EX-10.14



 





Exhibit 10.14




SECOND LIEN FINANCING AGREEMENT




among




CONTRARIAN SERVICE COMPANY, L.L.C.

(as Lender)




HORSEHEAD CORP.

(as Company)




and




HORSEHEAD INTERMEDIARY CORP., and

CHESTNUT RIDGE RAILROAD CORP.

(each as a joint and several Guarantor)




Dated: As of July 15, 2005




 









 





TABLE OF CONTENTS




	 	 	 	 	 	 	 
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	SECTION 1 Definitions	 	 	1	 
	 
	 	 	 	 	 	 
	 

	 	1.1 Defined Terms. As used in this Financing Agreement:
	 	 	1	 
	 
	 	 	 	 	 	 
	 

	 	1.2 Accounting Changes. In the
event that any “Accounting Change” (as
defined below) shall occur and such change results in a change in the
method of calculation of financial covenants, standards and terms in
this Financing Agreement, then the Company and the Lender agree to enter
into negotiations in order to amend such provisions of this Financing
Agreement so as to fairly reflect such Accounting Change with the
desired result that the criteria for evaluating the Company’s financial
condition and results of operations shall be the same after such
Accounting Change as if such Accounting Change had not been made. Until
such time as such amendment shall have been executed and delivered by
the Lender and the Company (a) all financial covenants, standards and
terms in this Financing Agreement shall continue to be calculated or
construed as if such Accounting Change had not occurred, and (b) the
Company shall provide to the Lender, on or before the due date of the
financial statements required under Section 7.2(h) hereof (and in
addition to the financial statements required under Section 7.2(h)
hereof), financial statements prepared as if such Accounting Change had
not occurred, together with an officer’s certificate substantially in
the form set forth on Exhibit C attached hereto (a “Compliance
Certificate”), signed by a Responsible Officer, and such supporting
financial statement reconciliations, financial covenant calculations and
other financial information as the Lender may reasonably request. “Accounting Change” refers to a change in accounting principles required
by the promulgations of any rule, regulation,	 	 	 	 






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	 	pronouncement or opinion by the Financial Accounting Standards Board of
the American Institute of Certified Pubic Accountants or, if applicable,
the Securities and Exchange Commission (or successors thereto or
agencies with similar functions).
	 	 	23	 
	 
	 	 	 	 	 	 
	 

	 	1.3 Certificates. All certificates and other documents or statements of any
sort provided, executed, or attested to by, any officer, director, or
employee of any Credit Party, are and will be provided, executed, or
attested to on behalf of such Credit Party, and not in such officer’s,
director’s, or employee’s individual capacity.
	 	 	23	 
	 
	 	 	 	 	 	 
	SECTION 2 Conditions Precedent	 	 	23	 
	 
	 	 	 	 	 	 
	 

	 	2.1 Conditions Precedent to Initial Funding. Except as set forth in the
Post-Closing Letter, the obligation of the Lender to make the Loan is
subject to the satisfaction, immediately prior to or concurrently with
the making of such Loan, of the following conditions precedent:
	 	 	24	 
	 
	 	 	 	 	 	 
	SECTION 3 Loan and Terms of Payment	 	 	27	 
	 
	 	 	 	 	 	 
	 

	 	3.1 Loan.
	 	 	27	 
	 
	 	 	 	 	 	 
	 

	 	3.2 Interest.
	 	 	27	 
	 
	 	 	 	 	 	 
	 

	 	3.3 Principal and Interest Payments.
	 	 	28	 
	 
	 	 	 	 	 	 
	 

	 	3.4 Default Rate. Upon and after the occurrence and during the continuance
of an Event of Default, the Current Cash Interest Tranche shall be LIBOR
plus eleven percent (11%) per annum and the PIK Interest Tranche shall
be one percent (1%) per annum (the “Default Rate of Interest”), such
Current Cash Interest Tranche then calculated at the Default Rate of
Interest to be payable upon demand.
	 	 	28	 
	 
	 	 	 	 	 	 
	 

	 	3.5 Optional and Mandatory Prepayments/Redemption.
	 	 	29	 
	 
	 	 	 	 	 	 
	 

	 	3.6 [Reserved]
	 	 	29	 






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	 	3.7 Handling of Proceeds of Collateral; Cash Dominion.
	 	 	29	 
	 
	 	 	 	 	 	 
	 

	 	3.8 Application of Proceeds of Collateral.
	 	 	30	 
	 
	 	 	 	 	 	 
	SECTION 4 [RESERVED]	 	 	31	 
	 
	 	 	 	 	 	 
	SECTION 5 [RESERVED]	 	 	31	 
	 
	 	 	 	 	 	 
	SECTION 6 Collateral	 	 	31	 
	 
	 	 	 	 	 	 
	 

	 	6.1 Grant of Security Interest.
	 	 	31	 
	 
	 	 	 	 	 	 
	 

	 	6.2 Limited License. Regardless of whether the Lender’s security interests
in any of the General Intangibles has attached or is perfected, subject
to the next sentence, each Credit Party hereby irrevocably grants to the
Lender a royalty-free, non-exclusive license to use such Credit Party’s
Trademarks, Copyrights, Patents and other proprietary and intellectual
property rights (other than licensed intellectual property rights that
are the subject of license agreements containing anti-assignment
provisions for which no access and use agreement described in clause (e)
of the definition of Eligible Inventory (as defined in the CIT Financing
Agreement) has been obtained, it being represented, warranted and
covenanted by the Company that no such license agreement applies or will
apply to any Inventory which the Company purports to include as
“Eligible Inventory” in any borrowing base certificate submitted to the
CIT), in connection with the (i) advertisement for sale, and the sale or
other disposition of, any finished goods Inventory by the Lender in
accordance with the provisions of this Financing Agreement, and (ii) the
manufacture, assembly, completion and preparation for sale of any
unfinished Inventory by the Lender in accordance with the provisions of
this Financing Agreement. Notwithstanding anything herein to the
contrary, the license set forth in this Section 6.2 may be exercised by
the Lender only so long as an Event of Default shall have occurred and
remains outstanding.
	 	 	31	 






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	 	6.3 Representations, Covenants and Agreements Regarding Collateral
Generally.
	 	 	32	 
	 
	 	 	 	 	 	 
	 

	 	6.4 Representations Regarding Accounts and Inventory. The Company
represents and warrants to the Lender that:
	 	 	32	 
	 
	 	 	 	 	 	 
	 

	 	6.5 Covenants and Agreements Regarding Accounts and Inventory.
	 	 	33	 
	 
	 	 	 	 	 	 
	 

	 	6.6 Covenants and Agreements Regarding Real Estate and Equipment.
	 	 	34	 
	 
	 	 	 	 	 	 
	 

	 	6.7 General Intangibles. Each Credit Party represents and warrants to the
Lender that as of the date hereof, such Credit Party owns or has the
right to use all General Intangibles necessary to conduct such Credit
Party’s business as presently conducted. Such Credit Party agrees to
maintain such Credit Party’s rights in, and the value of, all such
General Intangibles so long as such General Intangibles are necessary or
desirable to its business, and to pay when due all payments required to
maintain in effect any licensed rights. Such Credit Party shall provide
the Lender with adequate notice of the acquisition of rights with
respect to any additional registered Patents, Trademarks and Copyrights
so that the Lender may, and to the extent permitted under the
documentation granting such rights or applicable law, perfect the
Lender’s security interest in such rights in a timely manner.
	 	 	35	 
	 
	 	 	 	 	 	 
	 

	 	6.8 Commercial Tort Claims. Each Credit Party represents and warrants to
the Lender that as of the date hereof, to the best of its knowledge
after due inquiry, such Credit Party holds no interest in any commercial
tort claim. If such Credit Party at any time holds or acquires a
commercial tort claim, such Credit Party agrees to promptly notify the
Lender in writing of the details thereof, and in such writing such
Credit Party shall grant to the Lender a security interest in such
commercial tort claim and in the Proceeds thereof, all upon the terms of
this Financing Agreement.
	 	 	35	 






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	 	6.9 Letter of Credit Rights. Each Credit Party represents and warrants to
the Lender that as of the date hereof, such Credit Party is not the
beneficiary of any letter of credit in excess of One Hundred Thousand
Dollars ($100,000). If such Credit Party becomes a beneficiary under any
letter of credit, such Credit Party agrees to promptly notify the
Lender, and upon request by the Lender, such Credit Party agrees to
either (a) cause the issuer of such letter of credit to consent to the
assignment of the proceeds of such letter of credit to the Lender and
CIT (subject to the Contrarian Intercreditor Agreement) pursuant to an
agreement in form and substance satisfactory to the Lender, or (b) cause
the issuer of such letter of credit to name the Lender as the transferee
beneficiary of such letter of credit.
	 	 	35	 
	 
	 	 	 	 	 	 
	 

	 	6.10 Real Estate. Upon the request of the Lender, each Credit Party agrees
to execute and deliver to the Lender from time to time, a mortgage or
deed of trust (as appropriate) in form and substance reasonably
satisfactory to the Lender on any fee interest Real Estate (other than
Excluded Real Estate) with a fair market value in excess of Two Hundred
Fifty Thousand Dollars ($250,000) acquired by such Credit Party after
the date hereof as the Lender shall require to obtain a valid first
priority lien thereon, subject only to Permitted Encumbrances.
	 	 	36	 
	 
	 	 	 	 	 	 
	 

	 	6.11 Reference to Other Loan Documents. Reference is hereby made to the
other Loan Documents for additional representations, covenants and other
agreements of each Credit Party regarding the Collateral covered by such
Loan Documents.
	 	 	36	 
	 
	 	 	 	 	 	 
	 

	 	6.12 Credit Balances; Additional Collateral.
	 	 	36	 
	 
	 	 	 	 	 	 
	SECTION 7 Representations, Warranties and Covenants	 	 	36	 






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	 	7.1 Representations and Warranties. Each Credit Party represents and
warrants to the Lender that:
	 	 	36	 
	 
	 	 	 	 	 	 
	 

	 	7.2 Affirmative Covenants. Until the termination of this Financing
Agreement and the full and final payment and satisfaction of the
Obligations each Credit Party agrees as follows:
	 	 	39	 
	 
	 	 	 	 	 	 
	 

	 	7.3 Financial Covenants. Until termination of this Financing Agreement and
the full and final payment and satisfaction of all Obligations, each
Credit Party agrees:
	 	 	48	 
	 
	 	 	 	 	 	 
	 

	 	7.4 Negative Covenants. Until termination of this Financing Agreement and
full and final payment and satisfaction of all Obligations, each Credit
Party agrees not to:
	 	 	50	 
	 
	 	 	 	 	 	 
	SECTION 8 Interest and Expenses	 	 	53	 
	 
	 	 	 	 	 	 
	 

	 	8.1 [Reserved]
	 	 	53	 
	 
	 	 	 	 	 	 
	 

	 	8.2 [Reserved]
	 	 	53	 
	 
	 	 	 	 	 	 
	 

	 	8.3 Out-of Pocket Expenses. The Company agrees to reimburse the Lender for
all Out-of-Pocket Expenses when charged to or paid by the Lender.
	 	 	53	 
	 
	 	 	 	 	 	 
	 

	 	8.4 LIBOR Loans.
	 	 	53	 
	 
	 	 	 	 	 	 
	 

	 	8.5 Capital Adequacy. In the event that the Lender, subsequent to the
Closing Date, determines in the exercise of its reasonable business
judgment that (x) any change in applicable law, rule, regulation or
guideline regarding capital adequacy, or (y) any change in the
interpretation or administration thereof, or (z) compliance by the
Lender with any new request or directive regarding capital adequacy
(whether or not having the force of law) of any central bank or other
governmental or regulatory authority, has or would have the effect of
reducing the rate of return on the Lender’s capital as a consequence of
its obligations hereunder to a level below that which the Lender could	 	 	 	 






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	 	have achieved but for such change or compliance (taking into
consideration the Lender’s policies with respect to capital adequacy) by
an amount deemed material by the Lender in the exercise of its
reasonable business judgment, the Company agrees to pay to the Lender,
no later than five (5) days following written demand by the Lender
(including a statement and explanation of such charges), such additional
amount or amounts as will compensate the Lender for such reduction in
rate of return. In determining such amount or amounts, the Lender may
use any reasonable averaging or attribution methods. The protection of
this Section 8.5 shall be available to the Lender regardless of any
possible contention of invalidity or inapplicability with respect to the
applicable law, regulation or condition. A certificate of the Lender
setting forth such amount or amounts as shall be necessary to compensate
the Lender with respect to this Section 8.5 and the calculation thereof,
when delivered to the Company, shall be conclusive and binding on the
Company absent manifest error. In the event the Lender exercises its
rights pursuant to this Section 8.5, and subsequent thereto determines
that the amounts paid by the Company exceeded the amount which the
Lender actually required to compensate the Lender for any reduction in
rate of return on its capital, such excess shall be returned to the
Company by the Lender.
	 	 	53	 
	 
	 	 	 	 	 	 
	 

	 	8.6 Taxes, Reserves and Other Conditions. In the event that any applicable
law, treaty or governmental regulation, or any change therein or in the
interpretation or application thereof, or compliance by the Lender with
any new request or directive (whether or not having the force of law) of
any central bank or other governmental or regulatory authority, shall:
	 	 	54	 






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	 	8.7 Authority to Charge Loan Account. The Company hereby authorizes the
Lender to charge the Loan Account with the amount of all payments due
under this Section 8 as such payments become due. Any amount charged to
the Loan Account shall bear interest at the rate provided in Section 3.2
(or Section 3.4, if applicable) of this Financing Agreement. The
Company confirms that any charges which the Lender may make to the Loan
Account as provided herein will be made as an accommodation to the
Company and solely at the Lender’s discretion.
	 	 	54	 
	 
	 	 	 	 	 	 
	 

	 	8.8 Tax Withholding. At the reasonable request of any Credit Party, if the
Lender is entitled to an exemption from or reduction of withholding tax
under the law of the jurisdiction in which a Credit Party is resident
for tax purposes, or any treaty to which such jurisdiction is a party,
with respect to payments hereunder or under any other Loan Document
shall deliver to the Company, at the time or times prescribed by
applicable law or reasonably requested by the Credit Party or the
Lender, such properly completed and executed documentation prescribed by
applicable law as will permit such payments to be made without
withholding or at a reduced rate of withholding. In addition, the
Lender, if requested by a Credit Party, shall promptly deliver such
other documentation prescribed by applicable law or reasonably requested
by the Credit Party or as will enable the Credit Party or the Lender to
determine whether or not the Lender is subject to backup withholding or
information reporting requirements.
	 	 	55	 
	 
	 	 	 	 	 	 
	SECTION 9 Powers	 	 	55	 
	 
	 	 	 	 	 	 
	 

	 	9.1 Authority. Each Credit Party hereby authorizes the Lender, or any
person or agent which the Lender may designate, at the Company’s cost
and expense, to exercise all of the following powers, which authority
shall be irrevocable until the termination of	 	 	 	 






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	 	this Financing Agreement and the full and final payment and satisfaction
of the Obligations (other than contingent indemnification obligations
not yet due and payable):
	 	 	55	 
	 
	 	 	 	 	 	 
	 

	 	9.2 Limitations on Exercise. Notwithstanding any other provision of this
Financing Agreement to the contrary, the powers set forth in Sections
9.1(b), (c), (e) and (f) may only be exercised if an Event of Default
shall have occurred and remain outstanding.
	 	 	56	 
	 
	 	 	 	 	 	 
	SECTION 10 Events of Default and Remedies	 	 	56	 
	 
	 	 	 	 	 	 
	 

	 	10.1 Events of Default. Each of the following events shall constitute an “Event of Default” under this Financing Agreement:
	 	 	56	 
	 
	 	 	 	 	 	 
	 

	 	10.2 Remedies With Respect to Loan. Upon the occurrence and during the
continuance of an Event of Default, the Lender may, at its option, (a)
declare all Obligations immediately due and payable, (b) charge the
Company the Default Rate of Interest on all then outstanding or
thereafter incurred Obligations in lieu of the interest provided for in
Sections 8.1 of this Financing Agreement, provided that the Lender has
given the Company written notice of such Event of Default if required by
Section 8.2, and (c) immediately terminate this Financing Agreement
upon notice to the Company; provided, however, that this Financing
Agreement automatically shall terminate and all Obligations shall become
due and payable immediately without any declaration, notice or demand by
the Lender, upon the commencement of any proceeding described in clause
(i) of Section 10.1(c) or the occurrence of an Event of Default
described in clause (ii) of Section 10.1(c). The exercise of any option
is not exclusive of any other option that may be exercised at any time
by the Lender.
	 	 	58	 






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	 	10.3 Remedies With Respect to Collateral. Upon the occurrence and during the
continuance of an Event of Default, the Lender may, at its option, to
the extent permitted by applicable law and the Contrarian Intercreditor
Agreement: (a) remove from any premises where same may be located any
and all books and records, computers, electronic media and software
programs associated with any Collateral (including electronic records,
contracts and signatures pertaining thereto), documents, instruments and
files, and any receptacles or cabinets containing same, relating to the
Accounts, and the Lender may use, at the Company’s expense, such of any
Credit Party’s personnel, supplies or space at such Credit Party’s
places of business or otherwise, as may be necessary to properly
administer and control the Accounts or the handling of collections and
realizations thereon; (b) bring suit, in the name of any Credit Party or
the Lender and generally shall have all other rights respecting the
Accounts, including, without limitation, the right to (i) accelerate or
extend the time of payment, (ii) settle, compromise, release in whole or
in part any amounts owing on any Accounts and (iii) issue credits in the
name of any Credit Party or the Lender; (c) sell, assign and deliver the
Collateral and any returned, reclaimed or repossessed merchandise, with
or without advertisement, at public or private sale, for cash, on credit
or otherwise, at the Lender’s sole option and discretion, and the Lender
may bid or become a purchaser at any such sale, free from any right of
redemption, which right is hereby expressly waived by each Credit Party;
(d) foreclose the Lender’s security interests in the Collateral by any
available judicial procedure, or take possession of any or all of the
Collateral without judicial process, and to enter any premises where any
Collateral may be located for the purpose of taking possession of or
removing the same; and (e) exercise any other rights and remedies
provided in law, in equity, by contract or	 	 	 	 






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	 	otherwise. Upon the occurrence and during the continuance of an Event of
Default, the Lender shall have the right, without notice or
advertisement, to sell, lease, or otherwise dispose of all or any part
of the Collateral whether in its then condition or after further
preparation or processing, in the name of any Credit Party or the Lender
or in the name of such other party as the Lender may designate, either
at public or private sale or at any broker’s board, in lots or in bulk,
for cash or for credit, with or without warranties or representations
(including, without limitation, warranties of title, possession, quiet
enjoyment and the like), and upon such other terms and conditions as the
Lender in its sole discretion may deem advisable, and the Lender shall
have the right to purchase at any such sale. Upon the occurrence and
during the continuance of an Event of Default, if any Inventory and
Equipment shall require rebuilding, repairing, maintenance or
preparation, the Lender shall have the right, at its option, to do such
of the aforesaid as is necessary, for the purpose of putting the
Inventory and Equipment in such saleable form as the Lender shall deem
appropriate. Upon the occurrence and during the continuance of an Event
of Default, each Credit Party agrees, at the request of the Lender, to
assemble the Inventory and Equipment, and to make it available to the
Lender at premises of such Credit Party or elsewhere and to make
available to the Lender the premises and facilities of such Credit Party
for the purpose of the Lender’s taking possession of, removing or
putting the Inventory and Equipment in saleable form. If notice of
intended disposition of any Collateral is required by law, it is agreed
that ten (10) days notice shall constitute reasonable notification and
full compliance with the law. The net cash proceeds resulting from the
Lender’s exercise of any of the foregoing rights (after deducting all
Out-of-Pocket	 	 	 	 






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	 	Expenses relating thereto) shall be applied by the Lender to the payment
of the Obligations in the order set forth in Section 10.4 hereof, and
the Credit Parties shall remain jointly and severally liable to the
Lender for any deficiencies, and the Lender in turn agrees to remit to
the Company or its successors or assigns, on behalf of the applicable
Credit Parties, any surplus resulting therefrom. The enumeration of the
foregoing rights is not intended to be exhaustive and the exercise of
any right shall not preclude the exercise of any other right of the
Lender under applicable law or the other Loan Documents, all of which
shall be cumulative.
	 	 	58	 
	 
	 	 	 	 	 	 
	 

	 	10.4 Application of Proceeds. Subject to the Contrarian Intercreditor
Agreement, the Lender agrees to apply the net cash proceeds resulting
from the Lender’s exercise of any of the foregoing rights (after
deducting all Out-of-Pocket Expenses relating thereto) to the payment of
the Obligations in the following order:
	 	 	59	 
	 
	 	 	 	 	 	 
	 

	 	10.5 General Indemnity. In addition to the Company’s agreement to reimburse
the Lender for Out-of-Pocket Expenses, but without duplication, each
Credit Party hereby jointly and severally agrees to indemnify the
Lender, and each of its respective officers, directors, employees,
members, attorneys and agents (each, an “Indemnified Party”) from, and
to defend and hold each Indemnified Party harmless against, any and all
losses, liabilities, obligations, claims, actions, judgments, suits,
damages, penalties, costs, fees, expenses (including reasonable
attorney’s fees) of any kind or nature which at any time may be imposed
on, incurred by, or asserted against, any Indemnified Party:
	 	 	59	 
	 
	 	 	 	 	 	 
	SECTION 11 Termination	 	 	60	 
	 
	 	 	 	 	 	 
	SECTION 12 Miscellaneous	 	 	60	 






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	 	12.1 Waivers. Each Credit Party hereby waives to the extent permitted by
applicable law diligence, demand, presentment, protest and any notices
thereof as well as notices of nonpayment, intent to accelerate and
acceleration. No waiver of an Event of Default shall be effective unless
such waiver is in writing and signed by the Lender. No delay or failure
of the Lender to exercise any right or remedy hereunder, whether before
or after the happening of any Event of Default, shall impair any such
right or remedy, or shall operate as a waiver of such right or remedy,
or as a waiver of such Event of Default. A waiver on any one occasion
shall not be construed as a bar to or waiver of any right or remedy on
any future occasion. No single or partial exercise by the Lender of any
right or remedy precludes any other or further exercise thereof, or
precludes any other right or remedy.
	 	 	60	 
	 
	 	 	 	 	 	 
	 

	 	12.2 Entire Agreement; Amendments. This Financing Agreement and the other
Loan Documents: (a) constitute the entire agreement among the Credit
Parties and the Lender; (b) supersede any prior agreements; (c) may be
amended only in writing and signed by the Credit Parties and the Lender;
and (d) shall bind and benefit the Credit Parties, the Lender and their
respective successors and assigns. Should the provisions of any Loan
Document conflict with the provisions of this Financing Agreement, the
provisions of this Financing Agreement shall apply and govern.
	 	 	61	 
	 
	 	 	 	 	 	 
	 

	 	12.3 Usury Limit. In no event shall the Company, upon demand by the Lender
for payment of any indebtedness relating hereto, by acceleration of the
maturity thereof, or otherwise, be obligated to pay interest and fees in
excess of the amount permitted by law. Regardless of any provision
herein or in any agreement made in connection herewith, the Lender shall
never be entitled to receive, charge or apply, as interest on any
indebtedness relating hereto, any amount in excess of the maximum amount
of	 	 	 	 






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	 	interest permissible under applicable law. If the Lender ever receives,
collects or applies any such excess, it shall be deemed a partial
repayment of principal and treated as such. If as a result, the entire
principal amount of the Obligations is paid in full, any remaining
excess shall be refunded to the Company. This Section 12.3 shall control
every other provision of the Financing Agreement, the other Loan
Documents and any other agreement made in connection herewith.
	 	 	61	 
	 
	 	 	 	 	 	 
	 

	 	12.4 Severability. If any provision hereof or of any other Loan Document is
held to be illegal or unenforceable, such provision shall be fully
severable, and the remaining provisions of the applicable agreement
shall remain in full force and effect and shall not be affected by such
provision’s severance. Furthermore, in lieu of any such provision, there
shall be added automatically as a part of the applicable agreement a
legal and enforceable provision as similar in terms to the severed
provision as may be possible.
	 	 	61	 
	 
	 	 	 	 	 	 
	 

	 	12.5 WAIVER OF JURY TRIAL; SERVICE OF PROCESS. THE CREDIT PARTIES AND THE
LENDER EACH HEREBY WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THE LOAN DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED THEREUNDER. THE CREDIT PARTIES EACH HEREBY
IRREVOCABLY WAIVE PERSONAL SERVICE OF PROCESS AND CONSENT TO SERVICE OF
PROCESS BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED. IN NO
EVENT WILL THE LENDER BE LIABLE FOR LOST PROFITS OR OTHER SPECIAL OR
CONSEQUENTIAL DAMAGES.
	 	 	61	 
	 
	 	 	 	 	 	 
	 

	 	12.6 Notices. Except as otherwise herein provided, any notice or other
communication required hereunder shall be in writing (messages sent by
e-mail or	 	 	 	 






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	 	other electronic transmission (other than by telecopier) shall not
constitute a writing, however any signature on a document or other
writing that is transmitted by e-mail or telecopier shall constitute a
valid signature for purposes hereof), and shall be deemed to have been
validly served, given or delivered when received by the recipient if
hand delivered, sent by commercial overnight courier or sent by
facsimile, or three (3) Business Days after deposit in the United States
mail, with proper first class postage prepaid and addressed to the party
to be notified as follows:
	 	 	61	 
	 
	 	 	 	 	 	 
	 

	 	12.7 CHOICE OF LAW. THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS
FINANCING AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY
THE LAWS OF THE STATE OF NEW YORK, EXCEPT TO THE EXTENT THAT ANY OTHER
LOAN DOCUMENT INCLUDES AN EXPRESS ELECTION TO BE GOVERNED BY THE LAWS OF
ANOTHER JURISDICTION.
	 	 	63	 
	 
	 	 	 	 	 	 
	 

	 	12.8 Choice of Forum.
	 	 	63	 
	 
	 	 	 	 	 	 
	SECTION 13 Agreements Regarding the Lender	 	 	63	 
	 
	 	 	 	 	 	 
	 

	 	13.1 Copies of Statements. After the end of each month commencing with the
month ending August 31, 2005, Lender shall promptly send the Company a
statement showing the accounting for the charges, loans and other
transactions occurring between Lender and the Company during that month.
The monthly statements shall be deemed correct and binding upon the
Company and shall constitute an account stated between Company and
Lender unless Lender receives a written statement of the exceptions
within thirty (30) days of the date of the monthly statement.
	 	 	63	 
	 
	 	 	 	 	 	 
	 

	 	13.2 Participations and Assignments.
	 	 	63	 






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	 	 	 	 	Page
	 
	 

	 	13.3 Exercise of Setoff Rights. Subject to the Contrarian Intercreditor
Agreement, each Credit Party authorizes the Lender, and the Lender shall
have the right, after the occurrence and during the continuance of an
Event of Default, without notice, to set off and apply against any and
all property or assets of such Credit Party held by, or in the
possession of the Lender, any of the Obligations owed to the Lender.
	 	 	65	 
	 
	 	 	 	 	 	 
	 

	 	13.4 Confidentiality. For the purposes of this Section 13.4, “Confidential
Information” means all financial projections and all other information
delivered to the Lender by or on behalf of the Parent or any Credit
Party in connection with the transactions contemplated by or otherwise
pursuant to this Financing Agreement that is proprietary in nature and
that is clearly marked or labeled (or otherwise adequately identified)
as being confidential information of such Credit Party, provided that
such term does not include information that (a) was publicly known or
otherwise known to the Lender prior to the time of such disclosure, (b)
subsequently becomes publicly known through no act or omission by the
Lender or any person acting on their behalf, (c) otherwise becomes known
to the Lender other than through disclosure by the Credit Parties or (d)
constitutes financial statements delivered under Section 7.2(h) that are
otherwise publicly available. The Lender and its respective directors,
officers, members, employees, agents, attorneys and affiliates will
maintain the confidentiality of such Confidential Information in
accordance with commercially reasonable procedures adopted by the Lender
in good faith to protect confidential information of third parties
delivered to them, provided that the Lender may deliver or disclose
Confidential Information to:
	 	 	65	 
	 
	 	 	 	 	 	 
	SECTION 14 [RESERVED]	 	 	66	 






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	 	 	 	 	Page
	 
	SECTION 15 Guaranty	 	 	66	 
	 
	 	 	 	 	 	 
	 

	 	15.1 Guaranty. Each Guarantor hereby (i) irrevocably, absolutely and
unconditionally guaranties the prompt payment, as and when due and
payable (whether by scheduled maturity, required prepayment,
acceleration, demand or otherwise), of all Obligations owing by the
Company and the other Credit Parties to the Lender (including interest,
fees and expenses accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to any Credit Party), whether
accruing before or subsequent to the filing of a petition initiating a
bankruptcy, reorganization, liquidation or similar proceeding affecting
any Credit Party (notwithstanding the operation of the automatic stay
under Section 362(a) of the U.S. Bankruptcy Code) (all of the foregoing,
with respect to each Guarantor, collectively, the “Guarantied
Obligations”); and (ii) agrees to pay any and all expenses (including
reasonable counsel fees and expenses) incurred by the Lender in
enforcing this Guaranty. Without limiting the generality of the
foregoing, each Guarantor’s liability shall extend to all amounts that
constitute part of the Guarantied Obligations and would be owed by any
other Credit Party under this Financing Agreement or the other Loan
Documents but for the fact that such document is unenforceable or not
allowable due to the existence of a bankruptcy, reorganization or
similar proceeding involving any other Credit Party. Each Guarantor will
make each payment hereunder in United States Dollars and in same day
funds to Lender at its address specified in Section 12.6 hereof or to
such account in New York City as the Lender may from time to time
designate by notice to any Guarantor.
	 	 	66	 
	 
	 	 	 	 	 	 
	 

	 	15.2 Guarantors’ Obligations Unconditional.
	 	 	66	 






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	 	 	 	 	Page
	 
	 

	 	15.3 Waivers. Except for notices specifically provided for elsewhere in this
Financing Agreement, each Guarantor hereby waives to the extent
permitted by applicable law (i) promptness and diligence; (ii) notice of
acceptance and notice of the incurrence of any Guarantied Obligation by
the Company or any other Credit Party; (iii) notice of any actions taken
by the Lender, or the Company or any other Credit Party, under any Loan
Document; (iv) all other notices, demands and protests, and all other
formalities of every kind in connection with the enforcement of the
Guarantied Obligations or of the obligations of such Guarantor
hereunder, the omission of or delay in which, but for the provisions of
this Section 15.3, might constitute grounds for relieving such
Guarantor of its obligations hereunder; (v) any requirement that the
Lender protect, secure, perfect or insure any security interest or lien
or any property subject thereto or exhaust any right or take any action
against any Credit Party or any other person or any Collateral; and (vi)
any other defense available to such Guarantor. Each Guarantor hereby
agrees that the Lender shall not have any obligation to marshal any
assets in favor of any Guarantor or against or in payment of any or all
of the Guarantied Obligations.
	 	 	67	 
	 
	 	 	 	 	 	 
	 

	 	15.4 Subrogation. Until the Guarantied Obligations have been irrevocably
paid in full in cash, each Guarantor shall not exercise any rights with
respect to any claim, right or remedy now existing or hereafter acquired
against the Company or any other Credit Party hereunder or from the
performance by such Guarantor hereunder, including, without limitation,
any claim, right or remedy of subrogation, reimbursement, exoneration,
contribution, indemnification, or against any security that any
Guarantor now owns or hereafter is granted, whether arising in equity,
under	 	 	 	 






xviii









 






	 	 	 	 	 	 	 
	 	 	 	 	Page
	 
	 

	 	contract, by statute (including, without limitation, any such right
arising under the United States Bankruptcy Code), under common law or
otherwise. The payment of any amounts due with respect to any
indebtedness of the Company or any other Credit Party now or hereafter
owed to each Guarantor is hereby subordinated to the prior payment in
full of all of the Obligations. Each Guarantor agrees that, after the
occurrence of any default in the payment or performance of any of the
Obligations, the Guarantor will not demand, sue for or otherwise attempt
to collect any such indebtedness of the Company or any other Credit
Party to such Guarantor until all of the Obligations shall have been
paid in full. If, notwithstanding the foregoing sentence, any Guarantor
shall collect, enforce or receive any amounts in respect of such
indebtedness, such amounts shall be collected, enforced and received by
the Guarantor as trustee for the Lender and be paid over to the Lender
on account of the Obligations without affecting in any manner the
liability of such Guarantor under the other provisions of this Guaranty.
	 	 	67	 
	 
	 	 	 	 	 	 
	 

	 	15.5 Nature of Liability. It is the desire and intent of the Guarantors and
the Lender that this Guaranty shall be enforced against each Guarantor
to the fullest extent permissible under the laws and public policies
applied in each jurisdiction in which enforcement is sought. If,
however, and to the extent that, the obligations of any Guarantor under
this Guaranty shall be adjudicated to be invalid or unenforceable for
any reason (including, without limitation, because of any applicable
state or federal law relating to fraudulent conveyances or transfers),
then the amount of such Guarantor’s obligations under this Guaranty
shall be deemed to be reduced and such Guarantor shall pay the maximum
amount of the Guarantied Obligations which would be permissible under
applicable law.
	 	 	68	 






xix









 






	 	 	 	 	 	 	 
	 	 	 	 	Page
	 
	 

	 	15.6 Subordination. The payment of any and all indebtedness, liabilities and
obligations of any Credit Party to another Credit Party of every kind or
nature, whether joint or several, due or to become due, absolute or
contingent, now existing or hereafter arising, and whether principal,
interest, fees, costs, expenses or otherwise (collectively, the “Intercompany Debt”), is expressly subordinated to the Obligations. Upon
the occurrence and during the continuance of an Event of Default, no
payment of any kind (by voluntary payment, prepayment, acceleration,
setoff or otherwise) of any portion of the Intercompany Debt may be made
by any Credit Party or received or accepted by any Credit Party at any
time without the prior written consent of the Lender. Any payments
received by any Credit Party in violation of this Section shall be held
in trust for and immediately remitted to the Lender.
	 	 	68	 
	 
	 	 	 	 	 	 
	 

	 	15.7 Intercreditor Agreement and Other Agreements.
	 	 	68	 
	 
	 	 	 	 	 	 
	EXHIBITS	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	Exhibit A — Form of Assignment and Transfer Agreement	 	 	 	 
	 

	 	Exhibit B — Form of Promissory Note	 	 	 	 
	 

	 	Exhibit C — Form of Compliance Certificate	 	 	 	 
	 

	 	Exhibit D — Form of Rollover Notice	 	 	 	 
	 
	 	 	 	 	 	 
	SCHEDULES	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	Schedule 1.1(a) — Existing Indebtedness; Permitted Encumbrances	 	 	 	 
	 

	 	Schedule 1.1(b) — Description of Mortgaged Real Estate	 	 	 	 
	 

	 	Schedule 1.1(c) — Description of Excluded Real Estate	 	 	 	 
	 

	 	Schedule 1.1(d) — Permitted Investments	 	 	 	 
	 

	 	Schedule 2.1(k) — Existing Indebtedness	 	 	 	 
	 

	 	Schedule 3.6(b)-1 — Excluded Bank Accounts	 	 	 	 
	 

	 	Schedule 3.6(b)-2 — Bank Accounts	 	 	 	 
	 

	 	Schedule 6.5(e) — Approved Bailees	 	 	 	 
	 

	 	Schedule 7.1(b) — Credit Party and Collateral Information	 	 	 	 
	 

	 	Schedule 7.1(g) — Pending Litigation	 	 	 	 






xx









 






	 	 	 	 	 	 	 
	 

	 	Schedule 7.1(h) — Labor Relations	 	 	 	 
	 

	 	Schedule 7.1(i) — Pension Plans	 	 	 	 
	 

	 	Schedule 7.4(h) — Related Party Transactions	 	 	 	 







xxi









 





     CONTRARIAN SERVICE COMPANY, L.L.C., a Delaware limited liability company
(“Lender”), with offices located at 411 West Putnam Avenue, Suite 225, Greenwich,
Connecticut 06830, and any other entity becoming a Lender hereunder pursuant to Section
13.2 of this Second Lien Financing Agreement (the “Financing Agreement”), is pleased to
confirm, as of this 15th day of July, 2005, the terms and conditions under which the Lender shall
make a term loan and other financial accommodations to Horsehead Corp. (f/k/a Horsehead Acquisition
Corp.), a Delaware corporation (the “Company”), with a principal place of business at 300
Frankfort Road, Monaca, PA 15061, which term loan and other financial accommodations, together with
all other Obligations (as defined below), shall be secured by the Collateral (as defined below) and
supported by the guaranty and surety of the other Credit Parties (as defined below) pursuant to
Section 15 of this Financing Agreement.



SECTION 1 Definitions




     1.1 Defined Terms. As used in this Financing Agreement:



     Accounts shall mean, as to any Credit Party, any and all of such Credit Party’s
present and future: (a) accounts (as defined in the UCC) and any and all other receivables (whether
or not specifically listed on schedules furnished to the Lender), including, without limitation,
all accounts created by or arising from such Credit Party’s sales, leases or rentals of goods or
rendition of services to its customers; (b) instruments, documents, chattel paper (including
electronic chattel paper) (all as defined in the UCC); (c) unpaid seller’s or lessor’s rights
(including rescission, replevin, reclamation, repossession and stoppage in transit) relating to the
foregoing or arising therefrom; (d) rights to any goods represented by any of the foregoing,
including rights to returned, reclaimed or repossessed goods; (e) reserves and credit balances
arising in connection with or pursuant to this Financing Agreement; (f) guaranties, other
supporting obligations, payment intangibles and letter of credit rights (all as defined in the
UCC); (g) insurance policies or rights relating to any of the foregoing; (h) general intangibles
pertaining to any of the foregoing (including rights to payment, including those arising in
connection with bank and non-bank credit cards), and all books and records and any electronic media
and software relating thereto; (i) notes, deposits or other property of such Credit Party’s account
debtors securing the obligations owed by such account debtors to such Credit Party; and (j) all
Proceeds of any of the foregoing.



     Applicable Margin shall mean initially nine percent (9.00%), which shall be adjusted
pursuant to Section 3.2(a) in accordance with the following:



	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Applicability	 	Level	 	LIBOR Floor	 	Applicable Margin	 	PIK Margin
	Consolidated Senior
Leverage is equal
to or in excess of
2.00:1 but less
than 2.49:1
	 	 	I	 	 	 	2.75	%	 	 	6.875	%	 	 	1.00	%






 









 






	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Applicability	 	Level	 	LIBOR Floor	 	Applicable Margin	 	PIK Margin
	Consolidated Senior
Leverage is equal
to or in excess of
2.50:1 but less
than 2.99:1
	 	II	 	 	2.75	%	 	 	7.125	%	 	 	1.00	%
	Consolidated Senior
Leverage is equal
to or in excess of
3.00:1 but less
than 3.49:1
	 	III	 	 	2.75	%	 	 	7.500	%	 	 	1.00	%
	Consolidated Senior
Leverage is equal
to or in excess of
3.50:1 but less
than 3.99:1
	 	IV	 	 	2.75	%	 	 	7.875	%	 	 	1.00	%
	Consolidated Senior
Leverage is equal
to or in excess of
4.00:1 but less
than 4.49:1
	 	 	V	 	 	 	2.75	%	 	 	8.250	%	 	 	1.00	%
	Consolidated Senior
Leverage is equal
to or in excess of
4.50:1 but less
than 4.99:1
	 	VI	 	 	2.75	%	 	 	8.625	%	 	 	1.00	%
	Consolidated Senior
Leverage is equal
to or in excess of
5.00:1 but less
than 5.49:1
	 	VII	 	 	2.75	%	 	 	9.00	%	 	 	1.00	%
	Consolidated Senior
Leverage is equal
to or in excess of
5.50:1 but less
than 5.99:1
	 	VIII	 	 	2.75	%	 	 	9.50	%	 	 	1.00	%






2









 






	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Applicability	 	Level	 	LIBOR Floor	 	Applicable Margin	 	PIK Margin
	Consolidated Senior
Leverage is equal
to or in excess of
6.00:1 but less
than 6.49:1
	 	IX	 	 	2.75	%	 	 	10.00	%	 	 	1.00	%






     Any change in the Applicable Margin applicable to the Loan based on a change in the
Consolidated Senior Leverage shall be effective as of the first day of the month following the
month in which a financial covenant compliance certificate reflecting a change in such ratio is
delivered to the Lender pursuant to Section 7.2(h), provided, however, that
the Applicable Margin shall be nine percent (9.00)% until the Company has delivered a financial
covenant compliance certificate covering the first four (4) fiscal quarters following the Closing
Date.



     Approved Bailees shall mean, collectively, those customers of the Company listed on
Schedule 6.5(e) hereto and such other customers of the Company approved in writing by the
Lender from time to time on a case-by-case basis, in the exercise of the Lender’s reasonable
business judgment; provided, however, that the Lender may, if any such customer
meets one of the specifications set forth in clause (b)(vii) of the definition of Eligible Accounts
(as defined in the CIT Financing Agreement), as determined by the Lender in the exercise of its
reasonable business judgment, withdraw its approval for such customer upon five (5) Business Days’
advance written notice to the Company and after the expiration of such notice period such customer
shall no longer constitute an Approved Bailee.



     Assignment and Transfer Agreement shall mean the Assignment and Transfer Agreement in
the form of Exhibit A attached hereto.



     Back-Stop Letter of Credit shall mean a certain back-to-back letter of credit issued
by JPMorgan Chase Bank, N.A. on behalf of CIT in favor of JPMorgan Chase Bank, N.A. as credit
support for the Existing Letters of Credit under the CIT Financing Agreement.



     Beaver County CED Loan shall mean that certain loan to be entered into after the
Closing Date by and between Beaver County Corporation for Economic Development and the Company in
an amount not to exceed Three Hundred Thousand Dollars ($300,000) on terms substantially similar to
those set forth in the term sheet dated May 13, 2005 delivered to the Lender.



     Beaumont Facility shall mean the Company’s leased Real Estate and facility located on
three acres at Old Highway Road 90, Beaumont, Texas 77662.



     Bond Obligations shall mean all of the Indebtedness and other obligations of the
Company owing to the Carbon County Industrial Development Authority or any other person pursuant to
the Bond Documents.



     Bond Documents shall mean, collectively: (a) that certain Loan Agreement, dated as of
December 13, 2004, between the Carbon County Industrial Development Authority and the



3









 







Company; (b) the “Company’s Note” (as defined therein); and (c) all other agreements, documents and instruments executed in connection with the foregoing, in each case as the same may from
time to time be renewed, amended, restated or supplemented in accordance with the terms of this
Financing Agreement.



     Business Day shall mean any day on which the Lender and JPMorgan Chase Bank, N.A. are
open for business.



     Capital Expenditures shall mean, for any period, the aggregate expenditures of the
Credit Parties during such period on account of property, plant, equipment or similar fixed assets
that, in conformity with GAAP, are required to be reflected on the consolidated balance sheet of
the Company, but excluding such expenditures made with proceeds of insurance and in compliance with
the terms of this Financing Agreement.



     Capital Lease shall mean any lease of property by any Credit Party (whether real,
personal or mixed) which, in conformity with GAAP, is accounted for as a capital lease or a Capital
Expenditure on the consolidated balance sheet of the Company.



     Change of Control shall mean the occurrence of any of the following events: (a) the
acquisition of ownership, directly or indirectly, beneficially or of record, by any person or group
(within the meaning of the Securities Exchange Act of 1934 and the rules of the Securities and
Exchange Commission thereunder as in effect on the date hereof) (other than Sun Capital or any
affiliates thereof), of shares representing more than fifty percent (50%) of the aggregate ordinary
voting power represented by the issued and outstanding capital stock of the Parent; (b) the Parent
shall cease to own directly one hundred percent (100%) of the total issued and outstanding capital
stock of Horsehead Intermediary; or (c) Horsehead Intermediary shall cease to own directly, or
indirectly through one or more of the other Credit Parties, one hundred percent (100%) of the total
issued and outstanding capital stock of each of the other Credit Parties.



     Chase Bank Rate shall mean the rate of interest per annum announced by JPMorgan Chase
Bank, N.A. (or its successor) from time to time as its “prime rate” in effect at its principal
office in New York City. (The prime rate is not intended to be the lowest rate of interest charged
by JPMorgan Chase Bank, N.A. to its borrowers).



     Chestnut Ridge shall mean Chestnut Ridge Railroad Corp., a Delaware corporation and a
wholly-owned subsidiary of the Company.



     CIT shall mean The CIT Group/Business Credit, Inc., a New York corporation, and its
successors and assigns.



     CIT Financing Agreement shall mean the Financing Agreement, dated as of the date
hereof, among the Credit Parties and CIT, as the agent for the lenders therein.



     CIT Obligations shall mean all of the Indebtedness and other “Obligations” of one or
more of the Credit Parties owing to CIT pursuant to (and as defined in) the CIT Transaction
Documents.




4









 





     CIT Transaction Documents shall mean, collectively: (a) that certain CIT
Financing Agreement; and (b) all other agreements, documents and instruments executed in connection
with the foregoing, in each case as the same may from time to time be renewed, amended, replaced,
restated or supplemented in accordance with the terms of the CIT Financing Agreement.



     Closing Date shall mean the date on which this Financing Agreement is executed by each
Credit Party and the Lender and delivered to the Lender and the Loan is funded.



     Collateral shall mean, collectively, all present and future assets and properties of
the Credit Parties, including, without limitation, all present and future Accounts, Equipment,
Inventory and other Goods, Documents of Title, General Intangibles, Investment Property, Real
Estate and Other Collateral, subject to the last sentence of Section 6.1(a) of this
Financing Agreement.



     Compliance Certificate shall have the meaning provided for in Section 1.2 of
this Financing Agreement.



     Confidential Information shall have the meaning provided for in Section 13.3
of this Financing Agreement.



     Consolidated Balance Sheet shall mean a consolidated balance sheet for the Company and
its consolidated subsidiaries, eliminating all inter-company transactions and prepared in
accordance with GAAP.



     Consolidated EBITDA shall mean, for any period with respect to the Company and its
subsidiaries, on a consolidated basis, Consolidated Net Income for such period, plus,
without duplication, the sum of (a) Consolidated Interest Expense, (cash and non-cash) amortization
or writeoff of debt discount and debt issuance costs, commissions and discounts for such period,
(b) federal, state and local income (and franchise taxes in the nature of income taxes) and foreign
withholding tax expense for such period and any state single business unitary or similar tax for
such period, (c) depreciation expense for such period, (d) amortization expense for such period,
(e) all fees and costs and expenses paid to CIT and the Issuing Bank, on one hand, and Lender, on
the other hand, in connection with the transactions contemplated by this Financing Agreement and
the CIT Transaction Documents during such period, (f) all fees and costs and expenses paid to
JPMorgan Chase Bank, N.A. and the other financial institutions under the JPMorgan Chase L/C
Assumption Agreement in connection with the transactions contemplated by JPMorgan Chase L/C
Assumption Agreement and the Existing Letters of Credit during such period, (g) all fees and costs
and expenses paid to the holders of the Existing Indebtedness in connection with the transactions
contemplated by the Existing Indebtedness during such period, (h) fees accrued (whether or not
paid) under the Sun Capital Management Agreement during such period, (i) amortization of
intangibles (including, but not limited to, goodwill) and organization costs for such period, (j)
expenses incurred to the extent covered by any insurance to the extent reimbursed during such
period and (k) restructuring charges for such period specifically approved by the Lender in writing
as being acceptable for purposes of an “add-back” to Consolidated Net Income under this definition;
provided that with respect to clauses (a) through (k), such amounts shall be added to
Consolidated Net Income pursuant to this definition only to the extent such amounts are deducted in
determining Consolidated Net Income.



5









 





     Consolidated Fixed Charge Coverage Ratio shall mean, for any period with respect to
the Company and its subsidiaries, on a consolidated basis, the quotient (expressed as a ratio)
obtained by dividing (a) Consolidated EBITDA for such period, by (b) Consolidated Fixed Charges for
such period.



     Consolidated Fixed Charges shall mean, for any period, with respect to the Company and
its subsidiaries, on a consolidated basis, the sum of, without duplication, (a) Consolidated
Interest Expense paid or due in cash for such period, (b) the amount of all fees and costs and
expenses paid or due to the Lender and the Issuing Bank, on one hand, and CIT, on the other hand,
in connection with the transactions contemplated by this Financing Agreement and the CIT
Transaction Documents during such period, (c) the amount of all fees and costs and expenses paid to
JPMorgan Chase Bank, N.A. and the other financial institutions under the JPMorgan Chase L/C
Assumption Agreement in connection with the transactions contemplated by JPMorgan Chase L/C
Assumption Agreement and the Existing Letters of Credit during such period, (d) the amount of all
fees and costs and expenses paid to the holders of the Existing Indebtedness in connection with the
transactions contemplated by the Existing Indebtedness during such period, (e) the amount of
principal repaid in cash or scheduled to be repaid on Indebtedness during such period (other than
(i) the Revolving Loans under the CIT Financing Agreement, (ii) the principal repaid in connection
with distribution described in clause (b) of the definition of Permitted Distributions, (iii)
principal repaid in full with the proceeds of Revolving Loans under the CIT Financing Agreement or
Permitted Indebtedness and (iv) principal repaid in connection with a contractual mandatory
prepayment required as a result of the sale of assets by the Company or its consolidated
subsidiaries or as a result of any such person issuing equity or debt securities, to the extent
such sale or issuance is permitted under this Financing Agreement), (f) all payments made or due in
respect of Capital Leases during such period, (g) all federal, state and local income tax expenses
paid or due during such period, (h) unfinanced Capital Expenditures incurred during such period,
(i) payments permitted by Section 7.4(i) of this Financing Agreement which are made in cash
during such period and, without duplication, all other amounts paid in cash to Sun Capital or any
of its affiliates during such period (other than (i) the one-time payment to Sun Capital or its
affiliate described in Section 7.4(i)(iii)(A) of this Financing Agreement, (ii) Permitted
Management Fee Payments made in accordance with Section 7.4(i) of this Financing Agreement,
and (iii) trade payables owing to a portfolio company of Sun Capital on standard, fair and
reasonable terms and conditions, no less favorable to the Company or its subsidiaries than the
Company or its subsidiaries could obtain in a comparable arms length transaction with an unrelated
third party), (j) all cash payments made or due on account of any contingent obligation in respect
of Indebtedness during such period, and (i) all payments of the type described in clause (d) of the
definition of Permitted Distributions made or due in cash during such period.



     Consolidated Interest Expense shall mean, with respect to any person for any period,
interest expense of such person and its subsidiaries for such period with respect to all
outstanding Indebtedness of such person determined on a consolidated basis and in accordance with
GAAP on a basis consistent with the latest audited financial statements of the Company, subject to
Section 1.2 of this Financing Agreement. Consolidated Interest Expense shall be
calculated without giving effect to amortization or write-off of debt discount and debt issuance
costs and commissions,



6









 







discounts and other fees and charges associated with Indebtedness (including
the Revolving Loans under the CIT Financing Agreement).



     Consolidated Net Income shall mean, with respect to any person for any period, the net
income (or loss) of such person and its Subsidiaries for such period, determined on a consolidated
basis and in accordance with GAAP on a basis consistent with the latest audited financial
statements of the Company, subject to Section 1.2 of this Financing Agreement, but
excluding from the determination of Consolidated Net Income (without duplication) (a) any
extraordinary, unusual or non-recurring gains or losses for such period, and (b) any gains or
losses from sales or other dispositions of assets during such period, to the extent permitted under
this Financing Agreement (other than from sales of Inventory in the ordinary course of business).



     Consolidated Senior Leverage shall mean, as of any date, the quotient (expressed as a
ratio) obtained by dividing (a) without duplication, the sum of the aggregate outstanding principal
amount of the Obligations (which amount shall be deemed to include the aggregate undrawn amount of
all outstanding Letters of Credit (other than (i) that portion of the undrawn amount of the
Back-Stop Letter of Credit attributable to the Existing Letter of Credit issued as credit support
for the Bond Obligations or (ii) the undrawn amount of any Letter of Credit issued in replacement
of such Existing Letter of Credit)), plus the aggregate outstanding principal amount of the
CIT Obligations, plus the aggregate outstanding principal amount of the Bond Obligations,
plus the aggregate outstanding principal amount of the Contingent Note, if and to the
extent that the Contingent Note becomes due and payable, by (b) Consolidated EBITDA for the
applicable period ending on such date.



     Contingent Note shall mean an unsecured promissory note in an aggregate principal
amount of One Million Dollars ($1,000,000), dated as of December 23, 2003, issued by the Company in
favor of the unsecured creditors of HH Liquidating Corp. (f/k/a Horsehead Industries, Inc.), a
Delaware corporation.



     Contrarian Intercreditor Agreement shall mean that certain Intercreditor Agreement,
dated as of the Closing Date, between the Lender and CIT, as the same may from time to time be
renewed, amended, restated or supplemented.



     Copyrights shall mean, as to any Credit Party, all of such Credit Party’s present and
hereafter acquired copyrights, copyright registrations, recordings, applications, designs, styles,
licenses, marks, prints and labels bearing any of the foregoing, all reissues and renewals thereof,
all licenses thereof, all other general intangible, intellectual property and other rights
pertaining to any of the foregoing, together with the goodwill associated therewith, and all
income, royalties and other Proceeds of any of the foregoing.



     Credit Parties shall mean collectively, the Company and the Guarantors, and Credit
Party shall mean any one of them.



     Current Cash Interest Tranche shall have the meaning ascribed to it in Section
3.2(a).



7









 





     Default shall mean any event specified in Section 10.1 hereof, regardless of
whether any requirement for the giving of notice, the lapse of time, or both, or any other
condition, event or act, has occurred or been satisfied.



     Default Rate of Interest shall have the meaning ascribed to in Section 3.4.



     Depository Account shall mean each bank account (and the related lockbox, if any)
subject to CIT’s control that is established by CIT, as agent for lenders under the CIT Financing
Agreement and Lender, or any Credit Party pursuant to Section 2.1(j) or Section
3.2(c) of the CIT Financing Agreement.



     Depository Account Control Agreement shall mean a three-party agreement in form and
substance reasonably satisfactory to the Lender among CIT, as agent for lenders under the CIT
Financing Agreement and Lender, a Credit Party and the bank which will maintain a Depository
Account, (a) which provides CIT, as agent for lenders under the CIT Financing Agreement and Lender,
with control of such Depository Account and provides for the transfer of funds in a manner
consistent with the provisions of Section 3.2(b) of the CIT Financing Agreement, and (b)
pursuant to which such bank agrees that (x) such Depository Account and all cash, checks, wires and
other items received or deposited into such Depository Account are subject to a security interest
in favor of the Lender, and (y) except as otherwise provided in such Depository Account Control
Agreement, such bank has no lien upon, or right of set off against, such Depository Account and any
cash, checks, wires and other items from time to time on deposit therein; in each case as such
Depository Account Control Agreement may from time to time be renewed, amended, restated or
supplemented with the consent of the Lender.



     Disqualified Capital Stock shall mean, with respect to any person, any capital stock
of such person that, by its terms (or by the terms of any security into which it is convertible or
for which it is exchangeable), or upon the happening of any event or otherwise, (i) matures or is
mandatorily redeemable or subject to any mandatory repurchase requirement, pursuant to a sinking
fund obligation or otherwise, (ii) is redeemable or subject to any mandatory repurchase requirement
at the sole option of the holder thereof, or (iii) is convertible into or exchangeable for (whether
at the option of the issuer or the holder thereof) (y) debt securities or (z) any capital stock
referred to in (i) or (ii) above, in each case under (i), (ii) or (iii) above at any time on or
prior to the Termination Date; provided, however, that only the portion of capital
stock that so matures or is mandatorily redeemable, is so redeemable at the option of the holder
thereof, or is so convertible or exchangeable on or prior to such date shall be deemed to be
Disqualified Capital Stock.



     Documents of Title shall mean, as to any Credit Party, all of such Credit Party’s
present and future documents (as defined in the UCC), and any and all warehouse receipts, bills of
lading, shipping documents, chattel paper, instruments and similar documents, all whether
negotiable or non-negotiable, together with all Inventory and other Goods relating thereto, and all
Proceeds of any of the foregoing.



     Electronic Transmission shall have the meaning given to such term in Section
7.2(g) of this Financing Agreement.



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     Energy Law shall mean any and all laws, rules, orders, regulations, ordinances, codes,
permits, licenses, decrees, enforceable requirements of any governmental authority, or other
requirements of law (including common law) regulating or imposing liability or standards of conduct
concerning public utilities, electric utilities, electric generation, or energy contracts,
including, without limitation, the Federal Power Act and the Public Utilities Holding Company Act, and the
regulations implementing such Acts.



     Environmental Law shall mean any and all laws, rules, orders, regulations, ordinances,
codes, permits, licenses, decrees, enforceable requirements of any governmental authority, or other
requirements of law (including common law) regulating or imposing liability or standards of conduct
concerning emissions, discharges, releases of pollutants, contaminants, hazardous or toxic
materials, substances, or wastes into ambient air, surface water, ground water or land, or
otherwise relating to the manufacture, processing, distribution, use treatment, storage, disposal,
transport or handling of pollutants, contaminants or hazardous or toxic materials, substances, or
wastes.



     Environmental Reports shall mean the Environmental Review of Zinc Corporation of
America d/b/a Horsehead Industries, Inc., prepared by ENVIRON International Corporation and dated
December 2003 and the Phase I Environmental Assessment Report for the Power Plant at 300 Frankfort
Road, Monaca, PA, prepared by Clayton Group Services and dated July 1, 2005.



     Equipment shall mean, as to any Credit Party, all of such Credit Party’s present and
hereafter acquired equipment (as defined in the UCC) including, without limitation, all machinery,
equipment, rolling stock, furnishings and fixtures, and all additions, substitutions and
replacements thereof, wherever located, together with all attachments, components, parts, equipment
and accessories installed thereon or affixed thereto and all Proceeds of any of the foregoing.



     ERISA shall mean the Employee Retirement Income Security Act of 1974, as amended from
time to time, and the rules and regulations promulgated thereunder from time to time.



     Eurocurrency Reserve Requirements shall mean for any day, as applied to a LIBOR Loan,
the aggregate (without duplication) of the maximum rates of reserve requirement (expressed as a
decimal fraction) in effect with respect to the Lender on such day (including, without limitation,
basic, supplemental, marginal and emergency reserves under Regulation D or any other applicable
regulations of the Board of Governors of the Federal Reserve System or other governmental authority
having jurisdiction with respect thereto, as now and from time to time in effect, dealing with
reserve requirements prescribed for Eurocurrency funding (currently referred to as “Eurocurrency
Liabilities” in Regulation D of such Board) maintained by the Lender (such rates to be adjusted to
the nearest one-sixteenth of one percent (1/16 of 1%) or, if there is not a nearest one-sixteenth
of one percent (1/16 of 1%), to the next higher one sixteenth of one percent (1/16 of 1%).



     Event(s) of Default shall have the meaning given to such term in Section 10.1
of this Financing Agreement.



     Excluded Bank Accounts shall have the meaning provided for in Section 3.2(c)
of the CIT Financing Agreement.



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     Excluded Inventory shall mean, collectively, EAF dust, lead chloride and other
Inventory to the extent that (a) such Inventory has no marketable value as recorded in accordance
with GAAP.



     Excluded Property shall mean, collectively, (a) the cash collateral described in
clause (k) of the definition of Permitted Encumbrances if the grant of a security interest in such
cash collateral in the manner contemplated by this Financing Agreement is prohibited under the terms of the
related cash collateral agreement, (b) the Excluded Real Estate, (c) “intent-to-use” trademark
applications, (d) any Equipment (other than Equipment constituting part of the Monaca Power Plant
(excluding de minimis Equipment) and other Equipment that is significant to the operation of the
Monaca Power Plant) which is subject to a Purchase Money Lien pursuant to documents which contain
prohibitions on a Credit Party granting any other liens in such Equipment and (e) any permit,
lease, license, contract or other instrument of a Credit Party (other than any permit, lease,
license, contract or other instrument which is necessary to enable the Lender to enforce its
security interest with respect to Accounts, Inventory and/or the Monaca Power Plant) if the grant
of a security interest in such permit, lease, license, contract or other instrument in the manner
contemplated by this Financing Agreement is prohibited under the terms thereof or under applicable
law and would result in the termination thereof or give the other parties thereto the right to
terminate, accelerate or otherwise alter such Credit Party’s rights, titles and interests
thereunder (including upon the giving of notice or the lapse of time or both) but only to the
extent that (i) consent from the relevant party or parties has not been obtained and (ii) such
prohibition is not rendered ineffective pursuant to the UCC or any other applicable law;
provided, however, that, upon the termination or lapse of any such provision with respect
to any such cash collateral, Equipment, permit, lease, license, contract or other instrument, such
Credit Party shall, automatically and without the necessity of any further action on the part of
such Credit Party or any other person, be deemed to have granted to the Lender a security interest
in and lien upon all of such Credit Party’s right, title and interest in and to any such cash
collateral, Equipment, permit, lease, license, contract or other instrument and the same shall
constitute Collateral hereunder, all as if such provision had never been effective; provided
further that nothing contained in this Financing Agreement shall limit or restrict the grant of
a security interest by any Credit Party in any Proceeds of any Excluded Property.



     Excluded Real Estate shall mean, collectively, (a) the real property owned by the
Company as of the Closing Date and described on Schedule 1.1(c) attached hereto, and (b)
any real property hereafter acquired by a Credit Party that is not required to be subject to a
Mortgage in favor of the Lender pursuant to Section 6.10 of this Financing Agreement.



     Existing Indebtedness shall have the meaning provided for in Section 2.1(k) of
this Financing Agreement.



     Existing Letters of Credit shall mean, collectively, those letters of credit issued by
JPMorgan Chase Bank, N.A., as the issuing bank pursuant to the JPMorgan Chase L/C Assumption
Agreement, and listed on Schedule 5.1(b) under the CIT Financing Agreement.



     GAAP shall mean generally accepted accounting principles in the United States of
America as in effect from time to time and for the period as to which such accounting principles
are to apply.



10









 





     General Intangibles shall mean, as to any Credit Party, all of such Credit Party’s
present and hereafter acquired general intangibles (as defined in the UCC), and shall include,
without limitation, all present and future right, title and interest in and to: (a) all Trademarks,
(b) Patents, utility models, industrial models, and designs, (c) Copyrights, (d) trade secrets, (e)
licenses, permits and franchises, (f) any other forms of intellectual property, (g) all customer
lists, distribution agreements, supply agreements, blueprints, indemnification rights and tax
refunds, (h) all monies and claims for monies now or hereafter due and payable in connection with the foregoing, including, without
limitation, payments for infringement and royalties arising from any licensing agreement between
such Credit Party and any licensee of any of such Credit Party’s General Intangibles, and (i) all
Proceeds of any of the foregoing.



     Goods shall mean, as to any Credit Party, all of such Credit Party’s present and
hereafter acquired “Goods”, as defined in the UCC, and all Proceeds thereof.



     Guarantied Obligations shall have the meaning provided for in Section 15.1 of
this Financing Agreement.



     Guaranties shall mean the guaranty agreements, in form and substance reasonably
satisfactory to the Lender, executed and delivered to the Lender by Guarantors, including, without
limitation, the guaranty agreement contained in Section 15 of this Financing Agreement.



     Guarantors shall mean, collectively, Horsehead Intermediary and Chestnut Ridge, and
any other future guarantor of all or any part of the Obligations, and Guarantor shall mean
any one of them.



     Horsehead Intermediary shall mean Horsehead Intermediary Corp., a Delaware corporation
and wholly-owned subsidiary of the Parent.



     Indebtedness shall mean, with respect to any person (without duplication), (i) all
obligations of such person for borrowed money, (ii) all obligations of such person evidenced by
notes, bonds, debentures or similar instruments, or upon which interest payments are customarily
made, (iii) the maximum stated or face amount of all letters of credit and bankers’ acceptances
issued or created for the account of such person and, without duplication, all drafts drawn
thereunder (to the extent unreimbursed), (iv) all obligations of such person to pay the deferred
purchase price of property or services (but excluding (A) trade payables, other accounts payable
and accrued expenses, in each case to the extent incurred in the ordinary course of business and
outstanding for a period of time no greater than one hundred twenty (120) days after such
obligation is incurred (or, in the case of payables with original terms in excess of one hundred
twenty (120) days, no greater than the number of days within such original terms) or to the extent
incurred in the ordinary course of business and being contested in good faith by appropriate
proceedings and with respect to which adequate reserves or other appropriate provisions are being
maintained by such person in accordance with GAAP, and (B) trade payables and other accounts
payable, in each case to the extent incurred in the ordinary course of business but not otherwise
satisfying the criteria described in the preceding clause (A), in an aggregate amount not to exceed
Fifty-Five Thousand Dollars ($55,000) at any time for all Credit Parties), (v) all indebtedness
created or arising under any conditional sale or other title retention agreement with respect to
property acquired by such person, (vi) obligations with respect



11









 







to Capital Leases, (vii) all Disqualified Capital Stock issued by such person, with the amount of Indebtedness represented by
such Disqualified Capital Stock being equal to the greater of its voluntary or involuntary
liquidation preference and its maximum fixed repurchase price, but excluding accrued dividends, if
any (for purposes hereof, the “maximum fixed repurchase price” of any Disqualified Capital Stock
that does not have a fixed repurchase price shall be calculated in accordance with the terms of
such Disqualified Capital Stock as if such Disqualified Capital Stock were purchased on any date on which Indebtedness shall be required to be determined pursuant to this Financing
Agreement, and if such price is based upon, or measured by, the fair market value of such
Disqualified Capital Stock, such fair market value shall be determined reasonably and in good faith
by the board of directors or other governing body of the issuer of such Disqualified Capital
Stock), (viii) the principal balance outstanding and owing by such person under any synthetic
lease, tax retention operating lease or similar off-balance sheet financing product, (ix) all
guaranty or similar obligations of such person with respect to Indebtedness of another person, (x)
the net termination obligations of such person under any hedge agreements, calculated as of any
date as if such agreement or arrangement were terminated as of such date, and (xi) all indebtedness
of the type referred to in clauses (i) through (x) above (A) of any partnership or unincorporated
joint venture in which such person is a general partner or joint venturer to the extent such person
is liable therefor or (B) secured by any lien on any property or asset owned or held by such person
regardless of whether or not the indebtedness secured thereby shall have been incurred or assumed
by such person or is nonrecourse to the credit of such person.



     Indemnified Party shall have the meaning given to such term in Section 10.5 of
this Financing Agreement.



     Intercompany Debt shall have the meaning provided for in Section 15.6 of this
Financing Agreement.



     Interest Period means with respect to the Loan, a period commencing:



          (a) on the Closing Date and ending on the last day of the calendar month ending one, two or
three months thereafter, as the case may be, as selected by the Company; and




          (b) thereafter, on the first day of the calendar month following the termination date of the
immediately preceding Interest Period in the case of a Rollover to a successive Interest Period as
described in Section 3.2(d) hereof, and ending on the last day of the calendar month ending
one, two or three months thereafter, as the case may be, as selected by the Company.




     Inventory shall mean, as to any Credit Party, all of such Credit Party’s present and
hereafter acquired inventory (as defined in the UCC) including, without limitation, all merchandise
and inventory in all stages of production (from raw materials through work-in-process to finished
goods), and all additions, substitutions and replacements thereof, wherever located, together with
all goods and materials used or usable in manufacturing, processing, packaging or shipping of the
foregoing, and all Proceeds of any of the foregoing.



12









 





     Investment Property shall mean, as to any Credit Party, all of such Credit Party’s
present and hereafter acquired “Investment Property”, as defined in the UCC, together with all
stock and other equity interests in such Credit Party’s subsidiaries, and all Proceeds thereof.



     Issuing Bank shall mean any bank issuing a Letter of Credit for the Company under the
CIT Financing Agreement.



     JPMorgan Chase L/C Assumption Agreement shall mean that certain Letter of Credit
Assumption Agreement, dated as of December 23, 2003, among JPMorgan Chase Bank, N.A., as agent, the Company and the other financial institutions described therein, as heretofore
renewed, amended, restated or supplemented from time to time.



     Landlord Waiver shall mean a written agreement reasonably satisfactory in form and
substance to the Lender (i) acknowledging that Collateral located on a leasehold or in possession
or control of any warehouseman, bailee, agent, customer, or processor is subject to the lien
granted hereunder, (ii) waiving and releasing any applicable lien or other claim or interest held
by such lessor, warehouseman, bailee, agent, customer, or processor with respect to such item of
Collateral (whether arising by law or otherwise), (iii) granting the Lender access to the
Collateral for any purpose, (iv) providing the Lender with the right to receive notice of default
and (v) the right to repossess such item of Collateral at any time upon the occurrence and during
the continuance of an Event of Default, in each case unless otherwise agreed by the Lender in
writing; in each case as such Landlord Waiver may from time to time be renewed, amended, restated
or supplemented with the consent of the Lender.



     LIBOR shall mean, for any Interest Period and subject to availability, a rate of
interest equal to the quotient obtained by dividing: (a) at the Lender’s election, (i) the rate set
forth in the New York (a.m.) edition of The Wall Street Journal under the “Money Rates” section for
“London Interbank Offered Rates” two (2) Business Days prior to the first day of such Interest
Period, or (ii) the rate of interest determined by the Lender at which deposits in U.S. Dollars are
offered for such Interest Period as presented on Telerate Systems at page 3750 (or such other page
as may replace such page on Telerate Systems for purposes of displaying interest rates in the
London interbank markets) as of 11:00 a.m. (London time) two (2) Business Days prior to the first
day of such Interest Period (provided that if two or more offered rates are presented on
Telerate System at page 3750 (or such other page) for such Interest Period, the arithmetic mean of
all such rates, as determined by the Agent, will be the rate elected) (or, to the extent that
neither (i) not (ii) are available, LIBOR for such Interest Period as quoted to the Lender by
JPMorgan Chase Bank, N.A. (or any successor thereof) two (2) Business Days prior to the first day
of such Interest Period); by (b) a number equal to 1.00 minus the Eurocurrency Reserve
Requirements, if any, in effect on the day which is two (2) Business Days prior to the beginning of
such Interest Period, provided, however, that at no point shall LIBOR be less than
two and three quarter percent (2.75%).



     Loan shall have the meaning ascribed to in Section 3.1(a).



     Loan Account shall mean the account on the Lender’s books, in the Company’s name, in
which the Company will be charged with all Obligations when due or incurred by the Lender.




13










 





     Loan Documents shall mean this Financing Agreement, the Post-Closing Letter, the
Promissory Note, the Mortgages, the Guaranties, the Stock Pledge Agreements, the patent security
agreements, trademark security agreements and the other closing documents executed by the Company
or the Guarantors, and any other ancillary agreements, documents or instruments executed by the
Company or the Guarantors from time to time in connection with this Financing Agreement, the
Subordination Agreement, the Landlord Waiver, the Contrarian Intercreditor Agreement and any other
intercreditor agreement executed from time to time in connection with this Financing Agreement, all
as may be renewed, amended, restated or supplemented from time to time.



     Material Adverse Effect shall mean a material adverse effect on either (a) the
business, financial condition, operations or properties of the Company, individually, or the
Company and its consolidated subsidiaries, taken as a whole, (b) the ability of any Credit Party to
perform its obligations under this Financing Agreement or any other Loan Document, (c) the
aggregate value of the Collateral or (d) the ability of the Lender to enforce the Obligations or
their rights and remedies under this Financing Agreement or any of the other Loan Documents.



     Maturity Date shall mean October 31, 2010.



     Monaca Power Plant shall mean the Company’s coal-fired steam electric generating plant
and related Real Estate and fixtures located in Monaca, Pennsylvania.



     Mortgages shall mean, collectively, (a) those mortgages and deeds of trust, in form
and substance reasonably satisfactory to the Lender, each dated as of even date herewith, each
executed by one or more of the Credit Parties, as mortgagors, in favor of CIT, as agent for lenders
under the CIT Financing Agreement and Lender, as mortgagee, to secure the payment and performance
of the Obligations and the CIT Obligations and encumbering the Real Estate owned by the Credit
Parties and located in (i) Palmerton, Pennsylvania, (ii) Monaca, Pennsylvania, (iii) Rockwood,
Tennessee, (iv) Calumet, Illinois, and (v) Bartlesville, Oklahoma (other than the portion of such
properties constituting Excluded Real Estate), and (b) each mortgage and deed of trust, in form and
substance satisfactory to Lender, under which a lien on Real Estate owned by any Credit Party is
hereafter granted to the Lender, in each case as such Mortgage may be renewed, amended, restated or
supplemented from time to time.



     Net Cash Proceeds means, with respect to any asset sale permitted pursuant to
Section 6.6(b) of this Financing Agreement (“Asset Sale”) or any recovery of
insurance proceeds with respect to any loss, casualty or damage to any asset or any recovery or
award on account of any condemnation or other governmental taking of any asset (“Recovery
Event”), the proceeds thereof in the form of cash and cash equivalents (including any such
proceeds received by way of deferred payment of principal pursuant to a promissory note, but only
as and when received and to the extent permitted under this Financing Agreement), net of reasonable
and customary attorneys’ fees, accountants’ fees, investment banking fees, amounts required to be
applied to the repayment of Permitted Indebtedness (including, without limitation, principal,
interest, premium and penalties, if any) secured by a Permitted Encumbrance on such asset having
priority over the liens and security interests of the Lender and other reasonable and customary
related fees and expenses actually incurred in connection therewith and net of taxes paid or
reasonably estimated to be payable as a result thereof (after taking into account any available tax
credits or deductions and any reasonable



14









 







tax sharing arrangements) and net of any reasonable reserves and reasonable holdbacks established
in connection therewith.



     Obligations shall mean: (a) the Loan made by the Lender to any Credit Party or to
others for such Credit Party’s account; (b) any and all other indebtedness, obligations and
liabilities which may be owed by any Credit Party to the Lender and arising out of, or incurred in
connection with, this Financing Agreement or any of the other Loan Documents (including all
Out-of-Pocket Expenses), whether (i) now in existence or incurred by such Credit Party from time to
time hereafter, (ii) secured by a pledge, lien upon or security interest in any of such Credit
Party’s assets or property or the assets or property of any other person, (iii) such indebtedness
is absolute or contingent, joint or several, matured or unmatured, direct or indirect, or (iv) such
Credit Party is liable to the Lender for such indebtedness as principal, surety, endorser,
guarantor or otherwise; (c) without duplication, any Credit Party’s liabilities to the Lender under
any instrument of guaranty or indemnity, or arising under any guaranty, endorsement or undertaking
which the Lender, pursuant to this Financing Agreement, may make or issue to others for such Credit
Party’s account, the Lender’s acceptance of drafts or the Lender’s endorsement of notes or other
instruments for such Credit Party’s account and benefit; and (d) any and all indebtedness,
obligations and liabilities incurred by, or imposed on, the Lender as a result of environmental
claims relating to any Credit Party’s obligations pursuant to this Financing Agreement, waste
disposal practices or disposal sites.



     Operating Leases shall mean all leases of property (whether real, personal or mixed)
other than Capital Leases.



     Other Collateral shall mean, as to any Credit Party: (a) all of such Credit Party’s
present and hereafter established lockbox, blocked account and other deposit accounts maintained
with any bank or financial institution into which the proceeds of Collateral are or may be
deposited (including the Depository Accounts); (b) all of such Credit Party’s cash and other monies
and property in the possession or control of CIT or the Lender (including negative balances in the
Revolving Loan Account under the CIT Financing Agreement and cash collateral held by the Lender or
CIT from time to time); (c) all of such Credit Party’s books, records, ledger cards, disks and
related data processing software at any time evidencing or containing information relating to any
of the Collateral described herein or otherwise necessary or helpful in the collection thereof or
realization thereon; and (d) all Proceeds of any of the foregoing.



     Out-of-Pocket Expenses shall mean all of the Lender’s present and future reasonable
out-of-pocket costs, fees and expenses incurred in connection with this Financing Agreement and the
other Loan Documents, including, without limitation, (a) at any time after full and final payment
and satisfaction of CIT Obligations (other than contingent obligations not yet due and payable),
the cost of lien searches (including tax lien and judgment lien searches), pending litigation
searches and similar items, (b) fees and taxes imposed in connection with the filing of any
financing statements or other personal property security documents; (c) at any time after full and
final payment and satisfaction of CIT Obligations (other than contingent obligations not yet due
and payable), all costs and expenses incurred by the Lender in opening and maintaining the
Depository Accounts and any related lockboxes, depositing checks, and receiving and transferring
funds (including charges imposed on the Lender for “insufficient funds” and the return of deposited
checks); (d) title insurance premiums, real estate survey costs, note taxes, intangible taxes and
mortgage or recording



15









 







taxes and fees; (e) all appraisal fees and expenses payable by the Company hereunder, and all costs, fees and expenses
incurred by the Lender in connection with any action taken under Section 7.2(a) hereof,
including reasonable travel, meal and lodging expenses of the Lender’s personnel; (f) all costs
that the Lender may incur to maintain the Required Insurance, and all reasonable costs, fees and
expenses incurred by the Lender in connection with the collection of Net Cash Proceeds and the
monitoring of any repair or restoration of any Real Estate (other than Excluded Real Estate); (g)
all reasonable costs, fees, expenses and disbursements of outside counsel hired by the Lender to
consummate the transactions contemplated by this Financing Agreement (including the documentation
and negotiation of this Financing Agreement, the other Loan Documents and all post-closing
amendments, supplements and restatements thereto or thereof), and to advise the Lender as to
matters relating to the transactions contemplated hereby; (h) all costs, fees and expenses incurred
by the Lender in connection with any action taken under Section 10.3 hereof; and (i)
without duplication, all costs, fees and expenses incurred by the Lender in connection with the
collection, liquidation, enforcement, protection and defense of the Obligations, the Collateral and
the rights of the Lender under this Financing Agreement, including, without limitation, all
reasonable fees and disbursements of in-house or outside counsel, as applicable, to the Lender
incurred as a result of a workout, restructuring, reorganization, liquidation, insolvency
proceeding and in any appeals arising therefrom, whether incurred before, during or after the
termination of this Financing Agreement or the commencement of any case with respect to any Credit
Party under the United States Bankruptcy Code or any similar statute.



     Parent shall mean Horsehead Holding Corp., a Delaware corporation.



     Patents shall mean, as to any Credit Party, all of such Credit Party’s present and
hereafter acquired patents, patent applications, registrations, all reissues and renewals thereof,
all licenses thereof, all inventions and improvements claimed thereunder, all general intangible,
intellectual property and other rights of such Credit Party with respect thereto, and all income,
royalties and other Proceeds of the foregoing.



     Permitted Distributions shall mean (a) dividends from a wholly-owned subsidiary of the
Company to the Company; (b) a one-time dividend from the Company to Horsehead Intermediary and from
Horsehead Intermediary to the Parent on the Closing Date to enable the Parent to pay-off the Harris
Credit Facility (as defined in on Schedule 2.1(k) attached hereto); (c) dividends in an
amount sufficient to enable the Company to pay the Company’s reasonable share of income or
franchise Taxes owed by the Parent, due as a result of the filing by the Parent of a consolidated
tax return in which the operations of the Company are included; and (d) dividends to the Parent in
order to repurchase capital stock of the Parent from former employees, officers or directors of the
Company and its consolidated subsidiaries or former spouses of such employees, officers or
directors, provided that in no event shall the amount of such dividends under this clause
(d) exceed One Hundred Ten Thousand Dollars ($110,000) in the aggregate during any twelve
(12)-month period.



     Permitted Encumbrances shall mean, as to any Credit Party: (a) all liens existing on
the Closing Date on specific items of Equipment and Real Estate and described on Schedule
1.1(a) attached hereto; (b) Purchase Money Liens (including, without limitation, Purchase Money
Liens securing the Beaver County CED Loan); (c) statutory liens of landlords and liens of carriers,



16









 







warehousemen, bailees, mechanics, materialmen and other like liens imposed by law, created in the ordinary course of business and securing amounts not yet due (or which are being contested in
good faith, by appropriate proceedings or other appropriate actions which are sufficient to prevent
imminent foreclosure of such liens), and with respect to which adequate reserves or other
appropriate provisions are being maintained by such Credit Party in accordance with GAAP; (d)
deposits made (and the liens thereon) in the ordinary course of business of such Credit Party
(including, without limitation, security deposits for leases, indemnity bonds, surety bonds and
appeal bonds) in connection with workers’ compensation, unemployment insurance and other types of
social security benefits or to secure the performance of tenders, bids, leases, contracts (other
than for the repayment or guarantee of borrowed money or purchase money obligations), statutory
obligations and other similar obligations arising as a result of progress payments under government
contracts; (e) liens granted to the Lender or for the Lender’s benefit, by such Credit Party; (f)
liens of judgment creditors, provided that such liens do not exceed Five Hundred Fifty
Thousand Dollars ($550,000) in the aggregate at any time for all Credit Parties (other than liens
bonded or insured to the reasonable satisfaction of the Lender) and adequate reserves or other
appropriate provisions with respect to such liens are being maintained by such Credit Party in
accordance with GAAP; (g) Permitted Tax Liens; (h) easements (including, without limitation,
reciprocal easement agreements and utility agreements), encroachments, rights-of-way, covenants,
consents, reservations, defects or irregularities in title, variations, zoning, and other
restrictions, charges or encumbrances (whether or not recorded) affecting the Real Estate, if
applicable, and which in the aggregate (i) do not materially interfere with the occupation, use or
enjoyment by the applicable Credit Party of its business or property so encumbered and (ii) in the
reasonable business judgment of the Lender, do not materially and adversely affect the value of
such Real Estate; (i) liens granted by such Credit Party on the Collateral to secure the payment
and performance of the CIT Obligations, provided that such liens are subject to the
Contrarian Intercreditor Agreement; (j) liens of local or state authorities for franchise or other
like Taxes, provided that such liens do not exceed Eleven Thousand Dollars ($11,000) in the
aggregate at any time for all Credit Parties; (k) cash used to collateralize at one hundred five
percent (105%) the letter of credit issued to Pennsylvania DER in the amount of Twenty-Nine
Thousand Eight Hundred Fifty Dollars ($29,850); (l) liens securing obligations under interest rate
swap agreements constituting Permitted Indebtedness, provided that such liens are fully
subordinated in right of enforcement and in all other respects to the liens of the Lender and
subject to an intercreditor agreement in form and substance reasonably satisfactory to the Lender;
(m) liens arising from the precautionary UCC financing statements filed under any lease permitted
by this Financing Agreement; (n) customary rights of set-off, revocation, refund or chargeback
under deposit agreements or under the UCC of banks or other financial institutions where any Credit
Party maintains deposits (other than deposits intended as cash collateral) in the ordinary course
of business; (o) any interest or title of a licensor, sublicensor, lessor or sublessor in the
property covered by any license or lease agreement of any Credit Party; (p) liens on insurance
policies and the proceeds thereof securing the financing of the premiums with respect thereto; (q)
liens which are solely under Article 4 of the UCC on items in collection and documents and proceeds
related thereto; (r) to the extent approved by the Agent in writing, liens securing Indebtedness of
the type described in clause (f)(iii) of the definition of Permitted Indebtedness, provided that
such liens are fully subordinated to the liens of the Lender and subject to a subordination and
intercreditor agreement in form and substance satisfactory to the Lender in its sole and absolute
discretion; (s) other liens on assets securing Indebtedness not exceeding One Hundred Ten Thousand
Dollars



17









 







($110,000) in the aggregate at any time for all Credit Parties; and (t) any extension,
renewal or replacement (or successive extensions, renewals or replacements), in whole or in part,
of any lien referred to in the foregoing clauses, provided that any such extension, renewal or replacement lien shall be limited to all or a part of the property
that was the subject of the lien so extended, renewed or replaced (plus any improvements on such
property) and provided that any such extension, renewal or replacement lien shall not
secure an amount (i.e., outstanding principal plus accrued and unpaid interest and fees and
expenses in the case of Permitted Indebtedness) greater than the amount immediately prior to such
extension, renewal or replacement lien except to the extent otherwise permitted in clauses (a)
through (r) above.



     Permitted Indebtedness shall mean: (a) current Indebtedness maturing in less than one
(1) year and incurred in the ordinary course of business for raw materials, supplies, equipment,
services, Taxes or labor; (b) Indebtedness secured by Purchase Money Liens (including, without
limitation, the Beaver County CED Loan); (c) Indebtedness arising under this Financing Agreement;
(d) deferred Taxes and other expenses incurred in the ordinary course of business; (e) Indebtedness
owed to any depository bank in respect of any overdrafts and related liabilities arising from
treasury, depository and cash management services or in connection with any automated clearing
house transfers of funds; (f) Subordinated Debt, including, without limitation, (i) intercompany
Indebtedness of the Company or Chestnut Ridge to another Credit Party, (ii) Indebtedness consisting
of promissory notes issued by the Company to former employees, officers or directors of the Company
and its consolidated subsidiaries or former spouses of such employees, officers or directors in
order to repurchase stock from such persons and (iii) to the extent approved by the Lender in
writing, guaranties in favor of a lender(s) providing financing to the Parent, Sun Capital or its
affiliates, provided that (A) the proceeds of such financing are solely used to make
investments in the Company and its subsidiaries (either directly or through Horsehead
Intermediary), (B) the terms of such financing are satisfactory to the Lender in its sole and
absolute discretion, (C) such guaranties are limited to obligations arising under such financing
and (D) such guaranties are fully subordinated in right of payment, enforcement and in all other
respects to the Obligations and subject to a subordination and intercreditor agreement in form and
substance satisfactory to the Lender in its sole and absolute discretion; (g) the CIT Obligations
up to an aggregate principal amount not to exceed Fifty Million Dollars ($50,000,000), plus any
interest capitalized on such Indebtedness; (h) the Bond Obligations up to an aggregate principal
amount not to exceed Ten Million Seven Hundred Thousand Dollars ($10,700,000), such amount to be
permanently reduced by any principal payments thereon; (i) the Indebtedness under the Contingent
Note up to an aggregate principal amount not to exceed One Million Dollars ($1,000,000), such
amount to be permanently reduced by any principal payments thereon; (j) other Indebtedness existing
on the Closing Date and listed on Schedule 1.1(a) attached hereto; (k) reimbursement
obligations in connection with the letter of credit issued to Pennsylvania DER in the amount of
Twenty-Nine Thousand Eight Hundred Fifty Dollars ($29,850); (l) Indebtedness in respect of
guarantees by any Credit Party of Indebtedness otherwise permitted hereunder; (m) Indebtedness in
respect of guarantees in respect of obligations of any Credit Party under leases and other
contractual obligations incurred in the ordinary course of business; (n) Indebtedness incurred by
any Credit Party arising from agreements providing for reasonable and customary indemnification,
adjustment of purchase price or similar obligations in connection with asset dispositions permitted
under this Financing Agreement; (o) Indebtedness incurred in connection with the financing of
insurance premiums; (p) unfunded



18









 







pension liabilities and obligations with respect to Plans which do
not otherwise constitute an Event of Default; (q) Indebtedness with respect to judgments or awards
which do not otherwise constitute an Event of Default; (r) Indebtedness under interest rate swap
agreements entered into to protect the Company against fluctuations in interests rates in respect
of the Obligations or Permitted Indebtedness of the types described in clauses (g) and (h) above;
(s) other Indebtedness not to exceed One Hundred Ten Thousand Dollars ($110,000) in the aggregate at any
time for all Credit Parties; (t) reimbursement obligations owing to JPMorgan Chase Bank, N.A. in
respect of the Existing Letters of Credit; (u) customary indemnification obligations owing to
JPMorgan Chase Bank, N.A. and other lenders in connection with the Existing Indebtedness; (v)
Indebtedness under the Sun Management Agreement; and (w) any extension, renewal, refinance or
replacement (or successive extensions, renewals, refinancings or replacements), in whole or in
part, of any Indebtedness referred to in the foregoing clauses (b), (f), (g), (h), (i), (j) or (k)
through (o), provided that (A) any such extension, renewal, refinance or replacement shall
not provide for (i) Indebtedness in an amount (i.e., outstanding principal plus accrued and unpaid
interest and fees and expenses) greater than the amount immediately prior to such extension,
renewal, refinance or replacement, (ii) economic terms that are more onerous to such Credit Party
than immediately prior to such extension, renewal, refinance or replacement (other than changes to
the economic terms which are a result of general market increases) or (iii) non-economic terms that
are materially more onerous to such Credit Party than immediately prior to such extension, renewal,
refinance or replacement, and (B) the Credit Parties shall cause the holders of any Indebtedness
used to refinance or replace, in whole or in part, any Indebtedness referred to in the foregoing
clauses (f) or (g) to execute and deliver to the Lender a Subordination Agreement, a subordination and intercreditor agreement or an intercreditor
agreement containing terms substantially similar to the terms contained in the existing
Subordination Agreement, a subordination and intercreditor agreement or an intercreditor agreement
pertaining to the Indebtedness to be refinanced or replaced.



     Permitted Investments shall mean: (a) with respect to any Credit Party, advances and
loans to, and any investment in, such Credit Party’s subsidiaries existing as of the Closing Date;
(b) Trade Accounts Receivable; (c) existing investments as listed on Schedule 1.1(d)
attached hereto; (d) investments consisting of promissory notes acquired as non-cash consideration
in connection with sales of Real Estate or Equipment permitted under Section 6.6(b) hereof,
provided that with respect to each such sale at least eighty-five percent (85%) of the
sales price is paid in cash at the closing of such sale; (e) investments representing loans and
advances to employees of any Credit Party (including for travel, entertainment and relocation
expenses) in the ordinary course of business not to exceed Fifty-Five Thousand Dollars ($55,000) in
aggregate outstanding at any time for all Credit Parties; (f) investments consisting of
endorsements for collection or deposit in the ordinary course of business; (g) investments in
Depositary Accounts and Excluded Bank Accounts permitted hereunder; (h) investments received in
connection with good faith settlement of delinquent accounts and disputes with any customer or
supplier arising in the ordinary course of business; and (i) other advances, loans and investments
not to exceed One Hundred Ten Thousand Dollars ($110,000) in the aggregate at any time for all
Credit Parties.



     Permitted Management Fee Payments shall have the meaning provided for in Section
7.4(i) of this Financing Agreement.



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     Permitted Tax Liens shall mean, as to any Credit Party, liens for Taxes not due and
payable and liens for Taxes that such Credit Party is contesting in good faith, by appropriate
proceedings which are sufficient to prevent imminent foreclosure of such liens, and with respect to
which adequate reserves are being maintained by such Credit Party in accordance with GAAP;
provided that in either case, such liens (a) other than with respect to Real Estate, are
not senior in priority to the liens granted by such Credit Party to the Lender and CIT, or (b) do not secure taxes owed to the
United States of America (or any department or agency thereof) or any State or State authority, if
applicable State law provides for the priority of tax liens in a manner similar to the laws of the
United States of America, excluding in the case of clauses (a) and (b) of this proviso such liens
in an amount not to exceed Twenty-Seven Thousand Five Hundred Dollars ($27,500) in the aggregate at
any time for all Credit Parties and for which a notice of tax lien has been filed unless the Lender
otherwise agrees in writing.



     PIK Interest Tranche shall have the meaning ascribed to it in Section 3.2(a).



     Plan shall mean an employee benefit plan (as defined in Section 3(3) of ERISA) now or
hereafter maintained for employees of any Credit Party.



     Post-Closing Letter shall mean that certain Post-Closing Letter, in form and substance
reasonably satisfactory to the Lender, executed on or about the Closing Date by the Credit Parties,
the Lender and CIT.



     Prepayment Premium shall (y) mean the amount due Lender by the Company upon any
voluntary prepayment, in whole or in part, of the Loan, and (z) be computed by multiplying the
amount so prepaid by:



          (a) In the event of a Change of Control or a sale of all or substantially all of the Company’s
assets:




               (i) zero percent (0%) if such prepayment occurs on or before the expiration of eighteen (18)
months from the Closing Date;



               (ii) two percent (2%) if such prepayment occurs after the expiration of eighteen (18) months
from the Closing Date and on or before two (2) years from the Closing Date;



               (iii) one percent (1%) if such prepayment occurs after the expiration of two (2) years from
the Closing Date and on or before three (3) years from the Closing Date; or



               (iv) one-half percent (0.5%) if such prepayment occurs after the expiration of three (3) years
from the Closing Date.



          (b) Other than an described in clause (a):




               (i) two percent (2%) if such prepayment occurs on or before the expiration of one (1) year
from the Closing Date;



               (ii) one percent (1%) if such prepayment occurs after the expiration of one (1) year from the
Closing Date and on or before two (2) years from the Closing Date; or



20









 





               (iii) one-half percent (0.5%) if such prepayment occurs after the expiration of two (2) years
from the Closing Date.



     Principal Balance means the sum of: (i) unpaid principal balance of the Loan
outstanding from time to time; plus (ii) capitalized interest payable under the PIK Interest
Tranche.



     Proceeds shall have the meaning given to such term in the UCC, including, without
limitation, all Net Cash Proceeds.



     Promissory Note shall mean, collectively, the note in the form of Exhibit B
attached hereto, executed and delivered by the Company to Lender to evidence the term loan made by
the Lender to the Company pursuant to this Financing Agreement.



     Purchase Money Liens shall mean, as to any Credit Party, liens on any item of
Equipment acquired by such Credit Party after the date of this Financing Agreement (including,
without limitation, liens on Equipment acquired with the proceeds of the Beaver County CED Loan and
securing the Beaver County CED Loan), provided that (a) each such lien shall attach only to
the Equipment acquired, (b) a description of the Equipment so acquired is furnished by such Credit
Party to the Lender, and (c) the indebtedness incurred by such Credit Party in connection with
such acquisitions shall not exceed One Million One Hundred Thousand Dollars ($1,100,000) (in
addition to the Beaver County CED Loan in the year in which such loan is incurred) in the aggregate
for all Credit Parties in any fiscal year of such Credit Party.



     Real Estate shall mean, as to any Credit Party, all of such Credit Party’s present and
future fee and leasehold interests in real property, including, without limitation, (i) the real
property portion of the Monaca Power Plant, and (ii) the real property owned by such Credit Party
as of the Closing Date and described on Schedule 1.1(b) attached hereto.



     Regulatory Change shall mean any change after the Closing Date in United States
federal, state or foreign law or regulation (including, without limitation, Regulation D of the
Board of Governors of the Federal Reserve System), or the adoption or making after the Closing Date
of any interpretation, directive or request applying to a class of lenders including the Lender of
or under any United States federal, state or foreign law or regulation, in each case whether or not
having the force of law and whether or not failure to comply therewith would be unlawful.



     Required Insurance shall have the meaning provided for in Section 7.2(c) of
this Financing Agreement.



     Responsible Officer shall mean any of the Chief Executive Officer, Chief Financial
Officer, Treasurer or Controller of the Company or other officer as designated by the Company to
the Lender from time to time and reasonably satisfactory to the Lender.



     Rollover Notice shall have the meaning provided for in Section 3.2(d) of this
Financing Agreement.



21









 





     Stock Pledge Agreements shall mean, collectively, (a) those certain Stock Pledge
Agreements, in form and substance reasonably satisfactory to the Lender, executed on or about the
Closing Date by the stockholders of the Credit Parties (other than the stockholders of Horsehead
Intermediary) in favor of the Lender, and (b) each pledge agreement, in form and substance
reasonably satisfactory to the Lender, under which a lien on capital stock or other equity
interests or investment property owned by any Credit Party is hereafter granted to the Lender, in
each case as such Stock Pledge Agreement may be renewed, amended, restated or supplemented from time to
time.



     Subordinated Debt shall mean all Indebtedness, claims, debt, liabilities, fees and
expenses and other obligations (including all interest and other amounts accruing after
commencement of any Bankruptcy Case, and any interest and other amounts accruing after commencement
of any Bankruptcy Case, and any interest and other amounts that, but for the provisions of the
Bankruptcy Code would have accrued and become due or otherwise would have been allowed) of any
Credit Party (and, to the extent applicable, the note(s) evidencing such indebtedness) that is
subordinated in right of payment to the prior payment and satisfaction of the Obligations pursuant
to a Subordination Agreement. Without limiting the generality of the foregoing, the Subordinated
Debt shall include all Intercompany Debt.



     Subordination Agreements shall mean (a) an agreement, in form and substance
satisfactory to the Lender, among a Credit Party obligated on Subordinated Debt, a subordinating
creditor to which such Subordinated Debt is owed, and the Lender, pursuant to which such
Subordinated Debt is subordinated to the prior payment and satisfaction of the Obligations (it
being agreed that Section 15.6 of this Financing Agreement shall serve as the Subordination
Agreement for the Intercompany Debt), and (b) any note, indenture, note purchase agreement or
similar instrument or agreement, in form and substance satisfactory to the Lender, pursuant to
which the indebtedness evidenced thereby or issued thereunder is subordinated to the Obligations by
the express terms of such note, indenture, note purchase agreement or similar instrument or
agreement; in each case as the same may from time to time be renewed, amended, restated or
supplemented in accordance with the terms of this Financing Agreement.



     Sun Capital shall mean Sun Capital Partners, Inc., a Delaware corporation.



     Sun Management Agreement shall mean that certain Management Services Agreement, dated
as of December 23, 2003, between the Company and Sun Capital Partners Management III, LLC, a
Delaware limited liability company and affiliate of Sun Capital, as the same may from time to time
be renewed, amended, restated or supplemented in accordance with the terms of this Financing
Agreement.



     Taxes shall mean all federal, state, municipal and other governmental taxes, levies,
charges, claims and assessments which are or may be owed or collected by any Credit Party with
respect to its business, operations, Collateral or otherwise.



     Title Insurance Company shall have the meaning provided for in Section 2.1(r)
of this Financing Agreement.



22









 





     Trade Accounts Receivable shall mean that portion of the Company’s Accounts which
arises from the sale of Inventory or the rendition of services in the ordinary course of the
Company’s business.



     Trademarks shall mean, as to any Credit Party, all of such Credit Party’s present and
hereafter acquired trademarks, trademark registrations, recordings, applications, tradenames, trade
styles, corporate names, business names, service marks, logos and any other designs or sources of business identities, prints and labels (on which any of the foregoing may appear), all
reissues and renewals thereof, all licenses thereof, all other general intangible, intellectual
property and other rights pertaining to any of the foregoing, together with the goodwill associated
therewith, and all income, royalties and other Proceeds of any of the foregoing.



     UCC shall mean the Uniform Commercial Code as the same may be amended and in effect
from time to time in the State of New York.



     Working Day shall mean any Business Day on which dealings in foreign currencies and
exchanges between banks may be transacted.



     1.2 Accounting Changes. In the event that any “Accounting Change” (as defined
below) shall occur and such change results in a change in the method of calculation of financial
covenants, standards and terms in this Financing Agreement, then the Company and the Lender agree
to enter into negotiations in order to amend such provisions of this Financing Agreement so as to
fairly reflect such Accounting Change with the desired result that the criteria for evaluating the
Company’s financial condition and results of operations shall be the same after such Accounting
Change as if such Accounting Change had not been made. Until such time as such amendment shall
have been executed and delivered by the Lender and the Company (a) all financial covenants,
standards and terms in this Financing Agreement shall continue to be calculated or construed as if
such Accounting Change had not occurred, and (b) the Company shall provide to the Lender, on or
before the due date of the financial statements required under Section 7.2(h) hereof (and
in addition to the financial statements required under Section 7.2(h) hereof), financial
statements prepared as if such Accounting Change had not occurred, together with an officer’s
certificate substantially in the form set forth on Exhibit C attached hereto (a
“Compliance Certificate”), signed by a Responsible Officer, and such supporting financial
statement reconciliations, financial covenant calculations and other financial information as the
Lender may reasonably request. “Accounting Change” refers to a change in accounting
principles required by the promulgations of any rule, regulation, pronouncement or opinion by the
Financial Accounting Standards Board of the American Institute of Certified Pubic Accountants or,
if applicable, the Securities and Exchange Commission (or successors thereto or agencies with
similar functions).



     1.3 Certificates. All certificates and other documents or statements of any sort
provided, executed, or attested to by, any officer, director, or employee of any Credit Party, are
and will be provided, executed, or attested to on behalf of such Credit Party, and not in such
officer’s, director’s, or employee’s individual capacity.



SECTION 2 Conditions Precedent





23










 





     2.1 Conditions Precedent to Initial Funding. Except as set forth in the
Post-Closing Letter, the obligation of the Lender to make the Loan is subject to the satisfaction,
immediately prior to or concurrently with the making of such Loan, of the following conditions
precedent:



          (a) Lien Searches. The Lender shall have received tax lien, judgment lien and Uniform
Commercial Code searches from all jurisdictions reasonably required by the Lender.




          (b) Insurance. The Credit Parties shall have delivered to the Lender copies of
insurance policies evidencing to the reasonable satisfaction of the Lender that all Required
Insurance is in full force and effect, and confirmation satisfactory to the Lender that the Lender
has been named as a mortgagee, lender’s loss payee or additional insured, as applicable, with
respect to the Required Insurance.




          (c) UCC Filings. All UCC financing statements and similar documents required to be
filed in order to create in favor of the Lender a first priority perfected security interest in the
Collateral (to the extent that such a security interest may be perfected by a filing under the UCC
or applicable law and subject to Permitted Encumbrances), shall have been properly filed in each
office in each jurisdiction required. The Lender shall have received (i) acknowledgement copies of
all such filings (or, in lieu thereof, the Lender shall have received other evidence reasonably
satisfactory to the Lender that all such filings have been made), and (ii) evidence that all
necessary filing fees, taxes and other expenses related to such filings have been paid in full.




          (d) Resolutions. The Lender shall have received a copy of the resolutions of the
Board of Directors of each Credit Party authorizing the execution, delivery and performance of the
Loan Documents to be executed by such Credit Party, certified by the Secretary or Assistant
Secretary of such Credit Party as of the date hereof, together with a certificate of such Secretary
or Assistant Secretary as to the incumbency and signature of the officer(s) executing the Loan
Documents on behalf of such Credit Party.




          (e) Organizational Documents. The Lender shall have received a copy of the
Certificate or Articles of Incorporation of each Credit Party, certified by the applicable
authority in such Credit Party’s state of incorporation, and copies of the by-laws (as amended
through the date hereof) of such Credit Party, certified by the Secretary or an Assistant Secretary
thereof.




          (f) Officer’s Certificate. The Lender shall have received an executed Officer’s
Certificate for each Credit Party, reasonably satisfactory in form and substance to the Lender,
certifying that as of the Closing Date (i) such Credit Party is solvent both before and after
giving effect to the transactions contemplated by this Financing Agreement and the CIT Transaction
Documents, (ii) the representations and warranties contained herein are true and correct in all
material respects or are true and correct in all respects if such representations and warranties
are already qualified by materiality or by reference to Material Adverse Effect, (iii) such Credit
Party is in compliance with all of the terms and provisions set forth herein and (iv) no Default or
Event of Default has occurred.




          (g) Appraisals. The Lender shall have received and be satisfied with an appraisal of
the Company’s Inventory conducted by an appraiser selected by the Lender or CIT. In addition,


24









 







the Lender shall have received an appraisal on the Monaca Power Plant, which appraisal shall be by
an appraiser acceptable to the Lender and shall indicate a fair market value as a going
concern of not less than Twenty Million Dollars ($20,000,000).




          (h) Disbursement Authorizations. The Company shall have delivered to the Lender all
information necessary for the Lender to issue wire transfer instructions on behalf of the Company
for the Loan to be made under this Financing Agreement, including disbursement authorizations in
form reasonably acceptable to the Lender.




          (i) Examination & Verification; Net Availability; Projections. The Lender shall have
completed and be satisfied with an updated examination and verification of the Trade Accounts
Receivable, Inventory and the books and records of the Company, and such examination shall indicate
that (i) after giving effect to all loans, advances and extensions of credit to be made at closing,
the Company shall have opening Net Availability (as defined in the CIT Financing Agreement) of not
less than Eight Million Dollars ($8,000,000), and (ii) no material adverse change has occurred in
the business, financial condition, operations or properties of the Company, individually, or the
Company and its consolidated subsidiaries, taken as a whole, since December 31, 2004. In addition,
the Company shall have delivered to the Lender and the Lender shall be satisfied with, balance
sheet, income statement, cash flows and Net Availability projections for the Company and its
consolidated subsidiaries on a consolidated basis, for not less than twelve (12) months following
the Closing Date. Moreover, the Lender shall have received a current accounts payable aging and
book overdraft summary for each of the Credit Parties, and shall be satisfied (y) with the level of
such accounts payable and book overdrafts and (z) that all or substantially all of such accounts
payable and book overdrafts are not in excess of their historical levels.




          (j) Depository Accounts; Payment Direction. (i) Each Credit Party or CIT, as agent
for lenders under the CIT Financing Agreement and Lender, shall have established one or more
Depository Accounts with respect to the collection of Accounts and the deposit of proceeds of
Collateral, and (ii) CIT, as agent for lenders under the CIT Financing Agreement and Lender, such
Credit Party and each depository bank shall have entered into a Depository Account Control
Agreement with respect to each Depository Account to the extent required by this Financing
Agreement.




          (k) Existing Indebtedness. (i) All Indebtedness of the Company under the instruments
and agreements listed on Schedule 2.1(k) hereto (collectively, the “Existing
Indebtedness”) shall have been paid or satisfied in full utilizing the proceeds of the initial
Revolving Loans (as defined in the CIT Financing Agreement) from CIT or the Loan from the Lender,
and all such instruments and agreements and the JPMorgan Chase L/C Assumption Agreement shall have
been terminated to the satisfaction of the Lender, and (iii) all liens and security interests
securing any of the foregoing shall have been terminated and/or released.




          (l) Opinions. Counsel for the Credit Parties shall have delivered to the Lender
opinion(s) reasonably satisfactory to the Lender.




          (m) Legal Restraints/Litigation. As of the Closing Date, there shall be no (x)
injunction, writ or restraining order restraining or prohibiting the consummation of the financing


25









 







arrangements contemplated under this Financing Agreement, or (y) suit, action, investigation or
proceeding (judicial or administrative) pending against any Credit Party or any of its assets,
which, in the opinion of the Lender, is reasonably likely to be adversely determined and, if
adversely determined, would have a Material Adverse Effect.




          (n) Additional Documents. Each Credit Party shall have executed and delivered to the
Lender all Loan Documents necessary to consummate the lending arrangement contemplated by this
Financing Agreement.




          (o) Promissory Note. The Company shall have executed and delivered to Lender a
Promissory Note in the form attached hereto as Exhibit B.




          (p) Stock Pledge Agreements. The stockholders of the Credit Parties (other than the
stockholders of Horsehead Intermediary) each shall have executed and delivered (i) to the Lender a
Stock Pledge Agreement covering all capital stock in each Credit Party (other than Horsehead
Intermediary), and (ii) to CIT, as agent for lenders under the CIT Financing Agreement and Lender,
all stock certificates and duly executed stock powers (undated and in-blank) with respect thereto.




          (q) Mortgages. Each Credit Party shall have executed and delivered to CIT, as agent
for lenders under the CIT Financing Agreement and Lender (or to an agent of CIT or an agent of the
Title Insurance Company) Mortgages covering the Real Estate owned by each Credit Party as of the
Closing Date and listed in Schedule 1.1(b) attached hereto.




          (r) Title Insurance Policies. The Lender shall have received, in respect of each
mortgage and deed of trust described in Section 2.1(q) above, a mortgagee’s marked-up
unconditional commitment for title insurance from a title insurance company reasonably satisfactory
to the Lender (the “Title Insurance Company”). Each such commitment shall obligate the
Title Insurance Company to issue to the Lender, a title insurance policy: (i) in an amount not less
than the appraised fair market value of the Real Estate covered thereby; (ii) that insures that the
mortgage or deed of trust insured thereby creates a valid first priority lien on the Real Estate
covered thereby, free and clear of all defects and encumbrances except for Permitted Encumbrances;
(iii) that names the Lender, as the insured thereunder; and (iv) that contains such endorsements
and effective coverage as the Lender may reasonably require, including, without limitation, a
revolving line of credit endorsement. The Lender also shall have received evidence that all
premiums in respect of the policies to be issued have or will be paid on the Closing Date and that
all charges for mortgage taxes and recording fees, if any, shall be paid upon the recording of each
mortgage or deed of trust.




          (s) Surveys. The Lender and the Title Insurance Company shall have received surveys
of the Real Estate and all improvements thereon, each of which shall be in form and substance
reasonably satisfactory to the Lender, prepared by an independent licensed land surveyor reasonably
satisfactory to the Lender and certified to the Lender and the Title Insurance Company.




          (t) Environmental Reports. The Lender shall have received Environmental Reports (and
reliance letters addressed to the Lender in the case of Environmental Reports addressed to others)
on all Real Estate and Company operations conducted thereon. The reports (and the


26









 







reliance letters, as the case may be) must be satisfactory to the Lender and must not disclose or indicate
any liability (real or potential) arising out of any Credit Party’s Real Estate or the Company’s
operations, its environmental management practices or offsite disposal sites used by it,
other than liabilities satisfactory to the Lender. In addition, the Lender shall be satisfied
with each Credit Party’s environmental management practices.




          (u) CIT Transaction Documents; Etc. The Lender shall have (i) received and reviewed
to its reasonable satisfaction the CIT Transaction Documents, and (ii) received the Contrarian
Intercreditor Agreement and a side letter, each in form and substance reasonably satisfactory to
the Lender, executed by CIT and each Credit Party in the case of the Contrarian Intercreditor
Agreement and executed by CIT in the case of the side letter.




          (v) Sun Management Agreement. The Lender shall have received and reviewed to its
satisfaction the Sun Management Agreement.




     Upon the execution of this Financing Agreement and the initial disbursement of the Loan
hereunder, all of the above conditions precedent shall have been deemed satisfied, except as the
Credit Parties and the Lender shall otherwise agree in a separate writing.



SECTION 3 Loan and Terms of Payment




     3.1 Loan.



          (a) Subject to the terms and conditions hereof, the Lender agrees to make a term loan (the
“Loan”) on the Closing Date to the Company in the original aggregate principal amount of
$27,000,000 which shall be repayable in accordance with the terms of the Promissory Note and shall
be secured by all of the Collateral.



          (b) The Company shall not be entitled to reborrow any portion of the Loan which is repaid or
prepaid.



     3.2 Interest.



          (a) The Principal Balance on the Loan shall bear interest from the Closing Date until paid,
computed on the basis of a 360-day year for the actual number of days elapsed, at a fluctuating
rate per annum consisting of the sum of (i) a tranche of interest calculated at LIBOR plus the
Applicable Margin (the “Current Cash Interest Tranche”) plus (ii) a tranche of
interest calculated at one percent (1.00%) per annum payable on an accreted basis as set forth in
Section 3.3(a) hereof (the “PIK Interest Tranche”).




          (b) The Company shall give Lender notice on the Closing Date of the Interest Period;
provided, however, that the Company shall not be permitted to request more than
three (3) Interest Periods at any one time, in the aggregate, with respect to the Loan.




          (c) The Company may, prior to the Closing Date and prior to the delivery of any Rollover
Notice (as defined below), request that Lender provide it with the most recent LIBOR available to
Lender with respect to a relevant Interest Period. Lender shall, unless such rates are


27









 







unavailable, provide such quoted rates to the Company within one (1) Business Day after such
request, provided, however, that Lender’s failure to timely provide such rates
shall not relieve the Company of its obligations hereunder.




          (d) No later than 2:00 p.m. (New York City time) at least three (3) Business Days prior to the
termination of each Interest Period, the Company shall provide Lender written notice in
substantially the form of Exhibit D hereto (the “Rollover Notice”) whether it
desires to renew such Interest Period and shall designate the Interest Period which shall be
applicable to such Rollover upon the expiration of such Interest Period. Each Rollover Notice
shall be irrevocable and effective upon notification thereof to Lender. If the Company fails to
timely give Lender the Rollover Notice with respect to any Interest Period, the Company shall be
deemed to have elected to continue such Interest Period; provided, however, that
during an Event of Default, Interest Periods on the Loan shall be converted to one (1) month on the
last day of the Interest Period then in effect.




          (e) Each Loan subject to an Interest Period shall be in an aggregate amount not less than the
lesser of (x) $1,000,000 and (y) the aggregate principal amount of such Loan.




          (f) Lender, upon determining LIBOR for any Interest Period relating to the Loan, shall notify
the Company thereof not later than one (1) Business Day prior to the expiration of an Interest
Period. Such determination shall, absent demonstrable error, be final, conclusive and binding upon
all parties thereto.




          (g) Interest in respect of the LIBOR Loans shall be calculated on the basis of the Interest
Period and shall be payable monthly on the last day of each calendar month occurring during each
such Interest Period.




     3.3 Principal and Interest Payments.



          (a) Except as otherwise provided in Section 3.5(b), the Company agrees, with respect
to interest on the Principal Balance, as follows:




               (i) The Company shall pay interest calculated under the Current Cash Interest Tranche in cash
monthly in arrears on the last day of each calendar month; and



               (ii) Interest calculated under the PIK Interest Tranche shall accrue monthly and be added to
the Principal Balance of the Loan on the last day of each calendar month. The Principal Balance,
including all amounts added thereto pursuant to this clause (ii), will be payable according to
Section 3.5(b).



          (b) The Principal Balance shall be due and payable on October 31, 2010 (the “Maturity
Date”).




          (c) In the event that a payment comes due on any date that is not a Business Day, such payment
shall be made on the next available Business Day to occur after such payment date.




     3.4 Default Rate. Upon and after the occurrence and during the continuance of an
Event of Default, the Current Cash Interest Tranche shall be LIBOR plus eleven percent (11%) per
annum



28









 







and the PIK Interest Tranche shall be one percent (1%) per annum (the “Default Rate of
Interest”),
such Current Cash Interest Tranche then calculated at the Default Rate of Interest to be
payable upon demand.



     3.5 Optional and Mandatory Prepayments/Redemption.



          (a) Optional Prepayments/Redemption. 




               (i) The Company, may, at its option, prepay all or a portion of the Principal Balance and
thereby redeem the Promissory Note and terminate this Financing Agreement or that portion of the
Promissory Note evidencing the Principal Balance portion being prepaid, together with the accrued
interest thereon, as set forth in this Section 3.5(a). Not less than ten (10) days prior
to the date upon which the Company desires to make any voluntary prepayment of the Principal
Balance, the Company shall deliver to Lender notice of its intention to prepay, which notice shall
be irrevocable and shall state the prepayment date and the amount of the Principal Balance to be
prepaid. The amount of any voluntary partial prepayment of the Principal Balance shall (i) not be
less than $500,000 and (ii) be in integral increments of $100,000. A voluntary prepayment of the
Principal Balance shall not be made more frequently than once a calendar quarter.



               (ii) In the event that the Company prepays all or any portion of the Loan pursuant to this
Section 3.5(a), the Company shall pay to Lender as liquidated damages and compensation for
the costs to make funds available hereunder, an amount equal to the Prepayment Premium. The
Company agrees that the Prepayment Premium is a reasonable calculation of Lender’s lost profits
from an early termination of the Principal Balance.



          (b) Mandatory Prepayment.




               (i) In the event that any Change of Control occurs, no later than the fifteenth (15th) day
following the date of such Change of Control, the Company shall pay the Principal Balance
(including any principal on account of the PIK Interest Tranche) plus accrued and unpaid interest
thereon plus the Prepayment Premium on such Principal Balance.



               (ii) If at the end of any accrual period (as defined in Code §1272(a)(5)) ending after the
fifth anniversary of the issuance of the Promissory Note, the aggregate amount of accrued and
unpaid original issue discount (as defined in Code Section 1273(a)(1)) on the Promissory Note would
but for this paragraph, exceed an amount equal to the product of the Promissory Note’s issue price
(as defined in Code Sections 1273(b) and 1274(a)) multiplied by the yield to maturity (as defined
in Treasury Regulation Section 1.1272-1(b)(1)(i)) of the Promissory Note (the “Maximum
Accrual”), all accrued and unpaid interest and original issue discount on the Promissory Note
as of the end of such accrual period in excess of an amount equal to the Maximum Accrual shall be
paid by the Company to Lender.



     3.6 [Reserved]



     3.7 Handling of Proceeds of Collateral; Cash Dominion.



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          (a) Collection of Accounts and Other Proceeds. The Company, at its expense, will
enforce and collect payments and other amounts owing on all of its Accounts in the ordinary
course of the Company’s business subject to the terms hereof. The Company agrees to direct
all of its account debtors to send payments on all of its Accounts directly to a lockbox associated
with a Depository Account, and to include on all of the Company’s invoices the address of such a
lockbox as the sole address for remittance of payment. Notwithstanding the foregoing, should the
Company or any other Credit Party ever receive any payment on an Account or other Proceeds of the
sale of Collateral, including checks, cash, receipts from credit card sales and receipts, notes or
other instruments or property with respect to any Collateral, such Credit Party agrees to hold such
proceeds in trust for Lender and CIT (subject to the terms of the Contrarian Intercreditor
Agreement), separate from such Credit Party’s other property and funds, and to deposit such
proceeds directly into a Depository Account within one (1) Business Day after receipt.




          (b) Other Deposit Accounts. Each Credit Party agrees not to open any lockbox or new
bank account into which Proceeds of Collateral are to be delivered or deposited or into which
proceeds of Revolving Loans under the CIT Financing Agreement are to be deposited unless
concurrently with the opening of such lockbox and/or bank account, CIT, acting as agent for lenders
under the CIT Financing Agreement and Lender, such Credit Party and the bank which will maintain
such lockbox or at which such account will be maintained, execute a Depository Account Control
Agreement with respect to such lockbox and/or related bank account; provided,
however, that (i) prior to the Lender’s request therefor, the Credit Parties shall not be
required to obtain Depository Account Control Agreements with respect to those bank accounts listed
on Schedule 3.2(c)-2 which are specifically designated as not being required to be subject
to Depository Account Control Agreements as of the Closing Date or with respect to such bank
accounts acquired after the Closing Date which are specifically approved by the Lender in writing
as not being required to be subject to Depository Account Control Agreements until such time as the
Lender may request, and (ii) so long as no Default or Event of Default exists the Credit Parties
shall not be required to obtain Depository Account Control Agreements with respect to the bank
accounts (including payroll accounts) listed on Schedule 3.6(b)-1 attached hereto (the bank
accounts described in this clause (ii) collectively, the “Excluded Bank Accounts”);
provided further, however, that no Credit Party shall permit the balance of any
Excluded Bank Account to exceed One Hundred Ten Thousand Dollars ($110,000) or the aggregate
balance of all Excluded Bank Accounts to exceed Five Hundred Fifty Thousand Dollars ($550,000).
Upon compliance with the terms set forth above, such lockbox and/or bank account (other than the
bank accounts described in clause (i) above and the Excluded Bank Accounts) shall constitute a
Depository Account for purposes of this Financing Agreement. Each Credit Party represents and
warrants to the Lender that Schedule 3.6(b)-2 attached hereto lists all bank accounts of
such Credit Party (other than the Excluded Bank Accounts) as of the date hereof. Without limiting
the requirements of the first sentence of this Section, if a Credit Party at any time acquires any
bank account not listed on Schedule 3.2(c)-2 attached hereto, such Credit Party shall
promptly deliver to the Lender a supplemental schedule which shall include details pertaining to
such bank account.




     3.8 Application of Proceeds of Collateral.



          (a) Generally. Unless this Financing Agreement or the Contrarian Intercreditor
Agreement expressly provides otherwise, so long as no Event of Default shall have occurred and


30









 







remain outstanding, the Lender agrees to apply (i) all Proceeds of Trade Accounts Receivable to the
Loan Account, and (ii) any other payment received by the Lender with respect to the
Obligations, in such order and manner as the Lender shall elect in the exercise of its reasonable
business judgment.




          (b) Application of Proceeds During an Event of Default. If an Event of Default shall
have occurred and remain outstanding, the Lender agrees to apply all Proceeds of Collateral and all
other payments received by the Lender to the payment of the Obligations in the manner and order set
forth in Section 10.4 hereof.




SECTION 4 [RESERVED]




SECTION 5 [RESERVED]




SECTION 6 Collateral




     6.1 Grant of Security Interest.



          (a) As security for the timely payment in full and performance of all Obligations, each Credit
Party (including Guarantors) hereby pledges and grants to the Lender a continuing general lien
upon, and security interest in, all of such Credit Party’s right, title and interest in and to the
Collateral. Notwithstanding anything to the contrary contained herein or in any of the Loan
Documents, the security interest granted under this Financing Agreement shall not extend to
Excluded Property.




          (b) Extent of Security Interests. The security interests granted hereunder shall
extend and attach to:




               (i) all Collateral which is presently in existence and which is owned by any Credit Party or
in which such Credit Party has any interest, whether held by such Credit Party or by others for
such Credit Party’s account, and, if any Collateral is Equipment, whether such Credit Party’s
interest in such Equipment is as owner, lessee or conditional vendee;



               (ii) all Equipment in which any Credit Party has an interest, whether as owner, lessee or
conditional vendee, whether the same constitutes personal property or fixtures, including, but
without limiting the generality of the foregoing, all dies, jigs, tools, benches, molds, tables,
accretions, component parts thereof and additions thereto, as well as all accessories, motors,
engines and auxiliary parts used in connection with, or attached to, the Equipment; and



               (iii) all Inventory owned by any Credit Party or in which such Credit Party has an interest
and any portion thereof which may be returned, rejected, reclaimed or repossessed by either the
Lender or such Credit Party from such Credit Party’s customers, as well as to all supplies, goods,
incidentals, packaging materials, labels and any other items which contribute to the finished goods
or products manufactured or processed by such Credit Party, or to the sale, promotion or shipment
thereof.



     6.2 Limited License. Regardless of whether the Lender’s security interests in any of
the General Intangibles has attached or is perfected, subject to the next sentence, each Credit
Party



31









 







hereby irrevocably grants to the Lender a royalty-free, non-exclusive license to use such Credit
Party’s Trademarks, Copyrights, Patents and other proprietary and intellectual property rights
(other than licensed intellectual property rights that are the subject of license agreements
containing anti-assignment provisions for which no access and use agreement described in clause (e)
of the definition of Eligible Inventory (as defined in the CIT Financing Agreement) has been
obtained, it being represented, warranted and covenanted by the Company that no such license
agreement applies or will apply to any Inventory which the Company purports to include as “Eligible
Inventory” in any borrowing base certificate submitted to the CIT), in connection with the (i)
advertisement for sale, and the sale or other disposition of, any finished goods Inventory by the
Lender in accordance with the provisions of this Financing Agreement, and (ii) the manufacture,
assembly, completion and preparation for sale of any unfinished Inventory by the Lender in
accordance with the provisions of this Financing Agreement. Notwithstanding anything herein to the
contrary, the license set forth in this Section 6.2 may be exercised by the Lender only so
long as an Event of Default shall have occurred and remains outstanding.



     6.3 Representations, Covenants and Agreements Regarding Collateral Generally.



          (a) Representations and Warranties. Each Credit Party hereby represents and warrants
to the Lender that (i) upon the filing of UCC financing statements covering the Collateral in all
required jurisdictions, this Financing Agreement creates a valid, perfected, first priority
security interest in all personal property of such Credit Party as to which perfection may be
achieved by filing, other than Permitted Encumbrances (ii) the Lender’s security interests in the
Collateral constitute, and will at all times constitute, first priority liens on the Collateral,
other than Permitted Encumbrances, and (iii) such Credit Party is, or will be at the time
additional Collateral is acquired by such Credit Party, the absolute owner of the Collateral with
full right to pledge, sell, transfer and create a security interest therein, free and clear of any
and all claims or liens other than Permitted Encumbrances.




          (b) Covenants. Each Credit Party, at its expense, agrees to forever warrant and
defend the Collateral (excluding de minimis Collateral) from any and all claims and demands of any
other person, other than holders of Permitted Encumbrances.




     6.4 Representations Regarding Accounts and Inventory. The Company represents and
warrants to the Lender that:



          (a) each Trade Account Receivable (and each trade account receivable of the Company’s
subsidiaries) is based on an actual and bona fide sale and delivery of Inventory or rendition of
services to customers, made by the Company (or its subsidiaries) in the ordinary course of its
business, without dispute, offset, defense, counterclaim or contra, except for disputes and other
matters arising in the ordinary course of business of which the Company has notified the Lender
when required pursuant to Section 7.2(g) hereof;




          (b) the Inventory being sold and the Trade Accounts Receivable (or trade accounts receivable
of the Company’s subsidiaries) created by such sales are the exclusive property of the Company (or
such subsidiaries) and are not subject to any lien, consignment arrangement (i.e.,


32









 







pursuant to
which the Company is a consignee), encumbrance, security interest or financing statement
whatsoever, other than Permitted Encumbrances;




          (c) the invoices evidencing such Trade Accounts Receivable (or trade accounts receivable of
the Company’s subsidiaries) are in the name of the Company (or such subsidiaries);




          (d) the customers of the Company (or the Company’s subsidiaries) have accepted the Inventory
or services, owe and are obligated to pay the full amounts stated in the invoices according to
their terms, without dispute, offset, defense, counterclaim or contra, except for disputes and
other matters arising in the ordinary course of business of which the Company has notified the
Lender when required pursuant to Section 7.2(g) hereof; and




          (e) the Company’s Inventory (and the Inventory of the Company’s subsidiaries) other than
Excluded Inventory is marketable in the ordinary course of the Company’s (or such subsidiaries’)
business, and no Inventory has been produced in violation of the Fair Labor Standards Act (29
U.S.C. §201 et seq.), as amended.




     6.5 Covenants and Agreements Regarding Accounts and Inventory.



          (a) Each Credit Party confirms to the Lender that all Taxes and fees relating to such Credit
Party’s business, such Credit Party’s sales, and the Accounts or Inventory relating thereto, are
such Credit Party’s sole responsibility, and that same will be paid by such Credit Party when due,
subject to Section 7.2(d) hereof, and that none of said Taxes or fees represent a lien on
or claim against the Accounts, other than a Permitted Tax Lien.




          (b) Each Credit Party agrees not to acquire any Inventory on a consignment basis, nor
co-mingle its Inventory with any goods of its customers or any other person (whether pursuant to
any bill and hold sale or otherwise), it being agreed that the Company may acquire raw materials
inventory on a “sale on approval” or bailment basis so long as such raw materials inventory is
clearly segregated from the Inventory of the Company until such time as title to such raw materials
inventory is solely vested in the Company.




          (c) Each Credit Party agrees to maintain such books and records regarding Accounts and
Inventory in accordance with past practices and agrees that the books and records of such Credit
Party will reflect the Lender’s interest in the Accounts and Inventory. In support of the
continuing assignment and security interest of the Lender in the Accounts and Inventory, such
Credit Party also agrees to deliver to the Lender all of the schedules, reports and other
information described in Section 7.2(g) of this Financing Agreement. Such Credit Party’s
failure to maintain its books in the manner provided herein or to deliver to the Lender any of the
foregoing information shall in no way affect, diminish, modify or otherwise limit the security
interests granted to the Lender in its Accounts and Inventory.




          (d) Each Credit Party agrees to issue credit memoranda promptly after accepting returns or
granting allowances, and to deliver to the Lender (i) in the case of the Company, a summary of such
credit memoranda with its next aging report under Section 7.2(g)(i)(2) hereof, and





33









 




(ii) copies of such credit memoranda as and when requested by the Lender pursuant to
Section 7.2(g) hereof.




          (e) Each Credit Party agrees to safeguard, protect and hold all Inventory for the account of
the Lender and to make no sale or other disposition thereof except (i) sales in the ordinary course
of such Credit Party’s business, on open account and on commercially reasonable terms consistent
with such Credit Party’s past practices, (ii) dispositions of Excluded Inventory, and (iii)
inchoate Permitted Tax Liens. Notwithstanding the ordinary course of such Credit Party’s business
and such Credit Party’s past practices, such Credit Party agrees not to sell inventory on a “sale
on approval”, bailment or consignment basis, nor retain any lien on or security interest in any
Inventory sold by such Credit Party, other than to the Approved Bailees. As to any sale or other
disposition of Inventory, the Lender shall have all of the rights of an unpaid seller, including
stoppage in transit, replevin, rescission and reclamation. Such Credit Party agrees to handle all
Proceeds of sales of Inventory in accordance with the provisions of Section 3.2 of the CIT
Financing Agreement.




          (f) Each Credit Party agrees to make no sale or other disposition of Accounts except for sales
of Accounts owing by customers of the type described in clause (b)(vii) of the definition of
Eligible Accounts Receivable under the CIT Financing Agreement, provided that the face
amount of such Accounts does not exceed Fifty-Five Thousand Dollars ($55,000) in the aggregate
during any calendar year unless otherwise agreed by the Lender in writing.




     6.6 Covenants and Agreements Regarding Real Estate and Equipment.



          (a) Maintenance of Equipment. Each Credit Party agrees to (a) maintain its Equipment
in as good and substantial repair and condition as the Equipment is now maintained (or at the time
that the Lender’s security interest may attach to the Equipment), reasonable wear and tear
excepted, (b) make any and all repairs and replacements when and where necessary in the reasonable
business judgment of such Credit Party, and (c) safeguard, protect and hold all Equipment in
accordance with the terms hereof and subject to the Lender’s security interest. Such Equipment
will only be used by such Credit Party in the operation of its business and will not be sold or
held for sale or lease, except as expressly provided in Section 6.6(b) below.




          (b) Sales of Real Estate and Equipment. Each Credit Party may sell the Excluded Real
Estate, surplus Real Estate or obsolete or surplus Equipment from time to time, provided
that in each such instance: (i) no Event of Default shall have occurred and remain outstanding at
the time of such sale; (ii) the aggregate fair market value of all surplus Real Estate and
Equipment owned by all of the Credit Parties subject to sale does not exceed Two Hundred
Seventy-Five Thousand Dollars ($275,000) in the aggregate during any calendar year (it being
acknowledged, for avoidance of doubt, that sales of Excluded Real Estate shall not reduce or be
credited against such amount and that such amount shall not apply to obsolete Equipment which may
be sold without regard to such amount so long as the other requirements of this Section are met);
and (iii) all Net Cash Proceeds of such sales are either (x) promptly delivered by such Credit
Party to CIT, as agent for lenders under the CIT Financing Agreement and Lender, by deposit to the
Depository Account, for application to the Obligations in such manner and in such order as the
Lender may elect in the exercise of its reasonable business judgment and subject to the Contrarian
Intercreditor Agreement, or (y) in the case of Net Cash Proceeds of sales of Equipment only, within


34









 







sixty (60) days of
such sale, used to purchase replacement Equipment that such Credit Party determines in its
reasonable business judgment to have a value at least equal to the Equipment sold. Except as set
forth above, each Credit Party agrees not to sell, transfer, lease or otherwise dispose of any item
of Real Estate or Equipment without the Lender’s prior written consent. Upon the sale, transfer,
lease or other disposition of Real Estate (other than the Excluded Real Estate) or Equipment, the
Lender’s liens and security interests in the Real Estate or Equipment shall, without break in
continuity and without further formality or act, continue in, and attach to, all Proceeds (it being
agreed that the Lender’s liens and security interests shall attach to all Proceeds of the Excluded
Real Estate). In connection with the sale of Real Estate or Equipment permitted under this
Section 6.6(b), upon the request of a Credit Party, the Lender shall promptly deliver to
such Credit Party, at the expense of such Credit Party, a lien release with respect to such Real
Estate or Equipment (but not the Proceeds thereof) in form and substance reasonably satisfactory to
the Lender (it being agreed that the Lender shall be entitled, in its discretion, to condition the
effectiveness of such lien release upon CIT’s direct receipt of the Net Cash Proceeds of the sale).
Net Cash Proceeds shall not be commingled with such Credit Party’s other property, but shall be
segregated, held by such Credit Party in trust for CIT and Lender as CIT’s and Lender’s property
(subject to the terms of the Contrarian Intercreditor Agreement), unless and until such Net Cash
Proceeds are utilized in accordance with clause (y) above, to the extent applicable. As to any
such sale, transfer, lease or other disposition, the Lender shall have all of the rights of an
unpaid seller, including stoppage in transit, replevin, rescission and reclamation, as applicable.




     6.7 General Intangibles. Each Credit Party represents and warrants to the Lender that
as of the date hereof, such Credit Party owns or has the right to use all General Intangibles
necessary to conduct such Credit Party’s business as presently conducted. Such Credit Party agrees
to maintain such Credit Party’s rights in, and the value of, all such General Intangibles so long
as such General Intangibles are necessary or desirable to its business, and to pay when due all
payments required to maintain in effect any licensed rights. Such Credit Party shall provide the
Lender with adequate notice of the acquisition of rights with respect to any additional registered
Patents, Trademarks and Copyrights so that the Lender may, and to the extent permitted under the
documentation granting such rights or applicable law, perfect the Lender’s security interest in
such rights in a timely manner.



     6.8 Commercial Tort Claims. Each Credit Party represents and warrants to the Lender
that as of the date hereof, to the best of its knowledge after due inquiry, such Credit Party holds
no interest in any commercial tort claim. If such Credit Party at any time holds or acquires a
commercial tort claim, such Credit Party agrees to promptly notify the Lender in writing of the
details thereof, and in such writing such Credit Party shall grant to the Lender a security
interest in such commercial tort claim and in the Proceeds thereof, all upon the terms of this
Financing Agreement.



     6.9 Letter of Credit Rights. Each Credit Party represents and warrants to the Lender
that as of the date hereof, such Credit Party is not the beneficiary of any letter of credit in
excess of One Hundred Thousand Dollars ($100,000). If such Credit Party becomes a beneficiary
under any letter of credit, such Credit Party agrees to promptly notify the Lender, and upon
request by the Lender, such Credit Party agrees to either (a) cause the issuer of such letter of
credit to consent to the
assignment of the proceeds of such letter of credit to the Lender and CIT (subject to the
Contrarian



35









 







Intercreditor Agreement) pursuant to an agreement in form and substance satisfactory to
the Lender, or (b) cause the issuer of such letter of credit to name the Lender as the transferee
beneficiary of such letter of credit.



     6.10 Real Estate. Upon the request of the Lender, each Credit Party agrees to execute
and deliver to the Lender from time to time, a mortgage or deed of trust (as appropriate) in form
and substance reasonably satisfactory to the Lender on any fee interest Real Estate (other than
Excluded Real Estate) with a fair market value in excess of Two Hundred Fifty Thousand Dollars
($250,000) acquired by such Credit Party after the date hereof as the Lender shall require to
obtain a valid first priority lien thereon, subject only to Permitted Encumbrances.



     6.11 Reference to Other Loan Documents. Reference is hereby made to the other Loan
Documents for additional representations, covenants and other agreements of each Credit Party
regarding the Collateral covered by such Loan Documents.



     6.12 Credit Balances; Additional Collateral.




          (a) The rights and security interests granted to the Lender hereunder shall continue in full
force and effect, notwithstanding the termination of this Financing Agreement or until the
termination of this Financing Agreement and the full and final payment and satisfaction of the
Obligations (other than contingent indemnification obligations not yet due and payable). Any
reserves or balances to the credit of the Company, and any other property or assets of any Credit
Party in the possession of the Lender, may be held by the Lender as Other Collateral, and applied
in whole or partial satisfaction of such Obligations when due, subject to the terms of this
Financing Agreement. The liens and security interests granted to the Lender, herein and any other
lien or security interest which the Lender may have in any other assets of any Credit Party secure
payment and performance of all present and future Obligations.




          (b) Notwithstanding the Lender’s security interests in the Collateral, to the extent that the
Obligations are now or hereafter secured by any assets or property other than the Collateral, or by
the guaranty, endorsement, assets or property of any other person, the Lender shall have the right
in its sole discretion to determine which rights, security, liens, security interests or remedies
the Lender shall at any time pursue, foreclose upon, relinquish, subordinate, modify or take any
other action with respect thereto, without in any way modifying or affecting any of such rights,
security, liens, security interests or remedies, or any of the Lender’s rights under this Financing
Agreement.




SECTION 7 Representations, Warranties and Covenants




     7.1 Representations and Warranties. Each Credit Party represents and warrants to the
Lender that:



          (a) Financial Condition. (i) The amount of such Credit Party’s assets, at fair
valuation, exceeds the book value of such Credit Party’s liabilities, (ii) such Credit Party is
generally able to pay its debts as they become due and payable, and (iii) such Credit Party does
not have unreasonably small capital to carry on its business as currently conducted absent
extraordinary and unforeseen circumstances. All financial statements (excluding for the avoidance
of doubt, financial


36









 







projections) of the Company and its consolidated subsidiaries furnished to the Lender present
fairly, in all material respects, the financial condition of the Company and its consolidated
subsidiaries as of the date of such financial statements. No material adverse change has occurred
in the business, financial condition, operations or properties of the Company, individually, or
the Company and its consolidated subsidiaries, taken as a whole, since December 31, 2004. All
financial projections furnished to the Lender are or will be made in good faith and based on the
Company’s reasonable judgment as to the anticipated financial condition and results of operations
of the Company and its consolidated subsidiaries, it being acknowledged that any such financial
projections shall not constitute a representation or warranty that such future financial condition
or results of operations will in fact be achieved.




          (b) Organization Matters; Collateral Locations. Schedule 7.1(b) attached
hereto correctly and completely sets forth (w) such Credit Party’s exact name, as currently
reflected by the records of such Credit Party’s state of incorporation or formation, (x) such
Credit Party’s state of incorporation or formation, (y) such Credit Party’s federal employer
identification number and state organization identification number (if any), and (z) the address of
such Credit Party’s chief executive office and all locations of Collateral.




          (c) Power and Authority; Conflicts; Enforceability.




               (i) Such Credit Party has full power and authority to execute and deliver this Financing
Agreement and the other Loan Documents to which it is a party, and to perform all of such Credit
Party’s obligations thereunder.



               (ii) The execution and delivery by such Credit Party of this Financing Agreement and the other
Loan Documents to which it is a party, and the performance of such Credit Party’s obligations
thereunder, have been duly authorized by all necessary corporate or other relevant action, and do
not (w) require any consent or approval of any director or shareholder of such Credit Party that
has not been obtained, (x) violate any term, provision or covenant contained in the organizational
documents of such Credit Party (such as the certificate or articles of incorporation or by-laws),
(y) violate, or cause such Credit Party to be in default under, any law, rule, regulation, order,
judgment or award applicable to such Credit Party or its assets, or (z) violate any term,
provision, covenant or representation contained in, or constitute a default under, or result in the
creation of any lien under, any loan agreement, lease, indenture, mortgage, deed of trust, note,
security agreement or pledge agreement or other material agreement (including, without limitation,
the Sun Management Agreement) to which such Credit Party is a signatory or by which such Credit
Party or any of such Credit Party’s assets are bound or affected.



               (iii) This Financing Agreement and the other Loan Documents to which such Credit Party is a
party, constitute legal, valid and binding obligations of such Credit Party, enforceable in
accordance with their respective terms, subject to applicable bankruptcy, insolvency, moratorium,
fraudulent transfer and other laws affecting creditors’ rights generally, and subject to general
principles of equity, regardless of whether considered in a proceeding at law or in equity.



          (d) Schedules. Each of the Schedules attached to this Financing Agreement set forth a
true, correct and complete description of the matter or matters covered thereby.




37









 








          (e) Compliance with Laws.




               (i) Such Credit Party and such Credit Party’s Real Estate and all operations conducted thereon
are in compliance with all federal, state and local acts, rules and regulations, and all orders of
any federal, state or local legislative, administrative or judicial body or official, including,
without limitation, all Environmental Laws and Energy Laws, except to the extent the failure to so
comply would not have a Material Adverse Effect. Such Credit Party has obtained and maintains all
permits, approvals, authorizations and licenses necessary to conduct its business as presently
conducted, including, without limitation, all permits, approvals, authorizations and licenses
required under any Environmental Laws and Energy Law, except to the extent the failure to have such
permits, approvals, authorizations or licenses would not have a Material Adverse Effect.



               (ii) Such Credit Party is in compliance with, and its facilities, business, assets, property,
leaseholds and Equipment are in compliance in all material respects with, the provisions of the
Federal Occupational Safety and Health Act and all rules and regulations promulgated thereunder,
and there have been no outstanding citations, notices or orders of non-compliance issued to such
Credit Party or relating to its business, assets, property, leaseholds or Equipment under any such
laws, rules or regulations, except any such citations, notices or orders of non-compliance which
would not have a Material Adverse Effect.



          (f) Environmental Matters.




               (i) Except as not reasonably expected to have a Material Adverse Effect, (a) none of the
operations of such Credit Party are the subject of any federal, state or local investigation to
determine whether any remedial action is needed to address the presence or disposal of any
environmental pollution, hazardous material or environmental removal, response or remedial action
on Real Estate or any of such Credit Party’s leased real property and no such investigations are,
to the best of such Credit Party’s knowledge, threatened against such Credit Party and (b) no
enforcement proceeding, complaint, summons, citation, notice, order, claim, litigation,
investigation, letter or other written communication from a federal, state or local authority has
been filed against or delivered to such Credit Party regarding or involving any threat of release
or release of any environmental pollution or hazardous material on any real property now or
previously owned or operated by such Credit Party or, to such Credit Party’s knowledge, at any
off-site location.



               (ii) Except as not reasonably expected to have a Material Adverse Effect, such Credit Party
has no known contingent liability with respect to any release or threat of release of any
environmental pollution or hazardous material or other violation of Environmental Laws on any real
property now or previously owned or operated by such Credit Party or to such Credit Party’s
knowledge, at any off-site location.



               (iii) Such Credit Party is and has been in compliance with all Environmental Laws applicable
to the operation of such Credit Party’s business, except to the extent that the failure to so
comply would not have a Material Adverse Effect.



38









 





          (g) Pending Litigation. There exist no actions, suits or proceedings of any kind by or
against such Credit Party pending in any court or before any arbitrator or governmental body (i)
as of the Closing Date, which would reasonably be expected to result in liability against such
Credit Party not covered by insurance in an amount in excess of One Hundred Ten Thousand
Dollars ($110,000) in the aggregate for all Credit Parties, except as described on Schedule
7.1(g), or (ii) that, individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect.




          (h) Labor Relations. Except as described on Schedule 7.1(h), such Credit
Party is not a party to any collective bargaining agreement (and Schedule 7.1(h) also sets forth
the written termination date of each collective bargaining agreement listed thereon). There are no
material grievances, disputes or controversies with any union or any other organization of such
Credit Party’s employees, or, to the best of such Credit Party’s knowledge after due inquiry,
threats of strikes, work stoppages or any asserted pending demands for collective bargaining by any
union or organization.




          (i) Pension Plans. Except as disclosed on Schedule 7.1(i), such Credit Party
does not have any Plan. Such Credit Party is in compliance in all material respects with the
requirements of ERISA with respect to each Plan. No fact or situation that could result in a
material adverse change in the financial condition of such Credit Party exists in connection with
any Plan. Such Credit Party has no Plan that is a “multiemployer plan” (as that term is defined in
ERISA).




          (j) Investment Company Act. None of the Credit Parties is, or has at any time been,
an “investment company” or a company “controlled” by an “investment company,” within the meaning of
the Investment Company Act of 1940, as amended.




          (k) Public Utility Holding Company Act. None of the Credit Parties is a “holding
company” or a “public utility company,” within the meaning of the Public Utility Holding Company
Act of 1935, as amended.




          (l) Sun Management Agreement. No Credit Party is a signatory to or bound by any
agreement requiring the payment of any management, consulting or other similar fee or compensation
to Sun Capital or any affiliates thereof other than the Sun Management Agreement.




     7.2 Affirmative Covenants. Until the termination of this Financing Agreement and the
full and final payment and satisfaction of the Obligations each Credit Party agrees as follows:



          (a) Maintenance of Financial Records; Inspections. Such Credit Party agrees to
maintain books and records pertaining to such Credit Party’s financial matters in accordance with
past practices. Such Credit Party agrees that the Lender (at such Lender’s expense), and/or any
agent designated by the Lender, may enter upon such Credit Party’s premises at any time during
normal business hours, and from time to time, in order to (i) examine and inspect the books and
records of such Credit Party, and make copies thereof and take extracts therefrom, and (ii) verify,
inspect and perform physical counts and other valuations of the Collateral and any and all records
pertaining thereto. Such Credit Party irrevocably authorizes all accountants and third parties to
disclose and deliver directly to the Lender, at such Credit Party’s expense, all financial
statements and information, books, records, work papers and management reports generated by them or
in their


39









 







possession regarding such Credit Party or the Collateral other than communications or
reports subject to attorney/client privilege. All costs, fees and expenses incurred by the Lender
in connection with such examinations, inspections, physical counts and other valuations shall
constitute Out-of-Pocket Expenses for purposes of this Financing Agreement; provided,
however, that so long as no Default or Event of Default exists (and without limiting the
Lender’s rights under
Section 7.2(i) hereof), the Company shall not be required to pay or reimburse the Lender
for costs, fees and expenses incurred by the Lender in connection with more than three (3) such
examinations, inspections, physical counts and other valuations during any twelve (12) month
period.




          (b) Further Assurances. Such Credit Party agrees to comply with the requirements of
all state and federal laws in order to grant to the Lender valid and perfected first priority
security interests in the Collateral, subject only to the Permitted Encumbrances. The Lender is
hereby authorized by such Credit Party to file any financing statements, continuations and
amendments covering the Collateral without such Credit Party’s signature in accordance with the
provisions of the UCC and further authorizes the description of Collateral in such financing
statements to include the words “all assets” or words of similar effect. Such Credit Party hereby
consents to and ratifies the filing of any financing statements covering the Collateral by the
Lender on or prior to the Closing Date. Such Credit Party agrees to do whatever the Lender
reasonably may request from time to time, by way of (i) filing notices of liens, financing
statements, amendments, renewals and continuations thereof, (ii) cooperating with agents and
employees of the Lender, (iii) keeping Collateral records, (iv) transferring proceeds of Collateral
to the Lender’s possession in accordance with the terms hereof and (v) performing such further acts
as the Lender reasonably may require in order to effect the purposes of this Financing Agreement,
including the execution of control agreements with respect to Depository Accounts and Investment
Property.




          (c) Insurance and Condemnation.




               (i) Required Insurance. Such Credit Party agrees to maintain insurance on the Real
Estate, Equipment and Inventory under such policies of insurance, with such insurance companies, in
such reasonable amounts and covering such insurable risks as are at all times in accordance with
past practices (the “Required Insurance”). All policies covering the Real Estate,
Equipment and Inventory are, subject to the rights of any holder of a Permitted Encumbrance having
priority over the security interests of the Lender, to be made payable solely to the Lender, and in
case of loss, under a standard non-contributory “mortgagee”, “secured party” or “lender’s loss
payable” clause or endorsement, and are to contain such other provisions as the Lender reasonably
may require to fully protect the Lender’s interest in the Real Estate, Inventory and Equipment and
to any payments to be made under such policies. Each loss payable endorsement in favor of the
Lender shall provide (x) for not less than thirty (30) days prior written notice to the Lender of
the exercise of any right of cancellation (or not less than ten (10) days prior written notice in
the case of non-payment of premiums) and (y) that the Lender’s right to payment under any property
insurance policy will not be invalidated by any act or neglect of, or any breach of warranty or
condition by, such Credit Party or any other party. If an Event of Default shall have occurred and
remain outstanding, the Lender, subject to the rights of any holder of a Permitted Encumbrance
having priority over the security interests of the Lender, shall have the sole right, in the name
of the Lender or such Credit Party, to file claims under any insurance policies, to receive,
receipt and give acquittance for any payments that may be payable thereunder, and to execute any
and all



40









 







endorsements, receipts, releases, assignments, reassignments or other documents that may be
necessary to effect the collection, compromise or settlement of any claims under any such insurance
policies.



               (ii) The Lender’s Purchase of Insurance. Unless such Credit Party provides the Lender
with evidence of the Required Insurance in the manner set forth in
Section 7.2(c)(i) above, the Lender may purchase insurance at such Credit Party’s expense to
protect the Lender’s interests in the Collateral. The insurance purchased by the Lender may, but
need not, protect such Credit Party’s interests in the Collateral, and therefore such insurance may
not pay any claim which such Credit Party makes or any claim which is made against such Credit
Party in connection with the Collateral. Such Credit Party may later request that the Lender
cancel any insurance purchased by the Lender, but only after providing the Lender with reasonably
satisfactory evidence that such Credit Party has the Required Insurance. If the Lender purchases
insurance covering all or any portion of the Collateral, such Credit Party shall be responsible for
the costs of such insurance, including interest (at the applicable rate set forth hereunder) and
other charges accruing on the purchase price therefor, until the effective date of the cancellation
or the expiration of the insurance, and the Lender may charge all of such costs, interest and other
charges to the Loan Account. The costs of the premiums of any insurance purchased by the Lender
may exceed the costs of insurance which such Credit Party may be able to purchase on its own. In
the event that the Lender purchases insurance, the Lender will notify such Credit Party of such
purchase within thirty (30) days after the date of such purchase. If, within thirty (30) days
after the date of receipt of such notice, such Credit Party provides the Lender with proof that
such Credit Party had the Required Insurance as of the date on which the Lender purchased insurance
and such Credit Party has continued at all times thereafter to have the Required Insurance,
then the Lender agrees to cancel the insurance purchased by the Lender and credit the Loan Account
for the amount of all costs, interest and other charges associated with such insurance that the
Lender previously charged to the Loan Account.



               (iii) Application of Insurance and Condemnation Proceeds. So long as no Default or
Event of Default shall have occurred and remain outstanding as of the date of CIT’s receipt of any
Net Cash Proceeds on account of an insurance recovery or a recovery or award on account of a
condemnation or other governmental taking:




          (w) In the event of any loss or damage to any Inventory by condemnation, fire
or other casualty, the Lender agrees to apply the Net Cash Proceeds first to repay
the outstanding Obligations pursuant to Section 7.3(c)(iii) of the CIT Financing
Agreement and the Contrarian Intercreditor Agreement.




          (x) In the event of any loss or damage to any item of Collateral other than
Inventory by condemnation, fire or other casualty, if the Net Cash Proceeds relating
to such condemnation, fire or other casualty are less than or equal to One Hundred
Thousand Dollars ($100,000), the Lender agrees to apply such Net Cash Proceeds to
repay the Obligations pursuant to Section 7.3(c)(iii) of the CIT Financing Agreement
and the Contrarian Intercreditor Agreement.



41









 






          (y) In the event of any loss or damage to any item of Equipment by
condemnation, fire or other casualty, if the Net Cash Proceeds relating to such
condemnation, fire or other casualty exceed One Hundred Thousand Dollars ($100,000),
such Credit Party may elect (by delivering written notice to the Lender within ten
(10) Business Days following CIT’s receipt of such Net Cash Proceeds) to replace or
repair such item of Equipment.




          (z) In the event of any loss or damage to any Real Estate leased by such Credit
Party by condemnation, fire or other casualty, such Credit Party may use the Net
Cash Proceeds in the manner required or permitted by the lease agreement relating
thereto. In the event of any loss or damage to any Real Estate owned by such Credit
Party by condemnation, fire or other casualty, if the Net Cash Proceeds relating to
such condemnation, fire or other casualty exceed One Hundred Thousand Dollars
($100,000), and so long as such Credit Party has sufficient business interruption
insurance to replace the lost profits of the facilities affected by the
condemnation, fire or other casualty, such Credit Party may elect to repair or
replace such Real Estate, subject to the following terms:




          (1) If such Credit Party reasonably determines that the Real Estate may be
repaired to substantially the same condition of such Real Estate prior to the
condemnation, fire or other casualty, such Credit Party may elect to repair such
Real Estate by delivering written notice to the Lender within thirty (30) days
following CIT’s receipt of such Net Cash Proceeds. At the Lender’s request, such
Credit Party shall provide the Lender with a repair plan, the contract(s) for repair
and a total budget, which repair plan, contract(s) for repair and total budget
shall, if requested by Lender, be certified by an independent third party
experienced in construction costing. If such budget indicates that there are
insufficient Net Cash Proceeds to cover the full cost of repair of the Real Estate,
such Credit Party shall demonstrate to Lender’s satisfaction that the Company has
established reserves or provided other funds sufficient to cover any shortfall
before the reserve will be reduced.




          (2) Such Credit Party may elect to relocate and replace the Real Estate owned
by such Credit Party only on terms and conditions satisfactory to the Lender in its
sole discretion.


If a Default or an Event of Default shall have occurred and remain outstanding as of the date of
the Lender’s receipt of any Net Cash Proceeds, or if such Credit Party does not or cannot elect to
use the Net Cash Proceeds in the manner set forth in paragraphs (y) or (z) above, the Lender may,
subject to the rights of any holder of a Permitted Encumbrance having priority over the security
interests of the Lender, apply the Net Cash Proceeds to the payment of the Obligations in such
manner and in such order as the Lender may elect in its sole discretion.




          (d) Payment of Taxes. Such Credit Party agrees to pay when due all Taxes lawfully
levied, assessed or imposed upon such Credit Party or the Collateral (including all sales taxes
collected by such Credit Party on behalf of such Credit Party’s customers in connection with


42









 







sales
of Inventory and all payroll taxes collected by such Credit Party on behalf of such Credit Party’s
employees), unless such Credit Party is contesting such Taxes in good faith, by appropriate
proceedings, and is maintaining adequate reserves for such Taxes in accordance with GAAP.
Notwithstanding the foregoing, if a lien securing any Taxes is filed in any public office and such
lien is not a Permitted Tax Lien, then such Credit Party shall pay all taxes secured by such lien
immediately and remove such lien of record promptly. Pending the payment of such taxes and removal
of such lien, the Lender may, at its election and without curing or waiving any Event of Default
which may have occurred as a result thereof, pay such taxes on behalf of such Credit Party,
and the amount paid by the Lender shall become an Obligation which is due and payable on
demand by the Lender.




          (e) Compliance With Laws.




               (i) Such Credit Party agrees to comply with all federal, state and local acts, rules and
regulations, and all orders of any federal, state or local legislative, administrative or judicial
body or official, including, without limitation, all Energy Laws and Environmental Laws, if the
failure to so comply would have a Material Adverse Effect, provided that such Credit Party
may contest any acts, rules, regulations, orders and directions of such bodies or officials in any
reasonable manner which the Lender determines, in the exercise of its reasonable business judgment,
will not materially and adversely effect the Lender’s rights or priorities in the Collateral.



               (ii) Without limiting the generality of the foregoing, such Credit Party agrees to comply with
all Environmental Laws as presently existing or as adopted or amended in the future, applicable to
the ownership and/or use of its real property and operation of its business, if the failure to so
comply would have a Material Adverse Effect. Such Credit Party shall not be deemed to have
breached any provision of this Section 7.2(e) if (x) the failure to comply with the
requirements of this Section 7.2(e) resulted from good faith error, (y) such Credit Party
promptly commences and diligently pursues a cure of such breach and (z) such failure is cured
within thirty (30) days following such Credit Party’s receipt of notice from the Lender of such
failure, or if such breach cannot in good faith be cured within thirty (30) days following such
Credit Party’s receipt of such notice, then such breach is cured within a reasonable time frame
based on the extent and nature of the breach and the necessary remediation, and in conformity with
applicable Environmental Laws.



          (f) Notices Concerning Environmental, Employee Benefit and Pension Matters, Etc. The
Credit Parties agree to notify the Lender in writing of:




               (i) any expenditure (actual or anticipated, individually or in the aggregate during a fiscal
year) in excess of One Hundred Seventy-Five Thousand Dollars ($175,000) for environmental response,
removal or remedial action or for responses to environmental violations or environmental testing
and the impact of said expenses on the affected Credit Party’s working capital which expenditure is
not identified in the Environmental Reports;



               (ii) any Credit Party’s receipt of written notice from any local, state or federal authority
advising such Credit Party of any environmental liability (real or potential) arising from such
Credit Party’s operations, its Real Estate, its environmental management practices, or off-




43









 




site waste disposal sites used by such Credit Party, which liability could reasonably be
expected to result in expenditures in excess of One Hundred Seventy-Five Thousand Dollars
($175,000);




               (iii) such Credit Party’s receipt of written notice from any governmental agency, auditor or
any sponsor of any Plan to which such Credit Party has contributed, relating to any of the events
described in Section 10.1(i) hereof;



               (iv) any material breach of the Company’s lease with respect to the Beaumont Facility or any
other significant leased location of the Company, or a change in ownership of the Beaumont Facility
or any other such location, provided that the Credit Parties shall not be required to so
notify the Lender of any event described in this clause (iv) until the Credit Parties have
knowledge of such event;



               (v) the discontinuation by the Company of any of its product lines; and



               (vi) the commencement of any action, suit or proceeding of any kind by or against such Credit
Party in any court or before any arbitrator or governmental body which would reasonably be expected
to result in liability against such Credit Party not covered by insurance in an amount in excess of
One Hundred Thousand Dollars ($100,000) in the aggregate for all Credit Parties.


Such Credit Party agrees to provide the Lender promptly with copies of all such notices and other
information pertaining to any matter set forth above if the Lender so requests. In addition, the
Company shall deliver to the Lender, upon request but no more frequently than on a quarterly basis
with the submission of its financial statements required under Section 7.2(h) hereof, a
report in form and substance reasonably satisfactory to the Lender summarizing the status of the
matters described in clauses (i) and (ii) above and the status of such matters as the Lender shall
reasonably request in respect of items covered in the Environmental Reports.




          (g) Collateral Reporting.




               (i) The Credit Parties agree to furnish or cause to be furnished to the Lender the following
documents, information and access:



                    (1) On the fifteenth (15th) and last day of each month (or if either such day is
not a Business Day, the first Business Day following such day), but more frequently upon CIT’s
request, copies of a borrowing base certificate in form and substance satisfactory to the Lender,
certified by a Responsible Officer, together with such confirmatory schedules of Trade Accounts
Receivable and Inventory of the Company (in form, detail and substance satisfactory to the Lender)
as CIT may request.



                    (2) On or before the last day of each month (but more frequently upon CIT’s request), a
detailed and summary aging report of Trade Accounts Receivable of the Company existing as of the
last day of the preceding month, a roll-forward of Trade Accounts Receivable of the Company from
the first day of the preceding month through the last day of the preceding month, and a summary of
Inventory of the Company as of the last day of the preceding



44









 




month, all in such form as the Lender shall require, certified by a Responsible Officer, together with a reconciliation, as of the last day of the preceding month, of the Company’s Trade Accounts
Receivable aging report to the Company’s general ledger and applicable borrowing base certificate
delivered by the Company to the Lender. To the extent that any Credit Party other than the Company
has rights in any Accounts or Inventory from time to time, such Credit Party shall also furnish or
caused to be furnished to the Lender such information within such time period.




                    (3) On or before the last day of each month (but more frequently upon CIT’s request), an aged
trial balance of the Company’s accounts payable as of the last day of the preceding month. To the
extent that any Credit Party other than the Company has accounts payable from time to time, such
Credit Party shall also furnish or cause to be furnished to the Lender such information within such
time period.



                    (4) Copies of prompt written disclosure delivered to CIT of (x) all matters adversely
affecting the value, enforceability or collectibility of the Trade Accounts Receivable of the
Company, (y) all customer disputes, offsets, defenses, counterclaims, returns, rejections and all
reclaimed or repossessed merchandise or goods, and (z) all matters adversely effecting the value or
marketability of the Inventory, all in such detail and format as CIT may require, provided
that to the extent that any such matter could not have a Material Adverse Effect, the Company may
disclose such matter to the Lender when the Company provides CIT with the borrowing base
certificate described in clause (1) above.



                    (5) Prior written notice of any change in the location of any Collateral and any material
change in type, quantity, quality or mix of the Inventory.



                    (6) From time to time, such other documentation and information relating to the Trade Accounts
Receivable, Inventory and other Collateral, and financial condition and operations of any Credit
Party, as the Lender may reasonably require. In addition, the Credit Parties agree to furnish or
cause to be furnished to the Lender from time to time access to the Company’s or any other Credit
Party’s computers, electronic media and software programs (including any electronic records,
contracts and signatures), provided that, at the Company’s or such other Credit Party’s
option, a representative of the Company or such other Credit Party may be present at all times
while the Lender is accessing such computers, electronic media or software programs.



                    (7) Notwithstanding anything to the contrary contained in the preceding clauses (1), (2), (4)
or (5), the Company shall not be required to include information regarding Excluded Inventory in
the reports and other documentation described in such clauses.



               (ii) The Company or any other Credit Party may deliver to the Lender any borrowing base
certificate, collateral report or other material under clauses (1), (2) and (3) of Section
7.2(g)(i) by e-mail or other electronic transmission (an “Electronic Transmission”),
subject to the following terms:



                    (1) Each Electronic Transmission must be sent by a Responsible Officer, and must be addressed
to the contact person designated by the Lender in Section 12.7. If



45









 




any Electronic Transmission is returned to the sender as undeliverable, the material included in such Electronic Transmission must be delivered to the intended recipient in the manner required by
Section 12.6 hereof.




                    (2) Each certificate, collateral report or other material contained in an Electronic
Transmission must be in a “pdf” or other imaging format and, to the extent that such material must
be certified by an officer of such Credit Party under this Section 7.2(g), must contain the
signature of the officer submitting the Electronic Transmission. As provided in Section
12.6, any signature on a certificate, collateral report or other material contained in an
Electronic Transmission shall constitute a valid signature for purposes hereof. The Lender may
rely upon, and assume the authenticity of, any such signature, and any material containing such
signature shall constitute an “authenticated” record for purposes of the Uniform Commercial Code
and shall satisfy the requirements of any applicable statute of frauds.



                    (3) Each Electronic Transmission must contain the name and title of the officer of such Credit
Party transmitting the Electronic Transmission, and shall include following text in the body of the
Electronic Transmission:




“Pursuant to the Second Lien Financing Agreement dated as of July 15, 2005,
among Horsehead Corp. and certain of its affiliates, and Contrarian Service
Company, L.L.C. (the “Lender”), the undersigned
_______ [title of
submitting officer] of the [name of Credit Party] hereby delivers to the
Lender _______ [describe submitted reports]. The undersigned Credit
Party represents and warrants to the Lender that the materials included in
this Electronic Transmission are true, correct and complete in all material
respects. The name of the officer of the Credit Party set forth in this
e-mail constitutes the signature of such officer, and this e-mail shall
constitute an authenticated record of such Credit Party.”



                    (4) The Company agrees to maintain the original versions of all certificates, collateral
reports and other materials delivered to the Lender by means of Electronic Transmission and agrees
to furnish to the Lender such original versions within five (5) Business Days of the Lender’s
request for such materials, signed and certified (to the extent required hereunder) by the officer
submitting the Electronic Transmission.



                    (5) Each Credit Party hereby authorizes the Lender to regard such Credit Party’s printed name
or rubber stamp signature on assignment schedules or invoices as the equivalent of a manual
signature by one of its Responsible Officers. Any Credit Party’s failure to promptly deliver to
the Lender any schedule, report, statement or other information set forth in this Section
7.2(g) shall not affect, diminish, modify or otherwise limit the Lender’s security interests in
the Collateral.



          (h) Financial Reporting. The Credit Parties agree to furnish or cause to be furnished
to the Lender:




46









 








               (i) within one hundred five (105) days after the end of each fiscal year of the Company, a
Consolidated Balance Sheet as at the close of such year, and consolidated statements of profit and
loss and cash flow of the Company and its consolidated subsidiaries for such year, audited by independent public accountants selected by the Company and satisfactory to the
Lender, together with (x) the unqualified opinion of the accountants preparing such financial
statements and (y) if requested by the Lender, such accountants’ management practice letter;



               (ii) within thirty (30) days after the end of each month and on a quarterly basis commencing
twelve (12) months after the expiration of the Closing Date and accompanied by an officer’s
certificate substantially in the form set forth on Exhibit C attached hereto, signed by a
Responsible Officer, (x) a Consolidated Balance Sheet as at the end of such month or quarter (as
applicable), (y) consolidated statements of profit and loss and cash flow of the Company and its
consolidated subsidiaries for such month or quarter (as applicable) and for the period commencing
on the first day of the current fiscal year through the end of such month, and (z) comparative
statements of profit and loss and cash flow of the Company and its consolidated subsidiaries for
the same month or quarter (as applicable) and same fiscal year-to-date period in the prior fiscal
year, certified by a Responsible Officer;



               (iii) as and when delivered by any Credit Party (but without duplication with any reporting
requirement contained in this Financing Agreement), copies of all notices, certificates and reports
required to be delivered to CIT pursuant to the CIT Transaction Documents, including, without
limitation, financial covenant compliance certificates and supporting documentation;



               (iv) as and when filed by any Credit Party, copies of all (x) financial reports, registration
statements and other documents filed by such Credit Party with the U.S. Securities and Exchange
Commission, as and when filed by such Credit Party, and (ii) annual reports filed pursuant to ERISA
in connection with each Plan of such Credit Party; and



               (v) no later than thirty (30) days after the beginning of each fiscal year of the Company,
monthly projections of the Consolidated Balance Sheet of the Company and its consolidated
subsidiaries, and consolidated statements of profits and loss and cash flow of the Company and its
consolidated subsidiaries, as well as monthly projected Net Availability (as defined in the CIT
Financing Agreement) for the Company for such fiscal year.



     Each annual and quarter-end financial statement which the Credit Parties are required to
submit or to cause to be submitted pursuant to clauses (i) and (ii) above must be accompanied by a
Compliance Certificate signed by a Responsible Officer. In addition, should any Credit Party
modify its accounting principles and procedures from those in effect on the Closing Date, such
Credit Party agrees to prepare and deliver to the Lender statements of reconciliation in form and
substance reasonably satisfactory to the Lender.



          (i) Asset Appraisals. From time to time upon the request of the Lender, each Credit
Party agrees to permit the Lender to perform appraisals of such Credit Party’s Inventory, Equipment
and Real Estate covered by a mortgage or deed of trust in favor of the Lender. The Company agrees
to reimburse the Lender for the reasonable costs and expenses relating to (however

47









 








to the extent such appraisal has been performed by CIT, Lender will accept copies of such appraisal) and shall
not conduct its own appraisal at any time prior to the termination of the CIT Financing Agreement
(i) up to two (2) Inventory appraisals if requested by CIT in any twelve (12)-month period, so long
as no Event of Default shall have occurred and remain outstanding, (ii) one (1) Equipment appraisal in any twelve (12)-month period, so long as no Event of Default shall have
occurred and remain outstanding, (iii) one (1) appraisal with respect to each parcel of Real Estate
in any twelve (12)-month period, so long as no Event of Default shall have occurred and remain
outstanding, (iv) one (1) appraisal with respect to the Monaca Power Plant in any twelve (12)-month
period, so long as no Event of Default shall have occurred and remain outstanding, and (v) all such
appraisals performed while an Event of Default remains outstanding; provided, however, that
with respect to the preceding clauses (ii), (iii) and (iv) only, if CIT or the Company furnishes to
the Lender a copy of a recent appraisal of the type described in such clauses that was performed
pursuant to the CIT Transaction Documents, together with a reasonably satisfactory reliance letter
from the appraisal firm in favor of the Lender, prior to the engagement of an appraisal firm
selected by the Lender to conduct a similar appraisal, and such appraisal was performed by an
independent appraisal firm reasonably satisfactory to the Lender and the form, scope and substance
of such appraisal (including, without limitation, the date of performance of such appraisal) is
reasonably satisfactory to the Lender, then the Company shall not be required to reimburse the
Lender for a similar appraisal during the twelve (12)-month period from the date of such appraisal.
All appraisals shall be performed by qualified appraisers selected by the Lender. To the extent
that the Company is required by this Section 7.2(i) to reimburse the Lender for the
Lender’s costs and expenses relating to appraisals, such costs and expenses shall constitute
Out-of-Pocket Expenses.




          (j) Business Qualification. Each Credit Party agrees to qualify to do business, and
to remain qualified to do business and in good standing, in each jurisdiction where the failure to
so qualify, or to remain qualified or in good standing, would have a Material Adverse Effect.




          (k) Anti-Money Laundering and Terrorism Regulations. Each Credit Party agrees to
comply with all applicable anti-money laundering and terrorism laws, regulations and executive
orders in effect from time to time (including, without limitation, the USA Patriot Act (Pub. L. No.
107-56)). Such Credit Party also agrees to ensure that no person who owns a controlling interest
in or otherwise controls such Credit Party is a person designated under Section 1(b), (c) or (d) of
Executive Order No. 13224 (issued September 23, 2001) or any other similar Executive Order. Such
Credit Party acknowledges that the Lender’s performance hereunder is subject to compliance with all
such laws, regulations and executive orders, and in furtherance of the foregoing, such Credit Party
agrees to provide to the Lender all information about such Credit Party’s ownership, officers,
directors, customers and business structure as the Lender reasonably may require to comply with,
such laws, regulations and executive orders.




     7.3 Financial Covenants. Until termination of this Financing Agreement and the full
and final payment and satisfaction of all Obligations, each Credit Party agrees:



          (a) Consolidated Senior Leverage. To cause the Company and its consolidated
subsidiaries to maintain Consolidated Senior Leverage, calculated as of the last day of each fiscal
quarter commencing with the fiscal quarter ending September 30, 2005, of not more than 6.0 to 1.00

48









 








(it being agreed that the denominator of Consolidated Senior Leverage shall be calculated for the
twelve (12)-month period ending on the last day of each such fiscal quarter).




          (b) Consolidated Fixed Charge Coverage. To cause the Company and its consolidated
subsidiaries to maintain a Consolidated Fixed Charge Coverage Ratio, calculated for each twelve (12)-month period ending on the last day of a fiscal quarter commencing with the
fiscal quarter ending September 30, 2005, of not less than 0.90 to 1.00.




          (c) Consolidated EBITDA. To cause the Company and its consolidated subsidiaries to
have a Consolidated EBITDA, calculated for each of the periods set forth below of not less than:




	 	 	 	 	 
	Period:	 	Minimum Consolidated EBITDA:
	12-month period ending September 30, 2005
	 	$	19,256,000	 
	12-month period ending December 31, 2005
	 	$	17,715,000	 
	12-month period ending March 31, 2006
	 	$	15,636,000	 
	12-month period ending June 30, 2006
	 	$	13,502,000	 
	12-month period ending September 30, 2006
	 	$	12,211,000	 
	12-month period ending December 31, 2006 and
each 12-month period thereafter ending on the
last day of a fiscal quarter
	 	$	12,056,000	 






          (d) Capital Expenditures. To cause the Company and its consolidated subsidiaries not
to contract for, purchase, make expenditures for, lease pursuant to a Capital Lease or otherwise
incur obligations with respect to Capital Expenditures (whether subject to a security interest or
otherwise) during any fiscal year of the Company in the aggregate amount in excess of the amount
corresponding to such fiscal year as set forth below:




	 	 	 	 	 
	Fiscal Year:	 	Maximum Capital Expenditures:
	2005
	 	$	10,340,000	 
	2006
	 	$	10,670,000	 
	2007
	 	$	10,450,000	 
	2008
	 	$	10,450,000	 
	2009
	 	$	10,450,000	 
	2010 and thereafter
	 	$	10,450,000	 






49









 






          (e) Notwithstanding anything to the contrary contained in this Section, (i) Consolidated
EBITDA for the twelve (12)-month period ending September 30, 2005 shall be calculated by
annualizing the results of operations of the Company and its consolidated subsidiaries for the nine
(9)-month period ending September 30, 2005 and Consolidated Fixed Charges for such twelve (12)-month period ending shall be calculated by annualizing the Consolidated Fixed
Charges for such nine (9)-month period.




     7.4 Negative Covenants. Until termination of this Financing Agreement and full and
final payment and satisfaction of all Obligations, each Credit Party agrees not to:



          (a) Liens and Encumbrances. Mortgage, collaterally assign, pledge or otherwise
permit any lien, charge, security interest, encumbrance or judgment (whether as a result of a
purchase money or title retention transaction, or other security interest, or otherwise) to exist
on any of the Collateral or its other assets, whether now owned or hereafter acquired, except for
the Permitted Encumbrances.




          (b) Indebtedness. Incur or create any Indebtedness other than the Permitted
Indebtedness.




          (c) Sale of Assets. Sell, lease, assign, transfer or otherwise dispose of any of its
properties or assets (including, without limitation, any disposition of properties or assets as
part of a sale and leaseback transaction), including, without limitation, the Collateral, except as
otherwise specifically permitted by this Financing Agreement, including, without limitation,
Sections 6.5(e) and  6.6(b) hereof.




          (d) Corporate Change. (i) Merge or consolidate with any other entity, except that any
Credit Party other than the Company may merge or consolidate with any other Credit Party, (ii)
change its name or principal place of business, (iii) change its structure or organizational form,
or reincorporate or reorganize in a new jurisdiction, or (iv) enter into or engage in any line of
business materially different from that being conducted by such Credit Party on the Closing Date
(it being acknowledged that Horsehead Intermediary does not conduct any operation or activity other
than those activities that are incidental to its status as the intermediate holding company of the
Company); provided that such Credit Party may change its name or its principal place of
business, or reincorporate or reorganize in a new jurisdiction within the continental United
States, so long as such Credit Party provides the Lender with thirty (30) days prior written notice
thereof and such Credit Party executes and delivers to the Lender, prior to making such change, all
documents and agreements required by the Lender in order to ensure that the liens and security
interests granted to the Lender hereunder continue in effect without any break or lapse in
perfection.




          (e) Guaranty Obligations. Assume, guarantee, endorse, or otherwise become liable upon
the obligations of any person, except (i) pursuant to Section 15 hereof, (ii) by the
endorsement of negotiable instruments for deposit or collection or similar transactions in the
ordinary course of business, and (iii) guaranties constituting Permitted Indebtedness.

50









 









          (f) Dividends and Distributions. Declare or pay any dividend or distribution of any
kind on, or purchase, acquire, redeem or retire, any of its equity interests (of any class or type
whatsoever), whether now or hereafter issued and outstanding, other than Permitted Distributions.




          (g) Investments. (i) Create any new subsidiary, or (ii) make any advance or loan to,
or any investment in, any person other than Permitted Investments, or (iii) acquire all or
substantially all of the assets of, or any capital stock or any equity interests in, any person.




          (h) Related Party Transactions. Enter into any transaction, including, without
limitation, any purchase, sale, lease, loan or exchange of property, with any shareholder, officer,
member, director, parent (direct or indirect), subsidiary (direct or indirect) or other person
otherwise affiliated with such Credit Party other than those transactions listed on Schedule
7.4(h) attached hereto, unless (i) such transaction otherwise complies with the provisions of
this Financing Agreement, (ii) such transaction is for the sale of goods or services rendered in
the ordinary course of business and pursuant to the reasonable requirements of such Credit Party
and upon standard terms and conditions and fair and reasonable terms, no less favorable to such
entity than such entity could obtain in a comparable arms length transaction with an unrelated
third party, and (iii) no Event of Default shall have occurred and remain outstanding at the time
such transaction occurs, or would occur after giving effect to such transaction.




          (i) Restricted Payments. (i) Make any payment in respect of any Subordinated Debt, or
purchase, acquire or redeem any Subordinated Debt, unless (x) such payment, purchase, acquisition
or redemption is expressly permitted by the terms of the applicable Subordination Agreement and (y)
no Default or Event of Default shall have occurred and remain outstanding on the date on which such
payment or transaction occurs, or would occur as a result thereof; or (ii) pay any management,
consulting or other similar fees or compensation to any shareholder, director, officer, member,
parent (direct or indirect), subsidiary (direct or indirect) or other person otherwise affiliated
with any Credit Party other than (A) a one-time payment of Seven Hundred Twenty Thousand Dollars
($720,000) on the Closing Date representing the fee for the Management Consulting Event (as defined
in the Sun Management Agreement) as a result of the closing of the transactions contemplated by
this Financing Agreement and the CIT Transaction Documents, (B) payments expressly permitted under
the next sentence, and (C) the current, customary or prevailing fees and expenses paid to members
of the Company’s Board of Directors, and fees and salaries of any shareholder or other person paid
to such person in their capacity as officer or employee of such Credit Party, including, without
limitation, fees, salaries, bonuses and other forms of compensation pursuant to employment or other
agreements. The Credit Parties may also pay to Sun Capital or its affiliates Permitted Management
Fee Payments (as defined below) so long as in the case of each Permitted Management Fee Payment,
(x) prior and after giving effect to such Permitted Management Fee Payment, no Default or Event of
Default has occurred and is continuing, and (y) the average of Net Availability (as defined in the
CIT Financing Agreement) for the thirty (30) day period preceding such Permitted Management Fee
Payment is equal to or greater than Two Million Dollars ($2,000,000) (which average shall be
calculated as if such Permitted Management Fee Payment were made during such period), and (z) prior
to such Permitted Management Fee Payment, the Credit Parties shall have delivered to the Lender an
officer’s certificate, in form and substance reasonably satisfactory to the Lender, signed by a
Responsible Officer stating that all conditions precedent set forth in this Section 7.4(i)
with respect to such proposed Permitted Management Fee Payment have

51









 








been satisfied and attaching calculations demonstrating compliance with the preceding clause (y). “Permitted Management Fee
Payments” shall mean the following payments: (i) regularly scheduled payments of the Management
Fee under (and as defined in) the Sun Management Agreement on the dates and in the amounts set
forth in the Sun Management Agreement, (ii) payments of reasonable fees for management consulting services provided by Sun Capital or its affiliates to the Company or its
subsidiaries in connection with a Management Consulting Event (as defined in the Sun Management
Agreement), (iii) payments of amounts paid in reimbursement of reasonable out-of-pocket costs and
expenses (including legal fees and disbursements) to the extent set forth in the Sun Management
Agreement, provided that in no event shall the amount of such payments under this clause
(iii) exceed Sixty Thousand Dollars ($60,000) in the aggregate during any twelve (12)-month period,
and (iv) without duplication and to the extent applicable, payments of the Management Fee and the
fees and payments described in the preceding clauses (ii) and (iii) that have been deferred during
the term of this Financing Agreement. For avoidance of doubt, to the extent that the Management
Fee or the fees described in clause (ii) of the definition of Permitted Management Fee Payments are
not paid in cash when due during the term of this Financing Agreement, such amounts shall be
permitted to accrue.




          (j) Prohibited Uses of Proceeds. Use the proceeds of the Loan made under this
Financing Agreement, directly or indirectly, (i) in violation of any applicable law or regulation,
including without limitation Regulations T, U or X of the Board of Governors of the Federal Reserve
System as from time to time in effect (and any successor regulation or official interpretation of
such Board), (ii) to purchase or carry any “margin stock”, as defined in Regulations U and X, or
any “margin security”, “marginable OTC stock” or “foreign margin stock” within the meaning of
Regulation T, U or X, or (iii) for any purpose other than (A) to refinance the Existing
Indebtedness on the Closing Date, (B) to fund fees, costs and expenses incurred in connection with
the negotiation, documentation and closing of this Financing Agreement and the CIT Transaction
Documents, (C) to fund the working capital needs of the Company and (D) for general corporate
purposes of the Company not otherwise prohibited under this Financing Agreement or the other Loan
Documents.




          (k) Restricted Modifications. (i) Amend or otherwise modify the terms of any of the
CIT Transaction Documents except as expressly permitted under the Contrarian Intercreditor
Agreement, (ii) amend or otherwise modify the terms of any of Subordinated Debt except as expressly
permitted under the applicable Subordination Agreement, (iii) amend or otherwise modify the terms
of the Sun Management Agreement in any way which increases the amount of cash compensation payable
by a Credit Party to Sun Capital or any of its affiliates prior to the termination of this
Financing Agreement and the full and final payment and satisfaction of the Obligations (other than
contingent indemnification obligations not yet due and payable) or is otherwise adverse to the
interests of the Lender (or enter into any new agreement with Sun Capital or any of its affiliates
which has the effect of accomplishing any of the foregoing), without the prior written consent of
the Lender, or (iv) amend or otherwise modify the terms of any of the Bond Documents in any way
which is adverse to the interests of the Lender (other than changes to the economic terms which are
a result of general market increases), without the prior written consent of the Lender.




52









 








SECTION 8 Interest and Expenses




     8.1
[Reserved]



     8.2
[Reserved]



     8.3 Out-of Pocket Expenses. The Company agrees to reimburse the Lender for all
Out-of-Pocket Expenses when charged to or paid by the Lender.



     8.4 LIBOR Loans.



          (a) Inability to Determine LIBOR. Notwithstanding any other provision of this
Financing Agreement or the Promissory Note, if prior to the commencement of any Interest Period,
Lender shall determine that deposits in the amount of any LIBOR Loan scheduled to be outstanding
during such Interest Period are not generally available in the relevant market or, by reason of
circumstances affecting the relevant market, adequate and reasonable means do not exist for
ascertaining LIBOR, then Lender shall promptly give notice thereof to Company and the obligations
of Lender to continue any such LIBOR Loan in such amount and for such Interest Period shall
terminate until deposits in such amount and for the Interest Period selected by a Company shall
again be generally available in the relevant market and adequate and reasonable means exist for
ascertaining LIBOR, and interest on any such LIBOR Loan shall bear interest at the Chase Bank Rate
at any time LIBOR cannot be determined.




          (b) Loan Participants. For purposes of this Section 8.4, the term “Lender”
shall include any financial institution that purchases from any Lender a participation in the loans
made by such Lender to the Company hereunder.




     8.5 Capital Adequacy. In the event that the Lender, subsequent to the Closing Date,
determines in the exercise of its reasonable business judgment that (x) any change in applicable
law, rule, regulation or guideline regarding capital adequacy, or (y) any change in the
interpretation or administration thereof, or (z) compliance by the Lender with any new request or
directive regarding capital adequacy (whether or not having the force of law) of any central bank
or other governmental or regulatory authority, has or would have the effect of reducing the rate of
return on the Lender’s capital as a consequence of its obligations hereunder to a level below that
which the Lender could have achieved but for such change or compliance (taking into consideration
the Lender’s policies with respect to capital adequacy) by an amount deemed material by the Lender
in the exercise of its reasonable business judgment, the Company agrees to pay to the Lender, no
later than five (5) days following written demand by the Lender (including a statement and
explanation of such charges), such additional amount or amounts as will compensate the Lender for
such reduction in rate of return. In determining such amount or amounts, the Lender may use any
reasonable averaging or attribution methods. The protection of this Section 8.5 shall be
available to the Lender regardless of any possible contention of invalidity or inapplicability with
respect to the applicable law, regulation or condition. A certificate of the Lender setting forth
such amount or amounts as shall be necessary to compensate the Lender with respect to this
Section 8.5 and the calculation thereof, when delivered to the Company, shall be conclusive
and binding on the Company absent manifest error. In the event the Lender exercises its rights
pursuant to this Section 8.5, and subsequent



53









 







thereto determines that the amounts paid by the Company exceeded the amount which the Lender actually required to compensate the Lender for any
reduction in rate of return on its capital, such excess shall be returned to the Company by the
Lender.



     8.6 Taxes, Reserves and Other Conditions. In the event that any applicable law,
treaty or governmental regulation, or any change therein or in the interpretation or application
thereof, or compliance by the Lender with any new request or directive (whether or not having the
force of law) of any central bank or other governmental or regulatory authority, shall:



          (a) subject the Lender to any tax of any kind whatsoever with respect to this Financing
Agreement or change the basis of taxation of payments to the Lender of principal, fees, interest or
any other amount payable hereunder or under any other Loan Document (except for changes in the rate
of tax on the overall net income of the Lender by the federal government or other jurisdiction in
which it maintains its principal office);




          (b) impose or require any reserve, special deposit, assessment or similar requirement against
assets held by, or deposits in or for the account of, advances or loans by, or other credit
extended by such Lender by reason of or in respect to this Financing Agreement and the Loan
Documents, including (without limitation) pursuant to Regulation D of the Board of Governors of the
Federal Reserve System; or




          (c) impose on the Lender any other condition with respect to this Financing Agreement or any
other document;



and the result of any of the foregoing is to (i) increase the cost to the Lender of making,
renewing or maintaining the Lender’s loan hereunder by an amount deemed material by the Lender in
the exercise of its reasonable business judgment, or (ii) reduce the amount of any payment (whether
of principal, interest or otherwise) in respect of any of the loans made hereunder by an amount
that the Lender deems to be material in the exercise of its reasonable business judgment (except
reductions for taxes imposed on or measured by the Lender’s overall net income (however
denominated), and franchise taxes imposed upon it (in lieu of net income taxes), by any
governmental authority), the Company agrees to pay to the Lender, no later than five (5) days
following demand by the Lender, such additional amount or amounts as will compensate the Lender for
such increase in cost or reduction in payment, as the case may be. A certificate of the Lender
setting forth such amount or amounts as shall be necessary to compensate the Lender with respect to
this Section 8.6 and the calculation thereof, when delivered to the Company, shall be
conclusive and binding on the Company absent manifest error. In the event the Lender exercises its
rights pursuant to this Section 8.6, and subsequent thereto determines that the amounts
paid by the Company in whole or in part exceeded the amount which the Lender actually required to
compensate the Lender for any increase in cost or reduction in payment, such excess shall be
returned to the Company by the Lender.




     8.7 Authority to Charge Loan Account. The Company hereby authorizes the Lender to
charge the Loan Account with the amount of all payments due under this Section 8 as such
payments become due. Any amount charged to the Loan Account shall bear interest at the rate
provided in Section 3.2 (or Section 3.4, if applicable) of this Financing
Agreement. The Company



54









 







confirms that any charges which the Lender may make to the Loan Account as provided herein will be made as an accommodation to the Company and solely at the Lender’s
discretion.



     8.8 Tax Withholding. At the reasonable request of any Credit Party, if the Lender is
entitled to an exemption from or reduction of withholding tax under the law of the jurisdiction in
which a Credit Party is resident for tax purposes, or any treaty to which such jurisdiction is a
party, with respect to payments hereunder or under any other Loan Document shall deliver to the
Company, at the time or times prescribed by applicable law or reasonably requested by the Credit
Party or the Lender, such properly completed and executed documentation prescribed by applicable
law as will permit such payments to be made without withholding or at a reduced rate of
withholding. In addition, the Lender, if requested by a Credit Party, shall promptly deliver such other
documentation prescribed by applicable law or reasonably requested by the Credit Party or as will
enable the Credit Party or the Lender to determine whether or not the Lender is subject to backup
withholding or information reporting requirements.



SECTION 9 Powers




     9.1 Authority. Each Credit Party hereby authorizes the Lender, or any person or agent
which the Lender may designate, at the Company’s cost and expense, to exercise all of the following
powers, which authority shall be irrevocable until the termination of this Financing Agreement and
the full and final payment and satisfaction of the Obligations (other than contingent
indemnification obligations not yet due and payable):



          (a) To receive, take, endorse, sign, assign and deliver, all in the name of the Lender or such
Credit Party, any and all checks, notes, drafts, and other documents or instruments relating to the
Collateral;




          (b) To receive, open and dispose of all mail addressed to such Credit Party and to notify
postal authorities to change the address for delivery thereof to such address as the Lender may
designate;




          (c) To request from customers indebted on Accounts at any time, in the name of the Lender,
information concerning the amounts owing on the Accounts;




          (d) To request from customers indebted on Accounts at any time, in the name of such Credit
Party, any certified public accountant designated by the Lender or any other designee of the
Lender, information concerning the amounts owing on the Accounts;




          (e) To transmit to customers indebted on Accounts notice of the Lender’s interest therein and
to notify customers indebted on Accounts to make payment directly to the Lender for such Credit
Party’s account; and




          (f) To take or bring, in the name of the Lender or such Credit Party, all steps, actions,
suits or proceedings deemed by the Lender necessary or desirable to enforce or effect collection of
the Accounts.




55









 








     9.2 Limitations on Exercise. Notwithstanding any other provision of this Financing
Agreement to the contrary, the powers set forth in Sections 9.1(b), (c), (e) and
(f) may only be exercised if an Event of Default shall have occurred and remain
outstanding.



SECTION 10 Events of Default and Remedies




     10.1 Events of Default. Each of the following events shall constitute an “Event
of Default” under this Financing Agreement:



          (a) the cessation of the business of the Company, or the calling of a meeting of the creditors
of any Credit Party for purposes of compromising its debts and obligations;




          (b) the failure of any Credit Party generally to meet its debts as those debts mature;




          (c) (i) the commencement by any Credit Party of any bankruptcy, insolvency, arrangement,
reorganization, receivership or similar proceedings under any federal or state law; or (ii) the
commencement against any Credit Party of any bankruptcy, insolvency, arrangement, reorganization,
receivership or similar proceeding under any federal or state law by creditors of any of them, but
only if such proceeding is not contested by such Credit Party within ten (10) days and not
dismissed or vacated within thirty (30) days of commencement, or any of the actions or relief
sought in any such proceeding shall occur or be authorized by such Credit Party;




          (d) any representation, warranty, certification or statement of fact made or deemed made by or
on behalf of any Credit Party herein (other than those referred to in Sections 10.1(g)
below), in any other Loan Document, or in any document delivered in connection herewith or
therewith shall be incorrect or misleading in any material respect when made or deemed made or
shall be incorrect or misleading in any respect when made or deemed made if such representation,
warranty, certification or statement of fact is already qualified by materiality or by reference to
Material Adverse Effect (in each case including any omission of information necessary to make such
representation, warranty, certification or statement of fact not materially misleading);




          (e) the breach or violation by any Credit Party of any covenant contained in this Financing
Agreement (other than those referred to in Sections 10.1(f) and (g) below),
provided that such breach or violation shall not be deemed to be an Event of Default unless
such Credit Party fails to cure such breach or violation to the Agent’s reasonable satisfaction
within twenty (20) days from the date of such breach or violation;




          (f) the breach or violation by any Credit Party of any covenant contained in Section
7.2(h) of this Financing Agreement, provided that such breach or violation shall not be
deemed to be an Event of Default unless such Credit Party fails to cure such breach or violation to
the Lender’s reasonable satisfaction within ten (10) days from the date of such breach or
violation;




          (g) the breach or violation by any Credit Party of any warranty, representation or covenant
contained in Sections 3.7, 6.3, 6.4, 6.5, 6.6(b), 7.1(j), 7.1(k), 7.2(c), 7.2(d), 7.2(g)(i),
7.2(k), 7.3, 7.4 or 15 of this Financing Agreement, or the Parent or any Credit
Party fails to comply





56










 




with all applicable anti-money laundering and terrorism laws, regulations and executive
orders in effect from time to time (including, without limitation, the USA Patriot Act (Pub. L. No.
107-56));




          (h) the failure of the Company to pay any of the Obligations (including, without limitation,
principal, interest and fees) within five (5) Business Days of the due date thereof;




          (i) any Credit Party shall (i) engage in any “prohibited transaction” as defined in ERISA,
(ii) incur any “accumulated funding deficiency” as defined in ERISA, (iii) incur any “reportable
event” as defined in Section 4043(c) of ERISA other than such event for which the thirty (30)-day
notice requirement under ERISA has been waived in a regulation issued by the Pension Benefit
Guaranty Corporation, (iv) terminate any Plan or (v) become involved in any proceeding in which the
Pension Benefit Guaranty Corporation shall seek appointment, or is appointed, as trustee or
administrator of any Plan, and with respect this Section 10.1(i), such event or condition
either (x) remains uncured for a period of thirty (30) days from date of occurrence and (y) could,
in the Lender’s reasonable business judgment, subject such Credit Party to any tax, penalty or
other liability having a Material Adverse Effect;




          (j) the occurrence of any default or event of default (after giving effect to any applicable
grace or cure period) under any of the other Loan Documents, or any of the other Loan Documents
ceases to be valid, binding and enforceable in accordance with its terms;




          (k) any Credit Party (i) fails to make any payment when due (whether by scheduled maturity,
required prepayment, acceleration, demand, or otherwise) in respect of the CIT Obligations, the
Subordinated Debt, the Bond Obligations or any Indebtedness (other than Indebtedness hereunder and
Indebtedness under interest rate swap agreements) having an aggregate principal amount (including
undrawn committed or available amounts and including amounts owing to all creditors under any
combined or syndicated credit arrangement) of more than Five Hundred Fifty Thousand Dollars
($550,000), (ii) fails to observe or perform any other agreement or condition relating to the
Subordinated Debt, the Bond Obligations or any such Indebtedness (other than the CIT Indebtedness)
or contained in any instrument or agreement evidencing, securing or relating thereto, or any other
event occurs, the effect of which default or other event is to cause, or to permit the holder or
holders of thereof (or a trustee or agent on behalf of such holder or holders or beneficiary or
beneficiaries) to cause, with the giving of notice if required, such obligations or Indebtedness to
be demanded or to become due or to be repurchased, prepaid, defeased or redeemed (automatically or
otherwise), or an offer to repurchase, prepay, defease or redeem such obligations or Indebtedness
to be made, prior to stated maturity, or cash collateral in respect thereof to be demanded; or
there occurs under any interest rate swap agreement an early termination date (as defined in such
interest rate swap agreement) resulting from (y) any event of default under such interest rate swap
agreement as to which a Credit Party is the defaulting party (as defined in such interest rate swap
agreement) or (z) any termination event (as so defined) under such interest rate swap agreement as
to which a Credit Party is an affected party (as defined in such interest rate swap agreement) and,
in either event, the swap termination value owed by such Credit Party as a result thereof is
greater than Five Hundred Fifty Thousand Dollars ($550,000) in the aggregate; or (iii) fails to
observe or perform any other agreement or condition relating to the CIT Obligations that results in
the CIT Obligations being accelerated;




57









 








          (l) a Change of Control shall occur;




          (m) any Guarantor who is a natural person shall die, or any Guarantor shall attempt to
terminate its Guaranty (including, without limitation, Section 15 hereof) or deny that such
Guarantor has any liability thereunder, or any Guaranty shall be declared null and void and of no
further force and effect; or




          (n) CIT or any other person (other than the Lender) shall default under the Contrarian
Intercreditor Agreement or a Subordination Agreement, attempt to terminate any such agreement or
deny that such person has any liability thereunder, or any such agreement shall be declared null
and void and of no further force and effect.




     10.2 Remedies With Respect to Loan. Upon the occurrence and during the continuance
of an Event of Default, the Lender may, at its option, (a) declare all Obligations immediately due
and payable, (b) charge the Company the Default Rate of Interest on all then outstanding or
thereafter incurred Obligations in lieu of the interest provided for in Sections 8.1 of
this Financing Agreement, provided that the Lender has given the Company written notice of
such Event of Default if required by Section 8.2, and (c) immediately terminate this
Financing Agreement upon notice to the Company; provided, however, that this Financing
Agreement automatically shall terminate and all Obligations shall become due and payable
immediately without any declaration, notice or demand by the Lender, upon the commencement of any
proceeding described in clause (i) of Section 10.1(c) or the occurrence of an Event of
Default described in clause (ii) of Section 10.1(c). The exercise of any option is not
exclusive of any other option that may be exercised at any time by the Lender.



     10.3 Remedies With Respect to Collateral. Upon the occurrence and during the
continuance of an Event of Default, the Lender may, at its option, to the extent permitted by
applicable law and the Contrarian Intercreditor Agreement: (a) remove from any premises where same
may be located any and all books and records, computers, electronic media and software programs
associated with any Collateral (including electronic records, contracts and signatures pertaining
thereto), documents, instruments and files, and any receptacles or cabinets containing same,
relating to the Accounts, and the Lender may use, at the Company’s expense, such of any Credit
Party’s personnel, supplies or space at such Credit Party’s places of business or otherwise, as may
be necessary to properly administer and control the Accounts or the handling of collections and
realizations thereon; (b) bring suit, in the name of any Credit Party or the Lender and generally
shall have all other rights respecting the Accounts, including, without limitation, the right to
(i) accelerate or extend the time of payment, (ii) settle, compromise, release in whole or in part
any amounts owing on any Accounts and (iii) issue credits in the name of any Credit Party or the
Lender; (c) sell, assign and deliver the Collateral and any returned, reclaimed or repossessed
merchandise, with or without advertisement, at public or private sale, for cash, on credit or
otherwise, at the Lender’s sole option and discretion, and the Lender may bid or become a purchaser
at any such sale, free from any right of redemption, which right is hereby expressly waived by each
Credit Party; (d) foreclose the Lender’s security interests in the Collateral by any available
judicial procedure, or take possession of any or all of the Collateral without judicial process,
and to enter any premises where any Collateral may be located for the purpose of taking possession
of or removing the same; and (e) exercise any other rights and remedies provided in law, in equity,
by contract or otherwise. Upon the occurrence



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and during the continuance of an Event of Default, the Lender shall have the right, without notice
or advertisement, to sell, lease, or otherwise dispose of all or any part of the Collateral whether
in its then condition or after further preparation or processing, in the name of any Credit Party
or the Lender or in the name of such other party as the Lender may designate, either at public or
private sale or at any broker’s board, in lots or in bulk, for cash or for credit, with or without
warranties or representations (including, without limitation, warranties of title, possession,
quiet enjoyment and the like), and upon such other terms and conditions as the Lender in its sole
discretion may deem advisable, and the Lender shall have the right to purchase at any such sale.
Upon the occurrence and during the continuance of an Event of Default, if any Inventory and
Equipment shall require rebuilding, repairing, maintenance or preparation, the Lender shall have
the right, at its option, to do such of the aforesaid as is necessary, for the purpose of putting
the Inventory and Equipment in such saleable form as the Lender shall deem appropriate. Upon the
occurrence and during the continuance of an Event of Default, each Credit Party agrees, at the
request of the Lender, to assemble the Inventory and Equipment, and to make it available to the
Lender at premises of such Credit Party or elsewhere and to make available to the Lender the
premises and facilities of such Credit Party for the purpose of the Lender’s taking possession of,
removing or putting the Inventory and Equipment in saleable form. If notice of intended
disposition of any Collateral is required by law, it is agreed that ten (10) days notice shall
constitute reasonable notification and full compliance with the law. The net cash proceeds
resulting from the Lender’s exercise of any of the foregoing rights (after deducting all
Out-of-Pocket Expenses relating thereto) shall be applied by the Lender to the payment of the
Obligations in the order set forth in Section 10.4 hereof, and the Credit Parties shall
remain jointly and severally liable to the Lender for any deficiencies, and the Lender in turn
agrees to remit to the Company or its successors or assigns, on behalf of the applicable Credit
Parties, any surplus resulting therefrom. The enumeration of the foregoing rights is not intended
to be exhaustive and the exercise of any right shall not preclude the exercise of any other right
of the Lender under applicable law or the other Loan Documents, all of which shall be cumulative.



     10.4 Application of Proceeds. Subject to the Contrarian Intercreditor Agreement,
the Lender agrees to apply the net cash proceeds resulting from the Lender’s exercise of any of the
foregoing rights (after deducting all Out-of-Pocket Expenses relating thereto) to the payment of
the Obligations in the following order:



          (a) first, to all unpaid Out of Pocket Expenses;




          (b) second, to all accrued and unpaid fees owed to the Lender;




          (c) third, to accrued and unpaid interest on the Obligations; and




          (d) four, to the unpaid principal amount of the Obligations.




     10.5 General Indemnity. In addition to the Company’s agreement to reimburse the
Lender for Out-of-Pocket Expenses, but without duplication, each Credit Party hereby jointly and
severally agrees to indemnify the Lender, and each of its respective officers, directors,
employees, members, attorneys and agents (each, an “Indemnified Party”) from, and to defend
and hold each Indemnified Party harmless against, any and all losses, liabilities, obligations,
claims, actions, judgments, suits, damages, penalties, costs, fees, expenses (including reasonable attorney’s
fees) of



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any kind or nature which at any time may be imposed on, incurred by, or asserted against,
any Indemnified Party:



          (a) as a result of the Lender’s exercise of (or failure to exercise) any of its respective
rights and remedies hereunder, including, without limitation, (i) any sale or transfer of the
Collateral, (ii) the preservation, repair, maintenance, preparation for sale or securing of any
Collateral, and (iii) the defense of the Lender’s interests in the Collateral (including the
defense of claims brought by any Credit Party, as a debtor-in-possession or otherwise, any secured
or unsecured creditors of such Credit Party, or any trustee or receiver in bankruptcy);




          (b) as a result of any environmental violation, pollution, hazardous material or environmental
response, removal or remedial action relating to the Real Estate, any Credit Party’s operation and
use of the Real Estate, and such Credit Party’s off-site disposal practices;




          (c) arising from or relating to (i) the maintenance and operation of any Depository Account,
(ii) any Depository Account Control Agreements and (iii) any action taken (or failure to act) by
any Indemnified Party with respect thereto;




          (d) in connection with any regulatory investigation or proceeding by any regulatory authority
or agency having jurisdiction over any Credit Party; and




          (e) otherwise relating to or arising out of the transactions contemplated by this Financing
Agreement and the other Loan Documents, or any action taken (or failure to act) by any Indemnified
Party with respect thereto;



provided that an Indemnified Party’s conduct in connection with any of the foregoing
matters does not constitute gross negligence, bad faith or willful misconduct, as finally
determined by a court of competent jurisdiction. This indemnification shall survive the
termination of this Financing Agreement and the payment and satisfaction of the Obligations.




SECTION 11 Termination




     All of the Lender’s rights, liens and security interests granted pursuant to the Loan
Documents shall continue after any termination of this Financing Agreement until all Obligations
have been fully and finally paid and satisfied other than contingent indemnification obligations
not yet due and payable.



SECTION 12 Miscellaneous




     12.1 Waivers. Each Credit Party hereby waives to the extent permitted by applicable
law diligence, demand, presentment, protest and any notices thereof as well as notices of
nonpayment, intent to accelerate and acceleration. No waiver of an Event of Default shall be
effective unless such waiver is in writing and signed by the Lender. No delay or failure of the
Lender to exercise any right or remedy hereunder, whether before or after the happening of any
Event of Default, shall impair any such right or remedy, or shall operate as a waiver of such right
or remedy, or as a waiver of such Event of Default. A waiver on any one occasion shall not be construed as a bar to or waiver
of any right or remedy on any future occasion. No single or partial exercise by the Lender of any



60









 







right or remedy precludes any other or further exercise thereof, or precludes any other right or
remedy.



     12.2 Entire Agreement; Amendments. This Financing Agreement and the other Loan
Documents: (a) constitute the entire agreement among the Credit Parties and the Lender; (b)
supersede any prior agreements; (c) may be amended only in writing and signed by the Credit Parties
and the Lender; and (d) shall bind and benefit the Credit Parties, the Lender and their respective
successors and assigns. Should the provisions of any Loan Document conflict with the provisions of
this Financing Agreement, the provisions of this Financing Agreement shall apply and govern.



     12.3 Usury Limit. In no event shall the Company, upon demand by the Lender for
payment of any indebtedness relating hereto, by acceleration of the maturity thereof, or otherwise,
be obligated to pay interest and fees in excess of the amount permitted by law. Regardless of any
provision herein or in any agreement made in connection herewith, the Lender shall never be
entitled to receive, charge or apply, as interest on any indebtedness relating hereto, any amount
in excess of the maximum amount of interest permissible under applicable law. If the Lender ever
receives, collects or applies any such excess, it shall be deemed a partial repayment of principal
and treated as such. If as a result, the entire principal amount of the Obligations is paid in
full, any remaining excess shall be refunded to the Company. This Section 12.3 shall
control every other provision of the Financing Agreement, the other Loan Documents and any other
agreement made in connection herewith.



     12.4 Severability. If any provision hereof or of any other Loan Document is held to
be illegal or unenforceable, such provision shall be fully severable, and the remaining provisions
of the applicable agreement shall remain in full force and effect and shall not be affected by such
provision’s severance. Furthermore, in lieu of any such provision, there shall be added
automatically as a part of the applicable agreement a legal and enforceable provision as similar in
terms to the severed provision as may be possible.



     12.5 WAIVER OF JURY TRIAL; SERVICE OF PROCESS. THE CREDIT PARTIES AND THE LENDER EACH
HEREBY WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO
THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREUNDER. THE CREDIT PARTIES EACH HEREBY
IRREVOCABLY WAIVE PERSONAL SERVICE OF PROCESS AND CONSENT TO SERVICE OF PROCESS BY CERTIFIED OR
REGISTERED MAIL, RETURN RECEIPT REQUESTED. IN NO EVENT WILL THE LENDER BE LIABLE FOR LOST PROFITS
OR OTHER SPECIAL OR CONSEQUENTIAL DAMAGES.



     12.6 Notices. Except as otherwise herein provided, any notice or other communication
required hereunder shall be in writing (messages sent by e-mail or other electronic transmission
(other than by telecopier) shall not constitute a writing, however any signature on a document or
other writing that is transmitted by e-mail or telecopier shall constitute a valid signature for
purposes hereof), and shall be deemed to have been validly served, given or delivered when received
by the recipient if hand delivered, sent by commercial overnight courier or sent by facsimile, or
three (3)



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Business Days after deposit in the United States mail, with proper first class postage prepaid
and addressed to the party to be notified as follows:




	 	(a)	 	if to the Lender, at:
	 
	 	 	 	Contrarian Service Company, L.L.C.

411 W. Putnam Avenue, Suite 225

Greenwich, CT 06830

Attn: Stephen J. Czech

Telecopier No.: (203) 629-1977;
	 
	 	(b)	 	with a copy to:
	 
	 	 	 	Winston & Strawn LLP

200 Park Avenue

New York, NY 10166

Attn: Marvin J. Miller Jr., Esquire

Telecopier No. (212) 294-4700
	 
	 	(c)	 	if to any Credit Party at:
	 
	 	 	 	c/o Horsehead Corp.

300 Frankfort Road

Monaca, PA 15061

Attn: Chief Financial Officer and General Counsel

Telecopier No.: (724) 774-4348;
	 
	 	(d)	 	with a copy to:
	 
	 	 	 	Sun Capital Partners, Inc.

5200 Town Center Circle, Suite 470

Boca Raton, FL 33486

Attn: Horsehead Corp.

Telecopier No.: (561) 394-0540;
	 
	 	(e)	 	with a copy to:
	 
	 	 	 	Kirkland & Ellis LLP

200 East Randolph Drive

Chicago, IL 60601

Attn: Michael D. Wright, Esquire

Telecopier No.: (312) 861-2200;





          (f) if to Lender, at its address set forth below its signature to this Financing Agreement or
its address specified in the Assignment and Transfer Agreement executed by such Lender; or




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          (g) to such other address as any party may designate for itself by like notice.




     12.7 CHOICE OF LAW. THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS FINANCING
AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK,
EXCEPT TO THE EXTENT THAT ANY OTHER LOAN DOCUMENT INCLUDES AN EXPRESS ELECTION TO BE GOVERNED BY
THE LAWS OF ANOTHER JURISDICTION.



     12.8 Choice of Forum.



          (a) Each Credit Party hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of the Supreme Court of the State of New York sitting in
New York County and of the United States District Court of the Southern District of New York, and
any appellate court from any thereof, in any action or proceeding arising out of or relating to
this Financing Agreement, or for recognition or enforcement of any judgment, and each Credit Party
hereby irrevocably and unconditionally agrees that all claims in respect of any such action or
proceeding may be heard and determined in such New York State or, to the extent permitted by law,
in such federal court. Each Credit Party agrees that a final judgment in any such action or
proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment
or in any other manner provided by law. Nothing in this Financing Agreement shall affect any right
that the Lender may otherwise have to bring any action or proceeding relating to this Financing
Agreement against any Credit Party or its properties in the courts of any other jurisdiction.




          (b) Each Credit Party hereby irrevocably and unconditionally waives, to the fullest extent it
may legally and effectively do so, any objection which it may now or hereafter have to the laying
of venue of any suit, action or proceeding arising out of or relating to this Financing Agreement
in any court referred to in paragraph (a) of this Section. Each Credit Party hereby irrevocably
waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the
maintenance of such action or proceeding in any such court.




SECTION 13 Agreements Regarding the Lender




     13.1 Copies of Statements. After the end of each month commencing with the month
ending August 31, 2005, Lender shall promptly send the Company a statement showing the accounting
for the charges, loans and other transactions occurring between Lender and the Company during that
month. The monthly statements shall be deemed correct and binding upon the Company and shall
constitute an account stated between Company and Lender unless Lender receives a written statement
of the exceptions within thirty (30) days of the date of the monthly statement.



     13.2 Participations and Assignments.




          (a) Participations. The Lender may sell to one or more commercial banks, commercial
finance lenders or other financial institutions, participations in the loans and other extensions
of credit made and to be made to the Company hereunder. The Company acknowledges that in selling
such participations, the Lender may grant to participants certain rights to consent to


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waivers, amendments and other actions with respect to this Financing Agreement, provided that
the consent of any participant shall be limited solely to matters the effect of which (i) would be
to increase the Loan, (ii) reduce the Principal Balance or amount of interest on the Loan, or (iii)
extend the Maturity Date of the Obligations. Except for the consent rights set forth above, no
participant shall have any rights as a Lender hereunder, and notwithstanding the sale of any
participation by the Lender, the Lender shall remain solely responsible to the other parties hereto
for the performance of the Lender’s obligations hereunder, and the Company may continue to deal
solely with the Lender with respect to all matters relating to this Financing Agreement and the
transactions contemplated hereby. In addition, all amounts payable under this Financing Agreement
to the Lender which sells a participation in accordance with this paragraph shall continue to be
paid directly to the Lender.




          (b) Assignments. The Lender shall have the right to assign a portion of such Lender’s
rights and obligations under this Financing Agreement to a commercial bank, commercial finance
lender or other financial institution in order to effectuate the assignment of the applicable
Principal Balance, provided that (i) the principal amount of loans assigned to any one
institution shall not be less than One Million Dollars ($1,000,000), and (ii) if no Default or
Event of Default exists at the time of such assignment, the Lender shall have obtained the prior
written consent of the Company (which consent shall not unreasonably be withheld, conditioned or
delayed). Each assignment of an applicable Principal Balance hereunder must be made pursuant to an
Assignment and Transfer Agreement. From and after the effective date of an Assignment and Transfer
Agreement, (i) the assignee thereunder shall become a party to this Financing Agreement and, to the
extent that rights and obligations hereunder have been assigned to such assignee pursuant to such
assignment, shall have all rights and obligations of a Lender hereunder (except such assignee shall
be entitled to the benefit of the cost protection provisions contained in Section 8.6 to no
greater extent than the Lender that assigned a portion of such Lender’s rights and obligations
under the Financing Agreement to such assignee), and (ii) the assigning Lender, to the extent that
rights and obligations hereunder have been assigned by such Lender pursuant to such assignment,
shall relinquish its rights and be released from its obligations under this Financing Agreement.
Notwithstanding anything to the contrary contained in this Financing Agreement (including, without
limitation, Section 13.2 hereof), neither Sun Capital nor any of its affiliates, partners,
employees, directors, members or consultants may be a participant or an assignee Lender.




          (c) Cooperation of the Credit Parties. If necessary, each Credit Party agrees to (i)
execute any documents (including new Promissory Notes) reasonably required to effectuate and
acknowledge each assignment of an applicable Principal Balance made pursuant to an Assignment and
Transfer Agreement, (ii) make such Credit Party’s management available to meet with the Lender and
prospective participants and assignees and (iii) assist the Lender in the preparation of
information relating to the financial affairs of the Company and its consolidated subsidiaries as
any prospective participant or assignee of an applicable Principal Balance reasonably may request.
Subject to the provisions of Section 13.4, each Credit Party authorizes the Lender to
disclose to any prospective participant or assignee of a Commitment, any and all information in the
Lender’s possession concerning such Credit Party and its financial affairs which has been delivered
to the Lender by or on behalf of such Credit Party pursuant to this Financing Agreement, or which
has been delivered to the Lender by or on behalf of such Credit Party in connection with the
Lender’s credit evaluation of such Credit Party prior to entering into this Financing Agreement.




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     13.3 Exercise of Setoff Rights. Subject to the Contrarian Intercreditor Agreement,
each Credit Party authorizes the Lender, and the Lender shall have the right, after the occurrence
and during the continuance of an Event of Default, without notice, to set off and apply against any
and all property or assets of such Credit Party held by, or in the possession of the Lender, any of
the Obligations owed to the Lender.



     13.4 Confidentiality. For the purposes of this Section 13.4,
“Confidential Information” means all financial projections and all other information
delivered to the Lender by or on behalf of the Parent or any Credit Party in connection with the
transactions contemplated by or otherwise pursuant to this Financing Agreement that is proprietary
in nature and that is clearly marked or labeled (or otherwise adequately identified) as being
confidential information of such Credit Party, provided that such term does not include
information that (a) was publicly known or otherwise known to the Lender prior to the time of such
disclosure, (b) subsequently becomes publicly known through no act or omission by the Lender or any
person acting on their behalf, (c) otherwise becomes known to the Lender other than through
disclosure by the Credit Parties or (d) constitutes financial statements delivered under
Section 7.2(h) that are otherwise publicly available. The Lender and its respective
directors, officers, members, employees, agents, attorneys and affiliates will maintain the
confidentiality of such Confidential Information in accordance with commercially reasonable
procedures adopted by the Lender in good faith to protect confidential information of third parties
delivered to them, provided that the Lender may deliver or disclose Confidential
Information to:



          (a) their respective financial advisors and other professional advisors who are advised to
hold confidential the Confidential Information substantially in accordance with the terms of this
Section 13.4;




          (b) any other Lender;




          (c) a commercial bank, commercial finance lender or other financial institution to which the
Lender sells or offers to sell a portion of its rights and obligations under this Financing
Agreement or any participation therein, provided that so long as no Event of Default shall
have occurred and remain outstanding, such entity agrees in writing prior to its receipt of such
Confidential Information to be bound by the provisions of this Section 13.4; or




          (d) any other person (including bank auditors and other regulatory officials) to which such
delivery or disclosure may be necessary or appropriate (i) to comply with compliance with any
applicable law, rule, regulation or order, (ii) in response to any subpoena or other legal process,
(iii) in connection with any litigation to which the Lender is a party or (iv) if an Event of
Default shall have occurred and remain outstanding, to the extent the Lender may reasonably
determine such delivery and disclosure to be necessary or appropriate in the enforcement or for the
protection of the rights and remedies under this Financing Agreement.



Each Lender becoming a Lender subsequent to the initial execution and delivery of this Financing
Agreement, by its execution and delivery of an Assignment and Transfer Agreement, will be deemed to
have agreed to be bound by, and to be entitled to the benefits of, this Section 13.4.




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SECTION 14 [RESERVED]




SECTION 15 Guaranty




     15.1 Guaranty. Each Guarantor hereby (i) irrevocably, absolutely and unconditionally
guaranties the prompt payment, as and when due and payable (whether by scheduled maturity, required
prepayment, acceleration, demand or otherwise), of all Obligations owing by the Company and the
other Credit Parties to the Lender (including interest, fees and expenses accruing on or after the
filing of any petition in bankruptcy or for reorganization relating to any Credit Party), whether
accruing before or subsequent to the filing of a petition initiating a bankruptcy, reorganization,
liquidation or similar proceeding affecting any Credit Party (notwithstanding the operation of the
automatic stay under Section 362(a) of the U.S. Bankruptcy Code) (all of the foregoing, with
respect to each Guarantor, collectively, the “Guarantied Obligations”); and (ii) agrees to
pay any and all expenses (including reasonable counsel fees and expenses) incurred by the Lender in
enforcing this Guaranty. Without limiting the generality of the foregoing, each Guarantor’s
liability shall extend to all amounts that constitute part of the Guarantied Obligations and would
be owed by any other Credit Party under this Financing Agreement or the other Loan Documents but
for the fact that such document is unenforceable or not allowable due to the existence of a
bankruptcy, reorganization or similar proceeding involving any other Credit Party. Each Guarantor
will make each payment hereunder in United States Dollars and in same day funds to Lender at its
address specified in Section 12.6 hereof or to such account in New York City as the Lender
may from time to time designate by notice to any Guarantor.



     15.2 Guarantors’ Obligations Unconditional.



          (a) Each Guarantor hereby unconditionally, absolutely and irrevocably guaranties that the
Guarantied Obligations will be paid strictly in accordance with the terms of the Loan Documents,
regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting
any of such terms or the rights of the Lender with respect thereto. Each Guarantor agrees that
this Guaranty constitutes a guaranty of payment when due and not of collection and waives any right
to require that any resort be made by the Lender to any Collateral. The obligations of each
Guarantor under this Guaranty are independent of any other Credit Party’s obligations under this
Financing Agreement and the other Loan Documents, and a separate action or actions may be brought
and prosecuted against any Guarantor to enforce this Guaranty, irrespective of whether any action
is brought against the Company or any other Credit Party or whether the Company or any other Credit
Party is joined in any such action. The liability of each Guarantor hereunder shall be absolute
and unconditional irrespective of: (i) any lack of validity or enforceability of any Loan Document
or any agreement or instrument relating thereto; (ii) any change in the time, manner or place of
payment of, or in any other term in respect of, all or any of the Guarantied Obligations, or any
other amendment or waiver of or consent to any departure from any Loan Document or any agreement or
instrument relating thereto; (iii) any exchange or release of, or non-perfection of any lien on or
security interest in, any Collateral, or any release or amendment or waiver of or consent to any
departure from any other guaranty, for all or any of the Guarantied Obligations; (iv) the existence
of any claim, set-off, defense or other right that any Guarantor may have at any time against any
person, including, without limitation, the Lender; or (v) any other circumstance which might
otherwise constitute a defense available to, or a discharge of, the Company or any other Credit

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Party in respect of the Guarantied Obligations or the Guarantor in respect hereof. This Guaranty
will not be affected by the occurrence of any Event of Default or Default, by any present or future action
of any governmental authority or court amending, modifying, varying, reducing or otherwise
affecting or purporting to amend, modify, vary, reduce or otherwise affect any of the Guarantied
Obligations or by any other circumstances which might constitute a legal or equitable discharge or
defense of a surety or guarantor (other than by complete and irrevocable payment of the Guarantied
Obligations).




          (b) This Guaranty (i) is a continuing guaranty and shall remain in full force and effect until
the satisfaction in full of the Guarantied Obligations and the payment of the other expenses to be
paid by each Guarantor pursuant hereto; and (ii) shall continue to be effective or shall be
reinstated, as the case may be, if at any time any payment of any of the Guarantied Obligations is
rescinded or must otherwise be returned by the Lender upon the insolvency, bankruptcy or
reorganization of any Credit Party or otherwise, all as though such payment had not been made.




     15.3 Waivers. Except for notices specifically provided for elsewhere in this
Financing Agreement, each Guarantor hereby waives to the extent permitted by applicable law (i)
promptness and diligence; (ii) notice of acceptance and notice of the incurrence of any Guarantied
Obligation by the Company or any other Credit Party; (iii) notice of any actions taken by the
Lender, or the Company or any other Credit Party, under any Loan Document; (iv) all other notices,
demands and protests, and all other formalities of every kind in connection with the enforcement of
the Guarantied Obligations or of the obligations of such Guarantor hereunder, the omission of or
delay in which, but for the provisions of this Section 15.3, might constitute grounds for
relieving such Guarantor of its obligations hereunder; (v) any requirement that the Lender protect,
secure, perfect or insure any security interest or lien or any property subject thereto or exhaust
any right or take any action against any Credit Party or any other person or any Collateral; and
(vi) any other defense available to such Guarantor. Each Guarantor hereby agrees that the Lender
shall not have any obligation to marshal any assets in favor of any Guarantor or against or in
payment of any or all of the Guarantied Obligations.



     15.4 Subrogation. Until the Guarantied Obligations have been irrevocably paid in full
in cash, each Guarantor shall not exercise any rights with respect to any claim, right or remedy
now existing or hereafter acquired against the Company or any other Credit Party hereunder or from
the performance by such Guarantor hereunder, including, without limitation, any claim, right or
remedy of subrogation, reimbursement, exoneration, contribution, indemnification, or against any
security that any Guarantor now owns or hereafter is granted, whether arising in equity, under
contract, by statute (including, without limitation, any such right arising under the United States
Bankruptcy Code), under common law or otherwise. The payment of any amounts due with respect to
any indebtedness of the Company or any other Credit Party now or hereafter owed to each Guarantor
is hereby subordinated to the prior payment in full of all of the Obligations. Each Guarantor
agrees that, after the occurrence of any default in the payment or performance of any of the
Obligations, the Guarantor will not demand, sue for or otherwise attempt to collect any such
indebtedness of the Company or any other Credit Party to such Guarantor until all of the
Obligations shall have been paid in full. If, notwithstanding the foregoing sentence, any
Guarantor shall collect, enforce or receive any amounts in respect of such indebtedness, such
amounts shall be collected, enforced and received by the Guarantor as trustee for the Lender and be
paid over to the Lender on account of the



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Obligations without affecting in any manner the liability of such Guarantor under the other provisions of
this Guaranty.



     15.5 Nature of Liability. It is the desire and intent of the Guarantors and the
Lender that this Guaranty shall be enforced against each Guarantor to the fullest extent
permissible under the laws and public policies applied in each jurisdiction in which enforcement is
sought. If, however, and to the extent that, the obligations of any Guarantor under this Guaranty
shall be adjudicated to be invalid or unenforceable for any reason (including, without limitation,
because of any applicable state or federal law relating to fraudulent conveyances or transfers),
then the amount of such Guarantor’s obligations under this Guaranty shall be deemed to be reduced
and such Guarantor shall pay the maximum amount of the Guarantied Obligations which would be
permissible under applicable law.



     15.6 Subordination. The payment of any and all indebtedness, liabilities and
obligations of any Credit Party to another Credit Party of every kind or nature, whether joint or
several, due or to become due, absolute or contingent, now existing or hereafter arising, and
whether principal, interest, fees, costs, expenses or otherwise (collectively, the
“Intercompany Debt”), is expressly subordinated to the Obligations. Upon the occurrence
and during the continuance of an Event of Default, no payment of any kind (by voluntary payment,
prepayment, acceleration, setoff or otherwise) of any portion of the Intercompany Debt may be made
by any Credit Party or received or accepted by any Credit Party at any time without the prior
written consent of the Lender. Any payments received by any Credit Party in violation of this
Section shall be held in trust for and immediately remitted to the Lender.



     15.7 Intercreditor Agreement and Other Agreements.



          (a) Notwithstanding anything to the contrary herein, until such time as the CIT Indebtedness
(as defined in the Contrarian Intercreditor Agreement) has been Paid in Full (as defined in the
Contrarian Intercreditor Agreement), the provisions of this Financing Agreement are subject to the
terms, covenants, conditions and provisions of the Contrarian Intercreditor Agreement, which, among
other things, provide that the interests of the Lender in and to the Collateral shall be junior to
the interests of CIT and the lenders under the CIT Financing Agreement in accordance with the
Contrarian Intercreditor Agreement.




          (b) All provisions of this Financing Agreement and the other Loan Documents (including,
without limitation, all further assurances provisions, condition precedents, grants of power of
attorney, representations, provisions regarding applications of proceeds, warranties, covenants
(both affirmative and negative), defaults, events of default and other agreements herein and
therein) shall be deemed to be modified to the extent necessary to recognize that CIT holds a lien
senior and prior to that of the Lender against the Collateral and it is hereby expressly understood
that any covenants of any Credit Party contained herein to (a) the delivery of Collateral to
Lender, (b) comply with any instruction of the Lender with respect of the Collateral or (c) take
steps to better the quality of perfection of the Lender in the Collateral shall be expressly
subject to the Contrarian Intercreditor Agreement, and it is further understood that the failure of
any Credit Party to comply with the terms and conditions hereof shall not cause any Default or
Event of Default if such compliance would have been inconsistent with the Contrarian Intercreditor
Agreement.




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     IN WITNESS WHEREOF, the parties hereto have caused this Financing Agreement to be executed,
accepted and delivered at New York, New York, by their proper and duly authorized officers as of
the date set forth above.



	 	 	 	 	 
	 	CONTRARIAN SERVICE COMPANY, L.L.C., as Lender

 	 
	 	By:  	Contrarian Capital Management, L.L.C., its Manager
 	 
	 	 	 
	 	By:  	/s/ Janice M. Stanton
 	 
	 	 	Name:  	Janice M. Stanton 	 
	 	 	Title:  	Member 	 
	 	 	 
	 	By:  	/s/ Stephen J. Czech
 	 
	 	 	Name:  	Stephen J. Czech 	 
	 	 	Title:  	Managing Director 	 
	 
	 	HORSEHEAD CORP., as the Company

 	 
	 	By:  	/s/ Robert D. Scherich
 	 
	 	 	Name:  	Robert D. Scherich 	 
	 	 	Title:  	VP and CFO 	 
	 
	 	HORSEHEAD INTERMEDIARY CORP., 

as a Credit Party and Guarantor

 	 
	 	By:  	/s/ Robert D. Scherich
 	 
	 	 	Name:  	Robert D. Scherich 	 
	 	 	Title:  	VP and CFO 	 
	 
	 	CHESTNUT RIDGE RAILROAD CORP., 

as a Credit Party and Guarantor

 	 
	 	By:  	/s/ Robert D. Scherich
 	 
	 	 	Name:  	Robert D. Scherich 	 
	 	 	Title:  	VP and CFO