Document:

EXHIBIT 10.15

FACILITY
AGREEMENT

 

DATED
2nd APRIL 2004

HAYNES
INTERNATIONAL LIMITED

BURDALE
FINANCIAL LIMITED

CONTENTS

	
  1

  	
  INTERPRETATION

  	
  1

  
	
   

  	
   

  	
   

  
	
  2

  	
  FACILITIES

  	
  11

  
	
   

  	
   

  	
   

  
	
  3

  	
  PURPOSE

  	
  11

  
	
   

  	
   

  	
   

  
	
  4

  	
  CONDITIONS PRECEDENT

  	
  12

  
	
   

  	
   

  	
   

  
	
  5

  	
  RESTRICTIONS ON UTILISATION

  	
  12

  
	
   

  	
   

  	
   

  
	
  6

  	
  UTILISATION OF FACILITIES

  	
  14

  
	
   

  	
   

  	
   

  
	
  7

  	
  REPAYMENT AND PREPAYMENT

  	
  17

  
	
   

  	
   

  	
   

  
	
  8

  	
  INTEREST AND COMMISSION

  	
  19

  
	
   

  	
   

  	
   

  
	
  9

  	
  COLLECTION OF RECEIVABLES

  	
  20

  
	
   

  	
   

  	
   

  
	
  10

  	
  TAX

  	
  21

  
	
   

  	
   

  	
   

  
	
  11

  	
  INCREASED COSTS

  	
  22

  
	
   

  	
   

  	
   

  
	
  12

  	
  REPRESENTATIONS
  AND WARRANTIES

  	
  23

  
	
   

  	
   

  	
   

  
	
  13

  	
  GENERAL
  UNDERTAKINGS

  	
  25

  
	
   

  	
   

  	
   

  
	
  14

  	
  INFORMATION AND
  ASSET UNDERTAKINGS

  	
  31

  
	
   

  	
   

  	
   

  
	
  15

  	
  GUARANTEE AND
  INDEMNITY

  	
  35

  
	
   

  	
   

  	
   

  
	
  16

  	
  EVENTS OF
  DEFAULT

  	
  37

  
	
   

  	
   

  	
   

  
	
  17

  	
  COSTS, EXPENSES
  AND FEES

  	
  40

  
	
   

  	
   

  	
   

  
	
  18

  	
  INDEMNITIES

  	
  41

  
	
   

  	
   

  	
   

  
	
  19

  	
  NOTICES

  	
  42

  
	
   

  	
   

  	
   

  
	
  20

  	
  MISCELLANEOUS
  PROVISIONS

  	
  42

  
	
   

  	
   

  	
   

  
	
  21

  	
  GOODS AND
  DOCUMENTS

  	
  43

  
	
   

  	
   

  	
   

  
	
  22

  	
  CHANGES TO
  PARTIES

  	
  44

  
	
   

  	
   

  	
   

  
	
  23

  	
  GOVERNING LAW
  AND JURISDICTION

  	
  45

  

 

 i
 

 

	
  SCHEDULE
  1 - THE OBLIGORS

  	
   

  
	
   

  	
   

  
	
  SCHEDULE 2 - CONDITIONS PRECEDENT

  	
   

  
	
   

  	
   

  
	
  SCHEDULE 3 - FORMS OF REQUEST

  	
   

  
	
   

  	
   

  
	
  SCHEDULE 4 - FORMS OF REPORT

  	
   

  
	
   

  	
   

  
	
  SCHEDULE 5 - FORM OF ACCESSION LETTER

  	
   

  

 

 ii

FACILITY
AGREEMENT

DATED

BETWEEN

(1)           HAYNES
INTERNATIONAL LIMITED (the COMPANY) registered in England with number 01209891;

(2)           THE
COMPANIES (if any) identified in Part I of Schedule 1 as Facility Companies;

(3)           THE
COMPANIES (if any) identified in Part I of Schedule 1 as Guarantors;

(4)           BURDALE
FINANCIAL LIMITED (BURDALE) registered in England with number 2656007.

IT
IS AGREED:

1              INTERPRETATION

1.1           DEFINITIONS

In this Agreement:

ACCESSION LETTER means a
document substantially in the form set out in Schedule 5.

ACTUAL DAY OF PAYMENT in
relation to a Purchased Receivable means the date on which full payment in
respect of that Purchased Receivable is made into a Blocked Account by the
relevant account debtor or the relevant Facility Company.

ADDITIONAL FACILITY
COMPANY means each company which becomes an Additional Facility Company in
accordance with Clause 22.2.

ADDITIONAL GUARANTOR
means each company which becomes an Additional Guarantor in accordance with
Clause 22.3.

ADDITIONAL OBLIGOR means
each Additional Facility Company and each Additional Guarantor.

AFFILIATE means, in
relation to any person, a Subsidiary of that person or a Holding Company of
that person or any other Subsidiary of that Holding Company.

AVAILABILITY LIMITS
means the restrictions on Utilisations set out in Clause 5.

AVAILABILITY PERIOD
means the period from the opening of business in London on today’s date until
close of business in London on the date falling five Business Days prior to the
Final Repayment Date or such later date as Burdale may agree.

BLOCKED ACCOUNTS means
the following accounts of the Facility Companies with The Royal Bank of
Scotland, Manchester Mosely Street branch:

(a)           the Company’s
Sterling account number 20469010, sort code 16-00-01;

(b)           the Company’s
euro account number HAYEINTE-EUR1;

(c)           the Company’s
Dollar account number HAYEINTE-USD1;

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(d)           any bank
accounts of an Additional Facility Company specified as Blocked Accounts in the
relevant Accession Letter;

in each case, (as the
same may be redesignated, renumbered or renamed from time to time), or such
other account(s) as previously approved by Burdale.

BUSINESS DAY means any
day not being a Saturday, Sunday or Bank holiday when banks are open for
business in London.

CASH REQUEST means a
request for Burdale to pay to a Facility Company an amount of unpaid Purchase
Price and/or the proceeds of a Loan in substantially the form set out in Part
II of Schedule 3.

CHARGED ACCOUNTS means
the Blocked Accounts and the Other Accounts.

CONGRESS means Congress
Financial Corporation (Central) an Illinois corporation.

CONSOLIDATED PROFIT
means, for any period, the consolidated profit of the Company on ordinary
trading activities before tax, adding back depreciation and amortisation but
after deducting any exceptional or extraordinary profit and after adding back
any non-cash exceptional write-offs during such period as all such terms are
defined in accordance with GAAP (applied consistently with the accounting
principles of the Obligors as at today’s date) and all as determined from the
most recent consolidated monthly management accounts of the Company delivered
to Burdale pursuant to Clause 14.1(b).

CONSOLIDATED TANGIBLE
NET WORTH means the aggregate amount from time to time paid up or credited as
paid up on the share capital of the Company and the amount standing to the
credit of its consolidated capital and reserves (including any share premium
account or capital redemption reserve, but excluding any goodwill (whether
positive or negative) and/or any intangible assets) plus or minus the amount
standing to the credit or debit of the consolidated profit or loss account of
the Company all as determined from the most recent consolidated monthly
management accounts of the Company delivered to Burdale pursuant to Clause
14.1(b).

DEBENTURE means the
debenture executed or to be executed by the Company in favour of Burdale.

DEED OF PRIORITIES means
the deed of priorities dated on or about the date of this Agreement between the
Company, Burdale and the Trustees of the Haynes International Limited Pension
Scheme.

DEFAULT means any Event
of Default and any event which with the giving of notice and/or lapse of time
and/or as a result of any Utilisation and/or determination of materiality
and/or fulfilment of any condition (or any combination of the foregoing) would
constitute an Event of Default.

DEFAULT RATE means the
rate determined by Burdale to be 2% above the Interest Rate from time to time.

DILUTION RATE means the
monthly value of credit notes and non-cash credits issued by a Facility Company
as a percentage of the monthly value of sales.

DIP FINANCING DATE means
the first date on which Congress makes funding available to Haynes US pursuant
to a debtor-in-possession facility provided to it upon its commencement of a
case under Chapter 11 of the United States Bankruptcy Code and Burdale has
received (in a form and substance satisfactory to it) the documents, evidence
and other items specified in Part II of Schedule 2.

 2
 

DOCUMENTS means any and
all documents which represent or relate to any Goods and/or the carriage of
and/or possession of and/or ownership of and/or title to and/or insurance of
and/or warehousing of and/or any other dealing in or with any Goods.

DOLLARS and $ means the
lawful currency for the time being of the United States of America.

ELIGIBLE RECEIVABLES
means, at any time, any Receivables at such time which are evidenced by an
invoice rendered by a Facility Company to the relevant account debtors save for
any Receivable:

(a)           which does
not arise from the actual and bona fide sale and delivery of goods by the
relevant Facility Company or rendering of services by the relevant Facility
Company in the ordinary course of its business which transactions are completed
in accordance with the terms and provisions contained in any documents relating
to such transactions;

(b)           which
remains fully or partly unpaid after its Maturity Date or such longer period as
may be agreed by Burdale;

(c)           owing by a
single account debtor if Receivables representing 50% or more of the aggregate
balance owing by such account debtor to the Facility Companies are not Eligible
Receivables by reason of the operation of paragraph (b) above;

(d)           with respect
to which the account debtor is a director, officer, employee or Affiliate of
any Obligor;

(e)           with respect
to which the account debtor has or has asserted a counterclaim or has a right
of set off, to the extent of such counterclaim or set off;

(f)            as to which
performance has not been completed by the relevant Facility Company or as to
which all goods and services in connection with such Receivable have not been
delivered to or performed for the account debtor or which has not been invoiced
or is not fully assignable;

(g)           with respect
to which the account debtor is the subject of any bankruptcy or insolvency
proceeding in any jurisdiction or has made an assignment for the benefit of
creditors or whose assets have been conveyed to a receiver, administrator,
trustee or other insolvency official;

(h)           with respect
to which the account debtor’s obligation to pay the Receivable is conditional
upon the account debtor’s approval or is otherwise subject to any repurchase
obligation or right of return, as with sales made on a bill-and-hold,
guaranteed sale, sale-and-return, sale on approval (except with respect to
Receivables in connection with which account debtors are entitled to return
goods on the basis of the quality of those goods) or consignment basis;

(i)            owed by an
account debtor incorporated or resident outside the United Kingdom, unless
Burdale otherwise agrees and such Receivable is subject to valid and
enforceable credit insurance payable to Burdale issued by an insurer on terms
and in an amount acceptable to Burdale as determined by it in good faith and
the aggregate invoice values owed by that relevant account debtor are within
the insured limit;

(j)            owed by an
account debtor whose total indebtedness to the Facility Companies exceeds any
credit limit set by Burdale from time to time with respect to that account
debtor to the extent such Receivable breaches that credit limit provided that
any reduction in the credit limit as to a particular account debtor will not
cause any Receivables owing by

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that account debtor as
of the date of such reduction not to qualify as Eligible Receivables;

(k)           where there
are proceedings or actions which are threatened or pending against the account
debtors with respect to such Receivables which would result in any material
adverse change in any such account debtor’s financial condition;

(l)            where there
are facts, events or occurrences which would impair the validity,
enforceability or collectability of that Receivable or of reducing the amount
payable or delaying payment of that Receivable.

ELIGIBLE STOCK means all
Stock save for any Stock which, at any time:

(a)           is obsolete,
slow-moving, not in good condition or not currently usable or saleable in the
ordinary course of a Facility Company’s business;

(b)           is held at
third party premises but not held subject to Warehouseman Association standard
agreement;

(c)           constitutes
materials over which Burdale does not have a valid first ranking fixed or
floating charge under the Security Documents;

(d)           constitutes
consumables used in a Facility Company’s business or constitutes packaging or
shipping materials;

(e)           constitutes
returned, damaged or defective materials;

(f)            is held by a
Facility Company as consignee for a third party;

(g)           is not the
property of the relevant Facility Company by virtue of retention of title or
Romalpa provisions in favour of any person;

(h)           is spare
parts or scrap or is only semi-finished or otherwise constitutes
work-in-progress;

(i)            is in
transit outside property which is owned and controlled by any Obligor except in
cases where they are (i) in transit by a Facility Company or by a courier on
its behalf between such property and the aggregate value of such Stock does not
at any time exceed the sum of $15,000 or (ii) in transit to a Facility Company
and Burdale has in its possession all originals of the bills of lading or other
documents of title with respect to such Stock and has received all such
agreements as Burdale requires in order to perfect first ranking fixed or
floating security in such Stock and to obtain possession of such Stock from any
third party having possession of the same; or

(j)            is
determined in good faith by Burdale as being unsuitable for forming the basis
of a lending decision as a result of any change in or introduction of or change
in the interpretation or application of any law, regulation, treaty or official
directive or official request having the force of law.

END DATE in relation to
an L/C means the earlier of the expiry date of such L/C and the date on which
the L/C is drawn in full.

EQUIPMENT means
equipment, machinery, computers and computer hardware and software (whether
owned or licensed), vehicles, tools, furniture and fixtures and all
attachments, accessories and property now or in future relating to them or used
in connection with them and replacements and substitutions for them.

 4
 

EURO or EURO means the
single currency of the Participating Member States.

EVENT OF DEFAULT means
any of the events specified in Clause 16.1.

EXCHANGE RATE means the
prevailing spot rate of exchange of such bank as Burdale may select for the
purpose, at or around 11.00 a.m. on the date on which any conversion of currency
is to be made under this Agreement. FACILITIES means the Receivables Finance
Facility and the Revolving Credit Facility.

FACILITY COMPANY means
each company (if any) identified as a Facility Company in Part I of Schedule 1
and each Additional Facility Company.

FACILITY LIMIT means
$10,000,000 until the occurrence of the DIP Financing Date and thereafter
$15,000,000.

FINAL REPAYMENT DATE
means the third anniversary of today’s date.

FINANCE DOCUMENTS means
this Agreement, the Deed of Priorities, the Security Documents, all other
agreements, documents and instruments at any time executed in favour of and/or
delivered by any Obligor to Burdale and/or designated as a Finance Document by
Burdale and the Company.

FINANCIAL INDEBTEDNESS
means any indebtedness for or in respect of:

(a)           moneys
borrowed;

(b)           any amount
raised by acceptance under any acceptance credit facility;

(c)           any amount
raised pursuant to any note purchase facility or the issue of bonds, notes,
debentures, loan stock or any similar instrument;

(d)           the amount
of any liability in respect of any lease or hire purchase contract which would,
in accordance with GAAP, be treated as a finance or capital lease;

(e)           receivables
sold or discounted (other than any receivables to the extent they are sold on a
non-recourse basis);

(f)            any amount
raised under any other transaction (including any forward sale or purchase
agreement) having the commercial effect of a borrowing;

(g)           any
derivative transaction entered into in connection with protection against or
benefit from fluctuation in any rate or price (and, when calculating the value
of any derivative transaction, only the marked to market value shall be taken
into account);

(h)           any
counter-indemnity obligation in respect of a guarantee, indemnity, bond, standby
or documentary letter of credit or any other instrument issued by a bank or
financial institution; and

(i)            the amount
of any liability in respect of any guarantee or indemnity for any of the items
referred to in paragraphs (a) to (h) above.

FOREIGN CURRENCY means
any currency other than Sterling which is freely available and transferable.

 5
 

FOREX EXPOSURE in
relation to any unmatured Forex Transaction means the Forex Percentage of such
transaction.

FOREX LIMIT means $nil.

FOREX PERCENTAGE means:

(a)           10% in
relation to euros and United States Dollars; and

(b)           20% in
relation to all other currencies,

or in each case, such
higher percentage determined by Burdale having regard to the nature of the
currencies involved in any Forex Transaction.

FOREX REQUEST means a
request for a Utilisation of the Revolving Credit Facility for the sale or
purchase of a Foreign Currency substantially in the form set out in Part IV of
Schedule 3.

FOREX TRANSACTION means
a foreign exchange transaction entered into as a Utilisation of the Revolving
Credit Facility.

GAAP means generally
accepted accounting principles in the United Kingdom.

GOODS means all Stock,
produce, inventory and/or other goods which are the subject of a purchase by a
Facility Company and in respect of which any L/C has been issued.

GROUP means the Company
and its Subsidiaries.

GUARANTOR means each
company (if any) identified as a Guarantor in Part II of Schedule 1 and each
Additional Guarantor.

HAYNES US means Haynes
International, Inc, a Delaware corporation.

HOLDING COMPANY means,
in relation to a company or a corporation, any other company or corporation in
respect of which it is a Subsidiary.

INTEREST RATE means the
aggregate of LIBOR, MLA Cost and the Margin.

L/Cs means letters of
credit, merchandise purchase or other guarantees which are from time to time
either (a) issued or opened by Burdale for the account of a Facility Company or
(b) with respect to which Burdale has agreed to indemnify the issuer or
guaranteed to the issuer the performance by a Facility Company of its
obligations to such issuer.

L/C EXPOSURE in relation
to any L/C means:

(a)           if the
proposed L/C is by way of a letter of credit and for the purpose of purchasing
Eligible Stock:

(i)            the face
amount of the L/C; LESS

(ii)           the Stock
Percentage TIMES the cost of such Eligible Stock for which such L/C was drawn;
PLUS

(iii)          freight,
taxes, duty and other amounts which Burdale estimates must be paid in
connection with such Stock upon arrival and for delivery to one of the relevant
Facility Company’s locations for Eligible Stock within the United Kingdom; and

 6
 

(b)           if the
proposed L/C is for any other purpose an amount equal to 100% of the face
amount of such L/C and all other commitments and obligations made or incurred
by Burdale with respect to such L/C.

L/C LIMIT means
$1,000,000.

L/C REQUEST means a
request for a Utilisation of the Revolving Credit Facility by way of the issue
of an L/C in substantially the form set out in Part III of Schedule 3.

LIBOR means:

(a)           in relation
to an amount denominated in euro, the thirty day LIBOR euro rate quoted on the
first Business Day of each month in the Financial Times, London edition as
conclusively determined by Burdale;

(b)           in relation
to an amount denominated in Sterling, the thirty day LIBOR Sterling rate quoted
on the first Business Day of each month in the Financial Times, London edition
as conclusively determined by Burdale;

(c)           in relation
to an amount denominated in Dollars, the thirty day LIBOR Dollar rate quoted on
the first Business Day of each month in the Financial Times, London edition as
conclusively determined by Burdale; or

(d)           (if for any
reason the Financial Times, London edition ceases or fails to quote such a
rate) Burdale’s cost of funds from whatever source it may reasonably request.

LOAN means the principal
amount of each borrowing under this Agreement from the Revolving Credit
Facility (including any deemed borrowing pursuant to Clause 6.6) as reduced by
repayment or prepayment from time to time.

MARGIN means 3% per
annum.

MATERIAL ADVERSE EFFECT
means an effect that results in or causes, or has a reasonable likelihood of
resulting in or causing, a material adverse change in any of:

(a)           the
business, performance, operations or properties of the Obligors taken either
individually or as a whole; and/or

(b)           the
legality, validity or enforceability of any Finance Document; and/or

(c)           the
perfection or priority of the Security Interests granted to Burdale under the
Finance Documents; and/or

(d)           the ability
of any Obligor to perform its respective obligations under any of the Finance
Documents; and/or

(e)           the rights
and remedies of Burdale under any Finance Document.

MATURITY DATE means in
respect of any Receivable the Business Day which is, or immediately succeeds
the date which is the earlier of:

(a)           120 days
after the date of the invoice in respect of such Receivable; and

(b)           60 days
after the due date for payment of such invoice.

 7
 

MLA COST means the cost
(expressed as a rate per annum) of the London branch of Wachovia N.A. (or any
other bank from which Burdale obtains funding for its provision of the
Facilities) of complying with the requirements of the Bank of England and/or
the Financial Services Authority and/or any other applicable regulatory
authority in respect of monetary control, liquidity or otherwise.

NET STOCK VALUE means
the net value of Stock as determined by the relevant Facility Company in
accordance with its customary practices and procedures (as disclosed to Burdale
prior to today’s date and as the same may be varied from time to time with
Burdale’s written consent) and advised to Burdale from time to time.

OBLIGORS means the
Facility Companies and the Guarantors.

OTHER ACCOUNTS means the
bank accounts of the Obligors specified as Other Accounts in the Debenture
and/or such other bank accounts of the Obligors as Burdale may permit.

OUTSTANDING PURCHASE
PRICE means the aggregate from time to time of the Purchase Prices of
Receivables paid to the Facility Companies (including any deemed payment of
Purchase Price pursuant to Clause 6.6) in respect of which Burdale has not
received payment from the relevant account debtor or the relevant Facility
Company.

PARENT GUARANTEE means
the guarantee of the obligations of the Company to Burdale executed and
delivered by Haynes US and Haynes Holdings, Inc. on or about today’s date.

PARENT SECURITY means
any document or documents by which Haynes US grants a Security Interest over
its assets (other than the Share Mortgage) in favour of Burdale.

PARTICIPATING MEMBER
STATE means a member state of the European Community which has adopted or
adopts the single currency in accordance with legislation of the European
Community relating to Economic and Monetary Union.

PAST DUE PAYABLE means
any trade payable of any Obligor which remains outstanding more than 60 days
after its original due date for payment.

PERMITTED CURRENCY means
euro, Sterling or Dollars.

PURCHASE COMMISSION is
defined in Clause 8.2.

PURCHASE DATE in
relation to a Purchased Receivable means the date of delivery of a Purchase
Request by a Facility Company with respect to such Purchased Receivable.

PURCHASE PRICE means the
purchase price to be paid by Burdale for Purchased Receivables being 85% of the
face value of each Eligible Receivable to be purchased under the Receivables
Finance Facility less maximum discounts, credits and allowances of any nature
which may be taken by or granted to any account debtor or other person in
connection with such Eligible Receivable (all as determined by Burdale in
accordance with Clause 6.1.3).

PURCHASE REQUEST means a
Request for a Utilisation of the Receivables Finance Facility in substantially
the form set out in Part I of Schedule 3.

PURCHASED RECEIVABLE
means a Receivable purchased by Burdale from a Facility Company in accordance
with the terms of this Agreement.

RECEIVABLE means, at any
time, the aggregate present and future obligations of an account debtor of a
Facility Company for the payment of money to such Facility Company at such time
together with all connected rights, claims, deposits and payments.

 8
 

RECEIVABLES FINANCE
FACILITY is defined in Clause 2(a).

RECEIVABLES LIMIT means
$10,000,000 until the occurrence of the DIP Financing Date and thereafter
$15,000,000.

REQUEST means a request
substantially in the form set out in the relevant Part of Schedule 3 for a
Utilisation of one of the Facilities.

RESERVES is defined in
Clause 5.5.

REVOLVING CREDIT
FACILITY is defined in Clause 2(b).

REVOLVING CREDIT LIMIT
means $5,000,000 until the occurrence of the DIP Financing Date and thereafter
$7,500,000.

SECURITY DOCUMENTS means
the Debenture, the Share Mortgage, the Parent Guarantee, the Parent Security
and any other guarantee or security documents executed in favour of Burdale
from time to time in relation to the obligations or indebtedness of the Obligors
(or any of them).

SECURITY INTEREST means
a mortgage, charge, pledge, lien or other security interest securing any
obligation of any person, or any other agreement or arrangement having similar
effect.

SHARE MORTGAGE means the
mortgage of the entire issued share capital of the Company to be executed and
delivered by Haynes US on the DIP Financing Date.

STERLING and L means the
lawful currency for the time being of the United Kingdom.

STOCK means each
Facility Company’s stock and inventory at any time.

STOCK PERCENTAGE means
68%.

SUBSIDIARY means a
subsidiary within the meaning of Section 736 of the Companies Act 1985.

TAX means any tax, levy,
impost, duty or other charge or withholding of a similar nature (including any
penalty or interest payable in connection with any failure to pay or delay in
paying the same).

TAX CREDIT means a
credit against, relief or remission for, or repayment of any Tax.

TAX DEDUCTION means a
deduction or withholding for or on account of Tax from a payment under the
Finance Documents.

TAX PAYMENT means an
increased payment made by an Obligor to Burdale under Clause 10.1.3 or 10.2.1.

TOTAL RECEIVABLES
AVAILABILITY means, at any time, 85% of the face value of the Eligible
Receivables less maximum discounts, credits and allowances of any nature which
may be taken by or granted to any account debtor or any other person in
connection with the Eligible Receivables at such time.

TOTAL STOCK AVAILABILITY
means, at any time, the Stock Percentage of the Net Stock Value of Eligible
Stock at such time.

TRADING CASHFLOW means,
for any period, the Consolidated Profit during such period but after deducting
all amounts of capital expenditure by any member of the Group as all such terms
are defined in accordance with GAAP (applied consistently with the accounting
principles of the

 9
 

Obligors as at today’s
date) and all as determined from the most recent consolidated monthly
management accounts of the Company delivered to Burdale pursuant to Clause
14.1(b).

TRUSTEES is defined in
the Deed of Priorities.

TRUSTEE AGREEMENT is
defined in the Deed of Priorities.

TRUSTEE MORTGAGE is
defined in the Deed of Priorities.

UTILISATION means a
utilisation of a Facility under this Agreement (with the delivery of a Purchase
Request and the payment of Purchase Price by Burdale pursuant to a Cash Request
constituting separate Utilisations of the Receivables Finance Facility).

UTILISATION DATE in
relation to a Utilisation means the date on which such Utilisation is made
(being in relation to any Utilisation of the Receivables Finance Facility, both
the Purchase Date and the date on which any payment of Purchase Price is made
to a Facility Company pursuant to a Cash Request).

VAT means value added
tax as provided for in the Value Added Tax Act 1994 and any other tax of a similar
nature.

1.2           CONSTRUCTION

1.2.1        Any
reference in this Agreement to:

(a)           ASSETS
includes present and future properties, revenues and rights of every
description;

(b)           an
AUTHORISATION means an authorisation, consent, approval, licence, resolution,
filing or registration;

(c)           a FINANCE
DOCUMENT or any other agreement or instrument is a reference to that Finance
Document or other agreement or instrument as amended or novated;

(d)           INDEBTEDNESS
includes any obligation (whether incurred as principal or as surety) for the
payment or repayment of money, whether present or future, actual or contingent;

(e)           a PERSON
includes any person, firm, company, corporation, government, state or agency of
a state or any association, trust or partnership (whether or not having
separate legal personality) or two or more of the foregoing;

(f)            a REGULATION
includes any regulation, rule, official directive, request or guideline
(whether or not having the force of law) of any governmental, intergovernmental
or supranational body, agency, department or regulatory, self-regulatory or
other authority or organisation;

(g)           a provision
of law is a reference to that provision as amended or re-enacted;

(h)           words
importing the singular shall include the plural and vice versa; and

(i)            unless a
contrary indication appears, a time of day is a reference to London time.

1.2.2        Clause and
Schedule headings are for ease of reference only.

1.2.3        A Default
(other than an Event of Default) is CONTINUING if it has not been remedied or
waived and an Event of Default is CONTINUING if it has not been waived.

 10
 

1.2.4        If at any
time there are no persons who are Guarantors, the term OBLIGORS shall be
construed, whilst such circumstance is continuing, as a reference solely to the
Facility Companies and if at any time the Company is the only Facility Company
the references in this Agreement to FACILITY COMPANY shall, whilst such
circumstance is continuing, be construed accordingly.

1.2.5        A person who
is not party to this Agreement has no right under the Contracts (Rights of
Third Parties) Act 1999 to enforce any term of this Agreement but this does not
affect any right or remedy of a third party which exists or is available apart
from the Contracts (Rights of Third Parties) Act 1999.

1.2.6        Where there
is a reference in this Agreement to any amount, limit or threshold specified in
Dollars, in ascertaining whether or not that amount, limit or threshold has
been attained, broken or achieved, an amount denominated in a currency other
then Dollars shall be counted on the basis of the equivalent in Dollars of that
amount using the Exchange Rate.

2              FACILITIES

Subject to the terms of
this Agreement Burdale agrees to make available the following facilities:

(a)           to the
Facility Companies, a Receivables Finance Facility pursuant to which Burdale
will from time to time during the Availability Period purchase Receivables from
the Facility Companies (the RECEIVABLES FINANCE FACILITY);

(b)           to the
Facility Companies, a revolving credit facility pursuant to which Burdale will
during the Availability Period (i) make Loans to the Facility Companies (ii)
issue, or procure the issue of, L/Cs for the account of the Facility Companies
and (iii) buy or sell Foreign Currency spot and/or for delivery at a future
date on behalf of the Facility Companies (the REVOLVING CREDIT FACILITY).

3              PURPOSE

3.1           GENERAL

3.1.1        The Company
will use the Facilities:

(a)           in making a
loan to Haynes US in an amount not exceeding $5,600,000 out of the initial
Utilisations, and

(b)           otherwise
only for its general operating, working capital and other proper corporate
purposes and always in a manner which is not inconsistent with the Finance
Documents.

3.1.2        Each other
Facility Company will use the Facilities only for its general operating,
working capital and other proper corporate purposes and always in a manner
which is not inconsistent with the Finance Documents.

3.2           NO
OBLIGATION

Without affecting the
obligations of the Facility Companies in any way, Burdale is not obliged to
monitor or verify the application of the Facilities.

 11
 

4              CONDITIONS
PRECEDENT

4.1           INITIAL
CONDITIONS

No Request may be
delivered unless Burdale shall have received all of the documents and evidence
specified in Part I of Schedule 2 in a form and substance satisfactory to it.

4.2           FURTHER
CONDITIONS

The obligations of
Burdale in respect of any Utilisation are subject to the further conditions
precedent that both on the date of the relevant Request and the proposed
Utilisation Date:

(a)           the
representations and warranties set out in Clause 12 to be repeated on such
dates are true and correct; and

(b)           no Default
has occurred and is continuing or would result from the making of such
Utilisation.

5              RESTRICTIONS
ON UTILISATION

5.1           LOANS

No Cash Request may be
delivered which would involve the drawing of a Loan unless at the time of
delivery either (a) the Receivables Finance Facility is or would be following
the delivery of such Cash Request being utilised up to the Receivables Limit or
(b) the Facility Companies have no Receivables with which to utilise the Receivables
Finance Facility.

5.2           LETTERS OF
CREDIT

No Request may be
delivered for an L/C to be issued pursuant to the Revolving Credit Facility
unless and until the form of L/C has been approved by Burdale, the relevant
issuer and the proposed beneficiary of such L/C.

5.3           OVERALL
LIMIT

The aggregate amount of:

(a)           all Loans;

(b)           Outstanding
Purchase Price;

(c)           all L/C
Exposures; and

(d)           all Forex
Exposures,

shall
not at any time exceed the Facility Limit.

5.4           SPECIFIC
LIMITS

5.4.1        RECEIVABLES
FINANCE FACILITY: The Outstanding Purchase Price shall not at any time exceed
the Receivables Limit.

5.4.2        REVOLVING
CREDIT FACILITY: The aggregate amount of:

(a)           all Loans;

 12
 

(b)           all L/C
Exposures; and

(c)           all Forex
Exposures,

shall not at any time
exceed the Revolving Credit Limit.

5.4.3        L/C
UTILISATIONS: The aggregate amount of all L/C Exposures shall not at any time
exceed the L/C Limit.

5.4.4        FOREIGN
EXCHANGE UTILISATIONS: The aggregate amount of all Forex Exposures shall not at
any time exceed the Forex Limit.

5.5           AVAILABILITY

The
aggregate amount of:

(a)           Outstanding
Purchase Price;

(b)           all Loans;

(c)           all L/C
Exposures; and

(d)           all Forex
Exposures,

shall
not at any time exceed the sum of:

(i)            the Total
Receivables Availability; PLUS

(ii)           the Total
Stock Availability; LESS

(iii)          the amount
of Reserves,

at such time.

For the purposes of this
Clause 5.5, RESERVES means reserves established by Burdale from time to time:

(a)           to reflect
the full amount of the liabilities at such time which have a right imposed to
provide for payment ranking or capable of ranking senior to or pari passu with
the liabilities of the Obligors under the Finance Documents and/or having the
benefit of any Security Interest over the assets of any Obligor ranking or
capable of ranking senior to or pari passu with the Security Interests granted
to Burdale under the Finance Documents;

(b)           to reflect
Burdale’s good faith belief that any report or financial information provided
by or on behalf of any Obligor under the Finance Documents is or may have been
incomplete, inaccurate or misleading in any material respect; and

(c)           in an amount
of $1,000,000.

5.6           PROHIBITION

No Utilisation may be
made which would cause the provisions of this Clause 5 to be breached.

 13
 

5.7           PERCENTAGES

Burdale may from time to
time, following prior consultation with the Company:

(a)           reduce the
Purchase Price and/or the Total Receivables Availability to the extent that the
Dilution Rate has increased;

(b)           reduce the
Total Stock Availability (or any component of it) to the extent that:

(i)            the number
of days of the turnover of the Stock for any period has changed in any material
respect; or

(ii)           the
liquidation value of the Eligible Stock, or any category of Eligible Stock, has
decreased; or

(iii)          the nature
and quality of the Stock has deteriorated; and

(iv)          there is any
change in seasonality with respect to Stock and patterns of sales after today’s
date; or

(v)           there is any
reduction in the Facility Limit pursuant to Clause 7.7.

6              UTILISATION
OF FACILITIES

6.1           AVAILABILITY
OF RECEIVABLES FINANCE FACILITY

6.1.1        Subject to
the terms of this Agreement, each Facility Company shall offer to sell its
Receivables to Burdale by delivering to Burdale from time to time duly
completed Purchase Requests (together with all deeds and documents referred to
in such Purchase Request), delivery of which shall oblige such Facility Company
to sell the Receivables stated in such Purchase Request upon the terms and
subject to the conditions of this Agreement.

6.1.2        A Purchase
Request will not be regarded as having been duly completed unless it is in
substantially the form set out in Part I of Schedule 3.

6.1.3        As soon as
reasonably practicable following delivery of a Purchase Request, Burdale shall
determine the Purchase Price for the Receivables specified in such Purchase
Request and will, upon being requested by the relevant Facility Company, advise
such Facility Company of such determination.

6.2           UTILISATION
OF RECEIVABLES FINANCE FACILITY AND REVOLVING CREDIT FACILITY

6.2.1        Subject to
the terms of this Agreement, each Facility Company may from time to time
request that Burdale pay sums in a Permitted Currency to such Facility Company
of up to the aggregate of (i) the amount of any unpaid Purchase Price and (ii)
the amount available for drawing by way of Loan, by delivering a duly completed
Cash Request to Burdale not later than 11.00 a.m. on the proposed Utilisation
Date for such payment.

6.2.2        A Cash
Request will not be regarded as having been duly completed unless it is in
substantially the form set out in Part II of Schedule 3 and, in particular,
specifies:

(a)           the proposed
Utilisation Date, being a Business Day falling during the Availability Period;

 14
 

(b)           the amount
and the currency of the sum to be paid by Burdale which must be less than or
equal to the aggregate of the amounts specified in Clause 6.2.1; and

(c)           if not
already notified to Burdale, the details of the Other Account into which the
payment is to be made on the Utilisation Date.

6.2.3        Payments
made by Burdale pursuant to a Cash Request shall be deemed to be first payments
of any unpaid Purchase Price to the full extent of such unpaid Purchase Price
and second, to the extent of any surplus, to be the drawing of a Loan.

6.2.4        Burdale’s
obligation to pay the Purchase Price of any Receivable (or any unpaid portion
of it as the case may be) shall be terminated on the earlier of the Actual Day
of Payment and the Maturity Date of such Receivable.

6.2.5        To the
extent that any payments made by Burdale pursuant to a Cash Request to a
Facility Company (the DEBTOR COMPANY) represent payment of Purchase Price in
relation to the Purchased Receivables of another Facility Company (the CREDITOR
COMPANY) then (without double counting with the provisions of Clause
7.2(e)(ii)) the Creditor Company shall be deemed to have made a loan to the
Debtor Company in an amount equal to the amount of such payment by Burdale and
in the same currency as such payment (an INTERCOMPANY LOAN). All Intercompany
Loans shall bear interest at such rates as the relevant Creditor Companies may
agree with the relevant Debtor Companies and all principal and interest on any
Intercompany Loan shall be payable on demand.

6.3           L/C
UTILISATIONS

6.3.1        Subject to
the terms of this Agreement, a Facility Company may request the issue of an L/C
by delivering a duly completed L/C Request to Burdale not later than 11.00 a.m.
on the proposed Utilisation Date for that L/C.

6.3.2        An L/C
Request will not be regarded as having been duly completed unless it is
substantially in the form attached in Part III of Schedule 3 and, in
particular, specifies:

(a)           the proposed
Utilisation Date, being a Business Day falling during the Availability Period;

(b)           the amount
of the L/C required, the L/C Exposure of which must be equal to or less than
the undrawn/unutilised amount of the Revolving Credit Facility and within the
relevant Availability Limits as at the proposed Utilisation Date;

(c)           if not
already notified to Burdale, the details of the beneficiary, payee or addressee
of such L/C.

6.4           GENERAL
PROVISIONS REGARDING L/Cs

6.4.1        Nothing in
this Agreement shall be deemed or construed to grant any Facility Company any
right or authority to pledge the credit of Burdale in any manner. Burdale shall
have no liability of any kind with respect to any L/C provided by an issuer other
than Burdale unless Burdale has duly executed and delivered to such issuer the
application or a guarantee or indemnification in writing with respect to such
L/C. Each Facility Company shall be bound by an interpretation made in good
faith by Burdale, or any other issuer or correspondent under or in connection
with any L/C or any documents, drafts or acceptances in relation to any L/C,
notwithstanding that such interpretation may be inconsistent with any
instructions of any Facility Company. Burdale shall have the sole and exclusive
right and authority to, and no Facility Company shall:

(a)           at any time
an Event of Default exists or has occurred and is continuing:

 15
 

(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; or

(iii)          execute any
and all applications for steamship or airway guarantees, indemnities or
delivery orders;

(b)           at any time:

(i)            grant any
extensions of the maturity of, time of payment for, or time of presentation of,
any drafts, acceptances, or documents; and

(ii)           agree to any
amendments, renewals, extensions, modifications, changes or cancellations of
any of the terms or conditions of any of the applications, L/Cs, or documents,
drafts or acceptances in relation to any L/C or any letters of credit provided
as security to Burdale. Burdale may take such actions either in its own name or
in the relevant Facility Company’s name.

6.4.2        Any rights,
remedies, duties or obligations granted or undertaken by any Facility Company
to any issuer or correspondent in any application for any L/C, or any other
agreement in favour of any issuer or correspondence relating to any L/C, shall
be deemed to have been granted or undertaken by such Facility Company to Burdale.
Any duties or obligations undertaken by Burdale to any issuer or correspondence
in any application for any L/C, or any other agreement by Burdale in favour of
any issuer or correspondence relating to any L/C, shall be deemed to have been
undertaken by the relevant Facility Company to Burdale and to apply in all
respects to such Facility Company.

6.4.3        None of
Burdale, any L/C issuer (or any of their respective correspondents) or any
advising, negotiating or paying bank with respect to any L/C shall be
responsible in any way for:

(a)           the
performance by any beneficiary under any L/C of that beneficiary’s obligations
to the relevant Facility Company; or

(b)           the form,
sufficiency, correctness, genuineness, authority of any person signing or the
legal effect of any documents called for under any L/C if such documents appear
on their face to be in order.

6.5           FOREX
UTILISATIONS

6.5.1        Subject to
the terms of this Agreement, a Facility Company may request a Utilisation of
the Revolving Credit Facility by way of the sale or purchase of Foreign
Currency by delivering a duly completed Forex Request to Burdale not later than
11.00 a.m. on the proposed date of the contract for the sale or purchase of
Foreign Currency.

6.5.2        A Forex
Request will not be regarded as having been duly completed unless it is in
substantially the form set out in Part IV of Schedule 3 and, in particular,
specifies:

(a)           the proposed
date of effect of the sale or purchase of Foreign Currency being a Business Day
falling during the Availability Period; and

(b)           the value of
the contract for the sale or purchase of Foreign Currency required and the
Foreign Currency required to be purchased which must be such that the Forex
Exposure with respect to such Utilisation when aggregated with all other Forex
Exposures is equal to or less than the Forex Limit as at the proposed
Utilisation Date.

 16
 

6.6           DEEMED
UTILISATIONS

All payments made by
Burdale:

(a)           in
accordance with the terms of any L/C or any guarantee or indemnity given by
Burdale to the issuer of any L/C (as the case may be); and

(b)           on the
maturity of any Forex Transaction,

shall be deemed to be a
payment to the relevant Facility Company in an amount equal to such payment, as
if such Facility Company had lodged a Cash Request for such amount and subject
to the provisions of this Agreement with respect to Utilisations of the
Receivables Finance Facility and/or the Revolving Credit Facility (including,
without limitation, as to interest, purchase commission and repayment).

7              REPAYMENT
AND PREPAYMENT

7.1           RECEIVABLES
FINANCE FACILITY

7.1.1        If in
relation to a Purchased Receivable Burdale determines on the Maturity Date in
respect of such Purchased Receivable that it has not received payment in
accordance with Clause 9.1 of the full amount of such Purchased Receivable, the
relevant Facility Company shall, on demand by Burdale pay to Burdale an amount
equal to the Outstanding Purchase Price of such Purchased Receivable for which
payment has not been received PROVIDED THAT this provision shall not restrict (nor
oblige) Burdale in any way in or from pursuing and obtaining payment in respect
of such Purchased Receivable from the account debtors or otherwise (which
payment shall be made into a Blocked Account) and each Facility Company
undertakes that it will do all such reasonable acts or things necessary or
desirable to help Burdale in pursuing and obtaining such payment.

7.1.2        Burdale
shall be entitled to deduct from payments made by account debtors and/or the
Facility Companies into a Blocked Account in respect of Purchased Receivables
the then Outstanding Purchase Price in respect of such Purchased Receivables
and the balance remaining after such deduction shall be applied in accordance
with Clause 7.2.

7.2           OTHER
UTILISATIONS

Subject as provided
below all amounts standing to the credit of the Blocked Accounts from time to
time following the deductions referred to in Clause 7.1.2 shall be applied as
follows:

(a)           FIRST in
repayment of the outstanding principal amount of any Loans;

(b)           SECOND in
payment of any fees, costs and expenses due from any Obligor to Burdale under
the Finance Documents;

(c)           THIRD in
payment of (i) all amounts of interest due on the Loans (including any deemed
borrowing pursuant to Clause 6.6) and (ii) all Purchase Commission (or in
making provision for Purchase Commission which will fall due for payment on the
last Business Day of the current calendar month);

(d)           FOURTH in or
towards satisfaction of any other payment obligation of any Obligor under the
Finance Documents; and

(e)           FIFTH to the
relevant Facility Company by way of payment into such Other Account as the
relevant Facility Company may specify to Burdale in writing from time to time.

 17
 

PROVIDED THAT:

(i)            notwithstanding
the above, at all times whilst an Event of Default is continuing, amounts
standing to the credit of a Blocked Account shall be applied to such of the
liabilities of the Obligors under the Finance Documents and in such order as
Burdale may in its absolute discretion determine; and

(ii)           to the
extent that any amount standing to the credit of one Facility Company’s Blocked
Account is applied to discharge the liabilities of another Obligor pursuant to
Clause 7.1.2 or this Clause 7.2 then (without double counting) the provisions
of Clause 6.2.5 shall apply to such application mutatis mutandis.

7.3           CURRENCY

7.3.1        Any amount
deducted by Burdale pursuant to Clause 7.1.2 shall first be used by Burdale in
or towards paying the then Outstanding Purchase Price denominated in the same
Permitted Currency as the payment from which such deduction was made and then
(at Burdale’s discretion) the remainder of any such deduction may be converted
by Burdale at the Exchange Rate and used in or towards paying the then
Outstanding Purchase Price denominated in any Permitted Currency (unless Burdale
otherwise agrees).

7.3.2        Any amount
applied pursuant to Clauses 7.2(a) to 7.2(d) (inclusive) above shall first be
applied by Burdale in or towards satisfying the obligations of the Obligors
under the Finance Documents denominated in the same Permitted Currency as the
Permitted Currency of the funds so applied and then (at Burdale’s discretion)
the remainder of any such amount may be converted by Burdale at the Exchange
Rate and used in or towards satisfying any such obligations denominated in any
Permitted Currency (unless Burdale otherwise agrees).

7.4           REUTILISATION

7.4.1        RECEIVABLES
FINANCE FACILITY: Subject to the terms of this Agreement, all amounts of
Outstanding Purchase Price recovered and paid to Burdale, may be reutilised as
Utilisations of the Receivables Finance Facility.

7.4.2        REVOLVING
CREDIT FACILITY: Subject to the terms of this Agreement, all Loans repaid and
all amounts recovered and paid to Burdale in relation to L/Cs and Forex
Transactions, may be redrawn or reutilised as Utilisations of the Revolving
Credit Facility.

7.5           PREPAYMENT

If at any time the
outstanding Utilisations or any part of them cause any Availability Limit to be
exceeded then the Company will immediately repay or procure repayment of such
amount of the Loans together with cash collateral in respect of Outstanding
Purchase Price and/or any contingent obligation of Burdale in relation to any
L/C or other Utilisation together with interest on the Loans, to the extent
required to ensure compliance with that Availability Limit and, until such time
as that Availability Limit is no longer breached, no further Utilisations may
be requested (including, for the avoidance of doubt, pursuant to a Cash
Request) or will, at Burdale’s option, be made or issued.

7.6           ILLEGALITY

If it becomes unlawful
in any jurisdiction for Burdale to make available or maintain the Facilities
(or any of them) or to give effect to its obligations under the Finance
Documents, Burdale may give seven Business Days written notice to that effect
to the Company whereupon the Facilities will be cancelled and all the
provisions of this Agreement will apply as if the

 18
 

cancellations or
terminations had been a reduction of the Facility Limit to zero pursuant to
Clause 7.7.

7.7           REDUCTION OF
FACILITY LIMIT

7.7.1        At the request
of the Company by giving not less than ten Business Day’s prior written notice
to Burdale, the Facility Limit may from time to time be reduced provided that
on or before the effective date for such reduction the Company shall pay (or
procure payment) to Burdale of:

(a)           such amount
as may be necessary in prepayment of the Loans and/or as cash collateral for
Outstanding Purchase Price and/or Burdale’s contingent obligations under any
issued L/C or unmatured Forex Transaction to ensure that the Facility Companies
remain in compliance with the Availability Limits (as adjusted to take account
of such amendments pursuant to Clause 5.7); and

(b)           a fee of 1%
of the amount of the reduction of the Facility Limit.

7.7.2        Any exercise
by Burdale of its rights under Clause 16.2(b) and/or 16.3 and/or the operation
of Clause 7.6 shall be deemed for the purposes of paragraph 7.7.1(b) above to
be a reduction in the Facility Limit in an amount equal to the amount of the
Facility or Facilities so cancelled.

7.8           FINAL REPAYMENT

The Company will, on the
Final Repayment Date, pay (or procure payment) to Burdale in full all
outstanding and unpaid liabilities under the Finance Documents (whether by way
of principal, interest, commission, fees, costs, expenses or otherwise) and shall
pay to Burdale such amount as is necessary to provide full cash collateral for
Outstanding Purchase Price and any contingent obligations which Burdale may
have in respect of any L/C, Forex Transaction or other outstanding Utilisation.
If the amounts so paid are received by Burdale later than 1.00 p.m. on the
Final Repayment Date then the Company will pay interest on such amounts to
Burdale at the Default Rate until payment has been made in full.

7.9           CASH
COLLATERAL

If under this Agreement
any Facility Company is required to provide and does provide cash collateral
for any contingent liability, such cash collateral shall be held by Burdale in
an interest bearing account for application against such contingent liability,
provided that any sum remaining after settling such payments shall be applied
first in settlement of any other amounts then due and payable to Burdale under
the Finance Documents and any balance shall be promptly repaid to the relevant
Facility Company or other person entitled to the balance.

8              INTEREST AND
COMMISSION

8.1           INTEREST

8.1.1        Each
Facility Company will pay Burdale interest on each Loan made to it by Burdale
at the Interest Rate.

8.1.2        Except as
otherwise provided in this Agreement, accrued interest on each Loan shall be
paid by the relevant Facility Company in arrear on the last Business Day of
each month and on the Final Repayment Date. All interest accruing on or after
the date of any Event of Default or the Final Repayment Date shall be payable
on demand.

8.1.3        Interest
will be calculated on the basis of a 365 day year and actual days elapsed and
will accrue and be calculated on a daily basis.

 19
 

8.2           PURCHASE
COMMISSION

Each Facility Company
shall pay to Burdale commission in respect of each of its Purchased Receivables
at a rate equivalent to the Interest Rate applied to the Outstanding Purchase
Price for such Receivable from the date on which Burdale paid such Purchase
Price to a Facility Company down to the Actual Day of Payment (the PURCHASE
COMMISSION). Burdale shall calculate the Purchase Commission on a daily basis
and it shall be paid by the relevant Facility Company monthly in arrears on the
last Business Day of each month.

8.3           DEFAULT
INTEREST

8.3.1        Upon the
occurrence of an Event of Default and whilst the same is continuing, all
amounts outstanding under this Agreement shall bear interest (both before and
after judgment) at the Default Rate.

8.3.2        Interest at
the Default Rate will be compounded at the end of each period designated by
Burdale and will be determined by Burdale on the first Business Day of each
such period.

9              COLLECTION
OF RECEIVABLES

9.1           FLOW OF
FUNDS

Subject to Clause 9.2,
each Facility Company undertakes that during the period commencing on the date
of this Agreement and ending when all its liabilities under the Finance
Documents have been discharged in full and Burdale is under no further
obligation under any of the Finance Documents:

(a)           such
Facility Company will collect as agent and trustee for Burdale all Receivables
and immediately pay (or procure that payment is made) all amounts due in
respect of each Receivable into a Blocked Account, provided however that until
payment into a Blocked Account it will hold all money so received upon trust
for Burdale and will not commingle in any Charged Account any monies which are
not Receivables or which are not payable to Burdale;

(b)           without
prejudice to its obligations under Clause 13.14, in the event that any account
debtor makes a payment in respect of Receivables into another Charged Account
or other account which is not a Blocked Account, such Facility Company will
ensure that the amounts representing such payment are promptly transferred into
a Blocked Account and will immediately direct the relevant account debtor to
make all future payments to a Blocked Account; and

(c)           all the
transfers and collections referred to in paragraphs (a) and (b) above shall be
carried out daily prior to the occurrence of any Default and thereafter at such
intervals as Burdale may, at its discretion, specify to the Company.

9.2           FAILURE OF
DEBENTURE

In the event that the
Debenture is not, at any time, effective or is not in full force and effect in
respect of any Charged Account, each Facility Company will (unless otherwise
directed by Burdale and without prejudice to Burdale’s rights and remedies
under the Finance Documents), for so long as the Debenture is ineffective or
not in full force and effect and ending on the date when all of its liabilities
under the Finance Documents have been repaid or discharged in full and Burdale
is under no further obligation under any of the Finance Documents, collect as
agent and trustee for Burdale all Receivables which would otherwise have been
payable into a

 20
 

Blocked Account and
immediately pay (or procure the payment of) all amounts due in respect of those
Receivables directly to such bank account of Burdale as it may specify for this
purpose.

9.3           DECLARATION
OF TRUST

If for any reason
(including, without limitation, any prohibition or restriction on assignment
contained in any agreement between a Facility Company and the relevant account
debtor), title to any Receivable which is purchased by Burdale under this
Agreement does not pass to Burdale then the relevant Facility Company shall
hold such Receivable on trust for Burdale and shall collect and deal with such
Receivable in accordance with the terms of Clauses 9.1 and 9.2.

9.4           REIMBURSEMENT

Each Facility Company
agrees to reimburse Burdale on demand for any liability of Burdale to any bank
or other person involved in the transfer of funds to or from any Blocked
Account arising out of Burdale’s payments to or indemnification of that bank or
person, and this obligation to reimburse shall survive the termination or
non-renewal of this Agreement.

9.5           APPLICATION

For the purposes of
calculating the amount of the Loans available to the Facility Companies, the
Receivables Limit and the Forex Limit such payments will be applied
(conditional upon final collection) in satisfaction or reduction of the
relevant Facility Company’s liabilities under the Finance Documents on the
Business Day of receipt by Burdale. For the purposes of calculating interest in
respect of the Loans and for calculating any Purchase Commission or commission
in respect of the Forex Transactions, payments or other funds received by Burdale
will be applied (conditional upon final collection) in satisfaction or
reduction of the relevant Facility Company’s liabilities under the Finance
Documents one Business Day following the date of receipt of funds by Burdale.

9.6           BUSINESS
DAYS

If any payment under the
Finance Documents would otherwise be due on a day which is not a Business Day,
it will be due on the next succeeding Business Day or, if that Business Day
falls in the following month, on the preceding Business Day.

10            TAX

10.1         TAX GROSS-UP

10.1.1      Each Obligor
shall make all payments to be made by it without any Tax Deduction, unless a
Tax Deduction is required by law.

10.1.2      The Company
shall promptly upon becoming aware that an Obligor must make a Tax Deduction
(or that there is any change in the rate or the basis of a Tax Deduction)
notify Burdale accordingly.

10.1.3      If a Tax
Deduction is required by law to be made by an Obligor the amount of the payment
due from that Obligor shall be increased to an amount which (after making any
Tax Deduction) leaves an amount equal to the payment which would have been due
if no Tax Deduction had been required.

10.1.4      If an
Obligor is required to make a Tax Deduction, that Obligor shall make that Tax
Deduction and any payment required in connection with that Tax Deduction within
the time allowed and in the minimum amount required by law.

 21
 

10.1.5      Within
thirty days of making either a Tax Deduction or any payment required in
connection with that Tax Deduction, the Obligor making that Tax Deduction shall
deliver to Burdale evidence reasonably satisfactory to Burdale that the Tax
Deduction has been made or (as applicable) any appropriate payment paid to the
relevant taxing authority.

10.2         TAX
INDEMNITY

10.2.1      The Company
shall (within three Business Days of demand by Burdale) pay to Burdale an
amount equal to the loss, liability or cost which Burdale determines will be or
has been (directly or indirectly) suffered for or on account of Tax.

10.2.2      Paragraph
10.2.1 above shall not apply with respect to any Tax assessed on Burdale if
that Tax is imposed on or calculated by reference to the net income received or
receivable (but not any sum deemed to be received or receivable) by Burdale.

10.3         TAX CREDIT

If an Obligor makes a
Tax Payment and Burdale determines that:

(a)           a Tax Credit
is attributable to that Tax Payment; and

(b)           it has
obtained, utilised and retained that Tax Credit,

Burdale shall pay an
amount to the Obligor which Burdale determines will leave it (after that
payment) in the same after-Tax position as it would have been in had the Tax
Payment not been made by the Obligor.

10.4         STAMP TAXES

The Company shall pay
and, within three Business Days of demand, indemnify Burdale against any cost,
loss or liability that Burdale incurs in relation to all stamp duty, registration
and other similar Taxes payable in respect of any Finance Document.

10.5         VALUE ADDED
TAX

10.5.1      All
consideration payable under a Finance Document by an Obligor to Burdale shall
be deemed to be exclusive of any VAT. If VAT is chargeable, the Obligor shall
pay to Burdale (in addition to and at the same time as paying the
consideration) an amount equal to the amount of the VAT.

10.5.2      Where a
Finance Document requires an Obligor to reimburse Burdale for any costs or
expenses, that Obligor shall also at the same time pay and indemnify Burdale
against all VAT incurred by Burdale in respect of the costs or expenses save to
the extent that Burdale is entitled to repayment or credit in respect of the
VAT.

11            INCREASED
COSTS

11.1         INCREASED
COSTS

11.1.1      Subject to
Clause 11.3 the Company shall, within three Business Days of a demand by
Burdale, pay to Burdale the amount of any Increased Costs incurred by Burdale
or any of its Affiliates as a result of (i) the introduction of or any change
in (or in the interpretation or application of) any law or regulation or (ii)
compliance with any law or regulation made after the date of this Agreement.

 22
 

11.1.2      In this
Agreement INCREASED COSTS means:

(a)           a reduction
in the rate of return from the Facilities (or any of them) or on Burdale’s (or
its Affiliate’s) overall capital;

(b)           an
additional or increased cost; or

(c)           a reduction
of any amount due and payable under any Finance Document,

which is incurred or
suffered by Burdale or any of its Affiliates to the extent that it is
attributable to Burdale having entered into this Agreement or funding or
performing its obligations under any Finance Document.

11.2         INCREASED
COST CLAIMS

If Burdale intends to
make a claim pursuant to Clause 11.1 it shall notify the Company of the event
giving rise to the claim, and shall, as soon as practicable after a demand by
the Company, provide a certificate confirming the amount of its Increased
Costs.

11.3         EXCEPTIONS

Clause 11.1 does not
apply to the extent any Increased Cost is:

(a)           attributable
to a Tax Deduction required by law to be made by an Obligor;

(b)           compensated
for by Clause 10.2 (or would have been compensated for under Clause 10.2 but
was not so compensated solely because the exclusion in Clause 10.2.2 applied);

(c)           compensated
for by the payment of MLA Cost; or

(d)           attributable
to the wilful breach by Burdale or its Affiliates of any law or regulation.

12            REPRESENTATIONS
AND WARRANTIES

12.1         WARRANTIES

Each Obligor makes the
representations and warranties in this Clause 12 to Burdale on today’s date and
such representations and warranties will be deemed repeated by the Obligors on
each date:

(a)           on which a
Request is submitted;

(b)           which is a
Utilisation Date;

(c)           on which any
payment of interest or Purchase Commission is due under the Finance Documents,

as if made with
reference to the facts and circumstances existing on such date.

12.2         STATUS

12.2.1      It is a
corporation, duly incorporated and validly existing under the law of its
jurisdiction of incorporation.

12.2.2      It has the power
to own its assets and carry on its business as it is being conducted.

 23

12.3                           BINDING
OBLIGATIONS

The obligations
expressed to be assumed by it in each Finance Document are, subject to any
principles of law affecting creditors’ rights generally, legal, valid, binding
and enforceable obligations.

12.4                           NON-CONFLICT
WITH OTHER OBLIGATIONS

The entry into and
performance by it of, and the transactions contemplated by, the Finance
Documents do not and will not conflict with:

(a)                                  any law or
regulation applicable to it;

(b)                                 its
constitutional documents; or

(c)                                  any
agreement or instrument binding upon it or any of its assets.

12.5                           POWER AND
AUTHORITY

It has the power to
enter into, perform and deliver, and has taken all necessary action to
authorise its entry into, performance and delivery of, the Finance Documents to
which it is a party and the transactions contemplated by those Finance
Documents.

12.6                           VALIDITY AND
ADMISSIBILITY IN EVIDENCE

All authorisations
required or desirable:

(a)                                  to enable it
lawfully to enter into, exercise its rights and comply with its obligations in
the Finance Documents to which it is a party; and

(b)                                 to make the
Finance Documents to which it is a party admissible in evidence in its
jurisdiction of incorporation, have been obtained or effected and are in full
force and effect.

12.7                           NO FILING OR
STAMP TAXES

Under the law of its
jurisdiction of incorporation it is not necessary that the Finance Documents be
filed, recorded or enrolled with any court or other authority in that
jurisdiction or that any stamp, registration or similar tax be paid on or in
relation to the Finance Documents or the transactions contemplated by the
Finance Documents.

12.8                           NO DEFAULT

12.8.1                  No Event of
Default is continuing or might reasonably be expected to result from the making
of any Utilisation.

12.8.2                  No other
event or circumstance is outstanding which constitutes a default under any
other agreement or instrument which is binding on it or to which its assets are
subject which might have a Material Adverse Effect.

12.9                           PARI PASSU
RANKING

Its payment obligations
under the Finance Documents rank at least pari passu with the claims of all its
other unsecured and unsubordinated creditors, except for obligations
mandatorily preferred by law applying to companies generally.

 24
 

12.10       NO
PROCEEDINGS PENDING OR THREATENED

No litigation,
arbitration or administrative proceedings of or before any court, arbitral body
or agency which, if adversely determined, might reasonably be expected to have
a Material Adverse Effect have (to the best of its knowledge and belief) been
started or threatened against it or any of its Subsidiaries.

12.11       MATERIAL
DISCLOSURES

All information
furnished by or on behalf of any Obligor in writing to Burdale in connection
with the Finance Documents is true and correct in all material respects as of
the date such information is dated or certified and does not omit any material
information and is not misleading. No event or circumstance has occurred which
has or could reasonably be expected to have a Material Adverse Effect which has
not been fully and accurately disclosed to Burdale.

12.12       FINANCIAL
STATEMENTS

Its latest audited
financial statements (i) have been reported upon by its auditors without
qualification, (ii) have been prepared in accordance with GAAP and give a true
and fair view of the results of its operations and its assets and liabilities
for the relevant period and of the state of its affairs at the relevant date,
and (iii) in particular, accurately disclose or reserve against all liabilities
(actual or contingent), and there has been no change in its assets, financial
condition or prospects since the date of those financial statements such that
it may reasonably be expected to be unable to perform and comply with any one
or more of its material obligations under any of the Finance Documents.

12.13       BANK
ACCOUNTS

All the accounts
maintained or used by any Obligor at any bank or financial institution as at
the date of this Agreement have been included within the definition of Charged
Accounts.

13            GENERAL
UNDERTAKINGS

13.1         DURATION

The undertakings in this
Clause 13 and in Clause 14 remain in force from the date of this Agreement for
so long as any amount is outstanding under the Finance Documents or Burdale is
under any obligation under any Finance Document.

13.2         AUTHORISATIONS

Each Obligor shall
promptly:

(a)                                  obtain, comply
with and do all that is necessary to maintain in full force and effect; and

(b)                                 supply
certified copies to Burdale of,

any authorisation
required under any law or regulation of its jurisdiction of incorporation to
enable it to perform its obligations under the Finance Documents and to ensure
the legality, validity, enforceability or admissibility in evidence in its
jurisdiction of incorporation of any Finance Document.

 25
 

13.3         COMPLIANCE
WITH LAWS

Each Obligor shall
comply in all respects with all laws to which it may be subject, if failure so
to comply would materially impair its ability to perform its obligations under
the Finance Documents.

13.4         NEGATIVE
PLEDGE

13.4.1      No Obligor
shall create or permit to subsist any Security Interest over any of its assets.

13.4.2      No Obligor
shall:

(a)                                  sell,
transfer or otherwise dispose of any of its assets on terms whereby they are or
may be leased to or re-acquired by an Obligor;

(b)                                 sell,
transfer or otherwise dispose of any of its receivables on recourse terms otherwise
than pursuant to the Finance Documents;

(c)                                  enter into
any arrangement under which money or the benefit of a bank or other account may
be applied, set-off or made subject to a combination of accounts; or

(d)                                 enter into
any other preferential arrangement having a similar effect,

in circumstances where
the arrangement or transaction is entered into primarily as a method of raising
Financial Indebtedness or of financing the acquisition of an asset.

13.4.3      Paragraphs
13.4.1 and 13.4.2 above do not apply to:

(a)                                  any lien
arising by operation of law and in the ordinary course of trading;

(b)                                 any Security
Interest in favour of Burdale.

13.5         MERGER

No Obligor shall enter
into any amalgamation, demerger, merger or corporate reconstruction.

13.6         CHANGE OF
BUSINESS

The Company shall
procure that no substantial change is made to the general nature of the
business of the Company or any Obligor from that carried on at the date of this
Agreement.

13.7         DEFAULT

Each Obligor will notify
Burdale forthwith upon becoming aware of the occurrence of any Default and will
provide Burdale with full details of any steps which it is taking, or is
considering taking, in order to remedy or mitigate the effect of the Default.

13.8         DISPOSALS

No Obligor shall enter
into a single transaction or series of transactions (whether related or not)
and whether voluntary or involuntary to sell, lease, transfer or otherwise
dispose of any asset save for:

(a)                                  the disposal
of Stock in the ordinary course of trading; or

 26
 

(b)                                 the
application of cash in the purchase or acquisition of goods and services in the
ordinary course of trading or in any manner not prohibited by any of the
Finance Documents; or

(c)                                  the disposal
of obsolete assets where the proceeds of sale (if any) are paid into a Blocked
Account; or

(d)                                 any disposal
in respect of which Burdale has given its prior written consent; or

(e)                                  a disposal
of the real property owned by the Company at Openshaw, Manchester provided
that:

(i)                                     any such
disposal is on arm’s length commercial terms to an unrelated third party;

(ii)                                  no Default
is continuing at the time of any such disposal; and

(iii)                               all proceeds
of sale arising on any such disposal (less the L 300,000 payable to the
Trustees under the Trustee Agreement) are paid into a Blocked Account; or

(f)                                    the disposal
of any asset where the higher of market value or consideration receivable (when
aggregated with the higher of market value or consideration receivable for any
other sale, lease, transfer or other disposal (other than any permitted under
paragraphs (a) to (e) above)) does not exceed $15,000 (or its equivalent in
another currency or currencies) in any financial year and the proceeds of sale
are paid into a Blocked Account.

13.9         ACQUISITIONS

No Obligor will, except
in the ordinary course of its trade acquire any business, undertaking or assets
of any kind whatsoever.

13.10       INTRA-GROUP
ARRANGEMENTS

No Obligor will, without
obtaining Burdale’s prior written consent:

(a)                                  pay any
dividend or make any other distribution of any of its assets to its shareholders
or any of them; or

(b)                                 pay any
other moneys, whether by way of interest, management fees or otherwise
howsoever, to any affiliate, subsidiary or any shareholder, director or
employee except for payments in the ordinary course of, and pursuant to the
reasonable requirements of, trading and on arms length commercial terms unless
immediately following the making of any such payment the amount available for
Utilisation (less the aggregate amount of Past Due Payables) would be at least
$1,000,000.; or

(c)                                  redeem any
of its ordinary or preference share capital.

13.11       AUDITS BY
BURDALE

Each Obligor will permit
Burdale or its appointed representatives or agents at the relevant Obligor’s
expense to conduct an audit of its financial records, systems and forecasts on
a quarterly basis or, following a Default at more frequent intervals as Burdale
may stipulate and will afford all co-operation to Burdale and its
representatives or agents to enable such audit to take place.

 27
 

13.12        FINANCIAL
INDEBTEDNESS

No Obligor will incur
any Financial Indebtedness other than:

(a)                                  under the
Finance Documents;

(b)                                 under the
Trustee Agreement and the Trustee Mortgage for such time as the Deed of
Priorities is in full force and effect;

(c)                                  normal trade
credit granted to it in the ordinary course of business;

(d)                                 equipment,
vehicle and operating leases and hire purchase transactions entered into in the
ordinary course of business where the total annual Financial Indebtedness for
such leases and transactions for the Obligors as a whole does not exceed
$50,000 at any one time; or

(e)                                  with respect
to loans made to it by another Obligor which is a Chargor under the Debenture.

13.13        MAKING
LOANS

No Obligor will be a
creditor with respect to any Financial Indebtedness except for:

(a)                                  the grant of
normal trade credit in the ordinary course of its trade;

(b)                                 loans made
by it to another Obligor which is a Chargor under the Debenture; and

(c)                                  loans made
by the Company to Haynes US:

(i)            in an amount
not exceeding $5,600,000 out of the first Utilisations; and

(ii)           thereafter,
provided that:

(aa)                            for the
period of 30 days immediately preceding the making of any such loan the minimum
amount available for Utilisation was; and

(bb)                          following
the making of any such loan the amount available for Utilisation would be,

(in
each case, less the aggregate of all Past Due Payables) at least $1,000,000.

13.14       BANK
ACCOUNTS

No Obligor will, open or
maintain any account of any type with any bank or financial institution
providing like services other than the Charged Accounts.

13.15       INSURANCE

Each Obligor will:

(a)                                  as regards
all its assets and property of any kind and businesses arrange and maintain in
full force and effect insurances (including consequential loss, business
interruption and public liability and damage and other insurances usually
maintained by companies carrying on the same type of business as its own
business) with such insurers as Burdale approves and on such terms and in such
amounts as Burdale may reasonably require and

 28
 

is customary for an enterprise
engaged in the same or similar business and in the same or similar localities
and against such risks as Burdale shall reasonably request;

(b)                                 procure that
Burdale’s interest is noted on all policies relating to insurances so arranged
in such manner as Burdale may in its absolute discretion require and will use
all reasonable endeavours to ensure that Burdale is named as sole loss payee
(but without having any obligation for premiums);

(c)                                  ensure that
every policy of insurance contains a standard mortgagee clause, whereby such
insurance will not be invalidated, vitiated or avoided as against a mortgagee
in the event of any misrepresentation, act, neglect or failure to disclose on
the part of the insured provided that where the insurers will not agree such
terms, terms acceptable to Burdale in Burdale’s absolute discretion are agreed;
and

(d)                                 will supply
to Burdale copies of all such policies of insurance and all endorsements and
renewals of such policies;

(e)                                  duly and
punctually pay all premiums in respect of its insurances and not do or omit to
do any act, matter or thing whereby any such insurance may be or becomes void
or voidable at the option of the insurers or settle any claim in respect of
those insurances without the prior written consent of Burdale, such consent not
to be unreasonably withheld or delayed;

(f)                                    it shall
comply with, enforce and not waive, release, terminate or vary (or agree so to
do) any obligations arising under all policies of insurance and in particular,
but without limitation, it shall notify Burdale immediately upon receiving
notice from any insurer that the details of any insurance policy are to change
in any way and upon receiving notice from any insurer terminating any insurance
policies;

(g)                                 in the event
that it receives from any insurer notice that such insurer is terminating any
insurance policy, it shall use all reasonable endeavours to enter into an
agreement on substantially the same terms as those contained in the original
insurance policy with such other insurer as approved by Burdale and to the
extent that the same terms or substantially the same terms are not available
from the insurer, such terms as are acceptable to Burdale in its absolute
discretion, to take effect on or before the expiry of such notice and shall use
all reasonable endeavours to procure that such insurer gives to Burdale such
acknowledgements and undertakings in relation to this Agreement as Burdale may
in its absolute discretion require;

(h)                                 produce to
Burdale on request copies of all policies and all receipts for the current
premiums with respect to the insurance; and

(i)                                     immediately
give notice to Burdale of any occurrence which gives rise, or might give rise,
to a claim under any policy of insurance.

If any Obligor at any
time fails to perform any of its obligations contained in this Clause, Burdale
may effect or renew such insurance as Burdale thinks fit and such Obligor shall
reimburse Burdale for the costs thereby incurred on demand.

13.16       FINANCIAL
YEAR END AND CHANGE OF AUDITORS

Except with the prior
written consent of Burdale (not to be unreasonably withheld or delayed), no
Obligor will alter its financial year end from that applicable at the date of
this Agreement and each Obligor will procure that it has at all times appointed
as its auditors a firm of auditors which is acceptable to Burdale.

 29
 

13.17       TAXES

Each Obligor will
promptly pay all Taxes as and when they fall due (other than in circumstances
where such Taxes are the subject of a dispute being carried on properly and in
good faith by the relevant Obligor where written details of such dispute have
been supplied to Burdale (if requested, Burdale having been notified of the
dispute) or, in the case of PAYE and National Insurance contributions, within
any permitted grace period or, in the case of any other taxes, in accordance
with any other arrangements agreed with the Inland Revenue or other taxing
authority.

13.18       CHANGE OF
NAME

No Obligor will change
its name without giving Burdale 30 days’ prior written notice of the proposed
new name and will supply a copy of the relevant certificate of incorporation on
change of name to Burdale as soon as it becomes available.

13.19       NEW
LOCATIONS

No Obligor will move any
of its assets to any new location without giving Burdale 30 days’ prior written
notice of the new location and executing and delivering to Burdale such access
agreements, landlord waivers and other documents as Burdale may reasonably
require in order to protect its interest in such assets.

13.20       STAMP DUTY

Each Obligor will
promptly pay any liability incurred in respect of any stamp, registration and
similar Tax which is or becomes payable in connection with the entry into,
registration, performance, enforcement or admissibility in evidence of any
Finance Document and/or any amendment, supplement or waiver of any Finance
Document. In the event of any breach of this undertaking the relevant Obligor
shall immediately pay to Burdale by way of liquidated damages the amount of any
liability that Burdale may incur as a result of or by reference to such Obligor’s
delay in paying or omission to pay any such Tax.

13.21       FINANCIAL
COVENANTS

13.21.1            The Company
shall procure that Consolidated Tangible Net Worth is at all times at least
equal to $17,500,000.

13.21.2            The Company
shall procure that, as at the end of each month (each a TEST DATE), Trading
Cashflow for the period of 12 months ending on such Test Date (but ignoring any
period prior to the date of this Agreement) is not less than $nil.

13.22                     ADDITIONAL
SECURITY DOCUMENTS

The Company shall
procure that the documents, evidence and other items specified in Part II of
Schedule 2 are delivered to Burdale (in a form and substance satisfactory to
Burdale) on the DIP Financing Date.

13.23       ROT
SUPPLIERS

The Company shall within
10 Business Days deliver to Burdale a list of all suppliers to the Obligors
whose terms of business include retention of title provisions.

 30
 

14            INFORMATION
AND ASSET UNDERTAKINGS

14.1         FINANCIAL
INFORMATION

The Company shall supply
to Burdale:

(a)                                  as soon as
the same become available, but in any event within 120 days after the end of
each of its financial years:

(i)                                     its audited
consolidated financial statements for that financial year; and

(ii)                                  the audited
financial statements of each Obligor for that financial year; and

(b)                                 as soon as
practicable and in any event within 30 days from the end of each monthly
management accounting period and in each case in a format satisfactory to
Burdale, full individual and, if applicable, consolidated accounts in each case
prepared in Sterling in respect of that period for itself and each other
Obligor including Stock figures and valuations for that month, a breakdown of
the value and identity of preferential creditors for that month (in
substantially the form set out in Part II of Schedule 4) and details of all
input and output VAT together with such calculations as may be necessary to
establish whether the Company is in compliance with Clause 13.21;

(c)                                  copies of
all notices, circulars, reports and statements sent to any Obligor’s
shareholders or creditors generally (or any class of them) at the same time as
they are made available to such shareholders or creditors; and

(d)                                 such further
information relating to the financial condition or operations of it or any
Obligor which Burdale may reasonably require at such time as Burdale may
reasonably require it.

14.2         REQUIREMENTS
AS TO FINANCIAL STATEMENTS

Each set of financial
statements delivered by the Company pursuant to Clause 14.1 shall be certified
by a director of the relevant company as fairly representing its financial
condition as at the date as at which those financial statements were drawn up
and the Company shall procure that each set of financial statements delivered
pursuant to Clause 14.1 is prepared using GAAP and consistently with the policies
and practices adopted by the relevant company for the preparation of such
accounts as at today’s date.

14.3         REPORTING
REGARDING RECEIVABLES, STOCK AND EQUIPMENT

Each Facility Company
will provide Burdale with the following documents with all amounts expressed in
Sterling and otherwise in a form satisfactory to Burdale:

(a)                                  on a daily
basis with a schedule of Receivables, collections received and credits issued
and on a weekly basis with a stock report substantially in the form set out in
Part I of Schedule 4 and on an annual basis with an Equipment report together
with such further information reports and copies of documents regarding
Receivables, Stock and Equipment as Burdale may from time to time reasonably
request;

(b)                                 as soon as
practicable and in any event within 15 days of the end of each month or more
frequently as Burdale may reasonably request:

(i)                                     ageings of
creditors and Receivables with details of all dated invoices;

(ii)                                  full details
of all Stock by category, location and supplier; and

 31
 

(iii)                               reconciliations
of Stock and Receivables listings to the nominal ledger and the management
accounts, 

all
in a format to be agreed with Burdale (acting reasonably).

(c)                                  on a daily
basis, details of any Receivables which have become or are purported to be, by
the relevant account debtor or otherwise, subject to any prohibitions or
restriction on charge or assignment; and

(d)                                 immediately
upon becoming aware of the same, details of any creditor of any Obligor whose
ordinary terms of business include title retention provisions which have not
already been notified to Burdale.

14.4         REPORTING
REGARDING ACCOUNT DEBTORS

14.4.1      NOTIFICATION:
Each Facility Company will notify Burdale promptly of:

(a)                                  any material
delay in such Facility Company’s performance of any of its obligations to any
account debtor or the assertion of any claims, offsets, defences or
counterclaims by any account debtor, or any material disputes with account
debtors, or any settlement, adjustment or compromise of any such matter;

(b)                                 all material
adverse information known to such Facility Company relating to the financial
condition of any account debtor; and

(c)                                  any event or
circumstance which, to such Facility Company’s knowledge, would cause Burdale
to consider any then existing Receivables as no longer constituting Eligible
Receivables.

14.4.2                  DISPUTES AND
SETTLEMENTS WITH ACCOUNT DEBTORS: No credit, discount, allowance or extension
or agreement for any of the foregoing will be granted to any account debtor
without Burdale’s consent, except in the ordinary course of the relevant
Facility Company’s business in accordance with proper practices and policies
operated by the relevant Facility Company prior to the date of this Agreement.
At any time while an Event of Default is continuing, Burdale will, at its
option, have the exclusive right to settle, adjust or compromise any claim,
offset, counterclaim or dispute with any account debtor and to grant any
credits, discounts or allowances in relation to such matters.

14.4.3                  RETURN OF
STOCK: Each Facility Company will promptly report to Burdale any return of
Stock by an account debtor where that Stock has a value in excess of $75,000.
At any time that any Stock (irrespective of its value) is returned, reclaimed
or repossessed, the related Receivable will be deemed not to be an Eligible
Receivable. In the event any account debtor returns Stock when an Event of
Default has occurred and is continuing, such Facility Company will, upon
Burdale’s request:

(a)                                  hold the
returned Stock on trust for Burdale;

(b)                                 segregate
all returned Stock from all of its other property;

(c)                                  dispose of
the returned Stock solely according to Burdale’s instructions; and

(d)                                 not issue
any credits, discounts or allowances with respect to such returned stock
without Burdale’s prior written consent.

 32
 

14.5         VERIFICATION

Burdale will have the
right from time to time, in the name of any nominee, to verify the validity,
amount or any other matter relating to any Receivable or other asset of any
Obligor, by mail, telephone, facsimile or otherwise.

14.6         RIGHTS AFTER
A DEFAULT

14.6.1                  DEALING WITH
ASSETS: Burdale may, at any time that a Default has occurred and is continuing
and without prejudice to any of its rights under Clause 16.2 or otherwise under
this Agreement or any other Finance Document:

(a)                                  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 and thereby discharge or release any account debtor or any other
party or parties in any way liable for payment of any Receivable without
affecting any of the Receivables, demand or enforce payment of any Receivables,
but without any duty to do so, and Burdale will not be liable for its failure
to enforce the payment of any Receivable nor for the negligence of its agents
or attorneys with respect to any Receivable; and

(b)                                 take,
whatever other action Burdale may deem necessary for the protection of its
interests in any assets subject to a Security Interest under the Security Documents.

14.6.2                  NOTICE TO
DEBTORS: At any time that a Default is continuing, Burdale or its nominee may,
at Burdale’s discretion as the case may be do any of the following:

(a)                                  having given
prior notification to the Company, notify any or all account debtors that the
Receivables have been assigned to Burdale and that payments in respect of
Receivables are to be redirected to such account as is specified by Burdale;

(b)                                 request the
relevant Facility Company to give the notification referred to in Clause
14.6.2(a) above and/or to ensure that all invoices and statements in respect of
Receivables issued to the account debtors state the information referred to in
Clause 14.6.2(a); and

(c)                                  direct any
or all relevant account debtors to make all payments in respect of Receivables
direct to Burdale at such account as Burdale may specify.

14.6.3                  ORIGINALS:
At any time that an Event of Default is continuing, each Facility Company will
deliver to Burdale the originals of all documents evidencing the sale and
delivery of goods or the performance of services giving rise to any Receivables
as Burdale may require.

14.7         UNDERTAKINGS
REGARDING STOCK

With respect to the
Stock:

(a)                                  each
Facility Company will at all times maintain perpetual stock records reasonably
satisfactory to Burdale, keeping correct and accurate records itemising and
describing the kind, type, quality and quantity of Stock, such Facility Company’s
cost in relation to such Stock and daily withdrawals from and additions to the
Stock;

(b)                                 each
Facility Company will conduct a physical count of the Stock at least once each
year and at any time or times as Burdale may request while an Event of Default
is continuing, and promptly following such physical count will supply Burdale
with a report in a form and containing such specific information as may be
reasonably satisfactory to Burdale concerning such physical count;

 33
 

(c)                                  no Facility
Company will remove any Stock from property which is owned and controlled by it
or any other Obligor or to or from a public warehouse without the prior written
consent of Burdale, except for sales of Stock in the ordinary course of the
relevant Facility Company’s trade and except to move Stock directly from such
property to another location previously agreed to by Burdale;

(d)                                 upon Burdale’s
request, each Facility Company will, at its expense, not more than once in any
twelve month period, but at any time or times as Burdale may request while an
Event of Default is continuing, deliver or cause to be delivered to Burdale
written reports or appraisals regarding the Stock in form and substance
acceptable to Burdale and by an appraiser acceptable to Burdale, addressed to
Burdale and upon which Burdale is expressly permitted to rely;

(e)                                  each
Facility Company will produce, use, store and maintain the Stock with all
reasonable care and caution and in accordance with applicable standards
relating to any insurance and in conformity with applicable laws and
regulations;

(f)                                    each
Facility Company assumes all responsibility and liability arising from or relating
to the production, use, sale or other disposition of the Stock;

(g)                                 in respect
of Stock exceeding $15,000, no Facility Company will, without prior notice to
Burdale, sell such Stock to any customer on sale or return, or on any other
basis which entitles the customer to return or may oblige such Facility Company
or any other Obligor to repurchase such Stock; and

(h)                                 each
Facility Company will keep the Stock in good and marketable condition and will
not, without the prior written consent of Burdale, acquire or accept any
consignment Stock.

14.8         BURDALE’S
RIGHT TO CURE

Burdale may, at its
option:

(a)                                  after giving
five days notice to the Company, cure any default by any Facility Company under
any agreement with an account debtor in respect of a Receivable (other than
bona fide disputes in the ordinary course of the relevant Facility Company’s
business where no Event of Default has occurred and is continuing) or under any
other agreement with a third party as may be required by Burdale in good faith
to facilitate the collection of the Receivables or to enable Burdale to have
access to any assets subject to a Security Interest under the Security
Documents;

(b)                                 after giving
five days notice to the Company, pay or make a bond in respect of or appeal any
judgment entered into against any Facility Company which, upon execution,
attachment or the exercise of any similar remedy in respect of such judgment,
would result in a Security Interest being imposed on the assets of any Obligor
or would impair Burdale’s ability to obtain possession of, realise or collect
any assets subject to a Security Interest under the Security Documents;

(c)                                  discharge
taxes, Security Interests or other encumbrances at any time levied on or
existing with respect to any assets of any Obligor; and

(d)                                 pay any
amount, incur any expense or perform any act including without limitation the
payment to any creditors in respect of plant and/or machinery, which, in
Burdale’s judgment, is necessary or appropriate to reserve, protect, insure or
maintain the assets

 34
 

subject to a Security
Interest under the Security Documents and the rights of Burdale with respect to
them.

Any monies so expended
or costs so incurred by Burdale shall be repayable by the relevant Obligor on
demand. Burdale will be under no obligation to effect any such cure or payment
or incur any such cost and will not, by doing so, be deemed to have assumed any
obligation or liability of the Facility Company. Any payment made or other
action taken by Burdale under this Clause will be without prejudice to any
right it may have to assert an Event of Default under this Agreement and to
proceed accordingly.

14.9         ACCESS TO
PROPERTY

From time to time as
requested by Burdale on one Business Day’s notice except in the case of
emergency as determined by Burdale (but subject to Clause 17.1(d) regarding
daily charge rates), at the cost and expense of the Company:

(a)                                  Burdale or
its nominee will have complete access to all of each Obligor’s premises during
normal business hours and having given prior notice to the Company, or at any
time and without notice to the Company if an Event of Default is continuing,
for the purposes of inspecting, verifying and auditing the Obligors’ books,
records and assets;

(b)                                 each Obligor
will promptly furnish to Burdale or any such nominee such copies of or extracts
from such books and records as may be reasonably requested from any Obligor.

15            GUARANTEE
AND INDEMNITY

15.1         GUARANTEE
AND INDEMNITY

Each Guarantor
irrevocably and unconditionally jointly and severally:

(a)                                  guarantees
to Burdale punctual performance by each Facility Company of all that Facility
Company’s obligations under the Finance Documents;

(b)                                 undertakes
with Burdale that whenever a Facility Company does not pay any amount when due
under or in connection with any Finance Document, that Guarantor shall
immediately on demand pay that amount as if it was the principal obligor; and

(c)                                  indemnifies
Burdale immediately on demand against any cost, loss or liability suffered by
Burdale if any obligation guaranteed by it is or becomes unenforceable, invalid
or illegal. The amount of the cost, loss or liability shall be equal to the
amount which Burdale would otherwise have been entitled to recover.

15.2         CONTINUING
GUARANTEE

This guarantee is a
continuing guarantee and will extend to the ultimate balance of sums payable by
any Obligor under the Finance Documents, regardless of any intermediate payment
or discharge in whole or in part.

15.3         REINSTATEMENT

If any payment by an
Obligor or any discharge given by Burdale (whether in respect of the
obligations of any Obligor or any security for those obligations or otherwise)
is avoided or reduced as a result of insolvency or any similar event:

 35
 

(a)                                  the
liability of each Obligor shall continue as if the payment, discharge, avoidance
or reduction had not occurred; and

(b)                                 Burdale
shall be entitled to recover the value or amount of that security or payment
from each Obligor, as if the payment, discharge, avoidance or reduction had not
occurred.

15.4         WAIVER OF
DEFENCES

The obligations of each
Guarantor under this Clause 15 will not be affected by an act, omission, matter
or thing which, but for this Clause, would reduce, release or prejudice any of
its obligations under this Clause 15 (without limitation and whether or not
known to it or Burdale) including:

(a)                                  any time,
waiver or consent granted to, or composition with, any Obligor or other person;

(b)                                 the release
of any other Obligor or any other person under the terms of any composition or
arrangement with any creditor of any Obligor or any other person;

(c)                                  the taking,
variation, compromise, exchange, renewal or release of, or refusal or neglect
to perfect, take up or enforce, any rights against, or security over assets of,
any Obligor or other person or any non-presentation or non-observance of any
formality or other requirement in respect of any instrument or any failure to
realise the full value of any security;

(d)                                 any
incapacity or lack of power, authority or legal personality of or dissolution
or change in the members or status of an Obligor or any other person;

(e)                                  any
amendment (however fundamental) or replacement of a Finance Document or any
other document or security;

(f)                                    any
unenforceability, illegality or invalidity of any obligation of any person
under any Finance Document or any other document or security; or

(g)                                 any
insolvency or similar proceedings.

15.5         IMMEDIATE
RECOURSE

Each Guarantor waives
any right it may have of first requiring Burdale to proceed against or enforce
any other rights or security or claim payment from any person before claiming
from that Guarantor under this Clause 15. This waiver applies irrespective of
any law or any provision of a Finance Document to the contrary.

15.6         APPROPRIATIONS

Until all amounts which
may be or become payable by the Obligors under or in connection with the
Finance Documents have been irrevocably paid in full, Burdale may:

(a)                                  refrain from
applying or enforcing any other moneys, security or rights held or received by
Burdale in respect of those amounts, or apply and enforce the same in such
manner and order as it sees fit (whether against those amounts or otherwise)
and no Guarantor shall be entitled to the benefit of the same; and

(b)                                 hold in an
interest-bearing suspense account any moneys received from any Guarantor or on
account of any Guarantor’s liability under this Clause 15.

 36
 

15.7         DEFERRAL OF
GUARANTORS’ RIGHTS

Until all amounts which
may be or become payable by the Obligors under or in connection with the
Finance Documents have been irrevocably paid in full and unless Burdale
otherwise directs, no Guarantor will exercise any rights which it may have by
reason of performance by it of its obligations under the Finance Documents:

(a)                                  to be
indemnified by an Obligor;

(b)                                 to claim any
contribution from any other guarantor of any Obligor’s obligations under the
Finance Documents; and/or

(c)                                  to take the
benefit (in whole or in part and whether by way of subrogation or otherwise) of
any of Burdale’s rights under the Finance Documents or of any other guarantee
or security taken pursuant to, or in connection with, the Finance Documents by
Burdale.

15.8         ADDITIONAL
SECURITY

This guarantee is in
addition to and is not in any way prejudiced by any other guarantee or security
now or subsequently held by Burdale.

16            EVENTS OF
DEFAULT

16.1         DEFAULT

Each of the events or
circumstances specified below constitutes an Event of Default:

(a)                                  PAYMENT
DEFAULT: Any Obligor does not pay on its due date any amount payable by it
under the Finance Documents at the place and in the currency in which it is expressed
to be payable or, where such failure is due to a technical or administrative
failure within the banking system (which is not attributable to the relevant
Obligor), within two Business Days of such due date.

(b)                                 Breach of
Other Obligations:

(i)                                     Any Obligor
does not comply with its obligations or undertakings under, or there is a
breach of any of Clauses 13.4, 13.8, 13.12, 13.15, 13.21 or 13.22.

(ii)                                  Any Obligor
does not comply with any of its obligations or undertakings under any of the
Finance Documents (other than those referred to in Clause 16.1(a) or
16.1(b)(i)) and, where such failure is capable of remedy, such Obligor fails to
remedy the same within ten Business Days of the relevant Obligor becoming aware
of the failure to comply.

(c)                                  MISREPRESENTATION:
Any representation or warranty made or repeated in connection with any Finance
Document or any other document delivered by or on behalf of any Obligor under
or in connection with any Finance Document is or proves to have been incorrect
or misleading in any material respect when made or deemed to be made.

(d)                                 INVALIDITY:
Any provision of any of the Finance Documents is not, or is alleged by any
Obligor not to be binding on or enforceable against any Obligor or effective to
create any security intended to be created by it.

(e)                                  CROSS-DEFAULT:

 37
 

(i)                                     Any
Financial Indebtedness of any Obligor exceeding $75,000 (or its equivalent in
other currencies) in aggregate is not paid when due.

(ii)                                  An event of
default howsoever described occurs under any document relating to Financial
Indebtedness of any Obligor exceeding $75,000 (or its equivalent in other
currencies).

(iii)                               Any Security
Interest securing Financial Indebtedness over any asset of any Obligor becomes
enforceable.

(iv)                              An amount
exceeding $75,000 in aggregate owed to trade creditors of any Obligor remains
outstanding following the expiry of any relevant customary trade credit period.

(f)                                    CREDITORS’
PROCESS: Any attachment, sequestration, distress or execution affects any asset
of any Obligor and is not discharged within 14 days.

(g)                                 INSOLVENCY:

(i)                                     Any Obligor
is unable or admits inability to pay its debts as they fall due, suspends
making payments on any of its debts or, by reason of actual or anticipated
financial difficulties, commences negotiations with one or more of its
creditors with a view to rescheduling any of its indebtedness.

(ii)                                   The value
of the assets of any Obligor is less than its liabilities (taking into account
contingent and prospective liabilities).

(iii)                               A moratorium
is declared in respect of any indebtedness of any Obligor.

(h)                                 INSOLVENCY
PROCEEDINGS:

(i)                                     Any
corporate action, legal proceedings or other procedure or step is taken in
relation to:

(ii)                                  the
suspension of payments, a moratorium of any indebtedness, winding-up, dissolution,
administration or reorganisation (by way of voluntary arrangement, scheme of
arrangement or otherwise) of any Obligor;

(iii)                               a
composition, assignment or arrangement with any creditor of any Obligor;

(iv)                              the
appointment of a liquidator, receiver, administrator, administrative receiver,
compulsory manager or other similar officer in respect of any Obligor or any of
its assets; or

(v)                                 enforcement
of any Security Interest over any assets of any Obligor,

or any analogous
procedure or step is taken in any jurisdiction.

(i)                                     CESSATION OF
BUSINESS: Any Obligor ceases, or threatens to cease, to carry on all or a
substantial part of its business.

(j)                                     AUTHORISATIONS:
Any authorisation or other requirement necessary to enable any Obligor to
comply with any of its obligations under the Finance Documents or for Burdale
to enter into this Agreement and make available and/or maintain the Facilities

 38
 

or any of them is
revoked or withheld or does not remain in full force and effect or is
materially and adversely modified.

(k)                                  UNLAWFULNESS:
It is or becomes unlawful for any Obligor to perform any of its obligations
under the Finance Documents.

(l)                                     CHANGE OF
CONTROL: Any single person or group of persons acting in concert (as defined in
the City Code on Takeovers and Mergers) not having control of the Company
directly or indirectly as at today’s date, acquires or agrees to acquire
control (as defined in Section 416 of the Income and Corporation Taxes Act
1988) of the Company.

(m)                               CHARGED
ACCOUNT ARRANGEMENTS: Any bank repudiates or purports to terminate the
arrangements set out in the Debenture in relation to any Charged Account or a
cash-sweep or payment required to be made under any Finance Document from a
Charged Account is not made in the amount and manner required.

(n)                                 MATERIAL
ADVERSE EFFECT: An event or series of events occurs which in Burdale’s
reasonable opinion constitutes or could reasonably be expected to constitute a
Material Adverse Effect.

16.2         ACTION ON
DEFAULT

Upon the occurrence of
any Event of Default and whilst the same is continuing, and without prejudice
to any of Burdale’s rights under this Agreement, Burdale may, by notice to the
Company:

(a)                                  declare that
an Event of Default has occurred; and/or

(b)                                 declare that
the Facilities or any of them shall be cancelled, whereupon the Facilities or
such of them (as the case may be) shall be so cancelled and all fees (including
without limitation pursuant to Clause 7.7.1(b)) payable in relation to the
Facilities or such of them (as the case may be) shall become immediately due
and payable; and/or

(c)                                  declare that
some or all of the Loans, together with accrued interest and all other amounts
accrued, be immediately due and payable, whereupon they shall become
immediately due and payable; and/or

(d)                                 declare that
some or all of the Loans, together with accrued interest and all other amounts
accrued, be payable on demand, whereupon they shall immediately become payable
on demand (and in the event of any such demand those Loans, such interest and
such other amounts shall be immediately due and payable); and/or

(e)                                  declare that
the Company shall forthwith pay or procure the payment to Burdale of a
sufficient sum to cover the amount of all Outstanding Purchase Price and/or any
contingent obligations of Burdale under any outstanding L/Cs and/or any
contingent obligation of Burdale under any Forex Transaction, whereupon the
same shall become immediately due and payable.

16.3         APPOINTMENT
OF INSOLVENCY OFFICER

If any liquidator,
trustee in bankruptcy, judicial custodian, compulsory manager, receiver,
administrative receiver, administrator or any other insolvency officer is
appointed in respect of any Obligor or any part of its assets (whether on the
application or with the consent of Burdale or otherwise) then Burdale may (with
or without it first having exercised any of its other rights under the Finance
Documents), by notice to the Company, declare that the fee specified in Clause
7.7.1(b) be immediately due and payable or, at Burdale’s option, payable upon
demand

 39
 

as if the Facility Limit
at such time had been reduced to zero, whereupon such fee shall become
immediately due and payable or payable on demand (as the case may be).

17            COSTS,
EXPENSES AND FEES

17.1         INITIAL AND
GENERAL COSTS

The Company shall pay to
Burdale on demand the amount of all costs and expenses (including legal fees)
incurred by it:

(a)                                  in the
negotiation, preparation, printing and execution of the Finance Documents
(including any Finance Documents executed after today’s date);

(b)                                 in relation
to any amendment, waiver, consent or suspension of rights requested by or on
behalf of any Obligor relating to a Finance Document;

(c)                                  in remitting
loan proceeds, collecting cheques and other items of payment, and establishing
and maintaining the Charged Accounts, together with Burdale’s associated and
customary charges and fees;

(d)                                 as
out-of-pocket expenses and costs from time to time (including prior to today’s
date) during the course of periodic field examinations of the Obligors’ assets
and operations, plus a daily charge at the rate of $1,000 for Burdale’s
examiners in the field and office for up to four such periodic field
examinations in any 12 month period prior to a Default and for any other or
additional field examinations on and after the occurrence of a Default.

17.2         ENFORCEMENT
COSTS

The Company shall pay to
Burdale on demand the amount of all costs and expenses (including legal fees
and VAT) incurred by it in:

(a)                                  the
enforcement of, or the preservation of any rights under, any Finance Document;
or

(b)                                 investigating
any Default.

17.3         FEES

17.3.1                  FACILITY
FEE: The Company will pay to Burdale today a facility fee of $100,000 and on
the DIP Financing Date a further facility fee of $25,000.

17.3.2                  COMMITMENT
FEE: The Company will pay to Burdale a commitment fee computed at the rate of
0.375% on the daily undrawn/unutilised balance of the Facility Limit. Accrued
Commitment Fee shall be payable monthly in arrears from today’s date and also
on the date on which all the Facilities are terminated. Commitment fee shall
accrue from day to day and be calculated on the basis of a 365 day year and for
the actual number of days elapsed.

17.3.3                  MONITORING
FEE: The Company will pay to Burdale a monitoring fee of $2,500 quarterly in
advance with the first payment to be made on today’s date.

17.3.4                  L/C FEE:
Each Facility Company will pay to Burdale a fee equal to 2.25% per annum on the
face amount of each L/C issued at such Facility Company’s request in respect of
the period between the date of issue of the L/C and the End Date of such L/C.
The fee shall be calculated on the basis of a 365 day year and shall be paid
monthly in arrears and on the End Date of such L/C.

 40
 

18            INDEMNITIES

18.1         CURRENCY
INDEMNITY

If any amount payable by
any Obligor under or in connection with any of the Finance Documents is
received by Burdale in a currency other than that agreed to be payable under
the Finance Documents, whether as a result of any judgment or order or other
enforcement, the liquidation or bankruptcy of any Obligor or otherwise
howsoever and the amount produced by converting the currency so received into
the agreed currency is less than the relevant amount of the agreed currency,
then the relevant Obligor will as an independent obligation indemnify Burdale
for the deficiency and any loss sustained as a result. Such conversion will be
made at the Exchange Rate, on such date and in such market as is determined by
Burdale as being most favourable for such conversion. The relevant Obligor will
in addition pay the costs of such conversion.

18.2         FOREIGN
EXCHANGE INDEMNITY

Each Facility Company
will indemnify and hold Burdale harmless from and against any and all losses,
claims, damages, liabilities, costs and expenses which Burdale may suffer or
incur in connection with any Forex Transaction and any documents, drafts or
financial information relating to such Forex Transaction, including, but not
limited to, any losses, claims, damages, liabilities, costs and expenses due to
any action taken by any counterparty with respect to any Forex Transaction, except
for any such losses, claims, damages, liabilities, costs and expenses suffered
or incurred by Burdale as a result of its gross negligence or wilful
misconduct. Each Facility Company assumes all risks with respect to the acts or
omissions of any counterparty to any Forex Transaction and for such purposes
the counterparty will be deemed such Facility Company’s agent. Each Facility
Company assumes all risks for, and agrees to pay, all foreign and local taxes,
duties and levies relating to any transaction pursuant to the Forex
Transactions or any documents, drafts or financial information relating to such
Forex Transaction. Each Facility Company releases and holds Burdale harmless
from and against any acts, waivers, errors, delays or omissions, whether caused
by such Facility Company, by any counterparty or otherwise with respect to or
relating to any Forex Transaction.

18.3         OTHER
INDEMNITIES

The Company will (or
will procure that an Obligor will) indemnify Burdale on demand against any loss
or liability which Burdale incurs as a result of:

(a)                                  the
occurrence of any Default;

(b)                                 any payment
of principal or other amount being received from any source otherwise than on
its due date under this Agreement;

(c)                                  any
Utilisation not being effected after a Facility Company has delivered a Request
in respect of such Utilisation other than as a result of Burdale’s negligence
or default;

(d)                                 any
prepayment or provision of cash collateral by any Obligor not being made in
accordance with the terms of this Agreement.

In each case the Company’s
liability includes (without limitation) any loss of margin or anticipated
profits or other loss or expense on account of funds borrowed, contracted for
or utilised to fund any amount payable under any Finance Document and on
account of any security given by Burdale in relation to those funds and in
relation to any amount repaid or prepaid in relation to any Finance Document.

 41
 

19            NOTICES

19.1         DELIVERY AND
RECEIPT

19.1.1                  Any
communications to be made under or in connection with the Finance Documents
shall be made in writing, may be made by letter or facsimile and shall be
deemed to be given as follows:

(a)                                  if by way of
letter, when it has been left at the relevant address or two Business Days
after being deposited in the post with postage prepaid in an envelope addressed
to it at that address; and

(b)                                 if by
facsimile, when received in legible form,

save that any notice
delivered or received on a non-Business Day or after business hours shall be
deemed to be given on the next Business Day at the place of delivery or
receipt.

19.1.2                  Any
communication or document made or delivered to the Company in accordance with
this Clause will be deemed to have been made or delivered to each of the
Obligors.

19.2         ADDRESSES

19.2.1      The Company’s
and each other Obligor’s address and facsimile number for notices are:

Parkhouse Street

Openshaw

Manchester

Facsimile
no:                                                                          0161 223
2412 

For
the attention of:                                     Managing
Director

or such as the Company
may notify to Burdale by not less than 10 days’ notice.

19.2.2      Burdale’s
address and facsimile number for notices are:

53 Queen Anne Street

London W1G 9HP

Facsimile
no:                                                                          020 7935
5445 

For
the attention of:                                     Company
Secretary

 

or such as Burdale may
notify to the Company by not less than 10 days’ notice.

20            MISCELLANEOUS
PROVISIONS

20.1         REMEDIES AND
WAIVERS

The rights of Burdale
under the Finance Documents:

(a)                                  may be
exercised as often as necessary;

(b)                                 are
cumulative and not exclusive of its rights under the general law; and

(c)                                  may be
waived only in writing and specifically.

Delay in exercising or
non-exercise of any right shall not be deemed to be a waiver of that right.

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20.2         INVALIDITY

If, at any time, any
provision of any Finance Document is or becomes invalid, illegal or
unenforceable in any respect under any law, the validity, legality and
enforceability of the remaining provisions will not in any way be affected or
impaired.

20.3         CHANGE OF
CURRENCY

20.3.1                  Unless
otherwise prohibited by law, if more than one currency or currency unit are at
the same time recognised by the central bank of any country as the lawful
currency of that country, then:

(a)                                  any
reference in the Finance Documents to, and any obligations arising under the
Finance Documents in, the currency of that country shall be translated into, or
paid in, the currency or currency unit of that country designated by Burdale
(after consultation with the Facility Companies); and

(b)                                 any
translation from one currency or currency unit to another shall be at the
official rate of exchange recognised by the central bank for the conversion of
that currency or currency unit into the other, rounded up or down by Burdale
(acting reasonably).

20.3.2                  If a change
in any currency of a country occurs, this Agreement will, to the extent Burdale
(acting reasonably and after consultation with the Facility Companies)
specifies to be necessary, be amended to comply with any generally accepted
conventions and market practice in the London interbank market and otherwise to
reflect the change in currency.

20.4                           ACCOUNTS

In any litigation or arbitration
proceedings arising out of or in connection with a Finance Document, the
entries made in the accounts maintained by Burdale are prima facie evidence of
the matters to which they relate.

20.5                           CERTIFICATES
AND DETERMINATIONS

Any certification or determination
by Burdale of a rate or amount under any Finance Document is, in the absence of
manifest error, conclusive evidence of the matters to which it relates.

20.6         DISCLOSURE
OF INFORMATION

Burdale may disclose to
any person with whom it is proposing to enter into (or has entered into) any
kind of assignment or transfer in relation to this Agreement any information
concerning the Obligors as Burdale may in its discretion think fit, and may
advertise or publicise in such publications and to such persons as Burdale may
in its discretion think fit such particulars of this transaction as Burdale may
in its absolute discretion deem appropriate.

20.7         COUNTERPARTS

This Agreement may be
executed in any number of counterparts and all of such counterparts taken
together will be deemed to constitute one and the same instrument.

21                                    GOODS AND
DOCUMENTS

21.1                           PLEDGE

All Goods and Documents
are hereby and shall upon despatch from the supplier of any Goods be deemed to
be pledged by the relevant Facility Company to Burdale and the Goods and the

 43
 

proceeds of all
insurances in relation to them and all sales of them and all of the relevant
Facility Company’s rights as unpaid seller of them shall be a continuing
security for the payment and discharge in full of all of the obligations of the
relevant Facility Company under the Finance Documents.

21.2         PERFECTION
OF PLEDGE

Burdale shall be
entitled at its option to obtain possession of the Goods in order to perfect
the pledge made by Clause 21.1 and in this regard the relevant Facility Company
assigns to Burdale its right, title and interest in and to the Documents and
all claims and rights arising from them and the relevant Facility Company
irrevocably and unconditionally authorises Burdale to do all such things as may
be necessary to clear the Goods, take possession of them and realise the Goods
in reduction of the relevant Facility Company’s indebtedness to Burdale and in
this regard the relevant Facility Company irrevocably appoints Burdale acting
through any one of Burdale’s directors as the relevant Facility Company’s agent
to sign all such documents and do all such things on the relevant Facility
Company’s behalf as may be necessary to give effect to the provisions of this
Clause 21.2.

21.3         TRUST
RECEIPTS

The Goods and the Documents
shall only be released to the relevant Facility Company by Burdale against
receipt by Burdale of a duly executed trust receipt from the relevant Facility
Company in Burdale’s standard form (from time to time) and if, for any reason,
no such trust receipt is executed by the relevant Facility Company in respect
of any Goods or Documents, such Goods or Documents shall be deemed to be
subject to a trust receipt in such form.

21.4         SEPARATION

Each Facility Company
undertakes to keep the Documents and the Goods separate and distinct from any
other bills of lading, documents of title or goods.

22            CHANGES TO
PARTIES

22.1         ASSIGNMENTS
AND TRANSFER BY OBLIGORS

No Obligor may assign
any of its rights or transfer any of its rights or obligations under the Finance
Documents.

22.2         ADDITIONAL
FACILITY COMPANIES

The Company may request
that any of its Subsidiaries becomes an Additional Facility Company. That
Subsidiary shall become an Additional Facility Company if:

(a)                                  Burdale
approves the addition of that Subsidiary as an Additional Facility Company;

(b)                                 the Company
delivers to Burdale a duly completed and executed Accession Letter;

(c)                                  the Company
confirms that no Default is continuing or would occur as a result of that
Subsidiary becoming an Additional Facility Company; and

(d)                                 Burdale has
received all of the documents and other evidence listed in Part III of Schedule
2 in relation to that Additional Facility Company, each in form and substance
satisfactory to Burdale.

 44
 

22.3         ADDITIONAL
GUARANTORS

The Company shall procure
that each of its Subsidiaries is a Guarantor. With respect to any company which
becomes a Subsidiary of the Company after today’s date, the Company shall
procure that such Subsidiary becomes an Additional Guarantor by delivering to
Burdale (promptly upon such company becoming a Subsidiary):

(a)                                  a duly
completed and executed Accession Letter; and

(b)                                 all of the
documents and other evidence listed in Part III of Schedule 2 in relation to
that Additional Guarantor, each in form and substance satisfactory to Burdale.

22.4         REPETITION
OF REPRESENTATIONS

Delivery of an Accession
Letter constitutes confirmation by the relevant Subsidiary that the
representations and warranties in Clause 12 are true and correct in relation to
it as at the date of delivery as if made by reference to the facts and
circumstances then existing.

22.5         TRANSFER BY
BURDALE

Burdale may at any time
assign, transfer, delegate or offer participations in all or a proportion of
all its rights and obligations under the Finance Documents to any other bank or
financial institution.

23            GOVERNING
LAW AND JURISDICTION

23.1         GOVERNING
LAW

This Agreement is
governed by English law.

23.2         JURISDICTION

23.2.1                  The courts
of England have exclusive jurisdiction to settle any dispute arising out of or
in connection with this Agreement (including a dispute regarding the existence,
validity or termination of this Agreement) (a DISPUTE).

23.2.2                  The parties
agree that the courts of England are the most appropriate and convenient courts
to settle Disputes and accordingly no party will argue to the contrary.

23.2.3                  This Clause
23.2 is for the benefit of Burdale only. As a result, Burdale shall not be
prevented from taking proceedings relating to a Dispute in any other courts
with jurisdiction. To the extent allowed by law, Burdale may take concurrent
proceedings in any number of jurisdictions.

23.3         SERVICE OF
PROCESS

Without prejudice to any
other mode of service allowed under any relevant law, each Obligor (other than
an Obligor incorporated in England and Wales):

(a)                                  irrevocably
appoints the Company as its agent for service of process in relation to any
proceedings before the English courts in connection with any Finance Document;
and

(b)                                 agrees that
failure by a process agent to notify the relevant Obligor of the process will
not invalidate the proceedings concerned.

 45
 

For the benefit of
Burdale the Company expressly agrees and consents to its irrevocable
appointment as process agent pursuant to this Clause 23.3.

This
Agreement has been entered into on the date stated at the beginning of this
Agreement.

 46
 

SIGNATORIES

 

	
  THE COMPANY

  
	
   

  
	
  HAYNES
  INTERNATIONAL LIMITED

  
	
   

  
	
  By:

  	
  /s/ P.J.
  Crawshaw

  	
   

  
	
   

  
	
  BURDALE

  
	
   

  
	
  BURDALE
  FINANCIAL LIMITED

  
	
   

  
	
  By:

  	
  /s/ S.J. Chait

  	
   

  
	
   

  
	
  By:

  	
  /s/ Brian Gitlin

  	
   

  

 

[The
exhibits and schedules have been omitted from this 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 or schedules to
the SEC upon request from the SEC.]

 47EXHIBIT
10.16

COMPENSATION
OF NAMED EXECUTIVE OFFICERS AND DIRECTORS

CURRENT SALARIES OF NAMED
EXECUTIVE OFFICERS:

The following table sets
forth certain information concerning compensation paid by Haynes during fiscal
2006 to the Named Executive Officers:

	
  

  	
   

  	
   

  	
   

  	
  Annual compensation(1)

  	
   

  	
  Long-term

  compensation

  	
   

  	
   

  	
   

  
	
  Name and principal position

  	
   

  	
  Fiscal

  year

  	
   

  	
  Salary

  	
   

  	
  Bonus

  	
   

  	
  Securities

  underlying

  options(2)

  	
   

  	
  All other

  compensation(3)

  	
   

  
	
  Francis J. Petro(4)

  	
   

  	
  2006

  	
   

  	
  $

  	
  480,000

  	
   

  	
  $

  	
  288,000

  	
   

  	
  —

  	
   

  	
  $

  	
  269,749

  	
   

  
	
  President & Chief 

  	
   

  	
  2005

  	
   

  	
  $

  	
  480,000

  	
   

  	
  $

  	
  460,000

  	
   

  	
  —

  	
   

  	
  $

  	
  343,526

  	
   

  
	
  Executive Officer

  	
   

  	
  2004

  	
   

  	
  $

  	
  473,077

  	
   

  	
  $

  	
  0

  	
   

  	
  200,000

  	
   

  	
  $

  	
  317,084

  	
   

  
	
  

  	
   

  	
    

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Marcel Martin

  	
   

  	
  2006

  	
   

  	
  $

  	
  196,923

  	
   

  	
  $

  	
  85,500

  	
   

  	
  —

  	
   

  	
  $

  	
  6,543

  	
   

  
	
  Vice President,
  Finance 

  	
   

  	
  2005

  	
   

  	
  $

  	
  190,000

  	
   

  	
  $

  	
  140,000

  	
   

  	
  —

  	
   

  	
  $

  	
  8,021

  	
   

  
	
  & Chief Financial
  

  	
   

  	
  2004

  	
   

  	
  $

  	
  163,992

  	
   

  	
  $

  	
  0

  	
   

  	
  100,000

  	
   

  	
  $

  	
  3,678

  	
   

  
	
  Officer,
  Treasurer

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  August A. Cijan

  	
   

  	
  2006

  	
   

  	
  $

  	
  192,308

  	
   

  	
  $

  	
  85,500

  	
   

  	
  —

  	
   

  	
  $

  	
  6,471

  	
   

  
	
  Vice President, 

  	
   

  	
  2005

  	
   

  	
  $

  	
  190,000

  	
   

  	
  $

  	
  106,000

  	
   

  	
  —

  	
   

  	
  $

  	
  8,167

  	
   

  
	
  Operations

  	
   

  	
  2004

  	
   

  	
  $

  	
  178,051

  	
   

  	
  $

  	
  0

  	
   

  	
  100,000

  	
   

  	
  $

  	
  4,171

  	
   

  
	
  

  	
   

  	
    

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  James A. Laird

  	
   

  	
  2006

  	
   

  	
  $

  	
  192,308

  	
   

  	
  $

  	
  85,500

  	
   

  	
  —

  	
   

  	
  $

  	
  5,798

  	
   

  
	
  Vice President, 

  	
   

  	
  2005

  	
   

  	
  $

  	
  190,000

  	
   

  	
  $

  	
  106,000

  	
   

  	
  —

  	
   

  	
  $

  	
  6,903

  	
   

  
	
  Marketing, Research
  

  	
   

  	
  2004

  	
   

  	
  $

  	
  157,115

  	
   

  	
  $

  	
  0

  	
   

  	
  100,000

  	
   

  	
  $

  	
  5,388

  	
   

  
	
  & European
  Sales

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Gregory M. Spalding

  	
   

  	
  2006

  	
   

  	
  $

  	
  162,308

  	
   

  	
  $

  	
  40,000

  	
   

  	
  —

  	
   

  	
  $

  	
  5,561

  	
   

  
	
  Vice President, Haynes 

  	
   

  	
  2005

  	
   

  	
  $

  	
  160,000

  	
   

  	
  $

  	
  65,000

  	
   

  	
  —

  	
   

  	
  $

  	
  5,555

  	
   

  
	
  Wire & Chief 

  	
   

  	
  2004

  	
   

  	
  $

  	
  149,335

  	
   

  	
  $

  	
  0

  	
   

  	
  50,000

  	
   

  	
  $

  	
  2,925

  	
   

  
	
  Operating Officer

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

(1)             Additional
compensation in the form of perquisites was paid to certain of the named
officers in the periods presented; however, the amount of such compensation was
less than the level required for reporting.

(2)             The
options set forth in the table were granted on August 31, 2004 pursuant to
the plan of reorganization.

(3)             Premium
payments to the group term life insurance plan, gain sharing payments and
relocation reimbursements which were made by Haynes, 401(k) match,
executive disability, and 401(m) match.

(4)             Includes
$289,000, $314,000 and $246,000 for fiscal 2004, 2005 and 2006, respectively
which accrued pursuant to our Supplemental Executive Retirement Plan and which
is payable upon Mr. Petro’s retirement.

	
  Position

  	
   

  	
  Salary

  	
   

  
	
  President & Chief
  Executive Officer

  	
   

  	
  $

  	
  480,000

  	
   

  
	
  Vice President, Finance
  & Chief Financial Officer, Treasurer

  	
   

  	
  $

  	
  196,923

  	
   

  
	
  Vice President,
  Marketing, Research & European Sales

  	
   

  	
  $

  	
  192,308

  	
   

  
	
  Vice President,
  Operations

  	
   

  	
  $

  	
  192,308

  	
   

  
	
  Vice President, Haynes
  Wire & Chief Operating Officer

  	
   

  	
  $

  	
  162,308

  	
   

  

 

 

MANAGEMENT INCENTIVE PLAN:

Under the 2007 Management Incentive Plan, certain
Haynes employees are eligible for cash awards based on Company performance,
including, but not limited to, the Named Executive Officers.  If Haynes meets certain specific financial
targets established by the Compensation Committee for fiscal 2007 (the “Financial
Targets”), each Named Executive Officer is eligible for a cash payment under
the Plan based on fiscal 2007 base salary. The target cash payments under the
Plan are 60% of fiscal 2007 base salary for Mr. Petro, 45% of fiscal 2007 base
salary for Mr. Martin, Mr. Cijan and Mr. Laird, and 25% of fiscal 2007 base
salary for Mr. Spalding. The Named Executive Officer are also eligible for a
cash payment under the Plan if the Company’s performance is equal to at least
85% of the Financial Targets. Those cash payments would be 35% of fiscal 2007
base salary for Mr. Petro, 25% of fiscal 2007 base salary for Mr. Martin, Mr.
Cijan and Mr. Laird, and 12.5% of fiscal 2007 base salary for Mr. Spalding. If
the Company’s performance exceeds the Financial Targets by at least 15%, the
Named Executive Officer would be eligible for cash payments of 90% of fiscal
2007 base salary for Mr. Petro, 67.5% of fiscal 2007 base salary for Mr. Cijan
and Mr. Laird, and 37.5% of fiscal 2007 base salary for Mr. Spalding.

Individual awards may be made at the discretion of the
Board of Directors even if the Company’s performance is below the Financial
Targets, provided that liquidity goals for fiscal 2007 established by the
Compensation Committee are met. In addition, a discretionary bonus pool is
available for grants by the Board of Directors, provided that in no case will
total cash bonuses pursuant to the Plan exceed $2.2 million. The Board of
Directors has full discretion to eliminate, delay or change any awards or
payouts and may choose to pay awards at any level of performance.

SCHEDULE OF DIRECTOR FEES:

	
  Annual Retainer:

  	
   

  	
  $

  	
  40,000

  	
   

  
	
  Offering and Pricing
  Committee One-time Fee:

  	
   

  	
  $

  	
  10,000

  	
   

  
	
  Attendance Fee per
  Meeting of Board or Committee:

  	
   

  	
  $

  	
  2,000

  	
   

  
	
  Audit Committee
  Chairman (separate retainer):

  	
   

  	
  $

  	
  15,000

  	
   

  
	
  Chairman of the Board

  	
   

  	
  $

  	
  20,000

  	
   

  
	
  All other Committee Chairmen:

  	
   

  	
  $

  	
  10,000

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