Document:

Exhibit 10.11

REGISTRATION
RIGHTS AGREEMENT

BY
AND AMONG

HAYNES
INTERNATIONAL, INC.

AND

THE
PARTIES SPECIFIED ON

THE
SIGNATURE PAGES HEREOF

DATED
AS OF AUGUST 31, 2004

HAYNES
INTERNATIONAL, INC.

REGISTRATION
RIGHTS AGREEMENT

This
REGISTRATION RIGHTS AGREEMENT dated as of 31, 2004 is made and entered into by
and among Haynes International, Inc., a Delaware corporation (together with its
successors and assigns, the “COMPANY”) and the initial holders of the common
stock (the “HOLDERS”) specified on the signature pages hereof.

WHEREAS,
on March 29, 2004, Haynes International, Inc. and certain of its subsidiaries
and affiliates (the “DEBTORS”), filed a voluntary petition for reorganization
under Chapter 11 of title 11 of the U.S. Code, 11 U.S.C. Sections 101 - 1330
(as amended, the “BANKRUPTCY CODE”), with the United States Bankruptcy Court
for the Southern District of Indiana, Indianapolis Division (the “BANKRUPTCY
COURT”), commencing Chapter 11 Case Nos. 04-05364 through 04-05367 (the “BANKRUPTCY
CASE”);

WHEREAS,
on May 26, 2004, the Debtors also filed that certain Plan of Reorganization (as
amended and supplemented from time to time, the “PLAN”) with the Bankruptcy
Court in the Bankruptcy Case;

WHEREAS,
the Bankruptcy Court confirmed the Plan pursuant to the order under section
1129 of the Bankruptcy Code, dated August 31, 2004 (the “CONFIRMATION ORDER”);
and

WHEREAS,
pursuant to the Plan and the Confirmation Order, the Holders have received
shares of common stock of the Company (the “SHARES”) and the Company is
obligated to provide the Holders with certain registration rights with respect
to such Shares.

NOW,
THEREFORE, in consideration of the mutual covenants and agreements set forth in
this Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:

1.             SHELF
REGISTRATION.

(a)           FILING OF
SHELF REGISTRATION

(i)              (x)  Subject
to clause (y) below, the Company shall comply with all the provisions of
Sections 3(a) to 3(j) and shall use its reasonable best efforts to file with
the Commission within 100 days of the Effective Date, and thereafter shall use
its reasonable best efforts to cause to be declared effective within 180 days
after the Effective Date, a Shelf Registration Statement, covering all of the
Registrable Securities, and relating to the offer and sale of the Registrable
Securities, by the holders of the Registrable Securities from time to time in
accordance with the methods of distribution set forth in the Shelf Registration
Statement.

(y)  Following
delivery of notice to all holders of Registrable Securities, the Company may
postpone for up to 90 days the filing or effectiveness of the Shelf
Registration Statement if in the good faith judgment of the Company, the filing
or effectiveness of the Shelf Registration Statement (A) would reasonably be
expected to have a material adverse effect on any proposed financing,
reorganization or recapitalization of the Company or pending negotiations
relating to a merger, consolidation, acquisition or similar transaction or (B)
applicable securities laws would require the Company to disclose material
non-public information (“NON-PUBLIC INFORMATION”) and the disclosure of such Non-Public
Information would materially and adversely affect the business and operations
of the Company; provided, however, that immediately following such
postponement, the Company shall file or request effectiveness of the Shelf
Registration Statement.

(ii)    (x)  Subject
to clause (y) below, the Company shall use its reasonable best efforts to keep
the Shelf Registration Statement continuously effective in order to permit any
prospectus forming part thereof to be used by the holders of the Registrable
Securities covered thereby for a period ending on the earlier of (A) the first
date on which all the Registrable Securities covered by such Shelf Registration
Statement have been sold pursuant thereto, (B) the first date on which all such
Registrable Securities can immediately be sold within a ninety day period pursuant
to Rule 144(e)(1)(i) under the Securities Act, (C) the first date upon which
such holder (i) owns less than ten percent (10%) of the then issued and
outstanding shares of Common Stock of the Company, (ii) is no longer an “affiliate”
of the Company for purposes of Rule 144 of the Securities Act and (iii) no
longer has a direct seat or a representative with a seat on the Company’s Board
of Directors or (D) the date upon which such Registrable Securities cease to be
outstanding (in any such case, such period being called the “SHELF REGISTRATION
EFFECTIVENESS PERIOD”).

(y)  The Company
may, by notice given to all holders of Registrable Securities, require such
holders not to make any sale of Registrable Securities pursuant to the Shelf
Registration Statement if, in the good faith judgment of the Company, (A)
securities laws applicable to such sale would require the Company to disclose
Non-Public Information and (B) the disclosure of such Non-Public Information
would materially and adversely affect the business or operations of the Company
or any proposed financing, reorganization or recapitalization of the Company or
pending negotiations relating to a merger, consolidation, acquisition or
similar transaction. In the event that sales under the Shelf Registration
Statement are suspended because of the obligation to disclose Non-Public
Information, the Company will notify the holders of Registrable Securities
promptly upon such Non-Public Information being included by the Company in a
filing with the Commission, being

 2
 

otherwise disclosed to
the public (other than through the actions of a holder of Registrable
Securities) or ceasing to be material to the Company, and upon such notice
being given by the Company, the holders of Registrable Securities shall again
be entitled to sell Registrable Securities pursuant to the Shelf Registration
Statement. Notwithstanding the foregoing, the right of the Company pursuant to
this clause (y) to require the holders to suspend sales under such Shelf
Registration Statement shall not extend for more than 90 total days in any
rolling period of twelve consecutive months during which the Registrable
Securities are saleable pursuant to a Registration Statement.

(iii)            Notwithstanding
any other provisions hereof, the Company will use its reasonable best efforts
to ensure that (A) any Shelf Registration Statement and any amendment thereto
and any prospectus forming part thereof and any supplement thereto complies in
all material respects with the Securities Act and the rules and regulations of
the Commission thereunder, (B) any Shelf Registration Statement and any
amendment thereto, at the time each become effective (in either case, other
than with respect to information included therein in reliance upon or in
conformity with information furnished in writing or confirmed in writing to the
Company by or on behalf of the holder of such Registrable Securities
specifically for use therein (the “HOLDER INFORMATION”)), does not contain an
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not misleading
and (C) any prospectus forming part of any Shelf Registration Statement, and
any supplement to such prospectus (in either case, other than with respect to
Holder Information), as of the date of each, does not contain an untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.

(iv)            The Company
will pay all Registration Expenses incurred in connection with the Shelf
Registration Statement.

(b)           REGISTRATION
STATEMENT FORM. A Shelf Registration Statement shall be on such appropriate
registration form promulgated by the Commission as shall be selected by the
Company and shall permit the disposition of such Registrable Securities in
accordance with the intended method or methods specified in their request for
such registration. If, during the period in which the Company is obligated to
maintain the Shelf Registration in effect, the Company becomes qualified for
registration on Form S-3 or any comparable or successor form or forms for offers
and sales by Holders, then, the Company may, in its discretion, terminate the
Shelf Registration and concurrently register the Registrable Securities on such
short-form registration statement. The obligations of the Company with respect
to maintenance of such registration statement and prospectus included therein
shall be subject to the terms of this Agreement and such

 3
 

new
registration statement shall be deemed to be a “Shelf Registration Statement”
for purposes of this Agreement.

2.             PIGGYBACK
REGISTRATION RIGHTS.

(a)           RIGHT TO
INCLUDE REGISTRABLE SECURITIES. If the Company at any time proposes after the
date hereof to effect a registration, other than a Shelf Registration
Statement, of equity securities or securities convertible into equity
securities of the Company under the Securities Act whether for sale for the
account of the Company or for the account of any holder of securities of the
Company (other than Registrable Securities) (a “PIGGYBACK REGISTRATION”), it will
each such time give prompt written notice (a “NOTICE OF PIGGYBACK REGISTRATION”),
at least 10 Business Days prior to the anticipated filing date, to all holders
of Registrable Securities stating (i) its intention to do so, (ii) whether the
Piggyback Registration will be made pursuant to an underwritten offering and
(iii) such holders’ rights under this Section 2, which Notice of Piggyback
Registration shall include a description of the intended method of disposition
of such securities.

Upon
the written request of any such holder made within five days after receipt of a
Notice of Piggyback Registration (which request shall specify the Registrable
Securities intended to be disposed of by such holder), the Company will,
subject to the other provisions of this Agreement, include in the registration
statement relating to such Piggyback Registration all Registrable Securities
which the Company has been so requested to register, all to the extent
requisite to permit the disposition of such Registrable Securities in
accordance with the intended method of disposition set forth in the Notice of Piggyback
Registration. Notwithstanding the foregoing, if, at any time after giving a
Notice of Piggyback Registration and prior to the effective date of the registration
statement filed in connection with such registration, the Company shall
determine in its good faith judgment to not register or to delay registration
of such securities, the Company shall at its election, give written notice of
such determination to each holder of Registrable Securities and, thereupon, in
the case of a determination not to register, shall be relieved of its
obligation to register any Registrable Securities in connection with such registration
(but not from its obligation to pay the Registration Expenses in connection
therewith). Notwithstanding the foregoing, for purposes of this Agreement,
Piggyback Registration shall not include any registration in respect of a
dividend reinvestment or similar plan for stockholders of the Company or any
registration on Form S-4 or on Form S-8.

(b)           REGISTRATION
EXPENSES. The Company will pay all Registration Expenses incurred in connection
with each Piggyback Registration.

(c)           PRIORITY IN
CUTBACK REGISTRATIONS. If a Piggyback Registration becomes a Cutback
Registration, the Company will include in such registration, to the extent of
the amount or kind of securities which the Managing Underwriter advises the
Company can be sold in such offering in the following order:

 4
 

(i)              First, the
securities proposed by the Company to be sold for its own account,

(ii)             Second, any
Registrable Securities requested to be included in such registration by
Requesting Holders, pro rata on the basis of the number of Registrable
Securities requested to be included by such holders, and

(iii)            Third, any
other securities of the Company proposed to be included in such registration,
allocated among the holders thereof in accordance with the priorities then
existing among the Company and such holders;

and
any securities so excluded shall be withdrawn from and shall not be included in
such Piggyback Registration but are eligible to be included in any future Piggyback
Registration(s).

3.             REGISTRATION
PROCEDURES.

If
and whenever the Company is required to effect the registration of any
Registrable Securities under the Securities Act pursuant to Section 1 or Section
2, the Company will use its reasonable best efforts to effect the registration
and sale of such Registrable Securities in accordance with the intended method
of disposition thereof. Without limiting the foregoing, the Company in each
such case will:

(a)           As far in
advance as reasonably practical before filing a registration statement or any
amendment thereto, the Company will furnish to the holders of the Registrable
Securities included in such registration statement copies of reasonably
complete drafts of all such documents proposed to be filed (including
exhibits), and any such holder shall have three Business Days to object to any
Holder Information contained therein and the Company will make the corrections
reasonably requested by such Holder with respect to such information;

(b)           Subject to
Section 1(a)(ii) and paragraph (f) below, use its reasonable best efforts to
prepare and file with the Commission such amendments and supplements to such
registration statement and any prospectus used in connection therewith as may
be necessary to maintain the effectiveness of such registration statement and
to comply with the provisions of the Securities Act with respect to the
disposition of all Registrable Securities covered by such registration
statement, in accordance with the intended methods of disposition thereof,
until the Shelf Registration Effectiveness Period has ended, or, with respect
to a Piggyback Registration, until the Company shall determine in its good
faith judgment otherwise;

(c)           promptly
notify each holder of Registrable Securities included on a registration
statement (and the underwriters, if any):

(i)  when such registration statement or any
prospectus used in connection therewith, or any amendment or supplement

 5
 

thereto, has been filed
and, with respect to such registration statement or any post-effective
amendment thereto, when the same has become effective;

(ii)  of the notification to the Company by the
Commission of the issuance of any stop order suspending the effectiveness of
such registration statement, or of any order preventing or suspending the use
of any preliminary prospectus; and

(iii)  of the receipt by the Company of any
notification with respect to the suspension of the qualification or the
exemption from qualification of any Registrable Securities for sale under the
applicable securities or blue sky laws of any jurisdiction or the initiation of
any proceeding for such purpose;

(d)           furnish to
each holder of Registrable Securities covered by such registration statement,
not later than two Business Days after filing with the Commission, such number
of copies of the prospectus contained in such registration statement (including
any summary prospectus and prospectus supplements) that has been declared
effective and any other prospectus filed under Rule 424 promulgated under the
Securities Act relating to such holder’s Registrable Securities as such seller
may reasonably request to facilitate the disposition of its Registrable
Securities;

(e)           use its
reasonable best efforts to register or qualify all Registrable Securities
covered by such registration statement under such other securities or blue sky
laws of such jurisdictions as each holder thereof shall reasonably request, to
keep such registration or qualification in effect for so long as such
registration statement remains in effect, and to take any other action which
may be reasonably necessary or advisable to enable such holder to consummate
the disposition in such jurisdictions of the Registrable Securities owned by
such holder, except that the Company shall not for any such purpose be required
(i) to qualify generally to do business as a foreign corporation in any jurisdiction
wherein it would not but for the requirements of this paragraph (e) be
obligated to be so qualified, (ii) to subject itself to taxation in any such jurisdiction
or (iii) to consent to general service of process in any jurisdiction unless
the Company is already subject to service in such jurisdiction and except as
may be required by the Securities Act or applicable rules or regulations
thereunder;

(f)            promptly
notify each holder of Registrable Securities covered by such registration
statement, at any time when a prospectus relating thereto is required to be
delivered under the Securities Act, of the happening of any event, the
existence of any condition or any information becoming known as a result of
which any prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, and at the request of any such holder promptly prepare and furnish
to such holder a reasonable number of copies of a supplement to or an amendment
of such prospectus as may be necessary so that, as thereafter delivered to the

 6
 

purchasers
of such securities, such prospectus shall not include an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; provided, however, the Company
shall not be required to furnish such supplement or amendment at any time that
sales of Registrable Securities are suspended under the circumstances described
in Section 1(a)(ii)(y) for as long as such sales are suspended;

(g)           otherwise
use its reasonable best efforts to comply with all applicable rules and
regulations of the Commission, and make available to its securityholders, as
soon as reasonably practicable, an earnings statement of the Company which
complies with the provisions of Section 11(a) of the Securities Act and Rule
158 promulgated thereunder;

(h)           make
available for inspection by any Requesting Holder and any attorney, accountant
or other agent retained by any such Requesting Holder (collectively, the “INSPECTORS”),
all financial and other records, pertinent corporate documents and properties
of the Company (collectively, the “RECORDS”) as shall be reasonably necessary
to enable them to exercise their due diligence responsibility, and cause the
Company’s officers, directors, employees and its counsel and its subsidiaries
to supply all information reasonably requested by any such Inspector in
connection with such registration statement; provided that nothing in this
Agreement shall require the waiver of any privilege or the disclosure of any
information that would result in any such waiver. Records which the Company
determines, in good faith, to be confidential and which it notifies the
Inspectors are confidential shall not be disclosed by the Inspectors unless (i)
the release of such Records is ordered pursuant to a subpoena or other order
from a court of competent jurisdiction, or (ii) the information in such Records
has been made generally available to the public, provided, however, that prior
notice shall be provided as promptly as practicable to the Company of the
potential disclosure of any information by such Inspector pursuant to clause
(i) of this sentence in order to permit the Company to obtain a protective
order (or to waive the provisions of this paragraph). The Company may request
the Inspectors enter into a standard confidentiality agreement to this effect
prior to furnishing any confidential information. The seller of Registrable
Securities agrees that it will, upon learning that disclosure of such Records
is sought in a court of competent jurisdiction, give notice to the Company and
allow the Company, at the Company’s expense, to undertake appropriate action to
prevent disclosure of the Records deemed confidential;

(i)            provide a
transfer agent and a registrar for all Registrable Securities covered by such
registration statement not later than the effective date of such registration
statement; and

(j)            provide a
CUSIP number for all Registrable Securities not later than the effective date
of the Shelf Registration Statement or Piggyback Registration.

 7
 

The
Company may require each holder of Registrable Securities as to which any
registration is being effected to, and each such holder, as a condition to
including Registrable Securities in such registration, shall, furnish the
Company with such information and affidavits regarding such holder and the
distribution of such securities as the Company may from time to time reasonably
request in writing in connection with such registration.

Each
holder of Registrable Securities agrees that upon receipt of any notice from
the Company of the happening of any event of the kind described in paragraph
(f), such holder will forthwith discontinue such holder’s disposition of
Registrable Securities pursuant to the registration statement relating to such
Registrable Securities until such holder’s receipt of the copies of the supplemented
or amended prospectus contemplated by paragraph (f) and, if so directed by the
Company, will deliver to the Company or destroy all copies, other than
permanent file copies, then in such holder’s possession of the prospectus
relating to such Registrable Securities current at the time of receipt of such
notice.

4.             UNDERWRITTEN
OFFERINGS.

If
the Company at any time proposes to register any of its securities in a
registration pursuant to which any Holder has rights pursuant to Section 2(a)
and such securities are to be distributed by or through one or more underwriters,
the Company will, subject to the provisions of Section 2(c), use its reasonable
best efforts, if requested by any holder of Registrable Securities, to arrange
for such underwriters to include the Registrable Securities to be offered and
sold by Requesting Holders among the securities to be distributed by such
underwriters, and such holders shall be obligated to sell their Registrable
Securities in such Piggyback Registration through such underwriters on the same
terms and conditions as apply to the other Company securities to be sold by
such underwriters in connection with such Piggyback Registration. The holders
of Registrable Securities to be distributed by such underwriters shall be
parties to a customary underwriting agreement between the Company and such
underwriter or underwriters and shall make customary representations and
warranties regarding such holder, its ownership of securities being registered
on its behalf, its ability to consummate the transaction and any other
representations required by law; provided, however that no holder of
Registrable Securities shall be required to make any representations or
warranties with respect to the Company or any other holder. No Requesting
Holder may participate in any underwritten Piggyback Offering unless such
holder (i) agrees to sell its Registrable Securities on the basis reasonably
provided in any underwriting arrangements approved by the Company; and (ii)
completes and executes all questionnaires, powers of attorney, indemnities,
lock-up agreements and other documents reasonably required under the terms of
such underwriting arrangements. If any Requesting Holder disapproves of the
terms of an underwriting, such holder may elect to withdraw therefrom and from
such registration by notice to the Company and the Managing Underwriter, and
each of the remaining Requesting Holders shall be entitled to increase the
number of Registrable Securities being registered to the extent of the
Registrable Securities so withdrawn in the proportion which the number of Registrable
Securities being registered by such

 8
 

remaining
Requesting Holder bears to the total number of Registrable Securities being
registered by all such remaining Requesting Holders.

5.             HOLDBACK
AGREEMENTS.

If
and to the extent requested by the Managing Underwriter (such request to be
made at least five Business Days in advance of the beginning of the holdback
period), each holder of Registrable Securities agrees, to the extent permitted
by law, not to effect any public sale or distribution (including a sale under
Rule 144) of Common Stock, or securities convertible into or exchangeable or
exercisable for Common Stock, during the 90 days after the effective date of
any registration statement filed by the Company in connection with a primary
offering of Common Stock on behalf of the Company (or for such shorter period
of time as is sufficient and appropriate, in the opinion of the Managing
Underwriter, in order to complete the sale and distribution of the securities
included in such registration), except as part of such registration statement,
whether or not such holder participates in such registration and each such
holder of Registrable Securities shall sign a customary agreement with the
Managing Underwriter with respect to the matters set for above to the extent
requested by the Managing Underwriter. The restrictions in this Section 5 shall
only apply to the holders of Registrable Securities in connection with one
registration statement filed by the Company in connection with a primary
offering of Common Stock on behalf of the Company and only to the extent that
all other holders of Registrable Securities, officers of the Company, directors
of the Company and all other affiliates of the Company agree to the same
restrictions.

6.             INDEMNIFICATION.

(a)           INDEMNIFICATION
BY THE COMPANY. The Company shall, to the full extent permitted by law,
indemnify and hold harmless each holder of Registrable Securities included in
any registration statement filed in connection with a Shelf Registration
Statement or a Piggyback Registration, its directors, officers, members and
partners, and each other Person, if any, who controls any such holder within
the meaning of the Securities Act, against any losses, claims, damages,
expenses or liabilities (as actions or proceedings in respect thereof), joint
or several (together, “LOSSES”), to which such holder or any such director,
officer, member, partner or controlling Person may become subject under the
Securities Act or otherwise, insofar as such Losses (or actions or proceedings,
whether commenced or threatened, in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact contained
in any such registration statement, any preliminary prospectus, final
prospectus or summary prospectus contained therein, or any amendment or
supplement thereto, or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein (in the case of a prospectus, in the light of the circumstances under
which they were made) not misleading and the Company will reimburse such holder
and each such director, officer, member, partner and controlling Person for any
legal or any other expenses reasonably incurred by them in connection with
investigating or defending against any such Loss (or action or proceeding in
respect thereof); provided, however, that the Company shall not be liable in

 9
 

any
such case to the extent that any such Loss (or action or proceeding in respect
thereof) (i) is caused by or contained in any information relating to such
holder furnished in writing to the Company by such holder expressly for use in
such registration statement, preliminary, final or summary prospectus contained
therein, or any amendment or supplement thereto, (ii) is caused by such holder’s
failure to deliver a copy of the current prospectus simultaneously with or
prior to such sale after the Company has furnished such holder with a sufficient
number of copies of such prospectus correcting such material misstatement or
omission, (iii) arises in respect of any offers to sell or sales made during
any period when a holder is required to discontinue sales under Section
3(c)(ii) or (iii) (and after such holder has received notice as contemplated by
Section 3(c)(ii) or (iii)), or (iv) is incurred as a result of such indemnitee’s
bad faith, willful misconduct or gross negligence. Such indemnity shall remain in
full force and effect regardless of any investigation made by or on behalf of
such holder or any such director, officer, member, partner or controlling
Person, and shall survive the transfer of such securities by such holder to a
Permitted Successor.

(b)           INDEMNIFICATION
BY THE HOLDERS. Each holder of Registrable Securities which are included or are
to be included in any registration statement filed in connection with a Shelf
Registration Statement or a Piggyback Registration, as a condition to including
Registrable Securities in such registration statement, shall, to the full
extent permitted by law, indemnify and hold harmless the Company, its directors
and officers, and each other Person, if any, who controls the Company within
the meaning of the Securities Act, against any Losses to which the Company or
any such director or officer or controlling Person may become subject under the
Securities Act or otherwise, insofar as such Losses (or actions or proceedings,
whether commenced or threatened, in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in any such registration statement, any preliminary prospectus, final
prospectus or summary prospectus contained therein, or any amendment or
supplement thereto, or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein (in the case of a prospectus, in the light of the circumstances under
which they were made) not misleading, if such untrue statement or alleged
untrue statement or omission or alleged omission was made in reliance upon and
in conformity with information furnished or confirmed in writing to the
Company; provided, however, that in no event shall any indemnity provided by a
Holder under this Section 6(b) exceed the net proceeds from the offering
received by such Holder. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of the Company or any such
director, officer, member, partner or controlling Person and shall survive the
transfer of such securities by such holder to a Permitted Successor.

(c)           NOTICES OF
CLAIMS, ETC. Promptly after receipt by an Indemnified Party of notice of the
commencement of any action or proceeding involving a claim referred to in the
preceding paragraph (a) or (b) of this Section 6, such Indemnified Party will,
if a claim in respect thereof is to be made against an Indemnifying Party
pursuant to such paragraphs, give written notice to the latter of the
commencement of such action, provided that the failure of any Indemnified Party
to give notice as provided herein shall not relieve the Indemnifying Party of
its obligations under

 10
 

the
preceding paragraphs of this Section 6, except to the extent that the Indemnifying
Party is actually prejudiced by such failure to give notice. In case any such
action is brought against an Indemnified Party, the Indemnifying Party shall be
entitled to participate in and to assume the defense thereof, jointly with any
other Indemnifying Party similarly notified to the extent that it may wish, and
after notice from the Indemnifying Party to such Indemnified Party of its
election so to assume the defense thereof, the Indemnifying Party shall not be
liable to such Indemnified Party for any legal or other expenses subsequently
incurred by the latter in connection with the defense thereof other than
reasonable costs of investigation; provided that the Indemnified Party may participate
in such defense at the Indemnified Party’s expense; and provided further that
the Indemnified Party (or Indemnified Parties) shall have the right to employ
one counsel to represent it (or them, collectively) if, in the reasonable
judgment of the Indemnified Party or Indemnified Parties, it is advisable for
it (or them) to be represented by separate counsel by reason of having legal
defenses which are different from or in addition to those available to the
Indemnifying Party, and in that event the reasonable fees and expenses of such
one counsel shall be paid by the Indemnifying Party. If the Indemnifying Party
is not entitled to, or elects not to, assume the defense of a claim, it will
not be obligated to pay the fees and expenses of more than one counsel for the
Indemnified Parties with respect to such claim. No Indemnifying Party shall consent
to entry of any judgment or enter into any settlement without the consent of
the Indemnified Party which does not include as an unconditional term thereof
the giving by the claimant or plaintiff to such Indemnified Party of a release
from all liability in respect of such claim or litigation. No Indemnifying
Party shall be subject to any liability for any settlement made without its
consent, which consent shall not be unreasonably withheld.

(d)           CONTRIBUTION.
If the indemnity and reimbursement obligation provided for in any paragraph of
this Section 6 is unavailable or insufficient to hold harmless an Indemnified
Party in respect of any Losses (or actions or proceedings in respect thereof)
referred to therein, then the Indemnifying Party shall contribute to the amount
paid or payable by the Indemnified Party as a result of such Losses (or actions
or proceedings in respect thereof) in such proportion as is appropriate to
reflect the relative fault of the Indemnifying Party on the one hand and the
Indemnified Party on the other hand in connection with the statements or
omissions which resulted in such Losses, as well as any other relevant
equitable considerations. The relative fault shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Indemnifying Party or the Indemnified
Party and the parties’ relative intent, knowledge, access to information and
opportunity to correct or prevent such untrue statement or omission. The
parties hereto agree that it would not be just and equitable if contributions
pursuant to this paragraph were to be determined by pro rata allocation or by
any other method of allocation which does not take account of the equitable
considerations referred to in the first sentence of this paragraph. The amount
paid by an Indemnified Party as a result of the Losses referred to in the first
sentence of this paragraph shall be deemed to include any legal and other
expenses reasonably incurred by such Indemnified Party in connection with
investigating or defending any Loss which is the subject of this paragraph.

 11
 

No
Indemnified Party guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from the
Indemnifying Party if the Indemnifying Party was not guilty of such fraudulent
misrepresentation.

(e)           INDEMNIFICATION
PAYMENTS. The indemnification required by this Section 6 shall be made by
periodic payments of the amount thereof during the course of the investigation
or defense, as and when bills are received or Losses are incurred, provided that
each Indemnified Party shall repay such payments if and to the extent it shall
be determined by a court of competent jurisdiction that such recipient is not
entitled to such payment.

7.             LISTING
REQUIREMENT.

The
Company will use its commercially reasonable best efforts to list the Common
Stock on a national securities exchange or to be quoted on a national automated
interdealer quotation system within one year of the Effective Date unless the
Board of Directors of the Company determines otherwise.

8.             OTHER
REGISTRATION RIGHTS.

The
Company represents and warrants to the Holders that there is not in effect on
the date hereof any agreement by the Company (other than this Agreement)
pursuant to which any holders of securities of the Company have a right to cause
the Company to register or qualify such securities under the Securities Act or
any securities or blue sky laws of any jurisdiction. The Company agrees that,
for so long as any holder is entitled to registration rights under this
Agreement, the Company shall not enter into any agreement granting registration
rights with respect to the Company’s capital stock equivalent or superior to
the Company’s registration obligations to the holders under Section 2(c)(ii) of
this Agreement.

9.             DEFINITIONS.

Except
as otherwise specifically indicated, the following terms will have the
following meanings for all purposes of this Agreement:

“AGREEMENT”
means this Registration Rights Agreement, as the same shall be amended from
time to time.

“BANKRUPTCY
CASE” has the meaning ascribed to it in the preamble.

“BANKRUPTCY
CODE” has the meaning ascribed to it in the preamble.

“BANKRUPTCY
COURT” has the meaning ascribed to it in the preamble.

“BUSINESS
DAY” means a day other than Saturday, Sunday or any other day on which banks
located in the State of New York are authorized or obligated to close.

 12
 

“COMMISSION”
means the United States Securities and Exchange Commission, or any successor
governmental agency or authority.

“COMMON
STOCK” means shares of Common Stock, par value $0.001 per share, of the
Company, as constituted on the date hereof, and any stock into which such
Common Stock shall have been changed or any stock resulting from any reclassification
of such Common Stock.

“COMPANY”
has the meaning ascribed to it in the preamble.

“CONFIRMATION
ORDER” has the meaning ascribed to it in the preamble.

“CUTBACK
REGISTRATION” means any registration to be effected as an underwritten Public
Offering in which the Managing Underwriter with respect thereto advises the
Company in writing that, in its opinion, the number of securities requested to
be included in such registration (including securities of the Company which are
not Registrable Securities) exceed the number which can be sold in such
offering or which can be sold without a material reduction in the selling price
anticipated to be received for the securities to be sold in such Public
Offering, or which can be sold without otherwise adversely affecting the
success of such offering.

“EFFECTIVE
DATE” has the meaning ascribed to it in the Plan.

“EXCHANGE
ACT” means the Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder.

“FORM
S-4” means Form S-4 promulgated by the Commission under the Securities Act, or
any successor or similar registration statement.

“FORM
S-8” means Form S-8 promulgated by the Commission under the Securities Act, or
any successor or similar registration statement.

“HOLDER”
has the meaning ascribed to it in the preamble.

“HOLDER
INFORMATION” has the meaning ascribed to it in Section 1(a)(iii).

“INDEMNIFIED
PARTY” means a party entitled to indemnity in accordance with Section 6.

“INDEMNIFYING
PARTY” means a party obligated to provide indemnity in accordance with Section
6.

“INSPECTORS”
has the meaning ascribed to it in Section 3(h).

“LOSSES”
has the meaning ascribed to it in Section 6(a).

 13
 

“MANAGING
UNDERWRITER” means, with respect to any Public Offering, the underwriter or
underwriters managing such Public Offering.

“NASD”
means the National Association of Securities Dealers, Inc.

“NOTICE
OF PIGGYBACK REGISTRATION” has the meaning ascribed to it in Section 2(a).

“PERMITTED
SUCCESSORS” has the meaning ascribed to it in Section 10(f).

“PERSON”
means any natural person, corporation, general partnership, limited
partnership, limited liability company, proprietorship, other business organization,
trust, union or association.

“PIGGYBACK
REGISTRATION” has the meaning ascribed to it in Section 2(a).

“PLAN”
has the meaning ascribed to it in the preamble.

“PUBLIC
OFFERING” means any offering of Common Stock to the public, either on behalf of
the Company or any of its securityholders, pursuant to an effective
registration statement under the Securities Act.

“RECORDS”
has the meaning ascribed to it in Section 3(h).

“REGISTRABLE
SECURITIES” means (i) the Shares held by Holders (or their successors,
assignees or transferees as contemplated by Section 10(g)), and (ii) any
additional shares of Common Stock issued or distributed to the Holders (or
their successors, assignees or transferees as contemplated by Section 10(g)) by
way of a dividend, stock split, conversion, or other distribution in respect of
the Shares, or acquired by way of any rights offering or similar offering made
in respect of the Shares. As to any particular Registrable Securities, such
securities shall cease to be Registrable Securities when (i) a registration
statement with respect to the sale of such securities shall have become
effective under the Securities Act and such Registrable Securities shall have
been disposed of in accordance with such registration statement, (ii) they
shall have been sold pursuant to Rule 144, or (iii) they shall have ceased to
be outstanding.

“REGISTRATION
EXPENSES” means all expenses incident to the Company’s performance of or
compliance with its obligations under this Agreement to effect and maintain the
registration of Registrable Securities in any Shelf Registration Statement or a
Piggyback Registration, including, without limitation, all registration,
filing, securities exchange listing and NASD fees (including Nasdaq fees, if
applicable), all registration, filing, qualification and other fees and
expenses of complying with securities or blue sky laws (including fees of a
single counsel retained by the holders of a majority of Registrable Securities
being registered to advise the holders with respect to all of the foregoing
matters), all word processing, duplicating and printing expenses, messenger and
delivery expenses, the fees and disbursements of counsel for the Company

 14
 

and
of its independent public accountants, including the expenses of any special audits
or “cold comfort” letters required by or incident to such performance and compliance
in connection with an underwritten offering and any fees and disbursements of
underwriters customarily paid by issuers or holders of securities, but
excluding underwriting discounts and commissions and transfer taxes, if any, in
respect of Registrable Securities, which shall be payable by each holder
thereof.

“REQUESTING
HOLDERS” means, with respect to any Piggyback Registration, the holders of
Registrable Securities requesting to have Registrable Securities included in
such registration in accordance with this Agreement.

“RULE
144” means Rule 144 promulgated by the Commission under the Securities Act, and
any successor provision thereto.

“SECURITIES
ACT” means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.

“SHARES”
has the meaning ascribed to it in the preamble.

“SHELF
REGISTRATION EFFECTIVENESS PERIOD” has the meaning ascribed to it in Section
1(a).

“SHELF
REGISTRATION STATEMENT” means a registration statement of the Company in
compliance with the provisions of Section 1(a)(i) and Section 1(b) of this
Agreement which registers the continuous offer and sale of all of the Registrable
Securities on an appropriate form under Rule 415 under the Securities Act or
any similar or successor rule that may be adopted by the Commission, and all
amendments to such registration statement, including post-effective amendments,
in each case including any prospectus contained therein and any supplement to
any such prospectus, all exhibits thereto and all information incorporated by
reference therein.

10.           MISCELLANEOUS.

(a)           NOTICES. All
notices, requests and other communications hereunder must be in writing and
will be deemed to have been duly given only if delivered personally or by
facsimile transmission or mailed (registered or certified mail, postage
prepaid) to the parties at the following addresses or facsimile numbers:

If
to Holder, to the addresses set forth on the signature pages hereof.

If
to the Company, to:

Haynes
International, Inc.

1020
West Park Ave

Kokomo
IN 46904-9013

Attn:
Chief Financial Officer

Telephone
No.:

Facsimile
No.:

 15
 

With
respect to any other holder of Registrable Securities, such notices, requests
and other communications shall be sent to the addresses set forth in the stock
transfer records regularly maintained by the Company. All such notices,
requests and other communications will (i) if delivered personally to the
address as provided in this Section, be deemed given upon delivery, (ii) if
delivered by facsimile transmission to the facsimile number as provided in this
Section, be deemed given when sent by confirmed facsimile if sent during normal
business hours of the recipient, if not, then on the next Business Day, and
(iii) if delivered by mail in the manner described above to the address as provided
in this Section, be deemed given five days after deposit with the United States
Post Office (in each case regardless of whether such notice, request or other
communication is received by any other Person to whom a copy of such notice is
to be delivered pursuant to this Section). Any party from time to time may
change its address, facsimile number or other information for the purpose of
notices to that party by giving notice specifying such change to the other
parties hereto.

(b)           ENTIRE
AGREEMENT. This Agreement supersedes all prior discussions and agreements
between the parties with respect to the subject matter hereof, and contains the
sole and entire agreement between the parties hereto with respect to the
subject matter hereof.

(c)           AMENDMENT.
This Agreement may be amended, supplemented or modified only by a written
instrument (which may be executed in any number of counterparts) duly executed
by or on behalf of each of the Company and Holders owning more than fifty
percent (50%) of the Registrable Securities.

(d)           WAIVER.
Subject to paragraph (e) of this Section, any term or condition of this
Agreement may be waived at any time by the party that is entitled to the
benefit thereof, but no such waiver shall be effective unless set forth in a
written instrument duly executed by or on behalf of the party waiving such term
or condition. No waiver by any party of any term or condition of this
Agreement, in any one or more instances, shall be deemed to be or construed as
a waiver of the same term or condition of this Agreement on any future
occasion.

(e)           CONSENTS AND
WAIVERS BY HOLDERS OF REGISTRABLE SECURITIES. Any consent of the holders of
Registrable Securities pursuant to this Agreement, and any waiver by such
holders of any provision of this Agreement, shall be in writing (which may be
executed in any number of counterparts) and may be given or taken by Holders
owning more than fifty percent (50%) of the Registrable Securities and any such
consent or waiver so given or taken will be binding on all the holders of
Registrable Securities.

(f)            NO THIRD
PARTY BENEFICIARY. The terms and provisions of this Agreement are intended
solely for the benefit of each party hereto and their respective successors or
assigns, but only to the extent that such successor or assign has acquired from
the Holder shares of Common Stock representing at least 10% of the then issued

 16
 

and
outstanding Common Stock of the Company as contemplated by Section 10(g) (“PERMITTED
SUCCESSOR”). It is not the intention of the parties to confer third-party
beneficiary rights upon any other Person other than any Person entitled to
indemnity under Section 6.

(g)           SUCCESSORS
AND ASSIGNS. This Agreement is binding upon, inures to the benefit of and is
enforceable by the Company and the Holders (or the Person or Persons for which
a Holder is acting as fiduciary or agent, as the case may be) and their
respective Permitted Successors; provided, however, that this Agreement shall
not inure to the benefit of or be binding upon a Permitted Successor unless and
except to the extent such Permitted Successor holds Registrable Securities;
provided, further, that nothing herein shall be deemed to permit any
assignment, transfer or other disposition of Registrable Securities in
violation of the terms hereof, the Securities Act or any securities or blue sky
laws of any jurisdiction.

(h)           HEADINGS.
The headings used in this Agreement have been inserted for convenience of
reference only and do not define or limit the provisions hereof.

(i)            INVALID
PROVISIONS. If any provision of this Agreement is held to be illegal, invalid
or unenforceable under any present or future law, and if the rights or
obligations of any party hereto under this Agreement will not be materially and
adversely affected thereby, (i) such provision will be fully severable, (ii)
this Agreement will be construed and enforced as if such illegal, invalid or
unenforceable provision had never comprised a part hereof and (iii) the
remaining provisions of this Agreement will remain in full force and effect and
will not be affected by the illegal, invalid or unenforceable provision or by
its severance herefrom.

(j)            REMEDIES. Except
as otherwise expressly provided for herein, no remedy conferred by any of the
specific provisions of this Agreement is intended to be exclusive of any other
remedy, and each and every remedy shall be cumulative and shall be in addition
to every other remedy given hereunder or now or hereafter existing at law or in
equity or by statute or otherwise. The election of any one or more remedies by
any party hereto shall not constitute a waiver by any such party of the right
to pursue any other available remedies.

Damages
in the event of breach of this Agreement by a party hereto or any other holder
of Registrable Securities would be difficult, if not impossible, to ascertain,
and it is therefore agreed that each such Person, in addition to and without
limiting any other remedy or right it may have, will have the right to an
injunction or other equitable relief in any court of competent jurisdiction,
enjoining any such breach, and enforcing specifically the terms and provisions
hereof and the Company and each holder of Registrable Securities, by its
acquisition of such Registrable Securities, hereby waives any and all defenses
it may have on the ground of lack of jurisdiction or competence of the court to
grant such an injunction or other equitable relief. The existence of this right
will not preclude any such Person from pursuing any other rights and remedies
at law or in equity which such Person may have.

 17
 

(k)           GOVERNING
LAW. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE
LAW OF THE STATE OF NEW YORK.

(l)            COUNTERPARTS.
This Agreement may be executed in any number of counterparts, each of which
will be deemed an original, but all of which together will constitute one and
the same instrument.

[Signatures
on next page.]

 18

IN
WITNESS WHEREOF, this Agreement has been duly executed and delivered by the
duly authorized officer of each party hereto as of the date first above
written.

	
  

  	
  “COMPANY”

  
	
   

  	
   

  
	
   

  	
  HAYNES
  INTERNATIONAL, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Marcel Martin

  
	
   

  	
  Name:

  	
  Marcel Martin

  
	
   

  	
  Title:

  	
  Vice President,
  Finance, CFO

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  “HOLDERS”

  
	
   

  	
   

  
	
   

  	
  FIDELITY SUMMER
  STREET TRUST:

  
	
   

  	
  FIDELITY CAPITAL
  & INCOME FUND

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Mark Osterheld

  
	
   

  	
   

  	
  Name: Mark Osterheld

  
	
   

  	
   

  	
  Title: Assistant Treasurer

  
	
   

  	
   

  	
   

  
	
   

  	
  FIDELITY ADVISOR
  SERIES II:

  
	
   

  	
  FIDELITY HIGH
  INCOME ADVANTAGE

  
	
   

  	
  FUND

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Mark Osterheld

  
	
   

  	
   

  	
  Name: Mark Osterheld

  
	
   

  	
   

  	
  Title: Assistant Treasurer

  
	
   

  	
   

  
	
   

  	
  PENSION
  INVESTMENT COMMITTEE

  
	
   

  	
  OF GENERAL
  MOTORS FOR GENERAL

  
	
   

  	
  MOTORS EMPLOYEES
  DOMESTIC

  
	
   

  	
  GROUP PENSION
  TRUST

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Fidelity Management and Trust

  
	
   

  	
  Company, its
  investment advisor

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ John P. O’Reilly Jr.

  
	
   

  	
   

  	
  Name: John P. O’Reilly Jr.

  
	
   

  	
   

  	
  Title: Executive Vice President

  
					

 

 19
 

 

	
  

  	
  COMMONWEALTH OF

  
	
   

  	
  MASSACHUSETTS
  PENSION

  
	
  

  	
  RESERVES
  INVESTMENT

  
	
   

  	
  MANAGEMENT BOARD

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Fidelity Management and Trust

  
	
   

  	
  Company, its
  investment advisor

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ John P. O’Reilly Jr.

  
	
   

  	
   

  	
  Name: John P. O’Reilly Jr.

  
	
   

  	
   

  	
  Title: Executive Vice President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  FIDELITY
  SECURITIES FUND:

  
	
   

  	
  FIDELITY
  LEVERAGED COMPANY

  
	
   

  	
  STOCK FUND

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Mark Osterheld

  
	
   

  	
   

  	
  Name: Mark Osterheld

  
	
   

  	
   

  	
  Title: Assistant Treasurer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  FIDELITY ADVISOR
  SERIES I:

  
	
   

  	
  FIDELITY ADVISOR
  LEVERAGED

  
	
   

  	
  COMPANY STOCK
  FUND

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Mark Osterheld

  
	
   

  	
   

  	
  Name: Mark Osterheld

  
	
   

  	
   

  	
  Title: Assistant Treasurer

  
				

 

 20Exhibit 10.12

[Execution]

AMENDED
AND RESTATED LOAN AND SECURITY AGREEMENT

by
and among

HAYNES
INTERNATIONAL, INC.,

as
Borrower

and

CONGRESS
FINANCIAL CORPORATION (CENTRAL),

as
Agent

BANK
ONE, NA

as
Documentation Agent

and

THE
LENDERS FROM TIME TO TIME PARTY HERETO

as
Lenders

Dated:
August 31, 2004

TABLE
OF CONTENTS

	
  

  	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 1.

  	
   

  	
  DEFINITIONS

  	
  6

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 2.

  	
   

  	
  CREDIT FACILITIES

  	
  36

  
	
   

  	
   

  	
   

  	
   

  
	
  2.1

  	
   

  	
  LOANS

  	
  36

  
	
  2.2

  	
   

  	
  LETTER OF CREDIT ACCOMMODATIONS

  	
  38

  
	
  2.3

  	
   

  	
  EQUIPMENT PURCHASE LOANS

  	
  42

  
	
  2.4

  	
   

  	
  COMMITMENTS

  	
  45

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 3.

  	
   

  	
  INTEREST AND FEES

  	
  45

  
	
   

  	
   

  	
   

  	
   

  
	
  3.1

  	
   

  	
  INTEREST

  	
  45

  
	
  3.2

  	
   

  	
  FEES

  	
  46

  
	
  3.3

  	
   

  	
  CHANGES IN LAWS AND INCREASED COSTS OF LOANS

  	
  46

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 4.

  	
   

  	
  CONDITIONS PRECEDENT

  	
  48

  
	
   

  	
   

  	
   

  	
   

  
	
  4.1

  	
   

  	
  CONDITIONS
  PRECEDENT TO INITIAL LOANS AND LETTER OF CREDIT ACCOMMODATIONS

  	
  48

  
	
  4.2

  	
   

  	
  CONDITIONS
  PRECEDENT TO ALL LOANS AND LETTER OF CREDIT ACCOMMODATIONS

  	
  51

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 5.

  	
   

  	
  GRANT AND PERFECTION OF
  SECURITY INTEREST

  	
  51

  
	
   

  	
   

  	
   

  	
   

  
	
  5.1

  	
   

  	
  GRANT OF SECURITY INTEREST

  	
  51

  
	
  5.2

  	
   

  	
  PERFECTION OF SECURITY INTERESTS

  	
  53

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 6.

  	
   

  	
  COLLECTION AND
  ADMINISTRATION

  	
  58

  
	
   

  	
   

  	
   

  	
   

  
	
  6.1

  	
   

  	
  BORROWER’S LOAN ACCOUNTS

  	
  58

  
	
  6.2

  	
   

  	
  STATEMENTS

  	
  58

  
	
  6.3

  	
   

  	
  COLLECTION OF ACCOUNTS

  	
  58

  
	
  6.4

  	
   

  	
  PAYMENTS

  	
  59

  
	
  6.5

  	
   

  	
  TAXES

  	
  61

  
	
  6.6

  	
   

  	
  AUTHORIZATION TO MAKE LOANS

  	
  64

  
	
  6.7

  	
   

  	
  USE OF PROCEEDS

  	
  64

  
	
  6.8

  	
   

  	
  ILLEGALITY

  	
  64

  
	
  6.9

  	
   

  	
  PRO RATA TREATMENT

  	
  65

  
	
  6.10

  	
   

  	
  SHARING OF PAYMENTS, ETC

  	
  65

  
	
  6.11

  	
   

  	
  SETTLEMENT PROCEDURES

  	
  66

  
	
  6.12

  	
   

  	
  OBLIGATIONS SEVERAL; INDEPENDENT NATURE OF LENDERS’
  RIGHTS

  	
  68

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 7.

  	
   

  	
  COLLATERAL REPORTING
  AND COVENANTS

  	
  68

  
	
   

  	
   

  	
   

  	
   

  
	
  7.1

  	
   

  	
  COLLATERAL REPORTING

  	
  68

  
	
  7.2

  	
   

  	
  ACCOUNTS COVENANTS

  	
  69

  
	
  7.3

  	
   

  	
  INVENTORY COVENANTS

  	
  70

  
	
  7.4

  	
   

  	
  EQUIPMENT AND REAL PROPERTY COVENANTS

  	
  71

  
	
  7.5

  	
   

  	
  POWER OF ATTORNEY

  	
  72

  
	
  7.6

  	
   

  	
  RIGHT TO CURE

  	
  73

  
	
  7.7

  	
   

  	
  ACCESS TO PREMISES

  	
  73

  

 

 

	
  SECTION 8.

  	
   

  	
  REPRESENTATIONS AND
  WARRANTIES

  	
  73

  
	
   

  	
   

  	
   

  	
   

  
	
  8.1

  	
   

  	
  CORPORATE EXISTENCE, POWER AND AUTHORITY

  	
  73

  
	
  8.2

  	
   

  	
  NAME; STATE OF ORGANIZATION; CHIEF EXECUTIVE OFFICE;
  COLLATERAL LOCATIONS

  	
  74

  
	
  8.3

  	
   

  	
  FINANCIAL STATEMENTS; NO MATERIAL ADVERSE CHANGE

  	
  74

  
	
  8.4

  	
   

  	
  PRIORITY OF LIENS; TITLE TO PROPERTIES

  	
  75

  
	
  8.5

  	
   

  	
  TAX RETURNS

  	
  75

  
	
  8.6

  	
   

  	
  LITIGATION

  	
  75

  
	
  8.7

  	
   

  	
  COMPLIANCE WITH OTHER AGREEMENTS AND APPLICABLE LAWS

  	
  76

  
	
  8.8

  	
   

  	
  ENVIRONMENTAL COMPLIANCE

  	
  76

  
	
  8.9

  	
   

  	
  EMPLOYEE BENEFITS

  	
  77

  
	
  8.10

  	
   

  	
  BANK ACCOUNTS

  	
  77

  
	
  8.11

  	
   

  	
  INTELLECTUAL PROPERTY

  	
  77

  
	
  8.12

  	
   

  	
  SUBSIDIARIES; AFFILIATES; CAPITALIZATION

  	
  78

  
	
  8.13

  	
   

  	
  LABOR DISPUTES

  	
  78

  
	
  8.14

  	
   

  	
  RESTRICTIONS ON SUBSIDIARIES

  	
  79

  
	
  8.15

  	
   

  	
  MATERIAL CONTRACTS

  	
  79

  
	
  8.16

  	
   

  	
  CONFIRMATION ORDER

  	
  80

  
	
  8.17

  	
   

  	
  PAYABLE PRACTICES; RETENTION OF TITLE

  	
  80

  
	
  8.18

  	
   

  	
  ACCURACY AND COMPLETENESS OF INFORMATION

  	
  80

  
	
  8.19

  	
   

  	
  SURVIVAL OF WARRANTIES; CUMULATIVE

  	
  80

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 9.

  	
   

  	
  AFFIRMATIVE AND
  NEGATIVE COVENANTS

  	
  81

  
	
   

  	
   

  	
   

  	
   

  
	
  9.1

  	
   

  	
  MAINTENANCE OF EXISTENCE

  	
  81

  
	
  9.2

  	
   

  	
  NEW COLLATERAL LOCATIONS

  	
  81

  
	
  9.3

  	
   

  	
  COMPLIANCE WITH LAWS, REGULATIONS, ETC

  	
  81

  
	
  9.4

  	
   

  	
  PAYMENT OF TAXES AND CLAIMS

  	
  83

  
	
  9.5

  	
   

  	
  INSURANCE

  	
  83

  
	
  9.6

  	
   

  	
  FINANCIAL STATEMENTS AND OTHER INFORMATION

  	
  83

  
	
  9.7

  	
   

  	
  SALE OF ASSETS, CONSOLIDATION,
  MERGER, DISSOLUTION, ETC

  	
  85

  
	
  9.8

  	
   

  	
  ENCUMBRANCES

  	
  88

  
	
  9.9

  	
   

  	
  INDEBTEDNESS

  	
  90

  
	
  9.10

  	
   

  	
  LOANS, INVESTMENTS, ETC

  	
  92

  
	
  9.11

  	
   

  	
  DIVIDENDS AND REDEMPTIONS

  	
  94

  
	
  9.12

  	
   

  	
  TRANSACTIONS WITH AFFILIATES

  	
  95

  
	
  9.13

  	
   

  	
  COMPLIANCE WITH ERISA

  	
  95

  
	
  9.14

  	
   

  	
  END OF FISCAL YEARS; FISCAL QUARTERS

  	
  95

  
	
  9.15

  	
   

  	
  CHANGE IN BUSINESS

  	
  96

  
	
  9.16

  	
   

  	
  LIMITATION OF RESTRICTIONS AFFECTING SUBSIDIARIES

  	
  96

  
	
  9.17

  	
   

  	
  MINIMUM EBITDA

  	
  96

  
	
  9.18

  	
   

  	
  FIXED CHARGE COVERAGE RATIO. At any time that Excess
  Availability is less than $20,000,000, 

  	
   

  
	
  the Fixed Charge
  Coverage Ratio of Borrower and its Subsidiaries (on a consolidated basis) for
  each period set forth on Schedule 9.18 hereto for which financial statements
  of Borrower and its Subsidiaries have been received by Agent shall be not
  less than amounts set forth on Schedule 9.18 hereto with respect to such
  period 

  	
  96

  
	
  9.19

  	
   

  	
  AFTER ACQUIRED REAL PROPERTY

  	
  97

  
	
  9.20

  	
   

  	
  EFFECT OF INDEBTEDNESS OF FOREIGN SUBSIDIARIES

  	
  97

  

 

 

	
  9.21

  	
   

  	
  COSTS AND EXPENSES

  	
  97

  
	
  9.22

  	
   

  	
  FURTHER ASSURANCES

  	
  98

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 10.

  	
   

  	
  EVENTS OF DEFAULT AND
  REMEDIES

  	
  98

  
	
   

  	
   

  	
   

  	
   

  
	
  10.1

  	
   

  	
  EVENTS OF DEFAULT

  	
  98

  
	
  10.2

  	
   

  	
  REMEDIES

  	
  100

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 11.

  	
   

  	
  JURY TRIAL WAIVER;
  OTHER WAIVERS AND CONSENTS; GOVERNING LAW

  	
  103

  
	
   

  	
   

  	
   

  	
   

  
	
  11.1

  	
   

  	
  GOVERNING LAW; CHOICE OF FORUM; SERVICE OF PROCESS;
  JURY TRIAL WAIVER

  	
  103

  
	
  11.2

  	
   

  	
  WAIVER OF NOTICES

  	
  104

  
	
  11.3

  	
   

  	
  AMENDMENTS AND WAIVERS

  	
  105

  
	
  11.4

  	
   

  	
  WAIVER OF COUNTERCLAIMS

  	
  106

  
	
  11.5

  	
   

  	
  INDEMNIFICATION

  	
  106

  
	
  11.6

  	
   

  	
  CURRENCY INDEMNITY

  	
  107

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 12.

  	
   

  	
  THE AGENT

  	
  108

  
	
   

  	
   

  	
   

  	
   

  
	
  12.1

  	
   

  	
  APPOINTMENT, POWERS AND IMMUNITIES

  	
  108

  
	
  12.2

  	
   

  	
  RELIANCE BY AGENT

  	
  108

  
	
  12.3

  	
   

  	
  EVENTS OF DEFAULT

  	
  108

  
	
  12.4

  	
   

  	
  CONGRESS IN ITS INDIVIDUAL CAPACITY

  	
  109

  
	
  12.5

  	
   

  	
  INDEMNIFICATION

  	
  109

  
	
  12.6

  	
   

  	
  NON-RELIANCE ON AGENT AND OTHER LENDERS

  	
  110

  
	
  12.7

  	
   

  	
  FAILURE TO ACT

  	
  110

  
	
  12.8

  	
   

  	
  ADDITIONAL LOANS

  	
  110

  
	
  12.9

  	
   

  	
  CONCERNING THE COLLATERAL AND THE RELATED FINANCING
  AGREEMENTS

  	
  111

  
	
  12.10

  	
   

  	
  FIELD AUDIT,
  EXAMINATION REPORTS AND OTHER INFORMATION; DISCLAIMER BY LENDERS

  	
  111

  
	
  12.11

  	
   

  	
  COLLATERAL
  MATTERS

  	
  111

  
	
  12.12

  	
   

  	
  AGENCY FOR
  PERFECTION

  	
  113

  
	
  12.13

  	
   

  	
  SUCCESSOR AGENT

  	
  113

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 13.

  	
   

  	
  TERM OF
  AGREEMENT; MISCELLANEOUS

  	
  114

  
	
   

  	
   

  	
   

  	
   

  
	
  13.1

  	
   

  	
  TERM

  	
  114

  
	
  13.2

  	
   

  	
  INTERPRETATIVE PROVISIONS

  	
  115

  
	
  13.3

  	
   

  	
  NOTICES

  	
  117

  
	
  13.4

  	
   

  	
  PARTIAL INVALIDITY

  	
  117

  
	
  13.5

  	
   

  	
  CONFIDENTIALITY

  	
  117

  
	
  13.6

  	
   

  	
  SUCCESSORS

  	
  118

  
	
  13.7

  	
   

  	
  ASSIGNMENTS; PARTICIPATIONS

  	
  118

  
	
  13.8

  	
   

  	
  USA PATRIOT ACT

  	
  120

  
	
  13.9

  	
   

  	
  ENTIRE AGREEMENT

  	
  121

  
	
  13.10

  	
   

  	
  COUNTERPARTS,
  ETC

  	
  121

  
	
  13.11

  	
   

  	
  CODE SECTION 956
  OVERRIDE

  	
  121

  
	
  13.12

  	
   

  	
  BANK PRODUCTS
  OVERRIDE

  	
  121

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 14.

  	
   

  	
  ACKNOWLEDGMENT
  AND RESTATEMENT

  	
  122

  
	
   

  	
   

  	
   

  	
   

  
	
  14.1

  	
   

  	
  EXISTING OBLIGATIONS

  	
  122

  

 

 

	
  14.2

  	
   

  	
  ACKNOWLEDGMENT OF SECURITY INTERESTS

  	
  122

  
	
  14.3

  	
   

  	
  EXISTING AGREEMENTS

  	
  122

  
	
  14.4

  	
   

  	
  RESTATEMENT

  	
  123

  

 

AMENDED
AND RESTATED

LOAN
AND SECURITY AGREEMENT

This
Amended and Restated Loan and Security Agreement (this “Agreement” as hereinafter
further defined), dated August 31, 2004, is entered into by and among Haynes
International, Inc., a Delaware corporation (“Borrower” as hereinafter further
defined), the parties hereto from time to time as lenders, whether by execution
of this Agreement or an Assignment and Acceptance (each individually, a “Lender”
and collectively, “Lenders” as hereinafter further defined), Bank One, NA, a
national banking association, in its capacity as documentation agent (in such
capacity, “Documentation Agent” as hereinafter further defined), and Congress
Financial Corporation (Central), an Illinois corporation, in its capacity as
agent for Lenders (in such capacity, “Agent” as hereinafter further defined).

W
I T N E S S E T H:

WHEREAS,
Borrower filed voluntary petitions for relief under Chapter 11 of the
Bankruptcy Code with the United States Bankruptcy Court for the Southern District
of Indiana (Indianapolis Division);

WHEREAS,
Agent and Lenders have provided a secured revolving credit facility in the
Chapter 11 Case (as hereinafter defined) to Borrower pursuant to the Existing
Agreements (as hereinafter defined) and the Final Financing Order (as
hereinafter defined); and

WHEREAS,
in the Chapter 11 Case of Borrower and Haynes Holdings, Inc., a Delaware
corporation (which is being merged with and into Borrower on the Effective Date
(as hereinafter defined)), the First Amended Joint Plan of Reorganization of
Haynes International Inc. and its affiliates (the “Plan” as hereinafter further
defined) has been confirmed pursuant to the Confirmation Order (as hereinafter
defined), and concurrently with the making of the initial loans or issuance of
letters of credit hereunder, the effective date with respect to such Plan has
occurred; and

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

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

SECTION
1.                                DEFINITIONS

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

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

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

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

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

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

1.6                                 “Applicable
Margin” shall mean, at any time, as to the interest rate for Prime Rate Loans,
the interest rate for Prime Rate Fixed Asset Loans, the interest rate for
Eurodollar Rate Loans, the interest rate for Eurodollar Rate Fixed Asset Loans,
the interest rate for Prime Rate Equipment Purchase Loans, the interest rate
for Eurodollar Rate Equipment Purchase Loans and the Letter of Credit Fee, the
applicable percentage (on a per annum basis) set forth below

indicated
for the Monthly Average Excess Availability for the immediately preceding month
is at or within the amounts indicated for such percentage:

	
  

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Loans based on Fixed Asset

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Loans Based on

  	
   

  	
  Availability and Equipment

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Accounts and Inventory

  	
   

  	
  Purchase Loans

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Applicable

  	
   

  	
  Applicable

  	
   

  	
  Applicable

  	
   

  	
  Applicable

  	
   

  	
   

  	
   

  
	
  Monthly Average

  	
   

  	
  Prime Rate

  	
   

  	
  Eurodollar

  	
   

  	
  Prime Rate

  	
   

  	
  Eurodollar

  	
   

  	
   

  	
   

  
	
  Excess Availability

  	
   

  	
  Margin

  	
   

  	
  Margin

  	
   

  	
  Margin

  	
   

  	
  Margin

  	
   

  	
  L/C Rate

  	
   

  
	
  1. $20,000,000 or more
 	
   

  	
  1.00

  	
  %

  	
  2.50

  	
  %

  	
  1.50

  	
  %

  	
  3.00

  	
  %

  	
  1.75

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2. Greater than or equal to $10,000,000 and less than $20,000,000
 	
   

  	
  1.25

  	
  %

  	
  2.75

  	
  %

  	
  1.75

  	
  %

  	
  3.25

  	
  %

  	
  2.00

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3. Less than $10,000,000

  	
   

  	
  1.50

  	
  %

  	
  3.00

  	
  %

  	
  2.00

  	
  %

  	
  3.50

  	
  %

  	
  2.25

  	
  %

  

 

PROVIDED,
THAT, the Applicable Margin shall be calculated and established on the first
day of each month (commencing on March 1, 2005) and shall remain in effect until
adjusted thereafter at the beginning of the next month.

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

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

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

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

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

1.9                                 “Bank One”
shall mean Bank One, NA, in its individual capacity, and its successors and
assigns.

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

1.11                           “Bank
Product Provider” shall mean Agent, any Affiliate of Agent, any Lender, any
Affiliate of any Lender or any other financial institution designated by
Borrower in a writing to the Agent as a “Bank Product Provider” and which, in
each case, is acceptable to Agent and is approved by Bank One in the case of
any Bank Product Provider that is not a Lender or an Affiliate of a Lender or
an Affiliate of Agent, which approval by Bank One shall not be unreasonably
withheld or delayed. So long as Bank One is a Lender, Bank One and its
Affiliates shall be a Bank Product Provider.

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

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

1.14                           “Bankruptcy
Court” shall mean the United States Bankruptcy Court for the Southern District
of Indiana (Indianapolis Division).

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

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

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

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

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

(b)               the lesser
of: (i) the sum of (A) the Kokomo Facility Inventory Availability, plus (B) the
Arcadia Facility Inventory Availability, plus (C) the Service Center Inventory
Availability or (ii) the Inventory Loan Limit, plus

(c)                Fixed Asset
Availability, less

(d)               Reserves.

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

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

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

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

1.22                           “Capital
Leases” shall mean, as applied to any Person, any lease of (or any agreement
conveying the right to use) any property (whether real, personal or mixed) by
such Person as lessee which in accordance with GAAP, is required to be
reflected as a liability on the balance sheet of such Person.

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

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

1.25                           “Change of
Control” shall mean (a) the transfer (in one transaction or a series of
transactions) of all or substantially all of the assets of Borrower to any
Person or group (as such term is used in Section 13(d)(3) of the Exchange Act);
(b) the liquidation or dissolution of Borrower; (c) the acquisition by any
Person or group (as such term is used in Section 13(d)(3) of the Exchange Act)
of beneficial ownership, directly or indirectly, of more than fifty (50%)
percent of the voting power of the total outstanding Voting Stock of Borrower;
(d) during any period of two (2) consecutive years, individuals who at the
beginning of such period constituted the Board of Directors of Borrower (together
with any new directors whose nomination for election by the stockholders of
Borrower was approved by a vote of at least sixty six and two thirds (66 2/3%)
percent of the directors then still in office who were either directors at the
beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
Board of Directors of Borrower then still in office.

1.26                           “Chapter 11
Case” shall mean the Chapter 11 Cases of Borrower and its affiliated debtors
under the Bankruptcy Code currently pending in the Bankruptcy Court.

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

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

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

1.30                           “Commitment”
shall mean, at any time, as to each Lender, the amount equal to the sum of such
Lender’s Tranche A Commitments and Tranche B Commitments; sometimes being
collectively referred to herein as “Commitments”.

1.31                           “Confirmation
Order” shall mean the order captioned “Findings of Fact, Conclusions of Law and
Order under 11 U.S.C. Sections 1129(a) and (b) and Fed. R. Bankr. P. 3020
Confirming the First Amended Joint Plan of Reorganization of Haynes
International, Inc. and its Affiliated Debtors and Debtors in Possession” as
modified entered by the Bankruptcy Court on August 16, 2004 in the Chapter 11
Case.

1.32                           “Congress”
shall mean Congress Financial Corporation (Central), an Illinois corporation,
in its individual capacity, and its successors and assigns.

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

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

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

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

1.36                           “Defaulting
Lender” shall have the meaning set forth in Section 6.11(d) hereof.

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

1.38                           “EBITDA”
shall mean, as to any Person, with respect to any period, an amount equal to:
(a) the Consolidated Adjusted Net Income of such Person and its Subsidiaries
for such period, plus (b) depreciation and amortization and other non-cash
charges including imputed interest and deferred compensation for such period
(to the extent deducted in the computation of Consolidated Adjusted Net Income
of such Person), all in accordance with GAAP, plus (c) Interest Expense for
such period (to the extent deducted in the computation of Consolidated Adjusted
Net Income of such Person), plus (d) the Provision for Taxes for such period
(to the extent deducted in the computation of Consolidated Adjusted Net Income
of such Person), plus (e) Restructuring Expenses for such period (to the extent
deducted in the computation of Consolidated Adjusted Net Income for such
period), plus (f) non-recurring cash charges for such period, including any
payments made to unionized employees pursuant to Collective Bargaining
Agreement between Haynes International, Inc. and United Steelworkers of
America, for itself and on behalf of its Local No. 2958, dated as of July 2, 2002,
as modified by the Tentative Agreement, dated as of February 5, 2004 and ratified
by the United Steel Workers of America Local No. 2958 on February 13, 2004 as
to all of such non-recurring cash charges to the extent deducted in the computation
of Consolidated Adjusted Net Income of such Person), PROVIDED, THAT, in no
event shall the amount of non-recurring cash charges added pursuant to this
clause (f) exceed in the aggregate (i) $2,000,000 for the fiscal year ending
September 30, 2005, (ii) $1,000,000 for the fiscal year ending September 30,
2006, and (iii) $1,000,000 for the fiscal year ending September 30, 2007, plus
(g) non-cash charges related to “fresh-start” accounting taken in such period.

1.39                           “Effective
Date” shall mean the date after which the Confirmation Order shall have become
a Final Order and that all of the conditions precedent to the effectiveness of
the Plan shall have been satisfied, or with the consent of Agent, waived in
accordance with the terms thereof.

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

(a)                such
Accounts arise from the actual and bona fide sale and delivery of goods by
Borrower or rendition of services by Borrower in the ordinary course of its
business which transactions are completed in accordance with the terms and
provisions contained in any documents related thereto;

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

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

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

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

(f)                  such
Accounts do not consist of progress billings (such that the obligation of the
account debtors with respect to such Accounts is conditioned upon Borrower’s
satisfactory completion of any further performance under the agreement giving
rise thereto), bill and hold invoices or retainage invoices, except as to bill
and hold invoices, if Agent shall have received an 

agreement
in writing from the account debtor, in form and substance reasonably satisfactory
to Agent, confirming the unconditional obligation of the account debtor to take
the goods related thereto and pay such invoice;

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

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

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

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

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

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

(m)             the
aggregate amount of such Accounts owing by a single account debtor do not
constitute more than fifteen (15%) percent of the aggregate amount of all
otherwise Eligible

Accounts
(but the portion of the Accounts not in excess of the applicable percentages
may be deemed Eligible Accounts);

(n)               such
Accounts are not owed by an account debtor who has Accounts unpaid more than
sixty (60) days after the original due date for them or one hundred twenty
(120) days after the date of the original invoice for them, in either case
which constitute more than fifty (50%) percent of the total Accounts of such
account debtor;

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

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

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

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

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

1.42                           “Eligible
Inventory” shall mean Inventory owned by Borrower consisting of finished goods
held for resale in the ordinary course of the business of Borrower, raw
materials for such finished goods and work-in-process and semi-finished
Inventory, in each case that at all times satisfies the criteria set forth
below. In general, Eligible Inventory shall not include 

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

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

1.44                           “Eligible
New Equipment” shall mean all new Equipment owned by Borrower which is acquired
after April 12, 2004 and is in good order, repair, running and marketable
condition that at all times satisfies the criteria set forth below. In general,
Eligible New Equipment shall not include: (a) Equipment at premises other than
those permitted hereunder and which are either (i) owned and operated by
Borrower, or (ii) leased and operated by Borrower or (iii) owned and operated
by a third person, PROVIDED, THAT, except as Agent may otherwise agree, Agent
shall have received a Collateral Access Agreement duly executed and delivered
by such third person; (b) Equipment subject to a security interest, lien,
charge or other encumbrance in favor of any Person other than Agent except those
permitted in this Agreement that are subject to an intercreditor agreement, in
form and substance satisfactory to Agent, between the holder of such security
interest or lien and Agent or as Agent may otherwise specifically agree; (c)
Equipment located outside the continental United States of America; (d)
Equipment that is not subject to the first priority, valid and perfected security
interests and liens of Agent; (e) worn-out, obsolete, damaged or defective
Equipment or Equipment not used or usable in the ordinary course of Borrower’s
business as presently conducted; (f) computer hardware; or (g) Equipment that
is or becomes a fixture. The criteria for Eligible New

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

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

1.46                           “Eligible
Transferee” shall mean (a) any Lender; (b) the parent company of any Lender
and/or any Affiliate of such Lender which is at least fifty (50%) percent owned
by such Lender or its parent company; (c) any person (whether a corporation,
partnership, trust or otherwise) that is engaged in the business of making,
purchasing, holding or otherwise investing in bank loans and similar extensions
of credit in the ordinary course of its business and is administered or managed
by a Lender or with respect to any Lender that is a fund which invests in bank
loans and similar extensions of credit, any other fund that invests in bank
loans and similar extensions of credit and is managed by the same investment
advisor as such Lender or by an Affiliate of such investment advisor, and in
each case is approved by Agent; (d) any other commercial bank approved by
Agent; and (e) any other financial institution or “accredited investor” (as
defined in Regulation D under the Securities Act of 1933) approved by Agent
that makes loans and provides similar extensions of credit in the ordinary
course of its business and is capable of funding revolving loans; PROVIDED,
THAT, (i) neither Borrower nor any Affiliate of Borrower shall qualify as an
Eligible Transferee and (ii) no Person to whom any Indebtedness which is in any
way subordinated in right of payment to any other Indebtedness of Borrower
shall qualify as an Eligible Transferee, except as Agent may otherwise specifically
agree.

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

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

1.49         “Equipment
Purchase Loan Limit” shall mean at any time the lesser of (a) $10,000,000 or
(b) the amount equal to: (i) the Maximum Credit minus (ii) the sum of (A) the
Tranche A Loans then outstanding, plus (B) the Tranche B Loans then
outstanding, plus (C) the undrawn amount of Letter of Credit Accommodations
then outstanding, plus (D) the aggregate amount of loans and letter of credit
accommodations outstanding (and as to such letter of credit accommodations,
without regard to the reserves established with respect thereto), to or for the
benefit of Haynes UK or any other obligor under the UK Financing Agreements.

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

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

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

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

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

1.55         “ERISA Event”
shall mean (a) any “reportable event” described in Section 4043(b) or
4043(c)(1), (2), (5), (6), (8) or (9) of ERISA or the regulations issued
thereunder, with respect to a Pension Plan or a Multiemployer Plan; (b) the
adoption of any amendment to a Benefit Plan that would require the provision of
security pursuant to Section 401(a)(29) of the Code or Section 307 of ERISA;
(c) the existence with respect to any Pension Plan of an “accumulated funding deficiency”
(as defined in Section 412 of the Code or Section 302 of ERISA), whether or not
waived; (d) the filing pursuant to Section 412 of the Code or Section 303(d) of
ERISA of an application for a waiver of the minimum funding standard with
respect to any Pension Plan; (e) the occurrence of a “prohibited transaction”
with respect to which Borrower or any of its Subsidiaries is a “disqualified
person” (within the meaning of Section 4975 of the Code) or with respect to
which Borrower or any of its Subsidiaries could otherwise be liable; (f) a
complete or partial withdrawal by Borrower or any ERISA Affiliate from a
Multiemployer Plan that results in or has a reasonable likelihood of resulting
in any liability of Borrower; (g) the receipt by or on behalf of Borrower or
any ERISA Affiliate of a notice that

either:  (i) any
Multiemployer Plan is in reorganization or insolvent (each within the meaning
of ERISA) or (ii) any Multiemployer Plan is or will or is likely to be entering
reorganization or becoming insolvent or (iii) any Multiemployer Plan intends to
terminate or has been terminated, in the case of each of clauses (g)(i), (ii)
or (iii) that result in or has a reasonable likelihood of resulting in any
liability of Borrower; (h) the filing of a notice of intent to terminate, the
treatment of a Benefit Plan amendment as a termination under Section 4041 or
4041A of ERISA, or the commencement of proceedings by the Pension Benefit
Guaranty Corporation to terminate a Pension Plan or Borrower receiving a notice
of or otherwise obtaining knowledge of the commencement of proceedings by the
Pension Benefit Guaranty Corporation to terminate a Multiemployer Plan; (i) the
occurrence of an event or condition which might reasonably be expected to
constitute grounds under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Pension Plan or Borrower receiving
a notice of or otherwise obtaining knowledge of any such event or condition as
to a Multiemployer Plan; (j) the imposition of any liability under Title IV of
ERISA, other than the Pension Benefit Guaranty Corporation premiums due but not
delinquent under Section 4007 of ERISA, upon Borrower or any ERISA Affiliate in
excess of $250,000.

1.56         “Eurodollar
Rate” shall mean with respect to the Interest Period for a Eurodollar Rate
Loan, the interest rate per annum equal to the arithmetic average of the rates
of interest per annum (rounded upwards, if necessary, to the next one
thousandth (1/1000th) of one (1%) percent) at which Reference Bank is offered
deposits of United States dollars in the London interbank market (or other
Eurodollar Rate market selected by Borrower and approved by Agent) on or about
9:00 a.m. (New York time) two (2) Business Days prior to the commencement of
such Interest Period in amounts substantially equal to the principal amount of
the Eurodollar Rate Loans requested by and available to Borrower in accordance
with this Agreement, with a maturity of comparable duration to the Interest
Period selected by or on behalf of Borrower.

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

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

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

1.60         “Excess
Availability” shall mean at any time and without duplication, the sum of:

(a)      the amount
calculated at such time equal to: (i) the lesser of: (A) the Borrowing Base and
(B) the Maximum Credit (in each case under (A) or (B) after giving effect to
any applicable Reserves), minus (ii) the sum of: (A) the amount of the then
outstanding and unpaid principal amount of the Loans (other than Equipment
Purchase Loans) and the undrawn amount of Letter of Credit Accommodations, plus
(B) the aggregate amount of all payables or other obligations outstanding more
than forty-five (45) days after the due date therefor as of such time (and for
this purpose the due date for payables incurred prior to the commencement of
the Chapter 11 Case (or during the course thereof) will be the date for payment
of such payables as

established
pursuant to the Plan and the claims administration process provided for in the
Chapter 11 Case and as to those payables or other obligations that are subject
to a dispute or are not otherwise allowed, prior to the establishment of the
due date for such payables or other obligations pursuant to the Plan and the
claims administration process, such payables and other obligations shall not be
deemed outstanding more than forty-five (45) days after the due date therefor
for purposes of this definition), plus (C) the amount of checks issued by
Borrower to pay payables and other obligations which are more than such number
of days past due, but not yet sent (without duplication of amounts included in
clause (a)(ii)(B) herein); plus

(b)      the amount
calculated at such time equal to the total amount available for Utilisation (as
such term is defined in the UK Financing Agreements), subject to the
limitations contained in Sections 5.3 and 5.5 of the Facility Agreement
referred to in the definition of the UK Financing Agreements, after giving
effect to all then outstanding Utilisations and net of the aggregate of all
Past Due Payables (as such term is defined in the UK Financing Agreements).

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

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

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

1.64         “Existing
Agreements” shall mean, collectively, the following (each as amended, modified
or supplemented prior to the date hereof); (a) the Loan and Security Agreement,
dated April 12, 2004, by and among Lender and Borrower, and (b) the other
agreements listed on Schedule 1.64 hereto.

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

1.66         “Final
Financing Order” shall mean Final Order Pursuant to Sections 361, 363 and
364(c) of The Bankruptcy Code and Rule 4001 of The Federal Rules of Bankruptcy
Procedure (i) Authorizing Debtors to Obtain Post-Petition Financing, Granting
Senior Liens and Priority Administrative Expense Status, Modifying the Automatic
Stay, Authorizing Debtors to Enter into Agreements with Congress Financial
Corporation (Central), as Agent for Itself and Certain Other Lenders, and (ii)
Authorizing Debtors to Pay in Full the Secured Claims of Fleet Capital Corporation,
as Agent for Itself and Certain Other Lenders entered on April 22, 2004 by the
Bankruptcy Court in the Chapter 11 Case.

1.67         “Final Order”
shall mean an order or judgment of the Bankruptcy Court duly entered on the
docket of the Bankruptcy Court that (a) has not been modified or amended without
the consent of the Agent, or vacated, reversed, revoked, rescinded, stayed or
appealed from, except as Agent may otherwise specifically agree in good faith,
(b) with respect to which

the
time to appeal, petition for certiorari, application or motion for reversal, rehearing,
reargument, stay, or modification has expired, (c) no petition, application or
motion for reversal, rehearing, reargument, stay or modification thereof or for
a writ of certiorari with respect thereto has been filed or granted or the
order or judgment of the Bankruptcy Court has been affirmed by the highest
court to which the order or judgment was appealed and (d) is no longer subject
to any or further appeal or petition, application or motion for reversal,
rehearing, reargument, stay or modification thereof or for any writ of certiorari
with respect thereto or further judicial review in any form.

1.68         “Financing
Agreements” shall mean, collectively, this Agreement and all notes, guarantees,
security agreements, Deposit Account Control Agreements, Investment Property
Control Agreements, intercreditor agreements and all other agreements,
documents and instruments now or at any time hereafter executed and/or
delivered by Borrower in connection with this Agreement.

1.69         “Fixed Asset
Availability” shall mean $15,949,276; PROVIDED, THAT, effective on the first
day of each month after the date hereof the Fixed Asset Availability shall be
reduced by the amount equal to $231,681 on the first day of each such month.

1.70         “Fixed
Charges” shall mean, as to any Person and its Subsidiaries with respect to any
period, the sum of, without duplication, (a) all cash Interest Expense (which
for purposes of this definition shall not include amortizing payments of
deferred financing charges that do not constitute interest), plus (b) net cash
costs under any Hedge Agreement (in each case as to such Person and its
Subsidiaries for such period and to the extent not included in the calculation
of EBITDA of such Person and its Subsidiaries for such period), plus (c) all
regularly scheduled (as determined at the beginning of the respective period)
principal payments of Indebtedness for borrowed money and Indebtedness with
respect to Capital Leases (and without duplicating in items (a) and (c) of this
definition, the interest component with respect to Indebtedness under Capital
Leases), plus (d) all Capital Expenditures, plus (e) the cash portion of any
Provision for Taxes paid in such period and unpaid amounts of any Provision for
Taxes the last date for payment of which before becoming past due occurs during
such period, plus (f) all scheduled reductions in the Fixed Asset Availability
occurring during such period, plus (g) cash payments in respect of US pension
obligations made during such period.

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

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

1.73         “GAAP” shall
mean generally accepted accounting principles in the United States of America
as in effect from time to time as set forth in the opinions and pronouncements
of the Accounting Principles Board and the American Institute of Certified
Public Accountants and the statements and pronouncements of the Financial
Accounting Standards Board which are

applicable
to the circumstances as of the date of determination consistently applied;
PROVIDED, THAT, for purposes of Sections 9.17 and 9.18 hereof, GAAP shall be
determined on the basis of such principles in effect on the date hereof and
consistent with those used in the preparation of the most recent audited financial
statements delivered to Agent prior to the date hereof.

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

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

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

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

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

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

1.80         “Indebtedness”
shall mean, with respect to any Person, whether or not contingent, (a) all
indebtedness for borrowed money (whether or not the recourse of the lender is
to the whole of the assets of such Person or only to a portion thereof) or
evidenced by bonds, notes, debentures or similar instruments; (b) the balance
deferred and unpaid of the purchase price of any property or services (except
any such balance that constitutes an account payable to a trade creditor
(whether or not an Affiliate) created, incurred, assumed or guaranteed by such
Person in

the
ordinary course of business of such Person in connection with obtaining goods,
materials or services that is not overdue by more than one hundred twenty (120)
days (unless the trade payable is being contested in good faith and for this
purpose the due date for payables incurred prior to the commencement of the Chapter
11 Case (or during the course thereof) will be the date for payment of such
payables as established pursuant to the Plan and the claims administration process
provided for in the Chapter 11 Case and as to those payables or other obligations
that are subject to a dispute or are not otherwise allowed, prior to the
establishment of the due date for such payables or other obligations pursuant
to the Plan and the claims administration process, such payables and other
obligations shall not be deemed overdue by more than one hundred twenty (120)
days for purposes of this definition); (c) the principal component of all leases
to which it is a lessee which have been, or should be, in accordance with GAAP
recorded as Capital Leases; (d) any contractual obligation, contingent or otherwise,
of such Person to pay or be liable for the payment of any indebtedness
described in this definition of another Person, including, without limitation,
any such indebtedness, directly or indirectly guaranteed, or any agreement to
purchase, repurchase, or otherwise acquire such indebtedness, obligation or
liability or any security therefor, or to provide funds for the payment or
discharge thereof, or to maintain solvency, assets, level of income, or other
financial condition; (e) all obligations with respect to redeemable stock and
redemption or repurchase obligations under any Capital Stock or other equity
securities issued by such Person; (f) all reimbursement obligations and other
liabilities of such Person with respect to surety bonds (whether bid, performance
or otherwise), letters of credit, banker’s acceptances, drafts or similar
documents or instruments issued for such Person’s account; (g) all indebtedness
of such Person in respect of indebtedness of another Person for borrowed money
or indebtedness of another Person otherwise described in this definition which
is secured by any consensual lien, security interest, collateral assignment,
conditional sale, mortgage, deed of trust, or other encumbrance on any asset of
such Person, whether or not such obligations, liabilities or indebtedness are
assumed by or are a personal liability of such Person, all as of such time; (h)
all obligations, liabilities and indebtedness of such Person arising under any
Hedge Agreements; and (i) the principal and interest portions of all rental
obligations of such Person under any synthetic lease or similar off balance
sheet financing where such transaction is considered to be borrowed money for
tax purposes but is classified as an operating lease in accordance with GAAP.

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

1.82         “Intellectual
Property” shall mean Borrower’s now owned and hereafter arising or acquired:
patents, patent rights, patent applications, copyrights, works which are the
subject matter of copyrights, copyright applications, copyright registrations,
trademarks, servicemarks, trade names, trade styles, trademark and service mark
applications, and licenses and rights to use any of the foregoing and all
applications, registrations and recordings relating to the foregoing as may be
filed in the United States Copyright Office, the United States Patent and
Trademark Office or in any similar office or agency of the United States, any
State thereof, any political subdivision thereof or in any other country,
together with all rights and privileges arising under applicable law with
respect to Borrower’s use of any of the foregoing; all extensions, renewals,

reissues,
divisions, continuations, and continuations-in-part of any of the foregoing;
all rights to sue for past, present and future infringement of any of the
foregoing; inventions, trade secrets, formulae, processes, compounds, drawings,
designs, blueprints, surveys, reports, manuals, and operating standards;
goodwill (including any goodwill associated with any trademark or servicemark
or the license of any trademark or servicemark); customer and other lists in
whatever form maintained; trade secret rights, copyright rights, rights in
works of authorship, domain names and domain name registrations; software and contract
rights relating to computer software programs, in whatever form created or
maintained.

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

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

1.85         “Interest
Rate” shall mean,

(a)      Subject to
clause (b) and (c) below, (i) as to Prime Rate Loans (other than Prime Rate
Fixed Asset Loans and Prime Rate Equipment Purchase Loans), a rate equal to one
and one-quarter (1 1/4%) percent per annum in excess of the Prime Rate, (ii) as
to Prime Rate Fixed Asset Loans and Prime Rate Equipment Purchase Loans, a rate
of equal to one and three quarters (1 3/4%) percent per annum in excess of the
Prime Rate, (iii) as to Eurodollar Rate Loans (other than Eurodollar Rate Fixed
Asset Loans and Eurodollar Rate Equipment Purchase Loans), a rate of two and
three quarters (2 3/4%) percent per annum in excess of the Adjusted Eurodollar
Rate and (iv) as to Eurodollar Rate Fixed Asset Loans and Eurodollar Rate
Equipment Purchase Loans, a rate of three and one quarter (3 1/4%) percent per
annum in excess of the Adjusted Eurodollar Rate; in the case of each of clause
(iii) and (iv) hereof based on the Eurodollar Rate applicable for the Interest
Period selected by Borrower as in effect three (3) Business Days after the date
of receipt by Agent of the request of Borrower for such Eurodollar Rate Loans
in accordance with the terms hereof, whether such rate is higher or lower than
any rate previously quoted to Borrower.

(b)      Subject to
clause (c) of this definition below, effective as of the first day of each
month (commencing on March 1, 2005), the Interest Rate payable by Borrower
shall be increased or decreased, as the case may be, (i) as to Prime Rate
Loans, to the rate equal to the Applicable Margin on a per annum basis in excess
of the Prime Rate, and (ii) as to Eurodollar Rate Loans, to the rate equal to
the Applicable Margin on a per annum basis in excess of the Adjusted Eurodollar
Rate.

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

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

1.87         “Inventory
Loan Limit” shall mean at any time, the amount equal to (a) $60,000,000 minus
(b) the US Dollar Equivalent of the then outstanding amount of loans to Haynes
UK (and including letter of credit accommodations to the extent provided in its
borrowing base as such term is defined in the UK Financing Agreements) based on
eligible inventory (as such term is defined in the UK Financing Agreements) of
Haynes UK.

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

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

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

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

category
of such Eligible Kokomo Inventory multiplied by (ii) the Value of such category
of Eligible Kokomo Inventory; or

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

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

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

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

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

1.94         “Loans”
shall mean, collectively, the Tranche A Loans, the Tranche B Loans and the
Equipment Purchase Loans.

1.95         “Material
Adverse Effect” shall mean a material adverse effect on (a) the financial
condition, business, performance or operations of Borrower and its Subsidiaries
(taken as a whole); (b) the legality, validity or enforceability of this
Agreement or any of the other Financing Agreements; (c) the legality, validity,
enforceability, perfection or priority of the security interests and liens of
Agent upon the Collateral; (d) the Collateral or its value; (e) the ability of
Borrower to repay the Obligations or perform its obligations under this
Agreement or any of the other Financing Agreements; or (f) the ability of Agent
or any Lender to enforce the Obligations or realize upon the Collateral.

1.96         “Material
Contract” shall mean (a) any contract or other agreement (other than the
Financing Agreements), of Borrower involving monetary liability of or to any
Person in an amount in excess of $2,000,000 in any fiscal year and (b) any
other contract or other agreement (other than the Financing Agreements), to
which Borrower is a party, as to which the breach, nonperformance, cancellation
or failure to renew by any party thereto would have a Material Adverse Effect.
For purposes hereof, the breach, non-performance, cancellation or failure to
renew by any party will not constitute a Material Adverse Effect if Borrower is
readily able to promptly obtain substitute performance from a third party on
terms (taken as a whole) that are not less favorable in any material respect to
Borrower.

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

1.98         “Maximum
Credit” shall mean $100,000,000.

1.99         “Monthly
Average Excess Availability” shall mean, at any time, the daily average of the
aggregate amount of the Excess Availability for the immediately preceding month
as calculated by Agent in good faith, with Excess Availability calculated for
this purpose without regard to the Maximum Credit.

1.100       “Mortgages”
shall mean, individually and collectively, each of the following (as the same
now exist or may hereafter be amended, modified, supplemented, extended,
renewed, restated or replaced): (a) the Mortgage, Assignment of Leases and
Rents, Security Agreement and Fixture Filing, dated of even date herewith, by
Borrower in favor of Agent with respect to the Real Property and related assets
of Borrower located in Kokomo, Indiana, and (b) the Mortgage, Assignment of
Leases and Rents, Security Agreement and Fixture Filing, dated of even date
herewith, by Borrower in favor of Agent with respect to the Real Property and
related assets of Borrower located in Arcadia, Louisiana.

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

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

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

1.104       “Obligations”
shall mean collectively, the Pre-Effective Date Obligations and the
Post-Effective Date Obligations.

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

1.106       “Participant”
shall mean any financial institution that acquires and holds a participation in
the interest of any Lender in any of the Loans and Letter of Credit
Accommodations in conformity with the provisions of Section 13.7 of this
Agreement governing participations.

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

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

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

1.110       “Plan” shall
mean the First Amended Joint Plan of Reorganization of Haynes International,
Inc. and certain of its affiliates, dated June 29, 2004, as modified, as
confirmed by the Confirmation Order.

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

1.112       “Pre-Effective
Date Obligations” shall mean any and all Loans, Letter of Credit Accommodations
and all other obligations, liabilities and indebtedness of every kind, nature
and description owing by Borrower to Agent or any Lender and/or any of their
Affiliates arising prior to the Effective Date, including principal, interest,
charges, fees, costs and expenses, however

evidenced,
whether as principal, surety, endorser, guarantor or otherwise, in each case
arising under the Existing Agreements, now existing, whether arising before,
during the term of the Existing Agreements or during the Chapter 11 Case, or
before, during or after the confirmation of any plan of reorganization in the
Chapter 11 Case (and including any principal, interest, fees, costs, expenses
and other amounts owed to Agent or any Lender by Borrower in the Chapter 11
Case or any similar case or proceeding), whether direct or indirect, absolute
or contingent, joint or several, due or not due, primary or secondary, liquidated
or unliquidated, secured or unsecured, and however acquired by Agent or any
Lender.

1.113       “Prime Rate”
shall mean the rate from time to time publicly announced by Wachovia Bank,
National Association, or its successors, as its prime rate, whether or not such
announced rate is the best rate available at such bank.

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

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

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

1.117       “Pro Rata
Share” shall mean, subject to Section 2.1(e) hereof:

(a)      with respect
to a Lender’s obligation to make Tranche A Loans and to acquire interests in
Letter of Credit Accommodations and receive payments of interest and principal
with respect thereto, the fraction (expressed as a percentage) the numerator of
which is such Lender’s Tranche A Commitment and the denominator of which is the
aggregate amount of all of the Tranche A Commitments, as adjusted from time to
time in accordance with the provisions of Section 13.7 hereof; PROVIDED, THAT,
if the Tranche A Commitments have been terminated, the numerator shall be the
unpaid amount of such Lender’s Tranche A Loans and its interest in the Letter
of Credit Accommodations and the denominator shall be the aggregate amount of
all unpaid Tranche A Loans and Letter of Credit Accommodations;

(b)      with respect
to a Lender’s obligation to make Tranche B Loans and to acquire interests in
Letter of Credit Accommodations and receive payments of interest and principal
with respect thereto, the fraction (expressed as a percentage) the numerator of
which is such Lender’s Tranche B Commitment and the denominator of which is the
aggregate amount of all of the Tranche B Commitments, as adjusted from time to
time in accordance with the provisions of Section 13.7 hereof; PROVIDED, THAT,
if the Tranche B Commitments have been terminated, the numerator shall be the
unpaid amount of such Lender’s Tranche B Loans and its interest in the Letter
of Credit Accommodations and the denominator shall be the aggregate amount of
all unpaid Tranche B Loans and Letter of Credit Accommodations;

(c)      with respect
to all other matters (including the indemnification obligations arising under
Section 11.5 hereof, the voting rights set forth in Section 11.3 hereof and the
payment of any fees for the account of Lenders), at any time, as to any Lender,
except as Agent

and
Lenders may otherwise agree, the fraction (expressed as a percentage) the numerator
of which is such Lender’s Commitment (PROVIDED, THAT, if the Commitments have
been terminated, the numerator shall be the unpaid amount of such Lender’s
Loans and its interest in the Letter of Credit Accommodations) and the
denominator of which shall be the amount equal to the aggregate amount of all
Commitments of Lenders, as adjusted from time to time in accordance with the provisions
of Section 13.7 hereof.

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

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

1.120       “Receivables”
shall mean all of the following now owned or hereafter arising or acquired
property of Borrower: (a) all Accounts; (b) all interest, fees, late charges,
penalties, collection fees and other amounts due or to become due or otherwise
payable in connection with any Account; (c) all payment intangibles of
Borrower; (d) letters of credit, indemnities, guarantees, security or other
deposits and proceeds thereof issued payable to Borrower or otherwise in favor
of or delivered to Borrower in connection with any Account; or (e) all other
accounts, contract rights, chattel paper, instruments, notes, general
intangibles and other forms of obligations owing to Borrower, whether from the
sale and lease of goods or other property, licensing of any property (including
Intellectual Property or other general intangibles), rendition of services or
from loans or advances by Borrower or to or for the benefit of any third person
(including loans or advances to any Affiliates or Subsidiaries of Borrower) or
otherwise associated with any Accounts, Inventory or general intangibles of
Borrower (including, without limitation, choses in action, causes of action,
tax refunds, tax refund claims, any funds which may become payable to Borrower
in connection with the termination of any Benefit Plan or other employee
benefit plan and any other amounts payable to Borrower from any Benefit Plan or
other employee benefit plan, rights and claims against carriers and shippers,
rights to indemnification, business interruption insurance and proceeds
thereof, casualty or any similar types of insurance and any proceeds thereof
and proceeds of insurance covering the lives of employees on which Borrower is
a beneficiary).

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

1.122       “Reference
Bank” shall mean Wachovia Bank, National Association, or such other major U.S.
Bank as Agent may from time to time designate. For purposes hereof, a “major

U.S.
Bank” shall be any commercial bank organized under the laws of the United States,
or any State thereof, or the District of Columbia that is a member of the
Federal Reserve System and has combined capital and surplus and undivided profits
of not less than $500,000,000.

1.123       “Register”
shall have the meaning set forth in Section 13.7 hereof.

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

1.125       “Reserves”
shall mean as of any date of determination, such amounts as Agent may from time
to time establish and revise in good faith reducing the amount of Loans and Letter
of Credit Accommodations that would otherwise be available to Borrower under
the lending formula(s) provided for herein: (a) to reflect events, conditions,
contingencies or risks which, as determined by Agent in good faith, have
adversely affected, or are reasonably likely to adversely affect, either (i)
the Collateral, its value or the amount that might be received by Agent from
the sale or other disposition thereof, or (ii) the business or operations of
Borrower or (iii) the security interests and other rights of Agent or any
Lender in the Collateral (including the enforceability, perfection and priority
thereof), including, without limitation, the maximum amount of any indebtedness
or claim which may have a lien or administrative claim upon property of the
estate of Borrower superior to or on a parity with the lien and security
interest or administrative claim of Agent or any Lender therein or thereon or
(b) to reflect Agent’s good faith belief that any collateral report or
financial information furnished by or on behalf of Borrower to Agent is or may
have been incomplete, inaccurate or misleading in any material respect or (c)
to reflect outstanding Letter of Credit Accommodations as provided in Section
2.2 hereof. Without limiting the generality of the foregoing, Reserves may, at
Agent’s option, be established to reflect: (i) dilution with respect to the
Accounts (based on the ratio of the aggregate amount of non-cash reductions in
Accounts for any period to the aggregate dollar amount of the sales of Borrower
for such period) as calculated by Agent for any period is or is reasonably
anticipated to be greater than five (5%) percent; or (ii) that the fair market
value of Real Property subject to a Mortgage, or the net orderly liquidation
value of the Equipment, as set forth in any appraisals received by Agent with
respect thereto after the date hereof (in each case net of operating expenses,
liquidation expenses and commissions (without duplication estimated to be
incurred in connection with the liquidation thereof), that are acceptable to
Agent for such purpose, has declined so that the Fixed Asset Availability is
greater than (A) the percentages with respect to the value of Real Property or
Equipment used in establishing the original amounts of the Fixed Asset
Availability multiplied by (B) the applicable values set forth in such
subsequent appraisals; or (iii) the net orderly liquidation value of any Eligible
New Equipment as set forth in any appraisals thereof received by Agent with
respect thereto after the date hereof (net of operating expenses, liquidation
expenses and commissions without duplication estimated to be incurred in
connection with the liquidation thereof) that are acceptable to Agent, for such
purpose, has declined so that the Equipment Purchase Loan based on such
Eligible New Equipment is greater than the then outstanding principal amount of
such Equipment Purchase Loan; or (iv) variances between the Inventory records
of Borrower and the results of test counts or physical counts of Inventory with
respect thereto; or (v) variances between the stock ledger Inventory report and
general ledger; or (vi) returns, discounts, claims, credits and allowances of

any
nature that are not paid pursuant to the reduction of Accounts; or (vii) amounts
due or to become due in respect of sales, excise, use and/or withholding taxes;
or (viii) to the extent that a change in the turnover, age or mix of the categories
of Inventory adversely affects the aggregate value of all Inventory or to
reflect that the commodity prices of raw materials have decreased; or (ix) any
rental payments or other amounts due or to become due to owners and lessors of
real property or owners and operators of premises to the extent Inventory, Equipment
or Records are located in or on such property or premises and Agent has not
received a satisfactory Collateral Access Agreement from the owner or lessor of
such real property or owner and operator of such property or premises in
possession of such assets (PROVIDED, THAT, such Reserves will not exceed the aggregate
of the amounts payable to such owners and lessors or owners and operators for
the next three (3) months from any such time and including in each case
amounts, if any, then outstanding and unpaid owed by Borrower to such owners
and lessors or owners and operators, but such limitations will only apply so
long as no Event of Default exists or has occurred and is continuing); or (x) obligations
(contingent or otherwise) of Borrower to any Affiliate of Agent or a Lender or
any other Person arising under or in connection with any Hedge Agreement of
Borrower with such Affiliate or Person or as such Affiliate or Person may
otherwise require in connection therewith to the extent that such obligations
constitute Obligations as such term is defined herein or otherwise receive the
benefit of the security interest of Agent in any Collateral; PROVIDED, THAT,
the amount of the Reserves in respect of such obligations shall be based on the
amount of the liability of Borrower as agreed by the other party or parties to
the Hedge Agreements and reported by such other party or parties to Agent in a
form and substance satisfactory to Agent; or (xi) Bank Product Obligations
(PROVIDED, THAT, without limiting any other rights of Agent with respect to the
establishment or modification of Reserves, the establishment of such Reserve is
at the option of Agent, without any obligation to do so and that so long as no
Default or Event of Default exists or has occurred and is continuing Agent
shall not establish such Reserve to the extent that such obligations are only
to be paid after all other Obligations or pro rata with obligations arising
under Hedge Agreements that are greater than any Reserves established with
respect to Hedge Agreements). To the extent Agent may revise the lending
formulas used to determine the Borrowing Base or establish new criteria or
revise existing criteria for Eligible Accounts or Eligible Inventory so as to
address any circumstances, condition, event or contingency in a manner satisfactory
to Agent, Agent shall not establish a Reserve for the same purpose. The amount
of any Reserve established by Agent shall have a reasonable relationship to the
event, condition or other matter which is the basis for such reserve as
determined by Agent in good faith. In the event that the event, condition or
other matter giving rise to the establishment of any Reserve shall cease to
exist for a period of thirty (30) consecutive days (unless there is a reasonable
prospect that such event, condition or other matter will occur again within a
reasonable period of time thereafter), the Reserve established pursuant to such
event, condition or other matter, shall be discontinued. The term “Reserves” as
used herein shall include in addition, and not in limitation, the Special
Availability Reserve.

1.126       “Restructuring
Expenses” shall mean with respect to Borrower and its Subsidiaries, for any
period, fees and expenses of (a) professionals whose retention was approved by
the Bankruptcy Court during the Chapter 11 Case pursuant to Section 327 and
1103 of the Bankruptcy Code and (b) any statutory committees appointed in the
Chapter 11 Case (and, prior to such appointment, the ad hoc committee of the
holders of Borrower’s pre-petition senior notes), in each case, paid by Borrower
during such period.

1.127       “Secured
Obligations” shall mean, collectively, the Obligations and UK Obligations.

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

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

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

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

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

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

1.134       “Tranche A
Commitment” shall mean, with respect to each Lender, the principal amount set
forth below such Lender’s signature on the signature pages hereto and
designated “Tranche A Commitment” or on Schedule 1 to the Assignment and Acceptance
Agreement pursuant to which such Lender became a Lender hereunder in accordance
with the provisions of Section 13.7 hereof, as the same may be adjusted in
accordance with the terms hereof; sometimes being collectively referred to as “Tranche
A Commitments”.

1.135       “Tranche A
Lender” shall mean a Lender with a Tranche A Commitment.

1.136       “Tranche A
Loan Limit” shall mean at any time the amount equal to the lesser of: (a)
$85,000,000 or (b) the Borrowing Base at such time.

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

1.138       “Tranche B
Borrowing Base” shall mean, at any time, the amount equal to: (a) the Borrowing
Base at such time minus (b) the aggregate amount of the Tranche A Loans then
outstanding.

1.139       “Tranche B
Commitment” shall mean, with respect to each Lender, the principal amount set
forth below such Lender’s signature on the signature pages hereto and
designated “Tranche B Commitment” or on Schedule 1 to the Assignment and
Acceptance Agreement pursuant to which such Lender became a Lender hereunder in
accordance with the provisions of Section 13.7 hereof, as the same may be adjusted
in accordance with the terms hereof; sometimes being collectively referred to
as “Tranche B Commitments”.

1.140       “Tranche B
Lender” shall mean a Lender with a Tranche B Commitment.

1.141       “Tranche B
Loan Limit” shall mean, at any time, the lesser of: (a) the amount equal to:
(i) $15,000,000 minus (ii) the sum of (A) the aggregate amount of loans and
letter of credit accommodations outstanding (and as to such letter of credit
accommodations, without regard to the reserves established with respect
thereto), to or for the benefit of Haynes UK or any other obligor under the UK
Financing Agreements plus (B) the aggregate amount of the then outstanding
principal amount of Equipment Purchase Loans and (b) the Tranche B Borrowing
Base.

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

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

1.144       “UK
Financing Agreements” shall mean, collectively, the following (as the same now
exist or may hereafter be amended, modified, supplemented, extended, renewed,
restated or replaced): (a) the Facility Agreement, dated April 2, 2004, by and
among Haynes UK and UK Lender; (b) the Guarantee, dated April 2, 2004, by
Borrower in favor of UK Lender; and (c) all agreements, documents and
instruments executed and/or delivered in connection with any of the foregoing.

1.145       “UK Lender”
shall mean Burdale Financial Limited, a company organized under the laws of
England and Wales, and its successors and assigns.

1.146       “UK
Obligations” shall mean all obligations, liabilities and indebtedness of every
kind, nature and description owing by Borrower to UK Lender, whether now
existing or hereafter arising, whether arising before, during or after the
initial or any renewal term of this Agreement or the UK Financing Agreements
arising under or pursuant to any of the UK Financing Agreements, whether direct
or indirect, absolute or contingent, joint or several, due or not due, primary
or secondary, liquidated or unliquidated, secured or unsecured.

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

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

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

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

SECTION
2.           CREDIT
FACILITIES

2.1           LOANS.

(a)     Subject to
and upon the terms and conditions contained herein, each Tranche A Lender
severally (and not jointly) agrees to make its Pro Rata Share of Tranche A
Loans to Borrower from time to time in amounts requested by Borrower in the
aggregate amount for the Tranche A Loans of all Tranche A Lenders of up to the
lesser of (i) the Borrowing Base at such time or (ii) the Tranche A
Commitments.

(b)     Subject to
and upon the terms and conditions contained herein, each Tranche B Lender
severally (and not jointly) agrees to make its Pro Rata Share of Tranche B
Loans to Borrower from time to time in amounts requested by Borrower in the
aggregate amount for the Tranche B Loans of all Tranche B Lenders of up to the
lesser of (i) the Tranche B Borrowing Base at such time and (ii) the Tranche B
Commitments; PROVIDED, THAT, Tranche B Loans will only be made at such time as
the then outstanding principal amount of the Tranche A Loans equals or exceeds
the Tranche A Loan Limit.

(c)     Except in
Agent’s discretion, with the consent of all Lenders, or as otherwise provided
herein, (i) the aggregate amount of the Loans and the Letter of Credit
Accommodations outstanding at any time shall not exceed the Maximum Credit,
(ii) the aggregate principal

amount
of the Tranche A Loans and the Tranche B Loans outstanding at any time shall
not exceed the Borrowing Base, (iii) the aggregate principal amount of all Tranche
A Loans and Letter of Credit Accommodations outstanding at any time shall not
exceed the Tranche A Loan Limit, (iv) the aggregate principal amount of all
Tranche B Loans outstanding at any time shall not exceed the Tranche B Loan
Limit, (v) the aggregate principal amount of the Loans outstanding at any time
based on Eligible Inventory shall not exceed the Inventory Loan Limit, and (vi)
the aggregate principal amount of the Loans outstanding at any time based on
Eligible Inventory consisting of work-in-process shall not exceed $30,000,000.

(d)     In the event
that the aggregate principal amount of the Loans and Letter of Credit
Accommodations outstanding at any time exceeds the Maximum Credit, or the
aggregate principal amount of the Tranche A Loans and the Tranche B Loans
exceeds the Borrowing Base, or the aggregate principal amount of outstanding
Tranche A Loans exceeds the Tranche A Loan Limit, or the aggregate principal
amount of outstanding Tranche B Loans exceeds the Tranche B Loan Limit, or the
aggregate principal amount of Loans and Letter of Credit Accommodations based
on the Eligible Inventory exceed the Inventory Loan Limit, or the aggregate
amount of the outstanding Letter of Credit Accommodations exceed the sublimit
for Letter of Credit Accommodations set forth in Section 2.2(e), such event
shall not limit, waive or otherwise affect any rights of Agent or Lenders in
such circumstances or on any future occasions and Borrower shall, upon demand
by Agent, which may be made at any time or from time to time, immediately repay
to Agent the entire amount of any such excess(es) for which payment is
demanded.

(e)     In the event
that at any time Borrower may request Tranche B Loans in accordance with the
terms hereof and such Tranche B Loans are made or in the event that there are
any Loans outstanding in excess of the Borrowing Base (other than Equipment
Purchase Loans and Special Agent Advances), or in the event that at any time
the aggregate principal amount of the Loans exceeds $85,000,000, thereafter and
for so long as any such Tranche B Loans or Loans are outstanding,
notwithstanding anything to the contrary contained in Sections 1.117(a) and
1.117(b) hereof, for purposes of such sections, the amount of the Pro Rata
Share of each Lender shall be calculated based on the fraction, expressed as a
percentage,

(i)            the
numerator of which shall be the sum of (A) the Tranche A Commitment of such
Lender plus (B) the amount equal to (1) the Tranche B Commitment of such Lender
minus (2) the amount equal to (aa) such Lender’s percentage share of the total
of the Tranche B Commitments of all Lenders as then in effect (with such share
calculated based on the fraction, expressed as a percentage, the numerator of
which is the Tranche B Commitment of such Lender and denominator is the total
of all Tranche B Commitments) multiplied by (bb) the maximum amount of the
loans then available to Haynes UK under the UK Financing Agreements (determined
after giving effect to the reduction thereto as a result of the Tranche B Loans
then outstanding, but without regard to the UK borrowing base at such time or
the amount of the loans or other financial accommodations to Haynes UK
outstanding at such time under the UK Financing Agreements), and

(ii)           the
denominator of which shall be the sum of the principal amount of the Tranche A
Loans then outstanding plus the principal amount of the Tranche B Loans then
outstanding.

(f)      The method
for calculating the Pro Rata Shares of each Lender as set forth in Section
2.1(e) above shall apply as to each Lender whether or not such Lender has only
a Tranche A Commitment, only a Tranche B Commitment or both and shall apply as
to such Lender’s obligation to make Loans and receive payments in respect of
such Loans in the circumstances when Section 2.1(e) hereof is applicable
regardless of whether such Loans would be deemed to constitute Tranche A Loans
or Tranche B Loans and regardless of whether any such payments would otherwise
be allocated to Tranche A Loans or Tranche B Loans for purposes of Section
6.4(a) hereof and, for purposes of this Section 2.1, regardless of whether such
Lender is a Tranche A Lender and/or a Tranche B Lender. Nothing contained
herein shall be construed to mean that any Lender that has only a Tranche A
Commitment also has a Tranche B Commitment for purposes of the Loan Agreement
or that any Lender that has only a Tranche A Commitment is a Tranche B Lender
for purposes of the Loan Agreement.

2.2           LETTER OF
CREDIT ACCOMMODATIONS.

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

(b)     In addition
to any charges, fees or expenses charged by any bank or issuer in connection
with the Letter of Credit Accommodations, Borrower shall pay to Agent, for the
benefit of Lenders based on their respective Pro Rata Shares, a letter of
credit fee (the “Letter of Credit Fee”) at a rate equal to two (2%) percent per
annum, on the daily outstanding balance of the Letter of Credit Accommodations
for the immediately preceding month (or part thereof), payable in arrears as of
the first day of each succeeding month; PROVIDED, THAT, effective as of the
first day of each month (commencing on March 1, 2005) the Letter of Credit Fee
payable by Borrower shall be the rate equal to the Applicable Margin on a per
annum basis; except that Agent may, and upon the written direction of Required
Lenders shall, require Borrower to pay to Agent for the benefit of Lenders
based on their respective Pro Rata Shares such Letter of Credit Fee, at a rate
equal to four (4%) percent per annum on such daily outstanding balance for: (i)
the period from and after the date of termination hereof until Agent and
Lenders have received full and final payment of all Obligations
(notwithstanding entry of a judgment against Borrower) and (ii) the period from
and after the date of the occurrence of an Event of Default for so long as such
Event of Default is continuing. Such Letter of Credit Fee shall be calculated
on the basis of a three hundred sixty (360) day year and actual days elapsed
and the obligation of Borrower to pay such fee shall survive the termination of
this Agreement.

(c)     Borrower
shall give Agent two (2) Business Days’ prior written notice of Borrower’s
request for the issuance of a Letter of Credit Accommodation. Such notice shall
be irrevocable and shall specify the original face amount of the Letter of
Credit Accommodation requested, the effective date (which date shall be a
Business Day and in no event shall be a date less than ten (10) days prior to
the end of the then current term of this Agreement) of issuance of

such
requested Letter of Credit Accommodation, whether such Letter of Credit Accommodations
may be drawn in a single or in partial draws, the date on which such requested
Letter of Credit Accommodation is to expire (which date shall be a Business
Day), the purpose for which such Letter of Credit Accommodation is to be
issued, and the beneficiary of the requested Letter of Credit Accommodation. Borrower
shall attach to such notice the proposed terms of the Letter of Credit Accommodation.

(d)     In addition
to being subject to the satisfaction of the applicable conditions precedent
contained in Section 4 hereof and the other terms and conditions contained
herein, no Letter of Credit Accommodations shall be available unless each of
the following conditions precedent have been satisfied in a manner satisfactory
to Agent: (i) Borrower shall have delivered to the proposed issuer of such
Letter of Credit Accommodation at such times and in such manner as such
proposed issuer may require, an application, in form and substance satisfactory
to such proposed issuer and Agent, for the issuance of the Letter of Credit
Accommodation and such other documents as may be required pursuant to the terms
thereof, and the form and terms of the proposed Letter of Credit Accommodation
shall be satisfactory to Agent and such proposed issuer, (ii) as of the date of
issuance, no order of any court, arbitrator or other Governmental Authority
shall purport by its terms to enjoin or restrain money center banks generally
from issuing letters of credit of the type and in the amount of the proposed
Letter of Credit Accommodation, and no law, rule or regulation applicable to
money center banks generally and no request or directive (whether or not having
the force of law) from any Governmental Authority with jurisdiction over money
center banks generally shall prohibit, or request that the proposed issuer of
such Letter of Credit Accommodation refrain from, the issuance of letters of
credit generally or the issuance of such Letters of Credit Accommodation; and
(iii) Excess Availability prior to giving effect to any Reserves with respect
to such Letter of Credit Accommodations, on the date of the proposed issuance
of any Letter of Credit Accommodations, shall be equal to or greater than: (A)
if the proposed Letter of Credit Accommodation is for the purpose of purchasing
Eligible Inventory and the documents of title with respect thereto are
consigned to the issuer (or subject to such other arrangements as are
acceptable to Agent), the sum of (1) the percentage equal to one hundred (100%)
percent minus the then applicable percentage with respect to Eligible Inventory
set forth in the definition of the term Borrowing Base multiplied by the Value
of such Eligible Inventory, plus (2) freight, taxes, duty and other amounts
which Agent estimates must be paid in connection with such Inventory upon
arrival and for delivery to one of Borrower’s locations for Eligible Inventory
within the United States of America and (B) if the proposed Letter of Credit
Accommodation is for any other purpose or the documents of title are not
consigned to the issuer (or subject to such other arrangements as are
acceptable to Agent) in connection with a Letter of Credit Accommodation for the
purpose of purchasing Inventory, an amount equal to one hundred (100%) percent
of the face amount thereof and all other commitments and obligations made or
incurred by Agent with respect thereto. Effective on the issuance of each
Letter of Credit Accommodation, a Reserve shall be established in the applicable
amount set forth in Section 2.2(d)(iii)(A) or Section 2.2(d)(iii)(B).

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

credit
provided or arranged for under the UK Financing Agreements and all other commitments
made or incurred under the UK Financing Agreements in connection therewith).

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

(g)     In
connection with Inventory purchased pursuant to Letter of Credit Accommodations,
Borrower shall, at Agent’s request, instruct all suppliers, carriers,
forwarders, customs brokers, warehouses or others receiving or holding cash,
checks, Inventory, documents or instruments in which Agent holds a security
interest to deliver them to Agent and/or subject to Agent’s order, and if they
shall come into Borrower’s possession, to deliver them, upon Agent’s request,
to Agent in their original form; PROVIDED, THAT, Agent shall not exercise its
rights under this clause (g) to have such persons deliver any cash, checks,
documents or instruments (so long as such documents or instruments are held by
a customs broker that has executed and delivered a Collateral Access Agreement)
or Inventory to Agent unless a Default or Event of Default exists or has
occurred and is continuing. At any time that a Default or Event of Default exists
or has occurred and is continuing, Borrower shall also, at Agent’s request,
designate Agent (or the issuer of the Letter of Credit Accommodation with
respect thereto as Agent may specify) as the consignee on all bills of lading
and other negotiable and non-negotiable documents.

(h)     Borrower
hereby irrevocably authorizes and directs any issuer of a Letter of Credit
Accommodation to name Borrower as the account party therein and to deliver to
Agent all instruments, documents and other writings and property received by
issuer pursuant to the Letter of Credit Accommodations and to accept and rely
upon Agent’s instructions and agreements with respect to all matters arising in
connection with the Letter of Credit Accommodations or the applications
therefor (PROVIDED, THAT, such rights of Agent to provide such instructions and
agreements shall be subject to the rights of Borrower to provide instructions
and agreements with respect to certain matters arising in connection therewith
as set forth below). Nothing contained herein shall be deemed or construed to
grant Borrower any right or authority to pledge the credit

of
Agent or any Lender in any manner. Agent and Lenders shall have no liability of
any kind with respect to any Letter of Credit Accommodation provided by an issuer
other than Agent or any Lender unless Agent has duly executed and delivered to
such issuer the application or a guarantee or indemnification in writing with
respect to such Letter of Credit Accommodation. Borrower shall be bound by any
reasonable interpretation made in good faith by Agent, or any other issuer or
correspondent under or in connection with any Letter of Credit Accommodation or
any documents, drafts or acceptances thereunder, notwithstanding that such
interpretation may be inconsistent with any instructions of Borrower.

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

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

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

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

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

2.3           EQUIPMENT
PURCHASE LOANS.

(a)     Subject to and upon the terms and
conditions contained herein, at any time and from to time on or after the date
hereof, each Lender severally (and not jointly) shall make its Pro Rata Share
of Equipment Purchase Loans to Borrower, at the request of Borrower, of seventy
five (75%) percent of the Hard Costs of Eligible New Equipment purchased or to
be purchased by Borrower after April 12, 2004, or such lesser amount as to any
Equipment Purchase Loan as Borrower may request. The proceeds of each Equipment
Purchase Loan shall be used solely for the payment of the purchase price, or to
reimburse Borrower for the cash previously paid by Borrower for the purchase
price, for the Eligible New Equipment specified in the Equipment Purchase Loan
Request applicable to such Equipment Purchase Loan; PROVIDED, THAT, (i) as to
any Eligible New Equipment purchased after April 12, 2004 and prior to the date
hereof, such Equipment Purchase Loan Request shall be received within thirty
(30) days after the date hereof, (ii) as to any Equipment Purchase Loans based
on Eligible New Equipment purchased after April 12, 2004 and prior to the date
hereof, the aggregate amount of all such Equipment Purchase Loans shall not
exceed $2,000,000, (iii) to the extent that the proceeds of any Equipment
Purchase Loan are used to reimburse Borrower for the cash paid by Borrower for
the purchase price of any Eligible New Equipment purchased after the date
hereof, Borrower shall have taken possession of such Eligible New Equipment
within ninety (90) days prior to the date of the Equipment Purchase Loan, and
(iv) no Equipment Purchase Loan Request shall include any Eligible New
Equipment that has been included in any other Equipment Purchase Loan Request.
Each Equipment Purchase Loan shall be in an amount of not less than $500,000. A
single Equipment Purchase Loan may be used for the purchase price of one or
more items constituting Eligible New Equipment specified in the Equipment Purchase
Loan Request required to be delivered to Lender pursuant to Section 2.3(d)(i)
below and the minimum amount of such Equipment Purchase Loan applies to such
Equipment Purchase Loan, not to the purchase price of any individual item of
Eligible New Equipment.

(b)     The outstanding aggregate principal amount
of the Equipment Purchase Loans made by Lenders shall not exceed $10,000,000;
PROVIDED, THAT, in no event shall the aggregate principal amount of the
Equipment Purchase Loans exceed the aggregate amount of seventy-five (75%)
percent of the Hard Costs of all Eligible New Equipment purchased by Borrower
pursuant hereto. If at any time the outstanding aggregate principal amount of
all Equipment Purchase Loans exceeds eighty (80%) percent of the net orderly
liquidation value of all of the Eligible New Equipment (net of liquidation
expenses) as set forth in the most recent acceptable appraisal with respect
thereto received by Agent, Agent may, at its option, or shall upon the request
of the Required Lenders, establish a Reserve in the amount equal to the entire
amount of such excess or Agent may instead, at its option, demand and Borrower
shall, upon demand by Agent, which may be made at any time and from time to
time, repay to Agent the entire amount of such excess.

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

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

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

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

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

 

(iv)          Agent
shall have received (A) copies, or upon Agent’s request, originals, of all
agreements, documents and instruments relating to the sale of the Eligible New
Equipment to Borrower, including, without limitation, any purchase orders,
invoices, bills of sale or similar documents (provided, that, to the extent
that Agent may receive any originals, it will return such originals to Borrower
after Agent has finished its use of them) and (B) evidence reasonably
satisfactory to Agent that the Eligible New Equipment has been received and
installed by Borrower and is in good working order and operating for its
intended purpose;

 

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

 

(vi)          as
of the date of such Equipment Purchase Loan, and after giving effect thereto,
the aggregate amount of the Loans and the Letter of Credit Accommodations shall
not exceed the Maximum Credit minus the sum of (A) the aggregate amount of the
Tranche A Loans then outstanding, (B) the aggregate amount of Tranche B Loans
then outstanding, (C) the aggregate amount of the undrawn Letter of Credit
Accommodations then outstanding and (D) the aggregate amount of loans and
letter of credit accommodations (and as to such letter of credit accommodations
without regards to the reserve established with respect thereto), to or for the
benefit of Haynes UK or any other obligor under the UK Financing Agreements;

 

(vii)         Borrower
shall duly authorize, execute and deliver to Agent a single original Equipment
Purchase Note in the form annexed hereto as Exhibit D, as completed to reflect
the date and amount of each such Equipment Purchase Loan and with the number of
monthly installments of principal payable thereunder and the amount of each
such monthly installment completed in accordance with Sections 2.3(e) and
2.3(f) below, as the case may be, which note shall evidence a valid and legally
enforceable indebtedness of Borrower unconditionally owing to Lenders, without
offset, defense or counterclaim of any kind, nature or description whatsoever;
and

 

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

 

(e)     The principal amount of each Equipment
Purchase Loan shall be payable (subject to earlier payment as provided herein
or in such Equipment Purchase Note) in seventy-two (72) equal, consecutive
monthly installments of principal, each in an amount calculated below,
commencing on the first day of the second month after the date of the making of
such Equipment Purchase Loan, together with interest and other amounts as
provided herein and in the Equipment Purchase Note with respect to such
Equipment Purchase Loan.

(f)      The amount of each monthly installment of
principal in respect of each Equipment Purchase Loan (other than the last
installment which shall be in an amount equal to

the
entire unpaid balance of the Equipment Purchase Note) shall equal: (i) the original
principal amount of the proposed Equipment Purchase Loan divided by (ii)
seventy-two (72).

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

SECTION
3.                                INTEREST AND
FEES

3.1           INTEREST.

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

(b)      Borrower may from time to time request
Eurodollar Rate Loans or may request that Prime Rate Loans be converted to
Eurodollar Rate Loans or that any existing Eurodollar Rate Loans continue for
an additional Interest Period. Such request from Borrower shall specify the
amount of the Eurodollar Rate Loans or the amount of the Prime Rate Loans to be
converted to Eurodollar Rate Loans or the amount of the Eurodollar Rate Loans
to be continued (subject to the limits set forth below) and the Interest Period
to be applicable to such Eurodollar Rate Loans. Subject to the terms and
conditions contained herein, three (3) Business Days after receipt by Agent of
such a request from Borrower , such Eurodollar Rate Loans shall be made or
Prime Rate Loans shall be converted to Eurodollar Rate Loans or such Eurodollar
Rate Loans shall continue, as the case may be; PROVIDED, THAT, (i) no Default
or Event of Default shall exist or have occurred and be continuing, (ii)
Borrower shall have complied with such customary procedures as are established
by Agent and specified by Agent to Borrower from time to time for requests by
Borrower for Eurodollar Rate Loans, (iii) no more than eight (8) Interest
Periods may be in effect at any one time, (iv) the aggregate amount of the
Eurodollar Rate Loans must be in an amount not less than $5,000,000 or an
integral multiple of $1,000,000 in excess thereof, and (v) Agent and each
Lender shall have determined that the Interest Period or Adjusted Eurodollar
Rate is available to Agent and such Lender and can be readily determined as of
the date of the request for such Eurodollar Rate Loan by Borrower. Any request
by or on behalf of Borrower for Eurodollar Rate Loans or to convert Prime Rate
Loans to Eurodollar Rate Loans or to continue any existing Eurodollar Rate
Loans shall be irrevocable. Notwithstanding anything to the contrary contained
herein, Agent and Lenders shall not be required to purchase United States
Dollar deposits in the London interbank market or other applicable Eurodollar
Rate market to fund any Eurodollar Rate Loans, but the provisions hereof shall
be deemed to apply as if Agent and Lenders had purchased such deposits to fund
the Eurodollar Rate Loans.

(c)      Any Eurodollar Rate Loans shall
automatically convert to Prime Rate Loans upon the last day of the applicable
Interest Period, unless Agent has received and approved a request to continue such
Eurodollar Rate Loan at least three (3) Business Days prior to such last day in
accordance with the terms hereof. Any Eurodollar Rate Loans shall, at Agent’s
option, upon notice by Agent to Borrower, be subsequently converted to Prime
Rate Loans in the event that this Agreement shall terminate or not be renewed.
Borrower shall pay to Agent, for the

benefit
of Lenders, upon demand by Agent (or Agent may, at its option, charge any loan
account of Borrower) any amounts required to compensate any Lender or Participant
for any loss (including loss of anticipated profits), cost or expense incurred
by such person, as a result of the conversion of Eurodollar Rate Loans to Prime
Rate Loans (other than at the end of an Interest Period) pursuant to any of the
foregoing.

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

3.2           FEES.

(a)      Borrower shall pay to Agent, for the account
of Lenders, monthly an unused line fee at a rate equal to three-eighths (3/8%)
percent per annum calculated upon the amount by which the Maximum Credit
exceeds the average daily principal balance of the outstanding Loans and Letter
of Credit Accommodations during the immediately preceding month (or part
thereof) while this Agreement is in effect and for so long thereafter as any of
the Obligations are outstanding, which fee shall be payable on the first day of
each month in arrears.

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

3.3           CHANGES
IN LAWS AND INCREASED COSTS OF LOANS.

(a)      Subject to Section 6.5 hereof, if after
the date hereof, either (i) any change in, or in the interpretation of, any law
or regulation is introduced, including, without limitation, with respect to
reserve requirements, applicable to Lender or any banking or financial
institution from whom any Lender borrows funds or obtains credit (a “Funding
Bank”), which Funding Bank is a commercial bank or other financial institution
having combined capital and surplus and undivided profits of not less than
$500,000,000 or (ii) a Funding Bank or any Lender complies with any future
guideline or request from any central bank or other Governmental Authority or
(iii) a Funding Bank or any Lender determines that the adoption of any
applicable law, rule or regulation regarding capital adequacy, or any change
therein, or any change in the interpretation or administration thereof by any
Governmental Authority, central bank or comparable agency charged with the
interpretation or administration thereof has or would have the effect described
below, or a Funding Bank or any Lender complies with any request or directive
regarding capital adequacy (whether or not having the force of law) of any such
authority, central bank or comparable agency, and in the case of any event set
forth in this clause (iii), such adoption, change or compliance has or would
have the direct or indirect effect of reducing the rate of

return
on any Lender’s capital as a consequence of its obligations hereunder to a
level below that which Lender could have achieved but for such adoption, change
or compliance (taking into consideration the Funding Bank’s or Lender’s policies
with respect to capital adequacy) by an amount deemed by such Lender to be
material, and the result of any of the foregoing events described in clauses (i),
(ii) or (iii) is or results in an increase in the cost to any Lender of funding
or maintaining the Loans, the Letter of Credit Accommodations or its Commitment,
then Borrower shall from time to time upon demand by Agent pay to Agent
additional amounts sufficient to indemnify Lenders against such increased cost
(after taking into account applicable deductions and credits in respect of the
amount indemnified). A certificate as to the amount of such increased cost setting
forth in reasonable detail the basis for such increased cost and calculation of
the amount thereof shall be submitted to Borrower by or on behalf of the Lender
seeking indemnification therefor or by Agent on its behalf and shall be
conclusive, absent manifest error.

(b)      If prior to the first day of any Interest
Period, (i) Agent shall have determined in good faith (which determination
shall be conclusive and binding upon Borrower ) that, by reason of
circumstances affecting the relevant market, adequate and reasonable means do
not exist for ascertaining the Eurodollar Rate for such Interest Period, (ii)
Agent has received notice from the Required Lenders that Eurodollar Rate
determined or to be determined for such Interest Period will not adequately and
fairly reflect the cost to Lenders of making or maintaining Eurodollar Rate
Loans during such Interest Period, or (iii) Dollar deposits in the principal
amounts of the Eurodollar Rate Loans to which such Interest Period is to be
applicable are not generally available in the London interbank market, Agent
shall give telecopy or telephonic notice thereof to Borrower as soon as
practicable thereafter, and will also give prompt written notice to Borrower
when such conditions no longer exist. If such notice is given (A) any
Eurodollar Rate Loans requested to be made on the first day of such Interest
Period shall be made as Prime Rate Loans, (B) any Loans that were to have been
converted on the first day of such Interest Period to or continued as
Eurodollar Rate Loans shall be converted to or continued as Prime Rate Loans and
(C) each outstanding Eurodollar Rate Loan shall be converted, on the last day
of the then current Interest Period thereof, to Prime Rate Loans. Until such notice
has been withdrawn by Agent, no further Eurodollar Rate Loans shall be made or
continued as such, nor shall Borrower have the right to convert Prime Rate
Loans to Eurodollar Rate Loans.

(c)      Notwithstanding any other provision
herein, if the adoption of or any change in any law, treaty, rule or regulation
or final, non-appealable determination of an arbitrator or a court or other
Governmental Authority or in the interpretation or application thereof
occurring after the date hereof shall make it unlawful for Agent or any Lender
to make or maintain Eurodollar Rate Loans as contemplated by this Agreement,
(i) Agent or such Lender shall promptly give written notice of such
circumstances to Borrower (which notice shall be withdrawn whenever such
circumstances no longer exist), (ii) the commitment of such Lender hereunder to
make Eurodollar Rate Loans, continue Eurodollar Rate Loans as such and convert
Prime Rate Loans to Eurodollar Rate Loans shall forthwith be canceled and,
until such time as it shall no longer be unlawful for such Lender to make or
maintain Eurodollar Rate Loans, such Lender shall then have a commitment only
to make a Prime Rate Loan when a Eurodollar Rate Loan is requested and (iii)
such Lender’s Loans then outstanding as Eurodollar Rate Loans, if any, shall be
converted automatically to Prime Rate Loans on the respective last days of the
then current Interest Periods with respect to such Loans or within such earlier
period as required by

law.
If any such conversion of a Eurodollar Rate Loan occurs on a day which is not
the last day of the then current Interest Period with respect thereto, Borrower
shall pay to such Lender such amounts, if any, as may be required pursuant to
Section 3.3(d) below.

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

SECTION
4.                                CONDITIONS
PRECEDENT

4.1           CONDITIONS
PRECEDENT TO INITIAL LOANS AND LETTER OF CREDIT ACCOMMODATIONS. Each of the
following is a condition precedent to Agent and Lenders making the initial
Loans and providing the initial Letter of Credit Accommodations hereunder:

(a)      no court of competent jurisdiction shall
have issued any injunction, restraining order or other order with respect to
the Confirmation Order which otherwise prohibits the consummation of the
transactions described herein, or (except for changes consented to by Agent)
modifies such transactions, and no governmental or other action or proceeding
shall have been commenced, seeking any injunction, restraining order or other
order which seeks to void or otherwise modify the transactions described
herein;

(b)      no motion, action or proceeding shall be
pending against Borrower by any creditor or other party-in-interest in the
Bankruptcy Court or in any other court of competent jurisdiction which if
successful could reasonably be expected to have a Material Adverse Effect;

(c)      Agent shall have received a certified copy
of the Confirmation Order as duly entered by the Bankruptcy Court and entered
on the docket of the Clerk of the Bankruptcy Court in the Chapter 11 Case,
following due notice to such creditors and other parties-in-interest as
required by the Bankruptcy Court, which order shall be in form and substance acceptable
to Agent, providing, among other things, that (i) the Existing Agreements and
the Final Financing

Order
shall continue in full force and effect through the Effective Date, (ii) as of
and after the Effective Date, all loans, advances, financial accommodations,
borrowing and obligations outstanding under the Existing Agreements shall
continue in effect on and after the Effective Date and be deemed loans,
advances, financial accommodations and borrowing of or to be assumed by
Borrower, (iii) the security interests and liens in favor of Agent granted by
the Final Financing Order and the Existing Agreements shall continue in effect
in favor of Agent on and after the Effective Date and shall not be discharged,
released or terminated, and (iv) Borrower is authorized to enter into this
Agreement and the other Financing Agreements and perform all of their obligations
hereunder and thereunder;

(d)      Agent shall have received evidence, in
form and substance satisfactory to Agent, that prior to the date hereof or
concurrently herewith, (i) the Effective Date shall have occurred, the
Confirmation Order shall be valid, subsisting and continuing and, unless
otherwise agreed by Agent, a Final Order which Agent may waive the requirement
thereof, and all conditions precedent to the consummation of the Plan shall
have been fulfilled, or validly waived (but not including conditions consisting
of the effectiveness of this Agreement), and (ii) no motion, action or
proceeding shall be pending or filed by any creditor or other party-in-interest
in the Chapter 11 Case that could adversely affect the Plan, the consummation
of the Plan, the business or operations of Borrower in each case in any
material respect, and the transactions contemplated by the Financing
Agreements, as determined by Agent in good faith, PROVIDED, THAT, Borrower
hereby represents that the general claims administration and resolution of cure
claims arising under the Chapter 11 Case pursuant to the Plan will not
adversely affect any of such matters in any material respect;

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

(f)       no act, condition or event shall have
occurred since the date of Agent’s latest field examination (not including for
this purpose the field review referred to in clause (g) below) that has or is
reasonably likely to have Material Adverse Effect;

(g)      Agent shall have completed a field review
of the Records and such other information with respect to the Collateral as
Agent may require to determine the amount of Loans available to Borrower
(including, without limitation, current perpetual inventory records and/or roll
forwards of Accounts and Inventory through the date of closing and test counts
of the Inventory in a manner satisfactory to Agent, together with such
supporting documentation as may be necessary or appropriate, and other
documents and information that will enable Agent to accurately identify and
verify the Collateral), the results of which in each case shall be satisfactory
to Agent, not more than seven (7) Business Days prior to the date hereof;

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

(i)       the Excess Availability as of the date
hereof shall be not less than $7,500,000 after giving effect to the initial
Loans made or to be made and Letter of Credit Accommodations issued or to be
issued in connection with the initial transactions hereunder;

(j)       Agent shall have received a Borrowing
Base Certificate setting forth the Borrowing Base as at the date set forth
therein and completed in a manner reasonably satisfactory to Agent and duly
authorized, executed and delivered on behalf of Borrower;

(k)      Agent shall have received, in form and
substance satisfactory to Agent in good faith, Deposit Account Control
Agreements by and among Agent, Borrower, and each bank where Borrower has a
deposit account (other than as to those deposit accounts for which Agent is not
requiring a Deposit Account Control Agreement as of the date hereof), in each
case, duly authorized, executed and delivered by such bank and Borrower, as the
case may be;

(l)       Agent shall have received evidence, in
form and substance satisfactory to Agent in good faith, that Agent has a valid
perfected first priority security interest in all of the Collateral in which
Borrower has granted a security interest pursuant to this Agreement or any of
the other Financing Agreements, and as to priority subject only to the security
interests permitted herein or in the other Financing Agreements that have
priority under applicable law (and in each case other than as to those specific
assets for which Agent has not required that its security interests and/or
liens be perfected as of the date hereof);

(m)     Agent shall have received and reviewed lien
and judgment search results for the jurisdiction of organization of Borrower ,
the jurisdiction of the chief executive office of Borrower and all
jurisdictions in which assets of Borrower are located, which search results
shall be in form and substance satisfactory to Agent;

(n)      Agent shall have received, in form and
substance satisfactory to Agent, an endorsement to existing title insurance
policies with respect to the Mortgages to cover the amendments thereto dated of
even date herewith;

(o)      Agent shall have received evidence of
insurance and loss payee endorsements required hereunder and under the other
Financing Agreements, in form and substance satisfactory to Agent, and
certificates of insurance policies and/or endorsements naming Agent as loss
payee;

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

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

4.2           CONDITIONS
PRECEDENT TO ALL LOANS AND LETTER OF CREDIT ACCOMMODATIONS. Each of the
following is an additional condition precedent to the Loans and/or providing
Letter of Credit Accommodations to Borrower, including the initial Loans and
Letter of Credit Accommodations and any future Loans and Letter of Credit
Accommodations:

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

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

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

SECTION
5.                                GRANT AND
PERFECTION OF SECURITY INTEREST

5.1           GRANT
OF SECURITY INTEREST.

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

(i)            all
Accounts;

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

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

(iv)          all Real Property and fixtures;

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

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

(vii)         all documents;

(viii)        all deposit accounts;

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

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

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

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

(xiii)         to the extent not otherwise described
above, all Receivables and all present and future claims, rights, interests,
assets and properties recovered by or on behalf of Borrower or any trustee of
Borrower (including in the Chapter 11 Case), including, without limitation, all
such property recovered as a result of transfers or obligations avoided or
actions maintained or taken pursuant to, inter alia, Sections 542, 545, 547,
548, 549, 550, 552 and 553 of the Bankruptcy Code;

(xiv)        all Records; and

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

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

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

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

(iii)          trademark or servicemark applications
that have been filed with the U.S. Patent and Trademark Office on the basis of
an “intent-to-use” with respect to such marks, unless and until a statement of
use or amendment to allege use is filed or any other filing is made or
circumstances otherwise change so that the interests of Borrower in such marks
is no longer on an “intent-to-use” basis, at which time such marks shall
automatically and without further action by the parties be subject to the
security interests and liens granted by Borrower to Agent hereunder.

5.2           PERFECTION
OF SECURITY INTERESTS.

(a)      Borrower irrevocably and unconditionally
authorizes Agent (or its agent) to file at any time and from time to time such
financing statements with respect to the Collateral naming Agent as the secured
party and Borrower as debtor, as Agent may require, and including any other
information with respect to Borrower or otherwise required by part 5 of Article
9 of the Uniform Commercial Code of such jurisdiction as Agent may determine,
together with any amendment and continuations with respect thereto, which
authorization shall apply to all financing statements filed on, prior to or
after the date hereof. Such financing statements may describe the Collateral in
the same manner as described herein or in any security agreement or pledge
agreement entered into by the parties in connection herewith or may contain an
indication or description of collateral that describes such property in any
other manner as the Agent may determine, in its sole discretion, is necessary,
advisable or prudent to ensure the perfection of the

security
interest in the Collateral granted to the Agent in connection herewith or
therewith. Borrower hereby ratifies and approves all financing statements naming
Agent or its designee as secured party and Borrower, as debtor with respect to
the Collateral (and any amendments with respect to such financing statements)
filed by or on behalf of Agent prior to the date hereof and ratifies and
confirms the authorization of Agent to file such financing statements (and amendments,
if any). Borrower hereby authorizes Agent to adopt on behalf of Borrower any
symbol required for authenticating any electronic filing. In the event that the
description of the collateral in any financing statement naming Agent or its
designee as the secured party and Borrower as debtor includes assets and
properties of Borrower that do not at any time constitute Collateral, whether
hereunder, under any of the other Financing Agreements or otherwise, the filing
of such financing statement shall nonetheless be deemed authorized by Borrower
to the extent of the Collateral included in such description and it shall not
render the financing statement ineffective as to any of the Collateral or
otherwise affect the financing statement as it applies to any of the Collateral.
In no event shall Borrower at any time file, or permit or cause to be filed,
any correction statement or termination statement with respect to any financing
statement (or amendment or continuation with respect thereto) naming Agent or
its designee as secured party and Borrower as debtor, without the express prior
written consent of Agent.

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

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

as
the case may be, Section 16 of the Uniform Electronic Transactions Act, as in effect
in such jurisdiction.

(d)      Borrower does not have deposit accounts as
of the date hereof having or reasonably anticipated to have a balance in excess
of $12,500 (or the US Dollar Equivalent thereof), except as set forth in the
Information Certificate (PROVIDED, THAT, the aggregate amount of the balances
in all of those deposit accounts having a balance of less than $12,500 (or the
US Dollar Equivalent thereof) does not, and shall not, exceed $65,000 or the US
Dollar Equivalent thereof). Borrower shall not, directly or indirectly, after
the date hereof open, establish or maintain any deposit account unless each of
the following conditions is satisfied: (i) Agent shall have received not less
than five (5) Business Days prior written notice of the intention of Borrower
to open or establish such account which notice shall specify in reasonable
detail and specificity acceptable to Agent the name of the account, the owner
of the account, the name and address of the bank at which such account is to be
opened or established, the individual at such bank with whom Borrower is
dealing and the purpose of the account, (ii) the bank where such account is
opened or maintained shall be reasonably acceptable to Agent, and (iii) on or
before the opening of such deposit account or so long as no Default or Event of
Default shall exist or have occurred and be continuing, promptly after the
opening of such deposit account, Borrower shall deliver to Agent a Deposit
Account Control Agreement with respect to such deposit account duly authorized,
executed and delivered by Borrower and the bank at which such deposit account
is opened and maintained, except, that, Borrower shall not be required to
comply with clauses (i), (ii) or (iii) of this subsection (d) as to any deposit
account which at all times has a balance of less than $12,500 so long as the
aggregate amount of all deposits in all such accounts is less than $65,000 and
no Default of Event of Default shall exist or have occurred and be continuing.
In addition, Borrower shall not be required to provide a Deposit Account
Control Agreement with respect to the existing deposit account of Borrower
maintained at Community First Bank (account number 08001031) so long as such
account is used only in connection with the cashing of checks or similar items
for employees of Borrower and the aggregate amount of the funds in such account
does not exceed $60,000. If the purpose of such account shall change or the
aggregate amount of such funds at any time exceed $60,000 for five (5)
consecutive days or shall exceed $60,000 more than two (2) times, promptly upon
the request of Agent, Borrower shall deliver or cause to be delivered to Agent
a Deposit Account Control Agreement with respect to such deposit account. The
terms of this subsection (d) shall not apply to deposit accounts specifically
and exclusively used for payroll, payroll taxes and other employee wage and
benefit payments to or for the benefit of Borrower’s employees.

(e)      Borrower does not own or hold, directly or
indirectly, beneficially or as record owner or both, any investment property,
as of the date hereof, or has any investment account, securities account,
commodity account or other similar account with any bank or other financial
institution or other securities intermediary or commodity intermediary as of
the date hereof, in each case except as set forth in the Information
Certificate.

(i)            In the event that Borrower shall be
entitled to or shall at any time after the date hereof hold or acquire any
certificated securities, Borrower shall promptly endorse, assign and deliver
the same to Agent, accompanied by such instruments of transfer or assignment
duly executed in blank as Agent may from time to time specify; PROVIDED, THAT,
if such certificated securities constitute shares of Capital Stock of a Foreign
Subsidiary constituting a “controlled

foreign
corporation” (as such term is defined in Section 957(a) of the Code or a successor
provision thereof), then Borrower shall not be required to endorse, assign or
deliver to Agent those certificates representing the number of shares of the
issuer thereof exceeding sixty-five (65%) percent of the voting power of all
classes of Capital Stock of such issuer entitled to vote. If any securities, now
or hereafter acquired by Borrower are uncertificated and are issued to Borrower
or its nominee directly by the issuer thereof, Borrower shall immediately
notify Agent thereof and shall subject to the proviso contained in the
immediately preceding sentence, as Agent may specify, either (A) cause the issuer
to agree to comply with instructions from Agent as to such securities, without
further consent of Borrower or such nominee, or (B) arrange for Agent to become
the registered owner of the securities. Nothing contained in this Section 5
shall be construed to require that the Collateral include the portion of the Capital
Stock of any Foreign Subsidiary that is a “controlled foreign corporation”, as
defined in Section 957 of the Code, in excess of sixty-five (65%) percent of
the issued and outstanding Capital Stock thereof entitled to vote (within the
meaning of Treasury Regulation Section 1.956-2).

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

(f)       Borrower is not the beneficiary or
otherwise entitled to any right to payment under any letter of credit, banker’s
acceptance or similar instrument as of the date hereof, except as set forth in
the Information Certificate. In the event that Borrower shall receive any right
to payment under any letter of credit, banker’s acceptance or any similar
instrument having a face amount of excess of $25,000 in any one case or
$100,000 in the aggregate (or after notice by Agent to Borrower, at any time
after a Default or Event of Default shall exist or have occurred and for so
long as the same is continuing, regardless of the amount thereof), whether as
beneficiary thereof or otherwise after the date hereof, Borrower shall promptly
notify Agent thereof in writing. At any time that Excess Availability is less
than $5,000,000, or a Default or an Event of Default exists or has occurred and
is continuing, or the aggregate amount of such letters of credit, banker’s
acceptance or similar instruments outstanding at any time shall exceed
$3,500,000, or as to any such letter of credit, banker’s acceptance or similar
instrument outstanding at any time that is more than $1,000,000, Borrower shall
promptly, as Agent may

specify
and upon Agent’s request, either (i) use all commercially reasonable efforts
(including the payment of reasonable attorneys’ fees and expenses of any person
in connection therewith) to deliver, or cause to be delivered to Agent, with
respect to any such letter of credit, banker’s acceptance or similar instrument,
the written agreement of the issuer and any other nominated person obligated to
make any payment in respect thereof (including any confirming or negotiating
bank), in form and substance reasonably satisfactory to Agent, consenting to
the assignment of the proceeds of the letter of credit to Agent by Borrower and
agreeing to make all payments thereon directly to Agent or as Agent may
otherwise direct or (ii) cause Agent to become, at Borrower’s expense, the transferee
beneficiary of the letter of credit, banker’s acceptance or similar instrument
(as the case may be); PROVIDED, THAT, upon Agent’s request, Borrower shall use
their commercially reasonable efforts (without having to pay more than the
customary fees of the applicable bank but including the payment of reasonable
attorneys’ fees and expenses of any person in connection therewith) to have such
letter of credit, banker’s acceptance or similar instrument be transferable.

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

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

(i)       Borrower shall take any other actions
reasonably requested by Agent from time to time to cause the attachment,
perfection and (subject to liens permitted hereunder) first priority of, and
the ability of Agent to enforce, the security interest of Agent in any and all
of the

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

SECTION
6.                                COLLECTION
AND ADMINISTRATION

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

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

6.3           COLLECTION
OF ACCOUNTS.

(a)      Borrower shall establish and maintain, at
its expense, lockboxes and related blocked accounts with such banks as are
acceptable to Agent in good faith (such account or accounts being referred to
herein, collectively, as the “Blocked Accounts”, and individually as a “Blocked
Account”). Borrower shall promptly deposit and direct its account debtors to
directly remit all payments on Receivables and all payments constituting
proceeds of Inventory or other Collateral in the identical form in which such
payments are made, whether by cash, check or other manner, to the Blocked
Account. Borrower shall deliver, or cause to be delivered to Agent a Deposit
Account Control Agreement duly authorized, executed and delivered by each bank
where a Blocked Account is maintained as provided in Section 5.2(d) hereof.
Promptly upon Agent’s request, Borrower shall execute and deliver such
agreements and documents as Agent may require in connection therewith. Borrower
agrees that all payments made to any Blocked Account or other funds received
and collected by Agent or any Lender, whether in respect of the Receivables, as
proceeds of Inventory or other Collateral of Borrower or otherwise shall be

treated
as payments to Agent and Lenders in respect of the Obligations of Borrower and
therefore shall constitute the property of Agent and Lenders to the extent of
the then outstanding Obligations of Borrower.

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

(c)      For purposes of calculating the amount of
the Loans available to Borrower, such payments will be applied (conditional
upon final collection) to the Obligations of the applicable Borrower on the
Business Day of receipt by Agent of immediately available funds in the Agent
Payment Account provided such payments and notice thereof are received in
accordance with Agent’s usual and customary practices as in effect from time to
time and within sufficient time to credit Borrower’s loan account on such day,
and if not, then on the next Business Day. For the purposes of calculating
interest on the Obligations, such payments or other funds received will be
applied (conditional upon final collection) to the Obligations one (1) Business
Day following the date of receipt of immediately available funds by Agent in
the Agent Payment Account provided such payments or other funds and notice
thereof are received in accordance with Agent’s usual and customary practices
as in effect from time to time and within sufficient time to credit Borrower’s
loan account on such day, and if not, then on the next Business Day. In the
event that at any time or from time to time there are no Loans to Borrower
outstanding. Agent shall be entitled to an administrative fee payable by
Borrower in an amount calculated based on the Interest Rate for Prime Rate
Loans (on a per annum basis) multiplied by the amount of the funds received in
the Blocked Account for such day as calculated by Agent in accordance with its
customary practice. The economic benefit of the timing in the application of
payments (and the administrative charge with respect thereto, if applicable)
shall be for the sole benefit of Agent.

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

6.4                                 PAYMENTS.

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

not
apply to payments with proceeds of Loans to a Bank Product Provider for Obligations
to such Bank Product Provider in connection with checks or other items issued
by Borrower drawn on such Bank Product Provider. Subject to the other terms and
conditions contained herein, Agent shall apply payments received or collected
from Borrower or for the account of Borrower (including the monetary proceeds
of collections or of realization upon any Collateral) as follows: FIRST, to pay
any fees, indemnities or expense reimbursements then due to Agent and Lenders
from Borrower; SECOND, to pay interest due in respect of any Loans (and
including any Special Agent Advances); THIRD, to pay or prepay principal in
respect of Special Agent Advances; FOURTH, to pay or prepay principal in
respect of Tranche B Loans; FIFTH, to pay principal due in respect of the
Tranche A Loans or to pay or prepay Obligations arising under or pursuant to
any Hedge Agreement of Borrower that has been approved in writing by Agent (up
to the amount of any then effective Reserve established in respect of such Obligations)
on a pro rata basis; SIXTH, to pay or prepay any other Obligations whether or
not then due, in such order and manner as Agent reasonably determines or to be
held as cash collateral in connection with any Letter of Credit Accommodations
or other contingent Obligations (but not including for purposes of this clause “sixth”
any Obligations arising under or pursuant to any Hedge Agreement or in
connection with any Bank Products); SEVENTH, to pay or prepay any of the UK
Obligations after demand for payment under the Guarantee by Borrower in favor
of UK Lender; PROVIDED, THAT, any such amounts received for application to the
UK Obligations shall not be applied to such UK Obligations for a period of
sixty (60) days (or such longer period as UK Lender may agree) after the date
of such demand and shall be held as cash collateral in connection with the UK
Obligations until the end of such sixty (60) day period (or such longer period
as UK Lender may agree); and EIGHTH, to pay or prepay any Obligations arising
under or pursuant to Hedge Agreements that have been approved in writing by
Agent (other than to the extent provided for above) and any Obligations then
due to any Bank Provider arising from or in connection with any Bank Products,
as to all of such Obligations on a pro rata basis.

(b)      Notwithstanding anything to the contrary
contained in this Agreement, (i) unless so directed by Borrower, or unless a
Default or an Event of Default shall exist or have occurred and be continuing,
Agent shall not apply any payments which it receives to any Eurodollar Rate
Loans, except (A) on the expiration date of the Interest Period applicable to
any such Eurodollar Rate Loans or (B) in the event that there are no
outstanding Prime Rate Loans, and (ii) to the extent Borrower uses any proceeds
of the Loans or Letter of Credit Accommodations to acquire rights in or the use
of any Collateral or to repay any Indebtedness used to acquire rights in or the
use of any Collateral, payments in respect of the Obligations shall be deemed
applied first to the Obligations arising from Loans and Letter of Credit
Accommodations that were not used for such purposes and second to the
Obligations arising from Loans and Letter of Credit Accommodations the proceeds
of which were used to acquire rights in or the use of any Collateral in the
chronological order in which Borrower acquired such rights in or the use of
such Collateral, and (iii) except as Agent may otherwise determine (A) payments
shall be applied to Obligations other than the Eurodollar Rate Fixed Asset
Loans and Prime Rate Fixed Asset Loans before being applied to the Eurodollar
Rate Fixed Asset Loans and the Prime Rate Fixed Asset Loans, except at such
time as any payments in respect of the Eurodollar Rate Fixed Asset Loans or
Prime Rate Fixed Asset Loans may be then due and payable and (B) the first
Loans outstanding shall be deemed to be Eurodollar Rate Fixed Asset Loans.

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

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

6.5                                 TAXES.

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

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

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

(ii)           Borrower
shall make such deductions and withholdings;

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

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

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

(d)      Subject to Section 6.5(f) hereof,
Borrower will indemnify Agent and each Lender (or Transferee) for the full
amount of Taxes (other than Excluded Taxes) and Other Taxes paid by Agent or
such Lender (or Transferee, as the case may be) promptly upon written demand.
If Agent or such Lender (or Transferee) receives a refund in respect of any
Taxes or Other Taxes for which Agent or such Lender (or Transferee) has
received payment from Borrower hereunder, so long as no Event of Default shall
exist or have occurred and be continuing, Agent or such Lender (as the case may
be) shall credit to the loan account of Borrower the amount of such refund plus
any interest received (but only to the extent of indemnity payments made, or
additional amounts paid, by or on behalf of Borrower under this Section 6.5
with respect to the Taxes or Other Taxes giving rise to such refund). If a
Lender (or any Transferee) claims a tax credit in respect of any Taxes for
which it has been indemnified by Borrower pursuant to this Section 6.5, such
Lender will apply the amount of the actual dollar benefit received by such
Lender as a result thereof, as reasonably calculated by such Lender and net of
all expenses related thereto, to the Loans made by such Lender. If Taxes or Other
Taxes were not correctly or legally asserted, Agent or such Lender shall, upon
Borrower’s request and at the expense of Borrower, provide such documents to
Borrower in form and substance satisfactory to Agent, as Borrower may
reasonably request, to enable Borrower to contest such Taxes or Other Taxes
pursuant to appropriate proceedings then available to Borrower (so long as
providing such documents shall not, in the good faith determination of Agent or
the Lender, have a reasonable likelihood of resulting in any liability of Agent
or such Lender for which Agent has not established a Reserve). The indemnity
provided for herein shall survive the payment of the

Obligations and the termination of this Agreement but
shall not survive the statute of limitations applicable to any liability for
the relevant Taxes, except to the extent that Agent or any Lender is subject to
a claim for which it is entitled for indemnification by Borrower,
notwithstanding that the statute of limitations has expired. A certificate as
to the amount of such payment or liability and setting forth in reasonable
detail the calculation and basis for such payment or liability delivered to
Borrower by a Lender or by Agent on its own behalf or on behalf of a Lender,
shall be conclusive, absent manifest error.

(e)      Each Lender (or Transferee)
and Agent that is a Non-U.S. Person shall deliver to Borrower two (2) copies of
the applicable United States Internal Revenue Service Form W-8 and/or other
applicable form wherein such Person claims entitlement to a complete exemption
from, or reduction in the rate of, U.S. federal income withholding tax on all
payments by or on behalf of Borrower under this Agreement and the other
Financing Agreements. Such forms shall be delivered by any Non-U.S. Person
receiving payments by or on behalf of Borrower on or before the date it becomes
a party to this Agreement (or, in the case of a Transferee that is a
Participant, on or before the date such Participant becomes a Transferee
hereunder) and on or before the date, if any, such Non-U.S. Person changes its
applicable lending office by designating a different lending office (a
"New Lending Office"). In addition, a Non-U.S. Person shall upon
written notice from Borrower promptly deliver such new forms as are required by
the relevant Governmental Authority to claim exemption from, or reduction in
the rate of, U.S. Federal withholding tax upon the obsolescence or invalidity
of any form previously delivered by such Non-U.S. Person. Each Lender (or
Transferee) and Agent that is a "United States Person" within the meaning
of Section 7701(a)(30) of the Code (other than a Lender or Agent that is a
corporation or otherwise exempt from United States backup withholding) shall
deliver at the time(s) and in the manner(s) required under applicable law, to Borrower
and Agent (as applicable), a properly completed and duly executed United States
Internal Revenue From W-9 or any successor form, certifying that such Person is
exempt from United States backup withholding Tax on payments made by or on
behalf of Borrower hereunder. Notwithstanding any other provision of this
Section 6.5(e), no Non-U.S. Person, Agent or any Lender shall be required to
deliver any form pursuant to this Section 6.5(e) that such Non-U.S. Person, Agent
or Lender is not legally able to deliver.

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

above or the gross negligence or wilful misconduct of
such Person as determined pursuant to a final, non appealable order of a court
of competent jurisdiction.

6.6           AUTHORIZATION
TO MAKE LOANS.

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

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

6.7           USE OF PROCEEDS.   Borrower shall use the initial proceeds of the
Loans provided by Agent to Borrower hereunder only for: (a) payments to each of
the persons listed in the disbursement direction letter furnished by Borrower
to Agent on or about the date hereof, (b) costs, expenses and fees in
connection with the preparation, negotiation, execution and delivery of this
Agreement and the other Financing Agreements, (c) for payments permitted to be
made in the Plan and the Confirmation Order, and (d) for Borrower’s working
capital (including, without limitation, the payment of allowable administrative
expenses) and other proper corporate purposes. All other Loans made or Letter
of Credit Accommodations provided to or for the benefit of Borrower pursuant to
the provisions hereof shall be used by Borrower only for general operating,
working capital and other proper corporate purposes of Borrower not otherwise
prohibited by the terms hereof. None of the proceeds will be used, directly or
indirectly, for the purpose of purchasing or carrying any margin security or
for the purposes of reducing or retiring any indebtedness which was originally
incurred to purchase or carry any margin security or for any other purpose
which might cause any of the Loans to be considered a "purpose
credit" within the meaning of Regulation U of the Board of Governors of
the Federal Reserve System, as amended.

6.8           ILLEGALITY.
  In the event that any change in or
introduction of or change after the date hereof in the interpretation or application
of any law, regulation, treaty, or official directive or official request
(whether or not having the force of law but, if not, being of a type with which
Agent or any Lender is accustomed to comply) makes it unlawful (or contrary to
such directive or request) in any jurisdiction applicable to Agent or such
Lender for Agent or such Lender to make available or maintain the financing
arrangements provided for herein (or any of them) or to

give effect to its obligations under the Financing
Agreements, Agent or such Lender may give seven (7) Business Days written
notice to that effect to Borrower and upon such notice this Agreement shall
terminate. Agent or such Lender will use reasonable efforts (including
reasonable efforts to change its lending office) to avoid the making or
maintaining of such financing arrangements from being unlawful or contrary to
such directive or request; PROVIDED, THAT, such efforts shall not cause the
imposition on Agent or such Lender of any additional costs or legal or regulatory
burdens deemed by Agent or such Lender to be material in good faith.

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

6.10         SHARING
OF PAYMENTS, ETC.

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

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

(c)      Borrower agrees that any
Lender purchasing a participation (or direct interest) as provided in this
Section may exercise, in a manner consistent with this Section, all rights of
setoff, banker’s lien, counterclaim or similar rights with respect to such
participation as fully as if

such Lender were a direct holder of Loans or other
amounts (as the case may be) owing to such Lender in the amount of such
participation.

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

6.11         SETTLEMENT
PROCEDURES.

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

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

times the dollar amount of its Pro Rata Share of the
outstanding Loans and Letter of Credit Accommodations. Each Lender shall only
be entitled to receive interest on its Pro Rata Share of the Loans to the
extent such Loans have been funded by such Lender. Because the Agent on behalf
of Lenders may be advancing and/or may be repaid Loans prior to the time when
Lenders will actually advance and/or be repaid such Loans, interest with
respect to Loans shall be allocated by Agent in accordance with the amount of
Loans actually advanced by and repaid to each Lender and the Agent and shall
accrue from and including the date such Loans are so advanced to but excluding
the date such Loans are either repaid by Borrower or actually settled with the
applicable Lender as described in this Section.

(c)      To the extent that Agent has
made any such amounts available and the settlement described above shall not
yet have occurred, upon repayment of any Loans by Borrower, Agent may apply
such amounts repaid directly to any amounts made available by Agent pursuant to
this Section. In lieu of weekly or more frequent settlements, Agent may, at its
option, at any time require each Lender to provide Agent with immediately
available funds representing its Pro Rata Share of each Loan, prior to Agent’s
disbursement of such Loan to Borrower. In such event, all Loans under this
Agreement shall be made by the Lenders simultaneously and proportionately to
their Pro Rata Shares. No Lender shall be responsible for any default by any
other Lender in the other Lender’s obligation to make a Loan requested
hereunder nor shall the Commitment of any Lender be increased or decreased as a
result of the default by any other Lender in the other Lender’s obligation to
make a Loan hereunder.

(d)      If Agent is not funding a
particular Loan to Borrower pursuant to this Section, Agent may assume that
each Lender will make available to Agent such Lender’s Pro Rata Share of the
Loan requested or otherwise made on such day and Agent may, in its discretion,
but shall not be obligated to, cause a corresponding amount to be made
available to or for the benefit of Borrower on such day. If Agent makes such
corresponding amount available to Borrower and such corresponding amount is not
in fact made available to Agent by such Lender, Agent shall be entitled to
recover such corresponding amount on demand from such Lender together with
interest thereon for each day from the date such payment was due until the date
such amount is paid to Agent at the Federal Funds Rate for each day during such
period (as published by the Federal Reserve Bank of New York or at Agent’s
option based on the arithmetic mean determined by Agent of the rates for the
last transaction in overnight Federal funds arranged prior to 9:00 a.m. (New
York City time) on that day by each of the three leading brokers of Federal
funds transactions in New York City selected by Agent) and if such amounts are
not paid within three (3) days of Agent’s demand, at the highest Interest Rate
provided for in Section 3.1 hereof applicable to Prime Rate Loans. During the
period in which such Lender has not paid such corresponding amount to Agent,
notwithstanding anything to the contrary contained in this Agreement or any of
the other Financing Agreements, the amount so advanced by Agent to or for the
benefit of Borrower shall, for all purposes hereof, be a Loan made by Agent for
its own account. Upon any such failure by a Lender to pay Agent, Agent shall
promptly thereafter notify Borrower of such failure and Borrower shall pay such
corresponding amount to Agent for its own account within five (5) Business Days
of Borrower’s receipt of such notice. A Lender who fails to pay Agent its Pro Rata
Share of any Loans made available by the Agent on such Lender’s behalf, or any
Lender who fails to pay any other amount owing by it to Agent, is a "Defaulting
Lender". Agent shall not be obligated to transfer to a Defaulting Lender
any payments received by Agent for the Defaulting Lender’s benefit, nor shall a
Defaulting Lender be entitled to the

sharing of any payments hereunder (including any
principal, interest or fees). Amounts payable to a Defaulting Lender shall
instead be paid to or retained by Agent. Agent may hold and, in its discretion,
relend to Borrower the amount of all such payments received or retained by it
for the account of such Defaulting Lender. For purposes of voting or consenting
to matters with respect to this Agreement and the other Financing Agreements
and determining Pro Rata Shares, such Defaulting Lender shall be deemed not to
be a "Lender" and such Lender’s Commitment shall be deemed to be zero
(0). This Section shall remain effective with respect to a Defaulting Lender
until such default is cured. The operation of this Section shall not be
construed to increase or otherwise affect the Commitment of any Lender, or
relieve or excuse the performance by Borrower of their duties and obligations
hereunder.

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

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

SECTION 7.           COLLATERAL REPORTING AND COVENANTS

7.1           COLLATERAL
REPORTING.

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

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

(ii)           as
soon as possible after the end of each month (but in any event within twelve
(12) Business Days after the end thereof), on a monthly basis or more
frequently as Agent

may reasonably request, (A) perpetual inventory
reports, (B) inventory reports by location and category (and including the
amounts of Inventory and the value thereof at any leased locations and at
premises of warehouses, processors or other third parties), (C) agings of
accounts receivable (including an aging by due date and together with a
reconciliation to the previous month’s aging and general ledger), and (D)
agings of accounts payable (and including information indicating the amounts
owing to owners and lessors of leased premises, warehouses, processors and
other third parties from time to time in possession of any Collateral);

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

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

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

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

7.2           ACCOUNTS
COVENANTS.

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

and is continuing, Borrower may settle, adjust or
compromise any claim, offset, counterclaim or dispute with any account debtor.
At any time that an Event of Default exists or has occurred and is continuing,
Agent may, at its option, notify Borrower that Agent intends to have the
exclusive right to settle, adjust or compromise any claim, offset, counterclaim
or dispute with account debtors or grant any credits, discounts or allowances
and on and after such notice from Agent to Borrower, Agent shall have such
exclusive right, until the earlier of such time as Agent may notify Borrower
otherwise or no Event of Default shall exist or be continuing.

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

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

7.3           INVENTORY
COVENANTS.   With respect to the Inventory: (a) Borrower
shall at all times maintain inventory records, consistent with the current
practices of Borrower as of the date hereof, keeping correct and accurate
records itemizing and describing the kind, type, quality and quantity of Inventory,
Borrower’s cost therefor and daily withdrawals therefrom and additions thereto;
(b) Borrower shall conduct a physical count of the Inventory at least once each
year but at any time or times as Agent may request on or after an Event of
Default and for so long as the same is continuing, and promptly following such
physical inventory shall supply Agent with a report in the form and with such
specificity as may be reasonably satisfactory to Agent concerning such physical
count; (c) Borrower shall not remove any Inventory from the locations set forth
or permitted herein, without the prior written consent of Agent, except for
sales of Inventory in the ordinary course of its business and except to move
Inventory directly from one location set forth or permitted herein to another
such location and except for Inventory shipped from the manufacturer thereof to
Borrower which is in transit to the locations set forth or permitted herein,
PROVIDED, THAT, Borrower may remove Inventory to any locations not otherwise
permitted hereunder so long as the aggregate amount of all of such Inventory at
such other locations does not have a Value in excess of $10,000; (d) upon Agent’s
request, Borrower shall, at its expense, no more than one (1) time in any
twelve (12) month period, but at any time or

times as Agent may request on or after an Event of
Default and for so long as the same is continuing or at any time on or after
any change in the calculation of standard costs of Inventory, deliver or cause
to be delivered to Agent written appraisals as to the Inventory in form, scope
and methodology acceptable to Agent in good faith and by an appraiser
acceptable to Agent (which includes Hilco Appraisal Services, LLC), addressed
to Agent and Lenders and upon which Agent and Lenders are expressly permitted
to rely (PROVIDED, THAT, any appraisal requested at such time as an Event of
Default exists or has occurred and is continuing or on and after a change in
the calculation of standard costs shall not be considered for purposes of the
limitation on the number of appraisals provided for herein); (e) Borrower shall
produce, use, store and maintain the Inventory with all reasonable care and
caution and in accordance with applicable standards of any insurance in all
material respects and in conformity with applicable laws in all material
respects (including the requirements of the Federal Fair Labor Standards Act of
1938, as amended and all rules, regulations and orders related thereto); (f)
none of the Inventory or other Collateral constitutes farm products or the
proceeds thereof; (g) Borrower assumes all responsibility and liability arising
from or relating to the production, use, sale or other disposition of the
Inventory; (h) Borrower shall not sell Inventory to any customer on approval,
or any other basis which entitles the customer to return or may obligate
Borrower to repurchase such Inventory other than the right of customers to
return defective or non-conforming goods in the ordinary course of business;
(i) Borrower shall give Agent not less than thirty (30) days’ written notice
prior to the effectiveness of any change in the method of calculation of the
standard costs of Inventory; (j) Borrower shall keep the Inventory generally in
good and marketable condition; and (k) Borrower shall not, without prior
written notice to Agent or the specific identification of such Inventory in a
report with respect thereto provided by Borrower to Agent pursuant to Section
7.1(a) hereof, acquire or accept any Inventory on consignment or approval.

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

benefit of Borrower in the ordinary course of business
or (iv) other Equipment so long as the aggregate amount of all of such
Equipment at such other locations does not have a value in excess of $25,000;
(f) the Equipment (other than Equipment that is a fixture) is now and shall
remain personal property and Borrower shall not permit any of the Equipment
(other than Equipment that is a fixture) to be or become a part of or affixed
to real property other than Real Property owned by Borrower and subject to a
Mortgage (unless the Real Property has a value of less than $100,000); and (v)
neither Agent nor any Lender shall have any responsibility or liability arising
from the use of the Equipment and Real Property.

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

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

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

SECTION 8.           REPRESENTATIONS AND WARRANTIES

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

8.1           CORPORATE
EXISTENCE, POWER AND AUTHORITY.  Borrower
is a corporation duly organized and in good standing under the laws of its
State or country of incorporation or organization and is duly qualified as a
foreign corporation and in good standing in all States or other jurisdictions

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

8.2           NAME;
STATE OF ORGANIZATION; CHIEF EXECUTIVE OFFICE; COLLATERAL LOCATIONS.

(a)      The exact legal name of
Borrower on the date hereof is as set forth on the signature page of this
Agreement and in the Information Certificate. Borrower has, during the five
years prior to the date of this Agreement, been known by or used any other
corporate or fictitious name or been a party to any merger or consolidation,
except as set forth in the Information Certificate.

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

(c)      The chief executive office
and mailing address of Borrower and Borrower’s Records concerning Accounts are
located only at the addresses identified as such in Schedule 8.2 to the
Information Certificate and its only other places of business and the only
other locations of Collateral, if any, are the addresses set forth in Schedule
8.2 to the Information Certificate, subject to the rights of Borrower to
establish new locations in accordance with Section 9.2 below. As of the
date hereof, the Information Certificate correctly identifies any of such locations
which are not owned by Borrower and sets forth the owners and/or operators
thereof.

8.3           FINANCIAL
STATEMENTS; NO MATERIAL ADVERSE CHANGE.   All financial statements relating to Borrower
which have been or may hereafter be delivered by Borrower to Agent and Lenders
have been prepared in accordance with GAAP (except as to any interim financial
statements, to the extent such statements are subject to normal year end
adjustments and do not include any notes) and fairly present in all material
respects the financial condition and the results of operation of Borrower as at
the dates and for the periods set forth therein. Except as disclosed in any
interim financial statements furnished by Borrower to Agent or otherwise
disclosed by

Borrower to Agent in writing, in each case prior to
the date of this Agreement, there has been no act, condition or event which has
had or is reasonably likely to have a Material Adverse Effect since the date of
the most recent audited financial statements of Borrower furnished by Borrower
to Agent prior to the date of this Agreement.

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

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

8.6           LITIGATION.   Except
as set forth on Schedule 8.6 to the Information Certificate, (a) there is no
investigation by any Governmental Authority pending, or to the best of Borrower’s
knowledge threatened, against or affecting Borrower, or its assets or business
and (b) there is no action, suit, proceeding or claim by any Person pending, or
to the best of Borrower’s knowledge threatened, against Borrower or its assets,
or against or affecting any transactions contemplated

by this Agreement, in each case as to clauses (a) and
(b), which has or could reasonably be expected to have a Material Adverse
Effect.

8.7           COMPLIANCE
WITH OTHER AGREEMENTS AND APPLICABLE LAWS.

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

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

8.8           ENVIRONMENTAL
COMPLIANCE.

(a)      Except as set forth on
Schedule 8.8 to the Information Certificate, neither Borrower nor any
Subsidiary of Borrower has generated, used, stored, treated, transported,
manufactured, handled, produced or disposed of any Hazardous Materials, on or
off its premises (whether or not owned by it) in any manner which violates in
any material respect any applicable Environmental Law or Permit, and the operations
of Borrower and each Subsidiary of Borrower complies in all material respects
with all Environmental Laws and all Permits.

(b)      Except as set forth on
Schedule 8.8 to the Information Certificate, there is no pending, active, or to
the best of Borrower’s knowledge, threatened investigation, proceeding,
complaint, order, directive, claim, citation or notice by any Governmental
Authority or any other person with respect to any non-compliance with or
violation of the requirements of any Environmental Law or the release, spill or
discharge, threatened or actual, of any Hazardous Material or the generation,
use, storage, treatment, transportation, manufacture, handling, production or
disposal of any Hazardous Materials by Borrower or any Subsidiary of Borrower
and there are no other environmental, health or safety matters, which in any
case could reasonably be expected to have a Material Adverse Effect.

(c)      Except as set forth on
Schedule 8.8 to the Information Certificate, none of Borrower and or any Subsidiary
of Borrower has any material liability (contingent or otherwise) in connection
with a release, spill or discharge, threatened or actual, of any Hazardous
Materials or the generation, use, storage, treatment, transportation,
manufacture, handling, production or disposal of any Hazardous Materials.

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

8.9           EMPLOYEE
BENEFITS.

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

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

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

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

8.11         INTELLECTUAL
PROPERTY.   Borrower owns or licenses or otherwise has the
right to use all Intellectual Property necessary in all material respects for
the operation of its business. As of the date hereof, Borrower does not have
any Intellectual Property registered, or subject to pending applications, in
the United States Patent and Trademark Office or any similar office or agency
in the United States, any State thereof, any political subdivision thereof or
in any other country, other than those described in Schedule 8.11 to the
Information Certificate and has not granted any material licenses with respect
thereto other than as set forth in Schedule 8.11 to the Information Certificate.
Borrower has not received any written notice within the immediately

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

8.12         SUBSIDIARIES;
AFFILIATES; CAPITALIZATION.

(a)      As of the date hereof,
Borrower does not have any direct or indirect Subsidiaries and is not engaged
in any joint venture or partnership, except as set forth in Schedule 8.12 to
the Information Certificate.

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

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

8.13         LABOR
DISPUTES.

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

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

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

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

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

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

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

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

8.15         MATERIAL
CONTRACTS.   Schedule 8.15 to the Information Certificate
sets forth all Material Contracts to which Borrower is a party or is bound as
of the date hereof. Borrower has delivered true, correct and complete copies of
such Material Contracts to Agent on or before the

date hereof. Borrower is not in breach or in default
in any material respect of or under any Material Contract, except to the extent
set forth on Schedule 8.15 to the Information Certificate. Except as set forth
on Schedule 8.15 to the Information Certificate, as of the date hereof, no
notice of the intention of any other party thereto to terminate any Material
Contract has been received by or on behalf of Borrower.

8.16         CONFIRMATION
ORDER.   Borrower has delivered to Agent a complete and
correct copy of the Plan and the Confirmation Order (including all schedules,
exhibits, amendments, supplements, modifications, assignments and all other
documents delivered pursuant thereto or in connection therewith). Borrower is
not in default in the performance of or compliance with any provisions of the Plan.
The Plan is in full force and effect as of the date hereof and has not been
terminated, rescinded or withdrawn. The Confirmation Order is a Final Order and
is in full force and effect, and has not been amended, modified or stayed and
no appeal therefrom or request for hearing with respect thereto is pending. All
conditions to confirmation and consummation of the Plan have been satisfied or
validly waived pursuant to the Plan (other than conditions consisting of the
effectiveness of this Agreement) and the Effective Date (as defined in the
Plan) has occurred. Set forth on Schedule 8.16 hereto is a true and correct (a)
list of the uses with respect to all cash amounts payable by Borrower on the Effective
Date pursuant to the Plan and (b) list of all claims which may be required to
be paid by Borrower pursuant to the Plan after the Effective Date and whether
such claims are or purport to be secured claims. No court of competent
jurisdiction has issued any injunction, restraining order or other order prior
to the date hereof which prohibits consummation of the transactions described
in the Confirmation Order and no governmental or other action or proceeding has
been commenced, seeking any injunction, restraining order or other order which
seeks to void or otherwise modify the transactions described in the
Confirmation Order.

8.17         PAYABLE
PRACTICES; RETENTION OF TITLE.   Borrower has not made any material change in
its historical accounts payable practices from those in effect immediately
prior to the date hereof.

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

8.19         SURVIVAL
OF WARRANTIES; CUMULATIVE.   All representations and warranties contained
in this Agreement or any of the other Financing Agreements shall survive the
execution and delivery of this Agreement and shall be deemed to have been made
again to Agent and Lenders on the date of each additional borrowing or other
credit accommodation hereunder and shall be

conclusively presumed to have been relied on by Agent
and Lenders regardless of any investigation made or information possessed by
Agent or any Lender. The representations and warranties set forth herein shall
be cumulative and in addition to any other representations or warranties which
Borrower shall now or hereafter give, or cause to be given, to Agent or any
Lender.

SECTION 9.           AFFIRMATIVE AND NEGATIVE COVENANTS

9.1           MAINTENANCE
OF EXISTENCE.

(a)      Borrower shall at all times
preserve, renew and keep in full force and effect its corporate existence and
rights and franchises with respect thereto and maintain in full force and
effect all licenses, trademarks, tradenames, approvals, authorizations, leases,
contracts and Permits necessary to carry on the business as presently
conducted, except to the extent that the failure to maintain the same has or
could reasonably be expected to have a Material Adverse Effect.

(b)      Borrower shall not change
its name unless each of the following conditions is satisfied: (i) Agent shall
have received not less than ten (10) Business Days’ prior written notice from
Borrower of such proposed change in its corporate name, which notice shall
accurately set forth the new name and (ii) Agent shall have received a copy of
the amendment to the Certificate of Incorporation of Borrower, providing for
the name change certified by the Secretary of State of the jurisdiction of
incorporation or organization of Borrower as soon as it is available.

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

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

9.3           COMPLIANCE
WITH LAWS, REGULATIONS, ETC.

(a)      Borrower shall, and shall
cause any Subsidiary to, at all times, comply in all material respects with all
laws, rules, regulations, licenses, approvals, orders and other Permits
applicable to it and duly observe all requirements of any foreign, Federal,
State or local

Governmental Authority where the failure to so comply
or observe has or could reasonably be expected to have a Material Adverse
Effect.

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

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

(d)      Borrower shall indemnify and
hold harmless Agent and Lenders and their respective directors, officers,
employees, agents, invitees, representatives, successors and assigns, from and
against any and all losses, claims, damages, liabilities, costs, and expenses
(including reasonable attorneys’ fees and expenses) directly or indirectly
arising out of or attributable to the use, generation, manufacture,
reproduction, storage, release, threatened release, spill, discharge, disposal
or presence of a Hazardous Material, including the costs of any required or
necessary repair, cleanup or other remedial work with respect to any property
of Borrower and the preparation and implementation of any closure, remedial or
other required plans, except that Borrower shall not have any obligation under
this Section 9.3(d) to indemnify a person otherwise to be indemnified pursuant
to the terms hereof with respect to a matter covered hereby resulting solely from
the gross negligence or wilful misconduct of such indemnitee as determined
pursuant to a final, non appealable order of a court of competent jurisdiction
(but without limiting the obligations of Borrower as to any other person
hereunder). All representations, warranties, covenants and indemnifications in
this Section 9.3 shall survive the payment of the Obligations and the
termination of this Agreement.

9.4           PAYMENT
OF TAXES AND CLAIMS. Borrower shall, and shall cause any Subsidiary to, duly
pay and discharge all material taxes, assessments, contributions and
governmental charges upon or against it or its properties or assets when due,
except for taxes, assessments, contributions and governmental changes the
validity of which are being contested in good faith by appropriate proceedings,
including, but not limited to, claim objection proceedings in the Bankruptcy
Court as provided for in the Plan, diligently pursued and available to Borrower
or any Subsidiary, as the case may be, and with respect to which adequate
reserves have been set aside on its books to the extent required by GAAP and
except for other taxes, assessments, contributions and damages arising prior to
the date hereof that are subject to, and paid in the ordinary course under, the
claims administration process provided for in the Chapter 11 Case.

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

9.6           FINANCIAL
STATEMENTS AND OTHER INFORMATION.

(a)      Borrower shall, and shall
cause any Subsidiary to, keep proper books and records in which true and
complete entries shall be made of all dealings or transactions of or in
relation to the Collateral and the business of Borrower and its Subsidiaries in
accordance with GAAP. Borrower shall promptly furnish to Agent and Lenders all
such financial and other information as Agent shall reasonably request relating
to the Collateral and the assets, business and operations of Borrower, and
Borrower shall notify the auditors and accountants of Borrower that Agent is
authorized to obtain such information directly from them, PROVIDED THAT, so long
as no Default or Event of Default shall exist or have occurred and be
continuing, and Agent shall have otherwise received such information hereunder
as it may have requested, Agent shall not

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

(b)      Borrower shall promptly
notify Agent in writing of the details of (i) any loss, damage, investigation,
action, suit, proceeding or claim relating to Collateral having a value of more
than $50,000 or which could reasonably be expect to result in a Material
Adverse Effect, (ii) any Material Contract being terminated or amended or any
new Material Contract entered into (in which event Borrower shall provide Agent
with a copy of such Material Contract), (iii) any order, judgment or decree in
excess of $100,000 shall have been entered against Borrower or any of its or
their properties or assets, (iv) any notification of a material violation of
laws or regulations received by Borrower, (v) any ERISA Event, and (vi) the
occurrence of any Default or Event of Default.

(c)      Promptly after the sending
or filing thereof, Borrower shall send to Agent copies of (i) all public
information which Borrower or any of its Subsidiaries sends to its security
holders generally, (ii) all Form 10-K, Form 10-Q, Form 8-K, proxy statements,
all amendments and supplements thereto or equivalent reports and registration
statements which Borrower or any of its Subsidiaries files with the Securities
Exchange Commission, any national or foreign securities exchange or the
National Association of Securities Dealers, Inc., and such other reports as
Agent may hereafter specifically identify to Borrower that Agent will require
be provided to Agent, (iii) all press releases and (iv) all other statements
concerning material changes or developments in the business of Borrower made
available by Borrower to the public.

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

9.7           SALE
OF ASSETS, CONSOLIDATION, MERGER, DISSOLUTION, ETC. Borrower shall not, and
shall not permit any Subsidiary to, directly or indirectly,

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

become
liable for any Indebtedness or other obligations (contingent or otherwise) as a
result of all such mergers or consolidations in an aggregate amount in excess
of $150,000;

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

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

(ii)           Indebtedness
permitted under Section 9.9,

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

(iv)          the sale or
other disposition of the real property and equipment of Haynes UK currently
owned by Haynes UK located in Openshaw, England to the extent permitted under
the UK Financing Agreements,

(v)           the issuance
and sale by Borrower or any of Subsidiary of Borrower of Capital Stock of such
Borrower or any of Subsidiary of Borrower after the date hereof; PROVIDED,
THAT, as to any such issuance and sale to Persons other than the Permitted
Holders as of the date hereof, each of the following conditions is satisfied:
(A) Agent shall have received not less than ten (10) Business Days’ prior
written notice of such issuance and sale by Borrower or such Subsidiary of
Borrower, as the case may be, which notice shall specify the parties to whom
such shares are to be sold, the terms of such sale, the number of shares to be
issued and sold, the total amount which it is anticipated will be realized from
the issuance and sale of such stock, the net cash proceeds which it is
anticipated will be received by Borrower or any of Subsidiary of Borrower, as
the case may be from such sale, together with such other information with
respect thereto as Agent may in good faith request, (B) none of Borrower or any
of Subsidiary of Borrower shall be required to pay any cash dividends or
repurchase or redeem such Capital Stock or make any other payments in respect
thereof, except as otherwise permitted in Section 9.11 hereof, (C) the terms of
such Capital Stock, and the terms and conditions of the purchase and sale
thereof, shall not include any terms that include any limitation on the right
of Borrower to request or receive Loans or Letter of Credit Accommodations or
the right of Borrower to amend or modify any of the terms and conditions of
this Agreement or any of the other Financing Agreements or are more restrictive
or burdensome to Borrower than the terms of any Capital Stock in effect on the
date hereof, (D) except as Agent may otherwise agree in writing, all of the
proceeds of the sale and issuance of such Capital Stock shall be remitted to
Agent for application to the principal amount of the Obligations and such other
Obligations then due and payable, in such order and manner as Agent may
determine (without any permanent reduction in the Commitments, but without
limitation of any rights of Agent or Lenders at any time that a Default or
Event of Default shall exist or have occurred and be continuing) and (E) as of
the date of such issuance and sale and after giving effect thereto, no Default
or Event of Default shall exist or have occurred and be continuing,

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

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

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

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

(c)      wind up, liquidate or
dissolve, except that any Subsidiary listed on Schedule 8.12 hereto may wind
up, liquidate and dissolve; PROVIDED, THAT, each of the following conditions is
satisfied, (i) the winding up, liquidation and dissolution of such Subsidiary
shall not violate any law or any order or decree of any court or other
Governmental Authority in any material respect and shall not conflict with or
result in the breach of, or constitute a default under, any indenture,
mortgage, deed of trust, or any other agreement or instrument to which Borrower
is a party or may be bound, (ii) such winding up, liquidation or dissolution
shall be done in accordance with the requirements of all applicable laws and
regulations, (iii) effective upon such winding up, liquidation or dissolution,
all of the assets and properties of such Subsidiary shall be

duly
and validly transferred and assigned to Borrower, free and clear of any liens,
restrictions or encumbrances other than the security interest and liens of
Agent (and Agent shall have received such evidence thereof as Agent may require)
and Agent shall have received such deeds, assignments or other agreements as
Agent may request to evidence and confirm the transfer of such assets of such
Subsidiary to Borrower, (iv) Agent shall have received all documents and
agreements that Borrower has filed with any Governmental Authority or as are
otherwise required to effectuate such winding up, liquidation or dissolution,
(v) Borrower shall not assume any Indebtedness, obligations or liabilities as a
result of such winding up, liquidation or dissolution, or otherwise become
liable in respect of any obligations or liabilities of the entity that is
winding up, liquidating or dissolving, unless such Indebtedness is otherwise
expressly permitted hereunder, (vi) Agent shall have received not less than ten
(10) Business Days prior written notice of the intention of such Subsidiary to
wind up, liquidate or dissolve, and (vii) as of the date of such winding up,
liquidation or dissolution and after giving effect thereto, no Default or Event
of Default shall exist or have occurred and be continuing; or

(d)      agree to do any of the
foregoing, except to the extent that such agreement is part of the Plan as in
effect on the date hereof (PROVIDED, THAT, nothing contained herein shall be
construed to affect any of the rights or obligations of Agent and Lenders with
respect to any such plan of reorganization hereunder or under the commitment
letter with respect to providing financing to Borrower upon confirmation of a
plan of reorganization).

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

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

(b)      liens securing the payment
of taxes, either (i) not yet overdue (it being understood that taxes owing for
periods prior to the date hereof shall not be considered to be overdue unless
the same are not paid by the date established by the Plan and the claims
administration process provided for in the Chapter 11 Case) or the validity of
which are being contested in good faith by appropriate proceedings, including,
but not limited to claim objection proceedings in the Bankruptcy Court as
provided for in the Plan, diligently pursued and available to Borrower or such
Subsidiary and with respect to which adequate reserves have been set aside on
its books or (ii) identified on Schedule 9.8 hereto;

(c)      non-consensual statutory
liens (other than liens securing the payment of taxes) arising in the ordinary
course of Borrower’s or Subsidiary’s business (including such liens in favor of
landlords, warehousemen and mechanics and similar liens) to the extent such
liens secure Indebtedness or other obligations relating to claims or
liabilities which are being contested in good faith by appropriate proceedings
diligently pursued and available to Borrower or such Subsidiary, in each case
prior to the commencement of foreclosure or other similar proceedings and with
respect to which adequate reserves have been set aside on its books in
accordance with GAAP and other than liens identified on Schedule 9.8 hereof;

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

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

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

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

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

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

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

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

floating
charges with respect to the assets of Haynes UK securing the Indebtedness of
Haynes UK under the UK Financing Agreements;

(l)       the mortgage on the real
property of Haynes UK located in Openshaw, England as of the date hereof in
favor of the Haynes UK Pension Trustees to secure the obligations of Haynes UK
to make certain payments to the pension plan established by Haynes UK as set
forth therein;

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

(n)      the pledge, mortgage and
charge over the share of Haynes UK granted by Borrower to UK Lender pursuant to
the UK Financing Agreements to secure the Indebtedness and other obligations of
Borrower to UK Lender permitted under Section 9.9(g) hereof; and

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

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

(a)      the Secured Obligations;

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

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

(d)      contingent Indebtedness of
Borrower or any Subsidiary arising after the date hereof to reimburse the
issuer of a surety bond issued in the ordinary course of the business of

Borrower
or such Subsidiary consistent with the current practices of Borrower or such
Subsidiary as of the date hereof required for the performance of tenders, bids,
leases, trade contracts (other than for the repayment of Indebtedness), appeals
statutory obligations and other similar obligations; PROVIDED, THAT, (i) the
aggregate amount of such contingent Indebtedness outstanding at any time shall
not exceed $100,000 and (ii) no such Indebtedness shall be incurred at any time
that a Default or Event of Default shall exist or have occurred and be continuing;

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

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

(g)      Indebtedness of Borrower pursuant
to the guarantee by Borrower of the Indebtedness and other obligations of
Haynes UK under the UK Financing Agreements;

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

(i)       Indebtedness of Haynes UK
to the Haynes UK Pension Trustees in respect of the payment of L 300,000 as a
contribution to the Haynes Pension Plan established by Haynes UK as required
under the terms of the Agreement, dated April 2, 2004, by and among Haynes UK
and the Haynes UK Pension Trustees, which Indebtedness is secured by the
mortgage permitted under Section 9.8 hereof;

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

(k)      the Indebtedness set forth
on Schedule 9.9 to the Information Certificate; PROVIDED, THAT, (i) Borrower or
such Subsidiary may not make payments in respect of such Indebtedness other
than regularly scheduled payments of principal and interest in accordance with
the terms of the agreement or instrument evidencing or giving rise to such
Indebtedness as in effect on the date hereof, (ii) Borrower and such Subsidiary
shall not, directly or indirectly, (A) amend, modify, alter or change the terms
of such Indebtedness or any agreement, document or instrument related thereto
as in effect on the date hereof except, that, Borrower and such Subsidiary may,
after prior written notice to Agent, amend, modify, alter or change the terms
thereof so as to extend the maturity thereof, or defer the timing of any
payments in respect thereof, or to forgive or cancel any portion of such
Indebtedness (other than pursuant to payments thereof), or to reduce the
interest rate or any fees in connection therewith, or to make any covenant less
restrictive, or (B) redeem, retire, defease, purchase or otherwise acquire such

Indebtedness,
or set aside or otherwise deposit or invest any sums for such purpose (other
than required prepayments of Indebtedness incurred in single asset financings
in connection with the sale or other disposition of the assets so financed
provided such sale or other disposition is otherwise permitted hereunder), and
(iii) Borrower shall furnish to Agent all notices or demands in connection with
such Indebtedness either received by Borrower or on its behalf, promptly after
the receipt thereof, or sent by Borrower or on its behalf, concurrently with
the sending thereof, as the case may be.

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

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

(b)      investments in cash or Cash
Equivalents; PROVIDED, THAT, with respect to investments in Cash Equivalents by
the Borrower, (i) no Loans are then outstanding, except that notwithstanding
that any Loans are outstanding, Borrower may from time to time in the ordinary
course of business consistent with current practices as of the date hereof (A)
make deposits of cash or other immediately available funds in operating demand
deposit accounts used for disbursements to the extent required to provide funds
for amounts drawn or anticipated to be drawn shortly on such accounts (but not
more than one (1) Business Days after the date of deposit therein), (B) cause
amounts to be deposited in the Blocked Accounts in accordance with the terms of
Section 6.3 hereof and (C) make deposits in those deposit accounts having
balances of less than $12,500 up to an aggregate amount for all such accounts
of $65,000 (and in the case of the deposit account number 08001031 at Community
First Bank having a balance of not more than $60,000 for more than five (5) consecutive
days) as described in Section 5.2(d) hereof, and (ii) the terms and conditions
of Section 5.2 hereof shall have been satisfied with respect to the deposit
account, investment account or other account in which such cash or Cash
Equivalents are held to the extent required thereunder;

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

(d)      loans and advances by
Borrower or any of its Subsidiaries to employees of Borrower or such Subsidiary
not to exceed the principal amount of $100,000 in the aggregate at any time
outstanding for: (i) reasonably and necessary work-related travel or other
ordinary business expenses to be incurred by such employees in connection with
their work for Borrower or such Subsidiary and (ii) reasonable and necessary
relocation expenses of such employees (including home mortgage financing for
relocated employees);

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

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

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

(h)      loans or advances of money
or property by any Foreign Subsidiary to any person (including to Borrower or
any of its Subsidiaries) after the date hereof (except for loans or advances by
Haynes UK which shall be subject to clause (g) above), or the investment by any
such Subsidiary in any person (by capital contribution, dividend or otherwise)
or in any Cash

Equivalents
or similar instruments in any foreign jurisdiction after the date hereof, or
the purchase or repurchase by any such Subsidiary of the Capital Stock or
Indebtedness or all or a substantial part of the assets or property of any
person after the date hereof, or the formation or acquisition by any such Subsidiary
of any Subsidiaries after the date hereof or the agreement of any such
Subsidiary to do any of the foregoing after the date hereof; PROVIDED, THAT,
(i) as of the date of such loan or advance (other than any loan or advance to
Borrower), or investment or purchase or repurchase (other than investments in cash
or Cash Equivalents or similar instruments in any foreign jurisdiction), or the
formation or acquisition of any such Subsidiary and after giving effect thereto,
no Default or Event of Default shall exist or have occurred and be continuing,
(ii) in no event shall Borrower make, or be required to make, any payment or
incur any obligation or liability (contingent or otherwise) in connection with
any such loan or advance, or investment or purchase or repurchase, or the
formation or acquisition of such Subsidiary or take any other action otherwise
prohibited hereunder, (iii) in the case of any loans or advances to Borrower,
(A) the Indebtedness arising pursuant to such loans shall be subject to, and
subordinate in right of payment to, the right of Agent and Lenders to receive
the prior final payment and satisfaction in full of all of the Obligations on
terms and condition acceptable to Agent, (B) promptly upon Agent’s request,
Agent shall have received a subordination agreement, in form and substance
satisfactory to Agent, providing for the terms of the terms of the subordination
in right of payment of such Indebtedness of Borrower to the prior final payment
and satisfaction in full of all of the Obligations, duly authorized, executed
and delivered by such Subsidiary and Borrower, and (C) Borrower shall not,
directly or indirectly make, or be required to make, any payments in respect of
such Indebtedness and (iv) in the case of any such loan or advance, or
investment or purchase or repurchase or the formation or acquisition of a
Subsidiary by Haynes UK, it shall be permitted under the UK Financing
Agreements; and (i) the investments, loans and advances set forth on Schedule
9.10 to the Information Certificate; PROVIDED, THAT, as to such loans and
advances, Borrower shall not, directly or indirectly, amend, modify, alter or
change the terms of such loans and advances or any agreement, document or instrument
related thereto and Borrower shall furnish to Agent all notices or demands in
connection with such loans and advances either received by Borrower or on its
behalf, promptly after the receipt thereof, or sent by Borrower or on its
behalf, concurrently with the sending thereof, as the case may be.

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

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

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

(c)      any Subsidiary of Borrower
may pay dividends to Borrower.

9.12         TRANSACTIONS
WITH AFFILIATES. Borrower shall not, directly or indirectly:

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

(b)      make any payments (whether
by dividend, loan or otherwise) of management, consulting or other fees for
management or similar services, or of any Indebtedness owing to any officer,
employee, shareholder, director or any other Affiliate of Borrower, except (i)
reasonable compensation and reimbursement of expenses to officers, employees
and directors in each case for or in connection with services rendered to
Borrower in the ordinary course of business (including existing management
incentive plans, the Long Term Incentive Plan (as defined in the Plan as in
effect on the date hereof) and other management and director compensation,
retention, benefit, bonus and severance plans entered into in the ordinary
course of business), and (ii) payments in respect of any such Indebtedness to
the extent permitted under Section 9.10 hereof.

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

9.14         END
OF FISCAL YEARS; FISCAL QUARTERS. Borrower shall, for financial reporting
purposes, cause its, and each of its Subsidiaries’ (a) fiscal years to end on
September 30 of each year and (b) fiscal quarters to end on December 31, March
31, June 30 and September 30 of each year.

9.15         CHANGE
IN BUSINESS. Borrower shall not engage in any business other than the business
of Borrower on the date hereof and any business reasonably related, ancillary
or complimentary to the business in which Borrower is engaged on the date
hereof.

9.16         LIMITATION
OF RESTRICTIONS AFFECTING SUBSIDIARIES. Borrower shall not, directly, or
indirectly, create or otherwise cause or suffer to exist any encumbrance or
restriction which prohibits or limits the ability of any Subsidiary of Borrower
to (a) pay dividends or make other distributions or pay any Indebtedness owed
to Borrower or any Subsidiary of Borrower; (b) make loans or advances to
Borrower or any Subsidiary of Borrower, (c) transfer any of its properties or
assets to Borrower or any Subsidiary of Borrower; or (d) create, incur, assume
or suffer to exist any lien upon any of its property, assets or revenues,
whether now owned or hereafter acquired, other than encumbrances and restrictions
arising under (i) applicable law, (ii) this Agreement, (iii) customary
provisions restricting subletting or assignment of any lease governing a
leasehold interest of Borrower or any Subsidiary of Borrower, (iv) customary restrictions
on dispositions of real property interests found in reciprocal easement
agreements of Borrower or any Subsidiary of Borrower, (v) customary restrictions
in agreements for the sale of assets (to the extent such sale is permitted
hereunder) on the transfer or encumbrance of such assets during an interim
period prior to the closing of the sale of such assets, (vi) customary restrictions
in contracts that prohibit the assignment of such contract, (vii) customary
restrictions in agreements relating to purchase money financing arrangements of
Borrower or contained in security agreements providing for the grant of a security
interest to secure other Indebtedness owing to a person that is not an
Affiliate (in each case to the extent such purchase money financing or other
Indebtedness is permitted hereunder) to the extent such restrictions restrict
the transfer of, or the granting of liens on, the property subject to such
purchase money financing arrangements or security agreements, (viii) any agreement
relating to permitted Indebtedness incurred by a Subsidiary of Borrower prior
to the date on which such Subsidiary was acquired by Borrower and outstanding
on such acquisition date, (ix) the UK Financing Agreements, (x) customary
restrictions in license agreements with respect to Intellectual Property which
restrict the sublicensing, pledge, transfer or assignment of the licensee’s
rights thereunder, (xi) restrictions in agreements in existence prior to the
date hereof and the extension or continuation of contractual obligations in
existence on the date hereof; PROVIDED, THAT, any such encumbrances or restrictions
contained in such extension or continuation are no less favorable to Agent and
Lenders than those encumbrances and restrictions under or pursuant to the
contractual obligations so extended or continued.

9.17         MINIMUM
EBITDA. At any time that Excess Availability is less than $20,000,000, the
EBITDA of Borrower and its Subsidiaries (on a consolidated basis) for each
period set forth on Schedule 9.17 hereto for which financial statements of
Borrower and its Subsidiaries have been received by Agent shall be not less
than amounts set forth on Schedule 9.17 hereto with respect to such period.

9.18         FIXED
CHARGE COVERAGE RATIO. At any time that Excess Availability is less than
$20,000,000, the Fixed Charge Coverage Ratio of Borrower and its Subsidiaries
(on a consolidated basis) for each period set forth on Schedule 9.18 hereto for
which financial statements of Borrower and its Subsidiaries have been received
by Agent shall be not less than amounts set forth on Schedule 9.18 hereto with
respect to such period.

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

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

9.21         COSTS
AND EXPENSES. Borrower jointly and severally agree to pay to Agent on demand
all costs, expenses, filing fees and taxes (except to the extent Taxes may be
subject to the terms of Section 6.5 hereof) paid or payable in connection with
the preparation, negotiation, execution, delivery, recording, syndication,
administration, collection, liquidation, enforcement and defense of the
Obligations, Agent’s rights in the Collateral, this Agreement, the other Financing
Agreements and all other documents related hereto or thereto, including any
amendments, supplements or consents which may hereafter be contemplated
(whether or not executed) or entered into in respect hereof and thereof,
including: (a) all out-of-pocket costs and expenses of filing or recording
(including Uniform Commercial Code financing statement filing taxes and fees,
documentary taxes, intangibles taxes and mortgage recording taxes and fees, if
applicable); (b) all reasonable out-of-pocket costs and expenses and fees for
insurance premiums, environmental audits, title insurance premiums, surveys,
assessments, engineering reports and inspections, appraisal fees and search
fees, out-of-pocket costs and expenses of remitting loan proceeds, collecting
checks and other items of payment, and establishing and maintaining the Blocked
Accounts, together with Agent’s customary charges and fees with respect
thereto; (c) charges, fees or expenses charged by any bank or issuer in connection
with the Letter of Credit

Accommodations;
(d) out-of-pocket costs and expenses of preserving and protecting the
Collateral; (e) costs and expenses paid or incurred in connection with
obtaining payment of the Obligations, enforcing the security interests and liens
of Agent, selling or otherwise realizing upon the Collateral, and otherwise
enforcing the provisions of this Agreement and the other Financing Agreements
or defending any claims made or threatened against Agent or any Lender arising
out of the transactions contemplated hereby and thereby (including preparations
for and consultations concerning any such matters); (f) all reasonable
out-of-pocket expenses and costs heretofore and from time to time hereafter
incurred by Agent during the course of periodic field examinations of the
Collateral and Borrower’s operations (it being understood that unless an Event
of Default shall exist or have occurred and be continuing, only four (4) such
field examinations shall be conducted at the expense of Borrower in any calendar
year), plus a per diem charge at Agent’s then standard rate for Agent’s examiners
in the field and office (which rate as of the date hereof is $1,000 per person
per day); and (g) the reasonable fees and disbursements of counsel (including
legal assistants) to Agent in connection with any of the foregoing.

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

SECTION
10.         EVENTS OF
DEFAULT AND REMEDIES

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

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

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

(c)      any judgment for the payment
of money is rendered against Borrower in excess of $1,000,000 in any one case
or in excess of $2,500,000 in the aggregate (to the extent not

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

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

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

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

(g)      any failure by Borrower to
observe or perform any of the material terms or conditions of any material
order, stipulation or other arrangements entered by or with the Bankruptcy
Court in the Chapter 11 Case or otherwise under the Plan;

(h)      any default by Borrower
under any agreement, document or instrument relating to any Indebtedness for
borrowed money owing to any person other than Agent and Lenders, or any Capital
Lease, contingent Indebtedness in connection with any guarantee, letter of
credit, indemnity or similar type of instrument in favor of any person other
than Agent and Lenders, except for disputed claims or unallowed claims that
Borrower is not then required to pay under the Plan, in any case in an amount
in excess of $500,000 which default continues for more than the applicable cure
period, if any, with respect thereto, or any default by Borrower under any
Material Contract, which default continues for more than the applicable cure
period, if any, with respect thereto;

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

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

(k)      any Change of Control;

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

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

(n)      there shall be an event of
default under any of the other Financing Agreements or any event of default
under the UK Financing Agreements.

10.2         REMEDIES.

(a)      At any time an Event of
Default exists or has occurred and is continuing, Agent and Lenders shall have
all rights and remedies provided in this Agreement, the other Financing
Agreements, the UCC and other applicable law, all of which rights and remedies
may be exercised without notice to or consent by Borrower, except as such
notice or consent is expressly provided for hereunder or required by applicable
law. All rights, remedies and powers granted to Agent and Lenders hereunder,
under any of the other Financing Agreements, the UCC or other applicable law,
are cumulative, not exclusive and enforceable, in Agent’s discretion,
alternatively, successively, or concurrently on any one or more occasions, and
shall include, without limitation, the right to apply to a court of equity for
an injunction to restrain a breach or threatened breach by Borrower of this
Agreement or any of the other Financing Agreements. Subject to Section 12
hereof, Agent may, and at the direction of the Required Lenders shall, at any
time or times, proceed directly against Borrower to collect the Obligations
without prior recourse to the Collateral.

(b)      Without limiting the
generality of the foregoing, at any time an Event of Default exists or has
occurred and is continuing, Agent may, at its option and shall upon the
direction of the Required Lenders, (i) upon notice to Borrower, accelerate the
payment of all Obligations and demand immediate payment thereof to Agent for
itself and the benefit of Lenders; and (ii) terminate the Commitments and this
Agreement.

(c)      Without limiting the
generality of the foregoing, at any time an Event of Default exists or has
occurred and is continuing, Agent may, in its discretion (i) with or without
judicial process or the aid or assistance of others, enter upon any premises on
or in which any of the Collateral may be located and take possession of the
Collateral or complete processing, manufacturing and repair of all or any
portion of the Collateral, to the extent permitted by law,

(ii)
require Borrower, at Borrower’s expense, to assemble and make available to Agent
any part or all of the Collateral at any place and time designated by Agent,
(iii) collect, foreclose, receive, appropriate, setoff and realize upon any and
all Collateral, (iv) remove any or all of the Collateral from any premises on
or in which the same may be located for the purpose of effecting the sale,
foreclosure or other disposition thereof or for any other purpose, (v) sell,
lease, transfer, assign, deliver or otherwise dispose of any and all Collateral
(including entering into contracts with respect thereto, public or private
sales at any exchange, broker’s board, at any office of Agent or elsewhere) at
such prices or terms as Agent may deem reasonable, for cash, upon credit or for
future delivery, with the Agent having the right to purchase the whole or any
part of the Collateral at any such public sale, all of the foregoing being free
from any right or equity of redemption of Borrower, which right or equity of
redemption is hereby expressly waived and released by Borrower and/or (vi)
terminate this Agreement. If any of the Collateral is sold or leased by Agent
upon credit terms or for future delivery, the Obligations shall not be reduced
as a result thereof until payment therefor is finally collected by Agent. If
notice of disposition of Collateral is required by law, ten (10) days prior
notice by Agent to Borrower designating the time and place of any public sale
or the time after which any private sale or other intended disposition of
Collateral is to be made, shall be deemed to be reasonable notice thereof and
Borrower waives any other notice. In the event Agent institutes an action to
recover any Collateral or seeks recovery of any Collateral by way of prejudgment
remedy, Borrower waives the posting of any bond which might otherwise be
required. At any time an Event of Default exists or has occurred and is
continuing, upon Agent’s request, Borrower will either, as Agent shall specify,
furnish cash collateral to the issuer to be used to secure and fund Agent’s
reimbursement obligations to the issuer in connection with any Letter of Credit
Accommodations or furnish cash collateral to Agent for the Letter of Credit
Accommodations. Such cash collateral shall be in the amount equal to one hundred
five (105%) percent of the amount of the Letter of Credit Accommodations plus
the amount of any fees and expenses payable in connection therewith through the
end of the latest expiration date of such Letter of Credit Accommodations.

(d)      At any time or times that an
Event of Default exists or has occurred and is continuing, Agent may, in its
discretion, enforce the rights of Borrower against any account debtor,
secondary obligor or other obligor in respect of any of the Accounts or other
Receivables. Without limiting the generality of the foregoing, at any time or
times that an Event of Default exists or has occurred and is continuing, Agent
may, in its discretion, at such time or times (i) notify any or all account
debtors, secondary obligors or other obligors in respect thereof that the
Receivables have been assigned to Agent and that Agent has a security interest
therein and Agent may direct any or all accounts debtors, secondary obligors
and other obligors to make payment of Receivables directly to Agent, (ii)
extend the time of payment of, compromise, settle or adjust for cash, credit,
return of merchandise or otherwise, and upon any terms or conditions, any and
all Receivables or other obligations included in the Collateral and thereby
discharge or release the account debtor or any secondary obligors or other
obligors in respect thereof without affecting any of the Obligations, (iii)
demand, collect or enforce payment of any Receivables or such other
obligations, but without any duty to do so, and Agent and Lenders shall not be
liable for any failure to collect or enforce the payment thereof nor for the
negligence of its agents or attorneys with respect thereto and (iv) take whatever
other action Agent may deem necessary or desirable for the protection of its
interests and the interests of Lenders. At any time that an Event of Default
exists or has occurred and is continuing, at Agent’s request, all invoices and

statements
sent to any account debtor shall state that the Accounts and such other
obligations have been assigned to Agent and are payable directly and only to
Agent and Borrower shall deliver to Agent such originals of documents evidencing
the sale and delivery of goods or the performance of services giving rise to
any Accounts as Agent may require. In the event any account debtor returns
Inventory when an Event of Default exists or has occurred and is continuing,
Borrower shall, upon Agent’s request, hold the returned Inventory in trust for
Agent, segregate all returned Inventory from all of its other property, dispose
of the returned Inventory solely according to Agent’s instructions, and not
issue any credits, discounts or allowances with respect thereto without Agent’s
prior written consent.

(e)      To the extent that
applicable law imposes duties on Agent or any Lender to exercise remedies in a
commercially reasonable manner (which duties cannot be waived under such law),
Borrower acknowledges and agrees that it is not commercially unreasonable for
Agent or any Lender (i) to fail to incur expenses reasonably deemed significant
by Agent or any Lender to prepare Collateral for disposition or otherwise to
complete raw material or work in process into finished goods or other finished
products for disposition, (ii) to fail to obtain third party consents for
access to Collateral to be disposed of, or to obtain or, if not required by
other law, to fail to obtain consents of any Governmental Authority or other third
party for the collection or disposition of Collateral to be collected or
disposed of, (iii) to fail to exercise collection remedies against account
debtors, secondary obligors or other persons obligated on Collateral or to
remove liens or encumbrances on or any adverse claims against Collateral, (iv)
to exercise collection remedies against account debtors and other persons
obligated on Collateral directly or through the use of collection agencies and
other collection specialists, (v) to advertise dispositions of Collateral
through publications or media of general circulation, whether or not the
Collateral is of a specialized nature, (vi) to contact other persons, whether
or not in the same business as Borrower, for expressions of interest in
acquiring all or any portion of the Collateral, (vii) to hire one or more
professional auctioneers to assist in the disposition of Collateral, whether or
not the collateral is of a specialized nature, (viii) to dispose of Collateral
by utilizing Internet sites that provide for the auction of assets of the types
included in the Collateral or that have the reasonable capability of doing so,
or that match buyers and sellers of assets, (ix) to dispose of assets in
wholesale rather than retail markets, (x) to disclaim disposition warranties, (xi)
to purchase insurance or credit enhancements to insure Agent or Lenders against
risks of loss, collection or disposition of Collateral or to provide to Agent
or Lenders a guaranteed return from the collection or disposition of Collateral,
or (xii) to the extent deemed appropriate by Agent, to obtain the services of
other brokers, investment bankers, consultants and other professionals to
assist Agent in the collection or disposition of any of the Collateral.
Borrower acknowledges that the purpose of this Section is to provide non-exhaustive
indications of what actions or omissions by Agent or any Lender would not be
commercially unreasonable in the exercise by Agent or any Lender of remedies
against the Collateral and that other actions or omissions by Agent or any
Lender shall not be deemed commercially unreasonable solely on account of not
being indicated in this Section. Without limitation of the foregoing, nothing
contained in this Section shall be construed to grant any rights to Borrower or
to impose any duties on Agent or Lenders that would not have been granted or
imposed by this Agreement or by applicable law in the absence of this Section.

(f)       For the purpose of enabling
Agent to exercise the rights and remedies hereunder, Borrower hereby grants to
Agent, to the extent assignable, an irrevocable, non-exclusive license

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

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

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

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

11.1         GOVERNING
LAW; CHOICE OF FORUM; SERVICE OF PROCESS; JURY TRIAL WAIVER.

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

(b)      Borrower and Secured Parties
each irrevocably consent and submit to the non-exclusive jurisdiction of the
Circuit Court of Cook County, Illinois and the United States District Court for
the Northern District of Illinois, whichever Agent may elect, and waive any
objection based on venue or forum non conveniens with respect to any action
instituted therein arising under this Agreement or any of the other Financing Agreements
or in any way connected with or related or incidental to the dealings of the
parties hereto in respect of this Agreement or any of the other Financing
Agreements or the transactions related hereto or thereto, in each case

whether
now existing or hereafter arising, and whether in contract, tort, equity or
otherwise, and agree that any dispute with respect to any such matters shall be
heard only in the courts described above (except that Agent and Lenders shall have
the right to bring any action or proceeding against Borrower or its property in
the courts of any other jurisdiction which Agent deems necessary or appropriate
in order to realize on the Collateral or to otherwise enforce its rights
against Borrower or its property).

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

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

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

11.2         WAIVER
OF NOTICES. Borrower hereby expressly waives demand, presentment, protest and
notice of protest and notice of dishonor with respect to any and all
instruments and chattel paper, included in or evidencing any of the Obligations
or the Collateral, and any and all other demands and notices of any kind or
nature whatsoever with respect to the Obligations, the

Collateral
and this Agreement, except such as are expressly provided for herein. No notice
to or demand on Borrower which Agent or any Lender may elect to give shall
entitle Borrower to any other or further notice or demand in the same, similar
or other circumstances.

11.3         AMENDMENTS
AND WAIVERS.

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

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

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

(iii)          release any
Collateral (except as expressly required or permitted hereunder or under any of
the other Financing Agreements or applicable law and except as permitted under
Section 12.11(b) hereof), without the consent of Agent and all of Lenders,

(iv)          reduce any
percentage specified in the definition of Required Lenders, without the consent
of Agent and all of Lenders,

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

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

(vii)         increase the
advance rates constituting part of the Borrowing Base or increase the sublimits
with respect to Loans based on Eligible Inventory or for Letter of Credit
Accommodations, without the consent of Agent and all of Lenders.

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

(c)      Notwithstanding anything to the contrary
contained in Section 11.3(a) above, in connection with any amendment, waiver,
discharge or termination, in the event that any Lender whose consent thereto is
required shall fail to consent or fail to consent in a timely manner (such
Lender being referred to herein as a “Non-Consenting Lender”), but the consent
of any other Lenders to such amendment, waiver, discharge or termination that
is required are obtained, if any, then Congress shall have the right, but not
the obligation, to purchase at any time thereafter, and upon the exercise by
Congress of such right, such Non-Consenting Lender shall have the obligation,
to sell, assign and transfer to Congress or such Eligible Transferee as
Congress may specify, the Commitment of such Non-Consenting Lender and all
rights and interests of such Non-Consenting Lender pursuant thereto. Congress
shall provide the Non-Consenting Lender with prior written notice of its intent
to exercise its right under this Section, which notice shall specify on date on
which such purchase and sale shall occur. Such purchase and sale shall be
pursuant to the terms of an Assignment and Acceptance (whether or not executed
by the Non-Consenting Lender), except that on the date of such purchase and
sale, Congress, or such Eligible Transferee specified by Congress, shall pay to
the Non-Consenting Lender (except as Congress and such Non-Consenting Lender
may otherwise agree) the amount equal to: (i) the principal balance of the
Loans held by the Non-Consenting Lender outstanding as for the close of
business on the business day immediately preceding the effective date of such
purchase and sale, plus (ii) amounts accrued and unpaid in respect of interest
and fees payable to the Non-Consenting Lender to the effective date of the
purchase (but in no event shall the Non-Consenting Lender be deemed entitled to
any early termination fee), minus (iii) the amount of the closing fee received
by the Non-Consenting Lender pursuant to the terms hereof or of any of the
other Financing Agreements multiplied by the fraction, the numerator of which
is the number of months remaining in the then current term of the Credit
Facility and the denominator of which is the number of months in the then
current term thereof. Such purchase and sale shall be effective on the date of
the payment of such amount to the Non-Consenting Lender and the Commitment of
the Non-Consenting Lender shall terminate on such date.

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

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

11.5         INDEMNIFICATION.
Other than with respect to Taxes (for which the indemnification obligations of
Borrower to Agent and Lenders are subject to Section 6.5 hereof) Borrower
shall, jointly and severally, indemnify and hold Agent and each Lender, and its
officers, directors, agents, employees, advisors and counsel and their
respective Affiliates (each such person being an “Indemnitee”), harmless from
and against any and all losses, claims, damages, liabilities, costs or expenses
(including reasonable attorneys’ fees and expenses) imposed on, incurred by or
asserted against any of them in connection with any litigation, investigation,
claim or proceeding

commenced
or threatened related to the negotiation, preparation, execution, delivery,
enforcement, performance or administration of this Agreement, any other
Financing Agreements, or any undertaking or proceeding related to any of the
transactions contemplated hereby or any act, omission, event or transaction related
or attendant thereto, including amounts paid in settlement, court costs, and
the reasonable fees and expenses of counsel except that Borrower shall not have
any obligation under this Section 11.5 to indemnify an Indemnitee with respect
to a matter covered hereby resulting from the gross negligence or willful
misconduct of such Indemnitee as determined pursuant to a final, non-appealable
judgment of a court of competent jurisdiction (but without limiting the
obligations of Borrower as to any other Indemnitee). To the extent that the
undertaking to indemnify, pay and hold harmless set forth in this Section may
be unenforceable because it violates any law or public policy, Borrower shall
pay the maximum portion which it is permitted to pay under applicable law to
Agent and Lenders in satisfaction of indemnified matters under this Section. To
the extent permitted by applicable law, Borrower shall not assert, and Borrower
hereby waives, any claim against any Indemnitee, on any theory of liability,
for special, indirect, consequential or punitive damages (as opposed to direct
or actual damages) arising out of, in connection with, or as a result of, this
Agreement, any of the other Financing Agreements or any undertaking or
transaction contemplated hereby. All amounts due under this Section shall be
payable upon demand. The foregoing indemnity shall survive the payment of the
Obligations and the termination or non-renewal of this Agreement.

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

SECTION
12.                          THE AGENT

12.1         APPOINTMENT,
POWERS AND IMMUNITIES. Each Secured Party irrevocably designates, appoints and
authorizes Congress to act as Agent hereunder and under the other Financing
Agreements with such powers as are specifically delegated to Agent by the terms
of this Agreement and of the other Financing Agreements, together with such
other powers as are reasonably incidental thereto. Agent (a) shall have no
duties or responsibilities except those expressly set forth in this Agreement
and in the other Financing Agreements, and shall not by reason of this
Agreement or any other Financing Agreement be a trustee or fiduciary for any
Secured Party; (b) shall not be responsible to Secured Parties for any recitals,
statements, representations or warranties contained in this Agreement or in any
of the other Financing Agreements, or in any certificate or other document
referred to or provided for in, or received by any of them under, this Agreement
or any other Financing Agreement, or for the value, validity, effectiveness,
genuineness, enforceability or sufficiency of this Agreement or any other
Financing Agreement or any other document referred to or provided for herein or
therein or for any failure by Borrower or any other Person to perform any of
its obligations hereunder or thereunder; and (c) shall not be responsible to
Secured Parties for any action taken or omitted to be taken by it hereunder or
under any other Financing Agreement or under any other document or instrument referred
to or provided for herein or therein or in connection herewith or therewith,
except for its own gross negligence or willful misconduct as determined by a
final non-appealable judgment of a court of competent jurisdiction. Agent may
employ agents and attorneys-in-fact and shall not be responsible for the
negligence or misconduct of any such agents or attorneys-in-fact selected by it
in good faith. Agent may deem and treat the payee of any note as the holder
thereof for all purposes hereof unless and until the assignment thereof
pursuant to an agreement (if and to the extent permitted herein) in form and
substance satisfactory to Agent shall have been delivered to and acknowledged
by Agent. The designation of any Person as Documentation Agent under the Loan
Agreement shall not create any rights in favor of it in such capacity nor
subject it to any duties or obligations in such capacity.

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

12.3         EVENTS
OF DEFAULT.

(a)       Agent shall not be deemed to have
knowledge or notice of the occurrence of a Default or an Event of Default or
other failure of a condition precedent to the Loans and Letter of Credit
Accommodations hereunder, unless and until Agent has received written notice
from a Lender or Borrower specifying such Event of Default or any unfulfilled
condition precedent, and stating that such notice is a “Notice of Default or
Failure of Condition”. In the event that Agent

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

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

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

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

12.6         NON-RELIANCE
ON AGENT AND OTHER LENDERS. Each Secured Party agrees that it has,
independently and without reliance on Agent or other Secured Party, and based
on such documents and information as it has deemed appropriate, made its own
credit analysis of Borrower and has made its own decision to enter into this
Agreement and that it will, independently and without reliance upon Agent or
any other Secured Party, and based on such documents and information as it shall
deem appropriate at the time, continue to make its own analysis and decisions
in taking or not taking action under this Agreement or any of the other
Financing Agreements. Agent shall not be required to keep itself informed as to
the performance or observance by Borrower of any term or provision of this Agreement
or any of the other Financing Agreements or any other document referred to or
provided for herein or therein or to inspect the properties or books of
Borrower. Agent will use reasonable efforts to provide Lenders with any information
received by Agent from Borrower which is required to be provided to Lenders or
deemed to be requested by Lenders hereunder and with a copy of any Notice of
Default or Failure of Condition received by Agent from Borrower or any Lender;
PROVIDED, THAT, Agent shall not be liable to any Lender for any failure to do
so, except to the extent that such failure is attributable to Agent’s own gross
negligence or willful misconduct as determined by a final non-appealable judgment
of a court of competent jurisdiction. Except for notices, reports and other
documents expressly required to be furnished to Lenders by Agent or deemed requested
by Lenders hereunder, Agent shall not have any duty or responsibility to
provide any Lender with any other credit or other information concerning the affairs,
financial condition or business of Borrower that may come into the possession
of Agent.

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

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

except
as the Required Lenders may otherwise agree. Each Lender shall be obligated to
pay Agent the amount of its Pro Rata Share of any such additional Loans or
Letter of Credit Accommodations.

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

12.10       FIELD
AUDIT, EXAMINATION REPORTS AND OTHER INFORMATION; DISCLAIMER BY LENDERS. By
signing this Agreement, each Lender:

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

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

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

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

12.11       COLLATERAL
MATTERS.

(a)      Agent may, at its option, from time to
time, at any time on or after an Event of Default and for so long as the same
is continuing or upon any other failure of a condition precedent to the Loans
and Letter of Credit Accommodations hereunder, make such disbursements and
advances (“Special Agent Advances”) which Agent, in its sole discretion, (i)
deems necessary or desirable either to preserve or protect the Collateral or
any portion thereof or (ii) to enhance the likelihood or maximize the amount of
repayment by Borrower of the Loans and other Obligations; PROVIDED, THAT, the
aggregate principal amount of the Special Agent Advances pursuant to this
clause (ii), plus the then outstanding principal amount of the additional Loans
and Letter of Credit Accommodations which Agent may make or provide as set
forth in Section 12.8 hereof, shall not exceed the aggregate amount of
$7,500,000 or (iii) to pay any other

amount
chargeable to Borrower pursuant to the terms of this Agreement or any of the
other Financing Agreements consisting of (A) costs, fees and expenses and (B)
payments to any issuer of Letter of Credit Accommodations. Special Agent Advances
shall be repayable on demand and together with all interest thereon shall
constitute Obligations secured by the Collateral. Special Agent Advances shall
not constitute Loans but shall otherwise constitute Obligations hereunder. Interest
on Special Agent Advances shall be payable at the Interest Rate then applicable
to Prime Rate Loans and shall be payable on demand. Without limitation of its
obligations pursuant to Section 6.10, each Lender agrees that it shall make
available to Agent, upon Agent’s demand, in immediately available funds, the
amount equal to such Lender’s Pro Rata Share of each such Special Agent
Advance. If such funds are not made available to Agent by such Lender, such
Lender shall be deemed a Defaulting Lender and Agent shall be entitled to recover
such funds, on demand from such Lender together with interest thereon for each
day from the date such payment was due until the date such amount is paid to
Agent at the Federal Funds Rate for each day during such period (as published
by the Federal Reserve Bank of New York or at Agent’s option based on the
arithmetic mean determined by Agent of the rates for the last transaction in overnight
Federal funds arranged prior to 9:00 a.m. (New York City time) on that day by
each of the three leading brokers of Federal funds transactions in New York
City selected by Agent) and if such amounts are not paid within three (3) days
of Agent’s demand, at the highest Interest Rate provided for in Section 3.1 hereof
applicable to Prime Rate Loans.

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

(c)      Without any manner limiting Agent’s
authority to act without any specific or further authorization or consent by
the Required Lenders, each Lender agrees to confirm in writing, upon request by
Agent, the authority to release Collateral conferred upon Agent under this
Section. Agent shall (and is hereby irrevocably authorized by Lenders to)
execute such documents as may be necessary to evidence the release of the
security interest, mortgage or liens granted to Agent upon any Collateral to
the extent set forth above; PROVIDED, THAT, (i) Agent shall

not
be required to execute any such document on terms which, in Agent’s opinion, would
expose Agent to liability or create any obligations or entail any consequence
other than the release of such security interest, mortgage or liens without
recourse or warranty and (ii) such release shall not in any manner discharge,
affect or impair the Obligations or any security interest, mortgage or lien
upon (or obligations of Borrower in respect of) the Collateral retained by
Borrower.

(d)      Agent shall have no obligation whatsoever
to any Lender or any other Person to investigate, confirm or assure that the
Collateral exists or is owned by Borrower or is cared for, protected or insured
or has been encumbered, or that any particular items of Collateral meet the
eligibility criteria applicable in respect of the Loans or Letter of Credit
Accommodations hereunder, or whether any particular reserves are appropriate,
or that the liens and security interests granted to Agent pursuant hereto or
any of the Financing Agreements or otherwise have been properly or sufficiently
or lawfully created, perfected, protected or enforced or are entitled to any
particular priority, or to exercise at all or in any particular manner or under
any duty of care, disclosure or fidelity, or to continue exercising, any of the
rights, authorities and powers granted or available to Agent in this Agreement
or in any of the other Financing Agreements, it being understood and agreed
that in respect of the Collateral, or any act, omission or event related
thereto, subject to the other terms and conditions contained herein, Agent may
act in any manner it may deem appropriate, in its discretion, given Agent’s own
interest in the Collateral as a Lender and that Agent shall have no duty or
liability whatsoever to any other Lender.

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

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

SECTION
13.                          TERM OF
AGREEMENT; MISCELLANEOUS

13.1         TERM.

(a)      This Agreement and the other Financing
Agreements shall become effective as of the date set forth on the first page
hereof and shall continue in full force and effect for a term ending on April
12, 2007 (the “Maturity Date”), unless sooner terminated pursuant to the terms
hereof. In addition, Borrower may terminate this Agreement at any time upon ten
(10) days prior written notice to Agent (which notice shall be irrevocable)
and, Agent may, at its option, and shall at the direction of Required Lenders,
terminate this Agreement at any time (after giving notice to Borrower) on or
after an Event of Default. Upon the Maturity Date or any other effective date
of termination of the Financing Agreements, Borrower shall pay to Agent all
outstanding and unpaid Obligations and shall furnish cash collateral to Agent
(or at Agent’s option, a letter of credit issued for the account of Borrower
and at Borrower’s expense, in form and substance satisfactory to Agent, by an
issuer acceptable to Agent and payable to Agent as beneficiary) in such amounts
as Agent determines are reasonably necessary to secure Agent and Lenders from
loss, cost, damage or expense, including attorneys’ fees and expenses, in
connection with any contingent Obligations, including issued and outstanding
Letter of Credit Accommodations and checks or other payments provisionally
credited to the Obligations and/or as to which Agent or any Lender has not yet
received and indefeasible payment and any continuing obligations of Agent or
any Lender pursuant to any Deposit Account Control Agreement. The amount of
such cash collateral (or letter of credit, as Agent may determine) as to any
Letter of Credit Accommodations shall be in the amount equal to one hundred
five (105%) percent of the amount of the Letter of Credit Accommodations plus
the amount of any fees and expenses payable in connection therewith through the
end of the latest expiration date of such Letter of Credit Accommodations. Such
payments in respect of the Obligations and cash collateral shall be remitted by
wire transfer in Federal funds to the Agent Payment Account or such other bank account
of Agent, as Agent may, in its discretion, designate in writing to Borrower for
such purpose. Interest shall be due until and including the next Business Day,
if the amounts so paid by Borrower to the Agent Payment Account or other bank
account designated by Agent are received in such bank account later than 12:00
noon, Chicago time.

(b)      If for any reason this Agreement is
terminated prior to the Maturity Date, in view of the impracticality and
extreme difficulty of ascertaining actual damages and by mutual agreement of
the parties as to a reasonable calculation of Agent’s and each Lender’s lost
profits as a result thereof, Borrower shall pay to Agent, for the account of
Lenders (in accordance with the arrangements by and among the Lenders), upon
the effective date of such termination, an early termination fee in the amount
equal to one (1%) percent of the Maximum Credit as then in effect.
Notwithstanding anything to contrary contained in this Section, in the event of
the termination of this Agreement by Borrower prior to the Maturity Date and
the full and final repayment in cash of all of the Obligations and receipt by
Agent of cash collateral or at its option a letter of credit for contingent
obligations in accordance with the terms hereof with the proceeds of initial
loans and advances or other financial accommodations to Borrower pursuant to a
credit facility provided by Wachovia Bank, National Association or its
affiliates (or for which Wachovia Bank, National Association or any of its
affiliates is acting as agent), Borrower shall not be required to pay the early
termination fee provided for above.

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

13.2         INTERPRETATIVE
PROVISIONS.

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

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

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

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

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

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

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

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

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

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

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

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

(m)     This Agreement and the other Financing
Agreements are the result of negotiations among and have been reviewed by
counsel to Agent and the other parties, and are the products of all parties.
Accordingly, this Agreement and the other Financing Agreements shall not be
construed against Agent or Lenders merely because of Agent’s or any Lender’s
involvement in their preparation.

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

	
  If to Borrower:

  	
   

  	
  Haynes International, Inc.

  
	
   

  	
   

  	
  1020 West Park
  Avenue

  
	
   

  	
   

  	
  Kokomo, Indiana
  46904

  
	
   

  	
   

  	
  Attention: Mr.
  Marcel Martin

  
	
   

  	
   

  	
   VP Finance and CFO

  
	
   

  	
   

  	
  Telephone No.:
  765-456-6000

  
	
   

  	
   

  	
  Telecopy No.:
  765-456-6985

  
	
   

  	
   

  	
   

  
	
  with a copy to:

  	
   

  	
  Skadden, Arps, Slate, Meagher & Flom LLP

  
	
   

  	
   

  	
  333 West Wacker
  Drive

  
	
   

  	
   

  	
  Chicago,
  Illinois 60606

  
	
   

  	
   

  	
  Attention: John
  Wm. Butler, Jr., Esq.

  
	
   

  	
   

  	
  Telephone
  No.:312-407-0700

  
	
   

  	
   

  	
  Telecopy
  No.:312-407-0411

  
	
   

  	
   

  	
   

  
	
  If to Agent:

  	
   

  	
  Congress Financial Corporation (Central)

  
	
   

  	
   

  	
  150 South Wacker
  Drive

  
	
   

  	
   

  	
  Chicago,
  Illinois 60606

  
	
   

  	
   

  	
  Attention:
  Portfolio Manager

  
	
   

  	
   

  	
  Telephone No.:
  312-332-0420

  
	
   

  	
   

  	
  Telecopy No.:
  312-332-0424

  

 

13.4         PARTIAL
INVALIDITY. If any provision of this Agreement is held to be invalid or
unenforceable, such invalidity or unenforceability shall not invalidate this
Agreement as a whole, but this Agreement shall be construed as though it did
not contain the particular provision held to be invalid or unenforceable and
the rights and obligations of the parties shall be construed and enforced only
to such extent as shall be permitted by applicable law.

13.5         CONFIDENTIALITY.

(a)      Agent and each Lender shall keep
confidential, in accordance with its customary procedures for handling
confidential information and safe and sound lending practices and consistent
with its practices with respect to its own confidential information, any
non-public written information supplied to it by Borrower pursuant to this
Agreement; PROVIDED, THAT, nothing contained herein shall limit the disclosure
of any such information: (i) to the extent required by statute, rule,
regulation, subpoena or court order, (ii) to bank examiners and other
regulators, auditors and/or accountants, in connection with any litigation to
which Agent or such Lender is a party, (iii) to any Lender or Participant (or
prospective Lender or Participant) or to

any
Affiliate of any Lender so long as such information has been delivered to such
Lender or Participant (or prospective Lender or Participant) or Affiliate subject
to the written condition that such information shall be treated as confidential
or such Lender or Participant (or prospective Lender or Participant) shall have
otherwise agreed to treat such information as confidential in accordance with
this Section 13.5, or (iv) to counsel for Agent or any Lender or Participant
(or prospective Lender or Participant).

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

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

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

13.7         ASSIGNMENTS;
PARTICIPATIONS.

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

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

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

(d)      By execution and delivery of an Assignment
and Acceptance, the assignor and assignee thereunder confirm to and agree with
each other and the other parties hereto as follows: (i) other than as provided
in such Assignment and Acceptance, the assigning Lender makes no representation
or warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with this Agreement or
any of the other Financing Agreements or the execution, legality,
enforceability, genuineness, sufficiency or value of this Agreement or any of
the other Financing Agreements furnished pursuant hereto, (ii) the assigning
Lender makes no representation or warranty and assumes no responsibility with
respect to the financial condition of Borrower or any of its Subsidiaries or
the performance or observance by Borrower of any of the Obligations; (iii) such
assignee confirms that it has received a copy of this Agreement and the other
Financing Agreements, together with such other documents and information it has
deemed appropriate to make its own credit analysis and decision to enter into
such Assignment and Acceptance, (iv) such assignee will, independently and
without reliance upon the assigning Lender, Agent and based on such documents
and information as it shall deem appropriate at the time, continue to make its
own credit decisions in taking or not taking action under this Agreement and
the other Financing Agreements, (v) such

assignee
appoints and authorizes Agent to take such action as agent on its behalf and to
exercise such powers under this Agreement and the other Financing Agreements as
are delegated to Agent by the terms hereof and thereof, together with such
powers as are reasonably incidental thereto, and (vi) such assignee agrees that
it will perform in accordance with their terms all of the obligations which by
the terms of this Agreement and the other Financing Agreements are required to
be performed by it as a Lender. Subject to Section 13.5 hereof, Agent and
Lenders may furnish any information concerning Borrower in the possession of
Agent or any Lender from time to time to assignees and Participants.

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

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

(g)      Borrower shall assist Agent or any Lender
permitted to sell assignments or participations under this Section 13.7 in
whatever manner reasonably necessary in order to enable or effect any such
assignment or participation, including (but not limited to) the execution and
delivery of any and all agreements, notes and other documents and instruments
as shall be requested and the delivery of informational materials, appraisals
or other documents for, and the participation of relevant management in
meetings and conference calls with, potential Lenders or Participants. Borrower
shall certify the correctness, completeness and accuracy, in all material
respects, of all descriptions of Borrower and its affairs provided, prepared or
reviewed by Borrower that are contained in any selling materials and all other
information provided by it and included in such materials.

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

13.8         USA
PATRIOT ACT. Each Lender hereby notifies Borrower that pursuant to the
requirements of the USA Patriot Act, it is required to obtain, verify and record
information that

identifies
Borrower, which information includes the name and address of Borrower and other
information that will allow such Lender to identify Borrower in accordance with
the requirements of such Act and any other applicable law.

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

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

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

13.12       BANK
PRODUCTS OVERRIDE. Notwithstanding anything to the contrary contained herein or
in any of the other Financing Agreements to the contrary, if all of the
Obligations have been paid in full and all Commitments terminated, (other than
Bank Product Obligations), it shall not be a condition to the release of all or
any portion of the Collateral or a requirement to the termination of this Loan
Agreement or any of the other Financing Agreements or the exercise of any
rights created hereunder that any Bank Product Obligations be paid or cash
collateralized;

PROVIDED
THAT, this Section 13.12 shall in no way be deemed to amend, supplement or
otherwise modify any agreement or document evidencing or governing any Bank Product.

SECTION
14.                          ACKNOWLEDGMENT
AND RESTATEMENT

14.1         EXISTING
OBLIGATIONS. Borrower hereby acknowledges, confirms and agrees that Borrower is
indebted to Lenders for loans and advances to Borrower under the Existing
Agreements, as of the close of business on August 27, 2004, in the aggregate
principal amount of $80,161,509 and the aggregate amount of $1,105,825 in
respect of Letter of Credit Accommodations (as defined in the Existing
Agreements), together with all interest accrued and accruing thereon (to the
extent applicable), and all fees, costs, expenses and other charges relating
thereto, all of which are unconditionally owing by Borrower to Lenders, without
offset, defense or counterclaim of any kind, nature or description whatsoever.

14.2         ACKNOWLEDGMENT
OF SECURITY INTERESTS.

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

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

14.3         EXISTING
AGREEMENTS. Borrower hereby acknowledges, confirms and agrees that: (a) the
Existing Agreements have been duly executed and delivered by Borrower, (b) the
Existing Agreements listed in Section B of Schedule 1.64 are and shall continue
to be in full force and effect, and as of the moment immediately prior to the
effectiveness of this Agreement, the Existing Agreements listed in Section A of
Schedule 1.64 are in full force and effect as of the date hereof, (c) as to the
Existing Agreements listed in Section A of Schedule 1.64, as of the moment
immediately prior to the effectiveness of this Agreement: (i) the agreements
and obligations of Borrower contained in such Existing Agreements constitute
the legal, valid and binding obligations of Borrower enforceable against it in
accordance with their respective terms and (ii) Borrower has no valid defense
to the enforcement of such obligations and (iii) Agent and Lenders are entitled
to all of the rights and remedies provided for in such Existing Agreements and
(d) as to the Existing Agreements listed in Section B of Schedule 1.64: (i) the
agreements and obligations of Borrower contained in such Existing Agreements
constitute the legal, valid and binding obligations of Borrower enforceable
against it in accordance with their respective terms and (ii) Borrower has no
valid defense to the enforcement of such obligations and (iii) Agent and
Lenders are entitled to all of the rights and remedies provided for in such
Existing Agreements. The acknowledgements contained herein shall not be
construed to limit or affect any of the terms of any other agreements of
Borrower with, to or in favor of Agent or any of the Secured Parties.

14.4         RESTATEMENT.

(a)      Except as otherwise stated in Section 14.2
hereof and this Section 14.4, as of the date hereof, the terms, conditions,
agreements, covenants, representations and warranties set forth in the Existing
Agreements listed in Section A of the Schedule 1.64 are hereby amended and
restated in their entirety, and as so amended and restated, replaced and
superseded, by the terms, conditions, agreements, covenants, representations
and warranties set forth in this Agreement and the other Financing Agreements,
except that nothing herein or in the other Financing Agreements shall impair or
adversely affect the continuation of the liability of Borrower for the
Obligations heretofore incurred during the Chapter 11 Case (as predecessors to
Borrower) and the security interests, liens and other interests in the
Collateral heretofore granted, pledged and/or assigned by Borrower (including
during the Chapter 11 Case), as predecessors to Borrower or otherwise, to
Agent. The amendment and restatement contained herein shall not, in any manner,
be construed to constitute payment of, or impair, limit, cancel or extinguish,
or constitute a novation in respect of, the Indebtedness and other obligations
and liabilities of Borrower evidenced by or arising under the Existing
Agreements, and the liens and security interests of Agent securing such
Indebtedness and other obligations and liabilities, which shall not in any
manner be impaired, limited, terminated, waived or released, but shall continue
in full force and effect in favor of Agent for the benefit of Lenders.

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

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

	
   

  	
  BORROWER:

  
	
   

  	
   

  
	
   

  	
  HAYNES
  INTERNATIONAL, INC.,

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ Marcel Martin

  
	
   

  	
   

  
	
   

  	
  Title:

  	
   Vice President, Finance and CFO

  
	
   

  	
   

  
	
   

  
	
  AGENT:

  
	
   

  
	
  CONGRESS
  FINANCIAL CORPORATION (CENTRAL), as Agent

  
	
   

  
	
  By:

  	
  /s/ Vicky Geist

  	
   

  
	
   

  
	
  Title:

  	
   Vice President

  	
   

  
	
   

  
	
  LENDERS:

  
	
   

  
	
  CONGRESS
  FINANCIAL CORPORATION (CENTRAL)

  
	
   

  
	
  By:

  	
   /s/ Vicky Geist

  	
   

  
	
   

  
	
  Title:

  	
   Vice President

  	
   

  
	
   

  
	
  Tranche A
  Commitment: US $25,000,000

  
	
   

  
	
  Tranche B
  Commitment: US$15,000,000

  
								

 

	
  [SIGNATURES CONTINUED ON
  NEXT PAGE]

  

 

 

	
  BANK ONE, NA (Main Office
  Chicago)

  
	
   

  
	
  By:

  	
   /s/ Elizabeth Manning

  	
   

  
	
   

  
	
  Title:

  	
   Managing Director

  	
   

  
	
   

  
	
   

  
	
  Tranche A
  Commitment: US $40,000,000

  
	
   

  
	
   

  
	
  Tranche B
  Commitment: US$0

  
	
   

  
	
   

  
	
  WESTERNBANK
  PUERTO RICO BUSINESS CREDIT DIVISION

  
	
   

  
	
  By:

  	
   /s/ Miguel A. Vazquez

  	
   

  
	
   

  
	
  Title:

  	
   President, Westernbank Business Credit
  Division

  	
   

  
	
   

  
	
   

  
	
  Tranche A
  Commitment: US$20,000,000

  
	
   

  
	
   

  
	
  Tranche B
  Commitment: US$0

  
					

 

[Exhibit A - Form of Assignment and Acceptance
Agreement, Exhibit B - Form of Borrowing Base Certificate, Exhibit C -
Information Certificate, Exhibit D - Form of Equipment Purchase Note, Exhibit E
- Form of Compliance Certificate and the Disclosure Schedules have been omitted
from the Agreement as filed with the Securities and Exchange Commission (the “SEC”).
The omitted information is considered immaterial from an investor’s
perspective. The Registrant will furnish supplementally a copy of any of the
omitted exhibits and schedules to the SEC upon request from the SEC.]

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00116-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00116-of-00352.parquet"}]]