EX-10.9



 





Exhibit 10.9




FINANCING AGREEMENT




among




THE CIT GROUP/BUSINESS CREDIT, INC.

(as Agent)




the Lenders that are parties hereto




HORSEHEAD CORP.

(as Company)




and




HORSEHEAD INTERMEDIARY CORP., and

CHESTNUT RIDGE RAILROAD CORP.

(as Guarantors)




Dated: As of July 15, 2005




 









 





TABLE OF CONTENTS




	 	 	 	 	 	 	 
	 	 	 	 	Page
	SECTION 1

	 	Definitions
	 	 	1	 
	 
	 	 	 	 	 	 
	1.1

	 	Defined Terms
	 	 	1	 
	 
	 	 	 	 	 	 
	1.2

	 	Accounting Changes
	 	 	29	 
	 
	 	 	 	 	 	 
	1.3

	 	Certificates
	 	 	29	 
	 
	 	 	 	 	 	 
	SECTION 2

	 	Conditions Precedent
	 	 	29	 
	 
	 	 	 	 	 	 
	2.1

	 	Conditions Precedent to Initial Funding
	 	 	29	 
	 
	 	 	 	 	 	 
	SECTION 3

	 	Revolving Loans and Collections
	 	 	33	 
	 
	 	 	 	 	 	 
	3.1

	 	Funding Conditions and Procedures
	 	 	33	 
	 
	 	 	 	 	 	 
	3.2

	 	Handling of Proceeds of Collateral; Cash Dominion
	 	 	34	 
	 
	 	 	 	 	 	 
	3.3

	 	Revolving Loan Account
	 	 	36	 
	 
	 	 	 	 	 	 
	3.4

	 	Repayment of Overadvances
	 	 	36	 
	 
	 	 	 	 	 	 
	3.5

	 	Application of Proceeds of Collateral
	 	 	36	 
	 
	 	 	 	 	 	 
	3.6

	 	Monthly Statement
	 	 	37	 
	 
	 	 	 	 	 	 
	3.7

	 	Access to CIT’s System
	 	 	37	 
	 
	 	 	 	 	 	 
	SECTION 4

	 	RESERVED
	 	 	38	 
	 
	 	 	 	 	 	 
	SECTION 5

	 	Letters of Credit
	 	 	38	 
	 
	 	 	 	 	 	 
	5.1

	 	Assistance and Purpose
	 	 	38	 
	 
	 	 	 	 	 	 
	5.2

	 	Authority to Charge Revolving Loan Account
	 	 	39	 
	 
	 	 	 	 	 	 
	5.3

	 	Indemnity Relating to Letters of Credit
	 	 	39	 
	 
	 	 	 	 	 	 
	5.4

	 	Compliance of Goods, Documents and Shipments with Agreed Terms
	 	 	39	 
	 
	 	 	 	 	 	 
	5.5

	 	Handling of Goods, Documents and Shipments
	 	 	39	 
	 
	 	 	 	 	 	 
	5.6

	 	Compliance with Laws; Payment of Levies and Taxes
	 	 	40	 






i









 





	 	 	 	 	 	 	 
	 
	 	 	 	 	Page	 
	5.7

	 	Subrogation Rights
	 	 	40	 
	 
	 	 	 	 	 	 
	SECTION 6

	 	Collateral
	 	 	40	 
	 
	 	 	 	 	 	 
	6.1

	 	Grant of Security Interest
	 	 	41	 
	 
	 	 	 	 	 	 
	6.2

	 	Limited License
	 	 	41	 
	 
	 	 	 	 	 	 
	6.3

	 	Representations, Covenants and Agreements Regarding Collateral Generally
	 	 	42	 
	 
	 	 	 	 	 	 
	6.4

	 	Representations Regarding Accounts and Inventory
	 	 	42	 
	 
	 	 	 	 	 	 
	6.5

	 	Covenants and Agreements Regarding Accounts and Inventory
	 	 	43	 
	 
	 	 	 	 	 	 
	6.6

	 	Covenants and Agreements Regarding Real Estate and Equipment
	 	 	44	 
	 
	 	 	 	 	 	 
	6.7

	 	General Intangibles
	 	 	45	 
	 
	 	 	 	 	 	 
	6.8

	 	Commercial Tort Claims
	 	 	45	 
	 
	 	 	 	 	 	 
	6.9

	 	Letter of Credit Rights
	 	 	45	 
	 
	 	 	 	 	 	 
	6.10

	 	Real Estate
	 	 	45	 
	 
	 	 	 	 	 	 
	6.11

	 	Reference to Other Loan Documents
	 	 	45	 
	 
	 	 	 	 	 	 
	6.12

	 	Credit Balances; Additional Collateral
	 	 	46	 
	 
	 	 	 	 	 	 
	SECTION 7

	 	Representations, Warranties and Covenants
	 	 	46	 
	 
	 	 	 	 	 	 
	7.1

	 	Representations and Warranties
	 	 	46	 
	 
	 	 	 	 	 	 
	7.2

	 	Affirmative Covenants
	 	 	49	 
	 
	 	 	 	 	 	 
	7.3

	 	Financial Covenants
	 	 	59	 
	 
	 	 	 	 	 	 
	7.4

	 	Negative Covenants
	 	 	61	 
	 
	 	 	 	 	 	 
	SECTION 8

	 	Interest, Fees and Expenses
	 	 	64	 
	 
	 	 	 	 	 	 
	8.1

	 	Interest on Revolving Loans
	 	 	64	 
	 
	 	 	 	 	 	 
	8.2

	 	Default Interest Rate
	 	 	64	 
	 
	 	 	 	 	 	 
	8.3

	 	Fees and Expenses Relating to Letters of Credit
	 	 	64	 






ii









 





	 	 	 	 	 	 	 
	 
	 	 	 	 	Page	 
	8.4

	 	Out-of Pocket Expenses
	 	 	65	 
	 
	 	 	 	 	 	 
	8.5

	 	Line of Credit Fee; Collection Days
	 	 	65	 
	 
	 	 	 	 	 	 
	8.6

	 	Loan Facility Fee; Application of Deposits and Commitment Fee
	 	 	65	 
	 
	 	 	 	 	 	 
	8.7

	 	Administrative Management Fee
	 	 	65	 
	 
	 	 	 	 	 	 
	8.8

	 	Standard Operational Fees
	 	 	65	 
	 
	 	 	 	 	 	 
	8.9

	 	LIBOR Loans
	 	 	65	 
	 
	 	 	 	 	 	 
	8.10

	 	LIBOR Breakage Costs and Fees
	 	 	67	 
	 
	 	 	 	 	 	 
	8.11

	 	Early Termination Fee and Prepayment Premium
	 	 	68	 
	 
	 	 	 	 	 	 
	8.12

	 	Capital Adequacy
	 	 	68	 
	 
	 	 	 	 	 	 
	8.13

	 	Taxes, Reserves and Other Conditions
	 	 	68	 
	 
	 	 	 	 	 	 
	8.14

	 	Authority to Charge Revolving Loan Account
	 	 	69	 
	 
	 	 	 	 	 	 
	8.15

	 	Tax Withholding
	 	 	69	 
	 
	 	 	 	 	 	 
	8.16

	 	Replacement of Lenders
	 	 	70	 
	 
	 	 	 	 	 	 
	SECTION 9

	 	Powers
	 	 	70	 
	 
	 	 	 	 	 	 
	9.1

	 	Authority
	 	 	70	 
	 
	 	 	 	 	 	 
	9.2

	 	Limitations on Exercise
	 	 	71	 
	 
	 	 	 	 	 	 
	SECTION 10

	 	Events of Default and Remedies
	 	 	71	 
	 
	 	 	 	 	 	 
	10.1

	 	Events of Default
	 	 	71	 
	 
	 	 	 	 	 	 
	10.2

	 	Remedies With Respect to Outstanding Loans
	 	 	73	 
	 
	 	 	 	 	 	 
	10.3

	 	Remedies With Respect to Collateral
	 	 	74	 
	 
	 	 	 	 	 	 
	10.4

	 	Application of Proceeds
	 	 	75	 
	 
	 	 	 	 	 	 
	10.5

	 	General Indemnity
	 	 	75	 
	 
	 	 	 	 	 	 
	SECTION 11

	 	Termination
	 	 	76	 






iii









 





	 	 	 	 	 	 	 
	 
	 	 	 	 	Page	 
	SECTION 12

	 	Miscellaneous
	 	 	76	 
	 
	 	 	 	 	 	 
	12.1

	 	Waivers
	 	 	77	 
	 
	 	 	 	 	 	 
	12.2

	 	Entire Agreement; Amendments
	 	 	77	 
	 
	 	 	 	 	 	 
	12.3

	 	Usury Limit
	 	 	77	 
	 
	 	 	 	 	 	 
	12.4

	 	Severability
	 	 	77	 
	 
	 	 	 	 	 	 
	12.5

	 	WAIVER OF JURY TRIAL; SERVICE OF PROCESS
	 	 	77	 
	 
	 	 	 	 	 	 
	12.6

	 	Notices
	 	 	78	 
	 
	 	 	 	 	 	 
	12.7

	 	CHOICE OF LAW
	 	 	79	 
	 
	 	 	 	 	 	 
	12.8

	 	Choice of Forum
	 	 	79	 
	 
	 	 	 	 	 	 
	SECTION 13

	 	Agreements Regarding the Lenders
	 	 	79	 
	 
	 	 	 	 	 	 
	13.1

	 	Copies of Statements and Financial Information
	 	 	79	 
	 
	 	 	 	 	 	 
	13.2

	 	Payments of Principal, Interest and Fees
	 	 	80	 
	 
	 	 	 	 	 	 
	13.3

	 	Defaulting Lender
	 	 	80	 
	 
	 	 	 	 	 	 
	13.4

	 	Participations and Assignments
	 	 	80	 
	 
	 	 	 	 	 	 
	13.5

	 	Sharing of Liabilities
	 	 	82	 
	 
	 	 	 	 	 	 
	13.6

	 	Exercise of Setoff Rights
	 	 	82	 
	 
	 	 	 	 	 	 
	13.7

	 	Confidentiality
	 	 	82	 
	 
	 	 	 	 	 	 
	SECTION 14

	 	Agency
	 	 	83	 
	 
	 	 	 	 	 	 
	14.1

	 	Appointment of Agent; Powers
	 	 	83	 
	 
	 	 	 	 	 	 
	14.2

	 	Delegation of Agent’s Duties
	 	 	84	 
	 
	 	 	 	 	 	 
	14.3

	 	Disclaimer of Agent’s Liabilities
	 	 	84	 
	 
	 	 	 	 	 	 
	14.4

	 	Reliance and Action by Agent
	 	 	84	 
	 
	 	 	 	 	 	 
	14.5

	 	Events of Default
	 	 	85	 






iv









 





	 	 	 	 	 	 	 
	 
	 	 	 	 	page	 
	14.6

	 	Lenders’ Due Diligence
	 	 	85	 
	 
	 	 	 	 	 	 
	14.7

	 	Right to Indemnification
	 	 	85	 
	 
	 	 	 	 	 	 
	14.8

	 	Other Transactions
	 	 	86	 
	 
	 	 	 	 	 	 
	14.9

	 	Resignation of Agent
	 	 	86	 
	 
	 	 	 	 	 	 
	14.10

	 	Voting Rights; Agent’s Discretionary Rights
	 	 	86	 
	 
	 	 	 	 	 	 
	14.11

	 	Deemed Consent
	 	 	87	 
	 
	 	 	 	 	 	 
	14.12

	 	Intentionally Deleted
	 	 	87	 
	 
	 	 	 	 	 	 
	14.13

	 	Survival of Agreements of the Lenders
	 	 	88	 
	 
	 	 	 	 	 	 
	SECTION 15

	 	Guaranty
	 	 	88	 
	 
	 	 	 	 	 	 
	15.1

	 	Guaranty
	 	 	88	 
	 
	 	 	 	 	 	 
	15.2

	 	Guarantors’ Obligations Unconditional
	 	 	88	 
	 
	 	 	 	 	 	 
	15.3

	 	Waivers
	 	 	89	 
	 
	 	 	 	 	 	 
	15.4

	 	Subrogation
	 	 	89	 
	 
	 	 	 	 	 	 
	15.5

	 	Nature of Liability
	 	 	90	 
	 
	 	 	 	 	 	 
	15.6

	 	Subordination
	 	 	90	 






EXHIBITS



Exhibit A — Form of Assignment and Transfer Agreement

Exhibit B — Form of Revolving Loan Promissory Note

Exhibit C — Form of Compliance Certificate




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 3.2(c)-1 — Excluded Bank Accounts

Schedule 3.2(c)-2 — Bank Accounts

Schedule 5.1(b) — Existing Letters of Credit




v









 




Schedule 6.5(e) — Approved Bailees

Schedule 7.1(b) — Credit Party and Collateral Information

Schedule 7.1(g) — Pending Litigation

Schedule 7.1(h) — Labor Relations

Schedule 7.1(i) — Pension Plans

Schedule 7.4(h) — Related Party Transactions




vi









 





EXECUTION COPY




     THE CIT GROUP/BUSINESS CREDIT, INC., a New York corporation (“CIT”), with offices
located at 1211 Avenue of the Americas, New York, New York 10036, and any other entity becoming a
Lender hereunder pursuant to Section 13.4 of this Financing Agreement (together with CIT,
collectively, the “Lenders” and each individually a “Lender”), and CIT, as the
Agent for the Lenders (the “Agent”), are pleased to confirm, as of this 15th day
of July, 2005, the terms and conditions under which the Lenders, acting through the Agent, shall
make revolving loans 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 revolving loans 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 Agent), 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.



     Administrative Management Fee shall mean an amount equal to Two Thousand Eighty-Three
and 33/100 Dollars ($2,083.33) per month, payable to the Agent exclusively in accordance with
Section 8.7 of this Financing Agreement.



     Agent’s Bank Account shall mean a bank account of the Agent designated in writing by
the Agent to the Company from time to time.



     Applicable Margin shall mean, with respect to (a) the Revolving Loans, one-quarter of
one percent (.25%) for Chase Bank Rate Loans and two and one-half percent (2.50%) for LIBOR Loans,
and (b) Letters of Credit, two and one-half percent (2.50%).



 









 





     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
Agent from time to time on a case-by-case basis, in the exercise of the Agent’s reasonable business
judgment; provided, however, that the Agent may, if any such customer meets one of the
specifications set forth in clause (b)(vii) of the definition of Eligible Accounts, as determined
by the Agent 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.



     Availability Reserve shall mean an amount equal to the sum of:



          (a) any reserve which the Agent may establish from time to time pursuant to the express terms
of this Financing Agreement; plus




          (b) three (3) months rental payments or similar charges for any of the Company’s leased
premises or other Collateral locations (including, without limitation, warehousemen and third party
processor locations, to the extent applicable) for which the Company has not delivered to the Agent
a Landlord Waiver (or, in the case of the Beaumont Facility, two (2) months rental payments if the
Company has not delivered to the Agent a Landlord Waiver for such location) except as otherwise
agreed by the Agent in writing, provided that the amount of such rental reserve for any
location shall not exceed the value of the Eligible Collateral at such location as determined by
the Agent in the exercise of its reasonable business judgment, and provided further that
the amount of any such rental reserve shall be adjusted from time to time hereafter upon (x)
delivery to the Agent of any such acceptable waiver, (y) the opening or closing of a Collateral
location and/or (z) any change in the amount of rental, storage or processor payments or similar
charges; plus




          (c) a monthly reserve for accrued interest on LIBOR Loans having an Interest Period of more
than ninety (90) days; and




          (d) such other reserves against Net Availability as the Agent deems necessary in the exercise
of its reasonable business judgment as a result of (i) negative forecasts and/or trends in the
Company’s business, industry, prospects, profits, operations or financial condition or (ii) other
issues, circumstances or facts that could otherwise negatively impact the Company or its business,
prospects, profits, operations, industry, financial condition or assets.




     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 the Agent in favor of JPMorgan Chase Bank, N.A. as credit
support for the Existing Letters of Credit.



     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 Agent.



2









 





     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 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.



     Borrowing Base shall mean, at any time:



          (a) the sum at such time of:




               (i) up to eighty-five percent (85%) of the outstanding Eligible Accounts Receivable;
plus



               (ii) the lesser of (A) the sum of (x) the lesser of (I) up to thirty-five percent (35%) of the
aggregate value of the Eligible Raw Materials, valued at the lower of weighted-average cost or
market, or (II) up to eighty-five percent (85%) of the Net Orderly Liquidation Value of the
Eligible Raw Materials, plus (y) the lesser of (I) up to fifty percent (50%) of the
aggregate value of the Eligible Work-In-Process, valued at the lower of weighted-average cost or
market, or (II) up to eighty-five percent (85%) of the Net Orderly Liquidation Value of the
Eligible Work-In-Process, plus (z) the lesser of (I) up to seventy-five percent (75%) of
the aggregate value of the Eligible Finished Goods, valued at the lower of weighted-average cost or
market, or (II) up to eighty-five percent (85%) of the Net Orderly Liquidation Value of the
Eligible Finished Goods, or (B) Twenty Million Dollars ($20,000,000) (provided, however,
that the aggregate amount of availability under the Borrowing Base attributable to such of the
Company’s Inventory that is subject to clause (c) of the definition of Eligible Inventory shall not
at any time exceed Three Hundred Thousand Dollars ($300,000) or such greater amount as the Agent
may agree to in writing); plus



               (iii) the PP&E Component; less



          (b) the amount of the Availability Reserve in effect at such time.




     All advance rates and eligibility requirements under the Borrowing Base, and the amount and
scope of the Availability Reserve, shall at all times be subject to adjustment by the Agent in the
exercise of its reasonable business judgment.



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



3









 





     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).



     Chase Bank Rate Loan shall mean any Revolving Loan that bears interest based upon the
Chase Bank Rate.



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



     CIT’s System shall mean the Agent’s StuckeyNet or other internet-based loan
accounting and reporting system.



     Closing Date shall mean the date on which this Financing Agreement is executed by each
Credit Party, the Agent and the Lenders that initially are parties hereto, and delivered to the
Agent, and the Back-Stop Letter of Credit is issued or the initial Revolving Loans are 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.



     Collection Days shall mean a period of one (1) Business Day after the deposit of
proceeds of Collateral or other monies into the Agent’s Bank Account, for which interest may be
charged on the



4









 




aggregate amount of such deposits at the rate provided for in Section 8.1 or
8.2 (if applicable) of this Financing Agreement.




     Commitment shall mean, as to each Lender, the amount of the commitment for such Lender
set forth on the signature page to this Financing Agreement or in the Assignment and Transfer
Agreement to which such Lender is a party, as such amount may be reduced or increased in accordance
with the provisions of Section 13.4(b) or any other applicable provision 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 13.7
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 the Agent, the Lenders and the Issuing Bank, on one
hand, and Contrarian, on the other hand, in connection with the transactions contemplated by this
Agreement and the Contrarian 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 the 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) all 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 Agent
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.



     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



5









 




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 to the Agent, the Lenders and the Issuing Bank, on one hand, and Contrarian, on the
other hand, in connection with the transactions contemplated by this Agreement and the Contrarian
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 the 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, (ii) the principal repaid in connection with distribution described in
clause (b) of the definition of Permitted Distributions, (iii) principal (other than principal
under the Contrarian Obligations) repaid in full with the proceeds of Revolving Loans or Permitted
Indebtedness, (iv) principal under the Contrarian Obligations prepaid with the proceeds of
Revolving Loans or Permitted Indebtedness, to the extent such prepayment is permitted under this
Financing Agreement, and (v) 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, provided that in the case of
any asset sale or issuance of debt securities, 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 in cash 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 (k) 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, discounts and other fees and charges associated with Indebtedness (including the
Revolving Loans).



6









 





     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
Contrarian 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 shall mean Contrarian Service Company, L.L.C., a Delaware limited liability
company, and its successors and assigns.



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



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



     Contrarian Transaction Documents shall mean, collectively: (a) that certain Second
Lien Financing Agreement, dated on or about the date hereof, among the Credit Parties and
Contrarian; 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 this Financing Agreement.



     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



7









 




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.



     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 mean a rate of interest equal to two percent (2%)
per annum greater than the interest rate accruing on the Obligations pursuant to
Section 8.1 hereof, which the Agent and the Lenders shall be entitled to charge the Company
in the manner set forth in Section 8.2 of this Financing Agreement.



     Defaulting Lender shall have the meaning provided for in Section 13.3 of this
Financing Agreement.



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



     Depository Account Control Agreement shall mean a three-party agreement in form and
substance reasonably satisfactory to the Agent among the Agent, a Credit Party and the bank which
will maintain a Depository Account, (a) which provides the Agent 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 this 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 Agent, for the benefit
of the Lenders, 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 Agent.



     Dilution Percentage shall mean, with respect to the Company during any period of
measurement, the quotient (expressed as a percentage) obtained by dividing (a) the aggregate amount
of the Company’s non-cash reductions against Trade Accounts Receivable, during such period,
by (b) the average amount of the Company’s gross sales during such period, as determined by
the Agent in the exercise of its reasonable business judgment. The Dilution Percentage shall be
determined by the Agent based on its reviews of the periodic financial and collateral reports
submitted by the Company to the Agent as well as the results of the periodic field examinations of
the Company conducted by the Agent from time to time. The period of measurement for calculating
the Dilution Percentage shall be determined by the Agent from time to time in the exercise of its
reasonable business judgment.



8









 





     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.



     Documentation Fees shall mean the Agent’s standard fees for the use of the Agent’s
in-house legal department relating to any and all modifications, waivers, releases, legal file
reviews or additional collateral with respect to this Financing Agreement, the Collateral and/or
the Obligations.



     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.



     Early Termination Date shall mean a date on or prior to the first anniversary of the
Closing Date on which the Company terminates this Financing Agreement or the Revolving Line of
Credit, subject to the notice requirement contained in Section 11 of this Financing
Agreement.



     Early Termination Fee shall mean an amount equal to the product obtained by
multiplying (a) the maximum amount of the Revolving Line of Credit times (b) one percent
(1%).



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



     Eligible Accounts Receivable shall mean the gross amount of the Company’s Trade
Accounts Receivable that are subject to a valid, exclusive (other than the second priority security
interest in favor of Contrarian described in clause (i) of the definition of Permitted Encumbrances
and inchoate Permitted Tax Liens), first priority and fully perfected security interest in favor of
the Agent, for the benefit of the Lenders, which conform to the warranties contained herein and
which, at all times, continue to be acceptable to the Agent in the exercise of its reasonable
business judgment, less, without duplication, the sum of:



          (a) actual returns, discounts, claims, credits and allowances of any nature (whether issued,
owing, granted, claimed or outstanding), plus




          (b) reserves for such Trade Accounts Receivable that arise from, or are subject to or include:
(i) sales to the United States of America, any state or other governmental entity or to any agency,
department or division thereof, except for any such sales as to which the Company has




9









 




complied with
the Assignment of Claims Act of 1940 or any other applicable statute, rule or regulation to the
Agent’s satisfaction in the exercise of its reasonable business judgment; (ii) foreign sales, other
than sales which otherwise comply with all of the other criteria for eligibility hereunder
and are (x) secured by letters of credit (in form and substance satisfactory to the Agent)
issued or confirmed by, and payable at, banks acceptable to the Agent having a place of business in
the United States of America, or (y) to customers residing in Canada, provided that such
Accounts are payable in United States Dollars (and provided that at any time promptly upon
the Agent’s reasonable request, the Company shall execute and deliver, or cause to be executed and
delivered, such other agreements, documents and instruments as may be reasonably required by the
Agent to perfect the security interests of the Agent in those Accounts of an account debtor with
its chief executive office or principal place of business in Canada in accordance with the
applicable laws of the Province of Canada in which such chief executive office or principal place
of business is located and take or cause to be taken such other and further actions as the Agent
may reasonably request to enable the Agent to collect such Accounts under the applicable Federal or
Provincial laws of Canada); (iii) Accounts that remain unpaid more than the earlier of ninety (90)
days from invoice date or sixty (60) days from due date; (iv) contra accounts; (v) sales to any
subsidiary (direct or indirect) or parent (direct or indirect) of the Parent, or to any other
person otherwise affiliated with the Parent or any Credit Party or with any shareholder, subsidiary
(direct or indirect) or parent (direct or indirect) of the Parent in any way (other than sales to a
portfolio company of Sun Capital on standard, fair and reasonable terms and conditions, no less
favorable to the Company than the Company could obtain in a comparable arms length transaction with
an unrelated third party); (vi) bill and hold (deferred shipment) or consignment sales; (vii) sales
to any customer which is either (w) insolvent, (x) the debtor in any bankruptcy, insolvency,
arrangement, reorganization, receivership or similar proceedings under any federal or state law,
(y) negotiating, or has called a meeting of its creditors for purposes of negotiating, a compromise
of its debts, or (z) financially unacceptable to the Agent or has a credit rating unacceptable to
the Agent; (viii) all sales to any customer if fifty percent (50%) or more of the aggregate dollar
amount of all outstanding invoices to such customer are unpaid more than the earlier of ninety (90)
days from invoice date or sixty (60) days from due date; (ix) sales to any customer and/or its
affiliates to the extent the aggregate outstanding amount of such sales at any time exceed twenty
percent (20%) or more of all Eligible Accounts Receivable at such time; (x) pre-billed receivables
and receivables arising from progress billings; and (xi) sales not payable in United States
currency; plus




          (c) reserves established by the Agent to account for increases in the Company’s Dilution
Percentage above the Company’s historical Dilution Percentage (i.e., five percent (5%)), and such
other reserves against Eligible Accounts Receivable as the Agent deems necessary in the exercise of
its reasonable business judgment and which are customary either in the commercial finance industry
or in the lending practices of the Agent or the Lenders.




     Eligible Finished Goods shall mean the gross amount of the Company’s Eligible
Inventory consisting of Finished Goods, less the amount of such reserves as the Agent deems
necessary in the exercise of its reasonable business judgment, including, without limitation,
reserves for special order, discontinued, slow-moving and obsolete Inventory, market value
declines, bill and hold (deferred shipment), shrinkage and any applicable customs, freight, duties
and Taxes.



10









 





     Eligible Inventory shall mean such of the Company’s Inventory that is subject to a
valid, exclusive (other than the second priority security interest in favor of Contrarian described
in clause (i) of the definition of Permitted Encumbrances and inchoate Permitted Tax Liens), first
priority and fully perfected security interest in favor of the Agent, for the benefit of the
Lenders, and which conforms to
the warranties contained herein and which, at all times continues to be acceptable to the
Agent in the exercise of its reasonable business judgment and which complies with the following
requirements:



     (a) such Inventory shall be located at the Company’s owned places of business specified in
Schedule 7.1(b) or in-transit in the ordinary course of business between such owned places
of business, or at warehouses specified in Schedule 7.1(b); provided that all such
Inventory not located at a location owned by the Company shall be covered by a Landlord Waiver or
subject to a rental reserve pursuant to clause (b) of the definition of Availability Reserve,
except as otherwise approved by the Agent in writing; provided that all such locations
shall be within the United States of America, but excluding in any event any stores of spare parts,
supplies, maintenance equipment, tools and fuel; provided that any depreciation that has
been capitalized into the value of such Inventory shall be excluded;



     (b) it is in good condition, is not damaged or obsolete, is not slow-moving or in excess
supply, meets, in all material respects, all standards imposed by any governmental authority having
regulatory authority over such goods, their use and/or sale and is either currently usable or
currently saleable in the normal course of the Company’s business;



     (c) it is not consigned, bailed, returned or rejected Inventory unless (i) with respect to any
consigned or bailed Inventory, (A) it has been delivered to a location of an Approved Bailee within
the United States of America in respect of which an access agreement satisfactory to the Agent has
been received by the Agent, (B) if required by the Agent, a UCC financing statement has been filed
in the jurisdiction of the applicable Approved Bailee’s organization, which names such Approved
Bailee as debtor, the Company as secured party and the Agent as assignee of the secured party and
which identifies the Inventory in the possession of such Approved Bailee as the collateral, and (C)
if required by the Agent, a notice that complies with the terms of Section 9-324 of the UCC has
been delivered to the secured creditors, if any, of the applicable Approved Bailee that have a
perfected lien in the Inventory in the possession of such Approved Bailee, or (ii) with respect to
returned or rejected Inventory, it is undamaged and resalable in the normal course of business;



     (d) it is not Inventory to be returned to the Company’s suppliers;




     (e) it is not subject to any licensing, patent, royalty, trademark, trade name or copyright
agreements with, or rights of, any person which would require the consent of such person upon the
sale or disposition of that Inventory (including, without limitation, upon the sale or disposition
of that Inventory by the Agent during the continuance an Event of Default) or the payment of any
monies to such person upon any such sale or disposition of that Inventory, unless the Agent has
received an access and use agreement satisfactory to the Agent from such person with respect to
such Inventory; and



11









 





     (f) each of the representations and warranties related to such Inventory set forth in this
Financing Agreement and other Loan Documents is true and correct in all material respects on the
applicable date of determination.



     Eligible Raw Materials shall mean the gross amount of the Company’s Eligible Inventory
consisting of Raw Materials, less the amount of such reserves as the Agent deems necessary
in the exercise of its reasonable business judgment, including, without limitation, reserves for
special order, discontinued, slow-moving and obsolete Inventory, market value declines, bill and hold
(deferred shipment), shrinkage and any applicable customs, freight, duties and Taxes.



     Eligible Work-In-Process shall mean the gross amount of the Company’s Eligible
Inventory consisting of Work-In-Process, less the amount of such reserves as the Agent
deems necessary in the exercise of its reasonable business judgment, including, without limitation,
reserves for special order, discontinued, slow-moving and obsolete Inventory, market value
declines, bill and hold (deferred shipment), shrinkage and any applicable customs, freight, duties
and Taxes.



     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.



12









 





     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 Agent or any 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 Agent or any
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 this Financing Agreement.



     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 and (b) such Inventory has not been included or purported to be included as “Eligible
Inventory” in any borrowing base certificate submitted to the Agent by the Company at any time.



     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 Agent 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 Agent 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



13









 




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 Agent 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) hereto.



     Finished Goods shall mean Inventory of the Company to be sold as finished goods in the
ordinary course of the Company’s business, including, without limitation, zinc oxide, zinc metal,
zinc dust, zinc calcine and metal powders, title to which and sole ownership of which is vested in
the Company.



     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.



     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 Agent, executed and delivered to the Agent by Guarantors, including, without
limitation, the guaranty agreement contained in Section 15 of this Financing Agreement.



14









 





     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 Thousand Dollars ($50,000) 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 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.



15









 





     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 shall mean, subject to availability: (a) with respect to an initial
request by the Company for a LIBOR Loan or the conversion of a Chase Bank Rate Loan to a LIBOR
Loan, at the option of the Company a one-month, two-month, three-month or six-month period commencing on
the borrowing or conversion date with respect to such LIBOR Loan and ending one month, two months,
three months or six months thereafter, as applicable; and (b) with respect to any continuation of a
LIBOR Loan, at the option of the Company a one-month, two-month, three-month or six-month period
commencing on the last day of the immediately preceding Interest Period applicable to such LIBOR
Loan and ending one month, two months, three months or six months thereafter, as applicable;
provided that (i) if any Interest Period would otherwise end on a day which is not a
Working Day, such Interest Period shall be extended to the next succeeding Working Day, and (ii) if
any Interest Period begins on the last Working Day of any month, or on a day for which there is no
numerically corresponding day in the month in which such Interest Period ends, such Interest Period
shall end on the last Working Day of the month in which such Interest Period ends.



     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.



     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.



     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 Agent (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 Agent access to the Collateral for any
purpose and (iv) providing the Agent with the right to receive notice of default and the right to
repossess such item of Collateral at any time upon the occurrence and during the continuance of an



16









 




Event of Default, in each case unless otherwise agreed by the Agent 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 Agent.




     Letters of Credit shall mean, collectively, (a) the Back-Stop Letter of Credit
(irrespective of whether the Company has joined in the application for such Letter of Credit), and
(b) all letters of credit issued for or on behalf of the Company with the assistance of the Lenders
(acting through the Agent) by an Issuing Bank in accordance with Section 5 hereof.



     Letter of Credit Guaranty shall mean any guaranty or similar agreement delivered by
the Agent, on behalf of the Lenders, to an Issuing Bank of the Company’s reimbursement obligation
under such Issuing Bank’s reimbursement agreement, application for letter of credit or other like
document; in each case as such Letter of Credit Guaranty may from time to time be renewed, amended,
restated or supplemented.



     Letter of Credit Guaranty Fee shall mean the fee that the Agent, for the benefit of
the Lenders, may charge the Company under Section 8.3(a) of this Financing Agreement for
issuing a Letter of Credit Guaranty or otherwise assisting the Company in obtaining Letters of
Credit.



     Letter of Credit Sub-Line shall mean the aggregate commitment of the Lenders to assist
the Company in obtaining Letters of Credit in an aggregate amount of up to Thirty-Five Million
Dollars ($35,000,000).



     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 Agent’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 Agent 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 Agent 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.



     LIBOR Interest Payment Date shall mean, with respect to any LIBOR Loan, the last day
of the Interest Period for such LIBOR Loan; provided, however, that if the Interest Period
with respect to such LIBOR Loan is longer than three months, then, in such case, LIBOR Interest
Payment Date shall mean the last day of each three month period.



     LIBOR Lending Office shall mean, (a) with respect to the Agent and CIT, the office of
JPMorgan Chase Bank, N.A. or any successor thereof, located at 270 Park Avenue, New York, NY



17









 




10017, and (b) with respect to each Lender, the address set forth on the signature page to this
Financing Agreement or the Assignment and Transfer Agreement to which such Lender is a party.




     LIBOR Loan shall mean any Revolving Loan that bears interest based upon LIBOR.



     Line of Credit Fee shall mean, for any month, the product obtained by multiplying (a)
(i) the amount of the Revolving Line of Credit minus (ii) the average daily principal
balance of Revolving Loans and the average daily undrawn amount of Letters of Credit outstanding
during such month, times (b) three-eighths of one percent (0.375%) per annum for the number
of days in said month.



     Loan Documents shall mean this Financing Agreement, the Post-Closing Letter, the
Promissory Notes, 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[s], the Landlord Waiver[s], 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.



     Loan Facility Fee shall mean the fee payable to the Agent, for the benefit of the
Lenders, in accordance with, and pursuant to, the provisions of Section 8.6 of this
Financing Agreement.



     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 Agent or the Lenders to enforce the
Obligations or their rights and remedies under this Financing Agreement or any of the other Loan
Documents.



     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 Agent, 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 the
Lenders and Contrarian, as mortgagee, to secure the payment and performance of the Obligations and
the Contrarian 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 Agent, under which a lien on Real Estate owned by any Credit Party is hereafter
granted to the Agent, in each case as such Mortgage may be renewed, amended, restated or
supplemented from time to time.



     Net Availability shall mean, at any time, the amount which the Company is entitled to
borrow from time to time as Revolving Loans, such amount being the difference derived when the



18









 




sum of the principal amount of all outstanding Revolving Loans, plus the undrawn amount of all
outstanding Letters of Credit is subtracted from the lesser of (a) Forty-Five Million Dollars
($45,000,000) and (b) the Borrowing Base.




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



     Net Orderly Liquidation Value shall mean, at any time, the aggregate value of the
Company’s Inventory at such time in an orderly liquidation, taking into account all costs, fees and
expenses estimated to be incurred by the Agent and the Lenders in connection with such liquidation,
based upon the most recent appraisal of the Company’s Inventory conducted by an appraiser selected
by the Agent.



     Obligations shall mean: (a) all loans, advances and other extensions of credit made by
the Agent for the account of the Lenders to any Credit Party or to others for such Credit Party’s
account (including, without limitation, all Revolving Loans and all obligations of the Agent under
Letter of Credit Guaranties); (b) any and all other indebtedness, obligations and liabilities which
may be owed by any Credit Party to the Agent or any 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 Agent or any Lender for such indebtedness as principal, surety,
endorser, guarantor or otherwise; (c) without duplication, any Credit Party’s liabilities to the
Agent under any instrument of guaranty or indemnity, or arising under any guaranty, endorsement or
undertaking which the Agent, on behalf of the Lenders pursuant to this Financing Agreement, may
make or issue to others for such Credit Party’s account, including any accommodations extended by
the Agent with respect to applications for Letters of Credit, the Agent’s acceptance of drafts or
the Agent’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 Agent
or any Lender as a result of



19









 




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 the Agent or any Lender (including negative balances
in the Revolving Loan Account and cash collateral held by the Agent 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 Agent’s and the Lenders’ 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) 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) all costs and expenses incurred by the Agent in
opening and maintaining the Depository Accounts and any related lockboxes, depositing checks, and
receiving and transferring funds (including charges imposed on the Agent for “insufficient funds”
and the return of deposited checks); (d) any amounts paid by, incurred by or charged to the Agent
by an Issuing Bank under any Letter of Credit or the reimbursement agreement relating thereto, any
application for Letter of Credit, Letter of Credit Guaranty or other like document which pertains
either directly or indirectly to Letters of Credit, and the Agent’s standard fees relating to the
Letters of Credit and any drafts thereunder; (e) title insurance premiums, real estate survey
costs, note taxes, intangible taxes and mortgage or recording taxes and fees; (f) all appraisal
fees and expenses payable by the Company hereunder, and all costs, fees and expenses incurred by
the Agent and the Lenders in connection with any action taken under Section 7.2(a) hereof,
including reasonable travel, meal and lodging expenses of the Agent’s personnel; (g) all costs that
the Agent may incur to maintain the Required Insurance, and all reasonable costs, fees and expenses
incurred by the Agent 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); (h) all reasonable
costs, fees, expenses and disbursements of outside counsel hired by the Agent 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 Agent and/or the Lenders as to matters
relating to the transactions contemplated hereby; (i) all costs, fees and expenses incurred by the
Agent and the Lenders in connection with any action taken under Section 10.3 hereof; and
(j) without duplication, all costs, fees and expenses incurred by the Agent and the Lenders in
connection with the collection, liquidation, enforcement, protection and defense of the
Obligations, the Collateral and the rights of the Agent and the Lenders under this Financing
Agreement, including, without limitation, all



20









 




reasonable fees and disbursements of in-house and
outside counsel to the Agent and the Lenders 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.




     Overadvances shall mean, at any time, the amount by which (a) the sum at such time of
the principal amount of all outstanding Revolving Loans plus the undrawn amount of all
outstanding Letters of Credit exceeds (b) the Borrowing Base at such time.



     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 Thousand Dollars ($100,000) 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,
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 Agent, for the benefit of the Lenders, by such Credit Party;
(f) liens



21









 




of judgment creditors, provided that such liens do not exceed Five Hundred
Thousand Dollars ($500,000) in the aggregate at any time for all Credit Parties (other than liens
bonded or insured to the reasonable satisfaction of the Agent) 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 Agent, 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 Contrarian 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 Ten Thousand Dollars ($10,000)
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 Agent and
subject to an intercreditor agreement in form and substance reasonably satisfactory to the Agent;
(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 Agent and subject to a subordination and
intercreditor agreement in form and substance satisfactory to the Agent in its sole and absolute
discretion; (s) other liens on assets securing Indebtedness not exceeding One Hundred Thousand
Dollars ($100,000) 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 (s) 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,



22









 




Taxes or labor; (b) Indebtedness secured by Purchase Money Liens (including, without
limitation, the Beaver County CED Loan); (c) Indebtedness arising under the Letters of Credit and
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 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 Agent 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 Agent 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 Agent in its sole and absolute discretion; (g) the Contrarian Obligations up to
an aggregate principal amount not to exceed Twenty-Seven Million Dollars ($27,000,000), 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 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 Thousand Dollars ($100,000) in the aggregate at
any time for all Credit Parties; (t) reimbursement obligations owing t
o 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




23









 




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 Agent 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 Thousand Dollars ($50,000) 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 Thousand Dollars ($100,000) 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.



     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 Agent, for the benefit of
the Lenders, 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-Five Thousand
Dollars ($25,000) in the



24









 




aggregate at any time for all Credit Parties and for which a notice of tax
lien has been filed unless the Agent otherwise agrees in writing.




     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 Agent, executed on or about the Closing Date by the Credit Parties,
the Agent and the Lenders.



     PP&E Component shall mean the fair market value of the Monaca Power Plant as a going
concern as determined by the Agent from time to time, but not in excess of Fifteen Million Dollars
($15,000,000) for purposes of computing the Borrowing Base (the “base amount”);
provided, however, that if for any fiscal year Consolidated EBITDA is less than the amount
corresponding to such fiscal year as set forth below:



	 	 	 
	Fiscal Year:	 	Minimum Consolidated EBITDA:
	 
	 	 
	2005
	 	$19,683,000
	 
	 	 
	2006 and thereafter
	 	$13,395,000





then the base amount shall be automatically reduced by Forty-One Thousand Six Hundred Sixty-Six and
66/100 Dollars ($41,666.66) on the first day of each month following delivery to the Agent and the
Lenders of the audited annual financial statements required under Section 7.2(h) of this
Financing Agreement for such fiscal year, until reduced to zero; provided further, however,
that if the Company fails to timely deliver to the Agent and the Lenders such audited annual
financial statements in accordance with Section 7.2(h) of this Financing Agreement, then
the base amount shall be automatically reduced by such amount on the first day of each month
following the due date for such audited annual financial statements until such audited annual
financial statements are delivered.




     Pro Rata Percentage shall mean, as to each Lender at any time, a fraction (expressed
as a percentage), the numerator of which is the amount of such Lender’s Commitment at such time and
the denominator of which is the aggregate amount of all Commitments at such time (or in the event
that the Commitments of the Lenders hereunder have terminated, the numerator of which is the
principal amount of loans then owed to such Lender hereunder and the denominator of which is the
principal amount of loans then owed to all Lenders hereunder, as reflected by CIT’s System).



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



     Promissory Notes shall mean, collectively, the notes in the form of Exhibit B
attached hereto, executed and delivered by the Company to each Lender to evidence the loans made by
such Lender to the Company pursuant to this Financing Agreement.



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     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 Agent, and (c) the indebtedness incurred by such Credit Party in connection with such
acquisitions shall not exceed One Million Dollars ($1,000,000) (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.



     Raw Materials shall mean Inventory of the Company which consists of any raw materials,
including, without limitation, zinc concentrate, zinc bearing residuals, zinc skims, zinc drosses,
coal, coke, breeze and other primary raw materials, which raw materials are used or consumed in the
manufacturing of goods to be sold by the Company in the ordinary course of business, title to which
and sole ownership of which is vested in the Company.



     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 Agent or
any 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.



     Required Lenders shall mean (a) at all times while there are (2) two or fewer Lenders
hereunder, all of the Lenders, and (b) at all times while there are three (3) or more Lenders
hereunder, those Lenders holding more than fifty percent (50%) of the total Commitments under the
Revolving Line of Credit (or more than fifty percent (50%) of the outstanding principal amount of
all loans outstanding hereunder, as reflected by CIT’s System, in the event that the Commitments of
the Lenders hereunder have terminated) except that, for purposes of this clause (b), with respect
to voting on amendments to the definitions of “Net Availability”, “Availability Reserve”,
“Borrowing Base”, “Eligible Accounts Receivable”, “Eligible Finished Goods”, “Eligible Inventory”,
“Eligible Raw Materials”, “Eligible Work-In-Process” or “Required Lenders”, Required Lenders shall
mean those Lenders holding more than sixty-six and two-thirds percent (66 2/3%) of the total
Commitments under the Revolving Line of Credit (or more than sixty-six and two-thirds percent (66
2/3%) of the outstanding principal amount of all loans outstanding hereunder, as reflected by CIT’s
System, in the event that the Commitments of the Lenders hereunder have terminated).



26









 





     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 Agent from time to time and reasonably satisfactory to the Agent.



     Revolving Line of Credit shall mean the Commitments of the Lenders to make Revolving
Loans pursuant to Section 3 of this Financing Agreement and assist the Company in opening
Letters of Credit pursuant to Section 5 of this Financing Agreement, in an aggregate amount
equal to Forty-Five Million Dollars ($45,000,000).



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



     Revolving Loans shall mean the loans and advances made from time to time to or for the
account of the Company by the Agent, on behalf of the Lenders, pursuant to Section 3 of
this Financing Agreement.



     Settlement Date shall mean Friday of each week (or if any Friday is not a Business Day
on which all Lenders are open for business, the immediately preceding Business Day on which all
Lenders are open for business), provided that, after the occurrence of an Event of Default
or during a continuing decline or sudden increase in the principal amount of Revolving Loans, the
Agent, in its discretion, may require that the Settlement Date occur more frequently (even daily)
so long as any Settlement Date chosen by the Agent is a Business Day on which each Lender is open
for business.



     Stock Pledge Agreement[s] shall mean, collectively, (a) those certain Stock Pledge
Agreements, in form and substance reasonably satisfactory to the Agent, 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 Agent, and (b) each pledge agreement, in form and substance
reasonably satisfactory to the Agent, under which a lien on capital stock or other equity interests
or investment property owned by any Credit Party is hereafter granted to the Agent, 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 and other obligations 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 Agreement[s] shall mean (a) an agreement, in form and substance
satisfactory to the Agent, among a Credit Party obligated on Subordinated Debt, a subordinating
creditor to which such Subordinated Debt is owed, and the Agent, on behalf of the Lenders, 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 Agent,



27









 




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.



     Termination Date shall mean the date occurring five (5) years from the Closing Date.



     Testing Event shall have the meaning provided for in Section 7.3(e) of this
Financing Agreement.



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



     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.



     Work-in-Process shall mean Inventory of the Company which consists of work-in-process
including, without limitation, zinc bearing materials other than Raw Materials, Finished Goods or
saleable products, title to which and sole ownership of which is vested in the Company.



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



28









 





     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 Agent 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 Agent 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 Agent, 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
Agent 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




     2.1 Conditions Precedent to Initial Funding. Except as set forth in the Post-Closing
Letter, the obligation of the Agent and the Lenders to make the initial Revolving Loans and to
assist the Company in obtaining initial Letters of Credit hereunder is subject to the satisfaction,
immediately prior to or concurrently with the making of such Revolving Loans or the issuance of
such Letters of Credit, of the following conditions precedent:



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




          (b) Insurance. The Credit Parties shall have delivered to the Agent copies of
insurance policies evidencing to the reasonable satisfaction of the Agent that all Required
Insurance is in full force and effect, and confirmation satisfactory to the Agent that the Agent,
for the benefit of the Lenders, 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 Agent, for the benefit of the Lenders, a first priority
perfected security interest in the Collateral (to the extent that such a security interest may be




29









 




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 Agent shall have
received (i) acknowledgement copies of all such filings (or, in lieu thereof, the Agent shall have
received other evidence reasonably satisfactory to the Agent 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 Agent 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 Agent 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 Agent shall have received an executed Officer’s
Certificate for each Credit Party, reasonably satisfactory in form and substance to the Agent,
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 Contrarian
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 Agent shall have received and be satisfied with an appraisal of
the Company’s Inventory conducted by an appraiser selected by the Agent. In addition, the Agent
shall have received an appraisal on the Monaca Power Plant, which appraisal shall be by an
appraiser acceptable to the Agent 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 Agent all
information necessary for the Agent to issue wire transfer instructions on behalf of the Company
for the initial and subsequent loans and/or advances to be made under this Financing Agreement,
including disbursement authorizations in form reasonably acceptable to the Agent.




          (i) Examination & Verification; Net Availability; Projections. The Agent 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 of not less than Eight Million Dollars
($8,000,000), and (ii) no material adverse change has occurred in the business, financial
condition,




30









 




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 Agent, and the Agent 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 Agent 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 the Agent, on
behalf of the Lenders, shall have established one or more Depository Accounts with respect to the
collection of Accounts and the deposit of proceeds of Collateral, and (ii) the Agent, 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 or the term loan from Contrarian, and all such instruments and agreements and the
JPMorgan Chase L/C Assumption Agreement shall have been terminated to the satisfaction of the
Agent, 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 Agent, on
behalf of the Lenders, opinion(s) reasonably satisfactory to the Agent.




          (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
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 Agent, 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
Agent all Loan Documents necessary to consummate the lending arrangement contemplated by this
Financing Agreement.




          (o) Revolving Loan Promissory Notes. If the Required Lenders elect to evidence their
Commitments with respect to the Revolving Line of Credit with Promissory Notes, the Company shall
have executed and delivered to each 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 to the Agent,




31









 




for the benefit of the Lenders, a Stock Pledge Agreement covering all capital stock in each Credit
Party (other than Horsehead Intermediary), together with 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 the Agent (or
to an agent of the Agent 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 Agent 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 Agent (the “Title Insurance Company”). Each such commitment shall obligate the Title
Insurance Company to issue to the Agent, 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 Agent, as the insured thereunder; and (iv) that contains such endorsements and
effective coverage as the Agent may reasonably require, including, without limitation, a revolving
line of credit endorsement. The Agent 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 Agent 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 Agent, prepared by an independent licensed land surveyor reasonably
satisfactory to the Agent and certified to the Agent and the Title Insurance Company.




          (t) Environmental Reports. The Agent shall have received Environmental Reports (and
reliance letters addressed to the Agent in the case of Environmental Reports addressed to others)
on all Real Estate and Company operations conducted thereon. The reports (and the reliance
letters, as the case may be) must be satisfactory to the Agent 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 Agent. In addition, the Agent shall be reasonably satisfied with
each Credit Party’s environmental management practices.




          (u) Contrarian Loan; Etc. The Company shall provide the Agent with documentation
evidencing the funding of the term loan from Contrarian in an aggregate amount not less than
Twenty-Seven Million Dollars ($27,000,000). In addition, the Agent shall have (i) received and
reviewed to its reasonable satisfaction the Contrarian Transaction Documents, and (ii) received the
Contrarian Intercreditor Agreement and a side letter, each in form and substance reasonably
satisfactory to the Agent, executed by Contrarian and each Credit Party in the case of the
Contrarian Intercreditor Agreement and executed by Contrarian in the case of the side letter.




32









 





          (v) Sun Management Agreement. The Agent 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 initial
loans hereunder, all of the above conditions precedent shall have been deemed satisfied, except as
the Credit Parties and the Agent shall otherwise agree in a separate writing.



SECTION 3 Revolving Loans and Collections




     3.1 Funding Conditions and Procedures.



          (a) Amounts and Requests. Subject to the terms and conditions of this Financing
Agreement, the Agent and the Lenders, pro rata in accordance with their respective
Pro Rata Percentages, severally (and not jointly) agree to make loans and advances to the Company
on a revolving basis (i.e. subject to the limitations set forth herein, the Company may borrow,
repay and re-borrow Revolving Loans). In no event shall the Agent or any Lender have an obligation
to make a Revolving Loan to the Company, nor shall the Company be entitled to request or receive a
Revolving Loan, if (i) a Default or Event of Default shall have occurred and remain outstanding on
the date of request for such Revolving Loan or the date of the funding thereof, (ii) the amount of
such Revolving Loan, when added to the principal amount of the Revolving Loans outstanding
plus the undrawn amount of all Letters of Credit on the date of the request therefor or the
funding thereof, would exceed the Revolving Line of Credit, or (iii) amount of such Revolving Loan
would exceed the Net Availability of the Company on the date of the request therefor or the funding thereof. Any
request for Revolving Loan must be received by an officer of the Agent no later than 2:00 p.m., New
York City time, (a) on the Business Day on which such Revolving Loan is required, if the request is
for a Chase Bank Rate Loan, or (b) three (3) Business Days prior to the Business Day on which such
Revolving Loan is required, if the request is for a LIBOR Loan. The funding of any LIBOR Loan is
also subject to the satisfaction of the conditions set forth in Section 8.9 of this
Financing Agreement.




          (b) Phone and Electronic Loan Requests. The Company hereby authorizes the Agent and
the Lenders to make Revolving Loans to the Company based upon a telephonic or e-mail request (or,
if permitted by the Agent, based upon a request posted on CIT’s System) made by any officer or
other employee of the Company that the Company has authorized in writing to request Revolving Loans
hereunder, as reflected by the Agent’s records. Each telephonic, e-mail or posted request by the
Company shall be irrevocable, and the Company agrees to confirm any such request for a Revolving
Loan in a writing approved by the Agent and signed by such authorized officer or employee, within
one (1) Business Day of the Agent’s request for such confirmation. The Agent shall have the right
to rely on any telephonic, e-mail or posted request for a Revolving Loan made by anyone purporting
to be an officer or other employee of the Company that the Company has authorized in writing to
request Revolving Loans hereunder, without further investigation.




          (c) Advances by the Agent. The Agent, on behalf of the Lenders, shall disburse all
loans and advances to the Company and shall handle all collections of Collateral and repayment of
all Obligations. It is understood that for purposes of advances to the Company and for purposes of
this Section 3.1, the Agent will be using the funds of the Agent, and pending settlement,
all interest accruing on such advances shall be payable to the Agent.




33









 





          (d) Settlement Among Lenders.




               (i) Unless the Agent shall have been notified in writing by any Lender prior to any advance to
the Company that such Lender will not make the amount which would constitute its Pro Rata
Percentage of the borrowing on such date available to the Agent, the Agent may assume that such
Lender shall make such amount available to the Agent on a Settlement Date, and in reliance upon
such assumption, the Agent may make available to the Company a corresponding amount. A certificate
of the Agent submitted to any Lender with respect to any amount owing under this subsection shall
be conclusive, absent manifest error. If such Lender’s Pro Rata Percentage of such borrowing is
not in fact made available to the Agent by such Lender on the Settlement Date, the Agent shall be
entitled to recover from the Company, on demand, such Lender’s Pro Rata Percentage of such
borrowing, together with interest thereon (for the account of the Agent) at the rate per annum
applicable to such borrowing, without prejudice to any rights which the Agent may have against such
Lender under Section 13.3 hereof. Nothing contained herein shall be deemed to obligate the
Agent to make available to the Company the full amount of a requested advance when the Agent has
any notice (written or otherwise) that any of the Lenders will not advance its Pro Rata Percentage
thereof.



               (ii) On each Settlement Date, the Agent and the Lenders shall each remit to the other, in
immediately available funds, all amounts necessary so as to ensure that, as of the Settlement Date,
the Lenders shall have advanced their respective Pro Rata Percentages of all outstanding Revolving
Loans. Each Lender’s obligation to make the Revolving Loans
referred to in Section 3.1(a) and to make the settlements pursuant to this Section 3.1(d)
shall be absolute and unconditional and shall not be affected by any circumstance, including
without limitation (v) any set-off, counterclaim, recoupment, defense or other right which any such
Lender or any Credit Party may have against the Agent, any Credit Party, any other Lender or any
other person, (w) the occurrence or continuance of a Default or an Event of Default, (x) any
adverse change in the condition (financial or otherwise) of any Credit Party, (y) any breach of
this Financing Agreement or any other Loan Document by any Credit Party or any other Lender or (z)
any other circumstance, happening or event whatsoever, whether or not similar to any of the
foregoing.




          (e) Reaffirmation of Representations and Warranties. Except for the representations
and warranties set forth in Sections 6.7, 6.8, and 6.9, all of the
representations and warranties made by each Credit Party in this Financing Agreement shall be
deemed to be remade by such Credit Party each time that the Company requests a Revolving Loan or a
Letter of Credit under this Financing Agreement, and each such request shall also constitute a
representation and warranty by such Credit Party that, after giving effect to the requested
Revolving Loan or Letter of Credit, no Default or Event of Default shall have occurred and remain
outstanding.




     3.2 Handling of Proceeds of Collateral; Cash Dominion.



          (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




34









 




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 the Agent, for the benefit of the Lenders (and Contrarian, 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) Transfer of Funds from Depository Accounts. Funds remaining on deposit in a
Depository Account shall be transferred to the Agent’s Bank Account on each Business Day in
accordance with the terms and provisions of the applicable Depository Account Control Agreement,
and the Company agrees to take all actions reasonably required by the Agent or any bank at which a
Depository Account is maintained in order to effectuate the transfer of funds in this manner.
Subject to charges for Collection Days, all amounts received from a Depository Account and any
other proceeds of the Collateral deposited into the Agent’s Bank Account will, for purposes of
calculating Net Availability and interest, be credited to the Revolving Loan Account on the date of
deposit in the Agent’s Bank Account. No checks, drafts or other instruments received by the Agent
shall constitute final payment to the Agent unless and until such instruments have actually been
collected.




          (c) 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 are to be deposited unless concurrently with the
opening of such lockbox and/or bank account, the Agent, 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 Agent’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 Agent in writing as
not being required to be subject to Depository Account Control Agreements until such time as the
Agent 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 3.2(c)-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 Thousand Dollars ($100,000) or the aggregate balance of all
Excluded Bank Accounts to exceed Five Hundred Thousand Dollars ($500,000). 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 Agent and
the Lenders that Schedule 3.2(c)-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




35









 




promptly deliver to the Agent a supplemental schedule which shall include details pertaining to such bank
account.




     3.3 Revolving Loan Account. The Agent shall charge the Revolving Loan Account for all
loans and advances made by the Agent and the Lenders to the Company or for the Company’s account,
and for all any other Obligations, including Out-of-Pocket Expenses, when due and payable
hereunder. Subject to the provisions of Section 3.5 below, the Agent will credit the
Revolving Loan Account with all amounts received by the Agent from each Depository Account or from
others for the Company’s account, including, as set forth above, all amounts received by the Agent
in payment of Accounts of the Company, and such amounts will be applied to payment of the
Obligations in the order and manner set forth herein. If at any time a credit balance exists in
the Revolving Loan Account, such credit balance shall not accrue interest in favor of the Company,
but shall be available to the Company at any time or times for so long as no Event of Default is
continuing. The Agent may, at its option, offset such credit balance against any of the
Obligations upon and after the occurrence and during the continuance of an Event of Default. In no
event shall prior recourse to any Account or other security granted to or by any Credit Party be a
prerequisite to the Agent’s or the Lenders’ rights to demand payment of any of the Obligations. In
addition, each Credit Party agrees that neither the Agent nor any Lender shall have any obligation
whatsoever to perform in any respect any of such Credit Party’s contracts or obligations relating
to the Accounts of such Credit Party.



     3.4 Repayment of Overadvances. If at any time (a) the sum of the outstanding balance
of Revolving Loans and undrawn amount of Letters of Credit exceed the Revolving Line of Credit, or
(b) an Overadvance exists, the amount of such excess (in the case of clause (a)) or the amount of
the Overadvance (in the case of clause (b)) shall be immediately due and payable unless the Agent
(as permitted hereunder) or the Lenders otherwise agree in writing. Should the Agent or the
Lenders for any reason honor requests for Overadvances, such Overadvances shall be made in the
Agent’s or the Lenders’ sole discretion and subject to any additional terms the Agent or the
Lenders deem necessary.



     3.5 Application of Proceeds of Collateral.



          (a) Generally. Unless this Financing Agreement expressly provides otherwise, so long
as no Event of Default shall have occurred and remain outstanding, the Agent agrees to apply (i)
all Proceeds of Trade Accounts Receivable to the Revolving Loan Account, and (ii) subject to
Section 3.3 of this Financing Agreement, any other payment received by the Agent with
respect to the Obligations, in such order and manner as the Agent shall elect in the exercise of
its reasonable business judgment.




          (b) Application of Proceeds to Chase Bank Rate Loans and LIBOR Loans. So long as no
Event of Default shall have occurred and remain outstanding, the Agent agrees to apply all Proceeds
of Collateral and other payments described in Section 3.5(a) to Chase Bank Rate Loans until
there are no Chase Bank Rate Loans outstanding, and then to LIBOR Loans; provided that in
the event the aggregate outstanding principal amount of Revolving Loans that are LIBOR Loans
exceeds Net Availability or any other applicable limit set forth herein, the Agent may apply all
proceeds of Collateral received by the Agent to the payment of the Obligations in such manner




36









 




and in such order as the Agent may elect in the exercise of its reasonable business judgment. Subject
to the terms of the preceding sentence, so long as no Event of Default shall have occurred and
remain outstanding, if the Agent receives Proceeds of Collateral or other payments that exceed the
outstanding principal amount of Revolving Loans that are Chase Bank Rate Loans, the Company may
request, in writing, that the Agent not apply such excess Proceeds to outstanding Revolving Loans
that are LIBOR Loans, in which case the Agent shall remit such excess to the Company. If as a
result of the application of the provisions of this Section 3.5(b), any Proceeds of
Collateral are applied to loans that are LIBOR Loans, such application shall be treated as a
prepayment of such LIBOR Loans and the Lenders shall be entitled to the costs and fees provided for
in Section 8.10 hereof.




          (c) Application of Proceeds During an Event of Default. If an Event of Default shall
have occurred and remain outstanding, the Agent agrees to apply all Proceeds of Collateral and all
other payments received by the Agent to the payment of the Obligations in the manner and order set
forth in Section 10.4 hereof. If as a result of the application of the provisions of this
Section 3.5(c), any Proceeds or payments are applied to loans that are LIBOR Loans, such
application shall be treated as a prepayment of such LIBOR Loans and the Lenders shall be entitled
to the costs and fees provided for in Section 8.10 hereof.




     3.6 Monthly Statement. After the end of each month, the Agent agrees to prepare and
make available to the Company (by mail, facsimile, e-mail or posting to CIT’s System, as mutually
agreed to by the Company and the Agent) and the Lenders, a statement showing the accounting for the
charges, loans, advances and other transactions occurring among the Agent, the Lenders and the
Company during that month. Absent manifest error, each monthly statement shall be deemed correct
and binding upon the Company and the Lenders, and shall constitute accounts stated between the
Company and the Lenders and the Agent, as the case may be, unless the Agent receives a written
statement of exception from the Company or any Lender within thirty (30) days of the date of
such monthly statement.



     3.7 Access to CIT’s System. The Agent shall provide to the Company access to CIT’s
System during normal business hours, for the purposes of (i) obtaining information regarding loan
balances and Net Availability, and (ii) if permitted by the Agent, making requests for Revolving
Loans and submitting borrowing base certificates. Such access shall be subject to the following
terms, in addition to all terms set forth on the website for CIT’s System:



          (a) The Agent shall provide to the Company an initial password for secured access to CIT’s
System. The Company shall provide the Agent with a list of officers and employees that are
authorized from time to time access CIT’s System, and the Company agrees to limit access to the
password and CIT’s System to such authorized officers and employees. After the initial access, the
Company shall be solely responsible for (i) changing and maintaining the integrity of the Company’s
password and (ii) any unauthorized use of the Company’s password or CIT’s System by the Company’s
officers and employees.




          (b) The Company shall use CIT’s System and the Company’s information thereon solely for the
purposes permitted above, and shall not access CIT’s System for the benefit of third parties or
provide any information obtained from CIT’s System to third parties. The Agent makes




37









 




no representation that loan balance or Net Availability information is or will be available, accurate,
complete, correct or current at all times. CIT’s System may be inoperable or inaccessible from
time to time, whether for required website maintenance, upgrades to CIT’s System, or for other
reasons, and in any such event the Company must obtain loan balance and Net Availability
information, and (if permitted by the Agent) make requests for Revolving Loans and submit borrowing
base certificates using other available means.




          (c) The Company hereby confirms and agrees that CIT’s System consists of proprietary software,
data, tools, scripts, algorithms, business logic, website designs and interfaces and related
intellectual property, information and documentation. CIT’s System and related intellectual
property, information and documentation are the sole and exclusive property of the Agent, and the
Company shall have no right, title or interest therein or thereto, except for the limited right to
access CIT’s System for the purposes permitted above. Upon termination of this Financing
Agreement, the Company agrees to cease any use of CIT’s System (which agreement shall survive such
termination).




          (d) All agreements, covenants and representations and warranties made by the Company in any
borrowing base certificate submitted to the Agent by means of CIT’s System are incorporated herein
by reference.




SECTION 4 RESERVED.



SECTION 5 Letters of Credit.




     In order to assist the Company in establishing or opening Letters of Credit with an Issuing
Bank, the Company has requested that the Lenders (acting through the Agent) join in the
applications for such Letters of Credit, and/or guarantee payment or performance of such Letters of
Credit and any drafts or acceptances thereunder through the issuance of one or more Letter of Credit
Guaranties, thereby lending the Lenders’ credit to the Company, and the Agent and the Lenders have
agreed to do so. These arrangements shall be handled by the Agent subject to satisfaction of the
conditions set forth in Section 2.1 hereof and the terms and conditions set forth below.



     5.1 Assistance and Purpose. Within the Revolving Line of Credit and subject to
sufficient Net Availability, the Lenders (acting through the Agent) shall assist the Company in
obtaining Letters of Credit in an aggregate undrawn amount outstanding at any time not to exceed
the Letter of Credit Sub-Line. The term, form and purpose of each Letter of Credit and all
documentation in connection therewith, and any amendments, modifications or extensions thereof,
must be mutually acceptable to the Agent, the Issuing Bank and the Company, provided that
the Company shall not request a Letter of Credit to support the purchase of domestic Inventory or
to secure present or future indebtedness owed to suppliers of domestic Inventory unless otherwise
approved by the Agent on a case-by-case basis. Notwithstanding any other provision of this
Financing Agreement to the contrary, if a Default or an Event of Default shall have occurred and
remain outstanding, the Agent’s and the Lenders’ assistance in connection with any Letter of Credit
shall be in discretion of the Required Lenders.



38









 





     5.2 Authority to Charge Revolving Loan Account. The Company hereby authorizes the
Agent, without notice to the Company, to charge the Revolving Loan Account with the amount of all
indebtedness, liabilities and obligations of any kind incurred by the Agent or the Lenders under a
Letter of Credit Guaranty, including the charges of an Issuing Bank, as such indebtedness,
liabilities and obligations are charged to or paid by the Agent or the Lenders, or, if earlier,
upon the occurrence and during the continuance of an Event of Default. Any amount charged to the
Revolving Loan Account shall be deemed a Chase Bank Rate Loan hereunder and shall incur interest at
the rate provided in Section 8.1 (or Section 8.2, if applicable) of this Financing
Agreement. The Company confirms that any charges which the Agent may make to the Revolving Loan
Account as provided herein will be made as an accommodation to the Company and solely at the
Agent’s discretion.



     5.3 Indemnity Relating to Letters of Credit. The Company unconditionally indemnifies
the Agent and the Lenders, and holds the Agent and the Lenders harmless from any and all loss,
claim or liability incurred by the Agent or the Lenders arising from any transactions or
occurrences relating to Letters of Credit established or opened for the Company’s account, the
Collateral relating thereto and any drafts or acceptances thereunder, and all Obligations
thereunder, including any such loss, claim or liability arising from any error, omission,
negligence, misconduct or other action taken by an Issuing Bank, other than for any such loss,
claim or liability arising out of the gross negligence, bad faith or willful misconduct by the
Agent with respect to a Letter of Credit Guaranty as finally determined by a court of competent
jurisdiction. This indemnity shall survive the termination of this Financing Agreement and the
repayment of the Obligations.



     5.4 Compliance of Goods, Documents and Shipments with Agreed Terms. The Agent shall
not be responsible for: (a) the existence, character, quality, quantity, condition, packing, value
or delivery of the goods purporting to be represented by any documents relating to any Letter of
Credit; (b) any difference or variation in the character, quality, quantity, condition, packing,
value or delivery of the goods from that expressed in such documents; (c) the validity, sufficiency
or genuineness of such documents or of any endorsements thereon, even if such documents should in
fact prove to be in any or all respects invalid, insufficient, fraudulent or forged; (d) the
time, place, manner or order in which shipment is made; (e) partial or incomplete shipment, or
failure or omission to ship any or all of the goods referred to in the Letters of Credit or
documents relating thereto; (f) any deviation from instructions; (g) delay, default, or fraud by
the shipper and/or anyone else in connection with the goods or the shipping thereof; or (h) any
breach of contract between the shipper or vendors and the Company.



     5.5 Handling of Goods, Documents and Shipments. The Company agrees that any action
taken by the Agent, if taken in good faith, or any action taken by the Issuing Bank of whatever
nature, under or in connection with the Letters of Credit, the Letter of Credit Guaranties, drafts
or acceptances relating to Letters of Credit, or the goods subject thereto, shall be binding on the
Company and shall not result in any liability whatsoever of the Agent to the Company other than
liabilities resulting from such parties’ gross negligence, bad faith or willful misconduct as
finally determined by a court of competent jurisdiction. The Agent shall have the full right and
authority, on behalf of the Lenders, to (a) clear and resolve any questions of non-compliance of
documents, (b) give any instructions as to acceptance or rejection of any documents or goods, (c)
execute any and



39









 




all steamship or airways guaranties (and applications therefor), indemnities or
delivery orders, (d) grant any extensions of the maturity of, time of payment for, or time of
presentation of, any drafts, acceptances, or documents, and (e) agree to any amendments, renewals,
extensions, modifications, changes or cancellations of any of the terms or conditions of any of the
applications, the Letters of Credit, the Letter of Credit Guaranties or drafts or acceptances
relating to Letters of Credit. An Issuing Bank shall be entitled to comply with and honor any and
all such documents or instruments executed by or received solely from the Agent, without any notice
to or any consent from the Company. Notwithstanding any prior course of conduct or dealing with
respect to the foregoing (including amendments to and non-compliance with any documents, and/or the
Company’s instructions with respect thereto), the Agent may exercise its rights under this
Section 5.5 in its sole but reasonable business judgment. In addition, the Company agrees
not to: (a) at any time unless the Agent and the Issuing Bank agree in writing, (i) execute any
application for steamship or airway guaranties, indemnities or delivery orders, (ii) grant any
extensions of the maturity of, time of payment for, or time of presentation of, any drafts,
acceptances or documents, or (iii) agree to any amendments, renewals, extensions, modifications,
changes or cancellations of any of the terms or conditions of any of the applications, Letters of
Credit, drafts or acceptances; and (b) if an Event of Default shall have occurred and remain
outstanding, (i) clear and resolve any questions of non-compliance of documents or (ii) give any
instructions as to acceptances or rejection of any documents or goods.




     5.6 Compliance with Laws; Payment of Levies and Taxes. The Company agrees that (a)
all necessary import and export licenses and certificates necessary for the import or handling of
the Collateral will be promptly procured, (b) all foreign and domestic governmental laws and
regulations in regard to the shipment and importation of the Collateral or the financing thereof
will be promptly and fully complied with in all material respects, and (c) any certificate in that
regard that the Agent may at any time reasonably request will be promptly furnished to the Agent.
In connection herewith, the Company represents and warrants to the Agent and the Lenders that all
shipments made under any Letter of Credit are and will be in compliance with the laws and
regulations of the countries in which the shipments originate and terminate, and are not prohibited
by any such laws and regulations. The Company assumes all risk, liability and responsibility for,
and agrees to pay and discharge when due,
all present and future local, state, federal or foreign Taxes, duties, or levies pertaining to
the importation and delivery of the Collateral. Any embargo, restriction, law, custom or regulation
of any country, state, city, or other political subdivision, where the Collateral is or may be
located, or wherein payments are to be made, or wherein drafts may be drawn, negotiated, accepted,
or paid, shall be solely the Company’s risk, liability and responsibility.



     5.7 Subrogation Rights. Upon any payments made to an Issuing Bank under a Letter of
Credit Guaranty, the Agent, for the benefit of the Lenders, shall acquire by subrogation, any
rights, remedies, duties or obligations granted to or undertaken by the Company to the Issuing Bank
in any application for Letter of Credit, any standing agreement relating to Letters of Credit or
otherwise, all of which shall be deemed to have been granted to the Agent, for the benefit of the
Lenders, and apply in all respects to the Agent and shall be in addition to any rights, remedies,
duties or obligations contained herein.






40









 




 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 hereby pledges and grants to the Agent, for the benefit of the Lenders, 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
Agent 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 Agent’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 Agent, for the benefit of the Lenders, 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 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 Agent), in connection with the (i) advertisement for
sale, and the sale or other disposition of, any finished goods Inventory by the Agent 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 Agent 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 Agent only so long as an Event of Default shall
have occurred and remains outstanding.



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     6.3 Representations, Covenants and Agreements Regarding Collateral Generally.



          (a) Representations and Warranties. Each Credit Party hereby represents and warrants
to the Agent and the Lenders 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 Agent’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 Agent and the Lenders 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 Agent 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.,
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
Agent 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.




42









 





     6.5 Covenants and Agreements Regarding Accounts and Inventory.



          (a) Each Credit Party confirms to the Agent and the Lenders 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 (it being acknowledged that such raw materials inventory
shall not be included in the Borrowing Base until such time as such raw materials inventory
satisfies the requirements for Eligible Inventory).




          (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 Agent’s interest in the Accounts and Inventory. In support of the
continuing assignment and security interest of the Agent in the Accounts and Inventory, such Credit
Party also agrees to deliver to the Agent 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 Agent any of the foregoing
information shall in no way affect, diminish, modify or otherwise limit the security interests
granted to the Agent 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 Agent (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 (ii) copies of such credit memoranda as and when requested by the Agent pursuant to Section
7.2(g)(i)(6) hereof.




          (e) Each Credit Party agrees to safeguard, protect and hold all Inventory for the account of
the Agent, on behalf of the Lenders, 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 Agent 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 hereof.




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          (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, provided that the face amount of such Accounts does not
exceed Fifty Thousand Dollars ($50,000) in the aggregate during any calendar year unless otherwise
agreed by the Agent 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 Agent’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 Agent’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 Fifty
Thousand Dollars ($250,000) 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 the Agent by
deposit to the Depository Account, for application to the Obligations in such manner and in such
order as the Required Lenders may elect in the exercise of their reasonable business judgment, or
(y) in the case of Net Cash Proceeds of sales of Equipment only, within 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 Required Lenders’ prior written consent. Upon the sale, transfer, lease or
other disposition of Real Estate (other than the Excluded Real Estate) or Equipment, the Agent’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 Agent’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 Agent 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 Agent
(it being agreed that the Agent shall be entitled, in its discretion, to condition the
effectiveness of such lien release upon the Agent’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 the




44









 




Agent as the Agent’s property, for
the benefit of the Lenders (and Contrarian, 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
Agent 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 Agent and
the Lenders 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 Agent with adequate notice of the acquisition of rights with respect to any
additional registered Patents, Trademarks and Copyrights so that the Agent may, for the benefit of
the Lenders and to the extent permitted under the documentation granting such rights or applicable
law, perfect the Agent’s security interest in such rights in a timely manner.



     6.8 Commercial Tort Claims. Each Credit Party represents and warrants to the Agent
and the Lenders 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 Agent in
writing of the details thereof, and in such writing such Credit Party shall grant to the Agent, for
the benefit of the Lenders, 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 Agent
and the Lenders 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 Agent, and
upon request by the Agent, 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 Agent, for the benefit of the
Lenders, pursuant to an agreement in form and substance satisfactory to the Agent, or (b) cause the
issuer of such letter of credit to name the Agent, for the benefit of the Lenders, as the
transferee beneficiary of such letter of credit.



     6.10 Real Estate. Upon the request of the Agent, each Credit Party agrees to execute
and deliver to the Agent from time to time, a mortgage or deed of trust (as appropriate) in form
and substance reasonably satisfactory to the Agent 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 Agent 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.



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     6.12 Credit Balances; Additional Collateral.



          (a) The rights and security interests granted to the Agent and the Lenders hereunder shall
continue in full force and effect, notwithstanding the termination of this Financing Agreement or
the fact that the Revolving Loan Account may from time to time be temporarily in a credit position,
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 or
reimbursement obligations in respect of Letters of Credit which have been cash collateralized to
the reasonable satisfaction of the Agent or for which back-stop letters of credit reasonably
satisfactory to the Agent have been provided by an issuer reasonably satisfactory to the Agent).
Any reserves or balances to the credit of the Company (in the Revolving Loan Account or otherwise),
and any other property or assets of any Credit Party in the possession of the Agent or any Lender,
may be held by the Agent or such 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 Agent, for the benefit of the Lenders, herein and any
other lien or security interest which the Agent or the Lenders may have in any other assets of any
Credit Party secure payment and performance of all present and future Obligations.




          (b) Notwithstanding the Agent’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 Agent shall have the right
in its sole discretion to determine which rights, security, liens, security interests or remedies
the Agent 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 Agent’s or the Lenders’ rights under
this Financing Agreement.




SECTION 7 Representations, Warranties and Covenants




     7.1 Representations and Warranties. Each Credit Party represents and warrants to the
Agent and the Lenders 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 projections) of the Company and its consolidated subsidiaries furnished to the
Agent 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 Agent 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




46









 




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.




          (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



47









 




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.



          (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 Thousand Dollars
($100,000) 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.




48









 





          (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 Agent, accompanied by any Lender (at such
Lender’s expense), and/or any agent designated by the Agent, 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 Agent and the Lenders, at
such Credit Party’s expense, all financial statements and information, books, records, work papers
and management reports generated by them or in their 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 Agent 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 Agent’s rights under Section 7.2(i) hereof), the Company shall not be
required to pay or reimburse the Agent for costs, fees and expenses incurred by the Agent in
connection with more than three (3)




49









 




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 Agent, for the benefit of the Lenders, valid
and perfected first priority security interests in the Collateral, subject only to the Permitted
Encumbrances. The Agent 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 Agent on or prior to the Closing Date. Such Credit Party agrees to
do whatever the Agent 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 Agent, (iii) keeping Collateral records, (iv) transferring proceeds of
Collateral to the Agent’s possession in accordance with the terms hereof and (v) performing such
further acts as the Agent 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 Agent, to be made payable solely to the Agent, for the
benefit of the Lenders, 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 Agent reasonably may require to fully protect the Agent’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 Agent shall provide (x) for not less than thirty (30) days prior
written notice to the Agent 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 Agent’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 Agent, subject to the rights of any holder of a Permitted Encumbrance
having priority over the security interests of the Agent, shall have the sole right, in the name of
the Agent 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
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.



50









 





               (ii) The Agent’s Purchase of Insurance. Unless such Credit Party provides the Agent
with evidence of the Required Insurance in the manner set forth in Section 7.2(c)(i) above,
the Agent may purchase insurance at such Credit Party’s expense to protect the Agent’s interests in
the Collateral. The insurance purchased by the Agent 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 Agent cancel any insurance purchased by
the Agent, but only after providing the Agent with reasonably satisfactory evidence that such
Credit Party has the Required Insurance. If the Agent 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 Agent may charge all of such costs, interest and other charges to the Revolving
Loan Account. The costs of the premiums of any insurance purchased by the Agent may exceed the
costs of insurance which such Credit Party may be able to purchase on its own. In the event that
the Agent purchases insurance, the Agent 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 Agent with proof that such Credit Party had
the Required Insurance as of the date on which the Agent purchased insurance and such
Credit Party has continued at all times thereafter to have the Required Insurance, then the Agent
agrees to cancel the insurance purchased by the Agent and credit the Revolving Loan Account for the
amount of all costs, interest and other charges associated with such insurance that the Agent
previously charged to the Revolving 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 the Agent’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 Agent agrees to apply the Net Cash Proceeds first to repay
the outstanding Revolving Loans.




          (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 Agent agrees to apply such Net
Cash Proceeds to repay the outstanding Revolving Loans.




          (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 Agent within ten
(10) Business Days following the Agent’s receipt of such Net Cash Proceeds) to
replace or repair such item of Equipment. If such Credit Party elects to



51









 






replace or repair any item of Equipment and if such Equipment constitutes part of the Monaca
Power Plant or other Equipment that is significant to the operation of the Monaca
Power Plant in the reasonable opinion of the Agent, then the Agent initially shall
apply all such Net Cash Proceeds to the outstanding Revolving Loans and will
establish an Availability Reserve in an amount equal to such Net Cash Proceeds. The
Agent agrees to reduce this Availability Reserve dollar-for-dollar as and when the
Company furnishes to the Agent receipts evidencing the purchase of replacement
Equipment or the repair of such item of Equipment. Upon the replacement or
completion of repair of such item of Equipment, the Agent will eliminate any
remaining Availability Reserve established hereunder. If such Credit Party elects
to replace or repair any item of Equipment and if such Equipment does not constitute
part of the Monaca Power Plant or is not significant to the operation of the Monaca
Power Plant in the reasonable opinion of the Agent, then the Agent agrees to apply
such Net Cash Proceeds to repay the outstanding Revolving Loans.




          (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 Agent within thirty (30) days
following the Agent’s receipt of such Net Cash Proceeds. In the case of the Monaca
Power Plant, the Agent initially shall apply all such Net Cash Proceeds to the
outstanding Revolving Loans and will establish an Availability Reserve in an amount
equal to such Net Cash Proceeds. Such Credit Party shall provide the Agent 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 the Agent, 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 Monaca
Power Plant, such Credit Party shall fund such deficiency before the Availability
Reserve established hereunder shall be reduced. The Agent agrees to reduce this
Availability Reserve dollar-for-dollar as and when the Company furnishes to the
Agent receipts evidencing payments under the contract(s) for repair. Upon
completion of the repair of the Monaca Power Plant (as determined by the Agent in
the exercise of its reasonable business judgment), the Agent will eliminate any
remaining Availability Reserve established hereunder. In the case of Real Estate



52









 






other than the Monoca Power Plant, if such Credit Party reasonably determines that
such Real Estate may be repaired to substantially the same condition of such Real
Estate prior to the condemnation, fire or other casualty and such Credit Party
elects to repair such Real Estate in the manner set forth above, then the Agent
agrees to apply such Net Cash Proceeds to repay the outstanding Revolving Loans.




          (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 Required
Lenders in their sole discretion.


If a Default or an Event of Default shall have occurred and remain outstanding as of the date of
the Agent’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 Agent may,
subject to the rights of any holder of a Permitted Encumbrance having priority over the security
interests of the Agent, apply the Net Cash Proceeds to the payment of the Obligations in such
manner and in such order as the Agent 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 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 Agent may, at its election and without curing or waiving any Event of Default
which may have occurred as a result thereof, (i) establish an Availability Reserve in the amount of
such Taxes (or such other amount as the Agent shall deem appropriate in the exercise of its
reasonable business judgment) or (ii) pay such taxes on behalf of such Credit Party, and the amount
paid by the Agent shall become an Obligation which is due and payable on demand by the Agent.




          (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 Agent determines, in the exercise of its reasonable business judgment,
will not materially and adversely effect the Agent’s or the Lenders’ 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



53









 




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 Agent 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 Agent 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-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 Agent 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 Agent promptly with copies of all such notices and other
information pertaining to any matter set forth above if the Agent so requests. In addition, the
Company shall deliver to the Agent, upon request but no more frequently than on a quarterly basis




54









 




with the submission of its financial statements required under Section 7.2(h) hereof, a
report in form and substance reasonably satisfactory to the Agent summarizing the status of the
matters described in clauses (i) and (ii) above and the status of such matters as the Agent 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 Agent 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 the
Agent’s request, a borrowing base certificate in form and substance satisfactory to the Agent,
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 Agent)
as the Agent may request. The Agent, in its sole discretion, may permit the Company to access
CIT’s System for the purpose (in addition to those set forth in Section 3.7 hereof) of
completing and submitting borrowing base certificates when required hereunder.



                    (2) On or before the last day of each month (but more frequently upon the Agent’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 month, all in such form as the Agent
shall require, certified by a Responsible Officer, together with (y) 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
Agent, and (z) if required by the Agent, such other information sufficient to allow the Agent to
update the amount of Eligible Accounts Receivable and Eligible Inventory of the Company. 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 Agent such
information within such time period.



                    (3) On or before the last day of each month (but more frequently upon the Agent’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 Agent such information within
such time period.



                    (4) Prompt written disclosure 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 the Agent 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 Agent when the Company provides the Agent with the
borrowing base certificate



55









 




described in clause (1) above. 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 Agent such information within such time period.




                    (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 Agent may reasonably require. In addition, the Credit Parties agree to furnish or
cause to be furnished to the Agent 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 Agent 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 Agent 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 loan officer and the collateral analyst of the Agent that handle such Credit Party’s
account, as designated by the Agent from time to time. If 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 Agent 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:



56









 






“Pursuant to the Financing Agreement dated as of July 15, 2005, among
Horsehead Corp. and certain of its affiliates, the Lenders that are parties
thereto and The CIT Group/Business Credit, Inc., as Agent for the Lenders
(the “Agent”), the undersigned                      [title of submitting
officer] of the [name of Credit Party] hereby delivers to the Agent
                     [describe submitted reports]. The undersigned Credit Party
represents and warrants to the Agent and the Lenders 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 Agent by means of Electronic Transmission and agrees
to furnish to the Agent such original versions within five (5) Business Days of the Agent’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 Agent 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 Agent any schedule, report, statement or other information set forth in this Section
7.2(g) shall not affect, diminish, modify or otherwise limit the Agent’s security interests in
the Collateral.



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




               (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 Agent, together with
(x) the unqualified opinion of the accountants preparing such financial statements and (y) if
requested by the Agent, such accountants’ management practice letter;



               (ii) within thirty (30) days after the end of each month, (x) a Consolidated Balance Sheet as
at the end of such month, (y) consolidated statements of profit and loss and cash flow of the
Company and its consolidated subsidiaries for such month 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
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 Contrarian pursuant to the Contrarian Transaction



57









 




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 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 Agent and the Lenders statements of
reconciliation in form and substance reasonably satisfactory to the Agent.



          (i) Asset Appraisals. From time to time upon the request of the Agent, each Credit
Party agrees to permit the Agent 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 Agent. The Company agrees
to reimburse the Agent for the reasonable costs and expenses relating to (i) up to two (2)
Inventory appraisals 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 Contrarian or the Company furnishes to the Agent a copy of a recent
appraisal of the type described in such clauses that was performed pursuant to the Contrarian
Transaction Documents, together with a reasonably satisfactory reliance letter from the appraisal
firm in favor of the Agent and Lenders, prior to the engagement of an appraisal firm selected by
the Agent to conduct a similar appraisal, and such appraisal was performed by an independent
appraisal firm reasonably satisfactory to the Agent and the form, scope and substance of such
appraisal (including, without limitation, the date of performance of such appraisal) is reasonably
satisfactory to the Agent, then the Company shall not be required to reimburse the Agent 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 Agent. To the extent that
the Company is required by this Section 7.2(i) to reimburse the Agent
for the Agent’s costs and expenses relating to appraisals, such costs and expenses shall
constitute Out-of-Pocket Expenses.




58









 





          (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 Agent’s and each 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 Agent and the Lenders all information about
such Credit Party’s ownership, officers, directors, customers and business structure as the Agent
and the Lenders 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 5.50 to 1.00
(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 1.00 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
	 	$21,396,000
	 
	 	 
	12-month period ending December 31, 2005
	 	$19,683,000
	 
	 	 
	12-month period ending March 31, 2006
	 	$17,373,000
	 
	 	 
	12-month period ending June 30, 2006
	 	$15,002,000
	 
	 	 
	12-month period ending September 30, 2006
	 	$13,568,000
	 
	 	 
	12-month period ending December 31, 2006 and
each 12-month period thereafter ending on the
last day of a fiscal quarter
	 	$13,395,000









59









 






          (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
	 	$9,400,000
	 
	 	 
	2006
	 	$9,700,000
	 
	 	 
	2007
	 	$9,500,000
	 
	 	 
	2008
	 	$9,500,000
	 
	 	 
	2009
	 	$9,500,000
	 
	 	 
	2010 and thereafter
	 	$9,500,000






          (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 shall be calculated by annualizing Consolidated Fixed Charges for such nine
(9)-month period, and (ii) without limiting any other term or provision of this Financing
Agreement, the Credit Parties shall not be required to cause the Company and its consolidated
subsidiaries to comply with the financial covenants set forth in clauses (a), (b) or (c) above
unless and until the average of Net Availability for any consecutive ten (10) day period is less
than Five Million Dollars ($5,000,000) (a “Testing Event”), in which case the Credit
Parties shall be required to cause the Company and its consolidated subsidiaries to have complied
with such financial covenants for the relevant period ended as of the last day of the prior fiscal
quarter and to comply with such financial covenants for the relevant period ending as of the last
day of the current fiscal quarter and for each relevant period thereafter; provided,
however, that if the average of Net Availability for any consecutive thirty (30) day period
thereafter is equal to or greater than Five Million Dollars ($5,000,000), then such Testing Event
shall thereafter cease to exist and the Credit Parties shall not be required to cause the Company
and its consolidated subsidiaries to comply with such financial
covenants for any relevant period ending after the last day of the fiscal quarter during which
the last day of such thirty (30) day period occurred (it being agreed for avoidance of doubt




60









 




that the Credit Parties shall be required to cause the Company and its consolidated subsidiaries to
comply with such financial covenants for the relevant period ending on the last day of such fiscal
quarter) unless and until a subsequent Testing Event occurs, in which case the Credit Parties shall
be required to cause the Company and its consolidated subsidiaries to have complied and to comply
with such financial covenants in accordance with the preceding clause (ii) so long as such
subsequent Testing Event continues (it being agreed that any Testing Event shall continue unless
and until it ceases to exist in accordance with this proviso); provided further, however,
that for avoidance of doubt, irrespective of whether a Testing Event has occurred and is
continuing, minimum Consolidated EBITDA shall be tested on an annual basis in accordance with the
definition of PP&E Component for the purpose of determining whether the PP&E Component will be
reduced.




     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. (i) 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, or (ii) without the prior written consent of the Agent, permit the
Parent to mortgage, assign, pledge, transfer 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 the capital stock of Horsehead
Intermediary, except for inchoate Permitted Tax Liens.




          (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 Agent with thirty (30) days prior written notice
thereof and such Credit Party executes and delivers to the Agent, prior to making such change, all
documents and agreements
required by the Agent in order to ensure that the liens and security interests granted to




61









 




the
Agent, for the benefit of the Lenders, 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.




          (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,
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 prepayment of the principal of, or interest on,
the Contrarian Obligations, or purchase, acquire or redeem any of the Contrarian Obligations prior
to stated due date thereof under the Contrarian Transaction Documents unless otherwise agreed by
the Agent in writing; (ii) 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 (iii) 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 Contrarian 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




62









 




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 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 Agent an officer’s certificate, in form and substance
reasonably satisfactory to the Agent, 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 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 any Revolving 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
Contrarian 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
Contrarian 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




63









 




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 reimbursement
obligations in respect of Letters of Credit which have been cash collateralized to the reasonable
satisfaction of the Agent or for which back-stop letters of credit reasonably satisfactory to the
Agent have been provided by an issuer reasonably satisfactory to the Agent) or is otherwise adverse
to the interests of the Lenders (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 Required Lenders, 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 Lenders (other than changes to the
economic terms which are a result of general market increases), without the prior written consent
of the Required Lenders.




SECTION 8 Interest, Fees and Expenses




     8.1 Interest on Revolving Loans. Interest on the outstanding principal balance of the
Revolving Loans that are Chase Bank Rate Loans shall be due and payable monthly on the first day of
each month and shall accrue at a rate per annum equal to the Applicable Margin plus the
Chase Bank Rate on the average net principal balance of such Revolving Loans at the close of each
day during the immediately preceding month, as reflected by CIT’s System. On each Revolving Loan
that is a LIBOR Loan, interest shall be due and payable on the LIBOR Interest Payment Date and
shall accrue at a rate per annum equal to the Applicable Margin plus the applicable LIBOR
on the outstanding principal balance of such LIBOR Loan. In the event of any change in said Chase
Bank Rate, the rate set forth in the first sentence of this Section 8.1(a) shall change,
effective as of the date of such change, so as to remain equal to the Applicable Margin
plus the new Chase Bank Rate. All interest, the Line of Credit Fee and the Letter of
Credit Guaranty Fee shall be calculated based on a 360-day year and actual days elapsed except that
interest on Revolving Loans that are Chase Bank Rate Loans shall be calculated based on a
365/366-day year and actual days elapsed.



     8.2 Default Interest Rate. Upon the occurrence of an Event of Default, (a)
provided that the Agent has given the Company written notice of such Event of Default
(other than an Event of Default described in Section 10.1(c) of this Financing Agreement,
for which no written notice shall be required), all Obligations shall bear interest at the Default
Rate of Interest until such Event of Default is waived, and (b) at the Agent’s or the Required
Lenders’ election at any time thereafter, interest on each outstanding LIBOR Loan shall be due and
payable on the first day of each month, notwithstanding the Interest Period with respect thereto.



     8.3 Fees and Expenses Relating to Letters of Credit.



          (a) Letter of Credit Guaranty Fee. In consideration for the issuance of any Letter of
Credit Guaranty by the Agent or other assistance of the Agent and the Lenders in obtaining Letters
of Credit pursuant to Section 5 hereof, the Company agrees to pay to the Agent, for the
ratable benefit of the Lenders, a Letter of Credit Guaranty Fee equal to Applicable Margin per
annum on the undrawn face amount of each Letter of Credit. All Letter of Credit Guaranty Fees
shall be due and payable monthly on the first day of each month.




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          (b) Charges of Issuing Bank. The Company agrees to reimburse the Agent for any and
all charges, fees, commissions, costs and expenses charged to the Agent for the Company’s
account by an Issuing Bank in connection with, or arising out of, Letters of Credit or out of
transactions relating thereto, when charged to or paid by the Agent, or as may be due upon any
termination of this Financing Agreement.




     8.4 Out-of Pocket Expenses. The Company agrees to reimburse the Agent and the Lenders
for all Out-of-Pocket Expenses when charged to or paid by the Agent or the Lenders.



     8.5 Line of Credit Fee; Collection Days. On the first day of each month, commencing
on August 1, 2005, (a) the Company agrees to pay to the Agent, for the ratable benefit of the
Lenders, the Line of Credit Fee, and (b) the Agent shall charge the Company for interest at the
Chase Bank Rate (or the rate set forth in Section 8.2, if applicable) hereof on the
Collection Days for the immediately preceding month.



     8.6 Loan Facility Fee; Application of Deposits and Commitment Fee. To induce the
Agent and the Lenders to enter into this Financing Agreement and to extend to the Company the
Revolving Line of Credit, the Company agrees to pay to the Agent, for the ratable benefit of the
Lenders, a Loan Facility Fee in the amount of Four Hundred Fifty Thousand Dollars ($450,000), which
shall be fully earned on the Closing Date. On the Closing Date, the Agent shall charge the
Revolving Loan Account for an amount equal to the balance of the Loan Facility Fee (less any unused
due diligence deposit).



     8.7 Administrative Management Fee. On the Closing Date and on the first day of each
month thereafter, the Company agrees to pay to the Agent, for its own account, the Administrative
Management Fee, which shall be fully earned when paid.



     8.8 Standard Operational Fees. In addition to the Administrative Management Fee and
all Out-of-Pocket Expenses incurred by the Agent in connection with any action taken under
Section 7.2(a) hereof (but without duplication), the Company agrees to pay to the Agent,
for its own account, (a) all Documentation Fees, provided that the Company shall not be
required to pay the Agent for both Documentation Fees and the Agent’s outside counsel fees and
expenses incurred in connection with the performance of the same or substantially identical tasks,
(b) the Agent’s standard charges for any employee of the Agent used to conduct any of the
examinations, verifications, inspections, physical counts and other valuations described in
Section 7.2(a) hereof (currently $850 per person, per day), and (c) the Agent’s standard
charges for each wire transfer made by the Agent to or for the benefit of the Company (currently
$30) and for Dunn and Bradstreet searches conducted by the Agent for the Company’s account
(currently $65), provided that such standard charges may be increased by the Agent from
time to time. Such charges shall be due and payable in accordance with the Agent’s standard
practices, as in effect from time to time.



     8.9 LIBOR Loans.



          (a) Conditions Applicable to LIBOR Loans. The Company may elect to use LIBOR as to
any Revolving Loans, convert any Chase Bank Rate Loan to a new LIBOR Loan or




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continue any existing LIBOR Loan as a new LIBOR Loan on the last day of the Interest Period with respect to such existing
LIBOR Loan, so long as:




               (i) no Event of Default shall have occurred and remain outstanding on the date on which such
new LIBOR Loan is requested and on the first day of the Interest Period for such new LIBOR Loan;



               (ii) the Company requests the new LIBOR Loan no later than three (3) Business Days preceding
the first day of the Interest Period for such new LIBOR Loan (or three (3) Business Days prior to
the expiration of any Interest Period, in the case of a continuation of an existing LIBOR Loan);



               (iii) if the Agent requests written confirmation of any new LIBOR Loan from the Company, the
Company shall have signed and returned to the Agent any such confirmation on or prior to first day
of the Interest Period for such new LIBOR Loan; and



               (iv) with respect to the Interest Period selected by the Company for such new LIBOR Loan, (x)
either (1) JPMorgan Chase Bank, N.A. provides a LIBOR quote for such Interest Period or the Agent
otherwise determines the LIBOR for such Interest Period, as provided in the definition of LIBOR, or
(2) the LIBOR for such Interest Period as quoted by JPMorgan Chase Bank, N.A. or as determined by
the Agent adequately and fairly reflects the cost of maintaining or funding the Lenders’ loans
bearing interest at LIBOR for such Interest Period, and (y) such Interest Period ends on or before
the Termination Date.


Any LIBOR election must be for at least One Million Dollars ($1,000,000) and if greater, in
integral multiples of Five Hundred Thousand Dollars ($500,000), and there shall be no more than
five (5) LIBOR Loans outstanding at one time. Elections for LIBOR Loans shall be irrevocable once
made. If any condition for a LIBOR election is not satisfied, then the requested new loan (or
continuation of an existing LIBOR Loan) shall be made to the Company as a Chase Bank Rate Loan.




          (b) Restrictions Affecting the Making or Funding of LIBOR Loans. Notwithstanding any
other provision of this Financing Agreement to the contrary, if any law, regulation, treaty or
directive, or any amendment thereto or change in the interpretation or application thereof, shall
make it unlawful for any Lender to make or maintain any LIBOR Loan, then (x) such LIBOR Loan shall
convert automatically to a Chase Bank Rate Loan at the end of the applicable Interest Period, or
such earlier date as may be required by such law, regulation, treaty or directive, and (y) the
obligation of such Lender thereafter to make or continue LIBOR Loans and to convert Chase Bank Rate
Loans into LIBOR Loans hereunder shall be suspended until such Lender determines that it is no
longer unlawful for any Lender to make and maintain LIBOR Loans as contemplated herein. In
addition, in the event that, by reason of any Regulatory Change, any Lender either (x) incurs any
material additional costs based on or measured by the excess above a specified level of the amount
of a category of deposits or other liabilities of such Lender which includes deposits by reference
to which the interest rate on LIBOR Loans is determined hereunder, or a category of extensions of
credit or other assets of such Lender which includes LIBOR Loans, or (y) becomes subject to any
material restrictions on the amount of such a category of liabilities or assets which such Lender
may hold, then if the Agent so elects by notice to the Company, the obligations




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of the Agent and
the Lenders thereafter to make or continue LIBOR Loans and to convert Chase Bank Rate Loans into
LIBOR Loans hereunder shall be suspended until such Regulatory Change ceases to
be in effect. The Agent or the affected Lender shall promptly deliver a certified notice of
such change to the Company.




          (c) Inability to Determine LIBOR. Notwithstanding any other provision of this
Financing Agreement to the contrary, if the Agent determines in the exercise of its reasonable
business judgment (which determination shall be conclusive and binding upon the Company) that by
reason of circumstances affecting the interbank LIBOR market, adequate and reasonable means do not
exist for ascertaining LIBOR applicable to an Interest Period with respect to any election of a new
LIBOR Loan, the Agent shall give written notice of such determination to the Company prior to the
effective date of such election. Upon receipt of such notice, the Company may cancel the Company’s
request for such new LIBOR Loan, in which case the requested LIBOR Loan shall be made as a Chase
Bank Rate Loan. Until such notice has been withdrawn by the Agent, the obligations of the Agent
and the Lenders thereafter to make or continue LIBOR Loans and to convert Chase Bank Rate Loans
into LIBOR Loans hereunder shall be suspended until the Agent determines that adequate and
reasonable means again exist for ascertaining LIBOR applicable to an Interest Period with respect
to any election of a new LIBOR Loan.




          (d) Compensation for Costs. The Company hereby agrees to pay to the Agent, for the
benefit of the Lenders, on demand, any additional amounts necessary to compensate the Lenders for
any costs incurred by the Lenders in making any conversions from LIBOR Loans to Chase Bank Rate
Loans in accordance with this Section 8.9, including, without limitation, breakage costs
provided for in Section 8.10 of this Financing Agreement upon receiving a statement of such
costs from the Agent.




          (e) Loan Participants. For purposes of this Section 8.9, 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.




     8.10 LIBOR Breakage Costs and Fees. In the event that the Company (i) pays all or any
part of the principal amount of a LIBOR Loan on a date prior to the last day of an Interest Period
for such LIBOR Loan, (ii) fails to borrow a LIBOR Loan, or fails to convert a Chase Bank Rate Loan
to a LIBOR Loan, on the date for such borrowing or conversion specified in the relevant request to
the Agent, or (iii) fails to pay to the Agent the principal of, or interest on, any LIBOR Loan when
due, the Company agrees to pay to the Agent and each Lender (without duplication), on demand, the
greater of (x) Five Hundred Dollars ($500), (y) such amount as shall compensate the Agent or any
Lender for any actual loss, cost or expense that the Agent or any Lender may sustain or incur as a
result of such event (including, without limitation, any interest or fees payable by the Agent or
any Lender to lenders or depositors of funds obtained by the Agent or any Lender in order to make
or maintain any LIBOR Loans under this Financing Agreement), and (z) in the case of a prepayment of
any LIBOR Loan, the excess (if any) of the amount of interest that would have accrued on such loan
from the first day of the Interest Period to the date of prepayment, assuming that such loan was a
Chase Bank Rate Loan, over the amount of interest that actually accrued on such loan from the first
day of the Interest Period to the date of prepayment. The determination by the Agent or any Lender
of the amount of any such loss, cost or expense described in clause (y) of the preceding sentence,



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when set forth in a certification to the Company containing the Agent’s or any Lender’s
calculations thereof in reasonable detail, shall be conclusive and binding upon the Company, in the absence
of manifest error.




     8.11 Early Termination Fee and Prepayment Premium. In the event the Company
terminates the Revolving Line of Credit or this Financing Agreement on an Early Termination Date,
the Early Termination Fee shall be due and payable in full on such Early Termination Date;
provided, however, that if the Company terminates the Revolving Line of Credit or this
Financing Agreement on an Early Termination Date upon the occurrence of a Change of Control or upon
the sale of all or substantially all of the Company’s assets to one or more persons other than Sun
Capital or any affiliates thereof, then no Early Termination Fee shall be payable so long as (i) no
Default or Event of Default then exists (other than an Event of Default resulting from such Change
of Control or sale), and (ii) and all Obligations are paid in full in immediately available funds
on such Early Termination Date.



     8.12 Capital Adequacy. In the event that any 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 such 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 such Lender’s capital as a consequence of its obligations hereunder to a level below that
which such Lender could have achieved but for such change or compliance (taking into consideration
such Lender’s policies with respect to capital adequacy) by an amount deemed material by such
Lender in the exercise of its reasonable business judgment, the Company agrees to pay to such
Lender, no later than five (5) days following written demand by such Lender (including a statement
and explanation of such charges), such additional amount or amounts as will compensate such Lender
for such reduction in rate of return. In determining such amount or amounts, such Lender may use
any reasonable averaging or attribution methods. The protection of this Section 8.12
shall be available to any Lender regardless of any possible contention of invalidity or
inapplicability with respect to the applicable law, regulation or condition. A certificate of a
Lender setting forth such amount or amounts as shall be necessary to compensate such Lender with
respect to this Section 8.12 and the calculation thereof, when delivered to the Company,
shall be conclusive and binding on the Company absent manifest error. In the event a Lender
exercises its rights pursuant to this Section 8.12, and subsequent thereto determines that
the amounts paid by the Company exceeded the amount which such Lender actually required to
compensate such Lender for any reduction in rate of return on its capital, such excess shall be
returned to the Company by such Lender.



     8.13 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 any 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 such Lender to any tax of any kind whatsoever with respect to this Financing
Agreement or change the basis of taxation of payments to such Lender of principal, fees, interest
or any other amount payable hereunder or under any other Loan Document (except for




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changes in the rate of tax on the overall net income of such 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 such 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 such Lender of making,
renewing or maintaining such Lender’s loans hereunder by an amount deemed material by such Lender
in the exercise of their 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 such Lender deems to be material in the exercise of its reasonable business judgment
(except reductions for taxes imposed on or measured by such 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 such Lender, no later than five (5) days
following demand by such Lender, such additional amount or amounts as will compensate such Lender
for such increase in cost or reduction in payment, as the case may be. A certificate of any Lender
setting forth such amount or amounts as shall be necessary to compensate such Lender with respect
to this Section 8.13 and the calculation thereof, when delivered to the Company, shall be
conclusive and binding on the Company absent manifest error. In the event any Lender exercises its
rights pursuant to this Section 8.13, and subsequent thereto determines that the amounts
paid by the Company in whole or in part exceeded the amount which such Lender actually required to
compensate such Lender for any increase in cost or reduction in payment, such excess shall be
returned to the Company by such Lender.




     8.14 Authority to Charge Revolving Loan Account. The Company hereby authorizes the
Agent to charge the Revolving Loan Account with the amount of all payments due under this
Section 8 as such payments become due. Any amount charged to the Revolving Loan Account
shall be deemed a Chase Bank Rate Loan hereunder and shall bear interest at the rate provided in
Section 8.1 (or Section 8.2, if applicable) of this Financing Agreement. The
Company confirms that any charges which the Agent may make to the Revolving Loan Account as
provided herein will be made as an accommodation to the Company and solely at the Agent’s
discretion.



     8.15 Tax Withholding. At the reasonable request of any Credit Party, any Lender that
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 (with a copy to the Agent), at the time or times prescribed by applicable law or reasonably
requested by the Credit Party or the Agent, 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, any Lender, if requested by a Credit Party or the Agent,
shall promptly



69









 




deliver such other documentation prescribed by applicable law or reasonably
requested by the Credit Party or Agent as will enable the Credit Party or the Agent to determine whether or not such
Lender is subject to backup withholding or information reporting requirements.




     8.16 Replacement of Lenders. If the Company is required to pay any additional amount
to any Lender or any governmental authority for the account of any Lender pursuant to Sections
8.12 or 8.13, or if any Lender is a Defaulting Lender, then the Company may, at its
sole expense and effort, upon notice to such Lender and the Agent, require such Lender to assign
and delegate, without recourse (in accordance with and subject to the restrictions contained in,
and consents required by, Section 13.4(b) hereof), all of its interests, rights and
obligations under this Financing Agreement and the related Loan Documents to an assignee that shall
assume such obligations (which assignee may be another Lender, if a Lender accepts such
assignment), provided that:



          (a) the Company or such assignee shall have paid to the Agent, on behalf of such Lender, the
assignment fee specified in Section 13.4(b) hereof;




          (b) such Lender shall have received payment of an amount equal to the outstanding principal of
its Revolving Loans and participations in Letter of Credit disbursements, accrued interest thereon,
accrued fees and all other amounts payable to it hereunder and under the other Loan Documents
(including any amounts under Sections 8.12 or 8.13 hereof) from the assignee (to
the extent of such outstanding principal and disbursements and accrued interest and fees) or the
Borrower (in the case of all other amounts);




          (c) in the case of any such assignment resulting from payments required to be made pursuant to
Sections 8.12 or 8.13 hereof, such assignment will result in a reduction in such
compensation or payments thereafter; and




          (d) such assignment does not conflict with applicable law.




     A Lender shall not be required to make any such assignment or delegation if, prior thereto, as
a result of a waiver by such Lender or otherwise, the circumstances entitling the Company to
require such assignment and delegation cease to apply.



SECTION 9 Powers




     9.1 Authority. Each Credit Party hereby authorizes the Agent, or any person or agent
which the Agent 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 or reimbursement obligations in respect of
Letters of Credit which have been cash collateralized to the reasonable satisfaction of the Agent
or for which back-stop letters of credit reasonably satisfactory to the Agent have been provided by
an issuer reasonably satisfactory to the Agent):



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          (a) To receive, take, endorse, sign, assign and deliver, all in the name of the Agent 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 Agent may
designate;




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




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




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




     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;




71









 





          (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 Agent’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 3.2, 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 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 within five (5) Business Days of
the due date thereof, provided that nothing contained herein shall prohibit the Agent from
charging such amounts to the Revolving Loan Account on the due date thereof in accordance with
Sections 3.3, 5.2 or 8.14 of this Financing Agreement;




          (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 Agent’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;




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          (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 Contrarian 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 Thousand Dollars ($500,000), or (ii) fails to observe or perform any other agreement or
condition relating to the Contrarian Obligations, the Subordinated Debt, the Bond Obligations or
any such 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 Thousand Dollars ($500,000) in the aggregate;




          (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) Contrarian or any other person (other than the Agent or any 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 Outstanding Loans. Upon the occurrence and during the
continuance of a Default or an Event of Default, at the option of the Agent or the Required
Lenders, all loans, advances and extensions of credit provided for in Sections 3 and
5 of this Financing Agreement thereafter shall be made in the Agent’s and the Lenders’
discretion, and the obligation of the Agent and the Lenders to make Revolving Loans, and to assist
the Company in opening Letters of Credit, shall cease unless such Default is cured to the
satisfaction of the Required Lenders or such Event of Default is waived in accordance herewith. In
addition, upon the occurrence and during the continuance of an Event of Default, the Agent may, at
its option, and the Agent shall, upon the request of the Required Lenders, (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



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Agreement, provided that the Agent 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. Notwithstanding the
foregoing, (x) the Agent’s and the Lenders’ commitments to make loans, advances and extensions of
credit provided for in Sections 3 and 5 of this Financing Agreement automatically
shall terminate without any declaration, notice or demand by the Agent or the Lenders upon the
commencement of any proceeding described in clause (ii) of Section 10.1(c), and (y) this
Financing Agreement automatically shall terminate and all Obligations shall become due and
payable immediately without any declaration, notice or demand by the Agent or the Lenders, 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 Agent or the
Lenders.




     10.3 Remedies With Respect to Collateral. Upon the occurrence and during the
continuance of an Event of Default, the Agent may, at its option, and the Agent shall, upon the
request of the Required Lenders, to the extent permitted by applicable law: (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 Agent 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, the Lenders
or the Agent on behalf of the Lenders, 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 Agent; (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 Agent’s sole option and
discretion, and the Agent, on behalf of the Lenders, 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 Agent’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 and during the continuance of an Event of Default, the
Agent 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 Agent, on behalf of the Lenders, or in the name
of such other party as the Agent 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 Agent in its sole discretion may deem advisable, and
the Agent shall have the right to purchase at any such sale on behalf of the Lenders. Upon the
occurrence and during the continuance of an Event of Default, if any Inventory and Equipment shall
require rebuilding, repairing, maintenance or




74









 




preparation, the Agent 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 Agent shall deem appropriate. Upon the occurrence and
during the continuance of an Event of Default, each Credit Party agrees, at the request of the
Agent, to assemble the Inventory and Equipment, and to make it available to the Agent at premises
of such Credit Party or elsewhere and to make available to the Agent the premises and facilities of
such Credit Party for the purpose of the Agent’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 Agent’s exercise of any of the foregoing rights (after deducting all
Out-of-Pocket Expenses relating thereto) shall be applied by the Agent 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 Agent and the Lenders for any deficiencies, and the
Agent 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 Agent or the Lenders under applicable law or the other Loan
Documents, all of which shall be cumulative.




          10.4 Application of Proceeds. The Agent agrees to apply the net cash proceeds
resulting from the Agent’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 principal of and interest on Overadvances made by the Agent in order
to preserve, protect and/or realize upon the Collateral;



               (b) second, to all unpaid Out of Pocket Expenses;



               (c) third, to all accrued and unpaid fees owed to the Agent and the Lenders;



               (d) fourth, to accrued and unpaid interest on the Obligations; and



               (e) fifth, to the unpaid principal amount of the Obligations.



          10.5 General Indemnity. In addition to the Company’s agreement to reimburse the Agent
and the Lenders for Out-of-Pocket Expenses, but without duplication, each Credit Party hereby
jointly and severally agrees to indemnify the Agent and the Lenders, and each of their respective
officers, directors, employees, 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:



               (a) as a result of the Agent’s or the Lenders, exercise of (or failure to exercise) any of
their 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 Agent’s interests in the Collateral
(including the



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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. The
Agent may from time to time establish Availability Reserves with respect to this indemnity as the
Agent may deem advisable in the exercise of its reasonable business judgment.




SECTION 11 Termination




          Except as otherwise provided in Section 10.2 hereof, the Required Lenders (acting
through the Agent) may terminate this Financing Agreement and the Revolving Line of Credit only as
of the Termination Date. The Company may terminate this Financing Agreement at any time prior to
the Termination Date upon thirty (30) days prior written notice to the Agent, provided that
the Company pays to the Agent, for the benefit of the Lenders, any Early Termination Fee due and
payable hereunder on the date of termination, if applicable. All Obligations shall become due and
payable in full on the date of any termination hereunder and, pending a final accounting of the
Obligations, the Agent may withhold any credit balances in the Revolving Loan Account (unless
supplied with an indemnity satisfactory to the Agent) as a cash reserve to cover any contingent
Obligation then outstanding, including, but not limited to, an amount equal to one hundred five
(105%) of the face amount of any outstanding Letters of Credit. All of the Agent’s and the
Lenders’ 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 or
reimbursement obligations in respect of Letters of Credit which have been cash collateralized to
the reasonable satisfaction of the Agent or for which back-stop letters of credit reasonably
satisfactory to the Agent have been provided by an issuer reasonably satisfactory to the Agent).




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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 Required Lenders. No delay or failure
of the Agent or the Lenders 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 Agent or the Lenders any 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, the Agent and/or the
Lenders; (b) supersede any prior agreements; (c) subject to the provisions of Section 14.10
hereof that relate to matters subject to the approval of all Lenders, may be amended only by a
writing signed by the Credit Parties and the Required Lenders; and (d) shall bind and benefit the
Credit Parties, the Agent, the Lenders 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 Agent 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 Agent and the Lenders 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 Agent
or the Lenders ever receive, collect or apply 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, THE AGENT AND THE
LENDERS 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 AGENT OR THE



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LENDERS
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) 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 Agent, at:
	 
	 	 
	 

	 	The CIT Group/Business Credit, Inc.
	 

	 	1211 Avenue of the Americas
	 

	 	New York, NY 10036
	 

	 	Attn: Regional Credit Manager
	 

	 	Telecopier No.: (212) 536-1295;
	 
	 	 
	(b)

	 	with a copy to:
	 
	 	 
	 

	 	Blank Rome LLP
	 

	 	The Chrysler Building
	 

	 	405 Lexington Avenue
	 

	 	New York, NY 10174-0208
	 

	 	Attn: Robert Stein, Esquire
	 

	 	Telecopier No. (212) 885-5001
	 
	 	 
	(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;
	 
	 	 






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	(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 any 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



               (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 Agent or any 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 Lenders




          13.1 Copies of Statements and Financial Information. The Agent shall forward to
each Lender a copy of the monthly loan account statement delivered by the Agent to the Company. In
addition, the Agent agrees to provide the Lenders with copies of all financial statements,



79









 







projections and business plans of the Company and its consolidated subsidiaries that the Agent
receives from the Company or its advisors from time to time, without any duty to confirm or verify
that such information is true, correct or complete.



          13.2 Payments of Principal, Interest and Fees. After the Agent’s receipt of, or
charging of, any interest and fees earned under this Financing Agreement, the Agent agrees to remit
promptly to the Lenders their respective Pro Rata Percentages of:



               (a) fees payable by the Company hereunder, provided that (i) the Lenders shall not
share the Administrative Management Fee, the Documentation Fees or the other fees set forth in
Section 8.8 of this Financing Agreement, and (ii) the Lenders shall share in the Loan
Facility Fee in accordance with their respective agreements with the Agent; and



               (b) interest paid on the outstanding principal amount of Revolving Loans, calculated based on
the outstanding amount of Revolving Loans advanced by each of the Lenders as of each Settlement
Date during the period for which interest is paid provided that the Lenders shall not share
in any interest charged pursuant to Section 8.5(b) hereto.



          13.3 Defaulting Lender. In the event that any Lender (such Lender, a “Defaulting
Lender”) fails to make available to the Agent such Lender’s Pro Rata Percentage of any
borrowing by the Company on the Settlement Date in accordance with the provisions of Section
3.1(d) hereof, and the Company does not repay to the Agent such Lender’s Pro Rata Percentage of
the borrowing within three (3) Business Days of such borrowing, the Agent shall have the right to
recover such Defaulting Lender’s Pro Rata Percentage of the borrowing directly from such Defaulting
Lender, together with interest thereon from the date of the borrowing at the rate per annum
applicable to such borrowing. In addition, until the Agent recovers such amount, (x) such
Defaulting Lender shall not be entitled to receive any payments under Section 13.2 hereof,
and (y) for purposes of voting on or consenting to other matters with respect to this Financing
Agreement or the other Loan Documents, such Defaulting Lender’s Commitment shall be deemed to be
zero and such Defaulting Lender shall not be considered to be a Lender.



          13.4 Participations and Assignments.



               (a) Participations. The Lenders 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 Lenders may grant to participants certain rights to consent to waivers,
amendments and other actions with respect to this Financing Agreement, provided that the
consent of any participant shall be limited solely to matters as to which all Lenders must consent
under Sections 14.10(a), (c) and (d) hereof. 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 a Lender, such Lender shall remain solely responsible to the other
parties hereto for the performance of such Lender’s obligations hereunder, and the Company, the
Agent and the other Lenders may continue to deal solely with such Lender with respect to all
matters relating to this Financing Agreement and the transactions contemplated hereby. In
addition, all amounts payable



80









 







under this Financing Agreement to a Lender which sells a
participation in accordance with this paragraph shall continue to be paid directly to such Lender.



               (b) Assignments. Any Lender that is a party hereto as of the Closing Date 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 contemplated syndication of the Commitments, provided that (i) the
principal amount of loans assigned to any one institution shall not be less than Five Million
Dollars ($5,000,000), and (ii) if no Default or Event of Default exists at the time of such
assignment, such Lender shall have obtained the prior written consent of the Company (which consent
shall not unreasonably be withheld, conditioned or delayed). Under any other circumstances, with
the prior written consent of the Agent (which consent shall not unreasonably be withheld,
conditioned or delayed) and, if no Default or Event of Default exists at the time of such
assignment, the prior written consent of the Company (which consent shall not unreasonably be
withheld, conditioned or delayed), any Lender may assign all
or any portion of its rights and obligations under this Financing Agreement to a commercial
bank, commercial finance lender or other financial institution, provided that (i) the
principal amount of loans assigned to any one institution shall not be less than Five Million
Dollars ($5,000,000), and (ii) the assigning Lender shall pay to the Agent an assignment processing
and recording fee of One Thousand Dollars ($1,000) for the Agent’s own account. Each assignment of
a Commitment 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 Sections 8.13 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, Sections
8.16 and 13.4 hereof), neither Sun Capital nor any of its affiliates, partners,
employees, directors, members or consultants may be a participant or an assignee Lender, except
that any such person may be a participant if approved by the Agent in writing.



               (c) Intentionally Deleted.



               (d) 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 a Commitment made pursuant to an Assignment and Transfer Agreement,
(ii) make such Credit Party’s management available to meet with the Agent and prospective
participants and assignees of Commitments and (iii) assist the Agent or the Lenders in the
preparation of information relating to the financial affairs of the Company and its consolidated
subsidiaries as any prospective participant or assignee of a Commitment reasonably may request.
Subject to the provisions of Section 13.7, each Credit Party authorizes each Lender to
disclose to any prospective participant or assignee of a Commitment, any and all information in
such Lender’s



81









 







possession concerning such Credit Party and its financial affairs which has been
delivered to such Lender by or on behalf of such Credit Party pursuant to this Financing Agreement,
or which has been delivered to such Lender by or on behalf of such Credit Party in connection with
such Lender’s credit evaluation of such Credit Party prior to entering into this Financing
Agreement.



          13.5 Sharing of Liabilities. In the event that the Agent, the Lenders or any one of
them is sued or threatened with a suit, action or claim by any Credit Party or by a creditor,
committee of creditors, trustee, receiver, liquidator, custodian, administrator or other similar
official acting for or on behalf of such Credit Party, on account of (a) any preference, fraudulent
conveyance or other voidable transfer alleged to have occurred or been received as a result of the
operation of this Financing Agreement or the transactions contemplated hereby, or (b) any lender
liability theory based on any action taken or not taken by such person in connection with this
Financing Agreement or the transactions contemplated hereby, any money paid in satisfaction or
compromise of such suit, action, claim or demand, and any expenses, costs and attorneys’ fees paid
or incurred in connection therewith (whether by the Agent, the Lenders or any one of them), shall
be shared proportionately by the Lenders according to their respective Pro Rata Percentages, except
to the extent that such person’s
own gross negligence or willful misconduct directly gave rise to such suit, action or claim.
In addition, any costs, expenses, fees or disbursements incurred by agents or attorneys retained by
the Agent to effect collection of the Obligations or enforcement of any rights in the Collateral,
including enforcing, preserving or maintaining rights under this Financing Agreement, shall be
shared among the Lenders according to their respective Pro Rata Percentages to the extent not
reimbursed by the Credit Parties or from the proceeds of Collateral. The provisions of this
Section 13.5 shall not apply to any suits, actions, proceedings or claims that (a) are
filed or asserted prior to the Closing Date or (b) are based on transactions, actions or omissions
occurring prior to the date of this Financing Agreement.



          13.6 Exercise of Setoff Rights. Each Credit Party authorizes each Lender, and each
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 such Lender, any of the Obligations owed to such Lender.
Promptly after the exercise of any right to set off, the Lender exercising such right irrevocably
agrees to purchase for cash (and the other Lenders irrevocably agree to sell) participation
interests in each other Lender’s outstanding Revolving Loans as would be necessary to cause such
Lender to share the amount of the property set off with the other Lenders based on each Lender’s
Pro Rata Percentage. Such Credit Party agrees, to the fullest extent permitted by law, that any
Lender also may exercise its right to set off with respect to amounts in excess of such Lender’s
Pro Rata Percentage of the Obligations then outstanding, and may purchase participation interests
in the amounts so set off from the other Lenders, and upon doing so shall deliver such excess to
Agent, for distribution to the other Lenders in settlement of the participation purchases described
above in this Section 13.6.



          13.7 Confidentiality. For the purposes of this Section 13.7,
“Confidential Information” means all financial projections and all other information
delivered to the Agent or any 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



82









 







Credit Party, provided that such term
does not include information that (a) was publicly known or otherwise known to the Agent or any of
the Lenders prior to the time of such disclosure, (b) subsequently becomes publicly known through
no act or omission by the Agent or the Lenders or any person acting on their behalf, (c) otherwise
becomes known to the Agent or the Lenders 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 Agent and the Lenders and their respective directors, officers, employees,
agents, attorneys and affiliates will maintain the confidentiality of such Confidential Information
in accordance with commercially reasonable procedures adopted by the Agent and the Lenders in good
faith to protect confidential information of third parties delivered to them, provided that
the Agent and the Lenders may deliver or disclose Confidential Information to:



               (a) their respective directors, officers, employees, agents, attorneys and affiliates (to the
extent such disclosure reasonably relates to the administration of the Revolving Line of Credit);



               (b) 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 13.7;



               (c) any other Lender;



               (d) a commercial bank, commercial finance lender or other financial institution to which the
Agent or a Lender sells or offers to sell a portion of their 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
13.7; or



               (e) 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 Agent or a Lender is a party or (iv) if an
Event of Default shall have occurred and remain outstanding, to the extent the Agent 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 13.7.




SECTION 14 Agency




          14.1 Appointment of Agent; Powers. Each Lender hereby irrevocably designates and
appoints CIT to act as the Agent for such Lender under this Financing Agreement and the other Loan
Documents, and irrevocably authorizes CIT, as Agent for such Lender, to take such action on its
behalf under the provisions of this Financing Agreement and the other Loan Documents, and to



83









 







exercise such powers and perform such duties as are expressly delegated to the Agent by the terms
of this Financing Agreement and the other Loan Documents, together with such other powers as are
reasonably incidental thereto. In performing its functions under this Financing Agreement, the
Agent is acting solely as an agent of the Lenders, and the Agent does not assume, and shall not be
deemed to have assumed, an agency or other fiduciary relationship with any Credit Party. The Agent
shall not have any (a) duty, responsibility, obligation or liability to any Lender, except for
those duties, responsibilities, obligations and liabilities expressly set forth in this Financing
Agreement, or (b) fiduciary relationship with any Lender, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this Financing Agreement or
the other Loan Documents, or otherwise exist against the Agent. No Lender that also is designated
as a “Documentation Agent” , “Lead Arranger” or “Syndication Agent” hereunder shall have any right,
power, duty, responsibility, obligation or liability under this Financing Agreement or any of the
other Loan Documents, except for the rights, powers, duties, responsibilities, obligations and
liabilities of a Lender hereunder.



          14.2 Delegation of Agent’s Duties. The Agent may execute any of its duties under
this Financing Agreement and all ancillary documents by or through agents or attorneys, and shall
be entitled to the advice of counsel concerning all matters pertaining to such duties.



          14.3 Disclaimer of Agent’s Liabilities. Neither the Agent nor any of its officers,
directors, employees, agents, or attorneys shall be liable to any Lender for any action lawfully
taken or
not taken by the Agent or such person under or in connection with the Financing Agreement and
the other Loan Documents (except for the Agent’s or such person’s gross negligence or willful
misconduct). Without limiting the generality of the foregoing, the Agent shall not be liable to
the Lenders for (i) any recital, statement, representation or warranty made by any Credit Party or
any officer thereof contained in (x) this Financing Agreement, (y) any other Loan Document or (z)
any certificate, report, audit, statement or other document referred to or provided for in this
Financing Agreement or received by the Agent under or in connection with this Financing Agreement,
(ii) the value, validity, effectiveness, enforceability or sufficiency of this Financing Agreement,
the other Loan Documents or the Agent’s security interests in the Collateral, (iii) any failure of
any Credit Party to perform its obligations under this Financing Agreement and the other Loan
Documents, (iv) any loss or depreciation in the value of, delay in collecting the Proceeds of, or
failure to realize on, any Collateral, (v) the Agent’s delay in the collection of the Obligations
or enforcing the Agent’s rights against any Credit Party, or the granting of indulgences or
extensions to any Credit Party or any account debtor of such Credit Party, or (vi) for any mistake,
omission or error in judgment in passing upon or accepting any Collateral. In addition, the Agent
shall have no duty or responsibility to ascertain or to inquire as to the observance or performance
of any of the terms, conditions, covenants or other agreements of any Credit Party contained in
this Financing Agreement or the other Loan Documents, or to inspect, verify, examine or audit the
assets, books or records of such Credit Party at any time.



          14.4 Reliance and Action by Agent. The Agent shall be entitled to rely, and shall be
fully protected in relying, upon legal counsel, independent public accountants and experts selected
by Agent, and shall not be liable to the Lenders for any action taken or not taken in good faith
based upon the advise of such counsel, accountants or experts. In addition, the Agent shall be
entitled to rely, and shall be fully protected in relying, upon any note, writing, resolution,
notice, consent,



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certificate, affidavit, letter, telecopy, telex or teletype message, statement,
order or other document believed by the Agent in good faith to be genuine and correct, and to have
been signed, sent or made by the proper person or persons. The Agent shall be fully justified in
taking or refusing to take any action under this Financing Agreement and the other Loan Documents
unless the Agent (a) receives the advice or consent of the Lenders or the Required Lenders, as the
case may be, in a manner that the Agent deems appropriate, or (b) is indemnified by the Lenders to
the Agent’s satisfaction against any and all liability, cost and expense which may be incurred by
the Agent by reason of taking or refusing to take any such action. The Agent shall in all cases be
fully protected in acting, or in refraining from acting, under this Financing Agreement and the
other Loan Documents in accordance with a request of all Lenders or the Required Lenders, as the
case may be, and such request and any action taken or failure to act pursuant thereto shall be
binding upon all Lenders.



          14.5 Events of Default. The Agent shall not be deemed to have knowledge or notice of
the occurrence of any Default or Event of Default hereunder unless the Agent has received notice
from the Company or a Lender describing such Default or Event of Default with specificity. In the
event that the Agent receives such a notice, the Agent shall promptly give notice thereof to all
Lenders. The Agent shall take such action with respect to such Default or Event of Default as
shall be reasonably directed by the Lenders or Required Lenders, as the case may be,
provided that (a) if appropriate, the Agent may require indemnification from the Lenders
under Section 14.4 prior to taking such action, (b) under no circumstances shall the Agent
have an obligation to take any action that the Agent believes in good faith would violate any law
or any provision of this Financing
Agreement or the other Loan Documents, and (c) unless and until the Agent shall have received
direction from the Lenders or Required Lenders, as the case may be, the Agent may (but shall not be
obligated to) take such action or refrain from taking action with respect to such Default or Event
of Default as the Agent shall deem advisable and in the best interests of the Lenders.



          14.6 Lenders’ Due Diligence. Each Lender expressly acknowledges that neither the
Agent, nor any of its officers, directors, employees or agents, has made any representation or
warranty to such Lender regarding the transactions contemplated by this Financing Agreement or the
financial condition of any Credit Party, and such Lender agrees that no action taken by the Agent
hereafter, including any review of the business or financial affairs of such Credit Party, shall be
deemed to constitute a representation or warranty by the Agent to any Lender. Each Lender also
acknowledges that such Lender has, independently and without reliance upon the Agent or any other
Lender and based on such documents and information as such Lender has deemed appropriate, made its
own credit analysis, appraisal of and investigation into the business, operations, property,
financial condition and creditworthiness of each Credit Party, and made its own decision to enter
into this Financing Agreement. Each Lender agrees, independently and without reliance upon the
Agent or any other Lender and based on such documents and information as such Lender shall deem
appropriate at the time, (a) to continue to make its own credit analyses and appraisals in deciding
whether to take or not take action under this Financing Agreement and (b) to make such
investigations as such Lender deems necessary to inform itself as to the business, operations,
property, financial condition and creditworthiness of each Credit Party.



          14.7 Right to Indemnification. The Lenders agree to indemnify the Agent (to the
extent not reimbursed by the Credit Parties and without limiting the obligation of the Credit
Parties to do so), from and against any and all liabilities, obligations, losses, damages, penalties, actions,



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judgments, suits, costs, expenses or disbursements of any kind whatsoever which
may at any time be imposed on, incurred by or asserted against the Agent in any way relating to or
arising out of (a) this Financing Agreement or any other Loan Document, (b) the transactions
contemplated hereby or (c) any action taken or not taken by the Agent under or in connection with
any of the foregoing, provided that no Lender shall be liable for the payment of any
portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting solely from the Agent’s gross negligence or willful
misconduct.



          14.8 Other Transactions. The Agent and any Lender may make loans to and generally
engage in any kind of business with any Credit Party, as though the Agent or such Lender were not
the Agent or a Lender hereunder. With respect to loans made by the Agent under this Financing
Agreement as a Lender, the Agent shall have the same rights and powers, duties and liabilities
under this Financing Agreement and the other Loan Documents as any other Lender, and may exercise
the same as though it was not the Agent, and the term “Lender” and “Lenders” shall include the
Agent in its individual capacity as such.



          14.9 Resignation of Agent. The Agent may resign as the Agent upon thirty (30) days
notice to the Lenders, and such resignation shall be effective on the earlier of (a) the
appointment of a successor Agent by the Lenders or (b) the date on which such thirty (30)-day
period expires (except that in the case of any collateral security held by the Agent, the Agent
shall continue to hold such collateral security until such time as a successor is appointed). If
the Agent provides the Lenders with
notice of its intention to resign as Agent, the Lenders agree to appoint a successor to the
Agent as promptly as possible thereafter (which successor to the Agent if other than a Lender shall
be subject to the reasonable satisfaction of the Company so long as no Default or Event of Default
exists), whereupon such successor shall succeed to the rights, powers and duties of the Agent, and
the term “Agent” shall mean such successor effective upon its appointment. Upon the effective date
of an Agent’s resignation, such Agent’s rights, powers and duties as Agent hereunder immediately
shall terminate, without any other or further act or deed on the part of such former Agent or any
of the parties to this Financing Agreement. After an Agent’s resignation hereunder, the provisions
of this Section 14 shall continue to inure to such Agent’s benefit as to any actions taken
or not taken by such Agent while acting as the Agent.



          14.10 Voting Rights; Agent’s Discretionary Rights. Notwithstanding anything contained
in this Financing Agreement to the contrary, without the prior written consent of all Lenders, the
Agent will not agree to:



               (a) amend or waive any Credit Party’s compliance with any term or provision of this Financing
Agreement, if the effect of such amendment or waiver would be to (i) increase the Revolving Line of
Credit, (ii) reduce the principal of, or rate of interest on, the Revolving Loans, (iii) reduce or
waive the payment of any fee in which all Lenders share hereunder or (iv) extend the maturity date
of any of the Obligations or the date fixed for payment of any installment thereof;



               (b) alter or amend this Section 14.10;



               (c) except as otherwise expressly permitted or required hereunder, release any Collateral
having a value (as determined by the Agent in its reasonable business judgment) of more



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than Two
Million Five Hundred Thousand Dollars ($2,500,000) in any fiscal year of the Company; or



               (d) knowingly make any Revolving Loan to the Company if after giving effect thereto the
principal amount of all outstanding Revolving Loans plus the undrawn amount of all
outstanding Letters of Credit would exceed the lesser of (i) the Revolving Line of Credit or (ii)
one hundred ten percent (110%) of the Borrowing Base; provided that in no event shall the
Agent continue to knowingly make Overadvances under this Section 14.10(d) for a period in
excess of ninety (90) consecutive days or in an aggregate amount in excess of Two Million Dollars
($2,000,000) without the consent of all Lenders, and provided further that after the
occurrence of an Event of Default, the Agent in its sole discretion shall have the right to make
Overadvances in excess of the limitation set forth in clause (ii) above in order to preserve,
protect and realize upon the Collateral, and such Overadvances shall not be subject to any of the
limitations set forth in the foregoing proviso.



     In all other respects the Agent is authorized to take or to refrain from taking any action
which the Agent, in the exercise of its reasonable business judgment, deems to be advisable and in
the best interest of the Lenders, unless this Financing Agreement specifically requires any Credit
Party or the Agent to obtain the consent of, or act at the direction of, the Required Lenders.
Without limiting the generality of the foregoing sentence, and notwithstanding any other provision
of this Financing Agreement to the contrary, the Agent shall have the right in its sole discretion
to (i) determine whether the requirements for eligibility set forth in the definitions of “Eligible
Accounts Receivable”, “Eligible Finished Goods”, “Eligible Inventory”, “Eligible Raw Materials” and
“Eligible Work-In-Process” are
satisfied, (ii) establish, adjust and release the amount of reserves provided for in the
definitions of “Availability Reserve”, “Eligible Accounts Receivable”, “Eligible Finished Goods”,
“Eligible Inventory”, “Eligible Raw Materials” and “Eligible Work-In-Process”, (iii) increase or
decrease the advance rates under the Borrowing Base, (iv) make Overadvances in accordance with
clause (d) of this Section 14.10, (v) release any Collateral having a value (as determined
by the Agent in its reasonable business judgment) of up to Two Million Five Hundred Thousand
Dollars ($2,500,000) in each fiscal year of the Company, (vi) to amend this Financing Agreement in
accordance with Section 1.2 hereof in connection with an Accounting Change, and (vii) amend
any provision of this Financing Agreement or the other Loan Documents in order to cure any error,
ambiguity, defect or inconsistency set forth therein. In the event the Agent terminates this
Financing Agreement pursuant to the terms hereof, the Agent agrees to cease making additional loans
or advances upon the effective date of termination, except for loans or advances which the Agent in
its sole discretion determines are reasonably required to preserve, protect or realize upon the
Collateral.



          14.11 Deemed Consent. If a Lender’s consent to a waiver, amendment or other course
of action is required under the terms of this Financing Agreement and such Lender does not respond
to any request by the Agent for such consent within ten (10) Business Days after the date of such
request, such failure to respond shall be deemed a consent to the requested course of action.



          14.12 Intentionally Deleted.



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          14.13 Survival of Agreements of the Lenders. The obligations of the Lenders set
forth in Sections 13.3, 13.5, 13.6, 14.4 and 14.7 hereof shall survive the
termination of this Financing Agreement.



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 Agent and the Lenders (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 Agent and Lenders 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
Agent, on behalf of the Lenders, at its address specified in Section 12.6 hereof or to such
account in New York City as the Agent 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 Agent and the Lenders 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 Agent and the Lenders 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



88









 







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 Agent or any
Lender; or (v) any other circumstance which might otherwise constitute a defense available to, or a
discharge of, the Company or any other Credit 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 Agent or any 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 Agent or
any 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 Agent or any 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 Agent and the
Lenders 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



89









 







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 Agent and the
Lenders and be paid over to the Agent, on behalf of the Lenders, on account of the 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, the Agent
and the Lenders 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 Agent. Any payments received by any Credit Party in violation of this
Section shall be held in trust for and immediately remitted to the Agent.



[SIGNATURE PAGE FOLLOWS]





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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.



	 	 	 	 	 	 	 
	 	 	THE CIT GROUP/BUSINESS CREDIT, INC.,
	 	 	as Agent and a Lender
	 
	 	 	 	 	 	 
	 
	 	By:	 	/s/ Vincent Belcastro	 	 
	 
	 	 	 	 	 
	 
	 	Name:	 	Vincent Belcastro	 	 
	 
	 	Title:	 	Vice President	 	 
	 
	 	 	 	 	 	 
	 
	 	Commitment:	 	$45,000,000	 	 
	 
	 	 	 	 	 	 
	 	 	HORSEHEAD CORP., as the Company
	 
	 	 	 	 	 	 
	 
	 	By:	 	/s/  Robert D. Scherich	 	 
	 
	 	 	 	 	 
	 
	 	Name:	 	Robert D. Scherich	 	 
	 
	 	Title:	 	Vice President and Chief Financial
Officer	 	 
	 
	 	 	 	 	 	 
	 	 	HORSEHEAD INTERMEDIARY CORP.,
	 	 	as a Credit Party
	 
	 	 	 	 	 	 
	 
	 	By:	 	/s/ Robert D. Scherich	 	 
	 
	 	 	 	 	 
	 
	 	Name:	 	Robert D. Scherich	 	 
	 
	 	Title:	 	Vice President and Chief Financial
Officer	 	 
	 
	 	 	 	 	 	 
	 	 	CHESTNUT RIDGE RAILROAD CORP.,
	 	 	as a Credit Party
	 
	 	 	 	 	 	 
	 
	 	By:	 	/s/ Robert D. Scherich	 	 
	 
	 	 	 	 	 
	 
	 	Name:	 	Robert D. Scherich	 	 
	 
	 	Title:	 	Vice President and Chief Financial
Officer	 	 







91