventory; (j) Inventory purchased or sold on
consignment and (k) Inventory of Borrowers located outside the United
States of America.  The criteria for
Eligible Inventory set forth above may only be changed and any new criteria for
Eligible Inventory may only be established by Agent in good faith based on
either: (i) an event, condition or other circumstance arising after the
date hereof, or (ii) an event, condition or other circumstance existing on
the date hereof to the extent Agent has no written notice thereof from a
Borrower prior to the date hereof, in either case under clause (i) or (ii) which
adversely affects or could reasonably be expected to adversely affect the
Inventory in the good faith determination of Agent.  Any Inventory that is not Eligible Inventory
shall nevertheless be part of the Collateral.


 


1.42         “Eligible Kokomo
Inventory” shall mean Eligible Inventory (a) located at Haynes Parent’s
Kokomo, Indiana facility; or (b) located at third-party processors of
Haynes Parent’s Inventory used by Haynes Parent in connection with the Kokomo,
Indiana facility and from which processors Agent shall have received a
Collateral Access Agreement (except as Agent 


 


12

















 


may otherwise
agree); or (c) in transit between Haynes Parent’s Kokomo, Indiana facility
and such processor’s location; or (d) in transit from another of Haynes
Parent’s facilities referred to herein to Haynes Parent’s Kokomo, Indiana
facility.


 


1.43         “Eligible New Equipment”
shall mean all new Equipment owned by Borrowers which is or has been acquired
on or after October 1, 2008 (the value of which has been included in the
calculation of the amount of any Equipment Purchase Loan) and which is not
included in the most recent appraisal of Equipment received by Agent after the
date hereof in accordance with Section 7.4(a) hereof, and is in good
order, repair, running and marketable condition that at all times satisfies the
criteria set forth below.  In general,
Eligible New Equipment shall not include: 
(a) Equipment at premises other than those permitted hereunder and
which are either (i) owned and operated by Borrowers, or (ii) leased
and operated by Borrowers or (iii) owned and operated by a third person, provided,
that, except as Agent may otherwise agree, Agent shall have received a
Collateral Access Agreement duly executed and delivered by such third person; (b) Equipment
subject to a security interest, lien, charge or other encumbrance in favor of
any Person other than Agent except those permitted in this Agreement that are
subject to an intercreditor agreement, in form and substance satisfactory to
Agent, between the holder of such security interest or lien and Agent or as
Agent may otherwise specifically agree; (c) Equipment located outside the
continental United States of America; (d) Equipment that is not subject to
the first priority, valid and perfected security interests and liens of Agent; (e) worn-out,
obsolete, damaged or defective Equipment or Equipment not used or usable in the
ordinary course of Borrowers’ business as presently conducted; (f) computer
hardware; (g) Equipment that is or becomes a fixture; or (h) Equipment
which is Eligible Equipment.  The
criteria for Eligible New Equipment set forth above may only be changed and any
new criteria for Eligible New Equipment may only be established by Agent in good
faith based on either: (i) an event, condition or other circumstance
arising after the date hereof, or (ii) an event, condition or other
circumstance existing on the date hereof to the extent Agent has no written
notice thereof from Borrowers prior to the date hereof, in either case under
clause (i) or (ii) which adversely affects or could reasonably be
expected to adversely affect such Equipment in the good faith determination of
Agent.  Any Equipment that is not
Eligible New Equipment shall nevertheless be part of the Collateral.


 


1.44         “Eligible Service Center
Inventory” shall mean Eligible Inventory (a) located at Haynes Parent’s
existing leased service center locations as of the date hereof in Windsor,
Connecticut, Anaheim, California, Houston, Texas and Lebanon, Indiana; or (b) at
any new service center location used by Haynes Parent after the date hereof, so
long as Agent has received prior written notice of the use of such location, a
Collateral Access Agreement from the owner and lessor of such location (except
as Agent may otherwise agree) and such new service center is operating with
Inventory and in a manner substantially consistent with the existing service
center locations of Borrowers as of the date hereof; or (d) in transit
from one of Borrowers’ facilities referred to herein to any of such service
center locations.


 


1.45         “Eligible Transferee”
shall mean (a) any Lender; (b) the parent company of any Lender
and/or any Affiliate of such Lender which is at least fifty (50%) percent owned
by such Lender or its parent company; (c) any person (whether a
corporation, partnership, trust or otherwise) that is engaged in the business
of making, purchasing, holding or otherwise investing in bank loans and similar
extensions of credit in the ordinary course of its business and is 


 


13

















 


administered
or managed by a Lender or with respect to any Lender that is a fund which
invests in bank loans and similar extensions of credit, any other fund that
invests in bank loans and similar extensions of credit and is managed by the
same investment advisor as such Lender or by an Affiliate of such investment
advisor, and in each case is approved by Agent; (d) any other commercial
bank approved by Agent; and (e) any other financial institution or “accredited
investor” (as defined in Regulation D under the Securities Act of 1933)
approved by Agent that makes loans and provides similar extensions of credit in
the ordinary course of its business and is capable of funding revolving loans; provided,
that, (i) neither any Borrower nor any Affiliate of any Borrower
shall qualify as an Eligible Transferee and (ii) no Person to whom any
Indebtedness which is in any way subordinated in right of payment to any other
Indebtedness of any Borrower shall qualify as an Eligible Transferee, except as
Agent may otherwise specifically agree.


 


1.46         “Enforcement Action”
shall mean the exercise by Agent (or its assignee or designee) in good faith
and in a commercially reasonable manner of any of its material enforcement
rights and remedies as a secured creditor hereunder or under the other
Financing Agreements, applicable law or otherwise, in respect of any of the
Collateral, at any time following the occurrence of an Event of Default
(including, without limitation, the demand for the immediate payment of all or
any portion of the Obligations, the solicitation of bids from third parties to
conduct the liquidation of any of the Collateral, the engagement or retention
of sales brokers, marketing agents, investment bankers, accountants,
appraisers, auctioneers or other third parties for the purposes of valuing,
marketing, promoting and selling any of the Collateral, the opposition of the
sale of assets constituting Collateral in any bankruptcy or insolvency
proceeding, the commencement of any action to foreclose on the security
interests or liens of Agent in all or any material portion of the Collateral or
commencement of any legal proceedings or actions against any Borrower or with
respect to all or any portion of the Collateral).


 


1.47         “Environmental Laws”
shall mean all foreign, Federal, State and local laws, legislation, rules,
codes, licenses, permits (including any conditions imposed therein),
authorizations, judicial or administrative decisions, injunctions or agreements
between any Borrower and any Governmental Authority, (a) relating to
pollution and the protection, preservation or restoration of the environment
(including air, water vapor, surface water, ground water, drinking water,
drinking water supply, surface land, subsurface land, plant and animal life or
any other natural resource), or to human health or safety, (b) relating to
the exposure to, or the use, storage, recycling, treatment, generation,
manufacture, processing, distribution, transportation, handling, labeling,
production, release or disposal, or threatened release, of Hazardous Materials,
or (c) relating to all laws with regard to recordkeeping, notification,
disclosure and reporting requirements respecting Hazardous Materials.


 


1.48         “Equipment” shall mean
all of each Borrower’s now owned and hereafter acquired equipment, wherever
located, including machinery, data processing and computer equipment (whether
owned or licensed and including embedded software), vehicles, tools, furniture,
fixtures, all attachments, accessions and property now or hereafter affixed
thereto or used in connection therewith, and substitutions and replacements
thereof, wherever located.


 


1.49         “Equipment Purchase Loan
Limit” shall mean at any time the lesser of (a) $15,000,000 or (b) the
amount equal to: (i) $120,000,000 minus (ii) the sum of (A) the


 


14














 


Revolving
Loans then outstanding, plus (B) the undrawn amount of Letter of Credit
Accommodations then outstanding.


 


1.50         “Equipment Purchase Loan
Request” shall have the meaning set forth in Section 2.3(d) hereof.


 


1.51         “Equipment Purchase Loans”
shall mean the secured term loans made by Lenders to any Borrower after the
date hereof as provided for in Section 2.3; such term loans being from
time to time referred to herein individually as an “Equipment Purchase Loan”.


 


1.52         “Equipment Purchase Notes”
shall mean, collectively, the Equipment Purchase Notes which may at any time
hereafter be issued by any Borrower to Lenders pursuant to Section 2.3
hereof to evidence an Equipment Purchase Loan; such notes being from time to
time referred to herein individually as an “Equipment Purchase Note”.


 


1.53         “ERISA” shall mean the
Employee Retirement Income Security Act of 1974, together with all rules,
regulations and interpretations thereunder or related thereto.


 


1.54         “ERISA Affiliate” shall
mean any person required to be aggregated with any Borrower or any of their
respective Subsidiaries under Sections 414(b), 414(c), 414(m) or 414(o) of
the Code.


 


1.55         “ERISA Event” shall mean (a) any
“reportable event” described in Section 4043(b) or 4043(c)(1), (2),
(5), (6), (8) or (9) of ERISA or the regulations issued thereunder,
with respect to a Pension Plan or a Multiemployer Plan; (b) the adoption
of any amendment to a Benefit Plan that would require the provision of security
pursuant to Section 401(a)(29) of the Code or Section 307 of ERISA; (c) the
existence with respect to any Pension Plan of an “accumulated funding
deficiency” (as defined in Section 412 of the Code or Section 302 of
ERISA), whether or not waived; (d) the filing pursuant to Section 412
of the Code or Section 303(d) of ERISA of an application for a waiver
of the minimum funding standard with respect to any Pension Plan; (e) the
occurrence of a “prohibited transaction” with respect to which each Borrower or
any of its Subsidiaries is a “disqualified person” (within the meaning of Section 4975
of the Code) or with respect to which each Borrower or any of its Subsidiaries
could otherwise be liable; (f) a complete or partial withdrawal by any
Borrower or any ERISA Affiliate from a Multiemployer Plan that results in or
has a reasonable likelihood of resulting in any liability of any Borrower; (g) the
receipt by or on behalf of any Borrower or any ERISA Affiliate of a notice that
either: (i) any Multiemployer Plan is in reorganization or insolvent (each
within the meaning of ERISA) or (ii) any Multiemployer Plan is or will or
is likely to be entering reorganization or becoming insolvent or (iii) any
Multiemployer Plan intends to terminate or has been terminated, in the case of
each of clauses (g)(i), (ii) or (iii) that result in or has a
reasonable likelihood of resulting in any liability of any Borrower; (h) the
filing of a notice of intent to terminate, the treatment of a Benefit Plan
amendment as a termination under Section 4041 or 4041A of ERISA, or the
commencement of proceedings by the Pension Benefit Guaranty Corporation to
terminate a Pension Plan or any Borrower receiving a notice of or otherwise
obtaining knowledge of the commencement of proceedings by the Pension Benefit
Guaranty Corporation to terminate a Multiemployer Plan; (i) the occurrence
of an event or condition which might reasonably be expected to constitute
grounds under Section 4042 of ERISA for the 


 


15

















 


termination of, or the
appointment of a trustee to administer, any Pension Plan or any Borrower
receiving a notice of or otherwise obtaining knowledge of any such event or
condition as to a Multiemployer Plan; (j) the imposition of any liability
under Title IV of ERISA, other than the Pension Benefit Guaranty Corporation
premiums due but not delinquent under Section 4007 of ERISA, upon any
Borrower or any ERISA Affiliate in excess of $250,000.


 


1.56         “Eurodollar Rate” shall
mean, with respect to any Eurodollar Rate Loan for the Interest Period applicable
thereto, the rate appearing on Reuters Screen LIBOR01 Page (or on any
successor or substitute page of such service, or any successor to or
substitute for such service, providing rate quotations comparable to those
currently provided on such page of such service, as determined by Agent
from time to time for purposes of providing quotations of interest rates
applicable to eurodollar deposits in dollars in the London interbank market) (“Page”)
at approximately 11:00 A.M. (London time) two (2) Business Days prior
to the first day of such Interest Period for a term comparable to such Interest
Period; provided, that, if more than one rate is specified on
such Page for such comparable period, the applicable rate shall be the
arithmetic mean of all such rates.  In
the event that such rate is not available at such time for any reason, then the
term “Eurodollar Rate” shall mean, with respect to any Eurodollar Rate Loan for
the Interest Period applicable thereto, the rate of interest per annum at which
dollar deposits of $5,000,000 and for a term comparable to such Interest Period
are offered by the principal London office of Reference Bank in immediately
available funds in the London interbank market at approximately 11:00 a.m.
London time two (2) Business Days prior to the commencement of such
Interest Period.


 


1.57         “Eurodollar Rate Loans”
shall mean any Loans or portion thereof on which interest is payable based on
the Adjusted Eurodollar Rate in accordance with the terms hereof (including
Eurodollar Rate Fixed Asset Loans and Eurodollar Rate Equipment Purchase
Loans).


 


1.58         “Eurodollar Rate
Equipment Purchase Loans” shall mean Equipment Purchase Loans outstanding from
time to time that are Eurodollar Rate Loans.


 


1.59         “Eurodollar Rate Fixed
Asset Loans” shall mean Eurodollar Rate Loans outstanding from time to time
based on Fixed Asset Availability.


 


1.60         “Excess
Availability” shall mean at any time and without duplication, (a) the
lesser of: (i) the Borrowing Base and (ii) the Revolving Loan Limit
(in each case under (i) or (ii) after giving effect to any applicable
Reserves), minus (b) the sum of: (i) the amount of the then
outstanding and unpaid principal amount of the Revolving Loans and the undrawn
amount of Letter of Credit Accommodations, plus (ii) the aggregate amount
of all payables or other obligations outstanding more than forty-five (45) days
after the due date therefor, plus (iii) the amount of checks issued by any
Borrower to pay payables and other obligations which are more than such number
of days past due, but not yet sent (without duplication of amounts included in
clause (b)(ii) herein).


 


1.61         “Exchange Act” shall mean
the Securities Exchange Act of 1934, together with all rules, regulations and
interpretations thereunder or related thereto.


 


16

















 


1.62         “Exchange Rate” shall
mean the prevailing spot rate of exchange of such bank as Agent may reasonably
select for the purpose of conversion of one currency to another, at or around
11:00 a.m. Chicago time, on the date on which any such conversion of
currency is to be made under this Agreement.


 


1.63         “Excluded Taxes” shall
have the meaning set forth in Section 6.5 hereof.


 


1.64         “Existing Financing
Agreements” shall mean, collectively (each as amended, modified or supplemented
prior to the date hereof); (a) the Existing Loan Agreement, and (b) the
other agreements listed on Schedule 1.64 hereto.


 


1.65         “Existing Loan Agreement”
shall have the meaning set forth in the recitals hereto.


 


1.66         “Fee Letter” shall mean
the Amended and Restated Fee Letter, dated of even date herewith, by and among
Borrowers and Agent, setting forth certain fees payable by Borrowers to Agent
for the benefit of itself and Lenders, as the same now exists or may hereafter
be amended, modified, supplemented, extended, renewed, restated or replaced.


 


1.67         “Financing Agreements”
shall mean, collectively, this Agreement, the Existing Financing Agreements
(other than the Existing Loan Agreement), and all notes, guarantees, security
agreements, Deposit Account Control Agreements, Investment Property Control
Agreements, intercreditor agreements and all other agreements, documents and
instruments now or at any time hereafter executed and/or delivered by Borrowers
in connection with this Agreement.


 


1.68         “Fixed Asset Availability”
shall mean, at any time:


 


(a)        prior to the month
following the receipt by Agent of updated appraisals of the Equipment and the
Real Property in accordance with Section 7.4(a) hereof, the amount of
$7,448,766; provided, that, effective on the first day of each
month after the date hereof, the Fixed Asset Availability shall be reduced by
the amount equal to $228,989 on the first day of each such month; and


 


(b)        effective as of the first
day of the first month after the receipt by Agent of updated appraisals of the
Equipment in accordance with Section 7.4(a) hereof (the “New Fixed
Asset Availability Effective Date”), the amount equal to the lesser of (i) the
amount equal to eighty-five (85%) percent of the Net Recovery Percentage of
Eligible Equipment or (ii) $15,000,000; provided, that, such
amount shall be reduced by 1/60 commencing on the first day of the first month
after the New Fixed Asset Availability Effective Date and on the first day of
each month thereafter and subject to other reductions based on sales or other
dispositions of any assets that were included in the calculation thereof.


 


1.69         “Fixed Charges” shall
mean, as to any Person and its Subsidiaries with respect to any period, the sum
of, without duplication, (a) all cash Interest Expense (which for purposes
of this definition shall not include amortizing payments of deferred financing
charges that do not constitute interest), plus (b) net cash costs under
any Hedge Agreement (in each case as to such Person and its Subsidiaries for
such period and to the extent not included in the calculation of EBITDA of such
Person and its Subsidiaries for such period), plus (c) all regularly
scheduled (as 


 


17

















 


determined at the beginning of
the respective period) principal payments of Indebtedness for borrowed money
and Indebtedness with respect to Capital Leases (and without duplicating in
items (a) and (c) of this definition, the interest component with
respect to Indebtedness under Capital Leases), plus (d) all Capital
Expenditures, plus (e) the cash portion of any Provision for Taxes paid in
such period and unpaid amounts of any Provision for Taxes the last date for
payment of which before becoming past due occurs during such period, plus (f) all
scheduled reductions in the Fixed Asset Availability occurring during such
period, plus (g) cash payments in respect of US pension obligations made
during such period.


 


1.70         “Fixed Charge Coverage
Ratio” shall mean, as to any Person, with respect to any period, the ratio of (a) the
amount equal to EBITDA of such Person and its Subsidiaries for such period to (b) the
Fixed Charges of such Person and its Subsidiaries for such period.


 


1.71         “Foreign Subsidiaries”
shall mean the Subsidiaries of any Borrower organized or incorporated under the
laws of a jurisdiction outside of the United States of America or which have
substantially all of their respective assets and operations outside the United
States of America; sometimes being referred to herein individually as a “Foreign
Subsidiary”.


 


1.72         “4-High Facility” shall
mean, collectively, the Mill and the Real Estate, in each case, as defined in
the Timet Security Agreement as in effect on the Timet Closing Date.


 


1.73         “4-High Intellectual
Property” shall mean the Intellectual Property, as defined in the Timet
Security Agreement as in effect on the Timet Closing Date.


 


1.74         “GAAP” shall mean
generally accepted accounting principles in the United States of America as in
effect from time to time as set forth in the opinions and pronouncements of the
Accounting Principles Board and the American Institute of Certified Public
Accountants and the statements and pronouncements of the Financial Accounting
Standards Board which are applicable to the circumstances as of the date of
determination consistently applied; provided, that, for purposes
of Sections 9.17 and 9.18 hereof, GAAP shall be determined on the basis of such
principles in effect on the date hereof and consistent with those used in the
preparation of the most recent audited financial statements delivered to Agent
prior to the date hereof.


 


1.75         “Governmental Authority”
shall mean any nation or government, any state, province, or other political
subdivision thereof, any central bank (or similar monetary or regulatory
authority) thereof, and any entity exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government.


 


1.76         “Hard Costs” shall mean,
with respect to the purchase by Borrowers of an item of Eligible New Equipment,
the net cash amount actually paid to acquire title to such item, net of all
incentives, trade-in allowances, discounts and rebates, and exclusive of
freight, delivery charges, installation costs and charges, software costs,
charges and fees, warranty costs, taxes, insurance and other incidental costs
or expenses and all indirect costs or expenses of any kind.


 


1.77         “Haynes Parent” shall
mean Haynes International, Inc., a Delaware corporation, and its
successors and assigns.


 


18

















 


1.78         “Haynes UK” shall mean
Haynes International Ltd., a company organized under the laws of England and
Wales, and its successors and assigns.


 


1.79         “Haynes UK Pension
Trustees” shall mean, collectively, Haynes UK, John Raymond Woolnough and
Jynette Rutherford, and their respective successors and assigns in their
respective capacities as trustees for the Haynes Pension Plan established by
Haynes UK.


 


1.80         “Haynes Wire” shall mean
Haynes Wire Company, a Delaware corporation, and its successors and assigns.


 


1.81         “Hazardous Materials”
shall mean any hazardous, toxic or dangerous substances, materials and wastes,
including hydrocarbons (including naturally occurring or man-made petroleum and
hydrocarbons), flammable explosives, asbestos, urea formaldehyde insulation,
radioactive materials, polychlorinated biphenyls, pesticides, herbicides and
any other kind and/or type of pollutants or contaminants (including materials
which include hazardous constituents), and including any other substances,
materials, or wastes that are classified as hazardous or toxic under any
Environmental Law).


 


1.82         “Hedge Agreement” shall
mean an agreement that is a rate swap agreement, basis swap, forward rate
agreement, commodity swap, interest rate option, forward foreign exchange
agreement, spot foreign exchange agreement, rate cap agreement rate, floor
agreement, rate collar agreement, currency swap agreement, cross currency rate
swap agreement, currency option, any other similar agreement (including any
option to enter into any of the foregoing or a master agreement for any the
foregoing together with all supplements thereto) for the purpose of protecting
against or managing exposure to fluctuations in interest or exchange rates,
currency valuations or commodity prices; sometimes being collectively referred
to herein as “Hedge Agreements”.


 


1.83         “Indebtedness” shall
mean, with respect to any Person, whether or not contingent, (a) all
indebtedness for borrowed money (whether or not the recourse of the lender is
to the whole of the assets of such Person or only to a portion thereof) or
evidenced by bonds, notes, debentures or similar instruments; (b) the
balance deferred and unpaid of the purchase price of any property or services
(except any such balance that constitutes an account payable to a trade
creditor (whether or not an Affiliate) created, incurred, assumed or guaranteed
by such Person in the ordinary course of business of such Person in connection
with obtaining goods, materials or services that is not overdue by more than
one hundred twenty (120) days (unless the trade payable is being contested in
good faith (or during the course thereof) will be the date for payment of such
payables and as to those payables or other obligations that are subject to a
dispute or are not otherwise allowed, prior to the establishment of the due
date for such payables or other obligations pursuant to the Plan and the claims
administration process, such payables and other obligations shall not be deemed
overdue by more than one hundred twenty (120) days for purposes of this
definition); (c) the principal component of all leases to which it is a
lessee which have been, or should be, in accordance with GAAP recorded as
Capital Leases; (d) any contractual obligation, contingent or otherwise,
of such Person to pay or be liable for the payment of any indebtedness
described in this definition of another Person, including, without limitation,
any such indebtedness, directly or indirectly guaranteed, or any agreement to
purchase, repurchase, or otherwise acquire such indebtedness, obligation or
liability or any 


 


19

















 


security therefor, or to
provide funds for the payment or discharge thereof, or to maintain solvency,
assets, level of income, or other financial condition; (e) all obligations
with respect to redeemable stock and redemption or repurchase obligations under
any Capital Stock or other equity securities issued by such Person; (f) all
reimbursement obligations and other liabilities of such Person with respect to
surety bonds (whether bid, performance or otherwise), letters of credit, banker’s
acceptances, drafts or similar documents or instruments issued for such Person’s
account; (g) all indebtedness of such Person in respect of indebtedness of
another Person for borrowed money or indebtedness of another Person otherwise
described in this definition which is secured by any consensual lien, security
interest, collateral assignment, conditional sale, mortgage, deed of trust, or
other encumbrance on any asset of such Person, whether or not such obligations,
liabilities or indebtedness are assumed by or are a personal liability of such
Person, all as of such time; (h) all obligations, liabilities and
indebtedness of such Person arising under any Hedge Agreements; and (i) the
principal and interest portions of all rental obligations of such Person under
any synthetic lease or similar off balance sheet financing where such
transaction is considered to be borrowed money for tax purposes but is
classified as an operating lease in accordance with GAAP.


 


1.84         “Information Certificate”
shall mean, collectively, the Information Certificate of Haynes Parent and the
information certificate of Haynes Wire constituting Exhibit C hereto each
containing material information with respect to Borrowers, its business and
assets provided by or on behalf of Borrowers to Agent in connection with the
preparation of this Agreement and the other Financing Agreements and the
financing arrangements provided for herein.


 


1.85         “Intellectual Property”
shall mean as to each Borrower, such Borrower’s now owned and hereafter arising
or acquired:  patents, patent rights,
patent applications, copyrights, works which are the subject matter of
copyrights, copyright applications, copyright registrations, trademarks,
servicemarks, trade names, trade styles, trademark and service mark
applications, and licenses and rights to use any of the foregoing and all
applications, registrations and recordings relating to the foregoing as may be
filed in the United States Copyright Office, the United States Patent and
Trademark Office or in any similar office or agency of the United States, any
State thereof, any political subdivision thereof or in any other country, together
with all rights and privileges arising under applicable law with respect to any
Borrower’s use of any of the foregoing; all extensions, renewals, reissues,
divisions, continuations, and continuations-in-part of any of the foregoing;
all rights to sue for past, present and future infringement of any of the
foregoing; inventions, trade secrets, formulae, processes, compounds, drawings,
designs, blueprints, surveys, reports, manuals, and operating standards;
goodwill (including any goodwill associated with any trademark or servicemark
or the license of any trademark or servicemark); customer and other lists in
whatever form maintained; trade secret rights, copyright rights, rights in
works of authorship, domain names and domain name registrations; software and
contract rights relating to computer software programs, in whatever form
created or maintained.


 


1.86         “Interest Expense” shall
mean, for any period, as to any Person, as determined in accordance with GAAP,
the total interest expense of such Person, whether paid or accrued during such
period but without duplication (including the interest component of Capital
Leases for such period), including, without limitation, discounts in connection
with the sale of any Accounts that are sold for purposes other than collection,
but excluding interest paid in property other than cash and any other interest
expense not payable in cash.


 


20

















 


1.87         “Interest Period” shall
mean for any Eurodollar Rate Loan, a period of approximately one (1), two (2),
or three (3) months duration as any Borrower (or Administrative Borrower
on behalf of such Borrower) may elect, the exact duration to be determined in
accordance with the customary practice in the applicable Eurodollar Rate
market; provided, that, such Borrower (or Administrative Borrower
on behalf of such Borrower) may not elect an Interest Period which will end
after the last day of the then current term of this Agreement.


 


1.88         “Interest Rate” shall
mean,


 


(a)        Subject to clause (b) and
(c) below, (i) as to Prime Rate Loans, a rate equal to the then
Applicable Margin for Prime Rate Loans on a per annum basis plus the Prime Rate
and (ii) as to Eurodollar Rate Loans, a rate equal to the then Applicable
Margin for Eurodollar Rate Loans on a per annum basis plus the Adjusted
Eurodollar Rate; in the case of clause (ii) hereof based on the Eurodollar
Rate applicable for the Interest Period selected by Borrowers as in effect
three (3) Business Days after the date of receipt by Agent of the request
of Borrowers for such Eurodollar Rate Loans in accordance with the terms
hereof, whether such rate is higher or lower than any rate previously quoted to
Borrowers.


 


(b)        Subject to clause (c) of
this definition below, effective as of the first day of each month, the
Interest Rate payable by Borrowers shall be increased or decreased, as the case
may be, (i) as to Prime Rate Loans, to the rate equal to the Applicable
Margin on a per annum basis in excess of the Prime Rate, and (ii) as to
Eurodollar Rate Loans, to the rate equal to the Applicable Margin on a per
annum basis in excess of the Adjusted Eurodollar Rate.


 


(c)        Notwithstanding anything
to the contrary contained in clause (a) of this definition, the Applicable
Margin otherwise used to calculate the Interest Rate for Prime Rate Loans and
Eurodollar Rate Loans, shall be the highest percentage in the definition of
Applicable Margin (with respect to Loans of the applicable type) plus (in each
case) two (2%) percent per annum (without regard to Monthly Excess
Availability), at Agent’s option, without notice, (i) either (A) for
the period on and after the date of termination or non-renewal hereof until
such time as all Obligations are indefeasibly paid and satisfied in full in
immediately available funds (or in the case of contingent Obligations, Agent
shall have received cash collateral or a letter of credit, at its option, all
in accordance with Section 13.1(c)), or (B) for the period from and
after the date of the occurrence of any Event of Default, and for so long as
such Event of Default is continuing as determined by Agent and (ii) on the
Loans to Borrowers at any time outstanding in excess of the Borrowing Base of
any Borrower or the Loan Limit of any Borrower (whether or not such excess(es)
arise or are made with or without Agent’s or any Lender’s knowledge or consent
and whether made before or after an Event of Default).


 


1.89         “Inventory” shall mean,
as to each Borrower, all of such Borrower’s now owned and hereafter existing or
acquired goods, wherever located, which (a) are leased by such Borrower as
lessor; (b) are held by such Borrower for sale or lease or to be furnished
under a contract of service; (c) are furnished by such Borrower under a
contract of service; or (d) consist of raw materials, work-in-process,
finished goods or materials used or consumed in its business.


 


1.90         “Inventory Loan Limit”
shall mean, at any time, $90,000,000.


 


21

















 


1.91         “Investment Property
Control Agreement” shall mean an agreement in writing, in form and substance
reasonably satisfactory to Agent in good faith, by and among Agent, any
Borrower and any securities intermediary, commodity intermediary or other
person who has custody, control or possession of any investment property of
such Borrower acknowledging that will comply with entitlement orders originated
by Agent with respect to such investment property, or other instructions of
Agent, and has such other terms and conditions as Agent may reasonably require.


 


1.92         “Kokomo Facility
Inventory Availability” shall mean, with respect to Eligible Kokomo Inventory,
the lesser of:


 


(a)        the sum of (i) seventy
(70%) percent multiplied by the Value of the Eligible Kokomo Inventory
consisting of finished goods, plus (ii) fifty-five (55%) percent
multiplied by the Value of the Eligible Kokomo Inventory consisting of
work-in-process, plus (iii) eighty-five (85%) percent multiplied by the
Value of the Eligible Kokomo Inventory consisting of raw materials; or


 


(b)        the amount equal to the
sum of the following for each category of Eligible Kokomo Inventory (such
categories being finished goods, work-in-process and raw materials as described
above): (i) eighty-five (85%) percent of the Net Recovery Percentage for
each category of such Eligible Kokomo Inventory multiplied by (ii) the
Value of such category of Eligible Kokomo Inventory; or


 


(c)        sixty (60%) percent
multiplied by the sum of the Value of all of the above categories of such
Eligible Kokomo Inventory.


 


1.93         “Lenders” shall mean the
financial institutions who are signatories hereto as Lenders and other persons
made a party to this Agreement as a Lender in accordance with Section 13.7
hereof, and their respective successors and assigns; each sometimes being
referred to herein individually as a “Lender”.


 


1.94         “Letter of Credit
Accommodations” shall mean, collectively, the letters of credit, merchandise
purchase or other guaranties which are from time to time either (a) issued
or opened by Agent or any Lender for the account of any Borrower or (b) with
respect to which Agent or Lenders have agreed to indemnify the issuer or
guaranteed to the issuer the performance by Borrower of its obligations to such
issuer; sometimes being referred to herein individually as “Letter of Credit
Accommodation”.


 


1.95         “Letter of Credit Fee”
shall have the meaning set forth in Section 2.2(b) hereof.


 


1.96         “License Agreements”
shall have the meaning set forth in Section 8.11 hereof.


 


1.97         “Loans” shall mean the
Revolving Loans and the Equipment Purchase Loans, being sometimes referred to
herein individually as a “Loan”.


 


1.98         “Material Adverse Effect”
shall mean a material adverse effect on (a) the financial condition,
business, performance or operations of Borrowers and their Subsidiaries (taken
as a whole); (b) the legality, validity or enforceability of this
Agreement or any of the other Financing 


 


22

















 


Agreements; (c) the
legality, validity, enforceability, perfection or priority of the security
interests and liens of Agent upon the Collateral; (d) the Collateral or
its value; (e) the ability of any Borrower to repay the Obligations or
perform its obligations under this Agreement or any of the other Financing
Agreements; or (f) the ability of Agent or any Lender to enforce the
Obligations or realize upon the Collateral.


 


1.99         “Material Contract” shall
mean (a) any contract or other agreement (other than the Financing
Agreements), of any Borrower involving monetary liability of or to any Person
in an amount in excess of $5,000,000 in any fiscal year and (b) any other
contract or other agreement (other than the Financing Agreements), to which any
Borrower is a party, as to which the breach, nonperformance, cancellation or
failure to renew by any party thereto would have a Material Adverse
Effect.  For purposes hereof, the breach,
non-performance, cancellation or failure to renew by any party will not
constitute a Material Adverse Effect if any Borrower is readily able to promptly
obtain substitute performance from a third party on terms (taken as a whole)
that are not less favorable in any material respect to any Borrower.


 


1.100       “Maturity Date” shall have
the meaning set forth in Section 13.1 hereof.


 


1.101       “Maximum Credit” shall mean
$120,000,000.


 


1.102       “Monthly Average Excess
Availability” shall mean, at any time, the daily average of the aggregate
amount of the Excess Availability for the immediately preceding month as
calculated by Agent in good faith.


 


1.103       “Mortgages” shall mean,
individually and collectively, each of the following (as the same now exist or
may hereafter be amended, modified, supplemented, extended, renewed, restated
or replaced): (a) the Mortgage, Assignment of Leases and Rents, Security
Agreement and Fixture Filing, dated August 31, 2004, by Haynes Parent in
favor of Agent with respect to the Real Property and related assets of Haynes
Parent located in Kokomo, Indiana, (b) the Mortgage, Assignment of Leases
and Rents, Security Agreement and Fixture Filing, dated August 31, 2004,
by Haynes Parent in favor of Agent with respect to the Real Property and
related assets of Haynes Parent located in Arcadia, Louisiana, and (c) the
Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture
Filing, dated November 5, 2004, by Haynes Wire in favor of Agent with
respect to the Real Property of Haynes Wire located in Mountain Home, North
Carolina.


 


1.104       “Multiemployer Plan” shall
mean a “multi employer plan” as defined in Section 4001(a)(3) of
ERISA which is or was at any time during the current year or the immediately
preceding six (6) years contributed to by any Borrower or any ERISA
Affiliate.


 


1.105       “Net Recovery Percentage”
shall mean the fraction, expressed as a percentage, (a) the numerator of
which is the amount equal to the amount of the recovery in respect of the
Inventory at such time determined on a “net orderly liquidation value” basis
pursuant to the most recent acceptable appraisal of Inventory or Equipment
received by Agent in accordance with Sections 7.3 or 7.4 (as applicable), net
of operating expenses, liquidation expenses and commissions (without
duplication) likely to be incurred in connection with the liquidation of such
Inventory or Equipment as set forth in such appraisal, and (b) the
denominator of which is 


 


23

















 


the applicable standard cost of
the aggregate amount of the Inventory or Equipment subject to such appraisal.


 


1.106       “Non-U.S. Person” means a
Person that is not a “United States person” within the meaning of Section 7701(a)(30)
of the Code.


 


1.107       “Obligations” shall mean (a) any
and all Loans, Letter of Credit Accommodations and all other obligations,
liabilities and indebtedness of every kind, nature and description owing by
Borrowers to Agent or any Lender and/or any of their Affiliates, including
principal, interest, charges, fees, costs and expenses, however evidenced,
whether as principal, surety, endorser, guarantor or otherwise, in each case
arising under this Agreement or any of the other Financing Agreements, whether
now existing or hereafter arising, whether arising before, during or after the
initial or any renewal term of this Agreement or after the commencement of any
case with respect to Borrowers under the Bankruptcy Code or any similar statute
(and including any principal, interest, fees, costs, expenses and other amounts
owed to Agent or any Lender which would accrue and become due but for the
commencement of such a case, whether or not such amounts are allowed or
allowable in whole or in part in such a case), whether direct or indirect,
absolute or contingent, joint or several, due or not due, primary or secondary,
liquidated or unliquidated, secured or unsecured, and however acquired by Agent
or any Lender and (b) for purposes only of Section 5.1 hereof and
subject to the priority in right of payment set forth in Section 6.4
hereof, all obligations of any Borrower arising under or pursuant to a Hedge
Agreement with a party acceptable to Agent (it being understood that, so long
as JPMorgan Chase Bank, N.A. is a Lender, JPMorgan Chase Bank, N.A. and its
Affiliates shall be acceptable to Agent for this purpose); provided, that,
(i) upon Agent’s request, Agent shall have entered into an agreement, in
form and substance satisfactory to Agent, with such Person that is a
counterparty to such Hedge Agreement, as acknowledged and agreed to by
Borrowers, providing for the delivery to Agent by such counterparty of
information with respect to the amount of such obligations and providing for
the other rights of Agent and such Lender, Affiliate or other Person, as the
case may be, in connection with such arrangements and (ii) in no event
shall the party to such Hedge Agreement to whom such obligations are owed be
deemed a Lender for purposes hereof to the extent of and as to such obligations
other than for purposes of Section 5.1 hereof and other than for purposes
of Sections 12.1, 12.2, 12.3(b), 12.6, 12.7, 12.9 and 12.12 hereof.  Without limiting the generality of the
foregoing, the term “Obligations” shall include, without limitation, all Bank
Product Obligations; provided, that, any Bank Product Provider to
whom such obligations, liabilities and indebtedness are owing be not deemed a
Lender for purposes hereof to the extent of and as to such Bank Product Obligations
other than for purposes of Section 5.1 hereof and other than for purposes
of Section 12.1, 12.2, 12.3(b), 12.6, 12.7, 12.9 and 12.12 hereof.


 


1.108       “Other Taxes” shall mean
any present or future stamp or documentary taxes or any other excise or property
taxes, charges or similar levies which arise from any payment made hereunder or
from the execution, delivery or registration of, or otherwise with respect to,
this Agreement or any of the other Financing Agreements.


 


1.109       “Participant” shall mean
any financial institution that acquires and holds a participation in the
interest of any Lender in any of the Loans and Letter of Credit 


 


24

















 


Accommodations in conformity
with the provisions of Section 13.7 of this Agreement governing
participations.


 


1.110       “Pension Plan” shall mean a
pension plan (as defined in Section 3(2) of ERISA) subject to Title
IV of ERISA which Borrowers sponsor, maintain, or to which any Borrower or
ERISA Affiliate makes, is making, or is obligated to make contributions, other
than a Multiemployer Plan.


 


1.111       “Permits” shall have the
meaning set forth in Section 8.7 hereof.


 


1.112       “Permitted Acquisitions”
shall mean the purchase by a Borrower or Guarantor (or any Subsidiary created for
such purpose) after the date hereof of all or substantially all of the assets
of any Person or a business or division of such Person (whether pursuant to a
merger or other transaction) or of all or a majority of the Capital Stock of
any Person (such assets or Person being referred to herein as the “Acquired
Business”) and in one or a series of transaction that satisfies each of the
following conditions as determined in good faith by Agent:


 


(a)        Agent shall have received
not less than ten (10) Business Days’ prior written notice of the proposed
acquisition and such information with respect thereto as Agent may request,
including (i) the proposed date and amount of the acquisition, (ii) a
list and description of the assets or shares to be acquired, (iii) the
total purchase price for the assets to be purchased (and the terms of payment
of such purchase price), (iv) a summary of the due diligence undertaken by
Borrowers in connection with such acquisition, and (v) appropriate
financial statements of the Acquired Business,


 


(b)        the Acquired Business
shall be an operating company that engages in a line of business substantially
similar or complimentary to the business that Borrowers are engaged in on date
hereof,


 


(c)        the aggregate amount of
all consideration paid for all Permitted Acquisitions shall not exceed (i) $25,000,000
during any fiscal year or (ii) $75,000,000 during the term of this
Agreement;


 


(d)        in the event that the
consideration paid for or in connection with the assets or shares (or as merger
consideration) of the Acquired Business is equal to or greater than
$10,000,000, Agent shall have received: (i) the most recent annual and
interim financial statements with respect to the Acquired Business and related
statements of income and cash flows showing positive cash flows for the
immediately preceding fiscal year of such Acquired Business, (ii) detailed
forecasts of cash flows for the Acquired Business forecasting positive future
cash flows, (iii) detailed projections for Haynes Parent and its Subsidiaries
through the Maturity Date giving pro forma effect to such
acquisition, based on assumptions reasonably satisfactory to Agent and
demonstrating pro forma compliance with all financial
covenants set forth in this Agreement, prepared in good faith and in a manner
and using such methodology as is consistent with the most recent financial
statements delivered to Agent pursuant to Section 9.6 hereof and in form
and substance reasonably satisfactory to Agent and (iv) current, updated
projections of the amount of the Borrowing Base and Excess Availability for the
12 month period after the date of such acquisition, in a form reasonably
satisfactory to Agent, representing 


 


25

















 


Borrowers’ reasonable best
estimate of the future Borrowing Base and Excess Availability for the period
set forth therein as of the date not more than ten (10) days prior to the
date of such acquisition, which projections shall have been prepared on the
basis of the assumptions set forth therein which Borrowers believe are fair and
reasonable as of the date of preparation in light of current and reasonably
foreseeable business conditions and which projections shall show amounts of
Excess Availability satisfactory to Agent,


 


(e)        if Administrative Borrower
requests that any assets acquired pursuant to such acquisition be included in
the Borrowing Base, Agent shall have completed a field examination with respect
to the business and assets of the Acquired Business in accordance with Agent’s
customary procedures and practices and as otherwise required by the nature and
circumstances of the business of the Acquired Business, the scope and results
of which shall be satisfactory to Agent and any accounts and inventory of the
Acquired Business shall only be Eligible Accounts and Eligible Inventory,
respectively, to the extent Agent has completed such field examination with
respect thereto and the criteria for Eligible Accounts and Eligible Inventory
set forth herein are satisfied with respect thereto in accordance with this
Agreement (or such other or additional criteria as Agent may, at its option,
establish with respect thereto in accordance with this Agreement and subject to
such Reserves as Agent may establish in connection with the Acquired Business,
and in the case of Eligible Inventory acquired pursuant to a Permitted
Acquisition to the extent that it has been subject to an appraisal that
satisfies the requirements of Section 7.3 hereof),


 


(f)         in the case of the
acquisition of Capital Stock of any Person or the formation of any Subsidiary
in connection with such acquisition, (i) the Borrower or Guarantor forming
such Subsidiary shall, except as Agent may otherwise agree, (A) execute
and deliver to Agent, a pledge and security agreement, in form and substance
satisfactory to Agent, granting to Agent a first pledge of and lien on all of
the issued and outstanding shares of Capital Stock of any such Subsidiary, (B) deliver
the original stock certificates evidencing such shares of Capital Stock (or
such other evidence as may be issued in the case of a limited liability
company), together with stock powers with respect thereto duly executed in
blank (or the equivalent thereof in the case of a limited liability company in
which such interests are certificated, or otherwise take such actions as Agent
shall require with respect to Agent’s security interests therein) and (ii) as
to any such Subsidiary, except as Agent may otherwise agree, the Borrower or
Guarantor forming such Subsidiary shall cause any such Subsidiary to execute
and deliver to Agent, the following (each in form and substance satisfactory to
Agent), (A) an absolute and unconditional guarantee of payment of the
Obligations, (B) a security agreement granting to Agent a first security
interest and lien (except as otherwise consented to in writing by Agent) upon
all of the assets of any such Subsidiary, and (C) such other agreements,
documents and instruments as Agent may require in connection with the documents
referred to above in order to make such Subsidiary a party to this Agreement as
a “Borrower” or as a “Guarantor” as Agent may determine, including, but not
limited to, supplements and amendments hereto, authorization to file UCC
financing statements, Collateral Access Agreements and other consents, waivers,
acknowledgments and other agreements from third persons which Agent may deem
necessary or desirable in order to permit, protect and perfect its security
interests in and liens upon the assets purchased, corporate resolutions and
other organization and authorizing documents of such Person, and favorable
opinions of counsel to such person,


 


26














 


(g)        in the case of an
acquisition of assets (other than Capital Stock), Agent shall have received, in
form and substance satisfactory to Agent, (i) evidence that Agent has
valid and perfected security interests in and liens upon all purchased assets
to the extent such assets constitute Collateral hereunder, (ii) such other
agreements, documents and instruments as Agent may require in connection with
such assets, including, but not limited to, supplements and amendments hereto,
authorization to file UCC financing statements, Collateral Access Agreements
and other consents, waivers, acknowledgments and other agreements from third
persons which Agent may deem necessary or desirable in order to permit, protect
and perfect its security interests in and liens upon the assets purchased,
corporate resolutions and other organization and authorizing documents of such
Person, and favorable opinions of counsel to such person, and (iii) the
agreement of the seller consenting to the collateral assignment by the Borrower
purchasing such assets of all rights and remedies and claims for damages of
such Borrower relating to the Collateral (including, without limitation, any
bulk sales indemnification) under the agreements, documents and instruments
relating to such acquisition,


 


(h)        in the case of the
acquisition of the Capital Stock of another Person, the board of directors (or
other comparable governing body) of such other Person shall have duly approved
such acquisition and such Person shall not have announced that it will oppose
such acquisition or shall not have commenced any action which alleges that such
acquisition will violate applicable law,


 


(i)         Agent shall have received
a Compliance Certificate completed on a pro forma basis giving effect to the
acquisition and showing that Borrowers and Guarantors are in compliance with
the covenant set forth in Section 9.18 hereof notwithstanding the amount
of the Excess Availability,


 


(j)         no Default or Event of
Default shall exist or have occurred as of the date of the acquisition or any
payment in respect thereof and after giving effect to the acquisition or such
payment,


 


(k)        Excess Availability shall
have been not less than $50,000,000 for the sixty (60) day period immediately
prior to the date of any such acquisition and not less than $50,000,000 after
giving effect to all payments in connection with such acquisition, and


 


(l)         Agent shall have received
true, correct and complete copies of all agreements, documents and instruments
relating to such acquisition, which documents shall be reasonably satisfactory
to Agent.


 


1.113       “Person” or “person” shall
mean any individual, sole proprietorship, partnership, corporation (including
any corporation which elects subchapter S status under the Code), limited
liability company, limited liability partnership, business trust,
unincorporated association, joint stock corporation, trust, joint venture or
other entity or any government or any agency or instrumentality or political
subdivision thereof.


 


1.114       “Prime Rate” shall mean the
greater of (a) the rate from time to time publicly announced by Wachovia
Bank, National Association, or its successors, as its prime rate, whether 


 


27

















 


or not such announced rate is
the best rate available at such bank or (b) the Adjusted Eurodollar Rate
plus 2.50%.


 


1.115       “Prime Rate Equipment
Purchase Loans” shall mean Prime Rate Loans outstanding from time to time that
are Equipment Purchase Loans.


 


1.116       “Prime Rate Fixed Asset
Loans” shall mean Prime Rate Loans outstanding from time to time based on Fixed
Asset Availability.


 


1.117       “Prime Rate Loans” shall
mean any Loans or portion thereof on which interest is payable based on the
Prime Rate in accordance with the terms thereof (including Prime Rate Fixed
Asset Loans and Prime Rate Equipment Purchase Loans).


 


1.118       “Pro Rata Share” shall mean
with respect to a Lender’s obligation to make Revolving Loans and Equipment
Purchase Loans and to acquire interests in Letter of Credit Accommodations and
receive payments of interest and principal with respect thereto, the fraction
(expressed as a percentage) the numerator of which is such Lender’s Commitment
and the denominator of which is the aggregate amount of all of the Commitments,
as adjusted from time to time in accordance with the provisions of Section 13.7
hereof; provided, that, if the Commitments have been terminated,
the numerator shall be the unpaid amount of such Lender’s Revolving Loans and
Equipment Purchase Loans and its interest in the Letter of Credit Accommodations
and the denominator shall be the aggregate amount of all unpaid Revolving
Loans, Equipment Purchase Loans and Letter of Credit Accommodations;


 


1.119       “Provision for Taxes” shall
mean an amount equal to all taxes imposed on or measured by net income, whether
Federal, State, county or local, and whether foreign or domestic, that are paid
or payable by any Person in respect of any period in accordance with GAAP.


 


1.120       “Real Property” shall mean
all now owned and hereafter acquired real property of any Borrower together
with all buildings, structures, and other improvements located thereon and all
licenses, easements and appurtenances relating thereto, wherever located,
including the real property and related assets more particularly described in the
Mortgages.


 


1.121       “Receivables” shall mean
all of the following now owned or hereafter arising or acquired property of
each Borrower: (a) all Accounts; (b) all interest, fees, late
charges, penalties, collection fees and other amounts due or to become due or
otherwise payable in connection with any Account; (c) all payment
intangibles of such Borrower; (d) letters of credit, indemnities,
guarantees, security or other deposits and proceeds thereof issued payable to
any Borrower or otherwise in favor of or delivered to any Borrower in
connection with any Account; or (e) all other accounts, contract rights,
chattel paper, instruments, notes, general intangibles and other forms of
obligations owing to any Borrower, whether from the sale and lease of goods or
other property, licensing of any property (including Intellectual Property or
other general intangibles), rendition of services or from loans or advances by
any Borrower or to or for the benefit of any third person (including loans or
advances to any Affiliates or Subsidiaries of any Borrower) or otherwise
associated with any Accounts, Inventory or general intangibles of any Borrower
(including, without limitation, choses in action, causes of action, tax
refunds, tax 


 


28

















 


refund claims, any funds which
may become payable to any Borrower in connection with the termination of any
Benefit Plan or other employee benefit plan and any other amounts payable to
any Borrower from any Benefit Plan or other employee benefit plan, rights and
claims against carriers and shippers, rights to indemnification, business
interruption insurance and proceeds thereof, casualty or any similar types of
insurance and any proceeds thereof and proceeds of insurance covering the lives
of employees on which any Borrower is a beneficiary).


 


1.122       “Records” shall mean, as to
each Borrower, all of Borrowers’ present and future books of account of every
kind or nature, purchase and sale agreements, invoices, ledger cards, bills of
lading and other shipping evidence, statements, correspondence, memoranda,
credit files and other data relating to the Collateral or any account debtor,
together with the tapes, disks, diskettes and other data and software storage
media and devices, file cabinets or containers in or on which the foregoing are
stored (including any rights of Borrowers with respect to the foregoing
maintained with or by any other person).


 


1.123       “Reference Bank” shall mean
Wachovia Bank, National Association, or such other major U.S. Bank as Agent may
from time to time designate.  For
purposes hereof, a “major U.S. Bank” shall be any commercial bank organized
under the laws of the United States, or any State thereof, or the District of
Columbia that is a member of the Federal Reserve System and has combined
capital and surplus and undivided profits of not less than $500,000,000.


 


1.124       “Required Lenders” shall
mean, at any time, those Lenders whose Pro Rata Shares aggregate fifty-one
(51%) percent or more of the aggregate of the Commitments of all Lenders, or if
the Commitments shall have been terminated, Lenders to whom at least fifty-one
(51%) percent of the principal amount of the then outstanding Obligations are
owing; provided, that, in the event that there are only two (2) Lenders,
Required Lenders shall mean both such Lenders.


 


1.125       “Reserves” shall mean as of
any date of determination, such amounts as Agent may from time to time
establish and revise in good faith reducing the amount of Loans and Letter of
Credit Accommodations that would otherwise be available to any Borrower under
the lending formula(s) provided for herein:  (a) to reflect events, conditions,
contingencies or risks which, as determined by Agent in good faith, have
adversely affected, or are reasonably likely to adversely affect, either (i) the
Collateral, its value or the amount that might be received by Agent from the
sale or other disposition thereof, or (ii) the business or operations of
any Borrower or (iii) the security interests and other rights of Agent or
any Lender in the Collateral (including the enforceability, perfection and
priority thereof), including, without limitation, the maximum amount of any
indebtedness or claim which may have a lien or administrative claim upon
property of the estate of any Borrower superior to or on a parity with the lien
and security interest or administrative claim of Agent or any Lender therein or
thereon or (b) to reflect Agent’s good faith belief that any collateral
report or financial information furnished by or on behalf of any Borrower to
Agent is or may have been incomplete, inaccurate or misleading in any material
respect or (c) to reflect outstanding Letter of Credit Accommodations as
provided in Section 2.2 hereof. 
Without limiting the generality of the foregoing, Reserves may, at Agent’s
option, be established to reflect: (i) dilution with respect to the
Accounts (based on the ratio of the aggregate amount of non-cash reductions in
Accounts for any period to the aggregate dollar amount of the sales of such
Borrower for such period) as calculated by Agent for any period is or 


 


29

















 


is reasonably anticipated to be
greater than five (5%) percent; or (ii) that the fair market value of Real
Property subject to a Mortgage, or the net orderly liquidation value of the
Equipment, as set forth in any appraisals received by Agent with respect
thereto after the date hereof (in each case net of operating expenses,
liquidation expenses and commissions (without duplication) estimated to be incurred
in connection with the liquidation thereof, that are acceptable to Agent for
such purpose, has declined so that the Fixed Asset Availability is greater than
(A) the percentages with respect to the value of Real Property or
Equipment used in establishing the original amounts of the Fixed Asset
Availability multiplied by (B) the applicable values set forth in such
subsequent appraisals; or (iii) the net orderly liquidation value of any
Eligible New Equipment as set forth in any appraisals thereof received by Agent
with respect thereto after the date hereof (net of operating expenses,
liquidation expenses and commissions without duplication estimated to be
incurred in connection with the liquidation thereof) that are acceptable to
Agent, for such purpose, has declined so that the Equipment Purchase Loan based
on such Eligible New Equipment is greater than the then outstanding principal
amount of such Equipment Purchase Loan; or (iv) variances between the
Inventory records of any Borrower and the results of test counts or physical
counts of Inventory with respect thereto; or (v) variances between the
stock ledger Inventory report and general ledger; or (vi) returns,
discounts, claims, credits and allowances of any nature that are not paid
pursuant to the reduction of Accounts; or (vii) amounts due or to become
due in respect of sales, excise, use and/or withholding taxes; or (viii) to
the extent that a change in the turnover, age or mix of the categories of
Inventory adversely affects the aggregate value of all Inventory or to reflect
that the commodity prices of raw materials have decreased; or (ix) any
rental payments or other amounts due or to become due to owners and lessors of
real property or owners and operators of premises to the extent Inventory, Equipment
or Records are located in or on such property or premises and Agent has not
received a satisfactory Collateral Access Agreement from the owner or lessor of
such real property or owner and operator of such property or premises in
possession of such assets (provided, that, such Reserves
will not exceed the aggregate of the amounts payable to such owners and lessors
or owners and operators for the next three (3) months from any such time
and including in each case amounts, if any, then outstanding and unpaid owed by
any Borrower to such owners and lessors or owners and operators, but such
limitations will only apply so long as no Event of Default exists or has
occurred and is continuing); or (x) obligations (contingent or otherwise)
of any Borrower to any Affiliate of Agent or a Lender arising under or in
connection with any Hedge Agreement of any Borrower with such Affiliate or
Lender or as such Affiliate or Lender may otherwise require in connection
therewith to the extent that such obligations constitute Obligations as such
term is defined herein or otherwise receive the benefit of the security
interest of Agent in any Collateral; provided, that, the amount
of the Reserves in respect of such obligations shall be based on the amount of
the liability of any Borrower as reported by such Affiliate or Lender in a form
and substance satisfactory to Agent; or (xi) Bank Product Obligations.  To the extent Agent may revise the lending
formulas used to determine the Borrowing Base or establish new criteria or revise
existing criteria for Eligible Accounts or Eligible Inventory so as to address
any circumstances, condition, event or contingency in a manner satisfactory to
Agent, Agent shall not establish a Reserve for the same purpose.  The amount of any Reserve established by
Agent shall have a reasonable relationship to the event, condition or other
matter which is the basis for such reserve as determined by Agent in good
faith.  In
the event that the event, condition or other matter giving rise to the
establishment of any Reserve shall cease to exist for a period of thirty (30)
consecutive days (unless there is a 


 


30

















 


reasonable prospect that such
event, condition or other matter will occur again within a reasonable period of
time thereafter), the Reserve established pursuant to such event, condition or
other matter, shall be discontinued.  The
term “Reserves” as used herein shall include in addition, and not in
limitation, the Special Availability Reserve. 
Without limiting the generality of the foregoing, the Revolving Loans
and Letter of Credit Accommodations otherwise available to Borrowers shall, at
Agent’s option, be subject to a special reserve, in an amount up to any unpaid
interest, fees, costs, expenses or other charges.


 


1.126       “Revolving Loan Limit”
shall mean, at any time, the amount equal to: (a) $120,000,000 minus (b) the
then outstanding aggregate principal amount of the Equipment Purchase Loans.


 


1.127       “Revolving Loans” shall
mean the loans now or thereafter made by or on behalf of any Lender or by Agent
for the account of any Lender, on a revolving basis pursuant to the Credit
Facility (including advances, repayments and readvances), as set forth in Section 2.1(a) hereof.


 


1.128       “Secured Parties” shall
mean, collectively, Agent, Lenders and Bank Product Providers; sometimes being
referred to herein individually as a “Secured Party”.


 


1.129       “Service Center
Availability” shall mean, with respect to Eligible Service Center Inventory,
the lesser of (a) seventy (70%) percent multiplied by the Value of such
Eligible Service Center Inventory or (b) eighty-five (85%) percent of the
Net Recovery Percentage multiplied by the Value of such Eligible Service Center
Inventory.


 


1.130       “Special Agent Advances”
shall have the meaning set forth in Section 12.11 hereof.


 


1.131       “Special Availability
Reserve” shall mean, at any time, $1,500,000.


 


1.132       “Subsidiary” or “subsidiary”
shall mean, with respect to any Person, any corporation, limited liability
company, limited liability partnership or other limited or general partnership,
trust, association or other business entity of which an aggregate of at least a
majority of the outstanding Capital Stock or other interests entitled to vote
in the election of the board of directors of such corporation (irrespective of
whether, at the time, Capital Stock of any other class or classes of such
corporation shall have or might have voting power by reason of the happening of
any contingency), managers, trustees or other controlling persons, or an
equivalent controlling interest therein, of such Person is, at the time,
directly or indirectly, owned by such Person and/or one or more subsidiaries of
such Person.


 


1.133       “Taxes” shall mean any and
all present or future taxes, levies, imposts, deductions, charges or
withholdings, and all liabilities with respect thereto imposed by Governmental
Authority.


 


1.134       “Timet” shall mean Titanium
Metals Corporation, a Delaware corporation, and its successors and assigns.


 


1.135       “Timet Closing Date” shall
mean November 17, 2006.


 


31

















 


1.136       “Timet Collateral” shall
mean, collectively, the Mill, the Contract Rights, the Equipment, the
Intellectual Property for Titanium Conversion Services, or any Proceeds thereof
to the extent subject to the security interest and lien of Timet under the
Timet Security Agreement as in effect on the Timet Closing Date.  Each of the capitalized terms used in this
definition of the term “Timet Collateral” shall have the meanings assigned on
Schedule 1.136 hereto in the Timet Security Agreement as in effect on the Timet
Closing Date.


 


1.137       “Timet
Conversion Agreement” shall mean the Conversion Services Agreement, dated the
Timet Closing Date, by and between Haynes Parent and Timet, as the same now
exists or may hereafter be amended, modified, supplemented, extended, renewed,
restated or replaced.


 


1.138       “Timet
Debt” shall mean, collectively, (a) any outstanding principal balance
under the Timet Option Note and any accrued and unpaid interest thereon, if
any; (b) the entire unearned portion of the Timet Fee; (c) the amount
of any Liquidated Damages (as defined in the Timet Conversion Agreement as in
effect on the Timet Closing Date); (d) the amount of any Termination Fee
(as defined in the Timet Conversion Agreement as in effect on the Timet Closing
Date);(e) the amount of any Non-Compete Amendment Fee (as defined in the
Timet Conversion Agreement as in effect on the Timet Closing Date); and (f) any
amounts owed by Haynes Parent under Section 5.1 of the Timet Conversion
Agreement as in effect on the Timet Closing Date.


 


1.139       “Timet Documents” shall
mean, collectively, the Timet Conversion Agreement, the Timet Security
Agreement, the Timet Option Note and all agreements, documents or instruments
at any time executed and/or delivered by Borrowers or any other Person with, to
or in favor of Timet in connection therewith or related thereto, as the same
now exist or may hereafter be amended, modified, supplemented, extended,
renewed, restated or replaced.


 


1.140       “Timet Option Note” shall
mean the secured promissory note made by Haynes Parent in favor of Timet in an
aggregate principal amount of not more than $12,000,000 pursuant to the Timet
Documents, substantially in the form attached hereto as Schedule 1.140 and as
the same may hereafter be amended, modified, supplemented, extended, renewed,
restated or replaced.


 


1.141       “Timet Security Agreement”
shall mean the Access and Security Agreement, dated the Timet Closing Date, by
and between Haynes Parent and Timet, as the same now exists or may hereafter be
amended, modified, supplemented, extended, renewed, restated or replaced.


 


1.142       “UCC” shall mean the
Uniform Commercial Code as in effect in the State of Illinois, and any
successor statute, as in effect from time to time (except that terms used
herein which are defined in the Uniform Commercial Code as in effect in the
State of Illinois on the date hereof shall continue to have the same meaning
notwithstanding any replacement or amendment of such statute).


 


1.143       “US Dollar Equivalent”
shall mean at any time (a) as to any amount denominated in US Dollars, the
amount thereof at such time, and (b) as to any amount denominated in any
other currency, the equivalent amount in US Dollars calculated by Agent at such
time using the Exchange Rate in effect on the Business Day of determination.


 


32

















 


1.144       “US Dollars”, “US$” and “$”
shall each mean lawful currency of the United States of America.


 


1.145       “Value” shall mean the US
Dollar Equivalent with respect to Inventory, equal to the lower of (a) cost
computed on a first-in-first-out basis in accordance with GAAP using “standard”
costs or (b) market value; provided, that, for purposes of
the calculation of the Borrowing Base, (i) the Value of the Inventory
shall not include: (A) the portion of the value of Inventory equal to the
profit earned by any Affiliate on the sale thereof to any Borrower to the
extent the same is reflected in the cost of such Inventory or (B) write
ups or write downs in value with respect to currency exchange rates and (ii) notwithstanding
anything to the contrary contained herein, the cost of the Inventory shall be
computed in the same manner and consistent with the most recent appraisal of
the Inventory received and accepted by Agent prior to the date hereof, if any.


 


1.146       “Voting Stock” shall mean
with respect to any Person, (a) one (1) or more classes of Capital
Stock of such Person having general voting powers to elect at least a majority
of the board of directors, managers or trustees of such Person, irrespective of
whether at the time Capital Stock of any other class or classes have or might
have voting power by reason of the happening of any contingency, and (b) any
Capital Stock of such Person convertible or exchangeable without restriction at
the option of the holder thereof into Capital Stock of such Person described in
clause (a) of this definition.


 


1.147       “Wachovia” shall mean
Wachovia Capital Finance Corporation (Central), an Illinois corporation, in its
individual capacity, and its successors and assigns.


 


SECTION 2.  CREDIT FACILITIES


 


2.1   Revolving Loans.


 


(a)        Subject to and upon the
terms and conditions contained herein, each Lender severally (and not jointly)
agrees to make its Pro Rata Share of Revolving Loans to Borrowers from time to
time in amounts requested by any Borrower (or Administrative Borrower on behalf
of Borrowers) in the aggregate amount for the Loans of all Lenders of up to the
lesser of (i) the Borrowing Base at such time or (B) the Revolving
Loan Limit at such time.


 


(b)        Except in Agent’s
discretion, with the consent of all Lenders, or as otherwise provided herein, (i) the
aggregate amount of the Loans and the Letter of Credit Accommodations
outstanding at any time shall not exceed the Maximum Credit, (ii) the
aggregate principal amount of the Revolving Loans outstanding at any time shall
not exceed the lesser of the Borrowing Base or the Revolving Loan Limit, (iii) the
aggregate principal amount of the Revolving Loans outstanding at any time based
on Eligible Inventory consisting of work-in-process shall not exceed
$50,000,000, and (iv) the aggregate principal amount of the Revolving
Loans outstanding at any time based on Eligible Inventory shall not exceed the
Inventory Loan Limit.


 


(c)        In the event that the
aggregate principal amount of the Loans and Letter of Credit Accommodations
outstanding at any time exceeds the Maximum Credit, or the aggregate principal
amount of the Revolving Loans exceeds the lesser of the Borrowing Base or the 


 


33

















 


Revolving Loan Limit, or the
aggregate amount of the outstanding Letter of Credit Accommodations exceed the
sublimit for Letter of Credit Accommodations set forth in Section 2.2(e),
or the aggregate principal amount of the Revolving Loans outstanding at any
time based on Eligible Inventory consisting of work-in-process exceed
$50,000,000, or the aggregate principal amount of the Revolving Loans
outstanding at any time based on Eligible Inventory exceed the Inventory Loan
Limit, in any case such event shall not limit, waive or otherwise affect any
rights of Agent or Lenders in such circumstances or on any future occasions and
Borrowers shall, upon demand by Agent, which may be made at any time or from
time to time, immediately repay to Agent the entire amount of any such
excess(es) for which payment is demanded.


 


2.2   Letter of Credit
Accommodations.


 


(a)        Subject to and upon the
terms and conditions contained herein, at the request of a Borrower (or
Administrative Borrower on behalf of such Borrower), Agent agrees, for the
ratable risk of each Lender according to its Pro Rata Share, to provide or
arrange for Letter of Credit Accommodations for the account of such Borrower containing
terms and conditions acceptable to Agent and the issuer thereof.  Any payments made by or on behalf of Agent or
any Lender to any issuer thereof and/or related parties in connection with the
Letter of Credit Accommodations provided to or for the benefit of such Borrower
shall constitute additional Revolving Loans to such Borrower pursuant to this Section 2
(or in any event Special Agent Advances as the case may be).


 


(b)        In addition to any
charges, fees or expenses charged by any bank or issuer in connection with the
Letter of Credit Accommodations, Borrowers shall pay to Agent, for the benefit
of Lenders based on their respective Pro Rata Shares, monthly a letter of credit fee (the “Letter of Credit Fee”) at the
applicable rate determined as provided below (on a per annum basis) on the
daily outstanding balance of Letter of Credit Accommodations for the
immediately preceding month (or part thereof), payable in arrears as of the
first day of each succeeding month.  Such
percentages shall be increased or decreased, as the case may be, to the
applicable percentage (on a per annum basis) set forth below based on the
Monthly Average Excess Availability for immediately preceding month.


 


	
  Tier

  	
   

  	
  Monthly Average 

  Excess Availability

  	
   

  	
  LC Fee Rate

  	
   

  
	
  1

  	
   

  	
  Greater than
  $40,000,000

  	
   

  	
  2.50

  	
  %

  
	
  2

  	
   

  	
  Greater than
  or equal to $20,000,000 and less than or equal to $40,000,000

  	
   

  	
  2.75

  	
  %

  
	
  3

  	
   

  	
  Less than
  $20,000,000

  	
   

  	
  3.00

  	
  %

  



 


provided, that, (i) the
applicable percentage shall be calculated and established on the first day of
each month and shall remain in effect until adjusted thereafter at the
beginning of the next month 


 


34

















 


and (ii)  the applicable percentage from and
including the date hereof through November 30, 2008 shall be the amount
for Tier 1 set forth above, and (iii) Agent
may, and upon the written direction of Required Lenders shall, require
Borrowers to pay to Agent for the benefit of Lenders based on their respective
Pro Rata Shares such Letter of Credit Fee, at a rate equal to two (2%) percent
greater than the highest rate above on such daily outstanding balance for: (i) the
period from and after the date of termination hereof until Agent and Lenders
have received full and final payment of all Obligations (notwithstanding entry
of a judgment against such Borrower) and (ii) the period from and after
the date of the occurrence of an Event of Default for so long as such Event of
Default is continuing.  Such Letter of
Credit Fee shall be calculated on the basis of a three hundred sixty (360) day
year and actual days elapsed and the obligation of Borrowers to pay such fee
shall survive the termination of this Agreement.


 


(c)        Such Borrower shall give
Agent two (2) Business Days’ prior written notice of such Borrower’s
request for the issuance of a Letter of Credit Accommodation.  Such notice shall be irrevocable and shall
specify the original face amount of the Letter of Credit Accommodation
requested, the effective date (which date shall be a Business Day and in no
event shall be a date less than ten (10) days prior to the end of the then
current term of this Agreement) of issuance of such requested Letter of Credit
Accommodation, whether such Letter of Credit Accommodations may be drawn in a
single or in partial draws, the date on which such requested Letter of Credit
Accommodation is to expire (which date shall be a Business Day), the purpose
for which such Letter of Credit Accommodation is to be issued, and the
beneficiary of the requested Letter of Credit Accommodation.  Such Borrower shall attach to such notice the
proposed terms of the Letter of Credit Accommodation.


 


(d)        In addition to being
subject to the satisfaction of the applicable conditions precedent contained in
Section 4 hereof and the other terms and conditions contained herein, no
Letter of Credit Accommodations shall be available unless each of the following
conditions precedent have been satisfied in a manner satisfactory to
Agent:  (i) the Borrowers requesting
such Letter of Credit (or Administrative Borrower on behalf of such Borrower)
shall have delivered to the proposed issuer of such Letter of Credit
Accommodation at such times and in such manner as such proposed issuer may
require, an application, in form and substance satisfactory to such proposed
issuer and Agent, for the issuance of the Letter of Credit Accommodation and
such other documents as may be required pursuant to the terms thereof, and the
form and terms of the proposed Letter of Credit Accommodation shall be
satisfactory to Agent and such proposed issuer, (ii) as of the date of
issuance, no order of any court, arbitrator or other Governmental Authority
shall purport by its terms to enjoin or restrain money center banks generally
from issuing letters of credit of the type and in the amount of the proposed
Letter of Credit Accommodation, and no law, rule or regulation applicable
to money center banks generally and no request or directive (whether or not
having the force of law) from any Governmental Authority with jurisdiction over
money center banks generally shall prohibit, or request that the proposed
issuer of such Letter of Credit Accommodation refrain from, the issuance of
letters of credit generally or the issuance of such Letter of Credit
Accommodation; and (iii) Excess Availability prior to giving effect to any
Reserves with respect to such Letter of Credit Accommodations, on the date of
the proposed issuance of any Letter of Credit Accommodations, shall be equal to
or greater than: (A) if the proposed Letter of Credit Accommodation is for
the purpose of purchasing Eligible Inventory and the documents of title with
respect thereto are consigned to the issuer (or subject to such other
arrangements as are 


 


35

















 


acceptable to Agent), the sum
of (1) the percentage equal to one hundred (100%) percent minus the then
applicable percentage with respect to Eligible Inventory set forth in the
definition of the term Borrowing Base multiplied by the Value of such Eligible
Inventory, plus (2) freight, taxes, duty and other amounts which Agent
estimates must be paid in connection with such Inventory upon arrival and for
delivery to one of such Borrower’s locations for Eligible Inventory within the
United States of America and (B) if the proposed Letter of Credit Accommodation
is for any other purpose or the documents of title are not consigned to the
issuer (or subject to such other arrangements as are acceptable to Agent) in
connection with a Letter of Credit Accommodation for the purpose of purchasing
Inventory, an amount equal to one hundred (100%) percent of the face amount
thereof and all other commitments and obligations made or incurred by Agent
with respect thereto.  Effective on the
issuance of each Letter of Credit Accommodation, a Reserve shall be established
in the applicable amount set forth in Section 2.2(d)(iii)(A) or Section 2.2(d)(iii)(B).


 


(e)        Except in Agent’s
discretion, with the consent of all Lenders, the amount of all outstanding
Letter of Credit Accommodations and all other commitments and obligations made
or incurred by Agent or any Lender in connection therewith shall not at any
time exceed $10,000,000.


 


(f)         Subject to Section 6.5
hereof, Borrowers shall indemnify and hold Agent and Lenders harmless from and
against any and all losses, claims, damages, liabilities, costs and expenses
which Agent or any Lender may suffer or incur in connection with any Letter of
Credit Accommodations and any documents, drafts or acceptances relating
thereto, including any losses, claims, damages, liabilities, costs and expenses
due to any action taken by any issuer or correspondent with respect to any
Letter of Credit Accommodation, except for such losses, claims, damages,
liabilities, costs or expenses that are a direct result of the gross negligence
or willful misconduct of Agent or any Lender as determined pursuant to a final
non-appealable order of a court of competent jurisdiction.  Each Borrower assumes all risks with respect
to the acts or omissions of the drawer under or beneficiary of any Letter of
Credit Accommodation and for such purposes the drawer or beneficiary shall be
deemed such Borrower’s agent.  Subject to
Section 6.5 hereof, each Borrower assumes all risks for, and agrees to
pay, all foreign, Federal, State and local taxes, duties and levies relating to
any goods subject to any Letter of Credit Accommodations or any documents,
drafts or acceptances thereunder.  Each
Borrower hereby releases and holds Agent and Lenders harmless from and against
any acts, waivers, errors, delays or omissions, whether caused by Borrowers, by
any issuer or correspondent or otherwise with respect to or relating to any
Letter of Credit Accommodation, except for the gross negligence or willful
misconduct of Agent or such Lender, as the case may be, as determined pursuant
to a final, non-appealable order of a court of competent jurisdiction.  The provisions of this Section 2.2(f) shall
survive the payment of Obligations and the termination of this Agreement.


 


(g)        In connection with
Inventory purchased pursuant to Letter of Credit Accommodations, Borrowers
shall, at Agent’s request, instruct all suppliers, carriers, forwarders,
customs brokers, warehouses or others receiving or holding cash, checks,
Inventory, documents or instruments in which Agent holds a security interest to
deliver them to Agent and/or subject to Agent’s order, and if they shall come
into such Borrower’s possession, to deliver them, upon Agent’s request, to
Agent in their original form; provided, that, Agent shall not
exercise its rights under this clause (g) to have such persons deliver any
cash, checks, documents or instruments (so 


 


36

















 


long as such documents or
instruments are held by a customs broker that has executed and delivered a
Collateral Access Agreement) or Inventory to Agent unless a Default or Event of
Default exists or has occurred and is continuing.  At any time that a Default or Event of
Default exists or has occurred and is continuing, Borrowers shall also, at
Agent’s request, designate Agent (or the issuer of the Letter of Credit
Accommodation with respect thereto as Agent may specify) as the consignee on
all bills of lading and other negotiable and non-negotiable documents.


 


(h)        Borrowers hereby
irrevocably authorize and direct any issuer of a Letter of Credit Accommodation
to name a Borrower as the account party therein and to deliver to Agent all
instruments, documents and other writings and property received by issuer
pursuant to the Letter of Credit Accommodations and to accept and rely upon
Agent’s instructions and agreements with respect to all matters arising in
connection with the Letter of Credit Accommodations or the applications
therefor (provided, that, such rights of Agent to provide such
instructions and agreements shall be subject to the rights of such Borrower to
provide instructions and agreements with respect to certain matters arising in
connection therewith as set forth below). 
Nothing contained herein shall be deemed or construed to grant such
Borrower any right or authority to pledge the credit of Agent or any Lender in
any manner.  Agent and Lenders shall have
no liability of any kind with respect to any Letter of Credit Accommodation
provided by an issuer other than Agent or any Lender unless Agent has duly
executed and delivered to such issuer the application or a guarantee or
indemnification in writing with respect to such Letter of Credit
Accommodation.  Borrowers shall be bound
by any reasonable interpretation made in good faith by Agent, or any other
issuer or correspondent under or in connection with any Letter of Credit
Accommodation or any documents, drafts or acceptances thereunder,
notwithstanding that such interpretation may be inconsistent with any
instructions of such Borrower.


 


(i)         So long as no Event of
Default exists or has occurred and is continuing, Borrowers may (i) approve
or resolve any questions of non-compliance of documents, (ii) give any
instructions as to acceptance or rejection of any documents or goods, (iii) execute
any and all applications for steamship or airway guaranties, indemnities or
delivery orders, and (iv) with Agent’s consent, grant any extensions of
the maturity of, time of payment for, or time of presentation of, any drafts,
acceptances, or documents, and agree to any amendments, renewals, extensions,
modifications, changes or cancellations of any of the terms or conditions of
any of the applications, Letter of Credit Accommodations, or documents, drafts
or acceptances thereunder or any letters of credit included in the Collateral.


 


(j)    At any time an Event of
Default exists or has occurred and is continuing, Agent shall have the right
and authority to, and on and after written notice from Agent to each Borrower,
Borrowers shall not, without the prior written consent of Agent, (i) approve
or resolve any questions of non-compliance of documents, (ii) give any
instructions as to acceptance or rejection of any documents or goods, (iii) execute
any and all applications for steamship or airway guaranties, indemnities or
delivery orders, (iv) grant any extensions of the maturity of, time of
payments for, or time of presentation of, any drafts, acceptances, or
documents, and (v) agree to any amendments, renewals, extensions,
modifications, changes or cancellations of any of the terms or conditions of
any of the applications, Letter of Credit Accommodations, or 


 


37

















 


documents, drafts or
acceptances thereunder or any letters of credit included in the
Collateral.  Agent may take such actions
either in its own name or in such Borrower’s name.


 


(k)        Any rights, remedies,
duties or obligations granted or undertaken by any Borrower to any issuer or
correspondent in any application for any Letter of Credit Accommodation, or any
other agreement in favor of any issuer or correspondent relating to any Letter
of Credit Accommodation, shall be deemed to have been granted or undertaken by
such Borrower to Agent for the ratable benefit of Lenders.  Any duties or obligations undertaken by Agent
to any issuer or correspondent in any application for any Letter of Credit
Accommodation, or any other agreement by Agent in favor of any issuer or
correspondent to the extent relating to any Letter of Credit Accommodation,
shall be deemed to have been undertaken by such Borrower to Agent for the
ratable benefit of Lenders and to apply in all respects to such Borrower.


 


(l)         Immediately upon the
issuance or amendment of any Letter of Credit Accommodation, each Lender shall
be deemed to have irrevocably and unconditionally purchased and received,
without recourse or warranty, an undivided interest and participation to the
extent of such Lender’s Pro Rata Share of the liability with respect to such
Letter of Credit Accommodation (including, without limitation, all Obligations
with respect thereto).


 


(m)       Each Borrower is
irrevocably and unconditionally obligated, without presentment, demand or
protest, to pay to Agent any amounts paid by an issuer of a Letter of Credit
Accommodation with respect to such Letter of Credit Accommodation (whether
through the borrowing of Loans in accordance with Section 2.2(a) or
otherwise).  In the event that any
Borrower fails to pay Agent on the date of any payment under a Letter of Credit
Accommodation in an amount equal to the amount of such payment, Agent (to the
extent it has actual notice thereof) shall promptly notify each Lender of the
unreimbursed amount of such payment and each Lender agrees, upon one (1) Business
Day’s notice, to fund to Agent the purchase of its participation in such Letter
of Credit Accommodation in an amount equal to its Pro Rata Share of the unpaid
amount.  The obligation of each Lender to
deliver to Agent an amount equal to its respective participation pursuant to
the foregoing sentence is absolute and unconditional and such remittance shall
be made notwithstanding the occurrence or continuance of any Event of Default,
the failure to satisfy any other condition set forth in Section 4 or any
other event or circumstance.  If such
amount is not made available by a Lender when due, Agent shall be entitled to
recover such amount on demand from such Lender with interest thereon, for each
day from the date such amount was due until the date such amount is paid to
Agent at the interest rate then payable by such Borrower in respect of Loans
that are Prime Rate Loans as set forth in Section 3.1(a) hereof.


 


2.3   Equipment Purchase Loans.


 


(a)        Subject to and upon the
terms and conditions contained herein, at any time and from to time on or after
the date hereof, each Lender severally (and not jointly) shall make its Pro
Rata Share of Equipment Purchase Loans to Borrowers, at the request of
Borrowers, of seventy five (75%) percent of the Hard Costs of Eligible New
Equipment purchased or to be purchased by Borrowers after October 1, 2008
and which is not included in the most recent appraisal of Equipment received by
Agent after the date hereof in accordance with Section 7.4(a) 


 


38

















 


hereof, or such lesser amount
as to any Equipment Purchase Loan as such Borrower may request.  The proceeds of each Equipment Purchase Loan
shall be used solely for the payment of the purchase price, or to reimburse
such Borrower for the cash previously paid by such Borrower for the purchase
price, for the Eligible New Equipment specified in the Equipment Purchase Loan
Request applicable to such Equipment Purchase Loan; provided, that,
(i) as to any Eligible New Equipment purchased after October 1, 2008
and prior to the date hereof, such Equipment Purchase Loan Request shall be
received within thirty (30) days after the date hereof, (ii) as to any
Equipment Purchase Loans based on Eligible New Equipment purchased after October 1,
2008 and prior to the date hereof, the aggregate amount of all such Equipment
Purchase Loans shall not exceed $2,000,000, (iii) to the extent that the
proceeds of any Equipment Purchase Loan are used to reimburse such Borrower for
the cash paid by such Borrower for the purchase price of any Eligible New
Equipment purchased after the date hereof, such Borrower shall have taken
possession of such Eligible New Equipment within ninety (90) days prior to the
date of the Equipment Purchase Loan, and (iv) no Equipment Purchase Loan
Request shall include any Eligible New Equipment that has been included in any
other Equipment Purchase Loan Request. Each Equipment Purchase Loan shall be in
an amount of not less than $500,000.  A
single Equipment Purchase Loan may be used for the purchase price of one or
more items constituting Eligible New Equipment specified in the Equipment
Purchase Loan Request required to be delivered to Lender pursuant to Section 2.3(d)(i) below
and the minimum amount of such Equipment Purchase Loan applies to such
Equipment Purchase Loan, not to the purchase price of any individual item of
Eligible New Equipment.


 


(b)        The
outstanding aggregate principal amount of the Equipment Purchase Loans made by
Lenders shall not exceed $15,000,000; provided, that, in no
event shall the aggregate principal amount of the Equipment Purchase Loans exceed
the aggregate amount of seventy-five (75%) percent of the Hard Costs of all
Eligible New Equipment purchased by Borrowers pursuant hereto.  If at any time the outstanding aggregate
principal amount of all Equipment Purchase Loans exceeds eighty (80%) percent
of the net orderly liquidation value of all of the Eligible New Equipment (net
of liquidation expenses) as set forth in the most recent acceptable appraisal
with respect thereto received by Agent, Agent may, at its option, or shall upon
the request of the Required Lenders, establish a Reserve in the amount equal to
the entire amount of such excess or Agent may instead, at its option, demand
and such Borrower shall, upon demand by Agent, which may be made at any time
and from time to time, repay to Agent the entire amount of such excess.


 


(c)        Each Equipment Purchase
Loan to such Borrower shall be (i) evidenced by an Equipment Purchase Note
executed and delivered by the applicable Borrower to Agent concurrently with
each Equipment Purchase Loan, (ii) repaid, together with interest and
other amounts payable thereunder, in accordance with the provisions of the
applicable Equipment Purchase Note, this Agreement and the other Financing
Agreements, and (iii) secured by all of the Collateral.


 


(d)        In addition to the other
conditions precedent to any Loan or Letter of Credit Accommodation set forth in
this Agreement, the making of each Equipment Purchase Loan shall be subject to
the satisfaction of each of the following additional conditions precedent, as
determined by Agent:


 


39

















 


(i)            Agent shall have
received from such Borrower not less than five (5) Business Days and not
more than ten (10) Business Days prior written notice of the proposed
Equipment Purchase Loan (each such notice being an “Equipment Purchase Loan
Request”), which notice shall specify the following: (A) the proposed date
and amount of the Equipment Purchase Loan, (B) a list and description of
the Eligible New Equipment (by model, make, manufacturer, serial number and/or
such other identifying information as may be requested by Agent), (C) whether
any of such Eligible New Equipment has been purchased prior to the date of the
proposed Equipment Purchase Loan and if so, the date of such purchase and identifying
the specific Eligible New Equipment that has been so purchased, (D) the
Hard Costs and total purchase price for the Eligible New Equipment to be
purchased with the proceeds of such Equipment Purchase Loan (and the terms of
payment of such purchase price), or for which such Borrower is being
reimbursed, as the case may be and (E) such other information and
documents as Agent may from time to time reasonably request with respect
thereto;


 


(ii)           Agent shall have a
valid and perfected first priority security interest in and lien upon the
Eligible New Equipment to be purchased with the proceeds of the Equipment
Purchase Loan and the Eligible New Equipment shall be free and clear of all
other liens, security interests, claims or other encumbrances (except for those
permitted in this Agreement that are subject to an intercreditor agreement, in
form and substance satisfactory to Agent, between the holder of such security
interest and Agent or as Agent may otherwise specifically agree), and such
Borrower shall have delivered to Agent such evidence thereof, as Agent may from
time to time require;


 


(iii)          the amount of each
Equipment Purchase Loan shall not exceed seventy five (75%) percent of the Hard
Costs of the Eligible New Equipment to be purchased by such Borrower with the
proceeds of such Equipment Purchase Loan;


 


(iv)          as of the date of such
Equipment Purchase Loan, and after giving effect thereto, the aggregate amount
of the Loans and the Letter of Credit Accommodations shall not exceed the
Maximum Credit minus the sum of (A) the aggregate amount of the Revolving
Loans then outstanding, and (B) the aggregate amount of the undrawn Letter
of Credit Accommodations then outstanding;


 


(v)           as of the date of such
Equipment Purchase Loan, and after giving effect thereto, the aggregate amount
of all Equipment Purchase Loans shall not exceed the Equipment Purchase Loan
Limit;


 


(vi)          as of the date of such
Equipment Purchase Loan, and after giving effect thereto, the aggregate amount
of the Revolving Loans and the Letter of Credit Accommodations shall not exceed
the amount equal to $120,000,000 minus the sum of (A) the aggregate amount
of the Revolving Loans then outstanding, and (B) the aggregate amount of
the undrawn Letter of Credit Accommodations then outstanding;


 


(vii)         The applicable Borrower
shall duly authorize, execute and deliver to Agent a single original Equipment
Purchase Note in the form annexed hereto as Exhibit D, as completed to
reflect the date and amount of each such Equipment Purchase Loan and with the
number of monthly installments of principal payable thereunder and the amount
of each such monthly 


 


40

















 


installment completed in
accordance with Sections 2.3(e) and 2.3(f) below, as the case may be,
which note shall evidence a valid and legally enforceable indebtedness of such
Borrower unconditionally owing to Lenders, without offset, defense or
counterclaim of any kind, nature or description whatsoever; and


 


(viii)        as of the date of such
Equipment Purchase Loan and after giving effect thereto, no Default or Event of
Default shall exist or have occurred and be continuing.


 


(e)        The principal amount of
each Equipment Purchase Loan shall be payable (subject to earlier payment as
provided herein or in such Equipment Purchase Note) in sixty (60) equal,
consecutive monthly installments of principal, each in an amount calculated
below, commencing on the first day of the second month after the date of the
making of such Equipment Purchase Loan, together with interest and other
amounts as provided herein and in the Equipment Purchase Note with respect to
such Equipment Purchase Loan.


 


(f)         The amount of each
monthly installment of principal in respect of each Equipment Purchase Loan
(other than the last installment which shall be in an amount equal to the
entire unpaid balance of the Equipment Purchase Note) shall equal: (i) the
original principal amount of the proposed Equipment Purchase Loan divided by (ii) sixty
(60).


 


2.4   Joint and Several Liability.  Each Borrower shall be jointly and severally
liable for all amounts due to Agent and Lenders under this Agreement and the
other Financing Agreements, regardless of which Borrower actually receives the
Loans or Letter of Credit Accommodations hereunder or the amount of such Loans
received or the manner in which Agent or any Lender accounts for such Loans,
Letter of Credit Accommodations or other extensions of credit on its books and
records.  All references herein or in any
of the other Financing Agreements to any of the obligations of Borrowers to
make any payment hereunder or thereunder shall constitute joint and several
obligations of Borrowers.  The
Obligations with respect to Loans made to a Borrower, and the Obligations
arising as a result of the joint and several liability of a Borrower hereunder,
with respect to Loans made to the other Borrower, shall be separate and
distinct obligations, but all such other Obligations shall be primary
obligations of each Borrower.  The
Obligations arising as a result of the joint and several liability of a
Borrower hereunder with respect to Loans, Letter of Credit Accommodations or
other extensions of credit made to the other Borrower shall, to the fullest
extent permitted by law, be unconditional irrespective of (a) the validity
or enforceability, avoidance or subordination of the Obligations of the other
Borrower or of any promissory note or other document evidencing all or any part
of the Obligations of the other Borrower, (b) the absence of any attempt
to collect the Obligations from the other Borrower or any other security
therefor, or the absence of any other action to enforce the same, (c) the
waiver, consent, extension, forbearance or granting of any indulgence by Agent
or any Lender with respect to any provisions of any instrument evidencing the
Obligations of the other Borrower, or any part thereof, or any other agreement
now or hereafter executed by the other Borrower and delivered to Agent or any
Lender, (d) the failure by Agent or any Lender to take any steps to
perfect and maintain its security interest in, or to preserve its rights and
maintain its security or collateral for the Obligations of the other Borrower, (e) the
election of Agent and Lenders in any proceeding instituted under the Bankruptcy
Code, of the application of Section 1111(b)(2) of the Bankruptcy
Code, (f) the disallowance of all or any portion of the claim(s) of
Agent or any Lender for the repayment of the Obligations of the other Borrowers



 


41

















 


under Section 502 of the
Bankruptcy Code, or (g) any other circumstances which might constitute a
legal or equitable discharge or defense of the other Borrower other than to the
extent of the gross negligence or willful misconduct of Agent or a Lender as
determined pursuant to a final non-appealable order of a court of competent
jurisdiction.  With respect to the
Obligations arising as a result of the joint and several liability of a
Borrower hereunder with respect to Loans, Letter of Credit Accommodations or
other extensions of credit made to the other Borrower hereunder, each Borrower
waives, until the Obligations shall have been paid in full and this Agreement
shall have been terminated, any right to enforce any right of subrogation or
any remedy which Agent or any Lender now has or may hereafter have against any
Borrower and any benefit of, and any right to participate in, any security or
collateral given to Agent or any Lender. 
Upon any Event of Default, and for so long as such Event of Default is
continuing, Agent may proceed directly and at once, without notice, against any
Borrower to collect and recover the full amount, or any portion of the
Obligations, without first proceeding against the other Borrower or any other
Person, or against any security or collateral for the Obligations.  Each Borrower consents and agrees that Agent
and Lenders shall be under no obligation to marshall any assets in favor of
Borrower(s) or against or in payment of any or all of the Obligations.


 


2.5 Commitments.  The aggregate amount of each Lender’s Pro
Rata Share of the Loans and Letter of Credit Accommodations shall not exceed
the amount of such Lender’s Commitment, as the same may from time to time be
amended in accordance with the provisions hereof.


 


SECTION 3.  INTEREST AND FEES


 


3.1   Interest.


 


(a)        Borrowers shall pay to
Agent, for the benefit of Lenders, interest on the outstanding principal amount
of the Loans at the Interest Rate.  All
interest accruing hereunder on and after the date of any Event of Default or
termination hereof shall be payable on demand.


 


(b)        Each Borrower (or
Administrative Borrower on behalf of such Borrower) may from time to time
request Eurodollar Rate Loans or may request that Prime Rate Loans be converted
to Eurodollar Rate Loans or that any existing Eurodollar Rate Loans continue
for an additional Interest Period.  Such
request from a Borrower shall specify the amount of the Eurodollar Rate Loans
or the amount of the Prime Rate Loans to be converted to Eurodollar Rate Loans
or the amount of the Eurodollar Rate Loans to be continued (subject to the
limits set forth below) and the Interest Period to be applicable to such
Eurodollar Rate Loans.  Subject to the
terms and conditions contained herein, three (3) Business Days after
receipt by Agent of such a request from a Borrower, such Eurodollar Rate Loans
shall be made or Prime Rate Loans shall be converted to Eurodollar Rate Loans
or such Eurodollar Rate Loans shall continue, as the case may be; provided, that,
(i) no Default or Event of Default shall exist or have occurred and be
continuing, (ii) such Borrower (or Administrative Borrower on behalf of
such Borrower) shall have complied with such customary procedures as are
established by Agent and specified by Agent to Administrative Borrower from
time to time for requests by Borrowers for Eurodollar Rate Loans, (iii) no
more than eight (8) Interest Periods may be in effect at any one time, (iv) the
aggregate amount of the Eurodollar Rate Loans must be in an amount not less
than $5,000,000 or


 


42














 


an integral multiple of
$1,000,000 in excess thereof, and (v) Agent and each Lender shall have
determined that the Interest Period or Adjusted Eurodollar Rate is available to
Agent and such Lender and can be readily determined as of the date of the
request for such Eurodollar Rate Loan by Borrowers.  Any request by or on behalf of a Borrower for
Eurodollar Rate Loans or to convert Prime Rate Loans to Eurodollar Rate Loans
or to continue any existing Eurodollar Rate Loans shall be irrevocable.
Notwithstanding anything to the contrary contained herein, Agent and Lenders
shall not be required to purchase United States Dollar deposits in the London
interbank market or other applicable Eurodollar Rate market to fund any
Eurodollar Rate Loans, but the provisions hereof shall be deemed to apply as if
Agent and Lenders had purchased such deposits to fund the Eurodollar Rate
Loans.


 


(c)                    Any Eurodollar
Rate Loans shall automatically convert to Prime Rate Loans upon the last day of
the applicable Interest Period, unless Agent has received and approved a
request to continue such Eurodollar Rate Loan at least three (3) Business
Days prior to such last day in accordance with the terms hereof.  Any Eurodollar Rate Loans shall, at Agent’s
option, upon notice by Agent to a Borrower, be subsequently converted to Prime
Rate Loans in the event that this Agreement shall terminate or not be
renewed.  Borrowers shall pay to Agent,
for the benefit of Lenders, upon demand by Agent (or Agent may, at its option,
charge any loan account of any Borrower) any amounts required to compensate any
Lender or Participant for any loss (including loss of anticipated profits),
cost or expense incurred by such person, as a result of the conversion of
Eurodollar Rate Loans to Prime Rate Loans (other than at the end of an Interest
Period) pursuant to any of the foregoing.


 


(d)                   Interest shall
be payable by Borrowers to Agent, for the account of Lenders, monthly in
arrears not later than the first day of each calendar month and shall be
calculated on the basis of a three hundred sixty (360) day year and actual days
elapsed.  The interest rate on
non-contingent Obligations (other than Eurodollar Rate Loans) shall increase or
decrease by an amount equal to each increase or decrease in the Prime Rate
effective on the first day of the month after any change in such Prime Rate is
announced based on the Prime Rate in effect on the last day of the month in
which any such change occurs.  In no
event shall charges constituting interest payable by Borrowers to Agent and
Lenders exceed the maximum amount or the rate permitted under any applicable
law or regulation, and if any such part or provision of this Agreement is in
contravention of any such law or regulation, such part or provision shall be
deemed amended to conform thereto.


 


3.2         Fees.


 


(a)                    Borrowers
shall pay to Agent, for the benefit of Lenders (in accordance with the terms of
the arrangements between Agent and each Lender), the amount of $240,000 as a
closing fee, which fee is fully earned as of and payable on the date hereof.


 


(b)                   Borrowers shall
pay to Agent, for the account of Lenders, monthly an unused line fee at a rate
equal to three hundred seventy-five one thousandths (.375%) percent per annum
calculated upon the amount by which the Maximum Credit exceeds the average
daily principal balance of the outstanding Loans and Letter of Credit
Accommodations during the immediately preceding month (or part thereof) while
this Agreement is in effect and for so long thereafter as


 


43

















 


any of the Obligations are
outstanding, which fee shall be payable on the first day of each month in
arrears.


 


(c)                    Borrowers
agree to pay to Agent the other fees and amounts set forth in the Fee Letter in
the amounts and at the times specified therein.


 


3.3         Changes in Laws and
Increased Costs of Loans.


 


(a)                    Subject to Section 6.5
hereof, if after the date hereof, either (i) any change in, or in the
interpretation of, any law or regulation is introduced, including, without
limitation, with respect to reserve requirements, applicable to any Lender or
any banking or financial institution from whom any Lender borrows funds or
obtains credit (a “Funding Bank”), which Funding Bank is a commercial bank or
other financial institution having combined capital and surplus and undivided
profits of not less than $500,000,000 or (ii) a Funding Bank or any Lender
complies with any future guideline or request from any central bank or other
Governmental Authority or (iii) a Funding Bank or any Lender determines
that the adoption of any applicable law, rule or regulation regarding
capital adequacy, or any change therein, or any change in the interpretation or
administration thereof by any Governmental Authority, central bank or
comparable agency charged with the interpretation or administration thereof has
or would have the effect described below, or a Funding Bank or any Lender
complies with any request or directive regarding capital adequacy (whether or
not having the force of law) of any such authority, central bank or comparable
agency, and in the case of any event set forth in this clause (iii), such
adoption, change or compliance has or would have the direct or indirect effect
of reducing the rate of return on any Lender’s capital as a consequence of its
obligations hereunder to a level below that which Lender could have achieved
but for such adoption, change or compliance (taking into consideration the
Funding Bank’s or Lender’s policies with respect to capital adequacy) by an
amount reasonably deemed by such Lender to be material, and the result of any
of the foregoing events described in clauses (i), (ii) or (iii) is or
results in an increase in the cost to any Lender of funding or maintaining the
Loans, the Letter of Credit Accommodations or its Commitment, then Borrowers
shall from time to time upon demand by Agent pay to Agent additional amounts
sufficient to indemnify Lenders against such increased cost (after taking into
account applicable deductions and credits in respect of the amount indemnified).  A certificate as to the amount of such
increased cost setting forth in reasonable detail the basis for such increased
cost and calculation of the amount thereof shall be submitted to Administrative
Borrower by or on behalf of the Lender seeking indemnification therefor or by
Agent on its behalf and shall be conclusive, absent manifest error.


 


(b)                   If prior to the
first day of any Interest Period, (i) Agent shall have determined in good
faith (which determination shall be conclusive and binding upon Borrowers)
that, by reason of circumstances affecting the relevant market, adequate and
reasonable means do not exist for ascertaining the Adjusted Eurodollar Rate for
such Interest Period, (ii) Agent has received notice from the Required
Lenders that the Adjusted Eurodollar Rate determined or to be determined for
such Interest Period will not adequately and fairly reflect the cost to Lenders
of making or maintaining Eurodollar Rate Loans during such Interest Period, or (iii) Dollar
deposits in the principal amounts of the Eurodollar Rate Loans to which such
Interest Period is to be applicable are not generally available in the London
interbank market, Agent shall give telecopy or telephonic notice thereof to
Administrative Borrower as soon as practicable thereafter, and will 


 


44

















 


also give prompt written notice
to Administrative Borrower when such conditions no longer exist.  If such notice is given (A) any
Eurodollar Rate Loans requested to be made on the first day of such Interest
Period shall be made as Prime Rate Loans, (B) any Loans that were to have
been converted on the first day of such Interest Period to or continued as
Eurodollar Rate Loans shall be converted to or continued as Prime Rate Loans
and (C) each outstanding Eurodollar Rate Loan shall be converted, on the
last day of the then current Interest Period thereof, to Prime Rate Loans.  Until such notice has been withdrawn by
Agent, no further Eurodollar Rate Loans shall be made or continued as such, nor
shall any Borrower (or Administrative Borrower on behalf of any Borrower) have
the right to convert Prime Rate Loans to Eurodollar Rate Loans.


 


(c)                    Notwithstanding
any other provision herein, if the adoption of or any change in any law,
treaty, rule or regulation or final, non-appealable determination of an
arbitrator or a court or other Governmental Authority or in the interpretation
or application thereof occurring after the date hereof shall make it unlawful
for Agent or any Lender to make or maintain Eurodollar Rate Loans as
contemplated by this Agreement, (i) Agent or such Lender shall promptly
give written notice of such circumstances to Administrative Borrower (which
notice shall be withdrawn whenever such circumstances no longer exist), (ii) the
commitment of such Lender hereunder to make Eurodollar Rate Loans, continue
Eurodollar Rate Loans as such and convert Prime Rate Loans to Eurodollar Rate
Loans shall forthwith be canceled and, until such time as it shall no longer be
unlawful for such Lender to make or maintain Eurodollar Rate Loans, such Lender
shall then have a commitment only to make a Prime Rate Loan when a Eurodollar
Rate Loan is requested and (iii) such Lender’s Loans then outstanding as
Eurodollar Rate Loans, if any, shall be converted automatically to Prime Rate
Loans on the respective last days of the then current Interest Periods with
respect to such Loans or within such earlier period as required by law.  If any such conversion of a Eurodollar Rate
Loan occurs on a day which is not the last day of the then current Interest
Period with respect thereto, Borrowers shall pay to such Lender such amounts,
if any, as may be required pursuant to Section 3.3(d) below.


 


(d)                   Subject to Section 6.5
hereof, Borrowers shall indemnify Agent and each Lender and hold Agent and each
Lender harmless from any loss or expense which Agent or such Lender may sustain
or incur as a consequence of (i) default by any Borrower in making a
borrowing of, conversion into or extension of Eurodollar Rate Loans after such
Borrower has given a notice requesting the same in accordance with the
provisions of this Agreement, (ii) default by any Borrower in making any
prepayment of a Eurodollar Rate Loan after such Borrower has given a notice
thereof in accordance with the provisions of this Agreement, and (iii) the
making of a prepayment of Eurodollar Rate Loans on a day which is not the last
day of an Interest Period with respect thereto. 
With respect to Eurodollar Rate Loans, such indemnification may include
an amount equal to the excess, if any, of (A) the amount of interest which
would have accrued on the amount so prepaid, or not so borrowed, converted or
extended, for the period from the date of such prepayment or of such failure to
borrow, convert or extend to the last day of the applicable Interest Period
(or, in the case of a failure to borrow, convert or extend, the Interest Period
that would have commenced on the date of such failure) in each case at the
applicable rate of interest for such Eurodollar Rate Loans provided for herein
over (B) the amount of interest (as determined by such Agent or such
Lender) which would have accrued to Agent or such Lender on such amount by
placing such amount on deposit for a comparable period with leading banks in
the interbank Eurodollar market as set forth in a certificate from or on behalf
of Agent or such 


 


45

















 


Lender to such Borrower setting
forth the calculation of such amounts. 
This covenant shall survive the termination or non-renewal of this
Agreement and the payment of the Obligations.


 


SECTION 4.  CONDITIONS
PRECEDENT


 


4.1         Conditions Precedent
to Amendment and Restatement.  Each
of the following is a condition precedent to the effectiveness hereof:


 


(a)                    all requisite
corporate action and proceedings in connection with this Agreement and the
other Financing Agreements shall be reasonably satisfactory in form and
substance to Agent, and Agent shall have received all information and copies of
all documents, including records of requisite corporate action and proceedings
which Agent may have reasonably requested in connection therewith, such
documents where requested by Agent or its counsel to be certified by
appropriate corporate officers or Governmental Authority (and including a copy
of the certificate of incorporation of each Borrower certified by the Secretary
of State (or equivalent Governmental Authority) which shall set forth the same
complete corporate name of such Borrower as is set forth herein and such
document as shall set forth the organizational identification number of each
Borrower, if one is issued in its jurisdiction of incorporation;


 


(b)                   no act,
condition or event shall have occurred since the date of Agent’s latest field
examination that has or is reasonably likely to have Material Adverse Effect;


 


(c)                    Agent shall
have received, in form and substance satisfactory to Agent, all consents,
waivers, acknowledgments and other agreements from third persons which Agent
may deem necessary or desirable in good faith in order to permit, protect and
perfect its security interests in and liens upon the Collateral or to
effectuate the provisions or purposes of this Agreement and the other Financing
Agreements, including, without limitation, Collateral Access Agreements; provided, that,
the failure to deliver Collateral Access Agreements as to specific locations
shall not be a condition of closing, so long as all other conditions are met
after giving effect to any Reserves established by Agent in respect of amounts
due or to become due to the owner, lessor or operator thereof as provided for
in the definition of Reserves;


 


(d)                   Agent shall
have received, in form and substance satisfactory to Agent, amendments to the
Mortgages relating to the Real Property, duly authorized, executed and
delivered by the owner of such Real Property;


 


(e)                    Agent shall
have received, in form and substance satisfactory to Agent, an endorsement (or
a commitment to issue an endorsement) to the existing title insurance policy
relating to the Real Property subject to the Mortgages, (i) insuring the
priority and amount of each Mortgage (as so amended) relating to such Real
Property and (ii) containing any legally available endorsements,
assurances or affirmative coverage requested by Agent for the protection of its
interest with respect to each Mortgage (as so amended);


 


(f)                      Agent shall
have received, in form and substance reasonably satisfactory to Agent, such
opinion letters of counsel to Borrowers with respect to the Financing
Agreements and such other matters as Agent may reasonably request; and


 


46

















 


(g)                   the other
Financing Agreements and all instruments and documents required to be delivered
hereunder and thereunder prior to the date hereof shall have been duly executed
and delivered to Agent, in form and substance reasonably satisfactory to Agent.


 


4.2         Conditions Precedent
to All Loans and Letter of Credit Accommodations.  Each
of the following is an additional condition precedent to the Loans and/or
providing Letter of Credit Accommodations to Borrowers, including the initial
Loans and Letter of Credit Accommodations and any future Loans and Letter of
Credit Accommodations:


 


(a)                    all
representations and warranties contained herein and in the other Financing Agreements
that are qualified as to materiality or Material Adverse Effect shall be true
and correct and the representations and warranties that are not so qualified
shall be true and correct in all material respects, in each case with the same
effect as though such representations and warranties had been made on and as of
the date of the making of each such Loan or providing each such Letter of
Credit Accommodation and after giving effect thereto, except to the extent that
such representations and warranties expressly relate solely to an earlier date
(in which case such representations and warranties shall have been true and
correct to the extent required hereunder or under the other Financing
Agreements on and as of such earlier date);


 


(b)                   no law, regulation,
order, judgment or decree of any Governmental Authority shall exist, and no
action, suit, investigation, litigation or proceeding shall be pending or
threatened in any court or before any arbitrator or Governmental Authority,
which (i) purports to enjoin, prohibit, restrain or otherwise adversely
affect (A) the making of the Loans or providing the Letter of Credit
Accommodations, or (B) the consummation of the transactions contemplated
pursuant to the terms hereof or the other Financing Agreements or (ii) has
or has a reasonable likelihood of having a Material Adverse Effect;


 


(c)                    no Default or
Event of Default shall exist or have occurred and be continuing on and as of
the date of the making of such Loan or providing each such Letter of Credit
Accommodation and after giving effect thereto.


 


SECTION 5.  GRANT
AND PERFECTION OF SECURITY INTEREST


 


5.1         Grant of Security
Interest.


 


(a)                    To secure
payment and performance of all Obligations, Borrowers hereby grant to Agent,
for the benefit of Secured Parties, a continuing security interest in, a lien
upon, and a right of set off against, all personal and real property and
fixtures, and interests in property and fixtures, of Borrowers, whether now
owned or hereafter acquired or existing, and wherever located (together with
all other collateral security for the Obligations at any time granted to or
held or acquired by Agent or any Secured Party, collectively, the “Collateral”),
including:


 


(i)                       all
Accounts;


 


(ii)                    all general
intangibles, including, without limitation, all Intellectual Property;


 


(iii)                 all goods,
including, without limitation, Inventory and Equipment;


 


47

















 


(iv)                all Real Property
and fixtures;


 


(v)                   all chattel
paper, including, without limitation, all tangible and electronic chattel
paper;


 


(vi)                all instruments,
including, without limitation, all promissory notes;


 


(vii)             all documents;


 


(viii)          all deposit accounts;


 


(ix)                  all letters of
credit, banker’s acceptances and similar instruments and including all letter
of credit rights;


 


(x)                     all
supporting obligations and all present and future liens, security interests,
rights, remedies, title and interest in, to and in respect of Receivables and
other Collateral, including (A) rights and remedies under or relating to
guaranties, contracts of suretyship, letters of credit and credit and other
insurance related to the Collateral, (B) rights of stoppage in
transit, replevin, repossession, reclamation and other rights and remedies of
an unpaid vendor, lienor or secured party, (C) goods described in
invoices, documents, contracts or instruments with respect to, or otherwise
representing or evidencing, Receivables or other Collateral, including
returned, repossessed and reclaimed goods, and (D) deposits by and
property of account debtors or other persons securing the obligations of
account debtors;


 


(xi)                  all (A) investment
property (including securities, whether certificated or uncertificated,
securities accounts, security entitlements, commodity contracts or commodity accounts),
except as otherwise provided in Section 5.2(e) below and (B) monies,
credit balances, deposits and other property of Borrowers now or hereafter held
or received by or in transit to Agent or any Lender or its Affiliates or at any
other depository or other institution from or for the account of Borrowers,
whether for safekeeping, pledge, custody, transmission, collection or
otherwise;


 


(xii)               all commercial tort
claims listed on Schedule 5.1 hereto;


 


(xiii)            to the extent not
otherwise described above, all Receivables;


 


(xiv)           all Records; and


 


(xv)              all products and
proceeds of the foregoing, in any form, including insurance proceeds (other
than business interruption insurance) and all claims against third parties for
loss or damage to or destruction of or other involuntary conversion of any kind
or nature of any or all of the other Collateral or damages and payments or
claims by Borrowers for past or future infringements of any Intellectual
Property.


 


(b)                   Notwithstanding
anything to the contrary set forth in Section 5.1(a) above, the types
or items of Collateral described in such Section shall not include:


 


48

















 


(i)                       any rights
or interests in any contract, lease, permit, license, charter or license
agreement covering real or personal property, as such, if under the terms of
such contract, lease, permit, license, charter or license agreement, or
applicable law with respect thereto, the valid grant of a security interest or
lien therein to Agent is prohibited and such prohibition has not been or is not
waived or the consent of the other party to such contract, lease, permit,
license, charter or license agreement has not been or is not otherwise obtained
or under applicable law such prohibition cannot be waived; provided, that, the
foregoing exclusion shall in no way be construed (A) to apply if any such
prohibition is unenforceable under Sections 9-406, 9-407, 9-408, or 9-409 of
the UCC or other applicable law or (B) so as to limit, impair or otherwise
affect Agent’s unconditional continuing security interests in and liens upon
any rights or interests of Borrowers in or to monies due or to become due under
any such contract, lease, permit, license, charter or license agreement
(including any Receivables);


 


(ii)                    the Capital
Stock in excess of 65% of any Foreign Subsidiary that is (a) organized
under the laws of a jurisdiction outside of the United States and (b) directly
owned by any Borrower (without regard to any indirect ownership attributed to
the Borrowers); and


 


(iii)                 the Timet
Collateral.


 


5.2         Perfection of Security
Interests.


 


(a)                    Borrowers
irrevocably and unconditionally authorize Agent (or its agent) to file at any
time and from time to time such financing statements with respect to the
Collateral naming Agent as the secured party and such Borrower as debtor, as
Agent may require, and including any other information with respect to such
Borrower or otherwise required by part 5 of Article 9 of the Uniform
Commercial Code of such jurisdiction as Agent may determine, together with any
amendments and continuations with respect thereto, which authorization shall
apply to all financing statements filed on, prior to or after the date
hereof.  Such financing statements may
describe the Collateral in the same manner as described herein or in any
security agreement or pledge agreement entered into by the parties in
connection herewith or may contain an indication or description of Collateral
that describes such property in any other manner as the Agent may determine, in
its sole discretion, is necessary, advisable or prudent to ensure the
perfection of the security interest in the Collateral granted to the Agent in
connection herewith or therewith.  Each
Borrower hereby ratifies and approves all financing statements naming Agent or
its designee as secured party and such Borrower as debtor with respect to the
Collateral (and any amendments with respect to such financing statements) filed
by or on behalf of Agent prior to the date hereof and ratifies and confirms the
authorization of Agent to file such financing statements (and amendments, if
any).  Each Borrower hereby authorizes
Agent to adopt on behalf of such Borrower any symbol required for
authenticating any electronic filing.  In
the event that the description of the collateral in any financing statement
naming Agent or its designee as the secured party and any Borrower as debtor
includes assets and properties of such Borrower that do not at any time
constitute Collateral, whether hereunder, under any of the other Financing
Agreements or otherwise, the filing of such financing statement shall
nonetheless be deemed authorized by such Borrower to the extent of the
Collateral included in such description and it shall not render the financing
statement ineffective as to any of the Collateral or otherwise affect the
financing statement as it applies to any of the Collateral.  In no event shall any Borrower at any time
file, or permit or cause to be filed, any correction statement or termination
statement 


 


49

















 


with respect to any financing
statement (or amendment or continuation with respect thereto) naming Agent or
its designee as secured party and such Borrower as debtor, without the express
prior written consent of Agent.


 


(b)                   Each Borrower
does not have any chattel paper (whether tangible or electronic) or instruments
as of the date hereof, except as set forth in the Information Certificate and
except for checks deposited or to be deposited in the ordinary course of
business.  In the event that any Borrower
shall receive any chattel paper or instrument in excess of $50,000 after the
date hereof (except for checks deposited or to be deposited for collection in
the ordinary course of business), Borrowers shall promptly notify Agent thereof
in writing.  Promptly upon the receipt
thereof by or on behalf of any Borrower, such Borrower shall deliver, or cause
to be delivered to Agent, all tangible chattel paper and instruments (except
for checks deposited or to be deposited for collection in the ordinary course
of business) that Borrowers have or may at any time acquire, accompanied by
such instruments of transfer or assignment duly executed in blank as Agent may
from time to time specify, in each case except as Agent may otherwise agree; provided, that,
so long as no Default or Event of Default shall exist or have occurred and be
continuing, Borrowers shall not be required to deliver to Agent any tangible
chattel paper or instrument received after the date hereof until the aggregate
amount of the monetary obligations evidenced thereby exceed $50,000.  At Agent’s option, each Borrower shall, or
Agent may at any time on behalf of any Borrower, cause the original of any such
instrument or chattel paper to be conspicuously marked in a form and manner
acceptable to Agent with the following legend referring to chattel paper or
instruments as applicable: “This [chattel paper][instrument] is subject to the
security interest of Wachovia Capital Finance Corporation (Central), as Agent
and any sale, transfer, assignment or encumbrance of this [chattel
paper][instrument] violates the rights of such secured party.”


 


(c)                    In the event
that any Borrower shall at any time hold or acquire an interest in any
electronic chattel paper or any “transferable record” (as such term is defined
in Section 201 of the Federal Electronic Signatures in Global and National
Commerce Act or in Section 16 of the Uniform Electronic Transactions Act
as in effect in any relevant jurisdiction), such Borrower shall promptly notify
Agent thereof in writing.  Promptly upon
Agent’s request, such Borrower shall take, or cause to be taken, such actions
as Agent may reasonably request to give Agent control of such electronic
chattel paper under Section 9-105 of the UCC and control of such
transferable record under Section 201 of the Federal Electronic Signatures
in Global and National Commerce Act or, as the case may be, Section 16 of
the Uniform Electronic Transactions Act, as in effect in such jurisdiction.


 


(d)                   Each Borrower
does not have deposit accounts as of the date hereof having or reasonably
anticipated to have a balance in excess of $50,000 (or the US Dollar Equivalent
thereof), except as set forth in the Information Certificate (provided, that,
the aggregate amount of the balances in all of those deposit accounts having a
balance of less than $50,000 (or the US Dollar Equivalent thereof) does not,
and shall not, exceed $250,000 or the US Dollar Equivalent thereof).  Borrowers shall not, directly or indirectly,
after the date hereof open, establish or maintain any deposit account unless
each of the following conditions is satisfied: 
(i) Agent shall have received not less than five (5) Business
Days prior written notice of the intention of any Borrower to open or establish
such account which notice shall specify in reasonable detail and specificity
acceptable to Agent the name of the account, the owner of the account, the name
and address of the bank at which such account is to be opened or established,
the individual at such 


 


50

















 


bank with whom such Borrower is
dealing and the purpose of the account, (ii) the bank where such account
is opened or maintained shall be reasonably acceptable to Agent, and (iii) on
or before the opening of such deposit account or so long as no Default or Event
of Default shall exist or have occurred and be continuing, promptly after the
opening of such deposit account, such Borrower shall deliver to Agent a Deposit
Account Control Agreement with respect to such deposit account duly authorized,
executed and delivered by such Borrower and the bank at which such deposit
account is opened and maintained, except, that, such Borrower shall not be
required to comply with clauses (i), (ii) or (iii) of this subsection
(d) as to any deposit account which at all times has a balance of less
than $50,000 so long as the aggregate amount of all deposits in all such
accounts is less than $250,000 and no Default of Event of Default shall exist
or have occurred and be continuing. In addition, Haynes Parent shall not be
required to provide a Deposit Account Control Agreement with respect to the
existing deposit account of Haynes Parent maintained at Community First Bank
(account number 08001031) so long as such account is used only in connection
with the cashing of checks or similar items for employees of Haynes Parent and
the aggregate amount of the funds in such account does not exceed
$100,000.  If the purpose of such account
shall change or the aggregate amount of such funds at any time exceed $100,000
for five (5) consecutive days or shall exceed $100,000 more than two (2) times,
promptly upon the request of Agent, Haynes Parent  shall deliver or cause to be delivered to
Agent a Deposit Account Control Agreement with respect to such deposit account.
The terms of this subsection (d) shall not apply to deposit accounts
specifically and exclusively used for payroll, payroll taxes and other employee
wage and benefit payments to or for the benefit of each Borrower’s employees.


 


(e)                    No Borrower
owns or holds, directly or indirectly, beneficially or as record owner or both,
any investment property, as of the date hereof, or has any investment account,
securities account, commodity account or other similar account with any bank or
other financial institution or other securities intermediary or commodity
intermediary as of the date hereof, in each case except as set forth in the
Information Certificate.


 


(i)                       In the
event that any Borrower shall be entitled to or shall at any time after the
date hereof hold or acquire any certificated securities, such Borrower shall
promptly endorse, assign and deliver the same to Agent, accompanied by such
instruments of transfer or assignment duly executed in blank as Agent may from
time to time specify; provided, that, if such certificated securities
constitute shares of Capital Stock of a Foreign Subsidiary constituting a “controlled
foreign corporation” (as such term is defined in Section 957(a) of
the Code or a successor provision thereof), then such Borrower shall not be
required to endorse, assign or deliver to Agent those certificates representing
the number of shares of the issuer thereof exceeding sixty-five (65%) percent
of the voting power of all classes of Capital Stock of such issuer entitled to
vote.  If any securities, now or
hereafter acquired by such Borrower are uncertificated and are issued to such
Borrower or its nominee directly by the issuer thereof, such Borrower shall
immediately notify Agent thereof and shall subject to the proviso contained in
the immediately preceding sentence, as Agent may specify, either (A) cause
the issuer to agree to comply with instructions from Agent as to such
securities, without further consent of such Borrower or such nominee, or (B) arrange
for Agent to become the registered owner of the securities.  Nothing contained in this Section 5
shall be construed to require that the Collateral include the portion of the
Capital Stock of any Foreign Subsidiary that is a “controlled foreign
corporation”, as defined in Section 957 of the Code, in excess of
sixty-five (65%) percent of the 


 


51

















 


issued and outstanding Capital
Stock thereof entitled to vote (within the meaning of Treasury Regulation Section 1.956-2).


 


(ii)                    Borrowers
shall not, directly or indirectly, after the date hereof open, establish or
maintain any investment account, securities account, commodity account or any
other similar account (other than a deposit account) with any securities
intermediary or commodity intermediary unless each of the following conditions
is satisfied: (A) Agent shall have received not less than five (5) Business
Days prior written notice of the intention of such Borrower to open or
establish such account which notice shall specify in reasonable detail and
specificity acceptable to Agent the name of the account, the owner of the
account, the name and address of the securities intermediary or commodity
intermediary at which such account is to be opened or established, the individual
at such intermediary with whom such Borrower is dealing and the purpose of the
account, (B) the securities intermediary or commodity intermediary (as the
case may be) where such account is opened or maintained shall be reasonably
acceptable to Agent, and (C) on or before the opening of such investment
account, securities account or other similar account with a securities
intermediary or commodity intermediary, such Borrower shall as Agent may
specify either (1) execute and deliver, and cause to be executed and
delivered to Agent, an Investment Property Control Agreement with respect
thereto duly authorized, executed and delivered by Borrower and such securities
intermediary or commodity intermediary or (2) arrange for Agent to become
the entitlement holder with respect to such investment property on terms and
conditions acceptable to Agent.


 


(f)                      Borrowers
are not the beneficiary or otherwise entitled to any right to payment under any
letter of credit, banker’s acceptance or similar instrument as of the date hereof,
except as set forth in the Information Certificate.  In the event that any Borrower shall receive
any right to payment under any letter of credit, banker’s acceptance or any
similar instrument having a face amount of excess of $25,000 in any one case or
$100,000 in the aggregate (or after notice by Agent to such Borrower, at any
time after a Default or Event of Default shall exist or have occurred and for
so long as the same is continuing, regardless of the amount thereof), whether
as beneficiary thereof or otherwise after the date hereof, such Borrower shall
promptly notify Agent thereof in writing. 
At any time that Excess Availability is less than $5,000,000, or a
Default or an Event of Default exists or has occurred and is continuing, or the
aggregate amount of such letters of credit, banker’s acceptance or similar
instruments outstanding at any time shall exceed $3,500,000, or as to any such
letter of credit, banker’s acceptance or similar instrument outstanding at any
time that is more than $1,000,000, such Borrower shall promptly, as Agent may
specify and upon Agent’s request, either (i) use all commercially
reasonable efforts (including the payment of reasonable attorneys’ fees and
expenses of any person in connection therewith) to deliver, or cause to be
delivered to Agent, with respect to any such letter of credit, banker’s
acceptance or similar instrument, the written agreement of the issuer and any
other nominated person obligated to make any payment in respect thereof
(including any confirming or negotiating bank), in form and substance
reasonably satisfactory to Agent, consenting to the assignment of the proceeds
of the letter of credit to Agent by such Borrower and agreeing to make all
payments thereon directly to Agent or as Agent may otherwise direct or (ii) cause
Agent to become, at Borrowers’ expense, the transferee beneficiary of the
letter of credit, banker’s acceptance or similar instrument (as the case may
be); provided, that, upon Agent’s request, Borrowers shall use their commercially
reasonable efforts (without having to pay more than the customary fees of the
applicable bank but including the payment of reasonable attorneys’ fees 


 


52

















 


and expenses of any person in
connection therewith) to have such letter of credit, banker’s acceptance or
similar instrument be transferable.


 


(g)                   Borrowers do
not have any commercial tort claims as of the date hereof, except as set forth
in the Information Certificate.  In the
event that any Borrower shall at any time after the date hereof have any
commercial tort claims in excess of $50,000, such Borrower shall promptly
notify Agent thereof in writing, which notice shall (i) set forth in
reasonable detail the basis for and nature of such commercial tort claim and (ii) include
the express grant by such Borrower to Agent of a security interest in such
commercial tort claim (and the proceeds thereof).  In the event that such notice does not
include such grant of a security interest, the sending thereof by such Borrower
to Agent shall be deemed to constitute such grant to Agent. Upon the sending of
such notice, any commercial tort claim described therein shall constitute part
of the Collateral and shall be deemed included therein.  Without limiting the authorization of Agent
provided in Section 5.2(a) hereof or otherwise arising by the execution by
such Borrower of this Agreement or any of the other Financing Agreements, Agent
is hereby irrevocably authorized from time to time and at any time to file such
financing statements naming Agent or its designee as secured party and such
Borrower, as debtor, or any amendments to any financing statements, covering
any such commercial tort claim as Collateral. In addition, each Borrower shall
promptly upon Agent’s request, execute and deliver, or cause to be executed and
delivered, to Agent such other agreements, documents and instruments as Agent
may require in order to perfect its security interest in such commercial tort
claim.


 


(h)                   Borrowers do
not have any goods, documents of title or other Collateral in the custody,
control or possession of a third party as of the date hereof, except as set
forth in the Information Certificate and except for goods located in the United
States in transit to a location of a Borrower permitted herein in the ordinary
course of business of such Borrower in the possession of the carrier
transporting such goods.  In the event
that any goods, documents of title or other Collateral are at any time after
the date hereof in the custody, control or possession of any other person not
referred to in the Information Certificate or such carriers, Borrowers shall
promptly notify Agent thereof in writing. 
Promptly upon Agent’s request, Borrowers shall use commercially
reasonable efforts to deliver to Agent a Collateral Access Agreement duly
authorized, executed and delivered by such person and Borrowers as owner of
such Collateral.


 


(i)                       Borrowers
shall take any other actions reasonably requested by Agent from time to time to
cause the attachment, perfection and (subject to liens permitted hereunder)
first priority of, and the ability of Agent to enforce, the security interest
of Agent in any and all of the Collateral, including, without limitation, (i) executing,
delivering and, where appropriate, filing financing statements and amendments
relating thereto under the UCC or other applicable law, to the extent, if any,
that any Borrower’s signature thereon is required therefor, (ii) complying
with any provision of any statute, regulation or treaty as to any Collateral if
compliance with such provision is a condition to attachment, perfection or
priority of, or ability of Agent to enforce, the security interest of Agent in
such Collateral, (iii) using its commercially reasonable efforts (but
excluding the payment of reasonable attorneys’ fees and expenses of any person
in connection therewith) to obtain the consents and approvals of any
Governmental Authority or third party, including, without limitation, any
consent of any licensor, lessor or other person obligated on Collateral, and (iv) taking
all actions required by any law, as applicable in any relevant jurisdiction.


 


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SECTION 6.  COLLECTION
AND ADMINISTRATION


 


6.1         Borrowers’ Loan
Accounts.  Agent shall maintain one
or more loan account(s) on its books in which shall be recorded (a) all
Loans, Letter of Credit Accommodations and other Obligations and the
Collateral, (b) all payments made by or on behalf of any Borrower and (c) all
other appropriate debits and credits as provided in this Agreement, including
fees, charges, costs, expenses and interest. 
All entries in the loan account(s) shall be made in accordance with
Agent’s customary practices as in effect from time to time.


 


6.2         Statements.  Agent shall render to Administrative Borrower
each month a statement setting forth the balance in the Borrowers’ loan account(s) maintained
by Agent for Borrowers pursuant to the provisions of this Agreement, including
principal, interest, fees, costs and expenses.  Each such statement shall be subject to
subsequent adjustment by Agent but shall, absent manifest errors or omissions,
be considered correct and deemed accepted by Borrowers and conclusively binding
upon Borrowers as an account stated except to the extent that Agent receives a
written notice from Administrative Borrower of any specific exceptions of
Borrowers thereto within thirty (30) days after the date such statement has
been received by Borrowers.  Until such
time as Agent shall have rendered to Administrative Borrower a written
statement as provided above, the balance in each Borrower’s loan account(s) shall
be presumptive evidence of the amounts due and owing to Agent and Lenders by
such Borrower.


 


6.3         Collection of Accounts.


 


(a)                    Borrowers
shall establish and maintain, at its expense, lockboxes and related blocked
accounts with such banks as are acceptable to Agent in good faith (such account
or accounts being referred to herein, collectively, as the “Blocked Accounts”,
and individually as a “Blocked Account”). 
Borrowers shall promptly deposit and direct its account debtors to
directly remit all payments on Receivables and all payments constituting
proceeds of Inventory or other Collateral in the identical form in which such
payments are made, whether by cash, check or other manner, to the Blocked
Account.  Borrowers shall deliver, or
cause to be delivered to Agent a Deposit Account Control Agreement duly
authorized, executed and delivered by each bank where a Blocked Account is
maintained as provided in Section 5.2(d) hereof.  Promptly upon Agent’s request, Borrowers
shall execute and deliver such agreements and documents as Agent may require in
connection therewith.  Each Borrower
agrees that all payments made to any Blocked Account or other funds received
and collected by Agent or any Lender on or after a Direct Remittance Event (as
defined below), whether in respect of the Receivables, as proceeds of Inventory
or other Collateral of Borrowers or otherwise shall be treated as payments to
Agent and Lenders in respect of the Obligations of Borrowers and therefore
shall constitute the property of Agent and Lenders to the extent of the then
outstanding Obligations of Borrowers. 
Agent shall instruct the depository banks at which the Blocked Accounts
are maintained to transfer the funds on deposit in the Blocked Accounts to such
operating bank account of Borrowers as Borrowers may specify in writing to
Agent until such time as Agent shall notify the depository bank otherwise in
accordance with this Agreement.  Upon the
occurrence of a Direct Remittance Event, Agent may instruct the depository
banks at which the Blocked Accounts are maintained to transfer all funds
received or deposited into the Blocked Accounts to the Agent Payment Account or
as Agent may otherwise direct.  For
purposes hereof, a “Direct Remittance Event” 


 


54

















 


shall exist at any time that (A) a
Default or Event of Default shall exist or have occurred and be continuing or (B) Excess
Availability shall have fallen below $30,000,000.


 


(b)                   The Deposit
Account Control Agreements with the depository banks at which the Blocked
Accounts are maintained shall provide that, unless such depository bank
receives written instruction from Agent to the contrary, the items received for
deposit therein, or the available funds from time to time on deposit therein,
will be transferred daily, only to the Agent Payment Account.


 


(c)                    For purposes
of calculating the amount of the Loans available to such Borrower, such payments
will be applied (conditional upon final collection) to the Obligations of the
applicable Borrower on the Business Day of receipt by Agent of immediately
available funds in the Agent Payment Account provided such payments and notice
thereof are received in accordance with Agent’s usual and customary practices
as in effect from time to time and within sufficient time to credit such
Borrower’s loan account on such day, and if not, then on the next Business
Day.  For the purposes of calculating
interest on the Obligations, such payments or other funds received will be
applied (conditional upon final collection) to the Obligations on the Business
Day following the date of receipt of immediately available funds by Agent in
the Agent Payment Account provided such payments or other funds and notice
thereof are received in accordance with Agent’s usual and customary practices
as in effect from time to time and within sufficient time to credit such
Borrower’s loan account on such day, and if not, then on the next Business
Day.  In the event that at any time or
from time to time there are no Loans to Borrowers outstanding, Agent shall be
entitled to an administrative fee payable by such Borrower in an amount
calculated based on the Interest Rate for Prime Rate Loans (on a per annum
basis) multiplied by the amount of the funds received in the Blocked Account
for such day as calculated by Agent in accordance with its customary practice.
The economic benefit of the timing in the application of payments (and the administrative
charge with respect thereto, if applicable) shall be for the sole benefit of
Agent.


 


(d)                   Subject to Section 6.3(b) above,
each Borrower and its Subsidiaries or other Affiliates shall, acting as trustee
for Agent, receive, as the property of Agent, any monies, checks, notes, drafts
or any other payment relating to and/or proceeds of Accounts or other
Collateral which come into their possession or under their control and
immediately upon receipt thereof, shall deposit or cause the same to be deposited
in the Blocked Accounts, or remit the same or cause the same to be remitted, in
kind, to Agent.  In no event shall the
same be commingled with such Borrower’s own funds.  Borrowers agree to reimburse Agent and
Lenders on demand for any amounts owed or paid to any bank at which a Blocked
Account is established for it or any other bank or person involved in the
transfer of funds to or from its Blocked Accounts arising out of payments by
Agent or any Lender to or indemnification of such bank or person in connection
with such Blocked Account or any amounts received therein or transferred
therefrom.  The obligations of Borrower
to reimburse Agent for such amounts pursuant to this Section 6.3 shall
survive the termination of this Agreement.


 


6.4         Payments.


 


(a)                    All
Obligations shall be payable to the Agent Payment Account as provided in Section 6.3
or such other place as Agent may designate from time to time.  The foregoing shall 


 


55

















 


not apply to payments with proceeds
of Loans to a Bank Product Provider for Obligations to such Bank Product
Provider in connection with checks or other items issued by any Borrower drawn
on such Bank Product Provider.  Subject
to the other terms and conditions contained herein, Agent shall apply payments
received or collected from Borrowers or for the account of Borrowers (including
the monetary proceeds of collections or of realization upon any Collateral) as
follows:


 


(i)                       first,
to the payment in full of any fees, indemnities or expense reimbursements then
due to Agent and Lenders from Borrowers (other than any such payments from
Obligations arising from Hedge Agreements or Bank Products);


 


(ii)                    second,
to the payment in full of interest then due in respect of any Loans (and
including any Special Agent Advances);


 


(iii)                 third, to
the payment or prepayment in full of principal in respect of Special Agent
Advances;


 


(iv)                fourth, to
the payment or prepayment in full of principal in respect of the Revolving
Loans and Equipment Purchase Loans then due on a pro rata basis;


 


(v)                   fifth,
to pay or prepay Obligations arising under or pursuant to any Hedge Agreement
of Borrowers that has been approved in writing by Agent (up to the amount of
any then effective Reserve established in respect of such Obligations) on a pro
rata basis;


 


(vi)                sixth, to
the payment or prepayment in full of any other Obligations whether or not then
due, in such order and manner as Agent reasonably determines or to be held as
cash collateral in connection with any Letter of Credit Accommodations or other
contingent Obligations (but not including for purposes of this clause “sixth”
any Obligations arising under or pursuant to any Hedge Agreement or in
connection with any Bank Products); and


 


(vii)             seventh, to
the payment or prepayment in full of any Obligations arising under or pursuant
to Hedge Agreements that have been approved in writing by Agent (other than to
the extent provided for above) and any Obligations then due to any Bank
Provider arising from or in connection with any Bank Products (it being
understood that payments shall first be made to Bank Product Providers that are
Lenders or Affiliates of Lenders and then to all other Bank Product Providers),
as to all of such Obligations on a pro rata basis.


 


Provided, that, in each instance set forth
above in Section 6.4(a) above so long as no Event of Default has
occurred and is continuing, this Section 6.4(a) shall not be deemed
to apply to any payment by a Borrower specified by such Borrower to be for the
payment of specific Obligations then due and payable (or prepayable) under and
in accordance with any provision of this Agreement.


 


(b)                   Notwithstanding
anything to the contrary contained in this Agreement, (i) unless so
directed by any Borrower, or unless a Default or an Event of Default shall
exist or have occurred and be continuing, Agent shall not apply any payments
which it receives to any Eurodollar Rate Loans, except (A) on the
expiration date of the Interest Period applicable to any such Eurodollar Rate
Loans or (B) in the event that there are no outstanding Prime Rate Loans, 


 


56

















 


and (ii) to the extent any
Borrower uses any proceeds of the Loans or Letter of Credit Accommodations to
acquire rights in or the use of any Collateral or to repay any Indebtedness
used to acquire rights in or the use of any Collateral, payments in respect of
the Obligations shall be deemed applied first to the Obligations arising from
Loans and Letter of Credit Accommodations that were not used for such purposes
and second to the Obligations arising from Loans and Letter of Credit
Accommodations the proceeds of which were used to acquire rights in or the use
of any Collateral in the chronological order in which such Borrower acquired
such rights in or the use of such Collateral, and (iii) except as Agent
may otherwise determine (A) payments shall be applied to Obligations other
than the Eurodollar Rate Fixed Asset Loans and Prime Rate Fixed Asset Loans
before being applied to the Eurodollar Rate Fixed Asset Loans and the Prime
Rate Fixed Asset Loans, except at such time as any payments in respect of the
Eurodollar Rate Fixed Asset Loans or Prime Rate Fixed Asset Loans may be then
due and payable and (B) the first Loans outstanding shall be deemed to be
Eurodollar Rate Fixed Asset Loans.


 


(c)                    At Agent’s
option, all principal, interest, fees, costs, expenses and other charges
provided for in this Agreement or the other Financing Agreements may be charged
directly to the loan account(s) of any Borrower maintained by Agent.  Except as otherwise specifically provided in Section 6.5
hereof, such Borrower shall make all payments to Agent and Lenders on the
Obligations free and clear of, and without deduction or withholding for or on
account of, any setoff, counterclaim, defense, duties, taxes, levies, imposts,
fees, deductions, withholding, restrictions or conditions of any kind.  To the extent Agent or any Lender receives
any payments or collections in respect of the Obligations in a currency other
than US Dollars, Agent may, at its option (but is not obligated to), convert
such other currency to US Dollars at the Exchange Rate within a reasonable time
thereafter or if Agent elects not to convert such currency, Agent shall
promptly notify such Borrower and provide such currency to such Borrower for
Borrowers to arrange for the conversion on such date (and then payment thereof
to Agent).  Borrowers shall pay the costs
of such conversion (or Agent may, at its option, charge such costs to the loan
account of such Borrower maintained by Agent). 
Payments and collections received in any currency other than the
currency in which any outstanding Obligations are denominated will be accepted
and/or applied at the discretion of Agent.


 


(d)                   If after
receipt of any payment of, or proceeds of Collateral applied to the payment of,
any of the Obligations, Agent or any Lender is required to surrender or return
such payment or proceeds to any Person for any reason, then the Obligations
intended to be satisfied by such payment or proceeds shall be reinstated and
continue and this Agreement shall continue in full force and effect as if such
payment or proceeds had not been received by Agent or such Lender.  Borrowers shall be liable to pay to Agent,
and do hereby indemnify and hold Agent and Lenders harmless for the amount of
any payments or proceeds surrendered or returned.  This Section 6.4 shall remain effective
notwithstanding any contrary action which may be taken by Agent or any Lender
in reliance upon such payment or proceeds. 
This Section 6.4 shall survive the payment of the Obligations and
the termination of this Agreement.


 


6.5         Taxes.


 


(a)                    Subject to Section 6.5(f) hereof,
any and all payments by or on behalf of Borrowers hereunder and under any other
Financing Agreement shall be made, in accordance 


 


57

















 


with Section 6.4, free and
clear of and without deduction for any and all Taxes, excluding the following
(collectively, “Excluded Taxes”): (i) taxes imposed on the net income or
net profit of Agent or any Lender (or any transferee or assignee of such
Lender, including any Participant, any such transferee or assignee being
referred to as a “Transferee”) and (ii) franchise or similar taxes imposed
on or determined by reference to the net income or net profit of Agent or any
Lender (or Transferee), in each case by the United States of America or by the
jurisdiction under the laws of which such Lender (or Transferee), in each case
as to clause (i) or (ii) of this Section 6.5(a), (A) is
organized or any political subdivision thereof, (B) has its applicable
lending office located, or (C) in a jurisdiction as a result of a present
or former connection between the Agent or such Lender (or Transferee) and such
jurisdiction or (D) any political subdivision of the jurisdictions
described in clauses (A) through (C) hereof.  In addition, Borrowers agree to pay to the
relevant Governmental Authority in accordance with applicable law any Other
Taxes.


 


(b)                   If Borrowers
shall be required by law to deduct or withhold in respect of any Taxes or Other
Taxes (other than Excluded Taxes) from or in respect of any sum payable
hereunder to Agent or any Lender, then:


 


(i)                       the sum
payable shall be increased as necessary so that after making all required
deductions and withholdings (including deductions and withholdings applicable
to additional sums payable under this Section) such Lender (or Agent on behalf
of such Lender or itself, as the case may be) receives an amount equal to the
sum it would have received had no such deductions or withholdings been made;


 


(ii)                    Borrowers
shall make such deductions and withholdings;


 


(iii)                 Borrowers shall
pay the full amount deducted or withheld to the relevant taxing authority or
other authority in accordance with applicable law; and


 


(iv)                to the extent not
paid to Agent and Lenders pursuant to clause (i) above, Borrowers shall
also pay to Agent or any Lender, at the time interest is paid, all additional
amounts which Agent or any Lender specifies as necessary to preserve the after
tax yield such Lender would have received if such Taxes (other than Excluded
Taxes) or Other Taxes had not been imposed.


 


(c)                    Within thirty
(30) days after the date of any payment by Borrowers of Taxes (other than
Excluded Taxes) or Other Taxes, upon Agent’s request, Borrowers shall furnish
to Agent the original or a certified copy of a receipt evidencing payment
thereof, or other evidence of payment reasonably satisfactory to Agent.


 


(d)                   Subject to Section 6.5(f) hereof,
Borrowers will indemnify Agent and each Lender (or Transferee) for the full
amount of Taxes (other than Excluded Taxes) and Other Taxes paid by Agent or
such Lender (or Transferee, as the case may be) promptly upon written
demand.  If Agent or such Lender (or
Transferee) receives a refund in respect of any Taxes or Other Taxes for which
Agent or such Lender (or Transferee) has received payment from Borrowers
hereunder, so long as no Event of Default shall exist or have occurred and be
continuing, Agent or such Lender (as the case may be) shall credit to the loan
account of Borrowers the amount of such refund plus any interest received (but
only to the extent of 


 


58

















 


indemnity payments made, or
additional amounts paid, by or on behalf of Borrowers under this Section 6.5
with respect to the Taxes or Other Taxes giving rise to such refund).  If a Lender (or any Transferee) claims a tax
credit in respect of any Taxes for which it has been indemnified by Borrowers
pursuant to this Section 6.5, such Lender will apply the amount of the
actual dollar benefit received by such Lender as a result thereof, as
reasonably calculated by such Lender and net of all expenses related thereto,
to the Loans made by such Lender.  If
Taxes or Other Taxes were not correctly or legally asserted, Agent or such
Lender shall, upon each Borrower’s request and at the expense of each Borrower,
provide such documents to Borrowers in form and substance satisfactory to
Agent, as Borrowers may reasonably request, to enable Borrowers to contest such
Taxes or Other Taxes pursuant to appropriate proceedings then available to
Borrowers (so long as providing such documents shall not, in the good faith
determination of Agent or the Lender, have a reasonable likelihood of resulting
in any liability of Agent or such Lender for which Agent has not established a
Reserve). The indemnity provided for herein shall survive the payment of the
Obligations and the termination of this Agreement but shall not survive the
statute of limitations applicable to any liability for the relevant Taxes,
except to the extent that Agent or any Lender is subject to a claim for which
it is entitled for indemnification by Borrowers, notwithstanding that the
statute of limitations has expired.  A
certificate as to the amount of such payment or liability and setting forth in
reasonable detail the calculation and basis for such payment or liability
delivered to Borrowers by a Lender or by Agent on its own behalf or on behalf
of a Lender, shall be conclusive, absent manifest error.


 


(e)                    Each Lender
that is organized under the laws of a jurisdiction outside the United States (a
“Non-U.S. Lender”) agrees that it shall promptly (or, in the case of a Lender
which becomes a party hereto pursuant to Section 13.7 hereof, promptly
after the date upon which such Lender becomes a party hereto) deliver to the
Agent (or, in the case of an assignee of a Lender which (x) is an
Affiliate of such Lender or a Related Fund of such Lender and (y) does not
deliver an Assignment and Acceptance to the Agent pursuant to the last sentence
of Section 13.7(a) for recordation pursuant to Section 13.7(b),
to the assigning Lender only, and in the case of a participant, to the Lender
granting the participation only) two properly completed and duly executed
copies of either U.S. Internal Revenue Service Form W-8BEN, W-8ECI or
W-8IMY or any subsequent versions thereof or successors thereto, in each case
claiming complete exemption from, or reduced rate of, U.S. Federal withholding
tax and payments of interest hereunder. 
In addition, in the case of a Non-U.S. Lender claiming exemption from
U.S. Federal withholding tax under Section 871(h) or 881(c) of
the Internal Revenue Code, such Non-U.S. Lender hereby represents to the Agent
and the Borrowers that such Non-U.S. Lender is not a bank for purposes of Section 881(c) of
the Internal Revenue Code, is not a 10-percent shareholder (within the meaning
of Section 871(h)(3)(B) of the Internal Revenue Code) of the Haynes
Parent and is not a controlled foreign corporation related to the Haynes Parent
(within the meaning of Section 864(d)(4) of the Internal Revenue
Code), and such Non-U.S. Lender agrees that it shall promptly notify the Agent
in the event any such representation is no longer accurate.  Such forms shall be delivered by each
Non-U.S. Lender on or before the date it becomes a party to this Agreement and
on or before the date, if any, such Non-U.S. Lender changes its applicable
lending office by designating a different lending office (a “New Lending Office”).  In addition, such Non-U.S. Lender shall
deliver such forms within 20 days after receipt of a written request therefor
from the Agent, the assigning Lender or the Lender granting a participation, as
applicable.  Notwithstanding any other provision
of this Section 6.5, a Non-U.S. Lender shall not be required 


 


59

















 


to deliver any form pursuant to
this Section 6.5(e) that such Non-U.S. Lender is not legally able to
deliver.


 


(f)                      Borrowers
shall not be required to indemnify any Person or to pay any additional amounts
to any Person pursuant to subsections (a) or (d) above to the extent
that (i) the Tax was applicable on the date such Person became a party to
this Agreement (or, in the case of a Transferee that is a Participant, on the
date such Participant became a Transferee hereunder) or, with respect to
payments to a New Lending Office, the date such Person designated such New
Lending Office with respect to a Loan; provided, that, this subsection (f) shall not apply
(A) to any Transferee or New Lending Office that becomes a Transferee or
New Lending Office as a result of an assignment, participation, transfer or
designation made at the request of Borrowers and (B) to the extent the
indemnity payment or additional amounts any Transferee, acting through a New
Lending Office, would be entitled to receive (without regard to this subsection
(f)) do not exceed the indemnity payment or additional amounts that the person
making the assignment, participation or transfer to such Transferee making the
designation of such New Lending Office, would have been entitled to receive in
the absence of such assignment, participation, transfer or designation or (ii) the
obligation to pay such additional amounts would not have arisen but for a
failure by such Person to comply with the provisions of subsection (e) above
or the gross negligence or wilful misconduct of such Person as determined
pursuant to a final, non appealable order of a court of competent jurisdiction.


 


6.6         Authorization to Make
Loans.


 


(a)                    Agent and
Lenders are authorized to make the Loans and provide the Letter of Credit
Accommodations based upon telephonic or other instructions received from anyone
purporting to be (and believed by Agent to be) an officer of any Borrower or
other authorized person or, at the discretion of Agent, if such Loans are
necessary to satisfy any Obligations. 
All requests for Loans or Letter of Credit Accommodations hereunder
shall specify the date on which the requested advance is to be made or Letter
of Credit Accommodations established (which day shall be a Business Day) and
the amount of the requested Loan. 
Requests received after 12:00 noon Chicago time on any day shall be
deemed to have been made as of the opening of business on the immediately
following Business Day.  All Loans and
Letter of Credit Accommodations under this Agreement shall be conclusively
presumed to have been made to, and at the request of and for the benefit of, any
Borrower when deposited to the credit of any Borrower or otherwise disbursed or
established in accordance with the instructions of Borrower or in accordance
with the terms and conditions of this Agreement.


 


(b)                   All Loans shall
be in or denominated in US Dollars and shall be disbursed only to bank accounts
in the United States of America.  Set
forth on Schedule 6.6(b) hereof are the bank accounts of each Borrower
used by each Borrower for making payments of its Indebtedness and other
obligations to which, as of the date hereof, proceeds of Loans may be
disbursed.


 


6.7         Use of Proceeds.  All Loans made or Letter of Credit
Accommodations provided to or for the benefit of Borrowers pursuant to the
provisions hereof shall be used by Borrowers only for general operating,
working capital and other proper corporate purposes of Borrowers not otherwise
prohibited by the terms hereof.  None of
the proceeds will be used, directly or indirectly, for the purpose of
purchasing or carrying any margin security or for the purposes of 


 


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reducing or retiring any
indebtedness which was originally incurred to purchase or carry any margin
security or for any other purpose which might cause any of the Loans to be
considered a “purpose credit” within the meaning of Regulation U of the Board
of Governors of the Federal Reserve System, as amended.


 


6.8         Appointment of
Administrative Borrower as Agent for Requesting Loans and Receipts of Loans and
Statements.


 


(a)                    Each Borrower
hereby irrevocably appoints and constitutes Administrative Borrower as its
agent and attorney-in-fact to request and receive Loans and Letter of Credit
Accommodations pursuant to this Agreement and the other Financing Agreements
from Agent or any Lender in the name or on behalf of such Borrower.  Agent and Lenders may disburse the Loans to
such bank account of Administrative Borrower or a Borrower or otherwise make
such Loans to a Borrower and provide such Letter of Credit Accommodations to a
Borrower as Administrative Borrower may designate or direct, without notice to
any other Borrower.  Notwithstanding
anything to the contrary contained herein, Agent may at any time and from time
to time require that Loans to or for the account of any Borrower be disbursed
directly to an operating account of such Borrower.


 


(b)                   Administrative
Borrower hereby accepts the appointment by Borrowers to act as the agent and
attorney-in-fact of Borrowers pursuant to this Section 6.8. Administrative
Borrower shall ensure that the disbursement of any Loans to each Borrower requested
by or paid to or for the account of Haynes Parent, or the issuance of any
Letter of Credit for a Borrower hereunder, shall be paid to or for the account
of such Borrower.


 


(c)                    Each Borrower
hereby irrevocably appoints and constitutes Administrative Borrower as its
agent to receive statements on account and all other notices from Agent and
Lenders with respect to the Obligations or otherwise under or in connection
with this Agreement and the other Financing Agreements.


 


(d)                   Any notice,
election, representation, warranty, agreement or undertaking by or on behalf of
any other Borrower by Administrative Borrower shall be deemed for all purposes
to have been made by such Borrower, as the case may be, and shall be binding
upon and enforceable against such Borrower or Guarantor to the same extent as
if made directly by such Borrower or Guarantor.


 


(e)                    No purported
termination of the appointment of Administrative Borrower as agent as aforesaid
shall be effective, except after ten (10) days’ prior written notice to
Agent.


 


6.9         Illegality.  In the event that any change in or
introduction of or change after the date hereof in the interpretation or
application of any law, regulation, treaty, or official directive or official
request (whether or not having the force of law but, if not, being of a type
with which Agent or any Lender is accustomed to comply) makes it unlawful (or
contrary to such directive or request) in any jurisdiction applicable to Agent
or such Lender for Agent or such Lender to make available or maintain the
financing arrangements provided for herein (or any of them) or to give effect
to its obligations under the Financing Agreements, Agent or such Lender may
give seven (7) Business Days written notice to that effect to Borrowers
and upon such notice this 


 


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Agreement shall terminate.  Agent or such Lender will use reasonable
efforts (including reasonable efforts to change its lending office) to avoid
the making or maintaining of such financing arrangements from being unlawful or
contrary to such directive or request; provided, that, such efforts shall not cause the
imposition on Agent or such Lender of any additional costs or legal or
regulatory burdens deemed by Agent or such Lender to be material in good faith.


 


6.10   Pro Rata Treatment.  Except to the extent otherwise provided in
this Agreement:  (a) the making and
conversion of Loans shall be made among the Lenders based on their respective
Pro Rata Shares as to the applicable type of Loans and (b) each payment on
account of any Obligations to or for the account of one or more of Lenders in
respect of any Obligations due on a particular day shall be allocated among the
Lenders entitled to such payments based on their respective Pro Rata Shares
applicable thereto and shall be distributed accordingly.


 


6.11   Sharing of Payments, Etc.


 


(a)                    Each Borrower
agrees that, in addition to (and without limitation of) any right of setoff,
banker’s lien or counterclaim Agent or any Lender may otherwise have, each Lender
shall be entitled, at its option (but subject, as among Agent and Lenders, to
the provisions of Section 12.3(b) hereof), to offset balances held by
it for the account of such Borrower at any of its offices, in dollars or in any
other currency, against any principal of or interest on any Loans owed to such
Lender or any other amount payable to such Lender hereunder, that is not paid
when due (regardless of whether such balances are then due to such Borrower),
in which case it shall promptly notify Administrative Borrower and Agent
thereof; provided, that, such Lender’s failure to give such
notice shall not affect the validity thereof.


 


(b)                   If any Lender
(including Agent) shall obtain from any Borrower payment of any principal of or
interest on any Loan owing to it or payment of any other amount under this
Agreement or any of the other Financing Agreements through the exercise of any
right of setoff, banker’s lien or counterclaim or similar right or otherwise
(other than from Agent as provided herein), and, as a result of such payment,
such Lender shall have received more than its Pro Rata Share of the principal
of the Loans or more than its share of such other amounts then due hereunder or
thereunder by any Borrower to such Lender than the percentage thereof received
by any other Lender, it shall promptly pay to Agent, for the benefit of
Lenders, the amount of such excess and simultaneously purchase from such other
Lenders a participation in the Loans or such other amounts, respectively, owing
to such other Lenders (or such interest due thereon, as the case may be) in
such amounts, and make such other adjustments from time to time as shall be
equitable, to the end that all Lenders shall share the benefit of such excess
payment (net of any expenses that may be incurred by such Lender in obtaining
or preserving such excess payment) in accordance with their respective Pro Rata
Shares or as otherwise agreed by Lenders. 
To such end all Lenders shall make appropriate adjustments among
themselves (by the resale of participation sold or otherwise) if such payment
is rescinded or must otherwise be restored.


 


(c)                    Each Borrower
agrees that any Lender purchasing a participation (or direct interest) as
provided in this Section may exercise, in a manner consistent with this
Section, all rights of setoff, banker’s lien, counterclaim or similar rights
with respect to such participation as fully as if such Lender were a direct
holder of Loans or other amounts (as the case may be) owing to such Lender in
the amount of such participation.


 


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(d)                   Nothing
contained herein shall require any Lender to exercise any right of setoff,
banker’s lien, counterclaims or similar rights or shall affect the right of any
Lender to exercise, and retain the benefits of exercising, any such right with
respect to any other Indebtedness or obligation of any Borrower.  If, under any applicable bankruptcy,
insolvency or other similar law, any Lender receives a secured claim in lieu of
a setoff to which this Section applies, such Lender shall, to the extent
practicable, assign such rights to Agent for the benefit of Lenders and, in any
event, exercise its rights in respect of such secured claim in a manner
consistent with the rights of Lenders entitled under this Section to share
in the benefits of any recovery on such secured claim.


 


6.12                           Settlement
Procedures.


 


(a)                    In order to
administer the Credit Facility in an efficient manner and to minimize the
transfer of funds between Agent and Lenders, Agent may, at its option, subject
to the terms of this Section, make available, on behalf of Lenders, the full
amount of the Loans requested or charged to any Borrower’s loan account(s) or
otherwise to be advanced by Lenders pursuant to the terms hereof, without
requirement of prior notice to Lenders of the proposed Loans.


 


(b)                   With respect to
all Loans made by Agent on behalf of Lenders as provided in this Section, the
amount of each Lender’s Pro Rata Share of the outstanding Loans shall be
computed weekly, and shall be adjusted upward or downward on the basis of the
amount of the outstanding Loans as of 5:00 p.m. Chicago time on the
Business Day immediately preceding the date of each settlement computation; provided, that, Agent retains the
absolute right at any time or from time to time to make the above described
adjustments at intervals more frequent than weekly, but in no event more than
twice in any week.  Agent shall deliver
to each of the Lenders after the end of each week, or at such lesser period or
periods as Agent shall determine, a summary statement of the amount of outstanding
Loans for such period (such week or lesser period or periods being hereinafter
referred to as a “Settlement Period”). 
If the summary statement is sent by Agent and received by a Lender prior
to 12:00 noon Chicago time, then such Lender shall make the settlement transfer
described in this Section by no later than 3:00 p.m. Chicago time on
the same Business Day and if received by a Lender after 12:00 noon Chicago
time, then such Lender shall make the settlement transfer by not later than
3:00 p.m. Chicago time on the next Business Day following the date of
receipt.  If, as of the end of any
Settlement Period, the amount of a Lender’s Pro Rata Share of the outstanding
Loans is more than such Lender’s Pro Rata Share of the outstanding Loans as of
the end of the previous Settlement Period, then such Lender shall forthwith
(but in no event later than the time set forth in the preceding sentence)
transfer to Agent by wire transfer in immediately available funds the amount of
the increase.  Alternatively, if the
amount of a Lender’s Pro Rata Share of the outstanding Loans in any Settlement
Period is less than the amount of such Lender’s Pro Rata Share of the
outstanding Loans for the previous Settlement Period, Agent shall forthwith
transfer to such Lender by wire transfer in immediately available funds the
amount of the decrease.  The obligation
of each of the Lenders to transfer such funds and effect such settlement shall
be irrevocable and unconditional and without recourse to or warranty by
Agent.  Agent and each Lender agrees to
mark its books and records at the end of each Settlement Period to show at all
times the dollar amount of its Pro Rata Share of the outstanding Loans and
Letter of Credit Accommodations.  Each
Lender shall only be entitled to receive interest on its Pro Rata Share of the
Loans to the extent such Loans have been funded by such Lender.  Because the Agent on 


 


63

















 


behalf of Lenders may be
advancing and/or may be repaid Loans prior to the time when Lenders will
actually advance and/or be repaid such Loans, interest with respect to Loans
shall be allocated by Agent in accordance with the amount of Loans actually
advanced by and repaid to each Lender and the Agent and shall accrue from and
including the date such Loans are so advanced to but excluding the date such
Loans are either repaid by Borrowers or actually settled with the applicable
Lender as described in this Section.


 


(c)                    To the extent
that Agent has made any such amounts available and the settlement described
above shall not yet have occurred, upon repayment of any Loans by a Borrower,
Agent may apply such amounts repaid directly to any amounts made available by
Agent pursuant to this Section.  In lieu
of weekly or more frequent settlements, Agent may, at its option, at any time
require each Lender to provide Agent with immediately available funds
representing its Pro Rata Share of each Loan, prior to Agent’s disbursement of
such Loan to Borrower.  In such event,
Agent shall notify each Lender promptly after Agent’s receipt of the request
for the Loans from a Borrower (or Administrative Borrower on behalf of such
Borrower) or any deemed request hereunder and each Lender shall provide its Pro
Rata Share of such requested Loan to the account specified by Agent in
immediately available funds not later than 2:00 p.m. on the requested
funding date if such notification is received by a Lender before 12:00 p.m.,
and if received by a Lender after 12:00 p.m., then such Lender shall
provide its Pro Rate Share of such requested loan by not later than 2:00 p.m.
on the next Business Day, so that all such Loans shall be made by the Lenders
simultaneously and proportionately to their Pro Rata Shares.  No Lender shall be responsible for any default
by any other Lender in the other Lender’s obligation to make a Loan requested
hereunder nor shall the Commitment of any Lender be increased or decreased as a
result of the default by any other Lender in the other Lender’s obligation to
make a Loan hereunder.


 


(d)                   Upon the making
of any Loan by Agent as provided herein, without further action by any party
hereto, each Lender shall be deemed to have irrevocably and unconditionally
purchased and received from Agent, without recourse or warranty, an undivided
interest and participation to the extent of such Lender’s Pro Rata Share in
such Loan.  To the extent that there is
no settlement in accordance with the terms hereof, Agent may at any time
require the Lenders to fund their participations.  From and after the date, if any, on which any
Lender has funded its participation in any such Loan, Agent shall promptly
distribute to such Lender, such Lender’s Pro Rata Share of all payments of
principal and interest received by Agent in respect of such Loan.


 


(e)                    If Agent is
not funding a particular Loan to a Borrower (or Administrative Borrower for the
benefit of such Borrower) pursuant to Sections 6.12(a) and 6.12(b) above
on any day, but is requiring each Lender to provide Agent with immediately
available funds on the date of such Loan as provided in Section 6.12(c) above,
Agent may assume that each Lender will make available to Agent such Lender’s
Pro Rata Share of the Loan requested or otherwise made on such day and Agent
may, in its discretion, but shall not be obligated to, cause a corresponding
amount to be made available to or for the benefit of such Borrower on such
day.  If Agent makes such corresponding
amount available to a Borrower and such corresponding amount is not in fact
made available to Agent by such Lender, Agent shall be entitled to recover such
corresponding amount on demand from such Lender together with interest thereon
for each day from the date such payment was due until the date such amount is
paid to Agent at the Federal Funds Rate for 


 


64

















 


each day during such period (as
published by the Federal Reserve Bank of New York or at Agent’s option based on
the arithmetic mean determined by Agent of the rates for the last transaction
in overnight Federal funds arranged prior to 9:00 a.m. (New York City
time) on that day by each of the three leading brokers of Federal funds
transactions in New York City selected by Agent) and if such amounts are not
paid within three (3) days of Agent’s demand, at the highest Interest Rate
provided for in Section 3.1 hereof applicable to Prime Rate Loans.  During the period in which such Lender has
not paid such corresponding amount to Agent, notwithstanding anything to the
contrary contained in this Agreement or any of the other Financing Agreements,
the amount so advanced by Agent to or for the benefit of any Borrower shall,
for all purposes hereof, be a Loan made by Agent for its own account.  Upon any such failure by a Lender to pay
Agent, or upon any failure by a Lender to pay Agent its Pro Rata Share of any
Loan as required hereunder, Agent shall promptly thereafter notify
Administrative Borrower of such failure and Borrowers shall pay such
corresponding amount to Agent for its own account within five (5) Business
Days of Administrative Borrower’s receipt of such notice.  Any Lender that has failed to fund any
portion of the Loans or participations in Letter of Credit Accommodations
required to be funded by it hereunder within one (1) Business Day of the
date required to be funded by it hereunder, or has otherwise failed to pay over
to Agent or any other Lender any other amount required to be paid by it
hereunder within one (1) Business Day of the date when due, shall be a “Defaulting
Lender”.


 


(f)                      Agent shall
not be obligated to transfer to a Defaulting Lender any payments received by
Agent for the Defaulting Lender’s benefit, nor shall a Defaulting Lender be
entitled to the sharing of any payments hereunder (including any principal,
interest or fees and whether in respect of Loans, participation interests or
otherwise).  For purposes of voting or
consenting to matters with respect to this Agreement and the other Financing
Agreements and determining Pro Rata Shares, such Defaulting Lender shall be
deemed not to be a “Lender” and such Lender’s Commitment shall be deemed to be
zero (0).  At any time that there is a
Defaulting Lender, payments received for application to the Obligations payable
to Lenders in accordance with the terms of this Agreement shall be distributed
to Lenders based on their Pro Rata Shares calculated after giving effect to the
reduction of the Defaulting Lender’s Commitment to zero as provided herein or,
at Agent’s option, Agent may instead receive and retain such amounts that would
be otherwise attributable to the Pro Rate Share of the Defaulting Lender.  To the extent that Agent elects to receive
and retain such amounts, Agent may hold them and, in its reasonable discretion,
relend such amounts to a Borrower. If Agent exercises its option to relend such
amounts, such amounts shall be treated as Revolving Loans for the account of
Agent in addition to the Revolving Loans that are made by the Lenders other
than Defaulting Lenders based on their Pro Rata Shares as calculated after
giving effect to the reduction of the Defaulting Lender’s Commitment to zero as
provided herein but shall be repaid in the same order of priority as Special
Agent Advances for purposes of Section 6.4 hereof, except as Agent may
otherwise elect.  Agent shall determine
whether any Revolving Loans requested shall be made from relending such amounts
or from Revolving Loans from the Lenders other than the Defaulting Lenders and
any allocation of requested Revolving Loans between them.  The rights of a Defaulting Lender shall be
limited as provided herein until such time as the Defaulting Lender has made
all payments to Agent of the amounts that it had failed to pay causing it to
become a Defaulting Lender and is otherwise in compliance with the terms of
this Agreement (including making any such payments as it would have been
required to make as a Lender during the period that it was a Defaulting Lender
other than in respect of the principal amount of Revolving Loans, 


 


65

















 


which payments as to the
principal amount of Revolving Loans shall be made based on the outstanding
balance thereof on the date of the cure by Defaulting Lender or at such other
time as Agent may specify).  Upon the
cure by Defaulting Lender of the event that is the basis for it to be a
Defaulting Lender by making such payment or payments, such Lender shall cease
to be a Defaulting Lender and shall be entitled to payment of interest to the
extent previously received and retained by Agent from or for the account of
Borrowers on the funds constituting Loans funded by such Lender prior to the
date of it being a Defaulting Lender (and not previously paid to such Lender)
and shall otherwise, on and after such cure, make Loans and settle in respect
of the Loans and other Obligations in accordance with the terms hereof. The
existence of a Defaulting Lender and the operation of this Section shall
not be construed to increase or otherwise affect the Commitment of any Lender,
or relieve or excuse the performance by any Borrower of its duties and
obligations hereunder.


 


(g)                   Nothing in this
Section or elsewhere in this Agreement or the other Financing Agreements
shall be deemed to require Agent to advance funds on behalf of any Lender or to
relieve any Lender from its obligation to fulfill its Commitment hereunder or
to prejudice any rights that any Borrower may have against any Lender as a
result of any default by any Lender hereunder in fulfilling its Commitment.


 


6.13   Obligations Several;
Independent Nature of Lenders’ Rights. 
The obligation of each Lender hereunder is several, and no Lender shall
be responsible for the obligation or commitment of any other Lender
hereunder.  Nothing contained in this
Agreement or any of the other Financing Agreements and no action taken by the
Lenders pursuant hereto or thereto shall be deemed to constitute the Lenders to
be a partnership, an association, a joint venture or any other kind of
entity.  The amounts payable at any time
hereunder to each Lender shall be a separate and independent debt, and subject
to Section 12.3 hereof, each Lender shall be entitled to protect and
enforce its rights arising out of this Agreement and it shall not be necessary
for any other Lender to be joined as an additional party in any proceeding for
such purpose.


 


SECTION 7.  COLLATERAL
REPORTING AND COVENANTS


 


7.1         Collateral Reporting.


 


(a)                    Borrowers
shall provide Agent with the following documents in a form satisfactory to
Agent in good faith:


 


(i)                       as soon as
possible after the end of each week (but in any event by the close of business
on the fourth (4th) Business Day after the end thereof), on a weekly basis or
more frequently as Agent may request at any time that Excess Availability is
less than $7,500,000 or a Default or Event of Default exists or has occurred
and is continuing, a Borrowing Base Certificate setting forth the calculation
of the Borrowing Base as of the last Business Day of the immediately preceding
period, duly completed and executed by the vice president-finance, chief
financial officer, treasurer, assistant treasurer, controller or other
financial or senior officer of Haynes Parent, together with all schedules
required pursuant to the terms of the Borrowing Base Certificate duly completed
(including a schedule of all Accounts created, collections received and credit
memos issued for each day of the immediately preceding period);


 


66

















 


(ii)                    as soon as
possible after the end of each month (but in any event within twelve (12)
Business Days after the end thereof), on a monthly basis or more frequently as
Agent may reasonably request, (A) perpetual inventory reports, (B) inventory
reports by location and category (and including the amounts of Inventory and
the value thereof at any leased locations and at premises of warehouses,
processors or other third parties), (C) agings of accounts receivable
(including an aging by due date and together with a reconciliation to the
previous month’s aging and general ledger), and (D) agings of accounts
payable (and including information indicating the amounts owing to owners and
lessors of leased premises, warehouses, processors and other third parties from
time to time in possession of any Collateral);


 


(iii)                 upon Agent’s
reasonable request, (A) copies of customer statements, purchase orders,
sales invoices, credit memos, remittance advices and reports, and copies of
deposit slips and bank statements, (B) copies of shipping and delivery
documents, and (C) copies of purchase orders, invoices and delivery
documents for Inventory and Equipment acquired by any Borrower; and


 


(iv)                such other reports
as to the Collateral as Agent shall reasonably request from time to time.


 


(b)                   Nothing
contained in any Borrowing Base Certificate shall be deemed to limit, impair or
otherwise affect the rights of Agent or any Lender contained herein and in the
event of any conflict or inconsistency between the calculation of a Borrowing
Base as set forth in any Borrowing Base Certificate and as determined by Agent
in good faith, the reasonable determination of Agent shall govern and be
conclusive and binding upon Borrowers, absent manifest error.  Without limiting the foregoing, Borrowers
shall furnish to Agent any information which Agent may reasonably request regarding
the determination and calculation of any of the amounts set forth in any
Borrowing Base Certificate.


 


(c)                    If each
Borrower’s records or reports of the Collateral are prepared or maintained by
an accounting service, contractor, shipper or other agent, Borrowers hereby
irrevocably authorize such service, contractor, shipper or agent to deliver
such records, reports, and related documents to Agent and to follow Agent’s
instructions with respect to further services at any time that an Event of
Default exists or has occurred and is continuing.


 


7.2         Accounts Covenants.


 


(a)                    Borrowers
shall notify Agent promptly of: (i) any material delay in Borrower’s
performance of any of its material obligations to any account debtor or the
assertion of any material claims, offsets, defenses or counterclaims by any
account debtor, or any material disputes with account debtors, or any
settlement, adjustment or compromise thereof, (ii) all material adverse
information known to any Borrower relating to the financial condition of any
significant account debtor and (iii) any event or circumstance which, to
the best of any Borrower’s knowledge, would result in any then existing
Accounts as no longer constituting Eligible Accounts (other than as a result of
the aging of accounts which shall be reported to Agent in accordance with Section 7.1
above).  No credit, discount, allowance
or extension or agreement for any of the foregoing shall be granted to any
account debtor without Agent’s consent, except in the ordinary course of a
Borrower’s business in accordance with practices and 


 


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policies previously disclosed
in writing to Agent and except as set forth in the schedules delivered to Agent
pursuant to Section 7.1(a) above. 
So long as no Event of Default exists or has occurred and is continuing,
Borrowers may settle, adjust or compromise any claim, offset, counterclaim or
dispute with any account debtor.  At any
time that an Event of Default exists or has occurred and is continuing, Agent
may, at its option, notify Borrowers that Agent intends to have the exclusive
right to settle, adjust or compromise any claim, offset, counterclaim or
dispute with account debtors or grant any credits, discounts or allowances and
on and after such notice from Agent to Borrowers, Agent shall have such
exclusive right, until the earlier of such time as Agent may notify Borrowers
otherwise or no Event of Default shall exist or be continuing.


 


(b)                   With respect to
each Account: (i) the amounts shown on any invoice delivered to Agent from
time to time shall be true and complete (other than for de minimis errors that
occur in the ordinary course) and any schedule thereof from time to time
delivered to Agent pursuant to the terms hereof shall be true and complete
(with errors of no more than one (1%) percent of the aggregate amount of the
Accounts shown on any such schedule), (ii) no payments shall be made
thereon except payments immediately delivered to Agent pursuant to the terms of
this Agreement, (iii) no credit, discount, allowance or extension or
agreement for any of the foregoing shall be granted to any account debtor
except as reported to Agent in accordance with this Agreement and except for
credits, discounts, allowances or extensions made or given in the ordinary
course of each Borrower’s business in accordance with practices and policies
previously disclosed to Agent, (iv) there shall be no setoffs, deductions,
contras, defenses, counterclaims or disputes existing or asserted with respect
thereto except as reported to Agent in accordance with the terms of this
Agreement and (v) none of the transactions giving rise thereto will
violate any applicable foreign, Federal, State or local laws or regulations in
any material respect, all documentation relating thereto will be legally
sufficient under such laws and regulations and all such documentation will be
legally enforceable in accordance with its terms.


 


(c)                    Agent shall
have the right at any time or times but subject to reasonable intervals
consistent with Agent’s customary practices, in Agent’s name or in the name of
a nominee of Agent, to verify the validity, amount or any other matter relating
to any Receivables or other Collateral, by mail, telephone, facsimile
transmission or otherwise.


 


7.3         Inventory Covenants.  With respect to the Inventory: (a) each
Borrower shall at all times maintain inventory records, consistent with the
current practices each Borrower as of the date hereof, keeping correct and
accurate records itemizing and describing the kind, type, quality and quantity
of Inventory, such Borrower’s cost therefor and daily withdrawals therefrom and
additions thereto; (b) Borrowers shall conduct a physical count of the
Inventory at least once each year but at any time or times as Agent may request
on or after an Event of Default and for so long as the same is continuing, and
promptly following such physical inventory shall supply Agent with a report in
the form and with such specificity as may be reasonably satisfactory to Agent
concerning such physical count; (c) Borrowers shall not remove any
Inventory from the locations set forth or permitted herein, without the prior
written consent of Agent, except for sales of Inventory in the ordinary course
of its business and except to move Inventory directly from one location set
forth or permitted herein to another such location and except for Inventory
shipped from the manufacturer thereof to such Borrower which is in transit to
the locations set forth or permitted herein, provided, that, such Borrower may remove Inventory to
any locations not otherwise permitted hereunder so long as the aggregate amount
of all of such Inventory at 


 


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such other locations does not
have a Value in excess of $10,000; (d) upon Agent’s request, Borrowers
shall, at their expense, no more than one (1) time in any twelve (12)
month period, but at any time or times as Agent may request on or after an
Event of Default and for so long as the same is continuing or at any time on or
after any change in the calculation of standard costs of Inventory, deliver or
cause to be delivered to Agent written appraisals as to the Inventory in form,
scope and methodology acceptable to Agent in good faith and by an appraiser
acceptable to Agent (which includes Hilco Appraisal Services, LLC), addressed
to Agent and Lenders and upon which Agent and Lenders are expressly permitted
to rely (provided, that, any appraisal requested at such time as
an Event of Default exists or has occurred and is continuing or on and after a
change in the calculation of standard costs shall not be considered for
purposes of the limitation on the number of appraisals provided for herein); (e) Borrowers
shall produce, use, store and maintain the Inventory with all reasonable care
and caution and in accordance with applicable standards of any insurance in all
material respects and in conformity with applicable laws in all material
respects (including the requirements of the Federal Fair Labor Standards Act of
1938, as amended and all rules, regulations and orders related thereto); (f) none
of the Inventory or other Collateral constitutes farm products or the proceeds
thereof; (g) each Borrower assumes all responsibility and liability
arising from or relating to the production, use, sale or other disposition of
the Inventory; (h) Borrowers shall not sell Inventory to any customer on
approval, or any other basis which entitles the customer to return or may
obligate any Borrower to repurchase such Inventory other than the right of
customers to return defective or non-conforming goods in the ordinary course of
business; (i) Borrowers shall give Agent not less than thirty (30) days’
written notice prior to the effectiveness of any change in the method of
calculation of the standard costs of Inventory; (j) Borrowers shall keep
the Inventory generally in good and marketable condition; and (k) Borrowers
shall not, without prior written notice to Agent or the specific identification
of such Inventory in a report with respect thereto provided by Borrowers to
Agent pursuant to Section 7.1(a) hereof, acquire or accept any
Inventory on consignment or approval.


 


7.4         Equipment and Real
Property Covenants.  With respect to
the Equipment and Real Property: (a) upon Agent’s request, Borrowers
shall, at their expense, no more than one (1) time in any twelve (12)
month period, but at any time or times as Agent may request on or after an
Event of Default exists or has occurred and is continuing, deliver or cause to
be delivered to Agent written appraisals as to the Equipment and/or the Real Property
in form, scope and methodology reasonably acceptable to Agent and by an
appraiser reasonably acceptable to Agent, addressed to Agent and Lenders and
upon which Agent and Lenders are expressly permitted to rely (provided, that,
any appraisal requested at such time as an Event of Default exists or has
occurred and is continuing shall not be considered for purposes of the
limitation on the number of appraisals provided for herein); (b) Borrowers
shall keep the Equipment in good order, repair, running and marketable
condition (ordinary wear and tear excepted and except for worn-out or obsolete
Equipment or Equipment no longer used or useful in the business of Borrower); (c) Borrowers
shall use the Equipment and Real Property with all reasonable care and caution
and in accordance with applicable standards of any insurance in all material
respects and in conformity with all applicable laws in all material respects; (d) the
Equipment is and shall be used in the business of Borrowers and not for
personal, family, household or farming use; (e) Borrowers shall not remove
any Equipment from the locations set forth or permitted herein, except that
Borrowers may remove Equipment from the locations set forth or permitted
herein: (i) to the extent necessary to have any Equipment repaired or
maintained in the ordinary course 


 


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of its business or (ii) to
move Equipment directly from one location set forth or permitted herein to
another such location or (iii) to the extent such Equipment are motor
vehicles and trailers used by or for the benefit of such Borrower in the
ordinary course of business or (iv) other Equipment so long as the
aggregate amount of all of such Equipment at such other locations does not have
a value in excess of $25,000; (f) the Equipment (other than Equipment that
is a fixture) is now and shall remain personal property and Borrowers shall not
permit any of the Equipment (other than Equipment that is a fixture) to be or
become a part of or affixed to real property other than Real Property owned by
Borrowers and subject to a Mortgage (unless the Real Property has a value of
less than $100,000); and (v) neither Agent nor any Lender shall have any
responsibility or liability arising from the use of the Equipment and Real
Property.


 


7.5         Power of Attorney.  Each Borrower hereby irrevocably designates
and appoints Agent (and all persons designated by Agent) as such Borrower’s
true and lawful attorney in fact, and authorizes Agent, in such Borrower’s or
Agent’s name, to: (a) at any time an Event of Default exists or has
occurred and is continuing (i) demand payment on Receivables or other
Collateral, (ii) enforce payment of Receivables by legal proceedings or
otherwise, (iii) exercise all of such Borrower’s rights and remedies to
collect any Receivable or other Collateral, (iv) sell or assign any
Receivable upon such terms, for such amount and at such time or times as the
Agent deems advisable, (v) settle, adjust, compromise, extend or renew any
Account, (vi) discharge and release any Receivable, (vii) prepare,
file and sign each Borrower’s name on any proof of claim in bankruptcy or other
similar document against an account debtor or other obligor in respect of any
Receivables or other Collateral, (viii) notify the post office authorities
to change the address for delivery of remittances from account debtors or other
obligors in respect of Receivables or other proceeds of Collateral to an
address designated by Agent, and open and dispose of all mail addressed to each
Borrower and handle and store all mail relating to the Collateral; and (ix) do
all acts and things which are necessary, in Agent’s determination, to fulfill
each Borrower’s obligations under this Agreement and the other Financing
Agreements and (b) at any time to (i) take control in any manner of
any item of payment in respect of Receivables or constituting Collateral or
otherwise received in or for deposit in the Blocked Accounts or otherwise
received by Agent or any Lender, (ii) have access to any lockbox or postal
box into which remittances from account debtors or other obligors in respect of
Receivables or other proceeds of Collateral are sent or received, (iii) endorse
such Borrower’s name upon any items of payment in respect of Receivables or
constituting Collateral or otherwise received by Agent and any Lender and
deposit the same in Agent’s account for application to the Obligations, (iv) endorse
Borrower’s name upon any chattel paper, document, instrument, invoice, or
similar document or agreement relating to any Receivable or any goods
pertaining thereto or any other Collateral, including any warehouse or other
receipts, or bills of lading and other negotiable or non-negotiable documents, (v) clear
Inventory the purchase of which was financed with Letter of Credit
Accommodations through U.S. Customs or Customs and Excise or other foreign
export control authorities in such Borrower’s name, Agent’s name or the name of
Agent’s designee, and to sign and deliver to customs officials powers of
attorney in such Borrower’s name for such purpose, and to complete in such
Borrower’s or Agent’s name, any order, sale or transaction, obtain the
necessary documents in connection therewith and collect the proceeds thereof,
and (vi) sign such Borrower’s name on any verification of Receivables and
notices thereof to account debtors or any secondary obligors or other obligors
in respect thereof.  Each Borrower hereby
releases Agent and Lenders and their respective officers, employees and
designees from any liabilities arising from any act or acts under this power of
attorney and in furtherance thereof, whether of 


 


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omission or commission, except
as a result of Agent’s or any Lender’s own gross negligence or willful misconduct
as determined pursuant to a final non-appealable order of a court of competent
jurisdiction.


 


7.6         Right to Cure.  Agent may, at its option, upon notice to
Administrative Borrower, (a) cure any default by any Borrower under any
material agreement with a third party that affects the Collateral, its value or
the ability of Agent to collect, sell or otherwise dispose of the Collateral or
the rights and remedies of Agent or any Lender therein or the ability of any
Borrower to perform its obligations hereunder or under any of the other
Financing Agreements, at any time on or after a Default or Event of Default
exists or has occurred and is continuing, or if after giving effect to any
Reserve in respect of such default Excess Availability is or would be less than
$5,000,000; (b) pay or bond on appeal any judgment entered against
Borrower, at any time on or after a Default or Event of Default exists or has
occurred and is continuing, or if after giving effect to any Reserve in respect
of such judgment Excess Availability is or would be less than $5,000,000; (c) discharge
taxes, liens, security interests or other encumbrances at any time levied on or
existing with respect to the Collateral and pay any amount, incur any expense
or perform any act which, in Agent’s judgment, is necessary or appropriate to
preserve, protect, insure or maintain the Collateral and the rights of Agent
and Lenders with respect thereto; provided, that, Agent shall not exercise its right
pursuant to this Section 7.6(c) to discharge such taxes, liens,
security interest or other encumbrances that are permitted under Section 9.8
hereof, unless either (i) a Default or Event of Default shall exist or
have occurred and be continuing, or (ii) with respect to liens, security
interests or other encumbrances, the beneficiary or holder of such lien,
security interest or other encumbrance has the right to take action against or
with respect to the Collateral which right is not subject to an effective stay
pursuant to applicable law.  Agent may
add any amounts so expended to the Obligations and charge any Borrower’s
account therefor, such amounts to be repayable by Borrowers on demand.  Agent and Lenders shall be under no
obligation to effect such cure, payment or bonding and shall not, by doing so,
be deemed to have assumed any obligation or liability of any Borrower.  Any payment made or other action taken by
Agent under this Section shall be without prejudice to any right to assert
an Event of Default hereunder and to proceed accordingly.


 


7.7         Access to Premises.  From time to time as requested by Agent, at
the cost and expense of Borrowers, (a) Agent or its designee (or any
Lender together with Agent, at such Lender’s own expense) shall have complete
access to all of each Borrower’s premises during normal business hours and
after notice to Borrowers, or at any time and without notice to Borrowers if an
Event of Default exists or has occurred and is continuing, for the purposes of
inspecting, verifying and auditing the Collateral and all of each Borrower’s
books and records, including the Records, and (b) each Borrower shall
promptly furnish to Agent such copies of such books and records or extracts
therefrom as Agent may reasonably request, and (c) Agent or any Lender or
Agent’s designee may use during normal business hours such of any Borrower’s
personnel, equipment, supplies and premises as may be reasonably necessary for
the foregoing and if an Event of Default exists or has occurred and is
continuing for the collection of Receivables and realization of other
Collateral.


 


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SECTION 8.  REPRESENTATIONS
AND WARRANTIES


 


Each Borrower hereby represents
and warrants to Agent and Lenders the following (which shall survive the
execution and delivery of this Agreement):


 


8.1         Corporate Existence,
Power and Authority.  Each Borrower
is a corporation duly organized and in good standing under the laws of its
State or country of incorporation or organization and is duly qualified as a
foreign corporation and in good standing in all States or other jurisdictions
(domestic or foreign) where the nature and extent of the business transacted by
it or the ownership of assets makes such qualification necessary, except for
those jurisdictions in which the failure to so qualify would not have a
Material Adverse Effect and except to the extent required in connection with a
transaction permitted under Section 9.7 hereof.  The execution, delivery and performance of
this Agreement, the other Financing Agreements and the transactions
contemplated hereunder and thereunder (a) are all within each Borrower’s
corporate powers, (b) have been duly authorized, (c) are not in
contravention of law or the terms of any Borrower’s certificate of
incorporation, by-laws, or other organizational documentation, or any
indenture, agreement or undertaking to which any Borrower is a party or by
which any Borrower or its property are bound, and (d) will not result in
the creation or imposition of, or require or give rise to any obligation to
grant, any lien, security interest, charge or other encumbrance upon any
property of any Borrower except in favor of Agent pursuant to this Agreement
and the other Financing Agreements.  This
Agreement and the other Financing Agreements to which any Borrower is a party
constitute legal, valid and binding obligations of each Borrower enforceable in
accordance with their respective terms, except as such enforceability may be
limited by any applicable bankruptcy, insolvency, reorganization, moratorium,
or similar law affecting creditors’ rights generally and by general principles
of equity.


 


8.2         Name; State of
Organization; Chief Executive Office; Collateral Locations.


 


(a)                    The exact
legal name of each Borrower on the date hereof is as set forth on the signature
page of this Agreement and in the Information Certificate.  Haynes Parent has not, during the five years
prior to the date of this Agreement, been known by or used any other corporate
or fictitious name or been a party to any merger or consolidation, except as
set forth in the Information Certificate.


 


(b)                   Each Borrower
is on the date hereof an organization of the type and organized in the
jurisdiction set forth in the Information Certificate.  As of the date hereof, the Information
Certificate accurately sets forth the organizational identification number of
each Borrower or accurately states that each Borrower has none and accurately
sets forth the federal employer identification number of each Borrower.


 


(c)                    The chief
executive office and mailing address of each Borrower and each Borrower’s
Records concerning Accounts are located only at the addresses identified as
such in Schedule 8.2 to the Information Certificate and its only other places
of business and the only other locations of Collateral, if any, are the addresses
set forth in Schedule 8.2 to the Information Certificate, subject to the rights
of any Borrower to establish new locations in accordance with Section 9.2
below.  As of the date hereof, the
Information Certificate correctly identifies any of 


 


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such locations which are not
owned by a Borrower and sets forth the owners and/or operators thereof.


 


8.3         Financial Statements;
No Material Adverse Change.  All
financial statements relating to any Borrower which have been or may hereafter
be delivered by any Borrower to Agent and Lenders have been prepared in
accordance with GAAP (except as to any interim financial statements, to the
extent such statements are subject to normal year end adjustments and do not
include any notes) and fairly present in all material respects the financial
condition and the results of operation of such Borrower as at the dates and for
the periods set forth therein.  Except as
disclosed in any interim financial statements furnished by Borrowers to Agent
or otherwise disclosed by Borrowers to Agent in writing, in each case prior to
the date of this Agreement, there has been no act, condition or event which has
had or is reasonably likely to have a Material Adverse Effect since the date of
the most recent audited financial statements of each Borrower furnished by each
Borrower to Agent prior to the date of this Agreement.


 


8.4         Priority of Liens;
Title to Properties.  The security
interests and liens granted to Agent under this Agreement and the other
Financing Agreements constitute valid and perfected first priority liens and
security interests in and upon the Collateral subject as to priority only to the liens
indicated on Schedule 8.4 to the Information Certificate and the
other liens permitted under Section 9.8 hereof to the extent such liens
may have priority under applicable law and except to the extent that Agent does
not require such perfection or priority. 
Each Borrower has good and marketable fee simple title to or valid
leasehold interests in all of its Real Property (subject to the effects on such
title being marketable of a Mortgage on such Real Property) and good, valid and
merchantable title to all of its other properties and assets subject to no
liens, mortgages, pledges, security interests, encumbrances or charges of any
kind, except those granted to Agent and such others as are specifically listed
on Schedule 8.4 to the Information Certificate or permitted under Section 9.8
hereof.


 


8.5         Tax Returns.  Each Borrower has filed, or caused to be
filed, in a timely manner all Federal and other material tax returns, reports
and declarations which are required to be filed by it.  All information in such tax returns, reports
and declarations is complete and accurate in all material respects.  Each Borrower has paid or caused to be paid
all material taxes due and payable or claimed due and payable in any assessment
received by it, except taxes the validity of which are being contested in good
faith by appropriate proceedings diligently pursued and available to such
Borrower and with respect to which adequate reserves have been set aside on its
books to the extent required by GAAP; provided, that,
Borrowers shall pay or cause to be paid such taxes as otherwise required under
the terms of its arrangements with the taxing authority to whom such taxes are
owed or other Governmental Authority responsible for the administration of the
collection of such taxes.  Adequate
provision has been made for the payment of all material accrued and unpaid
Federal, State, county, local, foreign and other taxes whether or not yet due
and payable and whether or not disputed. 
Each Borrower has collected and remitted to the appropriate tax
authority all material excise taxes and sales and/or use taxes applicable to
its business required to be collected and remitted under the laws of the United
States and each political subdivision thereof, and each of their respective
political subdivisions, including any such jurisdiction in which such Borrower
owns any Inventory or owns or leases any other property; provided, that,
Borrowers shall pay or cause to be paid such taxes as otherwise required 


 


73

















 


under the terms of its
arrangements with the taxing authority to whom such taxes are owed or other
Governmental Authority responsible for the administration of the collection of
such taxes.


 


8.6         Litigation.  Except as set forth on Schedule 8.6 to the
Information Certificate, (a) there is no investigation by any Governmental
Authority pending, or to the best of any Borrower’s knowledge threatened,
against or affecting any Borrower, or its assets or business and (b) there
is no action, suit, proceeding or claim by any Person pending, or to the best
of any Borrower’s knowledge threatened, against any Borrower or its assets, or
against or affecting any transactions contemplated by this Agreement, in each
case as to clauses (a) and (b), which has or could reasonably be expected
to have a Material Adverse Effect.


 


8.7         Compliance with Other
Agreements and Applicable Laws.


 


(a)                    Borrowers are
not in default in any respect under, or in violation in any respect of the
terms of, any agreement, contract, instrument, lease or other commitment to
which it is a party or by which it or any of its assets are bound where such
default or violation has or could reasonably be expected to have a Material
Adverse Effect.  Borrowers are in
compliance with the requirements of all applicable laws, rules, regulations and
orders of any Governmental Authority relating to their respective businesses,
where the failure to so comply has or could reasonably be expected to have a
Material Adverse Effect.


 


(b)                   Borrowers have
obtained all material permits, licenses, approvals, consents, certificates,
orders or authorizations of any Governmental Authority required for the lawful
conduct of its business (the “Permits”). 
All of the Permits are valid and subsisting and in full force and effect
where the failure to have any such Permit has or could reasonably be expected
to have a Material Adverse Effect.  There
are no actions, claims or proceedings pending or to the best of any Borrower’s
knowledge, threatened that seek the revocation, cancellation, suspension or
modification of any of the Permits which has or could reasonably be expected to
have a Material Adverse Effect.


 


8.8         Environmental
Compliance.


 


(a)                    Except as set
forth on Schedule 8.8 to the Information Certificate, Borrowers and any
Subsidiary of any Borrower have not generated, used, stored, treated,
transported, manufactured, handled, produced or disposed of any Hazardous
Materials, on or off its premises (whether or not owned by it) in any manner
which violates in any material respect any applicable Environmental Law or
Permit, and the operations of Borrowers and each Subsidiary of any Borrower
complies in all material respects with all Environmental Laws and all Permits.


 


(b)                   Except as set
forth on Schedule 8.8 to the Information Certificate, there is no pending,
active, or to the best of any Borrower’s knowledge, threatened investigation,
proceeding, complaint, order, directive, claim, citation or notice by any
Governmental Authority or any other person with respect to any non-compliance
with or violation of the requirements of any Environmental Law or the release,
spill or discharge of any Hazardous Material or the generation, use, storage,
treatment, transportation, manufacture, handling, production or disposal of any
Hazardous Materials by Borrowers or any Subsidiary of any Borrower and there
are no 


 


74

















 


other environmental, health or
safety matters, which in any case could reasonably be expected to have a
Material Adverse Effect.


 


(c)                    Except as set
forth on Schedule 8.8 to the Information Certificate, Borrowers and their
Subsidiaries have no material liability (contingent or otherwise) in connection
with a release, spill or discharge of any Hazardous Materials or the
generation, use, storage, treatment, transportation, manufacture, handling,
production or disposal of any Hazardous Materials.


 


(d)                   Borrowers and
their Subsidiaries have all Permits required to be obtained or filed in
connection with the operations of Borrowers and such Subsidiaries under any
Environmental Law and all of such licenses, certificates, approvals or similar
authorizations and other Permits are valid and in full force and effect where
the failure to have such license, certificate, approval or similar
authorization would have a Material Adverse Effect.


 


8.9         Employee Benefits.


 


(a)                    Each Benefit
Plan is in compliance in all material respects with the applicable provisions
of ERISA, the Code and other Federal or State law.  Each Benefit Plan which is intended to
qualify under Section 401(a) of the Code has received a favorable
determination letter from the Internal Revenue Service and to the best of any
Borrower’s knowledge, nothing has occurred which would cause the loss of such
qualification.  Each Borrower and its
ERISA Affiliates have made all required contributions to any Benefit Plan subject
to Section 412 of the Code, and no application for a funding waiver or an
extension of any amortization period pursuant to Section 412 of the Code
has been made with respect to any Benefit Plan.


 


(b)                   There are no
pending, or to the best of any Borrower’s knowledge, threatened claims, actions
or lawsuits, or action by any Governmental Authority, with respect to any
Benefit Plan.  There has been no
prohibited transaction or violation of the fiduciary responsibility rules with
respect to any Benefit Plan.


 


(c)                    No ERISA Event
has occurred or is reasonably expected to occur; (i) the current value of
each Benefit Plan’s assets (determined in accordance with the assumptions used
for funding such Benefit Plan pursuant to Section 412 of the Code) are not
less than such Benefit Plan’s liabilities under Section 4001(a)(16) of
ERISA; (ii) Borrower and its ERISA Affiliates have not incurred and do not
reasonably expect to incur, any liability under Title IV of ERISA with respect
to any Benefit Plan (other than premiums due and not delinquent under Section 4007
of ERISA); (iii) Borrowers and its ERISA Affiliates have not incurred and
do not reasonably expect to incur, any liability (and no event has occurred
which, with the giving of notice under Section 4219 of ERISA, would result
in such liability) under Section 4201 or 4243 of ERISA with respect to a
Multiemployer Plan; and (iv) Borrowers and its ERISA Affiliates have not
engaged in a transaction that would be subject to Section 4069 or 4212(c) of
ERISA.


 


8.10                 Bank Accounts.  All of the deposit accounts, investment
accounts or other accounts in the name of or used by any Borrower maintained at
any bank or other financial institution are set forth on Schedule 8.10 to the
Information Certificate, subject to the right of Borrower to establish new
accounts in accordance with Section 5.2 hereof.


 


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8.11                 Intellectual
Property.  Each Borrower owns or
licenses or otherwise has the right to use all Intellectual Property necessary
in all material respects for the operation of its business.  As of the date hereof, Borrowers do not have
any Intellectual Property registered, or subject to pending applications, in
the United States Patent and Trademark Office or any similar office or agency
in the United States, any State thereof, any political subdivision thereof or
in any other country, other than those described in Schedule 8.11 to the
Information Certificate and has not granted any material licenses with respect
thereto other than as set forth in Schedule 8.11 to the Information
Certificate.  Borrowers have not received
any written notice within the immediately preceding three (3) years prior
to the date hereof that any slogan or other advertising device or other
Intellectual Property or product bearing or embodying any Intellectual Property
presently contemplated to be sold by or employed by any Borrower infringes any
patent, trademark, servicemark, tradename, copyright, license or other
intellectual property owned by any other Person presently where the matter set
forth in such written notice has not been settled by an agreement of the
parties or the written withdrawal or waiver of any claim or allegation set
forth in any such written notice and as of the date hereof, no claim or litigation
is pending or to the best of any Borrower’s knowledge, threatened against any
Borrower contesting its right to sell any such product or use any such
Intellectual Property.  Schedule 8.11 to
the Information Certificate sets forth all of the agreements or other
arrangements of each Borrower pursuant to which such Borrower has obtained a
license or other right to use any trademarks or other intellectual property
owned by another person that is material to the business of such Borrower or
affixed to or used in connection with the Inventory or any of the other
Collateral (excluding licenses for standard “off-the-shelf” commercial software
that is generally available having a replacement value of less than $25,000) as
in effect on the date hereof and the dates of the expiration of such agreements
of such Borrower as in effect on the date hereof (collectively, together with
such agreements or other arrangements as may be entered into by any Borrower
after the date hereof, collectively, the “License Agreements” and individually,
a “License Agreement”).  All trademarks
and other Intellectual Property used by any Borrower that are owned by another
person are being used all material respects in accordance with the terms of the
License Agreement applicable thereto.


 


8.12                 Subsidiaries;
Affiliates; Capitalization.


 


(a)                    As of the date
hereof, no Borrower has any direct or indirect Subsidiaries or is engaged in
any joint venture or partnership, except as set forth in Schedule 8.12 to the
Information Certificate.


 


(b)                   As of the date
hereof, each Borrower is the record and beneficial owner of all of the issued
and outstanding shares of Capital Stock of each of the Subsidiaries listed on
Schedule 8.12 to the Information Certificate as being owned by such Borrower
and there are no proxies, irrevocable or otherwise, with respect to such shares
and no equity securities of any of the Subsidiaries are or may become required
to be issued by reason of any options, warrants, rights to subscribe to, calls
or commitments of any kind or nature and there are no contracts, commitments,
understandings or arrangements by which any Subsidiary is or may become bound
to issue additional shares of it Capital Stock or securities convertible into
or exchangeable for such shares.


 


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(c)                    Each of the
direct or indirect Subsidiaries of Borrowers listed on Schedule 8.12 hereto is
inactive or dissolved and (i) does not and will not engage in any
commercial or business activity and (ii) does not own assets having a book
value of more than the US Dollar Equivalent of US$10,000, and (iii) is not
directly or indirectly, contingently or otherwise, liable in respect of any
Indebtedness or other obligations, other than (A) obligations for
franchise taxes and other customary obligations in the ordinary course directly
related to the maintenance of its existence and continued good standing as a
legal entity and (B) Indebtedness and other obligations owed to Borrowers.


 


8.13                           Labor Disputes.


 


(a)                    Set forth on
Schedule 8.13 to the Information Certificate is a list (including dates of
termination) of all collective bargaining or similar agreements between or
applicable to each Borrower and any union, labor organization or other
bargaining agent in respect of the employees any of Borrower on the date hereof.


 


(b)                   There is (i) no
significant unfair labor practice complaint pending against any Borrower or, to
the best of Borrower’s knowledge, threatened against it, before the National
Labor Relations Board (or similar Governmental Authority), and no significant
grievance or significant arbitration proceeding arising out of or under any
collective bargaining agreement is pending on the date hereof against any
Borrower or, to best of any Borrower’s knowledge, threatened against it, which,
in either case, has or could reasonably be expected to have a Material Adverse
Effect, and (ii) no significant strike, labor dispute, slowdown or stoppage is
pending against Borrower or, to the best of any Borrower’s knowledge,
threatened against any Borrower which has or could reasonably be expected to
have a Material Adverse Effect.


 


8.14                           Restrictions on
Subsidiaries.  Except for
restrictions contained in this Agreement or any other agreement with respect to
Indebtedness of any Borrower permitted hereunder as in effect on the date
hereof, there are no contractual or consensual restrictions on any Borrower or
any of its Subsidiaries, binding on any Borrower, any of its Subsidiaries or
any of their respective assets, in effect on the date hereof which prohibit or
otherwise restrict (a) the transfer of cash or other assets (i) between
any Borrower and any of its Subsidiaries or (ii) between any Subsidiaries
of any Borrower or (b) the ability of any Borrower or any of its
Subsidiaries to incur Indebtedness or grant security interests to Agent or any
Lender in the Collateral, except:


 


(i)                       restrictions
pursuant to customary provisions restricting subletting or assignment of any
lease governing any leasehold interest of any Borrower or any Subsidiary and
pursuant to anti-assignment provisions contained in contracts;


 


(ii)                    restrictions
contained in agreements governing or relating to any lien or security interest
permitted hereunder or the obligations secured thereby, provided that such
restriction, condition or prohibition relates solely to the assets or property
subject to such lien or security interest;


 


(iii)                 pursuant to
customary provisions contained in license agreements for Intellectual Property
licensed by third parties to any Borrower or any of its Subsidiaries which
restrict the sublicensing, pledge, transfer or assignment of the licensee’s
rights thereunder;


 


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(iv)                customary
restrictions on asset transfers and liens under asset sale agreements relating
solely to the assets subject to such sale or other disposition pending such
sale or other disposition; and


 


(v)                   restrictions
contained in agreements relating to any Indebtedness of Foreign Subsidiaries
permitted hereunder; provided, that such restriction or prohibition shall only
apply to the Foreign Subsidiary incurring such Indebtedness and such Foreign
Subsidiary’s assets.


 


8.15                           Material Contracts.  Schedule 8.15 to the Information Certificate
sets forth all Material Contracts to which any Borrower is a party or is bound
as of the date hereof.  Borrowers have
delivered true, correct and complete copies of such Material Contracts to Agent
on or before the date hereof.  Borrowers
are not in breach or in default in any material respect of or under any
Material Contract, except to the extent set forth on Schedule 8.15 to the
Information Certificate. Except as set forth on Schedule 8.15 to the
Information Certificate, as of the date hereof, no notice of the intention of
any other party thereto to terminate any Material Contract has been received by
or on behalf of Borrowers.


 


8.16                           Interrelated Businesses.  Borrowers make up a related
organization of entities constituting a single economic and business enterprise
so that Borrowers share an identity of interests such that any benefit received
by any one of them under this Agreement benefits the others.  Borrowers purchase or sell and supply goods
to or from or for the benefit of the others, make loans, advances and provide
other financial accommodations to or for the benefit of the other Borrowers
(including inter alia, the payment by Borrowers of creditors of the other
Borrowers and guarantees by Borrowers of indebtedness of the other Borrowers
and provide administrative, marketing, payroll and management services to or
for the benefit of the other Borrowers). 
Borrowers have the same chief executive office and certain common
officers and directors.


 


8.17                           Payable Practices;
Retention of Title.  Each Borrower
has not made any material change in its historical accounts payable practices
from those in effect immediately prior to the date hereof.


 


8.18                           Accuracy and Completeness
of Information.  All information
furnished by or on behalf of any Borrower in writing to Agent or any Lender in
connection with this Agreement or any of the other Financing Agreements or any
transaction contemplated hereby or thereby, including all information on the
Information Certificate is true and correct in all material respects on the
date as of which such information is dated or certified and does not omit any material
fact necessary in order to make such information not misleading (it being
understood that any forward-looking statement or projection shall be judged in
light of circumstances then known to, or which reasonably should have been
known to a person making such statement or projection and having the
information reasonably available to a person so situated).  No event or circumstance has occurred which
has had or could reasonably be expected to have a Material Adverse Effect,
which has not been fully and accurately disclosed to Agent in writing prior to
the date hereof.


 


8.19                           Survival of Warranties;
Cumulative.  All representations and
warranties contained in this Agreement or any of the other Financing Agreements
shall survive the execution and 


 


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delivery of this Agreement and shall be
deemed to have been made again to Agent and Lenders on the date of each
additional borrowing or other credit accommodation hereunder and shall be
conclusively presumed to have been relied on by Agent and Lenders regardless of
any investigation made or information possessed by Agent or any Lender.  The representations and warranties set forth
herein shall be cumulative and in addition to any other representations or
warranties which any Borrower shall now or hereafter give, or cause to be
given, to Agent or any Lender.


 


SECTION 9.  AFFIRMATIVE AND NEGATIVE COVENANTS


 


9.1         Maintenance of
Existence.


 


(a)                    Each Borrower
shall at all times preserve, renew and keep in full force and effect its
corporate existence and rights and franchises with respect thereto and maintain
in full force and effect all licenses, trademarks, tradenames, approvals,
authorizations, leases, contracts and Permits necessary to carry on the
business as presently conducted, except to the extent that the failure to
maintain the same does not have or could not reasonably be expected to have a
Material Adverse Effect.


 


(b)                   No Borrower
shall change its name unless each of the following conditions is satisfied: (i) Agent
shall have received not less than ten (10) Business Days’ prior written
notice from Administrative Borrower of such proposed change in its corporate
name, which notice shall accurately set forth the new name and (ii) Agent
shall have received a copy of the amendment to the Certificate of Incorporation
of such Borrower, providing for the name change certified by the Secretary of
State of the jurisdiction of incorporation or organization of such Borrower as
soon as it is available.


 


(c)                    No Borrower
shall change its chief executive office or its mailing address or
organizational identification number, if any, unless Agent shall have received
not less than ten (10) Business Days’ prior written notice from
Administrative Borrower of such proposed change, which notice shall set forth
such information with respect thereto as Agent may reasonably require and Agent
shall have received such agreements as Agent may reasonably require in
connection therewith.  No Borrower shall
change its type of organization, jurisdiction of organization or other legal
structure unless Agent shall have received not less than ten (10) Business
Days’ prior written notice from such Borrower of such proposed change, which
notice shall set forth such information with respect thereto as Agent may
require and Agent shall have received such agreements as Agent may reasonably
require in connection therewith; provided, that, in no event shall any Borrower change
its type of organization so that it is other than a registered organization or
change its jurisdiction to a jurisdiction outside the United States of America.


 


9.2         New Collateral
Locations.  Each Borrower may open
any new location within or outside of the United States, provided such Borrower
(a) gives Agent ten (10) Business Days’ prior written notice of the
intended opening of any such new location and (b) executes and delivers,
or causes to be executed and delivered, to Agent such agreements, documents,
and instruments as Agent may deem reasonably necessary or desirable to protect
its interests in the Collateral at such location.


 


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9.3         Compliance with Laws,
Regulations, Etc.


 


(a)          Each Borrower shall, and
shall cause any Subsidiary to, at all times, comply in all material respects
with all laws, rules, regulations, licenses, approvals, orders and other
Permits applicable to it and duly observe all requirements of any foreign,
Federal, State or local Governmental Authority where the failure to so comply
or observe has or could reasonably be expected to have a Material Adverse
Effect.


 


(b)         Each Borrower shall give
written notice to Agent immediately upon any Borrower’s receipt of any notice
of, or any Borrower otherwise obtaining knowledge of, (i) the occurrence
of any event involving the release, spill or discharge of any Hazardous
Material in violation of any applicable Environmental Law or (ii) any
investigation, proceeding, complaint, order, directive, claims, citation or
notice with respect to: (A) any material non-compliance with or violation
of any Environmental Law by any Borrower or (B) any material spill or
discharge, threatened or actual, of any Hazardous Material other than in the
ordinary course of business and other than as permitted under any applicable
Environmental Law.  Unless otherwise
agreed by any Borrower and Agent, copies of all environmental surveys, audits,
assessments, feasibility studies and results of remedial investigations shall
be promptly furnished, or caused to be furnished, by Borrower to Agent.  Each Borrower shall take prompt action to
respond to any material non-compliance with any of the Environmental Laws and
shall regularly report to Agent on such response.


 


(c)          Without limiting the
generality of the foregoing, whenever Agent reasonably determines that there is
material non-compliance, or any condition which requires any action by or on
behalf of any Borrower in order to avoid any material non-compliance, with any
Environmental Law, Borrowers shall, at Agent’s reasonable request and Borrowers’
expense: (i) cause an independent environmental engineer reasonably
acceptable to Agent to conduct such tests of the site where such material
non-compliance or alleged material non-compliance with such Environmental Laws
has occurred as to such material non-compliance and prepare and deliver to
Agent a report as to such material non-compliance setting forth the results of
such tests, a proposed plan for responding to any environmental problems
described therein, and an estimate of the costs thereof and (ii) provide
to Agent a supplemental report of such engineer whenever the scope of such
material non-compliance, or such Borrower’s response thereto or the estimated
costs thereof, shall change in any material respect.


 


(d)         Each Borrower shall
indemnify and hold harmless Agent and Lenders and their respective directors,
officers, employees, agents, invitees, representatives, successors and assigns,
from and against any and all losses, claims, damages, liabilities, costs, and
expenses (including reasonable attorneys’ fees and expenses) directly or
indirectly arising out of or attributable to the use, generation, manufacture,
reproduction, storage, release, threatened release, spill, discharge, disposal
or presence of a Hazardous Material, including the costs of any required or
necessary repair, cleanup or other remedial work with respect to any property
of any Borrower and the preparation and implementation of any closure, remedial
or other required plans, except that any Borrower shall not have any obligation
under this Section 9.3(d) to indemnify a person otherwise to be
indemnified pursuant to the terms hereof with respect to a matter covered
hereby resulting solely from the gross negligence or wilful misconduct of such
indemnitee as determined pursuant to a final, non appealable order of a court
of competent 


 


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jurisdiction (but without
limiting the obligations of any Borrower as to any other person
hereunder).  All representations,
warranties, covenants and indemnifications in this Section 9.3 shall
survive the payment of the Obligations and the termination of this Agreement.


 


9.4         Payment of Taxes and
Claims.  Each Borrower shall, and
shall cause any Subsidiary to, duly pay and discharge all material taxes,
assessments, contributions and governmental charges upon or against it or its
properties or assets when due, except for taxes, assessments, contributions and
governmental changes the validity of which are being contested in good faith by
appropriate proceedings, diligently pursued and available to such Borrower or
any Subsidiary, as the case may be, and with respect to which adequate reserves
have been set aside on its books to the extent required by GAAP.


 


9.5         Insurance.  Each Borrower shall, and shall cause any
Subsidiary to, at all times, maintain with financially sound and reputable
insurers insurance with respect to the Collateral against loss or damage and
all other insurance of the kinds and in the amounts customarily insured against
or carried by corporations of established reputation engaged in the same or
similar businesses and similarly situated. 
Said policies of insurance shall be reasonably satisfactory to Agent as
to form, amount and insurer.  Borrowers
shall furnish certificates, policies or endorsements to Agent as Agent shall
reasonably require as proof of such insurance, and, if any Borrower fails to do
so, Agent is authorized, but not required, to obtain such insurance at the
expense of Borrowers.  All policies shall
provide for at least thirty (30) days prior written notice to Agent of any
cancellation or reduction of coverage and that Agent may act as attorney for
each Borrower in obtaining, and at any time an Event of Default exists or has
occurred and is continuing, adjusting, settling, amending and canceling such
insurance.  Borrowers shall cause Agent
to be named as a loss payee and an additional insured (but without any
liability for any premiums) as applicable under such insurance policies (other
than business interruption insurance) and Borrowers shall obtain
non-contributory lender’s loss payable endorsements to all insurance policies
in form and substance reasonably satisfactory to Agent.  Such lender’s loss payable endorsements shall
specify that the proceeds of such insurance shall be payable to Agent as its
interests may appear and further specify that Agent and Lenders shall be paid
regardless of any act or omission by any Borrower or any of its Affiliates.
Without limiting any other rights of Agent or Lenders, any insurance proceeds
received by Agent at any time may be applied to payment of the Obligations in
accordance with the terms of Section 6.4 hereof.  Upon application of such proceeds to the
Obligations, nothing contained in this Section 9.5 shall be construed to
limit the use of any subsequent Loans for the costs of repair or replacement of
the Collateral lost or damaged resulting in the payment of such insurance
proceeds.


 


9.6         Financial Statements
and Other Information.


 


(a)          Each Borrower shall, and
shall cause any Subsidiary to, keep proper books and records in which true and
complete entries shall be made of all dealings or transactions of or in
relation to the Collateral and the business of such Borrower and its
Subsidiaries in accordance with GAAP. 
Borrowers shall promptly furnish to Agent and Lenders all such financial
and other information as Agent shall reasonably request relating to the
Collateral and the assets, business and operations of Borrowers, and Borrowers
shall notify the auditors and accountants of Borrowers that Agent is authorized
to obtain such information directly from them, provided that,



 


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so long as no Default or Event
of Default shall exist or have occurred and be continuing, and Agent shall have
otherwise received such information hereunder as it may have requested, Agent
shall not exercise its right under this Section 9.6 to contact the
accountants and auditors directly to obtain information from them not relating
to the Collateral without the prior approval of Borrowers, which approval shall
not be unreasonably withheld, conditioned or delayed.  Without limiting the foregoing, Borrowers
shall furnish or cause to be furnished to Agent, the following: (i) within
thirty (30) days after the end of each fiscal month, monthly unaudited
consolidated financial statements, and unaudited consolidating financial
statements (including in each case balance sheets, statements of income and
loss, statements of cash flow, and statements of shareholders’ equity), all in
reasonable detail, fairly presenting in all material respects the financial
position and the results of the operations of Borrowers and their Subsidiaries
as of the end of and through such fiscal month, certified to be correct by the
vice-president-finance, chief financial officer, controller, treasurer,
assistant treasurer or other appropriate financial or senior officer of
Borrowers, subject to normal year end adjustments and no footnotes and
accompanied by a compliance certificate substantially in the form of Exhibit E
hereto, along with a schedule in a form reasonably satisfactory to Agent of the
calculations used in determining, as of the end of such month, whether
Borrowers were in compliance with the covenants set forth in Sections 9.17 and
9.18 of this Agreement for such month and (ii) within ninety (90) days
after the end of each fiscal year, audited consolidated financial statements
and unaudited consolidating financial statements of Borrowers and its
Subsidiaries (including in each case balance sheets, statements of income and
loss, statements of cash flow, and statements of shareholders’ equity), and the
accompanying notes thereto, all in reasonable detail, fairly presenting in all
material respects the financial position and the results of the operations of
Borrowers and their Subsidiaries as of the end of and for such fiscal year,
together with the unqualified opinion of independent certified public
accountants with respect to the audited consolidated financial statements,
which accountants shall be an independent accounting firm selected by Borrowers
and reasonably acceptable to Agent, that such audited consolidated financial
statements have been prepared in accordance with GAAP, and present fairly in
all material respects the results of operations and financial condition of each
Borrower and its Subsidiaries as of the end of and for the fiscal year then
ended.


 


(b)         Borrowers shall promptly
notify Agent in writing of the details of (i) any loss, damage,
investigation, action, suit, proceeding or claim relating to Collateral having
a value of more than $250,000 or which could reasonably be expect to result in
a Material Adverse Effect, (ii) any Material Contract being terminated or
amended or any new Material Contract entered into (in which event Borrowers shall
provide Agent with a copy of such Material Contract), (iii) any order,
judgment or decree in excess of $100,000 shall have been entered against
Borrower or any of its or their properties or assets, (iv) any
notification of a material violation of laws or regulations received by
Borrower, (v) any ERISA Event, and (vi) the occurrence of any Default
or Event of Default.


 


(c)          Promptly after the
sending or filing thereof, Borrowers shall send to Agent copies of (i) all
public information which Borrowers or any of its Subsidiaries sends to its
security holders generally, (ii) all Form 10-K, Form 10-Q, Form 8-K,
proxy statements, all amendments and supplements thereto or equivalent reports
and registration statements which Borrowers or any of its Subsidiaries files
with the Securities Exchange Commission, any national or foreign securities
exchange or the National Association of Securities Dealers, Inc., and such



 


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other reports as Agent may
hereafter specifically identify to Borrowers that Agent will require be
provided to Agent, (iii) all press releases and (iv) all other
statements concerning material changes or developments in the business of any
Borrower made available by Borrower to the public.


 


(d)         Borrowers shall furnish
or cause to be furnished to Agent such budgets, forecasts and projections with
respect to the businesses of Borrowers as Agent may from time to time
reasonably request prepared on a basis consistent with such budgets, forecasts
and projections as are currently prepared by Borrowers, together with such
other information respecting the Collateral, as Agent may, from time to time,
reasonably request, or such other budgets, forecasts and projections with
respect to the businesses of Borrowers as Agent may otherwise require at any
time that Excess Availability is less than $5,000,000 or either a Default or
Event of Default shall exist or have occurred and be continuing or in
connection with any amendment, waiver or consent hereunder or under any of the
other Financing Agreements. Agent is hereby authorized to deliver a copy of any
financial statement or any other information relating to the business of
Borrowers to any court or other Governmental Authority or to any Lender or
Participant or prospective Lender or Participant or any Affiliate of any Lender
or Participant, subject to Section 13.5 hereof.  Each Borrower hereby irrevocably authorizes
and directs all accountants or auditors to deliver to Agent, at Borrowers’
expense, copies of the financial statements of any Borrower and any reports or
management letters prepared by such accountants or auditors on behalf of
Borrower and to disclose to Agent and Lenders such information as they may have
regarding the business of any Borrower. 
Any documents, schedules, invoices or other papers delivered to Agent or
any Lender may be destroyed or otherwise disposed of, subject to Section 13.5
hereof, by Agent or such Lender one (1) year after the same are delivered
to Agent or such Lender, except as otherwise designated by Administrative
Borrower to Agent or such Lender in writing.


 


9.7         Sale of Assets, Consolidation, Merger,
Dissolution, Etc.  Each Borrower shall not, and shall not
permit any Subsidiary to, directly or indirectly,


 


(a)          merge into or with or consolidate
with any other Person or permit any other Person to merge into or with or
consolidate with it except that any Subsidiary of any Borrower may merge with
and into or consolidate with Borrowers or any other Subsidiary of any Borrower
(in connection with a Permitted Acquisition or otherwise); provided, that, each of the
following conditions is satisfied: (i) Agent shall have received not less
than ten (10) Business Days’ prior written notice of the intention of such
Borrower or such Subsidiaries to so merge or consolidate, which notice shall
set forth in reasonable detail, the persons that are merging or consolidating,
which person will be the surviving entity, the locations of the assets of the
persons that are merging or consolidating, together with such other information
with respect to such merger or consolidation as Agent may reasonably request, (ii) as
of the effective date of the merger or consolidation and after giving effect
thereto, no Default or Event of Default shall exist or have occurred and be
continuing, (iii) Agent shall have received, true, correct and complete
copies of all material agreements, documents and instruments relating to such
merger or consolidation, including, when available, the certificate or
certificates of merger to be filed with each appropriate Secretary of State or
similar Governmental Authority, foreign or domestic (with a copy as filed
promptly after such filing), (iv) the surviving corporation shall
expressly confirm, ratify and assume the Obligations and the Financing
Agreements to which it is a party in writing, 


 


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in form and substance
reasonably satisfactory to Agent, and Borrowers shall execute and deliver such
other agreements, documents and instruments as Agent may reasonably request in
connection therewith, (v) in no event shall any Borrower merge with or
into or consolidate with, or enter into any similar transaction with, any
Foreign Subsidiary, and (vi) in the case of any such merger or
consolidation to which such Borrower is a party, (A) such Borrower shall
be the surviving corporation, and (B) in no event shall such Borrower
become liable for any Indebtedness or other obligations (contingent or
otherwise) as a result of all such mergers or consolidations in an aggregate
amount in excess of $150,000;


 


(b)         sell, issue, assign,
lease, license, transfer, abandon or otherwise dispose of any Capital Stock or
Indebtedness to any other Person or any of its assets to any other Person,
except for:


 


(i)                       sales of Inventory
in the ordinary course of business;


 


(ii)                    Indebtedness
permitted under Section 9.9,


 


(iii)                 the sale or other
disposition of Equipment (including worn out or obsolete Equipment or Equipment
no longer used or useful in the business of any Borrower or any of Subsidiary
of any Borrower) so long as such sales or other dispositions do not involve
Equipment having an aggregate fair market value in excess of $500,000 for all
such Equipment disposed of in any fiscal year of Borrower or as Agent may
otherwise agree,


 


(iv)                the issuance and
sale by any Borrower or any of Subsidiary of Borrower of Capital Stock (as
payment of consideration for a Permitted Acquisition or otherwise) of such
Borrower or any of Subsidiary of such Borrower after the date hereof; provided, that,
as to any such issuance and sale to Persons other than the Permitted Holders as
of the date hereof, each of the following conditions is satisfied: (A) Agent
shall have received not less than ten (10) Business Days’ prior written
notice of such issuance and sale by such Borrower or such Subsidiary of such
Borrower, as the case may be, which notice shall specify the parties to whom
such shares are to be sold, the terms of such sale, the number of shares to be
issued and sold, the total amount which it is anticipated will be realized from
the issuance and sale of such stock, the net cash proceeds which it is
anticipated will be received by such Borrower or any of Subsidiary of Borrower,
as the case may be from such sale, together with such other information with
respect thereto as Agent may in good faith request, (B) such Borrower or
any of Subsidiary of Borrower shall not be required to pay any cash dividends
or repurchase or redeem such Capital Stock or make any other payments in
respect thereof, except as otherwise permitted in Section 9.11 hereof, (C) the
terms of such Capital Stock, and the terms and conditions of the purchase and
sale thereof, shall not include any terms that include any limitation on the
right of any Borrower to request or receive Loans or Letter of Credit
Accommodations or the right of any Borrower to amend or modify any of the terms
and conditions of this Agreement or any of the other Financing Agreements or
are more restrictive or burdensome to any Borrower than the terms of any
Capital Stock in effect on the date hereof, (D) except as Agent may
otherwise agree in writing, and other than for the issuance of Capital Stock as
payment of consideration for a Permitted Acquisition, all of the proceeds of
the sale and issuance of such Capital Stock shall be remitted to Agent for
application to the principal amount of the Obligations and such other
Obligations then due and payable, in such order and manner as Agent may
determine (without 


 


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any permanent reduction in the
Commitments, but without limitation of any rights of Agent or Lenders at any
time that a Default or Event of Default shall exist or have occurred and be
continuing) and (E) as of the date of such issuance and sale and after
giving effect thereto, no Default or Event of Default shall exist or have
occurred and be continuing,


 


(v)                   the issuance of
Capital Stock of any Borrower consisting of common stock pursuant to an
employee stock option, restricted stock award or grant or similar equity plan
or 401(k) plans of such Borrower for the benefit of its employees,
directors and consultants; provided, that, in no event shall
such Borrower be required to issue, or shall such Borrower issue, Capital Stock
pursuant to such stock plans or 401(k) plans which would result in a
Change of Control or other Event of Default,


 


(vi)                the licensing by
any Borrower of Intellectual Property owned by it to a Subsidiary of any
Borrower that is wholly-owned by it or by it and its subsidiaries other than
for director qualifying shares of up to two (2%) percent thereof; provided, that,
as to any such license: (A) any rights of such Subsidiary shall be subject
to the rights of Agent in such Intellectual Property (including the rights of
Agent to use such Intellectual Property upon an Event of Default) under this
Agreement and as a matter of law, and (B) such license shall not impair,
hinder or otherwise adversely affect the rights of Agent,


 


(vii)             the grant by any
Borrower after the date hereof of a non-exclusive license or an exclusive
license to any Person for the use of any Intellectual Property owned by such
Borrower in the ordinary course of business consistent with the current
practices of such Borrower as of the date hereof; provided, that,
as to any such license, each of the following conditions is satisfied, (A) such
license is only for the use of Intellectual Property for the manufacture,
distribution or sale of products that Borrowers do not manufacture, distribute
or sell, (B) such licenses shall be on commercially reasonable prices and
terms in a bona fide arms’ length transactions, (C) in the case of a
non-exclusive license, the rights of the licensee shall be subject to the
rights of Agent, and in the case of any license, shall not adversely affect,
limit or restrict the rights of Agent to use any Intellectual Property of a
Borrower to sell or otherwise dispose of any Inventory or other Collateral, (D) Agent
shall have received, true, correct and complete copies of the executed license
agreement, promptly upon the execution thereof and (E) as of the date of
the grant of any such license, and after giving effect thereto, no Default or
Event of Default shall exist or have occurred and be continuing,


 


(viii)          the abandonment or
cancellation of Intellectual Property that is not material, is no longer used
or useful in any material respect in the business of any Borrower or its
Subsidiaries, and which it is not commercially reasonable to maintain, provided, that, (A) such abandonment
or cancellation shall not adversely affect the right or ability of Agent to
exercise its rights or remedies with respect to any of the Collateral or reduce
the value of the Collateral in any material respect and (B) Borrowers
shall provide prior written notice to Agent of the intention of any Borrower to
abandon or cancel such Intellectual Property,


 


(ix)                  the grant by
Haynes Parent of a non-exclusive license of the 4-High Intellectual Property to
Timet in accordance with Section 5 of the Timet Security Agreement as in
effect on the Timet Closing Date; provided, that, such license is
only for the use of the 4-High Intellectual Property to the extent required for
the titanium conversion services provided for 


 


85





















 


under the Timet Conversion
Agreement and during the time that Timet is exercising its rights of access to
the Timet Collateral in accordance with the terms of the Timet Security
Agreement;


 


(c)          wind up, liquidate or
dissolve, except that any Subsidiary listed on Schedule 8.12 hereto may wind
up, liquidate and dissolve; provided, that, each of the
following conditions is satisfied, (i) the winding up, liquidation and
dissolution of such Subsidiary shall not violate any law or any order or decree
of any court or other Governmental Authority in any material respect and shall
not conflict with or result in the breach of, or constitute a default under,
any indenture, mortgage, deed of trust, or any other agreement or instrument to
which any Borrower is a party or may be bound, (ii) such winding up,
liquidation or dissolution shall be done in accordance with the requirements of
all applicable laws and regulations, (iii) effective upon such winding up,
liquidation or dissolution, all of the assets and properties of such Subsidiary
shall be duly and validly transferred and assigned to a Borrower, free and
clear of any liens, restrictions or encumbrances other than the security
interest and liens of Agent (and Agent shall have received such evidence
thereof as Agent may require) and Agent shall have received such deeds,
assignments or other agreements as Agent may request to evidence and confirm
the transfer of such assets of such Subsidiary to a Borrower, (iv) Agent
shall have received all documents and agreements that any Borrower has filed
with any Governmental Authority or as are otherwise required to effectuate such
winding up, liquidation or dissolution, (v) no Borrower shall assume any
Indebtedness, obligations or liabilities as a result of such winding up,
liquidation or dissolution, or otherwise become liable in respect of any
obligations or liabilities of the entity that is winding up, liquidating or
dissolving, unless such Indebtedness is otherwise expressly permitted
hereunder, (vi) Agent shall have received not less than ten (10) Business
Days prior written notice of the intention of such Subsidiary to wind up,
liquidate or dissolve, and (vii) as of the date of such winding up,
liquidation or dissolution and after giving effect thereto, no Default or Event
of Default shall exist or have occurred and be continuing; or


 


(d)         agree to do any of the
foregoing.


 


9.8         Encumbrances.  Each Borrower shall not, and shall not permit
any Subsidiary to, create, incur, assume or suffer to exist any security
interest, mortgage, pledge, lien, charge or other encumbrance of any nature
whatsoever on any of its assets or properties, including the Collateral,
except:


 


(a)          the security interests
and liens of Agent for the benefit of Secured Parties;


 


(b)         liens securing the
payment of taxes, either (i) not yet overdue or the validity of which are
being contested in good faith by appropriate proceedings diligently pursued and
available to such Borrower or such Subsidiary and with respect to which
adequate reserves have been set aside on its books or (ii) identified on
Schedule 9.8 hereto;


 


(c)          non-consensual statutory
liens (other than liens securing the payment of taxes) arising in the ordinary
course of such Borrower’s or Subsidiary’s business (including such liens in
favor of landlords, warehousemen and mechanics and similar liens) to the extent
such liens secure Indebtedness or other obligations relating to claims or
liabilities which are being contested in good faith by appropriate proceedings
diligently pursued and available to such Borrower or such Subsidiary, in each
case prior to the commencement of foreclosure or other 


 


86

















 


similar proceedings and with
respect to which adequate reserves have been set aside on its books in
accordance with GAAP and other than liens identified on Schedule 9.8 hereof;


 


(d)         zoning restrictions,
easements, licenses, covenants and other restrictions affecting the use of Real
Property which do not interfere in any material respect with the use of such
Real Property or ordinary conduct of the business of such Borrower or such
Subsidiary as presently conducted thereon or materially impair the value of the
Real Property which may be subject thereto;


 


(e)          purchase money security
interests in Equipment (including Capital Leases) and purchase money mortgages
on Real Property (including Capital Leases) to secure Indebtedness permitted
under Section 9.9(b) hereof;


 


(f)            pledges and deposits
of cash by any Borrower or any Subsidiary in the ordinary course of business in
connection with workers’ compensation, unemployment insurance and other types
of social security benefits consistent with the current practices of Borrower
as of the date hereof;


 


(g)         pledges and deposits of
cash by any Borrower or any Subsidiary in the ordinary course of business with
any financial institution at which a deposit account of such Borrower or such
Subsidiary is maintained to secure obligations of such Borrower to such
financial institution in connection with such deposit account and the cash
management services provided by such financial institution for which such
deposit account is used consistent with the current practices of Borrower or
such Subsidiary as of the date hereof;


 


(h)         pledges and deposits of
cash by any Borrower or any of Subsidiary of Borrower to secure the performance
of tenders, bids, leases, trade contracts (other than for the repayment of
Indebtedness), statutory obligations, appeals and other similar obligations in
each case in the ordinary course of business of such Borrower; provided, that,
in connection with any performance bonds issued by a surety or other person,
the issuer of such bond shall not have any rights in or to, or other interest
in (whether contingent or otherwise), any of the Collateral other than the
pledges or deposits of cash and as to any pledges in respect of an appeal,
after giving effect thereto, Excess Availability is not less than $5,000,000;


 


(i)             liens or other
security interests arising from (i) operating leases and the precautionary
UCC financing statement filings in respect thereof and (ii) equipment or
other materials which are not owned by any Borrower or any Subsidiary located
on the premises of such Borrower or such Subsidiary (but not in connection
with, or as part of, the financing thereof) from time to time in the ordinary
course of business and consistent with current practices of such Borrower or
any Subsidiary of any Borrower and the precautionary UCC financing statement
filings in respect thereof;


 


(j)             judgments and other
similar liens arising in connection with court proceedings that do not
constitute an Event of Default; provided, that,
(i) such liens are being contested in good faith and by appropriate
proceedings diligently pursued, (ii) adequate reserves or other
appropriate provision, if any, as are required by GAAP have been made therefor,
(iii) a stay of enforcement of any such liens is in effect;


 


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(k)                    the security interests and
liens on assets of any Foreign Subsidiary to secure Indebtedness of such
Subsidiary permitted under Section 9.9 hereof;


 


(l)                       Intentionally
deleted;


 


(m)                 security interests and liens
granted by any Borrower or any Subsidiary to secure Indebtedness and other
obligations otherwise permitted hereunder not to exceed $50,000 so long as in
the case of security interests and liens on any assets of any Borrower, such
security interests and liens are subordinate to the security interests and
liens of Agent and are otherwise permitted under any other agreement to which
such Borrower or Subsidiary is a party or by which its assets or properties are
bound;


 


(n)                   the security interests in
and liens upon the Timet Collateral to secure the Timet Obligations granted by
Haynes Parent to Timet pursuant to the Timet Security Agreement as in effect on
the Timet Closing Date;


 


(o)                   the security interests and
liens set forth on Schedule 8.4 to the Information Certificate.


 


9.9         Indebtedness.  Each Borrower shall not, and shall not permit
any Subsidiary to, incur, create, assume, become or be liable in any manner
with respect to, or permit to exist, any Indebtedness, or guarantee, assume,
endorse, or otherwise become responsible for (directly or indirectly), the
Indebtedness, performance, obligations or dividends of any other Person,
except:


 


(a)                    the Obligations;


 


(b)                   purchase money Indebtedness
(including purchase money Capital Leases) arising after the date hereof to the
extent secured by purchase money security interests in Equipment (including
Capital Leases) and purchase money mortgages on Real Property not to exceed
$1,500,000 in the aggregate at any time outstanding so long as such security
interests and mortgages do not apply to any property of such Borrower or
Subsidiary other than the Equipment or Real Property so acquired, and the
Indebtedness secured thereby does not exceed the cost of the Equipment or Real
Property so acquired, as the case may be;


 


(c)                    Indebtedness of any Borrower
or its Subsidiaries entered into in the ordinary course of business consistent
with the current practices of such Borrower or such Subsidiary as of the date
hereof pursuant to Hedge Agreements with a party acceptable to Agent; provided, that, (i) such arrangements
are with banks or other financial institutions that have combined capital and
surplus and undivided profits of not less than $250,000,000 and are acceptable
to Agent, (ii) are not for speculative purposes and (iii) such
Indebtedness shall be unsecured, except as to obligations under Hedge
Agreements that constitute Obligations to the extent of the security interest
of Agent in the Collateral as provided herein;


 


(d)                   contingent Indebtedness of
any Borrower or any Subsidiary arising after the date hereof to reimburse the
issuer of a surety bond issued in the ordinary course of the business of such
Borrower or such Subsidiary consistent with the current practices of such
Borrower or such Subsidiary as of the date hereof required for the performance
of tenders, bids, leases, trade contracts (other than for the repayment of
Indebtedness), appeals statutory obligations and other


 


 


88





















 


similar obligations; provided, that, (i) the aggregate
amount of such contingent Indebtedness outstanding at any time shall not exceed
$100,000 and (ii) no such Indebtedness shall be incurred at any time that
a Default or Event of Default shall exist or have occurred and be continuing;


 


(e)                    Indebtedness created,
incurred, assumed or guaranteed by any Borrower or any Subsidiary in the
ordinary course of the business of such Borrower or such Subsidiary in
connection with obtaining goods, materials or services that is overdue by more
than one hundred twenty (120) days; provided, that, the aggregate amount
thereof at any time outstanding shall not exceed $100,000;


 


(f)                      the
Indebtedness of any Borrower or any of Subsidiary of Borrower arising pursuant
to loans and advances permitted under Sections 9.10(h), 9.10(i) and 9.10(k) hereof;


 


(g)                   Indebtedness of any Foreign
Subsidiary arising after the date hereof, provided, that, (i) as to any such
Indebtedness, any Borrower shall not be directly or indirectly liable (by
virtue of such Borrower being the primary obligor on, guarantor of, or
otherwise liable in any respect of such Indebtedness), and (ii) such
Indebtedness is permitted under Section 9.9 hereof;


 


(h)                   Indebtedness of Haynes UK to
the Haynes UK Pension Trustees in respect of the payment of £300,000 as a
contribution to the Haynes Pension Plan established by Haynes UK as required
under the terms of the Agreement, dated April 2, 2004, by and among Haynes
UK and the Haynes UK Pension Trustees;


 


(i)                       unsecured
Indebtedness of any Borrower or any Subsidiary arising after the date hereof to
any third person (but not to any Affiliate) pursuant to loans in cash by such
person to such Borrower or Subsidiary not to exceed $500,000 in the aggregate
as to all such Indebtedness outstanding at any time;


 


(j)                       the Timet Debt
arising pursuant to the Timet Documents as in effect on the Timet Closing Date;
provided, that, (i) the
aggregate amount of such Indebtedness shall consist of and not exceed (A) the
amount of the Timet Fee as reduced by an amount equal to $2,500,000 on November 17
of each year commencing on November 17, 2007, plus (B) the lesser of
the amount equal to $12,000,000 or the amount of the cash received by Haynes
Parent from Timet giving rise to Indebtedness evidenced by the Timet Option
Note in the event that Timet makes a loan in such amount to Haynes Parent in
accordance with the terms of Section 2.1(c) of the Timet Conversion
Agreement, as reduced by all payments in respect thereof, plus accrued and
unpaid interest thereon, if any, (C) the contingent liability of Haynes
Parent to Timet for liquidated damages as provided in Section 5.3(a)(y) of
the Timet Conversion Agreement (not to exceed $25,000,000 in the aggregate), (D) the
contingent liability of Haynes Parent to reimburse Timet under Section 5.1
of the Timet Conversion Agreement as a result of the failure of Haynes Parent
to comply with the warranty set forth in Section 6.1 of the Timet
Conversion Agreement, (E) the amount of any Termination Fee owing as a
result of a Change in Control (as defined in the Timet Conversion Agreement as
in effect on the Timet Closing Date) calculated in accordance with Section 13.2
of the Timet Conversion Agreement (not to exceed $25,000,000), and (F) the
amount of any Non-Compete Amendment Fee calculated in accordance with Section 11.2
of the Timet Conversion Agreement (not to exceed $15,000,000 in the aggregate);
(ii) Haynes Parent shall not, directly or indirectly, (A) amend,
modify, alter or change the terms of 


 


89





















 


such Indebtedness or any of the Timet
Documents (or in the case of the Timet Option Note), except, that, Haynes
Parent may, after prior written notice to Agent, amend, modify, alter or change
the terms thereof so as to extend the maturity thereof, or defer the timing of
any payments in respect thereof, or to forgive or cancel any portion of such
Indebtedness (other than pursuant to payments thereof), or to reduce the
interest rate or any fees in connection therewith, or to make any covenant less
restrictive, or (B) redeem, retire, defease, purchase or otherwise acquire
such Indebtedness, or set aside or otherwise deposit or invest any sums for
such purpose; (iii) Agent shall receive notice that Timet has exercised
its option to require additional output pounds of titanium conversion services
under Section 2.1(b) of the Timet Conversion Agreement promptly upon
the receipt of such notice by Haynes Parent and a copy of the Timet Option Note
as executed and delivered by Haynes Parent to Timet upon the execution and
delivery thereof by Haynes Parent to Timet, and (iv) Haynes Parent shall
furnish or cause to be furnished to Agent all notices or demands in connection
with such Indebtedness or otherwise under the Timet Documents either received
by Haynes Parent or on its behalf, promptly after the receipt thereof, or sent
by Haynes Parent or on its behalf, concurrently with the sending thereof, as
the case may be; and


 


(k)                    the Indebtedness set forth
on Schedule 9.9 to the Information Certificate; provided, that, (i) Borrowers or such
Subsidiary may not make payments in respect of such Indebtedness other than
regularly scheduled payments of principal and interest in accordance with the
terms of the agreement or instrument evidencing or giving rise to such
Indebtedness as in effect on the date hereof, (ii) Borrowers and such
Subsidiary shall not, directly or indirectly, (A) amend, modify, alter or
change the terms of such Indebtedness or any agreement, document or instrument
related thereto as in effect on the date hereof except, that, Borrowers and
such Subsidiary may, after prior written notice to Agent, amend, modify, alter
or change the terms thereof so as to extend the maturity thereof, or defer the
timing of any payments in respect thereof, or to forgive or cancel any portion
of such Indebtedness (other than pursuant to payments thereof), or to reduce
the interest rate or any fees in connection therewith, or to make any covenant
less restrictive, or (B) redeem, retire, defease, purchase or otherwise
acquire such Indebtedness, or set aside or otherwise deposit or invest any sums
for such purpose (other than required prepayments of Indebtedness incurred in
single asset financings in connection with the sale or other disposition of the
assets so financed provided such sale or other disposition is otherwise
permitted hereunder), and (iii) Borrowers shall furnish to Agent all
notices or demands in connection with such Indebtedness either received by any
Borrower or on its behalf, promptly after the receipt thereof, or sent by
Borrower or on its behalf, concurrently with the sending thereof, as the case
may be.


 


9.10                           Loans, Investments, Etc.  Each Borrower shall not, and shall not permit
any Subsidiary to, directly or indirectly, make any loans or advance money or
property to any person (which shall not be deemed to include Accounts arising
from the sale of goods and services in the ordinary course of business), or
invest in (by capital contribution, dividend or otherwise) or purchase or
repurchase the Capital Stock or Indebtedness or all or a substantial part of
the assets or property of any person, or form or acquire any Subsidiaries, or
agree to do any of the foregoing, except:


 


(a)                    the endorsement of
instruments for collection or deposit in the ordinary course of business;


 


90





















 


(b)                   Permitted Acquisitions;


 


(c)                    investments in cash or Cash
Equivalents; provided, that, with respect
to investments in Cash Equivalents by any 
Borrower, (i) no Loans are then outstanding, except that
notwithstanding that any Loans are outstanding, any Borrower may from time to
time in the ordinary course of business consistent with current practices as of
the date hereof (A) make deposits of cash or other immediately available
funds in operating demand deposit accounts used for disbursements to the extent
required to provide funds for amounts drawn or anticipated to be drawn shortly
on such accounts (but not more than one (1) Business Days after the date
of deposit therein), (B) cause amounts to be deposited in the Blocked
Accounts in accordance with the terms of Section 6.3 hereof and (C) make
deposits in those deposit accounts having balances of less than $50,000 up to
an aggregate amount for all such accounts of $250,000 (and in the case of the
deposit account number 08001031 at Community First Bank having a balance of not
more than $100,000 for more than five (5) consecutive days) as described
in Section 5.2(d) hereof, and (ii) the terms and conditions of Section 5.2
hereof shall have been satisfied with respect to the deposit account,
investment account or other account in which such cash or Cash Equivalents are
held to the extent required thereunder;


 


(d)                   the existing equity
investments of each Borrower and the Subsidiaries of Borrower as of the date
hereof in its Subsidiaries; provided, that, no Borrower shall have any
further obligations or liabilities to make any capital contributions or other
additional investments or other payments to or in or for the benefit of any of
such Subsidiaries;


 


(e)                    loans and advances by any
Borrower or any of its Subsidiaries to employees of such Borrower or such
Subsidiary not to exceed the principal amount of $1,000,000 in the aggregate at
any time outstanding for: (i) reasonably and necessary work-related travel
or other ordinary business expenses to be incurred by such employees in
connection with their work for such Borrower or such Subsidiary and (ii) reasonable
and necessary relocation expenses of such employees (including home mortgage
financing for relocated employees);


 


(f)                      stock or
obligations issued to any Borrower or any other Person liable in respect of the
Obligations by any Person (or the representative of such Person) in respect of
indebtedness of such Person owing to any Borrower or such obligor in connection
with the insolvency, bankruptcy, receivership or reorganization of such Person
or a composition or readjustment of the debts of such Person or in connection
with the settlement of disputes or trade payables; provided, that, to the extent that the
original of any such stock or instrument evidencing such obligations (if any)
is issued or payable to such Borrower or any other Person liable in respect of
the Obligations, it shall be promptly delivered to Agent, upon Agent’s request,
together with such stock power, assignment or endorsement by such Borrower or
such other Person as Agent may request;


 


(g)                   obligations of account
debtors to any Borrower or any of its Subsidiaries arising from Accounts which
are past due whether or not evidenced by a promissory note made by such account
debtor payable to such Borrower or such Subsidiary; provided, that, promptly upon the receipt
of the original of any such promissory note by such Borrower or any Person
liable in respect of the Obligations, such promissory note shall be endorsed to
the order of Agent by Borrower or such Person and promptly delivered to Agent
as so endorsed;


 


91





















 


(h)                   loans from time to time by
Haynes UK to a Borrower; provided, that, (i) the
Indebtedness of such Borrower to Haynes UK arising pursuant to such loans shall
be subject to, and subordinate in right of payment to, the right of Agent and
Lenders to receive the prior final payment and satisfaction in full of all of
the Obligations on terms and conditions acceptable to Agent, (ii) the
terms and conditions of such Indebtedness are set forth in the Memorandum of
Agreement between Haynes UK and such Borrower dated as of April 2, 2004 as
in effect on the date hereof, (iii) promptly upon Agent’s request, Agent
shall have received a subordination agreement, in form and substance
satisfactory to Agent, providing for the terms of the subordination in right of
payment of such Indebtedness of such Borrower to the prior final payment and
satisfaction in full of all of the Obligations, duly authorized, executed and
delivered by Haynes UK and such Borrower, (iv) promptly upon Agent’s
request, Agent shall have received a promissory note in form and substance
satisfactory to Agent evidencing the terms and conditions of such Indebtedness,
and (v) such Borrower shall not, directly or indirectly make, or be
required to make, any payments in respect of such Indebtedness prior to the end
of the then current term of this Agreement, except (A) for payments of
regularly scheduled interest in respect thereof at the rate set forth in the
Memorandum of Agreement referred to above as in effect on the date hereof and (B) for
payments of principal in respect of the Indebtedness arising pursuant to such
loans, provided, that, as to any such
payment, each of the following conditions is satisfied:  (1) Agent shall have received not less
than two (2) Business Days’ prior written notice with respect to any such
payment, (2) as of the date of any such payment and after giving effect
thereto, Excess Availability for each of the immediately preceding ten (10) consecutive
days shall have been not less than $5,000,000 and as of the date of any such
payment and after giving effect thereto, Excess Availability shall be not less
than $5,000,000 and (3) as of the date of any such payment and after
giving effect thereto, no Default or Event of Default shall exist or have
occurred and be continuing;


 


(i)                       loans or
advances of money or property by any Foreign Subsidiary to any person
(including to any Borrower or any of its Subsidiaries) after the date hereof
(except for loans or advances by Haynes UK which shall be subject to clause (h) above),
or the investment by any such Subsidiary in any person (by capital
contribution, dividend or otherwise) or in any Cash Equivalents or similar
instruments in any foreign jurisdiction after the date hereof, or the purchase
or repurchase by any such Subsidiary of the Capital Stock or Indebtedness or
all or a substantial part of the assets or property of any person after the
date hereof, or the formation or acquisition by any such Subsidiary of any
Subsidiaries after the date hereof or the agreement of any such Subsidiary to
do any of the foregoing after the date hereof; provided, that, (i) as of
the date of such loan or advance (other than any loan or advance to any
Borrower), or investment or purchase or repurchase (other than investments in
cash or Cash Equivalents or similar instruments in any foreign jurisdiction),
or the formation or acquisition of any such Subsidiary and after giving effect
thereto, no Default or Event of Default shall exist or have occurred and be
continuing, (ii) in no event shall any Borrower make, or be required to
make, any payment or incur any obligation or liability (contingent or
otherwise) in connection with any such loan or advance, or investment or
purchase or repurchase, or the formation or acquisition of such Subsidiary or
take any other action otherwise prohibited hereunder, and (iii) in the
case of any loans or advances to any Borrower, (A) the Indebtedness
arising pursuant to such loans shall be subject to, and subordinate in right of
payment to, the right of Agent and Lenders to receive the prior final payment
and satisfaction in full of all of the Obligations on terms and condition
acceptable to Agent, (B) promptly upon Agent’s request, Agent shall have
received a 


 


92





















 


subordination agreement, in form and
substance satisfactory to Agent, providing for the terms of the terms of the
subordination in right of payment of such Indebtedness of such Borrower to the
prior final payment and satisfaction in full of all of the Obligations, duly
authorized, executed and delivered by such Subsidiary and Borrower, and (C) Borrowers
shall not, directly or indirectly make, or be required to make, any payments in
respect of such Indebtedness;


 


(j)                       loans by Haynes
Parent to Haynes Wire from time to time, provided, that, (i) the
Indebtedness arising pursuant to any such loan shall not be evidenced by a
promissory note or other instrument, unless the single original of such note or
other instrument is promptly delivered to Agent upon its request to hold as
part of the Collateral, with such endorsement and/or assignment by the payee of
such note or other instrument as Agent may require, and (ii) except as
Agent may from time to time otherwise agree, as of the date of any such loan,
or the repayment of any Indebtedness arising pursuant to such loan, and in each
case after giving effect thereto, no Default or Event of Default shall exist or
have occurred and be continuing;


 


(k)                    loans by Haynes Parent to
Haynes International (China) Ltd. (“Haynes China”) for the purpose of
increasing its registered capital, provided, that, (i) an
amount equivalent to the amount of any such loan shall be promptly paid to Haynes
Parent in the form of a dividend from Haynes China, (ii) the Excess
Availability for each of the thirty (30) consecutive days immediately preceding
the date of such loan shall be greater than $25,000,000, (iii) as of the
date of such loan and for each of the thirty (30) consecutive days immediately
following the date of such loan, Excess Availability shall be greater than
$25,000,000 (it being agreed that, if a loan is made pursuant to the terms of
this clause (k) and the Excess Availability shall fail to be greater than
$25,000,000 for any of the thirty (30) consecutive days immediately following
the date of such loan, then such failure shall, automatically and without the
necessity of any further action, constitute an Event of Default), (iv) the
aggregate amount of such loans shall not exceed $5,000,000 during the term of
this Agreement, and (vii) as of the date of any such loan and after giving
effect thereto, no Default or Event of Default shall exist or have occurred and
be continuing; and


 


(l)                       the investments,
loans and advances set forth on Schedule 9.10 to the Information Certificate; provided, that,
as to such loans and advances, Borrowers shall not, directly or indirectly,
amend, modify, alter or change the terms of such loans and advances or any
agreement, document or instrument related thereto and Borrowers shall furnish
to Agent all notices or demands in connection with such loans and advances
either received by Borrowers or on its behalf, promptly after the receipt
thereof, or sent by any Borrower or on its behalf, concurrently with the
sending thereof, as the case may be.


 


9.11                           Dividends and Redemptions.  Each Borrower shall not, directly or
indirectly, declare or pay any dividends on account of any shares of class of
any Capital Stock of such Borrower now or hereafter outstanding, or set aside
or otherwise deposit or invest any sums for such purpose, or redeem, retire,
defease, purchase or otherwise acquire any shares of any class of Capital Stock
(or set aside or otherwise deposit or invest any sums for such purpose) for any
consideration or apply or set apart any sum, or make any other distribution (by
reduction of capital or otherwise) in respect of any such shares or agree to do
any of the foregoing, except that:


 


93





















 


(a)                    any Borrower may declare and
pay such dividends or redeem, retire, defease, purchase or otherwise acquire
any shares of any class of Capital Stock for consideration in the form of
shares of common stock (so long as after giving effect thereto no Change of
Control or other Default or Event of Default shall exist or occur and be
continuing);


 


(b)                   any Borrower may pay
dividends to the extent permitted in Section 9.12 below;


 


(c)                    any Subsidiary of Borrowers
may pay dividends to a Borrower; and


 


(d)                   Borrowers may pay cash
dividends in respect of its Capital Stock or purchase its Capital Stock; provided,
that, each of the following conditions is satisfied as determined by
Agent, (i) Agent shall have received from Administrative Borrower not less
than ten (10) Business Days’ written notice prior to the date of the
payment of any dividends or purchase of Capital Stock (specifying the amount to
be paid by Borrowers), (ii) such dividends and purchases shall be paid
with funds legally available therefor, (iii) such dividends and purchase
shall not violate any law or regulation or the terms of any indenture,
agreement or undertaking to which such Borrower is a party or by which such
Borrower or its or their property are bound, (iv) the Excess Availability
for each of the thirty (30) consecutive days immediately preceding the date of
such dividend payment or purchase shall be greater than $50,000,000, (v) as
of the date of such dividend payment or purchase and for each of the thirty
(30) consecutive days immediately following the date of such payment, Excess
Availability shall be greater than $50,000,000 (it being agreed that, if a
payment is made pursuant to the terms of this clause (d) and the Excess
Availability shall fail to be greater than $50,000,000 for any of the thirty
(30) consecutive days immediately following the date of such payment or
purchase, then such failure shall, automatically and without the necessity of
any further action, constitute an Event of Default), (vi) the aggregate amount
of such dividends and purchases shall not exceed $25,000,000 during any fiscal
year or $50,000,000 during the term of this Agreement, and (vii) as of the
date of any such payment or purchase and after giving effect thereto, no
Default or Event of Default shall exist or have occurred and be continuing.


 


9.12                           Transactions with Affiliates.  Each Borrower shall not, directly or
indirectly:


 


(a)                    purchase, acquire or lease
any property from, or sell, transfer or lease any property to, any officer,
director or other Affiliate of such Borrower, except in the ordinary course of
and pursuant to the reasonable requirements of such Borrower’s business and
upon fair and reasonable terms no less favorable to such Borrower than such
Borrower would obtain in a comparable arm’s length transaction with a person
that is not an Affiliate and except as to (i) loans and advances to such
Borrower permitted under Sections 9.10(h), 9.10(i) and 9.10(j) above
and (ii) licenses of Intellectual Property by such Borrower to its Subsidiaries
otherwise permitted hereunder; or


 


(b)                   make any payments (whether
by dividend, loan or otherwise) of management, consulting or other fees for
management or similar services, or of any Indebtedness owing to any officer,
employee, shareholder, director or any other Affiliate of such Borrower, except
(i) reasonable compensation and reimbursement of expenses to officers,
employees and directors in each case for or in connection with services
rendered to such Borrower in the ordinary course of business (including
existing management incentive plans) and other management and director 


 


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compensation, retention, benefit, bonus and
severance plans entered into in the ordinary course of business), and (ii) payments
in respect of any such Indebtedness to the extent permitted under Section 9.10
hereof.


 


9.13                           Compliance with ERISA.Each Borrower
shall, and shall cause each of its ERISA Affiliates, to: (a) maintain each
Benefit Plan in compliance in all material respects with the applicable
provisions of ERISA, the Code and other Federal and State law; (b) cause
each Benefit Plan which is intended to be qualified under Section 401(a) of
the Code to maintain such qualification; (c) not terminate any Pension
Plan so as to incur any material liability to the Pension Benefit Guaranty
Corporation; (d) not allow or suffer to exist any prohibited transaction
involving any Pension Plan or any trust created thereunder which would subject
such Borrower or such ERISA Affiliate to a material tax or penalty or other
material liability on prohibited transactions imposed under Section 4975
of the Code or ERISA; (e) make all required contributions to any Pension
Plan which it is obligated to pay under Section 302 of ERISA, Section 412
of the Code or the terms of such Pension Plan and make all required
contributions to any other Benefit Plan to the extent that the failure to do so
may result in liability of more than $250,000; (f) not allow or suffer to
exist any accumulated funding deficiency, whether or not waived, with respect
to any such Benefit Plan; or (g) not allow or suffer to exist any
occurrence of a reportable event or any other event or condition that presents
a material risk of an ERISA Event that results in or has a reasonable
likelihood of resulting in any liability in excess of $250,000.


 


9.14                           End of Fiscal Years; Fiscal
Quarters.  Each
Borrower shall, for financial reporting purposes, cause its, and each of its
Subsidiaries’ (a) fiscal years to end on September 30 of each year
and (b) fiscal quarters to end on December 31, March 31, June 30
and September 30 of each year.


 


9.15                           Change in Business.  Each Borrower shall not engage in any
business other than the business of any Borrower on the date hereof and any
business reasonably related, ancillary or complimentary to the business in
which such Borrower is engaged on the date hereof.


 


9.16                           Limitation of Restrictions
Affecting Subsidiaries.  Each
Borrower shall not, directly, or indirectly, create or otherwise cause or suffer
to exist any encumbrance or restriction which prohibits or limits the ability
of any Subsidiary of such Borrower to (a) pay dividends or make other
distributions or pay any Indebtedness owed to such Borrower or any Subsidiary
of such Borrower; (b) make loans or advances to any Borrower or any
Subsidiary of such Borrower, (c) transfer any of its properties or assets
to such Borrower or any Subsidiary of such Borrower; or (d) create, incur,
assume or suffer to exist any lien upon any of its property, assets or
revenues, whether now owned or hereafter acquired, other than encumbrances and
restrictions arising under (i) applicable law, (ii) this Agreement
and the other Financing Agreements, (iii) customary provisions restricting
subletting or assignment of any lease governing a leasehold interest of such
Borrower or any Subsidiary of such Borrower, (iv) customary restrictions
on dispositions of real property interests found in reciprocal easement
agreements of such Borrower or any Subsidiary of Borrower, (v) customary
restrictions in agreements for the sale of assets (to the extent such sale is
permitted hereunder) on the transfer or encumbrance of such assets during an
interim period prior to the closing of the sale of such assets, (vi) customary
restrictions in contracts that prohibit the assignment of such contract, (vii) customary
restrictions in agreements relating to 


 


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purchase money financing arrangements of
Borrower or contained in security agreements providing for the grant of a
security interest to secure other Indebtedness owing to a person that is not an
Affiliate (in each case to the extent such purchase money financing or other
Indebtedness is permitted hereunder) to the extent such restrictions restrict
the transfer of, or the granting of liens on, the property subject to such
purchase money financing arrangements or security agreements, (viii) any
agreement relating to permitted Indebtedness incurred by a Subsidiary of such
Borrower prior to the date on which such Subsidiary was acquired by such
Borrower and outstanding on such acquisition date, (ix) customary
restrictions in license agreements with respect to Intellectual Property which
restrict the sublicensing, pledge, transfer or assignment of the licensee’s
rights thereunder, (x) restrictions in agreements in existence prior to
the date hereof and the extension or continuation of contractual obligations in
existence on the date hereof; provided, that, any such encumbrances or
restrictions contained in such extension or continuation are no less favorable
to Agent and Lenders than those encumbrances and restrictions under or pursuant
to the contractual obligations so extended or continued.


 


9.17                           Intentionally deleted.


 


9.18                           Fixed Charge Coverage Ratio.  At any time that Excess Availability is less
than $25,000,000, the Fixed Charge Coverage Ratio of Borrowers and their
Subsidiaries (on a consolidated basis) determined as of the end of the month
most recently ended for which financial statements of Borrowers and their
Subsidiaries have been received by Agent shall be not less than 1.1 to 1.0 for
such month.


 


9.19                           After Acquired Real Property.  If any Borrower hereafter acquires a fee
interest in Real Property and such Real Property is adjacent to, contiguous
with or necessary or related to or used in connection with any Real Property
then subject to a Mortgage, or if such Real Property is not adjacent to,
contiguous with or related to or used in connection with such Real Property,
then if such Real Property at any location (or series of adjacent, contiguous
or related locations, and regardless of the number of parcels) has a fair
market value in an amount equal to or greater than $100,000 (or if a Default or
Event of Default exists, then regardless of the fair market value of such
assets), without limiting any other rights of Agent or any Lender, or duties or
obligations of any Borrower, promptly upon Agent’s request, such Borrower shall
execute and deliver to Agent a mortgage, deed of trust or deed to secure debt,
as Agent may determine, in form and substance substantially similar to the
Mortgages and as to any provisions relating to specific State or foreign laws
reasonably satisfactory to Agent and in form appropriate for recording in the
real estate records of the jurisdiction in which such Real Property or other
property is located granting to Agent a first and only lien and mortgage on and
security interest in such Real Property, fixtures or other property (except as
such Borrower would otherwise be permitted to incur hereunder or under the
Mortgages or as otherwise consented to in writing by Agent) and such other
agreements, documents and instruments as Agent may reasonably require in
connection therewith; provided, that, as to any such
Real Property that is not adjacent, contiguous or related to Real Property then
subject to a Mortgage, if the purchase price for such Real Property is paid
with the initial proceeds of a loan from a financial institution giving rise to
Indebtedness permitted under Section 9.9(b) hereof, then such
Borrower shall not be required to execute and deliver such mortgage, deed of
trust or deed to secure debt in favor of Agent with respect to such Real
Property.


 


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9.20                           Effect of Indebtedness of
Foreign Subsidiaries.  Each
Borrower shall not incur, create, assume, become or be liable in any manner
with respect to, or permit to exist, any Indebtedness if under the terms
thereof the occurrence of a default under or with respect to Indebtedness of a
Foreign Subsidiary shall result in, or permit any holder of any Indebtedness of
any Borrower to declare, a default under or with respect to Indebtedness of any
Borrower or cause the payment of such Indebtedness of any Borrower to be accelerated
or payable prior to its stated maturity.


 


9.21                           Costs and Expenses.  Each Borrower jointly and severally agrees to
pay to Agent on demand all of Agent’s costs, expenses, filing fees and taxes
(except to the extent Taxes may be subject to the terms of Section 6.5
hereof) paid or payable in connection with the preparation, negotiation,
execution, delivery, recording, syndication, administration, collection,
liquidation, enforcement and defense of the Obligations, Agent’s rights in the
Collateral, this Agreement, the other Financing Agreements and all other
documents related hereto or thereto, including any amendments, supplements or
consents which may hereafter be contemplated (whether or not executed) or
entered into in respect hereof and thereof, including: (a) all
out-of-pocket costs and expenses of filing or recording (including Uniform
Commercial Code financing statement filing taxes and fees, documentary taxes,
intangibles taxes and mortgage recording taxes and fees, if applicable); (b) all
reasonable out-of-pocket costs and expenses and fees for insurance premiums,
environmental audits, title insurance premiums, surveys, assessments,
engineering reports and inspections, appraisal fees and search fees,
out-of-pocket costs and expenses of remitting loan proceeds, collecting checks
and other items of payment, and establishing and maintaining the Blocked
Accounts, together with Agent’s customary charges and fees with respect
thereto; (c) charges, fees or expenses charged by any bank or issuer in
connection with the Letter of Credit Accommodations; (d) out-of-pocket
costs and expenses of preserving and protecting the Collateral; (e) costs
and expenses paid or incurred in connection with obtaining payment of the
Obligations, enforcing the security interests and liens of Agent, selling or
otherwise realizing upon the Collateral, and otherwise enforcing the provisions
of this Agreement and the other Financing Agreements or defending any claims
made or threatened against Agent or any Lender arising out of the transactions
contemplated hereby and thereby (including preparations for and consultations
concerning any such matters); (f) all reasonable out-of-pocket expenses
and costs heretofore and from time to time hereafter incurred by Agent during
the course of periodic field examinations of the Collateral and such Borrower’s
operations (it being understood that unless an Event of Default shall exist or
have occurred and be continuing, only two (2) such field examinations
shall be conducted at the expense of such Borrower in any calendar year), plus
a per diem charge at Agent’s then standard rate for Agent’s examiners in the
field and office (which rate as of the date hereof is $1,000 per person per
day); and (g) the reasonable fees and disbursements of counsel (including
legal assistants) to Agent in connection with any of the foregoing.


 


9.22                           Further Assurances.  Upon the reasonable request of Agent at any
time and from time to time, Borrowers shall promptly, at their expense, duly
execute and deliver, or cause to be duly executed and delivered, such further
agreements, documents and instruments, and do or cause to be done such further
acts as may be necessary or proper to evidence, perfect, maintain and enforce
the security interests and the priority thereof in the Collateral and to
otherwise effectuate the provisions or purposes of this Agreement or any of the
other Financing Agreements.


 


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SECTION 10.  EVENTS
OF DEFAULT AND REMEDIES


 


10.1                           Events of Default.  The occurrence or existence of any one or
more of the following events are referred to herein individually as an “Event
of Default”, and collectively as “Events of Default”:


 


(a)                    (i) any Borrower fails
to pay any Obligations when due and such failure shall continue for three (3) Business
Days or (ii) Borrower fails to perform any of the covenants contained in
Sections 9.3, 9.4, 9.13, 9.14, 9.15, 9.16 and 9.19 of this Agreement or
provisions of the other Financing Agreements covering the same matters and such
failure shall continue for ten (10) Business Days; provided, that, such ten (10) Business
Day period shall not apply in the case of any failure to observe any such
covenant which is not capable of being cured at all or (iii) any Borrower
fails to perform any of the terms, covenants, conditions or provisions
contained in this Agreement or any of the other Financing Agreements other than
those described in Sections 10.1(a)(i) and 10.1(a)(ii) above;


 


(b)                   any representation, warranty
or statement of fact made by any Borrower to Agent in this Agreement, the other
Financing Agreements or any other written agreement, schedule, confirmatory
assignment or otherwise shall when made or deemed made be false or misleading
in any material respect;


 


(c)                    any judgment for the payment
of money is rendered against any Borrower in excess of $1,000,000 in any one
case or in excess of $2,500,000 in the aggregate (to the extent not covered by
insurance where the insurer has assumed responsibility in writing for such
judgment) and shall remain undischarged or unvacated for a period in excess of
thirty (30) days or execution shall at any time not be effectively stayed, or
any judgment other than for the payment of money, or injunction, attachment,
garnishment or execution is rendered against any Borrower or any of the
Collateral having a value in excess of $1,000,000;


 


(d)                   any Borrower dissolves or
suspends or discontinues doing business;


 


(e)                    a case or proceeding under
the bankruptcy laws of the United States of America now or hereafter in effect
or under any insolvency, reorganization, receivership, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction now or hereafter
in effect (whether at law or in equity) is filed against any Borrower or all or
any part of its properties and such petition or application is not dismissed
within forty-five (45) days after the date of its filing or any Borrower shall
file any answer admitting or not contesting such petition or application or
indicates its consent to, acquiescence in or approval of, any such action or
proceeding or the relief requested is granted sooner;


 


(f)                      a case or
proceeding under the bankruptcy laws of the United States of America now or
hereafter in effect or under any insolvency, reorganization, receivership,
readjustment of debt, dissolution or liquidation law or statute of any
jurisdiction now or hereafter in effect (whether at a law or equity) is filed
by Borrower or for all or any part of its property;


 


(g)                   any default by Borrower
under any agreement, document or instrument relating to any Indebtedness for
borrowed money owing to any person other than Agent and Lenders, or any Capital
Lease, contingent Indebtedness in connection with any guarantee, letter of
credit, 


 


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indemnity or similar type of instrument in
favor of any person other than Agent and Lenders, in any case in an amount in
excess of $500,000 which default continues for more than the applicable cure
period, if any, with respect thereto, or any default by any Borrower under any
Material Contract, which default continues for more than the applicable cure
period, if any, with respect thereto;


 


(h)                   any material provision
hereof or of any of the other Financing Agreements shall for any reason cease
to be valid, binding and enforceable with respect to any party hereto or
thereto (other than Agent) in accordance with its terms, or any such party
shall challenge the enforceability hereof or thereof, or shall assert in
writing, or take any action or fail to take any action based on the assertion
that any provision hereof or of any of the other Financing Agreements has
ceased to be or is otherwise not valid, binding or enforceable in accordance
with its terms, or any security interest provided for herein or in any of the
other Financing Agreements shall cease to be a valid and perfected first
priority security interest in any of the Collateral purported to be subject
thereto (except as otherwise permitted herein or therein);


 


(i)                       an ERISA Event
shall occur which results in or could reasonably be expected to result in
liability of Borrower in an aggregate amount in excess of $250,000;


 


(j)                       any Change of
Control;


 


(k)                    the indictment by any
Governmental Authority, or as Agent may reasonably and in good faith determine,
the threatened indictment by any Governmental Authority of any Borrower of
which any Borrower or Agent receives notice, in either case, as to which there
is a reasonable possibility of an adverse determination, in the good faith
determination of Agent, under any criminal statute, or commencement or
threatened commencement of criminal or civil proceedings against such Borrower,
pursuant to which statute or proceedings the penalties or remedies sought or
available include forfeiture of (i) any of the Collateral having a value
in excess of $1,000,000 or (ii) any other property of any Borrower which
is necessary or material to the conduct of its business;


 


(l)                       there shall be
an act, condition or event that has a Material Adverse Effect after the date
hereof; or


 


(m)                 there shall be an event of
default under any of the other Financing Agreements or any event of default
under the Timet Documents.


 


10.2                           Remedies.


 


(a)                    At any time an Event of
Default exists or has occurred and is continuing, Agent and Lenders shall have
all rights and remedies provided in this Agreement, the other Financing
Agreements, the UCC and other applicable law, all of which rights and remedies
may be exercised without notice to or consent by any Borrower, except as such
notice or consent is expressly provided for hereunder or required by applicable
law.  All rights, remedies and powers
granted to Agent and Lenders hereunder, under any of the other Financing
Agreements, the UCC or other applicable law, are cumulative, not exclusive and
enforceable, in Agent’s discretion, alternatively, successively, or
concurrently on any one or more occasions, and shall include, without
limitation, the right to apply to a court of equity for an injunction to
restrain a breach or 


 


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threatened breach by any Borrower of this
Agreement or any of the other Financing Agreements.  Subject to Section 12 hereof, Agent may,
and at the direction of the Required Lenders shall, at any time or times,
proceed directly against any Borrower to collect the Obligations without prior
recourse to the Collateral.


 


(b)                   Without limiting the
foregoing, at any time an Event of Default exists or has occurred and is
continuing, Agent may, at its option, and upon the direction of the Required
Lenders, shall (i) upon notice to Administrative Borrower, accelerate the
payment of all Obligations and demand immediate payment thereof to Agent for
itself and the benefit of Lenders (provided, that, upon the
occurrence of any Event of Default described in Sections 10.1(e) and
10.1(f), all Obligations shall automatically become immediately due and payable
without such notice) and (ii) terminate the Commitments and this Agreement
(provided, that, upon the occurrence of any Event of Default described
in Sections 10.1(f) and 10.1(g), the Commitments and any other obligation
of the Agent or a Lender hereunder shall automatically terminate).


 


(c)                    Without limiting the
generality of the foregoing, at any time an Event of Default exists or has
occurred and is continuing, Agent may, in its discretion (i) with or
without judicial process or the aid or assistance of others, enter upon any
premises on or in which any of the Collateral may be located and take
possession of the Collateral or complete processing, manufacturing and repair
of all or any portion of the Collateral, to the extent permitted by law, (ii) require
any Borrower, at Borrowers’ expense, to assemble and make available to Agent
any part or all of the Collateral at any place and time designated by Agent, (iii) collect,
foreclose, receive, appropriate, setoff and realize upon any and all
Collateral, (iv) remove any or all of the Collateral from any premises on
or in which the same may be located for the purpose of effecting the sale,
foreclosure or other disposition thereof or for any other purpose, (v) sell,
lease, transfer, assign, deliver or otherwise dispose of any and all Collateral
(including entering into contracts with respect thereto, public or private
sales at any exchange, broker’s board, at any office of Agent or elsewhere) at
such prices or terms as Agent may deem reasonable, for cash, upon credit or for
future delivery, with the Agent having the right to purchase the whole or any
part of the Collateral at any such public sale, all of the foregoing being free
from any right or equity of redemption of Borrowers, which right or equity of
redemption is hereby expressly waived and released by Borrowers and/or (vi) terminate
this Agreement.  If any of the Collateral
is sold or leased by Agent upon credit terms or for future delivery, the
Obligations shall not be reduced as a result thereof until payment therefor is
finally collected by Agent.  If notice of
disposition of Collateral is required by law, ten (10) days prior notice
by Agent to Borrowers designating the time and place of any public sale or the
time after which any private sale or other intended disposition of Collateral
is to be made, shall be deemed to be reasonable notice thereof and Borrowers
waive any other notice.  In the event
Agent institutes an action to recover any Collateral or seeks recovery of any
Collateral by way of prejudgment remedy, each Borrower waives the posting of
any bond which might otherwise be required. At any time an Event of Default
exists or has occurred and is continuing, upon Agent’s request, Borrowers will
either, as Agent shall specify, furnish cash collateral to the issuer to be
used to secure and fund Agent’s reimbursement obligations to the issuer in
connection with any Letter of Credit Accommodations or furnish cash collateral
to Agent for the Letter of Credit Accommodations.  Such cash collateral shall be in the amount
equal to one hundred five (105%) percent of the amount of the Letter of Credit
Accommodations plus the amount of any fees and expenses payable in 


 


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connection therewith through the end of the
latest expiration date of such Letter of Credit Accommodations.


 


(d)                   At any time or times that an
Event of Default exists or has occurred and is continuing, Agent may, in its
discretion, enforce the rights of any Borrower against any account debtor,
secondary obligor or other obligor in respect of any of the Accounts or other
Receivables.  Without limiting the
generality of the foregoing, at any time or times that an Event of Default
exists or has occurred and is continuing, Agent may, in its discretion, at such
time or times (i) notify any or all account debtors, secondary obligors or
other obligors in respect thereof that the Receivables have been assigned to
Agent and that Agent has a security interest therein and Agent may direct any
or all accounts debtors, secondary obligors and other obligors to make payment
of Receivables directly to Agent, (ii) extend the time of payment of,
compromise, settle or adjust for cash, credit, return of merchandise or
otherwise, and upon any terms or conditions, any and all Receivables or other
obligations included in the Collateral and thereby discharge or release the
account debtor or any secondary obligors or other obligors in respect thereof
without affecting any of the Obligations, (iii) demand, collect or enforce
payment of any Receivables or such other obligations, but without any duty to
do so, and Agent and Lenders shall not be liable for any failure to collect or
enforce the payment thereof nor for the negligence of its agents or attorneys
with respect thereto and (iv) take whatever other action Agent may deem
necessary or desirable for the protection of its interests and the interests of
Lenders.  At any time that an Event of
Default exists or has occurred and is continuing, at Agent’s request, all
invoices and statements sent to any account debtor shall state that the
Accounts and such other obligations have been assigned to Agent and are payable
directly and only to Agent and Borrowers shall deliver to Agent such originals
of documents evidencing the sale and delivery of goods or the performance of
services giving rise to any Accounts as Agent may require.  In the event any account debtor returns Inventory
when an Event of Default exists or has occurred and is continuing, Borrowers
shall, upon Agent’s request, hold the returned Inventory in trust for Agent,
segregate all returned Inventory from all of its other property, dispose of the
returned Inventory solely according to Agent’s instructions, and not issue any
credits, discounts or allowances with respect thereto without Agent’s prior
written consent.


 


(e)                    To the extent that
applicable law imposes duties on Agent or any Lender to exercise remedies in a
commercially reasonable manner (which duties cannot be waived under such law),
each Borrower acknowledges and agrees that it is not commercially unreasonable
for Agent or any Lender (i) to fail to incur expenses reasonably deemed
significant by Agent or any Lender to prepare Collateral for disposition or
otherwise to complete raw material or work in process into finished goods or
other finished products for disposition, (ii) to fail to obtain third
party consents for access to Collateral to be disposed of, or to obtain or, if
not required by other law, to fail to obtain consents of any Governmental
Authority or other third party for the collection or disposition of Collateral
to be collected or disposed of, (iii) to fail to exercise collection
remedies against account debtors, secondary obligors or other persons obligated
on Collateral or to remove liens or encumbrances on or any adverse claims
against Collateral, (iv) to exercise collection remedies against account
debtors and other persons obligated on Collateral directly or through the use
of collection agencies and other collection specialists, (v) to advertise
dispositions of Collateral through publications or media of general
circulation, whether or not the Collateral is of a specialized nature, (vi) to
contact other persons, whether or not in the same business as any Borrower, for
expressions of interest in acquiring all or any portion of the 


 


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Collateral, (vii) to hire one or more
professional auctioneers to assist in the disposition of Collateral, whether or
not the collateral is of a specialized nature, (viii) to dispose of
Collateral by utilizing Internet sites that provide for the auction of assets
of the types included in the Collateral or that have the reasonable capability
of doing so, or that match buyers and sellers of assets, (ix) to dispose
of assets in wholesale rather than retail markets, (x) to disclaim
disposition warranties, (xi) to purchase insurance or credit enhancements to
insure Agent or Lenders against risks of loss, collection or disposition of
Collateral or to provide to Agent or Lenders a guaranteed return from the
collection or disposition of Collateral, or (xii) to the extent deemed
appropriate by Agent, to obtain the services of other brokers, investment
bankers, consultants and other professionals to assist Agent in the collection
or disposition of any of the Collateral. Each Borrower acknowledges that the
purpose of this Section is to provide non-exhaustive indications of what
actions or omissions by Agent or any Lender would not be commercially
unreasonable in the exercise by Agent or any Lender of remedies against the
Collateral and that other actions or omissions by Agent or any Lender shall not
be deemed commercially unreasonable solely on account of not being indicated in
this Section. Without limitation of the foregoing, nothing contained in this Section shall
be construed to grant any rights to any Borrower or to impose any duties on
Agent or Lenders that would not have been granted or imposed by this Agreement
or by applicable law in the absence of this Section.


 


(f)                      For the purpose
of enabling Agent to exercise the rights and remedies hereunder, each Borrower
hereby grants to Agent, to the extent assignable, an irrevocable, non-exclusive
license (exercisable at any time an Event of Default shall exist or have
occurred and for so long as the same is continuing) without payment of royalty
or other compensation to any Borrower, to use, assign, license or sublicense any
of the trademarks, service-marks, trade names, business names, trade styles,
designs, logos and other source of business identifiers and other Intellectual
Property and general intangibles now owned or hereafter acquired by any
Borrower, wherever the same maybe located, including in such license reasonable
access to all media in which any of the licensed items may be recorded or
stored and to all computer programs used for the compilation or printout
thereof.


 


(g)                   At any time an Event of
Default exists or has occurred and is continuing, Agent may apply the cash
proceeds of Collateral actually received by Agent from any sale, lease,
foreclosure or other disposition of the Collateral to payment of the
Obligations, in whole or in part and in accordance with the terms hereof,
whether or not then due or may hold such proceeds as cash collateral for the
Obligations.  Borrowers shall remain
liable to Agent and Lenders for the payment of any deficiency with interest at
the highest rate provided for herein and all costs and expenses of collection
or enforcement, including attorneys’ fees and expenses.


 


(h)                   Without limiting the
foregoing, upon the occurrence of a Default or an Event of Default and for so
long as the same is continuing, (i) Agent and Lenders may, at Agent’s
option, and upon the occurrence of an Event of Default at the direction of the
Required Lenders, Agent and Lenders shall, without notice, (A) cease
making Loans or arranging for Letter of Credit Accommodations or reduce the
lending formulas or amounts of Loans and Letter of Credit Accommodations
available to Borrowers and/or (B) terminate any provision of this
Agreement providing for any future Loans or Letter of Credit Accommodations to
be made by Agent and Lenders to Borrowers and (ii) Agent may, at its
option, establish such Reserves as Agent 


 


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determines, without limitation or
restriction, notwithstanding anything to the contrary contained herein.


 


SECTION 11.  JURY TRIAL WAIVER; OTHER WAIVERS AND
CONSENTS; GOVERNING LAW


 


11.1                           Governing Law; Choice of
Forum; Service of Process; Jury Trial Waiver.


 


(a)                    The validity, interpretation
and enforcement of this Agreement and the other Financing Agreements (except as
otherwise provided therein) and any dispute arising out of the relationship
between the parties hereto, whether in contract, tort, equity or otherwise,
shall be governed by the internal laws of the State of Illinois but excluding
any principles of conflicts of law or other rule of law that would cause
the application of the law of any jurisdiction other than the laws of the State
of Illinois.


 


(b)                   Borrowers and Secured
Parties each irrevocably consent and submit to the non-exclusive jurisdiction
of the Circuit Court of Cook County, Illinois and the United States District
Court for the Northern District of Illinois, whichever Agent may elect, and
waive any objection based on venue or forum non conveniens with respect to any
action instituted therein arising under this Agreement or any of the other
Financing Agreements or in any way connected with or related or incidental to
the dealings of the parties hereto in respect of this Agreement or any of the
other Financing Agreements or the transactions related hereto or thereto, in
each case whether now existing or hereafter arising, and whether in contract,
tort, equity or otherwise, and agree that any dispute with respect to any such
matters shall be heard only in the courts described above (except that Agent
and Lenders shall have the right to bring any action or proceeding against any
Borrower or its property in the courts of any other jurisdiction which Agent
deems necessary or appropriate in order to realize on the Collateral or to
otherwise enforce its rights against Borrowers or its property).


 


(c)                    Each Borrower hereby waives
personal service of any and all process upon it and consents that all such
service of process may be made by registered or certified mail (return receipt
requested) directed to its address set forth herein and service so made shall
be deemed to be completed five (5) days after the same shall have been so
deposited in the U.S. mails, or, at Agent’s option, by service upon Borrowers
in any other manner provided under the rules of any such courts.


 


(d)                   BORROWERS AND SECURED
PARTIES EACH HEREBY WAIVE ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND,
ACTION OR CAUSE OF ACTION ARISING UNDER THIS AGREEMENT OR ANY OF THE OTHER
FINANCING AGREEMENTS OR IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO
THE DEALINGS OF THE PARTIES HERETO IN RESPECT OF THIS AGREEMENT OR ANY OF THE
OTHER FINANCING AGREEMENTS OR THE TRANSACTIONS RELATED HERETO OR THERETO IN
EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER IN CONTRACT,
TORT, EQUITY OR OTHERWISE.  BORROWER AND
SECURED PARTIES EACH HEREBY AGREE AND CONSENT THAT ANY SUCH CLAIM, DEMAND,
ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND
THAT BORROWER OR ANY SECURED 


 


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PARTY MAY FILE AN ORIGINAL COUNTERPART OF
A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF
THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.


 


(e)                    Agent and Lenders shall not
have any liability to any Borrower (whether in tort, contract, equity or otherwise)
for losses suffered by such Borrower in connection with, arising out of, or in
any way related to the transactions or relationships contemplated by this
Agreement or any of the other Financing Agreements, or any act, omission or
event occurring in connection herewith, unless it is determined by a final and
non-appealable judgment or court order binding on Agent and such Lender, that
the losses were the result of acts or omissions constituting gross negligence
or willful misconduct.  Each Borrower: (i) certifies
that neither Agent, any Lender nor any representative, agent or attorney acting
for or on behalf of Agent or any Lender has represented, expressly or
otherwise, that Agent and Lenders would not, in the event of litigation, seek
to enforce any of the waivers provided for in this Agreement or any of the
other Financing Agreements and (ii) acknowledges that in entering into
this Agreement and the other Financing Agreements, Agent and Lenders are
relying upon, among other things, the waivers and certifications set forth in
this Section 11.1 and elsewhere herein and therein.


 


11.2                           Waiver of Notices.  Each Borrower hereby expressly waives demand,
presentment, protest and notice of protest and notice of dishonor with respect
to any and all instruments and chattel paper, included in or evidencing any of
the Obligations or the Collateral, and any and all other demands and notices of
any kind or nature whatsoever with respect to the Obligations, the Collateral
and this Agreement, except such as are expressly provided for herein.  No notice to or demand on any Borrower which
Agent or any Lender may elect to give shall entitle such Borrower to any other
or further notice or demand in the same, similar or other circumstances.


 


11.3                           Amendments and Waivers.


 


(a)                    Neither this Agreement nor
any other Financing Agreement nor any terms hereof or thereof may be amended,
waived, discharged or terminated unless such amendment, waiver, discharge or
termination is in writing signed by Agent and the Required Lenders or at Agent’s
option, by Agent with the authorization of the Required Lenders, and as to
amendments to any of the Financing Agreements (other than with respect to any
provision of Section 12 hereof), by Borrowers against which enforcement is
sought; except, that, no such amendment, waiver, discharge or termination
shall:


 


(i)                       reduce the
interest rate or any fees or extend the time of payment of principal, interest
or any fees or reduce the principal amount of any Loan or Letter of Credit
Accommodations, in each case without the consent of each Lender directly
affected thereby,


 


(ii)                    increase the Commitment of
any Lender over the amount thereof then in effect or provided hereunder, in
each case without the consent of the Lender directly affected thereby,


 


(iii)                 release any Collateral
(except as expressly required or permitted hereunder or under any of the other
Financing Agreements or applicable law and except as permitted under


 


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Section 12.11(b) hereof),
or release of any Guarantor, in each case, without the consent of Agent and all
of Lenders,


 


(iv)          reduce any percentage specified in the
definition of Required Lenders or change any of the provisions of any Financing
Agreement specifying the number or percentage of Lenders required to waive,
amend or modify any rights thereunder or make any determination or grant any
consent thereunder, without the consent of Agent and all of Lenders,


 


(v)           consent to the assignment or transfer
by any Borrower of any of its rights and obligations under this Agreement,
without the consent of Agent and all of Lenders,


 


(vi)          amend, modify or waive any terms of
this Section 11.3, without the consent of Agent and all of Lenders,


 


(vii)         increase the advance rates constituting
part of the Borrowing Base (other than as provided for in the definition of
such terms), amend, waive or modify any provisions of the definition of the
term “Borrowing Base” or any of the defined terms referred to in the definition
of the term Borrowing Base, in each case as to any of the foregoing if the
effect thereof increases the amount of the Borrowing Base, or increase the
sublimits with respect to Loans based on Eligible Inventory or for Letter of
Credit Accommodations, without the consent of Agent and all of Lenders,


 


(viii)        increase the Maximum Credit, the
Equipment Purchase Loan Limit, the Inventory Loan Limit or the Revolving Loan
Limit, without the consent of Agent and all Lenders,


 


(ix)           amend the definition of “Excess Availability”,
“Fixed Asset Availability” or “Pro Rata Share”, without the consent of Agent
and all of the Lenders, or


 


(x)            amend Sections 6.4(a), 12.8 or 12.11
herein, without the consent of Agent and all of the Lenders.


 


(b)   Agent and Lenders shall not, by any act,
delay, omission or otherwise be deemed to have expressly or impliedly waived
any of its or their rights, powers and/or remedies unless such waiver shall be
in writing and signed as provided herein. 
Any such waiver shall be enforceable only to the extent specifically set
forth therein.  A waiver by Agent or any
Lender of any right, power and/or remedy on any one occasion shall not be
construed as a bar to or waiver of any such right, power and/or remedy which Agent
or any Lender would otherwise have on any future occasion, whether similar in
kind or otherwise.


 


(c)   Notwithstanding anything to the contrary
contained in Section 11.3(a) above, in connection with any amendment,
waiver, discharge or termination, in the event that any Lender whose consent thereto
is required shall fail to consent or fail to consent in a timely manner (such
Lender being referred to herein as a “Non-Consenting Lender”), but the consent
of any other Lenders to such amendment, waiver, discharge or termination that
is required are obtained, if any, then Wachovia shall have the right, but not
the obligation, to purchase at any time thereafter, and upon the exercise by
Wachovia of such right, such Non-Consenting Lender shall have the obligation,
to sell, assign and transfer to Wachovia or such Eligible Transferee as 


 


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Wachovia may specify, the
Commitment of such Non-Consenting Lender and all rights and interests of such
Non-Consenting Lender pursuant thereto. 
Wachovia shall provide the Non-Consenting Lender with prior written
notice of its intent to exercise its right under this Section, which notice
shall specify on date on which such purchase and sale shall occur.  Such purchase and sale shall be pursuant to
the terms of an Assignment and Acceptance (whether or not executed by the
Non-Consenting Lender), except that on the date of such purchase and sale,
Wachovia, or such Eligible Transferee specified by Wachovia, shall pay to the
Non-Consenting Lender (except as Wachovia and such Non-Consenting Lender may
otherwise agree) the amount equal to: (i) the principal balance of the
Loans held by the Non-Consenting Lender outstanding as for the close of
business on the business day immediately preceding the effective date of such
purchase and sale, plus (ii) amounts accrued and unpaid in respect of
interest and fees payable to the Non-Consenting Lender to the effective date of
the purchase (but in no event shall the Non-Consenting Lender be deemed
entitled to any early termination fee). 
Such purchase and sale shall be effective on the date of the payment of
such amount to the Non-Consenting Lender and the Commitment of the
Non-Consenting Lender shall terminate on such date.


 


(d)   The consent of Agent shall be required for
any amendment, waiver or consent affecting the rights or duties of Agent
hereunder or under any of the other Financing Agreements, in addition to the
consent of the Lenders otherwise required by this Section and the exercise
by Agent of any of its rights hereunder with respect to Reserves or Eligible
Accounts or Eligible Inventory shall not be deemed an amendment to the advance
rates provided for purposes of this Section 11.3.


 


11.4         Waiver of Counterclaims.  Each Borrower waives all rights to interpose
any claims, deductions, setoffs or counterclaims of any nature (other then
compulsory counterclaims) in any action or proceeding with respect to this
Agreement, the Obligations, the Collateral or any matter arising therefrom or
relating hereto or thereto.


 


11.5         Indemnification.  Other than with respect to Taxes (for which
the indemnification obligations of each Borrower to Agent and Lenders are
subject to Section 6.5 hereof) each Borrower shall, jointly and severally,
indemnify and hold Agent and each Lender, and its officers, directors, agents,
employees, advisors and counsel and their respective Affiliates (each such
person being an “Indemnitee”), harmless from and against any and all losses,
claims, damages, liabilities, costs or expenses (including reasonable attorneys’
fees and expenses) imposed on, incurred by or asserted against any of them in
connection with any litigation, investigation, claim or proceeding commenced or
threatened related to the negotiation, preparation, execution, delivery,
enforcement, performance or administration of this Agreement, any other
Financing Agreements, or any undertaking or proceeding related to any of the
transactions contemplated hereby or any act, omission, event or transaction
related or attendant thereto, including amounts paid in settlement, court
costs, and the reasonable fees and expenses of counsel except that Borrowers
shall not have any obligation under this Section 11.5 to indemnify an
Indemnitee with respect to a matter covered hereby resulting from the gross
negligence or willful misconduct of such Indemnitee as determined pursuant to a
final, non-appealable judgment of a court of competent jurisdiction (but
without limiting the obligations of Borrowers as to any other Indemnitee).  To the extent that the undertaking to indemnify,
pay and hold harmless set forth in this Section may be unenforceable
because it violates any law or public policy, Borrowers shall pay the maximum
portion which it is permitted to pay under applicable 


 


106

















 


law to Agent and Lenders in
satisfaction of indemnified matters under this Section.  To the extent permitted by applicable law, no
Borrower shall assert, and each Borrower hereby waives, any claim against any
Indemnitee, on any theory of liability, for special, indirect, consequential or
punitive damages (as opposed to direct or actual damages) arising out of, in
connection with, or as a result of, this Agreement, any of the other Financing
Agreements or any undertaking or transaction contemplated hereby.  All amounts due under this Section shall
be payable upon demand. The foregoing indemnity shall survive the payment of
the Obligations and the termination or non-renewal of this Agreement.


 


11.6         Currency Indemnity.  If, for the purposes of obtaining judgment in
any court in any jurisdiction with respect to this Agreement or any of the
other Financing Agreements, it becomes necessary to convert into the currency
of such jurisdiction (the “Judgment Currency”) any amount due under this
Agreement or under any of the other Financing Agreements in any currency other
than the Judgment Currency (the “Currency Due”), then conversion shall be made
at the Exchange Rate prevailing on the Business Day before the day on which
judgment is given for the purchase of the Currency Due with the Judgment
Currency.  In the event that there is a
change in the Exchange Rate prevailing between the Business Day before the day
on which the judgment is given and the date of receipt by Agent of the amount
due, Borrowers will, on the date of receipt by Agent, pay such additional
amounts, if any, or be entitled to receive reimbursement of such amount, if
any, as may be necessary to ensure that the amount received by Agent and
Lenders on such date is the amount in the Judgment Currency which when
converted at the Exchange Rate prevailing on the date of receipt by Agent is
the amount then due under this Agreement or such other of the Financing
Agreements in the Currency Due.  If the
amount of the Currency Due which Agent is able to purchase is less than the
amount of the Currency Due originally due to it, each Borrower shall indemnify
and save Agent and Lenders harmless from and against loss or damage arising as
a result of such deficiency.  The indemnity
contained herein shall constitute an obligation separate and independent from
the other obligations contained in this Agreement and the other Financing
Agreements, shall give rise to a separate and independent cause of action,
shall apply irrespective of any indulgence granted by Agent from time to time
and shall continue in full force and effect notwithstanding any judgment or
order for a liquidated sum in respect of an amount due under this Agreement or
any of the other Financing Agreements or under any judgment or order.


 


SECTION 12.  THE AGENT


 


12.1         Appointment, Powers and Immunities.  Each Secured Party irrevocably designates,
appoints and authorizes Wachovia to act as Agent hereunder and under the other
Financing Agreements with such powers as are specifically delegated to Agent by
the terms of this Agreement and of the other Financing Agreements, together
with such other powers as are reasonably incidental thereto.  Agent (a) shall have no duties or
responsibilities except those expressly set forth in this Agreement and in the
other Financing Agreements, and shall not by reason of this Agreement or any
other Financing Agreement be a trustee or fiduciary for any Secured Party; (b) shall
not be responsible to Secured Parties for any recitals, statements,
representations or warranties contained in this Agreement or in any of the
other Financing Agreements, or in any certificate or other document referred to
or provided for in, or received by any of them under, this Agreement or any
other Financing Agreement, or for the value, validity, effectiveness,
genuineness, enforceability or sufficiency of this Agreement or any other 


 


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Financing Agreement or any
other document referred to or provided for herein or therein or for any failure
by any Borrower or any other Person to perform any of its obligations hereunder
or thereunder; and (c) shall not be responsible to Secured Parties for any
action taken or omitted to be taken by it hereunder or under any other
Financing Agreement or under any other document or instrument referred to or
provided for herein or therein or in connection herewith or therewith, except
for its own gross negligence or willful misconduct as determined by a final
non-appealable judgment of a court of competent jurisdiction.  Agent may employ agents and attorneys-in-fact
and shall not be responsible for the negligence or misconduct of any such
agents or attorneys-in-fact selected by it in good faith.  Agent may deem and treat the payee of any
note as the holder thereof for all purposes hereof unless and until the
assignment thereof pursuant to an agreement (if and to the extent permitted
herein) in form and substance satisfactory to Agent shall have been delivered
to and acknowledged by Agent.  The
designation of any Person as Documentation Agent under this Agreement shall not
create any rights in favor of it in such capacity nor subject it to any duties
or obligations in such capacity.


 


12.2         Reliance by Agent.  Agent shall be entitled to rely upon any
certification, notice or other communication (including any thereof by
telephone, telecopy, telex, telegram or cable) believed by it to be genuine and
correct and to have been signed or sent by or on behalf of the proper Person or
Persons, and upon advice and statements of legal counsel, independent
accountants and other experts selected by Agent.  As to any matters not expressly provided for
by this Agreement or any other Financing Agreement, Agent shall in all cases be
fully protected in acting, or in refraining from acting, hereunder or
thereunder in accordance with instructions given by the Required Lenders or all
of Secured Parties as is required in such circumstance, and such instructions
of such Agents and any action taken or failure to act pursuant thereto shall be
binding on all Secured Parties.


 


12.3         Events of Default.


 


(a)   Agent shall not be deemed to have knowledge
or notice of the occurrence of a Default or an Event of Default or other
failure of a condition precedent to the Loans and Letter of Credit
Accommodations hereunder, unless and until Agent has received written notice
from a Lender or Borrowers specifying such Event of Default or any unfulfilled
condition precedent, and stating that such notice is a “Notice of Default or
Failure of Condition”.  In the event that
Agent receives such a Notice of Default or Failure of Condition, Agent shall
give prompt notice thereof to the Lenders. 
Agent shall (subject to Section 12.7) take such action with respect
to any such Event of Default or failure of condition precedent as shall be
directed by the Required Lenders to the extent provided for herein; provided, that,
unless and until Agent shall have received such directions, Agent may (but
shall not be obligated to) take such action, or refrain from taking such
action, with respect to or by reason of such Event of Default or failure of
condition precedent, as it shall deem advisable in the best interest of
Lenders.  Without limiting the foregoing,
and notwithstanding the existence or occurrence and continuance of an Event of
Default or any other failure to satisfy any of the conditions precedent set
forth in Section 4 of this Agreement to the contrary, unless and until
otherwise directed by the Required Lenders, Agent may, but shall have no
obligation to, continue to make Loans and issue or cause to be issued Letter of
Credit Accommodations for the ratable account and risk of Lenders from time to
time if Agent believes making such Loans or issuing or causing to be issued
such Letter of Credit Accommodations is in the best interests of Lenders.


 


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(b)   Except with the prior written consent of
Agent, no Secured Party may assert or exercise any enforcement right or remedy
in respect of the Loans, Letter of Credit Accommodations or other Obligations,
as against any Borrower or any of the Collateral or other property of any
Borrower.


 


12.4         Wachovia in its Individual Capacity.  With respect to its Commitment and the Loans
made and Letter of Credit Accommodations issued or caused to be issued by it
(and any successor acting as Agent), so long as Wachovia shall be a Lender
hereunder, it shall have the same rights and powers hereunder as any other
Lender and may exercise the same as though it were not acting as Agent, and the
term “Lender” or “Lenders” shall, unless the context otherwise indicates,
include Wachovia in its individual capacity as Lender hereunder.  Wachovia (and any successor acting as Agent)
and its Affiliates may (without having to account therefor to any Lender) lend
money to, make investments in and generally engage in any kind of business with
Borrowers (and any of its Subsidiaries or Affiliates) as if it were not acting
as Agent, and Wachovia and its Affiliates may accept fees and other
consideration from any Borrower and any of their Subsidiaries and Affiliates
for services in connection with this Agreement or otherwise without having to
account for the same to Lenders.


 


12.5         Indemnification.  Secured Parties agree to indemnify Agent (to
the extent not reimbursed by Borrowers hereunder and without limiting any
obligations of Borrowers hereunder) ratably, in accordance with their Pro Rata
Shares, for any and all claims of any kind and nature whatsoever that may be
imposed on, incurred by or asserted against Agent (including by any Secured
Party) arising out of or by reason of any investigation in or in any way
relating to or arising out of this Agreement or any other Financing Agreement
or any other documents contemplated by or referred to herein or therein or the
transactions contemplated hereby or thereby (including the costs and expenses
that Agent is obligated to pay hereunder) or the enforcement of any of the
terms hereof or thereof or of any such other documents; provided, that, no Secured
Party shall be liable for any of the foregoing to the extent it arises from the
gross negligence or willful misconduct of the party to be indemnified as
determined by a final non-appealable judgment of a court of competent
jurisdiction.  The foregoing indemnity
shall survive the payment of the Obligations and the termination or non-renewal
of this Agreement.


 


12.6         Non-Reliance on Agent and Other
Lenders.  Each Secured Party agrees
that it has, independently and without reliance on Agent or other Secured
Party, and based on such documents and information as it has deemed
appropriate, made its own credit analysis of Borrowers and has made its own
decision to enter into this Agreement and that it will, independently and
without reliance upon Agent or any other Secured Party, and based on such documents
and information as it shall deem appropriate at the time, continue to make its
own analysis and decisions in taking or not taking action under this Agreement
or any of the other Financing Agreements. 
Agent shall not be required to keep itself informed as to the
performance or observance by any Borrower of any term or provision of this
Agreement or any of the other Financing Agreements or any other document
referred to or provided for herein or therein or to inspect the properties or
books of any Borrower.  Agent will use
reasonable efforts to provide Lenders with any information received by Agent
from any Borrower which is required to be provided to Lenders or deemed to be
requested by Lenders hereunder and with a copy of any Notice of Default or Failure
of Condition received by Agent from Borrowers or any Lender; provided, that,
Agent shall not be liable to any Lender for any failure to do so, except to the



 


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extent that such failure is
attributable to Agent’s own gross negligence or willful misconduct as
determined by a final non-appealable judgment of a court of competent
jurisdiction.  Except for notices,
reports and other documents expressly required to be furnished to Lenders by
Agent or deemed requested by Lenders hereunder, Agent shall not have any duty
or responsibility to provide any Lender with any other credit or other
information concerning the affairs, financial condition or business of any
Borrower that may come into the possession of Agent.


 


12.7         Failure to Act.  Except for action expressly required of Agent
hereunder and under the other Financing 
Agreements, Agent shall in all cases be fully justified in failing or
refusing to act hereunder and thereunder unless it shall receive further
assurances to its satisfaction from Secured Parties of their indemnification
obligations under Section 12.5 hereof against any and all liability and
expense that may be incurred by it by reason of taking or continuing to take
any such action.


 


12.8         Additional Loans.  Agent shall not make any Loans or provide any
Letter of Credit Accommodations to any Borrower on behalf of Lenders
intentionally and with actual knowledge that such Loans or Letter of Credit
Accommodations would cause the aggregate amount of the total outstanding Loans
and Letter of Credit Accommodations to such Borrower to exceed the Borrowing
Base of such Borrower, without the prior consent of all Lenders, except, that,
Agent may make such additional Loans or provide such additional Letter of
Credit Accommodations on behalf of Lenders, intentionally and with actual
knowledge that such Loans or Letter of Credit Accommodations will cause the
total outstanding Loans and Letter of Credit Accommodations to such Borrower to
exceed the Borrowing Base, as Agent may deem necessary or advisable in its
discretion; provided, that: (a) the total principal amount of the
additional Loans or additional Letter of Credit Accommodations to Borrowers
which Agent may make or provide after obtaining such actual knowledge that the
aggregate principal amount of the Loans equal or exceed the Borrowing Base,
plus the amount of Special Agent Advances made pursuant to Section 12.11(a)(ii) hereof
then outstanding, shall not exceed the aggregate amount equal to $7,500,000 and
shall not cause the total principal amount of the Loans and Letter of Credit
Accommodations to exceed the Maximum Credit and (b) no such additional
Loan or Letter of Credit Accommodation shall be outstanding more than ninety
(90) days after the date such additional Loan or Letter of Credit Accommodation
is made or issued (as the case may be), except as the Required Lenders may
otherwise agree.  Each Lender shall be
obligated to pay Agent the amount of its Pro Rata Share of any such additional
Loans or Letter of Credit Accommodations.


 


12.9         Concerning the Collateral and the
Related Financing Agreements.  Each
Secured Party authorizes and directs Agent to enter into this Agreement and the
other Financing Agreements.  Each Secured
Party agrees that any action taken by Agent or Required Lenders in accordance
with the terms of this Agreement or the other Financing Agreements and the
exercise by Agent or Required Lenders of their respective powers set forth
therein or herein, together with such other powers that are reasonably
incidental thereto, shall be binding upon all of the Secured Parties.


 


12.10       Field Audit, Examination Reports and
other Information; Disclaimer by Lenders. 
By signing this Agreement, each Lender:


 


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(a)   is deemed to have requested that Agent
furnish such Lender, promptly after it becomes available, a copy of each field
audit or examination report and report with respect to the Borrowing Base
prepared or received by Agent (each field audit or examination report and
report with respect to the Borrowing Base being referred to herein as a “Report”
and collectively, “Reports”), appraisals with respect to the Collateral and
financial statements with respect to Borrowers and its Subsidiaries received by
Agent;


 


(b)   expressly agrees and acknowledges that Agent (i) does
not make any representation or warranty as to the accuracy of any Report,
appraisal or financial statement or (ii) shall not be liable for any
information contained in any Report, appraisal or financial statement;


 


(c)   expressly agrees and acknowledges that the
Reports are not comprehensive audits or examinations, that Agent or any other
party performing any audit or examination will inspect only specific
information regarding Borrowers and will rely significantly upon Borrowers’
books and records, as well as on representations of Borrowers’ personnel; and


 


(d)   agrees to keep all Reports confidential and
strictly for its internal use in accordance with the terms of Section 13.5
hereof, and not to distribute or use any Report in any other manner.


 


12.11       Collateral Matters.


 


(a)   Agent may, at its option, from time to time,
at any time on or after an Event of Default and for so long as the same is
continuing or upon any other failure of a condition precedent to the Loans and
Letter of Credit Accommodations hereunder, make such disbursements and advances
(“Special Agent Advances”) which Agent, in its sole discretion, (i) deems
necessary or desirable either to preserve or protect the Collateral or any
portion thereof or (ii) to enhance the likelihood or maximize the amount
of repayment by Borrowers of the Loans and other Obligations; provided, that,
the aggregate principal amount of the Special Agent Advances pursuant to this
clause (ii), plus the then outstanding principal amount of the additional Loans
and Letter of Credit Accommodations which Agent may make or provide as set
forth in Section 12.8 hereof, shall not exceed the aggregate amount of
$7,500,000 or (iii) to pay any other amount chargeable to Borrowers
pursuant to the terms of this Agreement or any of the other Financing
Agreements consisting of (A) costs, fees and expenses and (B) payments
to any issuer of Letter of Credit Accommodations; provided, that,
the aggregate principal amount of the Special Agent Advances pursuant to
clauses (i), (ii) and (iii) above outstanding at any time, plus the
then outstanding amount of Loans and Letter of Credit Accommodations, shall not
exceed the Maximum Credit.  Special Agent
Advances shall be repayable on demand and together with all interest thereon
shall constitute Obligations secured by the Collateral.  Special Agent Advances shall not constitute
Loans but shall otherwise constitute Obligations hereunder.  Interest on Special Agent Advances shall be
payable at the Interest Rate then applicable to Prime Rate Loans and shall be
payable on demand.  Without limitation of
its obligations pursuant to Section 6.10, each Lender agrees that it shall
make available to Agent, upon Agent’s demand, in immediately available funds,
the amount equal to such Lender’s Pro Rata Share of each such Special Agent
Advance.  If such funds are not made
available to Agent by such Lender, such Lender shall be deemed a Defaulting
Lender and Agent shall be entitled to recover such funds, 


 


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on demand from such Lender
together with interest thereon for each day from the date such payment was due
until the date such amount is paid to Agent at the Federal Funds Rate for each
day during such period (as published by the Federal Reserve Bank of New York or
at Agent’s option based on the arithmetic mean determined by Agent of the rates
for the last transaction in overnight Federal funds arranged prior to 9:00 a.m.
(New York City time) on that day by each of the three leading brokers of
Federal funds transactions in New York City selected by Agent) and if such
amounts are not paid within three (3) days of Agent’s demand, at the
highest Interest Rate provided for in Section 3.1 hereof applicable to
Prime Rate Loans.


 


(b)   Lenders hereby irrevocably authorize Agent,
at its option and in its discretion to release any security interest in,
mortgage or lien upon, any of the Collateral (i) upon termination of the
Commitments and payment and satisfaction of all of the Obligations and delivery
of cash collateral to the extent required under Section 13.1 below, or (ii) constituting
property being sold or disposed of if Borrowers certify to Agent that the sale
or disposition is made in compliance with Section 9.7 hereof (and Agent
may rely conclusively on any such certificate, without further inquiry), or (iii) constituting
property in which any Borrower did not own an interest at the time the security
interest, mortgage or lien was granted or at any time thereafter, or (iv) having
a value in the aggregate in any twelve (12) month period of less than
$2,500,000, and to the extent Agent may release its security interest in and
lien upon any such Collateral pursuant to the sale or other disposition thereof,
such sale or other disposition shall be deemed consented to by Lenders, or (v) if
required or permitted under the terms of any of the other Financing Agreements,
including any intercreditor agreement, or (vi) approved, authorized or
ratified in writing by all of Lenders. 
Except as provided above, Agent will not release any security interest
in, mortgage or lien upon, any of the Collateral without the prior written
authorization of all of Lenders. Upon request by Agent at any time, Lenders
will promptly confirm in writing Agent’s authority to release particular types
or items of Collateral pursuant to this Section.  Nothing contained herein shall be construed
to require the consent of any party providing a Hedge Agreement or any Bank
Product Provider to any release of any Collateral or termination of security
interests in any Collateral.


 


(c)   Without any manner limiting Agent’s authority
to act without any specific or further authorization or consent by the Required
Lenders, each Lender agrees to confirm in writing, upon request by Agent, the
authority to release Collateral conferred upon Agent under this Section.  Agent shall (and is hereby irrevocably
authorized by Lenders to) execute such documents as may be necessary to
evidence the release of the security interest, mortgage or liens granted to
Agent upon any Collateral to the extent set forth above; provided,   that, (i) Agent shall not be required to
execute any such document on terms which, in Agent’s opinion, would expose
Agent to liability or create any obligations or entail any consequence other
than the release of such security interest, mortgage or liens without recourse
or warranty and (ii) such release shall not in any manner discharge,
affect or impair the Obligations or any security interest, mortgage or lien
upon (or obligations of any Borrower in respect of) the Collateral retained by
Borrowers.


 


(d)   Agent shall have no obligation whatsoever to
any Lender or any other Person to investigate, confirm or assure that the
Collateral exists or is owned by any Borrower or is cared for, protected or
insured or has been encumbered, or that any particular items of Collateral meet
the eligibility criteria applicable in respect of the Loans or Letter of Credit
Accommodations hereunder, or whether any particular reserves are appropriate,
or that the liens and security interests granted to Agent pursuant hereto or
any of the Financing Agreements or otherwise have 


 


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been properly or sufficiently
or lawfully created, perfected, protected or enforced or are entitled to any
particular priority, or to exercise at all or in any particular manner or under
any duty of care, disclosure or fidelity, or to continue exercising, any of the
rights, authorities and powers granted or available to Agent in this Agreement
or in any of the other Financing Agreements, it being understood and agreed
that in respect of the Collateral, or any act, omission or event related
thereto, subject to the other terms and conditions contained herein, Agent may
act in any manner it may deem appropriate, in its discretion, given Agent’s own
interest in the Collateral as a Lender and that Agent shall have no duty or
liability whatsoever to any other Lender.


 


12.12       Agency for Perfection.  Each Secured Party hereby appoints Agent and
each other Secured Party as agent and bailee for the purpose of perfecting the
security interests in and liens upon the Collateral of Agent in assets which,
in accordance with Article 9 of the UCC can be perfected only by
possession (or where the security interest of a secured party with possession
has priority over the security interest of another secured party) and Agent and
each Secured Party hereby acknowledges that it holds possession of any such
Collateral for the benefit of Agent as secured party.  Should any Secured Party obtain possession of
any such Collateral, such Secured Party shall notify Agent thereof, and,
promptly upon Agent’s request therefor shall deliver such Collateral to Agent
or in accordance with Agent’s instructions.


 


12.13       Successor Agent.  Agent may resign as Agent upon thirty (30)
days’ notice to Lenders and Borrowers. If Agent resigns under this Agreement,
the Required Lenders shall appoint from among the Lenders a successor agent for
Lenders.  If no successor agent is
appointed prior to the effective date of the resignation of Agent, Agent may
appoint, after consulting with Lenders and Borrowers, a successor agent from
among Lenders.  Upon the acceptance by
the Lender so selected of its appointment as successor agent hereunder, such
successor agent shall succeed to all of the rights, powers and duties of the
retiring Agent and the term “Agent” as used herein and in the other Financing
Agreements shall mean such successor agent and the retiring Agent’s
appointment, powers and duties as Agent shall be terminated.  After any retiring Agent’s resignation
hereunder as Agent, the provisions of this Section 12 shall inure to its
benefit as to any actions taken or omitted by it while it was Agent under this
Agreement.  If no successor agent has
accepted appointment as Agent by the date which is thirty (30) days after the
date of a retiring Agent’s notice of resignation, the retiring Agent’s
resignation shall nonetheless thereupon become effective and Lenders shall
perform all of the duties of Agent hereunder until such time, if any, as the
Required Lenders appoint a successor agent as provided for above.


 


SECTION 13.  TERM OF AGREEMENT; MISCELLANEOUS


 


13.1         Term.


 


(a)   This Agreement and the other Financing
Agreements shall become effective as of the date set forth on the first page hereof
and shall continue in full force and effect for a term ending on September 30,
2011 (the “Maturity Date”), unless sooner terminated pursuant to the terms
hereof.  In addition, any Borrower may
terminate this Agreement at any time upon ten (10) days prior written
notice to Agent (which notice shall be irrevocable) and, Agent may, at its
option, and shall at the direction of Required Lenders, terminate this
Agreement at any time (after giving notice to Borrowers) on or after an Event
of Default.  Upon the Maturity Date or 


 


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any other effective date of
termination of the Financing Agreements, Borrowers shall pay to Agent all
outstanding and unpaid Obligations and shall furnish cash collateral to Agent
(or at Agent’s option, a letter of credit issued for the account of any
Borrower and at Borrowers’ expense, in form and substance satisfactory to
Agent, by an issuer acceptable to Agent and payable to Agent as beneficiary) in
such amounts as Agent determines are reasonably necessary to secure Agent and
Lenders from loss, cost, damage or expense, including attorneys’ fees and
expenses, in connection with any contingent Obligations, including issued and
outstanding Letter of Credit Accommodations and checks or other payments
provisionally credited to the Obligations and/or as to which Agent or any
Lender has not yet received and indefeasible payment and any continuing
obligations of Agent or any Lender pursuant to any Deposit Account Control
Agreement.  The amount of such cash
collateral (or letter of credit, as Agent may determine) as to any Letter of
Credit Accommodations shall be in the amount equal to one hundred five (105%) percent
of the amount of the Letter of Credit Accommodations plus the amount of any
fees and expenses payable in connection therewith through the end of the latest
expiration date of such Letter of Credit Accommodations.  Such payments in respect of the Obligations
and cash collateral shall be remitted by wire transfer in Federal funds to the
Agent Payment Account or such other bank account of Agent, as Agent may, in its
discretion, designate in writing to such Borrower for such purpose.  Interest shall be due until and including the
next Business Day, if the amounts so paid by such Borrower to the Agent Payment
Account or other bank account designated by Agent are received in such bank
account later than 12:00 noon, Chicago time.


 


(b)   If for any reason this Agreement is
terminated prior to the Maturity Date, in view of the impracticality and
extreme difficulty of ascertaining actual damages and by mutual agreement of
the parties as to a reasonable calculation of Agent’s and each Lender’s lost
profits as a result thereof, Borrowers shall pay to Agent, for the account of
Lenders (in accordance with the arrangements by and among the Lenders), upon
the effective date of such termination, an early termination fee in the amount
equal to


 


	
  Amount

  	
   

  	
  Period

  
	
   

  	
   

  	
   

  
	
  (i) 1⁄2%
  of the Maximum Credit

  	
   

  	
  From the
  date hereof to and including the first anniversary of the date hereof

  
	
   

  	
   

  	
   

  
	
  (ii) 1⁄4%
  of the Maximum Credit

  	
   

  	
  From and
  after the first anniversary of the date hereof to and including the second
  anniversary of the date hereof.

  



 


Notwithstanding anything to the contrary
contained in this Section, in the event of the termination of this Agreement by
Borrowers prior to the Maturity Date and the full and final repayment in cash
of all of the Obligations and receipt by Agent of cash collateral or at its
option a letter of credit for contingent obligations in accordance with the
terms hereof with the proceeds of initial loans and advances or other financial
accommodations to Borrowers pursuant to a credit facility provided by Wachovia
Bank, National Association or its affiliates (or for which 


 


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Wachovia Bank, National Association or any of
its affiliates is acting as agent), Borrowers shall not be required to pay the
early termination fee provided for above.


 


(c)   No termination of this Agreement or the other
Financing Agreements shall relieve or discharge any Borrower of its duties,
obligations and covenants under this Agreement or the other Financing
Agreements until all Obligations have been fully and finally discharged and
paid in cash (other than contingent Obligations as to which Agent shall have
received such cash collateral, or letter of credit, as Agent may determine, as
is required pursuant to the terms hereof), and Agent’s continuing security
interest in the Collateral and the rights and remedies of Agent and Lenders
hereunder, under the other Financing Agreements and applicable law, shall
remain in effect until all such Obligations have been fully and finally
discharged and paid in cash (other than contingent Obligations as to which
Agent shall have received such cash collateral, or letter of credit, as Agent
may determine, as is required pursuant to the terms hereof).  Accordingly, each Borrower waives any rights
it may have under the UCC to demand the filing of termination statements with
respect to the Collateral and Agent shall not be required to send such
termination statements to Borrowers, or to file them with any filing office,
unless and until this Agreement shall have been terminated in accordance with
its terms and all Obligations are paid and satisfied in full in immediately
available funds (other than contingent Obligations as to which Agent shall have
received such cash collateral, or letter of credit, as Agent may determine, as
is required pursuant to the terms hereof).


 


13.2         Interpretative Provisions.


 


(a)   All terms used herein which are defined in Article 1,
Article 8 or Article 9 of the UCC shall have the meanings given
therein unless otherwise defined in this Agreement.


 


(b)   All references to the plural herein shall
also mean the singular and to the singular shall also mean the plural unless
the context otherwise requires.


 


(c)   All references to Borrowers pursuant to the
definitions set forth in the recitals hereto shall include its successors and
assigns.  All references to Agent or
Lender pursuant to the definitions set forth in the recitals hereto, or to any
other person herein, shall include their respective successors and assigns.


 


(d)   The words “hereof”, “herein”, “hereunder”, “this
Agreement” and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not any particular provision of this Agreement
and as this Agreement now exists or may hereafter be amended, modified, supplemented,
extended, renewed, restated or replaced.


 


(e)   The word “including” when used in this
Agreement shall mean “including, without limitation” and the word “will” when
used in this Agreement shall be construed to have the same meaning and effect
as the word “shall”.


 


(f)    An Event of Default shall exist or continue
or be continuing until such Event of Default is waived in accordance with Section 11.3
or is cured.  Reference herein to a
Default or Event of Default that “exists” shall only include a Default or Event
of Default, as the case may be, that has not been cured or waived in accordance
with the terms hereof, so that such Default or 


 


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Event of Default, as the case
may be, shall cease to exist and shall not be deemed to be continuing if it has
been so cured or waived.


 


(g)   All references to the term “good faith” used
herein when applicable to Agent or any Lender shall mean, notwithstanding
anything to the contrary contained herein or in the UCC, honesty-in-fact in the
conduct or transaction concerned and observance of reasonable commercial
standards of fair dealing based on how an asset-based lender with similar
rights providing a credit facility of the type set forth herein would act in
similar circumstances at the time with the information then available to
it.  All references to the term “reasonably”
as applied to any conduct or determination by Agent shall be based on how an
asset-based lender with similar rights providing a credit facility of the type
set forth herein would act in similar circumstances.


 


(h)   Any accounting term used in this Agreement
shall have, unless otherwise specifically provided herein, the meaning
customarily given in accordance with GAAP, and all financial computations hereunder
shall be computed unless otherwise specifically provided herein, in accordance
with GAAP as consistently applied and using the same method for inventory
valuation as used in the preparation of the financial statements of Borrowers
most recently received by Agent prior to the date hereof.  Notwithstanding anything to the contrary
contained in GAAP or any interpretations or other pronouncements by the
Financial Accounting Standards Board or otherwise, the term “unqualified
opinion” as used herein to refer to opinions or reports provided by accountants
shall mean an opinion or report that is not only unqualified but also does not
include any explanation, supplemental comment or other comment concerning the
ability of the applicable person to continue as a going concern or the scope of
the audit.


 


(i)    In the computation of periods of time from a
specified date to a later specified date, the word “from” means “from and
including”, the words “to” and “until” each mean “to but excluding” and the
word “through” means “to and including”.


 


(j)    Unless otherwise expressly provided herein, (i) references
herein to any agreement, document or instrument shall be deemed to include all
subsequent amendments, modifications, supplements, extensions, renewals,
restatements or replacements with respect thereto, but only to the extent the
same are not prohibited by the terms hereof or of any other Financing
Agreement, and (ii) references to any statute or regulation are to be
construed as including all statutory and regulatory provisions consolidating,
amending, replacing, recodifying, supplementing or interpreting the statute or
regulation.


 


(k)   The captions and headings of this Agreement
are for convenience of reference only and shall not affect the interpretation
of this Agreement.


 


(l)    This Agreement and other Financing
Agreements may use several different limitations, tests or measurements to
regulate the same or similar matters. 
All such limitations, tests and measurements are cumulative and shall
each be performed in accordance with their terms.


 


(m)  This Agreement and the other Financing
Agreements are the result of negotiations among and have been reviewed by
counsel to Agent and the other parties, and are 


 


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the products of all
parties.  Accordingly, this Agreement and
the other Financing Agreements shall not be construed against Agent or Lenders
merely because of Agent’s or any Lender’s involvement in their preparation.


 


(n)   From and after the date hereof (i) all payment
and indemnity obligations of the “Borrower” contained herein shall constitute
the joint and several obligations of each Borrower, and all other obligations
of the “Borrower” contained herein shall constitute obligations of each
Borrower and (ii) all references to information contained on the “Information
Certificate” shall, with respect to each Borrower, be a reference to the
Information Certificate delivered by such Borrower.


 


13.3         Notices.  All notices, requests and demands hereunder
shall be in writing and deemed to have been given or made:  if delivered in person, immediately upon
delivery; if by telex, telegram or facsimile transmission, immediately upon
sending and upon confirmation of receipt; if by nationally recognized overnight
courier service with instructions to deliver the next Business Day, one (1) Business
Day after sending; and if by certified mail, return receipt requested, five (5) days
after mailing.  All notices, requests and
demands upon the parties are to be given to the following addresses (or to such
other address as any party may designate by notice in accordance with this
Section):


 


If to any
Borrower:                                            Haynes
International, Inc.

1020 West Park Avenue

Kokomo, Indiana 46904

Attention:  Mr. Marcel Martin
                   VP Finance and CFO

Telephone No.: 765-456-6000

Telecopy No.:  765-456-6985


 


with a copy to:                                                                 Ice
Miller

One American Square

Box 82001

Indianapolis, Indiana 46282-0002

Attention:  Steve Hackman, Esq.

Telephone No.: 317-236-2289

Telecopy No.: 317-592-4666


 


If to Agent:                                                                                  Wachovia
Capital Finance Corporation 

(Central)

150 South Wacker Drive

Chicago, Illinois 60606

Attention:  Portfolio Manager

Telephone No.: 312-332-0420

Telecopy No.: 312-332-0424


 


13.4         Partial Invalidity.  If any provision of this Agreement is held to
be invalid or unenforceable, such invalidity or unenforceability shall not
invalidate this Agreement as a whole, but this Agreement shall be construed as
though it did not contain the particular provision held to 


 


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be invalid or unenforceable and
the rights and obligations of the parties shall be construed and enforced only
to such extent as shall be permitted by applicable law.


 


13.5         Confidentiality.


 


(a)   Agent and each Lender shall keep
confidential, in accordance with its customary procedures for handling
confidential information and safe and sound lending practices and consistent
with its practices with respect to its own confidential information, any
non-public written information supplied to it by any Borrower pursuant to this
Agreement; provided, that, nothing contained herein shall
limit the disclosure of any such information: (i) to the extent required
by statute, rule, regulation, subpoena or court order, (ii) to bank
examiners and other regulators, auditors and/or accountants, in connection with
any litigation to which Agent or such Lender is a party, (iii) to any
Lender or Participant (or prospective Lender or Participant) or to any
Affiliate of any Lender so long as such information has been delivered to such
Lender or Participant (or prospective Lender or Participant) or Affiliate
subject to the written condition that such information shall be treated as
confidential or such Lender or Participant (or prospective Lender or
Participant) shall have otherwise agreed to treat such information as
confidential in accordance with this Section 13.5, or (iv) to counsel
for Agent or any Lender or Participant (or prospective Lender or Participant).


 


(b)   In the event that Agent or any Lender
receives a request or demand to disclose any confidential information pursuant
to any subpoena or court order, Agent or such Lender, as the case may be,
agrees (i) to the extent permitted by applicable law, Agent or such Lender
will promptly notify Borrowers of such request so that any Borrower may seek a
protective order or other appropriate relief or remedy and (ii) if
disclosure of such information is required, disclose such information and,
subject to reimbursement by Borrowers of Agent’s or such Lender’s expenses,
cooperate with Administrative Borrower in the reasonable efforts to obtain an
order or other reliable assurance that confidential treatment will be accorded
to such portion of the disclosed information which Administrative Borrower so
designates.


 


(c)   In no event shall this Section 13.5 or
any other provision of this Agreement, any of the other Financing Agreements or
applicable law be deemed: (i) to apply to or restrict disclosure of
information that has been or is made public by any Borrower or any third party
or otherwise becomes generally available to the public other than as a result
of a disclosure in violation hereof, (ii) to apply to or restrict
disclosure of information that was or becomes available to Agent or any Lender
(or any Affiliate of any Lender) on a non-confidential basis from a person
other than a Borrower or a person Agent or Lender has actual knowledge has
provided such information to Agent or such Lender, as the case may be, in
violation of a binding agreement upon such person known to such Agent or Lender
to have obtained such information on a confidential basis from a Borrower, and (iii) to
require Agent or any Lender to return any materials furnished by a Borrower to
Agent or a Lender.  The obligations of
Agent and Lenders under this Section 13.5 shall supersede and replace the
obligations of Agent and Lenders under any confidentiality letter signed prior
to the date hereof.


 


13.6         Successors.  This Agreement, the other Financing
Agreements and any other document referred to herein or therein shall be
binding upon and inure to the benefit of and be enforceable by Agent, Lenders,
Borrowers and their respective successors and assigns, except 


 


118

















 


that any Borrower may not
assign its rights under this Agreement, the other Financing Agreements and any
other document referred to herein or therein without the prior written consent
of Agent and Lenders.  Any such purported
assignment without such express prior written consent shall be void.  No Lender may assign its rights and
obligations under this Agreement without the prior written consent of Agent,
except as provided in Section 13.7 below. 
The terms and provisions of this Agreement and the other Financing
Agreements are for the purpose of defining the relative rights and obligations
of Borrowers, Agent and Lenders with respect to the transactions contemplated
hereby and there shall be no third party beneficiaries of any of the terms and
provisions of this Agreement or any of the other Financing Agreements.


 


13.7         Assignments; Participations.


 


(a)   Each Lender may, with the prior written
consent of Agent (which consent shall not be unreasonably withheld, conditioned
or delayed), assign all or, if less than all, a portion equal to at least
$10,000,000 in the aggregate for the assigning Lender, of such rights and
obligations under this Agreement to one or more Eligible Transferees (but not
including for this purpose any assignments in the form of a participation),
each of which assignees shall become a party to this Agreement as a Lender by
execution of an Assignment and Acceptance; provided, that, (i) such
transfer or assignment will not be effective until recorded by Agent on the
Register and (ii) Agent shall have received for its sole account payment of
a processing fee from the assigning Lender or the assignee in the amount of
$5,000.


 


(b)   Agent shall maintain a register of the names
and addresses of Lenders, their Commitments and the principal amount and
interest of their Loans (the “Register”). 
Agent shall also maintain a copy of each Assignment and Acceptance
delivered to and accepted by it and shall modify the Register to give effect to
each Assignment and Acceptance.  The
entries in the Register shall be conclusive and binding for all purposes, absent
manifest error, and Borrowers, Agent and Lenders may treat each Person whose
name is recorded in the Register as a Lender hereunder for all purposes of this
Agreement.  The Register shall be
available for inspection by any Borrower and any Lender at any reasonable time
and from time to time upon reasonable prior notice.  This Section 13.7 shall be construed so
that the Obligations are at all times maintained in “registered form” within
the meaning of Sections 163(f), 871(h)(2) and 881(c)(2) of the Code
and regulations thereunder.


 


(c)   Upon such execution, delivery, acceptance and
recording, from and after the effective date specified in each Assignment and
Acceptance, the assignee thereunder shall be a party hereto and to the other
Financing Agreements and, to the extent that rights and obligations hereunder
have been assigned to it pursuant to such Assignment and Acceptance, have the
rights and obligations (including, without limitation, the obligation to
participate in Letter of Credit Accommodations) of a Lender hereunder and
thereunder and the assigning Lender shall, to the extent that rights and
obligations hereunder have been assigned by it to an Eligible Transferee
pursuant to such Assignment and Acceptance, relinquish its rights and be
released from its obligations under this Agreement.


 


(d)   By execution and delivery of an Assignment
and Acceptance, the assignor and assignee thereunder confirm to and agree with
each other and the other parties hereto as follows:  (i) other than as provided in such Assignment
and Acceptance, the assigning Lender makes no 


 


119





















 


representation or warranty and
assumes no responsibility with respect to any statements, warranties or
representations made in or in connection with this Agreement or any of the
other Financing Agreements or the execution, legality, enforceability,
genuineness, sufficiency or value of this Agreement or any of the other
Financing Agreements furnished pursuant hereto, (ii) the assigning Lender
makes no representation or warranty and assumes no responsibility with respect
to the financial condition of any Borrower or any of its Subsidiaries or the
performance or observance by any Borrower of any of the Obligations; (iii) such
assignee confirms that it has received a copy of this Agreement and the other
Financing Agreements, together with such other documents and information it has
deemed appropriate to make its own credit analysis and decision to enter into
such Assignment and Acceptance, (iv) such assignee will, independently and
without reliance upon the assigning Lender, Agent and based on such documents
and information as it shall deem appropriate at the time, continue to make its
own credit decisions in taking or not taking action under this Agreement and
the other Financing Agreements, (v) such assignee appoints and authorizes
Agent to take such action as agent on its behalf and to exercise such powers
under this Agreement and the other Financing Agreements as are delegated to
Agent by the terms hereof and thereof, together with such powers as are
reasonably incidental thereto, and (vi) such assignee agrees that it will
perform in accordance with their terms all of the obligations which by the
terms of this Agreement and the other Financing Agreements are required to be
performed by it as a Lender.  Subject to Section 13.5
hereof, Agent and Lenders may furnish any information concerning any Borrower
in the possession of Agent or any Lender from time to time to assignees and
Participants.


 


(e)   Each Lender may sell participations to one or
more banks or other entities in or to all or a portion of its rights and
obligations under this Agreement and the other Financing Agreements (including,
without limitation, all or a portion of its Commitments and the Loans owing to
it and its participation in the Letter of Credit Accommodations, without the
consent of Agent or the other Lenders); provided, that, (i) such Lender’s obligations under
this Agreement (including, without limitation, its Commitment hereunder) and
the other Financing Agreements shall remain unchanged, (ii) such Lender
shall remain solely responsible to the other parties hereto for the performance
of such obligations, and Borrowers, the other Lenders and Agent shall continue
to deal solely and directly with such Lender in connection with such Lender’s
rights and obligations under this Agreement and the other Financing Agreements,
and (iii) the Participant shall not have any rights under this Agreement
or any of the other Financing Agreements (the Participant’s rights against such
Lender in respect of such participation to be those set forth in the agreement
executed by such Lender in favor of the Participant relating thereto) and all
amounts payable by any Borrower hereunder shall be determined as if such Lender
had not sold such participation.


 


(f)    Nothing in this Agreement shall prevent or
prohibit any Lender from pledging its Loans hereunder to a Federal Reserve Bank
in support of borrowings made by such Lenders from such Federal Reserve Bank; provided, that, no such pledge shall
release such Lender from any of its obligations hereunder or substitute any
such pledgee for such Lender as a party hereto.


 


(g)   Borrowers shall assist Agent or any Lender
permitted to sell assignments or participations under this Section 13.7 in
whatever manner reasonably necessary in order to enable or effect any such
assignment or participation, including (but not limited to) the execution and
delivery of any and all agreements, notes and other documents and instruments
as shall be 


 


120

















 


requested and the delivery of
informational materials, appraisals or other documents for, and the
participation of relevant management in meetings and conference calls with,
potential Lenders or Participants. Borrowers shall certify the correctness,
completeness and accuracy, in all material respects, of all descriptions of
Borrowers and its affairs provided, prepared or reviewed by any Borrower that
are contained in any selling materials and all other information provided by it
and included in such materials.


 


(h)   The Lenders signatory hereto that have
executed and delivered Assignment and Acceptances with respect to the credit
facility under the Existing Financing Agreements hereby confirm that such
Assignment and Acceptances are replaced and superseded by the terms hereof.


 


13.8         USA Patriot Act.  Each Lender hereby notifies Borrowers that
pursuant to the requirements of the USA Patriot Act, it is required to obtain,
verify and record information that identifies Borrowers, which information
includes the name and address of Borrowers and other information that will
allow such Lender to identify Borrowers in accordance with the requirements of
such Act and any other applicable law.


 


13.9         Entire Agreement.  This Agreement, the other Financing
Agreements, any supplements hereto or thereto, and any instruments or documents
delivered or to be delivered in connection herewith or therewith represents the
entire agreement and understanding concerning the subject matter hereof and
thereof between the parties hereto, and supersede all other prior agreements,
understandings, negotiations and discussions, representations, warranties,
commitments, proposals, offers and contracts concerning the subject matter
hereof, whether oral or written.  In the
event of any inconsistency between the terms of this Agreement and any schedule
or exhibit hereto, the terms of this Agreement shall govern.


 


13.10       Counterparts, Etc.  This Agreement or any of the other Financing
Agreements may be executed in any number of counterparts, each of which shall
be an original, but all of which taken together shall constitute one and the
same agreement. Delivery of an executed counterpart of this Agreement or any of
the other Financing Agreements by telefacsimile shall have the same force and
effect as the delivery of an original executed counterpart of this Agreement or
any of such other Financing Agreements. 
Any party delivering an executed counterpart of any such agreement by
telefacsimile shall also deliver an original executed counterpart, but the
failure to do so shall not affect the validity, enforceability or binding
effect of such agreement.


 


13.11       Code Section 956 Override.  Notwithstanding anything to the contrary
contained herein or in any of the other Financing Agreements (including any
provision that provides that it applies notwithstanding contrary provisions),
in no event shall any provision hereof or of any of the other Financing
Agreements be construed to provide that (a) any Foreign Subsidiary of any
Borrower incorporated under the laws of a jurisdiction outside the United
States of America that is a “controlled foreign corporation” (as such term is
defined in Section 957(a) of the Code), referred to herein as a “non
US Subsidiary”, has any obligation to make any payments for or on behalf of any
Borrower to the extent that any such obligation would increase the amount of
taxes otherwise payable by any Borrower pursuant to the Code; (b) more
than sixty five (65%) percent of the voting power of all classes of Capital
Stock of a non US Subsidiary are pledged or hypothecated to support any
Obligations of any Borrower hereunder or under any of the other Financing
Agreements; (c) a security interest or lien upon any assets of a non US
Subsidiary have been granted to Agent under this Agreement or any of the other 


 


121

















 


Financing Agreements to secure
any Obligations of any Borrower and (d) any non US subsidiary has entered
into any agreement to guarantee or support the Obligations of any Borrower
hereunder or under any of the other Financing Agreements.


 


13.12       Bank Products Override.  Notwithstanding anything to the contrary
contained herein or in any of the other Financing Agreements to the contrary,
if all of the Obligations have been paid in full and all Commitments
terminated, (other than Bank Product Obligations), it shall not be a condition
to the release of all or any portion of the Collateral or a requirement to the
termination of this Agreement or any of the other Financing Agreements or the
exercise of any rights created hereunder that any Bank Product Obligations be
paid or cash collateralized; provided that, this Section 13.12
shall in no way be deemed to amend, supplement or otherwise modify any
agreement or document evidencing or governing any Bank Product.


 


SECTION 14.  ACKNOWLEDGMENT AND RESTATEMENT


 


14.1         Existing Obligations.  Each Borrower hereby acknowledges, confirms
and agrees that each Borrower is indebted to Lenders for loans and advances to
Borrowers under the Existing Financing Agreements, as of the close of business
on November 17, 2008, in the aggregate principal amount of $18,256,383.64
and the aggregate amount of $28,834.89 in respect of Letter of Credit Accommodations
(as defined in the Existing Financing Agreements), together with all interest
accrued and accruing thereon (to the extent applicable), and all fees, costs,
expenses and other charges relating thereto, all of which are unconditionally
owing by Borrowers to Lenders, without offset, defense or counterclaim of any
kind, nature or description whatsoever.


 


14.2         Acknowledgment of Security Interests.


 


(a)   Each Borrower hereby acknowledges, confirms
and agrees that Agent for the benefit of Secured Parties has and shall continue
to have a security interest in and lien upon the Collateral heretofore granted
to Agent for the benefit of Secured Parties pursuant to the Existing Financing
Agreements to secure the Obligations, as well as any Collateral granted under
this Agreement or under any of the other Financing Agreements or otherwise
granted to or held by Agent or Secured Parties.


 


(b)   The liens and security interests of Agent in
the Collateral shall be deemed to be continuously granted and perfected from
the earliest date of the granting and perfection of such liens and security
interests to Agent and Secured Parties, whether under the Existing Financing
Agreements, this Agreement or any of the other Financing Agreements.


 


14.3         Existing Financing Agreements.  Each Borrower hereby acknowledges, confirms
and agrees that:  (a) the Existing
Financing Agreements have been duly executed and delivered by Borrowers and are
in full force and effect as of the date hereof, (b) the agreements and
obligations of Borrowers contained in the Existing Financing Agreements
constitute the legal, valid and binding obligations of Borrowers enforceable
against each in accordance with their respective terms, (c) Borrowers have
no valid defense to the enforcement of such obligations and 


 


122

















 


(d) Agent and Lenders are
entitled to all of the rights and remedies provided for in the Existing
Financing Agreements.  The
acknowledgements contained herein shall not be construed to limit or affect any
of the terms of any other agreements of Borrowers with, to or in favor of Agent
or any of the Secured Parties.  All
references to the term “Secured Obligations” in any of the Existing Financing
Agreements shall include, in addition and not in limitation, the “Obligations”
(as defined in this Agreement).


 


14.4         Restatement.


 


(a)   Except as otherwise stated in Section 14.2
hereof and this Section 14.4, as of the date hereof, the terms,
conditions, agreements, covenants, representations and warranties set forth in
the Existing Loan Agreement are hereby amended and restated in their entirety,
and as so amended and restated, replaced and superseded, by the terms,
conditions, agreements, covenants, representations and warranties set forth in
this Agreement and the security interests, liens and other interests in the
Collateral heretofore granted, pledged and/or assigned by Borrowers, as
predecessors to Borrowers or otherwise, to Agent.  The amendment and restatement contained
herein shall not, in any manner, be construed to constitute payment of, or
impair, limit, cancel or extinguish, or constitute a novation in respect of,
the Indebtedness and other obligations and liabilities of Borrowers evidenced
by or arising under the Existing Financing Agreements, and the liens and
security interests of Agent securing such Indebtedness and other obligations
and liabilities, which shall not in any manner be impaired, limited,
terminated, waived or released, but shall continue in full force and effect in
favor of Agent for the benefit of Lenders.


 


(b)   The principal amount of the Loans and the
amount of the Letter of Credit Accommodations outstanding as of the date hereof
under the Existing Financing Agreements shall be allocated to the Loans and
Letter of Credit Accommodations hereunder in such manner and in such amounts as
Agent shall determine consistent with the terms hereof.


 


123

















 


IN WITNESS WHEREOF, Agent,
Lenders, Borrowers have caused these presents to be duly executed as of the day
and year first above written.


 


	
   

  	
  BORROWERS:

  
	
   

  	
   

  
	
   

  	
  HAYNES
  INTERNATIONAL, INC.

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ MARCEL
  MARTIN

  
	
   

  	
   

  
	
   

  	
  Title: Vice
  President – Finance, Treasurer, Chief

  Financial Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  HAYNES WIRE
  COMPANY

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ MARCEL
  MARTIN

  
	
   

  	
   

  
	
   

  	
  Title: Vice
  President – Finance, Treasurer, Chief 

  Financial Officer

  
				



 


AGENT:


 


WACHOVIA CAPITAL FINANCE
CORPORATION
   (CENTRAL), as Agent


 


	
  By: 

  	
  /s/ VICKY
  GEIST

  	
   

  
	
   

  
	
  Title:
  Director

  
	
   

  
	
  LENDERS:

  
	
   

  
	
  WACHOVIA
  CAPITAL FINANCE CORPORATION

  
	
   (CENTRAL)

  
	
   

  
	
  By: 

  	
  /s/ VICKY GEIST

  	
   

  
	
   

  
	
  Title:
  Director

  
	
   

  
	
  Commitment:
  $75,000,000

  
	
   

  
	
  JPMORGAN
  CHASE BANK N.A.

  
	
   

  
	
  By: 

  	
  /s/ LYNNE
  CIACCIA

  	
   

  
	
   

  
	
  Title: Vice
  President

  
	
   

  
	
  Commitment:
  $45,000,000

  



 














 


EXHIBIT A

TO

SECOND AMENDED AND RESTATED
  LOAN AND SECURITY AGREEMENT


 


ASSIGNMENT AND
ACCEPTANCE AGREEMENT


 


This ASSIGNMENT AND ACCEPTANCE
AGREEMENT (this “Assignment and Acceptance”) dated as of                           ,
200   is made between
                                                
(the “Assignor”) and
                                        
(the “Assignee”).


 


W I T N E S S E T H:


 


WHEREAS, Wachovia Capital
Finance Corporation (Central), in its capacity as agent pursuant to the Loan
Agreement (as hereinafter defined) acting for and on behalf of the financial
institutions which are parties thereto as lenders (in such capacity, “Agent”),
and the financial institutions which are parties to the Loan Agreement as
lenders (individually, each a “Lender” and collectively, “Lenders”) have
entered or are about to enter into financing arrangements pursuant to which
Agent and Lenders may make loans and advances and provide other financial
accommodations to Haynes International, Inc. and Haynes Wire Company (collectively,
“Borrowers”) as set forth in the Second Amended and Restated Loan and Security
Agreement, dated November 18, 2008, by and among Borrowers, JP Morgan
Chase Bank, N.A., as Documentation Agent, Agent and Lenders (as the same now
exists or may hereafter be amended, modified, supplemented, extended, renewed,
restated or replaced, the “Loan Agreement”), and the other agreements,
documents and instruments referred to therein or at any time executed and/or
delivered in connection therewith or related thereto (all of the foregoing,
together with the Loan Agreement, as the same now exist or may hereafter be
amended, modified, supplemented, extended, renewed, restated or replaced, being
collectively referred to herein as the “Financing Agreements”);


 


WHEREAS, as provided under the
Loan Agreement, Assignor committed to making Loans (the “Committed Loans”) to
Borrowers in an aggregate amount not to exceed
$                      
(the “Commitment”);


 


WHEREAS, Assignor wishes to
assign to Assignee [part of the] [all] rights and obligations of Assignor under
the Loan Agreement and other Financing Agreements in respect of its Commitment
in an amount equal to
$                            
(the “Assigned Commitment Amount”) on the terms and subject to the conditions
set forth herein and Assignee wishes to accept assignment of such rights and to
assume such obligations from Assignor on such terms and subject to such
conditions; and


 


WHEREAS, the Financing
Agreements permit such transfer upon the satisfaction and compliance of certain
conditions;


 


NOW, THEREFORE, in
consideration of the foregoing and the mutual agreements contained herein, the
parties hereto agree as follows:


 


A-1

















 


1.                                       Definitions.  Capitalized terms not otherwise defined
herein shall have the respective meanings given to such terms in the Loan
Agreement.


 


2.                                       Assignment
and Acceptance.


 


Subject to the
terms and conditions of this Assignment and Acceptance, Assignor hereby sells,
transfers and assigns to Assignee, and Assignee hereby purchases, assumes and
undertakes from Assignor, without recourse and without representation or
warranty (except as provided in this Assignment and Acceptance) an interest in (i) the
Commitment and each of the Committed Loans of Assignor and (ii) all
related rights, benefits, obligations, liabilities and indemnities of the
Assignor under and in connection with the Loan Agreement and the other
Financing Agreements, so that after giving effect thereto, the Commitment of
Assignee shall be as set forth below and the Pro Rata Share of Assignee shall
be
              
(    %) percent.


 


With effect on
and after the Effective Date (as defined in Section 6 hereof), Assignee
shall be a party to the Loan Agreement and succeed to all of the rights and be
obligated to perform all of the obligations of a Lender under the Loan
Agreement, including the requirements concerning confidentiality and the
payment of indemnification, with a Commitment in an amount equal to the
Assigned Commitment Amount.  Assignee
agrees that it will perform in accordance with their terms all of the
obligations which by the terms of the Loan Agreement are required to be
performed by it as a Lender.  It is the
intent of the parties hereto that the Commitment of Assignor shall, as of the
Effective Date, be reduced by an amount equal to the Assigned Commitment Amount
and Assignor shall relinquish its rights and be released from its obligations
under the Loan Agreement to the extent such obligations have been assumed by Assignee;
provided, that, Assignor shall not relinquish its rights under
Sections 2.2, 6.4, 6.8, 11.5 and 12.5 of the Loan Agreement to the extent such
rights relate to the time prior to the Effective Date.


 


After giving effect to the
assignment and assumption set forth herein, on the Effective Date Assignee’s
Commitment will be
$                          .


 


After giving effect to the
assignment and assumption set forth herein, on the Effective Date Assignor’s
Commitment will be
$                            
(as such amount may be further reduced by any other assignments by Assignor on
or after the date hereof).


 


3.                                       Payments.


 


(a)                                  As
consideration for the sale, assignment and transfer contemplated in Section 1
hereof, Assignee shall pay to Assignor on the Effective Date in immediately
available funds an amount equal to
$                        ,
representing Assignee’s Pro Rata Share of the principal amount of all Committed
Loans.


 


(b)                                 Assignee
shall pay to Agent the processing fee in the amount specified in Section 13.7(a) of
the Loan Agreement.


 


4.                                       Reallocation
of Payments.  Any interest, fees and
other payments accrued to the Effective Date with respect to the Commitment,
Committed Loans and outstanding Letter of Credit Accommodations shall be for
the account of Assignor.  Any interest,
fees and other 


 


A-2

















 


payments
accrued on and after the Effective Date with respect to the Assigned Commitment
Amount shall be for the account of Assignee. 
Each of Assignor and Assignee agrees that it will hold in trust for the
other party any interest, fees and other amounts which it may receive to which
the other party is entitled pursuant to the preceding sentence and pay to the
other party any such amounts which it may receive promptly upon receipt.


 


5.                                       Independent
Credit Decision.  Assignee
acknowledges that it has received a copy of the Loan Agreement and the
Schedules and Exhibits thereto, together with copies of the most recent
financial statements of                           
and its Subsidiaries, and such other documents and information as it has deemed
appropriate to make its own credit and legal analysis and decision to enter
into this Assignment and Acceptance and agrees that it will, independently and without
reliance upon Assignor, Agent or any Lender and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit and legal decisions in taking or not taking action under the Loan
Agreement.


 


6.                                       Effective
Date; Notices.


 


(a)  As
between Assignor and Assignee, the effective date for this Assignment and
Acceptance shall be                               ,
200   (the “Effective Date”); provided, that, the
following conditions precedent have been satisfied on or before the Effective
Date:


 


(i)  this
Assignment and Acceptance shall be executed and delivered by Assignor and
Assignee;


 


(ii)  the
consent of Agent as required for an effective assignment of the Assigned
Commitment Amount by Assignor to Assignee shall have been duly obtained and
shall be in full force and effect as of the Effective Date;


 


(iii) written
notice of such assignment, together with payment instructions, addresses and
related information with respect to Assignee, shall have been given to
Borrowers and Agent;


 


(iv) Assignee
shall pay to Assignor all amounts due to Assignor under this Assignment and
Acceptance; and


 


(v)  the
processing fee referred to in Section 2(b) hereof shall have been
paid to Agent.


 


(b)                                 Promptly
following the execution of this Assignment and Acceptance, Assignor shall
deliver to Borrowers and Agent for acknowledgment by Agent, a Notice of
Assignment in the form attached hereto as Schedule 1.


 


7.                                       [Agent.       [INCLUDE ONLY IF ASSIGNOR
IS AN AGENT]


 


(a) 
Assignee hereby appoints and authorizes Assignor in its capacity as Agent to
take such action as agent on its behalf to exercise such powers under the Loan
Agreement as are delegated to Agent by Lenders pursuant to the terms of the
Loan Agreement.


 


A-3

















 


(b)                                 Assignee
shall assume no duties or obligations held by Assignor in its capacity as Agent
under the Loan Agreement.]


 


8.                                       Withholding
Tax.  Assignee (a) represents
and warrants to Assignor, Agent and Borrowers that under applicable law and
treaties no tax will be required to be withheld by Assignee, Agent or Borrowers
with respect to any payments to be made to Assignee hereunder or under any of
the Financing Agreements, (b) agrees to furnish (if it is organized under
the laws of any jurisdiction other than the United States or any State thereof)
to Agent and Borrowers prior to the time that Agent or Borrowers are required
to make any payment of principal, interest or fees hereunder, duplicate
executed originals of either U.S. Internal Revenue Service Form W 8BEN or
W 8ECI, as applicable (wherein Assignee claims entitlement to the benefits of a
tax treaty that provides for a complete exemption from U.S. federal income
withholding tax on all payments hereunder) and agrees to provide new such forms
upon the expiration of any previously delivered form or comparable statements
in accordance with applicable U.S. law and regulations and amendments thereto,
duly executed and completed by Assignee, and (c) agrees to comply with all
applicable U.S. laws and regulations with regard to such withholding tax
exemption.


 


9.                                       Representations
and Warranties.


 


(a) 
Assignor represents and warrants that (i) it is the legal and beneficial
owner of the interest being assigned by it hereunder and that such interest is
free and clear of any security interest, lien, encumbrance or other adverse
claim, (ii) it is duly organized and existing and it has the full power
and authority to take, and has taken, all action necessary to execute and
deliver this Assignment and Acceptance and any other documents required or
permitted to be executed or delivered by it in connection with this Assignment
and Acceptance and to fulfill its obligations hereunder, (iii) no notices
to, or consents, authorizations or approvals of, any Person are required (other
than any already given or obtained) for its due execution, delivery and
performance of this Assignment and Acceptance, and apart from any agreements or
undertakings or filings required by the Loan Agreement, no further action by,
or notice to, or filing with, any Person is required of it for such execution,
delivery or performance, and (iv) this Assignment and Acceptance has been
duly executed and delivered by it and constitutes the legal, valid and binding
obligation of Assignor, enforceable against Assignor in accordance with the
terms hereof, subject, as to enforcement, to bankruptcy, insolvency,
moratorium, reorganization and other laws of general application relating to or
affecting creditors’ rights and to general equitable principles.


 


(b) 
Assignor makes no representation or warranty and assumes no responsibility with
respect to any statements, warranties or representations made in or in
connection with the Loan Agreement or any of the other Financing Agreements or
the execution, legality, validity, enforceability, genuineness, sufficiency or
value of the Loan Agreement or any other instrument or document furnished
pursuant thereto.  Assignor makes no
representation or warranty in connection with, and assumes no responsibility
with respect to, the solvency, financial condition or statements of Borrowers
or any of its Affiliates, or the performance or observance by Borrowers or any
other Person, of any of its respective obligations under the Loan Agreement or
any other instrument or document furnished in connection therewith.


 


A-4

















 


(c) 
Assignee represents and warrants that  (i) it
is an Eligible Transferee, (ii) it is duly organized and existing and it
has full power and authority to take, and has taken, all action necessary to
execute and deliver this Assignment and Acceptance and any other documents
required or permitted to be executed or delivered by it in connection with this
Assignment and Acceptance, and to fulfill its obligations hereunder, (iii) no
notices to, or consents, authorizations or approvals of, any Person are
required (other than any already given or obtained) for its due execution,
delivery and performance of this Assignment and Acceptance, and apart from any
agreements or undertakings or filings required by the Loan Agreement, no
further action by, or notice to, or filing with, any Person is required of it
for such execution, delivery or performance; and (iv) this Assignment and
Acceptance has been duly executed and delivered by it and constitutes the
legal, valid and binding obligation of Assignee, enforceable against Assignee
in accordance with the terms hereof, subject, as to enforcement, to bankruptcy,
insolvency, moratorium, reorganization and other laws of general application
relating to or affecting creditors’ rights to general equitable principles.


 


10.                                 Further
Assurances.  Assignor and Assignee
each hereby agree to execute and deliver such other instruments, and take such
other action, as either party may reasonably request in connection with the
transactions contemplated by this Assignment and Acceptance, including the
delivery of any notices or other documents or instruments to Borrowers or
Agent, which may be required in connection with the assignment and assumption
contemplated hereby.


 


11.                                 Miscellaneous.


 


(a)  Any
amendment or waiver of any provision of this Assignment and Acceptance shall be
in writing and signed by the parties hereto. 
No failure or delay by either party hereto in exercising any right,
power or privilege hereunder shall operate as a waiver thereof and any waiver
of any breach of the provisions of this Assignment and Acceptance shall be
without prejudice to any rights with respect to any other for further breach
thereof.


 


(b)  All
payments made hereunder shall be made without any set off or counterclaim.


 


(c) 
Assignor and Assignee shall each pay its own costs and expenses incurred in
connection with the negotiation, preparation, execution and performance of this
Assignment and Acceptance.


 


(d)  This
Assignment and Acceptance may be executed in any number of counterparts and all
of such counterparts taken together shall be deemed to constitute one and the
same instrument.


 


(e)  THIS
ASSIGNMENT AND ACCEPTANCE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAW OF THE STATE OF ILLINOIS. 
Assignor and Assignee each irrevocably submits to the non-exclusive
jurisdiction of any State or Federal court sitting in
                                
County,
                          
over any suit, action or proceeding arising out of or relating to this
Assignment and Acceptance and irrevocably agrees that all claims in respect of
such action or proceeding may be heard and determined in such State or Federal
court.  Each party to this Assignment and
Acceptance hereby irrevocably waives, to 


 


A-5

















 


the fullest extent it may
effectively do so, the defense of an inconvenient forum to the maintenance of
such action or proceeding.


 


(f) 
ASSIGNOR AND ASSIGNEE EACH HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY
WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH THIS
ASSIGNMENT AND ACCEPTANCE, THE LOAN AGREEMENT, ANY OF THE OTHER FINANCING
AGREEMENTS OR ANY RELATED DOCUMENTS AND AGREEMENTS OR ANY COURSE OF CONDUCT,
COURSE OF DEALING, OR STATEMENTS (WHETHER ORAL OR WRITTEN).


 


A-6

















 


IN WITNESS WHEREOF, Assignor
and Assignee have caused this Assignment and Acceptance to be executed and
delivered by their duly authorized officers as of the date first above written.


 


	
   

  	
  ASSIGNOR

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  ASSIGNEE

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  
	
   

  	
  Title:

  	
   

  



 

















 


SCHEDULE 1


 


NOTICE OF
ASSIGNMENT AND ACCEPTANCE


 


 


                        ,
20


 


 


Attn.:


 


Re:


 


Ladies and Gentlemen:


 


Wachovia Capital Finance
Corporation (Central), in its capacity as agent pursuant to the Loan Agreement
(as hereinafter defined) acting for and on behalf of the financial institutions
which are parties thereto as lenders (in such capacity, “Agent”), and the
financial institutions which are parties to the Loan Agreement as lenders
(individually, each a “Lender” and collectively, “Lenders”) have entered or are
about to enter into financing arrangements pursuant to which Agent and Lenders
may make loans and advances and provide other financial accommodations to
Haynes International, Inc. and Haynes Wire Company (collectively, “Borrowers”)
as set forth in the Second Amended and Restated Loan and Security Agreement,
dated November 18, 2008, by and among Borrowers, JPMorgan Chase Bank,
N.A., as Documentation Agent, Agent and Lenders (as the same now exists or may
hereafter be amended, modified, supplemented, extended, renewed, restated or
replaced, the “Loan Agreement”), and the other agreements, documents and
instruments referred to therein or at any time executed and/or delivered in
connection therewith or related thereto (all of the foregoing, together with
the Loan Agreement, as the same now exist or may hereafter be amended,
modified, supplemented, extended, renewed, restated or replaced, being
collectively referred to herein as the “Financing Agreements”).  Capitalized terms not otherwise defined
herein shall have the respective meanings ascribed thereto in the Loan
Agreement.


 


1.  We hereby give you notice of, and request
your consent to, the assignment by
                                                    
(the “Assignor”) to
                                                      
(the “Assignee”) such that after giving effect to the assignment Assignee shall
have an interest equal to
                
(    %) percent of the total Commitments pursuant to the
Assignment and Acceptance Agreement attached hereto (the “Assignment and
Acceptance”).  We understand that the
Assignor’s Commitment shall be reduced by
$                          ,
as the same may be further reduced by other assignments on or after the date
hereof.


 

















 


2.  Assignee agrees that, upon receiving the
consent of Agent to such assignment, Assignee will be bound by the terms of the
Loan Agreement as fully and to the same extent as if the Assignee were the
Lender originally holding such interest under the Loan Agreement.


 


3.  The following administrative details apply to
Assignee:


 


	
   

  	
   

  	
  (A) 
  Notice address:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Assignee
  name:

  	
   

  
	
   

  	
   

  	
   

  	
  Address:

  	
   

  
	
   

  	
   

  	
   

  	
  Attention:

  	
   

  
	
   

  	
   

  	
   

  	
  Telephone:

  	
   

  
	
   

  	
   

  	
   

  	
  Telecopier:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (B) 
  Payment instructions:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Account No.:

  	
   

  
	
   

  	
   

  	
   

  	
  At:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Reference:

  	
   

  
	
   

  	
   

  	
   

  	
  Attention:

  	
   

  
						



 


 


4.  You are entitled to rely upon the
representations, warranties and covenants of each of Assignor and Assignee
contained in the Assignment and Acceptance.


 


IN WITNESS WHEREOF, Assignor
and Assignee have caused this Notice of Assignment and Acceptance to be
executed by their respective duly authorized officials, officers or agents as
of the date first above mentioned.


 


	
   

  	
  Very truly
  yours,

  
	
   

  	
   

  
	
   

  	
  [NAME OF
  ASSIGNOR]

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  [NAME OF
  ASSIGNEE]

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  
	
   

  	
  Title:

  	
   

  
				



 

















 


ACKNOWLEDGED AND ASSIGNMENT

CONSENTED TO:


 


 


WACHOVIA CAPITAL FINANCE
CORPORATION


(Central), as
Agent


 


	
  By:

  	
   

  	
   

  
	
   

  
	
  Title:

  	
   

  	
   

  



 

















 


EXHIBIT D


TO


LOAN AND SECURITY AGREEMENT


 


[FORM OF] EQUIPMENT PURCHASE NOTE


 


$                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        ,
20


 


FOR VALUE RECEIVED, HAYNES INTERNATIONAL, INC., a Delaware company (“Haynes
Parent”) and HAYNES WIRE COMPANY, a Delaware corporation (“Haynes Wire” and,
together with Haynes Parent, each a “Debtor” and collectively, “Debtors”)
hereby unconditionally promises to pay to the order of WACHOVIA CAPITAL FINANCE
CORPORATION (CENTRAL), an Illinois corporation in its capacity as Agent (in
such capacity, “Payee”) acting for and on behalf of the parties to the Loan
Agreement (defined below) as lenders (“Lenders”), at the offices of Payee at
150 South Wacker Drive, Chicago, Illinois 60606, or at such other place as the
Payee or any holder hereof may from time to time designate, the principal sum
of an amount equal to
                            
DOLLARS
($                    )
in lawful money of the United States of America and in immediately available
funds, in seventy-two (72) consecutive monthly installments (or earlier as
hereinafter provided) on the first day of each month commencing
                        ,
20    , of which the first seventy-one (71) installments
shall each be in the amount of
                                                      
DOLLARS
($                        ),
and the last (i.e. seventy-second (72nd)) installment shall be in the amount of
the entire unpaid balance of this Note); provided, that, the
entire unpaid principal amount of this Note and all accrued and unpaid interest
thereon shall be due and payable on the effective date of termination or
non-renewal of the Financing Agreements or the acceleration of the Obligations.


 


Each Debtor hereby further promises to pay interest to the order of
Payee on the unpaid principal balance hereof at the applicable Interest
Rate.  Such interest shall be paid in
like money at said office or place from the date hereof, commencing with the
month immediately following the date on which such Equipment Purchase Loan is
made and on the first day of each month thereafter until the indebtedness
evidenced by this Note is paid in full. 
Interest payable upon and after an Event of Default or termination or
non-renewal of the Loan Agreement shall be payable upon demand.


 


For purposes hereof, (i) the term “Loan Agreement” shall mean the
Second Amended and Restated Loan and Security Agreement, dated as of November 18,
2008, among Debtors, Payee and the lender from time to time party thereto, as
the same now exists or may hereafter be amended, modified, supplemented,
extended, renewed, restated or replaced, (ii) the term “Event of Default”
shall mean an Event of Default as such term is defined in the Loan Agreement, (iii) the
term “Interest Rate” shall mean Interest Rate as such term as defined in the
Loan Agreement.  Unless otherwise defined
herein, all capitalized terms used herein shall have the meaning assigned
thereto in the Loan Agreement.


 


D-1

















 


This Note is issued pursuant to the terms and provisions of the Loan
Agreement to evidence the Equipment Purchase Loans made by or on behalf of
Lenders.  This Note is secured by the
Collateral described in the Loan Agreement and all notes, guarantees, security
agreements and other agreements, documents and instrument now or at any time
hereafter executed and/or delivered by Debtors or any other party in connection
therewith (all of the foregoing, together with the Loan Agreement, as the same
now exist or may hereafter be amended, modified, supplemented, renewed,
extended, restated or replaced, being collectively referred to herein as the “Financing
Agreements”), and is entitled to all of the benefits and rights thereof and of
the other Financing Agreements.  At the
time any payment is due hereunder, at its option, Payee may charge the amount
thereof to any account of any Debtor maintained by Payee.


 


If any Event of Default shall occur for any reason and be continuing,
or if the Loan Agreement shall be terminated or not renewed for any reason
whatsoever, then and in any such event, in addition to all other rights and
remedies of Payee under the other Financing Agreements, applicable law or
otherwise, all such rights and remedies being cumulative, not exclusive and
enforceable alternatively, successively and concurrently, Payee may, at its
option, declare any or all of Debtors’ obligations, liabilities and
indebtedness owing to Lenders and Payee under the Loan Agreement and the other
Financing Agreements (the “Obligations”), including, without limitation, all
amounts owing under this Note, to be due and payable, whereupon the then unpaid
balance hereof, together with all interest accrued thereon, shall forthwith
become due and payable, together with interest accruing thereafter at the then
applicable Interest Rate.


 


Each Debtor (i) waives diligence, demand, presentment, protest and
notice of any kind, (ii) agrees that it will not be necessary for Payee to
first institute suit in order to enforce 
payment of this Note and (iii) consents to any one or more
extensions or postponements of time of payment, release, surrender or
substitution of collateral security, or forbearance or other indulgence,
without notice or consent.  The pleading
of any statute of limitations as a defense to any demand against Debtors is
expressly hereby waived by Debtors.  Upon
any Event of Default or termination or non-renewal of the Loan Agreement, Payee
shall have the right, but not the obligation to setoff against this Note all
money owed by Lenders and Payee to Debtors.


 


Payee shall not be required to resort to any Collateral for payment,
but may proceed against Debtors and any guarantors or endorsers hereof in such
order and manner as Payee may choose. 
None of the rights of Payee shall be waived or diminished by any failure
or delay in the exercise thereof.


 


The validity, interpretation and enforcement of this Note and any
dispute arising in connection herewith or therewith shall be governed by the
internal laws of the State of Illinois but excluding any principles of
conflicts of law or other rule of law that would result in the application
of the law of any jurisdiction other than the laws of the State of Illinois.


 


Each Debtor
irrevocably consents and submits to the non-exclusive jurisdiction of the
Circuit Court of Cook County, Illinois and the United States District Court for
the Northern District of Illinois, whichever Payee may elect, and waives any
objection based on venue or forum non conveniens
with respect to any action instituted therein arising under this Note or any 


 


D-2

















 


of the other Financing Agreements or in any way connected with or
related or incidental to the dealings of Debtors and Payee in respect of this
Note or any of the other Financing Agreements or the transactions related
hereto or thereto, in each case whether now existing or hereafter arising, and
whether in contract, tort, equity or otherwise, and agrees that any dispute
arising out of the relationship among Debtors, Lenders and Payee or the conduct
of such persons in connection with this Note or otherwise shall only be heard
in the courts described above (except that Payee shall have the right to bring
any action or proceeding against any Debtor or its property in the courts of
any other jurisdiction which Payee deems necessary or appropriate in order to
realize on the Collateral or to otherwise enforce its rights against any Debtor
or its property).


 


Each Debtor hereby waives personal service of any and all process upon
it and consents that all such service of process may be made by certified mail
(return receipt requested) directed to it and service so made shall be deemed
to be completed five (5) days after the same shall have been so deposited
in the U.S. mails, or, at Payee’s option, by service upon Debtors in any other
manner provided under the rules of any such courts.


 


EACH DEBTOR, PAYEE, AND BY ACCEPTING THE BENEFITS HEREOF, LENDERS EACH
HEREBY WAIVE ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE
OF ACTION (A) ARISING UNDER THIS NOTE OR (B) IN ANY WAY CONNECTED
WITH OR RELATED OR INCIDENTAL TO THE DEALINGS AMONG DEBTORS, LENDERS AND PAYEE
IN RESPECT OF THIS NOTE OR ANY OF THE OTHER FINANCING AGREEMENTS OR THE
TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR
HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE.  EACH DEBTOR AGREES AND CONSENTS THAT ANY SUCH
CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL
WITHOUT A JURY.


 


The execution and delivery of this Note has been authorized by the
Board of Directors of each Debtor and by any necessary vote or consent of the
stockholders or members of each Debtor. 
Each Debtor hereby authorizes Payee to complete this Note in any
particulars according to the terms of the loans evidenced hereby.


 


[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]


 


D-3

















 


This Note shall be binding upon the successors and assigns of Debtors
and inure to the benefit of Payee and its successors and assigns.  Whenever used herein, the term “Debtors”
shall be deemed to include its successors and assigns and the term “Payee”
shall be deemed to include its successors and assigns.  If any term or provision of this Note shall
be held invalid, illegal or unenforceable, the validity of all other terms and
provisions hereof shall in no way be affected thereby.


 


	
   

  	
  HAYNES
  INTERNATIONAL, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  HAYNES WIRE
  COMPANY

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  



 


D-4

















 


EXHIBIT E

TO

SECOND AMENDED AND RESTATED
  LOAN AND SECURITY AGREEMENT


 


Compliance Certificate


 


	
  To:

  	
  Wachovia
  Capital Finance Corporation

  
	
   

  	
    (Central),
  as Agent

  
	
   

  	
  150 South
  Wacker Drive

  
	
   

  	
  Chicago,
  Illinois 60606

  



 


Ladies and Gentlemen:


 


I hereby
certify to you that I am the duly elected Vice President – Finance and Chief
Financial Officer of Haynes International, Inc., a Delaware corporation (“Haynes
Parent”).  This Compliance Certificate is
being delivered to you pursuant to Section 9.6(a) of the Second
Amended and Restated Loan and Security Agreement, dated November 18, 2008,
by and among Haynes International, Inc. (“Haynes Parent”), Haynes Wire
Company, the parties thereto from time to time as lenders (each individually, a
“Lender” and collectively, “Lenders”) Bank One, NA, as Documentation Agent and
Wachovia Capital Finance Corporation (Central), an Illinois corporation, in its
capacity as agent for Lenders (in such capacity, “Agent”) (as such Second
Amended and Restated Loan and Security Agreement is amended, modified or
supplemented, from time to time, the “Loan Agreement”).  Capitalized terms that are not otherwise
defined shall have the meanings given to such terms in the Loan Agreement.


 


I hereby
further certify on behalf of Haynes Parent and in my capacity as Vice President
– Finance and Chief Financial Officer thereof, that:


 


1.  I have reviewed the terms of the Loan
Agreement and have made, or have caused to be made under my supervision, a
review in reasonable detail of the transactions and financial condition of
Haynes Parent during the immediately preceding fiscal month.


 


2.  The review described in Section 1 above
did not disclose the existence during or at the end of such immediately
preceding fiscal month, and I have no knowledge on the date hereof of the
existence and continuance on the date hereof of any Default or Event of
Default, except as set forth on Schedule I attached hereto.  Such Schedule I describes in reasonable
detail the nature of the Default or Event of Default, the period during which
it has existed and the action which Haynes Parent has taken, is taking, or
proposes to take with respect thereto.


 


3.  Haynes Parent has not at any time during or
at the end of the immediately preceding fiscal month, except as specifically
described on Schedule II attached hereto or as permitted by the Loan Agreement,
done any of the following:


 


E-1

















 


(a) Changed
its corporate name or (b) transacted business under any trade name, style,
or fictitious name other than any such name previously described to you and set
forth in the Financing Agreements;


 


(b) 
Changed the location of its chief executive office, changed its jurisdiction of
incorporation, changed its type of organization or changed the location of or
disposed of any of its properties or assets (other than pursuant to the sale of
Inventory in the ordinary course of its business or as otherwise permitted by Section 9.7
of the Loan Agreement), or established any new asset locations.


 


(c) 
Materially changed the terms upon which it sells goods (including sales on
consignment) or provides services, nor has any vendor or trade supplier to
Haynes Parent during or at the end of the immediately preceding fiscal month
materially adversely changed the terms upon which it supplies goods to Haynes
Parent.


 


(d) 
Permitted or suffered to exist any security interest in or liens on any of its
properties, whether real or personal, other than as specifically permitted by
the Financing Agreements.


 


(e) 
Received any notice of, or obtained knowledge of any of the following, in each
case not previously disclosed to Agent:  (i) the
occurrence of any event involving the release, spill or discharge of any
Hazardous Material in violation of applicable Environmental Law in a material
respect or (ii) any investigation, proceeding, complaint, order,
directive, claims, citation or notice with respect to: (A) any
non-compliance with or violation of any applicable Environmental Law by
Borrowers in any material respect or (B) the release, spill or discharge
of any Hazardous Material in violation of applicable Environmental Law in a
material respect or (C) the generation, use, storage, treatment,
transportation, manufacture, handling, production or disposal of any Hazardous
Materials in violation of applicable Environmental Laws in a material respect
or (D) any other environmental, health or safety matter, which has a
material adverse effect on Haynes Parent or its business, operations or assets
or any properties at which Haynes Parent transported, stored or disposed of any
Hazardous Materials.


 


5.  Attached hereto as Schedule III are the
calculations used in determining, as of the end of the immediately preceding
fiscal quarter, whether Haynes Parent is in compliance with the covenants set
forth in Section 9.17 of the Loan Agreement for such fiscal quarter.


 


E-2

















 


The foregoing certifications
are made and delivered this        day of
                      ,
20    .


 


	
   

  	
  Very truly
  yours,

  
	
   

  	
   

  
	
   

  	
  HAYNES
  INTERNATIONAL, INC.,

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
  Vice
  President – Finance and

  
	
   

  	
   

  	
  Chief
  Financial Officer

  



 


E-3

















 


EXHIBIT F

TO

SECOND AMENDED AND RESTATED
  LOAN AND SECURITY AGREEMENT


 


	
  Lenders

  	
   

  	
  Commitment

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Wachovia
  Bank, National Association

  	
   

  	
  $

  	
  75,000,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  JPMorgan
  Chase Bank N.A.

  	
   

  	
  $

  	
   45,000,000

  	
   

  



 


I/2256000.1


 


F-1