EX-10.17



 





Exhibit 10.17




     THIRD AMENDMENT AND CONSENT dated as of October 25, 2006 (“Amendment”), to the SECOND
LIEN FINANCING AGREEMENT, dated as of July 15, 2005 (as amended, modified or supplemented from time
to time, the “Financing Agreement”), among HORSEHEAD CORPORATION (f/k/a Horsehead Corp. and
Horsehead Acquisition Corp.), a Delaware corporation (the “Company”), HORSEHEAD
INTERMEDIARY CORP., a Delaware corporation (“Horsehead Intermediary”), CHESTNUT RIDGE
RAILROAD CORP., a Delaware corporation (together with the Company and Horsehead Intermediary, the
“Credit Parties”) and CML I, LLC (as successor by assignment to Contrarian Service Company,
LLC) (“CML”) and Contrarian Financial Service Company, LLC (“CFSC”). Terms which
are capitalized in this Amendment and not otherwise defined shall have the meanings ascribed to
such terms in the Financing Agreement.



     WHEREAS, the Credit Parties have requested that CML (i) amend certain provisions of the
Financing Agreement, and consent to the payment by the Company of certain fees and the payment by
the Company and Horsehead Intermediary of a special dividend, in each case effective on the First
Effective Date, as hereinafter defined, and (ii) amend certain other provisions of the Financing
Agreement, and consent to the payment by the Company to Sun Capital Partners Management III, LLC
(“SCP Management”) of a certain management fee, in each case in connection with a proposed 144A
offering of common stock, par value $0.01 per share, of the Parent (the “Offering”) and effective
on the Second Effective Date, as hereinafter defined, and CML is willing to amend such provisions
of the Financing Agreement and provide such consents, in each case on the terms and subject to the
conditions set forth herein.



     WHEREAS, (A) the Company and CML are parties to (i) the Trademark Security Agreement, dated as
of July 15, 2005 (the “TSA”), (ii) the Patent Security Agreement, dated as of July 15, 2005
(the “PSA”), and (iii) the Stock Pledge Agreement, dated as of July 31, 2005 (the “HH
Pledge Agreement”), and (B) Horsehead Intermediary and CML are parties to a Stock Pledge
Agreement, dated as of July 15, 2005 (the “HI Pledge Agreement”);



     WHEREAS, CFSC has agreed to provide the Term B Loan (as defined below) to the Company and will
become a party to the Financing Agreement, the TSA, the PSA, the HH Pledge Agreement, the HI Pledge
Agreement and the other Loan Documents on the terms and conditions set forth herein;



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



     Section One. Initial Amendments to Financing Agreement. Effective as of the
First Effective Date (as defined in Section Five hereof), the Financing Agreement is hereby amended
as follows:



          (a) Delete the definitions “Loan,” “Prepayment Premium,” and “Promissory
Note,” and insert the following in lieu thereof:





          “Loan” shall mean, collectively, the Loan (as defined in Section 3.1(a)) and
the Term B Loan.



 









 






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



          (b) Insert the following new definitions:





          “CFSC” shall mean Contrarian Financial Service Company, LLC, a Delaware limited
liability company.




          “CML” shall mean CML I, LLC, a Delaware limited liability company.




          “First Effective Date” shall have the meaning provided to such term in the
Third Amendment.




          “Lender” shall mean each of CFSC and CML.




          “Third Amendment” shall mean the Third Amendment and Consent to this Financing
Agreement, dated as of October 25, 2006.




          “Term B Loan” shall have the meaning ascribed to such term in Section 3.1(c).



          (c) Clause (g) of the definition of the term Permitted Indebtedness is amended by deleting the
phrase “Sixty-Four Million Dollars ($64,000,000)” and by substituting in lieu thereof the phrase
“Ninety-Six Million Five Hundred Thousand Dollars ($96,500,000)”; and




          (d) Section 3.1 of the Financing Agreement is amended by inserting the following new clauses
(c) and (d):





          “(c) CFSC agrees to make a term loan on the First Effective Date to the Company in the
original aggregate principal amount of $30,000,000 (the “Term B Loan”) which shall be
repayable in accordance with the terms of the Term B Promissory Note and shall be secured by
all of the Collateral.




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



          (e) Section 7.3 of the Financing Agreement is amended by deleting in its entirety subsection
(d) thereof and substituting the following in lieu thereof:




               “(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:



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	Fiscal Year:	 	Maximum Capital Expenditures:
	2005
	 	$	10,340,000	 
	2006
	 	$	16,500,000	 
	2007
	 	$	44,000,000	 
	2008
	 	$	16,500,000	 
	2009 and thereafter
	 	$	12,100,000”	 






          (f) Schedule 7.4(h) is amended and restated as set forth on Exhibit A annexed to this
Amendment.




     Section Two.  Initial Consent. Notwithstanding any prohibition against the
payment of dividends contained in Section 7.4(f) of the Financing Agreement, or the prohibition
against the payment of management fees contained in Section 7.4 (i) of the Financing Agreement, the
Agent and the Lenders hereby consent to the following transactions:




          (i) the payment by the Company, in cash, on or about the date hereof, of a management
fee to SCP Management in the amount of $500,000 (the “First Management Fee”);




          (ii) the payment by the Company, in cash, on a regularly scheduled payroll date
occurring on or before December 31, 2006, of management bonuses in the aggregate amount of
$476,521.70 (the “Management Bonuses”);




          (iii) the payment in cash, on or about the date hereof, of a dividend (the “Permitted
Dividend”) by the Company to Horsehead Intermediary in an amount equal to $49,023,478.30;




          (iv) the payment in cash, on or about the date hereof (utilizing the proceeds of the
Permitted Dividend), of a dividend by Horsehead Intermediary to the Parent in an amount
equal to the amount of the Permitted Dividend, a portion of the proceeds of which shall be
used by the Parent in payment of the principal amount of certain indebtedness owing by the
Parent to its shareholders (the “Shareholder Debt”), and the balance of the proceeds of
which shall be distributed by the Parent to its shareholders as a special dividend; and




          (v) the payment in cash, on or about the date hereof, of a management fee by the
Company to SCP Management in the amount of $5,000,000, as a prepayment
of the management fees owing by the Company to SCP Management in 2007 (the “Second
Management Fee”),



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provided that (x) the First Management Fee and the Second Management Fee are paid in full
on or about the date hereof, (y) all of the proceeds of the Permitted Dividend are distributed on
or about the date hereof and either applied by the Parent in payment of the Shareholder Debt or
declared and paid as a dividend by the Parent to its shareholders and (z) all of the proceeds of
the Term B Loan in the aggregate principal amount of $30,000,000 (together with all of the proceeds
of the loans made to the Company pursuant to the CIT Financing Agreement in the aggregate principal
amount of $24,523,478.30) are used solely to pay the First Management Fee, the Second Management
Fee, the Management Bonuses and the Permitted Dividend.




     Section Three.  Representations and Warranties. Each of the Credit Parties
warrants and represents to the Agent and each Lender as follows:



          (a) the execution, delivery and performance of this Amendment and the other documents
described herein by such Credit Party are within its corporate powers, have been duly authorized by
all necessary corporate action, and such Credit Party has received all necessary consents and
approvals (if any shall be required) for the execution and delivery of this Amendment and such
other documents;




          (b) upon the execution of this Amendment and the other documents described herein, this
Amendment and such other documents shall constitute the legal, valid and binding obligation of such
Credit Party, enforceable against such Credit Party in accordance with its terms, except as such
enforceability may be limited by (i) bankruptcy, insolvency or similar laws affecting creditors’
rights generally and (ii) general principles of equity;




          (c) The payment of the Management Bonuses, the First Management Fee, the Second Management Fee
and the Permitted Dividend and the consummation of the transactions contemplated thereby are and
will be within the corporate powers of the Company and Horsehead Intermediary, and have been duly
authorized by all necessary corporate action. At the time of consummation thereof, the payment of
the Management Bonuses, the First Management Fee, the Second Management Fee, the Third Management
Fee and the Permitted Dividend shall have been made in accordance with all applicable laws. At the
time of consummation thereof, all consents and approvals of, and filings and registrations with,
and all other actions in respect of, all governmental agencies, authorities or instrumentalities
required in order to pay the Management Bonuses, the First Management Fee, the Second Management
Fee, the Third Management Fee and the Permitted Dividend in accordance with all applicable laws
have been obtained, given, filed or taken and are or will be in full force and effect;




          (d) On a pro forma basis, after giving effect to the payment of the Management
Bonuses, the First Management Fee, the Second Management Fee, the Third Management Fee and the
Permitted Dividend, and the incurrence by the Company of all Indebtedness under the Financing
Agreement and the CIT Transaction Documents to be incurred by it in order to finance the payment of
the Management Bonuses, the First Management Fee, the Second Management Fee, the Third Management
Fee and the Permitted Dividend (i) the sum of
the assets, at a fair valuation of the Company (on a consolidated basis with its consolidated
subsidiaries) will exceed its debts, (ii) the Company (on a consolidated basis with its
consolidated subsidiaries) has not incurred and does not intend to incur, nor believes that it will


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incur, debts beyond its ability to pay such debts as such debts mature and (iii) the Company (on a
consolidated basis with its consolidated subsidiaries) will have sufficient capital with which to
conduct its business. For purposes of this clause (d), (1) “debt” means any liability on a claim,
and “claim” means (x) right to payment, whether or not such right is reduced to judgment,
liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal,
equitable, secured or unsecured or (y) right to an equitable remedy for breach of performance if
such breach gives rise to a payment, whether or not such right to an equitable remedy is reduced to
judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured or unsecured; and
(2) the amount of contingent liabilities at any time shall be computed as the amount that can
reasonably be expected to become an actual or matured liability; and




          (e) no Default or Event of Default has occurred and is continuing.



Each Credit Party confirms, reaffirms and restates to CML and CFSC, as of the First Effective Date,
each of the representations and warranties set forth in the Financing Agreement, except to the
extent that such representations and warranties solely relate to a specific earlier date, in which
case each Credit Party confirms, reaffirms and restates such representations and warranties as of
such earlier date.




     Section Four.  New Lender. (a) CFSC hereby:




          (i) confirms that it has received a copy of the Financing Agreement and the other Loan
Documents, and such other documents and information as it has deemed appropriate to make its
own credit analysis and decision to enter into this Amendment;




          (ii) agrees that it will, independently and without reliance upon CML or any other
lender and based on such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under the Financing
Agreement or any other Loan Document;




          (iii) agrees that it will perform in accordance with their terms all of the obligations
that by the terms of the Financing Agreement are required to be performed by it as a Lender;
and




          (iv) provides the following notice information for the purpose of the Financing
Agreement:



Contrarian Financial Service Company, LLC

411 W. Putnam Avenue

Suite 225

Greenwich, CT 06830

Attn: Stephen J. Czech

Tel. No.:203-862-8241

Fax No.:203-413-6461

E-Mail:sczech@contrariancapital.com




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          (b) On and after the First Effective Date, CFSC shall become a party to the Financing
Agreement and the other Loan Documents to which a “Lender” thereunder is a party, and shall have
the rights and obligations of a “Lender” thereunder.




          (c) On and after the First Effective Date, any reference to “Lender” in the TSA, PSA, HH
Pledge Agreement and HI Pledge Agreement shall be deemed to include CML and CFSC.




     Section Five.  Initial Conditions Precedent. The effectiveness of this
Amendment and the provisions hereof are subject to the following conditions precedent, including,
where applicable, that CFSC and CML shall have received the following documents and other items
(all such documents and other items to be in form and substance satisfactory to CML and CFSC):



          (a) This Amendment duly executed by authorized representatives of each of the Credit Parties,
CML and CFSC;




          (b) An amendment to the CIT Financing Documents covering such matters as may be reasonably
satisfactory to CML and CFSC, duly executed by authorized representatives of each of the Credit
Parties and Lenders under, and as defined in, the CIT Financing Agreement;




          (c) A Term B Promissory Note duly executed in favor of CFSC by an authorized representative of
the Company;




          (d) A Third Amendment to the Contrarian Intercreditor Agreement, duly executed by CIT, CML and
CFSC, covering such matters as may be reasonably satisfactory to CML and CFSC;




          (e) Amendments to each of the Mortgages duly executed by an authorized representative of the
Company (or other Credit Party, if applicable);




          (f) A valuation report, prepared as of a recent date by Valuation Research Corporation,
pursuant to which Valuation Research Corporation shall have set forth its analysis of the value of
the Company, on a consolidated basis with its consolidated subsidiaries and as a going concern,
which report shall be addressed to (among others) CML and CFSC;




          (g) A pro forma Consolidated Balance Sheet, prepared by or under the direction
of, and certified by, the Company’s chief financial officer, which Consolidated Balance Sheet shall
reflect that the Company and its consolidated subsidiaries have a net worth as defined in
accordance with GAAP, of not less than $8,000,000, after giving effect to the payment of the
Permitted Dividend, the First Management Fee, the Second Management Fee and the Third Management
Fee;




          (h) Evidence that the execution, delivery and performance of this Amendment by each of the
Credit Parties have been duly authorized by all necessary action, and that no amendment or other
modification to the articles or certificate of incorporation or bylaws of any


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Credit Party has been
made since the date of the original delivery thereof to the Agent and that such documents (in the
form delivered to CML and CFSC) remain in full force and effect; and




          (i) A written opinion of counsel for the Credit Parties addressed to CML and CFSC covering
such matters as may be reasonably requested by CML and CFSC.



The date upon which all of the conditions precedent set forth in this Section Five shall have been
satisfied is referred to herein as the “First Effective Date”.




     Section Six.  Subsequent Amendment to Financing Agreement. Effective as of
the Second Effective Date (as defined in Section Eight hereof), the definition of Permitted
Distributions is amended by (i) deleting the word “and” at the end of clause (c) thereof, (ii)
deleting the period at the end of clause (d) thereof, and substituting in lieu thereof a
semi-colon, followed by the word “and” and (iii) inserting the following new clause (e) at the end
thereof:




     “(e) dividends from the Company to Horsehead Intermediary, the
proceeds of which are used solely by Horsehead Intermediary to fund
the concurrent declaration and payment by Horsehead Intermediary of
dividends to the Parent, the proceeds of which are used solely by
the Parent to fund the payment of out-of-pocket costs and expenses
(including reasonable fees and disbursements of attorneys and
accountants) paid or incurred by the Parent, arising directly from
and solely in connection with (i) the consummation of the Offering
and the transactions contemplated to occur thereunder, and
thereafter (ii) the obligation of the Parent, in accordance with the
rules and regulations of the Securities Exchange Commission and the
requirements of any national securities exchanges on which the
Parent lists a class of equity securities, respectively, to make
public disclosure from time to time of its results of operation and
financial condition, on a consolidated basis with its subsidiaries,
and other similar kinds of public reporting requirements, and
listing requirements.”



     Section Seven. Subsequent Consent. Notwithstanding any prohibition against
the payment of management fees contained in Section 7.4 (i) of the Financing Agreement, CFSC and
CML hereby consent to the payment in cash, on or about the Second Effective Date, of a management
fee by the Company to SCP Management (the “Third Management Fee”) in the amount of $4,500,000.



     Section Eight. Conditions Precedent to Subsequent Amendment to Financing
Agreement and Subsequent Consent. The effectiveness of the amendment to the Financing Agreement
set forth in Section Six of this Amendment, and to the consent contained in Section Seven of this
Amendment, is subject to the following conditions precedent, including, where
applicable, that the Agent shall have received the following documents and other items (all
such documents and other items to be in form and substance satisfactory to CFSC and CML):



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          (a) CFSC, CML and their counsel shall have received final versions of the offering memorandum
for the Offering and all material documents and agreements to be executed or delivered by the
Parent or the Credit Parties in connection with the Offering (such memorandum, together with such
documents and agreements, collectively, the “Offering Documents”) and the Offering shall have been
consummated in accordance with the terms of the Offering Documents;




          (b) Each of James Hensler and Robert Scherich shall have entered into an employment agreement
with the Company substantially in the forms that CFSC and CML received and reviewed to their
reasonable satisfaction prior to the First Effective Date, and the Company shall have delivered to
CFSC and CML a fully executed copy of each such agreement; and




          (c) CFSC and CML shall have received a certificate executed by a duly authorized officer of
the Company, stating that after giving effect to the consummation of the Offering, no Change of
Control shall have occurred.




     The date upon which all of the conditions precedent set forth in this Section Eight shall have
been satisfied is referred to herein as the “Second Effective Date”.



     Section Nine.  Termination of Sun Management Agreement. Each Credit Party
agrees (and warrants and represents that SCP Management has heretofore agreed) that the Sun
Management Agreement shall be terminated effective as of the Second Effective Date, at which time
the Sun Management Agreement shall cease to be of any further force or effect. Each Credit Party
further agrees that (i) notwithstanding the terms of Section 7.4 (i) of the Financing Agreement, at
all times after the Second Effective Date, such Credit Party shall not pay any management,
consulting or other similar fees or compensation to SCP Management, make any Permitted Management
Fee Payments, or pay any “Management Fee” as defined under the Sun Management Agreement and (ii)
for avoidance of doubt, for purposes of calculating Consolidated EBITDA and Consolidated Fixed
Charges for any fiscal quarter (each a “referenced fiscal quarter”) following the fiscal quarter
during which the Second Effective Date occurs (x) no fees accrued or accruing under the Sun
Management Agreement may be added back to Consolidated Net Income for such referenced fiscal
quarter and (y) no amounts described in clause (i) of the defined term Consolidated Fixed Charges
may be included in the calculation of Consolidated Fixed Charges for such referenced fiscal
quarter. Finally, each Credit Party agrees that if the Offering is not consummated in accordance
with the terms of the Offering Documents (a) the Sun Management Agreement, at the election of the
parties thereto, may continue in full force and effect, in which event clauses (i) and (ii)
contained in the previous sentence shall be null and void and (b) the Company and SCP Management
shall reconcile, as soon as practicable after the basis for calculating the same becomes available,
the amount of the Second Management Fee and settle between themselves any overpayment or
underpayment thereof, based on the amount of the Permitted Management Fee Payment that would
otherwise
be due and payable by the Company to SCP Management in 2007, in accordance with the terms of
the Sun Management Agreement.



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     Section Ten. General Provisions.



          (a) Except as herein expressly amended, the Financing Agreement and all other agreements,
documents, instruments and certificates executed in connection therewith, are ratified and
confirmed in all respects and shall remain in full force and effect in accordance with their
respective terms.




          (b) The execution, delivery and effectiveness of the consent contained in Section Two hereof
shall not operate as a waiver of any right, power or remedy of CML under the Financing Agreement or
any of the other Loan Documents, nor constitute a waiver of any other provision of the Financing
Agreement or any of the other Loan Documents.




          (c) All references to the Financing Agreement and each other Loan Document shall mean the
Financing Agreement as amended hereby and as hereafter amended, supplemented and modified from time
to time.




          (d) This Amendment embodies the entire agreement between the parties hereto with respect to
the subject matter hereof and supercedes all prior agreements, commitments, arrangements,
negotiations or understandings, whether written or oral, of the parties with respect thereto.




          (e) This Amendment shall be governed by and construed in accordance with the internal laws of
the State of New York, without regard to the conflicts of law principles thereof.




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     IN WITNESS WHEREOF, the parties to this Amendment have signed below to indicate their
agreement with the foregoing and their intent to be bound thereby.



	 	 	 	 	 
	 	HORSEHEAD CORPORATION

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

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

 	 
	 	By:  	/s/ Robert D. Scherich
 	 
	 	 	Name:  	Robert D. Scherich 	 
	 	 	Title:  	CFO 	 
	 
	 	CML I, LLC

 	 
	 	By:  	Contrarian Funds, L.L.C., its sole member
 	 
	 	 	 	 
	 	By:  	/s/ Janice M. Stanton 	 
	 	 	Name:  	Janice M. Stanton 	 
	 	 	Title:  	Member 	 
	 	 	 
	 	By:  	/s/ Stephen J. Czech
 	 
	 	 	Name:  	Stephen J. Czech 	 
	 	 	Title:  	Managing Director 	 
	 
	 	CONTRARIAN FINANCIAL SERVICE COMPANY, LLC
 	 
	 	By:  	Contrarian Capital Management, L.L.C., its Manager
 	 
	 	 	 
	 	By:  	/s/ Janice M. Stanton
 	 
	 	 	Name:  	Janice M. Stanton 	 
	 	 	Title:  	Member	 
	 	 	 	 	 
	 	By:  	/s/ Stephen J. Czech
 	 
	 	 	Name:  	Stephen J. Czech
 	 
	 	 	Title:  	Managing Director 	 



 









 






EXHIBIT A




Section 7.4(h) to Financing Agreement



Contribution Agreement, dated March 15, 2004, by and between Horsehead Corporation and Chestnut
Ridge Railroad Corp.



Administrative Services Agreement, dated February 4, 2004, by an between Horsehead Corporation and
Chestnut Ridge Railroad Corp.



Management Services Agreement, dated December 23, 2003, by and between Horsehead Corporation and
Sun Capital Partners Management III, LLC



Agreement, dated as of October 25, 2006, by and between Horsehead Corporation and Sun Capital
Partners Management III, LLC



Purchase/Placement Agreement to be entered into in connection with the Offering (as defined in the
Fourth Amendment and Consent to Financing Agreement dated as of October 25, 2006) by and among
Friedman, Billings, Ramsey & Co., Inc., Horsehead Holding Corp., Horsehead Intermediary Corp.,
Horsehead Corporation and Chestnut Ridge Railroad Corp.